10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2004

Commission file number 000-13109

LAIDLAW INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of
incorporation or organization) 98-0390488
(I.R.S. Employer
Identification No.)

55 Shuman Boulevard, Suite 400
Naperville, Illinois, 60563
(Address of principal executive offices)

Registrant’s telephone number, including area code (630) 848-3000

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [   ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [   ] NO [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES [X] NO [   ]

     As of June 30, 2004, there were 103,806,110 shares of common stock, par value $0.01 per share, outstanding.

LAIDLAW INTERNATIONAL, INC.

	Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of May 31, 2004 (Unaudited) and August 31, 2003		2
Consolidated Statements of Operations for the Three Months and Nine Months Ended May 31, 2004 and 2003 (Unaudited)		4
Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Nine Months Ended May 31, 2004 and 2003 (Unaudited)		5
Consolidated Statements of Cash Flows for the Three Months and Nine Months Ended May 31, 2004 and 2003 (Unaudited)		6
Notes to Consolidated Financial Statements (Unaudited)		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		35
Item 4. Controls and Procedures		35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		36
Item 6. Exhibits and Reports on Form 8-K		37
SIGNATURES		38
Indemnification Agreement
Amendment No.1 to Loan and Security Agreement
Certifications
Certfications
Certification

1

PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

LAIDLAW INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

($ in millions)

	May 31,		August 31,
	2004		2003
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	161.3	$	100.3
Restricted cash and cash equivalents		74.3		39.4
Short-term deposits and marketable securities		10.3		42.0
Accounts receivable		720.3		569.8
Parts and supplies		51.5		50.2
Deferred income tax assets		75.3		86.2
Other current assets		54.2		60.1
Total current assets		1,147.2		948.0
Long-term investments		552.5		553.5
Property and equipment
Land		184.0		184.3
Buildings		161.4		151.1
Vehicles		1,339.8		1,228.4
Other		174.0		153.6
		1,859.2		1,717.4
Less: Accumulated depreciation		253.5		47.6
		1,605.7		1,669.8
Other assets
Goodwill		183.1		183.1
Contracts and customer relationships		205.3		216.9
Deferred income tax assets		177.8		203.2
Deferred charges and other assets		72.1		78.2
		638.3		681.4
Total assets	$	3,943.7	$	3,852.7

The accompanying notes are an integral part of these statements.

2

LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
($ in millions)

	May 31,			August 31,
	2004			2003
	(unaudited)
LIABILITIES
Current liabilities
Accounts payable	$	128.9		$	119.4
Accrued liabilities		518.8			506.0
Current portion of long-term debt		37.8			69.4
Total current liabilities		685.5			694.8
Long-term debt		1,121.5			1,145.1
Pension liability		226.7			225.7
Other long-term liabilities		557.8			496.8
Total liabilities		2,591.5			2,562.4
SHAREHOLDERS’ EQUITY
Common shares; $0.01 par value per share; issued and outstanding 103,806,110 (August 31, 2003 - 103,777,422)		1.0			1.0
Additional paid in capital		1,359.8			1,358.3
Common shares held in trust; 3,777,419 issued		(50.0	)		(50.0	)
Accumulated other comprehensive loss		(6.5	)		(9.1	)
Retained earnings (deficit)		47.9			(9.9	)
Total shareholders’ equity		1,352.2			1,290.3
Total liabilities and shareholders’ equity	$	3,943.7		$	3,852.7

The accompanying notes are an integral part of these statements.

3

LAIDLAW INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

($ in millions except per share amounts)
(unaudited)

				Predecessor						Predecessor
				Company						Company
	Three			Three			Nine			Nine
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	May 31,			May 31,			May 31,			May 31,
	2004			2003			2004			2003
Revenue	$	1,239.6		$	1,202.8		$	3,612.4		$	3,485.7
Compensation expense		706.5			691.3			2,070.6			2,001.1
Accident claims and professional liability expenses		78.1			71.4			245.2			241.4
Vehicle related costs		68.7			68.8			207.4			202.4
Occupancy costs		50.0			49.2			151.2			150.4
Fuel		50.1			46.4			139.8			133.4
Depreciation		70.1			76.8			215.3			228.4
Amortization		4.6			0.4			13.8			0.9
Other operating expenses		122.0			124.8			368.7			364.2
Operating income		89.5			73.7			200.4			163.5
Interest expense		(31.4	)		(6.6	)		(98.7	)		(19.6	)
Other expenses, net		(0.1	)		(3.4	)		(3.7	)		(20.0	)
Income before income taxes and cumulative effect of a change in accounting principle		58.0			63.7			98.0			123.9
Income tax expense		(23.4	)		(1.5	)		(40.2	)		(4.5	)
Income before cumulative effect of a change in accounting principle		34.6			62.2			57.8			119.4
Cumulative effect of a change in accounting principle		—			—			—			(2,205.4	)
Net income (loss)	$	34.6		$	62.2		$	57.8		$	(2,086.0	)
Basic earnings (loss) per share
Income before cumulative effect of a change in accounting principle	$	0.35		$	0.19		$	0.58		$	0.37
Cumulative effect of a change in accounting principle		—			—			—			(6.77	)
Net income (loss)	$	0.35		$	0.19		$	0.58		$	(6.40	)
Diluted earnings (loss) per share
Income before cumulative effect of a change in accounting principle	$	0.33		$	0.19			0.56		$	0.37
Cumulative effect of a change in accounting principle		—			—			—			(6.77	)
Net income (loss)	$	0.33		$	0.19		$	0.56		$	(6.40	)

The accompanying notes are an integral part of these statements.

4

LAIDLAW INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

($ in millions)
(unaudited)

				Predecessor					Predecessor
				Company					Company
	Three			Three		Nine			Nine
	Months			Months		Months			Months
	Ended			Ended		Ended			Ended
	May 31,			May 31,		May 31,			May 31,
	2004			2003		2004			2003
Net income (loss)	$	34.6		$	62.2	$	57.8		$	(2,086.0	)
Net change in unrealized gains (losses) on securities		(6.3	)		5.7		(1.5	)		9.2
Foreign currency translation adjustments		(6.8	)		29.7		4.1			46.2
Minimum pension liability adjustment		—			—		—			(176.4	)
Comprehensive income (loss)	$	21.5		$	97.6	$	60.4		$	(2,207.0	)

The accompanying notes are an integral part of these statements.

5

LAIDLAW INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)
(unaudited)

				Predecessor						Predecessor
				Company						Company
	Three			Three			Nine			Nine
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	May 31,			May 31,			May 31,			May 31,
	2004			2003			2004			2003
Operating activities
Net income (loss)	$	34.6		$	62.2		$	57.8		$	(2,086.0	)
Non-cash items included in net income (loss):
Cumulative effect of a change in accounting principle		—			—			—			2,205.4
Depreciation and amortization		74.7			77.2			229.1			229.3
Deferred income taxes		25.3			—			40.1			—
Other items		(0.8	)		(1.1	)		4.7			(8.1	)
Increase in claims liability and professional liability insurance accruals		12.7			7.4			47.2			56.1
Cash provided by (used in) financing other working capital items		36.6			20.1			(101.8	)		(133.8	)
Decrease in restricted cash and cash equivalents		3.5			33.9			4.1			0.9
Net cash provided by operating activities	$	186.6		$	199.7		$	281.2		$	263.8
Investing activities
Purchase of property, equipment and other assets, net of proceeds from sale	$	(45.7	)	$	(104.2	)	$	(150.8	)	$	(208.7	)
Expended on acquisitions		—			(1.4	)		(1.3	)		(4.6	)
Net increase in investments		(2.5	)		(3.0	)		(10.6	)		(37.3	)
Net cash used in investing activities	$	(48.2	)	$	(108.6	)	$	(162.7	)	$	(250.6	)
Financing activities
Net increase (decrease) in long-term debt	$	(71.8	)	$	21.2		$	(55.2	)	$	34.4
Net increase (decrease) in other long-term liabilities		1.6			(2.6	)		(2.3	)		(0.8	)
Net cash provided by (used in) financing activities	$	(70.2	)	$	18.6		$	(57.5	)	$	33.6
Net increase in cash and cash equivalents	$	68.2		$	109.7		$	61.0		$	46.8
Cash and cash equivalents – beginning of period*		93.1			280.6			100.3			343.5
Cash and cash equivalents – end of period*	$	161.3		$	390.3		$	161.3		$	390.3

*These amounts represent the unrestricted cash and cash equivalents

The accompanying notes are an integral part of these statements.

6

LAIDLAW INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTH PERIODS ENDED MAY 31, 2004

Note 1 – Corporate overview and basis of presentation

Corporate overview

Laidlaw International, Inc. (the “Company”) operates in five reportable business segments: education services, public transit services, Greyhound, healthcare transportation services and emergency management services. The education services segment provides school bus transportation, including scheduled home-to-school, extra-curricular and charter and transit school bus services, throughout the United States and Canada. The public transit services segment provides fixed-route municipal bus service and paratransit bus transportation for riders with disabilities. Greyhound, a national provider of inter-city bus transportation in the United States and Canada, provides scheduled passenger service, package delivery service, charter bus service and, in certain terminals, food service. The healthcare transportation service segment provides critical care transportation services, non-emergency ambulance and transfer services and emergency response services in the United States. The emergency management services segment provides outsourced emergency department physician services throughout the United States.

Basis of presentation

The accompanying interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim reporting and accordingly, do not include all of the disclosures required for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. All such adjustments are of a normal, recurring nature. Operating results for the three month and nine month periods ended May 31, 2004 are not necessarily indicative of the results that may be expected for the full year ending August 31, 2004. For further information, see the Company’s consolidated financial statements, including the accounting policies and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2003.

On June 1, 2003, the Company adopted fresh start accounting pursuant to the guidance provided by the American Institute of Certified Public Accountant’s Statement of Position 90-7 “Financial Reporting by Entities in Reorganization under the Bankruptcy Code.” In accordance with the principles of fresh start accounting, the Company adjusted its assets and liabilities to their estimated fair values as of June 1, 2003. Due to the changes in the financial structure of the Company following its emergence from bankruptcy in June 2003, and the application of fresh start accounting, the consolidated financial statements of the Company issued subsequent to May 31, 2003 are not comparable with the consolidated financial statements issued by the predecessor company (the “Predecessor Company”) prior to June 1, 2003. A black line has been drawn on the accompanying Consolidated Financial Statements to separate and distinguish between the Company and the Predecessor Company.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Note 2 – Accounts receivable and revenue

Trade accounts receivable as of May 31, 2004 are net of $596.9 million (August 31, 2003 — $527.9 million) of allowances for uncompensated care and contractual allowances in the Company’s Healthcare Transportation and Emergency Management business segments (the “Healthcare

7

Businesses”) and net of an allowance for doubtful accounts of $6.3 million (August 31, 2003 — $5.6 million) in the Company’s other three reportable segments.

Note 3 – Intangible assets

The contracts and customer relationships are net of $18.1 million of accumulated amortization at May 31, 2004 (August 31, 2003 — $4.5 million).

Included in deferred charges and other assets are radio frequency licenses totalling $12.0 million at May 31, 2004 (August 31, 2003 — $12.0 million). The licenses are considered to be assets with indefinite lives and as such, are not amortized.

Note 4 – Long-term debt and interest rate swap

In December 2003, the Company modified the terms of its $625.0 million loan maturing in June 2009 (the “Term B Facility”). The interest rate charged on the loan was reduced by 1.25%, to LIBOR plus 3.75% from LIBOR plus 5.0%. Additionally, the LIBOR floor or minimum LIBOR rate was reduced 0.25% to 1.75% from the previous floor of 2.0%. The Company also entered into an interest rate swap agreement (“Swap”) that effectively converted $110 million of Term B Facility floating rate debt to fixed rate debt with an interest rate of 6.8%. The Swap was entered into because the Company is required, under the Term B Facility, to have a fixed interest rate on a portion of the underlying debt. The Swap is considered a cash flow hedge and expires in September 2006.

In July 2004, Greyhound Lines, Inc. (“Greyhound Lines”) amended its revolving credit facility (the “Greyhound Facility”) to extend the maturity date two years to October 24, 2006, reset certain financial covenants, modify rates of interest on borrowings and letter of credit fees and provide for a prepayment premium should Greyhound Lines terminate the facility before October 24, 2006. Additionally, the amendment allows Greyhound Lines to elect to extend the maturity date an additional year, to October 24, 2007, provided that Greyhound Lines meets certain terms and conditions.

Under the amended Greyhound Facility, borrowings after the quarterly period ending September 30, 2004 are available at a rate, determined by reference to a leverage ratio calculated quarterly, equal to Wells Fargo Bank’s prime rate plus 0.375% to 2.25% or LIBOR plus 2.375% to 4.25%. Letter of credit fees are based upon the then applicable LIBOR margin. Prior to the quarterly period ending September, 30, 2004, borrowings remain available at a rate equal to Wells Fargo Bank’s prime rate plus 1.5% or LIBOR plus 3.5%, and letter of credit fees at 3.5% per annum. A 1% prepayment premium is payable should Greyhound Lines terminate the facility before October 25, 2005; if terminated between October 25, 2005 and October 23, 2006 the premium is 0.5%, and if after October 23, 2006 there is no premium.

Additionally, the amendment requires Greyhound Lines to maintain a minimum cash flow to interest expense ratio, maximum indebtedness to cash flow ratio and minimum cash flow at levels that are the same as, or more restrictive than, previous levels. The new covenant levels were set at 15% to 20% less than the levels projected in financial forecasts delivered to the agent by Greyhound Lines. As a result of the extension of the maturity date and recent business improvements that have allowed Greyhound Lines to meet its financial covenants, management believes that there is no longer a going concern risk in the near term. However, substantial needs for capital expenditures and debt service requirements in the future mandate that Greyhound Lines continue to significantly improve operations and financial results. Additionally, unforeseen events or changes in assumptions may occur and result in material differences between Greyhound Lines’ future financial results or forecasts and the current financial forecast, and those differences could result in management concluding in the future that Greyhound Lines may not be able to continue as a going concern based upon the new information.

8

Note 5 – Stock awards and options

Pursuant to the Company’s 2003 Equity and Performance Incentive Plan the Company issued stock based compensation to various employees and non-employee directors. These grants to employees represent the long-term incentive portion of the Company’s overall compensation plan for management. During the nine month period ended May 31, 2004, the Company recorded an expense of approximately $1.4 million related to these plans. The Company accounts for these grants pursuant to Statement of Financial Accounting Standards (“SFAS”) 123 “Accounting for Stock-Based Compensation”. A summary of stock based compensation issued during the current fiscal year is as follows:

Stock options - During the nine month period ended May 31, 2004, the Company issued 57,375 non-qualified stock options to non-employee directors with a strike price of $10.33 per share and 60,000 shares of non-qualified stock options to a key management employee at a strike price of $14.45. The grant prices were equal to the fair market value of the Company’s stock at the date of grant. The stock options have a ten-year life and vest ratably over three years.

Stock options and tandem stock appreciation rights - During the nine month period ended May 31, 2004, the Company issued 369,000 non-qualified stock options to key management employees with a strike price of between $13.00 and $14.60 per share, which was equal to the fair market value of the Company’s stock at the date of grant. The stock options have a ten-year life and vest ratably over three years. In tandem with the stock option grant each participant received a stock appreciation right that allows the participant to receive, upon exercise of the right, the difference between the option strike price and fair market value of the Company’s stock on the exercise date. The Company can choose whether to deliver Company common stock or cash to the participant upon exercise of the stock appreciation right. Any exercise of a tandem stock appreciation right will automatically cancel the underlying stock option and any exercise of the stock option will automatically cancel the tandem stock appreciation right.

Restricted Shares - On September 10, 2003, the Company issued 28,688 shares of restricted common stock to non-employee directors that vest at the end of a three-year period. During the vesting period the participant has the rights of a shareholder with respect to voting and dividend rights but is restricted from transferring the shares.

Deferred Shares - During the nine month period ended May 31, 2004, the Company issued 830,300 deferred shares to key management employees that vest ratably over a four-year period. Due to forfeitures, 817,550 deferred shares remain outstanding at May 31, 2004. On each vesting date the employee will receive common stock of the Company equal in number to the deferred shares that have vested. Upon delivery of the Company common stock an equal number of deferred shares are terminated. The participant has no voting rights with the deferred shares.

Note 6 – Pension plans

The Company, collectively with all of its wholly-owned U.S. subsidiaries, including Greyhound (the “Laidlaw Group”), is party to an agreement with the Pension Benefit Guaranty Corporation regarding the funding levels of the Company’s pension plans (the “PBGC Agreement”). Under the PBGC Agreement, 3.8 million shares of the Company’s common stock were issued to a trust formed for the benefit of the pension plans (the “Pension Plan Trust”). The trustee of the Pension Plan Trust is to sell the stock at the Company’s direction, but in no event later than the end of 2004, with all net proceeds from the stock sales being contributed directly to the pension plans. If the net proceeds from the stock sales exceed $50 million, the excess amount may be credited against any future required minimum funding obligations. If the net proceeds from the

9

stock sales are less than $50 million, the Laidlaw Group will be required to contribute the amount of the shortfall in cash to the pension plans at the end of 2004. Further, the Laidlaw Group must contribute an additional $50 million in cash to the pension plans by June 30, 2004. These contributions and transfers will be in addition to the minimum funding obligations to the pension plans, if any, required under current regulations.

