<PAGE>   1

================================================================================

                              ALLIED HOLDINGS, INC.








                                 NOTE AGREEMENT



                          Dated as of January  15, 1996















                  Re: $40,000,000 12% Senior Subordinated Notes
                              Due February 1, 2003






================================================================================







<PAGE>   2





                                TABLE OF CONTENTS

                          (Not a part of the Agreement)
<TABLE>
<CAPTION>

Section                            HEADING                                                                                     PAGE
<S>                    <C>                                                                                                       <C>
Parties.......................................................................................................................... 1
Section 1              DESCRIPTION OF NOTES AND COMMITMENT....................................................................... 1

    Section 1.1              Description of Notes ............................................................................... 1
    Section 1.2              Commitment, Closing Date ........................................................................... 1
    Section 1.3              Guaranty of Notes .................................................................................. 2
    Section 1.4              Several Commitments ................................................................................ 2

Section 2              PREPAYMENT OF NOTES ...................................................................................... 2

    Section 2.1              No Required Prepayments ............................................................................ 2
    Section 2.2              Optional Prepayment with Premium ................................................................... 2
    Section 2.3              Prepayment upon Change of Control .................................................................. 3
    Section 2.4              Notice of Optional Prepayments ..................................................................... 4
    Section 2.5              Application of Prepayments ......................................................................... 4
    Section 2.6              Direct Payment ..................................................................................... 5

Section 3              REPRESENTATIONS .......................................................................................... 5

    Section 3.1              Representations of the Company ..................................................................... 5
    Section 3.2              Representations of the Purchasers .................................................................. 5

Section 4              CLOSING CONDITIONS ....................................................................................... 6

    Section 4.1              Conditions ......................................................................................... 6
    Section 4.2              Waiver of Conditions ............................................................................... 7

Section 5              COMPANY COVENANTS ........................................................................................ 7

    Section 5.1              Corporate Existence, Etc ........................................................................... 7
    Section 5.2              Insurance .......................................................................................... 7
    Section 5.3              Taxes, Claims for Labor and Materials, Compliance with Laws ........................................ 8
    Section 5.4              Maintenance, Etc ................................................................................... 8
    Section 5.5              Nature of Business ................................................................................. 8
    Section 5.6              Consolidated Net Worth ............................................................................. 9
    Section 5.7              Limitations on Indebtedness for Borrowed Money ..................................................... 9
    Section 5.8              Fixed Charges Coverage Ratio .......................................................................10
    Section 5.9              Limitation on Liens ................................................................................10
    Section 5.10             Restricted Subsidiaries ............................................................................12
    Section 5.11             Restricted Payments ................................................................................12
    Section 5.12             Sales of Assets ....................................................................................14
</TABLE>




                                      -i-

<PAGE>   3

<TABLE>

<S>                    <C>                                                                                                       <C>
    Section 5.13             Merger, Consolidation, Etc .........................................................................14
    Section 5.14             Repurchase of Notes ................................................................................15
    Section 5.15             Transactions with Affiliates .......................................................................15
    Section 5.16             Termination of Pension Plans .......................................................................15
    Section 5.17             Restrictions Relating to Prepayment of the Notes ...................................................15
    Section 5.18             Reports and Rights of Inspection ...................................................................16

Section 6              SUBORDINATION OF SUBORDINATED INDEBTEDNESS LIABILITIES ...................................................19

Section 7              EVENTS OF DEFAULT AND REMEDIES THEREFOR ..................................................................22

    Section 7.1              Events of Default ..................................................................................22
    Section 7.2              Notice to Holders ..................................................................................24
    Section 7.3              Acceleration of Maturities .........................................................................24
    Section 7.4              Rescission of Acceleration .........................................................................25

Section 8              AMENDMENTS, WAIVERS AND CONSENTS .........................................................................25

    Section 8.1              Consent Required ...................................................................................25
    Section 8.2              Solicitation of Holders ............................................................................25
    Section 8.3              Effect of Amendment or Waiver ......................................................................26

Section 9              INTERPRETATION OF AGREEMENT; DEFINITIONS .................................................................26

    Section 9.1              Definitions ........................................................................................26
    Section 9.2              Accounting Principles ..............................................................................38
    Section 9.3              Directly or Indirectly .............................................................................38

Section 10             MISCELLANEOUS ............................................................................................39

    Section 10.1             Registered Notes ...................................................................................39
    Section 10.2             Exchange of Notes ..................................................................................39
    Section 10.3             Loss, Theft, Etc. of Notes .........................................................................39
    Section 10.4             Expenses, Stamp Tax Indemnity ......................................................................39
    Section 10.5             Powers and Rights Not Waived; Remedies Cumulative ..................................................40
    Section 10.6             Notices ............................................................................................40
    Section 10.7             Successors and Assigns .............................................................................40
    Section 10.8             Survival of Covenants and Representations ..........................................................40
    Section 10.9             Severability .......................................................................................41
    Section 10.10            Governing Law ......................................................................................41
    Section 10.11            Captions ...........................................................................................41

Signature Page...................................................................................................................42
</TABLE>


                                      -ii-

<PAGE>   4





ATTACHMENTS TO NOTE AGREEMENT:
<TABLE>
<S>              <C>       <C>
Schedule I       --        Names of Note Purchasers and Amounts of Commitments

Exhibit A        --        Form of 12% Senior Subordinated Note due February 1, 2003

Exhibit B        --        Form of Guaranty Agreement

Exhibit C        --        Representations and Warranties of the Company and its Restricted
                           Subsidiaries

Exhibit D        --        Description of Special Counsel's Closing Opinion

Exhibit E        --        Description of Closing Opinion of  Counsel to the Company

Exhibit F        --        Form of Compliance Certificate
</TABLE>






                                     -iii-

<PAGE>   5



                              ALLIED HOLDINGS, INC.
                              160 CLAIREMONT AVENUE
                             DECATUR, GEORGIA 30030

                                 NOTE AGREEMENT


         Re:       $40,000,000 12% Senior Subordinated Notes
                              Due February 1, 2003


                                                                     Dated as of
                                                               January  15, 1996



To the Purchasers named on Schedule I
 to this Agreement

         The undersigned, ALLIED HOLDINGS, INC., a Georgia corporation (the
"Company"), agrees with the Purchasers named on Schedule I to this Agreement
(the "Purchasers") as follows:

Section 1. DESCRIPTION OF NOTES AND COMMITMENT.;

         Section 1.1. Description of Notes. The Company will authorize the
issue and sale of $40,000,000 aggregate principal amount of its 12% Senior
Subordinated Notes (the "Notes") to be dated the date of issue, to bear
interest from such date at the rate of 12% per annum, payable semiannually on
the first day of each February and August in each year (commencing August
1, 1996) and at maturity and to bear interest on overdue principal (including
any overdue required or optional prepayment of principal) and premium, if any,
and (to the extent legally enforceable) on any overdue installment of interest
at the Default Rate after the date due, whether by acceleration or otherwise,
until paid, to be expressed to mature on February 1, 2003, and to be
substantially in the form attached hereto as Exhibit A. Interest on the Notes
shall be computed on the basis of a 360-day year of twelve 30-day months. The
Notes are not subject to prepayment or redemption at the option of the Company
prior to their expressed maturity dates except on the terms and conditions and
in the amounts and with the premium, if any, set forth in SS.2 of this
Agreement. The term "Notes" as used herein shall include each Note delivered
pursuant to this Agreement.

         Section 1.2. Commitment, Closing Date. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to each Purchaser,
and such Purchaser agrees to purchase from the


<PAGE>   6

Allied Holdings, Inc.                                             Note Agreement

Company, Notes in the principal amount set forth opposite such Purchaser's name
on Schedule I hereto at a price of 100% of the principal amount thereof on the
Closing Date.

         Delivery of the Notes will be made at the offices of Chapman and
Cutler, 111 West Monroe Street, Chicago, Illinois 60603, against payment
therefor in Federal Reserve or other funds current and immediately available at 
the principal office of The First National Bank of Boston in the amount of the
purchase price at 10:00 A.M. Chicago time, on February 1, 1996 or such later
date (not later than February 15, 1996) as shall mutually be agreed upon by the
Company and the Purchasers (the "Closing Date"). The Notes delivered to each
Purchaser on the Closing Date will be delivered to such Purchaser in the form
of a single registered Note in the form attached hereto as Exhibit A for the
full amount of such Purchaser's purchase (unless different denominations are
specified by such Purchaser), registered in such Purchaser's name or in the
name of such Purchaser's nominee, all as such Purchaser may specify at any time
prior to the date fixed for delivery.

       Section 1.3. Guaranty of Notes. Pursuant to those certain separate
Subordinated Guaranty Agreements, (individually, a "Guaranty Agreement" and
collectively, the "Guaranty Agreements"), each Restricted Subsidiary, other
than AH Industries, Inc., an Alberta, Canada, corporation, will guarantee
(i)the due and punctual payment of the principal of and interest and Make-Whole
Amount, if any, on the Notes from time to time outstanding, as and when such
payments become due and payable (including interest on overdue payments of
principal, Make-Whole Amount, if any, or interest at the rate set forth in the
Notes) and (ii)the prompt performance and compliance by the Company with each
of its other obligations under this Agreement. The Guaranty Agreements will be
in the form attached hereto as Exhibit B.

       Section 1.4. Several Commitments. The obligations of the Purchasers    
shall be several and not joint and no Purchaser shall be liable or responsible
for the acts or defaults of any other Purchaser.

Section 2. PREPAYMENT OF NOTES.
        
       Section 2.1. No Required Prepayments. No mandatory prepayments of      
principal of the Notes are scheduled to be made prior to their expressed
maturity date, and the Notes are not subject to prepayment or redemption at the
option of the Company prior to their expressed maturity date except on the
terms and conditions and in the amounts and with the premium, if any, set forth
below in this SS.2.

       Section 2.2. Optional Prepayment with Premium. Upon compliance with
SS.2.4, the Company shall have the privilege, at any time and from time to
time, of prepaying the outstanding Notes, either in whole or in part (but if in
part then in a minimum principal amount of $100,000) by payment of the
principal amount of the Notes, or portion thereof to be prepaid, and accrued
interest thereon to the date of such prepayment, together with a premium equal
to the Make-Whole Amount, determined as of five business days prior to the date
of such prepayment pursuant to this SS.2.2.




                                      -2-

<PAGE>   7
Allied Holdings, Inc.                                             Note Agreement


       Section 2.3. Prepayment upon Change of Control. In the event the
Company has knowledge of a Change of Control or an impending Change of Control,
the Company will give written notice (a "Control Change Notice") of such fact
to all Holders at least 60 days prior to any proposed Change of Control Date;
provided, however, that if the Company shall not then have knowledge of such
fact, such Control Change Notice shall be delivered promptly upon receipt of
such knowledge, but in no event later than three business days after the Change
of Control Date. The Control Change Notice shall (i) describe the facts and
circumstances of such Change of Control (including the Change of Control Date
or proposed Change of Control Date) in reasonable detail, (ii) make reference
to this SS.2.3 and the rights of the Holders to require the Company to prepay
their Notes on the terms and conditions provided for herein, (iii) state that
the Holder must make a declaration of its intent to have the Notes held by it
prepaid, and (iv) specify the date by which the Holder must respond to such
Control Change Notice pursuant to this SS.2.3 in order to make such
declaration.

         Upon the receipt of such Control Change Notice or, if no Control Change
Notice is given, upon receipt of actual knowledge of a Change of Control, the
Holder of any Notes shall have the privilege, upon written notice (the
"Declaration Notice") to the Company, of declaring all Notes held by such Holder
serving such Declaration Notice to become due and payable and thereupon such
Notes shall become due and payable on such date (the "Control Change Payment
Date") as the Company shall specify in a written notice delivered to such
Holder, which notice shall be delivered by the Company to such Holder not later
than 20 days prior to the Control Change Payment Date. The Control Change
Payment Date shall be not later than 30 days after the Change of Control Date,
in the event that such Declaration Notice is served on or prior to the Change of
Control Date, or 30 days after the date such Declaration Notice is served, if
such Declaration Notice is not served on or prior to the Change of Control Date.
The Company covenants and agrees to prepay in full on the Control Change Payment
Date all Notes held by such Holder serving such Declaration Notice to the
Company. In the event that a Control Change Notice has in fact been given as
hereinabove required, such Declaration Notice shall be served prior to 60 days
after receipt of such Control Change Notice, and in the event that a Control
Change Notice has not been given as hereinabove required, such Declaration
Notice shall be served prior to 30 days after the Holder serving such
Declaration Notice shall have actual knowledge of such Change of Control. In the
event that a Control Change Notice is given and a Holder fails to provide a
Declaration Notice within the time period set forth above, the Notes held by
such Holder shall not become due and payable as a result of such Change of
Control.

         In the event that any Holder shall have declared all of the Notes held
thereby to become due and payable pursuant to this SS.2.3, then the Company
shall promptly, but in any event within 15days after the receipt of the
Declaration Notice, deliver written notice of such declaration to each other
Holder and, notwithstanding the provisions of the immediately preceding
paragraph, the right of each such other Holder to declare all of the Notes held
thereby to become due and payable pursuant to this SS.2.3 shall remain in effect
until the later to occur of (i) 60 days after receipt by such Holders of the
Control Change Notice and (ii) 30 days after receipt by such Holders of the
notice required to be delivered pursuant to this paragraph; provided, however,
that the provisions of this paragraph shall only apply with respect to notices
required to be delivered pursuant to this paragraph to the extent that such



                                      -3-

<PAGE>   8
Allied Holdings, Inc.                                             Note Agreement

notices relate to declarations made by Holders prior to the expiration of the
periods specified in the immediately preceding paragraph.

