CAVALIER HOMES INC
10-Q, 1998-05-11
MOBILE HOMES
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                                  UNITED STATES
                        SECURITIES & EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


(Mark One)

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

         For the quarterly period ended      March 27, 1998
                                        ------------------------

                                       OR

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

         For the transition period from                    to
                                        ------------------     -----------------

                          Commission File Number 1-9792

                              Cavalier Homes, Inc.
                          -----------------------------
             (Exact name of Registrant as specified in its charter)


    Delaware                                                    63-0949734
- -----------------                                         ----------------------
(State or other                                               (IRS Employer
jurisdiction of                                           Identification Number)
incorporation or
organization)



            Highway 41 North & Cavalier Road, Addison, Alabama 35540
            --------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)


                                 (256) 747-0044
               --------------------------------------------------
              (Registrant's telephone number, including area code)



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


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

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the close of the latest practicable date.

           Class                                      Outstanding at May 8, 1998
- ----------------------------                          --------------------------
Common Stock, $.10 Par Value                               20,018,542 Shares


<PAGE>


                      CAVALIER HOMES, INC. AND SUBSIDIARIES


                                      INDEX
                                      -----


                                                                        Page No.
Part I.  Financial Information  (Unaudited)                             --------

         Consolidated Condensed Balance Sheets -                           3
         March 27, 1998  and December 31, 1997

         Consolidated Condensed Statements of Income -                     4
         Thirteen Weeks Ended March 27, 1998  and March 28, 1997

         Consolidated Condensed Statements of Cash Flows -                 5
         Thirteen Weeks Ended March 27, 1998  and
         March 28, 1997

         Notes to Consolidated Condensed Financial Statements              6

         Management's Discussion and Analysis of Financial Condition       9
         and Results of Operations

Part II. Other Information

         Item 3.  Legal Proceedings                                       13

         Item 5.  Other Matters                                           13

         Item 6.  Exhibits and Reports on Form 8-K                        13

         Signatures                                                       15

















Certain  items in the report  that  follows  are marked  with an  asterisk  (*),
indicating  that they are  subject  to the  "Safe  Harbor"  Statement  under the
Private  Securities  Litigation  Reform  Act of  1995  found  on page 14 of this
report.


<PAGE>


<TABLE>
<CAPTION>
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                             (Dollars in Thousands)
                                   (UNAUDITED)

                                                              March 27,    December 31,
<S>                                                              <C>          <C>
 ASSETS                                                          1998         1997
 CURRENT ASSETS:                                              ----------   -----------
      Cash and cash equivalents                              $   26,096    $  37,276
      Certificates of deposit, maturing within one year           7,544        4,000
      Accounts receivable, less allowance for
             losses of $1,175                                    32,313        8,449
      Notes and installment contracts receivable - current        1,185        1,561
      Inventories                                                34,609       29,697
      Deferred income taxes                                       7,505        7,240
      Other current assets                                        2,444        1,292
                                                              ---------    ---------
             Total current assets                               111,696       89,515
                                                              ---------    ---------
 PROPERTY, PLANT AND EQUIPMENT (Net)                             53,287       53,434
                                                              ---------    ---------
 INSTALLMENT CONTRACTS RECEIVABLE, less
     allowance for credit losses of $1,130 (1998)
     and $1,272 (1997)                                           23,265       46,614
                                                              ---------    ---------
 GOODWILL, less accumulated amortization of
     $3,349 (1998) and $3,102 (1997)                             19,303       19,551
                                                              ---------    ---------
 OTHER ASSETS                                                     2,520        2,440
                                                              ---------    ---------
 TOTAL                                                       $  210,071   $  211,554
                                                              =========    =========
 LIABILITIES AND STOCKHOLDERS' EQUITY
 CURRENT LIABILITIES:
      Current portion of long-term debt                      $      385   $    3,271
      Accounts payable                                           19,993        9,575
      Amounts payable under dealer incentive programs            12,391       14,614
      Accrued compensation and related withholdings               6,886        4,294
      Estimated warranties                                       11,801       11,700
      Accrued merger and related costs                            2,390        5,178
      Other accrued expenses                                     14,410       12,399
                                                              ---------    ---------
           Total current liabilities                             68,256       61,031
                                                              ---------    ---------
 DEFERRED INCOME TAXES                                              364          297
                                                              ---------    ---------
 LONG-TERM DEBT                                                   3,915       15,808
                                                              ---------    ---------
 OTHER LONG-TERM LIABILITIES                                        956          867
                                                              ---------    ---------
 STOCKHOLDERS' EQUITY:
      Series A Junior  Participating  Preferred Stock,
         $.01 par value;  200,000 shares
         authorized, none issued
      Preferred stock, $.01 par value;
         300,000 shares authorized, none issued
      Common stock, $.10 par value; authorized
         50,000,000 shares; issued 19,995,497 (1998)
         and 19,941,357 (1997) shares                             2,000        1,994
      Additional paid-in capital                                 57,808       57,228
      Retained earnings                                          76,772       74,329
                                                              ---------    ---------
          Total stockholders' equity                            136,580      133,551
                                                              ---------    ---------
 TOTAL                                                       $  210,071   $  211,554
                                                              =========    =========





<FN>
 See Notes to Consolidated Condensed Financial Statements
</FN>
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                 (Dollars in Thousands Except Per Share Amounts)
                                   (UNAUDITED)

                                                              Thirteen Weeks Ended
                                                              ----------------------
                                                              March 27,    March 28,
<S>                                                              <C>          <C>
 REVENUES:                                                       1998         1997
                                                              ---------    ---------
      Net sales                                              $  123,153   $  126,072
      Financial services                                          2,426        1,142
                                                              ---------    ---------
                                                                125,579      127,214
                                                              ---------    ---------
 COST OF SALES                                                  102,783      106,020


 SELLING, GENERAL AND ADMINISTRATIVE:
     Manufacturing                                               16,774       14,237
     Financial services                                             920          646
                                                              ---------    ---------
                                                                120,477      120,903
                                                              ---------    ---------
 OPERATING PROFIT                                                 5,102        6,311
                                                              ---------    ---------
 OTHER INCOME(EXPENSE):
     Interest expense:
        Manufacturing                                              (142)        (250)
        Financial services                                         (283)        (102)
     Other, net                                                     392          498
                                                              ---------    ---------
                                                                    (33)         146
                                                              ---------    ---------
 INCOME BEFORE INCOME TAXES                                       5,069        6,457
                                                              ---------    ---------
 INCOME TAXES                                                     2,027        2,564
                                                              ---------    ---------
 NET INCOME                                                  $    3,042   $    3,893
                                                              =========    =========
 BASIC NET INCOME PER SHARE                                  $      .15   $      .20
                                                              =========    =========
 DILUTED NET INCOME PER SHARE                                $      .15   $      .19
                                                              =========    =========
 WEIGHTED AVERAGE SHARES OUTSTANDING                         19,967,999   19,763,181
                                                             ==========   ==========
 WEIGHTED AVERAGE SHARES OUTSTANDING,
    ASSUMING DILUTION                                        20,160,536   19,980,618
                                                             ==========   ==========













<FN>
 See Notes to Consolidated Condensed Financial Statements
</FN>
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (UNAUDITED)

                                                              Thirteen Weeks Ended
                                                              ----------------------
                                                              March 27,    March 28,
                                                                 1998         1997
                                                              ---------    ---------
<S>                                                          <C>          <C>
 OPERATING ACTIVITIES:
   Net income                                                $    3,042   $    3,893
   Adjustments to reconcile net income to net cash
   used in operating activities:
        Depreciation and amortization                             1,971        1,844
        Provision for credit losses and repurchase commitments     (142)         111
        Revenue from sale of installment contracts               (1,126)          -
        (Gain) loss on sale of property, plant and equipment         (2)         (14)
        Equity in net (income) loss of unconsolidated affiliates    (30)          14
        Minority interest in net income of
             consolidated subsidiaries                               89           17
        Compensation related to issuance of stock options            44           37
        Changes in assets and liabilities provided (used) cash:
             Accounts receivable                                (23,864)     (23,270)
             Inventories                                         (4,912)      (4,297)
             Accounts payable                                    10,418       10,299
             Other assets and liabilities                        (1,786)        (627)
                                                              ---------    ---------
        Net cash used in operating activities                   (16,298)     (11,993)
                                                              ---------    ---------
 INVESTING ACTIVITIES:
   Proceeds from the sale of property, plant and equipment            2           18
   Capital expenditures                                          (1,557)      (1,622)
   Purchases of certificates of deposit                          (6,044)          -
   Maturities of certificates of deposit                          2,500        6,199
   Distribution from equity investments                             106          248
   Purchases and originations of notes and
        installment contracts                                    (2,920)      (6,163)
   Proceeds from sale of installment contracts                   26,153           -
   Principal collected on notes and installment contracts         1,714          978
                                                              ---------    ---------
        Net cash provided by (used in) investing activities      19,954         (342)
                                                              ---------    ---------
 FINANCING ACTIVITIES:
   Proceeds from long-term borrowings                                -           300
   Payments on long-term debt                                   (14,779)      (2,005)
   Cash dividends paid                                             (599)        (365)
   Proceeds from exercise of stock options                           14            4
   Proceeds from sales of common stock                              528          471
                                                              ---------    ---------
        Net cash used in financing activities                   (14,836)      (1,595)
                                                              ---------    ---------
 NET DECREASE IN CASH AND CASH EQUIVALENTS                      (11,180)     (13,930)
                                                              ---------    ---------
 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                  37,276       29,751
                                                              ---------    ---------
 CASH AND CASH EQUIVALENTS, END OF PERIOD                    $   26,096   $   15,821
                                                              =========    =========



<FN>
 See Notes to Consolidated Condensed Financial Statements
</FN>
</TABLE>


<PAGE>


                                     PART I.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
              Notes to Consolidated Condensed Financial Statements
      For the Thirteen Week Periods Ended March 27, 1998 and March 28, 1997
                (Dollars in Thousands, Except Per Share Amounts)

1.        BUSINESS COMBINATION AND BASIS OF PRESENTATION

                  On  December 31, 1997,  Belmont Homes,  Inc.  ("Belmont")  was
                  merged  with and into a  subsidiary  of Cavalier  Homes,  Inc.
                  ("Cavalier"),  and 7,555,121 shares of Cavalier's common stock
                  were  issued in  exchange  for all of the  outstanding  common
                  stock of Belmont. The merger was accounted for as a pooling of
                  interests,  and,  accordingly,  the accompanying  consolidated
                  condensed  financial  statements have been restated to include
                  the financial  position,  results of operations and cash flows
                  of Belmont  for all  periods  presented.  Previously  reported
                  amounts for the  individual  companies  have been adjusted for
                  the  effect of former  equity  investments  in  unconsolidated
                  joint ventures which are now consolidated subsidiaries and for
                  reclassification  of  certain  Belmont  amounts  to conform to
                  Cavalier's presentation.

