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SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Check the appropriate box:
/X/ Preliminary information statement
/X/ Confidential, For Use of the Commission Only (as permitted by
Rule 14c-5(d)(2).
/ / Definitive information statement

REPUBLIC ENVIRONMENTAL SYSTEMS, INC.
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(Name of Registrant as Specified in Its Charter)

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(Name of Person(s) Filing the Information Statement)
Payment of filing fee (check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), or 14c-5(g).
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transactions applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee Paid:

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/X/ Fee paid previously with preliminary materials.

/X/ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.

(1) Amount previously paid:
$50,822.40
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(2) Form, schedule or registration statement no.:
Preliminary Information Statement
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(3) Filing party:
Republic Environmental Systems, Inc.
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(4) Date filed:
June 17, 1996
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[REPUBLIC ENVIRONMENTAL SYSTEMS LOGO]

Dear Stockholders:

Republic Environmental Systems, Inc., a Delaware corporation ("RESI"), has
entered into (i) an Agreement and Plan of Merger, dated as of May 19, 1996,
pursuant to which RESI has agreed to issue (a) 14,760,000 shares (the "Merger
Shares") of its common stock, par value $0.01 per share ("RESI Common Stock"),
(b) warrants to purchase an aggregate of 4,200,000 additional shares of RESI
Common Stock at exercise prices ranging from $2.625 to $3.875 per share (the
"Merger Warrants") and (c) a promissory note in the principal amount of
$4,000,000 in consideration for all of the outstanding common stock of Century
Surety Company ("CSC") and Commercial Surety Agency, Inc., d/b/a Century Surety
Underwriters ("CSU"), each a wholly-owned subsidiary of Alliance Holding
Corporation ("Alliance"); CSC and CSU will become wholly-owned subsidiaries of
RESI upon consummation of the mergers (the "Mergers") described therein; and
(ii) Stock Purchase Agreements, dated as of May 19, 1996, pursuant to which RESI
has agreed to issue and sell to (a) H. Wayne Huizenga 2,000,000 shares of RESI
Common Stock (the "Huizenga Shares") and warrants to purchase 6,000,000 shares
of RESI Common Stock at exercise prices ranging from $2.625 to $3.875 per share
(the "Huizenga Warrants") for an aggregate purchase price of $5,250,000 and (b)
MGD Holdings Ltd., a Bermuda corporation controlled by Michael G. DeGroote, and
its assigns 2,000,000 shares of RESI Common Stock (the "MGD Shares") and
warrants to purchase 6,000,000 shares of RESI Common Stock at exercise prices
ranging from $2.625 to $3.875 per share (the "MGD Warrants" and, together with
the Huizenga Warrants, the "Stock Issuance Warrants") for an aggregate purchase
price of $10,500,000 (collectively, the "Stock Issuances" and, together with the
Mergers, the "Combination").

RESI Common Stock is listed on the Nasdaq National Market ("Nasdaq") under
the symbol "IASI." The last reported sale price of RESI Common Stock on May 17,
1996, the last full trading day preceding the public announcement of the
execution of the letter of intent relating to the Combination, was $2 5/16 per
share. The last reported sale price of RESI Common Stock on September 9, 1996,
the last full trading day preceding the date of this Information Statement, was
$6 1/4 per share. Based upon the closing price of RESI Common Stock on May 17,
1996 and September 9, 1996, the value of the Merger Shares was $34,132,500 and
$92,250,000, respectively. On May 17, 1996, the Merger Warrants were not "in the
money." On September 9, 1996, the "in the money value" of the Merger Warrants
was $12,775,000.

The issuance of the shares of RESI Common Stock in connection with the
Combination will result in a change of control of RESI and have a dilutive
effect on the voting rights of holders of RESI Common Stock prior to
consummation of the Combination. As of July 31, 1996, Mr. DeGroote, through MGD
Holdings, beneficially owned 5,536,000 shares of the outstanding shares of RESI
Common Stock, representing approximately 49.5% of the outstanding shares of RESI
Common Stock. As of such date, non-affiliated stockholders as a group owned
approximately 48.9% of RESI Common Stock. Upon consummation of the Combination,
assuming the exercise of all of the Merger Warrants and Stock Issuance Warrants
in full at such time (but not the exercise of any other outstanding options or
warrants), and after giving effect to the issuance of the Merger Shares and the
Stock Issuance Shares, Alliance and Mr. DeGroote, through MGD Holdings, will
beneficially own approximately 41.4% and 29.3%, respectively, of the outstanding
shares of RESI Common Stock and non-affiliated stockholders as a group will own
approximately 29.2% of the outstanding shares of RESI Common Stock. In addition,
contemporaneously with the consummation of the Combination, MGD Holdings will
enter into a voting agreement with Alliance (the "Voting Agreement") pursuant to
which MGD Holdings, for a period of two years commencing as of the date thereof,
will agree to vote all shares of RESI Common Stock held by it from time to time
in accordance with the recommendation of the management of Alliance.
Accordingly, Alliance will have the ability to control the outcome of matters
submitted to a vote of the RESI stockholders, including the election of
directors.

Directors. Mr. DeGroote will continue to serve as a director and Chairman of the
Board of RESI. Mr. Joseph E. LoConti, currently a director of RESI, is the
Chairman of the Board, President and controlling shareholder of Alliance. After
the consummation of the Combination, Mr. LoConti will serve as Vice Chairman and
a director of RESI. Consequently, Messrs. LoConti, Feighan, Stout and Ferrill
will comprise four of the seven members of the RESI Board and, if they vote
together, will have the ability to control most actions submitted to a vote of
the RESI Board of Directors.

On June 10, 1996, the Board of Directors of RESI unanimously approved the
adoption of amendments to Certificate of Incorporation (i) to change the name of
RESI to International Alliance Services, Inc., (ii) to increase the number of
authorized shares of RESI Common Stock from 20,000,000 to 100,000,000 (the
"Amendments to the Certificate of Incorporation"). On May 31, 1995, the Board of
Directors of RESI and its Compensation Committee unanimously approved the
adoption of the RESI 1995 Employee Stock Option Plan (the "Employee Option
Plan").

THE BOARD OF DIRECTORS OF RESI BELIEVES THAT THE APPROVAL OF THE MERGERS,
THE STOCK ISSUANCES AND THE AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND
THE ADOPTION OF THE EMPLOYEE OPTION PLAN ARE IN THE BEST INTEREST OF RESI AND
ITS STOCKHOLDERS. ACCORDINGLY, THE DISINTERESTED MEMBERS OF THE BOARD OF
DIRECTORS OF RESI HAVE UNANIMOUSLY APPROVED THE MERGERS AND THE STOCK ISSUANCES
AND THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION AND THE ADOPTION OF THE EMPLOYEE OPTION PLAN.

On August 23, 1996, in accordance with Delaware law, the holders of a
majority of the outstanding shares of RESI Common Stock executed a written
consent approving the Mergers, the Stock Issuances, the Amendments to the
Certificate of Incorporation and the adoption of the Employee Option Plan.
Stockholders should note that the written consent of stockholders to approve the
Mergers also constituted a vote to approve an exempt acquisition of RESI Common
Stock by Mr. LoConti (through his controlling interest in Alliance) from RESI
pursuant to Rule 16b-3(d) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). ACCORDINGLY, STOCKHOLDERS OF RESI ARE NOT BEING ASKED FOR,
AND ARE REQUESTED NOT TO SEND, PROXIES AND FOR THAT REASON NO PROXY CARD HAS
BEEN ENCLOSED FOR STOCKHOLDERS. NO MEETING OF STOCKHOLDERS WILL BE HELD TO
CONSIDER APPROVAL OF THE MERGERS, THE STOCK ISSUANCES AND THE AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION OR THE ADOPTION OF THE EMPLOYEE OPTION PLAN.

The attached Information Statement is being provided to you pursuant to
Rule 14c-2 under the Exchange Act. The Information Statement contains a more
detailed description of the Mergers, the Stock Issuances, the Amendments to the
Certificate of Incorporation and the adoption of the Employee Option Plan. I
encourage you to read the Information Statement thoroughly.

Very truly yours,

MICHAEL G. DEGROOTE
Chairman of the Board, President
and Chief Executive Officer

Hamilton, Bermuda
, 1996
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REPUBLIC ENVIRONMENTAL SYSTEMS, INC.

16 SENTRY PARK WEST
1787 SENTRY PARK WEST, SUITE 400
BLUE BELL, PENNSYLVANIA 19422

INFORMATION STATEMENT

This Information Statement is being furnished to the stockholders of
Republic Environmental Systems, Inc., a Delaware corporation ("RESI"), in
connection with the proposed mergers (the "Mergers") of Republic/CSA Acquisition
Corporation ("CSC Merger Sub") and Republic/CSU Acquisition Corporation ("CSU
Merger Sub" and, together with CSC Merger Sub, the "Merger Subs"), each a
Delaware corporation and wholly-owned subsidiary of RESI, with and into Century
Surety Company ("CSC") and Century Surety Agency, Inc., d/b/a Century Surety
Underwriters ("CSU" and, together with CSC, the "Alliance Companies"),
respectively, each an Ohio corporation and wholly-owned subsidiary of Alliance
Holding Corporation, an Ohio corporation ("Alliance"), pursuant to an Agreement
and Plan of Merger (the "Merger Agreement") among RESI, CSC Merger Sub, CSU
Merger Sub, CSC, CSU and Alliance (such Mergers being referred to herein
individually as the "CSC Merger" and the "CSU Merger," respectively). Pursuant
to the Merger Agreement, CSC and CSU shall be the surviving corporations in the
Mergers and at the effective time thereof all outstanding shares of capital
stock of CSC and CSU shall be converted into the right to receive (a) an
aggregate of 14,760,000 shares of RESI common stock (the "Merger Shares"), par
value $0.01 per share ("RESI Common Stock"), (b) warrants to purchase an
aggregate of 4,200,000 additional shares of RESI Common Stock at exercise prices
ranging from $2.625 to $3.875 per share (the "Merger Warrants") and (c) a
promissory note in principal amount of $4,000,000 (the "Note").

This Information Statement also relates to (i) the issuance and sale by
RESI and the purchase by (a) H. Wayne Huizenga of 2,000,000 shares of RESI
Common Stock (the "Huizenga Shares") and warrants to purchase 6,000,000 shares
of RESI Common Stock at exercise prices ranging from $2.625 to $3.875 per share
(the "Huizenga Warrants") for an aggregate purchase price of $5,250,000 pursuant
to a Stock Purchase Agreement between Mr. Huizenga and RESI (the "Huizenga
Purchase Agreement"), and the transactions contemplated thereby (the "Huizenga
Stock Issuance"), and (b) MGD Holdings Ltd. ("MGD Holdings"), a Bermuda
corporation controlled by Michael G. DeGroote, Chairman of the Board, Chief
Executive Officer and President of RESI and the beneficial owner of
approximately 49.7% of the outstanding shares of RESI Common Stock as of the
date of this Information Statement, and its assigns of 2,000,000 shares of RESI
Common Stock (the "MGD Shares" and, together with the Huizenga Shares, the
"Stock Issuance Shares") and warrants to purchase 6,000,000 shares of RESI
Common Stock at exercise prices ranging from $2.625 to $3.875 per share (the
"MGD Warrants" and, together with the Huizenga Warrants, the "Stock Issuance
Warrants") for an aggregate purchase price of $5,250,000 pursuant to a Stock
Purchase Agreement between MGD Holdings and RESI (the "MGD Purchase Agreement"
and, together with the Huizenga Purchase Agreement, the "Purchase Agreements"),
and the transactions contemplated thereby (the "MGD Stock Issuance" and,
together with the Huizenga Stock Issuance, the "Stock Issuances"), (ii) an
amendment to RESI's Certificate of Incorporation to change RESI's name to
International Alliance Services, Inc. (the "Name Change"), (iii) an amendment to
RESI's Certificate of Incorporation to increase the number of authorized shares
of RESI Common Stock from 20,000,000 to 100,000,000 (the "Authorized Share
Increase" and, together with the Name Change, the "Amendments to the Certificate
of Incorporation") and (v) the adoption of the RESI 1995 Employee Stock Option
Plan (the "Employee Stock Option Plan"). The Mergers and the Stock Issuances may
be referred to herein collectively as the "Combination."
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The issuance of the 34,960,000 shares of RESI Common Stock in connection
with the Combination, including the shares to be issued upon exercise of the
Merger Warrants and the Stock Issuance Warrants (the "Combination Shares"), will
result in a change of control of RESI and have a dilutive effect on the voting
rights of holders of RESI Common Stock prior to consummation of the Combination.
As of July 31, 1996, Mr. DeGroote, through MGD Holdings, beneficially owned
5,536,000 shares of RESI Common Stock, representing approximately 49.5% of the
outstanding shares of RESI Common Stock. As of such date, non-affiliated
stockholders as a group owned approximately 48.9% of RESI Common Stock. Upon
consummation of the Combination, assuming the exercise of all of the Merger
Warrants and Stock Issuance Warrants in full at such time (but not the exercise
of any other outstanding options or warrants), and giving effect to the issuance
of the Merger Shares and the Stock Issuance Shares, Alliance and Mr. DeGroote
(through MGD Holdings) will beneficially own approximately 41.4% and 29.3%,
respectively, of the outstanding shares of RESI Common Stock and non-affiliated
stockholders as a group will own approximately 29.2% of the outstanding shares
of RESI Common Stock. See "Risk Factors -- Risks Related to the Combination --
Dilution." In addition, contemporaneously with the consummation of the
Combination, MGD Holdings will enter into a voting agreement with Alliance (the
"Voting Agreement") pursuant to which MGD Holdings, for a period of two years
commencing as of the date thereof, will agree to vote all shares of RESI Common
Stock held by it from time to time in accordance with the recommendation of the
management of Alliance. See "Risk Factors -- Risks Related to the
Combination -- Change of Control of RESI" and "The Combination -- The Mergers --
Other Agreements -- Voting Agreement". Accordingly, Alliance will have the
ability to control the outcome of matters submitted to a vote of the RESI
stockholders, including the election of directors. See "Principal Stockholders."

In addition to the foregoing, upon consummation of the Combination, one
present member of the RESI Board of Directors, Mr. Michael J. Occhionero, will
resign and the RESI Board of Directors will be enlarged to seven members. At
such time, Messrs. Edward F. Feighan, Craig L. Stout and Harve A. Ferrill will
be nominated by Alliance and elected to the RESI Board of Directors and Mr.
Richard C. Rochon will be nominated by Alliance upon the recommendation of Mr.
Huizenga and elected to the RESI Board of Directors. Mr. DeGroote will continue
to serve as Chairman of the Board and a director of RESI. Mr. Joseph E. LoConti,
currently a director of RESI, is the Chairman of the Board, President and
controlling shareholder of Alliance. See "Risk Factors -- Mr. LoConti's
Affiliation with RESI and Alliance" and "The Combination -- Interests of Certain
Persons in the Combination." After the consummation of the Combination, Mr.
LoConti will serve as Vice Chairman and a director of RESI. Consequently,
Messrs. LoConti, Feighan, Stout and Ferrill will comprise four of the seven
members of the RESI Board and, if they vote together, will have the ability to
control most actions submitted to a vote of the RESI Board of Directors. See
"Risk Factors -- Risks Related to the Combination -- Change of Control of RESI"
and "Management After the Combination."

THE BOARD OF DIRECTORS OF RESI BELIEVES THAT THE APPROVAL OF THE MERGERS,
THE STOCK ISSUANCES AND THE AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND
THE ADOPTION OF THE EMPLOYEE OPTION PLAN IS IN THE BEST INTEREST OF RESI AND ITS
STOCKHOLDERS. ACCORDINGLY, ON MAY 19, 1996, THE DISINTERESTED MEMBERS OF THE
BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE MERGERS AND THE STOCK ISSUANCES; ON
JUNE 10, 1996, THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE ADOPTION OF THE
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION; AND ON MAY 31, 1995, THE BOARD
OF DIRECTORS AND ITS COMPENSATION COMMITTEE UNANIMOUSLY APPROVED THE ADOPTION OF
THE EMPLOYEE OPTION PLAN.

Under Delaware law, holders of RESI Common Stock do not have appraisal
rights in connection with the Mergers, the Stock Issuances, the Amendments to
the Certificate of Incorporation or the adoption of the Employee Option Plan.
Under Delaware law, the affirmative vote of the holders of a majority of the
outstanding shares of RESI Common Stock (as of the Record Date) is required to
approved the Mergers, the Stock Issuances and the Amendments to the Certificate
of Incorporation. August 16, 1996 has been fixed as the record date for the
determination of RESI stockholders entitled to notice of, and to vote upon, the
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Mergers, the Stock Issuances, the Amendments to the Certificate of Incorporation
(the "Record Date") and the adoption of the Employee Option Plan. On August 23,
1996, in accordance with Delaware law, the holders of a majority of the
outstanding shares of RESI Common Stock executed a written consent approving the
Mergers, the Stock Issuances, the Amendments to the Certificate of Incorporation
and the adoption of the Employee Option Plan. Stockholders should note that the
written consent of stockholders to approve the Mergers also constituted a vote
to approve an exempt acquisition of RESI Common Stock by Mr. LoConti (through
his controlling interest in Alliance) from RESI pursuant to Rule 16b-3(d) under
the Securities Exchange Act 1934, as amended (the "Exchange Act"). ACCORDINGLY,
STOCKHOLDERS OF RESI ARE NOT BEING ASKED FOR, AND ARE REQUESTED NOT TO SEND,
PROXIES, AND FOR THAT REASON NO PROXY CARD HAS BEEN ENCLOSED FOR STOCKHOLDERS.
NO MEETING OF STOCKHOLDERS WILL BE HELD TO CONSIDER APPROVAL OF THE MERGERS, THE
STOCK ISSUANCES AND THE AMENDMENTS TO THE CERTIFICATE OF INCORPORATION OR THE
ADOPTION OF THE EMPLOYEE OPTION PLAN.

FOR A DESCRIPTION OF CERTAIN RISK FACTORS ASSOCIATED WITH AN INVESTMENT IN
RESI COMMON STOCK FOLLOWING THE COMBINATION, SEE "RISK FACTORS" BEGINNING ON
PAGE 3.

This Information Statement is being furnished by RESI and was first mailed
on or about , 1996 to holders of record of RESI Common Stock as of the
close of business on the Record Date.

NEITHER THE MERGERS NOR THE STOCK ISSUANCES HAVE BEEN APPROVED OR DIS-
APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

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

The date of this Information Statement is , 1996.
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TABLE OF CONTENTS

INTRODUCTION......................................................................... 2
RISK FACTORS......................................................................... 3
MARKET PRICES AND DIVIDEND POLICY.................................................... 9
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA..................................... 10
THE COMBINATION...................................................................... 14
THE MERGERS........................................................................ 19
THE STOCK ISSUANCES................................................................ 24
BUSINESS OF RESI..................................................................... 28
RESI MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.......................................................................... 38
BUSINESS OF THE ALLIANCE COMPANIES................................................... 44
THE ALLIANCE COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION............................................................ 49
MANAGEMENT AFTER THE COMBINATION..................................................... 60
PRINCIPAL STOCKHOLDERS............................................................... 66
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION....................................... 67
EMPLOYEE OPTION PLAN................................................................. 70
LEGAL MATTERS........................................................................ 71
EXPERTS.............................................................................. 71
AVAILABLE INFORMATION................................................................ 72
UNCERTAINTY OF FORWARD LOOKING STATEMENTS............................................ 72
INDEX TO PRO FORMA FINANCIAL INFORMATION, FINANCIAL STATEMENTS AND SCHEDULES TO
FINANCIAL STATEMENTS............................................................... F-1
APPENDIX I -- MERGER AGREEMENT..................................................... I-1
APPENDIX II -- HUIZENGA PURCHASE AGREEMENT.......................................... II-1
APPENDIX III -- MGD PURCHASE AGREEMENT............................................... III-1
APPENDIX IV -- AMENDMENT NO. 1 TO MERGER AGREEMENT................................... IV-1
APPENDIX V -- AMENDMENT NO. 2 TO MERGER AGREEMENT.................................... V-1

INTRODUCTION

RESI

RESI is a waste services company providing hazardous and non-hazardous
waste treatment, storage and transportation and disposal and recycling services
through its subsidiaries. RESI currently operates seven hazardous and
non-hazardous waste treatment, storage and disposal facilities ("TSD
Facilities") located in the United States and Canada. These TSD Facilities are
serviced by RESI's integrated trucking operations. RESI does not own any
hazardous waste disposal sites. RESI also provides a broad range of related
environmental services including engineering, consulting and analysis,
remediation, groundwater/wastewater services and other technical services.

In April 1995, Republic Industries, Inc., formerly Republic Waste
Industries, Inc. ("Republic Industries"), the sole stockholder of RESI at such
time, effected a spin-off of its hazardous waste operations through a
distribution of RESI Common Stock to the stockholders of record of Republic
Industries (the "Spin-off"). Pursuant to the Spin-off, the Republic Industries
stockholders received one share of RESI Common Stock for every five shares of
Republic Industries common stock. Approximately 10,800,000 shares of RESI Common
Stock were distributed to Republic Industries stockholders. Public trading of
the RESI Common Stock commenced on Nasdaq on April 27, 1995 under the symbol
"RESI." On June 24, 1996 RESI began trading under the symbol "IASI" in
anticipation of the Name Change.

The principal executive office of RESI is located at 16 Sentry Park West,
1787 Sentry Parkway West, Suite 400, Blue Bell, Pennsylvania 19422, and its
telephone number is (215) 283-4900.

MERGER SUBS

Each of the Merger Subs is a Delaware corporation with its principal
executive office located at 16 Sentry Park West, 1787 Sentry Parkway West, Suite
400, Blue Bell, Pennsylvania 19422 (telephone number (215) 283-4900). Each of
the Merger Subs was organized in connection with the Mergers and is a direct
wholly-owned subsidiary of RESI. The Board of Directors of each of the Merger
Subs and RESI, as sole stockholder, have approved the Mergers. The Merger Subs
are not engaged in any activities other than in connection with the Mergers and
the Merger Agreement. It is not anticipated that the Merger Subs will have any
material assets or liabilities (other than those arising under the Merger
Agreement and the transactions contemplated thereby) or engage in any activities
other than those incident to their formation and the Mergers. Upon consummation
of the Mergers, CSC Merger Sub will merge with and into CSC, with CSC being the
surviving corporation, and CSU Merger Sub will merge with and into CSU, with CSU
being the surviving corporation.

ALLIANCE COMPANIES

CSC and its subsidiaries (the "CSC Group"), along with CSU, provide
specialty insurance and bonding to small- and medium-sized commercial
enterprises in over forty states throughout the United States. CSC was
originally formed in 1978 and was acquired in 1988 by Alliance. Later that year,
Alliance formed CSU.

The principal executive office of CSC is located at 2400 Corporate Exchange
Drive, Suite 290, Columbus, Ohio 43231, and its telephone number is (614)
895-2000. The principal executive office of CSU is located at 10055 Sweet Valley
Drive, Suite 1, Valley View, Ohio 44125, and its telephone number is (216)
447-9222.

RECENT DEVELOPMENTS

As of June 30, 1996, RESI effected a two-for-one stock split by means of
the issuance of a stock dividend of one share of RESI Common Stock for each
outstanding share of RESI Common Stock held of record on June 14, 1996 (the
"Stock Split"). Unless otherwise indicated, all share information contained in
this Information Statement reflects the Stock Split.

On July 16, 1996, CSU announced it had entered into an agreement to acquire
Environmental & Commercial Insurance Agency, Inc. ("ECI"), a small, privately
held insurance agency based in Columbus,

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Ohio, for $1,000,000 and 192,500 shares of RESI Common Stock. The acquisition is
subject to consummation of the Combination, regulatory approval and execution of
definitive agreements with ECI. See "Business of the Alliance Companies --
Recent Developments."

On July 25, 1996, the Alliance Companies announced that they had entered
into agreements with Gulf Insurance Company ("Gulf"), a subsidiary of The
Travelers Inc., and Midwest Indemnity Corporation of Skokie, Illinois
("Midwest"). The agreements with Gulf and Midwest are subject to completion of
due diligence and negotiation of definitive agreements. The agreements with Gulf
and Midwest are also contingent on the consummation of the Combination.

Under the agreement with Gulf, the CSC Group and Gulf will pool their
prospective non-standard contract and other surety bond programs by means of
various quota share and reinsurance arrangements (the "combined program"). The
CSC Group component of the combined program is approximately $5 million of
surety bonds administered by CSU. The Gulf component of the combined program, is
approximately $30 million of surety bonds, which is now administered by Midwest.
CSU will act as exclusive underwriter for the combined program. Midwest will
perform selected underwriting functions, as determined by CSU, and generate
bonds through its network of approximately 100 agents and subagents throughout
the United States.

Midwest will also give CSU an exclusive option through March 1997, which
may be extended through March 2000, to purchase Midwest's assets. Midwest's
assets consist primarily of its agency network, the surety business generated by
that network and minimal tangible assets. If CSU exercises the option under the
option agreement, the purchase price will be $10.25 million comprised of the
cancellation of the Obligations ($5.125 million) plus the payment of an
additional $5.125 million in cash. The cash amount includes the payments of
$800,000 in each of 1997, 1998 and 1999, which may be paid to extend the option,
plus a final payment of $2.725 million, if and when the option is exercised. If
the option is not exercised by CSU and Midwest is not in default of its
obligations under the agreements, CSU will be required to pay a termination fee
consisting of cancellation of the Obligations ($5.125 million) and payment of an
additional $2.4 million less any of the $800,000 payments made for extension of
the option. For more information regarding this transaction, see "Business of
the Alliance Companies -- Recent Developments."

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RISK FACTORS

RISKS RELATED TO THE COMBINATION

CHANGE OF CONTROL OF RESI

As of July 31, 1996, Mr. DeGroote, through MGD Holdings, beneficially owned
5,536,000 shares of RESI Common Stock, representing approximately 49.5% of the
outstanding shares of RESI Common Stock. Upon consummation of the Combination,
assuming the exercise of all of the Merger Warrants and Stock Issuance Warrants
in full at such time (but not the exercise of any other outstanding options or
warrants), and giving effect to the issuance of the Merger Shares and the Stock
Issuance Shares, Alliance and Mr. DeGroote (through MGD Holdings) will
beneficially own approximately 41.4% and 29.3%, respectively, of the outstanding
shares of RESI Common Stock. In addition, contemporaneously with the
consummation of the Combination, MGD Holdings will enter into a voting agreement
with Alliance (the "Voting Agreement") pursuant to which MGD Holdings, for a
period of two years commencing as of the date thereof, will agree to vote all
shares of RESI Common Stock held by it from time to time in accordance with the
recommendation of the management of Alliance. See "The Combination -- The
Mergers -- Other Agreements -- Voting Agreement." Accordingly, Alliance will
have the ability to control the outcome of matters submitted to a vote of the
RESI stockholders, including the election of directors. See "Principal
Stockholders."

In addition to the foregoing, upon consummation of the Combination, one
present member of the RESI Board of Directors, Mr. Michael J. Occhionero, will
resign and the RESI Board of Directors will be enlarged to seven members. At
such time, Messrs. Edward F. Feighan, Craig L. Stout and Harve A. Ferrill will
be nominated by Alliance and elected to the RESI Board of Directors and Mr.
Richard C. Rochon will be nominated by Alliance upon the recommendation of Mr.
Huizenga and elected to the RESI Board of Directors. Mr. DeGroote will continue
to serve as Chairman of the Board and a director of RESI. Mr. Joseph E. LoConti,
currently a director of RESI, is the Chairman of the Board, President and
controlling shareholder of Alliance. See "The Combination -- Interests of
Certain Persons in the Combination." After the consummation of the Combination,
Mr. LoConti will serve as Vice Chairman and a director of RESI. Consequently,
Messrs. LoConti, Feighan, Stout and Ferrill will comprise four of the seven
members of the RESI Board and, if they vote together, will have the ability to
control most actions submitted to a vote of the RESI Board of Directors. See
"Management After the Combination."

MR. LOCONTI'S AFFILIATION WITH RESI AND ALLIANCE

Mr. LoConti, a director of RESI, is also Chairman of the Board, President
and a controlling stockholder of Alliance. Through his relationship with each of
RESI and Alliance, Mr. LoConti was and remains in a position to influence the
business decisions of both parties to the Merger. See "The Combination --
Recommendation of the RESI Board of Directors" for additional information
concerning Mr. LoConti's relationships with RESI and Alliance and his
involvement in the approval of the Merger.

LIMITATION ON USE OF NET OPERATING LOSSES

Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
imposes limitations on a corporation's ability to use net operating loss ("NOL")
carryforwards if the corporation experiences a more-than-50-percent ownership
change over a three-year testing period. In general, if such an ownership change
occurs, Section 382 limits the amounts of the NOL carried over from
pre-ownership change years that can be used in any one post-change year to an
amount equal to the product of the value of the corporation's stock (with
certain adjustments at the time of the change multiplied by an interest rate
determined by the Internal Revenue Service (the "IRS")).

DEPENDENCE ON KEY PERSONNEL

Upon consummation of the Combination, Messrs. Feighan and Stout will be
added to the senior management of RESI and, consequently, will manage the
operations of RESI along with Messrs. DeGroote, LoConti and Gowland. See
"Management After the Combination." The loss of the services of any of these
individuals could have a material adverse effect on the operations and future
success of RESI.

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11

NECESSITY FOR CONSENTS OF REGULATORY AUTHORITIES

RESI and the Alliance Companies are required to seek consents from certain
regulatory authorities as a result of the Mergers. The Ohio Environmental
Protection Agency (the "Ohio EPA") has determined that the Mergers will
constitute a change of ownership of Ohio EPA permitted facilities owned by
Republic Environmental Systems (Cleveland), Inc. ("RES (Cleveland)") and
Republic Environmental Systems (Ohio), Inc. ("RES (Ohio)"). Accordingly, the
change of ownership of such facilities must be approved by the director of the
Ohio EPA. Since the approval process may take six months or longer to complete,
RESI intends to consummate the Mergers prior to receipt of the requisite Ohio
EPA approvals as permitted by applicable law. During such approval process, the
Company does not anticipate that the operations at such facilities will be
effected. In the event that the director of the Ohio EPA ultimately disapproves
the change of ownership of such facilities, RESI would be required to effect the
negation of the change of ownership of such facilities. The negation could be
accomplished through the restoration of the original ownership structure of RESI
as it effects such facilities, the disposition of the facilities or another
means that complies with the requirements of applicable law. The failure to
obtain approval of such change of ownership could have a material adverse effect
on the financial condition and operations of RESI. See "The Combination -- The
Mergers -- Governmental and Regulatory Approval."

Further, the Alliance Companies may be required to seek consents from
certain insurance regulatory authorities as a result of the Mergers. To the
extent that such consents are required, the failure to receive such consents
could prevent the consummation of the Combination and, as a result, have a
material adverse effect on RESI.

POSSIBLE DEPRESSING EFFECT OF FUTURE SALES OF RESI COMMON STOCK

Future sales of shares of the Combination Shares, or the perception that
such sales could occur, could adversely affect the market price of the RESI
Common Stock. Upon consummation of the Combination and assuming the exercise of
all of the Merger Warrants and Stock Issuance Warrants in full at such time and
no other share issuances, RESI will have, as of the consummation of the
Combination, 45,815,918 shares outstanding and will receive approximately $62.5
million as a result of the issuance of the Combination Shares; however, there
can be no assurance as to when and if each of the Merger Warrants and Stock
Issuance Warrants will be exercised and, consequently, when RESI will receive
approximately $52.0 million of such proceeds which relate to the exercise of the
Merger Warrants and Stock Issuance Warrants. RESI currently intends to use any
infusion of capital from the Purchase Agreements to finance growth and
acquisitions although there can be no assurance that any such cash infusion will
result in an enhancement of RESI's financial condition.

In connection with the Combination, RESI has agreed to register all of the
Combination Shares for resale under the Securities Act pursuant to a shelf
registration statement (the "Shelf Registration") and to use its best efforts to
cause the Shelf Registration to be declared effective by the Securities and
Exchange Commission (the "SEC") as soon as practicable after consummation of the
Combination. In addition, RESI has an obligation to include in the Shelf
Registration 912,300 shares of RESI Common Stock representing all of the shares
of RESI Common Stock issuable upon the exercise of existing options and
warrants. Once registered under the Shelf Registration, such shares may be sold
thereunder at any time and from time to time in the public securities market;
provided, however, for a period of two years from the date of the consummation
of the Combination, the offer, sale or other disposal of up to 85% of the Merger
Shares and the Warrant Shares, without the unanimous consent of the Board of
Directors, will be prohibited by the Lock-up Agreement. See "The
Combination -- The Mergers -- Other Agreements -- Lock-up Agreement." There can
be no assurance as to when and how many of the shares registered under the Shelf
Registration will be sold and the effect such sales may have on the market price
of the RESI Common Stock.

DILUTION

The issuance of the Combination Shares will have a dilutive effect on the
voting rights of the holders of RESI Common Stock as of the date of the closing
of the Combination. The following table sets forth the

5
12

percentage beneficial ownership of RESI Common Stock as of July 31, 1996 and as
of the consummation of the Combination by each of Alliance, MGD Holdings, Mr.
Huizenga, executive officers and directors of RESI as a group and non-affiliated
stockholders as a group:

RESI COMMON STOCK OWNED BENEFICIALLY
------------------------------------------------------------
FULLY-DILUTED
PRE-COMBINATION(1) POST-COMBINATION(1) POST-COMBINATION(2)
------------------ ------------------- -------------------

Alliance(3)................................ -- 56.1% 41.4%
MGD Holdings(4)............................ 49.5% 37.7 29.3
H. Wayne Huizenga.......................... -- 22.5 17.5
All directors and executive officers as a
group.................................... 51.1 81.4 70.8
Non-affiliated stockholders as a group..... 48.9 18.6 29.2

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

(1) See "Principal Stockholders."

(2) Gives effect to the exercise of all of the Warrants issued in connection
with the Combination (but not the exercise of any other outstanding options
or warrants).

(3) Mr. LoConti is the Chairman of the Board, President and controlling
shareholder of Alliance.

(4) Mr. DeGroote is the sole stockholder, the President and a director of MGD
Holdings.

RISKS RELATED TO THE BUSINESS OF RESI

REGULATION OF HAZARDOUS WASTE INDUSTRY

The collection, treatment, storage and disposal of solid and chemical
wastes, operation of landfills and rendering of related environmental services
are subject to federal, state, provincial and local requirements which regulate
health, safety, the environment, zoning and land-use. Operating permits are
generally required for landfills, TSD Facilities and certain collection
vehicles, and these permits are subject to revocation, modification and renewal.
Federal, state, provincial and local regulations vary, but generally govern
disposal activities and the location and use of facilities and also impose
restrictions to prohibit or minimize air, land and water pollution. In addition,
governmental authorities have the power to enforce compliance with these
regulations and to obtain injunctions or impose fines in the case of violations,
including criminal penalties. These regulations are administered by the U.S.
Environmental Protection Agency (the "EPA") and various other federal, state,
provincial and local environmental and health and safety agencies and
authorities, including the Occupational Safety and Health Administration of the
U.S. Department of Labor. In addition, certain of RESI's operations are
regulated under applicable laws and regulations in Canada.

RESI believes that in the existing climate of heightened legal, political
and citizen awareness and concerns, companies in the waste management and
environmental services industry, including RESI, may be faced with material
fines and penalties and the need to expend funds for remedial work and related
activities at TSD Facilities and landfills. RESI has established a reserve
(which as of June 30, 1996 was approximately $3.6 million) based upon RESI's
estimate of funds needed to cover such fines, penalties and costs. Further, in
connection with the acquisition of RESI (formerly known as Stout Environmental,
Inc. ("Stout")) by Republic Industries, certain former stockholders of RESI
agreed to indemnify RESI against certain environmental liabilities. See
"Business of RESI -- Legal Proceedings -- Environmental Proceeding Covered by
Third-Party Indemnity." There can be no assurance that such reserve or
indemnities will be adequate or that technological, regulatory or enforcement
developments, the results of environmental studies or other factors will not
have a material adverse effect on RESI's business and consolidated financial
condition.

RESI's operation of TSD Facilities subjects it to certain operating,
monitoring, site maintenance, closure and post-closure obligations, including
posting financial assurance requirements for such obligations. In order to
construct, expand and operate a TSD Facility, one or more construction or
operating permits, as well as zoning approvals, must be obtained. These
construction and operating permits and zoning approvals are difficult and
time-consuming to obtain, and the issuance of such permits and approvals often
is opposed by neighboring landowners and local and national citizens' groups.
Once obtained, the operating permits may be subject to periodic renewal and are
subject to modification and revocation by the issuing agencies. In connection
with RESI's acquisition of TSD Facilities, it often may be necessary to expend
considerable time,

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13

effort and money to bring the acquired facilities into compliance with
applicable requirements and to obtain the permits and approvals necessary to
increase their capacity.

Governmental authorities have the power to enforce compliance with
regulations and permit conditions and to obtain injunctions or impose fines in
case of violations. Citizens' groups may also bring suit for alleged violations.
During the ordinary course of its operations, RESI has from time to time
received citations or notices from such authorities that its operations are not
in compliance with applicable environmental or health or safety regulations.
Upon receipt of such citations or notices, RESI works with the authorities to
attempt to resolve the issues raised. Failure to correct the problems to the
satisfaction of the authorities could lead to monetary or criminal penalties,
curtailed operations or facility closures which could have a material adverse
effect on RESI's business and consolidated financial condition.

Subtitle D of the Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), establishes a framework for regulating the disposal of
non-hazardous solid wastes. In the past, the Subtitle D framework has left the
regulation of non-hazardous waste disposal largely to the states. On October 9,
1991, however, the EPA promulgated a final rule which imposes minimum federal
comprehensive solid waste management criteria and guidelines including location
restrictions, facility design and operating criteria, closure and post-closure
requirements, financial assurance standards, groundwater monitoring requirements
and corrective action standards, many of which have not commonly been in effect
or enforced in connection with solid waste landfills. States will be required to
revise their landfill regulations to meet these requirements. Because some parts
of the new regulations will be phased in over time, the full effect of these
regulations may not be felt for several years. However, other than for
groundwater monitoring and financial assurance requirements, all provisions of
the final rule became effective October 9, 1993. Operating and design criteria
for existing operations may have to be modified to comply with these new
regulations. In addition, new requirements applicable to the disposal of
non-hazardous solid waste may be adopted when reauthorization of RCRA is taken
up by Congress and RESI cannot predict the effect of such new requirements.

POSSIBILITY OF LIABILITY FOR HAZARDOUS SUBSTANCE REMEDIATION AND DAMAGES

With very limited exceptions, federal law imposes joint and several
liability upon present and former owners and operators of facilities that
release "hazardous substances" into the environment and the generators and
transporters of those substances, regardless of the care exercised by such
persons and regardless of when the hazardous substance is first detected in the
environment. All such persons may be liable for the costs of waste site
investigation, waste site cleanup and damages to natural resources. There is an
inherent industry risk of liability arising from the release of "hazardous
substances" into the environment, notwithstanding extensive safety and other
measures taken by RESI or other owners or operators of facilities. In addition,
because the term "hazardous substances" is very broadly defined under applicable
federal law, "hazardous substances" or "hazardous wastes" may have been
deposited in properties with which RESI has been, or will become, associated as
an owner or operator. Moreover, waste collection companies acquired by RESI have
transported hazardous waste in the past and will do so in the future, and some
of RESI's operations may generate small amounts of hazardous waste. As a result
of the foregoing, RESI may face claims for remediation of environmental
contamination, personal injury or damage to natural resources at sites with
which it is, or has been, associated as owner, operator, transporter or waste
generator and from which there is a release or threatened release of hazardous
substances which causes the incurrence of response costs and damages. Costs for
remediation of, and damages for environmental contamination can be very
substantial. Given the limitations in insurance coverage for these risks, such
liability could have a material adverse impact on RESI's business and
consolidated financial condition.

LEGAL PROCEEDINGS

RESI is a party to various legal proceedings as well as the environmental
proceedings discussed above which have arisen in the ordinary course of its
business. See "Business of RESI -- Legal Proceedings." No assurance can be given
with respect to the outcome of any of these legal proceedings and the effect any
such outcome may have on RESI.

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14

LACK OF ENVIRONMENTAL LIABILITY INSURANCE

The majority of RESI's domestic locations currently carry site-specific
pollution legal liability insurance, which may provide coverage under certain
circumstances for pollution damage to third parties. In addition, RESI's
domestic contracting operations carry contractors' pollution liability
insurance, which provide coverage under certain circumstances for damage to
third parties. However, both of these coverages are restrictive in nature, as
they are subject to certain exclusions and effective dates, consistent with
insurance industry requirements. In addition, such coverage is subject to
specific and aggregate limits which may not be sufficient to cover claims, if
they should arise.

In prior years, consistent with industry trends, RESI was not able to
obtain pollution insurance at reasonable costs and, therefore, carried only such
coverage as was required by regulatory permits. In addition, the extent of
insurance coverage under certain forms of policies has been the subject in
recent years of litigation in which insurance companies have, in some cases,
successfully taken the position that certain risks are not covered by such
policies. If, in the absence of such insurance, RESI were to incur liability for
environmental damages of sufficient magnitude, it could have a material adverse
effect on RESI's business and consolidated financial condition.

COMPETITION

The hazardous waste industry is highly competitive. Entry and ongoing
operations require substantial technical, managerial and financial resources.
RESI competes with large national companies and with regional and local
companies, some of which have significantly greater financial resources and more
established market positions than RESI. While RESI has acquired certain types of
recycling operations and intends to acquire or develop such additional recycling
operations in the future, they are not currently its principal focus.

RISKS RELATED TO THE BUSINESS OF THE ALLIANCE COMPANIES

INADEQUATE PRICING RISK

The primary risk of any insurance enterprise is the risk of inadequate
pricing, which is a problem that manifests itself in the form of an unexpectedly
high level of claims after policy issuance. The CSC Group utilizes a variety of
actuarial and qualitative methods to set price levels, ultimately, however,
pricing depends upon an evaluation of prior experience as a predictor of future
experience. Events or trends that have not occurred in the past may not be
anticipated for the future and, therefore, could result in inadequate pricing
leading to elevated levels of losses. Such losses could have a material adverse
effect on the financial condition of the Alliance Companies and, after the
Combination, RESI.

UNANTICIPATED LOSSES DUE TO INADEQUATE RESERVE ESTIMATES

When claims are made, the ultimate amount of liability cannot be determined
until claims are paid to the satisfaction of the insured or until litigation
finally determines liability in disputed cases. Since the process of litigation
and settlement can continue for years, the CSC Group can only assess its
ultimate liability (and the ultimate expense of litigating disputed issues) by
estimation. These estimates, or reserves for losses and loss adjustment expense
("LAE") (which, as of June 30, 1996, were $39.3 million) are, like prices,
determined by a variety of actuarial and qualitative methods based on prior
experience. There can be no assurance that such reserves will be sufficient to
cover the ultimate liabilities of the CSC Group for policy and bond exposures.

The CSC Group uses a reserving system which it believes will enable it to
meet its claims obligations. Due to the nature of some of the coverages written,
claims may be presented which may not be settled for many years after they are
incurred; thus, subjective judgments as to the ultimate exposure to losses are
an integral and necessary component of the loss reserving process. The CSC Group
continually reviews reserves, using a variety of statistical and actuarial
techniques to analyze current claim costs, frequency and severity data, and
prevailing economic, social and legal factors. Reserves established in prior
years are adjusted as dictated by changes in loss experience and as new
information becomes available. An integral part of the reserving policy of the
CSC Group includes a reserve for incurred but not reported ("IBNR") claims.
There can be no assurance that the assumptions upon which reserves are based
will continue to be valid in the future.

8
15

To help assure the adequacy of its IBNR reserves and individual case
reserves, the CSC Group submits to an annual review by professional actuaries
who test reserve adequacy with a variety of sophisticated mathematical models.
In recent years, these actuaries have certified that reserve levels are
adequate. There can be no assurance, however, that the modeling techniques of
these actuaries will correctly forecast the adequacy of the CSC Group's
reserves.

The inadequacy of reserves may result in unanticipated losses which could
have a material adverse effect on the financial condition of the CSC Group, and,
after the Combination, RESI.

COMPETITION

Both the property and casualty ("P&C") and the surety industries have been
highly competitive in recent years resulting in the consolidation of some of the
industries' largest companies. Competition is particularly acute for smaller,
specialty carriers like the CSC Group because the market niches exploited by the
CSC Group are small and can be penetrated by a larger carrier that elects to cut
prices or expand coverage. The CSC Group has endured this risk historically by
maintaining a high level of development of new products, such as its
environmental coverage and landfill bonds eschewed by most major carriers.
Nevertheless, there can be no assurance that future development efforts will
succeed or that product erosion from intensifying competition will not outpace
development efforts.

EXPANSION OF INSURANCE LIABILITY DUE TO LAW CHANGES

The CSC Group is vulnerable to both judicial and legislative law changes.
Judicial expansion of terms of coverage can increase risk coverage beyond levels
contemplated in the underwriting and pricing process. Judicial imposition of
pollution liability on insurers before the era of specific pollution exclusions
in insurance policies created an estimated $25 billion liability, according to
industry estimates reported by A.M. Best, a leading rating agency of insurance
companies and reinsurers, for U.S. insurers and reinsurers that such companies
did not know they were underwriting and for which they received no premium.

At the same time, coverages that are established by statute may be
adversely affected by legislative or administrative changes of law. Most surety
bonds exist because they are required by government agencies. When governments
change the threshold for requiring surety, the market for surety bonds is
directly affected. Indeed, the repeated postponement by the EPA of deadlines for
compliance with the financial assurance portions of RCRA Subtitle D has
significantly slowed growth of the CSC Group's landfill closure bond program,
which was begun in March 1994 because of the anticipated deadline of April 1994
for universal compliance. Such compliance currently is not anticipated to be
universally mandated until after April 1997.

INADEQUATE REINSURANCE PROTECTION OF INSURANCE LIABILITIES

The CSC Group depends heavily on reinsurers to assume a substantial portion
of the exposures underwritten by it. Failure of one or more reinsurers (which
are assuming risks from many sources over which the CSC Group has no control)
could have a material adverse impact on performance, since the CSC Group would
then be obligated to pay the failed reinsurer's portion of losses. Moreover, the
adequacy of reinsurance, even assuming the solvency of all reinsurers, is a
matter of estimation. As with pricing and reserving, procurement of reinsurance
is premised upon assumptions about the future based upon past experience.
Unanticipated events or trends could produce losses inadequately covered by
reinsurance.

MARKET REVERSES IN INVESTED ASSET PORTFOLIO

Investment of the CSC Group's assets to balance its reserves and surplus is
critical to the maintenance of the CSC Group's solvency and profitability. The
CSC Group believes that many insurance companies earn far more in investment
returns on their portfolio assets than they do from underwriting; and many
companies actually underwrite at a loss to develop premium balances, hence
portfolio assets, for investment as evidenced by the number of insurers
operating at combined ratios in excess of 100%. See "Alliance Companies
Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Century Surety Company -- Investments." The CSC Group maintains an
investment policy of investing primarily in debt

9
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instruments of government agencies and corporate entities with quality ratings
of AA or better, and of diversifying investments sufficiently to minimize the
risk of a substantial reverse or default in any one investment. These policies
are articulated by a written policy statement and overseen by a formal
investment committee of senior company officials. The CSC Group also employs
professional investment advisers to counsel the companies on matters of policy
as well as individual investment transactions, although these advisers have no
discretionary authority to deploy company assets. Notwithstanding these
measures, an aggregation of serious reverses or defaults in the investment
portfolio could produce a materially adverse impact on its earnings and
financial condition.

Federal Income Taxes

The CSC Group accounts for federal income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") 109. CSC has reduced its
deferred tax asset by a valuation allowance because it believes "it is more
likely than not" that the deferred asset would not be realized through future
taxable income. In reaching the CSC Group's determination of the need to provide
a deferred tax valuation allowance, management considered all available
evidence, both positive and negative, as well as the weight and importance given
to such evidence. The negative factors CSC relied upon in determining the need
for the valuation allowance are that the CSC Group has a history of significant
portions of its taxable income coming from non-recurring transactions, as well
as the risks that CSC has in the areas of product pricing, reserves, niche
market competition and adequacy of reinsurance.

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17

MARKET PRICES AND DIVIDEND POLICY

The market price information set forth below gives effect to the Stock
Split. See "Introduction -- Recent Developments."

MARKET AND MARKET PRICES

The RESI Common Stock is listed on Nasdaq under the symbol "IASI." The last
reported sale price of the RESI Common Stock on May 17, 1996, the last full
trading day preceding the public announcement of the execution of the letter of
intent relating to the Combination, as reported on Nasdaq, was $2 5/16 per
share. The last reported sale price of the RESI Common Stock on June 18, 1996
(the last full trading day preceding the public announcement of the execution of
the Merger Agreement and the Purchase Agreements), as reported on Nasdaq was $15
per share. The last reported sale price of the RESI Common Stock on September 9,
1996, the last full trading day preceding the printing of this Information
Statement was $6 1/4 per share. See "Principal Stockholders" for certain
information on the change in the percentage of stock ownership owned by certain
executive officers, directors and 5% stockholders of RESI as a result of the
Combination.

The following table sets forth, for the calendar periods indicated, the
high and low per share sale prices of RESI Common Stock as reported on Nasdaq.

1995 HIGH LOW
---- -------- --------

2nd Quarter(1)............................................ $ 2 1/4 $ 1 1/4
3rd Quarter............................................... 4 1 13/16
4th Quarter............................................... 2 5/16 1 9/16

1996
----
1st Quarter............................................... $ 1 19/32 $ 1 1/4
2nd Quarter............................................... 20 7/8 1 7/16
3rd Quarter(2)............................................ 18 3/4 5 1/4

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

(1) Consists of the period from the date on which the RESI Common Stock was
first listed on Nasdaq, April 27, 1995, through June 30, 1995.

(2) Through August 16, 1996.

DIVIDEND POLICY

Since commencement of operations as a separate waste management and
environmental services company in April 1995, RESI has not declared or paid any
dividends on its RESI Common Stock and the RESI Board of Directors does not
currently anticipate paying dividends on the RESI Common Stock at any time in
the foreseeable future. The payment of future dividends will be determined by
the RESI Board of Directors in light of conditions then existing, including
RESI's earnings, financial condition, capital requirements, restrictions in
financing agreements, business conditions and other factors, including funds
required for acquisitions. The payment of dividends on the RESI Common Stock is
presently prohibited under the terms of RESI's credit facility. See "RESI
Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Amendments to the Certificate of Incorporation -- Description of
Capital Stock."

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18

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

The following table presents selected historical financial data for each of
RESI, the CSC Group and CSU. The selected historical financial data of RESI for
each of the years in the five-year period ended December 31, 1995 are derived
from the audited historical consolidated and combined financial statements of
RESI. The selected historical financial data of the CSC Group for each of the
years in the five-year period ended December 31, 1995 are derived from the
audited consolidated financial statements of the CSC Group. The selected
historical financial data of CSU as of December 31, 1995 and 1994, and for each
of the years in the three-year period ended December 31, 1995 are derived from
the audited financial statements of CSU. The selected historical financial data
of CSU as of December 31, 1993, 1992 and 1991 and for each of the years in the
two-year period ended December 31, 1992 are derived from the unaudited financial
statements of CSU. The selected historical financial data as of June 30, 1996
and 1995, and for the six months then ended, have been derived from the
unaudited historical consolidated and combined financial statements of RESI, the
CSC Group and CSU, as appropriate.

The selected unaudited pro forma income statement data of RESI for the year
ended December 31, 1995 and for the six months ended June 30, 1996 give effect
to the Combination as if it had occurred on January 1, 1995. The selected
unaudited pro forma balance sheet data as of June 30, 1996 give effect to the
Combination as if it had occurred on June 30, 1996. Such pro forma data are
presented for illustrative purposes only and do not purport to represent what
RESI's results actually would have been if the Combination had occurred at the
dates indicated, nor do such data purport to project the financial position or
results of operations for any future period or as of any future date.

The information set forth below should be read in conjunction with "RESI
Management's Discussion and Analysis of Results of Operations and Financial
Condition," "Alliance Companies Management's Discussion and Analysis of Results
of Operations and Financial Condition," the consolidated and combined financial
statements of RESI and the notes thereto, the consolidated financial statements
of the CSC Group and the notes thereto, the financial statements of CSU and the
notes thereto, and RESI's unaudited pro forma condensed financial statements and
notes thereto that are included elsewhere in this Information Statement.

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REPUBLIC ENVIRONMENTAL SYSTEMS, INC.

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------------ --------------------------------------
HISTORICAL HISTORICAL
---------------------------------------------------- PRO FORMA -------------------------- PRO FORMA
1991 1992 1993 1994 1995 1995 1995 1996 1996
------- ------- -------- ------- ------- ----------- ----------- ----------- ---------

(UNAUDITED) (UNAUDITED)
INCOME STATEMENT
DATA:
Revenues........... $78,076 $74,668 $ 61,617 $46,599 $44,537 $ 75,476 $ 25,165 $ 15,796 $ 32,624
Income (loss)
before
extraordinary
gain and income
taxes(1)......... 4,190 2,989 (14,789) (5,964) 2,041 6,680 1,914 (393) 1,783
Income (loss)
before
extraordinary
gain............. 2,299 1,547 (14,579) (2,872) 1,286 4,591 1,206 (247) 1,097
Extraordinary gain,
net of income
taxes(2)......... -- -- -- 5,556 -- -- -- -- --
Net Income
(loss)........... 2,299 1,547 (14,579) 2,684 1,286 4,591 1,206 (247) 1,097
EARNINGS (LOSS) PER
COMMON AND COMMON
EQUIVALENT
SHARE(3):
Income (loss)
before
extraordinary
gain............. $0.30 $0.15 $(1.33) $(0.26) $0.12 $0.15 $0.11 $(0.02) $ 0.04
Net income
(loss)........... $0.30 $0.15 $(1.33) $0.25 $0.12 $0.15 $0.11 $(0.02) $ 0.04
BALANCE SHEET DATA
(AT PERIOD END):
Working capital.... $(8,136) $ 4,642 $ 270 $ 555 $ 4,166 (4 )
Total assets....... 61,330 67,822 49,518 39,942 41,750 143,095
Short-term debt,
including current
maturities of
long-term debt
and capitalized
lease
obligations...... 8,938 3,516 2,116 2,390 700 433
Long-term debt and
capitalized lease
obligations, net
of current
maturities....... 12,160 15,877 12,384 1,128 618 461
Stockholders'
equity........... 11,377 28,533 16,872 20,292 28,593 64,340

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

(1) Includes restructuring and unusual charges of $5,577, $14,906 and $8,484 in
1992, 1993 and 1994, respectively. See Note 3 to RESI's consolidated and
combined financial statements included herein with respect to 1993 and 1994.
Additionally, as part of this restructuring, RESI closed and consolidated
certain TSD Facilities, resulting in decreasing revenues for the periods
presented. See "RESI Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Results of Operations."

(2) In December 1994, RESI recorded an extraordinary gain of $5,556 (net of an
income tax provision of $3,092) due to the conversion of the subordinated
term loan payable by Republic Environmental Systems Ltd., formerly known as
Great Lakes Environmental Group Ltd. ("RESL"), to shares of redeemable
convertible participating preferred stock of RESL. See Note 5 of the RESI
consolidated and combined financial statements included herein.

(3) The per share data were calculated after giving effect to the Stock Split.

(4) Such information is not meaningful.

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20

CENTURY SURETY COMPANY AND SUBSIDIARIES

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)

INCOME STATEMENT DATA:
Revenues................... $14,178 $13,061 $19,170 $26,955 $30,824 $15,139 $16,612
Income before income
taxes................... 1,992 2,205 3,362 4,066 4,581 206 2,163
Net Income......... 1,288 1,427 2,218 2,987 3,267 254 1,334
BALANCE SHEET DATA
(AT PERIOD END):
Total investments.......... $23,758 $26,114 $45,619 $50,749 $58,214 58,214 $61,956
Total assets............... 29,178 36,445 67,801 80,639 85,998 85,998 90,616
Losses and loss expense
payable................. 12,775 14,107 29,528 34,661 37,002 37,002 39,265
Unearned premiums.......... 4,652 5,352 12,166 15,453 15,636 15,636 17,248
Shareholder's equity....... 8,826 13,631 19,092 23,758 26,744 26,744 28,124

14
21

COMMERCIAL SURETY AGENCY, INC.

SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED) (UNAUDITED) (UNAUDITED)
INCOME STATEMENT DATA:
Revenues.............................. $ 1,941 $ 1,916 $ 2,322 $ 3,025 $ 2,602 $ 1,142 $ 1,425
Income before income taxes............ (374) (14) 123 778 310 109 139
Net Income.................... (247) (10) 78 512 202 72 92

BALANCE SHEET DATA
(AT PERIOD END): (UNAUDITED) (UNAUDITED) (UNAUDITED)

Working capital (deficit)............. $ (500) $ (437) $ (260) $ (129) $ 48 (212) $ (274)
Total assets.......................... 1,248 1,178 1,093 1,786 1,527 1,600 1,289
Short-term debt, including current
maturities of long-term debt and
capitalized lease obligations...... 139 144 634 173 36 98 10
Long-term debt and capitalized lease
obligations, net of current
maturities......................... 475 330 197 30 12 18 7
Shareholder's equity.................. (409) (419) (340) 172 374 244 115

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THE COMBINATION

BACKGROUND OF THE COMBINATION

In April 1995, Republic Industries, the sole stockholder of RESI at such
time, effected a spin-off of its hazardous waste operations through the Spin-off
of RESI Common Stock to the stockholders of record of Republic Industries.
Pursuant to the Spin-off, the Republic Industries stockholders received one
share of RESI Common Stock for every five shares of Republic Industries common
stock. Approximately 10,800,000 shares of RESI Common Stock were distributed to
Republic Industries stockholders. Public trading of the RESI Common Stock
commenced on Nasdaq on April 27, 1995 under the symbol "RESI." On June 24, 1996,
RESI began trading under the symbol "IASI" in anticipation of the Name Change.

In June 1995, RESI began evaluating various business alternatives for RESI,
including mergers, acquisitions, asset sales and other business combinations,
with the goal of increasing stockholder value. During the second half of 1995,
certain senior officers of RESI internally evaluated over ten companies engaged
in the hazardous waste business. From this group, RESI entered into preliminary
discussions with respect to possible transactions with five different companies
engaged in the hazardous waste business in Canada, Michigan, New York,
Pennsylvania and Texas.

During an informal meeting in January 1996, and while the evaluation of
other hazardous waste companies was continuing, certain officers and
shareholders of Alliance, including Mr. Joseph E. LoConti, a Director of RESI
and the President and founder of Alliance, informally raised with Mr. Douglas R.
Gowland, Executive Vice President, Chief Operating Officer and a Director of
RESI, the possibility of a merger involving RESI and the insurance operations of
Alliance as a means of expanding the operations of both companies and achieving
Alliance's goal of becoming a public company. No specific proposal was made or
terms discussed at that time. Rather, the discussion focused on the possibility
of combining a company engaged in the hazardous waste business with an insurance
company with an increasing focus on providing insurance and bonding to the
environmental industry. Following his conversation with Mr. LoConti, Mr. Gowland
discussed the concept of a transaction with Alliance and the diversification of
RESI into the insurance industry with Mr. Michael G. DeGroote, Chairman of the
Board, President and Chief Executive Officer of RESI. As a result of such
discussions, it was decided that RESI should table further consideration of a
transaction with Alliance and continue to focus on possible transactions with
companies in the hazardous waste business. That decision was based primarily on
the fact that RESI was engaged in the hazardous waste business and that a
transaction with one or more companies engaged in that business was consistent
with RESI's experience and its then current business objectives.

During the period of January 1996 through early May 1996, Messrs. DeGroote
and Gowland continued discussions with the five hazardous waste companies
concerning a possible business combination. Discussions with one of these
companies led to the execution of a confidentiality agreement in contemplation
of the exchange of due diligence information. Mr. LoConti brought the
acquisition company to the attention of RESI management following an initial
contact made to Mr. LoConti, as a director of RESI, by the acquisition company's
investment banker. Mr. LoConti met the investment banker in 1993 when the
investment banker represented a third party in a transaction involving the CSC
Group. As a result of his prior acquaintance with the investment banker, Mr.
LoConti remained actively involved in the discussions among the acquisition
candidate, its investment banker and RESI. Discussions with this company
terminated in March 1996 when such company executed an agreement to enter into a
business combination transaction with a company unaffiliated with RESI. None of
the discussions with any of the companies advanced to the point where specific
proposals or terms were discussed.

During the second week of April 1996, while discussions with certain of the
hazardous waste companies were continuing, Mr. DeGroote contacted Mr. LoConti
regarding a meeting to reintroduce discussions concerning a possible business
transaction involving RESI and Alliance. Mr. DeGroote and Mr. Gowland met with
approximately four representatives of Alliance, including Mr. LoConti, on April
13, 1996, and held conceptual discussions concerning a business transaction
involving RESI and Alliance. At such meeting, Messrs. DeGroote and Gowland
learned more about the business of the Alliance Companies and discussed the
possibility of RESI diversifying its operations by entering the environmental
insurance industry. Given the

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23

decrease in demand within the hazardous waste industry and the highly
competitive nature of the business, Messrs. DeGroote and Gowland concluded that
such diversification warranted further review, and all of the parties agreed
that further discussions were warranted.

On April 30, 1996, Mr. DeGroote met with Mr. LoConti, Mr. Feighan and
approximately nine other representatives of Alliance at their office in
Cleveland, Ohio to further explore the possibility of a business transaction. At
such meeting, the Alliance representatives described the insurance industry
generally and the Alliance Companies operations specifically, and Mr. DeGroote
also discussed the hazardous waste industry and RESI's business operations. No
specific proposals were made or terms for a transaction involving RESI and the
Alliance Companies discussed at the meeting. Following such meeting, Mr.
DeGroote concluded that the business of the Alliance Companies presented an
attractive business opportunity for RESI because of the Alliance Companies
position as a niche market specialty insurance and bonding company providing
services to the waste industry. Consequently, following such meeting, RESI
engaged Arthur Andersen LLP to assist in RESI's due diligence review of the
Alliance Companies. Such accountants reviewed certain financial information
concerning the operations of the Alliance Companies at the offices of the
Alliance Companies during the period of May 13, 1996 through May 16, 1996.
RESI's due diligence review continued through May 17, 1996.

During the period between April 30, 1996 and May 15, 1996, Messrs. DeGroote
and LoConti continued to discuss the possibility of a business combination
involving RESI and the Alliance Companies. Through such discussions, RESI
management concluded that the terms of the transaction were favorable to RESI
and that RESI was unlikely to find an insurance enterprise comparably sized to
the Alliance Companies that offered the degree of experience, the variety of
environmental niche products and the depth of market penetration in the product
areas that RESI viewed as critical to providing potential opportunities for its
various remediation operations and, consequently, RESI elected not to pursue
transactions with any other company engaged in the insurance and bonding
business, or to seek to identify any other possible insurance companies as
partners. On May 15, 1996, following an unexplained increase in the price of
RESI Common Stock on Nasdaq, Mr. DeGroote contacted Mr. LoConti and advised him
that the terms of an agreement between RESI and Alliance would have to be
reached by May 19, 1996 and publicly announced immediately thereafter or
negotiations would be terminated.

On May 16 and May 17, 1996, Messrs. LoConti and Feighan, representing
Alliance, had a series of meetings with Mr. DeGroote, representing RESI, to
discuss the proposed transaction between Alliance and RESI. At such meetings,
the parties discussed the terms of the transaction and the strategy for RESI
following the consummation of a transaction. The parties agreed that a key
element of such strategy would be to focus on the growth of the environmental
insurance operations through acquisitions. The parties determined that an
additional capital infusion would be required to implement that strategy. In
order to provide such capital infusion, Mr. DeGroote agreed that as a condition
to the Mergers, Mr. DeGroote would make an equity investment in RESI. Mr.
DeGroote then presented to the Alliance representatives the terms on which he
would make such equity investment and the terms on which RESI would be prepared
to enter into the Mergers, all subject to the approval of the RESI Board of
Directors. The terms of the Mergers and the MGD Stock Issuance were based upon
the closing price of RESI Common Stock on May 17, 1996 and the value of the
contribution each of RESI and Alliance brought to the transaction as determined
by both parties. See "-- RESI's Valuation Analysis of the Mergers."

Later in the day on May 17, 1996, in an effort to raise additional capital
for RESI to help finance the acquisition strategy following the consummation of
the transaction, Mr. DeGroote placed a telephone call to Mr. H. Wayne Huizenga
to determine whether Mr. Huizenga would be interested in making an equity
investment in RESI. Messrs. DeGroote and Huizenga had a previous relationship
based in part on their service as directors of Republic Industries and Mr.
DeGroote's investment with Mr. Huizenga in one of Mr. Huizenga's other ventures.
Mr. Huizenga acquired control of Republic Industries in August 1995,
approximately three months following the Spin-off. After discussion of the
proposed Combination, Mr. Huizenga agreed to make an investment in RESI on the
same terms as the equity investment by Mr. DeGroote. Mr. DeGroote then presented
to the Alliance representatives that Mr. Huizenga had agreed to make an equity
investment in RESI on the same terms as MGD Holdings' equity investment and that
each of

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24

such investments would be contingent on the consummation of the Mergers since
the primary purpose of such capital is to finance RESI's acquisition strategy
following the consummation of the Mergers. The Alliance representatives agreed
to the investment by Mr. Huizenga and the parties continued to finalize the
other terms and conditions of the Combination as reflected in the Letter
Agreement dated May 19, 1996 among RESI, Alliance, the Alliance Companies, MGD
Holdings and Mr. Huizenga (the "Letter Agreement").

The terms of the Letter Agreement were approved by the Board of Directors
and shareholders of Alliance on May 19, 1996.

On May 19, 1996, a special telephone meeting of the RESI Board of Directors
was held. All directors were present by telephone, although Mr. LoConti, due to
his affiliation with the Alliance Companies as the President, director and
controlling stockholder of Alliance, did not participate in the meeting with
respect to consideration of the Combination and Mr. DeGroote, due to his
affiliation as the President, director and controlling stockholder of MGD
Holdings, did not participate in the meeting with respect to consideration of
the MGD Stock Issuance. Also in attendance was a representative of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., RESI's outside counsel. At the special meeting,
Mr. DeGroote reviewed with the RESI Board of Directors the terms of the
agreement proposed to be entered into with Alliance. It was believed by the
Board of Directors, including Messrs. LoConti and DeGroote, that the abstention
by Messrs. LoConti and DeGroote from such participation in the meeting would
assist the Board in ensuring procedural fairness in the Board's evaluation of
the Combination.

At the special meeting of the RESI Board of Directors, Mr. DeGroote
reviewed with the Board the terms of the agreement proposed to be entered into
with Alliance. In determining the fairness of the Merger to RESI and its
stockholders from a financial standpoint, the Board considered the valuation
analysis discussed below and carefully evaluated the following material factors:

(i) the financial condition, assets, results of operations, business
of RESI and the prospects of RESI in the event that it did not consummate
the Combination;

(ii) that RESI's business has been contracting due to over-capacity
and intense competition in the hazardous waste industry;

(iii) the status of the negotiations with other companies engaged in
the hazardous waste business and the prospects for the success of those or
other transactions within that industry;

(iv) the terms and conditions of the proposed Merger Agreement and
Purchase Agreements, and the nature and extent of RESI's obligations
thereunder;

(v) that the merger could potentially expand the operations and
prospects of both RESI and the Alliance Companies by utilizing RESI's
environmental expertise to help design and underwrite new insurance
products and manage and mitigate the claims arising from such products for
the Alliance Companies, and also by providing access to RESI through the
Alliance Companies to hazardous waste clean-ups that other insurance
companies may wish to transfer to the Alliance Companies in order to
terminate their own liability for environmental clean-up;

(vi) that the infusion of capital pursuant to the Purchase Agreements
would enable RESI to fund both its hazardous waste and new insurance
operations and provide capital to effect acquisitions in the insurance
industry; and

(vii) that the Letter Agreement requires Alliance to execute and
deliver to RESI the Lock-up Agreement pursuant to which Alliance will agree
to hold at least 85% of the Merger Shares and Merger Warrants for a period
of two years unless otherwise unanimously approved by the RESI Board of
Directors, thereby committing Alliance to a long-term strategy of
maintaining and enhancing stockholder value.

Following such evaluation, the RESI Board of Directors, other than Mr.
LoConti, President, director and controlling stockholder of Alliance, with
respect to the Combination, and Mr. DeGroote, President, director and
controlling stockholder of MGD Holdings, with respect to the MGD Stock Issuance,
determined that the

18
25

terms of the Combination were financially and procedurally fair to the
stockholders of RESI, and the directors unanimously approved the Combination on
the terms set forth in the Letter Agreement.

In June 1996, RESI received the audited financial statements for the
Alliance Companies for the period ended December 31, 1995, upon which the
purchase price for the Mergers was in part based. Upon review of such financial
statements, Mr. DeGroote noted that the income number that was used to determine
the purchase price was slightly higher than the audited numbers. Mr. DeGroote
contacted Mr. LoConti notifying him of this discrepancy. After some discussion
and negotiation, on July 29, 1996, Mr. LoConti, on behalf of Alliance, and Mr.
DeGroote, on behalf of RESI, agreed that the income number set forth in the
audited financial statements was less than the income number upon which the
purchase price was based and that an amendment to the Merger Agreement to reduce
the purchase price was appropriate. The parties then agreed that the number of
shares to be acquired by Alliance would be reduced from 15,000,000 shares to
14,760,000 and Amendment No. 1 to the Merger Agreement was executed as of such
date. The amendment has been approved by the Board of Directors of RESI and
Alliance.