         As used herein, the term "Change of Control" shall mean any of the
following: (i) the sale, lease, transfer, conveyance or other disposition, in
one or a series of related transactions, of all or substantially all of the
assets of the Company and its Restricted Subsidiaries to any Person or group of
Persons acting in concert, other than the Current Control Group, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company, or
(iii) the acquisition by any Person or group of Persons acting in concert, other
than the Current Control Group, of a direct or indirect interest in more than
45% of the voting power of the Voting Stock of the Company, by way of issue,
sale or other disposition of shares of stock of the Company or merger or
consolidation or otherwise.

         As used herein, the term "Change of Control Date" shall mean any date
upon which a Change of Control shall occur.

         As used herein, the term "Current Control Group" shall mean (i)RobertJ.
Rutland, Guy W.. Rutland III, Bernard O. DeWulf, Guy W.. Rutland IV, A. Mitchell
Poole, Jr. and B.F. Wilson, Jr.; (ii)the spouses, lineal descendants and spouses
of the lineal descendants of the persons named in clause (i); (iii)the estates
or legal representatives of the persons named in clauses (i) and (ii); and
(iv)any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of persons named in clauses (i), (ii) and
(iii).

         All prepayments on the Notes pursuant to this SS.2.3 shall be made by
the payment of the aggregate principal amount remaining unpaid on such Notes and
accrued interest thereon to the date of such prepayment, together with a premium
equal to one percent of such unpaid principal amount.

       Section 2.4. Notice of Optional Prepayments. The Company will give
notice of any prepayment of the Notes pursuant to SS.2.2 to each Holder thereof
not less than 30 days nor more than 60 days before the date fixed for such
optional prepayment specifying (i)such date, (ii)the principal amount of the
Holder's Notes to be prepaid on such date, (iii)that a premium may be payable,
(iv)the date when such premium will be calculated, (v)the estimated premium,
and (vi)the accrued interest applicable to the prepayment. Notice of prepayment
having been so given, the aggregate principal amount of the Notes specified in
such notice, together with accrued interest thereon and the premium, if any,
payable with respect thereto shall become due and payable on the prepayment
date specified in said notice. Not later than two business days prior to the
prepayment date specified in such notice, the Company shall provide each Holder
written notice of the premium, if any, payable in connection with such
prepayment and, whether or not any premium is payable, a reasonably detailed
computation of the Make-Whole Amount.
        
       Section 2.5. Application of Prepayments. All partial prepayments
pursuant to SS.2.2 shall be applied on all outstanding Notes ratably in
accordance with the unpaid principal amounts thereof. Any prepayment of less
than all of the outstanding Notes made pursuant to



                                      -4-

<PAGE>   9
Allied Holdings, Inc.                                             Note Agreement

SS.2.3 shall be applied to the payment in full of the Notes held by the Holders
providing a Declaration Notice.

       Section 2.6. Direct Payment. Notwithstanding anything to the contrary
contained in this Agreement or the Notes, in the case of any Note owned by any
Holder that is a Purchaser or any other Institutional Holder which has given
written notice to the Company requesting that the provisions of this SS.2.6
shall apply, the Company will punctually pay when due the principal thereof,
interest thereon and premium, if any, due with respect to said principal,
without any presentment thereof, directly to such Holder at its address set
forth herein or such other address as such Holder may from time to time
designate in writing to the Company or, if a bank account with a United States
bank is so designated for such Holder, the Company will make such payments in
immediately available funds to such bank account, marked for attention as
indicated, or in such other manner or to such other account in any United
States bank as such Holder may from time to time direct in writing.

Section 3. REPRESENTATIONS.

       Section 3.1. Representations of the Company. The Company represents and
warrants that all representations and warranties set forth in Exhibit C are
true and correct as of the date hereof and are incorporated herein by reference
with the same force and effect as though herein set forth in full.

       Section 3.2. Representations of the Purchasers. Each Purchaser      
represents, and in entering into this Agreement the Company understands, that
such Purchaser is acquiring the Notes for the purpose of investment and not
with a view to the distribution thereof, and that such Purchaser has no present
intention of selling, negotiating or otherwise disposing of the Notes; it being
understood, however, that the disposition of such Purchaser's property shall at
all times be and remain within its control. Each Purchaser further represents
that at least one of the following statements is an accurate representation as
to the source of funds to be used by such Purchaser to pay the purchase price
of the Notes purchased by it hereunder:

                  (a) if such Purchaser is an insurance company, the source of
         funds from which its investment is to be made is a general account of
         an insurance company, and the amount of the reserves and liabilities
         for the general account contracts(s) held by or on behalf of any
         Benefit Plan (as defined by the annual statement for life insurance
         companies approved by the National Association of Insurance
         Commissioners (the "NAIC Annual Statement")) together with the amount
         of the reserves and liabilities for the general account contract(s)
         held by or on behalf of any other Benefit Plans maintained by the same
         employer (or affiliate thereof as defined in PTCE 95-60) or by the same
         employee organization (as defined by the NAIC Annual Statement) in the
         general account do not exceed 10% of the total reserves and liabilities
         of the general account (exclusive of separate account liabilities) plus
         surplus as set forth in the NAIC Annual Statement filed with the state
         of domicile of the insurance company; or

                  (b) if such Purchaser is an insurance company, to the extent
         that any part of such funds constitutes assets allocated to any
         separate account maintained by such




                                      -5-
<PAGE>   10
Allied Holdings, Inc.                                             Note Agreement

         Purchaser in which any employee benefit plan (or its related trust) has
         any interest, (i)such separate account is a "pooled separate account"
         within the meaning of Prohibited Transaction Class Exemption90-1, as
         amended, in which case such Purchaser has disclosed to the Company the
         name of each employee benefit plan whose assets in such separate
         account exceed 10% of the total assets or are expected to exceed 10% of
         the total assets of such account as of the date of such purchase (and
         for the purposes of this paragraph(b), all employee benefit plans
         maintained by the same employer or employee organization are deemed to
         be a single plan), or (ii)such separate account contains only the
         assets of a specific employee benefit plan, complete and accurate
         information as to the identity of which such Purchaser has delivered to
         the Company; or

                  (c) if such Purchaser is other than an insurance company, no
         part of such funds constitutes "plan assets".

As used in this SS.3.2, the terms "employee benefit plan" and "separate account"
shall have the respective meanings assigned to such terms in Section 3 of ERISA
and the term "plan assets" shall have the meaning specified in Department of
Labor Regulation Section 2510.3-101.

         For purposes of the percentage limitation in clause (a) above, the
amount of reserves and liabilities for the general account contract(s) held by
or on behalf of a plan shall be determined before reduction for credits on
account of any reinsurance ceded on a coinsurance basis.

Section 4. CLOSING CONDITIONS.

       Section 4.1. Conditions. The obligation of each Purchaser to purchase
the Notes on the Closing Date shall be subject to the performance by the
Company of its agreements hereunder which by the terms hereof are to be
performed at or prior to the time of delivery of the Notes and to the following
further conditions precedent:

                  (a) Closing Certificate. Such Purchaser shall have received a
         certificate dated the Closing Date, signed by the President or a Vice
         President of the Company, the truth and accuracy of which shall be a
         condition to such Purchaser's obligation to purchase the Notes proposed
         to be sold to such Purchaser and to the effect that (i)the
         representations and warranties of the Company set forth in Exhibit C
         hereto are true and correct on and with respect to the Closing Date,
         (ii)the Company and each Restricted Subsidiary has performed all of its
         obligations hereunder and under the Guaranty Agreements which are to be
         performed on or prior to the Closing Date, (iii)no Default or Event of
         Default has occurred and is continuing, (iv)the execution of a Guaranty
         Agreement by each Restricted Subsidiary will result in a financial
         benefit to such Restricted Subsidiary and (v)the related Guaranty
         Agreement has been executed by such Restricted Subsidiary in good
         faith.



                                      -6-
<PAGE>   11
Allied Holdings, Inc.                                             Note Agreement


                  (b) Guaranty Agreements. A Guaranty Agreement shall have been
         duly executed and delivered by each Restricted Subsidiary.

                  (c) Legal Opinions. Such Purchaser shall have received from
         Chapman and Cutler, who are acting as special counsel to the Purchasers
         in this transaction, and from Peterson Dillard Young Asselin & Powell,
         counsel for the Company, their respective opinions dated the Closing
         Date, in form and substance satisfactory to such Purchaser, and
         covering the matters set forth in Exhibits D and E, respectively,
         hereto.

                  (d) Related Transactions. The Company shall have consummated
         the sale of the entire principal amount of the Notes scheduled to be
         sold on the Closing Date pursuant to this Agreement.

                  (e) Satisfactory Proceedings. All proceedings taken in
         connection with the transactions contemplated by this Agreement, and
         all documents necessary to the consummation thereof, shall be
         satisfactory in form and substance to such Purchaser and such
         Purchaser's special counsel, and such Purchaser shall have received a
         copy (executed or certified as may be appropriate) of all legal
         documents or proceedings taken in connection with the consummation of
         said transactions.

         Section 4.2. Waiver of Conditions. If on the Closing Date the Company
fails to tender to any Purchaser the Notes to be issued to such Purchaser on
such date or if the conditions specified in SS.4.1 have not been fulfilled, such
Purchaser may thereupon elect to be relieved of all further obligations under
this Agreement. Without limiting the foregoing, if the conditions specified in
SS.4.1 have not been fulfilled, such Purchaser may waive compliance by the
Company with any such condition to such extent as such Purchaser may in its sole
discretion determine. Nothing in this SS.4.2 shall operate to relieve the
Company of any of its obligations hereunder or to waive any Purchaser's rights
against the Company.

Section 5. COMPANY COVENANTS.

         From and after the date of this Agreement and continuing so long as any
amount remains unpaid on any Note:

         Section 5.1. Corporate Existence, Etc. The Company will preserve and
keep in full force and effect, and will cause each Restricted Subsidiary to
preserve and keep in full force and effect, its corporate existence and all
licenses and permits necessary to the proper conduct of its business; provided,
however, that the foregoing shall not prevent any transaction permitted by
SS.5.13.

   Section 5.2. Insurance. The Company will maintain, and will cause each
Restricted Subsidiary to maintain, insurance (which may include reasonable
self-insurance for property damage) protecting the Company and its Restricted
Subsidiaries with respect to (a)fire and extended coverage and (b)liability for
bodily injury and property damage resulting from (i)operation of motor vehicle
equipment and (ii) with respect to real property owned or



                                      -7-

<PAGE>   12
Allied Holdings, Inc.                                             Note Agreement

leased by the Company or any of its Restricted Subsidiaries. Such policies of
insurance (to the extent applicable) will be maintained with financially sound
and reputable insurance companies (which shall be deemed to include a Subsidiary
acting as a captive insurer), funds or underwriters and will be of the kinds,
will cover such risks and will be in such amounts, with such deductibles and
exclusions, as are consistent with the general practices of businesses engaged
in similar activities. To the extent the Company or any of its Restricted
Subsidiaries engaged in the auto hauling business self-insures against certain
of its respective properties, such self-insurance will protect against such
casualties and contingencies and will be at such levels as are in accordance
with sound business practices.

         Section 5.3. Taxes, Claims for Labor and Materials, Compliance with
Laws. The Company will promptly pay and discharge, and will cause each
Restricted Subsidiary promptly to pay and discharge, all lawful taxes,
assessments and governmental charges or levies imposed upon the Company or such
Restricted Subsidiary, respectively, or upon or in respect of all or any part of
the property or business of the Company or such Restricted Subsidiary, all trade
accounts payable in accordance with usual and customary business terms, and all
claims for work, labor or materials, which if unpaid might become a Lien upon
any property of the Company or such Restricted Subsidiary; provided, however,
that the Company or such Restricted Subsidiary shall not be required to pay any
such tax, assessment, charge, levy, account payable or claim if (i)the validity,
applicability or amount thereof is being contested in good faith by appropriate
actions or proceedings which will prevent the forfeiture or sale of any property
of the Company or such Restricted Subsidiary or any material interference with
the use thereof by the Company or such Restricted Subsidiary, and (ii)the
Company or such Restricted Subsidiary shall set aside on its books, reserves
deemed by it to be adequate with respect thereto. The Company will promptly
comply and will cause each Subsidiary to comply with all laws, ordinances or
governmental rules and regulations to which it is subject including, without
limitation, the Occupational Safety and Health Act of 1970, as amended, ERISA
and all laws, ordinances, governmental rules and regulations relating to
environmental protection in all applicable jurisdictions, the violation of which
could materially and adversely affect the properties, business, prospects,
profits or condition of the Company and its Restricted Subsidiaries or would
result in any Lien not permitted under SS.5.9.

         Section 5.4. Maintenance, Etc. The Company and each Restricted
Subsidiary will keep its motor vehicle equipment and other properties material
to the operations of its business in such condition and repair as is customary
in its industry and consistent with its historical practices, and will make all
needful and property repairs, replacements, additions and improvements thereto
as are necessary, in the reasonable business judgment of the officers of the
Company or Restricted Subsidiary, for the conduct of the Company's or Restricted
Subsidiary's business, reasonable wear and tear excepted.

         Section 5.5. Nature of Business. Neither the Company nor any Restricted
Subsidiary will engage in any business (i)other than the business in which the
Company and its Restricted Subsidiaries are engaged in presently or which are
reasonable extensions thereof or are incidental to the Company's operations, or
(ii)if as a result, the general nature of the business, taken on a consolidated
basis, which would then be engaged in by the Company and




                                      -8-

<PAGE>   13
Allied Holdings, Inc.                                             Note Agreement

its Restricted Subsidiaries would be substantially changed from the general
nature of the business engaged in by the Company and its Restricted Subsidiaries
on the date of this Agreement.

       Section 5.6. Consolidated Net Worth. The Company will at all times
during its fiscal quarter ending March 31, 1996 keep and maintain Consolidated
Net Worth at an amount not less than the sum of $36,500,000 plus 35% of
Consolidated Net Income for the fiscal quarter of the Company ended December
31, 1995 and for each fiscal quarter thereafter shall keep and maintain
Consolidated Net Worth at an amount equal to the sum of the amount thereof
required to be maintained during the immediately preceding fiscal quarter plus
35% of Consolidated Net Income for such immediately preceding fiscal quarter
(but without deduction in the event of a loss).

