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 June 30, 2001

or

	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 — For the transition period from _______________________ to _______________________
	Commission File Number: 0-22276

ALLIED HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

GEORGIA	58-0360550
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

Suite 200, 160 Clairemont Avenue, Decatur, Georgia 30030

(Address of principal executive offices)

(404) 373-4285

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

     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         No

Outstanding common stock, No par value at July 31, 2001 8,242,851

TOTAL NUMBER OF PAGES INCLUDED IN THIS REPORT: 42

1

TABLE OF CONTENTS

PART 1 FINANCIAL INFORMATION
	ITEM 1 FINANCIAL STATEMENTS
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENTS OF OPERATIONS
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	Notes to Consolidated Financial Statements (Unaudited)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II
OTHER INFORMATION
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K.
Employment Agreement

INDEX

PART I

FINANCIAL INFORMATION

		PAGE
ITEM 1:	FINANCIAL STATEMENTS
	Consolidated Balance Sheets as of June 30, 2001 and
	December 31, 2000		3
	Consolidated Statements of Operations for the Three and Six
	Month Periods Ended June 30, 2001 and 2000		4
	Consolidated Statements of Cash Flows for the Six
	Month Periods Ended June 30, 2001 and 2000		5
	Notes to Consolidated Financial Statements		6
ITEM 2
	Management's Discussion and Analysis of Financial
	Condition and Results of Operations		18
ITEM 3
	Quantitative and Qualitative Disclosures about Market Risk		20

PART II

OTHER INFORMATION

ITEM 4
	Submission of Matters to a Vote of Security Holders	23
ITEM 5
	Other Information	23
ITEM 6
	Exhibits and Reports on Form 8-K	24
	Signature Page	25

2

PART 1 — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands)

			June 30			December 31
			2001			2000
			(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	13,434		$	2,373
	Short-term investments			62,482			59,892
	Receivables, net of allowance for doubtful accounts			93,204			114,266
	Inventories			6,984			7,415
	Deferred tax assets			12,389			10,191
	Prepayments and other current assets			20,964			19,355
		Total current assets		209,457			213,492
PROPERTY AND EQUIPMENT, NET				245,703			259,362
OTHER ASSETS:
	Goodwill, net			93,161			95,159
	Other			43,693			42,526
		Total other assets		136,854			137,685
		Total assets	$	592,014		$	610,539
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Current maturities of long-term debt		$	146,744		$	109
	Trade accounts payable			41,879			45,975
	Accrued liabilities			86,528			79,487
		Total current liabilities		275,151			125,571
LONG-TERM DEBT, less current maturities				190,006			324,876
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS				9,579			9,943
DEFERRED INCOME TAXES				8,927			21,414
OTHER LONG-TERM LIABILITIES				75,480			69,594
STOCKHOLDERS’ EQUITY:
	Common stock, no par value; 20,000 shares authorized, 8,203 and 8,187 shares outstanding at June 30, 2001 and December 31, 2000, respectively			0			0
	Additional paid-in capital			46,345			45,990
	Retained (deficit) earnings			(3,976	)		20,602
	Cumulative other comprehensive income, net of tax			(8,791	)		(6,744	)
	Common stock in treasury, at cost, 139 shares at June 30, 2001 and December 31, 2000			(707	)		(707	)
		Total stockholders’ equity		32,871			59,141
		Total liabilities and stockholders’ equity	$	592,014		$	610,539

The accompanying notes are an integral part of these consolidated balance sheets.

3

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)

			For the Three Months Ended						For the Six Months Ended
			June 30						June 30
			2001			2000			2001			2000
			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
REVENUES			$	250,195		$	295,897		$	468,374		$	578,781
OPERATING EXPENSES:
	Salaries, wages and fringe benefits			140,589			154,275			272,306			309,113
	Operating supplies and expenses			38,330			48,302			79,772			99,884
	Purchased transportation			28,666			29,301			51,962			56,454
	Insurance and claims			13,768			13,087			27,057			25,143
	Operating taxes and licenses			8,507			10,982			17,133			21,841
	Depreciation and amortization			15,281			15,393			30,305			30,635
	Rents			1,592			2,173			3,662			4,499
	Communications and utilities			1,914			2,006			3,952			4,215
	Other operating expenses			5,155			3,182			9,178			5,737
		Total operating expenses		253,802			278,701			495,327			557,521
		Operating (loss) income		(3,607	)		17,196			(26,953	)		21,260
OTHER INCOME (EXPENSE):
	Equity in earnings of joint ventures, net of tax			1,330			1,798			2,539			2,699
	Gain (loss) on sale of assets			2,576			91			2,743			(12	)
	Interest expense			(9,387	)		(8,348	)		(17,853	)		(16,749	)
	Interest income			626			689			1,590			2,009
				(4,855	)		(5,770	)		(10,981	)		(12,053	)
LOSS (INCOME) BEFORE INCOME TAXES				(8,462	)		11,426			(37,934	)		9,207
INCOME TAX BENEFIT (EXPENSE)				2,746			(4,537	)		13,356			(3,353	)
NET (LOSS) INCOME				$(5,716	)	$	6,889			$(24,578	)	$	5,854
PER COMMON SHARE — BASIC AND DILUTED				$(0.71	)	$	0.87			$(3.04	)	$	0.74
COMMON SHARES OUTSTANDING:
	BASIC			8,086			7,916			8,083			7,901
	DILUTED			8,086			7,916			8,083			7,908

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

4

ALLIED HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

					For the Six Months Ended
					June 30
					2001			2000
					(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss					$(24,578	)	$	5,854
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation and amortization				30,305			30,635
		(Gain) loss on sale of property and equipment				(2,743	)		12
		Deferred income taxes				(13,356	)		838
		Compensation expense related to stock options and grants				138			408
		Equity in earnings of joint ventures				(2,539	)		(2,699	)
		Amortization of Teamsters Union signing bonus				1,202			1,238
		Change in operating assets and liabilities excluding effect of businesses acquired:
			Receivables, net of allowance for doubtful accounts			20,827			(4,289	)
			Inventories			415			42
			Prepayments and other current assets			(1,635	)		(3,117	)
			Trade accounts payable			(4,084	)		(5,488	)
			Accrued liabilities			12,620			3,631
				Total adjustments		41,150			21,211
				Net cash provided by operating activities		16,572			27,065
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment					(16,942	)		(9,079	)
	Proceeds from sale of property and equipment					4,745			112
	Purchase of business, net of cash acquired					0			(8,185	)
	Investment in joint ventures					(464	)		0
	Increase in short-term investments					(2,590	)		(11,918	)
	Increase in the cash surrender value of life insurance					(240	)		(240	)
				Net cash used in investing activities		(15,491	)		(29,310	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from (repayments of) issuance of long-term debt, net					11,765			(7,095	)
	Proceeds from issuance of common stock					217			422
	Repurchase of common stock					0			(282	)
	Other, net					(573	)		165
				Net cash provided by (used in) financing activities		11,409			(6,790	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS						(1,429	)		(641	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS						11,061			(9,676	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR						2,373			13,984
CASH AND CASH EQUIVALENTS AT END OF PERIOD					$	13,434		$	4,308

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

5

Allied Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

Note 1.	Basis of Presentation
	The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The statements contained herein reflect all adjustments, all of which are of a normal, recurring nature, which are, in the opinion of management, necessary to present fairly the financial condition, results of operations and cash flows for the periods presented. Operating results for the three and six month periods ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. The interim financial statements should be read in conjunction with the financial statements and notes thereto of Allied Holdings, Inc. and Subsidiaries, (the “Company”) included in the Company’s 2000 Annual Report on Form 10-K.
Note 2.	Long-Term Debt
	On September 30, 1997, the Company issued $150 million of 8 5/8 % senior notes (the “Notes”) through a private placement. Subsequently, the senior notes were registered with the Securities and Exchange Commission. The net proceeds from the Notes were used to fund the acquisition of Ryder Automotive Carrier Services, Inc. and RC Management Corp., pay related fees and expenses, and reduce outstanding indebtedness. The Company’s obligations under the Notes are guaranteed by substantially all of the subsidiaries of the Company (the “Guarantor Subsidiaries”). Haul Insurance Ltd., Arrendadora de Equipo Para el Transporte de Automoviles, S. de R.L. de C.V., Axis Logistica, S. de R.L. de C.V. and Axis Netherlands C.V. do not guarantee the Company’s obligations under the Notes (the “Nonguarantor Subsidiaries”). The following condensed consolidating balance sheets, statements of operations and statements of cash flows present the financial statements of the parent company and the combined financial statements of the Guarantor Subsidiaries and Nonguarantor subsidiaries. The Guarantors are jointly and severally liable for the Company’s obligations under the Notes and there are no restrictions on the ability of the Guarantors to make distributions to the Company.

6

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2001
In Thousands

					ALLIED			GUARANTOR			NONGUARANTOR
					HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
CURRENT ASSETS:
	Cash and cash equivalents				$	(639	)	$	2,586		$	11,487		$	—		$	13,434
	Short-term investments					—			—			62,482			—			62,482
	Receivables, net of allowance for doubtful accounts					31			89,744			3,429			—			93,204
	Inventories					—			6,984			—			—			6,984
	Deferred tax asset — current					10,193			1,614			582			—			12,389
	Prepayments and other current assets					1,567			19,132			265			—			20,964
			Total current assets			11,152			120,060			78,245			—			209,457
PROPERTY AND EQUIPMENT, NET						13,909			228,123			3,671			—			245,703
OTHER ASSETS:
	Goodwill, net					1,574			91,587			—			—			93,161
	Other					17,246			16,560			9,887			—			43,693
	Deferred tax asset — noncurrent					30,108			—			—			(30,108	)		—
	Intercompany receivables					269,921			—			—			(269,921	)		—
	Investment in subsidiaries					49,725			13,949			—			(63,674	)		—
			Total other assets			368,574			122,096			9,887			(363,703	)		136,854
			Total assets		$	393,635		$	470,279		$	91,803		$	(363,703	)	$	592,014
CURRENT LIABILITIES:
	Current maturities of long-term debt				$	145,104		$	1,640		$	—		$	—		$	146,744
	Trade accounts payable					2,489			38,423			967			—			41,879
	Intercompany payables					—			266,935			2,986			(269,921	)		—
	Accrued liabilities					23,171			49,535			13,822			—			86,528
			Total current liabilities			170,764			356,533			17,775			(269,921	)		275,151
LONG-TERM DEBT, less current maturities						190,000			6			—			—			190,006
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS						—			9,579			—			—			9,579
DEFERRED INCOME TAXES						—			39,035			—			(30,108	)		8,927
OTHER LONG-TERM LIABILITIES						—			34,468			41,012			—			75,480
STOCKHOLDERS’ EQUITY:
		Common stock, no par value				—			—			—			—			—
		Additional paid-in capital				46,345			88,856			13,254			(102,110	)		46,345
		Retained (deficit) earnings				(3,976	)		(48,567	)		22,686			25,881			(3,976	)
		Cumulative other comprehensive income, net of tax				(8,791	)		(9,631	)		(2,924	)		12,555			(8,791	)
		Treasury stock				(707	)		—			—			—			(707	)
				Total stockholders’ equity		32,871			30,658			33,016			(63,674	)		32,871
				Total liabilities and stockholders’ equity	$	393,635		$	470,279		$	91,803		$	(363,703	)	$	592,014

7

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
In Thousands

			ALLIED			GUARANTOR			NONGUARANTOR
			HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
CURRENT ASSETS:
	Cash and cash equivalents		$	(1,213	)	$	2,063		$	1,523		$	—		$	2,373
	Short-term investments			—			—			59,892			—			59,892
	Receivables, net of allowance for doubtful accounts			805			112,876			585			—			114,266
	Inventories			—			7,415			—			—			7,415
	Deferred tax asset — current			8,009			1,600			582			—			10,191
	Prepayments and other current assets			1,974			15,007			2,374			—			19,355
		Total current assets		9,575			138,961			64,956			—			213,492
PROPERTY AND EQUIPMENT, NET				16,319			239,866			3,177			—			259,362
OTHER ASSETS:
	Goodwill, net			1,633			93,526			—			—			95,159
	Other			15,732			16,372			10,422			—			42,526
	Deferred tax asset — noncurrent			17,585			—			—			(17,585	)		—
	Intercompany receivables			260,850			—			—			(260,850	)		—
	Investment in subsidiaries			80,057			14,072			—			(94,129	)		—
		Total other assets		375,857			123,970			10,422			(372,564	)		137,685
		Total assets	$	401,751		$	502,797		$	78,555		$	(372,564	)	$	610,539
CURRENT LIABILITIES:
	Current maturities of long-term debt		$	—		$	109		$	—		$	—		$	109
	Trade accounts payable			1,590			43,475			910			—			45,975
	Intercompany payables			—			259,268			1,582			(260,850	)		—
	Accrued liabilities			16,592			51,684			11,211			—			79,487
		Total current liabilities		18,182			354,536			13,703			(260,850	)		125,571
LONG-TERM DEBT, less current maturities				324,428			448			—			—			324,876
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS				—			9,943			—			—			9,943
DEFERRED INCOME TAXES				—			38,999			—			(17,585	)		21,414
OTHER LONG-TERM LIABILITIES				—			36,660			32,934			—			69,594
STOCKHOLDERS’ EQUITY:
	Common stock, no par value			—			—			—			—			—
	Additional paid-in capital			45,990			81,180			13,612			(94,792	)		45,990
	Retained earnings (deficit)			20,602			(10,171	)		20,309			(10,138	)		20,602
	Cumulative other comprehensive income, net of tax			(6,744	)		(8,798	)		(2,003	)		10,801			(6,744	)
	Treasury stock			(707	)		—			—			—			(707	)
		Total stockholders’ equity		59,141			62,211			31,918			(94,129	)		59,141
		Total liabilities and stockholders’ equity	$	401,751		$	502,797		$	78,555		$	(372,564	)	$	610,539

8

SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
In Thousands

			ALLIED			GUARANTOR			NONGUARANTOR
			HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
REVENUES			$	4,950		$	467,525		$	19,033		$	(23,134	)	$	468,374
OPERATING EXPENSES:
	Salaries, wages and fringe benefits			7,446			264,860			—			—			272,306
	Operating supplies and expenses			975			78,744			53			—			79,772
	Purchased transportation			—			51,962			—			—			51,962
	Insurance and claims			—			27,702			17,539			(18,184	)		27,057
	Operating taxes and licenses			93			17,040			—			—			17,133
	Depreciation and amortization			1,725			28,224			356			—			30,305
	Rents			1,041			2,618			3			—			3,662
	Communications and utilities			112			3,834			6			—			3,952
	Other operating expenses			3,606			10,388			134			(4,950	)		9,178
		Total operating expenses		14,998			485,372			18,091			(23,134	)		495,327
		Operating (loss) income		(10,048	)		(17,847	)		942			—			(26,953	)
OTHER INCOME (EXPENSE):
	Equity in earnings of joint ventures, net of tax			—			2,437			102			—			2,539
	Gain on sale of assets			—			2,743			—			—			2,743
	Interest expense			(17,069	)		(16,132	)		(96	)		15,444			(17,853	)
	Interest income			15,495			112			1,427			(15,444	)		1,590
	Intercompany dividends			1,980			(1,980	)		—			—			—
	Equity in losses of subsidiaries			(28,117	)		—			—			28,117			—
				(27,711	)		(12,820	)		1,433			28,117			(10,981	)
(LOSS) INCOME BEFORE INCOME TAXES				(37,759	)		(30,667	)		2,375			28,117			(37,934	)
INCOME TAX BENEFIT (PROVISION)				13,181			912			(737	)		—			13,356
NET (LOSS) INCOME			$	(24,578	)	$	(29,755	)	$	1,638		$	28,117		$	(24,578	)

SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
In Thousands

			ALLIED			GUARANTOR			NONGUARANTOR
			HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
REVENUES			$	2,485		$	577,371		$	17,643		$	(18,718	)	$	578,781
OPERATING EXPENSES:
	Salaries, wages and fringe benefits			1,775			307,338			—			—			309,113
	Operating supplies and expenses			800			99,059			25			—			99,884
	Purchased transportation			—			56,454			—			—			56,454
	Insurance and claims			—			25,245			16,130			(16,232	)		25,143
	Operating taxes and licenses			5			21,836			—			—			21,841
	Depreciation and amortization			59			30,207			369			—			30,635
	Rents			39			4,460			—			—			4,499
	Communications and utilities			8			4,207			—			—			4,215
	Other operating expenses			1,276			6,762			185			(2,486	)		5,737
		Total operating expenses		3,962			555,568			16,709			(18,718	)		557,521
		Operating (loss) income		(1,477	)		21,803			934			—			21,260
OTHER INCOME (EXPENSE):
	Equity in earnings (loss) of joint ventures, net of tax			—			2,913			(214	)		—			2,699
	Loss on sale of assets			—			(12	)		—			—			(12	)
	Interest expense			(14,896	)		(17,200	)		(53	)		15,400			(16,749	)
	Interest income			15,382			191			1,836			(15,400	)		2,009
	Intercompany dividends			4,140			(4,140	)		—			—			—
	Equity in earnings of subsidiaries			5,340			—			—			(5,340	)		—
				9,966			(18,248	)		1,569			(5,340	)		(12,053	)
INCOME BEFORE INCOME TAXES				8,489			3,555			2,503			(5,340	)		9,207
INCOME TAX (PROVISION) BENEFIT				(2,635	)		34			(752	)		—			(3,353	)
NET INCOME			$	5,854		$	3,589		$	1,751		$	(5,340	)	$	5,854

9

SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001
In Thousands

			ALLIED			GUARANTOR			NONGUARANTOR
			HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
REVENUES			$	2,475		$	249,749		$	9,538		$	(11,567	)	$	250,195
OPERATING EXPENSES:
	Salaries, wages and fringe benefits			2,325			138,264			—			—			140,589
	Operating supplies and expenses			72			38,208			50			—			38,330
	Purchased transportation			—			28,666			—			—			28,666
	Insurance and claims			—			13,900			8,960			(9,092	)		13,768
	Operating taxes and licenses			46			8,461			—			—			8,507
	Depreciation and amortization			878			14,214			189			—			15,281
	Rents			509			1,080			3			—			1,592
	Communications and utilities			98			1,810			6			—			1,914
	Other operating expenses			1,846			5,690			94			(2,475	)		5,155
		Total operating expenses		5,774			250,293			9,302			(11,567	)		253,802
		Operating (loss) income		(3,299	)		(544	)		236			—			(3,607	)
OTHER INCOME (EXPENSE):
	Equity in earnings of joint ventures, net of tax			—			1,218			112			—			1,330
	Gain on sale of assets			—			2,576			—			—			2,576
	Interest expense			(9,046	)		(8,073	)		(56	)		7,788			(9,387	)
	Interest income			7,785			49			580			(7,788	)		626
	Intercompany dividends			1,729			(1,729	)		—			—			—
	Equity in losses of subsidiaries			(5,238	)		—			—			5,238			—
				(4,770	)		(5,959	)		636			5,238			(4,855	)
(LOSS) INCOME BEFORE INCOME TAXES				(8,069	)		(6,503	)		872			5,238			(8,462	)
INCOME TAX BENEFIT (PROVISION)				2,353			696			(303	)		—			2,746
NET (LOSS) INCOME			$	(5,716	)	$	(5,807	)	$	569		$	5,238		$	(5,716	)

SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000
In Thousands

			ALLIED			GUARANTOR			NONGUARANTOR
			HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
REVENUES			$	1,243		$	295,899		$	8,017		$	(9,262	)	$	295,897
OPERATING EXPENSES:
	Salaries, wages and fringe benefits			117			154,158			—			—			154,275
	Operating supplies and expenses			425			47,864			13			—			48,302
	Purchased transportation			—			29,301			—			—			29,301
	Insurance and claims			—			12,871			8,234			(8,018	)		13,087
	Operating taxes and licenses			2			10,980			—			—			10,982
	Depreciation and amortization			29			15,364			—			—			15,393
	Rents			19			2,154			—			—			2,173
	Communications and utilities			1			2,005			—			—			2,006
	Other operating expenses			544			3,822			60			(1,244	)		3,182
		Total operating expenses		1,137			278,519			8,307			(9,262	)		278,701
		Operating income (loss)		106			17,380			(290	)		—			17,196
OTHER INCOME (EXPENSE):
	Equity in earnings (loss) of joint ventures, net of tax			—			1,914			(116	)		—			1,798
	Gain on sale of assets			—			91			—			—			91
	Interest expense			(7,480	)		(8,540	)		(25	)		7,697			(8,348	)
	Interest income			7,680			105			601			(7,697	)		689
	Intercompany dividends			4,140			(4,140	)		—			—			—
	Equity in earnings of subsidiaries			6,800			—			—			(6,800	)		—
				11,140			(10,570	)		460			(6,800	)		(5,770	)
INCOME BEFORE INCOME TAXES				11,246			6,810			170			(6,800	)		11,426
INCOME TAX PROVISION				(4,357	)		(82	)		(98	)		—			(4,537	)
NET INCOME			$	6,889		$	6,728		$	72		$	(6,800	)	$	6,889

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SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001
In Thousands

					ALLIED			GUARANTOR			NONGUARANTOR
					HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES
	Net (loss) income				$	(24,578	)	$	(29,755	)	$	1,638		$	28,117		$	(24,578	)
	Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
		Depreciation and amortization				1,725			28,224			356			—			30,305
		Gain on sale of property and equipment				—			(2,743	)		—			—			(2,743	)
		Deferred income taxes				(15,000	)		1,644			—			—			(13,356	)
		Compensation expense related to stock options and grants				138			—			—			—			138
		Equity in earnings of joint ventures				—			(2,437	)		(102	)		—			(2,539	)
		Equity in losses of subsidiaries				28,117			—			—			(28,117	)		—
		Amortization of Teamsters Union signing bonus				—			1,202			—			—			1,202
		Change in operating assets and liabilities:
			Receivables, net of allowance for doubtful accounts			774			22,897			(2,844	)		—			20,827
			Inventories			—			415			—			—			415
			Prepayments and other current assets			407			(4,151	)		2,109			—			(1,635	)
			Intercompany receivables and payables			(9,071	)		7,667			1,404			—			—
			Trade accounts payable			899			(5,040	)		57			—			(4,084	)
			Accrued liabilities			6,579			(4,648	)		10,689			—			12,620
				Total adjustments		14,568			43,030			11,669			(28,117	)		41,150
				Net cash (used in) provided by operating activities		(10,010	)		13,275			13,307			—			16,572
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment					(67	)		(16,155	)		(720	)		—			(16,942	)
	Intercompany sale of property and equipment					811			(811	)		—			—			—
	Proceeds from sale of property and equipment					—			4,745			—			—			4,745
	Investment in joint ventures					—			—			(464	)		—			(464	)
	Intercompany dividend received (paid)					1,980			(1,980	)		—			—			—
	Increase in short-term investments					—			—			(2,590	)		—			(2,590	)
	Increase in cash surrender value of life insurance					(240	)		—			—			—			(240	)
				Net cash provided by (used in) investing activities		2,484			(14,201	)		(3,774	)		—			(15,491	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from issuance of long-term debt, net					10,676			1,089			—			—			11,765
	Proceeds from issuance of common stock					217			—			—			—			217
	Other, net					(2,793	)		868			1,352			—			(573	)
				Net cash provided by financing activities		8,100			1,957			1,352			—			11,409
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS						—			(508	)		(921	)		—			(1,429	)
NET INCREASE IN CASH AND CASH EQUIVALENTS						574			523			9,964			—			11,061
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR						(1,213	)		2,063			1,523			—			2,373
CASH AND CASH EQUIVALENTS AT END OF PERIOD					$	(639	)	$	2,586		$	11,487		$	—		$	13,434

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SUPPLEMENTAL GUARANTOR INFORMATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000
In Thousands

					ALLIED			GUARANTOR			NONGUARANTOR
					HOLDINGS			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income				$	5,854		$	3,589		$	1,751		$	(5,340	)	$	5,854
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
		Depreciation and amortization				59			30,207			369			—			30,635
		Loss on sale of property and equipment				—			12			—			—			12
		Deferred income taxes				(2,269	)		3,107			—			—			838
		Compensation expense related to stock options and grants				408			—			—			—			408
		Equity in earnings (loss) of joint ventures				—			(2,913	)		214			—			(2,699	)
		Equity in net income of subsidiaries				(5,340	)		—			—			5,340			—
		Amortization of Teamsters Union signing bonus				—			1,238			—			—			1,238
		Change in operating assets and liabilities excluding effects of businesses acquired:
			Receivables, net of allowance for doubtful accounts			7			(3,269	)		(1,027	)		—			(4,289	)
			Inventories			—			42			—			—			42
			Prepayments and other current assets			(234	)		(2,751	)		(132	)		—			(3,117	)
			Trade accounts payable			(103	)		(5,154	)		(231	)		—			(5,488	)
			Intercompany payables			(11,665	)		12,844			(1,179	)		—			—
			Accrued liabilities			4,463			(5,452	)		4,620			—			3,631
				Total adjustments		(14,674	)		27,911			2,634			5,340			21,211
				Net cash (used in) provided by operating activities		(8,820	)		31,500			4,385			—			27,065
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment					—			(7,706	)		(1,373	)		—			(9,079	)
	Proceeds from sale of property and equipment					—			112			—			—			112
	Purchase of business, net of cash acquired					—			(8,185	)		—			—			(8,185	)
	Return of capital					11,999			(11,999	)		—			—			—
	Intercompany dividend received (paid)					4,140			(4,140	)		—			—			—
	Increase in short-term investments					—			—			(11,918	)		—			(11,918	)
	Increase in cash surrender value of life insurance					—			(240	)		—			—			(240	)
				Net cash provided by (used in) investing activities		16,139			(32,158	)		(13,291	)		—			(29,310	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Repayment of (proceeds from) long-term debt, net					(7,477	)		382			—			—			(7,095	)
	Proceeds from issuance of common stock					422			—			—			—			422
	Repurchase of common stock					(282	)		—			—			—			(282	)
	Other, net					(3,751	)		2,386			1,530			—			165
				Net cash (used in) provided by financing activities		(11,088	)		2,768			1,530			—			(6,790	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS						—			(223	)		(418	)		—			(641	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS						(3,769	)		1,887			(7,794	)		—			(9,676	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR						1,852			3,179			8,953			—			13,984
CASH AND CASH EQUIVALENTS AT END OF PERIOD					$	(1,917	)	$	5,066		$	1,159		$	—		$	4,308

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Note 3. Comprehensive Income

The Company had a comprehensive loss of $4.0 million for the second quarter of 2001 versus comprehensive income of $5.5 million for the second quarter of 2000. For the first six months of 2001, the comprehensive loss was $26.6 million, versus comprehensive income $4.0 million for the first six months of 2000. The difference between comprehensive income and net income is the foreign currency translation adjustment, net of income taxes.

Note 4.  Accounting for Derivative Instruments and Hedging Activities

The Financial Accounting Standards Board issued Statement of Financial Accounting Standards “SFAS” No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, the statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative’s gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting.

From time to time, the Company enters into future contracts to manage the risk associated with changes in fuel prices. Gains and losses from fuel hedging contracts are recognized as part of fuel expense when the Company uses the underlying fuel being hedged. The Company does not enter into fuel hedging contracts for speculative purposes. At June 30, 2001, the Company did not have any outstanding fuel hedging contracts or other derivative instruments that fall under the provisions of SFAS No. 133.

Note 5.  Recent Accounting Pronouncements

In June 2001 the Financial Accounting Standards Board approved Statement of Financial Accounting Standard No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed at June 30, 2001. The amortization of existing goodwill will cease on December 31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS No. 142 will result in the Company’s discontinuation of amortization of its goodwill; however, the Company will be required to test its goodwill for impairment under the new

13

standard beginning in the first quarter of 2002, which could have an adverse effect on the Company’s future results of operations if an impairment occurs.

Note 6.  Workforce Reduction Expense

During 2000, the Company recorded a pre-tax $2.5 million workforce reduction charge related to terminating approximately 100 employees. During 2000, severance payments amounted to approximately $0.9 million. During the first quarter of 2001, the Company recorded a pre-tax workforce reduction charge of $5.0 million, and a pre-tax charge of $0.6 million in the second quarter of 2001. These charges were related to the termination of approximately 85 employees. Severance payments during the first quarter of 2001 amounted to approximately $1.9 million and severance payments during the second quarter of 2001 were approximately $1.3 million. At June 30, 2001, approximately $4.0 million is outstanding and included in accrued liabilities.

Note 7.  Segment Reporting

In accordance with the requirements of SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information,” the Company has identified two reportable industry segments through which it conducts its operating activities: Allied Automotive Group and Axis Group. These two segments reflect the organization used by management for internal reporting. Allied Automotive Group is engaged in the business of transporting automobiles and light trucks from manufacturing plants, ports, auctions, and railway distribution points to automobile dealerships. Axis Group provides distribution, automobile inspection, auction, and logistics services for the automotive industry.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2001			2000			2001			2000
Revenues—unaffiliated customers:
Allied Automotive Group	$	242,790		$	286,385		$	454,814		$	563,368
Axis Group		7,405			9,458			13,560			15,351
Corporate/other		—			54			—			62
	$	250,195		$	295,897		$	468,374		$	578,781
Depreciation and amortization:
Allied Automotive Group	$	13,506		$	13,046		$	26,789		$	26,320
Axis Group		897			813			1,791			1,441
Corporate/other		878			1,534			1,725			2,874
	$	15,281		$	15,393		$	30,305		$	30,635
Operating (loss) profit:
Allied Automotive Group	$	(922	)	$	18,446		$	(17,218	)	$	25,612
Axis Group		850			441			398			138
Corporate/other		(3,535	)		(1,691	)		(10,133	)		(4,490	)
		(3,607	)		17,196			(26,953	)		21,260

14

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2001			2000			2001			2000
Reconciling items:
Equity income in joint ventures	$	1,330		$	1,798		$	2,539		$	2,699
Gain (loss) on sale of assets		2,576			91			2,743			(12	)
Interest expense		(9,387	)		(8,348	)		(17,853	)		(16,749	)
Interest income		626			689			1,590			2,009
(Loss) income before income taxes	$	(8,462	)	$	11,426		$	(37,934	)	$	9,207
Capital expenditures:
Allied Automotive Group	$	8,072		$	3,295		$	15,060		$	5,018
Axis Group		1,291			480			1,815			924
Corporate/other		—			2,063			67			3,137
	$	9,363		$	5,838		$	16,942		$	9,079

	June 30,		December 31
	2001		2000
Total assets:
Allied Automotive Group	$	407,471	$	437,945
Axis Group		64,076		64,869
Corporate/other		120,467		107,725
	$	592,014	$	610,539

     Geographic financial information for 2001 and 2000 is as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30
	2001		2000		2001		2000
Revenues:
United States	$	203,969	$	242,240	$	385,267	$	477,178
Canada		46,226		53,657		83,107		101,603
	$	250,195	$	295,897	$	468,374	$	578,781

Note 8.  Equity Investments

Axis Group has entered into three joint ventures for the purpose of managing the distribution of vehicles in the United Kingdom and Brazil. Axis Group initially invested $10,395,000 in the ventures. The Company is accounting for the investments under the equity method of accounting with its share of the ventures’ earnings or loss reflected as equity in earnings (loss) of joint ventures in the consolidated statements of operations. The related equity investments are included in other assets in the accompanying consolidated balance sheets.

Equity in earnings for these joint ventures is recorded net of income taxes in the

15

consolidated statements of operations by the Company. Income taxes related to the joint ventures for the six months ended June 30, 2001, and 2000 were $1,306,000 and $1,153,000, respectively.