At May 31, 2004, all 3.8 million shares of Laidlaw common stock remained in the Pension Plan Trust. Based upon the closing price of the Laidlaw stock on the New York Stock Exchange on June 30, 2004, the shares had an aggregate market value of $49.0 million.

In addition to the cash contributions to the pension plans pursuant to the PBGC Agreement described above, the Company expects to contribute $8 million to all plans other than the ATU Plan, for which there is no funding requirement in 2004. During the three months and nine months ended May 31, 2004, the Company contributed $2 million and $6 million, respectively, to the plans.

The components of net periodic benefit cost for the Company’s pension plans were as follows:

				Predecessor						Predecessor
				Company						Company
	Three			Three			Nine			Nine
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	May 31,			May 31,			May 31,			May 31,
($ in millions)	2004			2003			2004			2003
Components of net pension benefit cost
Service cost	$	1.4		$	1.6		$	4.2		$	4.8
Interest cost		13.6			13.8			40.8			41.5
Expected return on plan assets		(12.8	)		(12.5	)		(38.3	)		(37.5	)
Amortization		—			0.2			—			0.7
Net pension benefit cost	$	2.2		$	3.1		$	6.7		$	9.5

Note 7 — Material contingencies

Environmental matters

The Company’s operations are subject to numerous environmental laws, regulations and guidelines adopted by various governmental authorities in the jurisdictions in which the Company operates. Liabilities are recorded when environmental liabilities are either known or considered probable and can be reasonably estimated. On an ongoing basis, management assesses and evaluates environmental risk and, when necessary, conducts appropriate corrective measures. The Company provides for environmental liabilities using its best estimates. Actual environmental liabilities could differ significantly from these estimates.

Income tax matters

The respective tax authorities, in the normal course, audit previous tax filings. It is not possible at this time to predict the final outcome of these audits or to establish a reasonable estimate of possible additional taxes owing, if any.

Legal proceedings

The Company is a defendant in various lawsuits arising in the ordinary course of business, primarily cases involving personal injury and property damage claims and employment related claims. Based on the Company’s assessment of known claims and the historical claims payout pattern and discussion with internal and outside legal counsel and risk management personnel,

10

management believes at this time that there is no proceeding either threatened or pending against the Company relating to such claims arising out of the ordinary course of business that will have a materially adverse effect upon the Company’s consolidated financial position or results of operations. For additional information on the Company’s legal proceedings, refer to Item 1, Part II of this Form 10-Q.

Healthcare Businesses Issues

The Company is currently undergoing investigations by certain government agencies regarding compliance with Medicare fraud and abuse statutes. The Company is cooperating with the government agencies conducting these investigations and is providing requested information to the governmental agencies. Management believes at this time that the outcome of any of these investigations will not have a materially adverse effect upon the Company’s consolidated financial position or results of operations.

Contingent bonuses

The Company and two of its subsidiaries, American Medical Response, Inc. (“AMR”) and EmCare Holdings, Inc. (“EmCare”) are parties to an employment agreement effective October 1, 2002 with William A. Sanger under which Mr. Sanger serves as President and Chief Executive Officer of AMR and Chief Executive Officer of EmCare. Pursuant to the agreement, Mr. Sanger is entitled to a bonus payment upon a sale, or an initial public offering, of the stock of AMR and/or EmCare. This bonus is also payable if Mr. Sanger remains employed on October 1, 2007 and neither a sale nor initial public offering has occurred. With respect to AMR, the bonus is equal to 5% of the enterprise value of AMR in excess of $410 million at the time of the event that entitles Mr. Sanger to the payment. With respect to EmCare, the bonus is equal to 5% of the enterprise value of EmCare in excess of $125 million at the time of the event that entitles Mr. Sanger to the payment.

EmCare is party to an employment agreement effective April 1, 2003 with Don S. Harvey under which Mr. Harvey serves as President and Chief Operating Officer of EmCare. Pursuant to the agreement, Mr. Harvey is entitled to a bonus payment upon a sale, or an initial public offering, of the stock of EmCare provided Mr. Harvey remains employed under the agreement upon the occurrence of such event. The bonus is equal to 2% of the enterprise value of EmCare in excess of $125 million at the time of the event that entitles Mr. Harvey to the payment.

Note 8 — Cumulative effect of a change in accounting principle

Effective September 1, 2002, the Predecessor Company adopted SFAS 142 and, as a result, the Predecessor Company ceased to amortize goodwill. SFAS 142 requires that goodwill be reviewed for impairment upon adoption of SFAS 142 and at least annually thereafter. Under SFAS 142, goodwill impairment is deemed to exist if the carrying amount of a reporting unit exceeds its estimated fair value and the carrying amount of the goodwill exceeds its estimated fair value. To determine estimated fair value of the reporting units, the Predecessor Company utilized independent valuations of the underlying businesses.

During the three months ended November 30, 2002, the Predecessor Company completed the impairment assessment as required by SFAS 142 and determined that a significant portion of its goodwill was impaired as of September 1, 2002. As a result, the Predecessor Company recorded a non-cash charge of $2,205.4 million as a cumulative effect of a change in accounting principle.

11

Note 9 — Earnings per share

The basic earnings (loss) per share figures are calculated using the weighted average number of shares outstanding during the respective periods. The diluted earnings per share for the three and nine month periods ended May 31, 2004 assumes the sale on the open market of the Company’s common shares held in trust and the dilutive effect of the Company’s stock based compensation.

			Predecessor				Predecessor
			Company				Company
	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
(in millions except per share amounts)	May 31, 2004		May 31, 2003		May 31, 2004		May 31, 2003
Earnings before cumulative effect of a change in accounting principle	$	34.6	$	62.2	$	57.8	$	119.4
Cumulative effect of a change In accounting principle		—		—		—		(2,205.4	)
Net earnings (loss) available to common shareholders	$	34.6	$	62.2	$	57.8	$	(2,086.0	)
Weighted average number of common shares outstanding
Basic		100.0		325.9		100.0		325.9
Shares held in pension plan trust		3.8		—		3.8		—
Stock based compensation		0.1		—		0.1		—
Diluted		103.9		325.9		103.9		325.9
Net earnings (loss) per common share
Basic
Earnings before cumulative effect of a change in accounting principle	$	0.35	$	0.19	$	0.58	$	0.37
Cumulative effect of a change In accounting principle		—		—		—		(6.77	)
Net earnings (loss) available to common shareholders	$	0.35	$	0.19	$	0.58	$	(6.40	)
Diluted
Earnings before cumulative effect of a change in accounting principle	$	0.33	$	0.19	$	0.56	$	0.37
Cumulative effect of a change In accounting principle		—		—		—		(6.77	)
Net earnings (loss) available to common shareholders	$	0.33	$	0.19	$	0.56	$	(6.40	)

Options to purchase 429,000 shares of common stock were excluded from the computation of dilutive earnings per share for the three months and nine months ended May 31, 2004 because their effects were antidilutive.

12

Note 10 – Segmented information

The Company has five reportable segments: Education services, Public Transit services, Greyhound, Healthcare Transportation services and Emergency Management services. Revenues and EBITDA (operating income before depreciation and amortization) of the segments for the three and nine months ended May 31, 2004 and 2003 are as follows:

				Predecessor						Predecessor
				Company						Company
	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
($ in millions)	May 31, 2004			May 31, 2003			May 31, 2004			May 31, 2003
Education services
Revenue	$	459.7		$	457.9		$	1,310.2		$	1,314.8
EBITDA		120.8			116.1			306.0			302.0
Public Transit services
Revenue	$	78.7		$	72.8		$	223.3		$	212.1
EBITDA		1.5			5.6			(2.8	)		7.3
Greyhound
Revenue	$	299.7		$	291.4		$	881.1		$	847.5
EBITDA		15.6			3.4			38.3			5.8
Healthcare Transportation services
Revenue	$	265.6		$	259.8		$	790.0		$	759.3
EBITDA		22.1			18.6			63.5			55.8
Emergency Management services
Revenue	$	135.9		$	120.9		$	407.8		$	352.0
EBITDA		4.2			7.2			24.5			21.9
Consolidated Total
Revenue	$	1,239.6		$	1,202.8		$	3,612.4		$	3,485.7
EBITDA		164.2			150.9			429.5			392.8
Depreciation and amortization expense		(74.7	)		(77.2	)		(229.1	)		(229.3	)
Operating income		89.5			73.7			200.4			163.5
Interest expense		(31.4	)		(6.6	)		(98.7	)		(19.6	)
Other expenses, net		(0.1	)		(3.4	)		(3.7	)		(20.0	)
Income tax expense		(23.4	)		(1.5	)		(40.2	)		(4.5	)
Income before cumulative effect of a change in accounting principle	$	34.6		$	62.2		$	57.8		$	119.4

The Company’s goodwill balance of $183.1 million (August 31, 2003 - $183.1 million) is composed of goodwill from the Education services segment.

Total identifiable assets for each of the reportable segments has not changed materially since August 31, 2003.

13

Note 11 – Condensed financial statements of restricted subsidiaries

Pursuant to the terms of the Company’s $406.0 million Senior Notes, the Company is required to segregate the consolidated results of operations between the subsidiaries of the Company that are not a party to the agreement, which are comprised of the U.S. based businesses in the Greyhound segment (the “Unrestricted Subsidiaries”), and the Company and its remaining subsidiaries (the “Restricted Subsidiaries”).

Condensed Consolidated Statement of Operations
Three Months Ended May 31, 2004

	Restricted			Unrestricted			Consolidated
($ millions)	Subsidiaries			Subsidiaries			Totals
Revenue	$	997.3		$	242.3		$	1,239.6
Compensation expense		601.3			105.2			706.5
Accident claims and professional liability expenses		59.3			18.8			78.1
Vehicle related costs		35.5			33.2			68.7
Occupancy costs		30.4			19.6			50.0
Fuel		33.5			16.6			50.1
Depreciation		59.4			10.7			70.1
Amortization		4.5			0.1			4.6
Other operating expenses		85.4			36.6			122.0
Operating income		88.0			1.5			89.5
Interest expense		(22.9	)		(8.5	)		(31.4	)
Other income (expenses), net		(0.2	)		0.1			(0.1	)
Income (loss) before income taxes		64.9			(6.9	)		58.0
Income tax recovery (expense)		(26.0	)		2.6			(23.4	)
Net income (loss)	$	38.9		$	(4.3	)	$	34.6

Condensed Consolidated Statement of Operations
Nine Months Ended May 31, 2004

	Restricted			Unrestricted			Consolidated
($ millions)	Subsidiaries			Subsidiaries			Totals
Revenue	$	2,906.9		$	705.5		$	3,612.4
Compensation expense		1,760.9			309.7			2,070.6
Accident claims and professional liability expenses		190.7			54.5			245.2
Vehicle related costs		106.6			100.8			207.4
Occupancy costs		92.0			59.2			151.2
Fuel		95.1			44.7			139.8
Depreciation		183.5			31.8			215.3
Amortization		13.7			0.1			13.8
Other operating expenses		260.6			108.1			368.7
Operating income (loss)		203.8			(3.4	)		200.4
Interest expense		(74.6	)		(24.1	)		(98.7	)
Other expenses, net		(3.6	)		(0.1	)		(3.7	)
Income (loss) before income taxes		125.6			(27.6	)		98.0
Income tax recovery (expense)		(51.5	)		11.3			(40.2	)
Net income (loss)	$	74.1		$	(16.3	)	$	57.8

14

Predecessor Company
Condensed Consolidated Statement of Operations
Three Months Ended May 31, 2003

	Restricted			Unrestricted			Consolidated
($ millions)	Subsidiaries			Subsidiaries			Totals
Revenue	$	961.6		$	241.2		$	1,202.8
Compensation expense		577.2			114.1			691.3
Accident claims and professional liability expenses		50.5			20.9			71.4
Vehicle related costs		35.8			33.0			68.8
Occupancy costs		29.2			20.0			49.2
Fuel		30.7			15.7			46.4
Depreciation		64.7			12.1			76.8
Amortization		0.3			0.1			0.4
Other operating expenses		85.3			39.5			124.8
Operating income (loss)		87.9			(14.2	)		73.7
Interest expense		(1.1	)		(5.5	)		(6.6	)
Other income (expense), net		(3.9	)		0.5			(3.4	)
Income (loss) before income taxes		82.9			(19.2	)		63.7
Income tax expense		(1.1	)		(0.4	)		(1.5	)
Net income (loss)	$	81.8		$	(19.6	)	$	62.2

Predecessor Company
Condensed Consolidated Statement of Operations
Nine Months Ended May 31, 2003

	Restricted			Unrestricted			Consolidated
($ millions)	Subsidiaries			Subsidiaries			Totals
Revenue	$	2,786.2		$	699.5		$	3,485.7
Compensation expense		1,670.0			331.1			2,001.1
Accident claims and professional liability expenses		190.4			51.0			241.4
Vehicle related costs		103.8			98.6			202.4
Occupancy costs		91.3			59.1			150.4
Fuel		88.8			44.6			133.4
Depreciation		192.4			36.0			228.4
Amortization		0.8			0.1			0.9
Other operating expenses		250.0			114.2			364.2
Operating income (loss)		198.7			(35.2	)		163.5
Interest expense		(3.8	)		(15.8	)		(19.6	)
Other expense, net		(20.0	)		—			(20.0	)
Income (loss) before income taxes and cumulative effect of a change in accounting principle		174.9			(51.0	)		123.9
Income tax expense		(3.4	)		(1.1	)		(4.5	)
Income (loss) from operations before cumulative effect of a change in accounting principle	$	171.5		$	(52.1	)	$	119.4
Cumulative effect of a change in accounting principle		(1,775.9	)		(429.5	)		(2,205.4	)
Net loss	$	(1,604.4	)	$	(481.6	)	$	(2,086.0	)

15

Condensed Consolidated Statement of Cash Flows
Three Months Ended May 31, 2004

	Restricted			Unrestricted			Consolidated
($ millions)	Subsidiaries			Subsidiaries			Totals
Net cash provided by operating activities	$	171.4		$	15.2		$	186.6
Cash flows from investing activities:
Purchase of property, equipment and other assets, net of proceeds from sale	$	(40.6	)	$	(5.1	)	$	(45.7	)
Net (increase) decrease in investments		0.5			(3.0	)		(2.5	)
Net cash used in investing activities	$	(40.1	)	$	(8.1	)	$	(48.2	)
Cash flows from financing activities:
Net decrease in long-term debt	$	(70.7	)	$	(1.1	)	$	(71.8	)
Net increase in non-current liabilities		1.2			0.4			1.6
Net cash used in financing activities	$	(69.5	)	$	(0.7	)	$	(70.2	)
Net increase in cash and cash equivalents
Cash and cash equivalents at:	$	61.8		$	6.4		$	68.2
Beginning of period		73.8			19.3			93.1
End of period	$	135.6		$	25.7		$	161.3

Condensed Consolidated Statement of Cash Flows
Nine Months Ended May 31, 2004

	Restricted			Unrestricted			Consolidated
($ millions)	Subsidiaries			Subsidiaries			Totals
Net cash provided by operating activities	$	249.0		$	32.2		$	281.2
Cash flows from investing activities:
Purchase of property, equipment and other assets, net of proceeds from sale	$	(131.1	)	$	(19.7	)	$	(150.8	)
Expended on acquisitions		(1.3	)		—			(1.3	)
Net increase in investments		(6.6	)		(4.0	)		(10.6	)
Net cash used in investing activities	$	(139.0	)	$	(23.7	)	$	(162.7	)
Cash flows from financing activities:
Net decrease in long-term debt	$	(27.7	)	$	(27.5	)	$	(55.2	)
Net decrease in non-current liabilities		(1.8	)		(0.5	)		(2.3	)
Net cash used in financing activities	$	(29.5	)	$	(28.0	)	$	(57.5	)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at:	$	80.5		$	(19.5	)	$	61.0
Beginning of period		55.1			45.2			100.3
End of period	$	135.6		$	25.7		$	161.3

16

Predecessor Company
Condensed Consolidated Statement of Cash Flows
Three Months Ended May 31, 2003

	Restricted			Unrestricted			Consolidated
($ millions)	Subsidiaries			Subsidiaries			Totals
Net cash provided by (used in) operating activities	$	209.4		$	(9.7	)	$	199.7
Cash flows from investing activities:
Purchase of property, equipment and other assets, net of proceeds from sale	$	(92.3	)	$	(11.9	)	$	(104.2	)
Expended on acquisitions		(1.4	)		—			(1.4	)
Net (increase) decrease in investments		(3.4	)		0.4			(3.0	)
Net cash used in investing activities	$	(97.1	)	$	(11.5	)	$	(108.6	)
Cash flows from financing activities:
Net increase (decrease) in long-term debt	$	(1.9	)	$	23.1		$	21.2
Net increase (decrease) in non-current liabilities		(2.8	)		0.2			(2.6	)
Net cash provided by (used in) financing activities	$	(4.7	)	$	23.3		$	18.6
Net increase in cash and cash equivalents
Cash and cash equivalents at:	$	107.6		$	2.1		$	109.7
Beginning of period		266.8			13.8			280.6
End of period	$	374.4		$	15.9		$	390.3

Predecessor Company
Condensed Consolidated Statement of Cash Flows
Nine Months Ended May 31, 2003