                  The  accompanying  consolidated condensed financial statements
                  have been prepared in compliance  with Form 10-Q  instructions
                  and thus do not include all of the  information  and footnotes
                  required  by  generally  accepted  accounting  principles  for
                  complete financial  statements.  In the opinion of management,
                  these statements contain all adjustments  necessary to present
                  fairly the Company's  financial position as of March 27, 1998,
                  and the results of its  operations  and its cash flows for the
                  thirteen week periods ended March 27, 1998 and March 28, 1997,
                  respectively.  All  adjustments  are  of a  normal,  recurring
                  nature.

                  The  results of operations  for the thirteen weeks ended March
                  27, 1998 are not  necessarily  indicative of the results to be
                  expected for the full year.

                  During   February  1997,  the Financial  Accounting  Standards
                  Board  ("FASB")  issued  Statement  of  Financial   Accounting
                  Standards  ("SFAS")  No.  128,  Earnings  per Share,  which is
                  effective  for all  financial  statements  issued for  periods
                  ending after December 15, 1997,  including interim periods. In
                  accordance with this Standard,  the Company is now required to
                  report two  separate  earnings  per share  numbers,  basic and
                  diluted.  Both are  computed  by  dividing  net  income by the
                  weighted  average  common  shares  outstanding  (basic EPS) or
                  weighted average common shares  outstanding  assuming dilution
                  (diluted EPS) as detailed below:
<TABLE>
<CAPTION>
                                                                 March 27, 1998     March 28, 1997
                                                                 --------------     --------------
<S>                                                                  <C>                <C>       
                  Weighted average common shares outstanding         19,967,999         19,763,181

                  Dilutive effect of stock options and warrants         192,537            217,437
                                                                 --------------     --------------

                  Weighted average common shares outstanding,
                       assuming dilution                             20,160,536         19,980,618
                                                                 --------------     --------------
</TABLE>

                  Inventories  consist primarily of raw materials and are stated
                  at the lower of cost (first-in, first-out method) or market.

     2.   ACCOUNTING STANDARD NOT YET ADOPTED

         In June 1997, the FASB issued SFAS No. 131,  Disclosures about Segments
         of an Enterprise and Related  Information.  This statement is effective
         for  financial  statements  issued for  fiscal  years  beginning  after
         December 15, 1997.  The adoption of the provisions of this Statement is
         expected to result only in increased disclosures on segment information
         and will not impact the amounts in the financial statements.

     3.   SUPPLEMENTAL CASH FLOW DISCLOSURES
                                                         Thirteen Weeks Ended
                                                      --------------------------
                                                      March 27,        March 28,
                                                        1998              1997  
                                                      --------------------------
         Cash paid for:    Interest                     $445            $  360
                           Income taxes                 $356            $1,003

4.        CREDIT ARRANGEMENTS

         In  March  1996,  the Company  executed an amended  $23,000  revolving,
         warehouse and  term-loan  agreement (the  "Credit  Facility")  with its
         primary bank, whose president is a director of the Company.  The Credit
         Facility  contains  a revolving  line  of  credit  which  provides  for



<PAGE>


                                     PART I.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
              Notes to Consolidated Condensed Financial Statements
      For the Thirteen Week Periods Ended March 27, 1998 and March 28, 1997
                (Dollars in Thousands, Except Per Share Amounts)

4.        CREDIT ARRANGEMENTS (continued)

         borrowings  (including letters of credit) of  up  to 80% and 50% of the
         Company's  eligible (as defined)  accounts  receivable and inventories,
         respectively,  up to a  maximum of $5,000.  Interest  is payable  under
         the  revolving  line of credit at the bank's prime rate (8.50% at March
         27, 1998).

         The warehouse and term-loan  agreement contained in the Credit Facility
         provide  for  borrowings  of up to 80% of the  Company's  eligible  (as
         defined)  installment  sale  contracts,  up to a  maximum  of  $18,000.
         Interest  on term  notes  is  fixed  for a period  of five  years  from
         issuance  at a rate  based on the  weekly  average  yield on  five-year
         treasury  securities averaged over the preceding 13 weeks, plus 2%, and
         floats  for the  remaining  two  years at a rate  (subject  to  certain
         limits)  equal to the  bank's  prime  rate  plus  .75%.  The  warehouse
         component  of the Credit  Facility  provides  for  borrowings  of up to
         $2,000 with interest payable at the bank's prime rate plus 1%. However,
         in  no  event  may  the  aggregate  outstanding  borrowings  under  the
         warehouse and term-loan agreement exceed $18,000.

         The  Credit  Facility   contains  certain   restrictive  and  financial
         covenants,  which, among other things,  limit the aggregate of dividend
         payments and  purchases of treasury  stock to 50% of  consolidated  net
         income  for the two most  recent  years,  contain  restrictions  on the
         Company's ability to pledge assets,  incur additional  indebtedness and
         make capital expenditures,  and require the Company to maintain certain
         defined financial ratios. Amounts outstanding under the Credit Facility
         are secured by the accounts  receivable and inventories of the Company,
         loans purchased  and  originated  by  Cavalier  Acceptance  Corporation
         ("CAC"), and the capital stock of certain of the Company's consolidated
         subsidiaries.  The bank's  commitment under the Credit Facility expired
         in April 1998.

         The Company has  received a  commitment  from its primary  lender for a
         two-year  renewal  amendment  to  the  Credit  Facility  providing  for
         borrowings of up to $35,000.  The renewal provides for a revolving line
         of credit  with a  maximum of $10,000  (an increase from $5,000)  and a
         warehouse line of $25,000  (an increase from $18,000)  which includes a
         fixed rate term-loan  feature.  The Company currently does not expect a
         material change to the restrictive and financial covenants included  in
         the Credit Facility.

         No amounts  were  outstanding  under the Credit  Facility  at March 27,
         1998.

5.        STOCKHOLDERS' EQUITY

         Cash  dividends  were paid during this quarter and the  previous  three
         quarters as follows (all amounts are per share):
<TABLE>
<S>                        <C>                       <C>                        <C>
                                                                                Split Adjusted
                               Record Date              Payment Date            Dividend Paid
                               -----------              ------------            -------------
                           January 30, 1998          February 16, 1998          $      .030
                           October 31, 1997          November 14, 1997          $      .018
                           July 31, 1997             August 15, 1997            $      .019
                           April 30, 1997            May 15, 1997               $      .019
</TABLE>

6.       COMMITMENTS AND CONTINGENCIES

                  It  is customary  practice for  companies in the  manufactured
                  housing  industry to enter into  repurchase and other recourse
                  agreements  with  lending  institutions  which  have  provided
                  wholesale floor plan financing to dealers.  Substantially  all
                  of the Company's sales are made to dealers  located  primarily
                  in the southeast,  southwest and midwest regions of the United
                  States and are pursuant to repurchase  agreements with lending
                  institutions.   These   agreements   generally   provide   for
                  repurchase  of  the   Company's   products  from  the  lending
                  institutions  for  the  balance  due  them  in  the  event  of
                  repossession upon a dealer's default.  Although the Company is
                  contingently  liable for an amount  estimated  to be  $166,000
                  under these  agreements as of March 27, 1998, such contingency
                  is mitigated by the fact that (i) sales of manufactured  homes
                  are spread over a relatively large number of dealers; (ii) the
                  price the Company is  obligated  to pay under such  repurchase
                  agreements   generally   declines   over  the  period  of  the
                  agreement;  and (iii) the  Company  may be able to reduce  its
                  losses by the resale  value of the homes which may be required
                  to be repurchased.  The Company has an allowance for losses of
                  $1,175   based  on  prior   experience   and  current   market
                  conditions.  Management  expects no material loss in excess of
                  the allowance.*

- ----------------------------------------
*  See Safe Harbor Statement on page 14.
<PAGE>


                                     PART I.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
              Notes to Consolidated Condensed Financial Statements
      For the Thirteen Week Periods Ended March 27, 1998 and March 28, 1997
                (Dollars in Thousands, Except Per Share Amounts)

6.    COMMITMENTS AND CONTINGENCIES (continued)

                  The  Company's workmen's  compensation,  product liability and
                  general  liability  insurance  coverages  are  provided  under
                  incurred  loss,  retrospectively  rated premium  plans.  Under
                  these plans, the Company incurs insurance  expenses based upon
                  various  rates  applied  to current  payroll  costs and sales.
                  Annually,  such insurance expenses are adjusted by the carrier
                  for loss  experience  factors  subject to minimum  and maximum
                  premium  calculations.  At March 27,  1998,  the  Company  was
                  contingently   liable   for   future   retrospective   premium
                  adjustments  up to a  maximum  of  $5,700  in the  event  that
                  additional losses are reported related to prior periods.