       Section 5.7. Limitations on Indebtedness for Borrowed Money. (a)The
Company will not, and will not permit any Restricted Subsidiary to, create,
assume or incur or in any manner be or become liable in respect of any
Indebtedness for Borrowed Money, except:

                  (1) Indebtedness for Borrowed Money evidenced by the Notes;

                  (2) Indebtedness for Borrowed Money of the Company and its
         Restricted Subsidiaries outstanding as of the date of this Agreement
         and reflected in Annex B to Exhibit C hereto (other than such
         Indebtedness for Borrowed Money which is to be repaid out of the
         proceeds of the issuance and sale of the Notes);

                  (3) Indebtedness under the Credit Agreement up to the
         Revolving Credit Commitment Amount, provided that for purposes of
         clause (5) below, Indebtedness for Borrowed Money in the amount of the
         Revolving Credit Commitment Amount shall at all times be deemed to be
         outstanding;

                  (4) Permitted Refinancing Indebtedness;

                  (5) Indebtedness for Borrowed Money of the Company and its
         Restricted Subsidiaries and increases in the Revolving Credit
         Commitment Amount, provided that at the time of issuance of such
         Indebtedness for Borrowed Money or increase of the Revolving Credit
         Commitment Amount and after giving effect thereto and to the
         application of the proceeds, if any, thereof from the beginning of the
         period of four consecutive quarters then most recently ended the Deemed
         Fixed Charge Coverage Ratio for such period shall be at least 2 to 1;

                  (6) Indebtedness for Borrowed Money of a Restricted Subsidiary
         to the Company or to a Wholly-owned Restricted Subsidiary or of the
         Company to a Wholly-owned Restricted Subsidiary; and

                   (7) Indebtedness for Borrowed Money of the Company and its
         Restricted Subsidiaries in addition to that permitted by the foregoing
         clauses (1) through (6) (which may include Indebtedness for Borrowed
         Money under the Credit Agreement in




                                      -9-

<PAGE>   14
Allied Holdings, Inc.                                             Note Agreement

         addition to that permitted by clauses (3) and (5) above), provided that
         the aggregate principal amount of Indebtedness for Borrowed Money
         outstanding at any time which was incurred in reliance on this
         paragraph (7) shall not exceed $10,000,000 in the aggregate for the
         Company and all Restricted Subsidiaries; and

         (b) Any corporation which becomes a Restricted Subsidiary after the
date hereof shall for all purposes of this SS.5.7 be deemed to have created,
assumed or incurred at the time it becomes a Restricted Subsidiary all
Indebtedness for Borrowed Money of such corporation existing immediately after
it becomes a Restricted Subsidiary;

         (c) (i)The Company will not create, assume or incur or in any manner be
or become liable in respect of any Indebtedness for Borrowed Money which is
junior or subordinate in right of payment to Senior Indebtedness Liabilities
unless such Indebtedness for Borrowed Money shall contain or have applicable
thereto subordination provisions substantially in the form set forth in SS.6
providing for the subordination thereof to Senior Indebtedness Liabilities or
such other provisions as may be approved in writing by the Holders holding not
less than 66-2/3% in aggregate principal amount of the outstanding Notes; and
(ii)the Company will not permit any Restricted Subsidiary to, create, assume or
incur or in any manner be or become liable in respect of any Indebtedness for
Borrowed Money which is junior or subordinate in right of payment to Senior
Indebtedness Liabilities (as defined in the Guaranty Agreement to which such
Restricted Subsidiary is a party) unless such Indebtedness for Borrowed Money
shall contain or have applicable thereto subordination provisions substantially
in the form set forth in SS.6 providing for the subordination thereof to Senior
Indebtedness Liabilities or such other provisions as may be approved in writing
by the Holders holding not less than 66-2/3% in aggregate principal amount of
the outstanding Notes; and

         (d) The Company will not permit Allied Systems, Ltd., to issue any
class of equity interest other than its present general partnership interests
and limited partnership interests, and the Company will not permit any other
Restricted Subsidiary to create or issue any class or series of capital stock or
other equity interest which has any preference or priority over any other class
or series of capital stock or other equity interest of such Restricted
Subsidiary.

       Section 5.8. Fixed Charges Coverage Ratio. The Company will keep and    
maintain its Fixed Charge Coverage Ratio for each period of four consecutive
fiscal quarters at not less than 1.5 to 1.

       Section 5.9. Limitation on Liens. The Company will not, and will not
permit any Restricted Subsidiary to, create or incur, or suffer to be incurred
or to exist, any Lien on its or their property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or transfer any
property for the purpose of subjecting the same to the payment of obligations
in priority to the payment of its or their general creditors, or acquire or
agree to acquire, or permit any Restricted Subsidiary to acquire, any property
or assets upon conditional sales agreements or other title retention devices,
except:

                                      -10-

<PAGE>   15
Allied Holdings, Inc.                                             Note Agreement



                  (a) Liens for property taxes and assessments or governmental
         charges or levies and Liens securing claims or demands of mechanics and
         materialmen, provided payment thereof is not at the time required by
         SS.5.3;

                  (b) Liens of or resulting from any judgment or award, the time
         for the appeal or petition for rehearing of which shall not have
         expired, or in respect of which the Company or a Restricted Subsidiary
         shall at any time in good faith be prosecuting an appeal or proceeding
         for a review and in respect of which a stay of execution pending such
         appeal or proceeding for review shall have been secured;

                  (c) Liens incidental to the conduct of business or the
         ownership of properties and assets (including Liens in connection with
         worker's compensation, unemployment insurance and other like laws,
         warehousemen's and attorneys' liens and statutory landlords' liens) and
         Liens to secure the performance of bids, tenders or trade contracts, or
         to secure statutory obligations, surety or appeal bonds or other Liens
         of like general nature incurred in the ordinary course of business and
         not in connection with the borrowing of money; provided in each case,
         the obligation secured is not overdue or, if overdue, is being
         contested in good faith by appropriate actions or proceedings;

                  (d) minor survey exceptions or minor encumbrances, easements
         or reservations, or rights of others for rights-of-way, utilities and
         other similar purposes, or zoning or other restrictions as to the use
         of real properties, which are necessary for the conduct of the
         activities of the Company and its Restricted Subsidiaries or which
         customarily exist on properties of corporations engaged in similar
         activities and similarly situated and which do not in any event
         materially impair their use in the operation of the business of the
         Company and its Restricted Subsidiaries;

                  (e) Liens securing Indebtedness of a Restricted Subsidiary to
         the Company or to a Wholly-Owned Restricted Subsidiary;

                  (f) Liens existing as of December 31, 1995 and reflected in
         AnnexB to Exhibit C hereto;

                  (g) Liens securing Senior Indebtedness Liabilities permitted
         under the provisions of SS.5.7(A);

                  (h) Liens on fixed assets of a business entity at the time of
         acquisition by the Company or a Restricted Subsidiary of such business
         entity, whether or not such existing Liens were given to secure the
         payment of the purchase price of the fixed assets to which they attach
         so long as they were not incurred, extended or renewed in contemplation
         of such acquisition; and

                   (i) Liens in addition to those permitted by the foregoing
         clauses (a) through (h), both inclusive, securing Indebtedness in an
         amount not exceeding $2,000,000 at



                                      -11-

<PAGE>   16
Allied Holdings, Inc.                                             Note Agreement

         any time outstanding, provided that (i)such Liens shall not secure
         Indebtedness for Borrowed Money and (ii)such Liens do not in any event
         materially impair the use of the property subject thereto in the
         operation of the business of the Company and its Restricted
         Subsidiaries.

Section 5.10. Restricted Subsidiaries.

         (a) Limitation on Subsidiaries' Restrictive Covenants. The Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:

                  (i) pay dividends or make any other distributions to the
         Company or any of its Restricted Subsidiaries, or pay any Indebtedness
         owed to the Company or any of its Restricted Subsidiaries;

                  (ii) make loans or advances to the Company or any Restricted
         Subsidiary; or

                  (iii) transfer any of its properties or assets to the Company
         or any of its Restricted Subsidiaries,

except for such encumbrances or restrictions provided for in (i)agreements
pertaining to Indebtedness for Borrowed Money outstanding on the date hereof and
described in Annex B to Exhibit C hereto, (ii)Acquired Indebtedness of an
acquired Restricted Subsidiary, provided that such encumbrances and restrictions
contained in such Acquired Indebtedness shall constrain only such acquired
Restricted Subsidiary and its Subsidiaries, (iii)Permitted Refinancing
Indebtedness that continues existing restrictions contained in agreements
described in clauses (i) and (ii), and (iii)this Agreement, applicable law,
non-assignment provisions of leases and purchase money obligations.

         (b) Guarantors. The Company shall cause each Person, other than AH
Industries, Inc., an Alberta, Canada, corporation, that now is or hereafter
becomes a Restricted Subsidiary to execute and deliver to each Holder a Guaranty
Agreement.

        Section 5.11. Restricted Payments. The Company will not except as
hereinafter provided:

                  (a) Declare any dividends, either in cash or property, on any
         shares of its capital stock of any class (except dividends or other
         distributions payable solely in shares of capital stock of the
         Company);

                  (b) Directly or indirectly, or through any Subsidiary,
         purchase, redeem or retire any shares of its capital stock of any class
         or any warrants, rights or options to purchase or acquire any shares of
         its capital stock (other than in exchange for or out of the net cash
         proceeds to the Company from the substantially concurrent issue or sale
         of other shares of capital stock other than Sinking Fund Stock of the
         Company or



                                      -12-

<PAGE>   17
Allied Holdings, Inc.                                             Note Agreement

         warrants, rights or options to purchase or acquire any shares of its
         capital stock other than Sinking Fund Stock);

                  (c) Make any other payment or distribution, either directly or
         indirectly or through any Subsidiary, in respect of its capital stock;
         or

                  (d) Make, or permit any Restricted Subsidiary to make, any
         Restricted Investment;

(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options and all such other
payments or distributions and such Restricted Investments being herein
collectively called "Restricted Payments"), if after giving effect thereto:

                  (i) Any Event of Default shall have occurred and be
         continuing;

                  (ii) The Company could not incur at least $1.00 of
         Indebtedness for Borrowed Money pursuant to SS.5.7(A)(5);

                  (iii) The sum of the aggregate amount of Restricted Payments
         made during the period from and after December 31, 1995 to and
         including the date of the making of the Restricted Payment in question,
         would exceed the sum of (x)$5,000,000 plus (y)50% of Consolidated Net
         Income for the period from and after January 1, 1996 to and including
         the end of the fiscal quarter of the Company then most recently ended,
         computed on a cumulative basis for said entire period (or if such
         Consolidated Net Income is a deficit figure, then minus 100% of such
         deficit) plus (z)the net cash proceeds (other than proceeds applied to
         purchases, redemptions or retirements in accordance with the provisions
         of paragraph (b) of this Section and the proceeds of the issuance of
         capital stock of the Company to members of management pursuant to
         incentive programs referred to below) to the Company from the sale of
         other shares of capital stock (other than Sinking Fund Stock) of the
         Company or warrants, rights or options to purchase or acquire any
         shares of its capital stock (other than Sinking Fund Stock) during the
         period from and after January 1, 1996 to and including the date of the
         making of the Restricted Payment in question.

         The Company will not declare any dividend which constitutes a
Restricted Payment payable more than 60 days after the date of declaration
thereof. Any dividend declared in accordance with the provisions of this Section
may be paid within 60 days after the date of declaration.

         Notwithstanding the foregoing provisions of this Section , the Company
may, so long as no Default or Event of Default shall have occurred and be
continuing after giving effect thereto, repurchase, redeem, retire or otherwise
acquire for fair market value any capital stock of the Company held by any
member of the Company's management pursuant to any management equity
subscription agreement or stock option agreement in effect, provided that (i)the
aggregate price paid for such capital stock shall not exceed (x)in any twelve



                                      -13-
<PAGE>   18
Allied Holdings, Inc.                                             Note Agreement

month period, $500,000 or (y)during the period from January 1, 1996 to and
including the date of the proposed acquisition the sum of $1,500,000 plus the
aggregate net cash proceeds received by the Company during such period from the
issuance of capital stock of the Company to members of management pursuant to
incentive programs, and (ii) amounts so paid by the Company shall be charged
against the amount otherwise available for the making of Restricted Payments.

         For purposes of this SS.5.11, (i)at any time when a corporation becomes
a Restricted Subsidiary, all Investments of such corporation at such time shall
be deemed to have been made by such corporation, as a Restricted Subsidiary, at
such time, and (ii)the amount of any Restricted Payment declared, paid or
distributed in property shall be deemed to be the greater of the book value or
fair market value (as determined in good faith by the Board of Directors of the
Company) of such property at the time of the making of the Restricted Payment in
question.

        Section 5.12. Sales of Assets. The Company will not, and will not
permit any Restricted Subsidiary to, engage in any Asset Disposition unless,
(x)after giving effect to such Asset Disposition, no Default or Event of Default
shall have occurred and be continuing and (y)such Asset Disposition does not
involve any substantial part of the assets of the Company and its Restricted
Subsidiaries. An Asset Disposition shall be deemed to involve a "substantial
part" of the assets of the Company and its Restricted Subsidiaries (i)if the
book value of the assets subject to such Asset Disposition, when added to the
book value of all other assets subject to other Asset Dispositions during the
same fiscal year exceeds 10% of Consolidated Total Assets determined as of the
end of the immediately preceding fiscal year, or (ii)if the book value of the
assets subject to such Asset Disposition, when added to the book value of all
other assets subject to other Asset Dispositions since December 31, 1994 exceeds
25% of Consolidated Total Assets determined as of the end of the fiscal quarter
immediately preceding the proposed Asset Disposition; provided, however, that in
any computation of "substantial part" there shall be excluded any Asset
Disposition to the extent that the proceeds thereof are applied within one year
after the receipt of the proceeds of such Asset Disposition to either (i)the
voluntary prepayment of Senior Debt or the voluntary prepayment of the Notes on
a pro rata basis pursuant to SS.2.3, or (ii)the purchase of other similar assets
for use in the business of the Company and its Restricted Subsidiaries.