The majority of the Company’s equity in earnings of joint ventures in 2001 was derived from its joint venture in the United Kingdom, Ansa Logistics Limited. Summarized financial information of Ansa Logistics Limited for the periods ended June 30, 2001 and 2000 (in thousands):

		June 30,		December 31,
		2001		2000
Current assets		$	35,079	$	34,799
Other assets			4,022		5,019
	Total assets	$	39,101	$	39,818
Current liabilities		$	26,289	$	32,194

	Three Months Ended				Six Months Ended
			June 30,		June 30
	2001		2000		2001		2000
Revenues	$	29,226	$	29,511	$	57,597	$	57,994
Operating Income	$	1,269	$	2,261	$	5,007	$	5,495
Income from continuing operations	$	1,348	$	2,261	$	5,174	$	5,495
Net Income	$	836	$	1,402	$	3,208	$	3,407

Note 9. Litigation

The Company is routinely a party to litigation incidental to its business, primarily involving claims for personal injury and property damage incurred in the transportation of vehicles. The Company does not believe that any of such pending litigation, if adversely determined, would have a material adverse effect on the Company.

The Company is defending two pieces of related litigation in the Supreme Court of Erie County, New York: Gateway Development & Manufacturing, Inc. v. Commercial Carriers, Inc., et al., Index No. 1997/8920 (the “Gateway Case”), and Commercial Carriers, Inc., v. Gateway Development & Manufacturing, Inc., et al. (the “CCI Case”), Index No. I2000/8184. The claims at issue in both the Gateway Case and the CCI Case center around the contention that the Company breached legal duties with respect to a failed business transaction involving Gateway Development & Manufacturing, Inc., Ryder Truck Rental, Inc., and Ryder System, Inc. In the Gateway Case, the

16

Company has sought and received summary judgment in its favor on the sole claim (for tortious interference with contract) asserted against it by Gateway Development & Manufacturing, Inc., but the court has permitted the filing and service of cross-claims against the Company by the other defendants in that action. In the CCI Case, the Company has accepted service of a separate complaint asserting claims against the Company that are virtually identical to the cross-claims asserted against the Company by the other defendants in the Gateway Case. It is anticipated that the claims asserted in both the Gateway Case and the CCI Case will be resolved in a unified proceeding. With respect to the entirety of this litigation, the Company intends to continue its vigorous defense against the claims asserted it, as management believes all of those claims are without merit. While the ultimate results of this litigation cannot be predicted, management does not expect that the resolution of these proceedings will have a material adverse effect on the Company’s consolidated financial position or results of operations.

Note 10. Reclassifications

Certain amounts in the prior year financial statements have been reclassified to conform with the current year presentation.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Revenues were $250.2 million for the second quarter of 2001 versus revenues of $295.9 million for the second quarter of 2000, a decrease of 15.4%. For the six-month period ended June 30, 2001, revenues were $468.4 million, versus revenues of $578.8 million for the six-month period ended June 30, 2000, a decrease of 19.1%. The decrease in revenues is primarily due to lower vehicle delivery volumes resulting from reduced new vehicle production.

The net loss was $5.7 million during the second quarter of 2001 versus net income of $6.9 million during the second quarter of 2000. Basic and diluted loss per share in the second quarter of 2001 were $0.71, versus basic and diluted earnings per share of $0.87 in the second quarter of 2000. For the six-month period ended June 30, 2001, the net loss was $24.6 million, versus net income of $5.9 million for the six-month ended June 30, 2000. Basic and diluted loss per share for the six-month period ended June 30, 2001 were $3.04 versus basic and diluted earnings per share of $0.74 for the six-month period ended June 30, 2000.

In April 2001 the Company amended its revolving credit facility and its senior subordinated notes to avoid defaults relating to its financial covenants. The maturity date of the amended revolving credit facility has been accelerated from September 30, 2002 to January 31, 2002. The Company is engaged in discussions with a number of lenders to replace its revolving credit facility, and completion of the financing is anticipated by year-end. The Company expensed approximately $0.5 million, or $0.6 per share, of administrative costs related to the amendments during the first quarter of 2001 and expensed approximately $1.0 million, or $0.12 per share, of costs resulting from the amendments during the second quarter of 2001.

As discussed above, the Company in April 2001 negotiated amendments to certain affirmative, negative and financial covenants of the Revolving Credit Facility and the Senior Subordinated Notes. As a result of the amendments, the Company does not anticipate any covenant violations during 2001. There can be no assurance, however, that the Company will be able to comply with these or its other debt covenants or that, if it fails to do so, it will be able to obtain amendments to or waivers of such covenants. Failure of the Company to comply with covenants contained in its debt instruments, if not waived, or to adequately service debt obligations, could result in default under its debt instruments. Any default under the Company’s debt instruments, particularly any default that results in acceleration of indebtedness or foreclosure on collateral, could have a material adverse effect on the Company.

18

The following is a discussion of the changes in the Company’s major expense categories:

Salaries, wages and fringe benefits increased from 52.1 % of revenues in the second quarter of 2000 to 56.2 % of revenues in the second quarter of 2001, and from 53.4% of revenues for the first six months of 2000 to 58.1% of revenues for the first six months of 2001. The increase was due in part to severance charged to expense of $4.3 million in the first quarter of 2001 and $0.6 million in the second quarter of 2001 that was part of the Company’s workforce and overhead reduction program, as well as annual wage increases for remaining employees. In addition, the significant drop in vehicle deliveries caused operating inefficiencies that increased salaries, wages, and fringe benefits as a percentage of revenues.

Operating supplies and expenses decreased from 16.3% of revenues in the second quarter of 2000 to 15.3% of revenues in the second quarter of 2001, and decreased from 17.3% for the first six months of 2000 to 17.0% for the first six months of 2001. The decrease was due primarily to a decrease in parts and maintenance expense related to vigorous expense reduction programs and decreasing volumes, combined with lower fuel costs.

Purchased transportation increased from 9.9% of revenues in the second quarter of 2000 to 11.5% of revenues in the second quarter of 2001, and increased from 9.8% of revenues for the first six months of 2000 to 11.1% of revenues for the first six months of 2001. As volumes decline, units are hauled by drivers with the highest seniority. The number of owner operators stayed relatively constant from year to year while the number of company drivers decreased, resulting in higher purchased transportation for 2001 compared to 2000.

Insurance and claims expense increased from 4.4% of revenues in the second quarter of 2000 to 5.5% of revenues in the second quarter of 2001, and increased from 4.3% of revenue for the first six months of 2000 to 5.8% of revenues for the first six months of 2001. The increase was a result of an increase in cargo claims expense and costs related to higher auto, general liability and property insurance premiums that were unaffected by the decline in vehicles delivered.

Depreciation and amortization expense increased from 5.2% of revenues in the second quarter of 2000 to 6.1% of revenues in the second quarter of 2001, and increased from 5.3% of revenues for the first six months of 2000 to 6.5% of revenues for the first six months of 2001. The increase as a percentage of revenues was due primarily to a sharp decline in vehicles delivered which reduced revenues. Depreciation and amortization expense stayed relatively constant in 2001 versus 2000; depreciation and amortization expense was $15.3 million in the second quarter of 2001 and $15.4 million in the second quarter of 2000, and $30.3 million for the first six months of 2001 versus $30.6 million for the first six months of 2000.

Gain on sale of assets increased from $91,000 in the second quarter of 2000 to $2,576,000 in the second quarter of 2001, and increased from a loss of $12,000 for the first six months of 2000 to a gain of $2,743,000 for the first six months of 2001. The increase was due primarily to the disposition of excess real estate and other assets in Canada during the second quarter of 2001.

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Interest expense increased from 2.8% of revenues during the second quarter of 2000 to 3.8% of revenues in the second quarter of 2001, and increased from 2.9% of revenues for the first six months of 2000 to 3.8% of revenues for the first six months of 2001. The increase was due to higher interest rates in 2001 versus 2000, higher long-term debt levels and additional costs related to the amendment of the Company’s revolving credit facility and its senior subordinated notes.

Financial Condition, Liquidity and Capital Resources

Net cash provided by operating activities totaled $16.6 million for the six-month period ended June 30, 2001, versus $27.1 million provided by operating activities for the six-month period ended June 30, 2000. The decline in cash provided by operating activities was due primarily to reduced earnings during the first six months of 2001 versus 2000, offset with a favorable change in operating assets and liabilities as the Company has implemented measures to improve asset utilization.

Net cash used in investing activities totaled $15.5 million for the six-month period ended June 30, 2001, versus $29.3 million for the six-month period ended June 30, 2000. The decrease was due primarily to the purchase of CT Group, a logistics service group, in February 2000 for $8.2 million, combined with a change in the investment portfolio mix of the Company’s captive insurance company which increased short-term investments by $11.9 million and reduced cash and cash equivalents by a like amount in 2000. These changes were offset by an increase in capital spending in the first six months of 2001 versus 2000. The increase is due to the timing of capital expenditures. In 2000, capital expenditures of $32.3 million were weighted to the last half of the year. Planned capital expenditures have been reduced to $20-25 million for 2001. As vehicle delivery volumes have declined, older rigs have been taken out of service and not replaced, which will allow the Company to reduce capital expenditures without materially increasing the average age of the fleet. The number of active rigs declined from 4,867 rigs in the second quarter of 2000 to 4,222 rigs in the second quarter of 2001.

Net cash provided by financing activities totaled $11.4 million for the six-month period ended June 30, 2001, versus cash used by financing activities of $6.8 million for the six-month period ended June 30, 2000. The increase was due to an increase in borrowings during 2001 as a result of the lower operating cash flow.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Disclosures About Market Risks

The market risk inherent in the Company’s market risk sensitive instruments and positions is the potential loss arising from adverse changes in short-term investment prices, interest rates, fuel prices, and foreign currency exchange rates.

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Short-term Investments – The Company does not use derivative financial instruments in its investment portfolio. The Company places its investments in instruments that meet high credit quality standards, as specified in the Company’s investment policy guidelines. The policy also limits the amount of credit exposure to any one issue, issuer, and type of instrument. Short-term investments at June 30, 2001, which are recorded at fair value of $62.5 million, have exposure to price risk. This risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in quoted prices and amounts to $6.3 million.

Interest Rates – The Company primarily issues long-term debt obligations to support general corporate purposes including capital expenditures and working capital needs. The majority of the Company’s long-term debt obligations bear a fixed rate of interest. A one-percentage point increase in interest rates affecting the Company’s floating rate long-term debt would reduce pre-tax income by $1.5 million over the next fiscal year. A one-percentage point change in interest rates would not have a material effect on the fair value of the Company’s fixed rate long-term debt.

Fuel Prices – The Company is dependent on diesel fuel to operate its fleet of rigs. Diesel fuel prices are subject to fluctuations due to unpredictable factors such as weather, government policies, changes in global demand, and global production. To reduce price risk caused by market fluctuations, the Company generally follows a policy of hedging a portion of its anticipated diesel fuel consumption. The instruments used are principally readily marketable exchange traded futures contracts that are designated as hedges. The changes in market value of such contracts have a high correlation to the price changes of diesel fuel. Gains and losses resulting from fuel hedging transactions are recognized when the underlying fuel being hedged is used. A 10% increase in diesel fuel prices would reduce pre-tax income by $5.0 million over the next fiscal year. At June 30, 2001, the Company did not have any outstanding fuel hedging contracts.

Foreign Currency Exchange Rates – Although the majority of the Company’s operations are in the United States, the Company does have foreign subsidiaries (primarily Canada). The net investments in foreign subsidiaries translated into dollars using exchange rates at June 30, 2001, are $100.5 million. The potential loss in fair value impacting other comprehensive income resulting from a hypothetical 10% change in quoted foreign currency exchange rates amounts to $10.1 million. The Company does not use derivative financial instruments to hedge its exposure to changes in foreign currency exchange rates.

Seasonality and Inflation

The Company’s revenues are seasonal, with the second and fourth quarters generally experiencing higher revenues than the first and third quarters. The volume of vehicles shipped during the second and fourth quarters is generally higher due to the introduction of new models which are shipped to dealers during those periods and the higher spring and early summer sales of automobiles and light trucks. During the first and third

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quarters, vehicle shipments typically decline due to lower sales volume during those periods and scheduled plant shut downs. Inflation has not significantly affected the Company’s results of operations.

Cautionary Notice Regarding Forward-Looking Statements

Statements in this quarterly report on Form 10-Q contains forward-looking statements, including statements regarding, among other items, (i) the Company’s plans, intentions or expectations, (ii) general industry trends, competitive conditions and customer preferences, (iii) the Company’s management information systems, and its ability to resolve any Year 2000 issues related thereto (iv) the Company’s efforts to reduce costs, (v) the adequacy of the Company’s sources of cash to finance its current and future operations and (vi) resolution of litigation without material adverse effect on the Company. This notice is intended to take advantage of the “safe harbor” provided by the Private Securities Litigation Reform Act of 1995 with respect to such forward-looking statements. These forward-looking statements involve a number of risks and uncertainties. Among others, factors that could cause actual results to differ materially are the following: economic recessions or downturns in new vehicle production or sales; the highly competitive nature of the automotive distribution industry; dependence on the automotive industry; loss or reduction of revenues generated by the Company’s major customers; the variability of quarterly results and seasonality of the automotive distribution industry; labor disputes involving the Company or its significant customers; the dependence on key personnel who have been hired or retained by the Company; the availability of strategic acquisitions or joint venture partners; changes in regulatory requirements which are applicable to the Company’s business; changes in vehicle sizes and weights which may adversely impact vehicle deliveries per load; the ability to increase the rates charged to customers; risks associated with doing business in foreign countries; problems related to information technology systems and computations that must be made by the Company or its customers and vendors in 2000, 2001 or beyond; and the risk factors listed herein from time to time in the Company’s Securities and Exchange Commission reports, including but not limited to, its Annual Reports on Form 10-K or 10-Q.

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PART II

OTHER INFORMATION

Item 4.    Submission of Matters to a Vote of Security Holders

On May 15, 2001 the Annual Meeting of Shareholders was held. The following Directors were elected for terms that will expire on the date of the annual meeting in the year indicated below. The number of shares voted for, against and abstentions are also indicated.

Proposal I (Election of Directors)

	FOR		AGAINST		TERM
Joseph W. Collier		5,897,245		80,537		2004
Guy W. Rutland, IV		5,867,672		110,110		2004
Berner F. Wilson, Jr.		5,902,905		74,876		2004

     The following Directors’ terms will continue as indicated.

Robert J. Rutland	2003
William P. Benton	2003
David G. Bannister	2003
Bernard O. De Wulf	2002
Guy W. Rutland, III	2002
Robert R. Woodson	2002
Hugh E. Sawyer	2003

Proposal II (Amend the Company’s Employee Stock Purchase Plan to increase the number of shares subject to the Plan by 350,000)

FOR	AGAINST		ABSTAIN
6,338,666		144,620		10,317

Proposal III (To appoint Arthur Andersen LLP as independent public accountants)

FOR	AGAINST		ABSTAIN
6,454,218		37,560		1,824

Item 5.    Other Information.

On June 18, 2001, Hugh E. Sawyer joined the Company as President and Chief Executive Officer and as a member of the Board of Directors. Mr. Sawyer entered into an employment agreement with the Company which is included as an exhibit to this report.

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On July 13, 2001, the Company announced that it had been advised by the New York Stock Exchange (“NYSE”) that the Company currently falls below the continued listing standard requiring stockholders’ equity of not less than $50 million and total market capitalization of not less than $50 million.

As required by the NYSE, Allied has submitted a detailed plan to the Listing and Compliance Committee of the NYSE demonstrating how the Company plans to be in compliance with the continued listing standard on or before November 29, 2002, the deadline set by the NYSE. Based on internal estimates, and execution of planned corporation transactions, Allied believes it will satisfy the continued listing standard by the NYSE deadline. After reviewing the plan, the Committee will either accept it (following which the Company will be subject to quarterly monitoring for compliance with the plan) or not (in which event the Company will be subject to NYSE trading suspension and delisting). Should the Company’s shares cease being traded on the NYSE, the Company believes that an alternative trading venue will be available.

Item 6.    Exhibits and Reports on Form 8-K.

a)	Exhibits 10.1 Employment agreement between the Company and Hugh E. Sawyer Dated June 18, 2001
b)	Reports on Form 8-K: None

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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.