RESI'S VALUATION ANALYSIS OF THE MERGERS

With respect to the Mergers, RESI valuation analysis included consideration
of the following: (i) the historical financial and operating information with
respect to the business and operations of the Alliance Companies as furnished to
RESI by Alliance; (ii) historical financial and operating information with
respect to RESI and projected financial and operating results for RESI assuming
the consummation of the Mergers; (iii) the relative contribution of the Alliance
Companies to the historical financial and operating results of RESI on a pro
forma basis; (iv) certain operating synergies expected to result from a
combination of the businesses of RESI and the Alliance Companies; and (v) the
proposed accounting treatment of the Mergers. In addition, RESI had discussions
with the management of Alliance and the Alliance Companies concerning their
respective operations, assets, financial condition and prospects.

RESI also considered a financial analysis based upon the relative income
statement, operating cash flow and equity contribution of the Alliance Companies
to RESI based on 1995 and 1996 financial data. On May 19, 1996, RESI's market
capitalization was $25.0 million based upon 10,797,950 shares outstanding valued
at the closing price on such date of $2.3125. In addition, for the year ended
December 31, 1995, RESI reported annual earnings of $1.3 million, cash flow
provided from operations of $2.7 million and stockholders' equity of $28.6
million. For the year ended December 31, 1995, the Alliance Companies reported
annual earnings of $3.5 million, cash flow provided from operations of $3.0
million and stockholders' equity of $27.1 million. Since the Alliance Companies
are not publicly traded there was no market capitalization to which RESI could
refer.

Based upon the foregoing financial information, for the year ended December
31, 1995, Alliance would have represented, pro forma for the Mergers, 73% of
RESI's earnings, 53% of RESI's cash flow from operations and 49% of RESI's
stockholders' equity.

RESI also considered a valuation of the Alliance Companies based upon a
peer group of approximately 20 mid-sized specialty insurance companies. The
median valuation of the companies in this peer group was 15 times earnings (with
a range of 9.6 times to 26.6 times earnings) and two times stockholders' equity
(with a range of 1.02 to 3.56 times stockholders equity). Using such median
valuation, the valuation of Alliance based on its earnings would equal $52.0
million and the valuation based on its stockholders' equity would equal $54.2
million.

Based upon the foregoing analysis, RESI management concluded that the
Alliance Companies would contribute a percentage of RESI's combined net income
and combined cash flow from operations that was in excess of the equity interest
that Alliance would receive in RESI as a result of the Combination.
Consequently, it was felt by both management and the RESI Board of Directors
that the Combination was financially fair and in the best interest of the
stockholders of RESI and that a fairness opinion from a third party was not
necessary. Accordingly, a fairness opinion with respect to the Combination was
not obtained.

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26

BUSINESS STRATEGY AFTER THE COMBINATION

The business strategy of RESI upon consummation of the Combination
contemplates the continuation and expansion of the existing business operations
of RESI and the Alliance Companies, enhanced by new initiatives designed to take
advantage of the synergies created by the combination of the two businesses. In
contemplation of the Combination, the Alliance Companies have signed letter
agreements relating to an acquisition and expansion of the surety business of
the Alliance Companies. See "Business of the Alliance Companies -- Recent
Developments." The principal synergies, which the parties believe cannot be
accurately quantified at this time, are described below.

First, by providing access to the technical and physical resources of RESI
the Combination will enable the Alliance Companies to explore new and different
insurance products designed for commercial enterprises confronted with
environmental risk. Few insurance companies possess the in-depth technical
understanding of the risks associated with the hazardous waste industry that
will be available to RESI after the Combination. RESI's technological
understanding of such risks will be a resource for designing insurance and
surety coverages of hazardous waste risks, which tend to be less competitive
than commercial P&C insurance generally, and for assisting in the underwriting
of specific policies and bonds. At the same time, it is expected that RESI's
facilities and personnel will assist in analyzing claims arising under such
policies when clean-up activity is required.

Second, RESI's resources may enable the Alliance Companies to more
accurately assess loss portfolio assumptions with other insurance companies that
already have environmental liabilities which they desire to shed. Loss portfolio
assumptions are transactions whereby one insurance company transfers to another
a defined batch of reserves for liabilities, along with a matching amount of
assets, which the transferor wants off its books and which the transferee is
willing to assume. Since many insurance companies possess environmental
liabilities which they are not comfortable managing (in some cases because of
judicial interpretations of coverage that the insurer never intended to be
underwritten), the opportunity may exist for the CSC Group to assume such
liabilities at a profit if RESI's technicians can establish that the actual
clean-up costs will be sufficiently less than assumed reserves to generate an
acceptable profit.

Third, new captive markets for RESI's services may emerge from the
initiatives summarized above. To the extent that claims on hazardous waste
insurance policies and bonds require clean-up of contaminants that RESI is
equipped to remediate. RESI will automatically receive the remediation work from
the CSC Group. In addition to captive business, the CSC Group intends to use its
insurance network to acquire claims from other insurance companies that have
hazardous waste claims and are unable to resolve them cost effectively.
Therefore, it is expected that RESI will receive both the captive business which
results from internal claims and business generated by the CSC Group from
outside insurance sources.

Fourth, RESI's resources (including the $10.5 million RESI will receive
upon consummation of the Stock Issuances) may provide it with the ability to
capitalize upon acquisition opportunities in the insurance or hazardous waste or
related businesses. Both the insurance and hazardous waste businesses are
burdened with excess capacity, which creates the opportunity for consolidation
with competitors to achieve economies of scale. In addition, opportunities to
expand product and service lines into new areas logically related to the
existing product/service mix through acquisitions will also be investigated.
Management believes the Mergers will reposition the balance sheet of the
combined entities to support an appropriate level of acquisition activity. See
"RESI Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources."

RECOMMENDATION OF THE RESI BOARD OF DIRECTORS

The RESI Board of Directors believes that the terms of the Combination are
financially and procedurally fair to and in the best interests of RESI and its
stockholders. ACCORDINGLY, THE DISINTERESTED MEMBERS OF THE RESI BOARD OF
DIRECTORS HAVE UNANIMOUSLY APPROVED THE MERGERS AND THE STOCK ISSUANCES AND THE
BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED EACH OF THE AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION.

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27

Mr. LoConti, a director of RESI, is also the Chairman of the Board,
President and a controlling shareholder of Alliance. See "Risk Factors -- Mr.
LoConti's Affiliation with RESI and Alliance" and
"-- Interests of Certain Persons in the Combination." Mr. LoConti participated
in the negotiations of the Combination as an affiliate of Alliance and not as a
director of RESI. See " -- Background of the Combination." The Board of
Directors of RESI, recognizing Mr. LoConti's role in the negotiations of the
Combination and his interest in Alliance, agreed with Mr. LoConti when he
informed the Board of Directors of RESI of his decision not to participate in
the meeting. It was believed by the Board of Directors, including Mr. LoConti,
that such action would assist the Board in ensuring procedural fairness in their
evaluation of the Combination. In determining the fairness of the Combination to
RESI and its stockholders from a financial standpoint, the Board considered the
valuation analysis and the other material factors discussed above. For
additional information concerning the material factors considered by the Board,
management's financial analysis of the Mergers and the roles of Messrs. LoConti,
DeGroote and Huizenga in the negotiations of the Combination, see
" -- Background of the Combination" and "-- RESI's Valuation Analysis of the
Mergers."

The belief of the RESI Board of Directors that the terms of the Combination
are financially and procedurally fair to and in the best interests of RESI and
its stockholders and the resulting decision to approve the Combination was based
upon the factors set forth under the caption "-- Background of the Combination."

The foregoing discussion of the information and factors considered and
given weight by the RESI Board of Directors is not intended to be exhaustive but
is believed to include the material factors the RESI Board of Directors
considered. In addition, in making the determination to approve and recommend
the Combination, considering the wide variety of factors considered in
connection with its evaluation of the proposed Combination, the RESI Board of
Directors did not find it practical to, and did not quantify or otherwise
attempt to assign any relative or specific weights to the foregoing factors, and
individual directors may have given different weights to different factors.

STOCKHOLDER APPROVAL OF THE COMBINATION

On August 23, 1996, in accordance with Delaware law, the holders of a
majority of the outstanding shares of RESI Common Stock executed a written
consent approving the Mergers and the Stock Issuances.

EXEMPT ACQUISITION OF MERGER SHARES AND MERGER WARRANTS UNDER SECTION 16B-3(D)
OF THE SECURITIES ACT

Pursuant to Rule 16b-3(d)(2) of the Exchange Act, the written consent of
the RESI stockholders to approve the Mergers also constituted a vote to approve
an acquisition of RESI Common Stock by Mr. LoConti (through his controlling
interest in Alliance) that is exempt from the provisions of Rule 16b under the
Exchange Act. Upon consummation of the Merger, Mr. LoConti, as Chairman of the
Board, President and a controlling stockholder of Alliance, will acquire an
indirect interest in all of the Merger Shares (14,760,000 shares of RESI Common
Stock) and Merger Warrants (warrants to purchase an aggregate of 4,200,000
shares of RESI Common Stock). See "Principal Stockholders."

MANAGEMENT AFTER THE COMBINATION

Pursuant to the Merger Agreement, RESI and Alliance have agreed that
immediately after the Closing a meeting of RESI's Board of Directors will be
held and, at that meeting, (i) Mr. Michael J. Occhionero will resign as a
director of RESI, (ii) the number of directors constituting the RESI Board of
Directors will be increased to seven, (iii) Messrs. Edward E. Feighan, Craig L.
Stout and Harve A. Ferrill will be nominated by Alliance and elected to the RESI
Board of Directors, and (iv) Mr. Richard C. Rochon will be nominated by Alliance
upon the recommendation of Mr. Huizenga and elected to the RESI Board of
Directors. In addition, the RESI Board of Directors will appoint Mr. Joseph E.
LoConti, President, Chairman of the Board and controlling shareholder of
Alliance and a director of RESI, as Vice-Chairman of the Board of RESI, Mr.
Feighan as Chief Executive Officer and Mr. Stout as Executive Vice President and
Chief Operating Officer of RESI. Mr. DeGroote, currently Chairman of the Board,
Chief Executive Officer and President of RESI and President and a director of
MGD Holdings, will continue to serve as Chairman of the Board of

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28

RESI after the Combination. See "-- Interests of Certain Persons in the
Combination" and "Management After the Combination."

INTERESTS OF CERTAIN PERSONS IN THE COMBINATION

Mr. LoConti, currently a director of RESI, is also the Chairman of the
Board, President and the controlling shareholder of Alliance. Alliance has
entered into the Merger Agreement pursuant to which RESI has agreed to issue
14,760,000 shares of RESI Common Stock and warrants to purchase 4,200,000 shares
of RESI Common Stock on the terms and conditions set forth therein. See "-- The
Mergers."

Mr. DeGroote, the Chairman of the Board, Chief Executive Officer and
President of RESI, through MGD Holdings, has entered into the MGD Purchase
Agreement with RESI pursuant to which RESI has agreed to sell, and MGD Holdings
has agreed to purchase, 2,000,000 shares of RESI Common Stock and warrants to
purchase 6,000,000 shares of RESI Common Stock on the terms and conditions set
forth therein. See "-- The Stock Issuances."

APPRAISAL RIGHTS

Holders of RESI Common Stock that have not consented to the Combination
will not have any appraisal rights or the right to receive cash for their shares
of RESI Common Stock.

THE MERGERS

GENERAL

The following is a brief summary of certain aspects of the Mergers. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement and Amendment No. 1 and Amendment No. 2 to the
Merger Agreement, copies of which are attached to this Information Statement in
Appendices I, IV and V, respectively, and incorporated herein by reference. RESI
stockholders are urged to read the Merger Agreement carefully in its entirety.

On June 10, 1996, the Merger Agreement, dated as of May 19, 1996, was
executed by RESI, Alliance, the Merger Subs and the Alliance Companies.
Amendment No. 1 and Amendment No. 2 to the Merger Agreement were executed by the
parties to the Merger Agreement as of July 29, 1996 and August 23, 1996,
respectively.

EFFECTIVE TIME

Pursuant to the Merger Agreement, at the Effective Time (defined therein),
CSC Merger Sub will merge with and into CSC (with CSC to be the surviving
corporation), CSU Merger Sub will merge with and into CSU (with CSU to be the
surviving corporation) and RESI will issue the Merger Shares and the Merger
Warrants to Alliance. The separate corporate existence of each Merger Sub will
cease at the Effective Time and CSC and CSU will be the surviving corporations.
The closing of the Mergers (the "Merger Closing") shall occur as soon as
practicable after satisfaction or waiver of all conditions to the Mergers.
Following consummation of the Mergers, the Alliance Companies will be
wholly-owned subsidiaries of RESI.

To effect the Mergers, each of CSC and CSC Merger Sub and CSU and CSU
Merger Sub will file a certificate of merger with the Secretary of State of the
State of Delaware, a certificate of merger with the Secretary of State of the
State of Ohio and all other documents required as promptly as possible after the
satisfaction, or waiver, of the conditions contained in the Merger Agreement.
See "-- The Merger Agreement -- Conditions to the Mergers." The Mergers will be
effective under Delaware law upon the filing of a certificates of merger with
the Secretary of State of the State of Delaware and will be effective under Ohio
law upon filing of the certificates of merger with the Secretary of State of the
State of Ohio (the "Effective Time").

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MERGER CONSIDERATION

In consideration for all of the outstanding capital stock of the Alliance
Companies, RESI has agreed to issue to Alliance, the sole stockholder of each of
the Alliance Companies, (i) the Merger Shares, consisting of an aggregate of
14,760,000 shares of RESI Common Stock, (ii) the Merger Warrants, consisting of
warrants to purchase (a) 1,400,000 shares of RESI Common Stock at an exercise
price of $2.625 per share exercisable in whole or in part for the two-year
period beginning on the date of the Merger Closing, (b) 1,400,000 shares of RESI
Common Stock at an exercise price of $3.125 per share exercisable in whole or in
part for the three-year period beginning on the date of the Merger Closing and
(c) 1,400,000 shares of RESI Common Stock at an exercise price of $3.875 per
share exercisable in whole or in part for the four-year period beginning on the
date of the Merger Closing and (iii) the Note in the principal amount of
$4,000,000 payable to Alliance (collectively, the "Merger Consideration"). The
issuance and sale of the Merger Shares and the Merger Warrants are being
effected without registration pursuant to Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"). As of the Effective Time, the
certificates that previously represented shares of common stock of each of CSC
and CSU shall be deemed for all purposes to evidence the right to receive the
Merger Consideration pursuant to the Merger Agreement until surrendered to RESI.

The last reported sale price of RESI Common Stock on May 17, 1996, the last
full trading day preceding the public announcement of the execution of the
letter of intent relating to the Combination was $2 5/16 per share. The last
reported sale price of RESI Common Stock on September 9, 1996, the last full
trading day preceding the date of this Information Statement, was $6 1/4 per
share. Based upon the closing price of RESI Common Stock on May 17, 1996 and
September 9, 1996, the value of the Merger Shares was $34,132,500 and
$92,250,000, respectively. On May 17, 1996, the Merger Warrants were not "in the
money." On September 9, 1996, the "in the money value" of the Merger Warrants
was $12,775,000.

THE MERGER AGREEMENT

Representations and Warranties. The Merger Agreement contains
representations and warranties by each of Alliance and the Alliance Companies
which are customary in transactions such as the Mergers and relate to, among
other things, (i) corporate status and authority, (ii) the authorization and
validity of the Merger Agreement, (iii) enforceability, (iv) the absence of (a)
a material default under any contract or governing instrument of the respective
party, (b) a violation of law or (c) a lien resulting from the execution and
delivery of the Merger Agreement, (v) consents, approvals, waivers or other
actions under any contract to which it is a party or by which any material
portion of its assets or properties are bound, (vi) capitalization, (vii)
subsidiaries, (viii) litigation, (ix) the business, operations and assets of the
Alliance Companies, (x) financial statements, (xi) material changes since the
Alliance Companies' fiscal year-end, (xii) employee matters, (xiii) tax matters,
(xiv) board and stockholder approval by Alliance and the Alliance Companies,
(xv) material contracts, (xvi) other interests held by Alliance in any insurance
brokerage business and (xvii) within the meaning of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR"), each of Alliance and the
Alliance Companies and their respective subsidiaries, including "the ultimate
parent entity" in which each is included, has a "size of person" less than $100
million.

The Merger Agreement also contains representations and warranties by each
of RESI and the Merger Subs which are customary in transactions such as the
Mergers and relate to, among other things, (i) corporate status and authority,
(ii) the authorization and validity of the Merger Agreement, (iii)
enforceability, (iv) the absence of (a) a material default under any contract or
governing instrument of the respective party, (b) a violation of law or (c) a
lien resulting from the execution and delivery of the Merger Agreement, (v)
consents, approvals, waivers or other actions under any contract to which it is
a party or by which any material portion of its assets or properties are bound,
(vi) capitalization, (vii) financial statements, (viii) material changes since
RESI's fiscal year-end, (ix) employee matters, (x) board and stockholder
approval by RESI and the Merger Subs, (xi) material contracts, (xii) compliance
with the securities laws and the National Association of Securities Dealers
("NASD") rules, (xiii) the inapplicability of Section 203 of the Delaware
General Corporation Law ("DGCL") to Alliance and (xiv) within the meaning of the
HSR Act each of RESI and the Merger Subs, including the "ultimate parent entity"
in which each is included, has a "size of person" less than $100 million.

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Conduct of Business Pending the Mergers. The Merger Agreement restricts the
ability of RESI and the Alliance Companies to take certain actions and enter
into certain transactions pending the Mergers.

Additional Agreements. Pursuant to the Merger Agreement, each of RESI, the
Merger Subs, Alliance and the Alliance Companies has agreed that it will, among
other things, (i) provide the other party with reasonable access to its
officers, employees, properties, offices, financial and operating data, and
books and records; (ii) consult with the other party prior to making any press
releases regarding the Mergers and any matters contained in the Merger
Agreement; (iii) promptly inform the other party of the occurrence or non-
occurrence of any event which would likely cause any representation or warranty
contained therein to be untrue or inaccurate, or any covenant, condition or
agreement not to be complied with or satisfied; (iv) use reasonable efforts to
take all actions, or cause to be done all things, necessary to consummate the
transactions contemplated by the Merger Agreement as soon as practicable,
including seeking or making all filings, orders, consents or authorizations
required under applicable law and obtaining consents from governmental bodies or
parties to any material contracts; (v) refrain from trading in the RESI Common
Stock prior to the date of the Merger Closing (vi) reconstitute the Board of
Directors and officers of RESI (see "Management After the Combination"); (vii)
with respect to RESI, file an information statement and registration statement;
(viii) with respect to RESI, obtain stockholder approval, (ix) use their best
efforts to cause the Mergers to qualify as a reorganization under Section 368(a)
of the Code; (x) with respect to RESI, move its executive offices to Cleveland,
Ohio; (xi) with respect to Alliance, not compete directly or indirectly in the
insurance or brokerage business or, except to the extent previously owned, own
any interest (other than for investment purposes) in any entity which engages in
the insurance or brokerage business for so long as it owns 20% or more of RESI;
(xi) to deliver all schedules and exhibits contemplated by the Merger Agreement,
together with any other exhibits or schedules reasonably requested by the other
party within 30 days after execution of the Merger Agreement; (xii) with respect
to RESI, to reimburse Mr. DeGroote for all out-of-pocket costs and expenses
related to, or arising from, the performance of his duties as Chairman of the
Board of RESI and (xiii) with respect to Alliance, to cause certain key
employees, including Messrs. LoConti, Feighan and Stout, to enter into
employment/non-competition agreements with RESI.

Conditions to Consummation of the Merger. Pursuant to the Merger Agreement,
the obligations of all parties to effect the Mergers are subject to the
following conditions: (i) the Mergers and the Authorized Share Increase shall
have been approved by the RESI stockholders; (ii) no injunction, order,
restraint, suit or other proceeding shall exist that would prevent the
consummation of the Mergers; (iii) all consents, approvals, waivers and any
other action required under law or any contract or that is necessary for the
execution, delivery and performance of the Merger Agreement and the transactions
contemplated thereby shall have been obtained and (iv) the applicable period
under the HSR Act shall have expired or been terminated.

The obligation of RESI to effect the Mergers is subject to, the following
conditions, (i) the representations and warranties of Alliance, the Alliance
Companies contained in the Merger Agreement being true and correct in all
material respects as of the Effective Time, (ii) the performance or compliance
in all material respects of all agreements or covenants required by the Merger
Agreement to be performed or complied with by each of the Alliance Companies, as
the case may be, on or prior to the Effective Time, (iii) the delivery of
customary closing documents, (iv) the receipt of an opinion of legal counsel in
form and substance satisfactory to RESI and the Merger Subs. (v) the receipt of
executed employment/non-competition agreements and (vi) the receipt of an
executed Lock-up Agreement.

The obligations of each of Alliance and the Alliance companies to effect
the Mergers is subject to the following conditions, (i) the representations and
warranties of RESI and the Merger Subs contained in the Merger Agreement being
true and correct in all material respects as of the Effective Time; (ii) the
performance or compliance in all material respects of all agreements or
covenants required by the Merger Agreement to be performed or complied with by
RESI or the Merger Subs, as the case may be, on or prior to the Effective Time,
(iii) each of the Purchase Agreements having been closed contemporaneously with
the Merger Closing, (iv) the delivery of customary closing documents, (v) the
receipt of an opinion of legal counsel in form and substance satisfactory to
RESI and the Merger Subs (vi) receipt of a registration rights agreement in form
and substance satisfactory to RESI and Alliance and (vi) the receipt of an
executed Voting Agreement.

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Amendments and Waivers. The Merger Agreement may be amended in writing
executed by all parties thereto at any time before or after approval thereof by
the RESI stockholders, but, after such approval, no amendment may be made which
adversely affects any RESI stockholder without further approval of the RESI
stockholders. Any provision contained in the Merger Agreement may be waived in
writing by the party benefitting from such provision.

Termination. The Merger Agreement has termination provisions that provide
that such agreements may each be terminated respectively (i) by written
agreement of the Parties; (ii) by RESI or Alliance if the transactions
contemplated by the Merger Agreement have not been consummated on or before
September 30, 1996 other than as a result of a failure to fulfill any obligation
under the Merger Agreement by the terminating party; (iii) by RESI, upon a
breach of any representation, warranty, covenant or agreement on the part of
Alliance or the Alliance Companies set forth in the Merger Agreement or if any
representation or warranty of Alliance or the Alliance Companies shall have
become untrue such that the conditions to RESI's obligation to consummate the
CSC Merger or the CSU Merger, as appropriate, would not be satisfied; provided,
however, that if such breach is curable by Alliance or the Alliance Companies,
as appropriate, within 60 days after notice thereof through the continuous
exercise of its best efforts, RESI may not terminate the Merger Agreement as a
result of such breach; or (iv) by Alliance, upon a breach of any representation,
warranty, covenant or agreement on the part of RESI or the Merger Subs set forth
in the Merger Agreement or if any representation or warranty of RESI or the
Merger Subs shall have become untrue such that the conditions to Alliance's
obligation to consummate the Mergers would not be satisfied; provided, however,
that if such breach is curable by RESI or the Merger Subs, as appropriate,
within 60 days after notice thereof through the continuous exercise of its best
efforts, Alliance may not terminate the Merger Agreement as a result of such
breach.

Indemnification. As provided in the Merger Agreement, RESI, on the one
hand, and Alliance, on the other hand, shall indemnify the other from and
against all claims, resulting from any breach of a representation or warranty or
default in the performance of any covenant or agreement by the indemnifying
party. Such indemnification obligations shall survive until April 1, 1998.

Registration Rights. As a condition to the obligation of Alliance and the
Alliance Companies to effect the Mergers, RESI has agreed to execute a
Registration Rights Agreement with respect to Merger Shares and the Merger
Warrant Shares in form and substance satisfactory to RESI and Alliance to
register all of the Merger Shares and the shares of RESI Common Stock to be
issued upon exercise of the Merger Warrants (the "Merger Warrant Shares") on a
registration statement on Form S-1, or other applicable form, as soon as
practicable after the Merger Closing.

Purchase Option. Alliance has an option to purchase up to 51% of Alliance
Foreign Holding Company, a company which is involved in developing insurance
brokerage business in Russia. Alliance has agreed to assign its rights under the
option to RESI under the terms of the Merger Agreement.

GOVERNMENTAL AND REGULATORY APPROVALS

RESI and Alliance have or intend to make all necessary filings with the
appropriate insurance regulatory authorities and to seek such authorities'
consents where necessary in connection with the Mergers. The Ohio EPA has
determined that the Mergers will constitute a change of ownership of Ohio EPA
permitted facilities owned by RES (Cleveland) and RES (Ohio). Accordingly, the
change of ownership of such facilities must be approved by the director of the
Ohio EPA. Since the approval process may take six months or longer to complete,
RESI intends to consummate the mergers prior to receipt of the requisite Ohio
EPA approvals as permitted by applicable law. During such approval process, the
Company does not anticipate that operations at such facilities will be effected.
In the event that the director of the Ohio EPA ultimately disapproves the change
of ownership of such facilities, RESI would be required to effect the negation
of the change of ownership of such facilities. Pursuant to the Merger Agreement,
in the event that the change of ownership is negated, RESI, Alliance and the
Alliance Companies have agreed to cooperate to effect the negation of the
transfer of ownership through the restoration of the original ownership
structure of RESI as it effects such facilities, the disposition of such
facilities or any other mutually acceptable means, each in a manner that

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complies with the requirements of applicable law. See "Risk Factors -- Necessity
for Consents of Regulatory Authorities."

Other than any such filings, none of RESI, Alliance or the Alliance
Companies is aware of any other governmental or regulatory approvals required
for the consummation of the Mergers, other than compliance with applicable
securities laws.

ACCOUNTING TREATMENT

For accounting and financial reporting purposes, the Mergers will be
accounted for as a purchase business combination whereby the Alliance Companies
are acquiring RESI. Consequently, in RESI's consolidated financial statements,
the assets and liabilities of the Alliance Companies will be recorded at
historical book value and the assets and liabilities of RESI will be recorded at
fair value based upon the outstanding shares of RESI Common Stock on May 19,
1996, the date that RESI and Alliance agreed to the principal terms of the
Merger. For presentation of certain anticipated effects of the accounting
treatment on the consolidated financial position and results of operations of
RESI and the Alliance Companies after the Mergers, see RESI's unaudited pro
forma financial information included elsewhere in this Information Statement.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

RESI believes that the Mergers and the transactions contemplated by the
Merger Agreement are nontaxable events for RESI within the meaning of Section
368(a) of the Code.

LIMITATION ON USE OF NET OPERATING LOSSES

Section 382 of the Code imposes limitations on a corporation's ability to
use NOL carryforwards if the corporation experiences a more-than-50-percent
ownership change over a three-year testing period. In general, if such an
ownership change occurs, Section 382 limits the amounts of the NOL carried over
from pre-ownership change years that can be used in any one post-change year to
an amount equal to the product of the value of the corporation's stock (with
certain adjustments at the time of the change multiplied by an interest rate
determined by the IRS.

OTHER AGREEMENTS

The Note. In addition to the Merger Shares and the Merger Warrants, as
consideration for the acquisition of all of the outstanding capital stock of the
Alliance Companies, RESI has agreed to issue on the date of the Merger Closing
the Note payable to Alliance. The Note will bear interest at the three-month
LIBOR rate and will be due on December 15, 1998. Principal and accrued and
unpaid interest under the Note will be payable in 10 equal quarterly
installments.

Voting Agreement. On the date of the Merger Closing, MGD Holdings and
Alliance will enter into the Voting Agreement pursuant to which MGD Holdings,
for a period of two years commencing on the date thereof, will agree to vote the
shares of RESI Common Stock held by MGD Holdings from time to time in accordance
with the recommendation of management of Alliance. Further, MGD Holdings will
agree to revoke and not grant, without the prior written consent of Alliance,
directly or indirectly, any proxies or enter into any voting trust or other
agreement or arrangement with respect to the voting of such shares inconsistent
with the Voting Agreement.

Lock-up Agreement. On the date of the Merger Closing, RESI and Alliance
will enter into the Lock-up Agreement pursuant to which Alliance will agree that
it will not, directly or indirectly, sell, assign, transfer, pledge or otherwise
dispose of, other than by pledge or other grant of a security interest if the
pledgee or grantee agrees in writing to be bound by the terms of the Lock-up
Agreement (collectively, "Transfer"), the

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Merger Shares, Merger Warrants or the Merger Warrant Shares prior to the end of
the two-year period following the date of the Merger Closing; provided, however,
Alliance will be permitted to transfer the Merger Shares, Merger Warrants and
Merger Warrant Shares to stockholders or debt holders of Alliance as of May 19,
1996 (the "Stockholder Transferees"), if the Stockholder Transferees agree in
writing to be bound by the foregoing two-year restriction on transfer of the
Merger Shares, Merger Warrants or Merger Warrant Shares. Notwithstanding the
foregoing, Stockholder Transferees that are not officers, directors or employees
of RESI or any of its subsidiaries will be permitted under the Lock-up Agreement
to Transfer Merger Shares, Merger Warrants or Merger Warrant Shares at the end
of the 180-day period beginning on the date of the Merger Closing. In connection
therewith, the maximum number of Merger Shares, Merger Warrants or Merger
Warrant Shares that Alliance is permitted to Transfer under the Lock-up
Agreement to Stockholder Transferees that are not officers, directors or
employees of RESI or any of its subsidiaries is an aggregate of 15% of the total
number of Merger Shares, Merger Warrants and Merger Warrant Shares issued to
Alliance under the Merger Agreement. The obligations of Alliance and any
pledgees and grantees may be waived by unanimous approval of the RESI Board of
Directors.

Employment Agreements. Concurrently with the consummation of the
Combination, Alliance shall cause each of Joseph E. LoConti, a director of RESI
and President, a director and controlling stockholder of Alliance, Edward F.
Feighan and Craig L. Stout to execute employment/non-competition agreements.
Upon consummation of the Combination Mr. LoConti shall serve as a director and
Vice-Chairman of the Board of Directors of RESI, Mr. Feighan shall serve as a
director, Chief Executive Officer and President and Craig L. Stout shall serve
as a director and Chief Operating Officer. See "Management After the
Combination." Although these employment agreements have not yet been negotiated
and, therefore, are subject to change, it is anticipated that such agreements
will be for terms of one to three years, include non-competition clauses that
extend for one to three years following the termination date and specify
compensation levels for each of Messrs. LoConti, Feighan and Stout, the amounts
of which have not yet been determined. It is further anticipated that the
agreements will not provide for severance benefits. See "Management After the
Combination -- Employment Agreements."

THE STOCK ISSUANCES

GENERAL

The following is a brief summary of certain aspects of the proposed Stock
Issuances by RESI pursuant to (i) the MGD Purchase Agreement, dated as of May
19, 1996, between MGD Holdings and RESI and (ii) the Huizenga Purchase
Agreement, dated as of May 19, 1996, between H. Wayne Huizenga and RESI. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Huizenga Purchase Agreement and the MGD Purchase Agreement,
copies of which are included as Appendices II and III, respectively, to this
Information Statement. The issuance and sale of the Stock Issuance Shares and
the Stock Issuance Warrants are being effected without registration pursuant to
Section 4(2) of the Securities Act.

THE PURCHASE AGREEMENTS

Huizenga Purchase Agreement. Pursuant to the Huizenga Purchase Agreement,
RESI will issue and sell to Mr. Huizenga for an aggregate purchase price of
$5,250,000 (the "Huizenga Purchase Price"), (i) the Huizenga Shares, consisting
of 2,000,000 shares of RESI Common Stock, and (ii) the Huizenga Warrants,
consisting of warrants to purchase: (a) 2,000,000 shares of RESI Common Stock at
an exercise price of $2.625 per share, exercisable in whole or in part for the
two-year period beginning on the date of the Stock Issuance Closing (as defined
herein), (b) 2,000,000 shares of RESI Common Stock at an exercise price of
$3.125 per share, exercisable in whole or in part for the three-year period
beginning on the date of the Stock Issuance Closing, and (c) 2,000,000 shares of
RESI Common Stock at an exercise price of $3.875 per share, exercisable in whole
or in part for the four-year period beginning on the date of the Stock Issuance
Closing.

MGD Purchase Agreement. Pursuant to the MGD Purchase Agreement, RESI will
issue and sell to MGD Holdings and its assigns for an aggregate purchase price
of $5,250,000 (the "MGD Purchase Price"),

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(i) the MGD Shares, consisting of 2,000,000 shares of RESI Common Stock, and
(ii) the MGD Warrants, consisting of warrants to purchase: (a) 2,000,000 shares
of RESI Common Stock at a purchase price of $2.625 per share, exercisable in
whole or in part for the two-year period beginning on the date of the Stock
Issuance Closing, (b) 2,000,000 shares of RESI Common Stock at a purchase price
of $3.125 per share, exercisable in whole or in part for the three-year period
beginning on the date of the Stock Issuance Closing, and (c) 2,000,000 shares of
RESI Common Stock at a purchase price of $3.875 per share, exercisable in whole
or in part for the four-year period beginning on the date of the Stock Issuance
Closing.

Representations and Warranties. Each of the Purchase Agreements contain
representations and warranties customary in transactions relating to the
issuance and purchase of stock, including, among other things, (i) corporate
status, (ii) power and authority, (iii) the authorization and validity of the
Purchase Agreements, (iv) capitalization, (v) the absence of (a) material
defaults under any contract or governing instrument of the respective party, (b)
violations of law, or (c) liens resulting from the execution and delivery of the
Purchase Agreements, (vi) capitalization, (vii) investment intent and knowledge
on behalf of the respective investors, and (viii) consents, approvals, waivers
or other action as required under any contract or bylaw to consummate the
transactions contemplated by the Purchase Agreements. In addition, the Huizenga
Purchase Agreement contains representations and warranties relating to, (i)
financial statements and changes since RESI's fiscal year-end, (ii) RESI's
compliance with securities laws and the NASD rules (iii) the delivery of
governing documents, (iv) subsidiaries and (v) the inapplicability of Section
203 of the DGCL to MGD Holdings or Mr. Huizenga, as the case may be.

Conduct of RESI's Business Prior to Closing. The Huizenga Purchase
Agreement restricts the ability of RESI to take certain actions and enter into
certain transactions pending the Stock Issuances.

Certain Pre-Closing Covenants. Pursuant to each of the Purchase Agreements,
each of the parties thereto has agreed that it will, among other things, (i)
make on a prompt and timely basis all governmental or regulatory notifications
and filings required to be made by it for the consummation of the transactions
contemplated by the Purchase Agreements, (ii) obtain approval from the other
party prior to making any press release or other public communication relating
to the subject matter of the Purchase Agreements, (iii) use reasonable efforts
to take all actions or cause to be done all things necessary to consummate the
transactions contemplated by the Purchase Agreements as soon as practicable,
including seeking or making all filings, orders, consents or authorizations
required under applicable law and obtaining consents from governmental bodies or
parties to any contracts, and (iv) promptly notify the other party of the
occurrence, or non-occurrence, of any event which would be likely to cause any
representation or warranty to be untrue.

RESI further agreed (i) to prepare and file this Information Statement with
the SEC, (ii) to obtain the approval of its stockholders in favor of the
Purchase Agreements and the transactions contemplated thereby and (iii) to
provide Mr. Huizenga reasonable access to its personnel, properties, operations,
books and records and Mr. Huizenga has agreed to maintain the confidentiality of
such information.

Conditions to Closing. The closing of the transactions contemplated by the
Purchase Agreements (the "Stock Issuance Closing") will take place as promptly
as practicable after satisfaction or waiver of the conditions set forth therein.
The respective obligations of each party to effect the Stock Issuance Closing is
subject to the fulfillment of the following conditions, any and all of which may
be waived, in whole or in part, to the extent permitted by law: (i) approval of
the Purchase Agreements by the stockholders of RESI, (ii) no court,
administrative agency or commission shall have enacted or entered any rule or
other order which is in effect and which materially restricts, prevents or
prohibits consummation of the Stock Issuance Closing, (iii) any waiting period
(and any extension thereof) applicable to the consummation of the Stock Issuance
Closing under the HSR Act, shall have expired or been terminated and (iv) the
Stock Issuances and Authorized Share Increase shall have been approved by the
RESI stockholders.

The obligation of each of Mr. Huizenga and MGD Holdings under the
respective Purchase Agreement to proceed with the Stock Issuance Closing is also
subject to the following conditions any and all of which may be waived, in whole
or in part, to the extent permitted by law, (i) each of the representations and
warranties by RESI contained in the Purchase Agreements shall be true and
correct as of the Stock Issuance Closing except for such failures which would
not, either individually or in the aggregate, have a material adverse effect on

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RESI, (ii) RESI shall have performed or complied in all material respects with
all agreements and covenants in the Purchase Agreements on or prior to the Stock
Issuance Closing and (iii) the Mergers shall be closed contemporaneously with
the Stock Issuances.

The obligations of RESI to proceed with the closing under the Purchase
Agreements are also subject to the following conditions: (i) each of the
representations and warranties of Mr. Huizenga and MGD Holdings, as the case may
be, contained in the respective Purchase Agreement shall be true and correct in
all material respects as of the Stock Issuance Closing and (ii) Mr. Huizenga and
MGD Holdings, as the case may be, shall have performed or complied in all
material respects with all agreements and covenants in the respective Purchase
Agreement on or prior to the Stock Issuance Closing.

Termination of Purchase Agreements. Each of the Purchase Agreements has
termination provisions that provide that such agreement may be terminated (a) by
written agreement of the parties; (b) by RESI or Mr. Huizenga or MGD Holdings,
as the case may be, if the transactions contemplated by the respective Purchase
Agreement have not been consummated on or before September 30, 1996 other than
as a result of a failure to fulfill any obligation under such Purchase Agreement
by the terminating party; (c) by RESI, upon a breach of any representation,
warranty, covenant or agreement on the part of Mr. Huizenga or MGD Holdings, as
the case may be, set forth in the respective Purchase Agreement, or if any
representation or warranty of Mr. Huizenga or MGD Holdings, as the case may be,
set forth in the respective Purchase Agreement shall have become untrue, such
that the conditions to RESI's obligation to consummate the transactions
contemplated by the Huizenga Stock Issuance or the MGD Stock Issuance, as
applicable, would not be satisfied; provided, however, that if such breach is
cured by either Mr. Huizenga or MGD Holdings, as the case may be, within 60
calendar days after notice thereof through the continuous use of his or its best
efforts, then RESI may not terminate the respective Purchase Agreement as a
result of such breach; or (d) by Mr. Huizenga or MGD Holdings, as the case may
be, upon a breach of any representation, warranty, covenant or agreement on the
part of RESI set forth in the respective Purchase Agreement or if any
representation or warranty of RESI shall have become untrue, in either case such
that the conditions would not be satisfied; provided, however, that if such
breach is cured by RESI within 60 calendar days after notice thereof through the
continuous use of its best efforts, then Mr. Huizenga or MGD Holdings may not
terminate the respective Purchase Agreement as a result of such breach.

Indemnification. The Purchase Agreements provide for the mutual
indemnification of the parties thereto for any losses, damages, liabilities,
claims, charges, actions, proceedings, demands, judgments, settlement costs and
expenses of any nature whatsoever (including without limitation, attorneys' fees
and expenses) or deficiencies ("Claims") resulting from any breach of a
representation, warranty or covenant by the indemnifying party and all claims,
charges, actions or proceedings incident to or arising out of the foregoing.

Registration Rights. Pursuant to the Purchase Agreements, RESI has agreed
to register all of the Stock Issuance Shares and all of the shares that will be
issued in connection with the exercise of the Stock Issuance Warrants (the
"Stock Issuance Warrant Shares") pursuant to the Shelf Registration and to use
its best efforts to cause the Shelf Registration to be declared effective by the
SEC as soon as practicable after the Stock Issuance Closing. RESI shall maintain
the effectiveness of the Shelf Registration until such time as RESI reasonably
determines, based on an opinion of counsel, that the holders of the Stock
Issuance Shares and the Stock Issuance Warrant Shares (the "Holders") will be
eligible to sell all of such Stock Issuance Shares and Stock Issuance Warrant
Shares without the need for their continued registration in the three-month
period immediately following the termination of the effectiveness of such
registration statement. RESI's obligations with respect to such registration
statement terminate on the second anniversary following the earlier of (i) the
date on which all of the Stock Issuance Warrants not yet exercised have expired
or (ii) the date on which all of the Stock Issuance Warrants have been
exercised.

RESI will be obligated to pay all expenses associated with the registration
of the Stock Issuance Shares and the Stock Issuance Warrant Shares other than
discounts and commissions with respect to the resale. Mr. Huizenga and MGD
Holdings may assign the registration rights with any permitted transfer of the
Stock Issuance Shares or Stock Issuance Warrant Shares. RESI has further agreed
to indemnify each of the Holders whose securities are included in such
registration and certain related parties against certain liabilities,

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including liabilities under the Securities Act. In addition, each of the Holders
whose securities are included in such registration statement has agreed to
indemnify RESI against certain liabilities, including liabilities under the
Securities Act, relating to any information provided by, or any action or
inaction of, respectively, each of the Holders.

Assignment of Securities. The rights and obligations of the parties to the
Purchase Agreements may not be assigned by any party without the prior written
consent of the other party except, prior to the Stock Issuance Closing, MGD
Holdings may assign its rights to purchase up to 100,000 MGD Shares and 300,000
MGD Warrants to its and Mr. DeGroote's employees and business associates
("Permitted Assigns"). In connection therewith, MGD Holdings assigned the right
to receive at Closing 100,000 MGD Shares and 300,000 MGD Warrants to Permitted
Assigns.

PROCEEDS FROM THE STOCK ISSUANCES

RESI intends to use the $10,500,000 aggregate proceeds under the Purchase
Agreements for general corporate purposes, which may include the repayment of
debt and the financing of acquisitions in both the insurance and hazardous waste
business. See "RESI Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Liquidity and Capital Resources."

GOVERNMENTAL AND REGULATORY FILINGS AND APPROVALS

HSR Act. Under the HSR Act, certain transactions, including the Stock
Issuances, may not be consummated unless certain information has been furnished
to the Federal Trade Commission ("FTC") and the Antitrust Division of the
Department of Justice (the "Department of Justice") and certain waiting period
requirements have expired or been terminated by the FTC. To the extent required,
MGD Holdings, RESI and Mr. Huizenga, respectively, will file notification
reports under the HSR Act with the FTC and the Department of Justice in
connection with the Purchase Agreements. Under the HSR Act, the FTC and the
Department of Justice will have 30 days to request additional information from
any of the filing persons. In the event that a second request is made, the FTC
and the Department of Justice will have 20 days following the compliance by the
parties to the second request (subject to extension upon mutual agreement by the
parties and the FTC and the Department of Justice) to request further
information, to request that the parties take certain actions or to take action
to enjoin the Combination.

The FTC and the Department of Justice frequently scrutinize the legality
under the antitrust laws of transactions such as the Stock Issuances.
Notwithstanding the early termination of the HSR Act waiting period, at any time
before or after the Stock Issuance Closing, either the FTC or the Department of
Justice has the authority to take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to enjoin
the consummation of the Stock Issuances. Private parties may also seek to take
actions under the antitrust laws. There can be no assurance that a challenge to
the Stock Issuances on antitrust grounds will not be made or, if such a
challenge is made, what the result of any such challenge will be.

Others. None of RESI, MGD Holdings and Mr. Huizenga is aware of any other
governmental or regulatory approvals required for consummation of the Stock
Issuances, other than compliance with applicable securities laws and stock
exchange rules.

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BUSINESS OF RESI

BUSINESS DESCRIPTION

GENERAL

RESI is a waste services company providing hazardous and non-hazardous
waste treatment, storage and transportation and disposal and recycling services
through its subsidiaries. RESI currently operates seven hazardous and
non-hazardous TSD Facilities located in the United States and Canada. These TSD
Facilities are serviced by RESI's integrated trucking operations. RESI does not
own any hazardous waste disposal sites. RESI also provides a broad range of
related environmental services including engineering, consulting and analysis,
remediation, groundwater/wastewater services and other technical services.

In April 1995, Republic Industries, the sole stockholder of RESI at such
time, effected a Spin-off of its hazardous waste operations through the Spin-off
of the stock of RESI to the stockholders of record of Republic Industries.
Pursuant to the Spin-off, the Republic Industries stockholders received one
share of RESI Common Stock for every five shares of Republic Industries common
stock. Approximately 10,800,000 shares of RESI were distributed to Republic
Industries stockholders. Public trading of the RESI Common Stock commenced on
Nasdaq on April 27, 1995 under the symbol "RESI." On June 24, 1996, RESI began
trading under the symbol "IASI" in anticipation of the Name Change.

RESI, formerly known as Stout, was incorporated in Delaware on June 16,
1987. In March 1992, Stout merged with a wholly-owned subsidiary of Republic
Industries, SEI Acquisition, Inc., a Delaware corporation, with RESI being the
surviving corporation. None of the former Stout stockholders is related to Craig
L. Stout, an officer and director of the Alliance Companies who will serve as
the Chief Operating Officer and a director of RESI upon consummation of the
Combination.

SERVICES

RESI's hazardous waste operations include the operation of its TSD
Facilities, transportation, remediation and technical services and related
engineering, consulting and analytical services. The following provides certain
information regarding RESI's operations in the hazardous and non-hazardous waste
industry as of June 1, 1996, unless otherwise indicated.

TSD FACILITIES

RESI provides hazardous and non-hazardous waste treatment, storage and
disposal services through seven commercial hazardous TSD Facilities located in
the United States and Canada. The wastes handled by these TSD Facilities include
substances which are classified as hazardous under applicable law because of
their source of generation, characteristic properties, specific constituents and
other substances subject to federal, provincial and state environmental
regulations.

Treatment, storage and disposal services are typically performed under
service agreements that obligate RESI to accept from its customer waste material
conforming to the specifications set forth in the services agreement. Before
RESI signs a service agreement with a customer, a representative sample of the
waste is analyzed by a laboratory to enable RESI to recommend the best method of
transportation, treatment and disposal. Prior to unloading at RESI's treatment
facility, a representative sample of the delivered waste is tested and analyzed
on site to ensure that it conforms to the customer's waste profile sheet. Once
the wastes are characterized, compatible groups are consolidated to achieve
economies in storage, handling, transportation and ultimate treatment and
disposal.

The operational and permitted capabilities of the seven TSD Facilities
operated by RESI vary extensively with each facility operating under site
specific permit requirements. The seven TSD Facilities in the aggregate have the
ability to process bulk liquids, solids, drums and laboratory-packaged waste
materials. Six of these TSD Facilities have received final hazardous waste
permits (EPA and/or state-issued Part B Permits or Canadian Ministry of the
Environment ("MOE") Permits) from the appropriate regulatory agencies and the
remaining TSD Facility is operating under an interim status permit. See
"-- Regulation." RESI expects to obtain the final Part B permit for this
facility in 1996. If this Part B permit application is denied, the TSD

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Facility would be forced to cease hazardous waste operations and be subject to
closure procedures with respect to such operations. The oil recycling operations
that are conducted at such location would be permitted to continue even if the
permit is denied. It is the opinion of management that the failure to obtain
such permit and the subsequent closure of the facility would not have a material
adverse effect on RESI.

The TSD Facilities have the collective ability to accept virtually all
types of hazardous and non-hazardous wastes, except radioactive materials. Each
TSD Facility is specifically regulated with respect to waste types that are
included in its permits.

The TSD Facilities collectively perform the following treatment and storage
services:

- -- bulking and consolidation for off-site incineration
- -- waste water treatment, including heavy metal precipitation, carbon
absorption, oxidation, reduction, biological treatment and filtration
- -- low level cyanide destruction
- -- fuels blending
- -- oil recycling
- -- phase separation
- -- PCB storage
- -- solids liquification
- -- stabilization of solid and semi-solid sludges

RESI currently owns nine TSD Facilities, seven of which are operational. The
following table provides certain information concerning the operating TSD
Facilities owned by RESI. These facilities serve markets in the northeastern and
midwestern United States and southern Ontario regions.

PERMITTED
PERMITTED OPERATING AND STORAGE
TSD FACILITY ACTIVITIES CAPACITIES
- -------------------------------- --------------------------------- ---------------------------------

Republic Environmental Systems Part B Permit -- hazardous waste Operating
(Pennsylvania), Inc. treatment and storage facilities capacities -- approximately 55
(Hatfield, PA)................ for hazardous and non-hazardous million gallons per year bulk
solid and liquid waste in bulk, liquid, 73,000 tons per year bulk
drum and lab pack; interim status solid, 99,000 drums per year;
PCB storage facility storage capacity -- approximately
568 drums, 335,000 gallons bulk
liquid, 1,500 cubic yards solid
Republic Environmental Recycling Part B application filed in 1986; Operating capacities
(New Jersey), Inc. EPA and NJDEP (defined herein) approximately 18 million gallons
(Clayton, NJ)................. interim status-waste oil blending per year of bulk waste; storage
and recycling, fuels blending and capacity -- 2 million gallons
transfer facility
Republic Environmental Systems Part B Permit -- bulk solid Operating
(Cleveland), Inc. (formerly hazardous waste treatment and capacities -- approximately
Evergreen Environmental Group, storage, hazardous and non- 124,800 tons per year bulk solid,
Inc.) (Bedford, OH)........... hazardous drum treatment, bulk 18,250 drums per year; storage
liquids and oils treatment and capacity -- approximately 975
fuels blending drums and 47,500 gallons bulk
liquid, 1,000 cubic yards solid
Republic Environmental Systems MOE Permit -- hazardous waste Operating
(Port Colborne) Ltd. (Port treatment, processing, recovery, capacities -- approximately 3.4
Colborne, Ontario)............ transfer and storage million gallons per year bulk
liquid, 1,170 tons per year bulk
solid, 52,000 drums per year;
storage capacity -- approximately
1,300 drums and 65,000 gallons
bulk liquid, 120 tons solid
Republic Environmental Systems MOE Permit -- hazardous waste Operating
(Brantford) Ltd. (Brantford, treatment, processing, recovery, capacities -- approximately 12.5
Ontario)...................... transfer and storage million gallons per year bulk
liquid; storage
capacity -- 175,000 gallons

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PERMITTED
PERMITTED OPERATING AND STORAGE
TSD FACILITY ACTIVITIES CAPACITIES
- -------------------------------- --------------------------------- ---------------------------------

Republic Environmental Systems MOE Permit -- hazardous waste Operating capacities --
(Pickering) Ltd. (Pickering, treatment, processing, recovery, approximately 2.9 million
Ontario)...................... transfer and storage gallons per year bulk or
drum liquid or solid; storage
capacity -- 110,000 gallons bulk
or drum
Republic Environmental Systems MOE Permit -- hazardous waste Operating
(Brockville) Ltd. (Brockville, treatment, processing, recovery, capacities -- approximately 3.1
Ontario)...................... transfer and storage million gallons per year bulk
liquid, 24,000 tons per year bulk
solid, approximately 39,000 drums
per year; storage
capacity -- 3,000 drums and
120,000 gallons bulk solid

RESI also owns TSD Facilities in Farmingdale, New York and Dayton, Ohio, which
terminated operations in June 1993 and October 1995, respectively. See "-- Legal
Proceedings" and "RESI Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Results of Operations." With respect to
the closing of both of these TSD Facilities, RESI has accrued the appropriate
costs.

During June 1996, the Ohio EPA approved the expansion of the types of waste
managed in RESI's TSD Facility located in Cleveland, Ohio. The remaining permit
revisions are currently still under review. Management expects final approval of
the remaining permit revisions throughout the remainder of 1996.

TRANSPORTATION SERVICES

As an integral part of RESI's treatment, storage and disposal operations,
hazardous and non-hazardous wastes are collected from customers and transported
by RESI to and between its TSD Facilities for treatment or bulking in
preparation for shipment to final disposal locations. In providing this service,
RESI utilizes a variety of specially designed and constructed tank trucks,
vacuum trucks and semi-trailers. Liquid waste is frequently transported in bulk,
but may also be transported in drums. Heavier sludges or bulk solids are
transported in sealed roll-off containers or sealed gate-dump trailers.

RESI's United States hazardous waste transportation services are performed
primarily by two of RESI's subsidiaries, Republic Environmental Systems
(Transportation Group), Inc. ("RES (Transportation Group)") and Chem-Freight,
Inc. ("Chem-Freight"). RES (Transportation Group) is located in Hatfield,
Pennsylvania and has been operating since 1985. Chem-Freight is located in
Walton Hills, Ohio and has been operating since 1971. These trucking companies
provide a majority of their direct services to RESI's TSD Facilities. RESI
believes that this transportation arrangement ensures quality control and
improved efficiency and helps prevent delays at the TSD Facilities. Trucking
revenues for services provided to third parties, such as other environmental
service companies, waste brokers and waste generators, are recognized as
trucking revenue. Third-party customers of RES (Transportation Group) and
Chem-Freight include general industrial businesses and other waste management
companies. RES (Transportation Group) is licensed to haul in 36 states from the
eastern to the midwestern regions of the United States, and Chem-Freight is
licensed to haul in the 48 contiguous states.

Most of the transportation services provided to RESI's Canadian TSD
Facilities are performed by one of RESI's subsidiaries, Republic Environmental
Systems (Brockville) Ltd. ("RES (Brockville)"). RES (Brockville) is licensed to
haul in the provinces of Ontario and Quebec in Canada and in the states of
Michigan and New York in the United States.

REMEDIATION

RESI's hazardous waste division provides selected remediation services
through its subsidiary, Republic Environmental Systems (Technical Services
Group), Inc. ("RES (Technical Services)"). RES (Technical Services) is a
full-service environmental remediation contractor specializing in remedial
services, tank cleaning, testing and removal, decontamination/lagoon closure,
excavation and removal of contaminated soils,

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dewatering, emergency response, "Superfund" clean-up work and waste sampling.
These services are provided to RESI's TSD Facility customers and others on a
competitive bid basis.

When RESI is engaged to perform an entire environmental remediation
project, it will first perform a site or situation assessment which involves
gathering samples from the contaminated site and then analyzing them to
establish or verify the nature and extent of the contaminants. Analysis of
samples is conducted by RESI at its TSD Facilities or by independently-operated
laboratory companies. RESI's engineering and consulting group then develops,
evaluates and presents alternative solutions to remedy the particular situation.

TECHNICAL SERVICES

At RESI's analytical facilities, technicians test samples provided by
customers through the use of comprehensive analytical procedures to identify and
quantify toxic pollutants in virtually every component of the environment,
including, without limitation, drinking water, surface and groundwater, soil,
air, food, industrial effluents and biological tissues. The laboratory staff
evaluates the properties of a given material, selects appropriate analytical
methods, and designs, documents and executes a laboratory work plan that results
in a comprehensive technical report.

RESI also provides environmental consulting services, including regulatory
consulting, RCRA consulting, Environmental Clean-up Responsibility Act site
assessment, remedial action plan preparation, treatment process technology and
system design, waste minimization programs planning and alternate waste disposal
evaluations.

RESI'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS

RESI provides integrated hazardous waste disposal, collection, recycling,
environmental and treatment services to the public and private sectors in the
United States and Canada.

Operating revenues and operating income of RESI by geographic area and the
related disclosures of depreciation and amortization, capital expenditures and
identifiable assets by geographic area as of, and for the years ended, December
31, 1995, 1994 and 1993 are set forth in Note 11 to RESI's consolidated and
combined financial statements included herein.

SALES AND MARKETING

RESI's sales and marketing strategy is to provide full-service
environmental management to its customers. RESI targets customers of all sizes
from small quantity generators to large "Fortune 100" companies. Marketing
efforts also target environmental engineers, real estate brokers, potentially
responsible party ("PRP") committees, lawyers, hospitals and waste brokers.

RESI believes in maintaining a strong foundation of repeat business. RESI
derives its business from a broad base of clientele which management believes
enables RESI to experience stable growth. Marketing efforts focus on continuing
and increasing business with existing customers, as well as attracting new
clients.

COMPETITION

The hazardous waste treatment, storage and disposal industry is highly
competitive and requires substantial amounts of capital. The competition in this
industry includes large national companies such as Clean Harbors, Inc., Laidlaw
Environmental Services, Inc. and Rollins Environmental, Inc., as well as local
TSD Facilities and disposal and treatment companies. RESI competes for business
on a basis of price and geographic location.

CUSTOMERS

RESI's sales efforts are directed toward establishing and maintaining
business relationships with businesses in the eastern and midwestern regions of
the United States and Ontario, Canada, which have

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ongoing requirements for one or more of RESI's services. No one customer
individually comprises more than 6% of the total consolidated revenue of RESI.

SEASONALITY

RESI's operations experience seasonal fluctuations, with higher demand
commencing in approximately April of each year and continuing through October,
and lower demand occurring from November through March. Additionally, RESI's
operations may experience operational limitations from November through March
due to weather conditions in the northeastern United States and southeastern
Ontario. Severe weather experienced during winter months may adversely affect
RESI's results of operations.

REGULATION

The transportation and disposal of solid and chemical wastes and rendering
of related environmental services are subject to federal, state, provincial and
local requirements which regulate health, safety, the environment, zoning and
land-use. Operating permits are generally required for TSD Facilities and
certain transportation vehicles, and these permits are subject to revocation,
modification and renewal. Federal, state, provincial and local regulations vary,
but generally govern waste management activities (including final disposal) and
the location and use of facilities and also impose restrictions to prohibit or
minimize air and water pollution. In addition, governmental authorities have the
power to enforce compliance with these regulations and to obtain injunctions or
impose fines in the case of violations, including criminal penalties. These
regulations are administered by the EPA and various other federal, state,
provincial and local environmental, health and safety agencies and authorities,
including the Occupational Safety and Health Administration of the United States
Department of Labor.

Although RESI strives to conduct its operations in compliance with
applicable laws and regulations, RESI believes that in the existing climate of
heightened legal, political and citizen awareness and concerns, companies in the
hazardous waste and environmental services industry, including RESI, may be
faced with fines and penalties and the need to expend funds for remedial work
and related activities at TSD Facilities. RESI has established a reserve to
cover such fines, penalties and costs which Management believes will be
adequate. Further, in connection with the acquisition of certain TSD Facilities,
RESI has been indemnified against certain environmental liabilities. See
"-- Legal Proceedings." While such amounts expended in the past or anticipated
to be expended in the future have not had and are not expected to have a
materially adverse effect on RESI's financial condition or operations, the
possibility remains that technological, regulatory or enforcement developments,
the results of environmental studies or other factors could materially alter
this expectation and despite such reserves and indemnification obligations,
could adversely affect RESI's operating results.

RESI's operation of TSD Facilities subjects it to certain operating,
monitoring, site maintenance and closure obligations. In order to construct,
expand and operate a TSD Facility, one or more construction or operating
permits, as well as zoning approvals, must be obtained. These operating permits
and zoning approvals are difficult and time-consuming to obtain, and the
issuance of such permits and approvals often is opposed by neighboring
landowners and local and national citizens' groups. Once obtained, the operating
permits may be subject to periodic renewal and are subject to modification and
revocation by the issuing agency. In connection with RESI's acquisition of
existing TSD Facilities, it often may be necessary to expend considerable time,
effort and money to bring the acquired facilities into compliance with
applicable requirements and to obtain the permits and approvals necessary to
increase their capacity. The failure of RESI to renew existing permits or obtain
newly required permits, could adversely affect RESI's operating results. In
addition, RESI's waste transportation operations are subject to evolving and
expanding laws and regulations that may impose additional monitoring, training
and safety requirements.

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or safety regulations. Upon receipt of such citations or notices, RESI will work
with the authorities to attempt to resolve the issues raised. Failure to correct
the problems to the satisfaction of the authorities could lead to monetary or
criminal penalties, curtailed operations or facility closure any of which could
have a material adverse affect on RESI's operating results.

Federal Regulation. The following summarizes the primary U.S. federal
statutes affecting the business of RESI:

(1) The Solid Waste Disposal Act ("SWDA"), as amended by RCRA. SWDA
and its implementing regulations establish a framework for the regulation
of the generation, handling, transportation, treatment, storage and
disposal of hazardous and non-hazardous wastes. They also require states to
develop programs to insure the safe disposal of solid wastes in sanitary
landfills.

Subtitle C of RCRA imposes a variety of regulatory requirements on a
person who is either a "generator" or "transporter" of hazardous waste, or
an "owner" or "operator" of a hazardous waste treatment, storage or
disposal facility. The EPA has issued regulations under RCRA for hazardous
waste generators, transporters, and owners and operators of TSD Facilities.
These regulations impose, among other requirements, detailed operating,
inspection, training and emergency preparedness and response standards, as
well as requirements for permitting, manifesting, record keeping and
reporting, facility closure, post-closure care and financial assurance.
Owners and operators of TSD Facilities also are subject to stringent
corrective action requirements that can be very expensive. The Hazardous
and Solid Waste Amendment of 1984 mandated that hazardous wastes be treated
prior to land disposal. Owners and operators of TSD Facilities must treat
wastes to meet specified performance-based or technology-based treatment
standards.

(2) The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"). CERCLA, among other things,
established a regulatory and remedial program intended to provide for the
investigation and the clean-up of sites from which there is or has been a
release or threatened release of a hazardous substance into the
environment. CERCLA's primary mechanism for remedying such problems is to
impose strict liability (and pursuant to the interpretation of certain
courts, joint and several liability) for clean-up and for damages to
natural resources upon: (a) any person who currently owns or operates the
facility or site; (b) any person who owned or operated the facility or site
at the time of disposal of hazardous substances; (c) any person who by
contract, agreement or otherwise, arranged or accepted for disposal or
treatment (or for transport for disposal or treatment) of the hazardous
substances; and (d) any generator of the hazardous substances. Under the
authority of CERCLA and its implementing regulations, detailed requirements
apply to the manner and degree of remediation of facilities and sites where
hazardous substances have been or are threatened to be released into the
environment. The costs of CERCLA investigation and clean-up can be
substantial.

Among other things, CERCLA authorizes the federal government either to
remediate sites at which hazardous substances were disposed and have been
or are threatened to be released into the environment, or to order (or
offer an opportunity to order) persons potentially liable for the clean-up
of the hazardous substances to do so. In addition, CERCLA requires the EPA
to establish a National Priorities List ("NPL") of sites at which hazardous
substances have been or are threatened to be released and which require
investigation or clean-up.

Liability under CERCLA is not dependent upon the intentional disposal
of "hazardous wastes." It can be founded upon the release or threatened
release, even as a result of unintentional and non-negligent action, of
very small amounts of any one of thousands of "hazardous substances" listed
by the EPA, many of which can be found in household waste. If this is the
case, and if there is a release or threatened release of such substances,
RESI could be held liable under CERCLA for all investigative and remedial
costs even if others may also be liable. CERCLA also authorizes the
imposition of a lien in favor of the United States upon all real property
subject to or affected by a remedial action for all costs for which a party
is liable. The ability of RESI to obtain reimbursement from others for
their allocable share of such costs would be limited by its ability to find
other responsible parties and prove the extent of each of such other
parties' responsibility and by the financial resources of such other
parties. The costs of a CERCLA clean-

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up can be very expensive. Given the difficulty of obtaining insurance for
environmental impairment liability, such liability could have a material
impact on RESI's business and financial condition. See "-- Liability
Insurance and Bonding."

(3) The Federal Water Pollution Control Act of 1972, as amended (the
"Clean Water Act"). The Clean Water Act establishes a framework for
regulating the discharge of pollutants from a variety of sources, including
TSD Facilities, into streams, rivers and other waters. Whenever point
source runoff from RESI's facilities is to be discharged into surface
waters, the Clean Water Act requires RESI to apply for and obtain discharge
permits, conduct sampling and monitoring and, under certain circumstances,
reduce the quantity of pollutants in those discharges. In 1990, the EPA
published new storm water discharge regulations which require a facility to
apply for a storm water discharge permit unless it is covered under a storm
water general permit promulgated by the agency. These storm water discharge
regulations also require a permit for certain construction activities,
which may affect RESI's operations. If a facility discharges wastewater
through a sewage system to a publicly-owned treatment works ("POTW"), the
facility must comply with discharge limits imposed by the POTW. In
addition, states may adopt groundwater protection programs under the Clean
Water Act or Safe Drinking Water Act or independent state authority that
could affect TSD Facilities.

(4) The Clean Air Act. The Clean Air Act establishes a framework for
the federal, state and local regulation of the emission of air pollutants.
These regulations may impose emission limitations and monitoring and
reporting requirements on certain of RESI's operations. The Clean Air Act
Amendments, which were enacted into law at the end of 1990, resulted in the
imposition of stringent requirements on many activities that were
previously largely unregulated, such as emissions of solvents used in small
parts degreasing baths in RESI's vehicle maintenance shops, as well as
imposing more stringent requirements on, among others, motor vehicle
emissions and emissions of hazardous air pollutants.

(5) The Occupational Safety and Health Act of 1970 (the "OSH Act").
The OSH Act authorizes the Occupational Safety and Health Administration to
promulgate occupational safety and health standards. Various of these
standards, including standards for notices of hazardous chemicals and the
handling of asbestos, may apply to RESI's operations.

State Regulation. Each state in which RESI operates has its own laws and
regulations governing hazardous and solid waste disposal, water and air
pollution and, in most cases, release and clean-up of hazardous substances and
liability for such matters. The states also have adopted regulations governing
the design, operation, maintenance and closure of TSD Facilities. RESI's
facilities and operations are likely to be subject to many, if not all, of these
types of requirements.

Finally, various states have enacted, or are considering enacting, laws
that restrict the disposal within the state of solid or hazardous wastes
generated outside the state. While laws that overtly discriminate against out-
of-state waste have been found to be unconstitutional, some laws that are less
overtly discriminatory have been upheld in court. Challenges to other such laws
are pending. The outcome of pending litigation and the likelihood that other
such laws will be passed and will survive constitutional challenge are
uncertain. In addition, Congress is currently considering legislation
authorizing states to adopt such restrictions.

Canadian Regulation. RESI's operations in Canada relating to hazardous
waste treatment, recycling and recovery of chemical waste and waste water are
subject to the general business and environmental laws and regulations of
Canada, which are similar in nature to U.S. laws and regulations. While RESI
believes that its Canadian operations are in substantial compliance with
applicable laws and regulations, RESI is unable to predict the course of
development of such laws and regulations.

LIABILITY INSURANCE AND BONDING

The nature of RESI's business exposes it to a significant risk of liability
for legal damages arising out of its operations, as discussed above. See
"-- Legal Proceedings." The majority of RESI's operations have environmental
liability insurance subject to certain limitations and exclusions in excess of
the limits required by permit regulations; however, there is no assurance that
such limits would be adequate in the event of a

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major loss. RESI carries commercial general liability insurance, automobile
liability insurance, workers' compensation, pollution legal liability and
employer's liability insurance as required by law in the various states and
provinces in which operations are conducted and umbrella policies to provide
excess limits of liability over the underlying limits contained in the
commercial general liability, automobile liability and employer's liability
policies.

From time to time, RESI may be required to post a performance bond or a
bank letter of credit in connection with the operation of TSD Facilities,
certain remediation contracts and certain environmental permits. Bonds issued by
surety companies operate as a financial guarantee of RESI's performance. To
date, RESI has satisfied financial responsibility requirements by making cash
deposits, obtaining bank letters of credit or by obtaining surety bonds.

EMPLOYEES

At July 31, 1996, RESI employed approximately 268 employees, four of which
are party to collective bargaining agreements. RESI considers its relationships
with its employees to be satisfactory.

PROPERTIES

In April 1995, RESI established its corporate headquarters at 16 Sentry
Park West, 1787 Sentry Parkway West, Suite 400, Blue Bell, Pennsylvania in
leased premises. All of RESI's property and equipment located in the United
States is subject to liens securing payment of RESI's borrowings under the RESI
Credit Facility. See "RESI Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Liquidity and Capital Resources." RESI
also leases certain of its offices, shop, storage space and equipment.

RESI has nine waste treatment locations, seven of which are operational.
RESI has five locations in the United States and four in Canada. See "--
Business Description -- TSD Facilities."

LEGAL PROCEEDINGS

Republic Environmental Systems (Cleveland), Inc. In June 1993, RES
(Cleveland) (formerly known as Evergreen Environmental Group, Inc.) received a
Complaint and Compliance Order from the Enforcement Division of EPA Region 5
alleging that the former owners of RES (Cleveland)'s TSD Facility failed to
submit a proper RCRA Facility Investigation ("RFI") workplan to the EPA on a
timely basis and fined RES (Cleveland). This RFI workplan included the
evaluation of sub-surface soils and groundwater at the TSD Facility to determine
whether a remedial action plan was necessary. In September 1993, EPA Region 5
granted approval for implementation of the RFI workplan submitted by RES
(Cleveland). In June 1995, RES (Cleveland) reached an agreement with EPA Region
5 by consent agreement and final order (the "CAFO") to settle the issues related
to the former owners' failure to achieve an approvable RFI workplan. The CAFO
included a fine of $60,000 and required the meeting of certain stipulations.
RESI paid the fine in June 1995.