        Section 5.13. Merger, Consolidation, Etc. The Company will not
consolidate with or be a party to a merger with any other corporation or sell
all or substantially all of its assets directly or indirectly in one or a series
of transactions; provided, however, that the Company may consolidate or merge
with any other corporation if:

                   (a) either (i)the Company shall be the surviving or
         continuing corporation, or (ii)the surviving or continuing corporation,
         if not the Company, shall (x)be a corporation incorporated and existing
         under the laws of any State of the United States of America,
         (y)expressly and unconditionally assume, by written agreement delivered
         to each holder, all of the obligations of the Company under this
         Agreement and the Notes, and (z)furnish to the holders an opinion of
         Peterson Dillard Young Asselin & Powell or another independent counsel
         designated by the Company and not





                                      -14-
<PAGE>   19
Allied Holdings, Inc.                                             Note Agreement

         reasonably objected to by Holders holding 33-1/3% or more in principal
         amount of the Notes to the effect that the instrument of assumption has
         been duly authorized, executed and delivered by the surviving
         corporation and constitutes the legal, valid and binding contract and
         agreement of the surviving corporation enforceable in accordance with
         its terms and that the obligations of the Company under the Notes and
         this Agreement have become unconditional obligations of the surviving
         or continuing corporation, and

                  (b) at the time of such consolidation or merger and after
         giving effect thereto (x) no Default or Event of Default shall have
         occurred and be continuing and (y)the surviving or continuing
         corporation would be permitted to incur at least $1.00 of additional
         Indebtedness for Borrowed Money pursuant to SS.5.7(A)(4).

         Section 5.14. Repurchase of Notes. Except as permitted by SS.2.2 and
SS.2.3, neither the Company nor any Restricted Subsidiary or Affiliate, directly
or indirectly, may repurchase or make any offer to repurchase any Notes.

         Section 5.15. Transactions with Affiliates. (a) The Company will not,
and will not permit any Restricted Subsidiary to, enter into or be a party to
any transaction or arrangement with any Affiliate (including, without
limitation, the purchase from, sale to or exchange of property with, or the
rendering of any service by or for, any Affiliate), except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Restricted Subsidiary's business and either (i)the payments required by the
Company and its Restricted Subsidiaries do not exceed $60,000 in the aggregate
or (ii)if the payments required by the Company and its Restricted Subsidiaries
exceed $60,000 in the aggregate, the transaction has been approved by the
directors of the Company who are not employees of the Company.

         (b) Employment Agreements entered into in the ordinary course of
business and Restricted Payments made in accordance with the provisions of
SS.5.11 shall not be deemed to be transactions with Affiliates for purposes of
this Section.

         Section 5.16. Termination of Pension Plans. The Company will not and
will not permit any Subsidiary to withdraw from any Multiemployer Plan or permit
any employee benefit plan maintained by it to be terminated if such withdrawal
or termination could result in withdrawal liability (as described in Part1 of
Subtitle E of Title IV of ERISA) or the imposition of a Lien on any property of
the Company or any Subsidiary pursuant to Section 4068 of ERISA.

         Section 5.17. Restrictions Relating to Prepayment of the Notes. (a)The
Company will not, directly or indirectly, enter into any restriction or
limitation on its ability to prepay or repay the Notes other than SS.6 and
Section 11.15 of the Credit Agreement as presently in effect but not any
amendment (including any extension) thereof that would prohibit the payment of
the Notes at maturity, subject only to SS.6.




                                      -15-
<PAGE>   20
Allied Holdings, Inc.                                             Note Agreement

           (b) The Company will not enter into any agreement containing any
provision which would be violated or breached by the performance of its
obligations hereunder or under any other instrument or document delivered or to
be delivered by it hereunder or in connection herewith or which would violate or
breach any provision hereof or thereof.

        Section 5.18. Reports and Rights of Inspection. The Company will keep,
and will cause each Restricted Subsidiary to keep, proper books of record and
account in which full and correct entries will be made of all dealings or
transactions of, or in relation to, the business and affairs of the Company or
such Restricted Subsidiary, in accordance with GAAP consistently applied (except
for changes disclosed in the financial statements furnished to the Holders
pursuant to this SS.5.18 and concurred in by the independent public accountants
referred to in SS.5.18(B) hereof), and will furnish to each Institutional Holder
(in duplicate if so specified below or otherwise requested):

                  (a) Quarterly Statements. As soon as available and in any
         event within 45days after the end of each quarterly fiscal period
         (except the last) of each fiscal year, copies of:

                           (1) a consolidated balance sheet of the Company and
                  its Restricted Subsidiaries as of the close of such quarterly
                  fiscal period, setting forth in comparative form the
                  consolidated figures for the fiscal year then most recently
                  ended,

                           (2) consolidated statements of operations of the
                  Company and its Restricted Subsidiaries for such quarterly
                  fiscal period and for the portion of the fiscal year ending
                  with such quarterly fiscal period, in each case setting forth
                  in comparative form the consolidated figures for the
                  corresponding periods of the preceding fiscal year, and

                           (3) consolidated statements of cash flows of the
                  Company and its Restricted Subsidiaries for the portion of the
                  fiscal year ending with such quarterly fiscal period, setting
                  forth in comparative form the consolidated figures for the
                  corresponding period of the preceding fiscal year,

         all in reasonable detail and certified as complete and correct by an
         authorized financial officer of the Company; provided, however, that so
         long as the Unrestricted Subsidiaries of the Company do not, on a
         combined basis, constitute a Significant Subsidiary, as at the end of
         such fiscal period, the Company may supply consolidated financial
         statements of the Company and its Subsidiaries in satisfaction of the
         requirements of this paragraph;

                  (b) Annual Statements. As soon as available and in any event
         within 120 days after the close of each fiscal year of the Company,
         copies of:

                           (1) a consolidated balance sheet of the Company and
                  its Restricted Subsidiaries as of the close of such fiscal
                  year, and

                                      -16-
<PAGE>   21
Allied Holdings, Inc.                                             Note Agreement

                           (2) consolidated statements of operations, changes in
                  stockholders' equity and cash flows of the Company and its
                  Restricted Subsidiaries for such fiscal year,

         in each case accompanied by the consolidating worksheets used in the
         preparation of such consolidated statements and setting forth in
         comparative form the consolidated figures for the preceding fiscal
         year, all in reasonable detail and accompanied by a report thereon of a
         firm of independent public accountants of recognized national standing
         selected by the Company to the effect that the consolidated financial
         statements present fairly, in all material respects, the consolidated
         financial position of the Company and its Restricted Subsidiaries as of
         the end of the fiscal year being reported on and the consolidated
         results of the operations and cash flows for said year in conformity
         with GAAP and that the examination of such accountants in connection
         with such financial statements has been conducted in accordance with
         generally accepted auditing standards and included such tests of the
         accounting records and such other auditing procedures as said
         accountants deemed necessary in the circumstances; provided, however,
         that so long as the Unrestricted Subsidiaries of the Company do not, on
         a combined basis, constitute a Significant Subsidiary, as at the end of
         such fiscal period, the Company may supply consolidated financial
         statements of the Company and its Subsidiaries, the report thereon of
         said firm of independent public accountants and the consolidating
         worksheets used in the preparation of such consolidated statements
         relating to the Company and its Subsidiaries in satisfaction of the
         requirements of this paragraph;

                  (c) Audit Reports. Promptly upon receipt thereof, one copy of
         each interim or special audit made by independent accountants of the
         books of the Company or any Restricted Subsidiary and any management
         letter received from such accountants;

                  (d) SEC and Other Reports. Promptly upon their becoming
         available, one copy of each financial statement, report, notice or
         proxy statement sent by the Company to stockholders generally and of
         each regular or periodic report, and any registration statement or
         prospectus filed by the Company or any Subsidiary with any Securities
         exchange or the Securities and Exchange Commission or any successor
         agency, and copies of any orders in any proceedings to which the
         Company or any of its Subsidiaries is a party, issued by any
         governmental agency, Federal or state, having jurisdiction over the
         Company or any of its Subsidiaries;

                  (e) ERISA Reports. Promptly upon the occurrence thereof,
         written notice of (i)a Reportable Event with respect to any Plan;
         (ii)the institution of any steps by the Company, any ERISA Affiliate,
         the PBGC or any other Person to terminate any Plan; (iii)the
         institution of any steps by the Company or any ERISA Affiliate to
         withdraw from any Plan; (iv)a non-exempt "prohibited transaction"
         within the meaning of Section 406 of ERISA in connection with any Plan;
         (v)any material increase in the contingent liability of the Company or
         any Restricted Subsidiary with respect to any post-retirement welfare
         liability; or (vi)the taking of any action by, or the 



                                      -17-
<PAGE>   22
Allied Holdings, Inc.                                             Note Agreement

         threatening of the taking of any action by, the Internal Revenue
         Service, the Department of Labor or the PBGC with respect to any of the
         foregoing;

                  (f) Officer's Certificates. Within the periods provided in
         paragraphs(a) and (b) above, a certificate, substantially in the form,
         appropriately completed, of Exhibit F, of an authorized financial
         officer of the Company stating that such officer has reviewed the
         provisions of this Agreement and setting forth: (i)the information and
         computations (in sufficient detail) required in order to establish
         whether the Company was in compliance with the requirements of SS.5.6
         through SS.5.12 at the end of the period covered by the financial
         statements then being furnished, and (ii)whether there existed as of
         the date of such financial statements and whether, to the best of such
         officer's knowledge, there exists on the date of the certificate or
         existed at any time during the period covered by such financial
         statements any Default or Event of Default and, if any such condition
         or event exists on the date of the certificate, specifying the nature
         and period of existence thereof and the action the Company is taking
         and proposes to take with respect thereto;

                  (g) Accountant's Certificates. Within the period provided in
         paragraph(b) above, a certificate of the accountants who render an
         opinion with respect to such financial statements, stating that they
         have reviewed this Agreement and stating further whether, in making
         their audit, such accountants have become aware of any Default or Event
         of Default under any of the terms or provisions of this Agreement
         insofar as any such terms or provisions pertain to or involve
         accounting matters or determinations, and if any such condition or
         event then exists, specifying the nature and period of existence
         thereof;

                  (h) Unrestricted Subsidiaries. Within the respective periods
         provided in paragraphs(a) and (b) above, if the Unrestricted
         Subsidiaries of the Company on a combined basis constitute a
         Significant Subsidiary, financial statements of the character and for
         the dates and periods as in said paragraphs(a) and (b) provided
         covering each Unrestricted Subsidiary (or groups of Unrestricted
         Subsidiaries on a consolidated basis);

                  (i) Litigation and Judgments. Promptly upon the occurrence
         thereof, notice of the institution of any litigation, arbitration
         proceeding or governmental proceeding affecting the Company or any
         Restricted Subsidiary, whether or not considered to be covered by
         insurance or the entry of any judgment or decree against the Company or
         any Restricted Subsidiary, if the amount of any such judgment or decree
         exceeds $1,000,000;

                  (j) Environmental and Safety and Health Matters. Promptly upon
         the receipt thereof, copies of any notice from any federal, state or
         local government or agency with respect to any actual or alleged
         violation of any Environmental Law or any Occupational Safety and
         Health Law by the Company or any Subsidiary, if such violation or
         alleged violation, if determined to be a violation, could have a
         material



                                      -18-
<PAGE>   23
Allied Holdings, Inc.                                             Note Agreement

         and adverse effect on condition, financial or otherwise, of the Company
         and its Restricted Subsidiaries taken as a whole;

                  (k) Material Adverse Change. Promptly upon the occurrence
         thereof, notice of any material adverse change in the business,
         operations or financial condition of the Company or any Restricted
         Subsidiary (it being understood that the Company's obligations under
         this paragraph may be satisfied by supplying the Holders with copies of
         any report on Form 8-K under the Securities and Exchange Act of 1934 so
         long as the Company is subject to the reporting requirements of said
         Act);

                  (l) Credit Agreement Amendments. Promptly upon the making of a
         material change, modification, amendment, revision, waiver or consent
         to the Credit Agreement, the Company shall provide written notice to
         the Holders, along with such other information as may be necessary to
         explain the reason for such alteration, consent or waiver; and

                  (m) Requested Information. With reasonable promptness, such
         other data and information as such Institutional Holder may reasonably
         request.

Without limiting the foregoing, the Company will permit each Institutional
Holder (or such Persons as such Institutional Holder may designate), to visit
and inspect, under the Company's guidance, any of the properties of the Company
or any Restricted Subsidiary, to examine all of their books of account, to make
copies and extracts therefrom and to discuss their respective affairs, finances
and accounts with their respective officers, and, if a Default or Event of
Default shall have occurred and be continuing or is, in the judgment of an
Institutional Holder, threatened, to examine all of their records, reports and
other papers, to make copies and extracts therefrom and to discuss their
respective affairs, finances and accounts with their respective employees, and
independent public accountants (and by this provision the Company authorizes
said accountants to discuss with any Institutional Holder the finances and
affairs of the Company and its Restricted Subsidiaries) all at such reasonable
times and as often as may be reasonably requested. The Company shall not be
required to pay or reimburse any Holder for expenses which such Holder may incur
in connection with any such visitation or inspection, except that if such
visitation or inspection is made during any period when a Default or an Event of
Default shall have occurred and be continuing, the Company agrees to reimburse
such Holder for all such expenses promptly upon demand.

Section 6. SUBORDINATION OF SUBORDINATED INDEBTEDNESS LIABILITIES.