	Allied Holdings, Inc.
August 14, 2001 (Date)	/s/ Hugh E. Sawyer Hugh E. Sawyer on behalf of Registrant as President and Chief Executive Officer
August 14, 2001 (Date)	/s/ Daniel H. Popky Daniel H. Popky on behalf of Registrant as Senior Vice President, Finance and Chief Financial Officer

25 EX-10.1 3 g70976ex10-1.txt EMPLOYMENT AGREEMENT 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of the _____ day of _______________, 2001, to be effective as of the ___ day of __________, 2001 (the "Effective Date"), by and between HUGH E. SAWYER ("Employee") and ALLIED HOLDINGS, INC., a Georgia corporation ("Employer"). WITNESSETH: WHEREAS, Employer, through the Affiliates (as hereinafter defined), is engaged in the transportation of automobiles and light trucks from the manufacturer to retailers and related activities and providing logistics and distribution services to the new and used vehicle distribution market and automotive industry (the "Business"); WHEREAS, Employee has management skills of which Employer desires to avail itself; and WHEREAS, Employer and Employee deem it to their respective best interest to outline the duties and obligations, each to the other, by executing this Employment Agreement, NOW, THEREFORE, for and in consideration of the covenants and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employer and Employee hereby mutually agree as follows: 1. DEFINITIONS. (a) "Affiliate" means any corporation, partnership or other entity of which at least eighty percent (80%) of the outstanding equity and voting rights are owned, directly or indirectly through any other corporation, partnership or other entity, by Employer. (b) "Base Salary" means the annual salary payable pursuant to Paragraph 4(a) hereof as adjusted, from time to time, pursuant to Paragraph 4(b) hereof. (c) "Cause" means (i) the commission by Employee of an act of fraud, misappropriation, dishonesty, embezzlement, gross negligence, or willful misconduct in connection with his employment hereunder which is materially injurious to Employer; (ii) criminal conduct of Employee which results in a felony conviction of such Employee with respect to which all opportunities for appeal have expired, or the Employee's offering a plea of nolo contendre to a felony; (iii) Employee's continuing and/or willful failure to perform his duties or obligations for Employer as outlined in this Agreement, or Employee's material breach of this Agreement, if such failure or breach is not cured within thirty (30) days after written notice from Employer's Board of Directors thereof; (iv) Employee's prolonged 26 2 absence, without the consent of Employer, other than as a result of Employee's Disability or permitted absence or vacation, which is not cured within ten (10) days after written notice from Employer's Board of Directors thereof; or (v) engaging in activities prohibited by Paragraphs 12, 13, 14 or 15 hereof which is not cured within ten (10) days after written notice from Employer's Board of Directors. Notwithstanding the foregoing, Employer may not terminate the Employee's employment for Cause unless a determination that Cause exists shall be made by a majority of the Employer's Board of Directors. (d) "Disability", with respect to Employee, shall conclusively be deemed to have occurred (i) if Employee shall be receiving payments pursuant to a policy of long-term disability income insurance; or (ii) if Employee shall have no disability income coverage then in force, then if any insurance company insuring Employee's life shall agree to waive the premiums due on such policy pursuant to a disability waiver of premium provision in the contract of life insurance; or (iii) if Employee shall have no disability waiver of premium provision in any contract of life insurance, then if Employee shall be receiving disability benefits from or through the Social Security Administration; provided, however, that in the event Employee's disability shall, otherwise and in good faith, come into question (and, for purposes of this proviso, "disability" shall mean the permanent and continuous inability of Employee to perform substantially all of the duties being performed immediately prior to his disability coming into question) for a period of not less than one hundred twenty (120) consecutive days, and a dispute shall arise with respect thereto, then Employee (or his personal representatives) shall appoint a medical doctor, Employer shall appoint a medical doctor, and said two (2) doctors shall, in turn, appoint a third party medical doctor who shall examine Employee to determine the question of disability and whose determination shall be binding upon all parties to this Agreement. All such medical doctors shall be duly licensed in the State of Georgia. (e) "Restricted Period" means the period commencing as of the date hereof and ending on that date three (3) years after the termination of Employee's employment with Employer for any reason, whether voluntary or involuntary. 2. TERM. Subject to the provisions hereinafter set forth, the term of this Agreement shall commence as of the Effective Date and shall end on that date five (5) years after the Effective Date (the "Initial Term"). Upon the expiration of the Initial Term, and upon the expiration of each successive Renewal Term (as hereinafter defined), Employee's employment shall be automatically renewed for an additional term of two (2) years (the "Renewal Term(s)"), unless written notification of termination is given by either party to the other party not less than one (1) year prior to the expiration of the Initial Term or, as the case may be, the then-current Renewal Term. As used herein, "Term" shall mean the then current Initial Term or Renewal Term, as the case may be. 3. DUTIES. 27 3 (a) Employee shall, during the Term, serve as President and CEO of Employer having duties, responsibilities, powers and authority which are consistent with senior management positions of like designation generally, but subject to the Chairman's direction. The Employee shall report directly to the Chairman and the Board of Directors of Employer and shall perform such executive, managerial and administrative duties as the Chairman and the Board of Directors of Employer may, from time to time, reasonably request. (b) During the Term, Employee shall devote substantially all of his business time, energy and skill to performing the duties of his employment (vacations as provided hereunder and reasonable absences because of illness excepted), shall faithfully and industriously perform such duties, and shall use his best efforts to follow and implement all management policies and decisions of Employer. Employee shall not become personally involved in the management or operations of any other company, partnership, proprietorship or other entity, other than any Affiliate, without the prior written consent of Employer; provided, however, that so long as it does not interfere with Employee's employment hereunder, Employee may (i) serve as a director, officer or partner in a company that does not compete with the Business of Employer and the Affiliates so long as the aggregate amount of time spent by Employee in all such capacities shall not exceed twenty (20) hours per month, and (ii) serve as an officer or director of, or otherwise participate in, educational, welfare, social, religious, civic, trade and industry-related organizations. (c) Employee shall not be required to relocate outside of the metropolitan Atlanta, Georgia, area without his prior written consent. (d) The Board of Directors has adopted a resolution appointing Employee to serve on Employer's Board of Directors by filling the vacancy created by the resignation of A. Mitchell Poole. Such appointment is subject to Employee's execution of this Agreement and will take effect on the Effective Date. It is anticipated that Employee will also be elected to serve on the Board of Directors of one or more of Employer's Affiliates. Employee shall serve in such position(s) without additional compensation. 4. BASE SALARY. (a) For and in consideration of the services to be rendered by Employee pursuant to this Agreement, Employer shall pay to Employee, for each year during the Term, an annual salary of not less than Five Hundred Fifty Thousand Dollars ($550,000.00), adjusted as provided in subparagraph (b) below (the "Base Salary"), in equal semi-monthly installments in accordance with Employer's payroll practices. Employee's salary shall be reviewed by the Board of Directors of Employer annually (on each anniversary of the date hereof) and, in the sole discretion of the Board of Directors, may be increased, but not decreased. 28 4 (b) Commencing as of the Effective Date, and as of each subsequent anniversary thereafter during the Term, the Base Salary shall be increased, but not decreased, by an amount equal to the greater of (i) such amount as shall be determined by the Compensation Committee of the Board of Directors of Employer; or (ii) the amount equal to the percentage, if any, by which the Consumer Price Index (All Items Less Shelter), Urban Wage Earners and Clerical Workers, for the Southeast Region/Population Size Class B, published by the United States Government Bureau of Labor Statistics for the December 1 preceding such January exceeds such Index for the December 1 of the preceding year. (As an example, as of January 1, 2002, the difference will be between said Index as of December 1, 2001 compared to said Index as of December 1, 2000.) 5. BONUS COMPENSATION. (a) Subject to subsection (b) below, in addition to Employee's Base Salary, Employee shall, with respect to each calendar year of Employer ending during the Term, be eligible to participate in a management bonus plan determined by Employer's Board of Directors from time to time. Such plan shall, at a minimum, provide for an opportunity for Employee to earn a cash bonus on an annual basis of up to one hundred percent (100%) of Employee's Base Salary received for the year as to which such bonus is earned (the "Target Bonus"), based on meeting the performance goals (such as individual or company-wide goals) and satisfying such other reasonable terms and conditions as may be set from time to time by Employer's Board of Directors in the good faith exercise of its discretion. The foregoing shall not limit the ability of Employer's Board of Directors to establish management bonus plans providing for a greater Target Bonus for the Employee or to provide a cash bonus for Employee in any given year that is greater than the Target Bonus. Such annual cash bonuses will be payable within thirty (30) days of the completion of the independent certified audit for the applicable year (each, an "Annual Bonus"); and (b) Employer shall pay Two Hundred Seventy-Five Thousand Dollars ($275,000.00) of the eligible targeted Annual Bonus in 2001; provided, that Employer shall not be required to pay such bonus if Employee terminates his employment on or before December 31, 2001 (other than a termination by Employee pursuant to Paragraph 9(b)). The remaining balance of the target 2001 Annual Bonus (in the amount of $275,000.00) or a portion thereof will be paid at the discretion of the Chairman and the Board of Directors (or its designee). Such Annual Bonus will be payable within thirty (30) days of the completion of the independent certified audit for 2001. All amounts received pursuant to this Paragraph shall constitute Annual Bonus for 2001. (c) Employee shall be eligible to participate in Employer's Long Term Incentive Plan, on a basis no less favorable than those made available to other 29 5 senior managers of Employer generally and shall enter into required documents evidencing participation in such plan, if any, contemporaneously with the execution of this Agreement and from time to time thereafter. 6. OTHER BENEFITS. During the Term, Employer shall provide the following benefits to Employee: (a) On and as of the Effective Date, Employee and Employee's immediate family shall be entitled to participate in all group benefit programs, including, without limitation, medical and hospitalization benefit programs, dental care, life insurance or other group benefit plans for highly compensated employees of Employer as are now or hereafter provided by Employer or any Affiliate, in each case in accordance with the terms and conditions of each such plan and benefit package on terms no less favorable, in both scope of coverage and value of coverage, than the benefits currently provided to Employer's Chairman. To the extent applicable and allowable by the terms and conditions of such plans and programs, Employee shall be credited for the full period of Employee's prior employment by Employer or its Affiliates; (b) Employee shall be paid a monthly car allowance of One Thousand Three Hundred Dollars ($1,300.00) to be used for vehicles for the benefit of Employee in his discretion; (c) Employee shall be provided with the use of a cellular telephone, at no cost to Employee; (d) Employer shall reimburse Employee for dues paid by Employee for membership in such professional organizations and eating clubs as shall, from time to time, be deemed appropriate and necessary by Employer; (e) Employee shall, at all times, have available to him an expense account to defray actual, reasonable, ordinary and necessary business expenses incurred in the performance of his duties hereunder. Employee shall be reimbursed for such expenses upon presentation and approval of expense statements or written vouchers or other supporting documents as may be reasonably requested in advance by Employer, Employer's Board of Directors, or a committee thereof, which approval shall not be unreasonably withheld or delayed; (f) Employer shall reimburse Employee up to Seventy-Five Thousand Dollars ($75,000.00) for actual and reasonable expenses incurred by Employee in relocating to Atlanta, Georgia, including actual moving costs, customary real estate commissions or closing costs incurred in selling Employee's residence in Southlake, Texas, or penalties paid by Employee for failing to fulfill certain contractual obligations related to the purchase of said residence in Southlake, Texas. Employee shall be reimbursed for such 30 6 expenses upon presentation and approval of expense statements or written vouchers or other supporting documents as may be reasonably requested in advance by Employer, Employer's Board of Directors, or a committee thereof, which approval shall not be unreasonably withheld or delayed; and (g) Employer shall reimburse Employee up to One Hundred Twenty-Five Thousand ($125,000.00) for payments actually paid by Employee related to the early termination of his Employment Agreement with his former employer in Irving, Texas upon Employer's receipt of reasonable evidence of such payment. Such payment shall not be unreasonably withheld or delayed by Employer. (h) Employer shall pay to Employee an additional payment (the "Gross-Up Payment") in an amount sufficient to fully reimburse Employee with respect to all federal, state and local taxes actually paid by Employee with respect to the payments set forth in clauses (f) and (g) hereof. The Gross-Up Payment shall not be unreasonably withheld or delayed by Employer. The benefits described in subparagraph (a) of this Paragraph shall not be construed to require Employer to establish any such plans or programs or to prevent Employer from modifying or terminating any such plans or programs, and no such action or failure thereof shall affect this Agreement; provided, however, that in the event of any reduction in the group medical and hospitalization benefits in place as of the date hereof, the salary payable to Employee shall be increased, as of the effective date of such reduction, by that amount necessary to enable Employee to supplement the benefits provided by Employer to maintain the level of benefits currently provided to him by it. 7. VACATION. Employee shall receive four (4) weeks of paid vacation and/or personal days for each year during the Term. Scheduling of vacation shall be subject to the prior approval of Employer (which approval shall not be unreasonably withheld). Vacation time shall not accrue, and in the event any vacation time for any year shall not be used by Employee prior to the end of such year, it shall be forfeited. 8. TERMINATION. Anything herein to the contrary notwithstanding, Employee's employment hereunder shall terminate upon the first to occur of any of the following events: (a) Employee's Disability; or (b) Employee's death; or (c) Employer's sending Employee ten (10) days prior written notice terminating his employment without Cause hereunder prior to expiration of the Term; or (d) Employee's voluntarily terminating his employment with Employer for any reason or no reason by sending Employer ten (10) days prior written notice terminating his employment hereunder prior to expiration of the Term, and Employee shall not 31 7 be liable to Employer solely as the result of terminating this Agreement pursuant to this subsection (d), except as may otherwise be provided herein; or (e) Employee being terminated for Cause. 9. TERMINATION PAYMENT. In the event: (a) Employee's employment shall terminate pursuant to Paragraph 8(a) (Disability) or Paragraph 8(b) (death) hereof; or (b) Employee shall terminate his employment as a result of: (i) any failure to elect or reelect or to appoint or reappoint Employee to the position of President and CEO of Employer unless agreed to by Employee; (ii) any material change by Employer in Employee's function, duties, title, responsibility, importance, reporting relationship or scope from the position and attributes thereof described in Paragraph 3 hereof, or any change to Employee's compensation other than as contemplated by Paragraph 4 hereof, unless agreed to by Employee, or any change in location of the principal offices of Employer outside the metropolitan Atlanta, Georgia, area, or any requirement that Employee perform substantially all of his duties outside the metropolitan Atlanta, Georgia, area (and any such material change or relocation of Employer or Employee shall be deemed a continuing breach of this Agreement); (iii) any failure by Employer to comply with Paragraphs 4 or 5 of this Agreement, unless agreed to by Employee; (iv) the liquidation, dissolution, consolidation or merger of Employer (other than a merger or other combination of Employer and an Affiliate); however, if a termination of employment results from events described in this clause (iv) and subsection (d) below, then such termination shall be deemed pursuant to subsection (d) below; (v) any other material breach of this Agreement by Employer which shall not be cured within thirty (30) days after receipt of written notice of same from Employee; or (vi) Employer filing a petition for protection or relief from creditors under the federal bankruptcy law, or any petition shall be filed against Employer under the federal bankruptcy law, or Employer shall admit in writing its inability to pay its debts or shall make an assignment for the benefit of creditors, or a petition or application for the appointment of a receiver or liquidator or 32 8 custodian of Employer is filed, or Employer shall seek a composition with creditors. (c) Employee's employment shall be terminated by Employer for any reason other than for Cause or because Employer elects not to extend this Agreement beyond the Initial or any Renewal Term; or (d) If (i) Employer undergoes any change in control or ownership whereby Employer is reorganized, merged, or consolidated with one or more corporations as a result of which the owners of all of the outstanding shares of common stock immediately prior to such reorganization, merger or consolidation own in the aggregate less than seventy percent (70%) of the outstanding shares of common stock of the Employer or any other entity into which Employer shall be merged or consolidated immediately following the consummation thereof (hereinafter, "Employer's successor-in-interest"), or (ii) the sale, transfer or other disposition of all or substantially all of the assets or more than thirty percent (30%) of the then outstanding shares of common stock of Employer is effectuated, other than as a result of a merger or other combination of Employer and an Affiliate, or (iii) the acquisition by any "person" as used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the combined voting power of Employer's then outstanding voting securities is effectuated; or (iv) the individuals who, as of the date of execution of this Agreement, are members of the Board of Directors (the "incumbent Board") cease for any reason to constitute at least two-thirds (2/3) of the Board; provided, however, that if the election, or nomination for election by the shareholders of any new director was approved by a vote of at least two-thirds (2/3) of the incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the incumbent Board, and (a) Employee's employment with Employer or Employer's successor-in-interest is terminated by Employer or Employer's successor-in-interest (as the case may be) or Employee for any reason, or (b) Employee's employment under this Agreement is not extended by Employer or Employer's successor-in-interest for any Renewal Term, and such termination or non-renewal occurs within two (2) years after the closing of the transaction which resulted in the change in control; or (e) Employee shall terminate his employment as a result of: (i) The failure of the Board of Directors to re-nominate Employee as a candidate for election to Employer's Board of Directors, unless agreed to by Employee; or (ii) any failure to appoint, elect or reelect Employee as Chairman of the Board promptly upon Chairman Robert J. Rutland no longer 33 9 holding such office, unless agreed to by Employee, then Employer shall, depending upon the reason for the termination of Employee's employment, immediately pay (in accordance with the terms of this Section 9) to Employee an amount determined as follows: (x) If the termination shall be pursuant to subparagraph (d) above, the amount shall be equal to the sum of (1) three hundred percent (300%) of Employee's then-effective annual Base Salary; and (2) three hundred percent (300%) of the Bonus, as hereinafter defined. In addition, Employer shall continue to provide to Employee (except in the case of Employee's death), for a period equal to the greater of (i) the remainder of the Term had not said termination occurred, and (ii) three (3) years from said termination, benefits, in both scope of coverage and value of coverage which are in effect as of the date of such termination, as are provided pursuant to Employer's group health and hospitalization plan, group dental plan and group base life insurance plan, and the benefits enumerated in Paragraph 6(b) hereof. (y) If the termination shall be other than pursuant to subparagraph (d) or subparagraph (e) above, the amount shall be equal to the sum of (1) that percentage of Employee's then-effective annual Base Salary equal to the product of the number of whole or partial years remaining in the Term and one hundred (100); and (2) that percentage of Employee's then-effective Bonus, as hereinafter defined, equal to the product of the number of whole or partial years remaining in the Term and one hundred (100); provided, however, in no event shall the percentage in subparagraphs (1) and (2) hereof be less than three hundred percent (300%). In addition, Employer shall continue to provide to Employee (except in the case of Employee's death), for a period of years equal to the number of whole or partial years remaining in the Term, but in no event fewer than three (3) years, benefits, in both scope of coverage and value of coverage which are in effect as of the date of such termination, as are provided pursuant to Employer's group health and hospitalization plan, group dental plan and group base life insurance plan, and the benefits enumerated in Paragraph 6(b) hereof. (z) If the termination shall be pursuant to subparagraph (e) above, the amount shall be equal to three hundred percent (300%) of Employee's then-effective annual Base Salary. 