<PAGE>
 
                             EMPLOYMENT AGREEMENT


     THIS AGREEMENT is made and entered into as of this 31st day of August,
1998, by and between Metrotrans Corporation (the "Company"), a Georgia
corporation and Terri B. Hobbs ("Employee");

     WHEREAS, Employee is the Deputy Chief Executive Officer of the Company;

     WHEREAS, the Company and Employee wish to provide for the terms and
conditions of Employee's continued employment with the Company;

     NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth herein, the parties hereby agree as follows:

                                       1.

                             EMPLOYMENT AND DUTIES

     (a) The Company hereby employs Employee as Deputy Chief Executive Officer
of the Company to perform such services and duties Chairman of the Board and
Chief Executive Officer may, from time to time, designate during the term
hereof.  Subject to the terms and conditions hereof, Employee will perform such
duties and exercise such authority as are customarily performed and exercised by
persons holding such office and in accordance with the Bylaws of the Company.

     (b) Employee accepts such employment and shall devote her full time,
attention and efforts to the diligent performance of her duties herein specified
and as an officer of the Company and will not accept employment with any other
individual, corporation, partnership, governmental authority or other entity, or
engage in any other venture for profit which the Company or any of its
subsidiaries may consider to be in conflict with its best interests or to be in
competition with the business of the Company or its subsidiaries, or which may
interfere in any way with Employee's performance of her duties hereunder.

                                       2.

                              TERMS OF EMPLOYMENT

     Employee's employment with the Company shall commence under this employment
agreement as of the date first above written.  Unless earlier terminated
pursuant to the terms hereof, the term of employment under this agreement shall
continue until the Company provides notice of termination at least two (2) years
and eleven (11) months prior thereto, or the Employee provides notice of
termination at least six (6) months prior thereto (unless such notice is waived
by the other party in writing).  The term previously stated notwithstanding,
this agreement shall be terminated automatically upon the occurrence of any of
the following:
<PAGE>
 
     (a)  the death of Employee;

     (b) the complete disability of Employee ("complete disability" as used
herein shall mean the inability of Employee, due to illness, accident or any
other physical or mental incapacity to perform the services provided for
hereunder for an aggregate of sixty (60) days within any period of 120
consecutive days during the term hereof); or

     (c) the discharge of Employee by the Company for cause.  "Cause" as used
herein shall mean (i) such negligence or misconduct as shall constitute, as a
matter of law, a breach of the covenants and obligations of Employee hereunder,
(ii) failure or refusal of Employee to comply with the provisions of this
agreement, or (iii) Employee being convicted or the subject of an indictment for
a felony.  Disability because of illness or accident or any other physical or
mental disability shall not constitute a basis for discharge for cause.

In the event that the Company notifies the Employee of termination of her
employment hereunder as provided above, then during the interim period (of two
years and eleven months) from such notice until actual termination, the Employee
shall not be responsible for any duties other than those specified in Section 6
hereof.

     On and after the date of a change in control of the Company, the Employee
shall, upon the constructive discharge of the Employee, be entitled to give
notice within thirty (30) days of such constructive discharge, that she desires
to terminate employment with the Company as noted above, except that such
termination shall not actually occur for a period of two (2) years and eleven
(11) months following the date the Employee gives notice, and during the interim
period, the Employee shall not be responsible for any duties other than those
specified in Section 6 hereof.  "Change in control" as used herein shall mean
the acquisition by a person on or after the execution date hereof (including
"affiliates" and "associates" of such person,  but excluding the Company, any
"parent" or "subsidiary" of the Company, or any employee benefit plan of the
Company or of any "parent" or "subsidiary" of the Company) of a sufficient
number of shares of the common stock, or securities convertible into the common
stock, and whether through direct acquisition of shares or by merger,
consolidation, share exchange, reclassification of securities or
recapitalization of or involving the Company or any "parent" or "subsidiary" of
the Company, to constitute the person the actual or beneficial owner of thirty
percent (30%) or more of the common stock of the Company. "Constructive
discharge" as used herein shall mean any action by the Company which results in
(i) a breach of this  Agreement, (ii) a reduction in the pension, welfare or
fringe benefits provided to the Employee which is both significant and
substantial when expressed as a dollar amount or when expressed as a percentage
of the individual's dollar compensation, and (iii) the transfer of the
Employee's site of employment to a location which is further than fifty (50)
miles from the current site of the Employee's employment or a change in or
reduction of the Employee's duties and responsibilities or position.  For
purposes of the foregoing, the determination of whether a reduction in pension,
welfare or fringe benefits is significant and substantial shall be made on the
basis of all pertinent facts and circumstances, including the entire benefit
package provided to the Employee; provided, however, any amendment, modification
or elimination of benefits which results solely


                             Employment Agreement
                                    Page 2
<PAGE>
 
from the provision of differing benefits to the Employee where such differing
benefits are identical to the benefits provided to similarly situated employees
of the Company shall not be deemed a significant and substantial reduction in
benefits.