	Restricted			Unrestricted			Consolidated
($ millions)	Subsidiaries			Subsidiaries			Totals
Net cash provided by (used in) operating activities	$	269.4		$	(5.6	)	$	263.8
Cash flows from investing activities:
Purchase of property, equipment and other assets, net of proceeds from sale	$	(166.1	)	$	(42.6	)	$	(208.7	)
Expended on acquisitions		(4.6	)		—			(4.6	)
Net increase in investments		(36.9	)		(0.4	)		(37.3	)
Net cash used in investing activities	$	(207.6	)	$	(43.0	)	$	(250.6	)
Cash flows from financing activities:
Net increase (decrease) in long-term debt	$	(8.9	)	$	43.3		$	34.4
Net increase (decrease) in non-current liabilities		(2.3	)		1.5			(0.8	)
Net cash provided by (used in) financing activities	$	(11.2	)	$	44.8		$	33.6
Net increase (decrease) in cash and cash equivalents	$	50.6		$	(3.8	)	$	46.8
Cash and cash equivalents at:
Beginning of period		323.8			19.7			343.5
End of period	$	374.4		$	15.9		$	390.3

17

Condensed Consolidated Balance Sheet
May 31, 2004

	Restricted		Unrestricted		Consolidated
($ millions)	Subsidiaries		Subsidiaries		Totals
Current assets
Cash and cash equivalents	$	135.6	$	25.7	$	161.3
Restricted cash and cash equivalents		74.3		—		74.3
Short-term deposits and marketable securities		10.3		—		10.3
Accounts receivable		682.9		37.4		720.3
Parts and supplies		40.4		11.1		51.5
Deferred income tax assets		58.8		16.5		75.3
Other current assets		37.8		16.4		54.2
Total current assets		1,040.1		107.1		1,147.2
Long-term investments		509.1		43.4		552.5
Property and equipment		1,245.3		360.4		1,605.7
Goodwill		183.1		—		183.1
Contracts and customer relationships		205.3		—		205.3
Deferred income tax assets		59.3		118.5		177.8
Deferred charges and other assets		63.2		8.9		72.1
Total assets	$	3,305.4	$	638.3	$	3,943.7
Current liabilities
Accounts payable	$	101.3	$	27.6	$	128.9
Accrued liabilities		392.9		125.9		518.8
Current portion of long-term debt		34.2		3.6		37.8
Total current liabilities		528.4		157.1		685.5
Long-term debt		986.3		135.2		1,121.5
Pension liability		2.6		224.1		226.7
Other long-term liabilities		466.1		91.7		557.8
Total liabilities		1,983.4		608.1		2,591.5
Shareholders’ equity		1,322.0		30.2		1,352.2
Total liabilities and shareholders’ equity	$	3,305.4	$	638.3	$	3,943.7

18

Condensed Consolidated Balance Sheet
As of August 31, 2003

	Restricted		Unrestricted		Consolidated
($ millions)	Subsidiaries		Subsidiaries		Totals
Current assets
Cash and cash equivalents	$	55.1	$	45.2	$	100.3
Restricted cash and cash equivalents		39.4		—		39.4
Short-term deposits and marketable securities		42.0		—		42.0
Accounts receivable		528.8		41.0		569.8
Parts and supplies		38.2		12.0		50.2
Deferred income tax assets		76.1		10.1		86.2
Other current assets		50.1		10.0		60.1
Total current assets		829.7		118.3		948.0
Long-term investments		514.1		39.4		553.5
Property and equipment		1,291.2		378.6		1,669.8
Goodwill		183.1		—		183.1
Contracts and customer relationships		216.9		—		216.9
Deferred income tax assets		88.3		114.9		203.2
Deferred charges and other assets		66.9		11.3		78.2
Total assets	$	3,190.2	$	662.5	$	3,852.7
Current liabilities
Accounts payable	$	87.7	$	31.7	$	119.4
Accrued liabilities		397.3		108.7		506.0
Current portion of long-term debt		35.7		33.7		69.4
Total current liabilities		520.7		174.1		694.8
Long-term debt		1,012.5		132.6		1,145.1
Pension liability		4.9		220.8		225.7
Other long-term liabilities		408.2		88.6		496.8
Total liabilities		1,946.3		616.1		2,562.4
Shareholders’ equity		1,243.9		46.4		1,290.3
Total liabilities and shareholders’ equity	$	3,190.2	$	662.5	$	3,852.7

19

Note 12 – Guarantors of Senior Notes

The Company’s $406.0 million Senior Notes are guaranteed by the Company’s subsidiaries, except for the Unrestricted Subsidiaries, the Company’s Canadian subsidiaries and any of the Company’s insurance subsidiaries. The condensed consolidated financial statements for the guarantors, the non-guarantors and the parent company (reported as the Company and as the Predecessor Company for historical purposes) are as follows:

Condensed Consolidated Statement of Operations
Three months ended May 31, 2004

	Parent												Consolidated
($ millions)	Company			Guarantors			Non-Guarantors			Eliminations			Totals
Revenue	$	0.0		$	891.7		$	347.9		$	—		$	1,239.6
Operating, selling, general and administrative expenses		0.4			761.3			313.7			—			1,075.4
Depreciation and amortization expense		0.0			55.1			19.6			—			74.7
Intercompany management fees (income)		0.0			(1.6	)		1.6			—			—
Operating income (loss)		(0.4	)		76.9			13.0			—			89.5
Interest expense		(22.2	)		(1.3	)		(7.9	)		—			(31.4	)
Intercompany interest income (expense)		4.0			(3.4	)		(0.6	)		—			—
Other income (expense), net		(0.4	)		0.2			0.1			—			(0.1	)
Equity in earnings (loss) of intercompany investments		46.3			(4.3	)		—			(42.0	)		—
Income (loss) before income taxes		27.3			68.1			4.6			(42.0	)		58.0
Income tax recovery (expense)		7.3			(28.7	)		(2.0	)		—			(23.4	)
Net income (loss)	$	34.6		$	39.4		$	2.6		$	(42.0	)	$	34.6

Condensed Consolidated Statement of Operations
Nine months ended May 31, 2004

	Parent												Consolidated
($ millions)	Company			Guarantors			Non-Guarantors			Eliminations			Totals
Revenue	$	0.0		$	2,587.1		$	1,025.3		$	—		$	3,612.4
Operating, selling, general and administrative expenses		0.9			2,235.9			946.1			—			3,182.9
Depreciation and amortization expense		0.0			170.5			58.6			—			229.1
Intercompany management fees (income)		0.0			(4.4	)		4.4			—			—
Operating income (loss)		(0.9	)		185.1			16.2			—			200.4
Interest expense		(71.7	)		(4.5	)		(22.5	)		—			(98.7	)
Intercompany interest income (expense)		2.4			(0.6	)		(1.8	)		—			—
Other income (expenses), net		(4.3	)		0.8			(0.2	)		—			(3.7	)
Equity in earnings (loss) of intercompany investments		101.7			(16.3	)		—			(85.4	)		—
Income (loss) before income taxes		27.2			164.5			(8.3	)		(85.4	)		98.0
Income tax recovery (expense)		30.6			(74.2	)		3.4			—			(40.2	)
Net income (loss)	$	57.8		$	90.3		$	(4.9	)	$	(85.4	)	$	57.8

20

Predecessor Company
Condensed Consolidated Statement of Operations
Three months ended May 31, 2003

	Parent												Consolidated
($ millions)	Company			Guarantors			Non-Guarantors			Eliminations			Totals
Revenue	$	—		$	868.8		$	334.0		$	—		$	1,202.8
Operating, selling, general and administrative expenses		2.0			737.2			312.7			—			1,051.9
Depreciation and amortization expense		—			55.3			21.9			—			77.2
Intercompany management fees (income)		5.9			(7.1	)		1.2			—			—
Operating income (loss), net		(7.9	)		83.4			(1.8	)		—			73.7
Interest expense		—			(1.1	)		(5.5	)		—			(6.6	)
Intercompany interest income (expense)		—			0.5			(0.5	)		—			—
Other income (expense), net		(2.8	)		(1.4	)		0.8			—			(3.4	)
Equity in earnings (loss) of intercompany investments		73.0			(19.6	)		—			(53.4	)		—
Income (loss) before income taxes		62.3			61.8			(7.0	)		(53.4	)		63.7
Income tax expense		(0.1	)		(0.6	)		(0.8	)		—			(1.5	)
Net income (loss)	$	62.2		$	61.2		$	(7.8	)	$	(53.4	)	$	62.2

Predecessor Company
Condensed Consolidated Statement of Operations
Nine months ended May 31, 2003

	Parent												Consolidated
($ millions)	Company			Guarantors			Non-Guarantors			Eliminations			Totals
Revenue	$	—		$	2,516.3		$	969.4		$	—		$	3,485.7
Operating, selling, general and administrative expenses		11.1			2,146.9			934.9			—			3,092.9
Depreciation and amortization expense		0.1			165.0			64.2			—			229.3
Intercompany management fees (income)		(25.7	)		17.5			8.2			—			—
Operating income (loss)		14.5			186.9			(37.9	)		—			163.5
Interest expense		—			(3.7	)		(15.9	)		—			(19.6	)
Intercompany interest income (expense)		—			1.6			(1.6	)		—			—
Other income (expense), net		(16.4	)		(5.1	)		1.5			—			(20.0	)
Equity in earnings (loss) of intercompany investments		121.7			(52.1	)		—			(69.6	)		—
Income (loss) before income taxes		119.8			127.6			(53.9	)		(69.6	)		123.9
Income tax expense		(0.4	)		(2.1	)		(2.0	)		—			(4.5	)
Income (loss) before cumulative effect of a change in accounting principle		119.4			125.5			(55.9	)		(69.6	)		119.4
Cumulative effect of a change in accounting principle		—			(1,668.0	)		(537.4	)		—			(2,205.4	)
Equity in loss from cumulative effect of a change in accounting principle of intercompany investments		(2,205.4	)		(429.5	)		—			2,634.9			—
Net income (loss)	$	(2,086.0	)	$	(1,972.0	)	$	(593.3	)	$	2,565.3		$	(2,086.0	)

21

Condensed Consolidated Statement of Cash Flows
Three months ended May 31, 2004

	Parent						Non-			Consolidated
($ millions)	Company			Guarantors			Guarantors			Totals
Net cash provided by (used in) operating activities	$	9.6		$	121.0		$	55.9		$	186.6
Cash flows from investing activities:
Purchases of property, equipment and other assets, net of proceeds from sale	$	—		$	(34.3	)	$	(11.4	)	$	(45.7	)
Net decrease (increase) in investments		—			39.2			(41.7	)		(2.5	)
Net cash provided by (used in) investing activities	$	—		$	4.9		$	(53.1	)	$	(48.2	)
Cash flows from financing activities:
Net decrease in long-term debt	$	(66.1	)	$	(3.9	)	$	(1.8	)	$	(71.8	)
Net increase in non-current liabilities		0.1			1.0			0.5			1.6
Increase (decrease) in intercompany advances		105.7			(122.6	)		16.9			—
Net cash provided by (used in) financing activities	$	39.7		$	(125.5	)	$	15.6		$	(70.2	)
Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at:	$	49.3		$	0.5		$	18.4		$	68.2
Beginning of period		38.7			21.0			33.4			93.1
End of period	$	88.0		$	21.5		$	51.8		$	161.3

Condensed Consolidated Statement of Cash Flows
Nine months ended May 31, 2004

	Parent						Non-			Consolidated
($ millions)	Company			Guarantors			Guarantors			Totals
Net cash provided by (used in) operating activities	$	(52.0	)	$	156.3		$	176.9		$	281.2
Cash flows from investing activities:
Purchases of property, equipment and other assets, net of proceeds from sale	$	—		$	(91.0	)	$	(59.8	)	$	(150.8	)
Expended on acquisitions		—			—			(1.3	)		(1.3	)
Net decrease (increase) in investments		0.7			70.5			(81.8	)		(10.6	)
Net cash provided by (used in) investing activities	$	0.7		$	(20.5	)	$	(142.9	)	$	(162.7	)
Cash flows from financing activities:
Net decrease in long-term debt	$	(18.4	)	$	(7.9	)	$	(28.9	)	$	(55.2	)
Net increase (decrease) in non-current liabilities		(3.9	)		2.3			(0.7	)		(2.3	)
Increase (decrease) in intercompany advances		120.8			(112.5	)		(8.3	)		—
Net cash provided by (used in) financing activities	$	98.5		$	(118.1	)	$	(37.9	)	$	(57.5	)
Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at:	$	47.2		$	17.7		$	(3.9	)	$	61.0
Beginning of period		40.8			3.8			55.7			100.3
End of period	$	88.0		$	21.5		$	51.8		$	161.3

22

Predecessor Company
Condensed Consolidated Statement of Cash Flows
Three months ended May 31, 2003

	Parent									Consolidated
($ millions)	Company			Guarantors			Non-Guarantors			Totals
Net cash provided by (used in) operating activities	$	(3.0	)	$	189.3		$	13.4		$	199.7
Cash flows from investing activities:
Purchases of property, equipment and other assets, net of proceeds from sale	$	(1.3	)	$	(67.4	)	$	(35.5	)	$	(104.2	)
Expended on acquisitions		—			(1.4	)		—			(1.4	)
Net decrease (increase) in investments		0.1			9.5			(12.6	)		(3.0	)
Net cash used in investing activities	$	(1.2	)	$	(59.3	)	$	(48.1	)	$	(108.6	)
Cash flows from financing activities:
Net increase (decrease) in long-term debt	$	—		$	(2.1	)	$	23.3		$	21.2
Net decrease in non-current liabilities		—			(0.9	)		(1.7	)		(2.6	)
Net cash provided by (used in) financing activities	$	—		$	(3.0	)	$	21.6		$	18.6
Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at:	$	(4.2	)	$	127.0		$	(13.1	)	$	109.7
Beginning of period		33.4			216.4			30.8			280.6
End of period	$	29.2		$	343.4		$	17.7		$	390.3

Predecessor Company
Condensed Consolidated Statement of Cash Flows
Nine months ended May 31, 2003

	Parent									Consolidated
($ millions)	Company			Guarantors			Non-Guarantors			Totals
Net cash provided by operating activities	$	17.7		$	200.2		$	45.9		$	263.8
Cash flows from investing activities:
Purchases of property, equipment and other assets, net of proceeds from sale	$	(1.3	)	$	(125.3	)	$	(82.1	)	$	(208.7	)
Expended on acquisitions		—			(4.6	)		—			(4.6	)
Net decrease (increase) in investments		0.8			(10.0	)		(28.1	)		(37.3	)
Net cash used in investing activities	$	(0.5	)	$	(139.9	)	$	(110.2	)	$	(250.6	)
Cash flows from financing activities:
Net increase (decrease) in long-term debt	$	—		$	(7.6	)	$	42.0		$	34.4
Net decrease in non-current liabilities		—			(0.6	)		(0.2	)		(0.8	)
Net cash provided by (used in) financing activities	$	—		$	(8.2	)	$	41.8		$	33.6
Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at:	$	17.2		$	52.1		$	(22.5	)	$	46.8
Beginning of period		12.0			291.3			40.2			343.5
End of period	$	29.2		$	343.4		$	17.7		$	390.3

23

Condensed Consolidated Balance Sheet
As of May 31, 2004

	Parent									Consolidated
($ millions)	Company		Guarantors		Non-Guarantors		Eliminations			Totals
Current assets	$	91.0	$	788.4	$	267.8	$	—		$	1,147.2
Intercompany receivables (payables) and investments		2,121.6		87.5		6.6		(2,215.7	)		—
Long-term investments		109.6		57.9		385.0		—			552.5
Property and equipment		—		950.6		655.1		—			1,605.7
Goodwill		—		183.1		—		—			183.1
Contracts and customer relationships		—		204.6		0.7		—			205.3
Long-term deferred income tax assets		15.0		—		179.5		(16.7	)		177.8
Deferred charges and other assets		43.1		20.1		8.9		—			72.1
	$	2,380.3	$	2,292.2	$	1,503.6	$	(2,232.4	)	$	3,943.7
Current liabilities	$	51.2	$	275.7	$	358.6	$	—		$	685.5
Non-current liabilities		976.1		151.7		794.9		(16.7	)		1,906.0
Shareholders’ equity		1,353.0		1,864.8		350.1		(2,215.7	)		1,352.2
	$	2,380.3	$	2,292.2	$	1,503.6	$	(2,232.4	)	$	3,943.7

Condensed Consolidated Balance Sheet
As of August 31, 2003

	Parent									Consolidated
($ millions)	Company		Guarantors		Non-Guarantors		Eliminations			Totals
Current assets	$	44.0	$	662.7	$	241.3	$	—		$	948.0
Intercompany receivables (payables) and investments		2,083.4		25.9		18.8		(2,128.1	)		—
Long-term investments		110.3		129.0		314.2		—			553.5
Property and equipment		—		1,015.7		654.1		—			1,669.8
Goodwill		—		183.1		—		—			183.1
Contracts and customer relationships		—		216.8		0.1		—			216.9
Long-term deferred income tax assets		49.1		—		183.9		(29.8	)		203.2
Deferred charges and other assets		46.5		20.2		11.5		—			78.2
	$	2,333.3	$	2,253.4	$	1,423.9	$	(2,157.9	)	$	3,852.7
Current liabilities	$	44.1	$	296.7	$	354.0	$	—		$	694.8
Non-current liabilities		998.9		180.6		717.9		(29.8	)		1,867.6
Shareholders’ equity		1,290.3		1,776.1		352.0		(2,128.1	)		1,290.3
	$	2,333.3	$	2,253.4	$	1,423.9	$	(2,157.9	)	$	3,852.7

24

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Corporate overview

The following discussion and analysis presents factors which affected the Company’s consolidated results of operations for the three and nine month periods ended May 31, 2004 as compared to the three and nine month periods ended May 31, 2003 and the Company’s consolidated financial position at May 31, 2004. The following information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Form 10-Q and in the Company’s Form 10-K for the year ended August 31, 2003. As used in this Report, all references to the “Company”, “we”, “us”, “our” and similar references are to Laidlaw International, Inc.