34 10 In addition, Employer shall continue to provide to Employee (except in the case of Employee's death), for a period equal to the greater of (i) the remainder of the Term had not said termination occurred, and (ii) three (3) years from said termination, benefits, in both scope of coverage and value of coverage which are in effect as of the date of such termination, as are provided pursuant to Employer's group health and hospitalization plan, group dental plan and group base life insurance plan, and the benefits enumerated in Paragraph 6(b) hereof. 10. OPERATIVE PROVISIONS (a) As used in this Agreement, the term "Bonus" shall mean: (i) with respect to the most recent grant or award of restricted stock, pursuant to Employer's "Long Term Incentive Plan", made prior to the date of termination of Employee's employment, the Dollar value, as of the date of such grant or award, of the Long Term Incentive Plan restricted stock plan target for Employee as approved by the Compensation Committee of Employer's Board of Directors, which Dollar value is established by the Compensation Committee notwithstanding the number of shares actually received pursuant to such grant or award and notwithstanding the value of such shares actually received; plus (ii) the highest of the (A) the Annual Bonus actually paid to Employee in the preceding year; (B) the average of the Annual Bonuses actually paid to Employee in the two (2) preceding fiscal years if Employee has been employed for two (2) years; and (C) if Employee's employment is terminated (whether by Employer, Employer's successor in interest or Employee) following an event described in Section 9(d) hereof, the target amount of Employee's Annual Bonus for the year in which the termination of employment occurs. (b) In the event of a termination of employment pursuant to Paragraph 9 hereof, all restricted stock awards of Employee shall become wholly unrestricted and all unvested stock options of Employee shall become immediately and fully vested in Employee, and all such agreements pertaining thereto shall be read accordingly; provided, however, that Employee shall have not have any such rights with respect to any stock issued under any employee stock plan of Employer qualifying under Section 402(a) et seq. of the Code if, and to the extent, such rights would jeopardize the qualification of such plan under said Section. As used in the preceding sentence, "Code" means the Internal Revenue Code of 1986 as amended from time to time or any provisions from time to time enacted and corresponding in substance thereto. 35 11 (c) Paragraph 9 and this Paragraph 10 shall survive the termination of this Agreement, and this Agreement shall be read accordingly. 11. INTENTION OF PARTIES. It is the express understanding and intention of Employer and Employee that the provisions of Paragraph 5 and Paragraph 9 hereof shall be read together and be non-exclusive so that, in the event of a termination of Employee's employment pursuant to Paragraph 9 of this Employment Agreement, Employee shall receive: both all of the compensation specified in Paragraph 9 hereof (including, but not limited to, the applicable percentage of Employee's then-effective Base Salary and the applicable percentage of the cash portion of Employee's Bonus) and one hundred percent (100%) of the pro rata portion of both the cash and equity parts of Employee's Bonus based on the number of days in the fiscal year falling within the Term (which shall include the amount of any Annual Bonus paid to Employee during that year, if any), but such pro rata portion shall not be less than the highest of (i) the Annual Bonus actually paid to Employee in the preceding year; (ii) the average of the Annual Bonuses actually paid to Employee in the two (2) preceding fiscal years if Employee has been employed for two (2) years; and (iii) if Employee's employment is terminated (whether by Employer, Employer's successor in interest or Employee) following an event described in Section 9(d) hereof, the target amount of Employee's Annual Bonus for the year in which the termination of employment occurs. The amounts referred to in this Paragraph are in addition to the insurance and other benefits enumerated in Paragraphs 9(x), 9(y) and 9(z) hereof, if applicable. In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement. Any severance benefits payable to Employee shall not be subject to reduction for any compensation received from other employment. 12. COVENANT NOT-TO-SOLICIT. Employer and Employee acknowledge that, during Employee's employment, Employer will spend considerable amounts of time, effort and resources in providing Employee with knowledge relating to the business affairs of Employer and the Affiliates, including Employer's and the Affiliates' trade secrets, proprietary information and other information concerning Employer's and the Affiliates' financing sources, finances, customer lists, customer records, prospective customers, staff, contemplated acquisitions (whether of business or assets), ideas, methods, marketing investigations, surveys, research, customers' records and any other information relating to Employer's and the Affiliates' Business. Employer and Employee recognize that, during the course of Employee's term of employment with Employer pursuant to this Agreement, Employee shall contact, solicit or approach Employer's and the Affiliates' customers and prospective customers (the "Customers") on behalf of Employer. To protect Employer from Employee's solicitation of business from Customers during the Restricted Period, Employee agrees that, subject to Paragraph 16 hereof, he shall not, directly or indirectly, for any person (including Employee himself), corporation, firm, partnership, proprietorship or other entity, other than Employer or an Affiliate, engaged in the Business, solicit transportation, logistics or other business of the type provided by Employer from any Customer with whom the Employee had contact during the twelve (12) month period 36 12 immediately preceding the termination of Employee's employment. This Paragraph 12 shall, except as otherwise provided in this Agreement, survive the termination of this Agreement. 13. COVENANT NOT-TO-DISCLOSE. Employer and Employee recognize that, during the course of Employee's term of employment with Employer pursuant to this Agreement, Employer will disclose to Employee information concerning Employer and the Affiliates, their products, their customers, their services, their trade secrets, their proprietary information and other information concerning their business all of which constitute valuable assets of Employer and the Affiliates. Employer and Employee further acknowledge that Employer has, and will, invest considerable amounts of time, effort and corporate resources in developing such valuable assets and that disclosure by Employee of such assets to the public shall cause irreparable harm, damage and loss to Employer and the Affiliates. (a) To protect these assets, Employee agrees that he shall not, during the Restricted Period, advise or disclose to any person, corporation, firm, partnership or other entity whatsoever (except Employer or an Affiliate), or any officer, director, stockholder, partner or associate of any such corporation, firm, partnership or entity any information received from Employer by Employee during the course of Employee's association with Employer relating to the business affairs of Employer and the Affiliates including information concerning Employer's and the Affiliates' finances, services, customers, customer lists, prospective customers, staff, contemplated acquisitions (whether of business or assets), ideas, proprietary information, methods, marketing investigations, surveys, research and any other information relating to the business and objectives of Employer and the Affiliates, except as permitted by this Paragraph 13. (b) Employee further agrees that he shall not, during the term of his employment or any time thereafter, advise or disclose to any person or entity any trade secret which Employer or any Affiliate has disclosed to Employee during the course of his employment with Employer. (c) In the event Employee's employment is terminated, Employee agrees that, if requested by Employer, he will acknowledge in writing that he received the disclosures referred to herein and is under the obligations referred to in this Agreement. (d) This Paragraph 13 shall, except as otherwise provided in this Agreement, survive the termination of this Agreement. Any implication in this Paragraph 13 to the contrary notwithstanding, this Paragraph 13 hereof shall not, and shall not be deemed to, prohibit Employee from disclosing information regarding Employer that (i) is already public information other than because of any breach of this Paragraph 13 by Employee; (ii) shall be required by applicable Federal or state laws; (iii) shall not be confidential or proprietary and shall be required in the ordinary course of business; (iv) shall be required pursuant to the order of any court or administrative agency having jurisdiction; provided, however, that the foregoing shall not permit the disclosure of any trade secret of Employer; and (v) during the course of Employee's employment with Employer disclosure of any 37 13 of the foregoing as reasonably required by Employee in the good faith performance of his duties under this Agreement. 14. COVENANT NOT-TO-INDUCE. Employee covenants and agrees that during the Restricted Period, he will not, directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, induce or attempt to solicit or induce an employee or other personnel of Employer and the Affiliates to terminate employment with such party. This Paragraph 14 shall, except as otherwise provided in this Agreement, survive the termination of this Agreement. 15. COVENANT OF NON-DISPARAGEMENT AND COOPERATION. Employee agrees that he shall not, at any time during or following the Term, make any remarks disparaging the conduct or character of Employer or any of its current or former Affiliates, agents, employees, officers, directors, shareholders, successors or assigns (in the aggregate, such persons and entities are referred to herein as the "Protected Persons"); provided, however, that during the Term, Employer acknowledges and agrees that Employee may be required from time to time to make such remarks about Protected Persons for legitimate business purposes and if consistent with the discharge of his duties hereunder. In addition, following termination of his employment hereunder, Employee agrees to reasonably cooperate with Employer, at no extra cost, in any litigation or administrative proceedings (e.g., EEOC charges) involving any matters with which Employee was involved during Employee's employment with Employer. Employer shall reimburse Employee for travel and other related expenses approved by Employer incurred in providing such assistance. This Section 15 shall survive the termination of this Agreement. 16. COVENANT NOT TO COMPETE. Employer and Employee acknowledge that, by virtue of Employee's responsibilities and authority as President and Chief Executive Officer of Employer, he will, during the course of his employment, be instrumental in developing, and will receive, highly confidential information concerning Employer and the Affiliates, their services, their trade secrets, their proprietary information, and other information concerning the business of Employer and the Affiliates, much of which is unavailable to persons of lesser responsibility and authority. Employee further acknowledges that the ability of such information to benefit a competitor or potential competitor of Employer shall cause irreparable harm, damage and loss to Employer and the Affiliates. To protect Employer and the Affiliates from Employee's using or exploiting this information, Employee agrees that he shall not, for a period of twelve (12) months from the date of termination of this Agreement for any reason, (i) perform substantially similar job duties or functions as those performed for Employer under this Agreement for any entity engaged in the Business in the United States of America (the "Restricted Territory"), or (ii) directly or indirectly, own, manage, join, control, contract with, be employed by, act in the capacity of an officer, director, trustee, shareholder or partner or consultant, or participate in any manner in the ownership, management, operation, or control of any business or person engaged in the Business in the Restricted Territory wherein Employee would perform substantially similar duties or job functions as those performed for Employer under this Agreement; provided, however, Employee shall be permitted to own not more than five percent (5%) of the stock of a corporation required to file reports pursuant to the Securities Exchange Act of 1934. As to the foregoing, Employee acknowledges that he has the ability to earn a comparable income within or without the Restricted Territory as a manager or executive for persons or entities not engaged in the Business and that earning a livelihood by working for persons or entities not engaged in the Business within or without the Restricted Territory would not constitute a hardship or an 38 14 unreasonable restriction on the Employee or restrict him from earning comparable income. This Section 16 shall survive termination of this Agreement. 17. PARAMOUNT PROVISION. Anything in this Agreement to the contrary notwithstanding, the provisions of Paragraph 12, Paragraph 13(a), Paragraph 13(c), Paragraph 14 and Paragraph 16 hereof shall not apply to Employee, and shall be absolutely null and void, in the event Employee shall terminate his employment hereunder for any one of the reasons set forth in Paragraph 9(b) hereof. 18. SPECIFIC ENFORCEMENT. Employer and Employee expressly agree that a violation of the covenants not-to-solicit, not-to-disclose, not-to-induce and not-to-compete contained in Paragraphs 12, 13, 14 and 16 hereof, or any provision thereof, shall cause irreparable injury to Employer and that, accordingly, Employer shall be entitled, in addition to any other rights and remedies it may have at law or in equity, to an injunction enjoining and restraining Employee from doing or continuing to do any such act and any other violation or threatened violation of said Paragraphs 12, 13, 14 and 16 hereof. 19. SEVERABILITY. In the event any provision of this Agreement shall be found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void part were deleted; provided, however, if Paragraphs 12, 13, 14 and 16 shall be declared invalid, in whole or in part, Employee shall execute, as soon as possible, a supplemental agreement with Employer, granting Employer, to the extent legally possible, the protection afforded by said Paragraphs. It is expressly understood and agreed by the parties hereto that Employer shall not be barred from enforcing the restrictive covenants contained in each of Paragraphs 12, 13, 14 and 16 as each are separate and distinct, so that the invalidity of any one or more of said covenants shall not affect the enforceability and validity of the other covenants. 20. INCOME TAX WITHHOLDING. Employer or any other payor may withhold from any compensation or benefits payable under this Agreement such Federal, State, City or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 21. OTHER TAX CONSIDERATIONS. Notwithstanding any other provision of this Agreement or any other plan, agreement or arrangement applicable to Employee to the contrary, in the event that (1) any portion of the aggregate payments and benefits received or to be received by Employee pursuant to the terms of this Agreement or any other plan, arrangement or agreement with Employer or any Affiliate of Employer which are contingent on a change of ownership or effective control of Employer or an Affiliate or a change in the ownership of a substantial portion of the assets of Employer or an Affiliate (in each case, within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")) (hereinafter, all such payments and benefits being sometimes referred to as "Total Payments") would constitute a "parachute payment", as defined in Code Section 280G(b)(2), and (2) the amount of such parachute payment that Employee would receive after deduction of all excise taxes payable by the Employee under Section 4999 of the Code with respect to any portion of such Total Payments constituting an "excess parachute payment" (within the meaning of Section 280(G) of the Code) would be less than 299 percent of Employee's "base amount" (as defined in Code Section 39 15 280G(b)(3), then, but only then, Employee's right to the portion of such Total Payments otherwise constituting a "parachute payment" shall automatically be reduced so that the aggregate of the applicable values thereof for purposes of Code Section 280(G) shall be equal to 299 percent of the Employee's "base amount" by reducing] to the extent necessary (A) first the cash portion of the Total Payments otherwise constituting a "parachute payment" (if necessary, to zero (0)), and (B) then] all other non-cash Total Payments otherwise constituting a "parachute payment" (if necessary, to zero (0)); provided that, in making any such determination as to the application and effect of this Paragraph 21 on any payments or benefits received or to be received by Employee, (i) no portion of the Total Payments shall be taken into account which does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code, including by reason of Section 280G(b)(4)(A) of the Code; and (ii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments otherwise constituting a "parachute payment" shall be determined in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. 22. WAIVER. The waiver of a breach of any term of this Agreement by any of the parties hereto shall not operate or be construed as a waiver by such party of the breach of any other term of this Agreement or as a waiver of a subsequent breach of the same term of this Agreement. 23. D & O INSURANCE; INDEMNIFICATION. Employer shall maintain, for the benefit of Employee, director and office liability insurance in form at east as comprehensive as, and in an amount that is at least equal to, that maintained by Employer on the Effective Date; provided, however, that Employer's Board of Directors shall have the discretion to modify such coverage so long as such modification applies to all officers and directors. In addition, Employer shall indemnify Employee against liability as an officer and director of Employer and/or any Affiliate of Employer to the same extent as other officers and directors of Employer and/or any Affiliate in accordance with the constituent and organizational documents of such entities and consistent with applicable law. Employee's rights under this Section 23 shall continue so long as he may be subject to such liability, whether or not this Agreement may have been terminated prior hereto. 24. RIGHTS AND LIABILITIES UPON NOTICE OF TERMINATION. As soon as notice of termination of this Agreement is given, Employee shall immediately cease contact with all Customers of Employer and shall forthwith surrender to Employer all customer lists, documents and other property of Employer then in his possession, compliance with which shall not be deemed to be a breach of this Agreement by Employee. Pending the surrender of all such customer lists, documents and other property to Employer, Employer may hold in abeyance any payments due Employee pursuant to this Agreement. 25. ASSIGNMENT. (a) Employee shall not assign, transfer or convey this Agreement, or in any way encumber the compensation or other benefits payable to him hereunder, except with the prior written consent of Employer or upon Employee's death. 40 16 (b) The covenants, terms and provisions set forth herein shall be binding upon and shall inure to the benefit of, and be enforceable by, Employer and its successors and assigns; provided, Employer shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation or otherwise) to all or a substantial portion of its assets, by agreement in form and substance reasonably satisfactory to Employee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform this Agreement if no such succession had taken place. Regardless of whether such an agreement is executed, this Agreement shall be binding upon any successor of Employer in accordance with the operation of law, and such successor shall be deemed the "Employer" for purposes of this Agreement. 26. NOTICES. All notices required herein shall be in writing and shall be deemed to have been given when delivered personally or five (5) days after the date on which such notice is deposited in the U.S. Mail, certified or registered, postage prepaid, return receipt requested, addressed as follows, to wit: If to Employer at: 160 Clairemont Avenue, Suite 200 Decatur, Georgia 30030 With a copy to: Cohen Pollock Merlin Axelrod & Small, P.C. 2100 RiverEdge Parkway, Suite 300 Atlanta, Georgia 30328-4656 Attn: Elliott Cohen, Esquire If to Employee at: 3800 Falls Landing Drive Alpharetta, Georgia 30022 With a copy to: Smith, Gambrell & Russell, LLP 1230 Peachtree Street, N.E. Suite 3100 Atlanta, Georgia 30309 Attn: John R. Schneider, Esquire or at such other addresses as may, from time to time, be furnished to Employer by Employee, or by Employer to Employee on the terms of this Paragraph. 41 17 27. BINDING EFFECT. This Agreement shall be binding on the parties hereto and on their respective heirs, administrators, executors, successors and permitted assigns. 28. ENFORCEABILITY. This Agreement contains the entire understanding of the parties and may be altered, amended or modified only by a writing executed by both of the parties hereto. This Agreement supersedes all prior agreements and understandings by and between Employer and Employee relating to Employee's employment. 29. APPLICABLE LAW. This Agreement and the rights and liabilities of the parties hereto shall be governed by, and construed and interpreted in accordance with, the laws of the State of Georgia. 30. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original, but all of which together shall constitute but a single document. IN WITNESS WHEREOF, Employee has hereunder set his hand and seal, and Employer has caused this Agreement to be executed and delivered by its duly authorized officers, all as of the day and year first above written. (SEAL) - ------------------------- --------------------- WITNESS HUGH E. SAWYER ATTEST: ALLIED HOLDINGS, INC. By: By: ---------------------- ------------------------ Its Secretary Its Chairman -------- ------------ [CORPORATE SEAL] 42 GRAPHIC 4 g70976xbox.gif GRAPHIC begin 644 g70976xbox.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!PA>`/]%8T:PH,%_ M&0`H7,@0(3UF_R)&C*8N`T)P"O1(1"4@F$6+UB@0^H=*P2V$*/]94\!$P$F4 J%B/^`1!%XL>('#-EC'BSY,F0(S]& GRAPHIC 5 g70976box.gif GRAPHIC begin 644 g70976box.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!P@Z`/\)'$APX)L? M"!,J_/<#F;B'$!\:8"BNX,`#%"T*Q/BCHD:.'BV"U/AOY,>,)SN2Y&C@@,N7 &+@$$!``[ ` end -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