In addition, RES (Cleveland) was involved in negotiations with the Ohio EPA
to bring RES (Cleveland)'s facility located in Bedford, Ohio into full
compliance with the Ohio EPA regulations and settle a proposed penalty. In
August 1994, RES (Cleveland) reached an agreement by consent order with the Ohio
EPA which included a penalty for $250,000, payable over a three-year period, as
well as meeting certain stipulations.

Republic Environmental Systems (New York), Inc. In late June 1993, Republic
Environmental Systems (New York), Inc. ("RES (New York")) ceased operations at
its TSD Facility in Farmingdale, New York, due to ongoing disputes and
negotiations with various regulatory agencies including the New York Department
of Environmental Conservation ("New York DEC"), the town of Oyster Bay and
Nassau County. In addition, RES (New York) received from the New York DEC a
proposed Summary Order in an Administrative Action commenced by the New York DEC
against the RES (New York) facility, whereby the New York DEC sought revocation
of RES (New York)'s permit to operate as a TSD Facility. The New York DEC
withdrew a previous consent order against RES (New York), under which RES (New
York) had

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agreed to pay $100,000 for past alleged violations at the facility and to
resolve several administrative permit issues.

In early 1994, RES (New York) voluntarily ceased operations at its
hazardous waste TSD facility in Farmingdale, New York, due to ongoing disputes
and negotiations with the New York DEC, the town of Oyster Bay and Nassau
County. In addition, RES (New York) entered into negotiations for a consent
decree with the New York DEC which provided for payment by RES (New York) of
$270,000, $170,000 of which would be suspended upon successful completion of the
terms of the consent order, and the manner in which RESI was required to close
the facility. The parties are currently negotiating the technical aspects of the
requirements relating to facility closure.

RESI is also a party to various environmental proceedings related to its
hazardous waste services operations which have arisen in the ordinary course of
its business. Management believes that these matters will not have a material
adverse effect on RESI's results of operations or financial position.

ENVIRONMENTAL PROCEEDINGS COVERED BY THIRD-PARTY INDEMNITY

In connection with the acquisition of Stout, the former stockholders of
Stout (the "Party Stockholders") agreed to indemnify Republic Industries, RESI,
subsidiaries of RESI and their respective officers, directors, agents and
representatives from losses associated with, among other things, soil, water and
groundwater contamination occurring prior to Republic Industries' acquisition of
Stout.

RESI has been identified as a PRP in a number of governmental
investigations and actions relating to waste disposal facilities which may be
subject to remedial action under CERCLA. Proceedings arising under CERCLA
typically involve numerous waste generators and other waste transportation and
disposal companies. Generally, these proceedings are based on allegations that
these entities (or their predecessors) transported hazardous substances to the
facilities in question, in all cases prior to acquisition of Stout by Republic
Industries. As a successor to Stout, RESI and Republic Industries have become a
party to and become potentially liable in these proceedings to the same extent
as Stout. RESI and Republic Industries have been indemnified for all costs and
expenses incurred with regard to these proceedings by Party Stockholders of
Stout. The Party Stockholders' obligation under the indemnity was secured by a
first lien and perfected security interest covering two million shares of
Republic Industries' common stock. During June 1995, Party Stockholders had
placed $7 million in an escrow account in lieu of the two million shares of
Republic Industries stock as security for the remaining indemnification
obligations. RESI is currently paying costs and legal expenses with regard to
these proceedings which are then reimbursed by the former stockholders of Stout.
Pursuant to agreements with Republic Industries, RESI has agreed to assume any
and all liabilities of Republic Industries in these proceedings and has accepted
assignment from Republic Industries of all of its rights in connection
therewith, including, without limitation, Republic Industries' rights as
indemnitee and pledgee pursuant to the Party Stockholders indemnification
obligations. See Note 4 to RESI's consolidated and combined financial statements
included herein.

Management believes that the legal and environmental proceedings covered by
the indemnity will be resolved in a manner that will not have a materially
adverse effect on RESI's results of operations or combined financial position.

The following is a description of proceedings whose claims are covered by
the indemnity obligations of the former Stout stockholders.

Adams Oil, Inc. Adams Oil, Inc. ("Adams Oil"), a wholly-owned subsidiary of
RESI, previously operated an oil terminal located in Camden, New Jersey. RESI is
aware that there is evidence of contamination on the property which may have
been caused by past spills of possible hazardous materials (i.e., petroleum
hydrocarbons, gasoline, diesel fuel). The amount and the sources of the
contamination are currently under investigation by Adams Oil. The New Jersey
Department of Environmental Protection (the "NJDEP") has knowledge of the
problem and has requested more information from Adams Oil. Management believes
that remedial action may be required and a clean-up plan has been submitted to
NJDEP for approval.

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Republic Environmental Systems (Pennsylvania), Inc. Republic Environmental
Systems (Pennsylvania), Inc. ("RES (Pennsylvania)") has been named as a PRP in
the North Penn Area No. 2 regional groundwater problem involving 56 square miles
occupied by hundreds of industrial companies. The EPA has requested that RES
(Pennsylvania) enter into a regional administrative consent order to investigate
and determine its contribution, if any, to the regional groundwater problem. RES
(Pennsylvania) believes that it should not agree to a consent order under
CERCLA, but instead should be regulated under its RCRA corrective action permit.
The EPA is looking at the septic system and the contamination of groundwater, as
well as considering adding other PRP companies. RES (Pennsylvania) has signed an
administrative consent order to conduct a limited investigation of the RES
(Pennsylvania) TSD Facility to determine whether it is reasonable to continue to
include RES (Pennsylvania) as a PRP. RES (Pennsylvania) is not aware of any
evidence that it contributed to a regional groundwater problem.

In addition, RES (Pennsylvania) (formerly known as Waste Conversion, Inc.)
also has been named as a PRP along with 13 other primary defendants for the
recovery costs to remediate the Moyers Landfill Site in eastern Pennsylvania. A
company previously known as Waste Conversion of Delaware, Inc. disposed of
materials at Moyers Landfill from 1979 to 1981. This company then sold its
assets to Waste Conversion, Inc., which was owned by Stout. RES (Pennsylvania)
is currently in settlement negotiations with the EPA to limit its exposure in
this matter.

RES (New York) and RES (Pennsylvania) are parties in a PRP action with
respect to the Aqua-Tech TSD facility in South Carolina. There are 180 parties
to date. In April 1993, an agreement was reached whereby RESI paid approximately
$360,000 for proposed settlement of certain issues at the facility, pending the
final allocation to the PRPs.

Republic Environmental Systems (New York), Inc. The New York DEC has
alleged that RES (New York) is liable for unpaid generator fees in the amount of
$240,000 plus interest. RES (New York) and other owners of New York TSD
Facilities argue that the state is subjecting them to excess fees by
categorizing them both as a TSD Facility and as an original waste generator. The
central issue of the amount of generator fees owed by RES (New York) has been
stayed pending New York DEC determination of the appropriate category for RES
(New York) and what generator fee it should pay as a result thereof. This matter
will be settled under the consent order being negotiated for the facility's
closure. Payments scheduled under this order will be credited to settle this
matter.

In addition, on March 19, 1992, the New York State DEC informed RES (New
York) that it may be a PRP with respect to the Quanta Resources site in Queens,
New York. At present, RES (New York) is awaiting additional information from the
New York DEC in order to assess the extent of its exposure, but believes it is
not material.

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RESI MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESI provides its hazardous and non-hazardous waste treatment, storage and
transportation and disposal and recycling services through its subsidiaries. As
a holding company whose material assets consist primarily of stock of the
subsidiaries, RESI is, and expects to continue to be dependent upon quarterly
distributions of earnings and interest on and repayment of principal under
intercompany debt of the subsidiaries to service its debt obligations and
satisfy its other obligations.

RESI's revenue from its TSD Facilities consists of fees from the generators
of hazardous and non-hazardous materials for the transportation and processing
of their waste materials. Revenue from RESI's remediation operations results
from contracts which are generally awarded on a competitive bid basis. Operating
costs incurred in the TSD Facilities include primarily labor, materials,
disposal fees, compliance costs and facility overhead and maintenance. Cost of
operations associated with remediation includes primarily labor and supplies.

RESI provides for accrued environmental costs which includes facility
closure costs as well as environmental and remediation costs. RESI estimates its
future cost requirements for closure of its facilities based on its
interpretation of the technical standards of the EPA's Subtitle C regulations.
These estimates do not take into account discounts for the present value of such
total estimated costs. Environmental costs are accrued by RESI through a charge
to income in the appropriate period for known and anticipated environmental
liabilities.

RESI periodically reassesses its methods and assumptions used to estimate
such accruals for environmental costs and adjusts such accruals accordingly.
Such factors considered include changing regulatory requirements, the effects of
inflation, changes in operating climates in the regions in which RESI's
facilities are located and the expectations regarding costs of securing
remediation and other environmental services.

In July 1994, Republic Industries announced the contemplation of a plan to
restructure and distribute its hazardous waste services segment to the Republic
Industries stockholders. Pursuant to the plan, Republic Industries consolidated
its hazardous waste services operations in RESI and subsidiaries of RESI. The
plan provided for the distribution of the stock of RESI to the stockholders of
record of Republic Industries. The Spin-off was treated as a tax-free
distribution by Republic Industries for tax reporting purposes. Republic
Industries stockholders received, as of the date of the Spin-off, one share of
RESI Common Stock for every five shares of RESI Common Stock of Republic
Industries owned on April 21, 1995, the record date, established by the Republic
Industries Board of Directors with respect to the Spin-off. Republic Industries
has no ownership interest in RESI.

In connection with the Spin-off, RESI and Republic Industries entered into
various agreements including a Distribution Agreement, Corporate Services
Agreement, Tax Sharing Agreement and various indemnity agreements.

The Distribution Agreement provided for the principal corporate
transactions which were required to effect the Spin-off, including the
contribution of Republic Industries' Canadian hazardous waste services
subsidiary to RESI and the intercompany balance to RESI's equity at the date of
the Spin-off. The Distribution Agreement also provided for Republic Industries
to contribute an additional $2.2 million to RESI to repay indebtedness and to
provide working capital in connection with the Spin-off.

The Tax Sharing Agreement provides for, among other things, the treatment
of tax matters for periods through the date of the Spin-off and responsibility
for any adjustments as a result of audit by any taxing authority. The general
terms provide for the indemnification for any tax detriment incurred by one
party which is caused by the other party's actions.

Other agreements include various indemnity agreements which provide for
indemnification by RESI to Republic Industries, and vice versa, for potential
increases, or decreases, in any RESI liabilities which remain with Republic
Industries as a result of previously shared arrangements.

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The following is a description of the business of RESI and a discussion of
the consolidated and combined historical financial position and results of
operations of RESI for each of the years ended December 31, 1995, 1994 and 1993
and the factors affecting RESI's financial resources and capital after the
Distribution. This discussion should be read in conjunction with RESI's
consolidated and combined financial statements and notes thereto included
herein.

The consolidated and combined historical financial statements include the
assets, liabilities and operations of RESI, as well as the assets, liabilities
and operations of RESI's subsidiaries including Republic Canada, Inc., a
Delaware corporation, and its subsidiaries, including Republic Environmental
Systems Ltd. ("RESL") (formerly known as Great Lakes Environmental Group Ltd.),
the Canadian hazardous waste services subsidiary of Republic Industries, which
was acquired by Republic Industries in July 1991 and contributed to RESI in
connection with the Distribution; and Republic Environmental Systems
(Cleveland), Inc. (formerly known as Evergreen Environmental Group, Inc.), which
was acquired by Republic Industries in September 1991 and contributed to RESI in
May 1993.

RESULTS OF OPERATIONS

The following table sets forth the percentage relationship that the line
items in RESI's consolidated and combined statement of operations bear to total
revenue:

PERCENTAGE OF REVENUE
---------------------------------------
SIX
MONTHS
ENDED
JUNE YEAR ENDED DECEMBER 31,
30, ----------------------------
1996 1995 1994 1993
----- ----- ----- ------

Revenues............................. 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of operations................. 74.2 73.4 71.6 76.3
Selling, general and
administrative.................. 29.2 21.9 22.2 21.9
Restructuring and unusual
charges......................... -- -- 18.2 24.2
----- ----- ----- ------
Operating income (loss).............. (3.4)% 4.7% (12.0)% (22.4)%
===== ===== ===== ======

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1995

Revenue. Revenue for the six months ended June 30, 1996 decreased $9.4
million to $15.8 million from $25.2 million for the same period in 1995. This
decrease is primarily a result of the delay in the commencement of several
significant remediation projects which were to begin during the second quarter
of 1996 but were delayed due to administrative and regulatory issues. Also,
decreased demand within the hazardous waste industry due, in part, to continuing
efforts by generators of hazardous waste to implement waste minimization
programs and the shipment of waste by such generators directly to the ultimate
disposal location, contributed to the decrease in revenues. The decrease in
demand resulted in a decrease in volumes serviced as well as a reduction in
prices changed by RESI and, consequently, lower margins. Also contributing to
the decrease in services provided was the severe winter weather conditions
experienced throughout the Northeastern United States and Canada during the
first quarter of 1996. Finally, RESI results for the six months ended June 30,
1996 were also adversely affected by the delay in the granting of certain permit
extensions and revisions at RESI's Cleveland, Ohio TSD Facility that were
anticipated to coincide with the closure of RESI's Dayton, Ohio facility in the
fourth quarter of 1995. During June 1996, the Ohio EPA approved the expansion of
the types of waste managed in RESI's TSD Facility located in Cleveland, Ohio.
The remaining permit revisions are currently still under review by the Ohio EPA.
Management expects final approval of the remaining permit revisions throughout
the remainder of 1996; however, failure to obtain the remaining permit revisions
could continue to have a negative impact on revenues.

Cost of Operations. Cost of operations decreased $6.3 million, or 34.8%, to
$11.8 million during the six months ended June 30, 1996 from $18.1 million for
the same period in 1995. As a percentage of revenue these costs were 75.0% and
72.0% for the six months ended June 30, 1996 and 1995, respectively. This
increase is

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primarily due to the lower margins resulting from the reduction in prices. Also
contributing to the increase is the significant portion of fixed costs
associated with RESI's operations.

SG&A. Selling, general and administrative expenses decreased by 7.8% to
$4.7 million for the six months ended June 30, 1996 from $5.1 million for the
same period in 1995. This decrease is a result of RESI's continued efforts to
improve efficiencies and reduce costs. As a percentage of revenue these costs
were approximately 29.5% and 20.2% for the six months ended June 30, 1996 and
1995, respectively. This increase as a percentage to revenue is the result of a
portion of the selling, general and administrative expenses associated with
RESI's operations being fixed.

Interest Expense. Interest expense decreased to $110,000 for the six months
ended June 30, 1996 from $154,000 for the six months ended June 30, 1995. This
decrease is a result of the Company's repayment of debt of its Canadian
subsidiaries during the second quarter of 1995.

Income Taxes. RESI recorded an income tax benefit of $146,000 for the six
months ended June 30, 1996, reflecting an effective tax rate of approximately
37.0%. RESI's income tax provision in the same period for 1995 was $708,000
reflecting an effective tax rate of approximately 37.0%.

COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994

Revenues. Revenues decreased 4.5% to $44.5 million in the year ended
December 31, 1995 from $46.6 million in 1994. RESI attributes the decrease in
revenue for this period to several factors including, the continued intense
competition in the hazardous waste management industry and the uncertainties
that prevail regarding state and federal regulation changes which affect waste
generators. These factors had a negative impact on pricing and volumes within
the industry. In addition, RESI also experienced a delay in the granting of
certain permit extensions and revisions at RESI's Cleveland, Ohio facility. This
delay coincided with the expiration of the operating permit and the closure of
RESI's Dayton, Ohio facility. Also, the severe weather conditions throughout the
northeastern United States and Canada had a negative effect on RESI's operations
in the fourth quarter of 1995.

Cost of Operations and Selling, General and Administrative Expenses. Cost
of operations decreased 2.1% to $32.7 million in the year ended December 31,
1995 from $33.4 million in 1994. As a percentage of revenue, these costs were
73.4% and 71.6%, respectively. This overall decrease is attributable to the
reduced level of revenues. The increase as a percentage of revenue for 1995 is
due to an increase in lower margin projects as compared with the same period in
1994. Selling, general and administrative expenses decreased to $9.8 million in
the year ended December 31, 1995 from $10.3 million in 1994. As a percentage of
revenue for the years ended 1995 and 1994, these costs were approximately 21.9%
and 22.2%, respectively. This decrease is a result of the decrease in operations
in 1995 and additional cost reduction measures taken during 1995.

RESI has historically relied on Republic Industries for certain services
including human resources administration, financial reporting, tax services,
legal services and environmental services. Charges for these services, which
amounted to $391,000, $851,000 and $839,000 during the years ended December 31,
1995, 1994 and 1993, respectively, were allocated to RESI on a basis which
approximated the cost of actual services. Management believes that the
allocation of expenses was made on a reasonable basis and that expenses to be
incurred by RESI as a stand-alone entity will not differ significantly. In
addition, concurrent with the Distribution, RESI has obtained engineering
services from a subsidiary of Republic Industries on a competitive bid basis.
RESI had entered into a Corporate Services Agreement with Republic Industries
pursuant to which Republic Industries provided all of these services until March
31, 1996.

Interest Expense. Interest expense decreased to $219,000 in the year ended
December 31, 1995 from $473,000 during the same period in 1994. This decrease is
primarily due to the conversion of RESL's subordinated debt to redeemable
participating preferred stock of RESL in the fourth quarter of 1994.

Restructuring and Unusual Charges. In connection with the Distribution,
which included the contribution of the Canadian hazardous waste services
subsidiary, RESL, to RESI, Republic Industries recapitalized RESL. As such, RESI
evaluated each of the individual TSD Facility operations of RESL considering the
continued weak Canadian economy and the amount of capital RESI could devote to
RESL's operations in the

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future. The results of this evaluation indicated that the undiscounted cash
flows of certain of the individual Canadian TSD Facilities did not support the
recorded amounts of goodwill without a substantial improvement in the Canadian
economy or the investment of substantial amounts of capital. Additionally, the
amount of goodwill recorded as a result of the acquisition of RESL by Republic
Industries in 1991 could not be supported by the expected changes in operations
after the planned contribution of RESL to RESI. As a result, RESI wrote off
approximately $6.4 million of goodwill at RESL in the fourth quarter of 1994.
RESI also wrote off $1.2 million of abandoned or to-be-abandoned properties and
accrued approximately $910,000 of legal, accounting and investment banking costs
associated with the Spin-off. The write-off of these assets has resulted in
annual savings of depreciation and amortization of approximately $250,000.

In December 1994, RESI's Canadian subsidiary finalized an agreement with
the holders of a $9.2 million subordinated term loan of RESL to convert that
loan to redeemable convertible participating preferred stock of RESL. The
preferred stock, with a face amount of Canadian $9.0 million (United States $6.6
million at December 31, 1995), is redeemable at the option of RESI and
convertible into 15% of the common stock of RESL. RESI recorded a gain on the
conversion to preferred stock of approximately $8.6 million, based on
management's estimation of the preferred stock's fair market value. As a result
of the conversion, interest expense was reduced by approximately $400,000 for
year ended December 31, 1995.

Income Taxes. The provision for income taxes for the year ended December
31, 1995 was $.8 million (an effective tax rate of 37%). The effective rate was
higher than the statutory federal rate of 34%, primarily due to the effect of
nondeductible amortization of goodwill and other permanent items, and state
income taxes.

COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1993

Revenues. Revenues decreased 24.4% to $46.6 million in the year ended
December 31, 1994 from $61.6 million in 1993. This decrease is primarily the
result of the closure and consolidation of certain TSD Facilities in late 1993
and continued pressure on margins and volumes in the hazardous waste services
industry. See "-- Restructuring and Unusual Charges."

Cost of Operations, Selling, General and Administrative Expenses. Cost of
operations decreased 28.9% to $33.4 million in the year ended December 31, 1994
from $47.0 million in 1993. As a percentage of revenue for the years ended 1994
and 1993, these costs were 71.6% and 76.3%, respectively. The decrease in cost
of operations is due primarily to the decrease in volumes in 1994. Selling,
general and administrative expenses were $10.3 million in 1994 as compared with
$13.5 million in 1993, or approximately 22.2% and 21.9% of revenue,
respectively. These decreases are a result of the decrease in operations in 1994
and cost reduction measures taken during 1994.

Interest Expense. Interest expense decreased to $473,000 for the year ended
December 31, 1994 from $1,153,000 in the same period in 1993. The decrease is
primarily due to the refinancing of certain existing debt through Republic
Industries' line of credit in September 1993 and the conversion of RESL's
subordinated debt to redeemable participating preferred stock of RESL in the
fourth quarter of 1994. See "-- Restructuring and Unusual Changes."

Restructuring and Unusual Charges. In the fourth quarter of 1993, in order
to counteract severe market conditions in the hazardous waste sector of the
industry, RESI reorganized its operations, which resulted in a non-recurring
charge of $14.9 million. As a result, RESI consolidated certain operations of
its TSD Facilities, terminated certain contracts, closed or decided to close
certain facilities, reduced its work force by over 135 people (or 30%) and wrote
off goodwill and other intangibles associated with the closed and abandoned TSD
Facilities. In accordance with industry standards, RESI provides for closure and
post-closure costs over the life of a TSD Facility. Accordingly, RESI has fully
provided for these costs on the closed and to-be-closed TSD Facilities. In
addition to the reorganization of operations, RESI also re-evaluated its
exposure related to litigation and environmental matters and provided additional
accruals of approximately $1.0 million for the costs to defend or settle certain
litigation and environmental matters.

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Income Taxes. In 1994, RESI recorded an income tax benefit of $3.1 million
as the result of a reduction in the valuation allowance recorded in 1993, based
on the expected realization of deferred tax assets. The valuation allowance was
recorded in 1993 due to the uncertainty surrounding the future utilization of
deferred tax assets generated as a result of the restructuring and unusual
charges incurred in the fourth quarter of 1993.

RESI did not provide for income taxes at full rates in 1993 due to the
losses incurred as a result of the restructuring and unusual charges recorded in
the fourth quarter of 1993. In management's estimation, these losses could not
be currently benefited due to the uncertainty surrounding the future utilization
of deferred tax assets generated in connection with these losses. See Note 9 to
RESI consolidated and combined financial statements included herein for
additional discussion of RESI's taxes.

LIQUIDITY AND CAPITAL RESOURCES

RESI had working capital of $4,166 and $555 at December 31, 1995 and 1994,
respectively. RESI had cash and cash equivalents of $3,255 and $1,433 at
December 31, 1995 and 1994, respectively. Cash flow from operations was $2.7
million for the year ended December 31, 1995, compared with $6.2 million in
1994. This decrease is attributable to a lower net income in 1995 coupled with
the elimination of working capital funding by Republic Industries. Cash flow
from operations decreased slightly to $6.2 million in the year ended December
31, 1994 from $6.3 million in 1993.

Cash flow from operations was $1.0 million for the six months ended June
30, 1996, compared with $3.0 million for the same period in 1995. During the six
months ended June 30, 1996, RESI made capital expenditures from cash on hand and
operating cash flow. RESI anticipates that during the remainder of 1996, it will
continue to fund expenditures from operating cash flow supplemented by borrowing
under its revolving credit facility, as necessary. Management believes that RESI
currently has sufficient cash and lines of credit to fund current operations and
expansion thereof.

RESI's capital expenditures totaled $4.2 million for the year ended
December 31, 1995 which included expenditures for fixed assets for normal
replacement, compliance with regulations and market development. Capital
expenditures in 1994 of $1.8 million were well below anticipated expenditures,
and well below the $3.6 million of expenditures for the year ended December 31,
1993, primarily due to decreased operations resulting from poor economic
conditions in the hazardous waste industry. In the first six months of 1996,
RESI's capital expenditures totaled $1.7 million, which included expenditures to
upgrade existing TSD Facilities and fixed assets for normal replacement,
compliance with regulations and market development. RESI anticipates that it may
make up to approximately $0.7 million in capital expenditures during the
remainder of 1996 to upgrade existing TSD Facilities and comply with current and
proposed regulations. RESI considers its financial resources to be adequate to
fund its capital expenditures for 1996.

RESI is subject to various environmental laws and regulations in the United
States and Canada where it has operations. The requirements of these laws and
regulations generally result in increased operating costs. Additionally, from
time to time the Company is involved in proceedings under CERCLA, similar state
laws, and RCRA relating to the designation of certain sites for investigation
and possible cleanup. RESI's accounting policies on environmental expenditures
are discussed in Note 2 to the consolidated and combined financial statements.

It is RESI's policy to accrue environmental investigatory and noncapital
remediation costs for identified sites when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated. The cash
expenditures for 1995 and 1994 were $1.6 million and $1.5 million, of which $1.3
million were indemnified. The estimate for 1996 cash expenditures is $2.0
million, of which $1.1 million is expected to be indemnified. The balance sheet
at March 31, 1996 and December 31, 1995 includes an accrual of $3.6 and $3.8
million, respectively.

Actual costs to be incurred at identified sites in future periods may vary
from the estimates, given inherent uncertainties in evaluating environmental
exposures. Subject to the imprecision in estimating future environmental costs,
RESI does not expect that any sum it may have to pay in connection with
environmental

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matters in excess of the amounts recorded or disclosed above would have a
materially adverse effect on its financial condition or results of operations in
any one year.

In May 1995, RESI secured a $6.0 million credit facility with a United
States commercial bank to provide RESI with additional liquidity and working
capital. This facility provides for borrowings at the prime lending rate plus
0.5% or adjusted LIBOR rate plus 2.5%, which would be 8.75% and 7.95% at June
30, 1996, respectively, and will mature in 1998. Up to $4.5 million of the
credit facility is available for the issuance of standby letters of credit. At
June 30, 1996, RESI had issued $2.2 million in standby letters of credit and had
no cash borrowing under the credit facility. The credit facility contains
various affirmative and negative covenants which, among other things, restrict
the payment of dividends and require the maintenance of certain financial
ratios. Borrowings under the credit facility are secured by substantially all of
RESI's U.S. based assets.

The infusion of $10.5 million upon consummation of the Stock Issuances is
expected to provide RESI with the ability to capitalize upon acquisition
opportunities that may arise in the insurance or hazardous waste or related
businesses. On July 16, 1996 CSU announced that it had entered into an agreement
to acquire ECI for $1,000,000 and 192,500 shares of RESI Common Stock, subject
to the consummation of the Combination. See "Business of the Alliance
Companies -- Recent Developments."

On July 25, 1996, the Alliance Companies announced that they had entered
into agreements with Gulf and Midwest. Under these agreements the CSC Group and
Gulf will pool their prospective non-standard contract and other surety bond
programs by means of various quota share and reinsurance arrangements (the
"combined program"). The CSG Group component of the combined program is
approximately $5 million of surety bonds administered by CSU. The Gulf component
of the combined program is approximately $30 million of surety bonds, which is
now administered by Midwest. CSU will act as exclusive underwriter for the
combined program. Midwest will perform selected underwriting functions, as
determined by CSU, and generate bonds through its network of approximately 100
agents and subagents throughout the United States. In partial consideration for
the foregoing agreements, at closing, CSU will purchase at face value from
certain creditors of Midwest, $5.125 million of its obligations (the
"Obligations"), including amounts owed to Gulf which are estimated to be
approximately $3.6 million. The Obligations are secured by a pledge of all of
the tangible and intangible assets of Midwest. Midwest will also give CSU an
exclusive option through March 1997, which may be extended through March 2000,
to purchase Midwest's assets. Midwest's assets consist primarily of its agency
network, the surety business generated by that network and minimal tangible
assets. If CSU exercises the option under the option agreement, the purchase
price will be $10.25 million comprised of the cancellation of the Obligations
($5.125 million) plus the payment of an additional $5.125 million in cash. The
cash amount includes the payments of $800,000 in each of 1997, 1998 and 1999,
which may be paid to extend the option, plus a final payment of $2.725 million,
if and when the option is exercised. If the option is not exercised by CSU and
Midwest is not in default of its obligations under the agreements, CSU will be
required to pay a termination fee consisting of cancellation of the Obligations
($5.125 million) and payment of an additional $2.4 million less any of the
$800,000 payments made for extension of the option. See "Business of the
Alliance Companies -- Recent Developments." Other acquisitions are possible due
to the fact that both the insurance and hazardous waste industries may be
generally characterized as oversupplied, creating the possibility that some
competitors may be motivated to exit those industries on terms that may be
favorable for a capable buyer. Management believes that $10.5 million as well as
its credit facility should provide RESI with adequate capital to enable it to
effect the transactions described above as well as any acquisitions in the
foreseeable future.

In April 1995, the RESI Board of Directors authorized RESI to repurchase up
to 500,000 shares or 4.6% of RESI Common Stock during 1995 as deemed appropriate
by management and authorized an additional repurchase of 500,000 shares or 4.6%
of RESI Common Stock in February 1996. The repurchasing of shares was intended
to achieve a more favorable balance between the market supply of the shares and
expected market demand, as well as establish stability in the trading market for
RESI shares. Repurchases were effected at prevailing market prices from time to
time on the open market prior to the negotiation of the Combination. The last
repurchase was effected by RESI on March 4, 1996 and as of such date RESI had

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repurchased approximately 695,842 shares of RESI Common Stock for an aggregate
cost of approximately $1,040,000. The repurchased shares have been retired.

INFLATION AND PREVAILING ECONOMIC CONDITIONS

To date, inflation has not had a significant impact on RESI's operations.
RESI has no long-term fixed-price contracts and RESI believes it will be able to
pass through most cost increases resulting from inflation to its customers. In
recent years RESI has been affected adversely by reduced volumes in both the
United States and Canadian markets served and is unable to determine the future
impact of a sustained economic downturn. See "-- Results of Operations."

FOREIGN CURRENCY

RESI is subject to the effects of Canadian currency fluctuations, however
RESI derives less than 20% of its revenues from Canadian sources. Because of the
relative size of its Canadian operations, RESI does not anticipate significant
foreign currency gains or losses. There was no material effect on foreign cash
balances of foreign currency translation in 1995 and 1994 or the six months
ended June 30, 1996.

ACCOUNTING PRONOUNCEMENTS

The FASB has issued SFAS No. 123 "Accounting for Stock Based Compensation"
which will be effective for RESI for the year ended December 31, 1996. This
statement allows for either the adoption of the "fair value" method of
accounting for stock based compensation or the continued use of APB No. 25. RESI
has opted to continue to comply with APB No. 25.

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BUSINESS OF THE ALLIANCE COMPANIES

GENERAL

The CSC Group consists of (i) CSC, a non-life, property and casualty
("P&C") Ohio insurance company with corporate offices in Columbus, Ohio; (ii)
CSC's two wholly-owned P&C insurance company subsidiaries, (a) Evergreen
National Indemnity Company ("Evergreen") with corporate offices in Columbus,
Ohio and marketing offices in Valley View, Ohio, and (b) Continental Heritage
Insurance Company ("CHIC") with corporate offices in Salt Lake City, Utah; and
(iii) two other wholly-owned subsidiaries of CSC, CSC Agency, Inc. and American
Inspection and Audit, Inc. ("AIAI"), both with corporate offices in Columbus,
Ohio.

CSU is an Ohio insurance agency located in Valley View, Ohio and doing
business as Century Surety Underwriters. CSU and CSC are both wholly-owned by
Alliance. CSU and CSC, together with the subsidiaries identified above,
constitute the "Alliance Companies."

The Alliance Companies provide specialty insurance and surety bonding to
small- and medium-sized commercial enterprises in over 40 states throughout the
United States. CSC was originally established in 1979 and was acquired by
Alliance in 1988. In December of that year, Alliance formed CSU.

MARKETING

The business of the Alliance Companies is focused on niche insurance and
surety coverages known in the insurance business as "non-standard" or specialty
coverages. These terms refer to risks regarded as higher than standard or normal
risks and to risk groups regarded as too small or too specialized to permit
profitable underwriting by larger, "standard market" insurance companies. In
general, non-standard insurance and bonds are more expensive, and coverage more
limited, because of perceived additional risk associated with this type of
business. The Alliance Companies attempt to identify and exploit such niches in
the non-standard insurance market where the actual risk is significantly less
than the perceived risk at which the coverage is defined and priced, or where
the CSC Group, because of its smaller size and lower overhead, is able to
underwrite coverages more economically than larger carriers can.

Many non-standard insurance products can be marketed on an excess and
surplus lines ("E&S") basis, which means that the carrier is not fully admitted
in a given state but instead satisfies a less restrictive threshold of
regulatory scrutiny, known as "eligibility" to write excess and surplus lines.
E&S eligibility offers much more flexibility than admitted carriers enjoy. For
example, E&S eligibility offers certain marketing advantages, principally
exemption from rate and form filing requirements that apply to admitted
carriers, which permits E&S carriers to adjust prices and coverages, or to cease
writing altogether. Accordingly, the majority of the non-surety business of the
CSC Group is written on an E&S basis. CSC is admitted in only five states
(including Ohio, its state of domicile) but is eligible to write on an E&S basis
in 31 other states plus the District of Columbus, the most significant of such
states being California, Texas and Florida.

Certain P&C products, however, are virtually impossible to write on an E&S
basis because of competitive or regulatory requirements to use admitted
carriers. Surety is the largest of the CSC Group's products that falls into this
category. In order to market its surety programs, therefore, as well as other
products where E&S coverage cannot compete, the CSC Group uses the admitted
status of Evergreen and CHIC, which are admitted in 26 states, plus the four
admitted states of CSC (other than Ohio) to reach a market of 30 states. This
strategy of employing both admitted and non-admitted E&S carriers maximizes the
CSC Group's flexibility within the insurance regulatory environment by enabling
it to market the broadest range of products on the most profitable basis
available.

OPERATIONS

The products of the Alliance Companies can be divided into two categories:
commercial lines P&C, which constitutes approximately 85% of the group's
business, and surety bonds, which constitutes the other 15%. Commercial lines
operations are based in Columbus, Ohio, where the CSC Group employs approxi-

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mately 80 people. Surety operations are based in Cleveland, Ohio, where the CSC
Group and CSU employ approximately 20 people.

COMMERCIAL LINES

The Alliance Companies' commercial line operations consist of nearly 40
different programs for a wide variety of risk groups. Largest among these are
general liability insurance and related coverages for small construction
contractors; restaurants, bars, and taverns; smaller commercial and retail
establishments; sun tanning salons, in which the group holds a position of
national leadership; and environmental contractors and professionals.

Environmental coverages include property and general liability insurance
for remediation action contractors ("RAC") engaged in a full hazard range of
clean-ups; asbestos abatement contractors; underground storage tank ("UST")
removal and remediation contractors, solid waste landfill operations; and errors
and omissions ("E&O") insurance for environmental consultants. Comprehensive
inspection of environmental risks by AIAI has enhanced the CSC Group's position
as a leader in environmental insurance.

Examples of other specialty insurance products offered include coverage for
security guards, liquor liability, special events and prize indemnity, motor
truck cargo, barber shops and beauty salons and day care centers.

The CSC Group offers coverages on both an occurrence and claims-made basis.
"Occurrence" means that all valid claims occurring in the insured period will be
paid, regardless of when such claims are discovered. "Claims made" means that
all valid claims occurring and presented in the insured period will be paid.
Being more restrictive, claims made coverage is generally less expensive.

The commercial lines business of the CSC Group is produced by a network of
73 appointed wholesale agents covering the over 40-state market territory of the
CSC Group. These agents have limited authority to bind coverage, subject to
strict and detailed written underwriting guidelines published by the CSC Group
and updated from time to time regarding pricing and coverage limitations.
Policies bound in this way are immediately subjected to inspection and forwarded
to home office for review. Risks outside of pre-defined authority must be
submitted for underwriting to home office underwriters in Columbus, Ohio for
specific approval.

All policies and inspection reports are reviewed for correct and complete
issuance. The CSC Group, and not the general agent, reserves the right of final
underwriting decision on acceptability or rejection of individual risks. General
agency contracts do not grant blanket authority for classes of businesses or
particular programs. For casualty coverage, agents may bind and write up to
$1,000,000 combined single limit of liability for risks other than those on the
list of prohibited classes or on the list for referral to the respective CSC
Group company.

Premium rating is continuously checked on a selective basis to verify that
program rules and rates are being followed. A continuous "renewal review" is
done by underwriters each month to review files on renewal risks on a selective
basis by policy type, particular risk classes, or individual general agent as
loss experience and/or changing underwriting practices indicate is necessary. In
addition to other underwriting quality control measures, a continuous audit
process for each general agent is maintained. Additionally, at least once a year
a visit to each agent's office is arranged to review all of these areas, as well
as premium production, losses and loss ratio. Underwriting management performs
internal underwriting audits of all underwriters on a regular basis to maintain
control of the underwriting quality and pricing of the Alliance Companies.

All claims against commercial policies are managed from the CSC Group's
claim departments in Columbus. Outside adjusters and attorneys are engaged as
necessary to supplement the CSC Group's in-house staff and to represent the
company in litigation over disputed claims.

Claims guidelines are in place on all programs. State regulations and data
on unfair claims practices are also provided to all appropriate staff. The CSC
Group's philosophy is to pay valid claims as expeditiously as possible but to
resist firmly unjust and fraudulent claims. In an effort to provide adequate
resources to the

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claims staff, CSC became a member of the Property Loss Research Bureau ("PLRB")
and the Liability Insurance Research Bureau ("LIRB") in 1995. The CSC Group also
submits claim data to the index bureaus of the American Services Insurance Group
("ASIG") and the Property Insurance Loss Register ("PILR").

It is the responsibility of the claim manager to appoint outside adjusting
firms to work on behalf of the CSC Group. These firms, however, are given no
authority to settle any claims without the CSC Group's prior agreement for
settlement from the respective CSC Group company. The internal adjuster assigned
to each individual claim determines, after coverage is analyzed, whether the
claim can be handled in house or should be assigned to an outside firm.

When a suit is received, immediate action is taken to protect the interest
of the respective CSC Group company and the insured. A letter is sent to the
insured which informs him of the CSC Group's prior appointed defense attorney,
coverage limits and whether limits are adequate to cover the suit amount. If the
limits are inadequate, the insured must be informed and advised that he can seek
his own counsel to cover the amount above the limits of his policy.

SURETY BONDING

The Alliance Companies surety bonding operations consist of two major
programs, contract surety bonds for smaller construction contractors (with work
programs typically ranging from $250,000 to $10 million per year) and bonds for
the solid waste industry, including waste haulers and landfill operators.

Contract surety consists of bonds which government authorities and some
private entities require construction contractors to post to provide assurance
that contract work will be performed timely, to specification, on budget, and
without encumbrance from suppliers or subcontractors who may have lien rights
for non-payment. Contract surety business is underwritten by CSU subject to
authority defined in agency agreements with the insurance companies. The
business is produced by 29 appointed agents, who have no authority to bind the
companies except in accordance with specific limits established on particular
accounts by CSU underwriters, and by 305 brokers who refer business to CSU for
handling. The Alliance Companies' contract surety business is concentrated in
Ohio and surrounding states, although business from more distant states is
occasionally written. Because the contract surety business is specialized in
smaller, newer and more difficult accounts, underwriters take collateral,
require contract funds control, and take other risk control measures considered
extraordinary by standard market sureties. In virtually all cases, bond
principals indemnify the surety against loss with their personal as well as
corporate assets.

Contract surety underwriting requires case-by-case analysis of each
individual account as to financial wherewithal, physical capabilities, and moral
character of the account. Assessment begins with close analysis of financial
statements for the bonded entity and key individuals who are indemnifying the
account by professional underwriters trained and experienced in financial
analysis. References of prior work and key suppliers are checked, along with
credit reporting agencies. For larger risks, physical inspection may be
undertaken. Individual underwriters have varying levels of authority to issue
bonds within the written guidelines and filed rates of the companies, with the
most senior underwriter possessing $2.5 million authority. Above this level,
approval of an underwriting committee is required.

Once bonds are issued, CSU follows up on all projects to determine job
progress, bill payment, and other factors. CSU maintains real-time records of
all bonded exposures, amended as appropriate by the follow-up system, to assure
the most current possible assessment of exposures for each account to avoid
excessive exposure on any one account. The follow-up system also serves to
provide the companies with early notice of potential difficulty so that claim
resources can be brought to bear at the earliest possible stage to mitigate
losses. Construction problems typically require rapid response while a project
still has momentum and all parties are still amenable to practical solutions.
Once construction is delayed or halted and the parties have engaged counsel, the
size and expense of bond claims tend to escalate rapidly. For this reason, the
CSC Group takes great pains to monitor risks closely and respond to trouble
swiftly.

Claims against surety bonds are managed by Contract Operations Planning,
Inc. ("COP") of Cleveland, Ohio, a firm specializing in the investigation of
surety claims, subject to authority established by the CSC

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Group's claim managers in Columbus and Cleveland, Ohio. The CSC Group also
engages outside counsel to manage surety defense litigation. In addition,
through COP, the CSC Group has or has access to completion capability for
finishing bonded work which bonded principals are unable to prosecute, and
pursues recoveries on behalf of the companies from principals who have defaulted
on bond obligations. Such recovery efforts range from execution on collateral
posted by bonded principals to indemnity litigation to recover surety losses
from indemnitors' personal assets. Finally, COP manages funds control escrow
accounts as specified by CSU underwriters for particular accounts. COP is
wholly-owned by an officer and director of the CSC Group companies.

In contrast to the contract surety program, the solid waste bond program is
national in scope, is largely written directly (as opposed to agency-produced),
and deals with bond accounts that are generally much larger. The centerpiece of
this program is bonds for landfill closure and post-closure care required by
states in accordance with RCRA Subtitle D. These bonds are designed to assure
that non-hazardous solid waste landfills will be closed when their useable
airspace is exhausted in accordance with Subtitle D closure requirements (or
such higher standards as individual states may impose) and that the sites will
be maintained in accordance with Subtitle D standards for a period of at least
30 years after closure. This program is believed to be one of only a few
landfill bond programs in the U.S., although bank letters of credit and other
devices may be used to satisfy Subtitle D financial assurance requirements. Full
implementation of Subtitle D financial assurance requirements by the EPA is not
currently scheduled until April 1997, although several states have already
proceeded with such implementation, including, most significantly for the CSC
Group, Ohio, Kentucky, and Pennsylvania. Evergreen and CSC currently write
landfill bonds for some of the largest solid waste disposal firms in the
country.

As a companion to the landfill closure bonds, the group also writes bonds
required of waste haulers to assure the observance of terms of their contracts
with the local communities from which they collect waste. This product is quite
common in the marketplace, from many standard as well as specialty surety
writers, and is thus most successfully marketed by the CSC Group either to
smaller waste haulers without the financial ability to qualify for standard
market surety or in conjunction with the closure and post-closure bonds for
accounts with integrated collection and disposal operations.

Financial underwriting of solid waste accounts is performed by CSU under a
fee-for-service agreement with the CSC Group. Because solid waste accounts
typically are heavily collateralized or extraordinarily indemnified or both,
significant use of outside counsel is common in the development of security
packages for solid waste accounts. In addition, the CSC Group engages AIAI to
perform compliance reviews of bonded accounts in the public records of relevant
state and local authorities.

To stay abreast of technical and market developments in the surety
industry, certain of the CSC Group companies are members of the Surety
Association of America, the National Association of Independent Sureties and The
American Surety Association, on which Board of Directors the CSC Group occupies
a position, and the Surety Federation of Ohio. CSU is a member of the National
Association of Surety Bond Producers.

REINSURANCE

Insurance companies in general, and the CSC Group's insurance companies in
particular, employ reinsurance to limit their exposures on policies and bonds
they have written. The CSC Group utilizes several different reinsurance programs
to cover its exposures, including "treaties" that cover all business in a
defined class and "facultative" reinsurance that covers individual risks. The
CSC Group retains from $50,000 to $200,000 of each commercial line risk,
depending on the program. Surety retentions may go as high as $1 million or
more, but typically are less than $250,000.

Numerous domestic and international reinsurers support these various
programs in different combinations. The CSC Group's reinsurers generally are
rated A- or better by A.M. Best and demonstrate capital and surplus in excess of
$80 million (collectively in excess of $10 billion). Cessions are diversified so
that every reinsurance treaty (i.e., excluding facultative arrangements) are
supported by more than one reinsurer and no reinsurer is participating in all of
the CSC Group's reinsurance programs.

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RECENT DEVELOPMENTS

On July 16, 1996, CSU announced it had entered into an agreement to acquire
ECI, a small, privately held insurance agency based in Columbus, Ohio, for
$1,000,000 and 192,500 shares of RESI Common Stock. The acquisition is subject
to consummation of the Combination, regulatory approval and execution of
definitive agreements with ECI. ECI markets, through over 100 independent
agents, property and casualty insurance and surety bonds to environmental
remediation contractors, landfill operators, consultants, and other small and
medium-sized companies specializing in environmental businesses throughout the
United States. Written premiums in 1995 totaled in excess of $14 million,
including $4.25 million of insurance sold on behalf of the CSC Group.

On July 25, 1996, the Alliance Companies announced that they had entered
into agreements with Gulf and Midwest. The agreements with Gulf and Midwest are
subject to completion of due diligence and negotiation of definitive agreements.
The agreements with Gulf and Midwest are also contingent on the consummation of
the Combination.

Under the agreement with Gulf, the CSC Group and Gulf will pool their
prospective non-standard contract and other surety bond programs by means of
various quota share and reinsurance arrangements (the "combined program"). The
CSG Group component of the combined program is approximately $5 million of
surety bonds administered by CSU. The Gulf component of the combined program, is
approximately $30 million of surety bonds, which is now administered by Midwest.
CSU will act as exclusive underwriter for the combined program. Midwest will
perform selected underwriting functions, as determined by CSU, and generate
bonds through its network of approximately 100 agents and subagents throughout
the United States.

The goal of the alliance with Gulf and Midwest is to provide the Alliance
Companies with a portion of the revenues from surety bonds to be produced by
Midwest and to obtain a distribution network encompassing all 50 states in order
to market both the surety products it sells regionally as well as new products
expected to be developed after consummation of the Combination. The Alliance
Companies will realize commission income, insurance and reinsurance premiums and
investment income on revenues generated from the combined program. Moreover, the
Alliance Companies believe they will obtain additional marketing benefits
through the alliance with Gulf, which is a significant insurance provider in the
United States. Midwest is currently experiencing financial difficulties and has
disputed liabilities which could jeopardize Midwest's arrangements with its
network of agents and its exclusive relationship with Gulf. The agreement will
allow Midwest to preserve its agency network. The combined program under the
agreement will be a separate and distinct book of surety bonds which will not be
part of any previous surety program written through Midwest.

In partial consideration for the foregoing agreements, at closing, CSU will
purchase at face value from certain creditors of Midwest, $5.125 million of its
obligations (the "Obligations"), including amounts owed to Gulf which are
estimated to be approximately $3.6 million. The Obligations are secured by a
pledge of all of the tangible and intangible assets of Midwest. The Alliance
Companies view Gulf's involvement in the combined program as a critical element
of the transaction because of Gulf's prominence in the insurance marketplace.
Pursuant to the agreement, CSU will pay Gulf face value for the obligations of
Midwest. CSU also agreed to pay face value for the balance of the Obligations
(approximately $1.525 million) in order to reach agreement with all necessary
parties.

Whether CSU exercises the option depends on future developments which
presently cannot be predicted. The performance of the combined program must
satisfy certain requirements and Midwest must be able to extricate itself from
financial difficulties incurred in connection with surety bonds written prior to
the agreement with the Alliance Companies. The option period will give CSU the
necessary experience with the modified operations of Midwest to determine the
performance of the combined program and will give Midwest time to attempt to
resolve its liabilities. A significant portion of such liabilities are
contingent and disputed by Midwest and therefore cannot be quantified at this
time.

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If CSU exercises the option under the option agreement, the purchase price
will be $10.25 million comprised of the cancellation of the Obligations ($5.125
million) plus the payment of an additional $5.125 million in cash. The cash
amount includes the payments of $800,000 in each of 1997, 1998 and 1999, which
may be paid to extend the option, plus a final payment of $2.725 million, if and
when the option is exercised. If the option is not exercised by CSU and Midwest
is not in default of its obligations under the agreements, CSU will be required
to pay a termination fee consisting of cancellation of the Obligations ($5.125
million) and payment of an additional $2.4 million less any of the $800,000
payments made for extension of the option. In order to satisfy its obligations
under the option agreement, Midwest must, among other things, demonstrate an
ability to transfer the assets of Midwest free and clear of all liabilities and
be current in its obligations under its agreement to produce surety bonds for
CSU under the combined program. If Midwest defaults on its obligations under
these agreements, CSU believes it can recover the value of the Obligations by
enforcing its rights as the primary secured party against Midwest's assets.

Due to the current nature of these transactions, which are consistent with
debt as well as equity investments, CSU will determine the accounting treatment
for these transactions when their ultimate structure is determined upon
completion of negotiations and definitive agreements.

CSU's accounting treatment will be the result of the analysis of the
transactions taken individually and as a whole and will include an evaluation of
the fair value of the individual components. The relative value of the
components will be based upon the various streams of cash flow the Alliance
Companies will receive under the agreements from note repayments, insurance
premiums, reinsurance premiums, insurance commissions and investment income.

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THE ALLIANCE COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

CENTURY SURETY COMPANY AND SUBSIDIARIES

GENERAL

The following discussion and analysis should be read in conjunction with
the consolidated financial statements of the CSC Group and notes thereto
included elsewhere herein. The CSC Group includes CSC and its subsidiaries,
including its two principal insurance subsidiaries: Evergreen and CHIC.

The CSC Group's principal sources of revenue are premiums paid by insureds
for insurance policies issued by the CSC Group. The premiums written become
premiums earned for financial statement purposes as the premium is earned
incrementally over the term of each insurance policy and after deducting the
amount of premium ceded to reinsurers pursuant to reinsurance treaties or
agreements. The CSC Group is required to establish a reserve for unearned
premiums. The CSC Group's principal costs and factors in determining the level
of profit is the difference between premiums earned and losses, loss adjustment
expenses and agent commissions.

Loss and loss adjustment expense reserves are estimates of what an insurer
expects to pay on behalf of claimants. The CSC Group is required to maintain
reserves for payment of estimated losses and loss adjustment expenses for both
reported claims ("case reserves") and for IBNR claims. Although the ultimate
liability incurred by the CSC Group may be different from current reserve
estimates, management believes that the reserves are adequate.

RESULTS OF OPERATIONS

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1995

Revenue increased 9.7% or $1.5 million for the six months ended June 30,
1996 from $15.1 million in 1995 to $16.6 million in 1996, primarily because of
net realized gains on investments of $599,000 partially offset by a $228,000
decrease in net premiums earned. Also included in the $1.5 million increase is
$1,150,000 of income recognized from the American Sentinel transaction. The
transaction, entered into in 1994, included a contingent receivable ranging from
zero to $2.9 million due Evergreen from Republic Western Insurance Company
("Republic Western") by December 1996. During the first quarter of 1996, $1.15
million of the $2.9 million receivable due Evergreen from Republic Western was
included in income. The balance of the receivable in the amount of $1.75 million
has not been included in income because it is subject to a reduction in its
entirety based on the performance, including loss development of the sold
operations, through December 1996. Republic Western is not affiliated with RESI.

For the six month period ended June 30, 1996, total expenses decreased $0.5
million from $14.9 million in 1995 to $14.4 million in 1996. The decrease is
primarily a result of a $1.1 million decrease in acquisition and other expenses,
which was partially offset by a $660,000 increase in loss and loss expenses
during the first six months of 1996. Property losses incurred were higher than
normal as a result of adverse development on property losses for prior years.
The majority of these losses were the result of two large claims in which the
results were unexpected. One was a 1992 claim in the amount of $330,000 and the
other a 1995 claim for $209,000. The 1992 claim has been reflected in full;
although the decision of the court has been appealed. CSC settled the 1995 claim
rather than litigate. The balance is made up of smaller prior year claims.
Partially offsetting this increase was a decrease of $250,000 in operating
expenses. This savings in operating expenses was caused by the elimination of
discontinued products (miscellaneous surety and private passenger auto physical
damage) resulting in a $200,000 savings and a $50,000 decrease in consulting
fees.

Primarily for the reasons stated above, net income for the six months ended
June 30, 1996 was approximately $1.3 million compared with $254,000 for the same
period in 1995. This represented an increase of $1.1 million, or 425%.

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COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994

Total revenues increased $3.9 million, or 14%, over 1994 levels from $26.9
million to $30.8 million. While net premiums written actually declined from
$27.2 million to $26.7 million, the timing of earned premiums primarily
accounted for the increase in total revenues. Timing differentials reflect the
changing mix of products to a substantially greater concentration in the
property/casualty and environmental surety businesses and a decrease in the
private passenger auto physical damage and miscellaneous surety (public
official, licenses and permits) business. Premiums earned increased $3.6 million
in 1995 to $27.0 million from $23.4 million in 1994. Property/casualty written
premiums increased by $1.5 million, offset by a reduction in automotive and
miscellaneous surety business following the CSC Group's decision to withdraw
from these markets. Also, contributing to the revenue increase was $865,000 in
net investment income during 1995, a 35% increase over 1994 revenues. Total
revenue in 1994 included a gain of $807,000 attributable to the American
Sentinel transaction.

Total expenses increased from $22.9 million in 1994 to $26.2 million
primarily as result of a $2.6 million increase in loss and loss adjustment
expenses. The increase in loss and loss adjustment expense was a direct result
of the increased premium revenue of $3.6 million. Acquisition expenses increased
$1.3 million to $6.6 million in 1995 from $5.3 million in 1994, reflective of
the growth in property and casualty insurance and decrease in surety business.
The surety business, in general, has a greater expense capitalization rate than
the property and casualty business and the expense associated with these
policies is recognized when income is recognized. These timing effects may
distort the ratio between income and expense in those periods when the mix of
business is shifting. The decrease in other expenses reflected the elimination
of expenses associated with the discontinued products, offsetting an increase in
operating costs attributable to the growth in the property/casualty and landfill
businesses. Additionally, 1995 revenues reflected additional reinsurance
commissions (accounted for as a credit against expenses) returned to the CSC
Group. As a percentage of total revenue, total expenses remained constant at
85%.

Primarily for the reasons stated above, 1995 net income before taxes
increased $516,000, or 13%, to $4.6 million in 1995 from $4.1 million in 1994
and net income increased $280,000, or 9%, to $3.3 million in 1995 from $3.0
million in 1994.

During 1995, other assets increased $520,000. The increase included
$283,000 set aside in an employment trust for CSC's president under a previous
employment contract. This amount is fully reserved for and is reflected as a
liability as well. In addition, the balance of the increase is made up of a
$100,000 non-trade receivable, $40,000 of a quarterly interest installment paid
CSC in early 1996 and $97,000 in commissions due from sub-agents.

COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1993

Net revenues increased $7.8 million or 41% from $19.2 million in 1993 to
$27.0 million in 1994. The increase was primarily due to a $6.0 million increase
in insurance premiums earned and a $1.1 million increase in net investment
income. The 1994 figures also included a gain of $807,000 resulting from the
American Sentinel transaction. The premium increase was attributable to a 25%
increase in the property and casualty revenues and an 80% increase in private
passenger auto physical damage insurance revenues. The CSC Group increased
premiums developed in California by over $4.7 million, reflective of the 20%
growth in appointed agents.

Expenses increased from $16.0 million in 1993 to $22.9 million in 1994
primarily as result of a $3.9 million increase in loss and loss adjustment
expenses and a $2.7 million increase in other expenses. The increase in loss and
loss adjustment expense was a direct result of the increased premium revenue.
Other expenses increased directly related to costs associated with the CSC
Group's increased premium writings, particularly with respect to its expansion
into additional geographic territories as it expanded its marketing effort.
However, as a percentage of total revenue, expenses remained relatively constant
at 85% in 1994 compared to 84% in 1993.

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62

Income before taxes increased $703,000, or 21%, to $4.1 million in 1994
from $3.4 million in 1993. The income before taxes in 1993 included $219,000,
the last of the amortization of negative goodwill associated with the 1988
acquisition of CSC by Alliance.

The tax effect of temporary differences between financial and tax reporting
causes fluctuations in the amount of current and deferred tax provisions. These
effects result in significant percentage of revenue differences between periods.
See Note 6 to the CSC Group's consolidated financial statements for a detailed
analysis of the temporary differences.

Primarily for the reasons stated above, 1994 net income increased $769,000,
or 35%, to $3.0 million in 1994 from $2.2 million in 1993.

Assets

Following is a comparison of key elements of the CSC Group's assets:

SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------
1996 1995 1994 1993
------------ ----------- ----------- -----------

Total Cash and Invested Assets...... $64,329,681 $60,905,727 $57,326,394 $46,388,473
Agent's Balances Receivable......... 6,399,504 4,357,298 4,623,574 4,108,706
Other Assets........................ 19,886,932 20,735,149 18,689,211 17,303,681
----------- ----------- ----------- -----------
Total Assets........................ $90,616,117 $85,998,174 $80,639,179 $67,800,860
----------- ----------- ----------- -----------

Liabilities

Following are the key elements of the CSC Group's outstanding liabilities:

SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------
1996 1995 1994 1993
----------- ----------- ----------- -----------

Total Loss/LAE Reserve.............. $39,264,593 $37,001,841 $34,661,007 $29,527,805
Unearned Premium Reserve............ 17,248,372 15,636,442 15,453,487 12,166,463
Other Liabilities................... 5,979,464 6,616,137 6,767,053 7,014,724
----------- ----------- ----------- -----------
Total Liabilities................... $62,492,429 $59,254,420 $56,881,547 $48,708,992
----------- ----------- ----------- -----------

Capital and Surplus

The following is a summary of shareholder's equity:

SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------
1996 1995 1994 1993
----------- ----------- ----------- -----------

Total Shareholder's Equity.......... $28,123,688 $26,743,754 $23,757,632 $19,091,868

Combined and Operating Ratios

The combined ratio is the sum of the loss ratio and expense ratio and is
the traditional measure of underwriting performance for insurance companies. The
operating ratio is the combined ratio less the net investment income ratio (net
investment income to net earned premium) excluding realized and unrealized
capital gains and is used to measure overall company performance.

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63

The following table reflects the loss, LAE, expense, combined, net
investment and operating ratios of the CSC Group on a GAAP basis for each of the
years ending on December 31 and the six months ended June 30, 1996 and 1995.

SIX MONTHS YEAR ENDED DECEMBER
ENDED JUNE 30, 31,
---------------- ----------------------
1996 1995 1995 1994 1993
----- ----- ---- ---- ----

Loss Ratio................................... 45.5 42.0 39.2 37.9 38.0
LAE Ratio.................................... 19.3 16.8 16.9 15.6 11.6
Expense Ratio................................ 44.5 52.4 39.9 43.5 39.7
----- ----- ---- ---- ----
Combined Ratio............................... 109.3 111.2 96.0 97.0 89.3
Net Investment Ratio......................... 12.5 12.5 12.4 10.6 7.9
Operating ratio.............................. 96.8 98.7 83.6 86.4 81.4

Expenses

The expense ratio is the relationship of operating costs to net written
premium. The statutory ratio differs from the GAAP ratio as a result of
different treatment of acquisition cost. Expense ratios have been favorably
impacted by reinsurance contingencies.

Investments

Investments of the CSC Group's assets are restricted to certain investments
permitted by Ohio Insurance Laws (and Utah Insurance Laws for CHIC). The CSC
Group's investment policy has been established by the CSC Group's investment
committee and is reviewed periodically. The CSC Group has retained an
independent professional investment firm to manage its fixed income portion of
the investment portfolio pursuant to the investment policy and strategy.

The CSC Group accounts for its investment securities in accordance with
SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities",
which was adopted by the FASB. Fixed maturity securities that the CSC Group has
the positive intent and ability to hold to maturity are carried at amortized
cost. As the CSC Group's fixed income securities mature, there can be no
assurance that the CSC Group will be able to reinvest in securities with
comparable yields. The CSC Group's other fixed maturity and all equity
securities are classified as available-for-sale and are carried at market value.
The unrealized gains and losses as a result of the valuation is reported as a
separate component of shareholder's equity net of appropriate deferred income
taxes. The CSC Group has no investments classified as trading securities.

Investment Income

Following is a summary of investments:

SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------
1996 1995 1994 1993
---------- ---------- ----------- ----------

Net investment income............... $1,629,393 $3,340,956 $ 2,477,428 $1,376,916
Net realized gain (loss) on
investments....................... 598,781 166,286 79,955 (91,450)
---------- ---------- ----------- ----------
Total investment gain............... $2,228,174 $3,507,242 $ 2,557,383 $1,285,466
========== ========== =========== ==========
Investment yield.................... 5.27% 5.65% 4.78% 3.58%
Net unrealized appreciation
(depreciation) of investments..... $3,888,993 $3,265,550 $(1,208,641) $ (80,139)

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Liability for Unpaid Losses and Loss Expenses

As of June 30, 1996, loss reserves constituted 62.8% of the CSC Group's
consolidated liabilities. The CSC Group has established reserves that reflect
its estimates of the total losses and loss adjustment expenses it will
ultimately have to pay under insurance and reinsurance policies. These include
losses that have been reported but not settled and losses that have been
incurred but not reported ("IBNR"). Loss reserves are established on an
undiscounted basis after reductions for deductibles and estimates of salvage and
subrogation.

For reported losses, the CSC Group establishes reserves on a "case" basis
within the parameters of coverage provided in the related policy. For IBNR
losses, the CSC Group estimates reserves using established actuarial methods.
Case and IBNR loss reserve estimates reflect such variables as past loss
experience, social trends in damage awards, changes in judicial interpretation
of legal liability and policy coverages, and inflation. The CSC Group takes into
account not only monetary increases in the cost of what is insured, but also
changes in societal factors that influence jury verdicts and case law and, in
turn, claim costs. The CSC Group's loss reserves have been certified as required
by the National Association of Insurance Commissioners.

Liability for Property-Casualty and Loss Adjustment Expenses Payable

The consolidated financial statements of the CSC Group include the
estimated liability for unpaid losses and LAEs of the CSC Group's insurance
operations. Reserves for unpaid losses covered by insurance policies and bonds
consist of reported losses and IBNR losses. These reserves are determined by
claims personnel and the use of actuarial and statistical procedures and they
represent undiscounted estimates of the ultimate cost of all unpaid losses and
LAE through year end. Although management uses many resources to calculate
reserves, a degree of uncertainty is inherent in all such estimates. Therefore,
no precise method for determining ultimate losses and LAE exists. These
estimates are subject to the effect of future claim settlement trends and are
continually reviewed and adjusted (if necessary) as experience develops and new
information becomes known. Any such adjustments are reflected in current
operations.

The first table shown below provides reconciliation of beginning and ending
loss and LAE reserves for 1993 through 1995. The second table below shows the
reserve development.

During the years 1985 and 1986, the CSC Group experienced deficiencies
predominantly in the reclamation bond and private passenger auto lines (the
reclamation bond program was discontinued in 1990). In response, the CSC Group
strengthened claims and underwriting staff in these lines and in 1987,
experienced a small redundancy. The years from 1987 through 1994 produced
redundancies primarily in the surety and other liability lines. These
redundancies were the result of reserving policies which were established to
react to concern about the volatility of its small, largely unknown, and
changing book of business. Between 1992 and 1994, the CSC Group reevaluated its
business and reduced reserves for lines which now had sufficient credible
experience.

Within the constraints of the precision of actuarial methods, it is
management's opinion that the reported loss and LAE reserves at December 31,
1995 are adequate to cover the ultimate cost of policy benefits and related
expenses incurred, and the estimates shown for prior years approximate ultimate
claim costs.

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65

Activity in the liability for unpaid losses and loss expense is summarized
as follows (in thousands):

SIX
MONTHS
ENDED
JUNE YEAR ENDED DECEMBER 31,
30, -------------------------------
1996 1995 1994 1993
------- ------- ------- -------

Balance at January 1........................ $37,002 $34,661 $29,528 $18,908
Less reinsurance recoverables............. 8,914 9,383 8,505 4,801
------- ------- ------- -------
Net balance at January 1.................... 28,088 25,278 21,023 14,107
Incurred related to:
Current year.............................. 8,397 17,297 14,753 10,060
Prior years............................... 74 (2,180) (2,259) (1,447)
------- ------- ------- -------
Total Incurred.................... 8,471 15,117 12,494 8,613
Paid related to:
Current year.............................. 1,418 5,963 4,269 2,823
Prior years............................... 4,789 6,344 3,970 3,054
------- ------- ------- -------
Total Paid........................ 6,207 12,307 8,239 5,877
Reserves assumed through purchase of
Evergreen................................. 0 0 0 4,180
------- ------- ------- -------
Net balance at end of period................ 30,352 28,088 25,278 21,023
Plus reinsurance recoverables............. 8,913 8,914 9,383 8,505
------- ------- ------- -------
Balance at end of period.................... $39,265 $37,002 $34,661 $29,528
======= ======= ======= =======

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The CSC Group has experienced lower-than-anticipated ultimate losses on
prior years due primarily to a reduction in claims severity from that assumed in
establishing the liability for losses and loss expenses payable. The CSC Group's
environmental exposure relates primarily to its coverage of remediation related
risks; thus, management believes the CSC Group's exposure to historic pollution
situations is minimal.

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT (IN THOUSANDS):

YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ----- ----- ----- ----- ------ ------ ------ ------- ------ ------

Net liability for
losses and loss
expenses............. $ 586 2,276 3,484 7,202 8,168 10,428 12,775 14,107 21,023 25,278 28,088
Cumulative amount of
net liability paid
through:
One year later..... 352 1,262 1,566 2,985 2,404 2,404 2,811 3,026 4,131 6,309 --
Two years later.... 786 1,943 2,172 3,876 3,433 4,090 4,894 3,848 7,503
Three years
later............ 1,079 2,205 2,623 4,398 4,322 5,239 5,372 4,786
Four years later... 1,069 2,482 2,759 4,799 4,984 5,184 6,010
Five years later... 1,166 2,562 2,907 5,140 4,880 5,352
Six years later.... 1,216 2,677 2,927 5,147 4,953
Seven years
later............ 1,324 2,693 2,935 5,152
Eight years
later............ 1,362 2,702 2,935
Nine years later... 1,365 2,702
Ten years later.... 1,365
The retroactively
reestimated net
liability for loss
and loss expenses as
of:
One year later..... 1,020 2,888 4,277 7,406 8,388 10,674 12,003 12,587 18,910 23,049 --
Two years later.... 1,423 3,375 4,032 7,445 8,504 9,239 10,877 9,829 17,531
Three years
later............ 1,714 3,132 4,042 7,419 7,025 8,183 8,419 8,899
Four years later... 1,490 3,056 4,028 6,365 6,668 6,631 8,675
Five years later... 1,451 3,039 3,420 6,311 5,638 6,320
Six years later.... 1,453 2,849 3,406 5,534 5,243
Seven years
later............ 1,389 2,829 3,009 5,308
Eight years
later............ 1,366 2,708 2,949
Nine years later... 1,365 2,713
Ten years later.... 1,371
----- ----- ----- ----- ----- ------ ------ ------ ------ ------ ------
Net cumulative
redundancy
(deficiency)......... $ (785) (437) 535 1,894 2,925 4,108 4,100 5,208 3,492 2,229 --
===== ===== ===== ===== ===== ====== ====== ====== ====== ====== ======
Gross liability -- end of year.................................................................... $29,528 34,661 37,002
Reinsurance recoverable........................................................................... 8,505 9,383 8,914
------ ------ ------
Net liability -- end of year...................................................................... $21,023 25,278 28,088
====== ====== ======

The data in the table above does not reflect the adoption of Statement No. 113.

DISCONTINUED PRODUCTS

In May of 1995, the CSC Group discontinued its miscellaneous bond operation
which accounted for 5.4% of its sales in 1993, 4.3% in 1994, and 2.9% in 1995.
The operation was discontinued as a result of the sale of the book of
miscellaneous bonds to another insurance company which specialized in this
product. The transaction was completed by means of a reinsurance transaction
whereby the CSC Group transferred its business to the purchaser. The agreement
provided for a short period of time during which the CSC Group would issue bonds
that would also be reinsured by the new company. The transfer resulted in a
profit to the CSC Group, however, the amount is undetermined because certain
bonds were not transferred and are currently in runoff. Any prior reinsurance
covering the remaining bonds will continue to inure to the benefit of the CSC
Group.

The Company's niche product mix is continually changing. An aggregate of
approximately $4.9 million of the CSC Group's 1995 sales were from products in
miscellaneous bonds (reflected above), physical damage auto, apartment building
and asbestos abatement areas which were not expected to re-occur in future
years.

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LIQUIDITY AND CAPITAL RESOURCES

The primary sources of liquidity for the CSC Group are funds generated from
insurance and reinsurance premiums, investment income, commission and fee
income, capital contributions from Alliance and proceeds from sales and
maturities of investment securities. The property and liability operation of the
CSC Group generates positive cash flow from operations as a result of premiums
being received in advance of the time when the claim payments are made. The
principal uses of funds are for payments of losses and loss adjustment expenses,
underwriting, other operating expenses, commissions and dividends to Alliance.

The CSC Group maintains a liquid operating position and follows investment
policies that are intended to provide for an acceptable return on investments
while maintaining sufficient liquidity to meet its obligations and a sufficient
margin of capital and surplus to ensure its ability to write insurance and
assume reinsurance.

Cash and investments excluding mortgage loans increased from $44.8 million
in 1993 to $54.4 million in 1994 to $57.5 million in 1995. This increase is a
result of the CSC Group's generation of profits and additional loss reserves on
an increasing volume of liability coverages which have slower payout patterns
that property coverages.

