<PAGE>
                                                                    Exhibit 10.3


                                                                EXECUTION COPY

                          GENERAL SECURITY AGREEMENT

      This General Security Agreement dated February 4, 1997 is by and among
ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation, BLOCK 7932, INC.,
a New York corporation, G.V.D. LEASING CO., INC., a New York corporation, 180
JAMAICA CORP., a New York corporation, METRO AFFILIATES, INC., a New York
corporation, MIDWAY LEASING INC., a New York corporation, and TEMPORARY TRANSIT
SERVICE, INC., a New York corporation, (each individually a "Guarantor" and any
two or more collectively, "Guarantors") in favor of Congress Financial
Corporation, a California corporation ("Lender").

                              W I T N E S S E T H:

      WHEREAS, Lender has entered or is about to enter into certain financing
arrangements with AMBOY BUS CO., INC., a New York corporation, ATLANTIC-CONN.
TRANSIT, INC., a Connecticut corporation, ATLANTIC-HUDSON, INC., a New York
corporation, ATLANTIC PARATRANS, INC., a New York corporation, ATLANTIC
PARATRANS OF KENTUCKY INC., a Kentucky corporation, ATLANTIC EXPRESS COACHWAYS,
INC., a New Jersey corporation, ATLANTIC EXPRESS OF MISSOURI INC., a Missouri
corporation, ATLANTIC EXPRESS OF PENNSYLVANIA, INC., a Delaware corporation,
BROOKFIELD TRANSIT INC., a New York corporation, COURTESY BUS CO., INC., a New
York corporation, K. CORR, INC., a New York corporation, MERIT TRANSPORTATION
CORP., a New York corporation, METROPOLITAN ESCORT SERVICE, INC., a New York
corporation, RAYBERN BUS SERVICE, INC., a New York corporation, RAYBERN CAPITAL
CORP., a New York corporation, RAYBERN EQUITY CORP., a New York corporation, and
STATEN ISLAND BUS, INC., a New York corporation (each individually, a "Borrower"
and any two or more collectively, "Borrowers"), pursuant to which Lender may
make loans and provide other financial accommodations to one or more Borrowers;
and

      WHEREAS, each Guarantor has executed and delivered or is about to execute
and deliver to Lender its guarantee in favor of Lender pursuant to which such
Guarantor absolutely and unconditionally guarantees to Lender the payment and
performance of all now existing and hereafter arising obligations, liabilities
and indebtedness of Borrowers to Lender; and

      NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

SECTION 1. DEFINITIONS

      All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code of the State of New York shall have the meanings given
therein unless otherwise defined in this Agreement. All references to the plural
herein shall also mean the singular and to the singular shall also mean the
plural. All references to a Guarantor, a Borrower and Lender pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. An
Event of Default 

<PAGE>

shall exist or continue or be continuing until such Event of Default is waived
in accordance with Section 7.3. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:

      1.1 "Accounts" shall mean all present and future rights of a Guarantor to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.

      1.2 "AETG" shall mean Atlantic Express Transportation Group Inc., a New
York corporation.

      1.3 "Capital Stock" shall mean (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interest (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.

      1.4 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.

      1.5 "Environmental Laws" shall mean all federal, state, district, local
and foreign laws, rules, regulations, ordinances, and consent decrees relating
to health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect, applicable to a Borrower's or
Guarantor's business and facilities or the business and facilities of a
Subsidiary of a Borrower or Guarantor (in each case, whether or not such
business or facilities are owned by it), including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contamination,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes into
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals, or
hazardous, toxic or dangerous substances, materials or wastes.

      1.6 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.

      1.7 "ERISA Affiliate" shall mean any person required to be aggregated with
Parent or any Borrower, Guarantor or any of their Subsidiaries under Sections
414(b), 414(c), 414(m) or 414(o) of the Code.

      1.8 "Event of Default" shall have the meaning set forth in Section 6.1
hereof.

      1.9 "Financing Agreements" shall mean, collectively, the Loan Agreement,
this Agreement and all notes, guarantees, security agreements and other
agreements, documents and instruments now or at any time hereafter executed
and/or delivered by any Borrower, any Guarantor or any Obligor in connection
with the Loan Agreement, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.


                                      -2-
<PAGE>

      1.10 "Guarantors' Representative" shall mean Parent.

      1.11 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied.

      1.12 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including, without
limitation any that are or become classified as hazardous or toxic under any
Environmental Law).

      1.13 "Information Certificate" shall mean the Information Certificate of
each Guarantor collectively constituting Exhibit A hereto containing material
information with respect to each Guarantor, its business and assets provided by
or on behalf of such Guarantor to Lender in connection with the preparation of
this Agreement and the other Financing Agreements and the financing arrangements
provided for herein.