   1

                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT



         THIS EMPLOYMENT AGREEMENT is made and entered into as of the _____ day
of _______________, 2001, to be effective as of the ___ day of __________, 2001
(the "Effective Date"), by and between HUGH E. SAWYER ("Employee") and ALLIED
HOLDINGS, INC., a Georgia corporation ("Employer").

                                   WITNESSETH:

         WHEREAS, Employer, through the Affiliates (as hereinafter defined), is
engaged in the transportation of automobiles and light trucks from the
manufacturer to retailers and related activities and providing logistics and
distribution services to the new and used vehicle distribution market and
automotive industry (the "Business");

         WHEREAS, Employee has management skills of which Employer desires to
avail itself; and

         WHEREAS, Employer and Employee deem it to their respective best
interest to outline the duties and obligations, each to the other, by executing
this Employment Agreement,

         NOW, THEREFORE, for and in consideration of the covenants and
conditions hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Employer and Employee
hereby mutually agree as follows:

         1.       DEFINITIONS.

                  (a)      "Affiliate" means any corporation, partnership or
                           other entity of which at least eighty percent (80%)
                           of the outstanding equity and voting rights are
                           owned, directly or indirectly through any other
                           corporation, partnership or other entity, by
                           Employer.

                  (b)      "Base Salary" means the annual salary payable
                           pursuant to Paragraph 4(a) hereof as adjusted, from
                           time to time, pursuant to Paragraph 4(b) hereof.

                  (c)      "Cause" means (i) the commission by Employee of an
                           act of fraud, misappropriation, dishonesty,
                           embezzlement, gross negligence, or willful misconduct
                           in connection with his employment hereunder which is
                           materially injurious to Employer; (ii) criminal
                           conduct of Employee which results in a felony
                           conviction of such Employee with respect to which all
                           opportunities for appeal have expired, or the
                           Employee's offering a plea of nolo contendre to a
                           felony; (iii) Employee's continuing and/or willful
                           failure to perform his duties or obligations for
                           Employer as outlined in this Agreement, or Employee's
                           material breach of this Agreement, if such failure or
                           breach is not cured within thirty (30) days after
                           written notice from Employer's Board of Directors
                           thereof; (iv) Employee's prolonged


                                       26
   2

                           absence, without the consent of Employer, other than
                           as a result of Employee's Disability or permitted
                           absence or vacation, which is not cured within ten
                           (10) days after written notice from Employer's Board
                           of Directors thereof; or (v) engaging in activities
                           prohibited by Paragraphs 12, 13, 14 or 15 hereof
                           which is not cured within ten (10) days after written
                           notice from Employer's Board of Directors.
                           Notwithstanding the foregoing, Employer may not
                           terminate the Employee's employment for Cause unless
                           a determination that Cause exists shall be made by a
                           majority of the Employer's Board of Directors.

                  (d)      "Disability", with respect to Employee, shall
                           conclusively be deemed to have occurred (i) if
                           Employee shall be receiving payments pursuant to a
                           policy of long-term disability income insurance; or
                           (ii) if Employee shall have no disability income
                           coverage then in force, then if any insurance company
                           insuring Employee's life shall agree to waive the
                           premiums due on such policy pursuant to a disability
                           waiver of premium provision in the contract of life
                           insurance; or (iii) if Employee shall have no
                           disability waiver of premium provision in any
                           contract of life insurance, then if Employee shall be
                           receiving disability benefits from or through the
                           Social Security Administration; provided, however,
                           that in the event Employee's disability shall,
                           otherwise and in good faith, come into question (and,
                           for purposes of this proviso, "disability" shall mean
                           the permanent and continuous inability of Employee to
                           perform substantially all of the duties being
                           performed immediately prior to his disability coming
                           into question) for a period of not less than one
                           hundred twenty (120) consecutive days, and a dispute
                           shall arise with respect thereto, then Employee (or
                           his personal representatives) shall appoint a medical
                           doctor, Employer shall appoint a medical doctor, and
                           said two (2) doctors shall, in turn, appoint a third
                           party medical doctor who shall examine Employee to
                           determine the question of disability and whose
                           determination shall be binding upon all parties to
                           this Agreement. All such medical doctors shall be
                           duly licensed in the State of Georgia.

                  (e)      "Restricted Period" means the period commencing as of
                           the date hereof and ending on that date three (3)
                           years after the termination of Employee's employment
                           with Employer for any reason, whether voluntary or
                           involuntary.

         2.       TERM. Subject to the provisions hereinafter set forth, the
term of this Agreement shall commence as of the Effective Date and shall end on
that date five (5) years after the Effective Date (the "Initial Term"). Upon the
expiration of the Initial Term, and upon the expiration of each successive
Renewal Term (as hereinafter defined), Employee's employment shall be
automatically renewed for an additional term of two (2) years (the "Renewal
Term(s)"), unless written notification of termination is given by either party
to the other party not less than one (1) year prior to the expiration of the
Initial Term or, as the case may be, the then-current Renewal Term. As used
herein, "Term" shall mean the then current Initial Term or Renewal Term, as the
case may be.

         3.     DUTIES.


                                       27
   3

                  (a)      Employee shall, during the Term, serve as President
                           and CEO of Employer having duties, responsibilities,
                           powers and authority which are consistent with senior
                           management positions of like designation generally,
                           but subject to the Chairman's direction. The Employee
                           shall report directly to the Chairman and the Board
                           of Directors of Employer and shall perform such
                           executive, managerial and administrative duties as
                           the Chairman and the Board of Directors of Employer
                           may, from time to time, reasonably request.

                  (b)      During the Term, Employee shall devote substantially
                           all of his business time, energy and skill to
                           performing the duties of his employment (vacations as
                           provided hereunder and reasonable absences because of
                           illness excepted), shall faithfully and industriously
                           perform such duties, and shall use his best efforts
                           to follow and implement all management policies and
                           decisions of Employer. Employee shall not become
                           personally involved in the management or operations
                           of any other company, partnership, proprietorship or
                           other entity, other than any Affiliate, without the
                           prior written consent of Employer; provided, however,
                           that so long as it does not interfere with Employee's
                           employment hereunder, Employee may (i) serve as a
                           director, officer or partner in a company that does
                           not compete with the Business of Employer and the
                           Affiliates so long as the aggregate amount of time
                           spent by Employee in all such capacities shall not
                           exceed twenty (20) hours per month, and (ii) serve as
                           an officer or director of, or otherwise participate
                           in, educational, welfare, social, religious, civic,
                           trade and industry-related organizations.

                  (c)      Employee shall not be required to relocate outside of
                           the metropolitan Atlanta, Georgia, area without his
                           prior written consent.

                  (d)      The Board of Directors has adopted a resolution
                           appointing Employee to serve on Employer's Board of
                           Directors by filling the vacancy created by the
                           resignation of A. Mitchell Poole. Such appointment is
                           subject to Employee's execution of this Agreement and
                           will take effect on the Effective Date. It is
                           anticipated that Employee will also be elected to
                           serve on the Board of Directors of one or more of
                           Employer's Affiliates. Employee shall serve in such
                           position(s) without additional compensation.

         4.       BASE SALARY.

                  (a)      For and in consideration of the services to be
                           rendered by Employee pursuant to this Agreement,
                           Employer shall pay to Employee, for each year during
                           the Term, an annual salary of not less than Five
                           Hundred Fifty Thousand Dollars ($550,000.00),
                           adjusted as provided in subparagraph (b) below (the
                           "Base Salary"), in equal semi-monthly installments in
                           accordance with Employer's payroll practices.
                           Employee's salary shall be reviewed by the Board of
                           Directors of Employer annually (on each anniversary
                           of the date hereof) and, in the sole discretion of
                           the Board of Directors, may be increased, but not
                           decreased.


                                       28
   4

                  (b)      Commencing as of the Effective Date, and as of each
                           subsequent anniversary thereafter during the Term,
                           the Base Salary shall be increased, but not
                           decreased, by an amount equal to the greater of (i)
                           such amount as shall be determined by the
                           Compensation Committee of the Board of Directors of
                           Employer; or (ii) the amount equal to the percentage,
                           if any, by which the Consumer Price Index (All Items
                           Less Shelter), Urban Wage Earners and Clerical
                           Workers, for the Southeast Region/Population Size
                           Class B, published by the United States Government
                           Bureau of Labor Statistics for the December 1
                           preceding such January exceeds such Index for the
                           December 1 of the preceding year. (As an example, as
                           of January 1, 2002, the difference will be between
                           said Index as of December 1, 2001 compared to said
                           Index as of December 1, 2000.)

         5.       BONUS COMPENSATION.

                  (a)      Subject to subsection (b) below, in addition to
                           Employee's Base Salary, Employee shall, with respect
                           to each calendar year of Employer ending during the
                           Term, be eligible to participate in a management
                           bonus plan determined by Employer's Board of
                           Directors from time to time. Such plan shall, at a
                           minimum, provide for an opportunity for Employee to
                           earn a cash bonus on an annual basis of up to one
                           hundred percent (100%) of Employee's Base Salary
                           received for the year as to which such bonus is
                           earned (the "Target Bonus"), based on meeting the
                           performance goals (such as individual or company-wide
                           goals) and satisfying such other reasonable terms and
                           conditions as may be set from time to time by
                           Employer's Board of Directors in the good faith
                           exercise of its discretion. The foregoing shall not
                           limit the ability of Employer's Board of Directors to
                           establish management bonus plans providing for a
                           greater Target Bonus for the Employee or to provide a
                           cash bonus for Employee in any given year that is
                           greater than the Target Bonus. Such annual cash
                           bonuses will be payable within thirty (30) days of
                           the completion of the independent certified audit for
                           the applicable year (each, an "Annual Bonus"); and


                  (b)      Employer shall pay Two Hundred Seventy-Five Thousand
                           Dollars ($275,000.00) of the eligible targeted Annual
                           Bonus in 2001; provided, that Employer shall not be
                           required to pay such bonus if Employee terminates his
                           employment on or before December 31, 2001 (other than
                           a termination by Employee pursuant to Paragraph
                           9(b)). The remaining balance of the target 2001
                           Annual Bonus (in the amount of $275,000.00) or a
                           portion thereof will be paid at the discretion of the
                           Chairman and the Board of Directors (or its
                           designee). Such Annual Bonus will be payable within
                           thirty (30) days of the completion of the independent
                           certified audit for 2001. All amounts received
                           pursuant to this Paragraph shall constitute Annual
                           Bonus for 2001.