We operate in five reportable segments: Education services, Public Transit services, Greyhound, Healthcare Transportation services and Emergency Management services. See Note 10 – “Segmented Information” of Notes to Consolidated Financial Statements in this Report.

Pursuant to the terms of the Company’s $406.0 million Senior Notes, the Company is required to segregate the consolidated results of operations between the Restricted and Unrestricted Subsidiaries as defined in Note 11 – “Condensed financial statements of restricted subsidiaries” of the Notes to the Consolidated Financial Statements included in this Report.

Results of Operations

As discussed in Note 1 – “Corporate overview and basis of presentation” of the Notes to the Consolidated Financial Statements included in this Report, we adopted fresh start accounting effective June 1, 2003 and our results of operations and cash flows have been separated as pre-June 1 and post-May 31, 2003 due to a change in basis of accounting in the underlying assets and liabilities. For purposes of the following discussion, we refer to our results prior to June 1, 2003 as results for the Predecessor Company and we refer to our results after May 31, 2003 as results for the Company. However, for the reasons described in Note 1 and due to other non-recurring adjustments, the Predecessor Company’s financial statements for the periods prior to our emergence from bankruptcy may not be comparable to the Company’s financial statements. Readers should, therefore, review this material with caution and not rely on the information concerning the Predecessor Company as being indicative of our future results or providing an accurate comparison of financial performance.

25

Three and nine month periods ended May 31, 2004 compared with the Predecessor Company three and nine month periods ended May 31, 2003 results of operations

	Percentage of Revenue
	Three Months ended						Nine Months ended
	May 31,						May 31,
	2004			2003			2004			2003
Revenue		100.0	%		100.0	%		100.0	%		100.0	%
Compensation expense		57.0			57.5			57.3			57.4
Accident claims and professional liability expenses		6.3			5.9			6.8			6.9
Vehicle related costs		5.6			5.7			5.7			5.8
Occupancy costs		4.0			4.1			4.2			4.3
Fuel		4.0			3.9			3.9			3.8
Depreciation		5.7			6.4			6.0			6.6
Amortization		0.4			—			0.4			—
Other operating expenses		9.8			10.4			10.2			10.5
Operating income		7.2			6.1			5.5			4.7
Interest expense		(2.5	)		(0.5	)		(2.7	)		(0.6	)
Other expense, net		—			(0.3	)		(0.1	)		(0.6	)
Income before income taxes and cumulative effect of a change in accounting principle		4.7			5.3			2.7			3.5
Income tax expense		(1.9	)		(0.1	)		(1.1	)		(0.1	)
Income before cumulative effect of a change in accounting principle		2.8			5.2			1.6			3.4
Cumulative effect of a change in accounting principle		—			—			—			(63.2	)
Net income (loss)		2.8	%		5.2	%		1.6	%		(59.8	)%

26

Revenue

The sources of revenue by business segment and by Restricted Subsidiaries and Unrestricted Subsidiaries are as follows ($ in millions):

	Revenue
	Three Months ended				Nine Months ended
	May 31,				May 31,
	2004		2003		2004		2003
Education services	$	459.7	$	457.9	$	1,310.2	$	1,314.8
Public Transit services		78.7		72.8		223.3		212.1
Greyhound		299.7		291.4		881.1		847.5
Healthcare Transportation services		265.6		259.8		790.0		759.3
Emergency Management services		135.9		120.9		407.8		352.0
Total	$	1,239.6	$	1,202.8	$	3,612.4	$	3,485.7
Restricted Subsidiaries	$	997.3	$	961.6	$	2,906.9	$	2,786.2
Unrestricted Subsidiaries		242.3		241.2		705.5		699.5
Total	$	1,239.6	$	1,202.8	$	3,612.4	$	3,485.7

Revenue in the Education services segment was relatively constant over the same three and nine month periods ended May 31, 2004 and 2003, respectively. A slight increase of 0.4% was realized over the three month period and a slight decrease of 0.3% was realized on a year-to-date basis. The effect of lost business ($31 million and $88 million during the three and nine months ended May 31, 2004, respectively, of which approximately half was due to the loss of the City of Boston contract) was largely offset by new contracts, price increases and the strengthening of the Canadian currency relative to the U.S. dollar. The effect of the increase in the Canadian currency increased revenues 0.8% and 1.4%, respectively, during the three and nine months ended May 31, 2004.

The 8.1% and 5.3% increase in revenue during the three and nine months ended May 31, 2004, respectively, in the Public Transit services segment is primarily due to the addition of routes and services.

The 2.8% and 4.0% increases in revenue during the three and nine months ended May 31, 2004, respectively, in the Greyhound segment is principally due to a favorable foreign currency exchange rate and, to a lesser extent, an increase in tour and charter revenue due to new contracts. Had there been no change in the exchange rate, revenue would have increased 1.5% and 1.4% during the three and nine months ended May 31, 2004, respectively.

The 2.2% and 4.0% increase in revenue during the three and nine months ended May 31, 2004, respectively, in the Healthcare Transportation services segment is primarily due to an increase in ambulance transports which more than offset a decline in wheelchair transports.

The 12.4% and 15.9% increases in revenue in the Emergency Management services segment during the three and nine months ended May 31, 2004, respectively, is primarily attributable to an increase in the number of patient visits from new contracts.

27

The increase in the Restricted Subsidiaries revenue during the three and nine months ended May 31, 2004, is primarily a result of the increase in revenue in the Public Transit services, Healthcare Transportation services and Emergency Management services segments discussed above.

The Unrestricted Subsidiaries revenue was up slightly during the three and nine months ended May 31, 2004, primarily due to an increase in tour and charter revenue due to new contracts.

EBITDA

EBITDA is presented solely as a supplemental disclosure with respect to liquidity because management believes it provides useful information regarding our ability to service or incur debt. EBITDA is not calculated the same way by all companies. We define EBITDA as income from continuing operations before interest, income taxes, depreciation, amortization, other expenses, net and cumulative effect of a change in accounting principles. EBITDA, as reported here, is the same as reported for each of our segments in Note 10 – “Segmented information” of Notes to Consolidated Financial Statements included in this Report. EBITDA is not intended to represent cash flow for the period, is not presented as an alternative to operating income as an indicator of operating performance, should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles (“GAAP”) and is not indicative of operating income or cash flow from operations as determined under GAAP.

The following is a reconciliation of our EBITDA to the net income (loss) and net cash provided by operating activities, the GAAP measures management believes to be most directly comparable to EBITDA:

	Three Months ended May 31,						Nine Months ended May 31,
	2004			2003			2004			2003
EBITDA	$	164.2		$	150.9		$	429.5		$	392.8
Depreciation and amortization		(74.7	)		(77.2	)		(229.1	)		(229.3	)
Interest expense		(31.4	)		(6.6	)		(98.7	)		(19.6	)
Other expenses, net		(0.1	)		(3.4	)		(3.7	)		(20.0	)
Income tax expense		(23.4	)		(1.5	)		(40.2	)		(4.5	)
Income before cumulative effect of a change in accounting principle		34.6			62.2			57.8			119.4
Cumulative effect of a change in accounting principle		—			—			—			(2,205.4	)
Net income (loss)	$	34.6		$	62.2		$	57.8		$	(2,086.0	)

28

	Three Months ended May 31,						Nine Months ended May 31,
	2004			2003			2004			2003
EBITDA	$	164.2		$	150.9		$	429.5		$	392.8
Cash paid for interest		(20.6	)		(11.7	)		(80.0	)		(25.0	)
Cash received (paid) for income taxes		(0.5	)		6.0			10.7			4.4
Increase in claims liabilities and professional liability reserves		12.7			7.4			47.2			56.1
Cash provided by (used in) financing other working capital items		27.3			25.8			(130.3	)		(137.7	)
Decrease in restricted cash and cash equivalents		3.5			33.9			4.1			0.9
Other		—			(12.6	)		—			(27.7	)
Net cash provided by operating activities	$	186.6		$	199.7		$	281.2		$	263.8
Net cash used in investing activities	$	(48.2	)	$	(108.6	)	$	(162.7	)	$	(250.6	)
Net cash provided by (used In) financing activities	$	(70.2	)	$	18.6		$	(57.5	)	$	33.6

     EBITDA by segment and by Restricted Subsidiaries and Unrestricted Subsidiaries is as follows ($ in millions):

	EBITDA
	Three Months ended May 31,					Nine Months ended May 31,
	2004		2003			2004			2003
Education services	$	120.8	$	116.1		$	306.0		$	302.0
Public Transit services		1.5		5.6			(2.8	)		7.3
Greyhound		15.6		3.4			38.3			5.8
Healthcare Transportation services		22.1		18.6			63.5			55.8
Emergency Management services		4.2		7.2			24.5			21.9
Total	$	164.2	$	150.9		$	429.5		$	392.8
Restricted Subsidiaries	$	151.9	$	152.9		$	401.0		$	391.9
Unrestricted Subsidiaries		12.3		(2.0	)		28.5			0.9
Total	$	164.2	$	150.9		$	429.5		$	392.8

In the three and nine months ended May 31, 2004, EBITDA in the Education services segment was $4.7 million and $4.0 million higher than the corresponding periods last year. The improvement in EBITDA was due to a favorable Canadian exchange rate and lower accident claims costs, offset somewhat by an increase in fuel prices.

In the three and nine months ended May 31, 2004, EBITDA in the Public Transit services segment was $4.1 million and $10.1 million, respectively, lower than the same periods in 2003 due to increased accident claims costs as compared to the unusually low level experienced in the comparative periods.

In the three and nine months ended May 31, 2004, EBITDA in the Greyhound segment was $12.2 million and $32.5 million, respectively, better than the three and nine months ended May 31, 2003. The improvement in Greyhound’s EBITDA is primarily due to management’s continued focus on improving revenue per mile and reducing operating costs. Increased revenue combined with a reduction in miles operated and a reduction in workforce were the primary contributors to this increase.

29

In the three and nine months ended May 31, 2004, EBITDA in the Healthcare Transportation services segment was $3.5 million and $7.7 million, respectively, higher than 2003 principally due to improved accident and insurance claims costs as the increases in revenues were largely offset by increased compensation expenses.

The Emergency Management Services segment EBITDA decreased $3.0 million during the three months ended May 31, 2004, and increased $2.6 million, for the nine month period ended May 31, 2004. Increased compensation costs, due to increased patient visits and long-term incentive plan costs, exceeded revenue growth during the three month period and trailed revenue growth for the nine month period.

In the three months ended May 31, 2004, EBITDA for the Restricted Subsidiaries was $1.0 million lower than the three months ended May 31, 2003 primarily due to a decline in the results of the Public Transit and Emergency Management services segments, mostly offset by improved results in the Education services and Healthcare Transportation services segments. For the nine months ended May 31, 2004, EBITDA was $9.1 higher, primarily due to the improved results in the Education services, Healthcare Transportation services and Emergency Management services segments partially offset by the decline in the results of the Public Transit Services segment.

In the three and nine months ended May 31, 2004, EBITDA in the Unrestricted Subsidiaries was $14.3 million and $27.6 million, respectively, higher than the three and nine months ended May 31, 2003 due to improved revenue per mile and reduced operating costs.

Depreciation expense

Depreciation expense for the three and nine months ended May 31, 2004 decreased $6.7 million and $13.1 million, respectively, over the three and nine months ended May 31, 2003, reflecting a $5.3 million and $8.9 million, respectively, decrease in depreciation for the Restricted Subsidiaries and a $1.4 million and $4.2 million, respectively, decrease in depreciation for the Unrestricted Subsidiaries. The decline in the Restricted Subsidiaries is principally due to a slight increase in the estimated useful lives of certain model school buses, while the decline in the Unrestricted Subsidiaries is principally due to the revaluation of property and equipment that occurred under fresh start accounting.

Amortization expense

Amortization expense for the three and nine months ended May 31, 2004, increased $4.2 million and $12.9 million, respectively, compared to the same periods in 2003. Amortization is primarily related to customer contracts capitalized under fresh start accounting. Virtually all of the amortization expense was recorded by the Restricted Subsidiaries.

Interest expense

In the three and nine months ended May 31, 2004, interest expense increased $24.8 million and $79.1 million, respectively, compared to the three and nine months ended May 31, 2003. The increase is primarily due to interest incurred on long-term debt associated with our senior secured credit facility and the senior notes. No interest expense was incurred on pre-petition debt for the three and nine months ended May 31, 2003. Interest expense for the Unrestricted Subsidiaries increased $3.0 million and $8.3 million, respectively, reflecting a higher effective interest rate on borrowings as a result of discounts on long-term debt recorded as fair value adjustments at fresh start.

30

Other expenses, net

Other expenses, net was $0.1 million and $3.7 million in the three and nine months ended May 31, 2004, respectively. The nine month total was primarily related to legal fees to defend former directors and officers of the Predecessor Company from shareholder and creditor lawsuits that originated prior to the Company’s emergence from bankruptcy.

The $3.4 million and $20.0 million of other expenses, net in the three and nine months ended May 31, 2003, respectively, was mostly due to financing, accounting, legal and consulting services incurred by the Predecessor Company during the reorganization process. For the nine month period this was partially offset by $12.5 million of income related to the settlement of certain bondholder actions.

Income tax expense

Income tax expense for the three and nine months ended May 31, 2004 was $23.4 million and $40.2 million, respectively, compared to $1.5 million and $4.5 million in the three and nine months ended May 31, 2003, respectively. Tax expense in the prior period only represented estimated cash taxes as the Predecessor Company had established a full valuation allowance against its net deferred tax assets. Of the $40.2 million provided in the nine months ended May 31, 2004, $3.0 million represents cash taxes payable and the balance reflects the utilization of deferred tax assets.

Cumulative effect of a change in accounting principle

Effective September 1, 2002, we adopted SFAS 142 and, as a result, recorded a non-cash charge of $2,205.4 million on September 1, 2002 as a cumulative effect of a change in accounting principle.

Liquidity and capital resources

For the nine months ended May 31, 2004, cash provided by operating activities was $281.2 million compared to $263.8 million in the nine months ended May 31, 2003. The increase was principally due to the increase in operating income. Net expenditures for the purchase of capital assets for normal replacement requirements and increases in service was $150.8 million in the nine months ended May 31, 2004 compared to $208.7 million for the nine months ended May 31, 2003. The decline in capital expenditures was principally due to reduced bus purchases in the Education services and Greyhound segments.

The Company utilizes a senior secured revolving credit facility (the “Revolver”) due June 2008, to finance current operating needs. Under the Revolver, as of May 31, 2004, there were no cash borrowings, $47.6 million for the issuance of letters of credit and $67.9 million was reserved for guarantee obligations on Greyhound Lines’ vehicle leases, leaving total availability of $60.2 million under the most restrictive covenant. Greyhound Lines utilizes its own revolving line of credit (the “Greyhound Facility”). As of May 31, 2004, Greyhound Lines had no cash borrowings under the Greyhound Facility, had issued letters of credit of $62.2 million and had availability of $46.9 million.

The Company requires significant cash flows to finance capital expenditures and to meet its debt service and other continuing obligations. Although we will continue to be substantially leveraged, we believe that borrowings under our Revolver, together with existing cash and cash flow from operations, will be sufficient to fund our anticipated capital expenditures and working capital requirements for the foreseeable future, including payment obligations under our debt agreements and other commitments.

31

Under the terms of the Company’s various debt agreements the Company is required to meet certain financial covenants including a fixed charge coverage ratio, leverage ratio, interest coverage ratio, net tangible asset ratio and maximum senior secured leverage ratio as well as certain non-financial covenants. As of May 31, 2004, the Company was in compliance with all such covenants.

Critical Accounting Policies

The preparation of financial statements requires management to make estimates and assumptions relating to the reporting of results of operations, financial condition and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates under different assumptions or conditions. The following are our most critical accounting policies, which are those that require management’s most difficult, subjective and complex judgments, requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Claims Liability and Professional Liability Reserves

We are self-insured up to certain limits for costs associated with workers’ compensation claims, vehicle accidents, professional liability claims and general business liabilities. Reserves are established for estimates of the loss that we will ultimately incur on claims that have been reported but not paid and claims that have been incurred but not reported. These reserves are based upon actuarial valuations that are prepared quarterly by our outside actuaries. The actuarial valuations consider a number of factors, including historical claim payment patterns and changes in case reserves, the assumed rate of increase in healthcare costs and property damage repairs and ultimate court awards. Historical experience and recent trends in the historical experience are the most significant factors in the determination of these reserves. We believe the use of actuarial methods to account for these reserves provides a consistent and effective way to measure these subjective accruals. However, given the magnitude of the claims involved and the length of time until the ultimate cost is known, the use of any estimation technique in this area is inherently sensitive. Accordingly, our recorded reserves could differ from our ultimate costs related to these claims due to changes in our accident reporting, claims payment and settlement practices or claims reserve practices, as well as differences between assumed and future cost increases.