Net cash provided by operations for the six months ended June 30, 1996 and
June 30, 1995 was $3.3 million and $216,000, respectively, and resulted from the
timing of reinsurance transactions, balances of premiums receivable and losses
and loss expenses payable. For the years ended December 31, 1995, 1994 and 1993,
net cash provided from operations amounted to $2.9 million, $8.7 million and
$7.5 million, respectively. These amounts were adequate to meet all of the CSC
Group's obligations and resulted primarily from earnings and the timing of
reinsurance contingency transactions.

Cash used in investing activities for the six months ended June 30, 1996
and 1995 and for the years ended December 31, 1995, 1994 and 1993, primarily
came as the result of differences in the purchases and sales of investments and
the purchases of furniture and equipment. The expenditures for furniture and
equipment were for normal replacement and market development and the CSC Group
has no plans for its future expenditures to exceed historical levels.

Financing activities for the CSC Group reflected net cash used for the six
months ended June 30, 1996 and June 30, 1995 of $578,000 and $495,000,
respectively, and for the years ended December 31, 1995, 1994 and 1993 of $4.8
million, $660,000 and $554,000, respectively, as dividends paid to Alliance
exceeded capital received from Alliance for all periods discussed.

The CSC Group believes its cash flow from operations and available capital
from Alliance provides for adequate liquidity to fund existing and anticipated
capital and operational requirements. The CSC Group is investigating additional
acquisitions that may require other sources of funding.

Management is not aware of any current recommendations by regulatory
authorities that, if implemented, could have a material impact on the CSC
Group's liquidity, capital resources and operations.

TAX ALLOCATION AGREEMENT

CSC Group and CSU have entered into a tax allocation agreement with other
affiliates of Alliance (the "Alliance Affiliates") forming its consolidated
group for federal and state tax reporting purposes. The Alliance Affiliates will
be obligated to make a payment to the CSC Group and/or CSU based upon the amount
of taxes that would have been payable on a "stand alone" basis on account of
income relating to that portion of calendar 1996 (pre-effective date) when they
were part of the consolidated group. In addition, if there is an adjustment of
any prior years' tax returns, which was attributable to a change in the reported
income, deduction, expense or other tax attribute of the CSC Group and CSU or
the stated tax effect of the transaction whereby they leave the consolidated
group, the CSC Group and CSU shall receive the amount of any reduction in tax or
indemnify the consolidated group for additional tax, interest and penalties, on
account thereof, as the case may be.

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68

COMMERCIAL SURETY AGENCY, INC.

RESULTS OF OPERATIONS

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1995

Revenues increased $283,000 from $1.1 million for the six months ended June
30, 1995 to $1.4 million for the same period in 1996, reflecting both an
increase in contract surety bond business and an accumulation of $99,000 in
expenses previously paid by CSU on behalf of Alliance. Contract surety bond
revenue increased $183,000 from $842,000 for the six months ended June 30, 1995
to $1.0 million for the same period in 1996 evidencing the continuation of the
trend, begun in the 1995 fourth quarter, of a decrease in price competition as
other companies tightened their underwriting standards and increased prices.

Commission expense, reflecting monies paid to agents and brokers, in the
first six months of 1996 increased $186,000 due to the increase in surety bonds
that were underwritten. Operating expenses increased $67,000, or approximately
11%, from $620,000 for the six months ended June 30, 1995 to $687,000 for the
same period in 1996.

Primarily for the reasons stated above, net income for the six months ended
June 30, 1996 increased to $92,000 from $72,000 for the same period in 1995.

COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994

1995 revenues declined $423,000, or 14%, to $2.6 million from $3.0 million
in 1994. Commission income from contract surety bonds declined 26% reflecting
intensified penetration of CSU's market by competitors offering reduced rates
and indemnity requirements. The Company elected not to reduce either its rates
or underwriting standards in an effort to maintain market share. As a result,
the Company's production dropped, although business began to increase in the
fourth quarter as price competition earlier in the year subsided.

Offsetting the decline in contract surety income was an increase in
management fees earned from Evergreen from $337,500 in 1994 to $600,000 in 1995.
Such increase was the result of 1995 being the first full year of operation for
Evergreen and the overall improvement in landfill bond activity.

Commission expenses in 1995 declined by $239,000 reflective of the drop in
business. Operating expenses increased 26% from $1.1 million to $1.4 million as
CSU bolstered its commitment to the Evergreen landfill bond business in response
to the decrease in contract surety. The increase was attributable principally to
an increase of approximately $264,000 in salaries and other payroll expenses as
the Company added personnel to market the Evergreen bonds.

Net income for 1995 declined to $202,000 from $512,000 in 1994 for the
reasons stated above.

COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1993

Total revenues increased $700,000 to $3.0 million in 1994 from $2.3 million
in 1993.

Commission income in 1994 increased 16% to $2.7 million from $2.3 million
in 1993. The increase was primarily due to a $476,000 increase in bonus income
paid to CSU by the CSC Group. Increased competition in the local market for
surety bonds prevented CSU from adding new accounts at a replacement pace
commensurate with the loss of old business, together with pricing pressure
derived from the new entries in the market.

Income in 1994 included $337,500 in management fees derived from Evergreen.
Evergreen commenced operations in March 1994.

Commission expenses in 1994 were substantially unchanged from 1993 levels,
reflective of the stability in surety bond sales. Operating expenses in 1994
were also substantially unchanged from 1993 levels. Amortization expense
declined by $101,000 as a result of the last of the costs capitalized related to
the original financing of CSU being amortized. Salary and related payroll
expenses increased 31%, or $135,000, as a result of additional staffing for the
new management services being provided to Evergreen. Rent and other general

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69

administrative expenses (other than salary and related expenses as described
above), in the aggregate, declined $160,000, or 33%, reflecting improved
operating efficiencies.

Primarily for the reasons set forth above, income before taxes increased
$655,000 and net income increased $434,000 to $512,000 in 1994 from $78,000 in
1993.

LIQUIDITY AND CAPITAL RESOURCES

The primary sources of liquidity for CSU are funds generated from insurance
commissions, management fees and interest income. The principal uses of funds
are for commission payments, operating expenses, interest on long term debt and
dividends to Alliance.

Cash flows from operations have generally been adequate for its current
operating needs. Net cash provided from operations totaled $57,000, $519,000 and
$180,000 for the years ended December 31, 1995, 1994 and 1993, respectively, and
resulted primarily from operating profits. CSU had negative working capital at
June 30, 1996 of $274,000, however this is due to the timing of advances and
dividends to Alliance and is not viewed by management as material.

Cash used in investing activities are related to the purchases of furniture
and equipment. The expenditures for furniture and equipment were for both
replacement and to meet the needs of additional staff. Management does not
anticipate that its future fixed asset expenditures will exceed historical
levels. Fixed asset expenditures were $75,000, $105,000 and $63,000 for the
years ended 1995, 1994 and 1993, respectively.

During the years ended December 31, 1995, 1994 and 1993, CSU's use of cash
in its financing activities consisted of repayments of long-term debt of
$142,000, $154,000 and $121,000, respectively, and net advances to (from)
Alliance of $140,000, $234,000 and ($124,000), respectively. On a combined basis
this resulted in net cash used in financing activities of $295,000, $380,000 and
$3,000 for the years ended December 31, 1995, 1994 and 1993, respectively.

From time to time CSU has borrowed funds from related parties and lending
institutions. At June 30, 1996 the total amount owed on all debt was $19,000. It
is anticipated that future acquisitions will be funded by CSU's parent, which
post-Combination will be RESI.

OUTLOOK

The CSC Group believes there is opportunity for profitable growth in its
property/casualty and surety lines. While the market continues to be soft,
management believes that the addition of new products which the CSC Group has
been researching shows promise. These products include expanded garage liability
and property, business owners protective, environmental auto, and landfill
surety. The CSC Group will continue to pursue niches where market opportunities
exist. In 1996, Evergreen received authorization to write bonds for the U.S.
Government (T-Listing) which should enhance the CSC Group's acceptability in the
marketplace. Additionally, much development effort has been expended to create a
program to provide reinsurance for small bonding companies and this effort is
expected to produce positive results in 1996. The CSC Group has added staff in
key underwriting and claims positions in 1995 which are expected to produce
positive results in production and improved claims handling.

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70

MANAGEMENT AFTER THE COMBINATION

BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information with respect to those individuals
who will serve as members of the RESI Board of Directors and executive officers
of RESI after the consummation of the Combination.

NAME AGE* POSITION(S)
--------------------------- ---- ------------------------------------------------

Michael G. DeGroote........ 62 Chairman of the Board and Director
Joseph E. LoConti.......... 43 Vice Chairman and Director
Edward F. Feighan.......... 48 Chief Executive Officer, President and Director
Craig L. Stout............. 47 Chief Operating Officer and Director
Harve A. Ferrill........... 63 Director
Douglas R. Gowland......... 54 Director
Richard C. Rochon.......... 39 Director

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

* As of June 1, 1996

The Board of Directors of RESI currently consists of four members and, upon
consummation of the Combination, the Board will be enlarged to seven members,
and one present member of the Board of Directors, Michael J. Occhionero, will
resign. Messrs. Rochon, Feighan, Stout and Ferrill will be nominated and elected
as directors to serve on the Board of Directors. The Board of Directors is
divided into three classes, one class of which is elected each year to hold
office for a three-year term and until successors are elected and qualified.
Successors to those directors whose terms have expired are required to be
elected by stockholder vote while vacancies in unexpired terms and any
additional positions created by board action are filled by action of the
existing Board of Directors. The executive officers named above were elected to
serve in such capacities until the next annual meeting of the Board of
Directors, or until their respective successors have been duly elected and have
been qualified, or until their earlier death, resignation, disqualification or
removal from office.

Set forth below is biographical information for each person who will serve
as a director following consummation of the Combination.

Michael G. DeGroote will serve as Chairman of the Board and a Director of
RESI upon consummation of the Combination. Mr. DeGroote has served as the
Chairman of the Board, President and Chief Executive Officer of RESI since April
1995. Mr. DeGroote has served as Vice Chairman and a Director of Republic
Industries since August 1995. Mr. DeGroote also served as Chairman of the Board,
President and Chief Executive Officer of Republic Industries from May 1991 to
August 1995 and Senior Chairman of the Board of Republic Industries from May
1991 to August 1991. Mr. DeGroote is a private investor who owned a controlling
interest in Laidlaw Inc. ("Laidlaw"), a Canadian waste services company, from
1959 until he sold his interest to Canadian Pacific Limited in 1988. Mr.
DeGroote served as Chairman and Chief Executive Officer of Laidlaw from 1959
until June 1990, when he resigned from those positions to pursue personal
business matters. Mr. DeGroote has served as a Director of Gulf Canada, Inc.
since May 1995. Mr. DeGroote's term as a director of RESI will expire at the
1997 Annual Meeting of Stockholders of RESI.

Joseph E. LoConti will serve as Vice Chairman and a Director of RESI upon
consummation of the Combination. Mr. LoConti has served as Director of RESI
since April 1995. Mr. LoConti founded Alliance in 1987, and currently serves as
its President and as Chairman of the Board. Mr. LoConti practiced law and
operated a private law firm in Cleveland, Ohio from 1978 through 1985 and has
had extensive experience in the insurance and environmental industries since
that time. In 1991, a Federal District Court in Ohio convicted Mr. LoConti of
willful failure to file federal income tax returns on a timely basis for the
years 1984 and 1985. Although the returns were filed and the taxes paid prior to
the conviction, the offenses for which

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Mr. LoConti was convicted required proof only of failing to file such returns on
a timely basis. Mr. LoConti's term as a director of RESI will expire at the 1998
Annual Meeting of Stockholders of RESI.

Edward F. Feighan will serve as Chief Executive Officer, President and a
Director of RESI upon consummation of the Combination. Edward F. Feighan is
currently Vice President of Alliance and a director of Evergreen. He has held
those posts since joining Alliance in 1993. From 1983 until 1993, Mr. Feighan
served as the representative from the Ohio 19th Congressional District of the
United States House of Representatives. During his tenure in Congress,
Congressman Feighan served on the House Committee on the Judiciary and the House
Foreign Affairs Committee; Chairman, International Narcotics Control Committee;
President, The Interparliamentary Union; and permanent Representative to the
Helsinki Commission. In 1978, Mr. Feighan was elected to serve a four year term
as County Commissioner for Cuyahoga County. In 1979, he received a Presidential
Appointment and Commission from President Jimmy Carter to serve on the National
Advisory Council for Economic Opportunity. From 1972-1978, Mr. Feighan served as
a State Representative in the Ohio House of Representatives. He currently serves
on the board of trustees of the National Democratic Institute for International
Affairs, the Handgun Control Federation of Ohio, and the Rock and Roll Hall of
Fame and Museum. Mr. Feighan's term as a director of RESI will expire at the
1999 Annual Meeting of Stockholders of RESI.

Craig L. Stout will serve as Chief Operating Officer and a Director of RESI
upon consummation of the Combination. Craig L. Stout currently serves as
Executive Vice-President of Alliance, positions he has held since the formation
of Alliance in 1987. He also is a Vice President and a member of the Board of
Directors and the Investment Committee of CSC. Mr. Stout is also President and a
member of the Board of Directors of Evergreen and Chairman of the Board of CSU.
In addition to his duties and offices in the Alliance Companies, Mr. Stout
serves as President and Chairman of two other companies which he founded,
Contract Operations Planning, Inc., a surety claims management firm, and
Contract Surety Reinsurance Corporation, a reinsurance intermediary for
facultative surety reinsurance. Prior to his association with Alliance, Mr.
Stout managed a variety of construction related companies at the manufacturing,
wholesale, and contracting levels. Mr. Stout's term as a director of RESI will
expire at the 1998 Annual Meeting of Stockholders of RESI.

Harve A. Ferrill will serve as a Director of RESI upon consummation of the
Combination. Mr. Ferrill has served as Chief Executive Officer of Advance Ross
Corporation, a company that provides tax refunding service ("ARC"), since 1991
and as President of Ferrill-Plauche Co., Inc., a private investment company,
since 1982. Mr. Ferrill served as President of ARC from 1990 to 1993 and as
Chairman of the Board from 1992 to 1996. From 1981 to 1989 Mr. Ferrill served as
Chairman of the Board and Chief Executive Officer of Efficient Health Systems,
Inc. Mr. Ferrill also serves on the Board of Directors of Gaylord Container
Corporation and GeoWaste Incorporated ("GeoWaste") and is Chairman of the Board
of GeoWaste. Mr. Ferrill's term as a director of RESI will expire at the 1997
Annual Meeting of Stockholders of RESI.

Douglas R. Gowland will serve as a Director of RESI upon consummation of
the Combination and will continue to serve as the president of RESI's hazardous
waste companies. Mr. Gowland has served as Executive Vice President and Chief
Operating Officer of RESI since April 1995 and Director of RESI since March
1992. From March 1992 until the Spin-off was effected (April 1995), Mr. Gowland
served as President of RESI. From January 1992 to April 1995, Mr. Gowland served
as Vice President -- Hazardous Waste Operations of Republic Industries. From
March 1991 to January 1992, Mr. Gowland served as Vice President of DRG
Environmental Management, Inc. From March 1990 to February 1991, Mr. Gowland
served as President of Great Lakes Environmental Systems, Ltd. Mr. Gowland's
term as a director of RESI will expire at the 1999 Annual Meeting of
Stockholders of RESI.

Richard C. Rochon will serve as a Director of RESI upon consummation of the
Combination. Mr. Rochon has served, since 1988, as President of Huizenga
Holdings, Inc., a management and holding company for diversified investments in
operating companies, professional sports teams, joint ventures, and real estate,
on behalf of its owner, Mr. H. Wayne Huizenga. From 1985 until 1988, Mr. Rochon
served as Treasurer of Huizenga Holdings, Inc., and from 1979 until 1985, he was
employed as a certified public accountant by the international public accounting
firm of Coopers & Lybrand. Mr. Rochon's term as a director of RESI will expire
at the 1999 Annual Meeting of Stockholders of RESI.

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COMMITTEES OF THE RESI BOARD OF DIRECTORS

EXECUTIVE COMMITTEE

The Executive Committee has full authority to exercise all the powers of
the Board of Directors except as reserved by the Board of Directors. The
Executive Committee does not have the power to elect or remove officers, approve
a merger of RESI, recommend a sale of substantially all of RESI's assets,
recommend a dissolution of RESI, amend RESI's Bylaws or Certificate of
Incorporation or, except as expressly authorized by the Board, declare dividends
on RESI's outstanding securities or issue any of the RESI Common Stock or
preferred stock. After the Combination, the Executive Committee will be
comprised of Messrs. DeGroote and LoConti.

AUDIT COMMITTEE

The Audit Committee recommends the independent public accountants appointed
by the Board of Directors of RESI and reviews issues raised by such accountants
as to the scope of their audit and their report thereon including questions and
recommendations that arise relating to internal accounting and auditing control
procedures. After the Combination, the Audit Committee will be comprised of
Messrs. Rochon and Ferrill.

COMPENSATION COMMITTEE

The Compensation Committee reviews and makes recommendations to the Board
of Directors with respect to compensation of the officers of RESI, including
salary, bonus and benefits under any existing and future compensation plans. The
Compensation Committee also administers the 1995 Adjustment Plan. After the
Combination, the Compensation Committee will be comprised of Messrs. LoConti,
Rochon and Ferrill. Mr. LoConti will also serve as Vice Chairman of RESI
following the Combination.

DIRECTOR COMPENSATION

Directors who are employees of RESI are not paid any fees or additional
compensation for service as members of the Board of Directors or any committee
thereof. Directors who are not employees of RESI receive a $15,000 annual
retainer fee, as well as a fee of $1,000 for each meeting of the Board of
Directors attended. In addition, directors who are committee members receive a
fee of $500 for each committee meeting attended.

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EXECUTIVE COMPENSATION

The following tables set forth information with respect to the current
Chief Executive Officer who will serve as Chairman of the Board upon
consummation of the Combination and the other most highly compensated executive
officer of RESI as to whom the total annual salary and bonus for the year ended
December 31, 1995, exceeded $100,000.

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
AWARDS
----------
ANNUAL SECURITIES
COMPENSATION OTHER UNDERLYING
NAME AND PRINCIPAL ----------------- ANNUAL WARRANTS/
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------------------- ---- -------- ----- ------------ ----------

Michael G. DeGroote.................... 1995 -- -- -- 400,000(1)
Chairman of 1994 -- -- -- --
the Board 1993 -- -- -- --
Douglas R. Gowland..................... 1995 $204,430 -- --(2) 120,000(3)
Executive Vice 1994 $204,613 -- -- --
President 1993 $204,800 -- $30,874(4) --

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

(1) Warrants beneficially owned by Mr. DeGroote include 400,000 RESI Management
Warrants held of record by MGD. See "Certain Relationships and Related
Transactions" for more information regarding these warrants.

(2) Excludes the aggregate value of perquisites as such value is less than 10%
of total annual salary and bonus for Mr. Gowland.

(3) See "-- Executive Warrants" for more information regarding these warrants.

(4) Consists of reimbursements to Mr. Gowland for expenses incurred by him
relating to the sale of his residence and relocation to Philadelphia,
Pennsylvania in November 1993 in connection with the reorganization of the
hazardous waste services operations of RESI.

WARRANTS GRANTED IN THE LAST FISCAL YEAR

INDIVIDUAL GRANTS MADE IN 1995 POTENTIAL REALIZABLE
---------------------------------- VALUE AT ASSUMED ANNUAL
% OF RATES OF STOCK PRICE
NUMBER TOTAL APPRECIATION FOR
OF OPTIONS/ WARRANT TERM
SECURITIES WARRANTS --------------------------
UNDERLYING GRANTED AT 0% AT 5% AT 10%
WARRANTS/ TO EXERCISE ANNUAL ANNUAL ANNUAL
OPTIONS/ EMPLOYEES PRICE PER EXPIRATION GROWTH GROWTH GROWTH
GRANTED(1) IN 1995 SHARE DATE RATE RATE RATE
---------- --------- --------- ------------------ ------ ------- -------

Michael G. DeGroote....... 80,000 13.5% $3.60 June 30, 1996 -0- -0- -0-
80,000 13.5% $3.60 June 30, 1997 -0- -0- -0-
80,000 13.5% $3.60 June 30, 1998 -0- -0- -0-
80,000 13.5% $3.60 June 30, 1999 -0- -0- -0-
80,000 13.5% $3.60 June 30, 2000 -0- -0- -0-
Douglas R. Gowland........ 10,000 1.7% $5.10 May 31, 1996 -0- -0- -0-
24,000 4.0% $1.60 May 31, 1997 $600 $ 4,800 $ 9,240
24,000 4.0% $1.60 May 31, 1998 $600 $ 6,940 $14,040
24,000 4.0% $1.60 May 31, 1999 $600 $ 9,240 $19,320
24,000 4.0% $1.60 May 31, 2000 $600 $11,640 $25,080
14,000 2.4% $1.60 December 31, 2000 $350 $ 7,630 $16,800

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

(1) All warrants set forth in the table were granted as of April 25, 1995. See
"-- Executive Warrants."

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AGGREGATED WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END WARRANT
VALUE

VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING WARRANTS
SHARES UNEXERCISED WARRANTS AT DECEMBER 31,
ACQUIRED AT DECEMBER 31, 1995 1995
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- -------- -------- ----------- ------------ ----------- -------------

Michael G. DeGroote(1)............ -0- -0- 320,000 80,000 -0-(2) -0-(2)
Douglas R. Gowland................ 50,000 $28,750 32,000 38,000 $2,800 $3,325

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(1) Warrants beneficially owned by Mr. DeGroote include 400,000 RESI Management
Warrants held of record by MGD Holdings.

(2) None of these warrants were "in-the-money" at year-end as the exercise price
of the warrants exceeded the market price of RESI Common Stock at December
31, 1995.

EXECUTIVE WARRANTS

In April 1995, in connection with the Spin-off, the Board of Directors of
RESI adopted, and Republic Industries, as its sole stockholder, approved the
issuance, to holders of unexercised warrants to purchase Republic Industries
common stock, of warrants to purchase a number of shares of RESI Common Stock
equal to one-fifth the number of shares of Republic Industries common stock that
they could acquire upon exercise of their Republic Industries warrants. The
warrants to purchase RESI Common Stock issued pursuant to this arrangement are
only exercisable if exercised together with the Republic Industries warrants
with respect to which they were granted. The per share exercise price for shares
issued pursuant to warrants granted under this arrangement was adjusted to
reflect the effect of the Spin-off on the market price of Republic Industries
common stock and the RESI Common Stock. The combined exercise price of warrants
to purchase shares of Republic Industries common stock and warrants to purchase
shares of RESI Common Stock granted with respect thereto is equal to the
adjusted exercise price of the Republic Industries warrants held by any warrant
holder. The RESI warrants granted pursuant to this arrangement vest in
accordance with the vesting schedule of the Republic Industries warrant held by
such warrant holder as long as the warrant holder is employed by, or performs
services for, Republic Industries or RESI or their respective affiliates.

As of April 25, 1995, the date of the Spin-off (the "Spin-off Date"), Mr.
Gowland held warrants to purchase 600,000 shares of Republic Industries common
stock (the "Republic Industries Executive Warrants"), which he received as
compensation for his service as an officer of Republic Industries. Accordingly,
in connection with the Spin-off, Mr. Gowland received warrants to purchase
120,000 shares of RESI Common Stock (the "RESI Executive Warrants" and, together
with the Republic Industries Executive Warrants, the "Executive Warrants"). The
Executive Warrants vest in increments of 8.33% on May 31, 1992, 20% per year
over the subsequent four years through May 31, 1996, and the remaining 11.67%
vest December 31, 1996. Of Mr. Gowland's RESI Executive Warrants, 10,000 have an
exercise price of $5.10 per share and 110,000 have an exercise price of $1.60
per share. The Executive Warrants are exercisable, with respect to the portion
vested, for a period of four years following such vesting. As of June 1, 1996,
RESI Executive Warrants to purchase 106,000 shares of RESI Common Stock had
vested and Mr. Gowland had exercised his right to purchase 50,000 of such
shares.

EMPLOYMENT AGREEMENTS

Concurrently with the consummation of the Combination, Alliance shall cause
each of Messrs. LoConti, Feighan and Craig L. Stout to execute employment/non
competition agreements. Although these employment agreements have not yet been
negotiated and, therefore, are subject to change, it is anticipated that such
agreements will be for terms of one to three years, include non-competition
clauses that extend for one to three years following the termination date and
specify compensation levels for each of Messrs. LoConti, Feighan and Stout, the
amounts of which have not yet been determined. It is further anticipated that
the agreements will not provide for severance benefits. See "The
Combination -- The Mergers -- Other Agreements -- Employment Agreements."

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following is a summary of certain agreements and transactions between
or among RESI and certain related parties. It is RESI's policy to enter into
transactions with related parties on terms that, on the whole, are no less
favorable than those that would be available from unaffiliated parties. Based on
RESI's experience in the waste industry and the terms of its transactions with
unaffiliated parties, it is RESI's belief that the transaction described below
involving RESI met such standards at the time such transaction was effected.

MGD Holdings, a company of which Mr. DeGroote is a Director, President and
the sole stockholder, has entered into the MGD Purchase Agreement with RESI. See
"The Combination -- Interests of Certain Persons in the Combination." For a
description of the terms and conditions of the MGD Purchase Agreement, see "The
Stock Issuances."

Mr. LoConti, a director of RESI, is also the Chairman of the Board,
President and the controlling shareholder of Alliance. See "Risk Factors -- Mr.
LoConti's Affiliation with RESI and Alliance" and "-- Interests of Certain
Persons in the Combination." Mr. LoConti participated in the negotiation of the
Combination as an affiliate of Alliance and not as a director of RESI and did
not participate in the meeting of the RESI Board of Directors at which the
Combination was approved. See "The Combination -- Background of the Combination"
and "-- Recommendation of the RESI Board of Directors" for additional
information concerning the negotiations and the meeting of the RESI Board of
Directors at which the Combination was approved.

In June 1991, MGD Holdings entered into a management agreement (the
"Management Agreement") pursuant to which MGD Holdings acquired warrants to
purchase 2,300,000 shares of Republic Industries common stock at an exercise
price of $4.50 per share after giving effect to a two-for-one stock dividend of
Republic Industries common stock effective June 10, 1996 (the "Republic
Industries Management Warrants"). On the Spin-off Date, MGD Holdings was the
holder of warrants to purchase 2,000,000 shares of Republic Industries common
stock. Accordingly, pursuant to the grant by RESI of warrants to purchase RESI
Common Stock in connection with the Spin-off, MGD Holdings received warrants to
purchase 400,000 shares of RESI Common Stock ("RESI Management Warrants" and,
together with the Republic Industries Management Warrants, the "Management
Warrants") at an exercise price of $3.60 per share. The Management Warrants vest
at the rate of 20% per year over a five-year period. As of the date hereof, RESI
Management Warrants to purchase 400,000 shares of RESI Common Stock have vested
and MGD Holdings had exercised its right to purchase 80,000 of such shares. The
Management Warrants are exercisable, with respect to each portion vested, for a
period of four years following such vesting. The Management Agreement may be
terminated by either Republic Industries or MGD Holdings under certain
circumstances. Under an agreement with Mr. Huizenga, Republic Industries has
agreed that upon Mr. Huizenga's request, Republic Industries will terminate the
Management Agreement. In the event of termination of the Management Agreement by
Republic Industries, the holder will become vested in all remaining Management
Warrants; however, in the event of termination by MGD Holdings, the holder will
forfeit all remaining unvested Management Warrants. The Management Warrants also
fully vest in the event of the death or incapacity of Mr. DeGroote.

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the RESI Common Stock as of July 31, 1996, by (i) each person who
is known by RESI to own beneficially 5% or more of the RESI Common Stock, (ii)
each director of RESI, (iii) each executive officer of RESI named in the Summary
Compensation Table and (iv) all directors and executive officers of RESI as a
group. In addition, the table sets forth certain information, regarding
beneficial ownership of RESI Common Stock by (i) each person who RESI believes
will beneficially own more than 5% of the outstanding RESI Common Stock upon
consummation of the Combination, (ii) each person who will serve on the RESI
Board of Directors upon consummation of the Combination, (iii) all directors and
officers of RESI as a group upon consummation of the Combination.

SHARES OWNED SHARES OWNED
BENEFICIALLY BENEFICIALLY
PRIOR TO THE AFTER THE
COMBINATION(1) COMBINATION(1)
--------------------- ----------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ----------------------------------------- -------- ------- ---------- -------

Alliance Holding Corporation(2).......... -- -- 18,960,000(3) 56.1%
Joseph E. LoConti(2)..................... 5,500(4) * 18,965,500(5) 56.1
MGD Holdings Ltd.(6)..................... 5,536,000(7) 49.5% 13,536,000(8) 37.7
Michael G. DeGroote(6)................... 5,536,000(7) 49.5 13,536,000(8) 37.7
H. Wayne Huizenga(9)..................... -- -- 8,000,000(10) 22.5
Edward F. Feighan........................ 6,800 * 6,800(11) *
Craig L. Stout........................... 1,600(12) * 1,600(12)(13) *
Harve A. Ferrill......................... 2,000(14) * 2,000(14) *
Douglas R. Gowland....................... 192,800(15) 1.8 192,800(15) *
Richard C. Rochon........................ -- -- -- --
Michael J. Occhionero.................... 6,000 * 6,000(16) *
All directors and executive officers as a
group.................................. 5,745,200 51.1% 32,709,600 81.4%

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

* Less than 1%.

(1) Shares of RESI Common Stock that are not outstanding but that may be
acquired by a person upon exercise of options or warrants within 60 days
after the date of this Information Statement are deemed outstanding for the
purpose of computing the percentage of outstanding shares beneficially
owned by such person. However, such shares are not deemed outstanding for
the purpose of computing the percentage of outstanding shares beneficially
owned by any other person

(2) The address of this stockholder is 10055 Sweet Valley Drive, Valley View,
Ohio 44125.

(3) Includes 4,200,000 shares issuable upon exercise of warrants issuable in
the Combination.

(4) Includes 1,000 shares owned by Mr. LoConti's wife, 4,500 shares owned by
Alliance Prime Associates, Inc., a corporation of which Mr. LoConti is a
director and sole shareholder.

(5) Includes 4,200,000 shares issuable upon exercise of the Merger Warrants to
be held of record by Alliance, a company of which Mr. LoConti is the
President, a director and the controlling shareholder, and the shares
described in footnote (4).

(6) Mr. DeGroote is the sole stockholder, President and a director of MGD
Holdings. The address of Mr. DeGroote and MGD Holdings is Victoria Hall, 11
Victoria Street, P.O. Box HM 1065, Hamilton, HMEX Bermuda.

(7) Includes 320,000 shares of RESI Common Stock that MGD Holdings has the
right to acquire upon exercise of the RESI Management Warrants. See
"Management After the Combination -- Certain Relationships and Related
Transactions."

(8) Includes 6,000,000 shares issuable upon exercise of the MGD Warrants.

(9) The address of Mr. Huizenga is 200 S. Andrews Avenue, 6th Floor, Fort
Lauderdale, Florida 33301.

(10) Includes 6,000,000 shares issuable upon exercise of the Huizenga Warrants.

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(11) Excludes the Merger Shares and the Merger Warrant Shares to be issued to
Alliance in which Mr. Feighan is an officer and minority shareholder.

(12) Includes 1,200 shares held in a trust for the benefit of Mr. Stout's
children for which Mr. Stout's wife is the trustee.

(13) Excludes the Merger Shares and the Merger Warrant Shares to be issued to
Alliance in which Mr. Stout is an officer, director and minority
shareholder.

(14) Includes 2,000 shares owned by the Harve A. Ferrill Trust dated 12/31/69.

(15) Includes 56,000 shares of RESI Common Stock that Mr. Gowland has the right
to acquire upon exercise of the RESI Executive Warrants. See "Management
After the Combination -- Executive Compensation --RESI Executive Warrants."

(16) Includes 1,200 shares owned by BAY Properties Co., a general partnership of
which Mr. Occhionero is a 50% owner. Mr. Occhionero disclaims beneficial
ownership of 600 of such shares.

AMENDMENTS TO THE CERTIFICATE OF INCORPORATION

NAME CHANGE

By resolution adopted June 10, 1996, the Board of Directors of RESI
unanimously voted to approve an amendment to RESI's Certificate of Incorporation
to change RESI's name to International Alliance Services, Inc. and proposed the
approval of the Name Change by the RESI stockholders. The RESI Board of
Directors recommends the approval of the Name Change because it believes that
the adoption of a new name will help convey to RESI's stockholders and
customers, the financial markets and the public that the Mergers involve the
integration of RESI with a niche market insurance and surety company in order to
form a company with a greater potential for growth and increased profitability.
The RESI Board of Directors believes that the adoption of a new name is an
appropriate method for recognizing the significant contribution that the
Alliance Companies will make to the business of RESI.

AUTHORIZED SHARE INCREASE

The holders of RESI Common Stock also will be asked to approve the
Authorized Share Increase, a proposed amendment to Article Four of the
Certificate of Incorporation, as amended to date, to increase the number of
authorized shares of RESI Common Stock from 20,000,000 to 100,000,000. By
resolution adopted June 10, 1996, the RESI Board of Directors unanimously
approved the Authorized Share Increase and proposed the adoption of the
Authorized Share Increase by the RESI stockholders. The newly authorized shares
will have voting and other rights identical to the currently authorized shares
of RESI Common Stock.

Approval of the Authorized Share Increase is a condition to the obligations
of RESI, Alliance, the Merger Subs and the Alliance Companies to consummate the
Mergers and of RESI and Messrs. Huizenga and DeGroote to consummate the Stock
Issuance since, at the present time, RESI does not have a sufficient number of
shares of RESI Common Stock authorized to consummate the Mergers and the Stock
Issuances. Of the 20,000,000 currently authorized shares of RESI Common Stock,
as of June 13, 1996, 10,810,038 shares were issued and an additional 1,142,960
shares were reserved for issuance in connection with outstanding options and
warrants. Pursuant to the Purchase Agreements and the Merger Agreement, RESI
will issue 19,000,000 shares of RESI Common Stock and has reserved for issuance
upon exercise of the Warrants an additional 16,200,000 shares of RESI Common
Stock.

In addition to increasing the number of authorized shares of RESI Common
Stock in order to consummate the Mergers and Stock Issuances, the RESI Board of
Directors believes that is desirable that RESI have the flexibility to issue a
substantial number of shares of RESI Common Stock without further stockholder
action unless required by applicable law or regulation. The availability of
additional shares will enhance RESI's flexibility in connection with possible
future actions, such as corporate mergers, acquisitions of property, stock
dividends, stock splits and employee benefit programs. The RESI Board of
Directors will determine whether, when and on what terms the issuance of shares
of RESI Common Stock may be warranted in connection with any of the foregoing
purposes.

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The RESI Board of Directors does not intend to seek further stockholder
approval prior to the issuance of any additional shares of RESI Common Stock in
future transactions unless required by law, the Certificate of Incorporation or
the rules of Nasdaq or any stock exchange upon which the RESI Common Stock may
be listed, or unless RESI deems it advisable to do so in order to qualify an
employee benefit plan under Rule 16b-3 under the Exchange Act or as permitted by
recent changes to exempt the acquisition of any such shares from the provisions
of Section 16 of the Exchange Act.

The Board of Directors of RESI does not intend to issue any RESI Common
Stock to be authorized under the Amendment to the Certificate of Incorporation
except upon terms the Board of Directors deems to be in the best interest of
RESI and its stockholders. However, the issuance of RESI Common Stock without
further stockholder approval may, among other things, have a dilutive effect on
earnings per share and the equity of the present holders of RESI Common Stock
and their voting rights. Holders of RESI Common Stock have no preemptive rights.

The availability of additional shares of RESI Common Stock also could have
the effect of rendering more difficult or discouraging an attempt to obtain
control of RESI. For example, the issuance of shares of RESI Common Stock
(within the limits imposed by applicable law and the rules of Nasdaq or any
exchange upon which the RESI Common Stock is listed) in a public or private
sale, merger or similar transaction would increase the number of outstanding
shares, thereby possibly diluting the interest of a party attempting to obtain
control of RESI. The additional shares also could be used to render more
difficult a merger or similar transaction even if it appears to be desirable to
a majority of the stockholders of RESI. RESI is not aware of any pending or
threatened efforts to obtain control of RESI other than pursuant to the
transactions described herein. Additionally, any change in control of RESI would
require the consent of applicable state insurance regulatory authorities since
such change would also be deemed to be a change in control of CSC and the other
insurance companies. See "Risk Factors -- Change of Control."

On August 23, 1996, in accordance with Delaware law, holders of a majority
of the outstanding shares of RESI Common Stock executed a written consent
approving the Amendments to the Certificate of Incorporation.

DESCRIPTION OF CAPITAL STOCK

After stockholder approval of the Amendments to the Certificate of
Incorporation and effectiveness of such amendments in accordance with the DGCL,
RESI's authorized capital stock will consist of 100,000,000 shares of RESI
Common Stock, par value $0.01 per share, of which 46,010,038 shares will be
outstanding (giving effect to the Combination and the exercise of all of the
Warrants and assuming no other share issuances). All of the shares of RESI
Common Stock issuable in the Combination will be validly issued, fully paid and
nonassessable upon consummation of the Combination or subsequent exercise of the
Warrants, as applicable. In addition to the shares of RESI Common Stock issuable
in the Combination, as of June 13, 1996, 1,142,960 shares of RESI Common Stock
have been reserved for issuance in connection with the exercise of options under
RESI's employee benefit plans.

The holders of RESI Common Stock are entitled to one vote for each share on
all matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law, the holders of such shares exclusively will
possess all voting power. RESI's Certificate of Incorporation does not provide
for cumulative voting in the election of directors. The holders of RESI Common
Stock will be entitled to such dividends as may be declared from time to time by
the RESI Board of Directors from funds available therefor, and upon liquidation
will be entitled to receive pro rata all assets of RESI available for
distribution to such holders. Other than the transfer restrictions permitted by
Section 202 of the DGCL, and other than stop transfer orders directed in good
faith by RESI to prevent possible violations of federal or state securities
laws, rules and regulations, there can be no restrictions on transfer of the
shares of RESI Common Stock pursuant to RESI's Certificate of Incorporation or
RESI's Bylaws.

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79

The payment and level of dividends on the RESI Common Stock will be subject
to the discretion of the RESI Board of Directors. The payment of dividends will
depend on business decisions that will be made by the RESI Board of Directors
from time to time based upon the results of operations and financial conditions
of RESI and its subsidiaries and such other considerations as the RESI Board of
Directors considers relevant and may from time to time be restricted by debt
instruments. RESI's credit facility currently prohibits the payment of dividends
and other distributions to the RESI Stockholders. RESI currently does not
anticipate paying any cash dividends in the foreseeable future. See "Market
Prices and Dividend Policy -- Dividend Policy."

73
80

EMPLOYEE OPTION PLAN

On May 31, 1995, the RESI Board of Directors and its Compensation Committee
adopted, subject to stockholder approval, the Employee Option Plan. The purpose
of the Employee Option Plan is to offer certain present and future key
employees, officers and independent contractors of RESI (herein, collectively
the "Employees" and individually an "Employee"), a favorable opportunity to
become holders of Common Stock, thereby giving them a permanent stake in the
growth and prosperity of RESI and encouraging the continuance of their
involvement with RESI. On August 23, 1996, in accordance with Delaware law
holders of a majority of the outstanding shares of RESI Common Stock executed a
written consent approving the adoption of the Employee Option Plan.

DESCRIPTION OF THE EMPLOYEE OPTION PLAN

General. Subject to stockholder approval, a committee of the Board of
Directors of RESI consisting of two or more outside directors (the "Committee")
will administer the Employee Option Plan and may grant options to purchase RESI
Common Stock (the "Employee Options") to any Employees pursuant to the terms of
the Employee Option Plan. The total number of shares of RESI Common Stock
issuable under the Employee Option Plan may not exceed 500,000 shares. In the
event any change is made to the RESI Common Stock issuable under the Employee
Option Plan (by reason of any stock split, stock dividend, combination of
shares, merger, consolidation, reorganization or other change in the
capitalization of RESI), an appropriate adjustment would be made as necessary to
reflect/adjust (i) the aggregate number of shares of RESI Common Stock and/or
the kind of securities available for issuance under the Employee Option Plan,
(ii) the number of shares of RESI Common Stock and/or the kind of securities to
be made the subject of each subsequent grant, (iii) the exercise price and (iv)
the number of shares of RESI Common Stock and/or the kind of securities
purchasable under each outstanding Employee Option and the exercise price
payable per share so that no dilution or enlargement of benefits will occur
under such Employee Options.

Price; Exercisability. The exercise price of Employee Options shall be
determined by the Committee, but in no event shall be less than 100% of the fair
market value of the RESI Common Stock at the time the Employee Option is
granted. Generally, the Employee Options will be for a term of not less than
five nor more than ten years from the date of grant, and will vest in increments
of 20% per year over a five year period on the yearly anniversary of the grant
date. The Committee, in its discretion, may provide at the date of grant for
another vesting schedule, termination date or other limitations or conditions as
the Committee deems necessary or appropriate. Further, the Committee may
accelerate the exercisability of any Employee Option subject to such terms and
conditions as the Committee deems necessary and appropriate. In addition, the
Committee may, at any time prior to the expiration or termination of outstanding
Employee Options, extend the term of such Employee Options for an additional
period as it shall, in its discretion, determine appropriate (but only insofar
as the aggregate term of any Employee Option does not exceed ten years).

Change of Control. In the event Michael G. DeGroote, MGD Holdings or any
other entity holding the common voting shares of RESI on Mr. DeGroote's behalf
loses control of RESI, as determined by the RESI Board of Directors in good
faith, and if the Employee within two years of the date of that event is
dismissed, otherwise than for cause, death or disability, then all rights of the
Employee to purchase shares under the Employee Option Plan, granted but
unvested, will become immediately exercisable and the prescribed time limits for
exercise will run from such vesting. A change of control will be deemed to have
occurred if MGD Holdings' effective holdings of RESI voting stock are less than
20% of the outstanding shares of voting stock. The Board of Directors has
determined that the Combination does not constitute a change of control under
the Employee Option Plan.

Assignability. Employee Options are not assignable or transferable other
than by will or the laws of descent and distribution, or by a qualified domestic
relations order, and, during the optionee's lifetime, the Employee Option may be
exercised only by such optionee.

Amendments. The RESI Board of Directors may amend or discontinue the
Employee Option Plan at any time, provided that no such amendment may be made
without the requisite approval of the stockholders of

74
81

RESI if stockholder approval is required as a condition to the Employee Option
Plan continuing to comply with the provisions of Rule 16b-3 under the Exchange
Act or Section 162(m) of the Code.

Termination. Employee Options terminate five (5) business days after
termination of employment by RESI if the optionee's employment is terminated for
any reason other than death, disability or retirement. The Committee, in its
sole discretion, may permit outstanding Employee Options to be exercised for a
period after termination of employment but in no event after the expiration date
of the Employee Options. In the event of the optionees death, disability
retirement, the optionee or, if he is not living, the personal representative or
guardian of the optionee or the optionee's estate, or the person inheriting the
employee Option, will have three years (or such longer period as the Committee
may prescribe) after the date of the optionee's death, disability or retirement
to exercise the Employee Options in full. Under no circumstances, however, may
the Employee Option be exercised after the termination date of the Employee
Option. If any Employee Option granted under the Employee Option Plan expires or
is terminated or canceled unexercised as to any shares of Common Stock, such
released shares may again be optioned (including a grant in substitution for
canceled Employee Options).

FEDERAL INCOME TAX ASPECTS

The Employee Options do not constitute incentive stock options, within the
meaning of section 422(b) of the Code. As a general rule, no federal income tax
is imposed on the holder of options upon the issuance of options such as the
Employee Options and RESI is not entitled to a tax deduction by reason of such
issuance. Generally, upon the exercise of options such as the Employee Options,
the holder of the options will be treated as receiving compensation taxable as
ordinary income in the year of exercise, which in the case of an option, is an
amount equal to the excess of the fair market value of the shares on the date of
exercise over the exercise price of the options. Upon the exercise of options
such as the Employee Options, RESI may claim a deduction for compensation paid
at the same time and in the same amount as compensation income is recognized to
the holder of the options, assuming any federal income tax withholding
requirements are satisfied. Upon a subsequent disposition of the shares received
upon exercise of options such as Employee Options, the difference between the
amount realized on the disposition and the basis of the stock (exercise price
plus any ordinary income recognized) should qualify as long-term or short-term
capital gain, depending on the holding period.

NEW PLAN BENEFITS

The following table sets forth the number of underlying shares, the
exercise price and the value of the Employee Options received pursuant to the
Employee Option Plan by (i) each executive officer of RESI named in the Summary
Compensation Table, (ii) all current executive officers as a group, (iii) all
current directors who are not executive officers as a group and (iv) all
employees who are not executive officers as a group:

IN-THE-MONEY
NUMBER OF VALUE
UNDERLYING EXERCISE AS OF JULY 31,
NAME OPTIONS PRICE 1996
- --------------------------------------- ---------------- ---------------- ----------------

Michael G. DeGroote.................... -- -- --
Douglas R. Gowland..................... 200,000 $2.3125 $887,500
Executive officers as a group.......... 202,500 $2.3125 $898,594
Non-executive directors, as a group.... -- -- --
Non-executive officers, as a group..... 27,500 $2.3125 $122,031

75
82

LEGAL MATTERS

The validity of the issuance of the shares of RESI Common Stock offered in
the Combination have been passed upon for RESI by Akin, Gump, Strauss, Hauer &
Feld, L.L.P.

EXPERTS

The audited consolidated and combined financial statements of RESI included
in this Information Statement have been audited by Arthur Andersen LLP,
independent public accountants as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.

The audited consolidated financial statements and schedules of the CSC
Group as of December 31, 1995 and 1994 and each of the years in the three-year
period ended December 31, 1995, and the audited financial statements of CSU as
of December 31, 1995 and 1994 and each of the years in the three-year period
ended December 31, 1995 included herein have been audited and reported upon by
KPMG Peat Marwick LLP, independent certified public accountants. The financial
information in the schedules included herein have been derived from financial
statements audited by KPMG Peat Marwick LLP and have been reported upon by KPMG
Peat Marwick LLP. Such financial statements, schedules and selected financial
data have been included herein in reliance upon the report of KPMG Peat Marwick
LLP, appearing elsewhere herein, and upon the authority of said firm as experts
in accounting and auditing.

The report of KPMG Peat Marwick LLP for the CSC Group dated April 9, 1996,
except with respect to the matter discussed in Note 12 as to which the date is
June 14, 1996, contains an explanatory paragraph that states that as discussed
in Note 1 to the consolidated financial statements, in 1994, the CSC Group
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."

AVAILABLE INFORMATION

RESI is subject to the informational filing requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
are available for inspection and copying at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the regional offices of the SEC located at 7
World Trade Center, New York, New York 10048, and 500 West Madison Street, Suite
1400, Chicago, Illinois 60601. Copies of such materials can also be obtained
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 at the prescribed rates.

76
83

UNCERTAINTY OF FORWARD LOOKING STATEMENTS

This Information Statement contains forward looking statements. Such
statements are typically punctuated by words or phrases such as "anticipate,"
"estimate," "projects," "management believes," "RESI believes," "the Alliance
Companies believe" and words or phrases of similar import. Such statements are
subject to certain risks, uncertainties or assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. Among the key factors that may have a direct bearing on RESI's
results and financial condition are: (i) competitive practices in the hazardous
waste industry in which RESI will compete, (ii) fluctuations in waste
transportation prices, (iii) environmental liabilities to which RESI may become
subject in the future which are not covered by an indemnity or insurance and
(iv) the impact of current and future laws and governmental regulations
(particularly environmental regulations) affecting the hazardous waste industry
in general and RESI's operations in particular. Among the key factors that may
have a direct bearing on the Alliance Companies' results of operations and
financial condition are: (i) competitive practices in the specialty insurance
and bonding industries, (ii) competitive practices in the reinsurance markets
utilized by the Alliance Companies, (iii) judicial, legislative, and regulatory
changes of law relating to risks covered by the Alliance Companies or to the
operations of insurance companies in general, (iv) market fluctuations in the
values or returns on assets in the CSC Group investment portfolios, (v) pricing
of the Alliance Companies' insurance products and (vi) adverse loss development.

77
84

INDEX TO FINANCIAL INFORMATION AND FINANCIAL STATEMENTS

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Balance Sheet as of June 30, 1996....................... F-3
Unaudited Pro Forma Condensed Statement of Operations:
Year ended December 31, 1995....................................................... F-4
Six months ended June 30, 1996..................................................... F-5
Notes to Unaudited Pro Forma Financial Information.................................... F-6
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Report of Independent Public Accountants.............................................. F-7
Consolidated and Combined Balance Sheets as of December 31, 1995 and 1994............. F-8
Consolidated and Combined Statements of Operations for the years ended December 31,
1995, 1994 and 1993................................................................. F-9
Consolidated and Combined Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993................................................................. F-10
Consolidated and Combined Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993.................................................... F-11
Notes to Consolidated and Combined Financial Statements............................... F-12
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet as of June 30, 1996 (Unaudited)............................ F-27
Consolidated Statements of Operations for the six months ended
June 30, 1996 and 1995 (Unaudited)................................................. F-28
Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 (Unaudited)................................................. F-29
Notes to Consolidated Financial Statements (Unaudited)................................ F-30
CENTURY SURETY COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.......................................................... F-32
Consolidated Balance Sheets as of December 31, 1995 and 1994.......................... F-33
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993................................................... F-34
Consolidated Statements of Shareholder's Equity for the years ended December 31, 1995,
1994 and 1993....................................................................... F-35
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993................................................... F-36
Notes to Consolidated Financial Statements............................................ F-37
Schedule I -- Summary of Investments -- Other than Investments in Related Parties as
of December 31, 1995................................................................ F-53
Schedule IV -- Reinsurance for the years ended December 31, 1995, 1994 and 1993....... F-54
Schedule VI -- Supplemental Information Concerning Property -- Casualty Insurance
Operation for the years ended December 31, 1995, 1994 and 1993...................... F-55
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of June 30, 1996 (Unaudited) and December 31, 1995..... F-56
Consolidated Statements of Income (Unaudited) for the six months ended
June 30, 1996 and 1995............................................................. F-57
Consolidated Statement of Cash Flows (Unaudited) for the six months ended
June 30, 1996 and 1995............................................................. F-58
Notes to the Consolidated Financial Statements (Unaudited)............................ F-59
COMMERCIAL SURETY AGENCY, INC.
FINANCIAL STATEMENTS
Independent Auditors' Report.......................................................... F-60
Balance Sheets as of December 31, 1995 and 1994....................................... F-61
Statements of Income for the years ended December 31, 1995, 1994 and 1993............. F-62
Statements of Shareholder's Equity (Deficit) for the years ended December 31,
1995, 1994 and 1993................................................................ F-63
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993......... F-64
Notes to the Financial Statements..................................................... F-65
FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets as of June 30, 1996 (Unaudited) and December 31, 1995.................. F-69
Statements of Income (Unaudited) for the six months ended June 30, 1996 and 1995...... F-70
Statements of Cash Flows (Unaudited) for the six months ended June 30, 1996
and 1995........................................................................... F-71
Notes to the Financial Statements (Unaudited)......................................... F-72
Independent Auditors' Consent......................................................... F-73

F-1
85

REPUBLIC ENVIRONMENTAL SYSTEMS, INC.

PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma condensed income statements of RESI for
the year ended December 31, 1995 and for the six months ended June 30, 1996 give
effect to the Combination as if it had occurred on January 1, 1995. The
unaudited pro forma condensed balance sheet as of June 30, 1996 gives effect to
the Combination as if it had occurred on June 30, 1996. The pro forma
adjustments are based on currently available information and upon certain
assumptions that management believes are reasonable under the circumstances as
described in the accompanying Notes to Pro Forma Financial Information.

THE PRO FORMA FINANCIAL INFORMATION DOES NOT PURPORT TO REPRESENT WHAT
RESI'S FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD ACTUALLY HAVE BEEN IF
THE COMBINATION IN FACT HAD OCCURRED AT THE DATES INDICATED OR TO PROJECT RESI'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR PERIOD.

The following financial information should be read in conjunction with the
"RESI Management's Discussion and Analysis of Results of Operations and
Financial Condition," "Alliance Companies Management's Discussion and Analysis
of Results of Operations and Financial Condition," the consolidated and combined
financial statements of RESI and subsidiaries and the notes thereto, the
consolidated financial statements of CSC and the notes thereto, and the
financial statements of CSU and the notes thereto which are included elsewhere
herein.

F-2
86

REPUBLIC ENVIRONMENTAL SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED BALANCE SHEET

AS OF JUNE 30, 1996

(IN THOUSANDS)

HISTORICAL(A)
------------------------------------------- ACQUISITION
REPUBLIC CENTURY PRO FORMA
ENVIRONMENTAL SURETY ADJUSTMENTS EQUITY
SYSTEMS, INC. COMPANY COMMERCIAL AND TRANSACTIONS PRO
AND AND SURETY INTERCOMPANY COMBINED PRO FORMA FORMA
SUBSIDIARIES SUBSIDIARIES AGENCY, INC. ELIMINATIONS(B) COMPANIES ADJUSTMENTS(C) TOTAL
------------- ------------ ------------ --------------- --------- -------------- --------

ASSETS
Cash and cash
equivalents........... $ 2,442 $ 2,374 $ 138 $ $ 4,954 $ 10,500 $ 15,454
Investments
Fixed maturities held
to maturity......... 15,240 15,240 15,240
Securities available
for sale, at fair
value:
Fixed maturities.... 33,422 33,422 33,422
Equity securities... 8,098 8,098 8,098
Mortgage loans on real
estate.............. 2,611 2,611 2,611
Other investments..... 2,584 2,584 2,584
Premium balances
receivable............ 6,400 713 (1,020)(3) 6,093 6,093
Deferred policy
acquisition costs..... 3,954 3,954 3,954
Reinsurance
receivables........... 10,282 10,282 10,282
Prepaid insurance
premiums.............. 2,834 2,834 2,834
Accounts receivable,
net................... 6,184 6,184 6,184
Property and equipment,
net................... 20,322 367 172 20,861 20,861
Goodwill................ 8,984 1,285(1) 10,269 10,269
Other assets............ 2,493 2,450 266 5,209 5,209
------- ------- ------ ------- -------- -------- --------
Total assets.... $40,425 $ 90,616 $1,289 $ 265 $132,595 $ 10,500 $143,095
======= ======= ====== ======= ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable........ $ 2,516 $ $ 10 $ $ 2,526 $ $ 2,526
Losses and loss expenses
payable............... 39,265 39,265 39,265
Unearned premiums....... 17,248 (1,020)(3) 16,228 16,228
Reinsurance balances
payable............... 2,392 2,392 2,392
Income taxes payable.... 60 500 560 560
Accrued expenses and
other liabilities..... 2,394 2,681 1,146 6,221 6,221
Note Payable -- Alliance
Holding Company....... 4,000(1) 4,000 4,000
Long-term debt.......... 877 17 894 894
Accrued environmental
costs................. 3,569 3,569 3,569
Deferred income taxes... 2,437 406 2,843 2,843
Minority interest....... 257 257 257
------- ------- ------ ------- -------- -------- --------
Total
liabilities... 12,110 62,492 1,173 2,980 78,755 78,755
------- ------- ------ ------- -------- -------- --------
Stockholders' equity
Common stock.......... 109 2,000 1 (1,853)(1) 257 40 297
Paid-in-capital....... 27,479 17,591 (135)(1) 44,935 10,460 55,395
Retained earnings..... 531 4,644 115 (531)(1) 4,759 4,759
Net unrealized
appreciation of
investments......... 3,889 3,889 3,889
Cumulative translation
adjustment.......... 196 (196)(1)
------- ------- ------ ------- -------- -------- --------
Total
stockholders'
equity........ 28,315 28,124 116 (2,715) 53,840 10,500 64,340
------- ------- ------ ------- -------- -------- --------
Total
liabilities
and
stockholders'
equity........ $40,425 $ 90,616 $1,289 $ 265 $132,595 $ 10,500 $143,095
======= ======= ====== ======= ======== ======== ========

F-3
87

REPUBLIC ENVIRONMENTAL SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS EXCEPT PER SHARE DATA)

HISTORICAL(A)
-----------------------------------------------
REPUBLIC
ENVIRONMENTAL CENTURY MERGER
SYSTEMS, INC. SURETY COMMERCIAL ADJUSTMENTS PRO
AND COMPANY SURETY AND INTERCOMPANY FORMA
SUBSIDIARIES AND SUBSIDIARIES AGENCY, INC. ELIMINATIONS(B) TOTAL
------------- ---------------- ------------ ---------------- -------

Revenues........................ $44,537 $ 30,824 $2,602 $ (2,487)(3) $75,476
------- -------- ------ -------- -------
Expenses:
Cost of operations............ 32,702 893 33,595
Selling, general, and
administrative............. 9,768 1,399 32(2) 11,199
Losses and loss expenses...... 15,117 15,117
Acquisition and other
expenses................... 11,126 (2,487)(3) 8,639
Other, net.................... 26 220(4) 246
------- -------- ------ -------- -------
42,496 26,243 2,292 (2,235) 68,796
------- -------- ------ -------- -------
Income before income taxes...... 2,041 4,581 310 (252) 6,680
------- -------- ------ -------- -------
Income tax expense (benefit)
Current....................... 369 2,013 108 (88)(4) 2,402
Deferred...................... 386 (699) (313)
------- -------- ------ -------- -------
755 1,314 108 (88) 2,089
------- -------- ------ -------- -------
Net Income............ $ 1,286 $ 3,267 $ 202 $ (164) $ 4,591
======= ======== ====== ======== =======
Earnings per common and common
equivalent share(D)........... $ 0.12 $ 0.15
======= =======
Weighted average shares(D)...... 11,110 29,870
======= =======

F-4
88

REPUBLIC ENVIRONMENTAL SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1996

(IN THOUSANDS, EXCEPT PER SHARE DATA)

HISTORICAL(A)
---------------------------------------------
REPUBLIC ACQUISITION
ENVIRONMENTAL CENTURY PRO FORMA
SYSTEMS, INC. SURETY COMMERCIAL ADJUSTMENTS PRO
AND COMPANY AND SURETY AND INTERCOMPANY FORMA
SUBSIDIARIES SUBSIDIARIES AGENCY, INC. ELIMINATIONS TOTAL
------------- ------------ ------------ ---------------- -------

Revenues...................... 15,796 $ 16,612 $1,425 $ (1,209)(3) $32,624
Expenses:
Cost of operations.......... 11,849 599 12,448
Selling, general, and
administrative........... 4,656 687 16(2) 5,359
Losses and loss expenses.... 8,471 8,471
Acquisition and other
expenses................. 5,978 (1,209)(3) 4,769
Other, net.................. (316) 110(4) (206)
------- -------- ------ -------- -------
16,189 14,449 1,286 (1,083) 30,841
------- -------- ------ -------- -------
Income (loss) before income
taxes....................... (393) 2,163 139 (126) 1,783
------- -------- ------ -------- -------
Income tax expense (benefit)
Current..................... (146) 797 47 (44)(4) 654
Deferred.................... 32 32
------- -------- ------ -------- -------
(146) 829 47 (44) 686
------- -------- ------ -------- -------
Net Income (Loss)............. $ (247) $ 1,334 $ 92 $ (82) $ 1,097
======= ======== ====== ======== =======
Earnings (loss) per common and
common equivalent
share(D).................... $ (0.02) $ 0.04
======= =======
Weighted average shares(D).... 10,850 29,610
======= =======

F-5
89

REPUBLIC ENVIRONMENTAL SYSTEMS, INC.

NOTES TO PRO FORMA FINANCIAL INFORMATION

A. DESCRIPTION OF THE MERGERS

On May 19, 1996, Alliance and RESI signed a binding letter of intent and
agreed to the terms of mergers (the "Mergers") pursuant to which Alliance would
receive (i) 14,760,000 shares of RESI's common stock, par value $0.01 per share
("RESI Common Stock"), (ii) warrants to acquire an additional 4,200,000 shares
of RESI Common Stock, at prices ranging from $2.625 to $3.875 per share and
exercisable over two to four year periods and (iii) a promissory note in the
principal amount of $4.0 million in consideration for all of the outstanding
common stock of its wholly-owned subsidiaries, Century Surety Company ("CSC")
and Commercial Surety Agency, Inc. ("CSU"). In connection with such transaction,
each of MGD Holdings, Ltd. ("MGD Holdings") and H. Wayne Huizenga ("Huizenga")
will purchase 2,000,000 shares of RESI Common Stock and warrants to purchase
6,000,000 additional shares of RESI Common Stock at exercise prices ranging from
$2.625 to $3.875 per share and exercisable over two to four year periods for an
aggregate purchase price of $5,250,000. After the Mergers, but before the
exercise of the Merger Warrants and Stock Issue Warrants, Alliance and MGD
Holdings will beneficially own approximately % and %, respectively of
the outstanding shares of RESI common stock. As a result of the Mergers,
Alliance will control four of the seven board positions, thereby having the
ability to control the RESI Board of Directors. In addition, contemporaneously
with the consummation of the Mergers, MGD Holdings will enter into a voting
agreement with Alliance whereby MGD Holdings, for a period of two years
commencing as of the completion of the Mergers thereof agrees to vote all shares
of RESI Common Stock in accordance with the recommendation of the management of
Alliance. Accordingly, Alliance will have the ability to control the outcome of
matters submitted to a vote of the RESI Stockholders, including the election of
directors. The Mergers will be accounted for as a purchase business combination
pursuant to which Alliance is acquiring RESI. Consequently, in RESI's
consolidated financial statements, the assets and liabilities of RESI will be
recorded at fair value based upon the closing market price of the outstanding
shares of RESI common stock on May 17, 1996 (10,797,950 shares at 2 5/16 per
share). The historical balances shown in the pro forma statements for RESI, CSC
and CSU are derived from the financial statements of each company included
elsewhere herein.

B. ACQUISITION PRO FORMA ADJUSTMENTS AND INTERCOMPANY ELIMINATIONS

(1) Reflects the adjustments related to the Mergers including (a) a
purchase price of approximately $29.6 million (including transaction costs of
approximately $0.7 million) based on the number of RESI common shares
outstanding at the market price of May 17, 1996 and an additional $4.0 million
note payable to Alliance, (b) elimination of the historical equity balances of
CSC and CSU to reflect the new capital structure of RESI as a result of the
transaction and (c) recognition of $1.285 million of goodwill resulting from the
excess purchase price over the estimated fair value of the net assets of RESI at
June 30, 1996.

(2) Records the amortization over 40 years of the resulting goodwill for
the year ended December 31, 1995 and the six months ended June 30, 1996.

(3) Reflects the elimination of intercompany balances between CSC and CSU.

(4) Reflects the interest expense associated with the $4.0 million note
payable to Alliance at the current LIBOR rate of 5.5% and the related adjustment
to income taxes (using an estimated combined federal and state tax rate of 40%)
for the year ended December 31, 1995 and the six months ended June 30, 1996.

C. EQUITY TRANSACTIONS PRO FORMA ADJUSTMENTS

Reflects the purchase of 2.0 million RESI common shares each and warrants
to purchase an additional 6.0 million RESI common shares each by MGD Holdings
and Huizenga as noted in A. above.

D. EARNINGS PER SHARE

Pro forma earnings per share reflect the issuance of 14,760,000 common
shares to Alliance and the 4,000,000 new shares issued to MGD Holdings and
Huizenga and also reflect the effect of a two-for-one stock split, effected in
the form of a stock dividend in June 1996. Primary and fully diluted pro forma
earnings per share are the same.

F-6
90

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Republic Environmental Systems, Inc.:

We have audited the accompanying consolidated and combined balance sheets
of Republic Environmental Systems, Inc. (a Delaware corporation) and
subsidiaries, as of December 31, 1995 and 1994, and the related consolidated and
combined statements of operations, cash flows and stockholders equity for the
years then ended, as discussed in Note 2 to the financial statements. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Republic Environmental
Systems, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.

Philadelphia, PA.,
February 13, 1996
(except with respect
to the matters discussed
in Note 12, as to which
the date is June 14, 1996)

F-7
91

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31
-------------------
1995 1994
------- -------

ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 3,255 $ 1,433
Accounts receivable, less allowance for doubtful accounts of $1,031 and
$1,174, respectively................................................ 7,614 10,870
Other current assets................................................... 1,445 1,292
------- -------
Total current assets........................................... 12,314 13,595
Property and equipment, net.............................................. 19,469 16,844
Goodwill, net of accumulated amortization of $1,187 and $935,
respectively........................................................... 9,109 9,255
Other assets............................................................. 858 248
------- -------
Total assets................................................... $41,750 $39,942
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 2,568 $ 4,686
Accrued liabilities.................................................... 2,825 3,127
Notes payable.......................................................... 193 257
Current maturities of long-term debt and capitalized lease
obligations......................................................... 507 2,133
Current portion of accrued environmental costs......................... 1,999 2,677
Income taxes payable................................................... 56 160
------- -------
Total current liabilities...................................... 8,148 13,040
Long-term debt and capitalized lease obligations, net of current
maturities............................................................. 618 1,128
Accrued environmental costs, net of current portion...................... 1,790 2,850
Deferred income taxes.................................................... 2,344 2,375
Minority interest........................................................ 257 257
------- -------
Total liabilities.............................................. 13,157 19,650
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share; 20,000,000 shares authorized,
11,366,432 shares issued............................................ 114 --
Additional paid-in capital............................................. 27,653 --
Retained earnings...................................................... 778 --
Cumulative translation adjustment...................................... 193
Treasury stock, 102,000 shares, at cost................................ (145) --
Investment by Republic Industries, Inc................................. -- 20,292
------- -------
Total stockholders' equity..................................... 28,593 20,292
------- -------
Total liabilities and stockholders' equity..................... $41,750 $39,942
======= =======

The accompanying notes are an integral part of these financial statements.

F-8
92

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
------- ------- --------

Revenues................................................... $44,537 $46,599 $ 61,617
Expenses:
Cost of operations....................................... 32,702 33,377 47,028
Selling, general and administrative...................... 9,768 10,349 13,480
Restructuring and unusual charges........................ -- 8,484 14,906
------- ------- --------
Operating income (loss).......................... 2,067 (5,611) (13,797)
------- ------- --------
Other (income) expense:
Interest and other income................................ (193) (120) (161)
Interest expense......................................... 219 473 1,153
------- ------- --------
Income (loss) before income taxes and extraordinary gain... 2,041 (5,964) (14,789)
Income tax provision (benefit)............................. 755 (3,092) (210)
------- ------- --------
Income (loss) before extraordinary gain.................... 1,286 (2,872) (14,579)
Extraordinary gain on conversion of debt, net of income tax
provision of $3,092...................................... -- 5,556 --
------- ------- --------
Net income (loss)................................ $ 1,286 $ 2,684 $(14,579)
======= ======= ========
Earnings (loss) per common and common equivalent share:
Income (loss) before extraordinary gain.................. $ 0.12 $ (0.26) $ (1.32)
Extraordinary gain....................................... -- 0.51 --
------- ------- --------
Net income (loss)................................ $ 0.12 $ 0.25 $ (1.32)
======= ======= ========
Weighted average common and common equivalent shares....... 11,110 10,966 11,004
======= ======= ========

The accompanying notes are an integral part of these financial statements.

F-9
93

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED DECEMBER 31
--------------------------------
1995 1994 1993
------- ------- --------

Cash flows from operating activities:
Net income (loss).......................................... $ 1,286 $ 2,684 $(14,579)
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Extraordinary gain on conversion of debt................ -- (5,556) --
Restructuring and unusual charges....................... -- 8,484 14,906
Depreciation and amortization........................... 2,312 2,457 2,803
Provision for doubtful accounts......................... 569 929 469
Provision for accrued environmental costs............... 347 373 267
(Loss) gain on the sale of equipment.................... (74) 6 (1)
Changes in assets and liabilities
Accounts receivable................................... 2,671 (81) 4,714
Prepaid expenses and other assets..................... (986) 227 (187)
Accounts payable and accrued liabilities.............. (2,231) (1,213) (3,383)
Income taxes payable.................................. (105) 20 (395)
Due to Republic Industries, Inc....................... 784 2,515 2,659
Other liabilities..................................... (1,835) (4,682) (1,014)
------- ------- --------
Net cash provided by operations.................... 2,738 6,163 6,259
Cash flows from investing activities:
Business acquisitions, net of cash acquired................ -- -- (317)
Capital additions.......................................... (4,197) (1,837) (3,569)
Proceeds from the sale of equipment........................ 212 112 240
------- ------- --------
Net cash used in investing activities.............. (3,985) (1,725) (3,646)
------- ------- --------
Cash flows from financing activities:
Amounts borrowed from Republic Industries, Inc............. -- 2,788 6,717
Repayment of borrowings from Republic Industries, Inc...... -- (5,495) (5,016)
Cash received from exercise of stock options and
warrants................................................ 1,664 -- --
Purchase of treasury stock................................. (145) -- --
Payments of long-term debt and notes payable............... (3,922) (2,380) (8,832)
Proceeds from long-term debt and notes payable............. 827 395 3,888
Capital contributions and other payments from Republic
Industries, Inc......................................... 2,518 -- --
Cash received from Stout-capital contribution.............. 2,127 -- --
------- ------- --------
Net cash provided by (used in) financing
activities....................................... 3,069 (4,692) (3,243)
------- ------- --------
Increase (decrease) in cash and cash equivalents............. 1,822 (254) (630)
Cash and cash equivalents:
Beginning of year.......................................... 1,433 1,687 2,317
------- ------- --------
End of year................................................ $ 3,255 $ 1,433 $ 1,687
======= ======= ========
Supplemental disclosure of cash paid for:
Interest................................................... $ 216 $ 469 $ 826
Income taxes............................................... $ 128 $ 64 $ 42
Supplemental disclosure of noncash investing and financing
activities:
Equipment purchases of $536, $137 and $232 were financed in
the years ended December 31, 1995, 1994 and 1993,
respectively by borrowings and capitalized lease
obligations.