                  The  Company is engaged in various legal  proceedings that are
                  incidental to and arise in the course of its business. Certain
                  of the cases filed  against  the  Company and other  companies
                  engaged in  businesses  similar to the Company  allege,  among
                  other  things,  breach  of  contract  and  warranty,   product
                  liability,  personal  injury  and  fraudulent,   deceptive  or
                  collusive practices in connection with their businesses. These
                  kinds of suits are  typical  of suits  that have been filed in
                  recent years,  and they sometimes seek  certification as class
                  actions,  the imposition of large amounts of compensatory  and
                  punitive  damages and trials by jury.  Courts  have  certified
                  several of these types of cases as class actions recently, and
                  many of these  types of cases have  resulted  in large  damage
                  awards,  especially  large  punitive  damage  awards.  In  the
                  opinion of management,  the ultimate  liability,  if any, with
                  respect to the  proceedings  in which the Company is currently
                  involved is not presently  expected to have a material adverse
                  effect on the Company.  * However,  the  potential  exists for
                  unanticipated material adverse judgments against the Company.

                  The  Company and certain of its equity  partners  have jointly
                  and severally guaranteed revolving notes for two companies and
                  a letter of credit for one company in which the  Company  owns
                  various  equity  interests.  The  guarantees  are  limited  to
                  various  percentages of the  outstanding  debt up to a maximum
                  guaranty of $1,500.  At March 27, 1998, $3,000 was outstanding
                  under  the  various  guarantees,  of  which  the  Company  had
                  guaranteed $720.



- ---------------------------------------
* See Safe Harbor Statement on page 14.


<PAGE>


                                     PART I.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                                 March 27, 1998

General

The  principal  business of the Company since its inception in 1984 has been the
design, production and sale of manufactured homes. In the first quarter of 1992,
the  Company,  through  its  wholly  owned  subsidiary,  CAC,  commenced  retail
installment sale financing operations,  and by the end of 1993, these operations
had become significant enough to require segment reporting by the Company.

Effective  December  31,  1997,  the Company  completed a merger (the  "Merger")
involving  Belmont  Homes,  Inc.  ("Belmont"),  whose  shares were traded on The
Nasdaq National Market under the symbol "BHIX". In the Merger,  Belmont became a
wholly  owned  subsidiary  of the  Company,  and each  Belmont  share issued and
outstanding  immediately prior to the effective time of the Merger was converted
into the right to receive  0.80  shares of the  common  stock of  Cavalier.  The
Company  issued  7,555,121  shares of its common stock in the Merger in exchange
for the outstanding shares of Belmont common stock. The Merger was accounted for
as a pooling of interests and,  accordingly,  the Company's financial statements
have been restated to include the financial position,  results of operations and
cash flows of Belmont  for all  periods  presented.  The  information  herein is
presented on a combined basis.

The Company's business is cyclical and seasonal and is influenced by many of the
same economic and demographic factors that affect the housing market as a whole.
According  to the  Manufactured  Housing  Institute  ("MHI"),  the  manufactured
housing  industry  posted  gains in  shipments  from  1992  through  1996,  with
approximate  total annual  shipments  of 211,000  (1992)  increasing  to 363,000
(1996), and with the greatest gains occurring in the southeastern United States.
The Company  conducts a substantial  portion of its business in the southeastern
United States and attributes  past years' strong  shipment growth to a reduction
of alternative housing,  increased  availability of retail financing,  increased
consumer  confidence and continuing  strength in the national economy.  However,
the  manufactured  housing  industry  has,  over the past  several  years,  also
experienced  increases  in both the number of retail  dealers and  manufacturing
capacity,  which the Company  believes is currently  resulting in slower  retail
turnover,  higher dealer  inventories,  lower order backlogs and increased price
competition.  According to MHI, industry statistics reflected a decrease in home
shipments of 2.8% in 1997 as compared to 1996,  with shipments of 353,000 (1997)
compared to  363,000  (1996),  and  with large  declines  occurring in  Alabama,
Mississippi and South Carolina, all substantial markets  for the Company.  It is
possible that these developments may signal  a  return  to  seasonality  in  the
Company's manufacturing business, which was not a significant factor  during the
period  from  1992  through  1996,  with sales of homes  being stronger in April
through October and weaker during the first and last part of the calendar year.*
It is also  possible  that  these  developments  could mean that the industry is
entering a downturn in its  cycle. *  As a whole,  the industry  appears to have
improved  year-to-date  through  February  1998,  with  MHI  reporting  industry
shipments increased over 1997 by 3.2%.  While  several  of  the  Company's  core
states,  including  Alabama  and  Texas,  reported  increased  shipments through
February  1998,  North and South  Carolina as well as other  states in which the
Company  does significant  business reported declines in shipments.  The Company
is uncertain at this  time as to the extent and  duration of these  developments
and as to what effect these factors will have on the Company's  future sales and
earnings. *

Results of Operations

The following  tables set forth,  for the periods and dates  indicated,  certain
financial and operating data,  including,  as applicable,  the percentage of net
sales or total revenue:

<TABLE>
<CAPTION>
STATEMENT OF INCOME SUMMARY                                      For the Thirteen Weeks Ended
                                         ------------------------------------------------------------------------ 
<S>                                       <C>          <C>         <C>            <C>        <C>             <C>
(Dollars in Thousands)                       March 27, 1998            March 28, 1997             Difference
                                         ---------------------     ---------------------     ---------------------
Net Sales                                $  123,153     100.0%     $  126,072     100.0%     $   (2,919)     -2.3%
Cost of Sales                               102,783      83.5%        106,020      84.1%         (3,237)     -3.1%
                                          ---------     ------      ---------     ------      ---------     ------
     Gross Profit on Sales               $   20,370      16.5%     $   20,052      15.9%     $      318       1.6%
                                          =========                 =========                 =========
Net Sales                                $  123,153                $  126,072                $   (2,919)     -2.3%
Financial Services                            2,426                     1,142                     1,284     112.4%
                                          ---------                 ---------                 --------- 
     Total Revenue                       $  125,579     100.0%     $  127,214     100.0%     $   (1,635)     -1.3%
                                          =========                 =========                 =========
Selling, General and Administrative      $   17,694      14.1%     $   14,883      11.7%     $    2,811      18.9%
Operating Profit                         $    5,102       4.1%     $    6,311       5.0%     $   (1,209)    -19.2%
Other Income (Expense)                   $      (33)      0.0%     $      146       0.1%     $     (179)   -122.6%
Net Income                               $    3,042       2.4%     $    3,893       3.1%     $     (851)    -21.9%
</TABLE>

- ----------------------------------------
*  See Safe Harbor Statement on page 14.

<PAGE>


                                     PART I.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                                 March 27, 1998
<TABLE>
<CAPTION>
OPERATING DATA SUMMARY                                      For the Thirteen Weeks Ended
                                                         -----------------------------------
<S>                                                      <C>                  <C>
(Dollars in Thousands)                                   March 27, 1998       March 28, 1997
                                                         --------------       --------------
Installment Loan Purchases                               $    2,717           $    5,863
Capital Expenditures                                     $    1,557           $    1,622
Home Shipments                                                5,095                5,416
Floor Shipments                                               7,544                7,605
Independent Exclusive Dealer Locations                          134                  122
Home Manufacturing Facilities                                    22                   24
</TABLE>

Net Sales. The Company  experienced a decline in net sales for the thirteen week
period  ended  March 27,  1998 over the  comparable  1997  period of  $2,919,000
(2.3%).  The Company  believes the decline in net sales for the first quarter is
attributable to continuing competition in the industry in certain markets served
by the company related to an  increase in manufacturing capacity,  higher dealer
inventories and slower retail turnover, combined with the impact of the  process
of integrating  Belmont  and  Cavalier and the absence of a one-time sales order
($579,000)  from an  emergency  services agency the Company  experienced  in the
first quarter  of 1997.  Homes sold for the  first  quarter  decreased  from the
comparable  period in  the  prior  year  by  321  homes  (5.9%); however,  floor
shipments declined only  slightly by 61 floors, less than 1%,  as the  Company's
product mix continued to shift from single-section homes to multi-section homes.
During the thirteen weeks ended March 27, 1998, 48% of the Company's homes  sold
were  multi-section  homes, compared to 40%  for the previous year's  comparable
period.   As  part  of  the  Company's marketing  program, the exclusive  dealer
distribution system has  grown to 134 independent exclusive dealer locations, up
from 122  dealer locations at the end of the first quarter of 1997.

Financial  Services  Revenue.  Financial  services  revenue  during the  current
thirteen week period increased  $1,284,000 or 112.4% over the comparable  period
in the  previous  year,  primarily  due to the sale of a portion  of CAC's  loan
portfolio in March of 1998, resulting in increased financial services revenue of
$1,126,000.

Selling, General and Administrative. Selling, general and administrative expense
increased  $2,811,000  during the current thirteen week period over the previous
year's comparable period. This increase is primarily  attributable to a $274,000
increase in CAC's administrative costs, consistent with its growth, and expenses
related to the Company's  expanded marketing  programs of  $1,074,000.  Selling,
general and  administrative  expense as a percentage  of total revenue was 14.1%
and 11.7% of sales for the  thirteen  week period ended March 27, 1998 and March
28, 1997, respectively.

Other Income (Expense).

Interest  Expense.  Interest expense  increased by $73,000 for the thirteen week
period ended March 27, 1998, as compared to the applicable  1997 period,  due to
increased  borrowings,  incurred  primarily  to  fund  the  Company's  financial
services segment,  until March 1998 when the related financial services debt was
paid with the proceeds from the sale of a portion of CAC's loan portfolio.