Revenue Recognition in the Healthcare Services Businesses

A significant portion of the revenue in our healthcare services businesses is derived from Medicare, Medicaid and private insurance payors that receive discounts from our standard charges (referred to as contractual allowances). Additionally, we are also subject to significant collection risk for services provided to uninsured patients or for the deductible or co-pay portion of services for insured patients (referred to as uncompensated care). We record our healthcare services revenue net of an estimated provision for the contractual allowances and uncompensated care.

Healthcare reimbursement is complex and may involve lengthy delays. Third-party payors are continuing their efforts to control expenditures for healthcare and may disallow, in whole or in part, claims for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, were for services provided that were not determined medically necessary, or insufficient supporting information was provided. In addition, multiple payors with different requirements can be involved with each claim.

Management utilizes sophisticated information systems and financial models to estimate the provisions for contractual allowances and uncompensated care. The estimate for contractual allowances is determined on a payor-specific basis and is predominantly based on prior collection experience, adjusted as needed for known changes in reimbursement rates and

32

recent changes in payor mix and patient acuity factors. The estimate for uncompensated care is principally based on historical collection rates, write-off percentages and accounts receivable agings. These estimates are continually analyzed and updated by management by monitoring reimbursement rate trends from governmental and private insurance payors, recent trends in collections from self-pay patients, the ultimate cash collection patterns from all payors, accounts receivable aging trends, operating statistics and ratios, and the overall trends in accounts receivable write-offs.

The evaluation of these factors, as well as the interpretation of governmental regulations and private insurance contract provisions, involves complex, subjective judgments. As a result of the inherent complexity of these calculations, our actual revenues and net income, and our accounts receivable, could vary from the amounts reported.

Income Tax Valuation Allowance

We have significant net deferred tax assets resulting from net operating losses, or NOL, and interest deduction carry forwards and other deductible temporary differences that will reduce taxable income in future periods. Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all or a portion of net deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including expected reversals of significant deductible temporary differences, a company’s recent financial performance, the market environment in which a company operates, tax planning strategies and the length of NOL and interest deduction carryforward period. Furthermore, the weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. Due to the highly leveraged capital structure (and related interest expense) and uncertainty surrounding the level of debt we would carry post-emergence, management of the Predecessor Company concluded that it was appropriate to record a full valuation allowance against its net deferred income tax assets. Pursuant to the plan of reorganization, the level of debt we carried upon emergence from bankruptcy was reduced by approximately $2.6 billion. As a result, management concluded that it was more likely than not that $313.6 million of deferred tax assets would not be realized and, as part of our fresh start adjustment at June 1, 2003, we recorded a valuation allowance for that amount. Certain future events may result in the reduction of the valuation allowance. Up to $313.6 million of such reduction would reduce goodwill and other intangibles in existence at fresh start and thereafter, would be reported as an addition to share premium.

Pension

Our obligation and expense for pension benefits are determined using actuarial methods that are dependent on the selection of certain assumptions and factors. These include assumptions about the discount rate, the expected return on plan assets and the rate of future compensation increases as determined by management. The pension plan rate assumptions are shown in Note 11 – “Pension plans” of Notes to the Consolidated Financial Statements in the Company’s Form 10-K for the year ended August 31, 2003. We determine the discount rate based upon yields available on quality long-term corporate bonds (generally by reference to the Moody’s Aa bond index and similar U.S. and Canadian bond indices). The expected return on plan assets is based on plan-specific historical long-term portfolio performance, asset allocations and investment strategies and the views of the plans’ investment advisors. Our rate of increase in future compensation levels is based primarily on labor contracts currently in effect with our employees under collective bargaining agreements and expected future pay rate increases for other employees. In addition, our actuarial consultants also use factors to estimate such items as retirement age and mortality tables, which are primarily based upon historical plan experience. The assumptions and factors we use may differ materially from actual results due to changing market conditions, earlier or later retirement ages or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension

33

obligation or expense recorded by us. During fiscal 2002 and 2003, we experienced a reduction in interest rates and deterioration in plan returns. If this trend continues, we may have to fund amounts to the pension plans in future years in addition to the funding discussed in Note 11 – “Pension plans” of Notes to the Consolidated Financial Statements in the Company’s Form 10-K for the year ended August 31, 2003, whereby we have committed to make substantial cash contributions to the Greyhound Lines Plans, in addition to contributions required under applicable law.

Contingencies

As discussed in Note 7 – “Material contingencies” of Notes to Consolidated Financial Statements in this Report, management is unable to make a reasonable estimate of the liabilities that may result from the final resolution of certain contingencies disclosed. Further assessments of the potential liability will be made as additional information becomes available. Management currently does not believe that these matters will have a material adverse affect on our consolidated financial position. It is possible, however, that results of operations could be materially affected by changes in management’s assumptions relating to these matters or the actual final resolution of these proceedings.

Commitments and Contingencies

Reference is made to Note 22 – “Commitments and contingencies” of Notes to the Consolidated Financial Statements in the Company’s Form 10-K for the year ended August 31, 2003 for a description of the Company’s material commitments. Reference is made to Note 7 – “Material contingencies” of Notes to Consolidated Financial Statements in this Report for a description of the Company’s material contingencies.

Forward looking statements

Certain statements contained in this report, including statements regarding the status of future operating results and market opportunities, possible asset dispositions and other statements that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve certain risks, uncertainties and assumptions that include, but are not limited to; Greyhound Lines’ ability to achieve its forecasted results; market factors, including competitive pressures and changes in pricing policies; changes in interpretations of existing legislation or the adoption of new legislation; loss of major customers; the significant restrictive covenants in the Company’s and its subsidiaries’ various credit facilities; the potential for asset dispositions; the ability to continue to satisfy bonding requirements for existing or new customers; volatility in energy costs; the costs and risks associated with litigation; costs related to accident and other claims; potential pension plan funding requirements; the ability to implement initiatives designed to increase operating efficiencies and improve results; and general economic conditions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures the Company makes on related subjects included in “Note Regarding Forward-Looking Statements” and “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors” in the Company’s Form 10-K for the year ended August 31, 2003, “Risk Factors” in the Company’s Amendment No. 1 to its Registration Statement on Form S-4 and in the Company’s Registration Statement on Form S-3 and as may be detailed in the Company’s other filings from time to time with the Securities and Exchange Commission.

34

LAIDLAW INTERNATIONAL, INC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from the disclosures provided in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” as set forth in the Company’s 2003 Form 10-K for the year ended August 31, 2003 except as follows:

In December 2003, the Company modified the terms of its $625.0 million loan maturing in June 2009 (the “Term B Facility”). The interest rate charged on the loan was reduced by 1.25%, to LIBOR plus 3.75% from LIBOR plus 5.0%. Additionally, the LIBOR floor or minimum LIBOR rate was reduced 0.25% to 1.75% from the previous floor of 2.0%. Additionally, the Company entered into an interest rate swap agreement (“Swap”) that effectively converted $110 million of Term B Facility floating rate debt to fixed rate debt with an interest rate of 6.8%. The Swap was entered into because the Company is required under the Term B Facility to have a fixed interest rate on a portion of the underlying debt. The Swap is considered a cash flow hedge and expires in September 2006.

Item 4. Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.

During the most recent fiscal quarter, there have not been any changes in the Company’s internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

35

LAIDLAW INTERNATIONAL, INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to Part I, Item 3 of the Company’s Form 10-K for the year ended August 31, 2003 and Part II, Item 1 of the Company’s Form 10-Qs for the quarters ended November 30, 2003 and February 29, 2004 for a description of certain legal proceedings presently pending. As previously reported, the Company or its subsidiaries continually undergo investigations by certain governmental agencies regarding compliance with Medicare fraud and abuse statutes. There are no material new matters to report against the Company or its subsidiaries except as set forth below, and there have been no material changes in the previously reported proceedings, except as set forth below:

Proceedings Prior to or During Bankruptcy of Laidlaw, Inc.

Reference is made to the description in Item 3. Legal Proceedings under the caption “Proceedings Prior to or During Bankruptcy of Laidlaw, Inc.” in the Company’s Form 10-K for the year ended August 31, 2003, and Part II, Item 1 of the Company’s Form 10-Q for the quarter ended February 29, 2004, of proceedings in the cases captioned In Re Laidlaw Stockholders Litigation and In Re Safety-Kleen Corp. Securities Litigation. These cases involved actions against Laidlaw Inc. and individual defendants who were former officers and directors of the Company. These cases had been settled shortly before trial was originally scheduled to commence in March, 2004, but the settlements have not yet been finalized and, if the matters are not settled, jury selection in these cases is currently set to begin July 6, 2004. As previously disclosed, as a result of the bankruptcy court’s subordination of these claims against the debtors, Laidlaw, Inc. and Laidlaw International, Inc. are no longer parties to these cases and the Company’s cash obligation in these cases is limited to the unfunded portion of the D&O Claim Treatment Letter described in Item 3. Legal Proceedings under the caption “Proceedings Prior to or During Bankruptcy of Laidlaw, Inc.” in the Company’s Form 10-K for the year ended August 31, 2003.

General Litigation and Other Disputes

Reference is made to the description in Item 3. Legal Proceedings under the caption “General Litigation and Other Disputes” in the Company’s Form 10-K for the year ended August 31, 2003, of proceedings with the U.S. Department of Justice begun in June, 1999 regarding the billing processes of Regional Emergency Services, a subsidiary of AMR, and of Florida Hospital Waterman, as well as a subpoena duces tecum received from the Office of the Inspector General regarding Huguley and Metroplex Hospitals and Regional Emergency Services contracts in Texas, Georgia and Colorado. As previously disclosed, the claims in the Waterman matter and the claims in Texas have been resolved pursuant to a potential settlement for an aggregate of $20 million, to which AMR will contribute a total of $5 million. The settlement has been negotiated, but the documentation has not yet been signed by all the parties.

Reference is made to the description in Item 3. Legal Proceedings under the caption “General Litigation and Other Disputes” in the Company’s Form 10-K for the year ended August 31, 2003, of subpoenas received from August 1998 until August 2000 by American Medical Response West, a subsidiary of AMR, related to billing matters for emergency transports and specialized services. Although settlement documents have not been finalized, AMR West has reached a tentative settlement to pay $3.5 million and enter into a Corporate Integrity Agreement relating to these matters.

36

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1	Indemnification agreement between Laidlaw International, Inc. and its Directors and Officers.
10.2	Amendment Number One to Amended and Restated Loan and Security Agreement among Greyhound Lines, Inc., as borrower, the Financial Institutions named as lenders, and Wells Fargo Foothill, Inc, as Agent dated as of July 6, 2004.
31.1	Principal Executive Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Principal Financial Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of Sarbanes-Oxley Act of 2002)

(b)	Reports on Form 8-K during the quarter ended May 31, 2004
	Current Report on Form 8-K, dated March 26, 2004, filed with the Securities and Exchange Commission and reporting under Item 5, Other Events, the Company’s press release announcing that its wholly-owned subsidiary, Greyhound Lines, Inc issued a press release announcing it has reached an agreement with the Amalgamated Transit Union National Local 1700 for a new collective bargaining agreement.

37

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LAIDLAW INTERNATIONAL, INC.
	By:	/s/ Douglas A. Carty
Date: July 12, 2004	Douglas A. Carty
	Senior Vice President and Chief Financial Officer Duly Authorized Officer and Principal Financial Officer

38

EX-10.1

Exhibit 10.1

LAIDLAW INTERNATIONAL, INC.

DIRECTOR /OFFICER INDEMNIFICATION AGREEMENT

     This Director/Officer Indemnification Agreement, dated as of April 7, 2004 (this “Agreement”), is made by and between Laidlaw International, Inc., a Delaware corporation (the “Company”), and (“Indemnitee”).

RECITALS:

     A. It is essential to the Company to attract and retain as directors and officers the most capable persons reasonably available.

     B. Indemnitee is a director and/or officer of the Company.

     C. Both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and/or officers of public companies in today’s environment.

     D. Basic protection against undue risk of personal liability of directors and officers in the past has been provided to a significant extent through insurance coverage providing reasonable protection at reasonable cost; but substantial changes in the marketplace for such insurance has made it increasingly difficult to obtain such insurance.

     E. The current difficulty in obtaining adequate insurance and uncertainties relating to indemnification have increased the risk of being unable to attract and retain such persons.

     F. The Board of Directors of the Company has determined that the inability to attract and retain such persons would be detrimental to the best interests of the Company and its stockholders and that the Company should seek to assure such persons that there will be increased certainty of such protection in the future.

     G. In recognition of the need for corporations to be able to induce capable and responsible persons to accept positions as directors and/or members of management of business corporations, Delaware law authorizes corporations to indemnify and advance certain expenses to their directors and officers, and further authorizes corporations to purchase and maintain insurance for the benefit of their directors and officers.

     H. The certificate of incorporation and bylaws of the Company require the Company to indemnify and advance expenses to its directors and officers to the fullest extent permitted by law and the Indemnitee has been serving and continues to serve as a director or officer of the Company in part in reliance on such bylaws.

     I. Therefore, in recognition of the need to provide Indemnitee with the ability to resist and defend against unjustified and deficient claims, and with substantial protection against personal liability arising from such claims, the increasing difficulty in obtaining satisfactory director and officer liability insurance coverage and Indemnitee’s reliance on the Company’s bylaws in order to procure Indemnitee’s continued service as a director and/or officer of the Company and to enhance Indemnitee’s ability to serve the Company in an effective manner, and in order to provide such ability and protection pursuant to express contract rights (intended to be enforceable irrespective of, among other things, any amendment to the Company’s certificate of incorporation or bylaws (collectively, the  “Constituent Documents”), any change in the composition of the Company’s Board of Directors (the “Board”) or any change-in-control or business combination transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancement of Expenses (as defined in Section 1(e)) to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement and for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies.

AGREEMENT

     NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, through service with another enterprise, and intending to be legally bound hereby, the parties hereby agree as follows:

     1. Certain Definitions. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters:

          (a) “Change in Control” means the occurrence after the date of this Agreement of any of the following events:

               (i) any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”), is or becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of 50% or more of the total voting power of the then outstanding Voting Stock; provided, however, that the following events shall not constitute or result in a Change in Control: (A) any acquisition of Voting Stock directly from the Company, (B) any acquisition of Voting Stock by the Company, (C) any acquisition of Voting Stock by any employee benefit plan (or related trust, or any trustee or other fiduciary thereof in such capacity) sponsored or maintained by the Company or any Subsidiary or (D) any acquisition of Voting Stock by any Person pursuant to a Business Combination that complies with clauses (A), (B) and (C) of Section 1(a)(iii); or

               (ii) during any two-year period, individuals who, as of the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason (other than death or disability) to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the then Incumbent Directors (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection of the Company to such nomination) shall be considered as though such individual were an Incumbent Director, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (as described in Rule 14a-12(c) of

2

the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

               (iii) consummation of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets, of the Company (a “Business Combination”), unless, in each case, immediately following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of Voting Stock of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Voting Stock of the Company, (B) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust, or any trustee or other fiduciary thereof in such capacity) sponsored or maintained by the Company, any Subsidiary or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, voting securities representing 15% or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the entity resulting from such Business Combination except to the extent such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the entity resulting from such Business Combination were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

               (iv) approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clauses (A), (B) and (C) of Section 1(a)(iii).

               (v) For purposes of this Section 1(a), the following terms shall have the following meanings:

                    (A) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

                    (B) “Subsidiary” means an entity in which the Company directly or indirectly beneficially owns 50% or more of the outstanding Voting Stock.

                    (C) “Voting Stock” means securities entitled to vote generally in the election of directors.

          (b)  “Claim” means (i) any threatened, asserted, pending or completed claim, demand, action, suit or proceeding, whether civil, criminal, administrative, arbitrative, investigative, pursuant to any alternative dispute mechanism or other, and whether made pursuant to federal, state or other law; and (ii) any inquiry or investigation, whether made, instituted or conducted by the Company or any other party, including without limitation any federal, state or other governmental entity, that Indemnitee determines might lead to the institution of any such claim, demand, action, suit or proceeding.

3

          (c) “Controlled Affiliate” means any corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise, whether or not for profit, that is directly or indirectly controlled by the Company. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of an entity or enterprise, whether through the ownership of voting securities, through other voting rights, by contract or otherwise; provided that direct or indirect beneficial ownership of capital stock or other interests in an entity or enterprise entitling the holder to cast 20% or more of the total number of votes generally entitled to be cast in the election of directors (or persons performing comparable functions) of such entity or enterprise shall be deemed to constitute control for purposes of this definition.

          (d) “Disinterested Director” means a director of the Company who is not and was not a party to the Claim in respect of which indemnification is sought by Indemnitee.

          (e) “Expenses” means attorneys’ fees, experts’ fees, witness fees, court costs, retainers, transcript fees, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and expenses and all other costs, expenses and other amounts paid or payable in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to investigate, defend, be a witness in or participate in (including on appeal), any Claim.