      1.14 "Inventory" shall mean all of a Guarantor's now owned and hereafter
existing or acquired inventory consisting of fuel and oil and other supplies
used or useful in such Guarantor's business and spare parts for vehicles,
wherever located.

      1.15 "Loan Agreement" shall mean the Loan and Security Agreement, dated
February 4, 1997, by and between the Borrowers, Parent and Lender, as the same
now exists and may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.

      1.16 "Obligations" shall mean any and all obligations, liabilities and
indebtedness of every kind, nature and description owing by any one or more
Guarantors to Lender and/or its affiliates, including principal, interest,
charges, fees, costs and expenses, however evidenced, whether as principal,
surety, endorser, guarantor or otherwise, whether arising under this Agreement
or otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of the Loan Agreement or this
Agreement or after the commencement of any case with respect to a Guarantor
under the United States Bankruptcy Code or any similar statute (including,
without limitation, the payment of interest and other amounts which would accrue
and become due but for the commencement of such case), whether direct or
indirect, absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, and however
acquired by Lender.

      1.17 "Obligor" shall mean any other guarantor, endorser, acceptor, surety
or other person liable on or with respect to the Obligations or who is the owner
of any property which is security for the Obligations, other than a Borrower.

      1.18 "Parent" shall mean Atlantic Express Transportation Corp., a New York
corporation.


                                      -3-
<PAGE>

      1.19 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as amended),
business trust, unincorporated association, joint stock corporation, trust,
joint venture or other entity or any government or any agency or instrumentality
or political subdivision thereof.

      1.20 "Records" shall mean all of a Guarantor's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to any of the Collateral or any
account debtor, together with the tapes, disks, diskettes and other data and
software storage media and devices, file cabinets or containers in or on which
the foregoing are stored (including any rights of a Guarantor with respect to
the foregoing maintained with or by any other person).

      1.21 "Subsidiary" shall mean with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other Subsidiaries
of such Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or one or more Subsidiaries of such Person (or any combination thereof);
provided, however, that for the purposes of this Agreement, Atlantic North shall
not be considered a Subsidiary of Parent except as otherwise expressly provided
herein.

      1.22 "Voting Stock" shall mean, with respect to any Person: (a) one or
more classes of the Capital Stock of such Person having general voting power to
elect at least a majority of the board of directors, managers, or trustees of
such Person (irrespective of whether or not at the time Capital Stock of any
other class or classes has or might have voting power by reason of the happening
of any contingency); and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.

SECTION 2. GRANT OF SECURITY INTEREST

      To secure payment and performance of all Obligations, each Guarantor
hereby grants to Lender a continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Lender as security, the
following property and interests in property, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):

      2.1 Accounts;

      2.2 subject to the last paragraph of this Section 2, all present and
future contract rights (including, without limitation, all rights under service
contracts pursuant to which any Guarantor renders its services to its customers,
which rights shall include any and all rights to all retainages which may arise
thereunder), general intangibles (including, but not limited to, tax and duty
refunds, registered and unregistered patents, trademarks, service marks,
copyrights, trade names, applications for the foregoing, trade secrets,
goodwill, processes, drawings, blueprints, customer lists, licenses, whether as
licensor or licensee, choses in action and other claims), chattel paper,
documents, instruments, letters of credit, bankers' acceptances and guaranties;



                                      -4-
<PAGE>

      2.3 all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of Guarantor now or hereafter held or
received by or in transit to Lender or its affiliates or at any other depository
or other institution from or for the account of Guarantor whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;

      2.4 Inventory;

      2.5 Records; and

      2.6 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and any claims against third parties for
loss or damage to or destruction of any or all of the foregoing.

In no event shall Lender's security interest in a contract or agreement of any
Guarantor be deemed to be a present assignment, transfer, conveyance, subletting
or other disposition (an "Assignment") of such contract or agreement to Lender
within the meaning of any provision in such contract or agreement prohibiting,
or requiring any consent or establishing any other conditions for, an Assignment
thereof by such Guarantor. Lender acknowledges that any sale, transfer or
assignment of any such contract or agreement upon the enforcement of Lender's
security interest therein would be subject to the terms of such contract or
agreement governing Assignment, except as otherwise provided in Section 9-318 of
the Uniform Commercial Code. Lender's security interest in each contract or
agreement of a Guarantor shall attach from the date hereof to all of the
following, whether now existing or hereafter arising or acquired: (i) all of
such Guarantor's Accounts and general intangibles for money due or to become due
arising under such contract or agreement; (ii) all proceeds paid or payable to
such Guarantor from any sale, transfer or assignment of such contract or
agreement and all rights to receive such proceeds; and (iii) all other rights
and interests of such Guarantor in, to and under such contract or agreement to
the fullest extent that attachment thereto would not be a violation of such
contract or agreement directly or indirectly entitling a party thereto (other
than any Borrower, Guarantor or Affiliate thereof) to a legally enforceable
right to terminate such contract or agreement.