The accompanying notes are an integral part of these financial statements.

F-10
94

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

ADDITIONAL RETAINED CUMULATIVE EQUITY
COMMON PAID-IN EARNINGS TRANSLATION TREASURY INVESTMENT
STOCK CAPITAL (DEFICIT) ADJUSTMENT STOCK BY RII TOTAL
-------- -------- -------- ----------- -------- -------- --------

Balance at December 31,
1992....................... $ $ $ (8,965) $ $ $ 37,498 $ 28,533
Net loss................... (14,579) (14,579)
Net advances from RII...... 1,701 1,701
Return of consideration
held in escrow for an
acquisition.............. (929) (929)
Other transactions with
RII, net(1).............. 2,146 2,146
-------- -------- -------- -------- -------- -------- --------
Balance at December 31,
1993....................... (23,544) 40,416 16,872
Net income................. 2,684 2,684
Net payments to RII........ (2,707) (2,707)
Other transactions with
RII, net(1).............. 3,425 3,425
-------- -------- -------- -------- -------- -------- --------
Balance at December 31,
1994....................... (20,860) 41,152 20,292
Net income through
spin-off................. 508 508
Contributions from RII
prior to spin-off........ 261 261
Spin-off from RII.......... 108 20,802 20,352 151 (41,413) --
Capital contribution from
RII...................... 2,518 2,518
Net income post-spin-off... 778 778
Capital contribution from
Stout.................... 2,127 2,127
Issuance of shares for
stock options............ 6 1,661 1,667
Tax benefit of stock
options and warrants..... 545 545
Purchases of treasury
stock.................... (145) (145)
Currency translation
adjustment............... 42 42
-------- -------- -------- -------- -------- -------- --------
Balance at December 31,
1995....................... $ 114 $ 27,653 $ 778 $ 193 $ (145) $ -- $ 28,593
======== ======== ======== ======== ======== ======== ========

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

(1) Includes insurance premiums, self-insured losses and corporate services
expense allocations directly attributable to RESI.

The accompanying notes are an integral part of these financial statements.

F-11
95

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

1. BACKGROUND

In July 1994, Republic Industries, Inc. ("RII"), formerly Republic Waste
Industries, Inc., announced the contemplation of a plan to exit the hazardous
waste services segment of the environmental industry. The plan included the
combination of RII's former hazardous waste services operations in Republic
Environmental Systems, Inc. ("RESI") and the distribution of the stock of RESI
to the stockholders of record of RII (the "Distribution"). In April 1995, the
Board of Directors approved the Distribution to RII stockholders of record as of
April 21, 1995. RII stockholders received one share of RESI's common stock for
every five shares of RII common stock owned on the record date of the
Distribution (the "Distribution Date"). RII currently has no ownership interest
in RESI.

In connection with the Distribution, RESI and RII entered into various
agreements including the Distribution Agreement, Corporate Services Agreement,
Tax Sharing Agreement and various indemnity agreements.

The Distribution Agreement provided for, among other things, the principal
corporate transactions required to effect the Distribution and the contribution
of RII's Canadian hazardous waste services subsidiary to RESI. The Distribution
Agreement also provided for RII to contribute an additional $2.4 million in
capital to RESI to repay indebtedness and to provide working capital in
connection with the Distribution.

The Corporate Services Agreement provides for RII to provide certain
services, including insurance administration, human resources management,
financial reporting and tax, legal and environmental engineering services to
RESI after the Distribution, until the agreement is terminated by either party.
The cost to RESI of such arrangement did not differ significantly from the costs
allocated to RESI in the past, as included in the accompanying statements of
operations. This agreement is expected to terminate at the end of the first
quarter in 1996.

The Tax Sharing Agreement provides for, among other things, the treatment
of tax matters for periods through the date of the Distribution and
responsibility for any adjustments as a result of audit by any taxing authority.
The general terms provide for the indemnification for any tax detriment incurred
by one party which is caused by the other party's actions.

Other agreements include various indemnity agreements which provided for
indemnification by RESI to RII, and vice versa, for potential increases or
decreases in any RESI liabilities which remained with RII as a result of
previously shared arrangements.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements at December 31, 1995
include the accounts of RESI and its subsidiaries, the successor to the business
of Stout Environmental, Inc. ("Stout"), a Delaware corporation, acquired by RII
in March 1992, as well as the accounts of Republic Environmental Systems Ltd.
("RESL") (formerly known as Great Lakes Environmental Group Ltd.), the former
Canadian hazardous waste services subsidiary of RII, which was acquired by RII
in July 1991 and was contributed to RESI as of the Distribution Date
(collectively, the "Company"). One of RESI's subsidiaries, Republic
Environmental Systems (Cleveland) (RES (Cleveland)), Inc. (formerly known as
Evergreen Environmental Group, Inc.), was acquired by RII in September 1991, in
a transaction separate from the Stout acquisition and was contributed to RESI in
May 1993. The accounts of RESI and all its majority owned subsidiaries are
included in the accompanying consolidated financial statements. All significant
intercompany transactions have been eliminated.

F-12
96

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The combined financial statements for all periods presented prior to the
Distribution Date include the historical accounts and operations of the former
RII businesses that now comprise the Company. Material transactions between
entities included herein have also been eliminated.

RII has in the past provided certain corporate general and administrative
services to the Company as described previously. The expenses for these
services, which amounted to $391,000, $851,000, and $839,000 during 1995, 1994
and 1993, respectively, were charged or allocated to the Company on a basis that
approximated the cost of actual services provided. Management believes that the
allocation of expenses was made on a reasonable basis and that expenses to be
incurred as a stand-alone entity will not differ significantly from the amount
of expenses allocated to the Company by RII.

Revenue Recognition

The Company provides a full range of hazardous waste services including
collection, disposal, treatment, storage and recycling services to a broad base
of industrial and commercial waste generators in the Eastern United States and
Canada. Consistent with industry practice, the Company recognizes revenue upon
the receipt and acceptance of waste material at its waste treatment, storage and
disposal facilities ("TSD Facilities"). Appropriate disposal costs are accrued
upon acceptance at its TSD Facilities.

Earnings Per Share

Primary earnings per share computations are based on the weighted average
number of outstanding common and common share equivalents with dilutive effects.
Primary and fully diluted income (loss) per share are the same in each period.

Income (loss) per share for periods prior to the Distribution, have been
determined based on the assumed weighted average number of shares of common
stock outstanding which was considered to be equal to one-fifth of the weighted
average number of shares of RESI common stock for the respective periods.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, while minor replacements,
maintenance and repairs are charged to expense as incurred. When property is
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in current
operations.

Depreciation is provided over the estimated useful lives of the assets
involved using the straight-line method. The estimated useful lives are: twenty
years for buildings and improvements, five to fifteen years for vehicles and
equipment and five years for furniture and fixtures.

A summary of property and equipment is shown below (in thousands):

DECEMBER 31
----------------------
1995 1994
-------- --------

Vehicles and equipment............................... $ 16,624 $ 16,093
Land, buildings and improvements..................... 14,655 11,063
Furniture and fixtures............................... 2,212 2,407
-------- --------
33,491 29,563
Less- Accumulated depreciation....................... (14,022) (12,719)
-------- --------
$ 19,469 $ 16,844
======== ========

F-13
97

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Accrued Liabilities

The Company provides accruals for the disposal of hazardous and
nonhazardous waste which has been accepted at its TSD Facilities. At December
31, 1995 and 1994, disposal accruals of $948,000 and $1,107,000, respectively,
were included in accrued liabilities.

Also reflected in accrued liabilities are insurance reserves. Since 1991,
the Company has participated in RII's combined risk management programs for
property and casualty insurance. The Company has agreed to indemnify RII against
increases in current losses and any future losses incurred in connection with
the Company's participation in these programs. The Company continued to
participate in RII's combined risk management programs until the expiration of
these policies in June 1995. The Company has its own insurance program after
that date. At December 31, 1995 and 1994, the insurance accrual was $488,000 and
$72,000, respectively.

Accrued Environmental Costs

Accruals for investigatory and remediation costs are recorded when it is
probable that a liability has been incurred and the amount of loss can be
reasonably estimated. Accrued costs include investigative, administrative, legal
and remediation costs associated with site clean-up. Environmental compliance
costs including maintenance, monitoring and similar costs are expensed as
incurred.

The measurement of environmental liabilities is based on an evaluation of
currently available facts with respect to each individual site and considers
factors such as existing technology, presently enacted laws and regulations, and
prior experience in remediation of contaminated sites. While the current law
potentially imposes joint and several liability upon each party at any Superfund
site, the Company's contribution to clean up these sites is expected to be
limited, given the number of other companies which have also been named as
potentially responsible parties, the volumes of waste involved, and that most of
these matters are indemnified by the former shareholders of Stout (see Note 4).
A reasonable basis for apportionment of costs among responsible parties is
determined and the likelihood of contribution by other parties is established.
If it is considered probable that the Company will only have to pay its expected
share of the total site cleanup, the liability reflects the Company's expected
share. In determining the probability of contribution, the Company considers the
solvency of the parties, whether responsibility is being disputed, the terms of
any existing agreements, and experience to date regarding similar matters. These
liabilities do not take into account any claims for recoveries from insurance or
third parties and are not discounted. As assessments and remediation progress at
individual sites, these liabilities are reviewed periodically and adjusted to
reflect additional technical and legal information which becomes available.
Actual costs to be incurred at identified sites in future periods may vary from
the estimates, given inherent uncertainties in evaluating environmental
exposures.

Anticipated cash expenditures for 1996 are expected to be approximately
$2.0 million ($1.1 million expected to be indemnified). The exact timing of cash
payments from beyond this period are impacted by various governmental and
non-governmental agencies and therefore difficult to predict with any certainty.

Income Taxes

The U.S. operations of the Company are included in the combined federal
income tax return of RII through the Distribution date and on a stand alone
basis thereafter, whereas the Company's Canadian operations file a separate
Canadian tax return. The Company's income tax provision in the accompanying
statements of operations is calculated as if it filed separate tax returns in
both the United States and Canada for all periods.

The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this method, deferred tax assets and liabilities are

F-14
98

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

recognized for the tax effects of temporary differences between the financial
reporting and tax basis of assets and liabilities using enacted rates.

Goodwill

Goodwill is amortized on a straight-line basis over forty years.
Amortization expense related to goodwill and other intangible assets was
$255,000, $460,000, and $734,000 in 1995, 1994 and 1993, respectively.

It is the Company's policy to review goodwill for possible impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. The realizability of goodwill is evaluated
periodically as events and circumstances dictate. Such evaluation is based on
various analyses, including cash flow and profitability projections. Generally,
the unamortized goodwill from each acquisition is measured against undiscounted
cash flows from such entity. If such an evaluation indicates an impairment has
occurred, an appropriate writedown would be made based upon a discounted cash
flow analysis or similar determination of fair value. Such adjustment would be
recorded in the period when such events occur and analyses are completed. If
such review indicates that the carrying amount of goodwill is not recoverable,
it is the Company's policy to reduce the carrying amount of such assets to fair
value (see Note 3).

Statements of Cash Flows

The Company considers all highly liquid investments with purchased
maturities of three months or less to be cash equivalents. The effect of noncash
transactions are excluded from the statements of cash flows.

Foreign Currency Translation

All asset and liability accounts of foreign subsidiaries are translated to
U.S. dollars at the rate of exchange in effect at the balance sheet date. All
income statement accounts of foreign subsidiaries are translated at average
exchange rates during the year. Resulting translation adjustments arising from
these translations are charged or credited directly to equity. Gain or loss on
foreign currency transactions is included in income as incurred. Such amounts
were not material in any year presented.

Fair Value of Financial Instruments

The book values of cash, trade accounts receivable, accounts payable and
financial instruments included in other current assets and other assets
approximate their fair values principally because of the short-term maturities
of these instruments. The fair value of the Company's long-term debt is
estimated based on the current rates offered to the Company for debt of similar
terms and maturities. Under this method the Company's fair value of long-term
debt was not significantly different than the stated value at December 31, 1995
and 1994.

In the normal course of business, the Company has letters of credit,
performance bonds and other guarantees which are not reflected in the
accompanying balance sheets. Management believes that the likelihood of
nonperformance under these financial instruments is minimal and expects no
material losses to occur in connection with these financial instruments.

Concentrations of Credit Risk

Concentrations of credit risk with respect to trade receivables are limited
due to the wide variety of customers and markets into which the Company's
services are provided, as well as their dispersion across different geographic
areas. As a result, as of December 31, 1995, the Company does not consider
itself to have any significant concentrations of credit risk. For the years
ended 1995, 1994 and 1993, bad debt expense was $119,000, $929,000 and $914,000
and bad debt write-offs were $262,000, $635,000 and $632,000, respectively.

F-15
99

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Estimates and Assumptions

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, disclosure
of contingent assets and liabilities and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.

Accounting Pronouncements

In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (the "Statement") on accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to assets to be held and
used. The Statement also establishes accounting standards for long-lived assets
and certain identifiable intangibles to be disposed of. The Company is required
to adopt the Statement in 1996, and based on a preliminary review, no material
impact is anticipated.

3. RESTRUCTURING AND UNUSUAL CHARGES

Recapitalization of RESL in 1994

In connection with the decision by RII to distribute the hazardous waste
services segment to its existing shareholders, which included the contribution
of the Canadian hazardous waste services subsidiary, RESL, to RESI at the
Distribution Date, RII recapitalized RESL. As such the Company evaluated each of
the individual TSD Facility operations of RESL considering the continued weak
Canadian economy and the amount of capital RESI could devote to RESL's
operations in the future. The results of this evaluation indicated that the
undiscounted cash flows of certain of the individual Canadian TSD Facilities did
not support the recorded amounts of goodwill without a substantial improvement
in the Canadian economy or the investment of substantial amounts of capital.
Additionally, the amount of goodwill recorded as a result of the acquisition of
RESL by RII in 1991 could not be supported by the expected changes in operations
after the planned contribution of RESL to RESI. As a result, the Company wrote
off approximately $6,380,000 of goodwill at RESL in the fourth quarter of 1994.
The Company also wrote off $1,194,000 in abandoned or to-be-abandoned property
and accrued approximately $910,000 of costs associated with the Distribution.

Reorganization of hazardous waste operations in 1993

In order to counteract severe market conditions in the hazardous waste
industry, the Company decided to reorganize its operations in the fourth quarter
of 1993. As a result, the Company consolidated certain TSD operations,
terminated certain contracts, closed or decided to close certain facilities,
reduced its workforce by over 135 people (or 30%) and wrote off goodwill and
other intangibles associated with the closed and abandoned facilities. In
accordance with industry standards, the Company provides for closure costs over
the life of a facility. Accordingly, the Company has fully provided for these
costs on the closed and to-be-closed facilities. In addition to the
reorganization of operations, the Company also reevaluated its exposure related
to litigation and environmental matters and provided additional accruals for the
costs to defend or settle certain

F-16
100

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

litigation and environmental matters. A summary of these charges for the closed,
abandoned and to-be-closed facilities is as follows (in thousands):

Property and equipment............................. $ 3,427
Goodwill and other intangibles..................... 4,476
Accumulated permitting costs....................... 1,492
Cost of terminating contracts and employees and
office relocation costs.......................... 2,705
Closure and environmental accruals................. 1,756
Accruals for cost of settlement of defense and
existing litigation and environmental matters.... 1,050
-------
$14,906
=======

4. ACCRUED ENVIRONMENTAL COSTS

The Company's waste services activities are conducted in the context of a
developing and changing statutory and regulatory framework, aggressive
government enforcement and a highly visible political environment. Governmental
regulation of the waste management industry requires the Company to obtain and
retain numerous governmental permits to conduct various aspects of its
operations. These permits are subject to revocation, modification or denial. The
costs and other capital expenditures which may be required to obtain or retain
the applicable permits or comply with applicable regulations could be
significant.

Certain of the Company's facilities are contaminated from past spills of
potentially hazardous material. The amount and severity of contamination are
currently under investigation. The Company believes that remedial action will be
required, including continued investigation, monitoring and treatment of
groundwater and/or possible soil removal. As part of the acquisition of Stout in
1992 by RII, certain of the former stockholders of Stout agreed to indemnify RII
and the Company for certain litigation matters and environmental matters
identified as of the closing date of the merger. The obligation under this
indemnity is secured by amounts held in an escrow fund. The Company accrues for
known exposures in regards to these indemnified matters. Reimbursements from the
escrow account are reflected as capital contributions as cash is received. In
1995, the Company received reimbursement of $2.1 million with respect to these
indemnified matters.

The following is a description of proceedings whose claims are covered by
the indemnity obligations of the former Stout stockholders.

Adams Oil, Inc.

Adams Oil, Inc.("Adams Oil"), a wholly-owned subsidiary of RESI,
previously operated an oil terminal located in Camden, New Jersey. RESI is
aware that there is evidence of contamination on the property which may
have been caused by past spills of possible hazardous materials (i.e.,
petroleum hydrocarbons, gasoline, diesel fuel). The amount and the sources
of the contamination are currently under investigation by Adams Oil. The
New Jersey Department of Environmental Protection and Energy (the "NJDEPE")
has knowledge of the problem and has requested more information from Adams
Oil. Management believes that remedial action may be required and a
clean-up plan has been submitted to NJDEPE for approval.

Republic Environmental Systems (Pennsylvania), Inc.

Republic Environmental Systems (Pennsylvania), Inc. ("RES
(Pennsylvania)") has been named as a PRP in the North Penn Area No. 2
regional ground water problem involving 56 square miles

F-17
101

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

occupied by hundreds of industrial companies. The EPA has requested that
RES (Pennsylvania) enter into an administrative consent order to
investigate and determine its contribution, if any, to the regional
groundwater problem. RES (Pennsylvania) believes that it should not agree
to a consent order under CERCLA, but instead should be regulated under its
RCRA corrective action permit. The EPA is looking at the septic system and
the contamination of groundwater, as well as considering adding other PRP
companies. RES (Pennsylvania) is assisting the EPA by conducting testing.
RES (Pennsylvania) is not aware of any evidence that it contributed to a
regional groundwater problem.

In addition, RES (Pennsylvania) (formerly known as Waste Conversion,
Inc.) also has been named as a PRP along with 13 other primary defendants
for the recovery costs to remediate the Moyers Landfill Site in eastern
Pennsylvania. A company previously known as Waste Conversion of Delaware,
Inc. disposed of materials at Moyers Landfill from 1979 to 1981. This
company then sold its assets to Waste Conversion, Inc., which was owned by
Stout. RES (Pennsylvania) is currently in settlement negotiations with the
EPA to limit its exposure in this matter.

Also, RES (New York) and RES (Pennsylvania) are parties in a PRP
action with respect to the Aqua-Tech TSD facility in South Carolina. There
are 180 parties to date. In April 1993, an agreement was reached whereby
RESI paid $360,060 for proposed settlement of certain issues at the
facility, pending the final allocation to the PRP's.

The Company is involved in various matters of litigation and is subject to
ongoing environmental investigations by certain regulatory agencies involving
environmental matters, as well as other claims and disputes that could result in
additional litigation. The environmental investigations include notifications
that the Company is a Potentially Responsible Party, as defined under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, in several site cleanups. With regard to certain of these matters, the
Company has been assessed penalties which it has appealed or has ongoing
negotiations to reduce the level of the assessments. The more significant items
include:

RES (Cleveland), Inc.

In June 1993, RES (Cleveland) received a Complaint and Compliance
Order from the Enforcement Division of Region 5 of the EPA alleging that
the former owners of RES (Cleveland)'s TSD Facility failed to submit a
proper RCRA Facility Investigation ("RFI") Workplan to the EPA on a timely
basis and fined RES (Cleveland). This RFI Workplan included any remedial
action plan necessary for the remediation of sub-surface soil at the TSD
Facility. In September 1993, Region 5 of the EPA approved for
implementation the RFI Workplan submitted by RES (Cleveland).

Republic Environmental Systems (New York), Inc.

In late June 1993, the Company voluntarily ceased operating at its TSD
Facility in Nassau County, New York, due to ongoing disputes and
negotiations with various regulatory agencies including the New York
Department of Environmental Conservation, the town of Oyster Bay and Nassau
County. In addition, RES (New York) received from the New York DEC a
proposed Summary Order in an Administrative Action commenced by the New
York DEC against the RES (New York) facility, whereby the New York DEC
sought revocation of RES (New York)'s permit to operate as a TSD Facility.
The New York DEC withdrew a previous consent order against RES (New York),
under which RES (New York) had agreed to pay $100,000, and subsequently
fined RES (New York) for alleged violations at the facility.

In early 1994, RES (New York) also permanently closed its hazardous
waste treatment, storage and disposal facility in Nassau County, New York
due to ongoing disputes and negotiations with the New York DEC, the town of
Oyster Bay and Nassau County. In addition, RES (New York) entered into a

F-18
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REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

consent decree with the New York DEC which provided for payment by RES (New
York) of $150,000 and the manner in which RESI was required to close the
facility. The parties are currently negotiating the technical aspects of
the requirements relating to facility closure.

Additionally, due to the reorganization of operations in 1993 as discussed
in Note 3, the Company evaluated its exposure related to certain environmental
matters and litigation related to its closed or to-be-closed TSD Facilities. As
a result, the Company provided additional accruals of $2,806,000 for the costs
to defend or settle these matters in 1993, of which approximately $468,000
remains as of December 31, 1995.

Although it is possible that a loss exceeding amounts already recorded may
be incurred upon the resolution of the litigation and environmental matters
described above, management believes that such losses, if realized, will not
have a material adverse effect on the Company's cash flows, consolidated results
of operations or combined financial position.

5. SHORT-TERM BORROWINGS, NOTES PAYABLE, LONG-TERM DEBT AND CAPITALIZED LEASES

Short-Term Borrowings and Notes Payable

In May 1995, the Company secured a $6 million credit facility with
CoreStates Bank, N.A., to be used for additional working capital and other
funding needs. Up to $4.5 million of the credit facility is available for the
issuance of standby letters of credit. At December 31, 1995, the Company had
issued $2.6 million in standby letters of credit. The unused portion of the
facility is available for cash borrowings. There were no cash borrowings under
the credit facility during 1995.

The credit facility provides for the maintenance of certain restrictive
covenants including, among others, minimum working capital levels, maintaining
current and fixed charges ratios and a predetermined level of interest coverage.
The Company is also restricted from making any dividend payments and incurring
additional debt. This facility is collateralized by substantially all of the
Company's U.S. assets. During 1995, the Company was in full compliance with all
covenants.

F-19
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REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Notes payable consisted primarily of borrowings to fund the Company's
insurance premiums at December 31, 1995 and in 1994, amounts reflect borrowings
from lines of credit for working capital purposes. Long-Term Debt and
Capitalized Leases

Long-term debt, including obligations under capitalized leases, consists of
the following (in thousands):

DECEMBER 31
-----------------
1995 1994
------ ------

Notes payable and capitalized lease obligations to banks
and financial institutions, secured by equipment and
other assets, interest ranging from 7.3% to 9.54%
(weighted average interest rate of 8.0% as of December
31, 1995), payable monthly through 2000.................. $ 854 $1,418

Note payable for an acquisition, secured by a letter of
credit, interest at Canadian prime, (7.50% as of December
31, 1994), payable monthly through April 1995............ -- 1,367

Other notes payable, secured by equipment and other assets,
interest ranging from 8.0% to 9.25% (weighted average
interest rate of 7.9% as of December 31, 1995) payable
monthly through 1998..................................... 271 476
------ ------
1,125 3,261
Less -- Current maturities................................. (507) (2,133)
------ ------
$ 618 $1,128
====== ======

At December 31, 1995, aggregate maturities of long-term debt, including
obligations under capitalized leases, were as follows (in thousands):

1996................................................ $ 507
1997................................................ 361
1998................................................ 151
1999................................................ 104
2000................................................ 2
------
$1,125
======

In connection with the decision by RII to distribute the hazardous waste
services segment to its existing shareholders, as discussed in Note 2, RII
recapitalized RESL. In December 1994, the Company's Canadian subsidiary
converted its U.S. subordinated term loan payable by RESL to 360,000 shares of
redeemable convertible participating preferred stock of RESL. The preferred
stock, with a face amount of Canadian $9.0 million ($6.6 million U.S. as of
December 31, 1995), is redeemable at the option of the Company and is
convertible into 15% of the common stock of RESL at the option of the holder.
The holders of the preferred stock are eligible to receive dividends based on
the future profitability of RESL in excess of specified target earnings levels.
The Company recorded an extraordinary gain on the conversion to preferred stock
of approximately U.S. $5.6 million, net of income taxes, based on the preferred
stock's fair market value.

The fair market value of the preferred stock was estimated by management
based on the current financial condition of the Canadian subsidiary, projected
undiscounted net income of that subsidiary and the current estimated fair market
value of the Canadian subsidiary.

F-20
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REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

6. STOCK OPTIONS AND WARRANTS

Stock Options

On the Distribution Date, holders of options to acquire RII Common Stock,
previously granted to employees, directors and affiliates of RII, received
options to acquire RESI Common Stock at the ratio of one RESI option for each
five RII options. These options have substantially similar terms to the RII
options. The outstanding options of RII at the Distribution Date and the RESI
options granted with respect thereto are stapled (i.e., RII options and RESI
options granted with respect thereto are only exercisable if exercised
together). The per share exercise prices of RII and RESI options at the
Distribution Date were appropriately adjusted to reflect the effect of the
Distribution on the market prices of RII and RESI Common Stock. The combined
exercise price of an option to purchase shares of RII Common Stock and the
option to purchase shares of RESI Common Stock granted with respect thereto was
equal to the exercise price of the RII option prior to the Distribution Date.
Unvested RII options held by any optionee and the unvested RESI options granted
to such optionee with respect to such RII options, vests in accordance with the
vesting schedule of the RII options held by such optionee as long as the
optionee is employed by RII or RESI or their affiliates. Options granted under
this plan expire ten years from the date of grant and vest over varying periods.
In April 1995, the RESI Board of Directors approved the RESI Adjustment Plan
("Adjustment Plan") and approved the issuance, on the Distribution Date, of
options to purchase up to 450,000 shares of RESI Common Stock. The purpose of
the Adjustment Plan is to provide for the issuance of RESI options to certain
optionees who have been granted options to purchase RII Common Stock which were
outstanding as of the Distribution Date. The option price of these plans is
based on the fair market value of the common shares on the date that the stock
options are granted.

In May 1995, the RESI Board of Directors approved the RESI 1995 Employee
Stock Option Plan for certain key employees of the Company. A maximum of 500,000
options may be awarded to purchase the Company's Common Stock. The option price
under this plan shall not be less than the fair market value of the Common Stock
on the date the stock option is granted. In the event of a change of control, as
defined in the plan, all outstanding employee options shall become immediately
exercisable and the prescribed time limits for exercise will run from such
vesting.

Certain information for 1995 relative to these stock option plans is
summarized below:

Number of Shares
Granted at Distribution Date.................... 420,400
Granted subsequent to distribution.............. 31,000
Exercised (a)................................... (257,800)
Expired or canceled............................. (3,400)
--------
Outstanding at end of year (b).................. 190,200
========
Exercisable at end of year...................... 70,000
========
Participants at end of year..................... 40
========
Available for future grant at the end of year... 502,000
========

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

(a) Options were exercised at prices ranging from $1.08 to $5.80.

(b) For outstanding shares under option at December 31, 1995, option prices
ranged from $1.08 to $5.80 (and averaged $2.25). The expiration dates for
these options from May 1996 to May 2004.

F-21
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REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Warrants

As of the Distribution Date, there were outstanding unexercised warrants
(the "RII Warrants") to acquire 4,361,500 shares of RII Common Stock. On the
Distribution Date, the holders of unexpired RII Warrants received additional
warrants (the "RESI Warrants") to acquire a number of shares equal to one-fifth
the number of shares of RII Common Stock (or 872,300 of RESI Common Stock) which
they may acquire upon exercise of their outstanding RII options. The outstanding
RII and RESI options are stapled and contain substantially similar terms. The
per share exercise price of the RESI warrants has been appropriately adjusted to
reflect the effect of the Distribution on the market prices of the RII and RESI
Common Stock. There were 250,000 RESI warrants exercised at prices ranging from
$1.08 to $5.10 with no cancellations occurring during the year. These warrants
expire beginning July 1996 to May 2003.

7. COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company leases certain of its premises and certain equipment under
various operating lease agreements. At December 31, 1995, future minimum rental
commitments becoming payable under all operating leases are as follows (in
thousands):

1996.................................................. $412
1997.................................................. 370
1998.................................................. 316
1999.................................................. 302
2000.................................................. 233
Thereafter............................................ 222

Total rental expense incurred under operating leases was $709,000,
$848,000, and $1,058,000 in 1995, 1994 and 1993, respectively.

Employee Benefits

Effective January 1, 1994, RESI instituted a defined contribution 401(k)
savings plan ("the Plan") for employees meeting certain employment requirements
which covered the Company's eligible employees. Under the Plan, RESI may, at its
discretion, match a portion of employee contributions based on the profitability
and growth of RESI. There have been no contributions to the Plan.

Other Matters

In May 1994, RESI decided to terminate its operations at a TSD Facility in
Farmingdale, New York. RESI's Dayton, Ohio TSD facility terminated operations in
October, 1995. RESI has ceased its efforts to relocate the Dayton, Ohio TSD
facility, but will continue to provide services in Ohio through its Bedford,
Ohio facility. With respect to the closing of each of these TSD facilities, RESI
has accrued the appropriate costs.

At December 31, 1995, RESI had placed in escrow accounts approximately
$873,000 in connection with TSD Facility closure and certain other obligations,
of which $813,000 was included in cash and cash equivalents and $60,000 was
included in other current assets. Additionally, RESI has used its bonding
facilities for the issuance of payment, performance and bid bonds, of which $1.9
million in bonds were outstanding at December 31, 1995.

F-22
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REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

8. CAPITAL STOCK

At the Distribution Date, RII stockholders of record as of April 21, 1995
received one share of RESI's common stock for each five shares of RII common
stock held. If the Distribution had taken place on December 31, 1994,
approximately 10,800,000 million shares of RESI's common stock would have been
issued.

During the current year, the Board of Directors adopted resolutions
authorizing, but not requiring, RESI to purchase up to a total of 500,000 shares
from time to time. As of December 31, 1995, 102,000 shares had been acquired at
a cost of $145,000. Subsequent to year-end, the Board of Directors authorized an
additional 500,000 shares to be purchased. and 594,000 shares were repurchased
at a cost of $896,000.

9. INCOME TAXES

The components of the income tax provision are shown below (in thousands):

YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
----- ------- -------

Current:
Federal..................................... $ 227 $ (11) $ --
Foreign..................................... 43 -- (729)
State....................................... 99 155 121
----- ------- -------
369 144 (608)
Deferred:
Federal..................................... 749 910 (3,110)
Foreign..................................... (363) (638) --
----- ------- -------
386 272 (3,110)
Change in valuation allowance................. -- (3,508) 3,508
----- ------- -------
Income tax provision (benefit)................ $ 755 $(3,092) $ (210)
===== ======= =======

In addition to the above, RESI recorded a deferred income tax provision of
$3,092,000 in 1994 related to the extraordinary gain on conversion of debt.

Deferred tax assets are recognized under SFAS No. 109 unless it is "more
likely than not" that they will not be realized. In 1993, RESI recorded a
$3,508,000 valuation allowance related to the realization of deferred tax assets
generated as a result of the restructuring and unusual charges. This valuation
allowance was recorded due to the uncertainty surrounding the future utilization
of such deferred tax assets. In 1994, the valuation allowance was eliminated
based on the expected realization of such deferred tax assets primarily as a
result of the deferred tax gain generated from the conversion of the Canadian
debt to redeemable convertible participating preferred stock (see Note 5).

F-23
107

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate as reported is shown below:

YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
----- ------- -------

Statutory federal income tax rate............. 34.0% (34.0)% (34.0)%
Goodwill and other permanent items............ 9.3 27.6 11.4
State income taxes, net of federal benefit.... 3.2 1.4 0.7
Foreign income tax (benefit) provision at
other than U.S. rates....................... (4.2) 2.8 (3.2)
Nondeductible expenses related to the
distribution................................ -- 5.2 --
Change in valuation allowance................. -- (58.8) 23.7
Reduction of previously accrued taxes......... (5.3) -- --
Other, net.................................... -- 4.0 --
----- ------- -------
Effective tax rate............................ 37.0% (51.8)% (1.4)%
===== ======= =======

Components of the net deferred income tax liability are shown below (in
thousands):

DECEMBER 31
-------------------
1995 1994
------- -------

Deferred tax liabilities:
Book basis in property over tax basis................. $ 5,855 $ 5,532
Deferred gain on the conversion of Canadian debt...... 2,617 2,617
------- -------
8,472 8,149
Deferred tax assets:
Net operating losses.................................. (4,727) (3,405)
Accrued environmental costs........................... (1,191) (2,100)
Accruals not currently deductible..................... (210) (269)
------- -------
(6,128) (5,774)
------- -------
Net deferred income tax liability....................... $ 2,344 $ 2,375
======= =======

At December 31, 1995 the Company had available U.S. net operating loss
carryforwards of approximately $8.9 million which begin to expire in the year
2006. The Company also has approximately $3.8 million of Canadian net operating
loss carryforwards, the majority of which will begin to expire in 1999.

The U.S. operations of RESI are included in the consolidated federal income
tax return of RII through the date of the Distribution. All tax amounts above as
well as tax amounts included in the accompanying combined financial statements
have been reflected as if RESI filed a separate federal tax return.

The Company and RII have entered into a tax sharing agreement which
reflects each party's rights and obligations with respect to deficiencies and
refunds, if any, of federal, state or other taxes related to RESI, or RII's
hazardous waste services subsidiaries prior to their distribution to RESI, for
tax periods prior to the Distribution. RESI has agreed to indemnify RII for
positions taken in tax periods prior to the Distribution.

The tax sharing agreement provides for adjustments to the Company's net
deferred tax liability based on the completion of federal tax returns, in which
RESI will be included in the RII consolidated return. Adjustments might be
necessary due to the timing of certain deductions and the calculation of interim
period taxable income in 1995. Per the tax sharing agreement, any adjustments
necessary would affect the Company's equity as if such adjustments had been made
at the Distribution Date.

F-24
108

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

10. RELATED PARTY TRANSACTIONS

The Company has entered into several agreements to lease office space and
obtain other services for certain subsidiaries with the former owners of these
subsidiaries, primarily Stout, who were formerly officers of the Company.
Aggregate payments for such leases and other services were $814,000, $647,000
and $1,202,000 in 1995, 1994, and 1993, respectively.

11. OPERATIONS BY GEOGRAPHIC AREA

The Company's only line of business is providing environmental services to
hazardous and non-hazardous waste generators.

The following tables present information regarding the Company's different
geographic regions based on the historical operations of the Company (in
thousands):

YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
-------- -------- --------

Revenue
United States............................................ $ 38,815 $ 41,539 $ 54,047
Canada................................................... 5,722 5,060 7,570
-------- -------- --------
$ 44,537 $ 46,599 $ 61,617
======== ======== ========
Operating income (loss):
United States............................................ $ 2,760 $ 1,061 $(10,164)
Canada................................................... (693) (6,672) (3,633)
Interest, net.............................................. (26) (353) (992)
-------- -------- --------
Income (loss) before income taxes and extraordinary gain... $ 2,041 $ (5,964) $(14,789)
======== ======== ========
Depreciation and amortization:
United States............................................ $ 1,894 $ 1,910 $ 2,000
Canada................................................... 418 547 803
-------- -------- --------
$ 2,312 $ 2,457 $ 2,803
======== ======== ========
Capital expenditures:
United States............................................ $ 3,600 $ 1,707 $ 1,870
Canada................................................... 1,133 267 1,931
-------- -------- --------
$ 4,733 $ 1,974 $ 3,801
======== ======== ========
Identifiable assets:
United States............................................ $ 32,155 $ 31,494 $ 33,662
Canada................................................... 9,595 8,448 15,856
-------- -------- --------
$ 41,750 $ 39,942 $ 49,518
======== ======== ========

12. SUBSEQUENT EVENTS

On May 19, 1996, RESI and Alliance Holding Company ("Alliance") signed a
binding letter of intent and agreed to the terms of mergers (the "Mergers")
pursuant to which RESI would issue to Alliance (i) 14,760,000 shares of RESI
Common Stock, (ii) warrants to acquire an additional 4,200,000 shares of RESI
Common Stock at exercise prices ranging from $2.625 to $3.875 per share and
exercisable over two to four year periods and (iii) a promissory note in the
principal amount of $4.0 million, in consideration for all of the outstanding
common stock of Alliance's wholly-owned subsidiaries, Century Surety Company and
Commercial Surety Agency, Inc. As part of the same transaction, MGD Holdings
Ltd. and Mr. H. Wayne Huizenga will each purchase 2,000,000 shares of RESI
common stock for $2.625 per share and will each

F-25
109

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

receive warrants to purchase an additional 6,000,000 shares of RESI Common Stock
at exercise prices ranging from $2.625 to $3.875 per share and exercisable over
two to four year periods.

As a result of the Mergers, there will be a change in control of RESI to
Alliance and utilization of the RESI net operating losses of approximately $8.9
million (at December 31, 1995) will be subject to certain limitations imposed by
the Internal Revenue Code.

Additionally, on June 7, 1996, RESI announced a two for one stock split,
effected in the form of a stock dividend effective June 14, 1996. These
consolidated and combined financial statements have been adjusted to reflect the
effect of the stock split.

Also, in May 1996, the Board of Directors approved a resolution to retire
all of the common shares held in the Company's treasury.

F-26
110

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
(UNAUDITED)

ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................... $ 2,442 $ 3,255
Accounts receivable, less allowance for doubtful accounts of $1,036
and $1,031, respectively......................................... 6,184 7,614
Other current assets................................................ 1,625 1,445
------- -------
TOTAL CURRENT ASSETS........................................... 10,251 12,314
Property and equipment, net........................................... 20,322 19,469
Goodwill, net of accumulated amortization of $1,326 and $1,187,
respectively........................................................ 8,984 9,109
Other assets.......................................................... 868 858
------- -------
TOTAL ASSETS................................................... $40,425 $41,750
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................................... $ 2,516 $ 2,568
Accrued liabilities................................................. 1,991 2,825
Notes payable....................................................... 403 193
Current maturities of long-term debt and capitalized lease
obligations...................................................... 423 507
Current portion of accrued environmental costs...................... 1,759 1,999
Income taxes payable................................................ 60 56
------- -------
TOTAL CURRENT LIABILITIES...................................... 7,152 8,148
Long-term debt and capitalized lease obligations, net of current
maturities.......................................................... 454 618
Accrued environmental costs, net of current portion................... 1,810 1,790
Deferred income taxes................................................. 2,437 2,344
Minority interest..................................................... 257 257
------- -------
TOTAL LIABILITIES.............................................. 12,110 13,157
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share; 20,000,000 shares
authorized, 10,855,238 and 11,366,432 shares issued,
respectively..................................................... 109 57
Additional paid-in capital.......................................... 27,479 27,710
Retained earnings................................................... 531 778
Cumulative translation adjustment................................... 196 193
Treasury stock, 102,000 shares, at cost............................. -- (145)
------- -------
TOTAL STOCKHOLDERS' EQUITY..................................... 28,315 28,593
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................... $40,425 $41,750
======= =======

The accompanying notes are an integral part of these financial statements.

F-27
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REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1995
------- -------

Revenues................................................................ $15,796 $25,165
Expenses:
Cost of operations.................................................... 11,849 18,123
Selling, general and administrative................................... 4,656 5,092
------- -------
Operating income (loss).......................................... (709) 1,950
Other (income) expense:
Interest and other income............................................. (426) (118)
Interest expense...................................................... 110 154
------- -------
Income (loss) before income taxes....................................... (393) 1,914
Income tax (benefit) provision.......................................... (146) 708
------- -------
Net (loss) income................................................ $ (247) $ 1,206
======= =======
(Loss) earnings per common and common equivalent share.................. $ (0.02) $ 0.11
======= =======
Weighted average common and common equivalent shares.................... 11,150 10,850
======= =======

The accompanying notes are an integral part of these financial statements.

F-28
112

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)
(UNAUDITED)

SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1995
------- -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income..................................................... $ (247) $ 1,206
Adjustments to reconcile net (loss) income to net cash provided by
operations:
Depreciation and amortization.................................... 1,078 1,184
Provision for doubtful accounts.................................. 98 424
Provision for accrued environmental costs........................ 148 204
Loss (gain) on the sale of equipment............................. (64) (20)
Changes in assets and liabilities --
Accounts receivable........................................... 1,337 1,404
Prepaid expenses and other assets............................. (354) (537)
Accounts payable and accrued liabilities...................... (1,015) (378)
Income taxes payable.......................................... 4 144
Due to Republic Industries, Inc............................... -- 762
Other liabilities............................................. (192) (1,367)
------- -------
Net cash provided by operations............................. 793 3,026
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions..................................................... (1,704) (2,201)
Proceeds from the sale of equipment................................... 119 41
------- -------
Net cash used in investing activities....................... (1,585) (2,160)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options........................................... 872 --
Capital contributions from Republic Industries, Inc................... -- 2,191
Repayment of borrowings from Republic Industries, Inc................. -- (501)
Cash received from Stout -- capital contribution...................... 74 2,454
Purchase of treasury stock............................................ (895) (141)
Payments of long-term debt and notes payable.......................... (440) (3,044)
Proceeds from long-term debt and notes payable........................ 368 319
------- -------
Net cash (used) provided in financing activities............ (21) 1,278
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS................................... (813) 2,144
CASH AND CASH EQUIVALENTS:
Beginning of period................................................... 3,255 1,433
------- -------
End of period......................................................... $ 2,442 $ 3,577
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest.............................................................. $ 110 $ 152
Income taxes.......................................................... $ 89 $ 65

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Equipment purchases of $0 and $536 were financed in the six months ended June
30, 1996 and 1995, respectively by borrowings and capitalized lease obligations.

The accompanying notes are an integral part of these financial statements.

F-29
113

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The accompanying unaudited consolidated and combined financial statements
at June 30, 1996 include the accounts of Republic Environmental Systems, Inc.
and its subsidiaries ("RESI"), the successor to the business of Stout
Environmental, Inc. ("Stout"), a Delaware corporation, acquired by Republic
Industries, Inc. ("RII"), formerly Republic Waste Industries, Inc., in March
1992, as well as the accounts of Republic Environmental Systems Ltd. ("RESL")
(formerly known as Great Lakes Environmental Group Ltd.), the former Canadian
hazardous waste services subsidiary of RII, which was acquired by RII in July
1991 and was contributed to RESI as of the Distribution Date (collectively, the
"Company"). One of RESI's subsidiaries, Republic Environmental Systems
(Cleveland) (RES (Cleveland)), Inc. (formerly known as Evergreen Environmental
Group, Inc.), was acquired by RII in September 1991, in a transaction separate
from the Stout acquisition and was contributed to RESI in May 1993. The accounts
of RESI and all its majority owned subsidiaries are included in the accompanying
consolidated financial statements. All significant intercompany transactions
have been eliminated.

The consolidated and combined financial statements of RESI and its
subsidiaries included herein have been prepared by RESI, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
RESI, the accompanying statements reflect all adjustments necessary to present
fairly the financial position, results of operations and cash flows for those
periods indicated, and contain adequate disclosure to make the information
presented not misleading. Such adjustments are of a normal, recurring nature
unless otherwise disclosed in the notes to consolidated and combined financial
statements. It is suggested that these condensed consolidated and combined
financial statements be read in conjunction with the financial statements and
notes thereto included elsewhere herein.

Results of operations for any six month period are not necessarily
indicative of the results of operations for a full year.

2. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

The computation of weighted average common and common equivalent shares
used in the calculation of earnings per share for the six months ended June 30,
1996 is shown below (in thousands):

SIX MONTHS
ENDED
JUNE 30,
1996
----------

Common shares outstanding, net of treasury shares................... 10,855
Effect of stock options and warrants assumed exercisable............ 299
Effect of using weighted average common shares outstanding during
the period........................................................ (4)
------
Weighted average common and common equivalent shares................ 11,150
======

On June 7, 1996 the Board of Directors declared a two-for-one split of
RESI's common stock, $.01 par value per share ("Common Stock"), in the form of a
100% stock dividend, payable June 30, 1996, to holders of record on June 14,
1996. Accordingly, all prior year share and per share information contained
herein reflects the stock split.

F-30
114

REPUBLIC ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The difference between shares for primary and fully diluted earnings per
common and common equivalent share was not dilutive for the periods presented.

3. TREASURY STOCK

In April 1995 the RESI Board of Directors adopted resolutions authorizing,
but not requiring, RESI to repurchase up to a total of 500,000 shares (or 4.6%
of the then outstanding RESI Common Stock) from time to time. The repurchasing
of shares was intended to achieve a more favorable balance between the market
supply of the shares and expected market demand, as well as establish stability
in the trading market for RESI shares. Repurchases were effected at prevailing
market prices from time to time on the open market prior to the negotiation of
the Combination (see: Note 4). The last repurchase was effected by RESI on March
4, 1996 and as of such date RESI had repurchased approximately 695,842 shares of
RESI Common Stock for an aggregate cost of approximately $1,040,000. On May 9,
1996, the RESI Board of Directors authorized the retirement of the 695,842
shares of RESI Common Stock.

4. PROPOSED MERGER AND SUBSEQUENT EVENTS

On June 7, 1996, RESI announced a two for one stock split, effected in the
form of a stock dividend effective June 14, 1996. These consolidated and
combined financial statements have been adjusted to reflect the effect of the
stock split.

In May 1996, the Board of Directors approved a resolution to retire all of
the common shares held in the Company's treasury.

During July 1996, the Alliance Companies entered into an agreement to
acquire Environmental & Commercial Insurance Agency, Inc.; an agreement with
Gulf Insurance Company and Midwest Indemnity Corporation ("Midwest") for the
production, underwriting and reinsurance of contract surety and surety bond
business primarily to environmental businesses; and an option to purchase assets
of Midwest. These transactions are subject to the consummation of the Mergers.

F-31
115

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Century Surety Company:

We have audited the consolidated financial statements of Century Surety
Company (a wholly owned subsidiary of Alliance Holding Corporation) and
subsidiaries (collectively, the Company), as listed in the accompanying index on
page F-1. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedules as listed in
the accompanying index on page F-1. These consolidated financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Century
Surety Company and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly, in all material respects, the information set forth
therein.

As discussed in note 1 to the consolidated financial statements, in 1994
the Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities.

KPMG Peat Marwick LLP

Columbus, Ohio
April 9, 1996
except as to Note 12,
which is as of June 14, 1996

F-32
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CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

1995 1994
----------- -----------

ASSETS
Investments (note 2):
Fixed maturities held to maturity, at amortized cost............ $15,308,405 $20,129,353
Securities available for sale, at fair value:
Fixed maturities............................................. 33,153,196 24,884,791
Equity securities (cost $1,999,419 and $2,468,337,
respectively)............................................... 5,425,813 1,764,521
Mortgage loans on real estate (note 7).......................... 3,393,205 2,960,723
Other investments............................................... 90,267 139,283
Short-term investments, at cost................................. 843,095 870,242
----------- -----------
Total investments....................................... 58,213,981 50,748,913
Cash (note 2)..................................................... 2,691,746 6,577,481
Premium balances receivable, net of allowance for bad debts of
$137,736 and $56,396, respectively (note 7)..................... 4,357,298 4,623,574
Deferred policy acquisition costs (note 7)........................ 3,427,551 3,725,611
Reinsurance receivables (note 5).................................. 12,646,960 10,887,657
Prepaid reinsurance premiums...................................... 2,881,174 2,413,623
Accrued investment income......................................... 870,245 784,969
Deferred federal income taxes (note 6)............................ -- 467,680
Furniture and equipment at cost, net of accumulated depreciation
of $527,254 and $355,857, respectively.......................... 329,435 349,914
Other assets...................................................... 579,784 59,757
----------- -----------
Total assets............................................ $85,998,174 $80,639,179
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Losses and loss expenses payable (note 4)......................... 37,001,841 34,661,007
Unearned premiums................................................. 15,636,442 15,453,487
Reinsurance balances payable...................................... 2,259,400 2,055,562
Current federal income taxes payable (note 7)..................... 1,322,280 597,465
Deferred federal income taxes (note 6)............................ 53,337 --
Accrued expenses and other liabilities............................ 2,660,005 2,865,364
Collateral held................................................... 321,115 1,248,662
----------- -----------
Total liabilities....................................... 59,254,420 56,881,547
----------- -----------
Shareholder's equity (notes 8 and 11):
Capital stock, $10,000 par value per share. Authorized 500
shares; issued and outstanding 200 shares.................... 2,000,000 2,000,000
Additional paid-in capital...................................... 17,293,158 16,698,158
Net unrealized appreciation (depreciation) of investments....... 3,265,550 (1,208,641)
Retained earnings............................................... 4,185,046 6,268,115
----------- -----------
Total shareholder's equity.............................. 26,743,754 23,757,632
----------- -----------
Commitments and contingencies (notes 5 and 10)
Total liabilities and shareholder's equity.............. $85,998,174 $80,639,179
=========== ===========

See accompanying notes to consolidated financial statements.

F-33
117

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
----------- ----------- -----------

Revenue:
Premiums earned (note 5)........................... $26,961,397 $23,367,623 $17,372,598
Net investment income (note 2)..................... 3,340,956 2,477,428 1,376,916
Income on American Sentinel transaction (note 9)... -- 807,306 --
Net realized gains on investments (note 2)......... 166,286 79,955 (91,450)
Other income....................................... 355,035 222,682 511,561
----------- ----------- -----------
Total revenue.............................. 30,823,674 26,954,994 19,169,625
----------- ----------- -----------
Expenses:
Losses and loss expenses (notes 4, 5 and 7)........ 15,116,726 12,494,170 8,612,664
Acquisition expenses (note 7)...................... 6,612,518 5,268,596 4,996,403
Other expenses (note 7)............................ 4,513,096 5,126,694 2,417,389
----------- ----------- -----------
Total expenses............................. 26,242,340 22,889,460 16,026,456
----------- ----------- -----------
Amortization of negative goodwill.................... -- -- 219,194
----------- ----------- -----------
Income before federal income taxes......... 4,581,334 4,065,534 3,362,363
----------- ----------- -----------
Federal income tax expense (benefit) (notes 6 and 7):
Current............................................ 2,013,192 1,022,647 1,234,483
Deferred........................................... (698,789) 55,621 (90,333)
----------- ----------- -----------
Total federal income tax expense........... 1,314,403 1,078,268 1,144,150
----------- ----------- -----------
Net income................................. $ 3,266,931 $ 2,987,266 $ 2,218,213
=========== =========== ===========

See accompanying notes to consolidated financial statements.

F-34
118

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
----------- ----------- -----------

Capital stock:
Beginning and end of year......................... $ 2,000,000 $ 2,000,000 $ 2,000,000
----------- ----------- -----------
Additional paid-in capital:
Beginning of year................................. 16,698,158 12,891,158 8,745,722
Capital contributed by parent (notes 7 and 9)..... 595,000 3,807,000 4,145,436
----------- ----------- -----------
End of year....................................... 17,293,158 16,698,158 12,891,158
----------- ----------- -----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year................................. (1,208,641) (80,139) (16,938)
Cumulative effect of change in accounting for
investments (note 1[c])........................ -- 36,215 --
Change in net unrealized appreciation
(depreciation)................................. 4,474,191 (1,164,717) (63,201)
----------- ----------- -----------
End of year....................................... 3,265,550 (1,208,641) (80,139)
----------- ----------- -----------
Retained earnings:
Beginning of year................................. 6,268,115 4,280,849 2,902,636
Net income........................................ 3,266,931 2,987,266 2,218,213
Cash dividend..................................... (5,350,000) (1,000,000) (840,000)
----------- ----------- -----------
End of year....................................... 4,185,046 6,268,115 4,280,849
----------- ----------- -----------
Total shareholder's equity................ $26,743,754 $23,757,632 $19,091,868
=========== =========== ===========

See accompanying notes to consolidated financial statements.

F-35
119

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
----------- ----------- ------------

Cash flows from operating activities:
Net income............................................... $ 3,266,931 $ 2,987,266 $ 2,218,213
----------- ----------- ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 312,311 384,540 (158,784)
Deferred federal income taxes.......................... (698,789) 55,621 (90,333)
Income on American Sentinel transaction................ -- (807,306) --
Writedown of investments............................... -- -- 139,218
(Increase) decrease in premium balances receivable..... 266,276 (514,868) (1,582,913)
(Increase) decrease in deferred policy acquisition
costs................................................ 298,060 (1,319,776) (728,628)
Increase in reinsurance receivables.................... (1,759,303) (379,762) (7,944,199)
(Increase) decrease in prepaid reinsurance premiums.... (467,551) 557,860 (2,945,035)
Increase in accrued investment income.................. (85,276) (272,818) (191,550)
(Increase) decrease in other assets.................... (520,027) 54,169 384,727
Increase in losses and loss expenses payable........... 2,340,834 5,133,202 9,773,009
Increase in unearned premiums.......................... 182,955 3,287,024 6,733,798
Decrease in contract funds on deposit.................. -- (350,000) (350,000)
Increase (decrease) in reinsurance balances payable.... 203,838 (870,845) 500,721
Increase in current federal income taxes payable....... 724,815 170,149 318,816
Increase (decrease) in accrued expenses and other
liabilities.......................................... (205,359) 376,014 665,240
Increase (decrease) in collateral held................. (927,547) 174,116 877,404
Other, net............................................. -- -- (108,504)
----------- ----------- ------------
Net adjustments................................... (334,763) 5,677,320 5,292,987
----------- ----------- ------------
Net cash provided by operating activities......... 2,932,168 8,664,586 7,511,200
----------- ----------- ------------
Cash flows from investing activities:
Purchase of fixed maturities available for sale.......... (9,552,437) (8,857,940) --
Purchase of fixed maturities held to maturity............ (269,070) (1,804,698) --
Purchase of fixed maturities............................. -- -- (21,440,472)
Purchase of equity securities............................ (228,185) (223,084) (614,858)
Maturity of fixed maturities held to maturity............ 1,280,816 2,009,186 1,654,502
Sale of fixed maturities available for sale.............. 7,088,543 1,155,282 --
Sale of fixed maturities................................. -- -- 202,000
Sale of equity securities................................ 149,505 201,620 1,128,332
(Increase) decrease in limited partnership............... 21,631 (34,348) --
Increase in mortgage loans on real estate................ (1,341,000) (1,893,000) (1,258,000)
Principal receipts on mortgage loans on real estate...... 908,518 780,100 1,285,560
Sales of real estate owned............................... -- -- 296,666
Purchase of subsidiaries, net of cash acquired........... -- 538,217 (1,515,060)
Decrease in short-term investments....................... 27,147 5,967,491 9,897,577
Net additions to furniture and equipment................. (148,371) (235,113) (69,553)
Other, net............................................... -- 200,000 (200,000)
----------- ----------- ------------
Net cash used in investing activities............. (2,062,903) (2,196,287) (10,633,306)
----------- ----------- ------------
Cash flows from financing activities:
Dividends to parent...................................... (5,350,000) (1,000,000) (840,000)
Capital contributed by parent............................ 595,000 340,000 285,600
----------- ----------- ------------
Net cash used in financing activities............. (4,755,000) (660,000) (554,400)
----------- ----------- ------------
Net increase (decrease) in cash................... (3,885,735) 5,808,299 (3,676,506)
Cash at the beginning of year.............................. 6,577,481 769,182 4,445,688
----------- ----------- ------------
Cash at the end of year.................................... $ 2,691,746 $ 6,577,481 $ 769,182
=========== =========== ============
SUPPLEMENTAL DISCLOSURE:
Federal income taxes paid................................ $ 693,377 $ 409,781 $ 627,500
=========== =========== ============

See note 9 for supplemental disclosure of noncash financing activities.

See accompanying notes to consolidated financial statements.

F-36
120

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Consolidation Policy

Century Surety Company ("CSC"), a wholly owned subsidiary of Alliance
Holding Corporation ("Alliance"), was incorporated in 1978 as an Ohio property
and casualty insurance company and was acquired by Alliance in 1988. The
accompanying consolidated financial statements include the accounts of CSC and
its wholly owned subsidiaries: CSC Insurance Agency, Incorporated ("CSCI"),
Continental Heritage Insurance Company ("CHIC"), Evergreen National Indemnity
Company ("Evergreen"), American Inspection & Audit Service, Inc. ("AIAS"),
Continental Heritage Life Insurance Company ("CHLIC") (through May 22, 1995) and
Latitude Premium Finance Company ("Latitude") (through March 3, 1993)
(collectively, the "CSC Group").

CSC acquired Evergreen on December 31, 1993 through a capital contribution
from its parent and $1.61 million paid by CSC. On April 14, 1994, CSC paid
$16,400 for 100% of the outstanding common stock of AIAS. These transactions
were accounted for as purchases by CSC in accordance with the provisions of
Accounting Principles Board Opinion No. 16 with the acquired assets and assumed
liabilities recorded at their estimated fair values. The acquisitions of AIAS
and Evergreen did not have a material impact on the accompanying consolidated
statements of income. See notes 7 and 9. In addition, on March 3, 1993, CSC sold
Latitude to an unrelated party, and on May 22, 1995, CSC liquidated CHLIC. These
transactions did not have a material impact on the CSC Group's consolidated
financial position or results of operations.

All significant intercompany accounts and transactions have been eliminated
in consolidation.

(b) Business Description

The CSC Group primarily writes "non-standard" or specialty coverages,
including bonding, property and casualty insurance coverages to individual and
commercial customers through independent agents and affiliated agents primarily
throughout Ohio and over 40 other states. The CSC Group's coverages primarily
insure risks regarded as higher than standard, or normal, risks and to risk
groups regarded as too small or too rare to permit profitable underwriting by
larger, "standard market" insurance companies. In general, non-standard
insurance and bonds are more expensive, and coverage more limited, because of
perceived additional risk associated with this type of business. The CSC Group
attempts to identify and exploit those niches in the non-standard market where
the actual risk is significantly less than the perceived risk at which the
coverage is defined and priced, or where the CSC Group, because of its smaller
size and lower overhead, is able to underwrite coverages more economically than
larger carriers can. The CSC Group is subject to competition from other property
and casualty insurance companies and to the regulations of certain state and
federal agencies and undergoes periodic financial examinations by those
regulatory authorities.

Following is a description of additional significant risks facing
property/casualty insurers and how the CSC Group mitigates those risks:

Inadequate Pricing Risk is the risk that the premium charged for
insurance and insurance related products is insufficient to cover the costs
associated with the distribution of such products which include: claim and
loss costs, loss adjustment expense, acquisition expense, and other
corporate expenses. The CSC group utilizes a variety of actuarial and/or
other qualitative methods to set such levels.

Adverse Loss Development and IBNR Risk is the risk inherent in the
handling and settling of claims whose ultimate costs, which include loss
costs, loss adjustment expenses, and other related expenses, are unknown at
the time the claim is presented. An associated risk relates to claims which
have been incurred, but for which the company has no knowledge. The CSC
Group makes judgments as to the

F-37
121

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ultimate costs of presented claims and makes provision for their future
payment by establishing reserves for existing claims (case reserves) and
for incurred but not reported claims (IBNR); however, there can be no
assurance that the amounts reserved will be adequate to ultimately make all
required payments.

Legal/Regulatory Risk is the risk that changes in the legal or
regulatory environment in which an insurer operates will occur and create
additional loss costs or expenses not anticipated by the insurer in pricing
its products. That is, regulatory initiatives designed to reduce insurer
profits or new legal theories may create costs for the insurer beyond those
recorded in the financial statements. The CSC Group is exposed to this risk
by writing approximately 40% of its business in Ohio and surrounding
states, thus increasing its exposure to a particular region. This risk is
reduced by underwriting and loss adjusting practices that identify and
minimize the adverse impact of this risk.

Credit Risk is the risk that issuers of securities and mortgagors of
the mortgages owned by the CSC Group will default, or other parties,
including reinsurers that owe the CSC Group money will not pay. The CSC
Group minimize this risk by adhering to a conservative investment strategy,
by maintaining sound reinsurance and credit and collection policies, and by
providing for any amounts deemed uncollectible.

Interest Rate Risk is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. The CSC Group
mitigates this risk by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would have
to sell assets prior to maturity and recognize a gain or loss. Management
believes that the CSC Group's positive cash flow from investment income and
operations will enable the CSC Group to operate without having to recognize
significant losses from the sale of investments that have an unrealized
holding loss as of December 31, 1995.

The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles ("GAAP"). Purchase accounting
adjustments and subsequent amortization of such adjustments (reflecting the
basis in acquired companies and earnings since acquisition) have been recorded
in the accompanying consolidated financial statements. GAAP differs from
statutory accounting practices used by insurance companies in reporting to state
regulatory authorities.

In preparing the consolidated financial statements, management is required
to make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosures of contingent assets and liabilities
as of the date of the consolidated financial statements and the reported amounts
of revenues and expenses for the reporting period. Actual results could differ
significantly from those estimates.

Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of losses and loss expenses payable
and the recoverability of deferred policy acquisition costs. In connection with
the determination of losses and loss expenses payable, management uses the
methodology discussed in note 1(h) to estimate the liability. In evaluating the
recoverability of deferred policy acquisition costs, management uses the
methodology discussed in note 1(f).

Management believes that the recorded liability for losses and loss
expenses is adequate. While management uses available information to estimate
losses and loss expenses payable, future changes to the liability may be
necessary based on claims experience and changing claims frequency and severity
conditions. Management also believes that deferred policy acquisition costs are
recoverable; however, future costs that are associated with the business in the
unearned premium liability could exceed management's estimates, causing the
recorded asset to be unrecoverable in whole or in part.

F-38
122

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(d) Investments

The CSC Group account for their investment securities in accordance with
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("SFAS No. 115"). Fixed maturity
securities that the CSC Group have the positive intent and ability to hold to
maturity are classified as held-to-maturity and are stated at amortized cost;
other fixed maturity securities and all equity securities are classified as
available-for-sale and are stated at fair value, with the unrealized gains and
losses, net of deferred income tax, reported as a separate component of
shareholder's equity. The CSC Group has no investment securities classified as
trading. Pursuant to a Financial Accounting Standards Board ("FASB") Special
Report, A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities, the CSC Group reassessed the
classification of all its investment securities. Effective December 20, 1995,
the CSC Group reclassified some of its held-to-maturity securities to
available-for-sale (see note 2). The CSC Group adopted SFAS No. 115 as of
January 1, 1994, with no effect on net income and an increase to shareholder's
equity of $36,215.

Mortgage loans on real estate are stated at the unpaid principal balance of
such loans. Other investments consist primarily of investments in joint ventures
and are recorded using the equity method. Short-term investments have original
maturities less than one year and are carried at cost which approximates market.

Realized gains and losses on the sale of investments are determined on the
basis of specific security identification and also includes other than temporary
declines. Interest income is recognized on the accrual basis and dividend income
is recognized on the ex-dividend date.

(e) Premium Balances Receivable

Premium balances receivable include amounts due relating to assumed
reinsurance and are stated net of certain commission payable amounts.

(f) Deferred Policy Acquisition Costs

Acquisition costs, consisting of commissions, premium taxes and certain
underwriting expenses that vary with and are primarily related to the production
of business are deferred and amortized ratably over the policy term. The method
followed in computing deferred policy acquisition costs limits the amount of
such deferred costs to their estimated realizable value. In determining
estimated realizable value, the computation gives effect to the premium to be
earned, losses and loss expenses to be incurred, and certain other costs
expected to be incurred as premium is earned. Deferred policy acquisition costs
amortized to expense during the year was $6,612,518, $5,268,596 and $4,996,403
in 1995, 1994 and 1993, respectively.

(g) Furniture and Equipment

Furniture and equipment are recorded at cost, net of accumulated
depreciation. The CSC Group uses an accelerated method of depreciation using the
estimated useful lives of the assets.

(h) Losses and Loss Expenses Payable

The liability for losses is provided based upon: (1) case basis estimates
for losses reported in respect to direct business; (2) estimates of unreported
losses based on estimated loss experience; (3) estimates received and
supplemental amounts provided relating to assumed reinsurance; and (4) deduction
for estimated salvage and subrogation recoverable.

The liability for loss expenses is established by estimating future
expenses to be incurred in settlement of the claims provided for in the
liability for losses.

F-39
123

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The liability for losses and loss expenses is not discounted.

(i) Premium Recognition

Premiums are recognized as revenue in proportion to the insurance coverage
provided, which is generally ratable over the terms of the policies. Unearned
premiums are generally computed on the daily pro rata basis and include amounts
relating to assumed reinsurance.

(j) Reinsurance Ceded

Reinsurance balances are accounted for and reported in the accompanying
consolidated financial statements in accordance with SFAS No. 113, Accounting
and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts.
Reinsurance receivables and prepaid reinsurance premiums are accounted for and
reported separately as assets, net of valuation allowance, rather than being
deducted from the liability for losses and loss expenses payable and unearned
premiums. Amounts recoverable from reinsurers are estimated in a manner
consistent with the claim liability. Contracts not resulting in the reasonable
possibility that the reinsurer may realize a significant loss from the insurance
risk assumed generally do not meet the conditions for reinsurance accounting and
are to be accounted for as deposits.

Reinsurance premiums ceded and reinsurance recoveries on claims incurred
are deducted from the respective revenue and expense accounts.

(k) Federal Income Taxes

CSC and its subsidiaries are members of a consolidated federal income tax
return filed with Alliance and other affiliates. Pursuant to written agreements,
CSC pays to or recovers from the parent the amount of federal income tax
calculated primarily on a separate return basis for itself and its wholly owned
subsidiaries. See note 7(a).

The CSC Group utilizes the asset and liability method of accounting for
income tax. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.

(l) Negative Goodwill

CSC was acquired by Alliance in July 1988 for $3.8 million. The fair value
of CSC's net assets in excess of the purchase price was recorded as negative
goodwill upon acquisition. During 1992, based on the ongoing favorable
evaluation of pre-1988 accident year loss development, which was the basis for
establishing negative goodwill as a result of the acquisition of CSC by Alliance
in 1988, CSC began amortizing negative goodwill over five years. Previously, it
was amortized over seven years. The balance of negative goodwill was fully
amortized in 1993.

(m) Statements of Cash Flows

For purposes of the consolidated statements of cash flows, cash includes
only funds on deposit.

(n) Reclassifications

Certain 1994 and 1993 amounts have been reclassified in the accompanying
consolidated financial statements to conform to 1995 presentation.

F-40
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(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. INVESTMENTS

The amortized cost and estimated fair value of fixed maturities held to
maturity at December 31, 1995 were as follows:

GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- -------- -------- -----------

U.S. Treasury securities and
obligations of U.S. government
corporations and agencies....... $ 6,158,571 $ 81,613 $ (9,220) $ 6,230,964
Obligations of states and
political subdivisions.......... -- -- -- --
Corporate securities.............. 8,654,067 27,177 (61,971) 8,619,273
Mortgage-backed securities........ 495,767 18,374 -- 514,141
----------- -------- -------- -----------
Totals.................. $15,308,405 $127,164 $(71,191) $15,364,378
=========== ======== ======== ===========

The amortized cost and estimated fair value of securities available for
sale at December 31, 1995 were as follows:

GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- --------- -----------

Fixed Maturities:
U.S. Treasury securities and
obligations of U.S.
government corporations and
agencies................... $ 6,521,211 $ 303,462 $ (7,259) $ 6,817,414
Obligations of states and
political subdivisions..... 8,338,751 167,418 (2,622) 8,503,547
Corporate securities.......... 14,990,440 438,598 (14,706) 15,414,332
Mortgage-backed securities.... 2,243,832 174,071 -- 2,417,903
----------- ---------- --------- -----------
32,094,234 1,083,549 (24,587) 33,153,196
Equity securities............... 1,999,419 3,588,843 (162,449) 5,425,813
----------- ---------- --------- -----------
$34,093,653 $4,672,392 $(187,036) $38,579,009
=========== ========== ========= ===========

As discussed in note 1, on December 20, 1995, the CSC Group reclassified a
portion of their held-to-maturity securities to available-for-sale. The
amortized cost and estimated fair value of the securities reclassified were
$5,732,555 and $5,896,586, respectively, as of the date of reclassification.