Other,  net. Other, net, declined by $106,000 for the thirteen week period ended
March 27,  1998,  as compared to the  applicable  1997  period.  Other,  net, is
primarily comprised of interest income, gains or losses on sales of investments,
and  equity  earnings  in  investments  accounted  for on the  equity  basis  of
accounting. The decrease in other, net, is primarily due to a $120,000 reduction
in income on stock funds which were sold during the first quarter of 1997.

Net Income.  As  discussed  above,  the Company  was  impacted  during the first
quarter by the continuing competition in the  manufactured  housing  industry in
certain markets served  by  the Company as  well as the impact of the process of
integrating Belmont and Cavalier.  Basic net income per share during the current
thirteen  week  period  was  $.15  as  compared to $.20 from the previous year's
comparable period.  Net income per  share  has  been  adjusted  for all previous
stock splits effected by the Company.

Installment Loan Purchases.  During the first quarter of 1998,  installment loan
purchases were  $2,717,000  compared to  $5,863,000 for the comparable period in
1997.  Installment  loan   purchases  were  lower  as  a  result of increasingly
competitive conditions in the financial services in the industry.


<PAGE>


                                     PART I.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                                 March 27, 1998

Liquidity and Capital Resources

The  following  table sets forth certain items  relating to the  measurement  of
liquidity  and  capital  resources  from the  Company's  consolidated  condensed
financial statements for the dates indicated:

<TABLE>
<CAPTION>
BALANCE SHEET SUMMARY                                                Balances as of
                                                         --------------------------------------
<S>                                                      <C>                  <C>
(Dollars in Thousands)                                   March 27, 1998       December 31, 1997
                                                         --------------       -----------------
Cash and Cash Equivalents                                $   26,096            $  37,276
Certificates of deposit maturing within one year         $    7,544            $   4,000
Accounts Receivable                                      $   32,313            $   8,449
Working Capital                                          $   43,440            $  28,484
Current Ratio                                              1.6 to 1             1.5 to 1
Long-Term Debt                                           $    3,915            $  15,808
Ratio of Long-Term Debt to Equity                           1 to 35               1 to 8
Installment Loan Portfolio                               $   25,210            $  49,146
</TABLE>


The increase in  working capital,  increase in current ratio,  decrease  in long
term-debt,  decrease in ratio  of long-term  debt to  equity and decrease in the
installment  loan portfolio is primarily  due to the sale of a portion  of CAC's
loans  having  an  outstanding  principal  balance  of  $25,027,000  for cash of
$26,153,000, of which approximately $14 million was used to retire debt in March
1998.

The increase in accounts receivable from December 31, 1997 to March 27, 1998, is
a normal  seasonal  occurrence.  As is customary  for the  Company,  most of its
manufacturing  operations  are idle  during  the final two weeks of the year for
vacations,  holidays  and reduced  product  demand,  and during  this time,  the
Company collects the majority of its outstanding receivables.

The  Company's  capital  expenditures  were  approximately  $1,557,000  for  the
thirteen  weeks  ended  March  27,  1998,  as  compared  to  $1,622,000  for the
comparable period of 1997.  Capital  expenditures  during these periods included
normal  property,  plant  and  equipment  additions  and  replacements  and  the
continued expansion and modernization of certain of the Company's  manufacturing
facilities.

The  Company's   primary   business  segment  is  the  production  and  sale  of
manufactured  housing.  In 1992, the Company began the operations of CAC to fund
the purchase of installment sale contracts  originated with the retail customers
of  the  Company's  independent  exclusive  dealers.  As the  operations  of CAC
expanded,  in February 1994, the Company entered into a credit facility with its
primary  lender (the  "Credit  Facility")  (see  footnote 4 to the  consolidated
condensed financial  statements included herein) to provide additional funds for
CAC's growth.

The Credit Facility presently consists of a $23 million revolving, warehouse and
term-loan  agreement.  The Credit  Facility  contains a revolving line of credit
which provides for borrowings (including letters of credit) of up to 80% and 50%
of the Company's  eligible (as defined)  accounts  receivable  and  inventories,
respectively,  up to a maximum of $5  million.  Interest  is  payable  under the
revolving  line of credit at the bank's prime rate.  The warehouse and term-loan
agreements  contained in the Credit Facility provide for borrowings of up to 80%
of the Company's  eligible (as defined)  installment  sales  contracts,  up to a
maximum of $18 million. Interest on the term notes is fixed for a period of five
years from  issuance at a rate based on the weekly  average  yield on  five-year
treasury  securities  averaged  over the  preceding  13 weeks,  plus 2%,  with a
floating rate for the remaining two years  (subject to certain  limits) equal to
the bank's prime rate plus .75%. The warehouse  component of the Credit Facility
provides for borrowings of up to $2 million with interest  payable at the bank's
prime rate plus 1%. The Credit Facility contains certain  restrictive  covenants
which limit,  among other  things,  the  Company's  ability to (i) make dividend
payments and  purchases of treasury  stock in an aggregate  amount which exceeds
50% of consolidated  net income for the two most recent years,  (ii) mortgage or
pledge assets which exceed, in the aggregate,  $1 million without written notice
to the lender, (iii) incur additional indebtedness, including lease obligations,
which exceed in the aggregate $2.5 million and (iv) make capital expenditures in
excess  of $6  million.  In  addition,  the  Credit  Facility  contains  certain
financial  covenants  requiring the Company to maintain on a consolidated  basis
certain defined levels of net working capital (at least $3.5 million),  tangible
net worth  (which  must  increase  at least $2  million  per year,  subject to a
carryover  for  increases  in excess of $2 million in the prior  year),  debt to
equity  ratio  (not to exceed 2 to 1) and cash flow to debt  service  ratio (not
less than 1.5 to 1).  The  Credit  Facility  also  requires  CAC to comply  with
certain specified restrictions and financial covenants.

The Company has  received a  commitment  from its primary  lender for a two-year
renewal amendment to the Credit Facility, which expired in April 1998, providing
for borrowings of up to $35 million.  The renewal  provides for a revolving line
of credit  with a maximum of $10  million (an  increase  from $5 million)  and a
warehouse  line  of  $25  million  (an increase from $18 million) and includes a


<PAGE>


                                     PART I.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                                 March 27, 1998

fixed rate term-loan feature.  The Company currently  does not expect a material
change  to  the  restrictive  and  financial  covenants  included  in the Credit
Facility.  *

Since its  inception,  CAC has been  restricted in the amounts of loans it could
purchase  based  on  restricted   underwriting  standards,   as  well  as    the
availability of working  capital and funds  borrowed  under its credit line with
its primary  lender.  In February 1998,  CAC  entered  into  an  agreement  (the
"Retail  Finance  Agreement"), with another lender  providing  for the  periodic
resale of a portion of CAC's loans that meet established criteria.  On March 13,
1998,  CAC sold loans to this lender having an  outstanding  principal amount of
approximately  $25 million for cash in the approximate amount of $26 million, of
which $14 million was used to retire debt. The effect of this transaction on net
income would be to reduce the amount of financial  services revenue for interest
income on this portion of the portfolio,  offset by reduced interest  expense on
retired debt and earnings on the remaining  proceeds.  The Company  believes the
periodic  sale  of  installment  contracts  receivable  under the Retail Finance
Agreement will reduce requirements for  both  working  capital  and  borrowings,
increase the Company's liquidity, reduce the Company's exposure to interest rate
fluctuations  and enhance the  ability  of CAC to  increase  its  volume of loan
purchases.  * There can be no assurance,  however, that additional sales will be
made under this agreement,  or that CAC  and the Company will be able to realize
the expected benefits from such agreement. *

The Company's  growth  strategy  currently  includes the continued  expansion of
financial  services,  component supply  operations,  and its independent  dealer
network and the pursuit of additional acquisitions. The Company may also utilize
funds in the  acquisition  or  establishment  of retail sales centers as well as
manufactured housing community development.  Accordingly,  it is likely that the
Company will incur  additional  debt, or other forms of  financing,  in order to
continue to fund the pursuit of such growth strategies.  * The Company currently
believes existing cash and investment  balances (which include proceeds from the
sale of a portion of its installment  loan portfolio  described above) and funds
available under the Credit Facility,  together with cash provided by operations,
will be adequate to fund the Company's  operations and plans for the next twelve
months.  * In order to provide  additional  funds for  continued  pursuit of the
Company's growth strategies and for operations, the Company may incur, from time
to time,  additional  short and long-term bank  indebtedness  and may issue,  in
public or private transactions, its equity and debt securities, the availability
and terms of which will depend upon market and other  conditions.  * The Company
may continue to engage in other  transactions,  such as selling or  securitizing
all or  portions  of its  installment  loan  portfolio,  that  are  designed  to
facilitate the ability of the Company to originate an increased  volume of loans
and to reduce the  Company's  exposure  to  interest  rate  fluctuations and has
recently  entered  into such  a  transaction  pursuant  to  the  Retail  Finance
Agreement,  as further described above. *  There can be no assurance  that  such
possible  additional  financing,  or  the  aforementioned potential transactions
involving the Company's  installment loan portfolio,  will be available on terms
acceptable  to the Company.  It is possible that a future lack of financing or a
prolonged downturn in industry conditions could cause the Company to curtail the
expansion of financial services or otherwise alter its growth strategies. *

- ----------------------------------------
*  See Safe Harbor Statement on page 14.

<PAGE>


                                    PART II.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                                Other Information
                                 March 27, 1998

ITEM 3            LEGAL PROCEEDINGS

Reference is made to the legal proceedings previously reported in the  Company's
Annual Report on Form 10-K for the fiscal year ended December 31,1997 under  the
heading "Item 3 - Legal Proceedings."  With respect to the suit against  Belmont
Homes, Inc. and certain other defendants referenced therein, on May 6, 1998, the
Circuit  Court  of  Madison  County,  Alabama,  upon  motion  of the defendants,
transferred  the  case  to  the  Circuit Court of Franklin County, Alabama.  The
description of legal proceedings in the Company's Form  10-K  otherwise  remains
unchanged.