         The Subordinated Indebtedness Liabilities shall be subordinate and
junior in right of payment, to the extent and in the manner hereinafter set
forth, to all Senior Indebtedness Liabilities, whether now outstanding or
hereafter incurred:

                   (a) In the event of any insolvency or bankruptcy proceedings,
         and any receivership, liquidation, reorganization, arrangement or other
         similar proceedings in connection therewith, relative to the Company or
         to its creditors, as such, or to its property, and in the event of any
         proceedings, for voluntary liquidation, dissolution 




                                      -19-
<PAGE>   24
Allied Holdings, Inc.                                             Note Agreement

         or other winding-up of the Company, whether or not involving insolvency
         or bankruptcy, then the holders of Senior Indebtedness Liabilities
         shall be entitled to receive from the Company irrevocable payment in
         full of all Senior Indebtedness Liabilities owed thereby in cash or
         other property acceptable to the holders of the Senior Indebtedness
         Liabilities (or to have such payment duly provided for in a manner
         satisfactory to the holders of said Senior Indebtedness Liabilities)
         before the holders of the Subordinated Indebtedness Liabilities are
         entitled to receive any payment from the Company in respect of the
         Subordinated Indebtedness Liabilities owed thereby, and to that end the
         holders of Senior Indebtedness Liabilities shall be entitled to receive
         for application in payment thereof any payment or distribution of any
         kind or character, whether in cash or property or Securities, which may
         be payable or deliverable in any such proceedings in respect of the
         Subordinated Indebtedness Liabilities, excepting only Securities which
         are in all respects subordinate and junior in right of payment to the
         payment in full of all Senior Indebtedness Liabilities then due and
         owing upon terms substantially similar to those contained in this
         Agreement and (unless different maturities and repayment terms are
         provided for in a plan approved in a reorganization proceeding) having
         maturities and terms of repayment similar to those applicable to the
         Notes.

                  (b) Upon the happening of any Senior Indebtedness Payment
         Default, the holders of the Subordinated Indebtedness Liabilities shall
         not be entitled to receive any payment on account thereof during the
         period beginning on the date such Senior Indebtedness Payment Default
         shall occur and ending upon the earlier of (1)the date such Senior
         Indebtedness Payment Default has been waived in writing by the holders
         of the related Senior Indebtedness Liabilities, (2)the date on which
         notice that such Senior Indebtedness Payment Default shall have ceased
         to exist is given by the holder of the related Senior Indebtedness
         Liabilities or, in the case of Senior Indebtedness Liabilities under
         the Credit Agreement, the Agent to the Company and the holders of the
         Subordinated Indebtedness Liabilities, and (3)the date on which such
         Senior Indebtedness Payment Default has been cured or shall have ceased
         to exist; provided, however, that blockage periods under this
         paragraph(b) shall not be in effect for more than 179 days unless all
         of the related Senior Indebtedness Liabilities shall have been declared
         by the holder thereof to be immediately due and payable as the result
         of such Senior Indebtedness Payment Default.

                  (c) Upon the happening of any Senior Indebtedness Covenant
         Event of Default, the holders of the Subordinated Indebtedness
         Liabilities shall not be entitled to receive any payment on account
         thereof during the period beginning on a Payment Blockage Commencement
         Date, as defined below, and ending upon the earlier of (1)the date on
         which notice that such Senior Indebtedness Covenant Event of Default
         has been waived is given by the Agent to the Company and the holders of
         the Subordinated Indebtedness Liabilities, (2)the date on which notice
         that such Senior Indebtedness Covenant Event of Default shall have
         ceased to exist is given by the Agent to the Company and the holders of
         the Subordinated Indebtedness Liabilities, and (3)the date on which
         such Senior Indebtedness Covenant Event of Default has been cured;
         provided, however, that (i) no blockage period under this paragraph(c)




                                      -20-
<PAGE>   25
Allied Holdings, Inc.                                             Note Agreement

         may begin within 360 days after the beginning of a previous such
         blockage period, (ii)no more than four blockage periods under this
         paragraph(c) may occur while the Notes remain outstanding,
         (iii)blockage periods with respect to any Senior Indebtedness Covenant
         Event of Default under this paragraph(c) shall not be in effect for
         more than 179 days, and (iv)no facts or circumstances constituting a
         Senior Indebtedness Covenant Event of Default existing on any Payment
         Blockage Commencement Date may be used as a basis for any subsequent
         blockage period. As used herein, the term "Payment Blockage
         Commencement Date" shall mean the date on which written notice of a
         Senior Indebtedness Covenant Event of Default has been sent by the
         Agent to the Holders, and "Agent" shall mean The First National Bank of
         Boston and its successors as agent for the holders of Senior
         Indebtedness Liabilities designated by the Company and the predecessor
         Agent by written notice to the Holders.

                  (d) In the event that any holder of Subordinated Indebtedness
         Liabilities shall obtain any cash or other assets of the Company,
         whether by voluntary action of the Company, as a result of any
         administrative, legal or equitable action, or otherwise, in violation
         of the provisions of this Agreement, such holder of Subordinated
         Indebtedness Liabilities shall, if it obtains knowledge of such fact
         within one year of receipt of such cash or other assets by such holder,
         pay, deliver and assign to, the holders of the Senior Indebtedness
         Liabilities such cash or assets for application to the Senior
         Indebtedness Liabilities upon obtaining such knowledge.

         No right of any present or future holder of any Senior Indebtedness
Liabilities of the Company to enforce subordination as herein provided shall at
any time or in any way be prejudiced or impaired by any failure to act on the
part of the Company, or by any noncompliance by the Company with the terms,
provisions and covenants of the Credit Agreement, regardless of any knowledge
thereof that any such holder of Senior Indebtedness Liabilities may have or be
otherwise charged with. The provisions hereof are solely for the purpose of
defining the relative rights of the holders of Senior Indebtedness Liabilities
on the one hand, and the holders of the Subordinated Indebtedness Liabilities on
the other hand, and nothing herein shall impair, as between the Company and the
holders of the Subordinated Indebtedness Liabilities, the obligation of the
Company, which is unconditional and absolute, to pay to the holders of the
Subordinated Indebtedness Liabilities the entire amount thereof in accordance
with the terms of the Notes and this Agreement, nor shall anything herein
prevent the holder of any Subordinated Indebtedness Liabilities from exercising
all remedies otherwise permitted by applicable law or under this Agreement or
the Notes upon default under this Agreement or the Notes, subject to the rights,
if any, of holders of Senior Indebtedness Liabilities as herein provided.

         Upon irrevocable payment in full of the Senior Indebtedness Liabilities
in cash or other property acceptable to the holders of the Senior Indebtedness
Liabilities, the holders of the Subordinated Indebtedness Liabilities shall be
subrogated to the rights of the holders of the Senior Indebtedness Liabilities
to receive payments or distributions of assets of the Company made on or in
respect of Senior Indebtedness Liabilities until all amounts constituting
Subordinated Indebtedness Liabilities and all other amounts payable to the




                                      -21-
<PAGE>   26
Allied Holdings, Inc.                                             Note Agreement

holders of the Subordinated Indebtedness Liabilities shall be paid in full, and,
for the purposes of such subrogation, no payments to the holders of Senior
Indebtedness Liabilities of any cash, property, stock or obligations to which
the holders of the Subordinated Indebtedness Liabilities would be entitled
shall, as between the Company, its creditors (other than the holders of Senior
Indebtedness Liabilities) and the holders of the Subordinated Indebtedness
Liabilities, be deemed to be a payment by the Company to or on account of Senior
Indebtedness Liabilities.

         In the event of any of the proceedings referred to in subparagraph
(a)above, if any holder of Subordinated Indebtedness Liabilities has not filed
any claim, proof of claim or other instrument of similar character necessary to
enforce the obligations of the Company in respect of the Subordinated
Indebtedness Liabilities held by such holder at least 30 days before the
expiration of the time to file the same, then and in such event, but only in
such event, any holder of the Senior Indebtedness Liabilities may notify such
holder in the manner provided in SS.10.6 of such fact and that such holder of
the Senior Indebtedness Liabilities shall, if such claim, proof of claim or
other instrument of similar character is not so filed by such holder of
Subordinated Indebtedness Liabilities at least ten days before the expiration of
the time to file the same, as an attorney-in-fact for such holder of
Subordinated Indebtedness Liabilities, file any claim, proof of claim or such
other instrument of similar character. At any time within ten days prior to the
expiration of the time to file such claim, proof of claim or other instrument,
if such holder of Subordinated Indebtedness Liabilities has not so filed the
same, the holder of the Senior Indebtedness Liabilities which has complied with
the notice provisions in the immediately preceding sentence may, as
attorney-in-fact for such holder of Subordinated Indebtedness Liabilities and at
its sole expense, file such claim, proof of claim or other instrument and such
holder of Subordinated Indebtedness Liabilities, by such holder's acceptance of
such holder's Notes, appoints such holder of the Senior Indebtedness Liabilities
as an attorney-in-fact for such holder of Subordinated Indebtedness Liabilities,
to so file any claim, proof of claim or such other instrument of similar
character. Notwithstanding the foregoing, the holder of Subordinated
Indebtedness Liabilities which has not filed such claim, proof of claim or other
instruments may then and thereupon pursue and enforce the obligations of the
Company in respect of the Subordinated Indebtedness Liabilities held thereby.

Section 7. EVENTS OF DEFAULT AND REMEDIES THEREFOR.

        Section 7.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:

                  (a) Default shall occur in the payment of interest on any Note
         when the same shall have become due and such default shall continue for
         more than five days; or

                  (b) Default shall occur in the making of any required
         prepayment on any of the Notes as provided in SS.2.3; or



                                      -22-
<PAGE>   27
Allied Holdings, Inc.                                             Note Agreement

                  (c) Default shall occur in the making of any other payment of
         the principal of any Note or Make-Whole Amount, if any, thereon at the
         expressed or any accelerated maturity date or at any date fixed for
         prepayment; or

                  (d) Default by the Company or any Restricted Subsidiary (as
         principal or as guarantor or other surety) shall occur in the payment
         of any principal of or premium or make-whole amount or interest on, or
         in the performance of or compliance with any term of, any evidence of
         any Indebtedness for Borrowed Money in an aggregate outstanding
         principal amount of at least $5,000,000 or of any mortgage, indenture
         or other agreement relating thereto or any other condition exists, and
         as a consequence of such default or condition such Indebtedness for
         Borrowed Money has become, or has been declared to be, due and payable
         before its stated maturity or before its regularly scheduled dates of
         payment; or

                  (e) Default shall occur in the observance or performance of
         any covenant or agreement contained in SS. 2.3, 5.6, 5.7, 5.8, 5.11
         OR 5.13; or

                  (f) Default shall occur in the observance or performance by
         the Company of any other provision of this Agreement which is not
         remedied within 30 days after the earlier of (i)the day on which the
         Company first obtains knowledge of such default, or (ii)the day on
         which written notice thereof is given to the Company by any Holder; or

                  (g) (i)Any Guaranty Agreement shall prove to be unenforceable
         or invalid or any Guarantor shall deny or disaffirm its obligations
         under the Guaranty Agreement to which it is purported to be a party, or
         (ii)Default shall occur in the observance or performance by any
         Guarantor of any provision of a Guaranty Agreement which is not
         remedied within 30 days after the earlier of (x)the day on which such
         Guarantor first obtains knowledge of such default, or (y)the day on
         which written notice thereof is given to such Guarantor by any Holder;
         or

                  (h) Any representation or warranty made by the Company or any
         Guarantor herein, or made by the Company or any Guarantor in any
         statement or certificate furnished by the Company or any Guarantor in
         connection with the consummation of the issuance and delivery of the
         Notes or furnished by the Company or any Guarantor pursuant hereto, is
         untrue in any material respect as of the date of the issuance or making
         thereof; or

                  (i) Final judgment or judgments for the payment of money
         aggregating in excess of $3,000,000 is or are outstanding against the
         Company or any Restricted Subsidiary or against any property or assets
         of either and any one of such judgments has remained unpaid, unvacated,
         unbonded or unstayed by appeal or otherwise for a period of 90 days
         from the date of its entry or such lesser period within which, under
         applicable law or rules of court, a judgment must be paid, vacated,
         bonded or stayed in order to prevent the judgment creditor from levying
         upon property of the judgment debtor; or




                                      -23-
<PAGE>   28
Allied Holdings, Inc.                                             Note Agreement

                  (j) A custodian, liquidator, trustee or receiver is appointed
         for the Company or any Restricted Subsidiary or for the major part of
         the property of either and is not discharged within 60 days after such
         appointment; or

                  (k) The Company or any Restricted Subsidiary becomes insolvent
         or bankrupt, is generally not paying its debts as they become due or
         makes an assignment for the benefit of creditors, or the Company or any
         Restricted Subsidiary applies for or consents to the appointment of a
         custodian, liquidator, trustee or receiver for the Company or such
         Restricted Subsidiary or for the major part of the property of either;
         or

                  (l) Bankruptcy, reorganization, arrangement or insolvency
         proceedings, or other proceedings for relief under any bankruptcy or
         similar law or laws for the relief of debtors, are instituted by or
         against the Company or any Restricted Subsidiary and, if instituted
         against the Company or any Restricted Subsidiary, are consented to or
         are not dismissed within 60 days after such institution.

        Section 7.2. Notice to Holders. When any Event of Default described in
the foregoing SS.7.1 has occurred, or if any Holder or the holder of any other
evidence of Indebtedness for Borrowed Money of the Company or any Restricted
Subsidiary gives any notice or takes any other action with respect to a claimed
default, the Company agrees to give notice within three business days of such
event to all Holders.