          (f) “Indemnifiable Claim” means any Claim (whether or not relating to any event or occurrence prior to the date hereof) based upon, arising out of or resulting from (i) any actual, alleged or suspected act or failure to act by Indemnitee in his or her capacity as a director, officer, employee, agent or fiduciary of the Company or as a director, officer, employee, member, manager, trustee, agent or fiduciary of any other corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise, whether or not for profit, as to which Indemnitee is or was serving at the request of the Company as a director, officer, employee, member, manager, trustee, agent or fiduciary, (ii) any actual, alleged or suspected act or failure to act by Indemnitee in respect of any business, transaction, communication, filing, disclosure or other activity of the Company or any other entity or enterprise referred to in clause (i) of this sentence, or (iii) Indemnitee’s status as a current or former director, officer, employee, agent or fiduciary of the Company or as a current or former director, officer, employee, member, manager, trustee, agent or fiduciary of the Company or any other entity or enterprise referred to in clause (i) of this sentence or any actual, alleged or suspected act or failure to act by Indemnitee in connection with any obligation or restriction imposed upon Indemnitee by reason of such status. In addition to any service at the actual request of the Company, for purposes of this Agreement, Indemnitee shall be deemed to be serving or to have served at the request of the Company as a director, officer, employee, member, manager, trustee, agent or fiduciary of another entity or enterprise if Indemnitee is or was serving as a director, officer, employee, member, manager, trustee, employee or agent of such entity or enterprise and (i) such entity or enterprise is or at the time of such service was a Controlled Affiliate, (ii) such entity or enterprise is or at the time of such service was an employee benefit plan (or related trust) sponsored or maintained by the Company or a Controlled Affiliate, or (iii) the Company or a Controlled Affiliate directly or indirectly caused Indemnitee to be nominated, elected, appointed, designated, employed, engaged or selected to serve in such capacity.

4

          (g) “Indemnifiable Losses” means any and all Losses relating to, arising out of or resulting from any Indemnifiable Claim.

          (h) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Indemnifiable Claim giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

          (i) “Losses” means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil, criminal or other), ERISA excise taxes and amounts paid in settlement, including without limitation all interest, assessments and other charges paid or payable in connection with or in respect of any of the foregoing.

     2. Indemnification Obligation. Subject to Section 7, the Company shall indemnify, defend and hold harmless Indemnitee, to the fullest extent permitted by the laws of the State of Delaware in effect on the date hereof or as such laws may from time to time hereafter be amended to increase the scope or amount of such permitted indemnification, against any and all Indemnifiable Claims and Indemnifiable Losses; provided, however, that, except as provided in Sections 4 and 23, prior to a Change in Control Indemnitee shall not be entitled to indemnification (including any advance of expenses) pursuant to this Agreement in connection with any Claim initiated by Indemnitee against the Company or any director or officer of the Company unless the Company has joined in or consented to the initiation of such Claim.

     3. Advancement of Expenses; Undertaking. Indemnitee shall have the right to advancement by the Company prior to the final disposition of any Indemnifiable Claim of any and all Expenses relating to, arising out of or resulting from any Indemnifiable Claim paid or payable by Indemnitee or which Indemnitee determines are reasonably likely to be paid or payable by Indemnitee. Indemnitee’s right to such advancement is not subject to the satisfaction of any standard of conduct. Without limiting the generality or effect of the foregoing, within five business days after any request by Indemnitee, the Company shall, in accordance with such request (but without duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses; provided that Indemnitee shall repay, without interest, any amounts actually advanced to Indemnitee that, at the final disposition of the Indemnifiable Claim to which the advance related, were in excess of amounts paid or payable by Indemnitee in respect of Expenses relating to, arising out of or resulting from such Indemnifiable Claim. In connection with any such payment, advancement or reimbursement, Indemnitee undertakes and agrees to repay any amounts paid, advanced or reimbursed by the Company in respect of Expenses relating to, arising out of or resulting from any Indemnifiable Claim in respect of which it shall have been determined, following the final disposition of such Indemnifiable Claim and in accordance with Section 7, that Indemnitee is not entitled to indemnification hereunder; it being understood and agreed that the foregoing shall satisfy any requirement that Indemnitee provide the Company

5

with an undertaking to repay any advancement of Expenses prior to the payment, advancement or reimbursement thereof by the Company.

     4. Indemnification for Additional Expenses. Without limiting the generality or effect of the foregoing, the Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within five business days of such request, any and all Expenses paid or payable by Indemnitee or which Indemnitee determines are reasonably likely to be paid or payable by Indemnitee in connection with any Claim made, instituted or conducted by Indemnitee for (a) indemnification or reimbursement or advance payment of Expenses by the Company under any provision of this Agreement, or under any other agreement or provision of the Constituent Documents now or hereafter in effect relating to Indemnifiable Claims, and/or (b) recovery under any directors’ and officers’ liability insurance policies now or hereafter maintained by the Company, regardless in each case of whether Indemnitee ultimately is determined to be entitled to such indemnification, reimbursement, advance or insurance recovery, as the case may be, referred to in clause (a) or (b) of this sentence; provided, however, that Indemnitee shall return, without interest, any such advance of Expenses (or portion thereof) which remains unspent at the final disposition of the Claim to which the advance related.

     5. Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Indemnifiable Loss but not for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

     6. Procedure for Notification. To obtain indemnification under this Agreement in respect of an Indemnifiable Claim or Indemnifiable Loss, Indemnitee shall submit to the Company a written request therefore, including a brief description (based upon information then available to Indemnitee) of such Indemnifiable Claim or Indemnifiable Loss. If, at the time of the receipt of such request, the Company has directors’ and officers’ liability insurance in effect under which coverage for such Indemnifiable Claim or Indemnifiable Loss is potentially available, the Company shall give prompt written notice of such Indemnifiable Claim or Indemnifiable Loss to the applicable insurers in accordance with the procedures set forth in the applicable policies. The Company shall provide to Indemnitee a copy of such notice delivered to the applicable insurers, and copies of all subsequent correspondence between the Company and such insurers regarding the Indemnifiable Claim or Indemnifiable Loss, in each case substantially concurrently with the delivery or receipt thereof by the Company. The failure by Indemnitee to timely notify the Company of any Indemnifiable Claim or Indemnifiable Loss shall not relieve the Company from any liability hereunder unless, and only to the extent that, the Company did not otherwise learn of such Indemnifiable Claim or Indemnifiable Loss and such failure results in forfeiture by the Company of substantial defenses, rights or insurance coverage.

     7. Determination of Right to Indemnification.

          (a) To the extent that Indemnitee shall have been successful on the merits or otherwise in defense of any Indemnifiable Claim or any portion thereof or in defense of any issue or matter therein, including, without limitation, dismissal with or without prejudice, Indemnitee shall be indemnified against all Indemnifiable Losses relating to, arising out of or resulting from such Indemnifiable Claim or portion thereof or issue or matter therein in accordance with

6

Section 2 and no Standard of Conduct Determination (as defined in Section 7(b)) shall be required.

          (b) To the extent that the provisions of Section 7(a) are inapplicable to an Indemnifiable Claim that shall have been finally disposed of, any determination of whether Indemnitee has satisfied any applicable standard of conduct under Delaware law that is a legally required condition precedent to indemnification of Indemnitee hereunder against Indemnifiable Losses relating to, arising out of or resulting from such Indemnifiable Claim (a “Standard of Conduct Determination”) shall be made at the election of Indemnitee, (i) by a majority vote of the Disinterested Directors, even if less than a quorum of the Board or, if such Disinterested Directors so direct, by a majority vote of a committee of Disinterested Directors designated by a majority vote of all Disinterested Directors, (ii) by the stockholders of the Company, (iii) by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee or (iv) by a panel of three arbitrators, one of whom is selected by Indemnitee, another of whom is selected by the Company and the last of whom is selected by the first two arbitrators so selected. Indemnitee will cooperate with the person or persons making such Standard of Conduct Determination, including providing to such person or persons, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. The Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within five business days of such request, any and all costs, expenses and other amounts (including attorneys’ and experts’ fees and expenses) paid or payable by Indemnitee in so cooperating with the person or persons making such Standard of Conduct Determination.

          (c) The Company shall use its reasonable best efforts to cause any Standard of Conduct Determination required under Section 7(b) to be made as promptly as practicable. If (i) the person or persons empowered or selected under Section 7 to make the Standard of Conduct Determination shall not have made a determination within 30 days after the later of (A) receipt by the Company of written notice from Indemnitee advising the Company of the final disposition of the applicable Indemnifiable Claim and (B) receipt by the Company of written notice from Indemnitee notifying the Company of Indemnitee’s choice of forum pursuant to Section 7(b) (the later of the events specified in clause (A) and clause (B) being the “Notification Date”) and (ii) Indemnitee shall have fulfilled its obligations set forth in the second sentence of Section 7(b), then Indemnitee shall be deemed to have satisfied the applicable standard of conduct; provided that such 30-day period may be extended for a reasonable time, not to exceed an additional 30 days, if the person or persons making such determination in good faith requires such additional time for the obtaining or evaluation of documentation and/or information relating to such determination.

          (d) If Indemnitee shall be entitled to indemnification hereunder against any Indemnifiable Losses under circumstances where (i) no determination of whether Indemnitee has satisfied any applicable standard of conduct under Delaware law is a legally required condition precedent to indemnification of Indemnitee hereunder against such Indemnifiable Losses, or (ii) Indemnitee has been determined or deemed pursuant to Section 7(b) or (c) to have satisfied any applicable standard of conduct under Delaware law which is a legally required condition precedent to indemnification of Indemnitee hereunder against such Indemnifiable Losses, then the Company shall pay to Indemnitee, within five business days after the later of (x) the

7

Notification Date in respect of the Indemnifiable Claim or portion thereof to which such Indemnifiable Losses are related, out of which such Indemnifiable Losses arose or from which such Indemnifiable Losses resulted and (y) the earliest date on which the applicable criterion specified in clause (i) or (ii) above shall have been satisfied.

          (e) If a Standard of Conduct Determination is to be made by Independent Counsel pursuant to Section 7(b), the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. The Company may, within five business days after receiving written notice of selection from Indemnitee, deliver to Indemnitee a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not satisfy the criteria set forth in the definition of “Independent Counsel” in Section 1(h), and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person or firm so selected shall act as Independent Counsel. If such written objection is properly and timely made and substantiated, (i) the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit and (ii) Indemnitee may, at its option, select an alternative Independent Counsel and give written notice to the Company advising the Company of the identity of the alternative Independent Counsel so selected, in which case the provisions of the two immediately preceding sentences and clause (i) of this sentence shall apply to such subsequent selection and notice. If applicable, the provisions of clause (ii) of the immediately preceding sentence shall apply to successive alternative selections. If no Independent Counsel that is permitted under the foregoing provisions of this Section 7(e) to make the Standard of Conduct Determination shall have been selected within 30 days after the Company gives its initial notice pursuant to the first sentence of this Section 7(e) or Indemnitee gives its initial notice pursuant to the second sentence of this Section 7(e), as the case may be, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person or firm with respect to whom all objections are so resolved or the person or firm so appointed will act as Independent Counsel. In all events, the Company shall pay all of the reasonable fees and expenses of, and all other fees, expenses and other amounts paid or payable by, the Independent Counsel in connection with the Independent Counsel’s determination pursuant to Section 7(b), including in connection with any challenge thereto or defense thereof , and the Company shall fully indemnify and hold harmless such counsel against any and all expenses (including attorney’s fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

     8. Presumption of Entitlement. In making any Standard of Conduct Determination or other determination relating to this Agreement, the person or persons making such determination shall presume that Indemnitee has satisfied the applicable standard of conduct or otherwise is entitled to the treatment hereunder requested by Indemnitee, and the Company shall have the burden of proof to overcome such presumption and shall satisfy such burden of proof (and the person or persons making such determination shall be entitled to reach a conclusion contrary to such presumption) only if the Company adduces clear and convincing evidence to the contrary. Any Standard of Conduct Determination that is adverse to Indemnitee may be challenged by the Indemnitee in the Court of Chancery of the State of Delaware. No determination by the

8

Company (including by its directors or any Independent Counsel or any arbitration panel) that Indemnitee has not satisfied any applicable standard of conduct shall be a defense to any Claim by Indemnitee for indemnification or reimbursement or advance payment of Expenses by the Company hereunder or create a presumption that Indemnitee has not met any applicable standard of conduct.

     9. No Other Presumption. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, will not create a presumption that Indemnitee did not meet any applicable standard of conduct or that indemnification hereunder is otherwise not permitted.

     10. Reliance as Safe Harbor; Actions of Others.

          (a) For purposes of any Standard of Conduct Determination, Indemnitee shall be deemed to have met the requisite standard of conduct if Indemnitee’s action is based on the records or books of account of the Company, including financial statements, or on information supplied to Indemnitee by the officers of the Company in the course of their duties, or on the advice of legal counsel for the Company or on information or records given or reports made to the Company by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company. The provisions of this Section 10 shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

          (b) The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

     11. Non-Exclusivity. The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the Constituent Documents, or the substantive laws of the State of Delaware, any other contract or otherwise (collectively, “Other Indemnity Provisions”); provided, however, that (a) to the extent that Indemnitee otherwise would have any greater right to indemnification under any Other Indemnity Provision, Indemnitee will be deemed to have such greater right hereunder and (b) to the extent that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder. The Company will not adopt any amendment to any of the Constituent Documents the effect of which would be to deny, diminish or encumber Indemnitee’s right to indemnification under this Agreement or any Other Indemnity Provision.

     12. Liability Insurance and Funding. For the duration of Indemnitee’s service as a director and/or officer of the Company, and thereafter for so long as Indemnitee shall be subject to any pending or possible Indemnifiable Claim, the Company shall use commercially reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to cause to be maintained in effect policies of directors’ and officers’ liability insurance providing coverage for directors and/or officers of the Company that is at least substantially comparable in scope and amount to that provided by the Company’s current policies of directors’ and officers’ liability insurance. The Company shall provide Indemnitee with a copy of all directors’ and officers’ liability insurance applications, binders, policies, declarations,

9

endorsements and other related materials, and shall provide Indemnitee with a reasonable opportunity to review and comment on the same. Without limiting the generality or effect of the two immediately preceding sentences, no discontinuation or significant reduction in the scope or amount of coverage from one policy period to the next shall be effective (i) without the prior approval thereof by a majority vote of the Incumbent Directors, even if less than a quorum, or (ii) if at the time that any such discontinuation or significant reduction in the scope or amount of coverage is proposed there are no Incumbent Directors, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed). In all policies of directors’ and officers’ liability insurance obtained by the Company, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Company’s directors and officers most favorably insured by such policy. The Company may, but shall not be required to, create a trust fund, grant a security interest or use other means, including without limitation a letter of credit, to ensure the payment of such amounts as may be necessary to satisfy its obligations to indemnify and advance expenses pursuant to this Agreement.

     13. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the related rights of recovery of Indemnitee against other persons or entities (other than Indemnitee’s successors), including any entity or enterprise referred to in clause (i) of the definition of “Indemnifiable Claim” in Section 1(f). Indemnitee shall execute all papers reasonably required to evidence such rights (all of Indemnitee’s reasonable Expenses, including attorneys’ fees and charges, related thereto to be reimbursed by or, at the option of Indemnitee, advanced by the Company).

     14. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment to Indemnitee in respect of any Indemnifiable Losses to the extent Indemnitee has otherwise actually received payment (net of Expenses incurred in connection therewith) under any insurance policy, the Constituent Documents and Other Indemnity Provisions or otherwise (including from any entity or enterprise referred to in clause (i) of the definition of “Indemnifiable Claim” in Section 1(f)) in respect of such Indemnifiable Losses otherwise indemnifiable hereunder.

     15. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of the facts which gave rise to such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.

     16. Change in Control. The Company agrees that if there is a Change in Control of the Company, then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and advances of any Expenses under this Agreement or any other agreement or Company bylaw now or hereafter in effect relating to Indemnifiable Claims or Indemnifiable Losses, the Company shall seek legal advice only from Independent Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be

10

indemnified under applicable law. In all events, the Company shall pay all of the reasonable fees and expenses of, and all other fees, expenses and other amounts paid or payable by, the Independent Counsel referred to in this Section 16 in connection with the foregoing, including in connection with any challenge to or defense of any action or decision of such Independent Counsel, and the Company shall fully indemnify and hold harmless such counsel against any and all expenses (including attorney’s fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

     17. Defense of Claims. The Company shall be entitled to participate in the defense of any Indemnifiable Claim or to assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee; provided that if Indemnitee believes, after consultation with counsel selected by Indemnitee, that (a) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict, (b) the named parties in any such Indemnifiable Claim (including any impleaded parties) include both the Company and Indemnitee and Indemnitee shall conclude that there may be one or more legal defenses available to him or her that are different from or in addition to those available to the Company, or (c) any such representation by such counsel would be precluded under the applicable standards of professional conduct then prevailing, then Indemnitee shall be entitled to retain separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any particular Indemnifiable Claim) at the Company’s expense. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any threatened or pending Indemnifiable Claim effected without the Company’s prior written consent. The Company shall not, without the prior written consent of the Indemnitee, effect any settlement of any threatened or pending Indemnifiable Claim which the Indemnitee is or could have been a party unless such settlement solely involves the payment of money and includes a complete and unconditional release of the Indemnitee from all liability on any claims that are the subject matter of such Indemnifiable Claim. Neither the Company nor Indemnitee shall unreasonably withhold its consent to any proposed settlement; provided that Indemnitee may withhold consent to any settlement that does not provide a complete and unconditional release of Indemnitee.

     18. Successors and Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Indemnitee and his or her counsel, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any person acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the “Company” for purposes of this Agreement), but shall not otherwise be assignable or delegatable by the Company.

          (a) This Agreement shall inure to the benefit of and be enforceable by the Indemnitee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, legatees and other successors.

          (b) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or delegate this Agreement or any rights or obligations

11

hereunder except as expressly provided in Sections 18(a) and 18(b). Without limiting the generality or effect of the foregoing, Indemnitee’s right to receive payments hereunder shall not be assignable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by the Indemnitee’s will or by the laws of descent and distribution, and, in the event of any attempted assignment or transfer contrary to this Section 18(c), the Company shall have no liability to pay any amount so attempted to be assigned or transferred.