ITEM 5            OTHER MATTERS

The Board of Directors has declared its regular quarterly  cash dividend of $.03
per share payable on May 15, 1998 to stockholders of record on  April 30, 1998.


ITEM 6            EXHIBITS AND REPORTS ON FORM 8-K

The exhibits required to be filed with this report are listed below. The Company
will  furnish  upon  request the  exhibit  listed upon the receipt of $15.00 per
exhibit,  plus $.50 per page,  to cover the cost to the Company of providing the
exhibit.

         (a)       (3)     Articles of Incorporation and By-laws.
                           (a) The   Amended   and   Restated   Certificate   of
                               Incorporation  of the  Company,  filed as Exhibit
                               3(a) to the Company's  Annual Report on Form 10-K
                               for the year ended  December  31,  1993,  and the
                               amendment  thereto,  filed as Exhibit 3(b) to the
                               Company's  Quarterly  Report on Form 10-Q for the
                               quarter  ended  June 27,  1997,  is  incorporated
                               herein by reference.
                           (b) The Certificate of Designation of Series A Junior
                               Participating  Preferred Stock of Cavalier Homes,
                               Inc.  as filed  with the  Office of the  Delaware
                               Secretary  of State on October 24, 1996 and filed
                               as  Exhibit  A  to  Exhibit  4 to  the  Company's
                               Registration  Statement  on  Form  8-A  filed  on
                               October  30,  1996,  is  incorporated  herein  by
                               reference.
                           (c) The Amended and Restated  By-laws of the Company,
                               filed as Exhibit 3(d) to the Company's  Quarterly
                               Report on Form 10-Q for the  quarter  ended  June
                               27,  1997,  and the  amendment  thereto  filed as
                               Exhibit 3(e) to the Company's Quarterly Report on
                               Form 10-Q for the  quarter  ended  September  26,
                               1997, is incorporated herein by reference.

                   (4)     Instruments Defining the Rights of Security Holders.
                           (a) Articles four, six, seven,  eight and nine of the
                               Company's  Amended and  Restated  Certificate  of
                               Incorporation,  as  amended,  included in Exhibit
                               3(a) above.
                           (b) Article II,  Sections 2.1 through  2.18;  Article
                               III,  Sections 3.1 and 3.2;  Article IV, Sections
                               4.1 and 4.3;  Article  VI,  Sections  6.1 through
                               6.5;  Article  VIII,  Sections  8.1 and 8.2;  and
                               Article IX of the Company's  Amended and Restated
                               By-laws, included in Exhibit 3(c) above.
                           (c) Rights Agreement between Cavalier Homes, Inc. and
                               ChaseMellon  Shareholder Services,  LLC, filed as
                               Exhibit 4 to the Company's Current Report on Form
                               8-K  dated  October  30,  1996,  is  incorporated
                               herein by reference.

                  (10)     Material Contracts.
                           (a) Amended  and  Restated  Finance  Agreement  among
                               Cavalier Manufacturing, Inc., Cavalier Acceptance
                               Corporation  and  certain  related  entities  and
                               Green Tree  Financial Corp.  and  certian related
                               entities.
                           (b) Lease  Agreement  with  Option to Purchase  dated
                               November  29, 1995  between  Winfield  Industrial
                               Properties, Inc. and Superior Door Company, Inc.,
                               predecessor to Quality Housing Supply, LLC.

                  (11)     Statement re:  Computation of Net Income per
                               Common Share.

                  (27)     Article 5 - Financial  Data  Schedule   and  Restated
                  Financial Data Schedule for Form 10-Q submitted  as Exhibit 27
                  as an EDGAR filing only.

         (b)      Current Report on Form 8-K.

                           (i) The Company filed a Current Report on Form 8-K on
                               January 15, 1998,  with respect to the completion
                               of the Merger with Belmont Homes, Inc.
                          (ii) The Company filed a Current  Report on Form 8-K/A
                               on March 16, 1998, with respect to the completion
                               of  the  Merger  with  Belmont  Homes,  Inc.,  to
                               include as additional  items and exhibits certain
                               financial  statements  regarding  the Company and
                               Belmont,  and  related  consents  of  independent
                               auditors.
                         (iii) The  Company  filed a  Current  Report  on Form
                               8-K/A on March 17, 1998,  to include the Restated
                               Financial  Data  Schedule for Form 8-K/A filed on
                               March 16, 1998.



<PAGE>


                                    PART II.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                                Other Information
                                 March 27, 1998

                "Safe Harbor" Statement under the Private Securities  Litigation
Reform Act of 1995:

With the exception of historical factual information, the matters and statements
discussed,  made  or  incorporated by reference in this Quarterly Report on Form
10-Q (including statements regarding trends in the industry and the business and
growth and financing  strategies of the  Company),  as well as those  statements
specifically  designated  with an  asterisk  (*),  or which  contain  the  words
"estimates,"  "projects," "intends," "believes,"  "anticipates,"  "expects," and
words of similar import, constitute  forward-looking  statements, are based upon
current  expectations and are made pursuant to the safe harbor provisions of the
Private  Securities   Litigation  Reform  Act  of  1995.  Such   forward-looking
statements and words involve known and unknown assumptions, risks, uncertainties
and  other  factors  which  may  cause  the  actual   results,   performance  or
achievements of the Company to be materially  different from any future results,
performance,  or  achievements  expressed  or  implied  by such  forward-looking
statements or words. Such assumptions,  risks, uncertainties and factors include
those  associated with general  economic and business  conditions;  manufactured
housing  and  retail  consumer  financing   industry  trends,   cyclicality  and
seasonality;   availability  of  consumer  and  dealer  financing;  changes  and
volatility  and  uncertainty  in interest  rates;  the  sufficiency  of reserves
established for installment contract receivables;  warranty,  product liability,
workers'  compensation  and  other  litigation  arising  in  the  course  of the
Company's  manufacturing and financial services business;  contingent repurchase
and  guaranty   obligations;   dependence   on  key   personnel   and  favorable
relationships  with  employees;  demographic  changes;  whether  the current and
emerging  generations  of retirees  will have the same  interest  in  purchasing
manufactured homes; competition;  raw material and labor costs and availability;
import  protection  and  regulation;   relationships   with  and  dependence  on
customers,  distributors  and  dealers;  changes  in the  business  strategy  or
development  plans of the Company;  the  availability,  terms and  deployment of
capital;  changes in or the failure to comply with government  regulations;  and
the inability or failure to identify or consummate successful acquisitions or to
assimilate the operations of any acquired  businesses with those of the Company;
and other assumptions,  risks,  uncertainties and factors reflected from time to
time in the Company's filings with the Securities and Exchange  Commission.  The
Company  expressly  disclaims  any  obligation  to  update  any  forward-looking
statements  as a result  of  developments  occurring  after  the  filing of this
report.








<PAGE>


                                    PART II.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                                Other Information
                                 March 27, 1998



SIGNATURES

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


                                               Cavalier Homes, Inc.
                                               ---------------------------------
                                               Registrant




Date: May 11, 1998                             /s/ David A. Roberson
                                               ---------------------------------
                                               David A. Roberson - President
                                                   and Chief Executive Officer


Date: May 11, 1998                             /s/ Michael R. Murphy
                                               ---------------------------------
                                               Michael R. Murphy - Chief
                                                  Financial Officer (Principal
                                               Financial and Accounting Officer)


<PAGE>
                                 EXHIBIT INDEX

Exhibit No.                    Exhibit

(10) (a)                       Amended  and  Restated  Finance  Agreement  among
                               Cavalier Manufacturing, Inc., Cavalier Acceptance
                               Corporation  and  certain  related  entities  and
                               Green Tree  Financial Corp.  and  certian related
                               entities.

(10) (b)                       Lease  Agreement  with  Option to Purchase  dated
                               November  29, 1995  between  Winfield  Industrial
                               Properties, Inc. and Superior Door Company, Inc.,
                               predecessor to Quality Housing Supply, LLC.

(11)                           Statement re:  Computation of Net Income per
                               Common Share.

(27)                           Article 5 - Financial Data Schedule  and Restated
                               Financial Data Schedule for  Form 10-Q  submitted
                               as Exhibit 27 as an EDGAR filing only.




                                  EXHIBIT 10a
                     AMENDED AND RESTATED FINANCE AGREEMENT



                  This   AMENDED   AND   RESTATED   FINANCE  AGREEMENT, dated as
of  February 17,  1998  (this  "Agreement"),  is  made  by  and  among  Cavalier
Manufacturing, Inc., a Delaware corporation ("CMfg"), Cavalier Industries, Inc.,
a Delaware corporation ("CInd"),  Belmont Homes, Inc., a Mississippi corporation
("BHom"), Delta Homes, Inc., a Mississippi corporation ("DHom"),  Spirit  Homes,
Inc.,  an Arkansas corporation ("SHom"),  and  Bellcrest Homes, Inc.,  a Georgia
corporation  ("XHom",  and  together with  CMfg,  CInd,  BHom,  DHom  and  SHom,
collectively  "CMI"), Quality  Certified  Insurance  Services,  Inc., an Alabama
corporation  ("QCI"),  Cavalier Acceptance Corporation,  an  Alabama corporation
("CAC",  and together with CMI and QCI,  "Cavalier"),   on  the  one  hand,  and
Green  Tree  Financial  Servicing Corporation, a Delaware corporation ("GTFSC"),
Green  Tree Financial Corporation,  a Delaware corporation  ("GTC"),  Green Tree
Credit Corp.,  a New York corporation ("GTCC"),  Green  Tree  Consumer  Discount
Company, a Pennsylvania corporation ("GTCDC"), and  Green Tree Financial  Corp.-
Alabama, an Alabama corporation ("GTFCA", and together with GTFSC, GTC, GTCC and
GTCDC,  collectively  "Green Tree"),  on the other  hand.  It is  understood and
agreed  that, upon  mutual agreement of the parties, Cavalier may,  from time to
time,  add one or more of its affiliates  to  this  Agreement,  which  affiliate
manufactures and sells new manufactured homes, and in such event, the term "CMI"
shall be deemed to also refer to such affiliates.