        Section 7.3. Acceleration of Maturities. When any Event of Default
described in paragraph(a), (b) or (c) of SS.7.1 has happened and is continuing,
any Holder may, and when any Event of Default described in paragraphs(d) through
(j), inclusive, of said SS.7.1 has happened and is continuing, any Holder or
Holders holding 25% or more of the principal amount of Notes at the time
outstanding may, by notice to the Company, declare the entire principal and all
interest accrued on all Notes to be, and all Notes shall thereupon become,
forthwith due and payable, without any presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived. When any Event of
Default described in paragraph(k) or (l) of SS.7.1 has occurred, then all
outstanding Notes shall immediately become due and payable without presentment,
demand or notice of any kind. Upon the Notes becoming due and payable as a
result of any Event of Default as aforesaid, the Company will forthwith pay to
the Holders, the entire principal and interest accrued on the Notes and, to the
extent not prohibited by applicable law, an amount as liquidated damages for the
loss of the bargain evidenced hereby (and not as a penalty) equal to the
Make-Whole Amount, determined as of the date on which the Notes shall so become
due and payable. No course of dealing on the part of the Holder or Holders nor
any delay or failure on the part of any Holder to exercise any right shall
operate as a waiver of such right or otherwise prejudice such Holder's rights,
powers and remedies. The Company further agrees, to the extent permitted by law,
to pay to the Holder or Holders all costs and expenses incurred by them in the
collection of any Notes upon any default hereunder or thereon, including
reasonable compensation to such Holder's or Holders' attorneys for all services
rendered in connection therewith.




                                      -24-
<PAGE>   29
Allied Holdings, Inc.                                             Note Agreement

        Section 7.4. Rescission of Acceleration. The provisions of SS.7.3 are
subject to the condition that if the principal of and accrued interest on all or
any outstanding Notes have been declared immediately due and payable by reason
of the occurrence of any Event of Default described in paragraphs(a) through
(j), inclusive, of SS.7.1, the Holders holding 66-2/3% in aggregate principal
amount of the Notes then outstanding may, by written instrument filed with the
Company, rescind and annul such declaration and the consequences thereof,
provided that at the time such declaration is annulled and rescinded:

                  (a) no judgment or decree has been entered for the payment of
         any monies due pursuant to the Notes or this Agreement;

                  (b) all arrears of interest upon all the Notes and all other
         sums payable under the Notes and under this Agreement (except any
         principal, interest or premium on the Notes which has become due and
         payable solely by reason of such declaration under SS.7.3) shall have
         been duly paid; and

                  (c) each and every other Default and Event of Default shall
         have been made good, cured or waived pursuant to SS.8.1;

and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereto.

Section 8. AMENDMENTS, WAIVERS AND CONSENTS.

        Section 8.1. Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the Holders holding at least 66-2/3% in aggregate
principal amount of outstanding Notes; provided, however, that without the
written consent of all of the Holders, no such amendment or waiver shall be
effective (i)which will change the time of payment of the principal of or the
interest on any Note or change the principal amount thereof or change the rate
of interest thereon, or (ii)which will change any of the provisions with respect
to optional prepayments, or (iii)which will change the percentage of Holders
required to consent to any such amendment or waiver of any of the provisions of
this SS.8 or SS.7.

        Section 8.2. Solicitation of Holders. So long as there are any Notes
outstanding, the Company will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement or the Notes unless each Holder (irrespective of the amount of Notes
then owned by it) shall be informed thereof by the Company and shall be afforded
the opportunity of considering the same and shall be supplied by the Company
with sufficient information to enable it to make an informed decision with
respect thereto. The Company will not, directly or indirectly, pay or cause to
be paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, to any Holder as consideration for or as an inducement to
entering into by any Holder of any




                                      -25-

<PAGE>   30
Allied Holdings, Inc.                                             Note Agreement

waiver or amendment of any of the terms and provisions of this Agreement or the
Notes unless such remuneration is concurrently offered, on the same terms,
ratably to all Holders.

         Section 8.3. Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the Holders and shall be binding upon them,
upon each future Holder and upon the Company, whether or not any Note shall have
been marked to indicate such amendment or waiver. No such amendment or waiver
shall extend to or affect any obligation not expressly amended or waived or
impair any right consequent thereon.

Section 9. INTERPRETATION OF AGREEMENT; DEFINITIONS'.

         Section 9.1. Definitions. Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the following meanings
and the following definitions shall be equally applicable to both the singular
and plural forms of any of the terms herein defined:

         "Affiliate" shall mean any Person (other than a Restricted Subsidiary)
(i)which directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, the Company, (ii)which
beneficially owns or holds 10% or more of any class of the Voting Stock of the
Company or (iii)10% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 10% or more of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of Voting Stock, by contract or otherwise.

         "Agreement" shall mean this Note Agreement.

         "Asset Disposition" means and includes (i)a sale, lease or other
disposition of assets (other than in the ordinary course of business) by the
Company or any Restricted Subsidiary (except by a Restricted Subsidiary to the
Company or to a Wholly-Owned Restricted Subsidiary), (ii)the issuance or sale by
any Restricted Subsidiary of any shares of stock of any class (including as
"stock" for the purpose of this definition, any warrants, rights or options to
purchase or otherwise acquire stock or other Securities exchangeable for or
convertible into stock) of such Restricted Subsidiary to any Person other than
the Company or a Wholly-Owned Restricted Subsidiary (except for the purpose of
qualifying directors, or except in satisfaction of the validly pre-existing
preemptive rights of minority shareholders in connection with the simultaneous
issuance of stock to the Company and its Restricted Subsidiaries whereby the
Company and its Restricted Subsidiaries maintain their same proportionate
interest in such Restricted Subsidiary) and (iii)the sale, transfer or other
disposition by the Company of any shares of stock of any Restricted Subsidiary
(except to qualify directors) and the sale, transfer or other disposition
(except to the Company or a Wholly-Owned Restricted Subsidiary) by any
Restricted Subsidiary of any shares of stock of any other Restricted Subsidiary.

         "Capital Lease Obligations" shall mean the amount of the liability in
respect of a capital lease that would at such time be required to be capitalized
on a balance sheet of the lessee in accordance with GAAP.

         "Capitalized Lease" shall mean any lease the obligation for Rentals
with respect to which is required to be capitalized on a consolidated balance
sheet of the lessee and its subsidiaries in accordance with GAAP.

                                      -26-
<PAGE>   31
Allied Holdings, Inc.                                             Note Agreement

         "Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean Allied Holdings, Inc., a Georgia corporation, and any
Person who succeeds to all, or substantially all, of the assets and business of
Allied Holdings, Inc.

         "Consolidated Cash Flow" for any period shall mean the Consolidated Net
Income of the Company and its Restricted Subsidiaries for such period plus, to
the extent deducted in determining Consolidated Net Income, (i)an amount equal
to any extraordinary loss plus any net loss realized in connection with an asset
sale, (ii)provision for taxes based on income or profits of the Company and its
Restricted Subsidiaries for such period, (iii)consolidated interest expense of
the Company and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings and net payments (if any) pursuant to Hedging
Obligations), (iv)depreciation and amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) of the Company and its Restricted
Subsidiaries for such period and (v)one-third of all operating lease payments of
such Person and its Restricted Subsidiaries paid or accrued during such period.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization of, a Restricted Subsidiary shall be
added to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination of the dividend to the Company by such Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.

         "Consolidated Net Income" shall mean the consolidated net income of the
Company and its Restricted Subsidiaries for any period as determined in
accordance with GAAP.

         "Consolidated Net Worth" shall mean with respect to the Company and its
Restricted Subsidiaries, the result of (a)all assets of the Company and its
Restricted Subsidiaries on a consolidated basis 




                                      -27-
<PAGE>   32
Allied Holdings, Inc.                                             Note Agreement


which are properly classified as assets in accordance with GAAP, minus (b)all
liabilities of the Company and its Restricted Subsidiaries on a consolidated
basis which are properly classified as liabilities in accordance with GAAP. For
purposes of the calculation of Consolidated Net Worth hereunder there shall be
disregarded the foreign translation adjustment component of shareholders' equity
made in accordance with Financial Accounting Standards Board Statement No. 52.

         "Consolidated Total Assets" means as of any date of determination,
consolidated total assets of the Company and its Restricted Subsidiaries, after
eliminating all offsetting debits and credits between the Company and its
Restricted Subsidiaries and all other items required to be eliminated in the
course of the preparation of consolidated financial statements of the Company
and its Restricted Subsidiaries in accordance with GAAP.

         "Credit Agreement" shall mean the Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of February 9, 1994, as amended and
restated as of October 31, 1994 and further amended and restated as of December
31, 1995, by and among the Company, The First National Bank of Boston, the other
banks parties thereto, such other banks as may become parties thereto from time
to time and The First National Bank of Boston, as Agent, as the same may be
amended, restated, supplemented or otherwise modified and in effect from time to
time.

         "Deemed Fixed Charge Coverage Ratio" shall mean the Fixed Charge
Coverage Ratio calculated on the basis that Indebtedness for Borrowed Money in
an amount equal to the Revolving Credit Commitment Amount on the date of
determination were outstanding during the entire period for which the Deemed
Fixed Charge Coverage Ratio is being determined.

         "Default" shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.

         "Default Rate" shall mean a rate of interest per annum equal to the
higher at the time of (i)14% and (ii)the rate announced by The First National
Bank of Boston (or a successor thereto) as its "Base Rate".

         "Environmental Law" means any international, federal, state or local
statute, law, regulation, order, consent decree, judgment, permit, license,
code, covenant, deed restriction, common law, treaty, convention, ordinance or
other requirement relating to public health, safety or the environment,
including, without limitation, those relating to releases, discharges or
emissions to air, water, land or groundwater, to the withdrawal or use of
groundwater, to the use and handling of polychlorinated biphenyls or asbestos,
to the disposal, treatment, storage or management of hazardous or solid waste,
or Hazardous Substances or crude oil, or any fraction thereof, or to exposure to
toxic or hazardous materials, to the handling, transportation, discharge or
release of gaseous or liquid Hazardous Substances and any regulation, order,
notice or demand issued pursuant to such law, statute or ordinance, in each case
applicable to the property of the Company and its Subsidiaries or the operation,
construction or modification of any thereof, including without limitation, the
following: the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act 



                                      -28-
<PAGE>   33
Allied Holdings, Inc.                                             Note Agreement

of 1986, the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984,
the Hazardous Materials Transportation Act, as amended, the Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1976, the Safe
Drinking Water Control Act, the Clean Air Act of 1966, as amended, the Toxic
Substances Control Act of 1976, the Emergency Planning and Community
Right-to-Know Act of 1986, the National Environmental Policy Act of 1975, the
Oil Pollution Act of 1990 and any similar or implementing state law, and any
state statute and any further amendments to these laws providing for financial
responsibility for cleanup or other actions with respect to the release or
threatened release of Hazardous Substances or crude oil, or any fraction
thereof, and all rules, regulations, guidance documents and publications
promulgated thereunder.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to Section s of ERISA shall be construed to also refer to any successor
Sections.

         "ERISA Affiliate" shall mean any corporation, trade or business that
is, along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in Section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.

         "Event of Default" shall have the meaning set forth in SS.7.1.

         "Fixed Charge Coverage Ratio" for any period shall mean the ratio of
the Consolidated Cash Flow of the Company and its Restricted Subsidiaries for
such period to the Fixed Charges of the Company and its Restricted Subsidiaries
for such period. In the event that the Company or any of its Restricted
Subsidiaries incurs, assumes, Guarantees, or redeems any Indebtedness for
Borrowed Money (other than revolving credit borrowings) or issues preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving effect to such incurrence, assumption, Guarantee or redemption of
Indebtedness for Borrowed Money, or such issuance or redemption of preferred
stock, and the application of the proceeds of the incurrence of such
Indebtedness for Borrowed Money or the issuance of such preferred stock, as if
the same had occurred at the beginning of such period. For purposes of making
the computation referred to above, (i)acquisitions that have been made by the
Company or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, at any time on
or after the beginning of such period and on or before to the Calculation Date
shall be deemed to have occurred on the first day of such period, (ii)the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or business disposed of prior to the
Calculation Date, shall be excluded and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations



                                      -29-
<PAGE>   34
Allied Holdings, Inc.                                             Note Agreement

giving rise to such Fixed Charges will not be obligations of the Company or any
of its Restricted Subsidiaries following the Calculation Date.

         "Fixed Charges" for any period shall mean the sum of:

                  (i) the consolidated interest expense for such period, whether
         paid or accrued, to the extent that such expense was deducted in
         computing Consolidated Net Income (including, without limitation,
         amortization of original issue discount, non-cash interest payments,
         the interest component of any deferred payment obligations, the
         interest component of all payments associated with Capital Lease
         Obligations, commissions, discounts and other fees and charges incurred
         in respect of letter of credit or bankers' acceptance financings and
         net payments (if any) pursuant to Hedging Obligations);

                  (ii) in the case of a computation of the Deemed Fixed Charge
         Coverage Ratio, an amount equal to the remainder of (x)the interest
         expense that would have been incurred during such period in respect of
         the Credit Agreement if (A)Indebtedness for Borrowed Money in an amount
         equal to the Revolving Credit Commitment Amount thereunder as at the
         date of determination (giving effect to the application of any
         Indebtedness for Borrowed Money then being incurred and to any increase
         in the Revolving Credit Commitment Amount then being made) had been
         outstanding during such entire period and (B)the interest rate
         applicable to Revolving Credit Loans on such date of determination had
         been in effect during such entire period minus (y)the amount of
         interest included in respect of the Credit Agreement for such period
         under clause (i) above;

                  (iii) the product of (x)all cash dividend payments (and
         non-cash dividend payments in the case of a Person that is a Restricted
         Subsidiary) on any series of preferred stock of the Company or any of
         its Restricted Subsidiaries, times (y)a fraction, the numerator of
         which is one and the denominator of which is one minus the then current
         combined federal, state and local statutory tax rate of the Company or
         such Restricted Subsidiary, expressed as a decimal; and

                  (iv) one-third of all operating lease payments paid or accrued
         during such period, 

in each case determined on a consolidated basis for the Company and its
Restricted Subsidiaries.

         "GAAP" shall mean generally accepted accounting principles at the time
in the United States.