     19. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or dispatched by electronic or facsimile transmission (with receipt thereof orally confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid or one business day after having been sent for next-day delivery by a nationally recognized overnight courier service, addressed to the Company (to the attention of the Secretary of the Company) and to Indemnitee at the addresses shown on the signature page hereto, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt.

     20. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Delaware, without giving effect to the principles of conflict of laws of such State. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the Chancery Court of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the Chancery Court of the State of Delaware.

     21. Validity. If any provision of this Agreement or the application of any provision hereof to any person or circumstance is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstance shall not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent, and only to the extent, necessary to make it enforceable, valid or legal. In the event that any court or other adjudicative body shall decline to reform any provision of this Agreement held to be invalid, unenforceable or otherwise illegal as contemplated by the immediately preceding sentence, the parties thereto shall take all such action as may be necessary or appropriate to replace the provision so held to be invalid, unenforceable or otherwise illegal with one or more alternative provisions that effectuate the purpose and intent of the original provisions of this Agreement as fully as possible without being invalid, unenforceable or otherwise illegal.

     22. Miscellaneous. No provision of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in writing signed by Indemnitee and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by

12

either party that are not set forth expressly in this Agreement. References to Sections are to references to Sections of this Agreement.

     23. Legal Fees and Expenses. It is the intent of the Company that Indemnitee not be required to incur legal fees and or other Expenses associated with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to Indemnitee hereunder. Accordingly, without limiting the generality or effect of any other provision hereof, if it should appear to Indemnitee that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from time to time to retain counsel of Indemnitee’s choice, at the expense of the Company as hereafter provided, to advise and represent Indemnitee in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Indemnitee’s entering into an attorney-client relationship with such counsel, and in that connection the Company and Indemnitee agree that a confidential relationship shall exist between Indemnitee and such counsel. Without respect to whether Indemnitee prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys’ and expert’s fees and expenses, and any and all other costs, expenses and other amounts otherwise paid or payable by Indemnitee in connection with any of the foregoing.

     24. Certain Interpretive Matters. No provision of this Agreement shall be interpreted in favor of, or against, either of the parties hereto by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof.

     25. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together shall constitute one and the same agreement.

[Signatures Appear On Following Page]

13

     IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused its duly authorized representative to execute this Agreement as of the date first above written.

LAIDLAW INTERNATIONAL, INC.
55 Shuman Boulevard
Naperville, Illinois 60563

By:

Name: Beth B. Corvino
Title: Senior Vice President, General Counsel and
          Corporate Secretary

INDEMNITEE
[Name]
[Address]

14

EX-10.2

Exhibit 10.2

AMENDMENT NUMBER ONE TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT

     This Amendment Number One to Amended and Restated Loan and Security Agreement (“Amendment”) is entered into as of July 6, 2004, by and among GREYHOUND LINES, INC., a Delaware corporation (“Borrower”), on the one hand, and the financial institutions listed on the signature pages hereof (such financial institutions, together with their respective successors and assigns, are referred to hereinafter each individually as a “Lender” and collectively as the “Lenders”), and WELLS FARGO FOOTHILL, INC., a California corporation (formerly known as Foothill Capital Corporation), as agent (“Agent”), on the other hand, in light of the following:

     A. Borrower, Lenders, and Agent have previously entered into that certain Amended and Restated Loan and Security Agreement, dated as of May 14, 2003 (as amended and modified, from time to time, the “Agreement”).

     B. Borrower, Lenders, and Agent desire to amend the Agreement as provided for and on the conditions herein.

     NOW, THEREFORE, Borrower, Lenders, and Agent hereby amend and supplement the Agreement as follows:

     1. DEFINITIONS. All initially capitalized terms used in this Amendment shall have the meanings given to them in the Agreement unless specifically defined herein.

     2. AMENDMENTS.

               (a) The following definitions are hereby added to Section 1.1 of the Agreement:

               “Acceptable Projections” has the meaning set forth in Section 3.4.

               “Activation Period” has the meaning set forth in Section 2.8.

               “Adjusted Wholesale Value” means, with respect to a Vehicle, and as of any date of measurement, the product of (x) the Wholesale Value of such Vehicle times (y) the difference of (i) 1.00 minus (ii) (A) the Adjustment Factor times (B) the number of calendar months that have begun since Agent’s receipt of the most recent Current Appraisal, commencing with July 1, 2004; provided, however, that in the event Borrower delivers to Agent a subsequent Current Appraisal which ascribes the same or higher aggregate value to the Vehicles than was ascribed in the prior Current Appraisal, then Adjusted Wholesale Value shall, until any subsequent Current Appraisal, mean the Wholesale Value of such Vehicles.

1

               “Adjustment Factor” means 0.005 from the Amendment Effective Date until delivery by Borrower to Agent of the next Current Appraisal, and thereafter from the delivery of each new Current Appraisal until the delivery of the next Current Appraisal; provided, however, that in the event Borrower delivers to Agent a Current Appraisal which ascribes a lower aggregate value to the Vehicles than was attributed to such Vehicles based upon the immediately preceding Current Appraisal, then the Adjustment Factor shall be recalculated as follows: (A) the difference of (i) the aggregate value attributed to such Vehicles based upon the prior Current Appraisal less (ii) the aggregate value attributed to such Vehicles based upon in the most recent Current Appraisal, divided by (B) the aggregate value attributed to such Vehicles based upon the prior Current Appraisal, the quotient of which shall be divided by 12.¹

               “Amendment Effective Date” means July 6, 2004.

               “Applicable Prepayment Premium” means, as of any date of determination (which shall be the actual date on which the termination of the Commitments occurs), an amount equal to (a) during the period from and after the Amendment Effective Date through October 24, 2005, 1% times the Prepayment Calculation Amount, (b) during the period from and including October 25, 2005 through October 23, 2006, 0.5% times the Prepayment Calculation Amount, and (c) during the period from and after October 24, 2006, irrespective of whether Borrower has extended the Maturity Date pursuant to the terms of Section 3.4, $0.

               “Chief Financial Officer” means the principal accounting or financial officer of Borrower.

               “Leverage Ratio” means, as of any date of determination, a ratio of Borrower’s Total Indebtedness (measured as of the end of Borrower’s most recent fiscal quarter) to Borrower’s Consolidated Cash Flow (measured as of the end of Borrower’s most recent fiscal quarter and calculated on a trailing four fiscal quarter basis).

               “Prepayment Calculation Amount” means (A) in the event Borrower delivers notice to Agent of its intent to terminate this Agreement and prepay the Obligations, the greater of (i) the Maximum Revolving Amount on such notice date, or (ii) the Maximum Revolving Amount on the date 120 days prior to such notice date, and (B) in the event this Agreement is terminated and the Obligations are prepaid as set forth in the last sentence of Section 3.6, the Maximum Revolving Amount immediately prior to such termination.

¹       For example, if the prior Current Appraisal attributed an aggregate value of $100 to the Vehicles, and the aggregate value attributed to such Vehicles based upon the most recent Current Appraisal is $80, the Adjustment Factor would be calculated as follows: 100 - 80 = 20; 20 ¸ 100 = 0.2; 0.2 ¸ 12 = 0.017; thus, the recalculated Adjustment Factor would be 0.017.

2

               (b) The following definitions set forth in Section 1.1 of the Agreement are hereby amended to read as follows:

               “Base Rate Margin” means, as of any date of determination, the following per annum margin based upon Borrower’s most recent Leverage Ratio calculation (determined as set forth in the following paragraph):

Level	Leverage Ratio	Base Rate Margin
I	Less than or equal to 2.50:1.00		0.375	%
II	Greater than 2.50:1.00 but less than or equal to 2.75:1.00		0.75	%
III	Greater than 2.75:1.00 but less than or equal to 3.00:1.00		1.125	%
IV	Greater than 3.00:1.00 but less than or equal to 3.25:1.00		1.50	%
V	Greater than 3.25:1.00 but less than or equal to 3.50:1.00		1.875	%
VI	Greater than 3.50:1.00		2.25	%

During the period from the Amendment Effective Date through the first day of the month following the date Borrower is required to deliver to Agent the certified calculation of the Leverage Ratio pursuant to Section 6.4(d) for the fiscal quarter ending September 30, 2004, the Base Rate Margin shall be set at the margin in the row styled “Level IV” and thereafter, the Base Rate Margin shall be re-determined each quarter on the first day of the month following the date Borrower is required to deliver to Agent the certified calculation of the Leverage Ratio pursuant to Section 6.4(d); provided, however, that, in any case, if such certification is not delivered to Agent when due, the applicable Base Rate Margin shall be set at the margin in the row styled “Level VI” as of the first day of the month following the date on which the certification was required to be delivered until the date on which such certification is delivered (on which date (but not retroactively), without constituting a waiver of any Default or Event of Default occasioned by the failure to timely deliver such certification, the Base Rate Margin shall be set at the margin based upon the Leverage Ratio calculation disclosed by such certification). Notwithstanding anything in this Agreement to the contrary, in the event that the audited financial statements of Borrower required hereunder for any fiscal year indicate that the actual Leverage Ratio was higher or lower for the fourth fiscal quarter in such fiscal year than previously reported in the quarterly financial statements for such quarter, then the Base Rate Margin shall be adjusted retroactively (to the effective date of the Base Rate Margin which was based upon the delivery of such incorrect financial statements) to reflect the correct margin, and either (a) Borrower shall make payments to Agent, for the ratable benefit of Lenders, or (b) Agent shall credit the Loan Account, as applicable, to reflect such adjustment.

3

               “Eurodollar Rate Margin” means, as of any date of determination, the following per annum margin based upon Borrower’s most recent Leverage Ratio calculation (determined as set forth in the following paragraph):

Level	Leverage Ratio	Eurodollar Rate Margin
I	Less than or equal to 2.50:1.00		2.375	%
II	Greater than 2.50:1.00 but less than or equal to 2.75:1.00		2.75	%
III	Greater than 2.75:1.00 but less than or equal to 3.00:1.00		3.125	%
IV	Greater than 3.00:1.00 but less than or equal to 3.25:1.00		3.50	%
V	Greater than 3.25:1.00 but less than or equal to 3.50:1.00		3.875	%
VI	Greater than 3.50:1.00		4.25	%

During the period from the Amendment Effective Date through the first day of the month following the date Borrower is required to deliver to Agent the certified calculation of the Leverage Ratio pursuant to Section 6.4(d) for the fiscal quarter ending September 30, 2004, the Eurodollar Rate Margin shall be set at the margin in the row styled “Level IV” and thereafter, the Eurodollar Rate Margin shall be re-determined each quarter on the first day of the month following the date Borrower is required to deliver to Agent the certified calculation of the Leverage Ratio pursuant to Section 6.4(d); provided, however, that, in any case, if such certification is not delivered to Agent when due, the applicable Eurodollar Rate Margin shall be set at the margin in the row styled “Level VI” as of the first day of the month following the date on which the certification was required to be delivered until the date on which such certification is delivered (on which date (but not retroactively), without constituting a waiver of any Default or Event of Default occasioned by the failure to timely deliver such certification, the Eurodollar Rate Margin shall be set at the margin based upon the Leverage Ratio calculation disclosed by such certification). Notwithstanding anything in this Agreement to the contrary, in the event that the audited financial statements of Borrower required hereunder for any fiscal year indicate that the actual Leverage Ratio was higher or lower for the fourth fiscal quarter in such fiscal year than previously reported in the quarterly financial statements for such quarter, then the Eurodollar Rate Margin shall be adjusted retroactively (to the effective date of the Eurodollar Rate Margin which was based upon the delivery of such incorrect financial statements) to reflect the correct margin, and either (a) Borrower shall make payments to Agent, for the ratable benefit of Lenders, or (b) Agent shall credit the Loan Account, as applicable, to reflect such adjustment.

               (c) Section 2.1(a) of the Agreement is hereby amended to read as follows:

4

               “(a) Subject to the terms and conditions of this Agreement, each Lender agrees to make advances (“Advances”) to Borrower in an amount at any one time outstanding not to exceed such Lender’s Pro-Rata Share of an amount equal to the lesser of (i) the Maximum Revolving Amount less the aggregate amount of all undrawn or unreimbursed Letters of Credit, or (ii) the Borrowing Base less the aggregate amount of all undrawn or unreimbursed Letters of Credit. For purposes of this Agreement, “Borrowing Base,” as of any date of determination, shall mean the result of:

(x)	80% of the Adjusted Wholesale Value of Core Vehicles; plus
(y)	the least of (i) 65% of the Quick Sale Value of Core Real Property Collateral, (ii) 45% of the total amount available under clause 2.1(a)(x) above, and (iii) the Maximum Real Estate Amount; minus
(z)	the aggregate amount of reserves, if any, established by Agent under Sections 2.1(b) or 10.”

               (d) Section 2.7(c) of the Agreement is hereby amended to read as follows:

               “(c) Default Rate. Upon the occurrence and during the continuation of an Event of Default at the election of Agent or the Required Lenders,

                    (i) all Obligations (except for undrawn Letters of Credit) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 3% above the per annum rate otherwise applicable to such Obligations hereunder, and

                    (ii) the Letter of Credit fee provided for above shall be increased to 3% above the per annum rate otherwise applicable hereunder.”

               (e) Section 2.8 of the Agreement is hereby amended to read as follows:

               “2.8 Collection of Accounts. Borrower shall at all times maintain lockboxes (the “Lockboxes”) and shall instruct all Account Debtors with respect to the Accounts, General Intangibles, and Negotiable Collateral of Borrower to remit all Collections in respect thereof to such Lockboxes or to local deposit accounts at financial institutions reasonably acceptable to Agent.

5

Borrower, Agent, and the Lockbox Banks shall enter into the Lockbox Agreements, which among other things shall provide for the opening of a Lockbox Account for the deposit of Collections at a Lockbox Bank. Borrower agrees that: (i) all good funds on deposit in each local collection account (other than a local collection account which is either an Excluded Account or which is subject to a Control Agreement) in excess of $25,000 per account shall be swept pursuant to standing instructions (by wire transfer or ACH transaction) on a daily basis to a Lockbox Account; and (ii) all Collections and other amounts received by Borrower from any Account Debtor or any other source immediately upon receipt shall be deposited into a Lockbox Account. No Lockbox Agreement or arrangement contemplated thereby shall be modified by Borrower without the prior written consent of Agent. Upon the terms and subject to the conditions set forth in the Lockbox Agreements, during the period following a notice of exclusive control (each such notice, a “Lockbox Notice”) from the Agent to the relevant Lockbox Bank and continuing until such time, if any, as Agent has delivered to such Lockbox Bank a Subsequent Notice as set forth below (such period, an “Activation Period”), all amounts received in each Lockbox Account shall be wired each Business Day into an account (the “Agent’s Account”) maintained by Agent at a depositary selected by Agent. Notwithstanding anything to the contrary contained in this Section 2.8 or elsewhere in this Agreement, all amounts in the applicable Lockbox Account shall be forwarded pursuant to the instructions of Borrower given to such Lockbox Bank from time to time unless an Activation Period is then in effect. Agent shall be entitled to give the Lockbox Notice to the Lockbox Bank at any time after either (i) Borrower’s Availability is less than $25,000,000 for five consecutive Business Days, or is less than $10,000,000 on any Business Day, or (ii) the occurrence of an Event of Default. If a Lockbox Notice has been sent and both (x) there does not exist any Event of Default (and any Event of Default upon which such Lockbox Notice was based has been waived pursuant to the terms of this Agreement), and (y) Borrower’s Availability has been $25,000,000 or more for at least the last five consecutive Business Days, then, in Agent’s sole discretion, Agent may give the relevant Lockbox Bank an instruction permitting Borrower to once again direct the disbursement of funds on deposit in such Lockbox Account (such instruction a “Subsequent Notice”).”

               (f) Section 2.12(b) of the Agreement is hereby amended to read as follows:

               “(b) Unused Line Fee. On the first day of each month during the term of this Agreement, an unused line fee in an amount equal to 0.375% per annum times the Average Unused Portion of the Maximum Revolving Amount;”

               (g) Section 2.12(c) of the Agreement is hereby amended to read as follows:

6

               “(c) Financial Examination Fees. For the sole account of Agent, a fee of $1,000 per day per examiner, plus reasonable out-of-pocket expenses for each financial analysis and examination (i.e., audits) of Borrower performed by personnel employed by Agent.”

               (h) Section 2.13(c) of the Agreement is hereby amended to read as follows:

               “(c) Automatic Conversion; Optional Conversion by Agent. Any Eurodollar Rate Loan shall automatically be continued for an additional one month Interest Period upon the last day of the applicable Interest Period, unless Agent has received a contrary request to cancel, convert, or continue such Eurodollar Rate Loan at least two Business Days prior to the end of such Interest Period in accordance with the terms of Section 2.13(a). Any Eurodollar Rate Loan shall, at Agent’s option, upon notice to Borrower, convert to a Base Rate Loan in the event that (A) an Event of Default shall have occurred and be continuing as of the last day of the Interest Period for such Eurodollar Rate Loan, or (B) this Agreement shall terminate, and Borrower shall pay to Agent (for the benefit of the Lender Group), any amounts required by Section 2.17 as a result thereof.”