                                R E C I T A L S:

                  CMI  is  a  manufacturer  of  manufactured  homes  with  sales
throughout a substantial portion of the United States. CMI markets its homes and
other  services  through  independent  dealers,  some of whom sell only Cavalier
Product.  CMI enters  into  agreements  with each of its  Dealers  and  provides
certain  incentives  to exclusive  dealers and certain  preferred  dealers.  The
incentives  provided by CMI to its Dealers include,  without  limitation,  floor
plan finance charge subsidies.  CAC, an affiliate of Cavalier, is engaged in the
purchase of retail  installment  sales  contracts.  CAC acquires these contracts
with corporate funds and through borrowings from commercial banks. Green Tree is
a major purchaser of retail  installment sales contracts secured by manufactured
homes.  Green Tree also  provides  floor plan  financing for  manufactured  home
dealers.  Green Tree  presently  does business  throughout the United States and
purchases retail installment sale contracts.

                  The parties hereto  originally  entered  into  this  Agreement
as of February 17, 1998,  and wish to amend in certain respects and restate  the
Agreement as of May 1, 1998.

                  NOW, THEREFORE, in consideration of the foregoing premises and
the  mutual  promises   contained  herein,  and  for  other  good  and  valuable
consideration,  the parties  hereto,  intending to be legally  bound,  do hereby
agree as follows:


                                   ARTICLE I
                                  DEFINED TERMS

                  Whenever  used in this  Agreement,  the  following  words  and
phrases, unless the context clearly requires otherwise,  shall have the meanings
specified in this article.

                  "Acceptance Tolerance"  shall  have  the  meaning set forth in
Section 3.3.

                  "Acquisition Premium"  shall  have  the  meaning  set forth in
Section 3.2.

                  "Ancillary Product"  shall  have  the  meaning  set  forth  in
Section 3.6.

                  "Available CAC Loans"  shall  have  the  meaning  set forth in
Section 3.9(a).

                  "Borrower"  means  the  obligor  or  obligors under a Consumer
Loan.

                  "Cavalier Product" means new manufactured homes, together with
fixtures, equipment and options related thereto, manufactured and sold by CMI.

                  "CAC Loan" means a Consumer Loan made or acquired by CAC.

                  "Carved-Out CAC Loans"  shall  have  the  meaning set forth in
Section 5.1.

                  "Change in Control"  means with  respect to a person,  (a) any
other person, entity or "group" (within the meaning of Rules 13d-1 through 13d-6
of the Securities  Exchange Act of 1934, as amended (the "Exchange Act")) (other
than any subsidiary or affiliate as of the date hereof of the person  undergoing
the  change in  control  or any  employee  benefit  plan of such  person or of a
subsidiary  of such  person) (i) has  acquired  or agreed to acquire  beneficial
ownership of 20% or more of the voting and/or  economic  interest in the capital
stock,  membership or partnership  interests of such person, as the case may be,
or (ii) has obtained or agreed to obtain the power (whether or not exercised) to
elect a majority of the board of  directors,  general  partners or trustees of a
person,  (b) a majority of the board of directors,  managers or other  governing
body of the  person  shall  consist at such time of  individuals  other than (x)
members of the board of directors or other  governing body of such person on the
date hereof and (y) other members of such board of directors or other  governing
body  nominated,  recommended,  elected,  or  approved  to  succeed  or become a
director  or member of the  governing  body of such person by a majority of such
members referred to in clause (x) or a nominating committee elected or appointed
by  such  members  referred  to in  clause  (x)  or  by  members  so  nominated,
recommended, elected, or approved; (c) the board of directors or other governing
body or, if applicable,  the shareholders or equity owners of the person,  shall
have  approved the sale of all or  substantially  all the assets of such person;
(d) any  transaction  or event  relating to the person occurs which is (or which
would be if the person had a class of equity securities registered under Section
12 of the Exchange Act) required to be described pursuant to the requirements of
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act.

                  "Chattel Paper Forms"  shall  have  the  meaning  set forth in
Section 3.9(b).

                  "Chattel Paper Purchase Agreement"  shall have the meaning set
forth in Section 3.10(a).

                  "Conforming  Manufactured  Housing  Retail  Finance  Contract"
means  (i)  a  Manufactured  Housing  Retail  Finance  Contract  relating  to  a
conventional  manufactured  home - only  (no  real  estate  involved)  which  is
believed in good faith by CAC to comply with the general criteria for Conforming
Manufactured  Housing  Retail  Finance  Contracts set forth on the  Underwriting
Guidelines, and (ii) any Special Contracts.

                  "Consumer  Loan"  means an  extension  of credit  made under a
Manufactured Housing Retail Finance Contract.

                  "Conversion Date"   shall   have  the  meaning  set  forth  in
Section 3.3.

                  "Credit Scoring"  shall  have  the  meaning   set   forth   in
Section 3.3.

                  "Dealers"  mean  persons or entities  engaged in the  ordinary
course  of  business  in the  sale of  manufactured  homes,  including  Cavalier
Product.

                  "Effective  Date" means  February 28, 1998, or such later date
that all the conditions precedent to this Agreement are satisfied.

                  "Electronic Pipeline"  shall  have  the  meaning  set forth in
Section 3.5.

                  "Exclusive  Dealers"  means those Dealers of Cavalier  Product
which are listed on Exhibit B hereto,  as such may be hereafter  supplemented or
revised by CMI in writing.

                  "Existing Floor Plan Receivables"  shall  have the meaning set
forth in Section 2.2.

                  "First Loss Guaranty"  shall  have  the  meaning  set forth in
Section 2.5.

                  "Floor Plan Agreement"  shall  have  the  meaning set forth in
Exhibit X hereto (item 16).

                  "Floor Plan Customers"  shall  have  the meaning  set forth in
Section 2.4.

                  "Floor  Plan Loan"  shall have the  meaning  ascribed to it in
Exhibit X hereto (item 16),  and  includes Existing Floor Plan Receivables,  New
Inventory Floor Plan Financing and Used Inventory Floor Plan Financing.

                  "Floor Plan Program Terms" shall have the meaning set forth in
Exhibit X (item 1).

                  "FPL Seller" shall have the meaning set forth in Section 2.2.

                  "Green  Tree  Floor  Plan  Loans"  means  Existing  Floor Plan
Receivables acquired by Green Tree and new commercial loans secured by Inventory
made by Green Tree to Exclusive Dealers and Preferred Dealers.

                  "Green  Tree Loan"  means a Consumer  Loan made or acquired by
Green Tree, except Consumer Loans acquired from CAC.

                  "Guaranty" shall have the meaning set forth in Section 2.5.

                  "Initial Underwriting Guidelines"  shall  have the meaning set
forth in Section 3.3.

                  "Inventory" means manufactured homes,  together with fixtures,
equipment and options related thereto, held by a Dealer for sale in the ordinary
course of business.

                  "Losses" shall be limited as provided in Section 2.2(c) and as
otherwise  defined and limited in this  Agreement with respect to the context in
which it is used.

                  "Manufactured   Housing  Retail  Finance  Contract"  means  an
agreement   evidencing  a  retail  installment  sale  to  a  consumer  purchaser
principally relating to a manufactured home.

                  "MLPA" shall have the meaning set forth in Section 5.1.

                  "New Inventory  Floor Plan  Financing"  shall have the meaning
set forth in Section 2.5.

                  "Non-Conforming Manufactured Housing Retail Finance Contracts"
means a Manufactured  Housing  Retail  Finance  Contract other than a Conforming
Manufactured Housing Retail Finance Contract.

                  "Origination Fee"   shall   have   the   meaning   set   forth
in Section 3.2.

                  "Par Rate" shall have the meaning set forth in Section 3.4.

                  "Pass Rate" shall have the meaning set forth in Section 3.3.

                  "Pre-Sold  Financing"  shall  have  the  meaning  set forth in
Section 2.4(b).

                  "Preferred Dealer" means the Dealers of Cavalier Product which
are listed on Exhibit  B-1  hereto,  as such may be  hereafter  supplemented  or
revised by CMI in writing.

                  "Preferred Floor Plan Financing"  means the Inventory  finance
program for Exclusive Dealers and Preferred Dealers  contemplated  under Article
II of this Agreement.

                  "Prime Rate" means the prime rate  published from time to time
in the  Money  Rates  section  of The  Wall  Street  Journal  (or its  generally
recognized successor).

                  "Qualified Insurer"  shall  have  the  meaning  set  forth  in
Section 3.6.

                  "Remittance Statement"  shall  have  the  meaning set forth in
Section 3.9(a).

                  "Repurchase Agreement"  shall  have  the  meaning set forth in
Section 2.2(d).

                  "Repurchase Price"   shall  have  the  meaning  set  forth  in
Section 3.13.

                  "Special  Contracts"  shall  have  the  meaning  set  forth in
Section 4.3 and shall  consist of the Consumer  Loans  meeting the  requirements
referenced therein.

                  "Trade-in Loans"  shall  have  the  meaning   set   forth   in
Section 4.10.

                  "Transferred CAC Loan"  shall  have  the  meaning set forth in
Section 4.10.

                  "Underwriting   Guidelines"  mean  the  Initial   Underwriting
Guidelines and, after the Conversion Date, the requisite  elements  necessary to
achieve a "pass" under the Credit Scoring, subject to Section 3.5.


                  "Yield Differential"  shall  have  the  meaning  set  forth in
Section 3.2.