SECTION 3. COLLATERAL COVENANTS

      3.1 Accounts Covenants.

            (a) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise. When no Event of Default has
occurred and is continuing, Lender shall give Borrowers' Representative at least
one Business Day's prior telephonic notice of any such verification.


                                      -5-
<PAGE>

            (b) Each Guarantor shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to such
Guarantor, all chattel paper and instruments which such Guarantor now owns or
may at any time acquire immediately upon such Guarantor's receipt thereof,
except as Lender may otherwise agree.

            (c) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing, (i) notify any or all account debtors that
the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all account debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are payable directly
and only to Lender and each Guarantor shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.

      3.2 Power of Attorney. Each Guarantor hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as such Guarantor's true
and lawful attorney-in-fact, and authorizes Lender, in such Guarantor's or
Lender's name, to: (a) at any time an Event of Default or event which with
notice or passage of time or both would constitute an Event of Default exists or
has occurred and is continuing (i) demand payment on Accounts or other
Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise,
(iii) exercise all of such Guarantor's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign such Guarantor's name on any
proof of claim in bankruptcy or other similar document against an account
debtor, (viii) notify the post office authorities to change the address for
delivery of such Guarantor's mail to an address designated by Lender, and open
and dispose of all mail addressed to such Guarantor, and (ix) do all acts and
things which are necessary, in Lender's determination, to fulfill such
Guarantor's obligations under this Agreement and the other Financing Agreements
and (b) at any time to (i) take control in any manner of any item of payment or
proceeds thereof, (ii) have access to any lockbox or postal box into which such
Guarantor's mail is deposited, (iii) endorse such Guarantor's name upon any
items of payment or proceeds thereof and deposit the same in the Lender's
account for application to the Obligations, (iv) endorse such Guarantor's name
upon any chattel paper, document, instrument, invoice, or similar document or
agreement relating to any Account or any goods pertaining thereto or any other
Collateral, and (v) sign such Guarantor's name on any verification of Accounts
and notices thereof to account debtors and (vi) execute in such Guarantor's name
and file any UCC financing statements or amendments thereto. Each Guarantor
hereby releases Lender and its officers, employees and designees from any
liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of
Lender's own gross negligence or wilful misconduct as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.



                                      -6-
<PAGE>

      3.3 Right to Cure. Lender may, at its option, (a) cure any default by a
Guarantor under any agreement with a third party or pay or bond on appeal any
judgment entered against a Guarantor, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge the
applicable Guarantor's account therefor, such amounts to be repayable by such
Guarantor on demand. Lender shall be under no obligation to effect such cure,
payment or bonding and shall not, by doing so, be deemed to have assumed any
obligation or liability of any Guarantor. Any payment made or other action taken
by Lender under this Section shall be without prejudice to any right to assert
an Event of Default hereunder and to proceed accordingly.

      3.4 Access to Premises. From time to time as requested by Lender, at the
cost and expense of each Guarantor, (a) Lender or its designee shall have
complete access to all of each Guarantor's premises during normal business hours
and after reasonable notice to such Guarantor, or at any time and without notice
to Guarantor if an Event of Default exists or has occurred and is continuing,
for the purposes of inspecting, verifying and auditing the Collateral and all of
any one or more Guarantor's books and records, including, without limitation,
the Records, and (b) each Guarantor shall promptly furnish to Lender such copies
of such books and records or extracts therefrom as Lender may request, and (c)
use during normal business hours such of such Guarantor's personnel, equipment,
supplies and premises as may be reasonably necessary for the foregoing and if an
Event of Default exists or has occurred and is continuing for the collection of
Accounts and realization of other Collateral.

SECTION 4. REPRESENTATIONS AND WARRANTIES

      Each Guarantor hereby represents and warrants to Lender the following
(which shall survive the execution and delivery of this Agreement):

      4.1 Corporate Existence, Power and Authority; Subsidiaries. Each Guarantor
and each Subsidiary of a Guarantor, is a corporation duly organized and in good
standing under the laws of its state of incorporation and is duly qualified as a
foreign corporation and in good standing in all states or other jurisdictions
where the nature and extent of the business transacted by it or the ownership of
assets makes such qualification necessary, except for those jurisdictions in
which the failure to so qualify would not have a material adverse effect on
Parent's, Atlantic North's, a Borrower's, such Guarantor's, or such
Subsidiary's, financial condition, results of operation or business or the
rights of Lender in or to any of the Collateral. The execution, delivery and
performance of this Agreement, the other Financing Agreements and the
transactions contemplated hereunder and thereunder are all within such
Guarantor's and each such Subsidiary's corporate powers, have been duly
authorized and are not in contravention of law or the terms of Guarantor's, and
each such Subsidiary's, certificate of incorporation, by-laws, or other
organizational documentation, or any indenture, agreement or undertaking to
which Parent, any Borrower, any Guarantor or any such Subsidiary is a party or
by which Parent, any Borrower, any Guarantor or any such Subsidiary or its
property are bound. This Agreement and the other Financing Agreements constitute
legal, valid and binding obligations of each Guarantor and each Subsidiary of a
Guarantor that is a party hereto or thereto, enforceable in accordance with
their respective terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
the enforcement of creditors rights generally, and by general principles of
equity (whether considered at law or in equity). No Guarantor has any
Subsidiaries except (a) as set forth on the Information Certificate or (b) any
Subsidiary which is created after the date hereof, which has been previously
disclosed to 