         "Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or 




                                      -30-
<PAGE>   35
Allied Holdings, Inc.                                             Note Agreement

indirectly, including, without limitation, all obligations incurred through an
agreement, contingent or otherwise, by such Person: (i)to purchase such
Indebtedness or obligation or any property or assets constituting security
therefor, (ii)to advance or supply funds (x)for the purchase or payment of such
Indebtedness or obligation, (y)to maintain working capital or other balance
sheet condition or otherwise to advance or make available funds for the purchase
or payment of such Indebtedness or obligation, (iii)to lease property or to
purchase Securities or other property or services primarily for the purpose of
assuring the owner of such Indebtedness or obligation of the ability of the
primary obligor to make payment of the Indebtedness or obligation, or
(iv)otherwise to assure the owner of the Indebtedness or obligation of the
primary obligor against loss in respect thereof. For the purposes of all
computations made under this Agreement, a Guaranty in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the
principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guaranty in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.

         "Hedging Obligations" of any Person shall mean any Indebtedness of such
Person under (i)interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements and (ii)other agreements or arrangements
designed to protect such Person against fluctuations in interest rates.

         "Holder" shall mean any Person which is, at the time of reference, the
registered Holder of any Note.

         "Indebtedness" shall mean all obligations, contingent and otherwise,
which in accordance with GAAP should be classified upon the obligor's balance
sheet as liabilities, or to which reference should be made by footnotes thereto,
including, without limitation, in any event and whether or not so classified:
(a)all debt and similar monetary obligations, whether direct or indirect; (b)all
liabilities secured by any mortgage, pledge, security interest, lien, charge, or
other encumbrance existing on property owned or acquired subject thereto,
whether or not the liability secured thereby shall have been assumed; and (c)
all guarantees, endorsements and other contingent obligations, whether direct or
indirect, in respect of Indebtedness of others, including any obligation to
supply funds to or in any manner to invest in, directly or indirectly, the
debtor, to purchase Indebtedness, or to assure the owner of Indebtedness against
loss, through an agreement to purchase goods, supplies, or services for the
purpose of enabling the debtor to make payment of the Indebtedness held by such
owner or otherwise, and the obligations to reimburse the issuer in respect of
any letters of credit.

         "Indebtedness for Borrowed Money" of any Person shall mean without
duplication (i)all Indebtedness of such Person for borrowed money, (ii)all
Indebtedness of such Person having a final maturity of one or more than one year
from the date of origin thereof which has been incurred in connection with the
acquisition of assets, (iii)all Capital Lease Obligations of such Person,
(iv)Hedging Obligations and letters of credit (or reimbursement agreements in
respect thereof), (v)Indebtedness of others secured by a Lien 



                                      -31-
<PAGE>   36
Allied Holdings, Inc.                                             Note Agreement

on property of such Person, and (vi)all Guaranties by such Person of
Indebtedness of others of the character described in this paragraph.

         "Institutional Holder" shall mean any Holder which is a Purchaser or an
insurance company, bank, savings and loan association, trust company, investment
company, charitable foundation, employee benefit plan (as defined in ERISA) or
other institutional investor or financial institution and, for purposes of the
direct payment provisions of this Agreement, shall include any nominee of any
such Holder.

         "Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or Securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.

         "Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock, stockholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property. For the purposes of this
Agreement, the Company or a Restricted Subsidiary shall be deemed to be the
owner of any property which it has acquired or holds subject to a conditional
sale agreement, Capitalized Lease or other arrangement pursuant to which title
to the property has been retained by or vested in some other Person for security
purposes and such retention or vesting shall constitute a Lien.

         "Long-Term Lease" shall mean any lease of real or personal property
(other than a Capitalized Lease) having an original term, including any period
for which the lease may be renewed or extended at the option of the lessor, of
more than three years.

         "Make-Whole Amount" shall mean in connection with any prepayment or
acceleration of the Notes the excess, if any, of (i)the aggregate present value
as of the date of such prepayment of each dollar of principal being prepaid and
the amount of interest (exclusive of interest accrued to the date of prepayment)
that would have been payable in respect of such dollar if such prepayment had
not been made, determined by discounting such amounts at the Reinvestment Rate
from the respective dates on which they would have been payable, over (ii)100%
of the principal amount of the outstanding Notes being prepaid. If the
Reinvestment Rate is equal to or higher than 12%, the Make-Whole Amount shall be
zero. For purposes of any determination of the Make-Whole Amount:

                  "Reinvestment Rate" shall mean 1.0%, plus the arithmetic mean
         of the yields for the two columns under the heading "Week Ending"
         published in the Statistical Release under the caption "Treasury
         Constant Maturities" for the maturity (rounded to the 




                                      -32-
<PAGE>   37
Allied Holdings, Inc.                                             Note Agreement

         nearest month) corresponding to the Weighted Average Life to Maturity
         of the principal being prepaid. If no maturity exactly corresponds to
         such Weighted Average Life to Maturity, yields for the published
         maturity next longer than the Weighted Average Life to Maturity and for
         the published maturity next shorter than the Weighted Average Life to
         Maturity shall be calculated pursuant to the immediately preceding
         sentence and the Reinvestment Rate shall be interpolated from such
         yields on a straight-line basis, rounding in each of such relevant
         periods to the nearest month. For the purposes of calculating the
         Reinvestment Rate, the most recent Statistical Release published prior
         to the date of determination of the Make-Whole Amount shall be used.
         "Statistical Release" shall mean the then most recently published
         statistical release designated "H.15(519)" or any successor publication
         which is published weekly by the Federal Reserve System and which
         establishes yields on actively traded U.S.Government Securities
         adjusted to constant maturities or, if such statistical release is not
         published at the time of any determination hereunder, then such other
         reasonably comparable index which shall be designated by the Holders
         holding 66-2/3% in aggregate principal amount of the outstanding Notes.

                  "Weighted Average Life to Maturity" of the principal amount of
         any Indebtedness for Borrowed Money shall mean, as of the time of any
         determination thereof, the number of years obtained by dividing the
         then Remaining Dollar-Years of such principal by the aggregate amount
         of such principal. The term "Remaining Dollar-Years" of such principal
         shall mean the amount obtained by (i)multiplying (x)the remainder of
         (1)the amount of principal that would have become due on each scheduled
         payment date if such prepayment had not been made, less (2)the amount
         of principal on the Notes scheduled to become due on such date after
         giving effect to such prepayment and the application thereof, by (y)the
         number of years (calculated to the nearest one-twelfth) which will
         elapse between the date of determination and such scheduled payment
         date, and (ii)totalling the products obtained in(i).

         "Multiemployer Plan" shall have the same meaning as in ERISA.

         "Net Income" of any Person for any period shall mean the net income
(loss) of such Person, determined for such period in accordance with GAAP and
before any reduction in respect of preferred stock dividends, excluding,
however, (a)any gain (but not loss), together with any related provision for
taxes on such gain, realized in connection with (i)any sale or other disposition
of assets (including, without limitation, dispositions pursuant to sale and
leaseback transactions but excluding sales and dispositions in the ordinary
course of business), (ii)the disposition of any Securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries or (iii)currency exchange
transactions not in the ordinary course of business and (b)any extraordinary
gain (but not loss), together with any related provision for taxes on such
extraordinary gain.

         "Occupational Safety and Health Law" means the Occupational Safety and
Health Act of 1970, as amended, and any other federal, state or local statute,
law, ordinance, code, rule, 




                                      -33-
<PAGE>   38
Allied Holdings, Inc.                                             Note Agreement

regulation, order or decree regulating, relating to or imposing liability or
standards of conduct concerning employee health and/or safety.

         "Payment Blockage Commencement Date" shall have the meaning assigned
thereto in SS.6(C).

         "PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.

         "Permitted Refinancing Indebtedness" shall mean any Indebtedness for
Borrowed Money of the Company or any of its Restricted Subsidiaries issued in
exchange for, or the net proceeds of which are used to extend, refinance, renew,
replace, or refund, other Indebtedness for Borrowed Money of the Company or any
of its Restricted Subsidiaries; provided that: (i)the principal amount of such
Permitted Refinancing Indebtedness does not exceed the principal amount of the
Indebtedness for Borrowed Money so extended, refinanced, renewed, replaced, or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); and (ii)if the Indebtedness for Borrowed Money being extended,
refinanced, renewed, replaced, or refunded is subordinate in right of payment to
the Notes, such Permitted Refinancing Indebtedness is subordinate in right of
payment to the Notes on terms at least as favorable to the Holders of the Notes
as those contained in the documentation governing the Indebtedness for Borrowed
Money being extended, refinanced, renewed, replaced, or refunded.

         "Person" shall mean any individual, corporation, partnership, trust,
unincorporated association, joint stock company, limited liability company or
other legal entity or organization and any government or agency or political
subdivision thereof.

         "Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.

         "Purchasers" shall have the meaning set forth in SS.1.1.

         "Rentals" shall mean and include as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of the
property) payable by the Company or a Restricted Subsidiary, as lessee or
sublessee under a lease of real or personal property, but shall be exclusive of
any amounts required to be paid by the Company or a Restricted Subsidiary
(whether or not designated as rents or additional rents) on account of
maintenance, repairs, insurance, taxes and similar charges. Fixed rents under
any so-called "percentage leases" shall be computed solely on the basis of the
minimum rents, if any, required to be paid by the lessee regardless of sales
volume or gross revenues.

         "Reportable Event" shall have the same meaning as in ERISA.




                                      -34-
<PAGE>   39
Allied Holdings, Inc.                                             Note Agreement

         "Restricted Investments" shall mean all Investments, other than:

                  (a) Investments by the Company and its Restricted Subsidiaries
         in and to Restricted Subsidiaries that are Guarantors, including any
         Investment in a corporation which, after giving effect to such
         Investment, will (i)become a Restricted Subsidiary and a Guarantor or
         (ii)be merged, consolidated or amalgamated with or into, or transfer or
         convey substantially all of its assets to, or be liquidated into, the
         Company or a Wholly-Owned Restricted Subsidiary that is a Guarantor;

                  (b) Investments in commercial paper maturing in 270 days or
         less from the date of issuance which, at the time of acquisition by the
         Company or any Restricted Subsidiary, is accorded the highest rating by
         Standard& Poor's Ratings Group, Moody's Investors Service, Inc. or
         other nationally recognized credit rating agency of similar standing;

                  (c) Investments in direct obligations of the United States of
         America or any agency or instrumentality of the United States of
         America, the payment or guarantee of which constitutes a full faith and
         credit obligation of the United States of America, in either case,
         maturing in twelve months or less from the date of acquisition thereof;

                  (d) Investments in certificates of deposit maturing within one
         year from the date of issuance thereof, issued by a bank or trust
         company organized under the laws of the United States or any state
         thereof, having capital, surplus and undivided profits aggregating at
         least $100,000,000 and whose long-term certificates of deposit are, at
         the time of acquisition thereof by the Company or a Restricted
         Subsidiary, rated AA or better by Standard& Poor's Ratings Group or Aa
         or better by Moody's Investors Service, Inc.;

                  (e) loans or advances in the usual and ordinary course of
         business to officers, directors and employees for expenses (including
         moving expenses related to a transfer) incidental to carrying on the
         business of the Company or any Restricted Subsidiary;

                  (f) receivables arising from the sale of goods and services in
         the ordinary course of business of the Company and its Restricted
         Subsidiaries;

                  (g) Investments not exceeding $5,000,000 in the aggregate in
         an Unrestricted Subsidiary acting as a captive insurance company; and

                  (h) Investments in the capital stock of any Person, not
         otherwise permitted by the provisions of paragraphs (a) through (g)
         above, both inclusive, provided that (i)the aggregate amount of such
         Investments shall not exceed (x) $5,000,000 in the aggregate in any
         12-month period or (y) $15,000,000 in the aggregate at any time
         outstanding; and (ii) at the time of making each such Investment and
         after giving effect thereto (x) no Default or Event of Default shall
         have occurred and be



                                      -35-
<PAGE>   40
Allied Holdings, Inc.                                             Note Agreement

         continuing, and (y) the Company could incur at least $1.00 of
         Indebtedness for Borrowed Money pursuant to SS.5.7(A)(4).

         In valuing any Investments for the purpose of applying the limitations
set forth in this definition, such Investments shall be taken at the original
cost thereof, without allowance for any subsequent write-offs or appreciation or
depreciation therein, but less any amount repaid or recovered on account of
capital or principal.

        "Restricted Subsidiary" shall mean any Subsidiary (i) which is
organized under the laws of the United States or any state thereof or Canada or
any province thereof; (ii) which conducts substantially all of its business and
has substantially all of its assets within the United States and Canada, and
(iii) which is identified as a Restricted Subsidiary in AnnexA to Exhibit C or
in a written notice from the Company to the Holders.

         "Revolving Credit Commitment Amount" shall mean $130,000,000; provided,
however, that the Revolving Credit Commitment amount:

                  (a) may be increased from time to time in accordance with the
         provisions of SS.5.7(A)(5),

                  (b) shall be reduced from time to time in accordance with any
         permanent reductions of the "Revolving Credit Commitment Amount" prior
         to the "Term Out Date" (as such terms are defined in the Credit
         Agreement), and

                  (c) from and after such Term Out Date shall mean the unpaid
         principal amount of the Indebtedness for Borrowed money outstanding
         under the Credit Agreement. 

         "Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.

         "Senior Indebtedness Covenant Event of Default" means any failure by
the Company to comply with any covenants from time to time applicable to Senior
Indebtedness Liabilities that gives a holder of Senior Indebtedness Liabilities
the immediate right to accelerate such Senior Indebtedness Liabilities, provided
that any requirements for the giving of notice or passage of time as conditions
to such acceleration shall have been satisfied.