               (i) Section 3.4 of the Agreement is hereby amended to read as follows:

               “3.4 Term. This Agreement shall become effective upon the execution and delivery hereof by Borrower and the Lender Group and shall continue in full force and effect for a term ending on the earlier of (a) October 24, 2006 (the “Maturity Date”), or (b) termination hereof by the Lender Group pursuant to Section 9.1(b) following an Event of Default. Without limiting the foregoing, the Borrower shall have the right to extend the Maturity Date of this Agreement to October 24, 2007 provided that (i) Borrower gives Agent written notice of its request to extend the term by August 24, 2006, (ii) the Lender Group has not otherwise already terminated this Agreement pursuant to Section 9.1(b) following an Event of Default, (iii) no Default or Event of Default then exists, (iv) Borrower has delivered to Agent, on or before August 24, 2006, an annual forecast and financial projections (to include forecasted consolidated and consolidating balance sheets, income statements and cash flow statements) for Borrower and its Subsidiaries as at the end of and for each then remaining month and quarter of Borrower’s fiscal year ended 2006 and for each month and quarter of Borrower’s fiscal year ended 2007, in form and substance satisfactory to Agent and Required Lenders (the “Acceptable Projections”), and (v) Borrower has incurred Permitted Refinancing Indebtedness in respect of the Senior Notes, the terms of which shall provide for, inter alia, a maturity date no earlier than January 24, 2008.”

               (j) Section 3.6 of the Agreement is hereby amended to read as follows:

7

               “3.6 Early Termination by Borrower. Borrower has the option, at any time upon 30 days prior written notice to Agent, to terminate this Agreement by paying to Agent, in cash, the Obligations (including either (i) providing cash collateral (or backstop letters of credit issued by a Person acceptable to the Agent) to be held by Agent for the benefit of the Lenders in an amount equal to 105% of the Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuer), in full, together with the Applicable Prepayment Premium (to be allocated based upon agreements between Agent and individual Lenders). If Borrower has sent a notice of termination pursuant to the provisions of this Section, then the Commitments shall terminate and Borrower shall be obligated to repay the Obligations (including either (i) providing cash collateral (or backstop letters of credit issued by a Person acceptable to the Agent) to be held by Agent for the benefit of the Lenders in an amount equal to 105% of the Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuer), in full, together with the Applicable Prepayment Premium, on the date set forth as the date of termination of this Agreement in such notice. In the event of the termination of this Agreement and repayment of the Obligations at any time prior to the Maturity Date, for any other reason, including (a) termination upon the election of the Required Lenders to terminate after the occurrence and during the continuation of an Event of Default, (b) foreclosure and sale of Collateral, (c) sale of the Collateral in any Insolvency Proceeding, or (d) restructure, reorganization, or compromise of the Obligations by the confirmation of a plan of reorganization or any other plan of compromise, restructure, or arrangement in any Insolvency Proceeding, then, in view of the impracticability and extreme difficulty of ascertaining the actual amount of damages to the Lender Group or profits lost by the Lender Group as a result of such early termination, and by mutual agreement of the parties as to a reasonable estimation and calculation of the lost profits or damages of the Lender Group, Borrower shall pay the Applicable Prepayment Premium to Agent (to be allocated based upon agreements between Agent and individual Lenders), measured as of the date of such termination.”

               (k) Section 4.3 of the Agreement is hereby amended to read as follows:

               “4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral. Agent, Borrower, and the Lockbox Banks have entered into the Lockbox Agreements or Control Agreements, as applicable, pursuant to which, following notification from Agent under the terms of Section 2.8, Borrower’s Collections (excluding Collections in the local collection accounts not covered by Control Agreements (which will be forwarded pursuant to Section 2.8) and Excluded Accounts and receipts generated from Mexico and Canada and proceeds of Investments) will be forwarded to Agent on a daily basis. At any time following the occurrence of an Event of Default, Agent or Agent’s designee may, and shall if directed by Required Lenders: (a) notify customers or Account Debtors of Borrower that the Accounts, General Intangibles, or Negotiable Collateral have been assigned to Agent (on behalf of the Lender Group) or that

8

Agent has a security interest therein; and (b) collect the Accounts, General Intangibles, and Negotiable Collateral directly and charge the collection costs and expenses to the Loan Account. Borrower agrees that during either (i) an Activation Period, or (ii) the continuance of an Event of Default, Borrower will hold in trust for the Lender Group, as the Lender Group’s trustee, any Collections that it receives and immediately will deliver said Collections to Agent in their original form as received by Borrower.”

               (l) Section 6.4(d) of the Agreement is hereby amended to read as follows:

               “(d) Concurrently with the delivery of Borrower’s company prepared balance sheet, income statement, and statement of cash flows required under Section 6.4(a)(i) for the fiscal quarters ending March 31, June 30, and September 30, and concurrently with the delivery of Borrower’s audited financial statements required under Section 6.4(a)(ii) for the fiscal quarter ending December 31, Borrower shall deliver to Agent a Financial Covenant Compliance Certificate signed by its Chief Financial Officer, indicating the financial ratios set forth in Section 7.19, as of the end of such quarter, and containing such supporting data and calculations, in reasonable detail, as Agent shall require. Without limiting the foregoing, Borrower shall also deliver to Agent, on or before February 15th of each calendar year, a certificate signed by its Chief Financial Officer indicating the unaudited Leverage Ratio calculation for the fiscal quarter ending on the preceding December 31.”

               (m) Section 6.4(g) of the Agreement is hereby amended to read as follows:

               “(g) Borrower shall deliver to Agent, not less than 30 days prior to the end of each of Borrower’s fiscal years, an annual forecast and financial projections (to include forecasted consolidated and consolidating balance sheets, income statements and statements of cash flows) for Borrower and its Subsidiaries as at the end of and for each month and quarter of Borrower’s immediately subsequent 2 fiscal years.”

               (n) Section 6.18 of the Agreement is hereby amended to read as follows:

               “6.18 Updated Current Appraisals. The Agent, in its reasonable discretion, may require new appraisals from time to time on the General Intangibles (including the Borrower’s and its Restricted Subsidiaries’ individual and collective enterprise value), Vehicles or the Core Real Property Collateral. Borrower will cooperate with all reasonable requests and do all acts reasonably required by Agent and any Persons employed by them as appraisers in order to assure the timely completion of such new appraisals, and Borrower shall pay to Agent the actual charges paid or incurred by Agent for: (a) one full site appraisal in each calendar year for the Vehicles, (b) one appraisal during the

9

period from the Amendment Effective Date through and including the Maturity Date, for the General Intangibles (including the Borrower’s and its Restricted Subsidiaries’ individual and collective enterprise value), (c) one appraisal in each calendar year for each parcel of Core Real Property Collateral, (d) following a request by Borrower for an extension of the Maturity Date as provided in Section 3.4, such additional site, full, or desk top appraisals of the Vehicles, the General Intangibles, and the Core Real Property, as Agent shall require, and (e) following an Event of Default, such additional site, full, or desk top appraisals of the assets of Borrower and its Restricted Subsidiaries as Agent shall require.”

               (o) Section 7.19 of the Agreement is hereby amended to read as follows:

               “7.19 Financial Covenants. Fail to maintain:

                    (a) Leverage Ratio. A Leverage Ratio that is not greater than the following amount as of the end of the following fiscal quarters of Borrower:

Fiscal Quarter Ending	Maximum Ratio
6/30/04		4.75:1.00
9/30/04		4.75:1.00
12/31/04		4.75:1.00
3/31/05		3.89:1.00
6/30/05		3.91:1.00
9/30/05		3.38:1.00
12/31/05		3.20:1.00
3/31/06		3.44:1.00

                    (b) Minimum Consolidated Interest Coverage Ratio. A Consolidated Interest Coverage Ratio of at least the following amount as of the end of the following fiscal quarters of Borrower, calculated on a trailing four fiscal quarter basis:

Fiscal Quarter Ending	Minimum Ratio
6/30/04		2.00:1.00
9/30/04		2.00:1.00
12/31/04		2.00:1.00
3/31/05		2.59:1.00
6/30/05		2.68:1.00
9/30/05		2.80:1.00
12/31/05		3.00:1.00
3/31/06		3.19:1.00

10

                    (c) Minimum Consolidated Cash Flow. Consolidated Cash Flow of at least the following amount as of the end of the following fiscal quarters of Borrower calculated on a trailing four fiscal quarter basis (except as specifically set forth to the contrary below):

Fiscal Quarter Ending	Minimum Cash Flow
6/30/04	$	7,000,000
(for the two quarters then ended)
9/30/04	$	59,224,000
12/31/04	$	62,543,000
3/31/05	$	67,522,000
6/30/05	$	70,268,000
9/30/05	$	73,245,000
12/31/05	$	78,605,000
3/31/06	$	83,424,000

provided, however, in the event that Borrower’s financial projections are timely delivered to Agent pursuant to the terms of this Agreement, Borrower and Agent will negotiate in good faith to determine new levels for each of the financial covenants set forth in paragraphs 7.19(a), (b) and (c) above for periods commencing June 30, 2006 and thereafter. With respect to the covenant levels set forth in Sections 7.19(a) and (b), Agent shall set such new financial covenant levels at 80% of those projected in the Acceptable Projections, and, with respect to the covenant levels set forth in Section 7.19(c), at 85% of those projected in the Acceptable Projections. In the event that such reset covenants are acceptable to Required Lenders and Borrower, this Agreement will be amended accordingly. An amendment solely to address the resetting of covenants for periods after March 31, 2006 pursuant to this Section 7.19 shall not require the payment of a fee to Agent or the Lenders.

     Notwithstanding the foregoing, in the event that Borrower fails to timely deliver to Agent the financial projections required under this Agreement, the financial covenants set forth in Section 7.19 shall be set for the fiscal quarter ending June 30, 2006 and for each fiscal quarter thereafter, as follows: (A) the minimum Leverage Ratio required under Section 7.19(a) shall be 3.20:1.00; (B) the minimum Consolidated Interest Coverage Ratio required under Section 7.19(b) shall be 3.19:1.00; and (C) the minimum Consolidated Cash Flow required under Section 7.19(c) shall be $83,424,000.”

               (p) Schedules C-1, 5.3(a), and 5.8 to the Agreement are hereby deleted in their entirety and replaced with Schedules C-1, 5.3(a), and 5.8 attached hereto.

          3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Agent and the Lenders that all of Borrower’s representations and warranties set forth

11

in the Agreement are true and correct in all material respects as of the date hereof (except to the extent that such representations and warranties relate solely to an earlier date).

          4. NO DEFAULTS. Borrower hereby affirms to Agent and the Lenders that no Event of Default has occurred and is continuing as of the date hereof.

          5. CONDITIONS TO EFFECTIVENESS.

               (a) Conditions Precedent. The effectiveness of this Amendment is expressly conditioned upon the following:

               (i) Payment by Borrower to Agent, for the ratable benefit of the Lenders, based upon their commitments set forth in Schedule C-1 attached hereto, of an amendment fee in the aggregate amount of $750,000, such fee to be charged to Borrower’s loan account pursuant to Section 2.7(e) of the Agreement;

               (ii) Receipt by Agent of a duly executed amendment to each Mortgage on Core Real Property and such other Real Property Collateral as Agent, in its discretion, shall request; and

               (iii) Receipt by Agent of a copy of this Amendment executed by Borrower and all Lenders.

               (b) Condition Subsequent. As a condition subsequent to the effectiveness of this Amendment, within 45 days of the date of this Amendment, Borrower shall have delivered to Agent, in respect of each parcel of Core Real Property Collateral, such title insurance policies or endorsements as Agent determines to be necessary for such parcel to be considered Core Real Property Collateral as defined in the Agreement. The failure by Borrower to satisfy the foregoing condition in the prescribed time period shall permit the Agent to create a reserve against the Borrowing Base under Section 2.1, by such amount as determined by Agent in its sole discretion.

          6. COSTS AND EXPENSES. Borrower shall pay to Agent all of Agent’s reasonable out-of-pocket costs and expenses (including, without limitation, the reasonable fees and expenses of its counsel, which counsel may include any local counsel deemed necessary, search fees, filing and recording fees, documentation fees, appraisal fees, travel expenses, and other fees) arising in connection with the preparation, execution, and delivery of this Amendment and all related documents.

          7. LIMITED EFFECT. In the event of a conflict between the terms and provisions of this Amendment and the terms and provisions of the Agreement, the terms and provisions of this Amendment shall govern. In all other respects, the Agreement, as amended and supplemented hereby, shall remain in full force and effect.

          8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall

12

become effective upon the execution of a counterpart of this Amendment by each of the parties hereto.

          9. AGREEMENT TO AMEND LOCKBOX AGREEMENTS. Agent agrees that, promptly following the effectiveness of this Amendment, it will cooperate with Borrower and each Lockbox Bank to amend any existing Lockbox Agreements to effectuate the changes provided for in this Amendment with regard to the Lockbox Accounts.

[remainder of this page left blank intentionally; signatures to follow]

13

          IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above.

WELLS FARGO FOOTHILL, INC., as Agent and as a Lender
By:
	Name:
	Title:

Amendment Number One to Amended and Restated
Loan and Security Agreement

S-1

CONGRESS FINANCIAL CORPORATION (SOUTHWEST), as a Lender
By:
	Name:
	Title:

Amendment Number One to Amended and Restated
Loan and Security Agreement

S-2

FLEET CAPITAL CORPORATION, as a Lender
By:
	Name:
	Title:

Amendment Number One to Amended and Restated
Loan and Security Agreement

S-3

GREYHOUND LINES, INC.
By:
	Name:	Stephen E. Gorman
	Title:	President and CEO

Amendment Number One to Amended and Restated
Loan and Security Agreement

S-4

          Each of the undersigned has executed a Continuing Guaranty in favor of the Lender Group (as defined in each Continuing Guaranty) respecting the obligations of Greyhound Lines, Inc., a Delaware corporation (“Borrower”) owing to the Lender Group. Each of the undersigned acknowledges the terms of the above Amendment and reaffirms and agrees that its Continuing Guaranty remains in full force and effect; nothing in such Continuing Guaranty obligates the Lender Group to notify the undersigned of any changes in the financial accommodations made available to Borrower or to seek reaffirmations of the Continuing Guaranty; and no requirement to so notify the undersigned or to seek reaffirmations in the future shall be implied by the execution of this reaffirmation.

ATLANTIC GREYHOUND LINES OF VIRGINIA, INC.,
a Virginia corporation

By:                                                                            
Name: Cheryl W. Farmer
Title: Vice President-Finance

SISTEMA INTERNACIONAL DE TRANSPORTE DE AUTOBUSES,
INC., a Delaware corporation

By:                                                                            
Name: Stephen E. Gorman
Title: President and CEO

GLI HOLDING COMPANY,
a Delaware corporation

By:                                                                            
Name: Stephen E. Gorman
Title: President and CEO

Amendment Number One to Amended and Restated
Loan and Security Agreement

S-5

TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC., a
Delaware corporation

By:                                                                            
Name: Cheryl W. Farmer
Title: Vice President-Finance

VERMONT TRANSIT CO., INC.,
a Vermont corporation

By:                                                                            
Name: Cheryl W. Farmer
Title: Vice President-Finance

T.N.M. & O. TOURS, INC.,
a Texas corporation

By:                                                                            
Name: Cheryl W. Farmer
Title: Vice President-Finance

RCL LIQUIDATION, L.L.C.,
a Delaware limited liability company

By:                                                                            
Name: Stephen E. Gorman
Title: President and CEO

CAROLINA COACH COMPANY,
a Virginia corporation

By:                                                                            
Name: Cheryl W. Farmer
Title: Vice President-Finance

Amendment Number One to Amended and Restated
Loan and Security Agreement

S-6

SEASHORE TRANSPORTATION COMPANY,
a North Carolina corporation

By:                                                                            
Name: Cheryl W. Farmer
Title: Vice President-Finance

LSX DELIVERY, L.L.C.,
a Delaware limited liability company

By:                                                                            
Name: Stephen E. Gorman
Title: Chairman of the Board

VALLEY GARAGE COMPANY,
a Texas corporation

By:                                                                            
Name: Cheryl W. Farmer
Title: Vice President-Finance

VALLEY TRANSIT CO., INC.,
a Texas corporation

By:                                                                            
Name: Cheryl W. Farmer
Title: Vice President-Finance

ON TIME DELIVERY SERVICE, INC.,
a Minnesota corporation

By:                                                                            
Name: Stephen E. Gorman
Title: Chief Executive Officer

Amendment Number One to Amended and Restated
Loan and Security Agreement

S-7

Schedule C-1

Commitments

Wells Fargo Foothill	$	50,000,000
Congress Financial Corporation (Southwest)	$	45,000,000
Fleet Capital Corporation	$	30,000,000
Total	$	125,000,000

Schedule C-1

EX-31.1

Exhibit 31.1

PRINCIPAL EXECUTIVE OFFICER’S CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, Kevin E. Benson, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Laidlaw International, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 12, 2004	/s/ Kevin E. Benson
	Kevin E. Benson
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

PRINCIPAL FINANCIAL OFFICER’S CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, Douglas A. Carty, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Laidlaw International, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 12, 2004	/s/ Douglas A. Carty
	Douglas A. Carty
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Laidlaw International, Inc. (the “Company”) on Form 10-Q for the quarter ended May 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Date: July 12, 2004

/s/ Kevin E. Benson  

Name: Kevin E. Benson 

Title: President and Chief Executive Officer 

/s/ Douglas A. Carty  

Name: Douglas A. Carty 

Title: Senior Vice President and Chief Financial Officer 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as a part of this report or on a separate disclosure document