                                      -7-
<PAGE>

Lender in writing, and which either has become a Borrower under the Loan
Agreement, or has guaranteed the Obligations and has granted to Lender a first
priority security interest in all of its property of the type that would
constitute Collateral if such Subsidiary was a Borrower under the Loan
Agreement, pursuant to documentation in form and substance satisfactory to
Lender.

      4.2 Financial Statements; No Material Adverse Change. All financial
statements relating to the Guarantors and their respective Subsidiaries which
have been or may hereafter be delivered by a Borrower, a Guarantor or an Obligor
to Lender have been or will have been, when delivered, prepared in accordance
with GAAP and fairly present the financial condition and the results of
operation of the Persons covered thereby and their respective Subsidiaries as at
the dates and for the periods set forth therein. Except as disclosed in any
interim financial statements furnished by any Borrower, Guarantor or an Obligor
to Lender prior to the date of this Agreement, there has been no material
adverse change in the assets, liabilities, properties and condition, financial
or otherwise, of any Borrower, Guarantor or Obligor, since the date of the most
recent audited financial statements furnished by such Borrower, Guarantor or
Obligor to Lender prior to the date of this Agreement.

      4.3 Chief Executive Office; Collateral Locations. The chief executive
office of each Guarantor and each Guarantor's Records concerning Accounts are
located only at 7 North Street, Staten Island, New York 10302 and the only other
places of business of Guarantor and the only other locations of Collateral, if
any, are the addresses set forth in the Information Certificate, subject to the
right of a Guarantor to establish new locations in accordance with Section 5.1
below. The applicable Information Certificate correctly identifies any of such
locations which are not owned by a Guarantor or Obligor and sets forth the
owners and/or operators thereof and to the best of each Guarantor 's knowledge,
the holders of any mortgages on such locations.

      4.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 4.4
hereto and the other liens permitted under the Loan Agreement. Each Guarantor
and each Subsidiary of such Guarantor has good and marketable title to all of
its properties and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except those granted to Lender
and such others as are specifically listed in the Information Certificate.

      4.5 Tax Returns. Each Guarantor, and each Subsidiary of a Guarantor, has
filed, or caused to be filed, in a timely manner all tax returns, reports and
declarations which are required to have been filed by it (taking into account
all proper extensions). All information in such tax returns, reports and
declarations was complete and accurate in all material respects when they were
filed. Each Guarantor and each Subsidiary of a Guarantor has paid or caused to
be paid all taxes due and payable or claimed due and payable in any assessment
received by it, except (a) taxes the validity of which are being contested in
good faith by appropriate proceedings diligently pursued and available to such
Guarantor or such Subsidiary, (b) taxes accrued but not yet due and payable, (c)
taxes that are currently payable without penalty or interest and as to which no
lien has been filed or otherwise created, (d) [taxes remaining to be paid under
Chapter 11 plan], and (e) taxes where the failure to duly and timely pay has not
had and could not reasonably be expected to have a material adverse effect on
the Collateral or Lender's security interest therein, or Borrowers' and
Guarantors' ability to pay and perform the obligations, or the business, assets,
prospects, or condition (financial or otherwise) of Parent, Borrowers, and
Parent's other Subsidiaries, taken as a whole, and as to which no lien has been
filed or otherwise created. As to all such unpaid taxes, adequate reserves have
been set aside on the applicable Person's books. Adequate provision has been
made for the payment of all 


                                      -8-
<PAGE>

accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.

      4.6 Litigation. Except as set forth on the applicable Information
Certificate, there is no present investigation by any governmental agency
pending, or to the best of each Guarantor's knowledge threatened, against or
affecting AETG, Parent, any Borrower, any Guarantor or any other Subsidiary of
Parent, its assets or business and there is no action, suit, proceeding or claim
by any Person pending, or to the best of each Guarantor's knowledge threatened,
against AETG, Parent, or any Borrower or Guarantor or any other Subsidiary of
Parent, or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement or any other Financing Agreement, which if
adversely determined against AETG, Parent, or such Borrower, Guarantor or
Subsidiary would result in any material adverse change in the assets, business
or prospects of such Guarantor or Subsidiary or would impair the ability of such
Guarantor or such Subsidiary to perform its obligations hereunder or under any
of the other Financing Agreements to which it is a party or of Lender to enforce
any Obligations or realize upon any Collateral.