         "Senior Indebtedness Liabilities" means (a) the principal amount of all
Indebtedness for Borrowed Money of the Company outstanding from time to time
which is permitted under the provisions of SS.5.7(A), provided that such
Indebtedness for Borrowed Money is not expressed to be junior or subordinate in
right of payment to any other Indebtedness for Borrowed Money of the Company;
(b) premium, if any, and all other amounts due and owing from time to time in
respect of said Indebtedness described in clause (a); and (c) interest due and
owing from time to time in respect of said Indebtedness described in clause (a)
or (b) (including, without limitation, any such interest accruing subsequent to
the filing by or against the Company of any proceeding brought under the
Bankruptcy Act of 




                                      -36-
<PAGE>   41
Allied Holdings, Inc.                                             Note Agreement

1978, as amended, but only to the extent that such interest is allowed as a
claim pursuant to the provisions of said Act).

         "Senior Indebtedness Payment Default" means any default by the Company
in the making of any payment or mandatory prepayment of principal or interest
with respect to any Senior Indebtedness Liabilities.

         "Significant Subsidiary" shall mean a Subsidiary, including its
Subsidiaries, which meets any of the following conditions:

                  (a) The investments of the Company and its other Subsidiaries
         in and advances to the Subsidiary exceed 10 percent of the total assets
         of the Company and its Subsidiaries consolidated as of the end of the
         most recently completed fiscal year (for a proposed business
         combination to be accounted for as a pooling of interests, this
         condition is also met when the number of common shares exchanged by the
         Company exceeds 10 percent of its total common shares outstanding at
         the date the combination is initiated); or

                  (b) The Company's and its other Subsidiaries' proportionate
         share of the total assets (after intercompany eliminations) of the
         Subsidiary exceeds 10 percent of the total assets of the Company and
         its Subsidiaries consolidated as of the end of the most recently
         completed fiscal year; or

                  (c) The Company's and its other Subsidiaries' equity in the
         income from continuing operations before income taxes, extraordinary
         items and cumulative effect of a change in accounting principle of the
         Subsidiary exceeds 10 percent of such income of the Company and its
         Subsidiaries consolidated for the most recently completed fiscal year.

For purposes of applying the test described in paragraph (c) above:

                  (i) When a loss has been incurred by either the Company and
         its Subsidiaries consolidated or the tested Subsidiary, but not both,
         the equity in the income or loss of the tested Subsidiary shall be
         excluded from the income of the Company and its Subsidiaries
         consolidated for purposes of the computation.

                  (ii) If income of the Company and its Subsidiaries
         consolidated for the most recent fiscal year is at least 10 percent
         lower than the average of the income for the last five fiscal years,
         such average income shall be substituted for purposes of the
         computation. Any loss years shall be omitted for purposes of computing
         average income.

                  (iii) Where the test involves combined entities, entities
         reporting losses shall not be aggregated with entities reporting
         income. 



                                      -37-
<PAGE>   42
Allied Holdings, Inc.                                             Note Agreement

         "Sinking Fund Stock" shall mean any capital stock that, by its terms
(or by the terms of any Security into which it is convertible for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Notes mature.

        "Subordinated Indebtedness Liabilities" means (a) the principal amount
of all Indebtedness of the Company owing in respect of the Notes, (b) premium,
if any, and any other amounts from time to time due and owing in respect of
said Indebtedness, and (c) interest from time to time due and owing in respect
of said Indebtedness.

         The term "subsidiary" shall mean as to any particular parent
corporation any corporation, partnership, limited liability company or other
business entity of which more than 50% (by number of votes) of the Voting Stock
(and, in the case of a limited partnership, of the general partner interests)
shall be beneficially owned, directly or indirectly, by such parent corporation.
The term "Subsidiary" shall mean a subsidiary of the Company.

         "Trade Accounts Payable" of any Person means trade accounts payable of
such Person with a maturity of not greater than 90 days incurred in the ordinary
course of such Person's business.

         "Unrestricted Subsidiary" shall mean any Subsidiary that is not a
Restricted Subsidiary.

         "Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).

         "Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) and all Indebtedness for
Borrowed Money shall be owned by the Company and/or one or more of its
Wholly-owned Subsidiaries.

         Section 9.2. Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, the same shall be done in accordance with GAAP,
to the extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.

         Section 9.3. Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action in
question is taken directly or indirectly by such Person.




                                      -38-
<PAGE>   43
Allied Holdings, Inc.                                             Note Agreement

Section 10. MISCELLANEOUS.

        Section 10.1. Registered Notes. The Company shall cause to be kept at
its principal office a register for the registration and transfer of the Notes
(hereinafter called the "Note Register"), and the Company will register or
transfer or cause to be registered or transferred as hereinafter provided any
Note issued pursuant to this Agreement.

        At any time and from time to time any Holder of a Note which has been
duly registered as hereinabove provided may transfer such Note upon surrender
thereof at the principal office of the Company duly endorsed or accompanied by a
written instrument of transfer duly executed by the Holder or its attorney duly
authorized in writing.

        The Person in whose name any registered Note shall be registered shall
be deemed and treated as the owner and holder thereof and a Holder for all
purposes of this Agreement. Payment of or on account of the principal, premium,
if any, and interest on any registered Note shall be made to or upon the written
order of such Holder.

        Section 10.2. Exchange of Notes. At any time and from time to time,
upon not less than ten days' notice to that effect given by the Holder of any
Note initially delivered or of any Note substituted therefor pursuant to
SS.10.1, this SS.10.2 or SS.10.3, and, upon surrender of such Note at its
office, the Company will deliver in exchange therefor, without expense to such
Holder, except as set forth below, a Note for the same aggregate principal
amount as the then unpaid principal amount of the Note so surrendered, or Notes
in the denomination of $100,000 or any amount in excess thereof as such Holder
shall specify, dated as of the date to which interest has been paid on the Note
so surrendered or, if such surrender is prior to the payment of any interest
thereon, then dated as of the date of issue, registered in the name of such
Person or Persons as may be designated by such Holder, and otherwise of the same
form and tenor as the Notes so surrendered for exchange. The Company may require
the payment of a sum sufficient to cover any stamp tax or governmental charge
imposed upon such exchange or transfer.

        Section 10.3. Loss, Theft, Etc. of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of any
Note, and in the case of any such loss, theft or destruction upon delivery of a
bond of indemnity in such form and amount as shall be reasonably satisfactory to
the Company, or in the event of such mutilation upon surrender and cancellation
of the Note, the Company will make and deliver without expense to the Holder
thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Note. If an Institutional Holder is the owner of any such lost, stolen
or destroyed Note, then the affidavit of an authorized officer of such owner,
setting forth the fact of loss, theft or destruction and of its ownership of
such Note at the time of such loss, theft or destruction shall be accepted as
satisfactory evidence thereof and no further indemnity shall be required as a
condition to the execution and delivery of a new Note other than the written
agreement of such owner to indemnify the Company.

        Section 10.4. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to pay
directly all of the 



                                      -39-
<PAGE>   44
Allied Holdings, Inc.                                             Note Agreement

Purchasers' out-of-pocket expenses in connection with the preparation, execution
and delivery of this Agreement and the transactions contemplated hereby,
including but not limited to the reasonable charges and disbursements of Chapman
and Cutler, special counsel to the Purchasers, duplicating and printing costs
and charges for shipping the Notes, adequately insured to each Purchaser's home
office or at such other place as such Purchaser may designate, and all such
expenses of the Holders relating to any amendment, waivers or consents pursuant
to the provisions hereof, including, without limitation, any amendments,
waivers, or consents resulting from any work-out, renegotiation or restructuring
relating to the performance by the Company of its obligations under this
Agreement and the Notes. The Company also agrees that it will pay and save each
Purchaser harmless against any and all liability with respect to stamp and other
taxes, if any, which may be payable or which may be determined to be payable in
connection with the execution and delivery of this Agreement or the Notes,
whether or not any Notes are then outstanding. The Company agrees to protect and
indemnify each Purchaser against any liability for any and all brokerage fees
and commissions payable or claimed to be payable to any Person in connection
with the transactions contemplated by this Agreement.

         Section 10.5. Powers and Rights Not Waived; Remedies Cumulative'. No
delay or failure on the part of any Holder in the exercise of any power or right
shall operate as a waiver thereof; nor shall any single or partial exercise of
the same preclude any other or further exercise thereof, or the exercise of any
other power or right, and the rights and remedies of each Holder are cumulative
to, and are not exclusive of, any rights or remedies any such Holder would
otherwise have.

         Section 10.6. Notices. All communications provided for hereunder shall
be in writing and, if to a Holder, delivered or mailed prepaid by registered or
certified mail or overnight air courier, or by facsimile communication, in each
case addressed to such Holder at its address appearing beneath its signature at
the foot of this Agreement or such other address as any Holder may designate to
the Company in writing, and if to the Company, delivered or mailed by registered
or certified mail or overnight air courier, or by facsimile communication, to
the Company at the address beneath its signature at the foot of this Agreement
or to such other address as the Company may in writing designate to the Holders;
provided, however, that a notice to a Holder by overnight air courier shall only
be effective if delivered to such Holder at a street address designated for such
purpose in accordance with this SS.10.6, and a notice to such Holder by
facsimile communication shall only be effective if made by confirmed
transmission to such Holder at a telephone number designated for such purpose in
accordance with this SS.10.6 and promptly followed by the delivery of such
notice by registered or certified mail or overnight air courier, as set forth
above.

         Section 10.7. Successors and Assigns. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of each Purchaser and its successor and assigns, including each successive
Holder.

         Section 10.8. Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered



                                      -40-
<PAGE>   45
Allied Holdings, Inc.                                             Note Agreement

pursuant hereto, whether or not in connection with the Closing Date, shall
survive the closing and the delivery of this Agreement and the Notes.

         Section 10.9. Severability. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any remaining portion, which remaining portion
shall remain in force and effect as if this Agreement had been executed with the
invalid or unenforceable portion thereof eliminated and it is hereby declared
the intention of the parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part, parts or
portion which may, for any reason, be hereafter declared invalid or
unenforceable.

         Section 10.10. Governing Law. This Agreement and the Notes issued and
sold hereunder shall be governed by and construed in accordance with Illinois
law.

         Section 10.11. Captions. The descriptive headings of the various
Section s or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.

                                      -41-
<PAGE>   46
Allied Holdings, Inc.                                             Note Agreement

         The execution hereof by the Purchasers shall constitute a contract
among the Company and the Purchasers for the uses and purposes hereinabove set
forth. This Agreement may be executed in any number of counterparts, each
executed counterpart constituting an original but all together only one
agreement.

                                                      ALLIED HOLDINGS, INC.

                                                      By /s/ David S. Forbes
                                                        ---------------------
                                                      Its Vice President

ALLIED HOLDINGS, INC.
160 Clairemont Avenue
Decatur, Georgia  30030
Attention:  A. Mitchell Poole, Jr.
Telefacsimile:  (404) 370-4206
Confirmation:  (404) 370-4208

                                      -42-
<PAGE>   47
Allied Holdings, Inc.                                             Note Agreement


Accepted as of January 15, 1996:

                                                      JOHN HANCOCK MUTUAL LIFE
                                                      INSURANCE COMPANY

                                                      By /s/ Anthony C. Urick
                                                         ----------------------
                                                      Its Second Vice President

JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
(For the General Account and the Guaranteed Benefit Sub-Account)
John Hancock Place
200 Clarendon Street
Boston, Massachusetts  02117
Attention:  Bond and Corporate Finance Department T-57

Payments

All payments on or in respect of the Notes shall be made by bank wire transfer
of immediately available funds for credit, not later than 12:00 Noon, Boston
time (which shall identify each payment as "Allied Holdings, Inc., 12% Senior
Subordinated Notes due 2003, PPN019223 A* 7, principal or interest or other
payments"), to:

         The First National Bank of Boston (ABA #011000390)
         100 Federal Street
         Boston, Massachusetts  02110
         Attention:  Insurance Division

         for the account of:  John Hancock Mutual Life Insurance Company
         Private Placement Collection Account Number 541-55417
         On Order of:  Allied Holdings, Inc., PPN 019223 A* 7

Notices

Contemporaneous with the above wire transfer, advice setting forth (1) the full
name, interest rate and maturity date of the Notes or other obligations; (2)
allocation of payment between principal and interest and any special payment;
and (3) name and address of Bank (or Trustee) from which wire transfer was sent,
shall be delivered or mailed to:

         John Hancock Mutual Life Insurance Company
         John Hancock Place
         200 Clarendon Street
         Boston, Massachusetts  02117
         Attention:  Securities Accounting Division T-10



                                      -43-
<PAGE>   48
Allied Holdings, Inc.                                             Note Agreement

All notices with respect to prepayments, both scheduled and unscheduled, whether
partial or in full, and notice of maturity shall also be delivered or mailed to
the address set forth immediately above. 

All other communications shall be delivered or mailed to:

         John Hancock Mutual Life Insurance Company
         John Hancock Place, 200 Clarendon Street
         Boston, Massachusetts  02117
         Attention:  Bond and Corporate Finance Department, T-57
         Telefacsimile Number:  (617) 572-1606

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  04-1414660

                                      -44-
<PAGE>   49
Allied Holdings, Inc.                                             Note Agreement

Accepted as of January 15, 1996:

                                                THE NORTHWESTERN MUTUAL LIFE
                                                INSURANCE COMPANY

                                                By /s/ A. Kipp Koester
                                                  ---------------------------
                                                Its Vice President

THE NORTHWESTERN MUTUAL LIFE
  INSURANCE COMPANY

720 East Wisconsin Avenue
Milwaukee, Wisconsin  53202
Attention:  Securities Department
Telecopier Number:  (414) 299-7124

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Allied Holdings, Inc., 12% Senior Subordinated Notes due 2003, PPN019223 A* 7,
principal or interest") to:

         Bankers Trust Company (ABA #0210-01033)
         16 Wall Street
         Insurance Unit, 4th Floor
         New York, New York  10015

         for credit to:  The Northwestern Mutual Life Insurance Company
         Account Number 00-000-027

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments and written confirmation of each such payment
to be addressed, Attention:
Treasurer's Department/Securities Operations.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  39-0509570

                                      -45-