                  "Used Inventory  Floor Plan Financing"  shall have the meaning
set forth in Section 2.4(a).


                                   ARTICLE II
                           FLOOR PLAN FINANCE PROGRAM

                  Section 2.1.  Attached as Exhibit F hereto is a description of
CMI's current and presently  anticipated floor plan interest subsidy program for
Exclusive Dealers and Preferred Dealers. CMI and Green Tree agree to establish a
cooperative floor plan finance program on the terms set forth in Exhibit X (item
16).

                  Section 2.2. (a) As a condition precedent to the effectiveness
of this  Agreement,  (i)  Green  Tree  shall  have acquired not later than March
12, 1998, the existing Exclusive Dealer and  Preferred  Dealer  Floor Plan Loans
related   to   new   Cavalier   Product  Inventory  (the  "Existing  Floor  Plan
Receivables"),  from the "FPL Seller" who is the party  identified  on Exhibit X
(item 10), on such terms and  conditions as may be mutually  acceptable to Green
Tree and FPL  Seller;  and (ii)  FPL Seller  shall have  executed a consent  and
release of Cavalier and Green Tree in a form mutually acceptable;  provided that
any Existing Floor Plan Receivables acquired by Green Tree from FPL Seller shall
not be amended or refinanced, at least for a period of 90 days from the original
invoice date for the related Cavalier Product Inventory, to provide for a higher
rate of interest with respect to financing for new Cavalier  Product  Inventory.
Any new  advances  by Green  Tree  after the  Effective  Date to  Dealers  whose
Existing Floor Plan  Receivables  are acquired shall be subject to such terms as
Green Tree and the Dealer may agree. If such terms meet the requirements of this
Agreement  (including  consistency  with the Floor Plan Program Terms),  the new
advances  shall be treated as a Floor Plan Loan under  Section  2.1 and shall be
subject to the related provisions of this Agreement,  including Section 2.6. CMI
hereby  agrees to indemnify  and hold Green Tree  harmless  from and against all
"losses"  incurred by Green Tree relating to credit losses on the Existing Floor
Plan  Receivables  commencing on the date of  acquisition by Green Tree from FPL
Seller  and   continuing   for  claims   made  by  Green  Tree  in  writing  for
indemnification  hereunder  until  the  earlier  of (i) the date of  substantial
completion of the floor plan check of such related  Dealer,  or (ii) 60 calendar
days from the date of the first  acquisition  by Green Tree of an Existing Floor
Plan Receivable.  In the event that any indemnification claims are made by Green
Tree,  CMI may, at its sole option,  in full and complete  satisfaction  of such
claim (i) acquire the related  Floor Plan Loan (and  collateral  therefor)  on a
servicing  released  basis,  at a price  equal to the par  amount  thereof  plus
accrued but unpaid interest,  (ii) reimburse Green Tree for reasonably  expected
losses with respect  thereto,  or (iii) acquire the entire portfolio of Existing
Floor Plan Receivables, on a servicing released basis, at the par amount thereof
plus accrued but unpaid interest.

                  (b)    For purposes of this Section,  a "loss" shall be deemed
to occur only if and to the extent  that (i) there  exists and is  continuing  a
material  event of default under the related floor plan agreement as of the date
of acquisition by Green Tree of the related Existing Floor Plan Receivables, and
(ii) it is reasonably  anticipated by Green Tree, as certified to CMI, that as a
result of such  default  Green Tree is not likely to make  recovery of principal
and all accrued but unpaid interest with respect thereto.

                  (c)    The amount of a "loss" shall be strictly limited to the
reasonably  anticipated amount of uncollected  principal and uncollected accrued
but unpaid interest,  after realization upon the collateral (taking into account
any applicable repurchase agreement),  and shall not include costs of collection
or any other expenses or liabilities  with respect  thereto (except as otherwise
agreed in writing),  and shall be net of any set-off or recoupment  available to
Green Tree, including those in connection with amounts owed to Dealers for Green
Tree Loans purchased from such Dealers. To the extent of losses paid by CMI, CMI
shall be  subrogated  to any and all of the  rights  of  Green  Tree  under  its
agreement providing for the acquisition by Green Tree of the Existing Floor Plan
Receivables  from FPL Seller and Green  Tree shall not waive or  relinquish  any
rights it may have against FPL Seller under any such  agreement  relating to the
Existing Floor Plan Receivables.

                  (d)    CMI  agrees that Existing Floor Plan  Receivables  that
are secured by collateral that consists of Cavalier  Product shall be subject to
the Inventory Repurchase Agreement,  attached hereto as Exhibit E, between Green
Tree and Cavalier  Homes,  Inc.,  dated  September 20, 1996, as amended June 18,
1997 (the  "Repurchase  Agreement"),  with the invoice  date being the  original
invoice date with respect to the sale of such  collateral;  provided that in the
case of  Cavalier  Product  Inventory  which is more  than 360  days  old,  such
Cavalier  Product  Inventory  shall  be  treated,  commencing  on  the  date  of
acquisition of the Existing  Floor Plan  Receivables by Green Tree, as being 360
days old on such date.

                  (e)    It  is  understood   and  agreed  that  the  provisions
contained herein and in the instruments and agreements  referenced  herein shall
constitute the sole and exclusive  obligations of Cavalier with respect to Floor
Plan Loans and that  Cavalier  makes no  representation  or warranty  whatsoever
regarding the  collectibility  of such loans, the  enforceability or legality of
the documents relating thereto or the sufficiency of collateral therefor.  Green
Tree acknowledges and agrees that Cavalier has no responsibility whatsoever with
respect to formulating any  conclusions  regarding the  creditworthiness  of any
Dealer under a Floor Plan Loan.  Except as expressly  provided herein,  Cavalier
shall have no liability or obligation  whatsoever with respect to Existing Floor
Plan  Receivables  after 60 days from the date of  acquisition of Existing Floor
Plan  Receivables by Green Tree,  except as set out in Section , the Guaranty or
as is otherwise set forth herein or in instruments referenced herein.

                  Section 2.3  Cavalier agrees to use its reasonable  efforts to
notify  Exclusive  Dealers and  Preferred  Dealers of the  Preferred  Floor Plan
Financing.

                  Section 2.4  As part of the  Preferred  Floor Plan  Financing,
Green Tree agrees to offer each Exclusive  Dealer and each Preferred  Dealer who
obtains a Floor Plan Loan from Green Tree ("Floor Plan Customers"):

                  (a)    A line of credit on commercially  reasonable and market
competitive  terms in an amount equal to that  prescribed on Exhibit X (item 17)
for use in carrying used Inventory (the "Used Inventory Floor Plan  Financing");
provided,  however,  that Green Tree shall not be  required  to finance any used
Inventory unless Green Tree has, in Green Tree's sole opinion,  a first priority
perfected  security  interest in such used Inventory and Green Tree shall not be
required to finance any used Inventory that does not meet the requirements  that
Green  Tree may set out from  time to time in its sole  discretion.  Green  Tree
agrees that the Used Inventory  Floor Plan financing shall not be subject to the
First Loss  Guaranty,  shall be billed by Green Tree  directly to the  Exclusive
Dealer  or  Preferred  Dealer,  as the case may be,  and shall be  treated  as a
separate line of credit from the financing by Green Tree of new Cavalier Product
Inventory.  The terms of the Used Inventory Floor Plan Financing shall initially
be at least as  advantageous  to the  Dealer  as those  set  forth on  Exhibit G
hereto;  provided that such terms may be revised from time to time by Green Tree
in its sole discretion upon sixty (60) days prior notice to Cavalier.

                  (b)    No interest will be charged for the period set forth in
Exhibit X (Item 2) on new Cavalier Product Inventory that has been identified to
Green Tree as either  "Green Tree  Pre-Sold  Inventory or  "Cavalier  Acceptance
Pre-Sold  Inventory"  (i.e.,  Cavalier  Product  sold by a Dealer  and  financed
pursuant to a CAC Loan or a Green Tree Loan) (such  financing  being referred to
as the "Pre-Sold  Financing");  provided that in the case of Pre-Sold  Financing
for Exclusive Dealers, the parties agree as set forth in Exhibit X (Item 3). The
amount of any  Pre-Sold  Financing  will not be counted  against  the Floor Plan
Customer's Floor Plan Loan credit limits.  After the Pre-Sold Financing expires,
the related Cavalier Product  Inventory shall become subject to the terms of the
New  Inventory  Floor  Plan  Financing;  provided  that the  applicable  rate of
interest shall be that set forth in Exhibit X (item 4).

                  Section 2.5  CMI agrees that for each non-contiguous (separate
lot) location of an Exclusive  Dealer or Preferred  Dealer which is stocked with
new Inventory consisting exclusively of Cavalier Product and who is a Floor Plan
Customer,  that CMI  hereby  guarantees  up to the amount set forth on Exhibit X
(item 19). This First Loss Guaranty  specifically excludes the matters set forth
on Exhibit X (item 20). The First Loss Guaranty  applies  solely with respect to
that portion of Floor Plan Loans  advanced with respect to new Cavalier  Product
Inventory  (the  "New  Inventory  Floor  Plan  Financing").  The  Guaranty  when
effective  with respect to a Dealer will be given in amendment and  substitution
to that certain First Amendment to Inventory  Repurchase  Agreement,  dated June
18, 1997, with respect to such Dealer and is not in addition thereto.  CMI shall
execute  a  Limited  Guaranty  in the form of  Exhibit L  attached  hereto  (the
"Guaranty").