      4.7 Compliance with Other Agreements and Applicable Laws. None of
Guarantors and the Subsidiaries of any Guarantor is in default in any material
respect under, or in violation in any material respect of any of the terms of,
any agreement, contract, instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound, and each Guarantor and each
of the Subsidiaries of each Guarantor is in compliance in all material respects
with all applicable provisions of laws, rules, regulations, licenses, permits,
approvals and orders of any foreign, Federal, State or local governmental
authority.

      4.8 Employee Benefits.

            (a) Except with respect to a delinquency in filing reports with
respect to a 401(k) plan, neither any Guarantor nor any Subsidiary of a
Guarantor has engaged in any transaction in connection with which such Guarantor
or such Subsidiary or any of their ERISA Affiliates could be subject to either a
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code, including any accumulated funding deficiency described
in Section 4.8(c) hereof and any deficiency with respect to vested accrued
benefits described in Section 4.8(d) hereof.

      (b) No liability to the Pension Benefit Guaranty Corporation has been or
is expected by any Guarantor or any Subsidiary of a Guarantor to be incurred
with respect to any employee pension benefit plan of Parent, any Borrower, any
Guarantor or any Subsidiary of a Borrower or Guarantor or any of its ERISA
Affiliates. There has been no reportable event (within the meaning of Section
4043(c) of ERISA) or any other event or condition with respect to any employee
pension benefit plan of Parent, any Borrower, Guarantor or Subsidiary of a
Borrower or Guarantor or any of their ERISA Affiliates which presents a risk of
termination of any such plan by the Pension Benefit Guaranty Corporation.

      (c) Full payment has been made of all amounts which any Guarantor or any
Subsidiary of a Guarantor or any of their ERISA Affiliates is required under
Section 302 of ERISA and Section 412 of the Code to have paid under the terms of
each employee pension benefit plan as contributions to such plan as of the last
day of the most recent fiscal year of such plan ended prior to the date hereof,
and no accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, exists with respect to any
employee pension benefit plan, including any penalty or tax described in Section
4.8(a) hereof and any deficiency with respect to vested accrued benefits
described in Section 4.8(d) hereof.



                                      -9-
<PAGE>

            (d) The current value of all vested accrued benefits under all
employee pension benefit plans maintained by any Guarantor or any Subsidiary of
a Guarantor that are subject to Title IV of ERISA does not exceed the current
value of the assets of such plans allocable to such vested accrued benefits,
including any penalty or tax described in Section 4.8(a) hereof and any
accumulated funding deficiency described in Section 4.8(c) hereof. The terms
"current value" and "accrued benefit" have the meanings specified in ERISA.

            (e) Except for Amboy Bus Co., Inc., which is a party to a
"multiemployer plan" (as defined below) for members of Local 1181-1061 of the
Amalgamated Transit Union, none of any Guarantor or any Subsidiary of a
Guarantor or any of their ERISA Affiliates is or has ever been obligated to
contribute to any "multiemployer plan" (as such term is defined in Section
4001(a)(3) of ERISA) that is subject to Title IV of ERISA.

      4.9 Environmental Compliance.

            (a) Except as set forth on Schedule 4.9 hereto, none of the
Guarantors or any of their respective Subsidiaries has generated, used, stored,
treated, transported, manufactured, handled, produced or disposed of any
Hazardous Materials, on or off its premises (whether or not owned by it) in any
manner which at any time violates in any material respect any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and the operations of each such Guarantor and
Subsidiary complies in all material respects with all Environmental Laws and all
licenses, permits, certificates, approvals and similar authorizations
thereunder.

            (b) Except as set forth on Schedule 4.9 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of each Guarantor's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
any Guarantor or any Subsidiary of a Guarantor or the release, spill or
discharge, threatened or actual, of any Hazardous Material or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or any other environmental, health or safety
matter, which affects Parent, any Borrower, any Guarantor or any Subsidiary of a
Borrower or Guarantor or its business, operations or assets or any properties at
which Parent, such Borrower, such Guarantor or any such Subsidiary has
transported, stored or disposed of any Hazardous Materials.

            (c) None of the Guarantors or any of the Subsidiaries of any
Guarantor has any material liability (contingent or otherwise) in connection
with a release, spill or discharge, threatened or actual, of any Hazardous
Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.

            (d) Each Guarantor and each Subsidiary of the Guarantors has all
licenses, permits, certificates, approvals or similar authorizations required to
be obtained or filed in connection with the operations of such Guarantor or
Subsidiary under any Environmental Law and all of such licenses, permits,
certificates, approvals or similar authorizations are valid and in full force
and effect.