                  (c)      Employee shall be eligible to participate in
                           Employer's Long Term Incentive Plan, on a basis no
                           less favorable than those made available to other


                                       29
   5

                           senior managers of Employer generally and shall enter
                           into required documents evidencing participation in
                           such plan, if any, contemporaneously with the
                           execution of this Agreement and from time to time
                           thereafter.

         6.       OTHER BENEFITS. During the Term, Employer shall provide the
following benefits to Employee:

                  (a)      On and as of the Effective Date, Employee and
                           Employee's immediate family shall be entitled to
                           participate in all group benefit programs, including,
                           without limitation, medical and hospitalization
                           benefit programs, dental care, life insurance or
                           other group benefit plans for highly compensated
                           employees of Employer as are now or hereafter
                           provided by Employer or any Affiliate, in each case
                           in accordance with the terms and conditions of each
                           such plan and benefit package on terms no less
                           favorable, in both scope of coverage and value of
                           coverage, than the benefits currently provided to
                           Employer's Chairman. To the extent applicable and
                           allowable by the terms and conditions of such plans
                           and programs, Employee shall be credited for the full
                           period of Employee's prior employment by Employer or
                           its Affiliates;

                  (b)      Employee shall be paid a monthly car allowance of One
                           Thousand Three Hundred Dollars ($1,300.00) to be used
                           for vehicles for the benefit of Employee in his
                           discretion;

                  (c)      Employee shall be provided with the use of a cellular
                           telephone, at no cost to Employee;

                  (d)      Employer shall reimburse Employee for dues paid by
                           Employee for membership in such professional
                           organizations and eating clubs as shall, from time to
                           time, be deemed appropriate and necessary by
                           Employer;

                  (e)      Employee shall, at all times, have available to him
                           an expense account to defray actual, reasonable,
                           ordinary and necessary business expenses incurred in
                           the performance of his duties hereunder. Employee
                           shall be reimbursed for such expenses upon
                           presentation and approval of expense statements or
                           written vouchers or other supporting documents as may
                           be reasonably requested in advance by Employer,
                           Employer's Board of Directors, or a committee
                           thereof, which approval shall not be unreasonably
                           withheld or delayed;

                  (f)      Employer shall reimburse Employee up to Seventy-Five
                           Thousand Dollars ($75,000.00) for actual and
                           reasonable expenses incurred by Employee in
                           relocating to Atlanta, Georgia, including actual
                           moving costs, customary real estate commissions or
                           closing costs incurred in selling Employee's
                           residence in Southlake, Texas, or penalties paid by
                           Employee for failing to fulfill certain contractual
                           obligations related to the purchase of said residence
                           in Southlake, Texas. Employee shall be reimbursed for
                           such


                                       30

   6

                           expenses upon presentation and approval of expense
                           statements or written vouchers or other supporting
                           documents as may be reasonably requested in advance
                           by Employer, Employer's Board of Directors, or a
                           committee thereof, which approval shall not be
                           unreasonably withheld or delayed; and

                  (g)      Employer shall reimburse Employee up to One Hundred
                           Twenty-Five Thousand ($125,000.00) for payments
                           actually paid by Employee related to the early
                           termination of his Employment Agreement with his
                           former employer in Irving, Texas upon Employer's
                           receipt of reasonable evidence of such payment. Such
                           payment shall not be unreasonably withheld or delayed
                           by Employer.

                  (h)      Employer shall pay to Employee an additional payment
                           (the "Gross-Up Payment") in an amount sufficient to
                           fully reimburse Employee with respect to all federal,
                           state and local taxes actually paid by Employee with
                           respect to the payments set forth in clauses (f) and
                           (g) hereof. The Gross-Up Payment shall not be
                           unreasonably withheld or delayed by Employer.

         The benefits described in subparagraph (a) of this Paragraph shall not
         be construed to require Employer to establish any such plans or
         programs or to prevent Employer from modifying or terminating any such
         plans or programs, and no such action or failure thereof shall affect
         this Agreement; provided, however, that in the event of any reduction
         in the group medical and hospitalization benefits in place as of the
         date hereof, the salary payable to Employee shall be increased, as of
         the effective date of such reduction, by that amount necessary to
         enable Employee to supplement the benefits provided by Employer to
         maintain the level of benefits currently provided to him by it.

         7.       VACATION. Employee shall receive four (4) weeks of paid
vacation and/or personal days for each year during the Term. Scheduling of
vacation shall be subject to the prior approval of Employer (which approval
shall not be unreasonably withheld). Vacation time shall not accrue, and in the
event any vacation time for any year shall not be used by Employee prior to the
end of such year, it shall be forfeited.

         8.       TERMINATION. Anything herein to the contrary notwithstanding,
Employee's employment hereunder shall terminate upon the first to occur of any
of the following events:

                  (a)      Employee's Disability; or

                  (b)      Employee's death; or

                  (c)      Employer's sending Employee ten (10) days prior
                           written notice terminating his employment without
                           Cause hereunder prior to expiration of the Term; or

                  (d)      Employee's voluntarily terminating his employment
                           with Employer for any reason or no reason by sending
                           Employer ten (10) days prior written notice
                           terminating his employment hereunder prior to
                           expiration of the Term, and Employee shall not


                                       31

   7

                           be liable to Employer solely as the result of
                           terminating this Agreement pursuant to this
                           subsection (d), except as may otherwise be provided
                           herein; or

                  (e)      Employee being terminated for Cause.

         9.       TERMINATION PAYMENT. In the event:

                  (a)      Employee's employment shall terminate pursuant to
                           Paragraph 8(a) (Disability) or Paragraph 8(b) (death)
                           hereof; or

                  (b)      Employee shall terminate his employment as a result
                           of:

                           (i)      any failure to elect or reelect or to
                                    appoint or reappoint Employee to the
                                    position of President and CEO of Employer
                                    unless agreed to by Employee;

                           (ii)     any material change by Employer in
                                    Employee's function, duties, title,
                                    responsibility, importance, reporting
                                    relationship or scope from the position and
                                    attributes thereof described in Paragraph 3
                                    hereof, or any change to Employee's
                                    compensation other than as contemplated by
                                    Paragraph 4 hereof, unless agreed to by
                                    Employee, or any change in location of the
                                    principal offices of Employer outside the
                                    metropolitan Atlanta, Georgia, area, or any
                                    requirement that Employee perform
                                    substantially all of his duties outside the
                                    metropolitan Atlanta, Georgia, area (and any
                                    such material change or relocation of
                                    Employer or Employee shall be deemed a
                                    continuing breach of this Agreement);

                           (iii)    any failure by Employer to comply with
                                    Paragraphs 4 or 5 of this Agreement, unless
                                    agreed to by Employee;

                           (iv)     the liquidation, dissolution, consolidation
                                    or merger of Employer (other than a merger
                                    or other combination of Employer and an
                                    Affiliate); however, if a termination of
                                    employment results from events described in
                                    this clause (iv) and subsection (d) below,
                                    then such termination shall be deemed
                                    pursuant to subsection (d) below;

                           (v)      any other material breach of this Agreement
                                    by Employer which shall not be cured within
                                    thirty (30) days after receipt of written
                                    notice of same from Employee; or

                           (vi)     Employer filing a petition for protection or
                                    relief from creditors under the federal
                                    bankruptcy law, or any petition shall be
                                    filed against Employer under the federal
                                    bankruptcy law, or Employer shall admit in
                                    writing its inability to pay its debts or
                                    shall make an assignment for the benefit of
                                    creditors, or a petition or application for
                                    the appointment of a receiver or liquidator
                                    or


                                       32
   8

                           custodian of Employer is filed, or Employer shall
                           seek a composition with creditors.

                  (c)      Employee's employment shall be terminated by Employer
                           for any reason other than for Cause or because
                           Employer elects not to extend this Agreement beyond
                           the Initial or any Renewal Term; or

                  (d)      If (i) Employer undergoes any change in control or
                           ownership whereby Employer is reorganized, merged, or
                           consolidated with one or more corporations as a
                           result of which the owners of all of the outstanding
                           shares of common stock immediately prior to such
                           reorganization, merger or consolidation own in the
                           aggregate less than seventy percent (70%) of the
                           outstanding shares of common stock of the Employer or
                           any other entity into which Employer shall be merged
                           or consolidated immediately following the
                           consummation thereof (hereinafter, "Employer's
                           successor-in-interest"), or (ii) the sale, transfer
                           or other disposition of all or substantially all of
                           the assets or more than thirty percent (30%) of the
                           then outstanding shares of common stock of Employer
                           is effectuated, other than as a result of a merger or
                           other combination of Employer and an Affiliate, or
                           (iii) the acquisition by any "person" as used for
                           purposes of Section 13(d) or 14(d) of the Securities
                           Exchange Act of 1934 of beneficial ownership (within
                           the meaning of Rule 13d-3 promulgated under the
                           Exchange Act) of twenty percent (20%) or more of the
                           combined voting power of Employer's then outstanding
                           voting securities is effectuated; or (iv) the
                           individuals who, as of the date of execution of this
                           Agreement, are members of the Board of Directors (the
                           "incumbent Board") cease for any reason to constitute
                           at least two-thirds (2/3) of the Board; provided,
                           however, that if the election, or nomination for
                           election by the shareholders of any new director was
                           approved by a vote of at least two-thirds (2/3) of
                           the incumbent Board, such new director shall, for
                           purposes of this Agreement, be considered as a member
                           of the incumbent Board, and (a) Employee's employment
                           with Employer or Employer's successor-in-interest is
                           terminated by Employer or Employer's
                           successor-in-interest (as the case may be) or
                           Employee for any reason, or (b) Employee's employment
                           under this Agreement is not extended by Employer or
                           Employer's successor-in-interest for any Renewal
                           Term, and such termination or non-renewal occurs
                           within two (2) years after the closing of the
                           transaction which resulted in the change in control;
                           or

                  (e)      Employee shall terminate his employment as a result
                           of:

                           (i)      The failure of the Board of Directors to
                                    re-nominate Employee as a candidate for
                                    election to Employer's Board of Directors,
                                    unless agreed to by Employee; or

                           (ii)     any failure to appoint, elect or reelect
                                    Employee as Chairman of the Board promptly
                                    upon Chairman Robert J. Rutland no longer


                                       33
   9

                                    holding such office, unless agreed to by
                                    Employee,

then Employer shall, depending upon the reason for the termination of Employee's
employment, immediately pay (in accordance with the terms of this Section 9) to
Employee an amount determined as follows:

         (x)      If the termination shall be pursuant to subparagraph (d)
                  above, the amount shall be equal to the sum of

                  (1)      three hundred percent (300%) of Employee's
                           then-effective annual Base Salary; and

                  (2)      three hundred percent (300%) of the Bonus, as
                           hereinafter defined.

                  In addition, Employer shall continue to provide to Employee
                  (except in the case of Employee's death), for a period equal
                  to the greater of (i) the remainder of the Term had not said
                  termination occurred, and (ii) three (3) years from said
                  termination, benefits, in both scope of coverage and value of
                  coverage which are in effect as of the date of such
                  termination, as are provided pursuant to Employer's group
                  health and hospitalization plan, group dental plan and group
                  base life insurance plan, and the benefits enumerated in
                  Paragraph 6(b) hereof.

         (y)      If the termination shall be other than pursuant to
                  subparagraph (d) or subparagraph (e) above, the amount shall
                  be equal to the sum of

                  (1)      that percentage of Employee's then-effective annual
                           Base Salary equal to the product of the number of
                           whole or partial years remaining in the Term and one
                           hundred (100); and

                  (2)      that percentage of Employee's then-effective Bonus,
                           as hereinafter defined, equal to the product of the
                           number of whole or partial years remaining in the
                           Term and one hundred (100);

                  provided, however, in no event shall the percentage in
                  subparagraphs (1) and (2) hereof be less than three hundred
                  percent (300%).

                  In addition, Employer shall continue to provide to Employee
                  (except in the case of Employee's death), for a period of
                  years equal to the number of whole or partial years remaining
                  in the Term, but in no event fewer than three (3) years,
                  benefits, in both scope of coverage and value of coverage
                  which are in effect as of the date of such termination, as are
                  provided pursuant to Employer's group health and
                  hospitalization plan, group dental plan and group base life
                  insurance plan, and the benefits enumerated in Paragraph 6(b)
                  hereof.

         (z)      If the termination shall be pursuant to subparagraph (e)
                  above, the amount shall be equal to three hundred percent
                  (300%) of Employee's then-effective annual Base Salary.


                                       34
   10

         In addition, Employer shall continue to provide to Employee (except in
the case of Employee's death), for a period equal to the greater of (i) the
remainder of the Term had not said termination occurred, and (ii) three (3)
years from said termination, benefits, in both scope of coverage and value of
coverage which are in effect as of the date of such termination, as are provided
pursuant to Employer's group health and hospitalization plan, group dental plan
and group base life insurance plan, and the benefits enumerated in Paragraph
6(b) hereof.

         10.      OPERATIVE PROVISIONS

                  (a)      As used in this Agreement, the term "Bonus" shall
                           mean:

                           (i)      with respect to the most recent grant or
                                    award of restricted stock, pursuant to
                                    Employer's "Long Term Incentive Plan", made
                                    prior to the date of termination of
                                    Employee's employment, the Dollar value, as
                                    of the date of such grant or award, of the
                                    Long Term Incentive Plan restricted stock
                                    plan target for Employee as approved by the
                                    Compensation Committee of Employer's Board
                                    of Directors, which Dollar value is
                                    established by the Compensation Committee
                                    notwithstanding the number of shares
                                    actually received pursuant to such grant or
                                    award and notwithstanding the value of such
                                    shares actually received; plus

                           (ii)     the highest of the (A) the Annual Bonus
                                    actually paid to Employee in the preceding
                                    year; (B) the average of the Annual Bonuses
                                    actually paid to Employee in the two (2)
                                    preceding fiscal years if Employee has been
                                    employed for two (2) years; and (C) if
                                    Employee's employment is terminated (whether
                                    by Employer, Employer's successor in
                                    interest or Employee) following an event
                                    described in Section 9(d) hereof, the target
                                    amount of Employee's Annual Bonus for the
                                    year in which the termination of employment
                                    occurs.

                  (b)      In the event of a termination of employment pursuant
                           to Paragraph 9 hereof, all restricted stock awards of
                           Employee shall become wholly unrestricted and all
                           unvested stock options of Employee shall become
                           immediately and fully vested in Employee, and all
                           such agreements pertaining thereto shall be read
                           accordingly; provided, however, that Employee shall
                           have not have any such rights with respect to any
                           stock issued under any employee stock plan of
                           Employer qualifying under Section 402(a) et seq. of
                           the Code if, and to the extent, such rights would
                           jeopardize the qualification of such plan under said
                           Section. As used in the preceding sentence, "Code"
                           means the Internal Revenue Code of 1986 as amended
                           from time to time or any provisions from time to time
                           enacted and corresponding in substance thereto.


                                       35
   11

                  (c)      Paragraph 9 and this Paragraph 10 shall survive the
                           termination of this Agreement, and this Agreement
                           shall be read accordingly.

         11.      INTENTION OF PARTIES. It is the express understanding and
intention of Employer and Employee that the provisions of Paragraph 5 and
Paragraph 9 hereof shall be read together and be non-exclusive so that, in the
event of a termination of Employee's employment pursuant to Paragraph 9 of this
Employment Agreement, Employee shall receive: both all of the compensation
specified in Paragraph 9 hereof (including, but not limited to, the applicable
percentage of Employee's then-effective Base Salary and the applicable
percentage of the cash portion of Employee's Bonus) and one hundred percent
(100%) of the pro rata portion of both the cash and equity parts of Employee's
Bonus based on the number of days in the fiscal year falling within the Term
(which shall include the amount of any Annual Bonus paid to Employee during that
year, if any), but such pro rata portion shall not be less than the highest of
(i) the Annual Bonus actually paid to Employee in the preceding year; (ii) the
average of the Annual Bonuses actually paid to Employee in the two (2) preceding
fiscal years if Employee has been employed for two (2) years; and (iii) if
Employee's employment is terminated (whether by Employer, Employer's successor
in interest or Employee) following an event described in Section 9(d) hereof,
the target amount of Employee's Annual Bonus for the year in which the
termination of employment occurs.