F-41
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CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amortized cost and estimated fair value of fixed maturities held to
maturity at December 31, 1994 were as follows:

GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ----------- -----------

U.S. Treasury securities and
obligations of U.S. government
corporations and agencies..... $ 7,224,706 $ 102 $ (529,219) $ 6,695,589
Obligations of states and
political subdivisions........ 428,042 1,563 (18,870) 410,735
Corporate securities............ 11,331,932 67 (968,126) 10,363,873
Mortgage-backed securities...... 1,144,673 378 (32,454) 1,112,597
----------- ------ ----------- -----------
Totals................ $20,129,353 $2,110 $(1,548,669) $18,582,794
=========== ====== =========== ===========

The amortized cost and estimated fair value of securities available for
sale at December 31, 1994 were as follows:

GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ----------- -----------

Fixed maturities:
U.S. Treasury securities and
obligations of U.S.
government corporations and
agencies................... $ 5,130,375 $ -- $ (301,201) $ 4,829,174
Obligations of states and
political subdivisions..... 11,832,402 -- (613,214) 11,219,188
Corporate securities.......... 4,513,507 65,917 (245,972) 4,333,452
Mortgage-backed securities.... 4,496,953 175,794 (169,770) 4,502,977
----------- -------- ----------- -----------
25,973,237 241,711 (1,330,157) 24,884,791
Equity securities............... 1,920,745 71,248 (227,472) 1,764,521
----------- -------- ----------- -----------
$27,893,982 $ 312,959 $(1,557,629) $26,649,312
=========== ======== =========== ===========

Expected maturities will differ from contractual maturities because the
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties. The amortized cost and estimated fair value of fixed
maturities held to maturity at December 31, 1995, by contractual maturity, are
as follows:

ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------

Due in one year or less................................... $ 998,570 $ 992,660
Due after one year through five years..................... 13,381,257 13,401,253
Due after five years through ten years.................... 356,904 362,023
Due after ten years....................................... 75,907 94,301
----------- -----------
14,812,638 14,850,237
Mortgage-backed securities................................ 495,767 514,141
----------- -----------
$15,308,405 $15,364,378
=========== ===========

F-42
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CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amortized cost and estimated fair value of fixed maturities available
for sale at December 31, 1995, by contractual maturity, are as follows:

AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------

Due in one year or less................................... $ 594,403 $ 600,126
Due after one year through five years..................... 20,419,624 20,859,785
Due after five years through ten years.................... 8,737,162 9,152,241
Due after ten years....................................... 99,213 123,141
----------- -----------
29,850,402 30,735,293
Mortgage-backed securities................................ 2,243,832 2,417,903
----------- -----------
$32,094,234 $33,153,196
=========== ===========

Net investment income was comprised of the following for the years ended
December 31:

1995 1994 1993
---------- ---------- ----------

Interest....................................... $3,454,757 $2,588,580 $1,415,610
Dividends...................................... 96,457 95,753 59,005
---------- ---------- ----------
Total investment income.............. 3,551,214 2,684,333 1,474,615
Less investment expenses....................... 210,258 206,905 97,699
---------- ---------- ----------
Net investment income................ $3,340,956 $2,477,428 $1,376,916
========== ========== ==========

Realized gains and losses on investments are as follows for the years ended
December 31:

1995 1994 1993
-------- -------- --------

Realized gains:
Fixed maturities:
Held to maturity................................ $ -- $ -- $ 24,926
Available for sale.............................. 114,227 -- --
Equity securities.................................. 8,676 145,815 144,556
Other.............................................. 72,989 -- --
-------- -------- --------
Total realized gains....................... 195,892 145,815 169,482
-------- -------- --------
Realized losses:
Fixed maturities:
Held to maturity................................ -- -- --
Available for sale.............................. 27,037 42,166 --
Equity securities.................................. 2,569 23,694 260,654
Other.............................................. -- -- 278
-------- -------- --------
Total realized losses...................... 29,606 65,860 260,932
-------- -------- --------
Net realized gains (losses) on
investments.............................. $166,286 $ 79,955 $(91,450)
======== ======== ========

F-43
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CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The change in net unrealized appreciation (depreciation) of investments is
summarized as follows:

1995 1994 1993
---------- ----------- --------

Available for sale:
Fixed maturities............................... $1,788,673 $(1,088,446) $ --
Equity securities.............................. 3,582,618 (76,085) (63,201)
--------- ----------- --------
$5,371,291 $(1,164,531) $(63,201)
========== =========== ========
Held to maturity -- fixed maturities............. $1,602,532 $(1,808,104) $ 44,555
========== =========== ========

The components of unrealized appreciation (depreciation) on securities
available for sale, net, were as follows at December 31:

1995 1994 1993
----------- ----------- --------

Gross unrealized appreciation (depreciation).... $ 4,485,356 $(1,208,641) $(80,139)
Deferred federal income tax..................... (1,219,806) -- --
----------- ----------- --------
Net unrealized appreciation (depreciation).... $ 3,265,550 $(1,208,641) $(80,139)
=========== =========== ========

Fixed maturities held to maturity and certificates of deposit with a
carrying value of approximately $8,909,000 and $8,068,000 at December 31, 1995
and 1994, respectively, were on deposit with regulatory authorities as required
by law.

Approximately $21,173 and $60,282 of fixed maturities and short-term
investments at December 31, 1995 and 1994, respectively, were held in trust
accounts under provisions of various reinsurance contracts.

At December 31, 1995 and 1994, all mortgage loans were secured by
properties in the states of California, Michigan and Ohio.

3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the CSC Group in
estimating its fair value disclosures for financial instruments:

Cash, short-term investments, premium balances receivable, reinsurance
receivables, reinsurance balances payable and collateral held: The carrying
amounts reported in the consolidated balance sheets for these instruments
approximate their fair value.

Investment securities: Fair values for investments in fixed maturities
are based on quoted market prices, where available. For fixed maturities
not actively traded, fair values are estimated using values obtained from
independent pricing services. The fair values for equity securities are
based on quoted market prices. Fair values for fixed maturities available
for sale and equity securities are recognized in the consolidated balance
sheets.

Mortgage loans: The carrying amounts reported in the consolidated
balance sheets are the aggregate unpaid balance of the loans and
approximate their fair value.

See note 2 for additional disclosure of fair value of investment
securities.

F-44
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CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LIABILITY FOR UNPAID LOSSES AND LOSS EXPENSES

Activity in the liability for unpaid losses and loss expenses is summarized
as follows (in thousands):

1995 1994 1993
------- ------- -------

Balance at January 1.................................. $34,661 $29,528 $18,908
Less reinsurance recoverables....................... 9,383 8,505 4,801
------- ------- -------
Net balance at January 1.............................. 25,278 21,023 14,107
------- ------- -------
Incurred related to:
Current year........................................ 17,297 14,753 10,060
Prior years......................................... (2,180) (2,259) (1,447)
------- ------- -------
Total incurred.............................. 15,117 12,494 8,613
------- ------- -------
Paid related to:
Current year........................................ 5,963 4,269 2,823
Prior years......................................... 6,344 3,970 3,054
------- ------- -------
Total paid.................................. 12,307 8,239 5,877
------- ------- -------
Reserves assumed through purchase of Evergreen (notes
7 and 9)............................................ -- -- 4,180
------- ------- -------
Net balance at December 31............................ 28,088 25,278 21,023
Plus reinsurance recoverables....................... 8,914 9,383 8,505
------- ------- -------
Balance at December 31................................ $37,002 $34,661 $29,528
======= ======= =======

The CSC Group has experienced lower-than-anticipated ultimate losses on
prior years due primarily to a reduction in claims severity from that assumed in
establishing the liability for losses and loss expenses payable. The CSC Group's
environmental exposure relates primarily to its coverage of remediation related
risks (i.e., those firms correcting environmental problems as opposed to those
entities causing such damage); thus, management believes the CSC Group's
exposure to historic pollution situations is minimal.

5. REINSURANCE

In the ordinary course of business, the CSC Group assumes and cedes
reinsurance with other insurers and reinsurers. These arrangements provide the
CSC Group with a greater diversification of business and generally limit the
maximum net loss potential on large risks. Excess of loss reinsurance contracts
in effect at December 31, 1995, generally protect against individual property
and casualty losses over $200,000 and contract surety and miscellaneous bond
losses over $300,000. In addition to the excess of loss contract in effect for
contract surety business, a 50% quota share contract on the first $300,000 in
losses is in effect. Asbestos abatement, lead abatement, and environmental
consultants professional liability and remedial action contractors business is
75% ceded on a quota share basis to reinsurers. Catastrophe coverage is also
maintained.

F-45
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CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The impact of reinsurance on the accompanying consolidated statements of
income is as follows (in thousands):

1995 1994 1993
-------- -------- --------

Written premiums:
Direct................................. $ 36,278 $ 37,127 $ 29,817
Assumed................................ 1,417 742 175
Ceded.................................. (11,018) (10,650) (8,819)
-------- -------- --------
Net............................ $ 26,677 $ 27,219 $ 21,173
======== ======== ========
Earned premiums:
Direct................................. $ 35,750 $ 34,255 $ 25,019
Assumed................................ 1,754 416 184
Ceded.................................. (10,543) (11,303) (7,830)
-------- -------- --------
Net............................ $ 26,961 $ 23,368 $ 17,373
======== ======== ========
Losses and loss expenses incurred:
Direct................................. $ 15,959 $ 15,088 11,932
Assumed................................ -- (65) 62
Ceded.................................. (842) (2,529) (3,381)
-------- -------- --------
Net............................ $ 15,117 $ 12,494 $ 8,613
======== ======== ========

In the accompanying consolidated balance sheets, ceded premium balances
receivable are recorded as reinsurance balances payable, ceded losses and loss
expenses payable are recorded as reinsurance receivables and ceded unearned
premiums are recorded as prepaid reinsurance premiums.

Reinsurance receivables were comprised of the following as of December 31:

1995 1994
----------- -----------

Receivables on unpaid losses and loss expenses... $ 8,914,440 $ 9,383,119
Receivables on ceding commissions and other...... 2,892,344 1,026,471
Receivables on paid losses and loss expenses..... 840,176 478,067
----------- -----------
$12,646,960 $10,887,657
=========== ===========

The CSC Group evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies. The CSC Group
establishes a valuation allowance as reinsurance receivables are deemed
uncollectible. During 1995, the majority of ceded amounts were ceded to Reliance
Insurance Company, Republic Western Insurance Company ("Republic Western") and
Transatlantic Insurance Company, all of which are rated A- or better by A.M.
Best.

6. FEDERAL INCOME TAXES

The CSC Group adopted SFAS No. 109 as of January 1, 1993. The cumulative
effect of this change in accounting for federal income taxes as of January 1,
1993 was not material to the 1993 consolidated statement of income.

F-46
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CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The federal income tax expense is different from the amount computed by
applying the normal tax rate of 34% to income before federal income taxes as
follows:

1995 1994 1993
---------- ---------- ----------

Expected tax........................... $1,557,654 $1,382,282 $1,143,203
Increase (decrease) in income taxes
resulting from:
Tax exempt interest and dividends
received deduction................ (106,197) (122,921) (30,891)
Nontaxable income on American
Sentinel transaction.............. -- (274,484) --
Amortization of negative goodwill.... -- -- (74,526)
Other, net........................... (137,054) 93,391 106,364
---------- ---------- ----------
$1,314,403 $1,078,268 $1,144,150
========== ========== ==========

Several provisions of the Internal Revenue Code affect only property and
casualty insurers. The major provisions are discounting of losses and loss
expenses payable and a reduction in the allowable deduction for unearned
premiums.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995 and
1994 are presented below:

1995 1994
----------- -----------

Deferred tax assets:
Unearned premiums not deductible.............. $ 1,063,278 $ 855,933
Losses and loss expenses payable
discounting................................ 1,957,482 1,477,385
Unrealized depreciation on investments........ -- 410,938
Deferred compensation......................... 96,244 87,075
Other deferred tax assets..................... 46,830 33,231
----------- -----------
Gross deferred tax assets............. 3,163,834 2,864,562
Less valuation allowance...................... (733,441) (902,124)
----------- -----------
Deferred tax assets................... 2,430,393 1,962,438
----------- -----------
Deferred tax liabilities:
Deferred policy acquisition costs............. (1,165,367) (1,235,566)
Unrealized appreciation on investments........ (1,219,806) --
Ceding commissions receivable................. -- (206,060)
Salvage and subrogation recoverable........... (98,557) (53,132)
----------- -----------
Gross deferred tax liabilities........ (2,483,730) (1,494,758)
----------- -----------
Net deferred tax (liability) asset.... $ (53,337) $ 467,680
=========== ===========

The CSC Group determines a valuation allowance based on their analysis of
amounts available in the statutory carryback period and consideration of future
deductible amounts. The valuation allowance for deferred tax assets as of
January 1, 1994 was $467,549. The net change in the total valuation allowance
for the years ended December 31, 1995 and 1994 was a decrease of $168,683 and an
increase of $434,575, respectively. Although the CSC Group has had a taxable
income over the last several years, significant income in some instances has
been attributable to non-recurring transactions and thus there is no assurance
that the CSC Group will remain profitable in future years. Therefore, the CSC
Group maintains a policy of

F-47
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CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recognizing deferred tax assets recoverable in the carryback period and does not
consider future income. Management believes it is more likely than not that as
of December 31, 1995, future deductible amounts in excess of the valuation
allowance can be offset by recovery of federal income taxes paid within the
statutory carryback period.

7. TRANSACTIONS WITH AFFILIATED COMPANIES

(a) Alliance

CSC received a tax benefit of $595,000 and $340,000 in 1995 and 1994,
respectively, from a tax allocation agreement with Alliance for dividends paid
to Alliance. The resultant reduction in CSC's tax payable is recorded as
additional paid-in capital in the accompanying consolidated financial
statements.

In December 1994, CSC received a noncash capital contribution of $3,167,000
from Alliance in connection with the American Sentinel Insurance Company
("American Sentinel") transaction. See notes 9 and 10.

In 1994, Alliance contributed to CSC a $300,000 participation in a mortgage
loan to an affiliate.

As discussed in note 9, CSC acquired all of the outstanding shares of
Evergreen on December 31, 1993, the majority of which was through a capital
contribution from Alliance. Evergreen was formerly known as Summit Fidelity and
Surety Company. Evergreen is an Ohio domiciled property and casualty insurance
company.

CSC has issued six $500,000 bonds covering certain loans obtained by My
Lawyer Plan, Inc., an unrelated party, from the Detroit Fireman and Policeman's
Pension Fund maturing from 1996 and 2002. Collateral for these bonds includes
the personal indemnification of an indirect shareholder of Alliance.

(b) Commercial Surety Agency, Incorporated ("CSU")

CSU does business under the tradename Century Surety Underwriters. CSC paid
CSU $1,815,229, $2,606,719 and $1,854,000 in commission through an agency
agreement in 1995, 1994 and 1993, respectively. That agreement generally
provides CSU a provisional commission of 42%, with certain potential profit
commissions as defined in the agreement. CSU is a wholly owned subsidiary of
Alliance.

At December 31, 1995 and 1994, CSC had outstanding premium balances
receivable from CSU of $613,402 and $496,341, respectively.

Effective April 1, 1994, Evergreen entered into an underwriting service
agreement with CSU, through which CSU is authorized to act on behalf of
Evergreen in performing various financial underwriting services. Evergreen paid
CSU $600,000 and $337,500 in fees under this agreement in 1995 and 1994,
respectively.

COP handles the majority of surety claims and provides certain underwriting
services. An officer of COP serves as a director and officer of CSC.

CSC is charged by COP on a claim services performed basis. CSC paid COP
$180,839, $171,886 and $121,892 in fees during 1995, 1994 and 1993,
respectively.

(d) Mortgage Loans

Loans secured by a first mortgage on real estate with interest rates
ranging from 9% to 10% aggregating $1,616,000 were outstanding to related and
affiliated parties at December 31, 1995 and 1994. The mortgage

F-48
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CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

loans are structured as interest only paid quarterly until May 1 and June 30,
1997 at which time the principal balance will be paid in full.

(e) Environmental and Commercial Insurance Agency, Inc. ("ECI")

CSC paid ECI $942,150, $1,337,267 and $1,127,140 in commission through an
agency agreement in 1995, 1994 and 1993, respectively. That agreement provides
ECI a provisional commission of 21% to 22%, with certain potential profit
commissions as defined in the agreement. ECI is owned by immediate family
members of certain directors and an officer of CSC.

At December 31, 1995 and 1994, CSC had outstanding premium balances
receivable from ECI in the amount of $441,231 and $559,477, respectively.

8. STATUTORY SHAREHOLDER'S EQUITY AND DIVIDEND RESTRICTION

Ohio law limits the payment of dividends to the parent. The maximum
dividend that may be paid without prior approval of the Director of Insurance is
limited to the greater of the statutory net income of the preceding calendar
year or 10% of total statutory shareholder's equity as of the prior December 31.
As a result, the maximum dividend CSC may pay to Alliance in 1996 without prior
approval is approximately $2,200,000.

Dividends paid in 1995, 1994 and 1993 totaled $5,350,000 ($26,750 per
share), $1,000,000 ($5,000 per share) and $840,000 ($4,200 per share),
respectively. CSC obtained the approval of the Ohio Director of Insurance for
extraordinary dividends paid in 1995.

Reconciliations of CSC's statutory net income and capital and surplus, as
determined in accordance with statutory accounting principles, to the amounts
included in the accompanying consolidated financial statements are as follows:

The consolidated financial statements have been prepared in accordance with
GAAP. Annual statements for CSC and Evergreen, and CHIC, filed with the Ohio
Department of Insurance and the Utah Department of Insurance, respectively, are
prepared on the basis of accounting practices prescribed or permitted by such
regulatory authorities. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
prescribed.

F-49
133

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following reconciles the statutory net income of CSC as reported to
regulatory authorities to the net income as shown in the accompanying
consolidated financial statements:

1995 1994 1993
---------- ---------- ----------

Statutory net income........................... $3,681,236 $1,804,052 $1,230,102
Adjustments to restate to the basis of GAAP:
Statutory net income of subsidiaries......... 445,627 (881,070) (4,381)
Increase (decrease) in deferred policy
acquisition costs......................... (298,060) 1,319,776 728,628
Deferred federal income tax (expense)
benefit................................... 698,789 (55,621) 90,333
Income on American Sentinel transaction...... -- 807,306 --
Amortization of negative goodwill............ -- -- 219,194
Current federal income tax expense........... (595,000) (350,000) (285,600)
Ceding commissions receivable................ (606,060) 212,121 325,757
Other, net................................... (59,601) 130,702 (85,820)
---------- ---------- ----------
Net income per accompanying consolidated
statements of income......................... $3,266,931 $2,987,266 $2,218,213
========== ========== ==========

The following reconciles the statutory capital shares and surplus of CSC as
reported to regulatory authorities to the shareholder's equity as shown in the
accompanying consolidated financial statements:

1995 1994 1993
----------- ----------- -----------

Statutory capital and surplus............... $22,033,530 $20,122,740 $15,398,670
Add (deduct) cumulative effect of
adjustments:
Deferred policy acquisition costs......... 3,427,551 3,725,611 2,405,835
Deferred federal income tax............... (53,337) 467,680 523,301
Difference between amortized cost and fair
value of fixed maturity securities
available-for-sale, gross.............. 1,058,962 (1,088,446) (80,139)
Ceding commissions receivable............. -- 400,000 260,000
Nonadmitted assets........................ 431,158 345,121 239,363
Other, net................................ (154,110) (215,074) 344,838
----------- ----------- -----------
Shareholder's equity per accompanying
consolidated financial statements......... $26,743,754 $23,757,632 $19,091,868
=========== =========== ===========

9. SUPPLEMENTAL CASH FLOW DISCLOSURES

On December 9, 1994, Evergreen, along with Alliance, entered into a
transaction with Sentinel Holdings, Inc. ("SHI") (a wholly owned subsidiary of
Pace American Group, Inc. ["Pace"]), American Sentinel (a wholly owned
subsidiary of SHI) and Republic Western, all unrelated parties. The result of
this transaction was the sale of all of American Sentinel's insurance operations
to Republic Western, settlement of Pace debt collateralized by American Sentinel
common stock, and Evergreen obtaining an agreed-upon amount of net assets of
American Sentinel. Evergreen recognized income of $807,306 related to their
participation in the transaction in the 1994 consolidated statement of income.

In conjunction with the American Sentinel transaction, Evergreen
participated in structuring the agreements and received fair value net assets of
American Sentinel totaling $6,091,306, comprised of highly liquid assets of
$6,227,201 and nonpolicy liabilities (not assumed by Republic Western) of
$185,895.

F-50
134

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Additionally, Evergreen paid $5,284,000, primarily in settlement of Pace debt
collateralized by American Sentinel common stock, comprised of cash payments of
$1,550,000, Pace common stock previously owned by Evergreen of $500,000, and
debt incurred by Alliance of $3,167,000, plus $67,000 of acquisition costs. The
debt incurred by Alliance was recorded as a noncash capital contribution to
Evergreen in 1994 and was satisfied by Alliance as of December 31, 1995. As of
December 31, 1994, American Sentinel no longer exists as a separate corporate
entity. As discussed further in note 10, neither Evergreen nor other members of
the Alliance Companies have any future obligations with respect to the American
Sentinel insurance operations under the terms of the American Sentinel
transaction agreements.

On December 31, 1993, CSC acquired all of the outstanding shares of
Evergreen (see notes 1[b] and 7[a]) for a cash payment of $1,515,060
($1,610,000, net of $94,940 acquired from Evergreen). As part of this
transaction, CSC also received a noncash capital contribution from Alliance in
1993 of $3,859,836 as a result of Alliance's acquiring, in connection with CSC's
acquisition of Evergreen, certain Hampton Court Holdings, Inc. (Evergreen's
former parent) debt for which Evergreen shares had been pledged as collateral.
However, CSC and its subsidiaries are not a party to that debt or obligated to
service that debt, nor is the common stock of CSC or any of its subsidiaries
pledged as collateral for that debt.

10. COMMITMENTS AND CONTINGENCIES

In 1993, CSC entered into various agreements to lease office space from
unrelated parties. The minimum future rental payments under these leases at
December 31, 1995 were as follows:

1996.............................................. $264,398
1997.............................................. 264,398
1998.............................................. 220,330
--------
$749,126
========

United States Warranty Corporation ("USWC"), CHIC's former parent, enters
into agreements with various automobile and recreational vehicle dealers
("Dealers") whereby USWC agrees to administer the service contract agreements
issued by the Dealers to consumers. Prior to October 9, 1994, CHIC was
contingently liable should the Dealers and USWC become unable to meet their
obligations to the consumers under the service agreements. During 1994,
Evergreen replaced CHIC as the contingently liable party for Dealer service
contract agreements issued on or prior to October 9, 1994. The CSC Group's
management has estimated the Dealers' liability to range from $310,000 to
$510,000 at December 31, 1995. In the opinion of the CSC Group's management, the
effect to the CSC Group, if any, of ultimate settlement of such Dealers' service
contract agreements are not expected to be material to the CSC Group's
consolidated results of operations or financial position.

Various companies of the CSC Group are defendants in various lawsuits. In
the opinion of management, the effects, if any, of such lawsuits are not
expected to be material to the CSC Group's consolidated results of operations or
financial position.

The terms of the American Sentinel transaction agreements (see note 9)
include a contingent receivable by Evergreen from Republic Western of up to $2.9
million and a contingent note payable by Alliance to SHI, not to exceed $1.45
million. Each of these contingencies relate to the future development of
American Sentinel business acquired by Republic Western as part of the
transaction agreements and are to be settled in December 1996. The amount of the
$2.9 million receivable by Evergreen may be adjusted downward according to the
terms of the agreement, primarily in reference to development of losses of the
American Sentinel block of business acquired by Republic Western. The contingent
note payable is reduced dollar for dollar to the extent that less than $2.9
million is ultimately received by Evergreen from Republic Western. As

F-51
135

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of December 31, 1995, CSC has not accrued any amounts related to these
contingent items in the accompanying consolidated financial statements due to
the uncertainty related to the future development of losses of the American
Sentinel block of business by Republic Western.

11. RISK-BASED CAPITAL

In December 1993, the NAIC adopted the property and casualty Risk-Based
Capital ("RBC") formula. This model act requires every property and casualty
insurer to calculate its total adjusted capital and RBC requirement, and
provides for an insurance commissioner to intervene if the insurer experiences
financial difficulty. The model act became law in Ohio, Century's and
Evergreen's state of domicile, in March 1996, and in Utah, CHIC's state of
domicile, in April 1996. The formula includes components for asset risk,
liability risk, interest rate exposure and other factors. Based on their
December 31, 1995 and 1994 statutory financial statements, CSC, Evergreen and
CHIC exceed all required RBC levels.

12. SUBSEQUENT EVENT

On May 19, 1996 Alliance and Republic Environmental Systems, Inc. ("RESI")
signed a binding letter of intent and agreed to the terms of mergers (the
"Mergers") pursuant to which Alliance would receive (i) 14,760,000 shares of
RESI's common stock, par value $0.01 per share ("RESI Common Stock"), (ii)
warrants to acquire an additional 4,200,000 shares of RESI Common Stock at
exercise prices ranging from $2.625 to $3.875 per share and exercisable over two
to four year periods, and (iii) a promissory note in the principal amount of
$4.0 million in consideration for all of the outstanding common stock of
Alliance's wholly-owned subsidiaries, CSC and CSU.

F-52
136

CENTURY SURETY COMPANY AND SUBSIDIARIES

SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995

COLUMN D
-------------
AMOUNT AT
COLUMN A COLUMN B COLUMN C WHICH SHOWN
- ------------------------------------------------------ ----------- ----------- IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- ------------------------------------------------------ ----------- ----------- -------------

Fixed maturities -- held to maturity:
Bonds:
U.S. government and government agencies and
authorities.................................... $ 6,158,571 $ 6,230,964 $ 6,158,571
States, municipalities and political
subdivisions................................... -- -- --
Corporate securities............................. 8,654,067 8,619,273 8,654,067
Mortgage-backed securities....................... 495,767 514,141 495,767
Fixed maturities -- available for sale:
Bonds:
U.S. government and government agencies and
authorities.................................... 6,521,211 6,817,414 6,817,414
States, municipalities and political
subdivisions................................... 8,338,751 8,503,547 8,503,547
Corporate securities............................. 14,990,440 15,414,332 15,414,332
Mortgage-backed securities....................... 2,243,832 2,417,903 2,417,903
----------- ----------- -----------
Total fixed maturities...................... 47,402,639 48,517,574 48,461,601
----------- ----------- -----------
Equity securities:
Common stock:
Public utilities................................. 322,085 339,812 339,812
Banks, trust and insurance companies............. 430,036 3,917,827 3,917,827
Industrial, miscellaneous and all other.......... 465,185 375,177 375,177
Nonredeemable preferred stocks...................... 782,113 792,997 792,997
----------- ----------- -----------
Total equity securities..................... 1,999,419 5,425,813 5,425,813
----------- ----------- -----------
Mortgage loans on real estate......................... 3,393,205 3,393,205
Other investments..................................... 90,267 90,267
Short-term investments................................ 843,095 843,095
----------- -----------
Total investments........................... $53,728,625 $ 58,213,981
=========== ===========

F-53
137

CENTURY SURETY COMPANY AND SUBSIDIARIES

SCHEDULE IV -- REINSURANCE

YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

(IN THOUSANDS)

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- ----------------------- ----------------------- -------- ----------
CEDED TO ASSUMED FROM PERCENTAGE
----------------------- ----------------------- OF AMOUNT
GROUP OUTSIDE AFFILIATED OUTSIDE AFFILIATED NET ASSUMED
AMOUNT COMPANIES COMPANIES(1) COMPANIES COMPANIES(1) AMOUNT TO NET
-------- --------- ------------ --------- ------------ -------- ----------

Year ended December 31, 1995
Property -- Casualty
Earned Premiums......... $35,750 $10,543 -- $ 1,754 -- $26,961 6.51%
Year ended December 31, 1994
Property -- Casualty
Earned Premiums......... $34,255 $11,303 -- $ 416 -- $23,368 1.78%
Year ended December 31, 1993
Property -- Casualty
Earned Premiums......... $25,019 $ 7,830 -- $ 184 -- $17,373 1.06%

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

(1) Information is presented in a consolidated basis, therefore, effects of
intercompany pooling are eliminated.

F-54
138

CENTURY SURETY COMPANY AND SUBSIDIARIES

SCHEDULE VI -- SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G
- ---------- ----------- ----------- ----------- --------- --------- ----------
DEFERRED LOSSES DISCOUNT,
POLICY AND LOSS IF ANY, NET
ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED EARNED INVESTMENT
SEGMENT COST PAYABLE COLUMN C PREMIUMS PREMIUMS INCOME
- ---------- ----------- ---------- ----------- -------- -------- ----------

Year
Ended:
December 31, 1995.............. $3,427,551 $37,001,841 N/A $15,636,442 $26,961,397 $3,340,956
December 31, 1994.............. $3,725,611 $34,661,007 N/A $15,453,487 $23,367,623 $2,477,428
December 31, 1993.............. $2,405,835 $29,527,805 N/A $12,166,463 $17,372,598 $1,376,916

COLUMN H COLUMN I COLUMN J COLUMN K
-------------------------------- ----------------- -------------- --------------
LOSSES AND LOSS
EXPENSES INCURRED
RELATED TO AMORTIZATION PAID LOSSES DIRECT
-------------------------------- OF AND LOSS PREMIUMS
CURRENT YEAR PRIOR YEAR ACQUISITION COSTS EXPENSES WRITTEN
-------------- -------------- ----------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)

Year Ended:
December 31, 1995............... $ 17,297 $ (2,180) $6,612,518 $ 12,307 $ 36,278
December 31, 1994............... $ 14,753 $ (2,259) $5,268,596 $ 8,239 $ 37,127
December 31, 1993............... $ 10,060 $ (1,447) $4,996,403 $ 5,877 $ 29,817

F-55
139

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

CONSOLIDATED BALANCE SHEETS

JUNE 30, 1996 AND DECEMBER 31, 1995

JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)

ASSETS
Investments:
Fixed maturities held to maturity, at amortized cost............. $15,240,015 $15,308,405
Securities available for sale, at fair value:
Fixed maturities................................................. 33,422,309 33,153,196
Equity securities................................................ 8,098,330 5,425,813
Mortgage loans on real estate.................................... 2,611,218 3,393,205
Other investments................................................ 90,267
Short-term investments, at cost.................................. 2,583,733 843,095
----------- -----------
Total investments........................................ 61,955,605 58,213,981
Cash............................................................... 2,374,076 2,691,746
Premium balances receivable, net................................... 6,399,504 4,357,298
Deferred policy acquisition costs.................................. 3,954,029 3,427,551
Reinsurance receivables............................................ 10,282,413 12,646,960
Prepaid reinsurance premiums....................................... 2,833,898 2,881,174
Accrued investment income.......................................... 842,634 870,245
Furniture and equipment, at cost, net.............................. 367,346 329,435
Other assets....................................................... 1,606,612 579,784
----------- -----------
Total assets............................................. $90,616,117 $85,998,174
=========== ===========

LIABILITIES AND SHAREHOLDER'S EQUITY
Losses and loss expenses payable................................... 39,264,593 37,001,841
Unearned premiums.................................................. 17,248,372 15,636,442
Reinsurance balances payable....................................... 2,392,312 2,259,400
Current federal income taxes payable............................... 499,792 1,322,280
Deferred federal income taxes...................................... 406,185 53,337
Accrued expenses and other liabilities............................. 2,380,042 2,660,005
Collateral held.................................................... 301,133 321,115
----------- -----------
Total liabilities........................................ 62,492,429 59,254,420
----------- -----------
Shareholder's equity:
Common stock, $10,000 par value. Authorized 500 shares; issued
and outstanding 200 shares.................................... 2,000,000 2,000,000
Additional paid-in-capital....................................... 17,590,658 17,293,158
Net unrealized appreciation of investments....................... 3,888,993 3,265,550
Retained earnings................................................ 4,644,037 4,185,046
----------- -----------
Total shareholder's equity............................... 28,123,688 26,743,754
----------- -----------
Total liabilities and shareholder's equity............... $90,616,117 $85,998,174
=========== ===========

The accompanying notes are an integral part of these consolidated financial
statements.

F-56
140

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

CONSOLIDATED STATEMENTS OF INCOME

SIX MONTHS ENDED JUNE 30, 1996 AND 1995

(UNAUDITED)

1996 1995
----------- -----------

Revenues:
Premiums earned.......................................................... $13,062,477 $13,290,317
Net investment income.................................................... 1,629,393 1,657,180
Net realized gains on investments........................................ 598,781 32,839
Income on American Sentinel transaction.................................. 1,150,000 0
Other income............................................................. 171,702 158,899
---------- ----------
Total revenues................................................... 16,612,353 15,139,235
---------- ----------
Expenses:
Losses and loss expenses................................................. 8,471,053 7,812,015
Acquisition expenses..................................................... 2,972,796 3,196,885
Other expenses........................................................... 3,005,540 3,923,863
---------- ----------
Total expenses................................................... 14,449,389 14,932,763
---------- ----------
Income before federal income taxes............................... 2,162,964 206,472
---------- ----------
Federal income tax expense (benefit):
Current.................................................................. 797,292 351,139
Deferred................................................................. 31,681 (398,912)
---------- ----------
Total federal income tax expense (benefit)....................... 828,973 (47,773)
---------- ----------
Net income....................................................... $ 1,333,991 $ 254,245
========== ==========

The accompanying notes are an integral part of these consolidated financial
statements.

F-57
141

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 1996 AND 1995

(UNAUDITED)

1996 1995
----------- -----------

Cash flows from operating activities:
Net income....................................................... $ 1,333,991 $ 254,245
----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 189,654 110,367
Deferred federal income taxes................................. 31,681 (398,912)
Increase in premium balances receivable....................... (2,042,206) (817,415)
(Increase) decrease in deferred policy acquisition costs...... (526,478) 221,169
(Increase) decrease in reinsurance receivables................ 2,364,547 (846,997)
(Increase) decrease in prepaid reinsurance premiums........... 47,276 (718,511)
(Increase) decrease in accrued investment income.............. 27,611 (43,070)
Increase in other assets...................................... (1,026,828) (243,564)
Increase in losses and loss expenses payable.................. 2,262,752 3,385,192
Increase in unearned premiums................................. 1,611,930 999,963
Increase in reinsurance balances payable...................... 132,912 435,831
Decrease in reinsurance payable on paid losses................ 0 (1,331)
Decrease in current federal income taxes payable.............. (822,488) (546,025)
Decrease in loss portfolio transfer........................... (10,832) 0
Decrease in accrued expenses and other liabilities............ (269,131) (691,979)
Decrease in collateral held................................... (19,982) (882,640)
----------- -----------
Net adjustments.......................................... 1,950,418 (37,922)
----------- -----------
Net cash provided by operating activities................ 3,284,409 216,323
----------- -----------
Cash flows from investing activities:
Purchase of fixed maturities available for sale.................. (8,548,696) (2,370,603)
Purchase of equity securities.................................... (959,707) (17,137)
Sale of fixed maturities available for sale...................... 7,194,881 58,424
Sale of equity securities........................................ 269,910 393,090
Decrease in mortgage loans on real estate........................ 781,987 291,243
Net decrease in short-term investments........................... (1,740,638) (1,167,149)
Increase (decrease) in limited partnership....................... 90,267 (29,762)
Acquisition of furniture and equipment, net...................... (112,583) (87,098)
----------- -----------
Net cash used in investing activities.................... (3,024,579) (2,928,992)
----------- -----------
Cash flows from financing activities:
Dividends to Parent.............................................. (875,000) (750,000)
Capital contributed by Parent.................................... 297,500 255,000
----------- -----------
Net cash used in financing activities.................... (577,500) (495,000)
----------- -----------
Net decrease in cash............................................... (317,670) (3,207,669)
Cash at the beginning of period.................................. 2,691,746 6,577,481
----------- -----------
Cash at the end of period........................................ $ 2,374,076 $ 3,369,812
=========== ===========

The accompanying notes are an integral part of these consolidated financial
statements.

F-58
142

CENTURY SURETY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1996 AND DECEMBER 31, 1995

(UNAUDITED)

1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The accompanying unaudited consolidated financial statements as of June 30,
1996, include the accounts of Century Surety Company ("CSC") and subsidiaries
(the "CSC Group"). All significant intercompany transactions have been
eliminated.

The consolidated financial statements of the CSC Group included herein have
been prepared by the management of the CSC Group, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of the management of the CSC Group, the accompanying statements reflect
all adjustments necessary to present fairly the financial position, results of
operations and cash flows for those periods indicated, and contain adequate
disclosure to make the information presented not misleading. Such adjustments
are of a normal, recurring nature unless otherwise disclosed in the notes to
consolidated financial statements. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the CSC Group's latest audited
financial statements.

Results of operations for any three month period are not necessarily
indicative of the results of operations for a full year.

2. PROPOSED MERGER AND SUBSEQUENT EVENTS

3. INCOME ON AMERICAN SENTINEL TRANSACTION

In 1994, CSC entered into a transaction concerning the sale of the
insurance operations of American Sentinel to Republic Western. Republic Western
contracted to pay CSC's subsidiary, Evergreen, an amount in 1996 which was
indeterminable at that time and was based upon future loss development. The
transaction included a contingent receivable ranging from $0 to $2,900,000 due
Evergreen from Republic Western by December 1996. Based upon performance of the
insurance operations sold, it was determined that $1,150,000 should be
recognized as revenue during the first quarter of 1996. The income is reflected
in these statements. The balance of the receivable in the amount of $1,750,000
has not been included in income because it is subject to a reduction in its
entirety based on the performance, including loss development of the sold
operations, through December 1996.

4. DIVIDEND

CSC paid a $437,500 dividend to Alliance in the six-month period ended June
30, 1996.

F-59
143

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholder
Commercial Surety Agency, Inc.:

We have audited the accompanying balance sheets of Commercial Surety
Agency, Inc. (a wholly owned subsidiary of Alliance Holding Corporation) as of
December 31, 1995 and 1994, and the related statements of income, shareholder's
equity (deficit), and cash flows for each of the years in the three-year period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Commercial Surety Agency,
Inc. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1995, in conformity with generally accepted accounting principles.

Cleveland, Ohio
June 7, 1996

F-60
144

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

ASSETS

1995 1994
---------- ----------

Cash........................................................ $ 2,363 $ 316,028
Premiums receivable......................................... 646,757 318,444
Commissions receivable from affiliates...................... 252,266 603,957
Note receivable-related party (note 2)...................... 19,900 19,900
Other receivables........................................... 45,454 48,429
Other receivables from affiliates........................... 0 80,223
Deferred financing costs, net of accumulated amortization of
$1,170,792 and $1,150,793................................. 0 19,999
Prepaid expenses............................................ 13,605 8,819
Federal income tax recoverable from Parent (note 2)......... 209,464 39,542
---------- ----------
Total current assets.............................. 1,189,809 1,455,341
---------- ----------
Furniture, equipment and leasehold improvements at cost, net
of accumulated depreciation and amortization of $132,555
and $107,694 (note 3)..................................... 178,781 142,288
Advances to Parent (note 2)................................. 156,441 186,035
Deposits.................................................... 1,879 2,587
---------- ----------
Total assets...................................... $1,526,910 $1,786,251
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current maturities of long-term debt (note 3)............... 35,897 160,186
Accounts payable............................................ 9,981 188,572
Bonuses payable............................................. 156,000 271,300
Commissions payable (note 2)................................ 139,175 146,391
Premiums payable to affiliates.............................. 788,894 493,928
Accrued payroll............................................. 11,679 11,927
Note payable -- related party (note 2)...................... 0 12,514
Funds held (note 4)......................................... 0 300,000
---------- ----------
Total current liabilities......................... 1,141,626 1,584,818
Long-term debt (note 3)..................................... 11,634 29,661
---------- ----------
Total liabilities................................. 1,153,260 1,614,479
---------- ----------
Shareholder's equity:
Common stock, no par value, $5 stated value. Authorized
750 shares; issued and outstanding 100 shares.......... 500 500
Retained earnings......................................... 373,150 171,272
---------- ----------
Total shareholder's equity........................ 373,650 171,772
---------- ----------
Commitments and contingencies (note 6)
Total liabilities and shareholder's equity........ $1,526,910 $1,786,251
========== ==========

See accompanying notes to financial statements.

F-61
145

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
---------- ---------- ----------

Revenues:
Commissions (note 2)................................... $2,000,140 $2,686,106 $2,310,024
Management fees from affiliate (note 2)................ 600,000 337,500 0
Interest income........................................ 1,931 1,063 12,190
---------- ---------- ----------
Total revenues................................. 2,602,071 3,024,669 2,322,214
---------- ---------- ----------
Expenses:
Commissions (note 2)................................... 892,897 1,132,049 1,110,396
---------- ---------- ----------
Operating expenses:
Salaries............................................ 983,332 743,119 562,409
Amortization........................................ 19,999 26,450 127,473
Depreciation........................................ 37,118 26,544 38,818
General and administrative.......................... 216,613 201,432 212,527
Interest............................................ 9,908 22,050 47,111
Payroll taxes....................................... 69,511 45,752 41,001
Rent................................................ 63,055 49,079 59,422
---------- ---------- ----------
1,399,536 1,114,426 1,088,761
---------- ---------- ----------
Total expenses................................. 2,292,433 2,246,475 2,199,157
---------- ---------- ----------
Income before Federal income tax expense....... 309,638 778,194 123,057
Federal income tax expense (note 5).................... 107,760 265,952 44,911
---------- ---------- ----------
Net income..................................... $ 201,878 $ 512,242 $ 78,146
========== ========== ==========

See accompanying notes to financial statements.

F-62
146

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

TOTAL
COMMON STOCK RETAINED SHAREHOLDER'S
---------------- EARNINGS EQUITY
SHARES AMOUNT (DEFICIT) (DEFICIT)
------ ------ --------- -------------

Balance as of December 31, 1992 (unaudited).......... 100 $500 $(419,116) $(418,616)
Net income -- 1993................................. 0 0 78,146 78,146
--- ---- --------- ---------
Balance as of December 31, 1993...................... 100 500 (340,970) (340,470)
Net income -- 1994................................. 0 0 512,242 512,242
--- ---- --------- ---------
Balance as of December 31, 1994...................... 100 500 171,272 171,772
Net income -- 1995................................. 0 0 201,878 201,878
--- ---- --------- ---------
Balance as of December 31, 1995...................... 100 $500 $ 373,150 $ 373,650
=== ==== ========= =========

See accompanying notes to financial statements.

F-63
147

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
--------- --------- ---------

Cash flows from operating activities:
Net income.............................................. $ 201,878 $ 512,242 $ 78,146
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 57,117 52,994 166,291
Loss on sale of property and equipment............... 1,404 3,582 15,252
Changes in operating assets and liabilities:
(Increase) decrease in premiums receivable........... (328,313) 167,276 66,881
(Increase) decrease in commissions receivable........ 351,691 (456,916) (59,330)
(Increase) decrease in other receivables............. 2,975 (15,301) (31,006)
(Increase) decrease in other receivables from
affiliates......................................... 80,223 (80,223) 0
Increase in prepaid expenses......................... (4,786) (487) (8,333)
(Increase) decrease in deposits...................... 708 (135) (1,123)
Increase (decrease) in accounts payable.............. (178,591) 183,797 1,841
Increase (decrease) in bonuses payable............... (115,300) 157,300 71,000
Increase (decrease) in commissions payable........... (7,216) 11,839 (89,603)
Increase (decrease) in premiums payable to
affiliates......................................... 294,966 (14,258) (29,138)
Decrease in accrued payroll.......................... (248) (2,948) (585)
Decrease in funds held............................... (300,000) 0 0
--------- --------- ---------
Net cash provided by operating activities....... 56,508 518,762 180,293
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment............ 0 325 450
Acquisition of property and equipment................... (75,015) (104,994) (62,657)
--------- --------- ---------
Net cash used in investing activities........... (75,015) (104,669) (62,207)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt............................ 0 15,319 0
Repayment of long-term debt principal................... (142,316) (153,667) (120,554)
Advances to Parent...................................... (722,328) (549,421) (687,949)
Repayment of advances................................... 582,000 315,000 811,600
Repayment of note payable -- related party.............. (12,514) (7,077) (6,561)
--------- --------- ---------
Net cash used in financing activities........... (295,158) (379,846) (3,464)
--------- --------- ---------
Net increase (decrease) in cash................. (313,665) 34,247 114,622
Cash -- beginning of year................................. 316,028 281,781 167,159
--------- --------- ---------
Cash -- end of year....................................... $ 2,363 $ 316,028 $ 281,781
========= ========= =========
SUPPLEMENTAL DISCLOSURE:
Interest paid........................................... $ 11,166 $ 24,069 $ 33,179
========= ========= =========
Federal income taxes paid............................... $ 277,682 $ 305,494 $ 44,911
========= ========= =========

See accompanying notes to financial statements.

F-64
148

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Commercial Surety Agency, Inc. ("CSU") is a wholly owned subsidiary of
Alliance Holding Corporation ("Alliance"). CSU is an insurance agency operating
in the Northeastern Ohio area doing business under the tradename Century Surety
Underwriters. Substantially all commissions are received from CSU's placement of
surety bonds with Century Surety Company ("CSC"), a wholly owned subsidiary of
Alliance, and its subsidiaries (collectively, the "CSC Group").

Basis of Presentation

The financial statements have been prepared on the basis of generally
accepted accounting principles ("GAAP").

Use of Estimates

In preparing the financial statements in conformity with GAAP, management
is required to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses for the reporting period. Actual results could differ
significantly from those estimates.

Commission Revenue and Expense Recognition

Commission revenue is recognized in full as the CSC Group's surety bonds
are placed. CSU also may earn additional commissions dependent upon the
profitability of the business CSU places. The profitability commissions are
based upon the loss ratios of the bond placements, and are recorded as revenues
when notified by the CSC Group, which is approximately 12 months subsequent to
the calendar year-end in which the bond was placed.

Return commissions are recorded when the underlying insurance policy is
cancelled.

Commission expense is recognized in full as the CSC Group's surety bonds
are placed, and is paid to the sub-agent when the premiums from the insured are
collected. Commissions payable represents commissions due to the sub-agent on
premiums that have not been collected.

Property and Equipment

Property and equipment are recorded at cost, net of accumulated
depreciation and amortization. CSU uses the straight-line and accelerated
methods of depreciation and amortization over the estimated useful lives of the
assets.

Management Fees from Affiliate

CSU recognizes management fees from affiliate income as the services are
performed.

Deferred Financing Costs

Deferred financing costs represent costs capitalized related to the
original financing of CSU that are being amortized over the life of the loan.

F-65
149

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Federal Income Taxes

CSU files as part of a consolidated Federal income tax return of Alliance
and its subsidiaries. Pursuant to written agreements, CSU pays to or recovers
from Alliance the amount of Federal income tax calculated primarily on a
separate basis for itself.

CSU utilizes the asset and liability method of accounting for income tax.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Differences between the financial reporting and tax bases of assets and
liabilities are not significant and no deferred tax assets or liabilities have
been recorded.

Statement of Cash Flows

For the purpose of the statement of cash flows, cash includes only funds
held on deposit with banks.

2. RELATED PARTY TRANSACTIONS

Advances to Parent and Federal income tax recoverable from Parent represent
cash advanced to Alliance for working capital and income tax purposes. CSU has
not received any interest on these advances.

Note receivable -- related party consists of an unsecured demand note
receivable from the son of a former shareholder of Alliance bearing interest at
12%.

Note payable -- related party represents a 7.5% note, payable to a
shareholder of Alliance, in monthly installments of $694, including interest.
The note was repaid in 1995.

Commission revenues of $1,815,229, $2,606,719, and $1,854,000 for the years
ended December 31, 1995, 1994 and 1993, respectively, were earned from the CSC
Group.

Management fees from affiliate represents fees for performing various
financial underwriting services for a wholly-owned subsidiary of the CSC Group.
The management fee, in accordance with the terms of a written agreement, was
$50,000 per month in 1995, and $37,500 per month beginning April 1, 1994.

F-66
150

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. LONG-TERM DEBT

At December 31, 1995 and 1994, long-term debt consisted of the following:

1995 1994
------- --------

7.5% secured notes, payable to Independence Bank, Independence,
Ohio, in monthly installments of $13,950, including interest,
guaranteed by individuals who are shareholders of an
affiliated company, paid off in 1995......................... $ 0 $162,063
7.5% unsecured note payable to Independence Bank, Independence,
Ohio; in monthly installments of $3,068, including interest,
through October 1996......................................... 26,746 0
14% - 20% capital leases, payable to AT&T in monthly
installments of $1,007, including interest, through January
1998; secured by telephone equipment......................... 20,785 27,784
-------- ---------
47,531 189,847
Less: current portion.......................................... (35,897) (160,186)
-------- ---------
$11,634 $ 29,661
======== =========

Future maturities of long-term debt are as follows:

YEAR ENDED
DECEMBER 31,
------------

1996..................................................................... $35,897
1997..................................................................... 10,669
1998..................................................................... 965
-------
$47,531
=======

4. FUNDS HELD

Funds held represent cash received as collateral for commissions receivable
from one customer. The cash was returned to the customer during 1995 as the
commissions receivable was settled.

5. FEDERAL INCOME TAXES

A reconciliation between actual Federal income tax expense and the amount
computed at the statutory rate follows:

1995 1994 1993
-------- -------- -------

Amount at statutory rate............................ $105,277 $264,586 $41,839
Other............................................... 2,483 1,366 3,072
-------- -------- -------
$107,760 $265,952 $44,911
======== ======== =======

6. COMMITMENTS

CSU leases its facilities from an indirect shareholder of Alliance under an
operating lease expiring in July 1997 with a five year right to renew. Lease
payments over the prior three years ended December 31, 1995, 1994 and 1993 were
$63,100, $49,100 and $59,400, respectively. The minimum future lease payments
under this operating lease at December 31, 1995 are approximately $81,000 in
1996 and $43,000 in 1997.

F-67
151

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. SUBSEQUENT EVENT

F-68
152

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

BALANCE SHEETS

JUNE 30, 1996 AND DECEMBER 31, 1995

ASSETS

DECEMBER 31,
1995
JUNE 30, ------------
1996
-----------
(UNAUDITED)

Cash............................................................... $ 138,435 $ 2,363
Premiums receivable................................................ 713,423 646,757
Commissions receivable from affiliates............................. 13,127 252,266
Note receivable-related party...................................... 19,801 19,900
Other receivables.................................................. 5,714 45,454
Prepaid expenses................................................... 2,654 13,605
Federal income tax recoverable from Parent......................... 0 209,464
---------- ----------
Total current assets..................................... 893,154 1,189,809
---------- ----------
Furniture, equipment and leasehold improvements at cost, net of
accumulated depreciation and amortization........................ 171,601 178,781
Advances to Parent................................................. 224,016 156,441
Deposits........................................................... 690 1,879
---------- ----------
1,289,461 $1,526,910
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current maturities of long-term debt............................... 10,091 35,897
Accounts payable................................................... 10,785 9,981
Bonuses payable.................................................... 2,300 156,000
Commissions payable................................................ 83,921 139,175
Premiums payable to affiliates..................................... 1,046,566 788,894
Accrued payroll.................................................... 13,631 11,679
---------- ----------
Total current liabilities................................ 1,167,294 1,141,626
Long-term debt..................................................... 6,505 11,634
---------- ----------
Total liabilities........................................ 1,173,799 1,153,260
---------- ----------
Shareholder's equity:
Common stock, no par value, $5 stated value. Authorized 750
shares; issued and outstanding 100 shares..................... 500 500
Retained earnings................................................ 115,162 373,150
---------- ----------
Total shareholder's equity............................... 115,662 373,650
---------- ----------
Commitments and contingencies
Total liabilities and shareholder's equity............... $ 1,289,461 $1,526,910
========== ==========

See accompanying notes to financial statements.

F-69
153

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

STATEMENTS OF INCOME

SIX MONTHS ENDED JUNE 30, 1996 AND 1995

(UNAUDITED)

JUNE 30
-------------------------
1996 1995
---------- ----------

Revenues:
Commissions....................................................... $1,024,660 $ 841,716
Management fees from affiliate.................................... 300,000 300,000
Other............................................................. 98,670 0
Interest income................................................... 1,868 107
---------- ----------
Total revenues............................................ 1,425,198 1,141,823
---------- ----------
Expenses:
Commissions....................................................... 598,722 413,103
---------- ----------
Operating expenses:
Salaries....................................................... 452,567 411,837
Amortization................................................... 533 14,291
Depreciation................................................... 19,385 16,074
General and administrative..................................... 133,619 92,927
Interest....................................................... 1,755 7,937
Loss on disposal of asset...................................... 0 1,845
Payroll taxes.................................................. 51,449 47,395
Rent........................................................... 27,756 27,487
---------- ----------
687,064 619,973
---------- ----------
Total expenses............................................ 1,285,786 1,032,896
---------- ----------
Income before Federal income tax expense.................. 139,412 108,927
Federal income tax expense........................................ 47,400 37,035
---------- ----------
Net income................................................ $ 92,012 $ 71,892
========= =========

See accompanying notes to financial statements.

F-70
154

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 1996 AND 1995

(UNAUDITED)

1996 1995
--------- ---------

Cash flows from operating activities:
Net income......................................................... $ 92,012 $ 71,892
Adjustments to reconcile net income to net cash provided by (use
in) operating activities:
Depreciation and amortization................................... 20,451 4,935
Loss on sale of property and equipment.......................... 0 1,845
Changes in operating assets and liabilities:
(Increase) decrease in premiums receivable...................... (66,666) (210,339)
Decrease in commissions receivable.............................. 239,139 589,948
Decrease in note receivable-related party....................... 0 80,223
Decrease in other receivables................................... 39,740 12,891
Decrease in other receivables from affiliates................... 99 99
Decrease in prepaid expenses.................................... 10,951 6,798
(Increase) decrease in federal income tax receivable from
parent......................................................... 209,464 (159,902)
Decrease in deposits............................................ 1,189 1,897
Decrease in deferred financial cost............................. 0 19,999
Increase (decrease) in accounts payable......................... 804 (177,520)
Decrease in bonuses payable..................................... (153,700) (213,150)
Decrease in commissions payable................................. (55,254) (38,591)
Increase in premiums payable to affiliates...................... 257,672 448,921
Increase in accrued payroll..................................... 1,952 1,495
Increase in accrued interest.................................... 0 5,485
--------- ---------
Net cash provided by (used in) operating activities........ 597,853 446,246
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment.............................. (13,271) (41,980)
--------- ---------
Net cash (used in) investing activities.................... (13,271) (41,980)
--------- ---------
Cash flows from financing activities:
Advances to Parent................................................. (67,575) (56,706)
Repayment of long-term debt principal.............................. (30,935) (73,005)
Repayment of note payable-related party............................ 0 (12,514)
Dividend distribution to Parent.................................... (350,000) 0
--------- ---------
Net cash (used in) financing activities.................... (448,510) (142,225)
--------- ---------
Net increase in cash................................................. 136,072 262,221
Cash -- beginning of period.......................................... 2,363 316,028
--------- ---------
Cash -- end of period................................................ $ 138,435 $ 579,249
========= =========
SUPPLEMENTAL DISCLOSURE:
Interest paid:..................................................... $ 1,755 $ 7,937
========= =========
Federal income taxes paid.......................................... $ 29,823 $ 149,816
========= =========

See accompanying notes to financial statements.

F-71
155

COMMERCIAL SURETY AGENCY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ALLIANCE HOLDING CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements as of June 30, 1996 and
1995, include the accounts of Commercial Surety Agency, Inc. ("CSU"), a
wholly-owned subsidiary of Alliance Holding Corporation ("Alliance").

The financial statements of CSU included herein have been prepared by the
management of CSU, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. In the opinion of CSU, the accompanying
statements reflect all adjustments necessary to present fairly the financial
position results of operations and cash flows for those periods indicated, and
contain adequate disclosure to make the information presented not misleading.
Such adjustments are of a normal, recurring nature unless otherwise disclosed in
the notes to the financial statements. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
notes thereto included in CSU's latest audited financial statements.

Results of operations for any six month period are not necessarily
indicative of the results of operations for a full year.

2. DIVIDEND

CSU paid a $350,000 dividend to Alliance in the six-month period ended June
30, 1996.

3. PROPOSED MERGER AND SUBSEQUENT EVENTS

During July 1996, the Alliance Companies entered into an agreement to
acquire Environmental
& Commercial Insurance Agency, Inc.; an agreement with Gulf Insurance Company
and Midwest Indemnity Corporation ("Midwest") for the production, underwriting
and reinsurance of contract surety and surety bond business primarily to
environmental businesses; and an option to purchase assets of Midwest. These
transactions are subject to the consummation of the Mergers.

F-72
156

INDEPENDENT AUDITORS' CONSENT

The Board of Directors

Century Surety Company

The Board of Directors and Shareholder

Commercial Surety Agency, Inc.:

We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts". Our report for Century Surety Company
dated April 9, 1996 except as to note 12, which is as of June 14, 1996, included
herein, refers to a change in accounting principle. In 1994, Century Surety
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities.

KPMG Peat Marwick LLP

September 10, 1996

F-73
157

APPENDIX I

AGREEMENT

AND

PLAN OF MERGER

by and among
Republic Environmental Systems, Inc.,

Republic/CSA Acquisition Corporation,

Republic/CSU Acquisition Corporation,
Alliance Holding Corporation,
Century Surety Company and
Commercial Surety Agency, Inc.

Dated as of May 19, 1996
158

TABLE OF CONTENTS

ARTICLE I DEFINITIONS............................................................ 1
1.1 Defined Terms.......................................................... 1
1.2 Other Definitional Provisions.......................................... 5

ARTICLE II THE MERGERS............................................................ 6
2.1 The Mergers............................................................ 6
2.2 Consummation of the Mergers............................................ 6
2.3 Effect of the Mergers.................................................. 6
2.4 Certificate of Incorporation and Bylaw................................. 6
2.5 Directors and Officers................................................. 6
2.6 Consideration.......................................................... 7
2.7 Conversion of Securities............................................... 7

ARTICLE III REPRESENTATIONS AND WARRANTIES OF RESI AND THE
MERGER SUBS............................................................
3.1 Corporate Status....................................................... 8
3.2 Corporate Power and Authority.......................................... 8
3.3 Enforceability......................................................... 9
3.4 No Violation........................................................... 9
3.5 Consents/Approvals..................................................... 9
3.6 SEC Reports and Nasdaq Compliance...................................... 9
3.7 Capitalization......................................................... 10
3.8 Brokers................................................................ 10
3.9 Contracts and Commitments.............................................. 10
3.10 Material Adverse Change................................................ 11
3.11 Litigation............................................................. 11
3.12 Employee Agreements.................................................... 11
3.13 Board Approval......................................................... 11
3.14 Inapplicability of Section 203 of DGCL................................. 11
3.15 HSR Act................................................................ 12

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ALLIANCE AND THE ALLIANCE
COMPANIES.............................................................. 12
4.1 Corporate Status....................................................... 12
4.2 Corporate Power and Authority.......................................... 12
4.3 Enforceability......................................................... 12
4.4 No Violation........................................................... 13
4.5 Consents/Approvals..................................................... 13
4.6 Capitalization......................................................... 13
4.7 Governing Documents.................................................... 14
4.8 Subsidiaries........................................................... 14
4.9 Financial Statements................................................... 14
4.10 Material Adverse Change................................................ 15
4.11 Litigation............................................................. 15
4.12 Title to Properties.................................................... 15
4.13 Deposits............................................................... 15
4.14 Banking Arrangements and Powers of Attorney............................ 16
4.15 Books and Records...................................................... 16
4.16 Employees and Agents................................................... 16
4.17 Real Property.......................................................... 16
4.18 Compliance............................................................. 17

159

4.19 Labor and Employment Matters........................................... 17
4.20 Employee Benefit Plans................................................. 17
4.21 Tax Matters............................................................ 18
4.22 Insurance.............................................................. 18
4.23 Permits................................................................ 19
4.24 Intellectual Property.................................................. 19
4.25 Brokers................................................................ 19
4.26 Stockholder and Board Approval......................................... 19
4.27 Contracts and Commitments.............................................. 19
4.28 Other Insurance Interests.............................................. 20
4.29 HSR Act................................................................ 20

ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGERS................................ 20
5.1 Conduct of Respective Businesses by the Parties Pending the Mergers.... 20

ARTICLE VI ADDITIONAL AGREEMENTS.................................................. 22
6.1 Merger Subs............................................................ 22
6.2 Filings................................................................ 22
6.3 Further Assurances; Best Efforts....................................... 22
6.4 Cooperation............................................................ 22
6.5 Board of Directors..................................................... 23
6.6 Registration Statement; Information Statement.......................... 23
6.7 Written Consent/Stockholders' Meeting.................................. 26
6.8 HSR Act and Other Actions.............................................. 26
6.9 Access to Information.................................................. 27
6.10 Notification of Certain Matters........................................ 27
6.11 Tax Treatment.......................................................... 27
6.12 Public Announcements................................................... 27
6.13 Executive Offices...................................................... 28
6.14 Securities Trading..................................................... 28
6.15 Non-Competition........................................................ 28
6.16 Schedules.............................................................. 28
6.17 Reimbursement of Chairman's Costs and Expenses......................... 28
6.18 Stock Split............................................................ 28
6.19 Employment/Non-Competition Agreement................................... 29

ARTICLE VII CONDITIONS OF MERGERS.................................................. 29
7.1 Conditions to Obligations of Each Party to Effect the Mergers.......... 29
7.2 Additional Conditions to the Obligations of RESI and the Merger Subs... 30
7.3 Additional Conditions to the Obligations of Alliance and the Alliance
Companies.............................................................. 30

ARTICLE VIII INDEMNIFICATION........................................................ 32
8.1 Indemnification Generally.............................................. 32
8.2 Indemnification Procedures............................................. 32
8.3 Survival............................................................... 33

ARTICLE IX TERMINATION, AMENDMENT AND WAIVER...................................... 33
9.1 Termination............................................................ 33
9.2 Effect of Termination.................................................. 34

ARTICLE X GENERAL PROVISIONS..................................................... 34
10.1 Notices................................................................ 34
10.2 Survival............................................................... 35

160

10.3 Remedies............................................................... 35
10.4 Entire Agreement....................................................... 36
10.5 Expenses............................................................... 36
10.6 Amendment; Waiver...................................................... 36
10.7 Binding Effect; Assignment............................................. 36
10.8 Counterparts........................................................... 36
10.9 Headings............................................................... 36
10.10 Governing Law.......................................................... 37
10.11 Severability........................................................... 37

161

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (this "Agreement") is dated as of May 19,
1996 among Republic Environmental Systems, Inc., a Delaware corporation
("RESI"), Republic/CSA Acquisition Corporation ("CSC Merger Sub") and
Republic/CSU Acquisition Corporation ("CSU Merger Sub" and, together with CSC
Merger Sub, the "Merger Subs"), each a Delaware corporation and wholly-owned
subsidiary of RESI, Alliance Holding Corporation, an Ohio corporation
("Alliance"), and Century Surety Company ("CSC") and Commercial Surety Agency,
Inc., d/b/a Century Surety Underwriters ("CSU" and together with CSC, the
"Alliance Companies"), each an Ohio corporation and wholly-owned subsidiary of
Alliance. RESI, the Merger Subs, the Alliance Companies and Alliance may
hereinafter be referred to collectively as the "Parties" or individually as a
"Party."

RECITALS

Each of the Boards of Directors of RESI and Alliance has determined that it
is in the best interests of their respective stockholders for RESI to acquire
each of the Alliance Companies on the terms and subject to the conditions set
forth herein. In order to effectuate the transaction, RESI has organized each of
the Merger Subs as a wholly-owned subsidiary of RESI and has agreed, subject to
the terms and conditions set forth in this Agreement, to merge (i) CSC Merger
Sub with and into CSC, with CSC as the surviving corporation, and (ii) CSU
Merger Sub with and into CSU, with CSU being the surviving corporation. As a
result of such mergers, each of the Alliance Companies will become a
wholly-owned subsidiary of RESI.

TERMS OF AGREEMENT

In consideration of the mutual representations, warranties, covenants and
agreements contained herein, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1 DEFINED TERMS. As used herein, the following terms shall have the
following meanings:

"Affiliate" shall have the meaning ascribed to it in Rule 12b-2 under
the Exchange Act, as in effect on the date hereof.

"Agreement" shall mean this Agreement and Plan of Merger together with
all exhibits and schedules attached hereto.

"Alliance" shall have the meaning set forth in the Preamble hereof.

"Alliance Companies" shall have the meaning set forth in the Preamble
hereof.

"Alliance Companies Common Stock" shall have the meaning set forth in
Section 2.7 hereof.

"Alliance Companies' Subsidiaries" shall have the meaning set forth in
Section 4.8 hereof.

"Closing" shall mean the closing of the transactions contemplated by
Section 2.2 hereof.

"Closing Date" shall mean the tenth day following the satisfaction or
waiver of the conditions set forth in Article VII or such date as otherwise
agreed upon by the Parties.

"Code" means the Internal Revenue Code of 1986, as amended.

I-1
162

"Contract" means any agreement, indenture, lease, sublease, license,
sublicense, promissory note, evidence of indebtedness, insurance policy,
annuity, mortgage, restriction, commitment, obligation or other contract,
agreement or instrument (whether written or oral).

"CSC" shall have the meaning set forth in the Preamble hereof.

"CSC Common Stock" shall have the meaning set forth in Section 2.7
hereof.

"CSC Merger Sub" shall have the meaning set forth in the Preamble
hereof.

"CSC Subsidiaries" shall have the meaning set forth in Section 4.8
hereof.

"CSU" shall have the meaning set forth in the Preamble hereof.

"CSU Common Stock" shall have the meaning set forth in Section 2.7
hereof.

"CSU Merger Sub" shall have the meaning set forth in the Preamble
hereof.

"DGCL" shall have the meaning set forth in Section 2.1 hereof.

"Effective Time" shall have the meaning set forth in Section 2.2
hereof.

"Employee Benefit Plans" shall have the meaning set forth in Section
4.20 hereof.

"Employment/Non-Competition Agreements" shall have the meaning set
forth in Section 6.19 hereof.

"ERISA" shall have the meaning set forth in Section 4.20 hereof.

"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

"GAAP" means generally accepted accounting principles in the United
States, consistently applied throughout the specified period and in the
comparable period in the immediately preceding year.

"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity or official exercising
executive, legislative, judicial, regulatory or administrative functions
of, or pertaining to, government.

"HSR Act" shall have the meaning set forth in Section 3.15 hereof.

"Indemnified Party" shall have the meaning set forth in Section 8.2
hereof.

"Indemnifying Party" shall have the meaning set forth in Sections 8.2
hereof.

"Information Statement" shall have the meaning set forth in Section
6.6 hereof.

"Intellectual Property" shall have the meaning set forth in Section
4.24 hereof.

"Lien" means any mortgage, pledge, security interest, assessment,
encumbrance, lien, lease, sublease, adverse claim, levy, or charge of any
kind, or any conditional Contract, title retention Contract or other
contract to give or refrain from giving any of the foregoing.

"Material Adverse Change" or "Material Adverse Effect" means, with
respect to any Person, any change or effect that is or is reasonably likely
to be materially adverse to the financial condition, business, prospects or
results of operations of such Person.

"Mergers" shall have the meaning set forth in Section 2.1 hereof.

"Merger Subs" shall have the meaning set forth in the Preamble hereof.

"Note" shall have the meaning set forth in Section 2.8 hereof.

"OGCL" shall have the meaning set forth in Section 2.1 hereof.

"Parties" or "Party" shall have the meaning set forth in the Preamble
hereto.

I-2
163

"Permits" shall have the meaning set forth in Section 4.23 hereof.

"Person" means any natural person, partnership, corporation, joint
stock company, estate, trust, unincorporated association, joint venture,
Governmental Authority, proprietorship, union, association, arbitrator,
board, bureau, instrumentality, self-regulatory organization or other
entity, of whatever nature.

"Purchase Agreements" shall have the meaning set forth in Section
7.3(f) hereof.

"Real Property" shall have the meaning set forth in Section 4.17
hereof.

"Registration Statement" shall have the meaning set forth in Section
6.6 hereof.

"Regulatory Agent" shall have the meaning set forth in Section 4.16
hereof.

"Requirement of Law" means as to any Person, the articles of
incorporation, bylaws or other organizational or governing documents of
such Person, and any domestic or foreign and federal, state or local law,
rule, regulation, statute or ordinance or determination of any arbitrator
or a court or other Governmental Authority, in each case applicable to or
binding upon such Person or any of its properties or to which such Person
or any of its property is subject including, without limitation, all
applicable insurance laws and regulations.

"RESI" shall have the meaning set forth in the Preamble hereof.

"RESI Common Stock" shall have the meaning set forth in Section 2.7
hereof.

"SEC" means the Securities and Exchange Commission.

"SEC Reports" has the meaning specified in Section 3.6 hereof.

"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

"Series A Warrants" shall have the meaning set forth in Section 2.7
hereof.

"Series B Warrants" shall have the meaning set forth in Section 2.7
hereof.

"Series C Warrants" shall have the meaning set forth in Section 2.7
hereof.

"Shares" shall have the meaning set forth in Section 2.7 hereof.

"Stockholders' Meeting" shall have the meaning set forth in Section
6.7 hereof.

"Stock Split" shall mean the two for one stock split to be effected on
June 30, 1996 by means of a stock dividend of one share of RESI Common
Stock for each share of RESI Common Stock held of record on June 14, 1996.

"Subsidiary" means each of those Persons of which another person,
directly or indirectly owns beneficially securities having more than 50% of
the voting power in the election of directors (or persons fulfilling
similar functions or duties) of the owned Person (without giving effect to
any contingent voting rights).

"Surviving Corporation" shall have the meaning set forth in Section
2.1 hereof.