      4.10 Accuracy and Completeness of Information. All information furnished
by or on behalf of Parent or a Borrower or Guarantor or any of its Subsidiaries
in writing to Lender in connection with this Agreement or any of the other
Financing Agreements or any transaction contemplated hereby or thereby,
including, without limitation, all information on each Information 


                                      -10-
<PAGE>

Certificate, is true and correct in all material respects on the date as of
which such information is dated or certified and does not omit any material fact
necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of Parent, any
Borrower, any Guarantor or any Subsidiary of a Borrower or Guarantor, which has
not been fully and accurately disclosed to Lender in writing.

      4.11 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation under the Loan Agreement and shall be conclusively
presumed to have been relied on by Lender regardless of any investigation made
or information possessed by Lender. The representations and warranties set forth
herein shall be cumulative and in addition to any other representations or
warranties which Parent, any Borrower, any Guarantor or any Obligor shall now or
hereafter give, or cause to be given, to Lender.

SECTION 5. AFFIRMATIVE AND NEGATIVE COVENANTS

      5.1 New Collateral Locations. Any Guarantor may open any new location
within the continental United States provided such Guarantor (a) gives Lender
thirty (30) days prior written notice of the opening of any such new location
which (i) is in a jurisdiction in which such Guarantor does not already have a
place of business or operations or (ii) will be the chief executive office or
location of Records of such Guarantor and (b) executes and delivers, or causes
to be executed and delivered, to Lender such agreements, documents, and
instruments as Lender may deem reasonably necessary or desirable to protect its
interests in the Collateral at such location, including, without limitation, UCC
financing statements.

      5.2 Costs and Expenses. Each Guarantor shall jointly and severally pay to
Lender on demand all costs, expenses, filing fees and taxes paid or payable in
connection with the preparation, negotiation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of the
Obligations, Lender's rights in the Collateral, this Agreement, the other
Financing Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect hereof and
thereof, including, but not limited to: (a) all costs and expenses of filing or
recording (including Uniform Commercial Code financing statement filing taxes
and fees, documentary taxes, intangibles taxes and mortgage recording taxes and
fees, if applicable); (b) all title insurance and other insurance premiums,
appraisal fees and search fees; (c) costs and expenses of preserving and
protecting the Collateral; (d) costs and expenses paid or incurred in connection
with obtaining payment of the Obligations, enforcing the security interests and
liens of Lender, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Lender arising out
of the transactions contemplated hereby and thereby (including, without
limitation, preparations for and consultations concerning any such matters); and
(e) the fees and disbursements of counsel (including legal assistants) to Lender
in connection with any of the foregoing.

      5.3 Further Assurances. At the request of Lender at any time and from time
to time, each Guarantor shall, at its expense, at any time or times duly execute
and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such further
acts as may be necessary or proper to evidence, perfect, maintain and enforce


                                      -11-
<PAGE>

the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements. Where permitted by law, each Guarantor hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.

      5.4 Compliance with Loan Agreement. Each Guarantor acknowledges that (i)
the Loan Agreement contains provisions whereby the Borrowers and the Parent are
required to cause the Guarantors to comply with certain covenants and terms set
forth therein and (ii) it is familiar with all such covenants and terms. Each
Guarantor shall take or refrain from all actions and do or refrain from all
things as may be necessary, including, without limitation, full cooperation with
Parent and/or any Borrower, in order to assure compliance with all covenants and
terms set forth in Section 9 of the Loan Agreement and compliance with all other
covenants and terms set forth in the Loan Agreement which pertain to such
Guarantor, as fully as if such Guarantor had expressly and directly agreed to be
bound by such covenants and terms as a direct party and signatory to the Loan
Agreement.

SECTION 6.  EVENTS OF DEFAULT AND REMEDIES

      6.1 Events of Default. The occurrence or existence of any Event of Default
under the Loan Agreement is referred to herein individually as an "Event of
Default", and collectively as "Events of Default".

      6.2 Remedies.

            (a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by any Guarantor or any Obligor, except as such notice or consent
is expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by any Guarantor of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against any Guarantor or any Obligor to collect the
Obligations without prior recourse to the Collateral.

            (b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) or 10.1(h) of the Loan Agreement,
all Obligations shall automatically become immediately due and payable), (ii)
with or without judicial process or the aid or assistance of others, enter upon
any premises on or in which any of the Collateral may be located and take
possession of the Collateral or complete processing, manufacturing and repair of
all or any portion of the Collateral, (iii) require any Guarantor, at such
Guarantor's expense, to assemble and make available to Lender any part or all of
the Collateral at any place and time designated by Lender, (iv) collect,
foreclose, receive, appropriate, setoff and realize upon any and all Collateral,
(v) remove any or all of the Collateral from any premises on or in which the
same may be located for the purpose of effecting the sale, foreclosure or other
disposition thereof or for any other purpose, (vi) sell, lease, transfer,
assign, deliver or otherwise dispose of any and all Collateral (including,
without limitation, entering into contracts with respect thereto, public or
private 