         The amounts referred to in this Paragraph are in addition to the
insurance and other benefits enumerated in Paragraphs 9(x), 9(y) and 9(z)
hereof, if applicable. In no event shall Employee be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to Employee under any of the provisions of this Agreement. Any severance
benefits payable to Employee shall not be subject to reduction for any
compensation received from other employment.

         12.      COVENANT NOT-TO-SOLICIT. Employer and Employee acknowledge
that, during Employee's employment, Employer will spend considerable amounts of
time, effort and resources in providing Employee with knowledge relating to the
business affairs of Employer and the Affiliates, including Employer's and the
Affiliates' trade secrets, proprietary information and other information
concerning Employer's and the Affiliates' financing sources, finances, customer
lists, customer records, prospective customers, staff, contemplated acquisitions
(whether of business or assets), ideas, methods, marketing investigations,
surveys, research, customers' records and any other information relating to
Employer's and the Affiliates' Business.

         Employer and Employee recognize that, during the course of Employee's
term of employment with Employer pursuant to this Agreement, Employee shall
contact, solicit or approach Employer's and the Affiliates' customers and
prospective customers (the "Customers") on behalf of Employer.

         To protect Employer from Employee's solicitation of business from
Customers during the Restricted Period, Employee agrees that, subject to
Paragraph 16 hereof, he shall not, directly or indirectly, for any person
(including Employee himself), corporation, firm, partnership, proprietorship or
other entity, other than Employer or an Affiliate, engaged in the Business,
solicit transportation, logistics or other business of the type provided by
Employer from any Customer with whom the Employee had contact during the twelve
(12) month period


                                       36
   12

immediately preceding the termination of Employee's employment. This Paragraph
12 shall, except as otherwise provided in this Agreement, survive the
termination of this Agreement.

         13.      COVENANT NOT-TO-DISCLOSE. Employer and Employee recognize
that, during the course of Employee's term of employment with Employer pursuant
to this Agreement, Employer will disclose to Employee information concerning
Employer and the Affiliates, their products, their customers, their services,
their trade secrets, their proprietary information and other information
concerning their business all of which constitute valuable assets of Employer
and the Affiliates. Employer and Employee further acknowledge that Employer has,
and will, invest considerable amounts of time, effort and corporate resources in
developing such valuable assets and that disclosure by Employee of such assets
to the public shall cause irreparable harm, damage and loss to Employer and the
Affiliates.

                  (a)      To protect these assets, Employee agrees that he
                           shall not, during the Restricted Period, advise or
                           disclose to any person, corporation, firm,
                           partnership or other entity whatsoever (except
                           Employer or an Affiliate), or any officer, director,
                           stockholder, partner or associate of any such
                           corporation, firm, partnership or entity any
                           information received from Employer by Employee during
                           the course of Employee's association with Employer
                           relating to the business affairs of Employer and the
                           Affiliates including information concerning
                           Employer's and the Affiliates' finances, services,
                           customers, customer lists, prospective customers,
                           staff, contemplated acquisitions (whether of business
                           or assets), ideas, proprietary information, methods,
                           marketing investigations, surveys, research and any
                           other information relating to the business and
                           objectives of Employer and the Affiliates, except as
                           permitted by this Paragraph 13.

                  (b)      Employee further agrees that he shall not, during the
                           term of his employment or any time thereafter, advise
                           or disclose to any person or entity any trade secret
                           which Employer or any Affiliate has disclosed to
                           Employee during the course of his employment with
                           Employer.

                  (c)      In the event Employee's employment is terminated,
                           Employee agrees that, if requested by Employer, he
                           will acknowledge in writing that he received the
                           disclosures referred to herein and is under the
                           obligations referred to in this Agreement.

                  (d)      This Paragraph 13 shall, except as otherwise provided
                           in this Agreement, survive the termination of this
                           Agreement.

         Any implication in this Paragraph 13 to the contrary notwithstanding,
this Paragraph 13 hereof shall not, and shall not be deemed to, prohibit
Employee from disclosing information regarding Employer that (i) is already
public information other than because of any breach of this Paragraph 13 by
Employee; (ii) shall be required by applicable Federal or state laws; (iii)
shall not be confidential or proprietary and shall be required in the ordinary
course of business; (iv) shall be required pursuant to the order of any court or
administrative agency having jurisdiction; provided, however, that the foregoing
shall not permit the disclosure of any trade secret of Employer; and (v) during
the course of Employee's employment with Employer disclosure of any


                                       37
   13

of the foregoing as reasonably required by Employee in the good faith
performance of his duties under this Agreement.

         14.      COVENANT NOT-TO-INDUCE. Employee covenants and agrees that
during the Restricted Period, he will not, directly or indirectly, on his own
behalf or in the service or on behalf of others, solicit, induce or attempt to
solicit or induce an employee or other personnel of Employer and the Affiliates
to terminate employment with such party. This Paragraph 14 shall, except as
otherwise provided in this Agreement, survive the termination of this Agreement.

         15.      COVENANT OF NON-DISPARAGEMENT AND COOPERATION. Employee agrees
that he shall not, at any time during or following the Term, make any remarks
disparaging the conduct or character of Employer or any of its current or former
Affiliates, agents, employees, officers, directors, shareholders, successors or
assigns (in the aggregate, such persons and entities are referred to herein as
the "Protected Persons"); provided, however, that during the Term, Employer
acknowledges and agrees that Employee may be required from time to time to make
such remarks about Protected Persons for legitimate business purposes and if
consistent with the discharge of his duties hereunder. In addition, following
termination of his employment hereunder, Employee agrees to reasonably cooperate
with Employer, at no extra cost, in any litigation or administrative proceedings
(e.g., EEOC charges) involving any matters with which Employee was involved
during Employee's employment with Employer. Employer shall reimburse Employee
for travel and other related expenses approved by Employer incurred in providing
such assistance. This Section 15 shall survive the termination of this
Agreement.

         16.      COVENANT NOT TO COMPETE. Employer and Employee acknowledge
that, by virtue of Employee's responsibilities and authority as President and
Chief Executive Officer of Employer, he will, during the course of his
employment, be instrumental in developing, and will receive, highly confidential
information concerning Employer and the Affiliates, their services, their trade
secrets, their proprietary information, and other information concerning the
business of Employer and the Affiliates, much of which is unavailable to persons
of lesser responsibility and authority. Employee further acknowledges that the
ability of such information to benefit a competitor or potential competitor of
Employer shall cause irreparable harm, damage and loss to Employer and the
Affiliates. To protect Employer and the Affiliates from Employee's using or
exploiting this information, Employee agrees that he shall not, for a period of
twelve (12) months from the date of termination of this Agreement for any
reason, (i) perform substantially similar job duties or functions as those
performed for Employer under this Agreement for any entity engaged in the
Business in the United States of America (the "Restricted Territory"), or (ii)
directly or indirectly, own, manage, join, control, contract with, be employed
by, act in the capacity of an officer, director, trustee, shareholder or partner
or consultant, or participate in any manner in the ownership, management,
operation, or control of any business or person engaged in the Business in the
Restricted Territory wherein Employee would perform substantially similar duties
or job functions as those performed for Employer under this Agreement; provided,
however, Employee shall be permitted to own not more than five percent (5%) of
the stock of a corporation required to file reports pursuant to the Securities
Exchange Act of 1934. As to the foregoing, Employee acknowledges that he has the
ability to earn a comparable income within or without the Restricted Territory
as a manager or executive for persons or entities not engaged in the Business
and that earning a livelihood by working for persons or entities not engaged in
the Business within or without the Restricted Territory would not constitute a
hardship or an


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unreasonable restriction on the Employee or restrict him from earning comparable
income. This Section 16 shall survive termination of this Agreement.

         17.      PARAMOUNT PROVISION. Anything in this Agreement to the
contrary notwithstanding, the provisions of Paragraph 12, Paragraph 13(a),
Paragraph 13(c), Paragraph 14 and Paragraph 16 hereof shall not apply to
Employee, and shall be absolutely null and void, in the event Employee shall
terminate his employment hereunder for any one of the reasons set forth in
Paragraph 9(b) hereof.


         18.      SPECIFIC ENFORCEMENT. Employer and Employee expressly agree
that a violation of the covenants not-to-solicit, not-to-disclose, not-to-induce
and not-to-compete contained in Paragraphs 12, 13, 14 and 16 hereof, or any
provision thereof, shall cause irreparable injury to Employer and that,
accordingly, Employer shall be entitled, in addition to any other rights and
remedies it may have at law or in equity, to an injunction enjoining and
restraining Employee from doing or continuing to do any such act and any other
violation or threatened violation of said Paragraphs 12, 13, 14 and 16 hereof.

         19.      SEVERABILITY. In the event any provision of this Agreement
shall be found to be void, the remaining provisions of this Agreement shall
nevertheless be binding with the same effect as though the void part were
deleted; provided, however, if Paragraphs 12, 13, 14 and 16 shall be declared
invalid, in whole or in part, Employee shall execute, as soon as possible, a
supplemental agreement with Employer, granting Employer, to the extent legally
possible, the protection afforded by said Paragraphs. It is expressly understood
and agreed by the parties hereto that Employer shall not be barred from
enforcing the restrictive covenants contained in each of Paragraphs 12, 13, 14
and 16 as each are separate and distinct, so that the invalidity of any one or
more of said covenants shall not affect the enforceability and validity of the
other covenants.

         20.      INCOME TAX WITHHOLDING. Employer or any other payor may
withhold from any compensation or benefits payable under this Agreement such
Federal, State, City or other taxes as shall be required pursuant to any law or
governmental regulation or ruling.

         21.      OTHER TAX CONSIDERATIONS. Notwithstanding any other provision
of this Agreement or any other plan, agreement or arrangement applicable to
Employee to the contrary, in the event that (1) any portion of the aggregate
payments and benefits received or to be received by Employee pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with
Employer or any Affiliate of Employer which are contingent on a change of
ownership or effective control of Employer or an Affiliate or a change in the
ownership of a substantial portion of the assets of Employer or an Affiliate (in
each case, within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code")) (hereinafter, all such payments and benefits
being sometimes referred to as "Total Payments") would constitute a "parachute
payment", as defined in Code Section 280G(b)(2), and (2) the amount of such
parachute payment that Employee would receive after deduction of all excise
taxes payable by the Employee under Section 4999 of the Code with respect to any
portion of such Total Payments constituting an "excess parachute payment"
(within the meaning of Section 280(G) of the Code) would be less than 299
percent of Employee's "base amount" (as defined in Code Section


                                       39
   15

280G(b)(3), then, but only then, Employee's right to the portion of such Total
Payments otherwise constituting a "parachute payment" shall automatically be
reduced so that the aggregate of the applicable values thereof for purposes of
Code Section 280(G) shall be equal to 299 percent of the Employee's "base
amount" by reducing] to the extent necessary (A) first the cash portion of the
Total Payments otherwise constituting a "parachute payment" (if necessary, to
zero (0)), and (B) then] all other non-cash Total Payments otherwise
constituting a "parachute payment" (if necessary, to zero (0)); provided that,
in making any such determination as to the application and effect of this
Paragraph 21 on any payments or benefits received or to be received by Employee,
(i) no portion of the Total Payments shall be taken into account which does not
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code, including by reason of Section 280G(b)(4)(A) of the Code; and (ii) the
value of any non-cash benefit or any deferred payment or benefit included in the
Total Payments otherwise constituting a "parachute payment" shall be determined
in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

         22.      WAIVER. The waiver of a breach of any term of this Agreement
by any of the parties hereto shall not operate or be construed as a waiver by
such party of the breach of any other term of this Agreement or as a waiver of a
subsequent breach of the same term of this Agreement.

         23.      D & O INSURANCE; INDEMNIFICATION. Employer shall maintain, for
the benefit of Employee, director and office liability insurance in form at east
as comprehensive as, and in an amount that is at least equal to, that maintained
by Employer on the Effective Date; provided, however, that Employer's Board of
Directors shall have the discretion to modify such coverage so long as such
modification applies to all officers and directors. In addition, Employer shall
indemnify Employee against liability as an officer and director of Employer
and/or any Affiliate of Employer to the same extent as other officers and
directors of Employer and/or any Affiliate in accordance with the constituent
and organizational documents of such entities and consistent with applicable
law. Employee's rights under this Section 23 shall continue so long as he may be
subject to such liability, whether or not this Agreement may have been
terminated prior hereto.

         24.      RIGHTS AND LIABILITIES UPON NOTICE OF TERMINATION. As soon as
notice of termination of this Agreement is given, Employee shall immediately
cease contact with all Customers of Employer and shall forthwith surrender to
Employer all customer lists, documents and other property of Employer then in
his possession, compliance with which shall not be deemed to be a breach of this
Agreement by Employee. Pending the surrender of all such customer lists,
documents and other property to Employer, Employer may hold in abeyance any
payments due Employee pursuant to this Agreement.

         25.      ASSIGNMENT.

                  (a)      Employee shall not assign, transfer or convey this
                           Agreement, or in any way encumber the compensation or
                           other benefits payable to him hereunder, except with
                           the prior written consent of Employer or upon
                           Employee's death.


                                       40
   16

                  (b)      The covenants, terms and provisions set forth herein
                           shall be binding upon and shall inure to the benefit
                           of, and be enforceable by, Employer and its
                           successors and assigns; provided, Employer shall
                           require any successor (whether direct or indirect, by
                           purchase, merger, reorganization, consolidation,
                           acquisition of property or stock, liquidation or
                           otherwise) to all or a substantial portion of its
                           assets, by agreement in form and substance reasonably
                           satisfactory to Employee, expressly to assume and
                           agree to perform this Agreement in the same manner
                           and to the same extent that Employer would be
                           required to perform this Agreement if no such
                           succession had taken place. Regardless of whether
                           such an agreement is executed, this Agreement shall
                           be binding upon any successor of Employer in
                           accordance with the operation of law, and such
                           successor shall be deemed the "Employer" for purposes
                           of this Agreement.

         26.      NOTICES. All notices required herein shall be in writing and
shall be deemed to have been given when delivered personally or five (5) days
after the date on which such notice is deposited in the U.S. Mail, certified or
registered, postage prepaid, return receipt requested, addressed as follows, to
wit:

                  If to Employer at:

                           160 Clairemont Avenue, Suite 200
                           Decatur, Georgia 30030

                  With a copy to:

                           Cohen Pollock Merlin Axelrod & Small, P.C.
                           2100 RiverEdge Parkway, Suite 300
                           Atlanta, Georgia 30328-4656
                           Attn:  Elliott Cohen, Esquire

                  If to Employee at:

                           3800 Falls Landing Drive
                           Alpharetta, Georgia 30022

           With a copy to:

                           Smith, Gambrell & Russell, LLP
                           1230 Peachtree Street, N.E.
                           Suite 3100
                           Atlanta, Georgia 30309
                           Attn: John R. Schneider, Esquire

or at such other addresses as may, from time to time, be furnished to Employer
by Employee, or by Employer to Employee on the terms of this Paragraph.


                                       41
   17

         27.      BINDING EFFECT. This Agreement shall be binding on the parties
hereto and on their respective heirs, administrators, executors, successors and
permitted assigns.

         28.      ENFORCEABILITY. This Agreement contains the entire
understanding of the parties and may be altered, amended or modified only by a
writing executed by both of the parties hereto. This Agreement supersedes all
prior agreements and understandings by and between Employer and Employee
relating to Employee's employment.

         29.      APPLICABLE LAW. This Agreement and the rights and liabilities
of the parties hereto shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Georgia.

         30.      COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
together shall constitute but a single document.

         IN WITNESS WHEREOF, Employee has hereunder set his hand and seal, and
Employer has caused this Agreement to be executed and delivered by its duly
authorized officers, all as of the day and year first above written.


                                                      (SEAL)
- -------------------------       ---------------------
WITNESS                         HUGH E. SAWYER



ATTEST:                         ALLIED HOLDINGS, INC.


By:                             By:
   ----------------------          ------------------------
   Its          Secretary          Its             Chairman
       --------                        ------------


  [CORPORATE SEAL]


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