                                       3.

                                  COMPENSATION

     For all services which Employee has and will render to the Company during
the term hereof, the Company shall pay to Employee, subject to such deductions
as may be required by law, the following:

     (a) Base Salary.  As full compensation for Employee's services hereunder
and in consideration of the restrictions set forth in Section 6 herein, the
Company shall pay to Employee an aggregate base annual salary (the "Base
Salary") of Two Hundred Thousand Dollars ($200,000.00) payable in equal weekly
installments and subject to such deductions as may be required by law.  Any
increases in the Base Salary of Employee during the term of this agreement shall
be made at the discretion of the Board of Directors of the Company.

     (b) Performance Bonus.  For the term of this agreement, all performance
bonuses, if any, will be determined and paid at the discretion of the
Compensation Committee of the Board of Directors.  The Employee shall be
eligible to participate in the Management Incentive Compensation Plan.

                                       4.

                                 OTHER BENEFITS

     (a) General Benefits.  During the term of Employee's employment hereunder,
Employee shall be entitled to such additional benefits as are generally
available to other Employees of the Company as a whole.  The benefits provided
to Employee under this Section 4(a) shall be provided on the same terms and
subject to the same conditions as such benefits are provided to other employees
of the Company generally.

     (b) Automobile.  The Company shall provide to Employee an automobile in
keeping with her position as Deputy Chief Executive Officer of the Company for
use by Employee in the conduct of Employee's performance under this agreement.

     (c) Vacation.  Employee shall be entitled to six weeks of paid vacation
during each calendar year during the term of this agreement.

     (d) Disability Benefits.  The Company shall obtain for the benefit of
Employee long-term disability insurance coverage that shall provide to Employee
long-term disability benefits equal to


                             Employment Agreement
                                    Page 3
<PAGE>
 
___% of Employee's Base Salary subject to such conditions and exclusions as are
typically found in such coverage. Notwithstanding the foregoing, in the event
the Company provides long-term disability coverage to other employees of the
Company as a whole, the Company's obligations under this subsection (d) shall be
satisfied by providing to Employee long-term disability coverage on the same
terms and subject to the same conditions as such benefits are provided to other
employees of the Company generally.

     (e) Physical Examination.  The Company shall pay for an annual physical
examination of Employee to be performed by a physician selected by Employee.

     (f) Indemnification Agreement.  The Terms of the Indemnification Agreement
between the Employee and the Company shall continue in full force and effect in
accordance with its terms, without regard to any termination of this Agreement.

                                       5.

                                    EXPENSES

     Upon presentment to the Company of expense reports in sufficiently detailed
form to comply with standards for deductibility of business expenses established
from time to time by the Internal Revenue Service, the Company will reimburse
Employee for such reasonable and necessary business expenses incurred by
Employee in connection with the performance of her duties hereunder and in
performance of the business of the Company.

                                       6.

            NON-COMPETITION, SOLICITATION OF CUSTOMERS, SOLICITATION
                                  OF EMPLOYEES

     (a) Employee agrees that, during the period of her employment with the
Company and for a period of three years following the termination of such
employment, she shall not, directly or indirectly, engage in competition with
the Company or any subsidiary of the Company within the Territory (as
hereinafter defined) in any manner or capacity (including but not limited to a
consultant, principals, partner, officer, director, shareholder or employee of
an entity that competes with the Company or any subsidiary of the Company) in
any phase of the Company's or any subsidiary's business of developing,
designing, manufacturing, marketing, leasing, or selling any of the products of
the type which the Company or any subsidiary of the Company is in the business
of developing, designing, manufacturing, distributing, marketing, leasing or
selling during the term of this agreement or which the Company or any of its
subsidiaries has definitive plans to develop, manufacture or market.  Ownership
by Employee, as a passive investment, of less than one percent of the
outstanding shares of capital stock of any corporation listed on a national
securities exchange or publicly traded in the over-the-counter market shall not
constitute a breach of this Section 6.