                                      -12-
<PAGE>

sales at any exchange, broker's board, at any office of Lender or elsewhere) at
such prices or terms as Lender may deem reasonable, for cash, upon credit or for
future delivery, with the Lender having the right to purchase the whole or any
part of the Collateral at any such public sale, all of the foregoing being free
from any right or equity of redemption of any Guarantor, which right or equity
of redemption is hereby expressly waived and released by each Guarantor. If any
of the Collateral is sold or leased by Lender upon credit terms or for future
delivery, the Obligations shall not be reduced as a result thereof until payment
therefor is finally collected by Lender. If notice of disposition of Collateral
is required by law, five (5) Business Days prior notice by Lender to a Guarantor
designating the time and place of any public sale or the time after which any
private sale or other intended disposition of Collateral is to be made, shall be
deemed to be reasonable notice thereof and each Guarantor waives any other
notice. In the event Lender institutes an action to recover any Collateral or
seeks recovery of any Collateral by way of prejudgment remedy, each Guarantor
waives the posting of any bond which might otherwise be required.

            (c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Each Guarantor shall remain liable
to Lender for the payment of any deficiency with interest at the highest rate
provided for in the Loan Agreement and all costs and expenses of collection or
enforcement, including attorneys' fees and legal expenses.

SECTION 7. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW

      7.1 Governing Law: Choice of Forum; Service of Process; Jury Trial Waiver.

            (a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).

            (b) Each Guarantor irrevocably consents and submits to the
non-exclusive jurisdiction of the Supreme Court of the State of New York for New
York County and the United States District Court for the Southern District of
New York and waives any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected or related or incidental
to the dealings of any Guarantor and Lender in respect of this Agreement or the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agrees that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Lender
shall have the right to bring any action or proceeding against any Guarantor or
its property in the courts of any other jurisdiction which Lender deems
necessary or appropriate in order to realize on the Collateral or to otherwise
enforce its rights against any Guarantor or its property).

            (c) Each Guarantor hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested, directed to its address set forth on
the signature pages hereof and service so made shall be deemed be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon such Guarantor in any other manner provided
under the rules of any such courts. A copy of any service upon such Guarantor
shall be sent to Silverman, Collura & Chernis, 


                                      -13-
<PAGE>

P.C., 381 Park Avenue South, Suite 1601, New York, New York 10016, Attention:
Peter R. Silverman, Esq., but the delivery of such copy shall not be a condition
to the effectiveness of service on any Guarantor. Within thirty (30) days after
such service, such Guarantor shall appear in answer to such process, failing
which such Guarantor shall be deemed in default and judgment may be entered by
Lender against such Guarantor for the amount of the claim and other relief
requested.

            (d) EACH GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY
OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE DEALINGS OF ANY GUARANTOR AND LENDER IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH GUARANTOR HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY AND THAT SUCH GUARANTOR OR LENDER MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF SUCH GUARANTOR AND LENDER TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.

            (e) Lender shall not have any liability to any Guarantor (whether in
tort, contract, equity or otherwise) for losses suffered by such Guarantor in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or even
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender that the losses were
the result of acts or omissions consisting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement and the
other Financing Agreements.

      7.2 Waiver of Notices. Each Guarantor hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on any Guarantor which Lender may elect to give shall entitle such
Guarantor or any other Guarantor to any other or further notice or demand in the
same, similar or other circumstances.

      7.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.

      7.4 Waiver of Counterclaims. Each Guarantor waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any 


                                      -14-
<PAGE>

action or proceeding with respect to this Agreement, the Obligations, the
Collateral or any matter arising therefrom or relating hereto or thereto.

      7.5 Indemnification. Each Guarantor shall jointly and severally indemnify
and hold Lender, and its directors, agents, employees and counsel, harmless from
and against any and all losses, claims, damages, liabilities, costs or expenses
imposed on, incurred by or asserted against any of them in connection with any
litigation, investigation, claim or proceeding commenced or threatened related
to the negotiation, preparation, execution, delivery, enforcement, performance
or administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
fees and expenses of counsel (provided, that Guarantors shall not be liable for
such indemnification with respect to any loss that is determined by a final and
non-appealable judgment or court order binding on Lender to have resulted from
Lender's gross negligence or wilful misconduct). To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section may be
unenforceable because it violates any law or public policy, each Guarantor shall
pay the maximum portion which it is permitted to pay under applicable law to
Lender in satisfaction of indemnified matters under this Section. The foregoing
indemnity shall survive the payment of the Obligations, the termination of this
Agreement and the termination or non-renewal of the Loan Agreement. All of the
obligations under the foregoing indemnity shall be part of the Obligations and
secured by the Collateral.