"Tax" or "Taxes" means all taxes, charges, fees, levies, guaranty fund
assessments or other similar assessments or liabilities, including, without
limitation, income, gross receipts, ad valorem, premium, excise, real
property, personal property, windfall profit, sales, use, transfer,
licensing, withholding, employment, payroll and franchise taxes imposed by
the United States of America or any state, local or foreign government, or
any subdivision, agency or other similar Person of the United States or any
such government; and such term shall include any interest, fines,
penalties, assessments or additions to tax resulting from, attributable to,
or incurred in connection with any such tax or any contest or dispute
thereof.

"Terminating Alliance Breach" shall have the meaning set forth in
Section 9.1 hereof.

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"Terminating RESI Breach" shall have the meaning set forth in Section
9.1 hereof.

"Warrant Certificates" shall have the meaning set forth in Section 2.7
hereof.

"Warrant Shares" shall mean the RESI Common Stock to be issued upon
the exercise of the Warrants.

"Warrants" shall have the meaning set forth in Section 2.7 hereof.

1.2 OTHER DEFINITIONAL PROVISIONS.

(a) The terms "hereof," "herein," "hereby," "hereto" and derivative or
similar words refer to this entire Agreement.

(b) Terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.

(c) All matters of an accounting nature in connection with this
Agreement and the transactions contemplated hereby shall be determined in
accordance with GAAP.

(d) As used herein, the neuter gender shall also denote the masculine
and feminine, and the masculine gender shall also denote the neuter and
feminine, where the context so permits.

(e) All references to "dollars" or "$" refer to currency of the United
States of America.

ARTICLE II

THE MERGERS

2.1 THE MERGERS. Subject to and upon the terms and conditions of this
Agreement and in accordance with the Delaware General Corporation Law (the
"DGCL") and the Ohio General Corporation Law (the "OGCL"), at the Effective
Time, (i) CSC Merger Sub shall be merged with and into CSC (the "CSC Merger")
and CSU Merger Sub shall be merged with and into CSU (the "CSU Merger" and,
together with the CSC Merger, the "Mergers"). As a result of the Mergers, the
separate corporate existence of each of the Merger Subs shall cease and CSC and
CSU shall continue as the surviving corporations (the "Surviving Corporations").

2.2 CONSUMMATION OF THE MERGERS. The Closing shall take place on the
Closing Date at the offices of Alliance, 10055 Sweet Valley Drive, Valley View,
Ohio 44125, or such other place as the Parties may agree. At the time of the
Closing, the Parties shall cause each of the Mergers to be consummated by filing
(a) Certificates of Merger with the Secretary of State of the State of Delaware,
in such form as required by and executed in accordance with the relevant
provisions of the DGCL, and (b) Certificates of Merger with the Secretary of
State of the State of Ohio, in such form as required by and executed in
accordance with the relevant provisions of OGCL (the date and time of such
filing is referred to herein as the "Effective Time") and shall deliver such
other documents and instruments as required under the terms of this Agreement.

2.3 EFFECT OF THE MERGERS. Each of the Mergers shall have the effect set
forth in Section 259 of the DGCL and Section 1701.82 of the OGCL.

2.4 CERTIFICATE OF INCORPORATION AND BYLAWS. At the Effective Time, the
Articles of Incorporation and Code of Regulations of each of CSC and CSU
immediately prior to the Effective Time shall be and continue to be the Articles
of Incorporation and Code of Regulations, respectively, of the applicable
Surviving Corporation.

2.5 DIRECTORS AND OFFICERS. At the Effective Time, those persons serving as
directors and officers of CSC and CSU, respectively, immediately prior to the
Effective Time shall submit their resignations. The initial directors and
officers of the respective Surviving Corporations shall be appointed by the
Board of Directors of RESI, each to hold office in accordance with the Articles
of Incorporation of the respective Surviving Corporation until his or her
respective successor is duly elected or appointed and qualified or until his or
her

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earlier death, resignation or removal. The majority of the directors on the
initial Boards of Directors of the respective Surviving Corporations and their
insurance subsidiaries shall be members of the current management of the
Alliance Companies.

2.6 CONSIDERATION. As consideration for the acquisition by RESI from
Alliance of all of the Alliance Companies Common Stock (defined herein), RESI
shall issue to Alliance:

(a) as set forth in Section 2.7, (i) an aggregate of 15,000,000 shares
of RESI common stock, $.01 par value per share ("RESI Common Stock"), and
(ii) warrants to purchase an aggregate of 4,200,000 shares of RESI Common
Stock; and

(b) a promissory note payable to Alliance in the aggregate principal
amount of $4,000,000 with such terms as set forth in the form attached
hereto as Exhibit 2.6 (the "Note").

2.7 CONVERSION OF SECURITIES. At the Effective Time, by virtue of each of
the Mergers and without any action on the part of the Parties or the holders of
any of their respective securities:

(a) All shares of CSC common stock, $10,000 par value per share (the
"CSC Common Stock"), and CSU common stock, no par value per share (the "CSU
Common Stock" and, together with the CSC Common Stock, the "Alliance
Companies Common Stock"), issued and outstanding immediately prior to the
Effective Time (other than shares of CSC Common Stock or CSU Common Stock
held by CSC or CSU, respectively, in its treasury) shall be converted into
the right to receive (i) an aggregate of 15,000,000 shares (the "Shares")
of RESI Common Stock, and (ii) warrants to purchase (a) an aggregate of
1,400,000 shares of RESI Common Stock at a purchase price of $2.625 per
share, exercisable in whole or in part at any time and from time to time
from the Closing Date until 6:00 p.m. on the date two years from the
Closing Date (the "Series A Warrants"), (b) an aggregate of 1,400,000
shares of RESI Common Stock at a purchase price of $3.125 per share,
exercisable in whole or in part at any time and from time to time from the
Closing Date until 6:00 p.m. on the date three years from the Closing Date
(the "Series B Warrants"), and (c) an aggregate of 1,400,000 shares of RESI
Common Stock at a purchase price of $3.875 per share, exercisable in whole
or in part at any time and from time to time from the Closing Date until
6:00 p.m. on the date four years from the Closing Date (the "Series C
Warrants" and, together with the Series A Warrants and the Series B
Warrants, the "Warrants"), pursuant to the warrant certificates in the
forms attached hereto as Exhibits 2.7(a)(1), 2.7(a)(2) and 2.7(a)(3),
respectively (the "Warrant Certificates").

(b) Each share of CSC Common Stock and CSU Common Stock held in the
treasury of CSC and CSU, respectively, immediately prior to the Effective
Time shall automatically be canceled and retired and cease to exist,
without any conversion thereof.

(c) Each share of CSC Merger Sub common stock, $.01 par value per
share and each share of CSU Merger Sub common stock, $.01 par value per
share, issued and outstanding immediately prior to the Effective Time shall
be automatically converted into one share of common stock of the respective
Surviving Corporation.

2.8 EXCHANGE OF CERTIFICATES. Following the Effective Time, Alliance shall
tender the share certificates representing the Alliance Companies Common Stock
to RESI, and RESI shall promptly (and in any event within five business days)
issue to or at the direction of such holder one or more share certificates
representing the Shares.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES
OF RESI AND THE MERGER SUBS

As a material inducement to Alliance and each of the Alliance Companies
entering into this Agreement and consummating the transactions contemplated
hereby, RESI and each of the Merger Subs represent and warrant, jointly and
severally, to Alliance and each of the Alliance Companies as follows:

3.1 CORPORATE STATUS.

(a) Each of RESI, its Subsidiaries and the Merger Subs is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware. Each of RESI, its Subsidiaries and the
Merger Subs has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now conducted.
Each of RESI, its Subsidiaries and the Merger Subs is qualified or licensed
to conduct business in all jurisdictions where its ownership or lease of
property and the conduct of its business requires such qualification or
licensing, except to the extent that failure to so qualify or be licensed
would not have a Material Adverse Effect on RESI and its Subsidiaries taken
as a whole. There is no pending or threatened proceeding for the
dissolution, liquidation or insolvency of RESI or any of its Subsidiaries.

(b) Each of the Merger Subs was incorporated on June 5, 1996 and (i)
has not since the date of its incorporation taken any actions (or ratified
any actions taken by its incorporators) or conducted any business other
than the execution and delivery of this Agreement, (ii) has no material
assets and (iii) has no liabilities, whether absolute, accrued, asserted,
unasserted, contingent or otherwise.

3.2 CORPORATE POWER AND AUTHORITY. Each of RESI and the Merger Subs has the
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and consummate the transactions contemplated
hereby. Except for the approval of the RESI stockholders, each of RESI and the
Merger Subs has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby.

3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by
each of RESI and the Merger Subs and constitutes a legal, valid and binding
obligation of RESI and the Merger Subs, enforceable against RESI and the Merger
Subs in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.

3.4 NO VIOLATION. The execution and delivery by each of RESI and the Merger
Subs of this Agreement, the consummation of the transactions contemplated
hereby, and the compliance by each of RESI and the Merger Subs with the terms
and provisions hereof, will not (a) result in (i) a violation or breach of, (ii)
constitute (with or without due notice or lapse of time or both) a material
default under, (iii) give rise to any right of termination, cancellation or
acceleration under, or (iv) create any obligation to pay money or otherwise
perform a material act pursuant to, any of the terms, conditions or provisions
of any Contract to which RESI or any of its Subsidiaries is a party or by which
any of them or any material portion of their properties or assets may be bound,
(b) conflict with, or result in any breach of any provision of the Certificates
of Incorporation or Bylaws or other governing instruments of RESI or any of its
Subsidiaries, (c) violate any Requirement of Law applicable to RESI or any of
its Subsidiaries or any material portion of their properties or assets or (d)
result in the imposition of any Lien upon any of the capital stock, properties
or assets of RESI or any of its Subsidiaries; except where any of the foregoing
would not have a Material Adverse Affect on RESI and its Subsidiaries taken as a
whole.

3.5 CONSENTS/APPROVALS. No consent, approval, waiver or other action by any
Person under any Contract to which either RESI or any of its Subsidiaries is a
party, or by which any of their respective properties or assets are bound or
under any Requirement of Law, is required or necessary for the execution,
delivery or performance by RESI and each of the Merger Subs of this Agreement
and the consummation of the

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transactions contemplated hereby, except (a) as required by the Securities Act,
the Exchange Act and state securities or "blue sky" laws, (b) as required by the
DGCL and the OGCL, (c) as required by the Ohio and other applicable state
insurance authorities and (d) where the failure to obtain such consents,
filings, authorizations, approvals or waivers or make such filings would not
prevent or delay the consummation of the Mergers or otherwise prevent any of
RESI or the Merger Subs from performing their respective obligations hereunder.

3.6 SEC REPORTS AND NASDAQ COMPLIANCE. Since April 25, 1995, RESI has made
all filings (the "SEC Reports") required to be made by it under the Securities
Act and the Exchange Act. The SEC Reports, when filed, complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act and the securities laws, rules and regulations of any state and pursuant to
any Requirement of Law and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. RESI has delivered or made
accessible to Alliance and each of the Alliance Companies true, accurate and
complete copies of the SEC Reports which were filed with the SEC since April 25,
1995. RESI has taken all necessary actions to ensure its continued inclusion in,
and the continued eligibility of the RESI Common Stock for trading on the Nasdaq
National Market under all currently effective and currently proposed inclusion
requirements.

3.7 CAPITALIZATION. The authorized capital stock of RESI consists of
20,000,000 shares of RESI Common Stock. As of the date hereof, after giving
effect to the Stock Split, 10,809,638, shares of RESI Common Stock are validly
issued and outstanding, fully paid and non-assessable. Except (a) as described
in Schedule 3.7, (b) for 1,143,960 shares of RESI Common Stock, after giving
effect to the Stock Split, reserved for issuance pursuant to certain options or
warrants issued pursuant to the RESI 1995 Employee Stock Option Plan and in
connection with the distribution of RESI Common Stock to holders of Republic
Waste Industries, Inc. common stock in April 1995 (the "Spin-off") and (c) as
contemplated by the Purchase Agreements and this Agreement, there are (y) no
rights, options, warrants, convertible securities, subscription rights or other
agreements, calls, plans, contracts or commitments of any kind relating to the
issued and unissued capital stock of, or other equity interest in, RESI or any
of its Subsidiaries outstanding or authorized, and (z) no contractual
obligations of RESI or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of RESI Common Stock or any capital stock of, or
any equity interest in, any of its Subsidiaries. Upon delivery to Alliance of
the certificates for the Shares and the Warrant Certificates following the
Effective Time, Alliance will acquire good, valid and marketable title to and
beneficial and record ownership of the Shares and the Warrants, and the Shares
will be validly issued, fully paid and non-assessable. RESI will reserve
4,200,000 shares of RESI Common Stock for issuance upon exercise of the Warrants
and, upon exercise of the Warrants in accordance with this Agreement and the
Warrant Certificate (including, without limitation, payment in full of the
exercise price) the Warrant Shares will be validly issued, fully paid and
non-assessable.

3.8 BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based on any arrangements or
agreements made by or on behalf of RESI or the Merger Subs and for which RESI,
Merger Subs or any other RESI Subsidiary will have an obligation or liability.

3.9 CONTRACTS AND COMMITMENTS. Except as set forth in the SEC Reports and
except for this Agreement, the agreements contemplated hereby, the Purchase
Agreements and the agreements contemplated thereby, as of the date hereof, none
of RESI or its Subsidiaries is a party to or is bound by any Contract material
to RESI and its Subsidiaries, taken as a whole, involving any obligation or
liability on the part of RESI or its Subsidiaries, or relating to the business
of RESI or its Subsidiaries and otherwise materially affecting RESI's business
or business opportunities, not otherwise listed in Schedule 3.9.

None of the RESI or its Subsidiaries is (and, to the best knowledge of
RESI, no other party is) in material breach or violation of, or default under,
any of such Contracts and there does not exist under any such Contract any event
or condition which, either individually or in the aggregate (after notice or the
lapse of time or both), would constitute a default by RESI or any of its
Subsidiaries or, to the best knowledge of RESI, by

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any other party thereto and to the best knowledge of RESI, no course of conduct
has modified in any respect any of the written terms in any such Contract;
except, in each case, where it would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on RESI and its
Subsidiaries taken as a whole.

3.10 MATERIAL ADVERSE CHANGE. Since December 31, 1995, there has been no
Material Adverse Change in RESI and its Subsidiaries, taken as a whole.

3.11 LITIGATION. Except as set forth in the SEC Reports and Schedule 3.11
hereto, as of the date hereof, none of RESI or its Subsidiaries (a) is subject
to any outstanding injunction, judgement, order, decree, ruling or charge or (b)
is a party or, to the knowledge of any of the RESI, is threatened to be made a
party to any action, suit, proceeding, hearing, or investigation of, in or
before any court or quasi-judicial or administrative agency of any federal,
state, local or foreign jurisdiction or before any arbitrator, which in each
case would reasonably be expected to have a Material Adverse Effect on RESI and
its Subsidiaries. To the best knowledge of RESI, neither it nor any of its
Subsidiaries is or any property or asset of RESI or any of its Subsidiaries is
in violation of any order, writ, judgement, injunction, decree, determination or
award, which would reasonably be expected to have a Material Adverse Effect on
RESI and its Subsidiaries taken as a whole.

3.12 EMPLOYEE AGREEMENTS. The consummation of the transactions contemplated
by this Agreement will not result in any payments by the Surviving Companies or
RESI to any officers or directors of RESI or any of its Subsidiaries under any
Contracts, except as set forth in Schedule 3.12.

3.13 BOARD APPROVAL. This Agreement, the Mergers and the transactions
contemplated hereby have been approved and adopted by the board of directors of
RESI and the Merger Subs in accordance with their respective Certificates of
Incorporation and Bylaws and the DGCL and no other consents or approvals are
required by or on behalf of RESI or its Subsidiaries to consummate the
transactions contemplated hereby except as otherwise set forth on Schedule 3.5
or in this Agreement.

3.14 INAPPLICABILITY OF SECTION 203 OF DGCL. The Board of Directors of RESI
has approved the execution and delivery by RESI of this Agreement and the
consummation of the transactions contemplated hereby and the other transactions
contemplated hereby and thereby, and such approval is sufficient to render
inapplicable to Alliance and/or any affiliates and associates of Alliance (as
those terms are defined in Section 203 of the DGCL) and/or all or any
combination of such persons the provisions of Section 203 of DGCL that restrict
business combinations (as defined in Section 203 of DGCL) between an interested
stockholder and RESI.

3.15 HSR ACT. Within the meaning of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the implementing regulations thereto
(the "HSR Act"), each of RESI and the Merger Subs, including the "ultimate
parent entity" in which each is included, has a size of person less than $100
million.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF ALLIANCE
AND THE ALLIANCE COMPANIES

As a material inducement to RESI and the Merger Subs entering into this
Agreement and consummating the transactions contemplated hereby, Alliance and
the Alliance Companies represent and warrant, jointly and severally, to RESI and
the Merger Subs as follows:

4.1 CORPORATE STATUS. Each of Alliance, the Alliance Companies and the
Alliance Companies' Subsidiaries (other than Continental Heritage Insurance
Company) is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Ohio. Continental Heritage Insurance
Company, a Subsidiary of CSC, is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Utah. Each of
Alliance and the Alliance Companies has all requisite corporate power and
authority to own or lease, as the case may be, its properties and to carry on
its business as now conducted. Each of Alliance, the Alliance Companies and the
Alliance Companies' Subsidiaries (a) is qualified or

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licensed to conduct business in all jurisdictions where its ownership or lease
of property and the conduct of its business requires such qualification or
licensing, except to the extent that failure to so qualify or be licensed would
not have a Material Adverse Effect on such Party and (b) is not required to be
qualified to do business in any jurisdiction other than those listed on Schedule
4.1. Each of the Alliance Companies and the Alliance Companies' Subsidiaries, to
the extent required by law, is in good standing and is admitted or authorized to
write excess coverage and to conduct the insurance business as authorized by its
certificates of authority in all jurisdictions listed on Schedule 4.1.

4.2 CORPORATE POWER AND AUTHORITY. Each of Alliance and the Alliance
Companies has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and consummate the
transactions contemplated thereby. Each of Alliance and the Alliance Companies
has taken all necessary corporate action to authorize the execution, delivery
and performance of this Agreement and the transactions contemplated hereby.

4.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by
Alliance and the Alliance Companies and constitutes a legal, valid and binding
obligation of Alliance and the Alliance Companies, enforceable against each of
Alliance and the Alliance Companies in accordance with its terms, except as the
same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity.

4.4 NO VIOLATION. The execution and delivery by Alliance and the Alliance
Companies of this Agreement, the consummation of the transactions contemplated
hereby, and the compliance by Alliance and the Alliance Companies with the terms
and provisions hereof, will not (a) result in (i) a violation or breach of, (ii)
constitute (with or without due the notice or the lapse of time or both), a
material default under, (iii) give rise to any right of termination,
cancellation or acceleration) under or (iv) create any obligation to pay money
or otherwise perform a material act pursuant to any of the terms, conditions or
provisions of any Contract to which the Alliance Companies or any of the
Alliance Companies' Subsidiaries is a party or by which any of them or any
material portion of their properties or assets may be bound, (b) conflict with,
or result in any breach of any provision of the Articles of Incorporation or
Code of Regulations or other governing instruments of Alliance, its
Subsidiaries, the Alliance Companies or any of the Alliance Companies'
Subsidiaries, (c) violate any Requirement of Law applicable to Alliance, its
Subsidiaries, the Alliance Companies or any of the Alliance Companies'
Subsidiaries or any material portion of their properties or assets or (d) result
in the imposition of any Lien upon any of the capital stock, properties or
assets of the Alliance Companies or any of the Alliance Companies' Subsidiaries;
except where any of the foregoing would not have a Material Adverse Affect on
any of Alliance or the Alliance Companies.

4.5 CONSENTS/APPROVALS. No consent, approval, waiver or other action by any
Person under any Contract to which any of Alliance, its Subsidiaries, the
Alliance Companies or any of the Alliance Companies' Subsidiaries is a party, or
by which any of their respective properties or assets are bound or under any
Requirement of Law, is required or necessary for the execution, delivery or
performance by any of Alliance or the Alliance Companies of this Agreement and
the consummation of the transactions contemplated hereby, except (a) as required
by the Securities Act, the Exchange Act and state securities or "blue sky" laws,
(b) as required by the DGCL and the OGCL, (c) as required by the Ohio and other
applicable state insurance authorities, and (d) where the failure to obtain such
consents, filings, authorizations, approvals or waivers or make such flings
would not prevent or delay the consummation of the Mergers or otherwise prevent
any of Alliance or the Alliance Companies from performing their respective
obligations hereunder or have a Material Adverse Effect on the Alliance
Companies.

4.6 CAPITALIZATION.

(a) The authorized capital stock of CSC consists of 500 shares of CSC
Common Stock. As of the date hereof, 200 shares of CSC Common Stock are
validly issued and outstanding, fully paid and non-assessable. All of the
issued and outstanding shares of capital stock of each of CSC's
Subsidiaries is validly issued and outstanding, fully paid and
non-assessable. Alliance is the record and beneficial owner of all of the
issued and outstanding CSC Common Stock and holds such CSC Common Stock
free and

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clear of all Liens and, upon Closing, RESI will acquire good and valid
title to such shares of CSC Common Stock free and clear of any Liens. CSC
is the record and beneficial owner of all of the issued and outstanding
capital stock of CSC's Subsidiaries and holds such capital stock free and
clear of all Liens. Except as described on Schedule 4.6(a), (i) there are
no rights, options, warrants, convertible securities, subscription rights
or other agreements, calls, plans, contracts or commitments of any kind
relating to the issued and unissued capital stock of, or other equity
interest in, CSC or any of CSC's Subsidiaries outstanding or authorized;
(ii) there are no contractual obligations of CSC or CSC's Subsidiaries to
repurchase, redeem or otherwise acquire any shares of CSC Common Stock or
any capital stock of, or equity interest in, any of CSC's Subsidiaries and
(iii) no written or oral agreement or understanding has been made by
Alliance with respect to the disposition of such shares of CSC Common Stock
or any rights therein, in any manner other than by this Agreement.

(b) The authorized capital stock of CSU consists of 750 shares of CSU
Common Stock. As of the date hereof, 100 shares of CSU Common Stock are
validly issued and outstanding, fully paid and non-assessable. All of the
issued and outstanding shares of capital stock of each of CSU's
Subsidiaries is validly issued and outstanding, fully paid and
non-assessable. Alliance is the record and beneficial owner of all of the
issued and outstanding CSU Common Stock and holds such CSU Common Stock
free and clear of all Liens and, upon Closing, RESI will acquire good and
valid title to such shares of CSU Common Stock free and clear of any Liens.
CSU is the record and beneficial owner of all of the issued and outstanding
capital stock of the CSU's Subsidiaries and holds such capital stock free
and clear of all Liens. Except as described on Schedule 4.6(b), (i) there
are no rights, options, warrants, convertible securities, subscription
rights or other agreements, calls, plans, contracts or commitments of any
kind relating to the issued and unissued capital stock of, or other equity
interest in, CSU or any of CSU's Subsidiaries outstanding or authorized;
(ii) there are no contractual obligations of CSU or CSU's Subsidiaries to
repurchase, redeem or otherwise acquire any shares of CSU Common Stock or
any capital stock of, or equity interest in, any of CSU's Subsidiaries and
(iii) no written or oral agreement or understanding has been made by
Alliance with respect to the disposition of such shares of CSU Common Stock
or any rights therein, in any manner other than by this Agreement.

4.7 GOVERNING DOCUMENTS. Each of Alliance and the Alliance Companies has
delivered or made accessible to RESI true, accurate and complete copies of the
Articles of Incorporation and Code of Regulations of Alliance, the Alliance
Companies and the Alliance Companies' Subsidiaries, in each case, in effect as
of the date hereof.

4.8 SUBSIDIARIES. Set forth on Schedule 4.8 is a true and complete list of
all corporations, partnerships, joint ventures or other entities in which either
CSC or CSU owns, directly or indirectly, any outstanding voting securities or
other interests (the "Alliance Companies' Subsidiaries"), other than those held
solely for investment purposes.

4.9 FINANCIAL STATEMENTS. Each of the Alliance Companies delivered to RESI
and the Merger Subs for each of the Alliance Companies the audited balance
sheets (including any related notes and schedules) as of December 31, 1993, 1994
and 1995 and the unaudited balance sheets as of March 31, 1996, and the audited
income statements for the years ended December 31, 1993, 1994 and 1995 and the
unaudited income statement for the three-month period ended March 31, 1996, and
each of these financial statements fairly presents in all material respects the
consolidated results of operations or other information contained therein of the
Alliance Companies for the periods or as of the dates therein set forth in
accordance with GAAP.

4.10 MATERIAL ADVERSE CHANGE. Since December 31, 1995, there has been no
Material Adverse Change in the Alliance Companies.

4.11 LITIGATION. Schedule 4.11 sets forth each instance in which the
Alliance Companies or the Alliance Companies' Subsidiaries (a) is subject to any
outstanding injunction, judgement, order, decree, ruling or charge or (b) is a
party or, to the knowledge of Alliance and either of the Alliance Companies, is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in or before any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction or before any
arbitrator, which would reasonably be expected to have a Material Adverse Effect
on any of the Alliance Companies or

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any of the Alliance Companies' Subsidiaries. To the best of the knowledge of
Alliance and the Alliance Companies, none of the Alliance Companies or the
Alliance Companies' Subsidiaries or any property or asset of any of the Alliance
Companies or any of the Alliance Companies' Subsidiaries is in violation of any
order, writ, judgement, injunction, decree, determination or award, which would
reasonably be expected to have a Material Adverse Effect on the Alliance
Companies or any of the Alliance Companies' Subsidiaries.

4.12 TITLE TO PROPERTIES. Except as set forth on Schedule 4.12, the
Alliance Companies and the Alliance Companies' Subsidiaries have good, valid and
marketable title to all personal property reflected in their respective 1995
audited financial statements, free and clear of any Liens. All material personal
property leases to which any of the Alliance Companies or the Alliance
Companies' Subsidiaries are a party as either lessor or lessee are listed on
Schedule 4.12 and are valid and enforceable in accordance with their respective
terms, and there is not under any of such leases any material breach or default
on the part of the Alliance Companies or the Alliance Companies' Subsidiaries
or, to the best knowledge of Alliance and the Alliance Companies, on the part of
any party thereto, or any condition or event that with the giving of notice of
lapse of time or both would constitute a breach by any of the Alliance
Companies, the Alliance Companies' Subsidiaries or other parties thereto.

4.13 DEPOSITS. Schedule 4.13 sets forth a list and description of all
deposits maintained by each of the Alliance Companies and the Alliance
Companies' Subsidiaries with any insurance regulatory body or otherwise. Each of
the Alliance Companies is entitled to the return of each such deposit upon
compliance with applicable insurance laws and regulations when any of the
Alliance Companies or the Alliance Companies' Subsidiaries cease to do business
in a particular jurisdiction. No action is pending or, to the knowledge of
Alliance or the Alliance Companies, threatened to cause the forfeiture or loss
of all or any portion of any such deposits and none of Alliance or the Alliance
Companies is aware of any facts or circumstances which are reasonably likely to
give rise to any such action.

4.14 BANKING ARRANGEMENTS AND POWERS OF ATTORNEY. Schedule 4.14 sets forth
a list of all bank accounts, credit lines or safe deposit boxes of the Alliance
Companies and the Alliance Companies' Subsidiaries. No person holds any powers
of attorney from any of the Alliance Companies or the Alliance Companies'
Subsidiaries, other than those powers of attorney held by insurance and bond
agents with respect to policies of insurance and related to statutory deposits
and agent for service of process required by regulatory agencies in order to
maintain the certificates of authority and licenses listed on Schedule 4.1.

4.15 BOOKS AND RECORDS. Each of the Alliance Companies and the Alliance
Companies' Subsidiaries keeps its books, records and accounts (including,
without limitation, those kept for financial reporting purposes and for tax
purposes) in sufficient detail to accurately and fairly reflect the transactions
and dispositions of is assets, liabilities and equities. The minute books of
each of the Alliance Companies and the Alliance Companies' Subsidiaries that
have been made available to RESI contain complete and accurate records of all of
its shareholders' and directors' meetings and of all action taken by such
shareholders and directors. The meetings of directors and shareholders referred
to in such minute books were duly called and held, and the resolutions appearing
in such minute books were duly adopted. The signatures appearing on all
documents contained in such minute books are the true signatures of the persons
purporting to have signed the same. The stock certificate records and stock
transfer records of each of the Alliance Companies and the Alliance Companies'
Subsidiaries are correct and complete and reflect accurately the number of
shares of stock held by its shareholders.

4.16 EMPLOYEES AND AGENTS.

(a) Each of the Alliance Companies and the Alliance Companies'
Subsidiaries has duly appointed an agent ("Regulatory Agent") in each
jurisdiction where the appointment of a Regulatory Agent is required by
applicable law to maintain each entity's certificate of authority and
insurance licenses in such jurisdiction. Each of the Alliance Companies and
the Alliance Companies' Subsidiaries shall maintain in effect the
appointment of each Regulatory Agent through the Closing Date. Other than
as described on Schedule 4.16, none of the Alliance Companies or the
Alliance Companies' Subsidiaries has any contingent, threatened or actual
liabilities to any prior employees, agents or salespersons.

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(b) The consummation of the transactions contemplated by this
Agreement will not result in any payments by the Surviving Corporations to
any officers or directors of Alliance, the Alliance Companies or any
Alliance Companies' Subsidiaries under any Contracts.

4.17 REAL PROPERTY. Schedule 4.17 sets forth a list of all leases of real
property which the Alliance Companies and the Alliance Companies' Subsidiaries
use in their businesses and all real property owned by any of the Alliance
Companies or the Alliance Companies' Subsidiaries (collectively, the "Real
Property"). The use of the Real Property by the Alliance Companies and the
Alliance Companies' Subsidiaries is and has been in compliance in all material
respects with all Requirements of Law (including, without limitation, applicable
zoning ordinances and building codes and environmental, land use and health and
safety laws). All such leases of real property are valid and enforceable in
accordance with their respective terms, and there is not under any of such
leases any material breach or default on the part of any of the Alliance
Companies or the Alliance Companies' Subsidiaries or, to the best knowledge of
Alliance, on the part of any party thereto, or any condition or event that with
the giving of notice of lapse of time or both would constitute a breach by any
of the Alliance Companies, the Alliance Companies' Subsidiaries or other parties
thereto.

4.18 COMPLIANCE. Each of the Alliance Companies and the Alliance Companies'
Subsidiaries has complied with all Requirements of Law relating to the business
conducted by it now or in the past and the properties and assets owned or used
by it now or in the past and has not received notice of any claimed violation of
any such law, rule or regulation, where such failure to comply or claimed
violation would have a Material Adverse Effect on any of the Alliance Companies
or the Alliance Companies' Subsidiaries, including, but not limited to, the
restriction, revocation or suspension of any certificate of authority of any of
the Alliance Companies or the Alliance Companies' Subsidiaries in any
jurisdiction. Each of the Alliance Companies and the Alliance Companies'
Subsidiaries has filed all returns, reports and other documents and furnished
all information required or requested by any Governmental Authority where the
failure to file or furnish such information would have a Material Adverse Effect
on any of the Alliance Companies or the Alliance Companies' Subsidiaries and all
such returns, reports, documents and information are true and complete in all
material respects.

4.19 LABOR AND EMPLOYMENT MATTERS. None of the Alliance Companies or the
Alliance Companies' Subsidiaries (a) is a party to any collective bargaining
agreement or any discussions or negotiations with any individual or group
looking toward any such agreement, or (b) has experienced any strike, grievance
or unfair labor practice claim, suit or administrative proceeding. None of the
Alliance Companies or the Alliance Companies' Subsidiaries is a party to any
material, or under any material obligation with respect to any written or oral,
(a) employment agreements, (b) noncompetition agreements or (c) consulting
agreements. Each of the Alliance Companies and the Alliance Companies'
Subsidiaries has complied in all material respects with any Requirements of Law
relating to employment, civil rights and equal employment opportunities.

4.20 EMPLOYEE BENEFIT PLANS. Schedule 4.20 contains a list setting forth
each employee benefit plan or arrangement, including, but not limited to,
pension and profit-sharing plans, bonus plans, stock purchase plans,
hospitalization, disability and other insurance plans, severance or termination
pay plans and policies, whether or not described in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), in which employees
of the Alliance Companies or the Alliance Companies' Subsidiaries participate
("Employee Benefit Plans"), true and correct copies of which were delivered to
or made accessible to RESI. With respect to the Employee Benefit Plans, (a) each
has been administered in all material respects in compliance with its terms and
with all applicable laws, including, but not limited to, ERISA and the Code, (b)
no actions, suits, claims or disputes related thereto or arising therefrom are
pending or threatened and (c) no prohibited transaction related thereto or
arising therefrom has occurred.

4.21 TAX MATTERS.

(a) Tax Returns and Tax Payment. (i) All tax returns required to be
filed by any of the Alliance Companies or the Alliance Companies'
Subsidiaries for any period ending on or before the Effective Date, taking
into account any extension or waiver of time to file granted or obtained by
any of the Alliance Companies or the Alliance Companies' Subsidiaries, have
been or will be timely filed, (ii) all

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Taxes shown as due on those returns as well as all Taxes due to or claimed
due by federal, state, local or foreign taxing authorities, with respect to
periods ending on or before the Effective Date, have been or will be paid
or adequate provision has been made therefor, and (iii) the filed returns
are complete and correct in all material respects and none of Alliance, the
Alliance Companies or the Alliance Companies' Subsidiaries is required to
pay, for the periods represented by such tax returns, any Taxes other than
those shown in those returns.

(b) Audits. Except as set forth on Schedule 4.21(b), (i) none of the
income tax returns of the Alliance Companies or the Alliance Companies'
Subsidiaries has ever been audited by the Internal Revenue Service, (ii)
there are no pending unresolved issues with respect to any Taxes payable to
any federal, state or local taxing authority and (iii) none of the Alliance
Companies or the Alliance Companies' Subsidiaries is currently the subject
of a tax audit or has been notified by any taxing authority that it is to
be the subject of an impending tax audit.

(c) Tax Liens. There are no tax liens imposed by any federal, state or
local taxing authorities outstanding against any assets of any of the
Alliance Companies or the Alliance Companies' Subsidiaries.

4.22 INSURANCE. Schedule 4.22 sets forth a list of each insurance policy
(including policies providing property, casualty, liability and workers'
compensation coverage and bond and surety arrangements) to which any of the
Alliance Companies or the Alliance Companies' Subsidiaries is a party, a named
insured or is otherwise the beneficiary of coverage. With respect to each such
insurance policy, (i) the policy is in full force and effect, (ii) none of
Alliance, the Alliance Companies or the Alliance Companies' Subsidiaries has
received notice from any insurance carrier of the intention of such carrier to
discontinue any such policy, (iii) none of Alliance, the Alliance Companies or
the Alliance Companies' Subsidiaries or, to the best knowledge of Alliance or
the Alliance Companies, any other party to such policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy and (iv) no party to the policy has repudiated
any provision thereof. Each of the Alliance Companies and the Alliance
Companies' Subsidiaries maintain valid and currently effective policies in such
types and amounts as are consistent with customary practices and standards of
companies engaged in businesses and operations similar to those of the Alliance
Companies and the Alliance Companies' Subsidiaries.

4.23 PERMITS. Each of the Alliance Companies and the Alliance Companies'
Subsidiaries has all material permits, licenses, registrations, filings,
authorizations, consents, approvals or other indicia of authority ("Permits")
necessary for the conduct of their business as presently conducted and operated,
all Permits are in full force and effect and there is not any condition, nor has
any event occurred which constitutes, or with the giving of notice or the
passage of time (or both) would constitute, a material violation of the terms of
any Permit. All applications for renewal of the Permits have been timely filed
(except to the extent that the failure to file would not have a Material Adverse
Effect on any of the Alliance Companies or the Alliance Companies'
Subsidiaries).

4.24 INTELLECTUAL PROPERTY. Each of the Alliance Companies and the Alliance
Companies' Subsidiaries has full legal right, title and interest in and to all
patents, trademarks, servicemarks, trade names, copyrights, know-how, trade
secrets and other material intellectual property used in the conduct of its
business (the "Intellectual Property"), except to the extent the same would not
have a Material Adverse Effect. Except as set forth in Schedule 4.24, conduct of
the business of each of the Alliance Companies and the Alliance Companies'
Subsidiaries as presently conducted does not infringe or misappropriate any
rights held or asserted by any Person. No payments are required for the
continued use of the Intellectual Property by any of the Alliance Companies or
the Alliance Companies' Subsidiaries. No rights or interest in or to the
Intellectual Property used in the conduct of the business of any of the Alliance
Companies or the Alliance Companies' Subsidiaries has ever been declared invalid
or unenforceable, or is the subject of any pending or, to the best knowledge of
Alliance or the Alliance Companies, threatened action for opposition,
cancellation, declaration or invalidity, unenforceability or misappropriation.

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4.25 BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based on any arrangements or
agreements made by or on behalf of Alliance or the Alliance Companies and for
which the Alliance Companies and the Alliance Companies' Subsidiaries will have
any obligation or liability.

4.26 STOCKHOLDER AND BOARD APPROVAL. This Agreement, the Mergers and the
transactions contemplated hereby have been approved and adopted by the board of
directors and the holders of a majority voting power of the shares of the
capital stock of Alliance and the Alliance Companies entitled to vote thereon in
accordance with the Articles of Incorporation and Code of Regulations of
Alliance and the Alliance Companies and the OGCL and no other consents or
approvals are required by or on behalf of Alliance or the Alliance Companies to
consummate the transactions contemplated hereby except as otherwise set forth on
Schedule 4.5 or in this Agreement.

4.27 CONTRACTS AND COMMITMENTS. With the exception of this Agreement and
the agreements contemplated hereby, none of the Alliance Companies or the
Alliance Companies' Subsidiaries is a party to any material Contract involving
any obligation or liability on the part of the Alliance Companies or relating to
the business of any of the Alliance Companies or the Alliance Companies'
Subsidiaries and otherwise materially affecting the Alliance Companies or the
Alliance Companies' Subsidiaries business, not otherwise listed in Schedule
4.27.

None of the Alliance Companies or the Alliance Companies' Subsidiaries is
(and, to the best knowledge of Alliance and the Alliance Companies, no other
party is) in material breach or violation of, or default under, any of such
Contracts and there does not exist under any such Contract any event or
condition which, either individually or in the aggregate (after notice or the
lapse of time or both), would constitute a default by any of the Alliance
Companies or the Alliance Companies' Subsidiaries or, to the best knowledge of
Alliance and the Alliance Companies, by any other party thereto, and to the best
knowledge of Alliance and the Alliance Companies, no course of conduct has
modified in any respect any of the written terms in any such Contract; except,
in each case, where it would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on the Alliance Companies or the
Alliance Companies' Subsidiaries.

4.28 OTHER INSURANCE INTERESTS. Other than through its ownership in the
Alliance Companies and the Alliance Companies' Subsidiaries, for investment
purposes only and as set forth on Schedule 4.28, Alliance does not own, directly
or indirectly, any interest in a partnership, corporation, joint venture, trust
or other form of business entity, whether as a partner, shareholder, joint
venturer, officer, director, consultant, finder, broker, employee, trustee or in
any manner whatsoever, which engages in the insurance or brokerage business.

4.29 HSR ACT. Within the meaning of the HSR Act, each of Alliance, the
Alliance Companies and the Alliance Companies' Subsidiaries, including the
"ultimate parent entity" in which each is included, has a size of person less
than $100 million.

ARTICLE V

CONDUCT OF BUSINESS PENDING THE MERGERS

5.1 CONDUCT OF RESPECTIVE BUSINESSES BY THE PARTIES PENDING THE MERGERS.
Except as set forth on Schedule 5.1, each of the Parties covenants and agrees
that, between the date of this Agreement and the Effective Time, unless the
other Parties shall have consented in writing (such consent not to be
unreasonably withheld), (i) the businesses of each of the Alliance Companies,
the Alliance Companies' Subsidiaries and RESI and its respective Subsidiaries
shall in all material respects be conducted only in, and each of the Alliance
Companies, the Alliance Companies' Subsidiaries and RESI and its respective
Subsidiaries shall not take any material action except in, the ordinary course
of business consistent with past practice and in accordance with all applicable
laws, (ii) each of the Alliance Companies and RESI shall use its best efforts to
preserve and keep intact its business organization, to keep available the
services of its and its Subsidiaries' current officers, employees and
consultants and to preserve its and its Subsidiaries' present relationships with
customers, suppliers and other Persons with which it or any of its Subsidiaries
has significant business relations. By way of amplification and not limitation,
except as contemplated by this Agreement, none of the Parties or the Alliance
Companies' Subsidiaries shall, between the date of this Agreement and the
Effective

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Time, directly or indirectly, do, propose or agree to do any of the following
without the prior written consent of all of the other Parties, which consent
shall not unreasonably be withheld:

(a) amend or otherwise change its charter or bylaws or equivalent
organizational documents;

(b) except pursuant to this Agreement and the Purchase Agreements and
as set forth on Schedule 4.6, issue, sell, pledge, dispose of, grant,
encumber or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of any shares of capital stock or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock of, or any other ownership interest in, any of them;
provided, however, RESI may, consistent with past practices, grant options
to its employees under existing employee benefit plans;

(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;

(d) except pursuant to the Stock Split, (i) reclassify, combine,
split, subdivide or redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock, (ii) except as contemplated in this
Agreement, merge or consolidate with, or transfer all or substantially all
of its assets to another Person, (iii) liquidate, wind-up or dissolve (or
suffer any liquidation or dissolution) or (iv) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;

(e) except as contemplated by this Agreement, (i) acquire, directly or
indirectly (including, without limitation, for cash or shares of stock), by
merger, consolidation or acquisition of stock or assets, any interest in
any Person, or any assets, or make any investment (other than in the
ordinary course of business) either by purchase of stock or securities,
contributions of capital (other than to wholly-owned Subsidiaries) or
property transfer, or, except in the ordinary course of business,
consistent with past practices, purchase any property or assets of any
other Person, (ii) incur any indebtedness for borrowed money, issue any
debt securities or make any loans or advances except in the ordinary course
of business consistent with past practices, (iii) assume, guarantee or
endorse, or otherwise become responsible for, the obligations of any Person
except in the ordinary course of business consistent with past practices,
(iv) purchase any property or assets of any other Person, except in the
ordinary course of business and consistent with past practices, (v) sell,
pledge or otherwise dispose of or encumber any assets or the stock of any
Subsidiary, except in the ordinary course of business consistent with past
practices, or (vi) enter into any contract or agreement other than in the
ordinary course of business, consistent with past practices;

(f) increase the compensation payable or to become payable to their
respective officers, employees or directors or, except as presently bound
to do, grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer or other
employee, or establish, adopt, enter into or amend, in any material
respect, or take any action to accelerate any rights or benefits with
respect to any collective bargaining, bonus, profit sharing, trust,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;

(g) take any action other than in the ordinary course of business and
in a manner consistent with past practice with respect to accounting
policies or procedures;

(h) pay, discharge or satisfy any existing material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction
in the ordinary course of business and substantially consistent with past
practices of liabilities reflected or reserved against in the financial
statements of RESI, the Alliance Companies or the Alliance Companies'
Subsidiaries, as appropriate, or incurred after the date hereof in the
ordinary course of business;

(i) agree, in writing or otherwise, to take any of the foregoing
actions or any action which would make any representation or warranty in
Article III or IV, as the case may be, untrue or incorrect in any material
respect; or

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(j) cause any modification or amendment to, or lapse of coverage
under, any insurance policies described in Schedule 4.22, except in the
ordinary course of business consistent with past practices with respect to
the maintenance of insurance policies written by any of the Alliance
Companies or the Alliance Companies' Subsidiaries.

ARTICLE VI

ADDITIONAL AGREEMENTS

6.1 MERGER SUBS. From the date hereof to the Effective Time, each of the
Merger Subs shall be and remain inactive, with no material assets, liabilities,
business or operations.

6.2 FILINGS. Each Party shall make on a prompt and timely basis all
governmental and regulatory notifications and filings required to be made by it
for the consummation of the transactions contemplated hereby.

6.3 FURTHER ASSURANCES; BEST EFFORTS. Each Party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of the terms of this Agreement and the transactions contemplated hereby
and will use its best efforts to obtain the satisfaction of the conditions to
Closing set forth in Article VII.

6.4 COOPERATION. Each of the Parties agrees to cooperate with the other
Parties in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
Requirement of Law or the rules of the Nasdaq National Market in connection with
the transactions contemplated by this Agreement and to use their respective best
efforts to agree jointly on a method to overcome any objections by any
Governmental Authority to any such transactions. Except as may be specifically
required hereunder, none of the Parties or their respective Affiliates shall be
required to agree to take any action that in the reasonable opinion of such
Party would result in or produce a Material Adverse Effect on such Party.

6.5 BOARD OF DIRECTORS. The Parties agree that immediately after the
Effective Time, a meeting of the Board of Directors of RESI shall be held, and
at that meeting, (a) Michael J. Occhionero shall resign as a Director of RESI
and be replaced by Richard Rochon, (b) the number of directors constituting
RESI's Board of Directors shall be increased to seven (7), and (c) Edward F.
Feighan, Craig L. Stout and one independent director to be nominated by Alliance
shall be added to RESI's Board of Directors. Immediately thereafter, the new
Board of Directors shall appoint Mr. DeGroote as RESI's Chairman of the Board,
Joseph E. LoConti as RESI's Vice Chairman, Mr. Feighan as RESI's Chief Executive
Officer and President, and Mr. Stout as RESI's Chief Operating Officer.

6.6 REGISTRATION STATEMENT; INFORMATION STATEMENT.

(a) Filing of the Information Statement. As promptly as practicable
after the execution of this Agreement, RESI shall prepare and file with the
SEC an information statement on Schedule 14C or other applicable form
(together with all amendments thereto, the "Information Statement") in
connection with the approval of the Mergers by the stockholders of RESI.
Each of RESI, Alliance and the Alliance Companies shall use its best
efforts to cause the Information Statement to become effective as promptly
as practicable so that the action contemplated thereby can be effected as
soon as possible following the execution of this Agreement. Prior to the
Effective Date, RESI shall take all or any action required under any
applicable federal or state securities laws in connection with the issuance
of shares of RESI Common Stock pursuant to the Mergers. Alliance and the
Alliance Companies shall furnish all information concerning Alliance and
the Alliance Companies as RESI may reasonably request in connection with
the preparation of the Information Statement.

No amendment or supplement to the Information Statement will be made
by RESI without the approval of Alliance, which approval shall not be
unreasonably withheld. RESI will advise Alliance, promptly after it
receives notice of the time when the Information Statement has become
effective or any supplement or amendment has been filed, of any request by
the SEC for amendment of the Information

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Statement, comments and responses to the Information Statement or requests
by the SEC for additional information.

RESI shall promptly prepare and submit to the Nasdaq National Market a
listing application covering the shares of RESI Common Stock issuable in
the Mergers and upon exercise of the Warrants, and shall use its reasonable
best efforts to obtain, prior to the Effective Time, approval for the
listing of such RESI Common Stock, subject to official notice of issuance,
and Alliance and the Alliance Companies shall cooperate with RESI with
respect to such listing.

(b) Filing of the Registration Statement. As promptly as practicable
after the Effective Time, RESI shall prepare and file with the SEC a
registration statement on Form S-1 or other applicable form (together with
all amendments thereto, the "Registration Statement") in connection with
the registration under the Securities Act of the Merger Shares and the
Warrant Shares for resale by the holders thereof. Each of RESI, Alliance
and the Alliance Companies shall use its best efforts to cause the
Registration Statement to become effective as promptly as practicable
following the Effective Time, and, prior to the effective date of the
Registration Statement, RESI shall take all or any action required under
any applicable federal or state securities laws in connection with the
issuance of shares of RESI Common Stock pursuant to the Mergers. RESI shall
pay all expenses incurred in connection with the Registration Statement,
including, without limitation, the fees and disbursements of its counsel,
accountants and other representatives, except that Alliance shall pay for
all underwriting commissions and discounts in connection with its resale of
RESI Common Stock pursuant to the Registration Statement. Alliance and the
Alliance Companies shall furnish all information concerning Alliance and
the Alliance Companies as RESI may reasonably request in connection with
the preparation of the Registration Statement.

No amendment or supplement to the Registration Statement will be made
by RESI without the approval of Alliance, which approval shall not be
unreasonably withheld. RESI will advise Alliance, promptly after it
receives notice of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, the issuance of
any stop order, the suspension of the qualification of the RESI Common
Stock issuable in connection with the Mergers for offering or sale in any
jurisdiction, any request by the SEC for amendment of the Registration
Statement, comments and responses to the Registration Statement or requests
by the SEC for additional information.

(c) Representations and Warranties of RESI and the Merger Subs. Each
of RESI and the Merger Subs represents, warrants and agrees with Alliance
and the Alliance Companies that at the time the Registration Statement is
declared effective, the Registration Statement will not contain an untrue
statement or omit to state a material fact required to be stated therein,
or necessary to make the statements therein not misleading (provided that
this sentence shall not apply to any information contained in the
Registration Statement that is supplied by Alliance and the Alliance
Companies for inclusion therein). Each of RESI and the Merger Subs further
represents, warrants and agrees with Alliance and the Alliance Companies
that at the time the Information Statement is sent to stockholders of RESI
and at the Effective Time, the Information Statement will not contain an
untrue statement or omit to state a material fact required to be stated
therein, or necessary to make the statements therein not misleading
(provided that this sentence shall not apply to any information contained
in the Information Statement that is supplied by Alliance or the Alliance
Companies for inclusion therein). If at any time any event or circumstance
relating to RESI or the Merger Subs, or their respective officers or
directors, should be discovered by RESI which should be set forth in an
amendment or a supplement to the Registration Statement or Information
Statement, RESI shall promptly inform Alliance and the Alliance Companies.
All documents that RESI and the Merger Subs are responsible for filing with
the SEC in connection with the transactions contemplated herein will comply
as to form and substance in all material respects with the applicable
requirements of the Securities Act and the Exchange Act.

(d) Representations and Warranties of Alliance and the Alliance
Companies. Each of Alliance and the Alliance Companies represents, warrants
and agrees with RESI and the Merger Subs that the Registration Statement at
the time the Registration Statement is declared effective, the Registration
Statement will not contain an untrue statement or omit to state a material
fact required to be stated

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therein, or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (provided that
this sentence shall not apply to any information contained in the
Registration Statement that is supplied by RESI or the Merger Subs for
inclusion therein). Each of Alliance and the Alliance Companies further
represents, warrants and agrees with RESI and the Merger Subs that at the
time the Information Statement is sent to stockholders of Alliance and the
Alliance Companies, the Information Statement will not contain an untrue
statement or omit to state a material fact required to be stated therein,
or necessary to make the statements therein not misleading (provided that
this sentence shall not apply to any information contained in the
Information Statement that is supplied by RESI or the Merger Subs for
inclusion therein). If at any time prior to the Effective Time any event or
circumstance relating to Alliance or the Alliance Companies, or their
respective officers or directors, should be discovered by Alliance or the
Alliance Companies which should be set forth in an amendment or a
supplement to the Registration Statement or Information Statement, Alliance
or the Alliance Companies shall promptly inform RESI. All documents that
Alliance and the Alliance Companies are responsible for filing with the SEC
in connection with the transactions contemplated herein will comply as to
form and substance in all material respects with the applicable
requirements of the Securities Act and the Exchange Act.

(e) Consents. Each of RESI, the Merger Subs, Alliance and the Alliance
Companies hereby (i) consents to the use of its name and, on behalf of its
Subsidiaries and Affiliates, the names of such Subsidiaries and Affiliates
and to the inclusion of financial statements and business information
relating to such party and its Subsidiaries and Affiliates (in each case,
to the extent required by applicable securities laws) in the Registration
Statement and the Information Statement; (ii) agrees to use all reasonable
efforts to obtain the written consent of any Person or entity retained by
it which may be required to be named (as an expert or otherwise) in the
Registration Statement or the Information Statement; and (iii) agrees to
cooperate, and agrees to use all reasonable efforts to cause its
Subsidiaries and Affiliates to cooperate, with any legal counsel,
investment banker, accountant or other agent or representative retained by
any of the parties specified in clause (i) above in connection with the
preparation of any and all information required, as determined after
consultation with each party's counsel, to be disclosed by or the
applicable securities laws in the Registration Statement or the Information
Statement.

(f) Covenant of RESI. For so long as the Registration Statement is
effective under the Securities Act, RESI agrees and covenants (i) to
maintain any qualification or approval obtained in connection therewith,
and amend or supplement the Registration Statement, the prospectus
contained therein or other offering document used in connection therewith
to the extent necessary in order to comply with the Securities Act and the
Exchange Act and (ii) as promptly as practicable, to notify Alliance of the
occurrence of an event requiring the preparation of a supplement or
amendment to the Registration Statement and/or the prospectus contained
therein so that, as thereafter delivered to the purchasers of such shares,
the Registration Statement and/or the prospectus contained therein will not
contain an untrue statement of a material fact of omit to state any
material fact required to be stated therein or necessary to make the
statement therein, in the light of the circumstances under which they were
made, not misleading, and as promptly as practicable make available to
Alliance any such supplement or amendment;

(g) Covenant of Alliance and the Alliance Companies. Each of Alliance
and the Alliance Companies agrees and covenants that, upon receipt of any
notice from RESI of the happening of any event of the kind described in
Section 6.6(f)(ii), Alliance will forthwith discontinue disposition under
the Registration Statement of the RESI Common Stock registered thereunder
until receipt of the copies of the supplemented or amended prospectus
contemplated by Section 6.6(f)(ii), and, if so directed by RESI, Alliance
will deliver RESI all copies, other than permanent file copies then in
Alliance's possession of the most recent Resale Prospectus at the time of
such notice.

6.7 WRITTEN CONSENT/STOCKHOLDERS' MEETING. In the event that this Agreement
and the transactions contemplated hereby have not been approved by the written
consent of RESI stockholders pursuant to the

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DGCL and its Certificate of Incorporation and Bylaws on or before September 1,
1996, RESI shall call and hold a special meeting of its stockholders (the
"Stockholders' Meeting") as promptly as practicable thereafter for the purpose
of voting upon the approval of this Agreement and the transactions contemplated
hereby. RESI shall comply with all Requirements of Law applicable to such
meeting. RESI shall use its best efforts to solicit from its stockholders
proxies in favor of approval of this Agreement and the transactions contemplated
hereby, and shall take all other action necessary or advisable to obtain the
vote or consent of stockholders required by the DGCL to obtain such approvals,
unless otherwise necessary due to the applicable fiduciary duties of the
directors of RESI, as determined by such directors in good faith after
consultation with, and based upon the advice of, independent legal counsel (who
may be RESI's regularly engaged independent legal counsel) and financial
advisors. In connection with the foregoing, RESI shall cooperate and consult
with Alliance.

6.8 HSR ACT AND OTHER ACTIONS. Each of the Parties shall (i) make promptly
its respective filings, and thereafter make any other required submissions,
under the HSR Act, with respect to the transactions contemplated hereby and (ii)
use its reasonable best efforts to take, or cause to be taken, all appropriate
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated herein, including, without limitation, using its
reasonable best efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Authorities and
parties to Contracts as are necessary for the consummation of the transactions
contemplated hereby. The Parties also agree to use their best efforts to defend
all lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby and to lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the Parties to consummate the transactions contemplated hereby.

6.9 ACCESS TO INFORMATION. From the date hereof to the Effective Time, each
of the Parties shall, and shall cause its Subsidiaries and its and their
directors, officers, employees, auditors, counsel and agents to, afford the
other Parties and their employees, counsel and agents reasonable access at all
reasonable times to its and their properties, offices and other facilities, to
its and their officers and employees and to all books and records, and shall
furnish such persons with all financial, operating and other data and
information as may be reasonably requested. No information provided to, or
obtained by, any Party hereto shall affect any representation or warranty in
this Agreement although each Party agrees to give notice to the other Parties of
any such information which would constitute a breach of their respective
representations and warranties hereunder. Each of the Parties agrees to maintain
the confidentiality of all such information which is non-public and agrees not
to disclose such information to any person other than its representatives and
advisors who agree to be bound by the terms of this Section 6.9 and to use
information only for purposes or evaluating the Mergers and the other
transactions contemplated hereby; provided, however, such restriction shall not
apply to any information which (a) is in the public domain prior to the time of
disclosure or thereafter enters the public domain through no actions on the part
of such Party, (b) is obtained by a Party from a third party that is not known
to that Party to be subject to a confidentiality agreement with respect to such
information or (c) is disclosed by or on behalf of a Party in connection with
any litigation regarding the transactions contemplated by this Agreement.

6.10 NOTIFICATION OF CERTAIN MATTERS. RESI shall give prompt notice to
Alliance and the Alliance Companies, and Alliance and the Alliance Companies
shall give prompt notice to RESI, of the occurrence or non-occurrence of any
event which would likely cause any representation or warranty contained herein
to be untrue or inaccurate, or any covenant, condition or agreement contained
herein not to be complied with or satisfied.

6.11 TAX TREATMENT. Each of the Parties will use its reasonable best
efforts to cause the Mergers to qualify as a reorganization under the provisions
of Section 368(a) of the Code.

6.12 PUBLIC ANNOUNCEMENTS. Prior to the Closing, none of the Parties shall
make any public release of information regarding the matters contemplated herein
except that (i) a joint press release in agreed form may be issued by the
Parties after the execution of this Agreement and the Closing and (ii) the
Parties may each continue such communications with employees, customers,
suppliers, franchises, lenders, lessors,

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stockholders and the other particular groups as may be legally required or
necessary or appropriate and not inconsistent with the best interest of the
other Parties or the prompt consummation of the transactions contemplated by
this Agreement.

6.13 EXECUTIVE OFFICES. As promptly as practicable following the Closing,
RESI shall cause its executive offices to be moved to Cleveland, Ohio.

6.14 SECURITIES TRADING. Each of the Parties hereby agrees that between the
date hereof and the Closing Date it will refrain, and will use its best efforts
to cause its officers, directors, stockholders, affiliates, representatives and
agents to refrain from any securities trading activities with respect to the
RESI Common Stock.

6.15 NON-COMPETITION. Other than through its ownership in RESI and as set
forth on Schedule 4.28, Alliance agrees that until the later of (i) it owns less
than 20% of RESI or (ii) Joseph E. LoConti, Edward F. Feighan or Craig L. Stout
are no longer bound by the terms of their respective Employment/Non-Competition
Agreements, it will not (i) engage, directly or indirectly, in the insurance or
brokerage business or (ii) own, directly or indirectly, any interest in a
partnership, corporation, joint venture, trust or other form of business entity,
whether as a partner, shareholder, joint venturer, officer, director,
consultant, finder, broker, employee, trustee or in any manner whatsoever, which
engages in the insurance or brokerage business.

Alliance further agrees that for a period of three years from the Effective
Date, RESI shall have an option to acquire from Alliance the interest Alliance
owns from time to time in those entities set forth on Schedule 4.28 for a
purchase price equal to Alliance's cumulative investment in the respective
entity plus 8% per annum.

6.16 SCHEDULES. To the extent not delivered prior to the execution of this
Agreement, each of the Parties agrees to deliver all schedules and exhibits
contemplated by this Agreement, together with any other schedules that the other
Party may reasonably request, within 30 days after the execution of this
Agreement.

6.17 REIMBURSEMENT OF CHAIRMAN'S COSTS AND EXPENSES. RESI agrees to
reimburse Mr. DeGroote for all of his out-of-pocket costs and expenses related
to, or arising from, the performance of his duties as Chairman of the Board of
RESI including, without limitation, expenses associated with the maintenance of
Mr. DeGroote's office in Bermuda.

6.18 STOCK SPLIT. The Parties hereby acknowledge that the RESI Common Stock
share amounts and the exercise prices under the Warrants set forth herein have
been adjusted to give effect to the Stock Split. In the event the Stock Split is
not effected on or before the Closing Date, the Parties agree that the RESI
Common Stock share amounts and the exercise prices under the Warrants set forth
herein, shall be readjusted as follows: (i) with the exception of the RESI
Common Stock Share amounts relating to the number of authorized and outstanding
shares of RESI Common Stock, all RESI Common Stock share amounts shall be
divided by two and (ii) all exercises prices under the Warrants shall be
multiplied by two.

6.19 EMPLOYMENT/NON-COMPETITION AGREEMENT. Alliance agrees to cause certain
key employees of Alliance, namely each of Joseph E. LoConti, Edward F. Feighan
and Craig L. Stout, who will become employees of RESI or its Subsidiaries to
execute and deliver to RESI Employment/Non-Competition Agreements in form and
substance mutually acceptable to RESI31 and such employees (the
"Employment/Non-Competition Agreements") prior to Closing.

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ARTICLE VII

CONDITIONS OF MERGERS

7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGERS. The
respective obligations of each Party to effect the Mergers shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions
any and all of which may be waived, in whole or in part, to the extent permitted
by applicable law:

(a) Stockholder Approval. This Agreement and the Mergers shall have
been approved and adopted by the vote of the holders of a majority of the
voting power of the shares of RESI Common Stock entitled to vote in
accordance with the Certificate of Incorporation and Bylaws of RESI and the
DGCL.

(b) No Order. No Governmental Authority or other agency or commission
or federal or state court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction, or other order (whether temporary,
preliminary or permanent) which is in effect and which materially
restricts, prevents or prohibits consummation of the Mergers or any
transaction contemplated by this Agreement; provided, however, each of the
Parties agree that it will use its best efforts to fulfill its obligations
under Section 6.8 and, in addition, each of the Parties will use its
reasonable best efforts to cause any such decree, judgment, injunction or
other order to be vacated or lifted.

(c) HSR Act. The waiting period (and any extension thereof) applicable
to the consummation of the Mergers under the HSR Act shall have expired or
been terminated.

(e) Approvals. All approvals referenced in Sections 3.5 and 4.5 shall
have been obtained and shall be in full force and effect, other than any
such approval that, if not obtained, would not, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
the Surviving Corporations.

(f) Authorized Share Increase. The stockholders of RESI shall have
voted upon and approved, either at a meeting or by written consent in
accordance with the DGCL and RESI's Certificate of Incorporation and
Bylaws, an amendment to RESI's Certificate of Incorporation to increase in
the number of authorized shares of RESI Common Stock from 20,000,000 to
200,000,000.

7.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF RESI AND THE MERGER SUBS.
The obligations of RESI and the Merger Subs to effect the Mergers are also
subject to the following conditions, any and all of which may be waived, in
whole or in part, to the extent permitted by applicable law.

(a) Representations and Warranties. Each of the representations and
warranties of Alliance and the Alliance Companies contained in this
Agreement shall be true and correct in all material respects as of the
Effective Time as though made on and as of the Effective Time, except that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date.

(b) Agreement and Covenants. Alliance and the Alliance Companies shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
on or prior to the Effective Time.

(c) Opinion of Counsel of Alliance and the Alliance Companies.
Alliance and the Alliance Companies shall have delivered to RESI and the
Merger Subs at the Closing the opinion of counsel of Alliance and the
Alliance Companies, which opinion shall be dated as of the Closing Date and
addressed to RESI and the Merger Subs. Such opinion shall be in form and
substance reasonably satisfactory to RESI and the Merger Subs.

(d) Certificate of Alliance and the Alliance Companies. Each of
Alliance and the Alliance Companies shall have furnished to RESI and the
Merger Subs a certificate dated as of the Closing Date signed by their
respective Chief Executive Officer and Chief Financial Officer certifying
(i) the matters set forth in Section 7.2(a) and 7.2(b) hereto, (ii) the
resolutions of the board of directors of Alliance and each of the Alliance
Companies approving this Agreement, the Mergers and the transactions
contem-

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plated hereby and (iii) the incumbency of the officers of Alliance and each
of the Alliance Companies executing this Agreement and other agreements,
documents and instruments contemplated hereby.

(e) Lock-Up Agreements. RESI shall have received a duly executed
lock-up agreement in the form attached hereto as Exhibit 7.2(f).

(f) Employment/Non-Competition Agreement. RESI shall have received
duly executed Employment/Non-Competition Agreements as set forth in Section
6.19.

7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ALLIANCE AND THE ALLIANCE
COMPANIES. The obligation of Alliance and the Alliance Companies to effect the
Mergers is also subject to the following conditions, any and all of which may be
waived, in whole or in part, to the extent permitted by applicable law.

(a) Representations and Warranties. Each of the representations and
Warranties of RESI and the Merger Subs contained in this agreement shall be
true and correct in all material respects as of the Effective Time as
though made on and as of the Effective Time, except for those
representation and warranties which address matters only as of a particular
date shall remain true and correct as of such date.

(b) Agreements and Covenants. RESI and the Merger Subs shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed on complied with by it
on or prior to the Effective Time.

(c) Opinion of Counsel of RESI and the Merger Subs. RESI and each of
the Merger Subs shall have delivered to Alliance and the Alliance Companies
at the Closing the opinion of counsel of RESI and the Merger Subs, which
opinion shall be dated the Closing Date and addressed to Alliance and the
Alliance Companies. Such opinion shall be in form and substance reasonably
satisfactory to Alliance and the Alliance Companies.

(d) Certificate of RESI and the Merger Subs. Each of RESI and the
Merger Subs shall have furnished to Alliance and the Alliance Companies a
certificate dated as of the Closing Date signed by their respective Chief
Executive Officers and Chief Financial Officers certifying (i) the matters
set forth in Sections 7.3(a) and 7.3(b) hereto, (ii) the resolutions of the
board of directors of RESI and the Merger Subs approving this Agreement,
the Mergers, and the Warrant Certificates, and the transactions
contemplated hereby and thereby and (iii) the incumbency of the officers of
RESI and the Merger Subs executing this Agreement and the Warrant
Certificates, and other agreements, documents and instruments contemplated
hereby and thereby.

(e) Voting Agreement. Alliance shall have received a duly executed
Voting Agreement in the form attached hereto as Exhibit 7.1(e).

(f) MGD Holdings Ltd. and H. Wayne Huizenga Investment.
Contemporaneously with the Closing of the transactions contemplated by this
Agreement, the following transactions shall be closed: (i) the purchase of
2,000,000 shares of RESI Common Stock by MGD Holdings Ltd. from RESI,
together with certain warrants to purchase up to 6,000,000 shares of RESI
Common Stock pursuant to that certain Stock Purchase Agreement between RESI
and MGD Holdings Ltd., attached hereto as Exhibit 7.3(f)(1) and (ii) the
purchase of 2,000,000 shares of RESI Common Stock by H. Wayne Huizenga from
RESI, together with certain warrants to purchase up to 6,000,000 shares of
RESI Common Stock pursuant to that certain Stock Purchase Agreement between
RESI and Mr. Huizenga, attached hereto as Exhibit 7.3(f)(2) (collectively,
the "Purchase Agreements").

(g) Registration Rights Agreement. Alliance shall have received from
RESI a duly executed registration rights agreement with respect to the
Shares and the Warrant Shares in form and substance mutually acceptable to
RESI and Alliance.

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ARTICLE VIII

INDEMNIFICATION

8.1 INDEMNIFICATION GENERALLY. RESI on the one hand, and Alliance, on the
other hand (each an Indemnifying Party as defined below), shall indemnify the
other as follows:

(a) Alliance will defend, indemnify and hold RESI harmless in respect
of the aggregate of all indemnifiable damages of RESI. For this purpose,
"indemnifiable damages" of RESI means the aggregate of all expenses,
losses, costs, deficiencies, liabilities and damages (including related
counsel fees and expenses) incurred or suffered by RESI resulting from (i)
any inaccurate representation or warranty made by Alliance or the Alliance
Companies, or pursuant to, this Agreement or (ii) any material default in
the performance of any of the covenants or agreements made by Alliance or
the Alliance Companies in this Agreement. Notwithstanding the foregoing,
Alliance shall only be liable for indemnification to RESI under this
Article IX to the extent the aggregate amount of the "indemnifiable
damages" of RESI exceeds $500,000.

(b) RESI will defend, indemnify and hold Alliance harmless in respect
of all indemnifiable damages of Alliance. For this purpose, "indemnifiable
damages" of Alliance means the aggregate of all expenses, losses, costs,
deficiencies, liabilities and damages (including related counsel fees and
expenses) incurred or suffered by Alliance resulting from (i) from any
inaccurate representation or warranty made by RESI or the Merger Subs in,
or pursuant to, this Agreement; or (ii) any default in the performance of
any of the covenants or agreements made by RESI or the Merger Subs in this
Agreement.

8.2 INDEMNIFICATION PROCEDURES. Each Person entitled to indemnification
under this Section (an "Indemnified Party") shall give notice as promptly as
reasonably practicable to each party required to provide indemnification under
this Article VIII (an "Indemnifying Party") of any action commenced against or
by it in respect of which indemnity may be sought hereunder, but failure to so
notify an Indemnifying Party shall not relieve such Indemnifying Party from any
liability that it may have otherwise than on account of this Article VIII so
long as such failure shall not have materially prejudiced the position of the
Indemnifying Party. Upon such notification, the Indemnifying Party shall assume
the defense of such action if it is a claim brought by a third party. If and
after such assumption, the Indemnifying Party shall not be entitled to
reimbursement of any expenses incurred by it in connection with such action
except as described below. In any such action, any Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the contrary or
(ii) the named parties in any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing or conflicting interests between them. The Indemnifying
Party shall not be liable for any settlement of any proceeding effected without
its written consent (which shall not be unreasonably withheld or delayed by such
Indemnifying Party), but if settled with such consent or if there be final
judgment for the plaintiff, the Indemnifying Party shall indemnify the
Indemnified Party from and against any loss, damage or liability by reason of
such settlement or judgment.