                             Employment Agreement
                                    Page 4
<PAGE>
 
     (b) Employee agrees that during her employment by the Company and for the
three year period following the termination of such employment, she will not,
without the prior written consent of the Company, within the Territory, either
directly or indirectly, on her own behalf or in the service or on behalf of
others, solicit, divert or appropriate, or attempt to solicit, divert or
appropriate, to any competing business any person or entity that was a customer
of the Company or any subsidiary of the Company during the term of this
agreement.

     (c) Employee agrees that during her employment by the Company and for the
three year period following the termination of such employment, she will not,
either directly or indirectly, on her own behalf or in the service or on behalf
of others, solicit, divert or hire away, or attempt to solicit, divert or hire
away any person then employed by the Company or any of its subsidiaries.

     (d) The term "Territory" shall be that area within a fifty (50) mile radius
of each location throughout the State of Georgia and North America where the
Company maintains an office.  This agreement shall be deemed automatically
amended without the need of further action by any party to add new countries or
parts thereof where after the date hereof and prior to the termination of
Employee's employment the Company or any of its subsidiaries begins to market
its products and to delete any countries or parts thereof after the Company or
any of its subsidiaries ceases to market its products for a period of at least
six months.

     (e) Employee acknowledges and agrees that because of her employment, the
Employee does and will continue to have access to "Proprietary Information"
concerning the business of the Company, including information about and related
to the Company's products, customers, prices and other material non-public and
Proprietary Information.  The Employee acknowledges that any and all information
made available to the Employee during the term of this Agreement concerning or
relative to the business of the Company, including, without limitation, all
customer data, billing information, service data, product data and information,
pricing data and information and other technical materials of the Company, is
and shall always remain the proprietary property of the Company.

                                      7.

                             WAIVER OF PROVISIONS

     Failure of any of the parties to insist, in one or more instances, on
performance by the other party in strict accordance with the terms and
conditions of this agreement shall not be deemed a waiver or relinquishment of
any right granted hereunder or of the future performance of any such term or
condition or of any other term or condition of this agreement, unless such
waiver is contained in a writing signed by or on behalf of all the parties.


                             Employment Agreement
                                    Page 5
<PAGE>
 
                                      8.

                                 GOVERNING LAW

     This agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Georgia.  If for any reason any
provision of this agreement shall be held by a court of competent jurisdiction
to be void or unenforceable, the same shall not affect the remaining provisions
thereof.

                                       9.

                  ENTIRE AGREEMENT; MODIFICATION AND AMENDMENT

     This agreement contains the sole and entire agreement among the parties
hereto and supersedes and replaces all prior discussions and agreements among
the parties and any such prior agreements shall, from and after the date hereof,
be null and void.  This agreement shall not be modified or amended except by an
instrument in writing signed by or on behalf of the parties hereto.

                                      10.

                           COUNTERPARTS AND HEADINGS

     This agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
instrument.  The headings set out herein are for convenience of reference and
shall not be deemed a part of this agreement.

                                      11.

                             CONTRACT NONASSIGNABLE

     This agreement may not be assigned or transferred by any party hereto, in
whole or in part, without the prior written consent of the other.

                                      12.

                               INJUNCTIVE RELIEF

     In the event of a breach or threatened breach by Employee of any of the
provisions of Sections 2 or 6 hereof and notwithstanding any other provision in
this agreement, the Company, in addition to any other available right or
remedies, shall be entitled to a temporary restraining order and a permanent
injunction to restrain such breach by Employee and/or any persons directly or
indirectly acting for or with him.  Employee's obligations under paragraph 6
hereof shall remain binding and enforceable according to its terms
notwithstanding expiration or termination of the other terms of this agreement
or the termination of Employee's employment relationship with the Company.


                             Employment Agreement
                                    Page 6
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have executed this agreement under
seal as of the date first above written.

                              EMPLOYEE



 


                                                                        (SEAL)
                              __________________________________________
                                      Terri B. Hobbs



                              METROTRANS CORPORATION



                              By: 
                                  ________________________________________
                                      D. Michael Walden
                                      Chairman and Chief Executive Officer


                             Employment Agreement
                                    Page 7