SECTION 8. MISCELLANEOUS

      8.1 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at 1133 Avenue of the Americas, New York, New
York 10036 and to a Guarantor or to the Guarantors' Representative at its chief
executive office set forth below, or to such other address as such party may
designate by written notice to the others in accordance with this provision, and
(b) deemed to have been given or made: if delivered in person, immediately upon
delivery; if by telex, telegram or facsimile transmission, immediately upon
sending and upon confirmation of receipt; if by nationally recognized overnight
courier service with instructions to deliver the next business day, one (1)
business day after sending; and if by certified mail, return receipt requested,
five (5) days after mailing. A copy of any notice given to a Guarantor shall be
sent to Silverman, Collura & Chernis, P.C., 381 Park Avenue South, Suite 1601,
New York, New York 10016, Attention: Peter R. Silverman, Esq.

      8.2 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.

      8.3 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon each
Guarantor and its successors and assigns and inure to the benefit of and be
enforceable by Lender and its successors and assigns, except that no Guarantor
may assign its rights under this Agreement, the other Financing Agreements and
any other document referred to herein or therein without the prior written
consent of Lender.


                                      -15-
<PAGE>

      8.4 Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written.

      8.5 Guarantors' Representative. Each of the Guarantors hereby appoints the
Guarantors' Representative as its agent and representative for the purposes of
all communications and authorizations between such Guarantor and Lender under
this Agreement or any of the other Financing Agreements, including, without
limitation, giving notices to Lender and receiving notices from Lender and
giving any direction or instruction to Lender contemplated by this Agreement.
Each of the Guarantors hereby authorizes and directs Lender to act in accordance
with any and every authorization, request, notice, instruction, or direction
received on such Guarantor's behalf from the Guarantors' Representative, without
requiring Lender to confirm such Guarantor's authorization therefor, and each
Guarantor hereby releases Lender from and indemnifies Lender and holds Lender
harmless against any liability, claim, loss, damages, cost, or expense arising
from or relating in any way to Lender's acting upon such authorization, request,
notice, instruction, or direction. Notwithstanding the foregoing, Lender may
require a Guarantor to confirm such request, notice, instruction, or direction,
or to execute personally any agreement or instrument between such Guarantor and
Lender, whenever Lender in its sole discretion deems it necessary or desirable
to do so. The Guarantors' Representative agrees irrevocably to act as such, as
outlined above.



                      [THIS SPACE INTENTIONALLY LEFT BLANK]


                                      -16-
<PAGE>

            IN WITNESS WHEREOF, each Guarantor has caused these presents to be
duly executed as of the day and year first above written.

                                    GUARANTOR

                                    ATLANTIC EXPRESS TRANSPORTATION CORP.

                                    By:  /s/ Domenic Gatto
                                        ----------------------

                                    Title: President
                                           --------------------


                                    CHIEF EXECUTIVE OFFICE:

                                    7 North Street
                                    Staten Island, New York  10302


                                    GUARANTOR

                                    BLOCK 7932, INC.

                                    By:  /s/ Domenic Gatto
                                        ----------------------

                                    Title: President
                                           --------------------


                                    CHIEF EXECUTIVE OFFICE:

                                    7 North Street
                                    Staten Island, New York  10302


                                    GUARANTOR

                                    G.V.D. LEASING CO., INC.

                                    By:  /s/ Domenic Gatto
                                        ----------------------

                                    Title: President
                                           --------------------


                                    CHIEF EXECUTIVE OFFICE:

                                    7 North Street
                                    Staten Island, New York  10302


[General Security Agreement]

<PAGE>



                                    GUARANTOR

                                    180 JAMAICA CORP.

                                    By:  /s/ Domenic Gatto
                                        ----------------------

                                    Title: President
                                           --------------------


                                    CHIEF EXECUTIVE OFFICE:

                                    7 North Street
                                    Staten Island, New York  10302


                                    GUARANTOR

                                    METRO AFFILIATES, INC.

                                    By:  /s/ Domenic Gatto
                                        ----------------------

                                    Title: President
                                           --------------------


                                    CHIEF EXECUTIVE OFFICE:

                                    7 North Street
                                    Staten Island, New York  10302


                                    GUARANTOR

                                    MIDWAY LEASING, INC.

                                    By:  /s/ Domenic Gatto
                                        ----------------------

                                    Title: President
                                           --------------------


                                    CHIEF EXECUTIVE OFFICE:

                                    7 North Street
                                    Staten Island, New York  10302


[General Security Agreement]

<PAGE>


                                    GUARANTOR

                                    TEMPORARY TRANSIT SERVICE, INC.

                                    By:  /s/ Domenic Gatto
                                        ----------------------

                                    Title: President
                                           --------------------


                                    CHIEF EXECUTIVE OFFICE:

                                    7 North Street
                                    Staten Island, New York  10302


[General Security Agreement]