8.3 SURVIVAL. The indemnification obligations of RESI and Alliance set
forth in this Article VIII shall survive through the period beginning on the
Closing Date and ending on April 1, 1998.

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ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

9.1 TERMINATION. This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned at any time prior to the Effective Time, as
follows:

(a) by written agreement of the Parties;

(b) by RESI or Alliance if the transactions contemplated by this
Agreement have not been consummated on or before September 30, 1996;
provided, however, that the right to terminate this Agreement shall not be
available to a Party whose failure to fulfill any obligation under this
Agreement has been the cause, or resulted in, the failure of the Effective
Time to occur on or before such date;

(c) by RESI, upon a breach of any representation, warranty, covenant
or agreement on the part of Alliance or the Alliance Companies set forth in
this Agreement, or if any representation or warranty of Alliance or the
Alliance Companies shall have become untrue, in either case such that the
conditions set forth in Section 7.2 would not be satisfied and would have a
Material Adverse Effect on RESI (a "Terminating Alliance Breach");
provided, however, that if such Terminating Alliance Breach is cured by
Alliance or the Alliance Companies, as the case may be, within 60 calendar
days after notice thereof through the continuous exercise of its best
efforts, then RESI may not terminate this Agreement under this Section
9.1(c); or

(d) by Alliance, upon a breach of any representation, warranty,
covenant or agreement on the part of RESI or the Merger Subs set forth in
this Agreement, or if any representation or warranty of RESI or the Merger
Subs shall have become untrue, in either case such that the conditions set
forth in Section 7.3 would not be satisfied and would have a Material
Adverse Effect on Alliance (a "Terminating RESI Breach"); provided,
however, that if such Terminating RESI Breach is cured by RESI or the
Merger Subs as the case may be, within 60 calendar days after notice
thereof through the continuous exercise of its best efforts then, Alliance
may not terminate this Agreement under this Section 9.1(d).

9.2 EFFECT OF TERMINATION.

(a) If this Agreement is validly terminated pursuant to Section 9.1
hereof, this Agreement will terminate and no Party hereto will have any
liability to the other Parties hereto except that any such termination
shall be without prejudice to any claim which either Party may have against
the other for breach of this Agreement (or any representations, warranty,
covenant, or agreement included herein).

(b) All reasonable out-of-pocket expenses incurred in connection with
this Agreement and the transactions contemplated hereby by a nonbreaching
Party who terminates this Agreement pursuant to Section 9.1 hereof will be
reimbursed promptly by the breaching Party.

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ARTICLE X

GENERAL PROVISIONS

10.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage prepaid), guaranteed overnight delivery,
or facsimile transmission if such transmission is confirmed by delivery by
certified or registered mail (first class postage pre-paid) or guaranteed
overnight delivery, to the following addresses and telecopy numbers (or to such
other addresses or telecopy numbers which such Party shall designate in writing
to the other Party):

(a) if to RESI or the Merger Subs to:

Republic Environmental Systems, Inc.
16 Sentry Park West
1787 Sentry Parkway West, Suite 400
Blue Bell, Pennsylvania 19422
Attn: Douglas R. Gowland
Telecopy: (215) 283-4809

with a copy to:

Akin, Gump, Strauss, Hauer & Feld, LLP
1900 Pennzoil Place -- South Tower
711 Louisiana Street
Houston, Texas 77002
Attn: Rick L. Burdick, Esq.
Telecopy: (713) 236-0822

MGD Holdings Ltd.
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton HM EX Bermuda
Attn: Michael G. DeGroote
Telecopy: (441) 292-9485

(b) if to Alliance or the Alliance Companies to:

10055 Sweet Valley Drive
Valley View, Ohio 44125
Attn: Joseph E. LoConti
Telecopy: (216) 447-9137

with a copy to:

Anne L. Meyers & Associates Co., L.P.A.
2 Summit Park Drive, Suite 150
Independence, Ohio 44131-2553
Attn: Anne L. Meyers, Esq.
Telecopy: (216) 520-4350

10.2 SURVIVAL. Notwithstanding any knowledge of facts determined or
determinable by any party by investigation, each Party shall have the right to
fully rely on the representations, warranties, covenants and agreements of the
other Parties contained in this Agreement or in any other documents or papers
delivered in connection herewith. Each representation, warranty, covenant and
agreement of the Parties contained in this Agreement is independent of each
other representation, warranty, covenant and agreement.

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10.3 REMEDIES.

(a) Each Party acknowledges that the other Parties would not have an
adequate remedy at law for money damages in the event that any of the
covenants or agreements in this Agreement of such Party was not performed
in accordance with its terms, and it is therefore agreed that each Party in
addition to and without limiting any other remedy or right any Party may
have, shall have the right to an injunction or other equitable relief in
any court of competent jurisdiction, enjoining any such breach and
enforcing specifically the terms and provisions hereof, and each Party
hereby waives any and all defenses it may have on the ground of lack of
jurisdiction or competence of the court to grant such an injunction or
other equitable relief.

(b) All rights, powers and remedies under this Agreement or otherwise
available in respect hereof at law or in equity shall be cumulative and not
alternative, and the exercise or beginning of the exercise of any thereof
by any Party shall not preclude the simultaneous or later exercise of any
other such right, power or remedy by any Party.

10.4 ENTIRE AGREEMENT. This Agreement (including the exhibits and schedules
attached hereto) and other documents delivered at the Closing pursuant hereto,
contain the entire understanding of the Parties in respect of this Agreement's
subject matter and supersede all prior agreements and understandings between or
among the Parties with respect to such subject matter. The exhibits and
schedules constitute a part hereof as though set forth in full above.

10.5 EXPENSES. Except as otherwise provided herein, the Parties shall pay
their own fees, costs, and expenses incurred in connection with this Agreement
and all investigations and proceedings in connection therewith, including
without limitation, fees and expenses of their respective counsel, accountants
and investment advisors; provided, however, it is agreed that RESI shall bear
all filing fees, costs and expenses in connection with obtaining any consents or
approvals under the HSR Act and the Alliance Companies and the Alliance
Companies' Subsidiaries shall pay up to $150,000 of fees, costs and expenses
incurred by Alliance in connection with this Agreement.

10.6 AMENDMENT; WAIVER. This Agreement may not be modified, amended,
supplemented, canceled or discharged, except by written instrument executed by
all of the Parties. No failure to exercise, and no delay in exercising, any
right, power or privilege under this Agreement shall operate as a waiver, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude the exercise of any other right, power or privilege. No waiver of any
breach of any provision shall be deemed to be a waiver of any preceding or
succeeding breach of the same or any other provisions, nor shall any waiver be
implied from any course of dealing between the Parties. No extension of time for
performance of any obligations or other acts hereunder or under any other
agreement shall be deemed to be an extension of the time for performance of any
other obligations or any other acts. The rights and remedies of the Parties
under this Agreement are in addition to all other rights and remedies, at law or
equity, that they may have against each other.

10.7 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the Parties and their
respective successors and legal assigns. Except as expressly provided herein,
the rights and obligations of this Agreement may not be assigned by any Party
without the prior written consent of the other Party.

10.8 COUNTERPARTS. This Agreement be executed in any number of
counterparts, each of which shall be an original but all of which tougher shall
constitute one and the same instrument.

10.9 HEADINGS. The headings contained in this Agreement are for convenience
of reference only and are not to be given any legal effect and shall not affect
the meaning or interpretation of this Agreement.

10.10 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED FOR ALL PURPOSES BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS EXECUTED AND TO BE PERFORMED THEREIN.

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10.11 SEVERABILITY. The Parties stipulate that the terms and provisions of
this Agreement are fair and reasonable as of the date of this Agreement.
However, if any provision of this Agreement shall be determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated. Moreover, if any of such provisions shall for any reason be
determined by a court of competent jurisdiction to be unenforceable because it
is deemed to be excessively broad or vague as to duration, geographical scope,
activity or subject, such provision shall be construed by limiting, reducing or
defining it, so as to be unenforceable.

[The remainder of this page is intentionally left blank.]

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IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be duly
executed and delivered this 10th day of June, 1996.

REPUBLIC ENVIRONMENTAL SYSTEMS, INC.

By: /s/ MICHAEL G. DEGROOTE
---------------------------------
Name: Michael G. DeGroote
Title: President and Chief Executive
Officer

REPUBLIC/CSA ACQUISITION CORPORATION

By: /s/ DOUGLAS R. GOWLAND
---------------------------------
Name: Douglas R. Gowland
Title: President

REPUBLIC/CSU ACQUISITION CORPORATION

By: /s/ DOUGLAS R. GOWLAND
---------------------------------
Name: Douglas R. Gowland
Title: President

ALLIANCE HOLDING CORPORATION

By: /s/ JOSEPH E. LOCONTI

---------------------------------
Name: Joseph E. LoConti
Title : President

CENTURY SURETY COMPANY

By: /s/ CRAIG L. STOUT
---------------------------------
Name: Craig L. Stout
Title: Vice President

COMMERCIAL SURETY AGENCY, INC.

By: /s/ DANIEL J. NEEDHAM
---------------------------------
Name: Daniel J. Needham
Title: President

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APPENDIX II

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this "Agreement") is dated as of May 19,
1996 between H. Wayne Huizenga, a resident of the State of Florida ("Investor"),
and Republic Environmental Systems, Inc., a Delaware corporation ("RESI" and,
together with its successors and permitted assigns, the "Issuer"). Issuer and
Investor may hereinafter be referred to collectively as the "Parties" or
individually as a "Party."

RECITALS

Subject to the terms and conditions of this Agreement, Investor desires to
purchase, and Issuer desires to issue and sell to Investor, 2,000,000 shares of
Issuer's common stock, par value $.01 per share (the "Common Stock"), and
warrants to purchase an additional 6,000,000 shares of Common Stock.

TERMS OF AGREEMENT

In consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:

ARTICLE I

ISSUANCE AND PURCHASE OF COMMON STOCK AND WARRANTS

1.1 ISSUANCE AND PURCHASE OF COMMON STOCK AND WARRANTS. Subject to the
terms and conditions of this Agreement, Issuer will issue and sell to Investor
and Investor will purchase from Issuer for an aggregate purchase price of
$5,250,000 (the "Purchase Price") (i) 2,000,000 shares of Common Stock (the
"Shares") and (ii) warrants to purchase (a) 2,000,000 shares of Common Stock at
a purchase price of $2.625 per share, exercisable in whole or in part at any
time and from time to time from the Closing Date until 6:00 p.m. on the date two
years from the Closing Date (the "Series A Warrants"), (b) 2,000,000 shares of
Common Stock at a purchase price of $3.125 per share, exercisable in whole or in
part at any time and from time to time from the Closing Date until 6:00 p.m. on
the date three years from the Closing Date (the "Series B Warrants"), and (c)
2,000,000 shares of Common Stock at a purchase price of $3.875 per share,
exercisable in whole or in part at any time and from time to time from the
Closing Date until 6:00 p.m. on the date four years from the Closing Date (the
"Series C Warrants" and, together with the Series A Warrants and the Series B
Warrants, the "Warrants"), pursuant to the warrant certificates to be issued to
Investor in the form of Exhibits 1.1(A), 1.1(B) and 1.1(C), respectively (the
"Warrant Certificates").

1.2 LEGEND. Any certificate or certificates representing the Shares, the
Warrants and any Common Stock issued upon exercise of any Warrants (the "Warrant
Shares") and any certificates issued in respect of the foregoing shall bear the
following legend unless and until removal thereof is permitted pursuant to the
terms of this Agreement:

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED, SOLD OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER OR UNDER APPLICABLE STATE
SECURITIES LAWS.

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ARTICLE II

CLOSING

2.1 CLOSING. The closing of the transactions contemplated herein (the
"Closing") shall take place on the Closing Date at the offices of Alliance
Holding Corporation, 10055 Sweet Valley Drive, Valley View, Ohio 44125 or such
other place as the parties may agree. At the Closing, (a) Investor shall pay to
Issuer, by wire transfer of immediately available funds to an account designated
in writing by Issuer, the Purchase Price; (b) Issuer shall issue to Investor the
Shares, and deliver to Investor certificates for the Shares duly registered in
the name of Investor; (c) Issuer shall issue to Investor the Warrants and
deliver the Warrant Certificates to Investor; and (iv) all other agreements and
other documents referred to in this Agreement shall be executed and delivered
(to the extent not completed prior to the Closing Date).

2.2 TERMINATION.

(a) Events of Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, as follows:

(i) by written agreement of the Parties;

(ii) by Issuer or Investor if the transactions contemplated by this
Agreement have not been consummated on or before September 30, 1996;
provided, however, that the right to terminate this Agreement shall not
be available to a Party whose failure to fulfill any obligation under
this Agreement has been the cause, or resulted in, the failure of the
Effective Time to occur on or before such date;

(iii) by Issuer, upon a breach of any representation, warranty,
covenant or agreement on the part of Investor set forth in this
Agreement, or if any representation or warranty of Investor shall have
become untrue, in either case such that the conditions set forth in
Section 9.3 would not be satisfied by September 30, 1996 (a "Terminating
Investor Breach"); provided, however, that if such Terminating Investor
Breach is cured by Investor within 60 calendar days after notice thereof
through the continuous exercise of its best efforts, then Issuer may not
terminate this Agreement under this Section 2.2(a)(iii); or

(iv) by Investor, upon a breach of any representation, warranty,
covenant or agreement on the part of Issuer set forth in this Agreement,
or if any representation or warranty of Issuer shall have become untrue,
in either case such that the conditions set forth in Section 9.2 would
not be satisfied (a "Terminating Issuer Breach"); provided, however,
that if such Terminating Issuer Breach is cured by Issuer within 60
calendar days after notice thereof through the continuous exercise of
its best efforts, then Investor may not terminate this Agreement under
this Section 2.2(a)(iv).

(b) Effect of Termination.

(i) If this Agreement is validly terminated pursuant to Section
2.2(a) hereof, this Agreement will terminate and no Party hereto will
have any liability to the other Parties hereto except that any such
termination shall be without prejudice to any claim which either Party
may have against the other for breach of this Agreement (or any
representations, warranty, covenant, or agreement included herein).

(ii) All reasonable out-of-pocket expenses incurred in connection
with this Agreement and the transactions contemplated hereby by a
nonbreaching Party who terminates this Agreement pursuant to Section
2.2(a) hereof will be reimbursed promptly by the breaching Party.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF ISSUER

As a material inducement to Investor entering into this Agreement and
purchasing the Shares and Warrants, Issuer represents and warrants to Investor
as follows:

3.1 CORPORATE STATUS. Issuer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Issuer
has all requisite corporate power and authority to own or lease, as the case may
be, its properties and to carry on its business as now conducted. Issuer and its
Subsidiaries are qualified or licensed to conduct business in all jurisdictions
where its or their ownership or lease of property and the conduct of its or
their business requires such qualification or licensing, except to the extent
that failure to so qualify or be licensed would not have a Material Adverse
Effect on Issuer. There is no pending or threatened proceeding for the
dissolution, liquidation or insolvency of Issuer or any of its Subsidiaries.

3.2 CORPORATE POWER AND AUTHORITY. Issuer has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and consummate the transactions contemplated hereby. Issuer has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Agreement and the transactions contemplated hereby.

3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by
Issuer and constitutes a legal, valid and binding obligation of Issuer,
enforceable against Issuer in accordance with its terms, except as the same may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity.

3.4 NO VIOLATION. The execution and delivery by Issuer of this Agreement
and the Warrant Certificates, the consummation of the transactions contemplated
hereby or thereby, and the compliance by Issuer with the terms and provisions
hereof or thereof, will not (a) result in a violation or breach of, or
constitute, with or without due notice or lapse of time or both, a material
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any Contract to which
Issuer is a party or by which Issuer or any material portion of Issuer's
properties or assets may be bound, (b) violate any Requirement of Law applicable
to Issuer or any material portion of Issuer's properties or assets or (c) result
in the imposition of any Lien upon any of the properties or assets of Issuer;
except where any of the foregoing would not have a Material Adverse Affect on
Issuer.

3.5 CONSENTS/APPROVALS. No consent, approval, waiver or other action by any
Person under any Contract to which either Issuer or any of its Subsidiaries is a
party, or by which any of their respective properties or assets are bound, is
required or necessary for the execution, delivery or performance by Issuer of
this Agreement and the consummation of the transactions contemplated hereby,
except (a) as required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 as amended and the rules and regulations promulgated thereunder (the "HSR
Act"), (b) as required by the Securities Act, the Exchange Act and state
securities or "blue sky" laws, (c) as required by the Delaware General
Corporation Law (the "DGCL") and (d) where the failure to obtain such consents,
filings, authorizations, approvals or waivers or make such filings would not
prevent or delay the consummation of the transactions contemplated by this
Agreement or otherwise prevent Issuer from performing its obligations hereunder.

3.6 CAPITALIZATION. The authorized capital stock of Issuer consists of
20,000,000 shares of Common Stock. As of the date hereof, after giving effect to
the Stock Split, 10,809,638 shares of Common Stock are validly issued and
outstanding, fully paid and non-assessable. Except (a) for 493,800 shares of
Common Stock, after giving effect to the Stock Split, reserved for issuance
pursuant to certain options or warrants issued pursuant to Issuer's 1995 Stock
Option Plan, (b) as contemplated by this Agreement, the Merger Agreement and the
MGD Purchase Agreement (defined herein) and (c) in connection with the
distribution of Issuer's Common Stock to holders of Republic Waste Industries,
Inc. common stock in April 1995, there are (y) no rights, options, warrants,
convertible securities, subscription rights or other agreements, calls, plans,
contracts or commitments of any kind relating to the issued and unissued capital
stock of, or other equity interest in, Issuer outstanding or authorized and (z)
no contractual obligations of Issuer to repurchase, redeem or

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otherwise acquire any shares of Issuer Common Stock. Upon delivery to Investor
of the certificates for the Shares and the Warrant Certificates and payment of
the Purchase Price, Investor will acquire good, valid and marketable title to
and beneficial and record ownership of the Shares and the Warrants, and the
Shares will be validly issued, fully paid and non-assessable. Issuer has
reserved 6,000,000 shares of Common Stock for issuance upon exercise of the
Warrants and, upon exercise of the Warrants in accordance with this Agreement
and the Warrant Certificate (including, without limitation, payment in full of
the exercise price), the Warrant Shares will be validly issued, fully paid and
non-assessable.

3.7 SEC REPORTS AND NASDAQ COMPLIANCE. Since April 1995, Issuer has made
all filings (the "SEC Reports") required to be made by it under the Securities
Act and the Exchange Act. The SEC Reports, when filed, complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act and the securities laws, rules and regulations of any state and pursuant to
any Requirements of Law and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Issuer has delivered or made
accessible to Investors true, accurate and complete copies of the SEC Reports
which were filed with the SEC since January 1, 1996. Issuer has taken all
necessary actions to ensure its continued inclusion in, and the continued
eligibility of the Common Stock for trading on the Nasdaq National Market under
all currently effective and currently proposed inclusion requirements.

3.8 GOVERNING DOCUMENTS. Issuer has delivered or made available to Investor
true, accurate and complete copies of Issuer's Certificate of Incorporation and
Bylaws in effect as of the date hereof.

3.9 SUBSIDIARIES. Except as set forth on Exhibit 21.1 to Issuer's
Registration Statement on Form 10, File No. 0-25890, Issuer does not own,
directly or indirectly, any outstanding voting securities of or other interests
in, and does not control, any corporation, partnership, joint venture or other
business entity.

3.10 FINANCIAL STATEMENTS. Each of the balance sheets included in the SEC
Reports (including any related notes and schedules) fairly presents in all
material respects the consolidated financial position of Issuer and its
Subsidiaries as of its date, and each of the other financial statements included
in the SEC Reports (including any related notes and schedules) fairly presents
in all material respects the consolidated results of operations or other
information therein of Issuer and its Subsidiaries for the periods or as of the
dates therein set forth in accordance with GAAP consistently applied during the
periods involved (except that the interim reports are subject to normal
recording adjustments which might be required as a result of year-end audit and
except as otherwise stated therein).

3.11 MATERIAL CHANGES. Except as set forth in the SEC Reports or Schedule
3.11 hereto, since December 31, 1995, there has been no Material Adverse Change
in Issuer. Except as set forth in the SEC Reports or Schedule 3.11 hereto or as
otherwise contemplated herein, since December 31, 1995, (a) there has not been
(i) any direct or indirect redemption, purchase or other acquisition by Issuer
of any shares of the Common Stock or (ii) declaration, setting aside or payment
of any dividend or other distribution by Issuer with respect of the Common
Stock.

3.12 NO COMMISSIONS. Issuer has not incurred any obligation for any
finder's or broker's or agent's fees or commissions in connection with the sale
of the Shares and the Warrants.

3.13 INAPPLICABILITY OF SECTION 203 OF DGCL. The Board of Directors of
Issuer has approved the execution and delivery by Issuer of this Agreement and
the Warrant Certificate, and the consummation of the transactions contemplated
by this Agreement and the Warrant Certificate and the other transactions
contemplated hereby and thereby, and such approval is sufficient to render
inapplicable to Investor and/or any affiliates or associates (as those terms are
defined in Section 203 of the DGCL of Investor and/or all or any combination of
such persons the provisions of Section 203 of DGCL that restrict business
combinations (as defined in Section 203 of DGCL) between an interested
stockholder and Issuer.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF INVESTOR

As a material inducement to Issuer entering into this Agreement and issuing
the Shares and Warrants, Investor represents and warrants to Issuer as follows:

4.1 POWER AND AUTHORITY. Investor is an individual residing in the State of
Florida with competence and authority under applicable law to execute and
deliver, and to perform his obligations under, this Agreement and consummate the
transactions contemplated hereby, and has all necessary authority to execute,
deliver and perform this Agreement and the transactions contemplated hereby.

4.2 NO VIOLATION. The execution and delivery by Investor of this Agreement
and the consummation of the transactions contemplated hereby, and the compliance
by Investor with the terms and provisions hereof, will not (a) result in a
violation or breach of, or constitute, with or without due notice or lapse of
time or both, a material default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any Contract to which Investor is a party or by which Investor or any
material portion of Investor's properties or assets may be bound, (b) violate
any Requirement of Law applicable to Investor or any material portion of
Investor's properties or assets or (d) result in the imposition of any Lien upon
any of the properties or assets of Investor; except where any of the foregoing
would not have a Material Adverse Affect on Investor.

4.3 CONSENTS/APPROVALS. No consent, approval, waiver or other action by any
Person under any Contract to which Investor is a party, or by which any of
Investor's respective properties or assets are bound, is required or necessary
for the execution, delivery or performance by Investor of this Agreement and the
consummation of the transactions contemplated hereby, except (a) as required
under the HSR Act, (b) as required by the Securities Act, the Exchange Act and
state securities or "blue sky" laws, (c) as required by the DGCL and (d) where
the failure to obtain such consents, filings, authorizations, approvals or
waivers or make such flings would not prevent or delay the consummation of the
transactions contemplated by this Agreement or otherwise prevent Investor from
performing Investor's obligations hereunder or have a Material Adverse Effect on
Investor.

4.4 ENFORCEABILITY. This Agreement has been duly executed and delivered by
Investor and constitutes a legal, valid and binding obligation of Investor,
enforceable against Investor in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditor's rights generally and general equitable principles regardless of
whether enforceability is considered in a proceeding at law or in equity.

4.5 INVESTMENT INTENT. Investor is acquiring the Shares and Warrants
hereunder for Investor's own account and with no present intention of
distributing or selling the Shares or any interest in the Warrants or the
Warrant Shares in violation of the Securities Act or any applicable state
securities law. Investor agrees that Investor will not sell or otherwise dispose
of any of the Shares or any interest in the Warrants or Warrant Shares unless
such sale or other disposition has been registered or qualified (as applicable)
under the Securities Act and applicable state securities laws or, in the opinion
of Investors' counsel delivered to Issuer (which opinion shall be reasonably
satisfactory to Issuer) such sale or other disposition is exempt from such
registration or qualification (as applicable). Investor understands that the
sale of the Shares and Warrants acquired by Investor hereunder and any issuance
of Warrants Shares have not been registered under the Securities Act but are
issued through transactions exempt from the registration and prospectus delivery
requirements of Section 4(2) of the Securities Act, and that the reliance of
Issuer on such exemption from registration is predicated in part on these
representations and warranties of Investor. Investor acknowledges that pursuant
to Section 1.2 a restrictive legend consistent with the foregoing has been or
will be placed on the certificates representing the Shares, the Warrant
Certificates and on certificates representing any Warrant Shares until such
legend is permitted to be removed under appropriate law.

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hereunder. Investor acknowledges that no representations or warranties of any
type or description have been made to Investor by any Person with regard to
Issuer or any of its Subsidiaries, or any of their respective businesses,
properties or prospects or the investment contemplated herein, other than the
representations and warranties set forth in Article III hereof.

4.7 NO COMMISSIONS. Investor has not incurred any obligation for any
finder's or broker's or agent's fees or commissions in connection with the
purchase of the Shares and Warrants.

ARTICLE V

COVENANTS

5.1 FILINGS. Each of Investor and Issuer shall make on a prompt and timely
basis all governmental or regulatory notifications and filings required to be
made by it for the consummation of the transactions contemplated hereby.

5.2 PUBLIC ANNOUNCEMENTS. Except as required by law or the policies or
rules of the Nasdaq National Market, the form and content of all press releases
or other public communications of any sort relating to the subject matter of
this Agreement, and the method of their release, or publication thereof, shall
be subject to the prior approval of the parties hereto, which approval shall not
be unreasonably withheld or delayed.

5.3 FURTHER ASSURANCES. Each Party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.

5.4 COOPERATION. Each of Issuer and Investor agree to cooperate with the
other in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
Requirement of Law or the rules of the Nasdaq National Market in connection with
the transactions contemplated by this Agreement and to use their respective best
efforts to agree jointly on a method to overcome any objections by any
Governmental Authority to any such transactions. Except as may be specifically
required hereunder, neither of the Parties or their respective Affiliates shall
be required to agree to take any action that in the reasonable opinion of such
Party would result in or produce a Material Adverse Effect on such Party.

5.5 ACCESS TO INFORMATION. From the date hereof to the Effective Time,
Issuer shall, and shall cause its Subsidiaries and its and their directors,
officers, employees, auditors, counsel and agents to, afford Investor and his
employees, counsel and agents reasonable access at all reasonable times to its
properties, offices and other facilities, to its officers and employees and to
all books and records, and shall furnish such persons with all financial,
operating and other data and information as may be reasonably requested. No
information provided to, or obtained by, Investor shall affect any
representation or warranty in this Agreement although Investor agrees to give
notice to Issuer of any such information which would constitute a breach of its
respective representations and warranties hereunder. Investor agrees to maintain
the confidentiality of all such information which is non-public and agrees not
to disclose such information to any person other than its representatives and
advisors who agree to be bound by the terms of this Section 5.5 and to use
information only for purposes or evaluating the transactions contemplated
hereby; provided, however, such restriction shall not apply to any information
which (a) is in the public domain prior to the time of disclosure or thereafter
enters the public domain through no actions on the part of Investor or (b) is
obtained by Investor from a third party that is not known to Investor to be
subject to a confidentiality agreement with respect to such information.

5.6 NOTIFICATION OF CERTAIN MATTERS. Each Party shall give prompt notice to
the other Party of the occurrence, or non-occurrence, of any event which would
be likely to cause any representation or warranty herein to be untrue or
inaccurate, or any covenant, condition or agreement herein not to be complied
with or satisfied.

5.7 INFORMATION STATEMENT. As promptly as practicable after the execution
of this Agreement, Issuer shall prepare and file with the SEC, in compliance
with applicable laws and regulations, an information

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statement on Schedule 14C under the Exchange Act in connection with approving
the transactions contemplated hereby (the "Information Statement"), and shall
use its best efforts to have the Information Statement and/or any amendment or
supplement thereto approved by the SEC. Investor shall furnish all information
concerning itself to Issuer as Issuer may reasonably request in connection with
the preparation of the Information Statement. As promptly as practicable after
approval by the SEC, Issuer shall mail the Information Statement to its
stockholders.

5.8 WRITTEN CONSENT/STOCKHOLDER'S MEETING. In the event that this Agreement
and the transactions contemplated hereby have not been approved by the written
consent of RESI stockholders pursuant to the DGCL and its Certificate of
Incorporation and Bylaws on or before September 1, 1996, Issuer shall call and
hold a special meeting of its stockholders as promptly as practicable for the
purpose of voting upon the approval of this Agreement and the transactions
contemplated hereby. Issuer shall comply with all Requirements of Law applicable
to such meeting. Issuer shall use its best efforts to solicit from its
stockholders proxies in favor of approval of this Agreement and the transactions
contemplated hereby, and shall take all other action necessary or advisable to
obtain the vote or consent of stockholders required by the DGCL to obtain such
approvals, unless otherwise necessary due to the applicable fiduciary duties of
the directors of Issuer, as determined by such directors in good faith after
consultation with and based upon the advice of independent legal counsel (who
may be Issuer's regularly engaged independent legal counsel) and financial
advisors. In connection with the foregoing, Issuer shall cooperate and consult
with Investor.

5.9 HSR ACT AND OTHER ACTIONS. Each of the Parties shall (i) make promptly
its respective filings, and thereafter make any other required submissions under
the HSR Act with respect to the transactions contemplated hereby, and (ii) use
its reasonable best efforts to take, or cause to be taken, all appropriate
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated herein; including, without limitation, using its
reasonable best efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Authorities and
parties to contracts with Issuer and its Subsidiaries as are necessary for the
consummation of the transactions contemplated hereby. The Parties also agree to
use best efforts to defend all lawsuits or other legal proceedings challenging
this Agreement or the consummation of the transactions contemplated hereby and
to lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the Parties to consummate the transactions contemplated
hereby.

5.10 CONDUCT OF ISSUER'S BUSINESS PENDING THE CLOSING. Issuer covenants and
agrees that, between the date of this Agreement and the Closing, unless Investor
shall have consented in writing (such consent not to be unreasonably withheld),
(i) the businesses of each of Issuer and its Subsidiaries shall in all material
respects be conducted only in, and each of Issuer and its Subsidiaries shall not
take any material action except in, the ordinary course of business, consistent
with past practice and (ii) Issuer shall use its reasonable best efforts to
preserve intact its business organization, to keep available the services of its
and its Subsidiaries' current officers, employees and consultants and to
preserve its and its Subsidiaries' present relationships with customers,
suppliers and other Persons with which it or any of its Subsidiaries has
significant business relations. By way of amplification and not limitation,
except as contemplated by this Agreement, neither Issuer nor any of its
Subsidiaries shall, between the date of this Agreement and the Closing, directly
or indirectly do or propose or agree to do any of the following without the
prior written consent of Investor, which consent shall not unreasonably be
withheld:

(a) amend or otherwise change its Certificate of Incorporation or
Bylaws, or equivalent organizational documents;

(b) except pursuant to this Agreement, the Stock Purchase Agreement
dated as of the date hereof (the "MGD Purchase Agreement") between Issuer
and MGD Holding Ltd., a Bermuda corporation ("MGD"), and the Merger
Agreement (hereinafter defined), issue, sell, pledge, dispose of, grant,
encumber or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of any shares of capital stock or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock of, or any other ownership interest in, any of them;
provided, however, Issuer may, consistent with past practices, grant
options to its employees under existing employee benefit plans;

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(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;

(d) except pursuant to the Stock Split, reclassify, combine, split,
subdivide or redeem, purchase or otherwise acquire, directly or indirectly,
any of its capital stock;

(e) except pursuant to the Merger Agreement, (i) acquire, directly or
indirectly (including, without limitation, for cash or shares of stock), by
merger, consolidation, or acquisition of stock or assets any interest in
any corporation, partnership or other business organization or division
thereof or any assets, or make any investment (other than in the ordinary
course of business) either by purchase of stock or securities,
contributions of capital (other than to wholly-owned Subsidiaries) or
property transfer, or, except in the ordinary course of business, purchase
any property or assets of any other Person, (ii) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or endorse
or otherwise as an accommodation become responsible for, the obligations of
any person, or make any loans or advances, except in the ordinary course of
business and consistent with past practice, (iii) make any significant
capital expenditures, except in the ordinary course of business, (iv) sell,
pledge or otherwise dispose of or encumber any assets or the stock of any
Subsidiary except in the ordinary course of business consistent with past
practices or (v) enter into any contract or agreement other than in the
ordinary course of business;

(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in the ordinary course of
business consistent with past practices, or, except as presently bound to
do, grant any severance or termination pay to, or enter into any employment
or severance agreement with, any director, officer or other employee of it
or any of its Subsidiaries, or establish, adopt, enter into or amend in any
material respect or take any action to accelerate any rights or benefits
which any collective bargaining, bonus, profit sharing, trust,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;

(g) take any action other than in the ordinary course of business and
in a manner consistent with past practice with respect to accounting
policies or procedures;

(h) pay, discharge or satisfy any existing material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction
in the ordinary course of business and consistent with past practice or
liabilities reflected or reserved against in the consolidated financial
statements of Issuer and its Subsidiaries or incurred after the date hereof
in the ordinary course of business;

(i) agree, in writing or otherwise, to take any of the foregoing
actions or any action which would make any representation or warranty in
Article III untrue or incorrect in any material respect; or

(j) cause any modification or amendment to, or lapse of coverage
under, any of its insurance policies, except in the ordinary course of
business consistent with past practices.

5.11 STOCK SPLIT. The Parties hereby acknowledge that the Common Stock
share amounts and the exercise prices under the Warrants set forth herein have
been adjusted to give effect to the Stock Split. In the event the Stock Split is
not effected on or before the Closing Date, the Parties agree that the Common
Stock share amounts and the exercise prices under the Warrants set forth herein,
shall be readjusted as follows: (i) with the exception of the Common Stock Share
amounts relating to the number of authorized and outstanding shares of Common
Stock, all Common Stock share amounts shall be divided by two and (ii) all
exercises prices under the Warrants shall be multiplied by two.

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ARTICLE VI

DEFINITIONS

6.1 DEFINED TERMS. As used herein the following terms shall have the
following meanings:

"Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the
Exchange Act, as in effect on the date hereof.

"Agreement" means this Stock Purchase Agreement.

"Closing" has the meaning set forth in Section 2.1 of this Agreement.

"Closing Date" shall mean the tenth day following the satisfaction or
waiver of the conditions set forth in Article IX or such date as otherwise
agreed upon by the Parties.

"Common Stock" has the meaning set forth in the Recitals of this Agreement.

"Controlling Person" has the meaning set forth in Section 8.2 of this
Agreement. "DGCL" has the meaning set forth in Section 3.5 of this Agreement.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.

"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time as consistently applied throughout
the specified period and in the comparable period in the immediately preceding
year.

"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, and any entity or official exercising executive,
legislative, judicial, regulatory or administrative functions of, or pertaining
to, government.

"Holder" has the meaning set forth in Section 7.1 of this Agreement.

"HSR Act" has the meaning set forth in Section 3.5 of this Agreement.

"Huizenga" has the meaning set forth in the Preamble of this Agreement.

"Indemnified Party" has the meaning set forth in Section 8.3 of this
Agreement.

"Indemnifying Party" has the meaning set forth in Section 8.3 of this
Agreement.

"Information Statement" has the meaning set forth in Section 5.6 of this
Agreement.

"Investor" has the meaning set forth in the Preamble of this Agreement.

"Issuer" has the meaning set forth in the Preamble of this Agreement.

"Lien" means any mortgage, pledge, security interest, assessment,
encumbrance, lien, lease, sublease, adverse claim, levy, or charge of any kind,
or any conditional Contract, title retention Contract or other contract to give
or refrain from giving any of the foregoing.

"Material Adverse Change or "Material Adverse Effect" means, with respect
to any Person, any change or effect that is or is reasonably likely to be
materially adverse to the financial condition, business, prospects or results of
operations of such Person.

"Merger Agreement" has the meaning set forth in Section 9.2 of this
Agreement.

"MGD" has the meaning set forth in Section 5.10 of this Agreement.

"MGD Purchase Agreement" has the meaning set forth in Section 5.10 of this
Agreement.

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"Person" means any natural person, partnership, corporation, joint stock
company, estate, trust, unincorporated association, proprietorship, union,
association, arbitrator, board, bureau, instrumentality, self-regulatory
organization, joint venture, Governmental Authority or other entity, of whatever
nature.

"Purchase Price" has the meaning set forth in Section 1.1 of this
Agreement.

"Register", "registered" and "registration" refer to a registration of the
offering and sale of Common Stock effected by preparing and filing a
registration statement in compliance with the Securities Act and the declaration
or ordering of the effectiveness of such registration statement.

"Registrable Common Stock" shall mean and include (a) the Common Stock of
Issuer as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of Issuer, authorized on or after
the date hereof, the holders of which shall have the right either to all or a
share of the balance of current dividends and liquidating distributions after
the preference of any preferred stock, or the holders of which shall ordinarily,
in the absence of contingencies, be entitled to vote for the election of a
majority of directors of Issuer (even though the right so to vote has been
suspended by the happening of such a contingency) and (c) any other securities
into which or for which any of the securities described in (a) or (b) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.

"Registrable Securities" means (a) all Common Stock now or hereafter owned
by Investor or any other shares of Registrable Common Stock or other securities
issued in respect of such shares by way of a stock dividend or stock split or in
connection with a combination or subdivision of shares, recapitalization, merger
or consolidation or reorganization, and (b) any of the Shares or Warrant Shares,
and any other shares of Registrable Common Stock or other securities issued in
respect of the Shares or Warrant Shares by way of stock dividend or stock split
or in connection with any combination or subdivision of shares,
recapitalization, merger or consolidation or reorganization; provided, however,
as to any particular Registrable Securities, such Registrable Securities will
cease to be Registrable Securities when they have been sold pursuant to an
effective registration statement or in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale and the
purchaser and seller receive an opinion of counsel from the seller or the
purchaser, which opinion shall be in form and substance reasonably satisfactory
to the other party and Issuer and their respective counsel, to the effect that
such stock in the hands of the purchaser is freely transferable without
restriction or registration under the Securities Act in any public or private
transaction.

"Registration Expenses" has the meaning set forth in Section 7.3 of this
Agreement.

"Requirement of Law" means as to any Person, the articles of incorporation,
bylaws or other organizational or governing documents of such Person, and any
domestic or foreign and federal, state or local law, rule, regulation, statute
or ordinance or determination of any arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
properties or to which such Person or any of its property is subject.

"SEC" means the Securities and Exchange Commission.

"SEC Reports" has the meaning set forth in Section 3.7 of this Agreement.

"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

"Series A Warrants" has the meaning set forth in Section 1.1 of this
Agreement.

"Series B Warrants" has the meaning set forth in Section 1.1 of this
Agreement.

"Series C Warrants" has the meaning set forth in Section 1.1 of this
Agreement.

"Shares" has the meaning set forth in Section 1.1 of this Agreement.

"Shelf Registration Statement" has the meaning set forth in Section 7.2 of
this Agreement.

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"Stock Split" shall mean the two for one stock split to be effected on June
30, 1996 by means of a stock dividend of one share of Common Stock for each
share of Common Stock held of record on June 14, 1996.

"Subsidiary" means each of those Persons of which another person, directly
or indirectly owns beneficially securities having more than 50% of the voting
power in the election of directors (or persons fulfilling similar functions or
duties) of the owned Person (without giving effect to any contingent voting
rights).

"Terminating Investor Breach" has the meaning set forth in Section 2.2.

"Terminating Issuer Breach" has the meaning set forth in Section 2.2.

"Warrant Certificates" has the meaning set forth in Section 1.1 of this
Agreement.

"Warrant Shares" has the meaning set forth in Section 1.2 of this
Agreement.

"Warrants" has the meaning set forth in Section 1.1 of this Agreement.

6.2 OTHER DEFINITIONAL PROVISIONS.

(a) All references to "dollars" or "$" refer to currency of the United
States of America.

(b) Terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.

(c) All matters of an accounting nature in connection with this
Agreement and the transactions contemplated hereby shall be determined in
accordance with GAAP.

(d) As used herein, the neuter gender shall also denote the masculine
and feminine, and the masculine gender shall also denote the neuter and
feminine, where the context so permits.

(e) The words "hereof," "herein" and "hereunder," and words of similar
import, when used in this Agreement shall refer to this Agreement as a
whole (including any exhibits or schedules hereto) and not to any
particular provision of this Agreement.

ARTICLE VII

REGISTRATION RIGHTS

Investor shall have the following registration rights with respect to the
Registrable Securities owned by him:

7.1 TRANSFER OF REGISTRATION RIGHTS. Investor may assign the registration
rights with respect to the Shares and the Warrant Shares to any party or parties
to which he may from time to time transfer the Shares or Warrant Shares. Upon
assignment of any registration rights pursuant to this Section 7.1, Investor
shall deliver to Issuer a notice of such assignment which includes the identity
and address of any assignee (collectively, Investor and each such subsequent
holder is referred to as a "Holder").

7.2 REQUIRED REGISTRATION. As promptly as practicable after the Closing,
Issuer agrees to register all of the Shares and all of the Warrant Shares
pursuant to a registration statement on Form S-3 (the "Shelf Registration
Statement"). Issuer shall use its best efforts to cause the Shelf Registration
Statement to be declared effective as quickly as practicable and to maintain the
effectiveness of the Shelf Registration Statement until such time as Issuer
reasonably determines based on an opinion of counsel that the Holders will be
eligible to sell all of the Shares then owned by the Holders without the need
for continued registration of the Shares in the three-month period immediately
following the termination of the effectiveness of the Shelf Registration
Statement. Issuer's obligations contained in this Section 7.2 shall terminate on
the second anniversary of the earlier of (i) the expiration of the Series C
Warrants or (ii) the date on which all of the Warrants have been exercised.

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7.3 REGISTRATION PROCEDURES.

(a) In case of each registration, qualification or compliance effected
by Issuer subject to this Article VII, Issuer shall keep Holder advised in
writing as to the initiation of each such registration, qualification and
compliance and as to the completion thereof. In addition, Issuer shall at
its own expense:

(i) subject to this Section 7.3, before filing a registration or
prospectus or any amendment or supplements thereto, furnish to counsel
selected by Holder copies of all such documents proposed to be filed and
the portions of such documents provided in writing by Holder for use
therein, subject to such Holder's approval, and for which Holder shall
indemnify Issuer;

(ii) prepare and file with the SEC such amendments and supplements
to the Shelf Registration Statement as may be necessary to keep the
Shelf Registration Statement effective and comply with provisions of the
Securities Act with respect to the disposition of all securities covered
thereby during such period;

(iii) update, correct, amend and supplement the Shelf Registration
Statement as necessary;

(iv) if such offering is to be underwritten, in whole or in part,
enter into a written agreement in form and substance reasonably
satisfactory to the managing underwriter and the registering Holder;

(v) furnish to Holder such number of prospectuses, including
preliminary prospectuses, and other documents that are included in the
Shelf Registration Statement as Holder may reasonably request from time
to time;

(vi) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions of the United States as Holder may request to enable it to
consummate the disposition in such jurisdiction of the Registrable
Securities (provided that Issuer will not be required to (A) qualify
generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Article VII, or (B)
consent to general service of process in any such jurisdiction);

(vii) notify Holder, at any time when the prospectus included in
the Shelf Registration Statement relating to the Registrable Securities
is required to be delivered under the Securities Act, of the happening
of any event which would cause such prospectus to contain an untrue
statement of a material fact or omit any fact necessary to make the
statement therein in light of the circumstances under which they are
made not misleading and, at the request of Holder, prepare a supplement
or amendment to such prospectus, so that, as thereafter delivered to
purchasers of such shares, such prospectus will not contain any untrue
statements of a material fact or omit to state any fact necessary to
make the statements therein in light of the circumstances under which
they are made not misleading;

(viii) use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar
securities issued by Issuer are then listed and obtain all necessary
approvals from the NASD for trading thereon;

(ix) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of the Shelf
Registration Statement;

(x) upon the sale of any Registrable Securities pursuant to the
Shelf Registration Statement, remove all restrictive legends from all
certificates or other instruments evidencing such Registrable Securities
(to the extent permitted by the Securities Act);

(xi) furnish at the request of Holder, on the date that the
Registrable Securities are delivered to the underwriter for sale in
connection with a registration pursuant to this Section 7.3, if such
Registrable Securities are being sold through an underwriter, or if such
Registrable Securities are not being sold through an underwriter, on the
date that the Shelf Registration Statement becomes effective, an opinion
dated as of such date of the counsel representing Issuer for purposes of

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registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to such
underwriter, if any and to Holder; and

(xii) make available for inspection by Holder, any underwriter
participating in any disposition pursuant to such registration
statement, and any attorney, accountant or any other agent retained by
Holder or such underwriter, all financial and other records, pertinent
corporate documents and properties of Issuer, and cause Issuer's
officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, attorney, accountant or agent
in connection with the Shelf Registration.

(b) Except as required by law, all expenses incurred by Issuer in
complying with this Article VII, including but not limited to, all
registration, qualification and filing fees, printing expenses, fees and
disbursements of counsel and accountants for Issuer, blue sky fees and
expenses (including fees and disbursements of counsel related to all blue
sky matters) ("Registration Expenses") incurred in connection with any
registration, qualification or compliance pursuant this Article VII shall
be borne by Issuer. All underwriting discounts and selling commissions
applicable to a sale incurred in connection with any registration of
Registrable Securities and the legal fees of Holder shall be borne by
Holder.

7.4 FURTHER INFORMATION. If Registrable Securities owned by Holder are
included in any registration, such Holder shall use reasonable efforts to
cooperate with Issuer and shall furnish Issuer such information regarding itself
as Issuer may reasonably request and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.

ARTICLE VIII

INDEMNIFICATION

8.1 INDEMNIFICATION GENERALLY. Issuer, on the one hand, and Investor, on
the other hand (each an Indemnifying Party as defined below), shall indemnify
the other from and against any and all losses, damages, liabilities, claims,
charges, actions, proceedings, demands, judgments, settlement costs and expenses
of any nature whatsoever (including, without limitation, attorneys' fees and
expenses) or deficiencies resulting from any breach of a representation,
warranty or covenant by the Indemnifying Party and all claims, charges, actions
or proceedings incident to or arising out of the foregoing.

8.2 INDEMNIFICATION RELATING TO REGISTRATION RIGHTS.

(a) With respect to any registration, qualification or compliance
effected or to be effected pursuant to Article VII of this Agreement,
Issuer shall indemnify each Holder of Registrable Securities whose
securities are included or are to be included therein, each of such
Holder's directors and officers, each underwriter (as defined in the
Securities Act) of the securities sold by such Holder, and each Person who
controls (within the meaning of the Securities Act) any such Holder or
underwriter (a "Controlling Person") from and against all losses, damages,
liabilities, claims, charges, actions, proceedings, demands, judgments,
settlement costs and expenses of any nature whatsoever (including, without
limitation, attorneys' fees and expenses) or deficiencies of any such
Holder or any such underwriter or Controlling Person concerning:

(i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document (including any related registration statement, notification or
the like) incident to any such registration, qualification or
compliance;

(ii) any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statement
therein, in the light of the circumstances under which it was made, not
misleading; or

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in each case, relating to any action or inaction required of Issuer in
connection with any such registration, qualification or compliance, and
subject to Section 8.3 below will reimburse each such Person entitled to
indemnity under this Section 8.2 for all legal and other expenses
reasonably incurred in connection with investigating or defending any such
loss, damage, liability, claim, charge, action, proceeding, demand,
judgment, settlement or deficiency; provided, however, the foregoing
indemnity and reimbursement obligation shall not be applicable to the
extent that any such matter arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or alleged omission)
made in reliance upon and in conformity with written information furnished
to Issuer by or on behalf of such Holder specifically for use in such
prospectus, offering circular or other document.

(b) With respect to any registration, qualification or compliance
effected or to be effected pursuant to this Agreement, each Holder of
Registrable Securities whose securities are included or are to be included
therein, shall indemnify Issuer from and against all losses, damages,
liabilities, claims, charges, actions, proceedings, demands, judgments,
settlement costs and expenses of any nature whatsoever (including, without
limitation, attorneys' fees and expenses) or deficiencies of Issuer
concerning:

(iii) any violation by such Holder of the Securities Act or any
rule or regulation promulgated thereunder applicable to Issuer or such
Holder or of any blue sky or other state securities laws or any rule or
regulation promulgated thereunder applicable to Issuer or such Holder,

in each case, relating to any action or inaction required of such Holder in
connection with any such registration, qualification or compliance, and
subject to Section 8.3 below will reimburse Issuer for all legal and other
expenses reasonably incurred in connection with investigating or defending
any such loss, damage, liability, claim, charge, action, proceeding,
demand, judgment, settlement or deficiency; provided, however, the
foregoing indemnity and reimbursement obligation shall only be applicable
to the extent that any such matter arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or alleged omission)
made in reliance upon and in conformity with written information furnished
to Issuer by or on behalf of Holder specifically for use in such
prospectus, offering circular or other document; provided further, the
obligations of Holder hereunder shall be limited to an amount equal to the
proceeds to Holder of Registrable Securities sold as contemplated
hereunder.

8.3 INDEMNIFICATION PROCEDURES. Each Person entitled to indemnification
under this Section (an "Indemnified Party") shall give notice as promptly as
reasonably practicable to each party required to provide indemnification under
this Section (an "Indemnifying Party") of any action commenced against or by it
in respect of which indemnity may be sought hereunder, but failure to so notify
an Indemnifying Party shall not relieve such Indemnifying Party from any
liability that it may have otherwise than on account of this indemnity agreement
so long as such failure shall not have materially prejudiced the position of the
Indemnifying Party. Upon such notification, the Indemnifying Party shall assume
the defense of such action if it is a claim brought by a third party, and after
such assumption the Indemnifying Party shall not be entitled to reimbursement of
any expenses incurred by it in connection with such action except as described
below. In any such action, any Indemnified Party shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the contrary or (ii) the named
parties in any such action (including any impleaded parties) include both the
Indemnifying Party and the Indemnified Party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
or conflicting interests between them. The Indemnifying Party shall not be
liable for any settlement of any proceeding effected without its written consent
(which shall not be unreasonably withheld or delayed by such

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Indemnifying Party), but if settled with such consent or if there be final
judgment for the plaintiff, the Indemnifying Party shall indemnify the
Indemnified Party from and against any loss, damage or liability by reason of
such settlement or judgment.

ARTICLE IX

CONDITIONS TO CLOSING

9.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE CLOSING. The
respective obligations of each party to effect the Closing shall be subject to
the fulfillment of the following conditions any and all of which may be waived,
in whole or in part, to the extent permitted by applicable law:

(a) Shareholder Approval. This Agreement shall have been approved and
adopted by the vote of the holders of a majority of the voting power of the
shares of Common Stock of Issuer entitled to vote in accordance with the
Certificate of Incorporation and Bylaws of Issuer and the DGCL;

(b) No Order. No Governmental Authority or other agency or commission
or federal or state court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction, or other order (whether temporary,
preliminary or permanent) which is in effect and which materially
restricts, prevents or prohibits consummation of the Closing or any
transaction contemplated by this Agreement; provided, however, that each of
the Parties agree that it will use its best efforts to fulfill its
obligations under Section 5.9 and, in addition, each of the Parties will
use its reasonable best efforts to cause any such decree, judgment,
injunction or other order to be vacated or lifted; and

(c) HSR Act. Any waiting period (and any extension thereof) applicable
to the consummation of the Closing under the HSR Act shall have expired or
been terminated.

9.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF INVESTOR. The obligations
of Investor to proceed with the Closing is also subject to the following
conditions any and all of which may be waived, in whole or in part, to the
extent permitted by applicable law:

(a) Representations and Warranties. Each of the representations and
warranties of Issuer contained in this Agreement shall be true and correct
in all material respects as of the Closing Date as though made on and as of
the Closing Date, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct
as of such date. Investor shall have received a certificate of the chief
executive officer and chief financial officer of Issuer to such effect.

(b) Agreement and Covenants. Issuer shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Closing. Investor shall have received a certificate of the chief executive
officer and chief financial officer of Investor to such effect.

(c) Merger Agreement. The mergers contemplated by that certain
Agreement and Plan of Merger dated as of even date herewith among Issuer,
Republic/CSC Acquisition Corporation, Republic/CSU Acquisition Corporation,
Alliance Holding Corporation, Century Surety Company and Commercial Surety
Agency, Inc. (the "Merger Agreement") shall be closed contemporaneously
with the Closing of the transactions contemplated by this Agreement.

(d) MGD Holdings Ltd. Investment. The purchase of 2,000,000 shares of
the Common Stock by MGD from Issuer, together with certain warrants to
purchase up to 6,000,000 shares of Common Stock,

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pursuant to the MGD Purchase Agreement shall be closed contemporaneously
with the Closing of the transactions contemplated by this Agreement.

9.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ISSUER. The obligations of
Issuer to proceed with the Closing is also subject to the following conditions:

(a) Representations and Warranties. Each of the representations and
warranties of Investor contained in this Agreement shall be true and
correct in all material respects as of the Closing as though made on and as
of the Closing, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct
as of such date. Issuer shall have received a certificate of Investor to
such effect.

(b) Agreement and Covenants. Investor shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Closing. Issuer shall have received a certificate of Investor to such
effect.

ARTICLE X

MISCELLANEOUS

(a) if to Issuer to:

Republic Environmental Systems, Inc.
16 Sentry Park West
1787 Sentry Parkway West, Suite 400
Blue Bell, Pennsylvania 19422
Attention: Douglas R. Gowland
Telecopy: 215/283-4809

with a copy to:

Akin, Gump, Strauss, Hauer & Feld, LLP
1900 Pennzoil Place -- South Tower
711 Louisiana Street
Houston, Texas 77002
Attention: Rick L. Burdick, Esq.
Telecopy: (713) 236-0822

(b) if to Investor to:

H. Wayne Huizenga
c/o Huizenga Holdings, Inc.
200 South Andrews Avenue
Ft. Lauderdale, FL 33301
Attention: Richard C. Rochon
Telecopy: (305) 523-0801

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with a copy to:

Akerman, Senterfitt & Eidson, P.A.
One S.E. Third Avenue
Suite 2800
Miami, Florida 33131
Attention: Stephen K. Roddenberry, Esq.
Telecopy: (305) 374-5095

10.2 SURVIVAL. Notwithstanding any knowledge of facts determined or
determinable by Investor by investigation, Investor shall have the right to
fully rely on the representations, warranties, covenants and agreements of
Issuer contained in this Agreement or in any other documents or papers delivered
in connection herewith. Each representation, warranty, covenant and agreement of
the parties set forth in this Agreement is independent of each other
representation, warranty, covenant and agreement. Each representation and
warranty made by any party in this Agreement shall survive the Closing through
the period ending on the date two years from the Closing Date.

10.3 REMEDIES.

(a) Each of Investor and Issuer acknowledge that the other Party would
not have an adequate remedy at law for money damages in the event that any
of the covenants or agreements of such Party in this Agreement was not
performed in accordance with its terms, and it is therefore agreed that
each of Investor and Issuer in addition to and without limiting any other
remedy or right such Party may have, shall have the right to an injunction
or other equitable relief in any court of competent jurisdiction, enjoining
any such breach and enforcing specifically the terms and provisions hereof,
and each of Investor and Issuer hereby waive any and all defenses such
Party may have on the ground of lack of jurisdiction or competence of the
court to grant such an injunction or other equitable relief.

10.4 OTHER REGISTRATION RIGHTS. Issuer shall not grant to any third party
any registration rights more favorable than any of those contained herein, so
long as any of the registration rights under this Agreement remain in effect,
unless the Holders of Registrable Securities are granted rights to participate
together with any such third party in such registration rights.

10.5 ENTIRE AGREEMENT. This Agreement (including the exhibits and schedules
attached hereto) and other documents delivered at the Closing pursuant hereto,
contain the entire understanding of the Parties in respect of the subject matter
hereof and supersede all prior agreements and understandings between or among
the Parties with respect to such subject matter. The exhibits and schedules
hereto constitute a part hereof as though set forth in full above.

10.6 EXPENSES; TAXES. Except as otherwise provided in this Agreement, the
Parties shall pay their own fees and expenses, including their own counsel fees,
incurred in connection with this Agreement or any transaction contemplated
hereby. Any sales tax, stamp duty, deed transfer or other tax (except taxes
based on the income of Investor) arising out of the sale of the Shares and
Warrants by Issuer to Investor and issuance of Warrant Shares upon exercise of
the Warrants and consummation of the transactions contemplated by this Agreement
shall be paid by Issuer.

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dealing between the Parties. No extension of time for performance of any
obligations or other acts hereunder or under any other agreement shall be deemed
to be an extension of the time for performance of any other obligations or any
other acts. The rights and remedies of the Parties under this Agreement are in
addition to all other rights and remedies, at law or equity, that they may have
against each other.

10.8 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties hereto and their
respective successors and legal assigns. The rights and obligations of this
Agreement may not be assigned by any party without the prior written consent of
the other party.

10.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.

10.10 HEADING. The headings contained in this Agreement are for convenience
of reference only and are not to be given any legal effect and shall not affect
the meaning or interpretation of this Agreement.

10.11 GOVERNING LAW; INTERPRETATION. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED FOR ALL PURPOSES BY THE LAWS OF THE STATE OF
FLORIDA APPLICABLE TO CONTRACTS EXECUTED AND TO BE WHOLLY PERFORMED WITHIN SUCH
STATE.

10.12 SEVERABILITY. The parties stipulate that the terms and provisions of
this Agreement are fair and reasonable as of the date of this Agreement.
However, any provision of this Agreement shall be determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated. If, moreover, any of those provisions shall for any reason be
determined by a court of competent jurisdiction to be unenforceable because
excessively broad or vague as to duration, geographical scope, activity or
subject, it shall be construed by limiting, reducing or defining it, so as to be
enforceable.

IN WITNESS WHEREOF, the Parties have caused this Stock Purchase Agreement
to be duly executed and delivered this 10th day of June, 1996.

REPUBLIC ENVIRONMENTAL SYSTEMS, INC.

By: /s/ MICHAEL G. DEGROOTE
------------------------------------------
Name: Michael G. DeGroote
Title: President and Chief Executive Officer

/s/ H. WAYNE HUIZENGA
------------------------------------------
H. Wayne Huizenga

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APPENDIX III

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this "Agreement") is dated as of May 19,
1996 between MGD Holdings Ltd., a Bermuda corporation ("Investor"), and Republic
Environmental Systems, Inc., a Delaware corporation ("RESI" and, together with
its successors and permitted assigns, the "Issuer"). Issuer and Investor may
hereinafter be referred to collectively as the "Parties" or individually as a
"Party."

RECITALS

TERMS OF AGREEMENT

In consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:

ARTICLE I

ISSUANCE AND PURCHASE OF COMMON STOCK AND WARRANTS

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ARTICLE II

CLOSING

2.2 TERMINATION.

(a) Events of Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, as follows:

(i) by written agreement of the Parties;

(ii) by Issuer or Investor if the transactions contemplated by this
Agreement have not been consummated on or before September 30, 1996;
provided, however, that the right to terminate this Agreement shall not be
available to a Party whose failure to fulfill any obligation under this
Agreement has been the cause, or resulted in, the failure of the Effective
Time to occur on or before such date;

(iii) by Issuer, upon a breach of any representation, warranty,
covenant or agreement on the part of Investor set forth in this Agreement,
or if any representation or warranty of Investor shall have become untrue,
in either case such that the conditions set forth in Section 9.3 would not
be satisfied by September 30, 1996 (a "Terminating Investor Breach");
provided, however, that if such Terminating Investor Breach is cured by
Investor within 60 calendar days after notice thereof through the
continuous exercise of its best efforts, then Issuer may not terminate this
Agreement under this Section 2.2(a)(iii); or

(iv) by Investor, upon a breach of any representation, warranty,
covenant or agreement on the part of Issuer set forth in this Agreement, or
if any representation or warranty of Issuer shall have become untrue, in
either case such that the conditions set forth in Section 9.2 would not be
satisfied (a "Terminating Issuer Breach"); provided, however, that if such
Terminating Issuer Breach is cured by Issuer within 60 calendar days after
notice thereof through the continuous exercise of its best efforts, then
Investor may not terminate this Agreement under this Section 2.2(a)(iv).

(b) Effect of Termination.

(i) If this Agreement is validly terminated pursuant to Section 2.2(a)
hereof, this Agreement will terminate and no Party hereto will have any
liability to the other Parties hereto except that any such termination
shall be without prejudice to any claim which either Party may have against
the other for breach of this Agreement (or any representations, warranty,
covenant, or agreement included herein).

(ii) All reasonable out-of-pocket expenses incurred in connection with
this Agreement and the transactions contemplated hereby by a nonbreaching
Party who terminates this Agreement pursuant to Section 2.2(a) hereof will
be reimbursed promptly by the breaching Party.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF ISSUER

As a material inducement to Investor entering into this Agreement and
purchasing the Shares and Warrants, Issuer represents and warrants to Investor
as follows:

3.6 CAPITALIZATION. The authorized capital stock of Issuer consists of
20,000,000 shares of Common Stock. As of the date hereof, after giving effect to
the Stock Split, 10,809,638 shares of Common Stock are validly issued and
outstanding, fully paid and non-assessable. Except (a) for 493,800 shares of
Common Stock, after giving effect to the Stock Split, shares of Common Stock
reserved for issuance pursuant to certain options or warrants issued pursuant to
Issuer's 1995 Stock Option Plan, (b) as contemplated by this Agreement, the
Merger Agreement and the Huizenga Purchase Agreement (defined herein) and (c) in
connection with the distribution of Issuer's Common Stock to holders of Republic
Waste Industries, Inc. common stock in April 1995, there are (y) no rights,
options, warrants, convertible securities, subscription rights or other
agreements, calls, plans, contracts or commitments of any kind relating to the
issued and unissued capital stock of, or other equity interest in, Issuer
outstanding or authorized and (z) no contractual

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obligations of Issuer to repurchase, redeem or otherwise acquire any shares of
Issuer Common Stock. Upon delivery to Investor of the certificates for the
Shares and the Warrant Certificates and payment of the Purchase Price, Investor
will acquire good, valid and marketable title to and beneficial and record
ownership of the Shares and the Warrants, and the Shares will be validly issued,
fully paid and non-assessable. Issuer has reserved 6,000,000 shares of Common
Stock for issuance upon exercise of the Warrants and, upon exercise of the
Warrants in accordance with this Agreement and the Warrant Certificate
(including, without limitation, payment in full of the exercise price), the
Warrant Shares will be validly issued, fully paid and non-assessable.

3.7 NO COMMISSIONS. Issuer has not incurred any obligation for any finder's
or broker's or agent's fees or commissions in connection with the sale of the
Shares and the Warrants.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF INVESTOR

As a material inducement to Issuer entering into this Agreement and issuing
the Shares and Warrants, Investor represents and warrants to Issuer as follows:

4.1 CORPORATE STATUS. Investor is a corporation duly organized, validly
existing and in good standing under the laws of the Bermuda. Issuer has all
requisite corporate power and authority to under applicable law to execute and
deliver, and to perform its obligations under, this Agreement and to consummate
the transactions contemplated hereby, and has all necessary authority to
execute, deliver and perform this Agreement and the transactions contemplated
hereby. Investor has taken all necessary corporation action to authorize the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby.

4.3 CONSENTS/APPROVALS. No consent, approval, waiver or other action by any
Person under any Contract to which Investor is a party, or by which any of
Investor's respective properties or assets are bound, is required or necessary
for the execution, delivery or performance by Investor of this Agreement and the
consummation of the transactions contemplated hereby, except (a) as required
under the HSR Act and (b) where the failure to obtain such consents, filings,
authorizations, approvals or waivers or make such flings would not prevent or
delay the consummation of the transactions contemplated by this Agreement or
otherwise prevent Investor from performing Investor's obligations hereunder or
have a Material Adverse Effect on Investor.

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(which opinion shall be reasonably satisfactory to Issuer) such sale or other
disposition is exempt from such registration or qualification (as applicable).
Investor understands that the sale of the Shares and Warrants acquired by
Investor hereunder and any issuance of Warrants Shares have not been registered
under the Securities Act but are issued through transactions exempt from the
registration and prospectus delivery requirements of Section 4(2) of the
Securities Act, and that the reliance of Issuer on such exemption from
registration is predicated in part on these representations and warranties of
Investor. Investor acknowledges that pursuant to Section 1.2 a restrictive
legend consistent with the foregoing has been or will be placed on the
certificates representing the Shares, the Warrant Certificates and on
certificates representing any Warrant Shares until such legend is permitted to
be removed under appropriate law.

4.6 INVESTOR KNOWLEDGE. Investor is an accredited investor as such term is
defined in Rule 501 of the General Rules and Regulations under the Securities
Act, and has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the investment to be
made by him hereunder. Investor acknowledges that no representations or
warranties of any type or description have been made to Investor by any Person
with regard to Issuer or any of its Subsidiaries, or any of their respective
businesses, properties or prospects or the investment contemplated herein, other
than the representations and warranties set forth in Article III hereof.

4.7 NO COMMISSIONS. Investor has not incurred any obligation for any
finder's or broker's or agent's fees or commissions in connection with the
purchase of the Shares and Warrants.

ARTICLE V

COVENANTS

5.5 NOTIFICATION OF CERTAIN MATTERS. Each Party shall give prompt notice to
the other Party of the occurrence, or non-occurrence, of any event which would
be likely to cause any representation or warranty herein to be untrue or
inaccurate, or any covenant, condition or agreement herein not to be complied
with or satisfied.

5.6 INFORMATION STATEMENT. As promptly as practicable after the execution
of this Agreement, Issuer shall prepare and file with the SEC, in compliance
with applicable law and regulations, an information statement on Schedule 14C
under the Exchange Act in connection with approving the transactions
contemplated hereby (the "Information Statement"), and shall use its best
efforts to have the Information Statement and/or any amendment or supplement
thereto approved by the SEC. Investor shall furnish all

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information concerning itself to Issuer as Issuer may reasonably request in
connection with the preparation of the Information Statement. As promptly as
practicable after approval by the SEC, Issuer shall mail the Information
Statement to its stockholders.

5.7 HSR ACT AND OTHER ACTIONS. Each of the Parties shall (i) make promptly
its respective filings, and thereafter make any other required submissions under
the HSR Act with respect to the transactions contemplated hereby, and (ii) use
its reasonable best efforts to take, or cause to be taken, all appropriate
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated herein; including, without limitation, using its
reasonable best efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Authorities and
parties to contracts with Issuer and its Subsidiaries as are necessary for the
consummation of the transactions contemplated hereby. The Parties also agree to
use best efforts to defend all lawsuits or other legal proceedings challenging
this Agreement or the consummation of the transactions contemplated hereby and
to lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the Parties to consummate the transactions contemplated
hereby.

5.8 STOCK SPLIT. The Parties hereby acknowledge that the Common Stock share
amounts and the exercise prices under the Warrants set forth herein have been
adjusted to give effect to the Stock Split. In the event the Stock Split is not
effected on or before the Closing Date, the Parties agree that the Common Stock
share amounts and the exercise prices under the Warrants set forth herein, shall
be readjusted as follows: (i) with the exception of the Common Stock Share
amounts relating to the number of authorized and outstanding shares of Common
Stock, all Common Stock share amounts shall be divided by two and (ii) all
exercises prices under the Warrants shall be multiplied by two.

ARTICLE VI

DEFINITIONS

6.1 DEFINED TERMS. As used herein the following terms shall have the
following meanings:

"Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the
Exchange Act, as in effect on the date hereof.

"Agreement" means this Stock Purchase Agreement.

"Closing" has the meaning set forth in Section 2.1 of this Agreement.

"Closing Date" shall mean the tenth day following the satisfaction or
waiver of the conditions set forth in Article IX or such date as otherwise
agreed upon by the Parties.

"Common Stock" has the meaning set forth in the Recitals of this Agreement.

"Controlling Person" has the meaning set forth in Section 8.2 of this
Agreement.

"DGCL" has the meaning set forth in Section 3.5 of this Agreement.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.

"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, and any entity or official exercising executive,
legislative, judicial, regulatory or administrative functions of, or pertaining
to, government.

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"Holder" has the meaning set forth in Section 7.1 of this Agreement.

"HSR Act" has the meaning set forth in Section 3.5 of this Agreement.

"Huizenga" has the meaning set forth in Section 5.10 of this Agreement.

"Huizenga Purchase Agreement" has the meaning set forth in Section 5.10 of
this Agreement.

"Indemnified Party" has the meaning set forth in Section 8.3 of this
Agreement.

"Indemnifying Party" has the meaning set forth in Section 8.3 of this
Agreement.

"Information Statement" has the meaning set forth in Section 5.6 of this
Agreement.

"Investor" has the meaning set forth in the Preamble of this Agreement.

"Issuer" has the meaning set forth in the Preamble of this Agreement.

"Lien" means any mortgage, pledge, security interest, assessment,
encumbrance, lien, lease, sublease, adverse claim, levy, or charge of any kind,
or any conditional Contract, title retention Contract or other contract to give
or refrain from giving any of the foregoing.

"Material Adverse Change" or "Material Adverse Effect" means, with respect
to any Person, any change or effect that is or is reasonably likely to be
materially adverse to the financial condition, business, prospects or results of
operations of such Person.

"Merger Agreement" has the meaning set forth in Section 9.2 of this
Agreement.

"Purchase Price" has the meaning set forth in Section 1.1 of this
Agreement.

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in the hands of the purchaser is freely transferable without restriction or
registration under the Securities Act in any public or private transaction.