                  Section 2.6  CMI  agrees to act as paying agent for Floor Plan
Customers who are Exclusive  Dealers or Preferred Dealers solely with respect to
interest due under the New Inventory  Floor Plan Financing  unless and until CMI
provides  prior written  notice to Green Tree that CMI elects to cease acting as
paying agent for one or more Floor Plan Customers. For each such Dealer for whom
CMI acts as paying  agent,  for so long as CMI acts as paying  agent,  CMI shall
remit to Green Tree 100% of the interest due with respect to New Inventory Floor
Plan  Financing.  CMI agrees that it will accept billing  statements  from Green
Tree with respect to interest  (provided  that the Dealer has  authorized  Green
Tree and CMI to do so) under the New Inventory  Floor Plan  Financing and timely
remit the same to Green Tree.  Attached as Exhibit F hereto is a description  of
CMI's current and anticipated floor plan interest subsidy programs for Exclusive
Dealers and Preferred Dealers.  CMI may change the terms of its interest subsidy
program from time to time in its sole  discretion,  but will provide  Green Tree
with 60 days  prior  notice of such  change  if such  change  materially  alters
benefits  provided to the Exclusive  Dealers and Preferred  Dealers.  Green Tree
acknowledges  that the payments  remitted by CMI to Green Tree  pursuant to this
provision are an administrative  convenience to Green Tree's collection  efforts
and are in lieu of CMI remitting such payments  directly to the Dealer who would
then make direct payment to Green Tree. Accordingly, it is understood and agreed
by Green Tree that CMI has no obligation with respect to any New Inventory Floor
Plan Financing except as otherwise expressly provided in Section and pursuant to
the  Repurchase  Agreement and the  Guaranty.  If CMI shall pay any amount under
this Section to Green Tree in error,  then Green Tree will promptly on demand by
CMI return such amount  remitted by CMI to CMI;  provided  that Green Tree shall
have no  obligation  to  return  amounts  that  relate to  shortfalls  in actual
interest subsidies earned by Dealers that are subsequently discovered by CMI. If
and to the extent that CMI makes payments to Green Tree on behalf of a Dealer as
paying agent that exceed the amount of the interest  subsidy owed to such Dealer
(i.e.,  there is a "shortfall"),  CMI shall be subrogated to the rights of Green
Tree with respect to such payment but only after all Dealer obligations to Green
Tree  have been paid in full and Green  Tree has no  effective  Floor  Plan Loan
arrangement  with respect to such  Dealer.  Green Tree agrees that if Green Tree
shall have notice of the  continuing  existence of any 2.10.  material  monetary
default, 2.11. default relating to transfer or disposition of collateral under a
Floor Plan Agreement (i.e.,  sales out of trust),  or 2.12.  acceleration of the
maturity of any Floor Plan Loan,  then in each case Green Tree shall  notify CMI
promptly (not to exceed 5 business days)  thereof,  including the nature of such
event,  condition  or  change,  and the  identity  of the Floor  Plan  Customer;
provided  that Green  Tree's  failure to give such notice shall not diminish any
rights Green Tree has against  Cavalier under the Guaranty  except to the extent
that  Cavalier  has  suffered  a loss as a direct  consequence  of Green  Tree's
failure to give such notice.  Notwithstanding anything else in this Agreement to
the contrary,  it is understood  and agreed that CMI shall have no obligation to
assist Green Tree in  collecting,  or attempting  to collect,  any payments from
Floor Plan  Customers  and its role under  provisions  of this section is purely
ministerial and is effected as an accommodation to Green Tree and the Floor Plan
Customers.  CMI shall  not,  in the  absence  of bad  faith,  gross  negligence,
recklessness  or willful  misconduct,  be liable to Green  Tree for any  actions
under this provision.


                                   ARTICLE III
                             RETAIL FINANCE PROGRAM

                  Section 3.1  Subject   to  the  terms and  conditions  hereof,
including  Section 5.4,  CAC  shall  sell  to  Green  Tree  and Green Tree shall
purchase  from CAC all Conforming  Manufactured Housing Retail Finance Contracts
purchased or  originated by  CAC from and after the  Effective  Date  at a price
equal to the outstanding  principal  balance  thereof  plus  accrued  but unpaid
interest thereon through the date of conveyance,  plus the Acquisition  Premium.
Nothing  in  this  Agreement  shall  preclude CAC  from  selling  Non-Conforming
Manufactured  Housing Retail Finance Contracts to any other person.

                  Section 3.2  Green Tree agrees to pay an  acquisition  premium
(the  "Acquisition  Premium")  to CAC in an  amount  equal to that set  forth on
Exhibit  X (item 5)  hereto.  Such  amount  shall be  fully  earned  by CAC upon
conveyance of the related Manufactured Housing Retail Finance Contract by CAC to
Green Tree except as provided in Section 3.15. The amount of Acquisition Premium
shall be  adjusted as  provided  in Exhibit X (item 11) (such  adjustment  being
referred to as the "Yield Differential"). Green Tree also agrees that a CAC loan
will constitute a  conforming  Manufactured  Housing Retail Finance Contract not
withstanding that CAC may charge additional fees, including interest  surcharge,
points or origination  fees,  in connection  with  the Available  CAC Loan  (the
"Origination  Fee"),  provided  such  fees do not exceed the amount set forth in
Exhibit X  (item 12),  subject to any  limitations  imposed by law,  and CAC may
retain such  additional  fees upon sale of the Available CAC Loan to Green Tree.
In the event a  Transferred  CAC Loan is prepaid  and, as a result,  Green  Tree
is liable under applicable law to rebate or refund any unearned prepaid  finance
charges  collected by  CAC to the consumer,  then CAC agrees to reimburse  Green
Tree for such rebate.  The aggregate net  amount of the Yield  Differential  and
the Origination Fee paid to CAC shall not exceed the amount set forth in Exhibit
X (item 13).

                  Section 3.3  Green Tree  and CAC agree that from the Effective
Date until the  Electronic  Pipeline  contemplated by Section 3.5 is established
and  fully  functional  (the  "Conversion  Date")  and thereafter as provided by
Section  3.5, the underwriting guidelines applicable to CAC Loans shall be those
attached hereto as Exhibit A or such other  guidelines as the parties hereto may
agree in  writing  (the "Initial Underwriting  Guidelines").  From and after the
Conversion Date,  Green Tree  may establish such other  underwriting  guidelines
as  it  deems  necessary  or  appropriate;  provided  that (i) such underwriting
guidelines shall be generally consistent with prevailing market terms;  and (ii)
under the  proprietary credit scoring systems ("Credit Scoring") contemplated to
be used by Green Tree, the minimum  required score,  i.e.,  "Pass Rate", for CAC
Loans shall not be more than the  "Pass Rate"  established for  comparable Green
Tree  Loans  in  the  relevant  geographic  region (the "Acceptance Tolerance").
Green Tree  agrees to  promptly  advise CAC of any change in the applicable Pass
Rate or composition thereof (including any changes  in the system  maximums  and
minimums and a detailed description of the changes in components underlying such
change, even if the net  effect of changes in such components  do not affect the
aggregate "Pass  Rate");  provided  that Green Tree need not give  notice of the
rotation of  its existing  scoring cards to the extent that such rotated scoring
card applies alike to Green Tree Loans in the relevant region.  Green Tree shall
promptly  advise CAC of the primary  reasons for the  rejection of any  proposed
Consumer  Loan  under  the  Credit  Scoring  in  such detail as to permit CAC to
fulfill its obligations under applicable law to provide credit denial notices to
a prospective  borrower.  CAC or Green Tree  or both  parties,  as  required  by
applicable  law,  shall be  responsible  for  completing  and sending any credit
approval letters,  conditional  approval letters,  credit denial letters and any
other consumer  notices  relating to the underwriting of a CAC Consumer Loan, to
the applicable consumer.

                  Section 3.4   Green Tree and Cavalier  agree that for purposes
of this Agreement the "Par Rate" shall be determined in accordance  with Exhibit
X (item 6).

                  Section 3.5  Green Tree agrees to use its  reasonable  efforts
to establish, prior to August 1, 1998, an electronic system by which prospective
CAC Loans submitted to Green Tree for approval shall be scored through the Green
Tree credit scoring system (the "Electronic Pipeline").  CAC agrees to cooperate
with Green Tree in developing mutually acceptable underwriting criteria relating
to use of credit scores in marginal  situations,  including credit approval as a
Conforming  Manufactured  Housing Retail Finance Contract of certain  applicants
that  receive a credit  score of "fail," and credit  denial as a  Non-Conforming
Manufactured   Housing  Retail  Finance  Contract  for  certain  applicants  who
otherwise  receive  a credit  score  of  "pass",  and  treatment  of  unscorable
applicants.  Green Tree agrees to bear the  out-of-pocket  costs of establishing
such system and the necessary interface with the existing data processing system
of CAC. Green Tree warrants and covenants that the interface 3.8. will provide a
"pass" or "fail" credit score within ten (10) minutes of  transmission by CAC to
Green  Tree and,  in each case  where it does not,  CAC shall be  authorized  to
approve such Consumer Loans as a Conforming  Manufactured Housing Retail Finance
Contracts under the Initial Underwriting  Guidelines,  and 3.9. will accept data
as  formatted by CAC's data  processing  system and return data to CAC in a form
fully compatible with CAC's data processing system.

                  Section 3.6  Green Tree agrees that a CAC Loan will constitute
a  Conforming  Manufactured Housing Retail Finance contract notwithstanding that
such  a  loan may include in its  principal  balance  the financed  premiums for
various  Ancillary  Products  offered  to  borrowers  by CAC or its  affiliates,
including QCI;  provided that the amount of such financed premiums do not exceed
the lesser of (i)  ten percent  (10%) of the entire  principal  balance  of  the
loan, or (ii)  Three Thousand Five Hundred Dollars  ($3,500.00).  Green Tree and
Cavalier  agree  that the  insurance  underwriters  for such  products  shall be
limited  to those  companies  listed on  Exhibit I hereto or which  have an A.M.
Best's quality rating of A and size rating of V3, or such  additional  companies
as may otherwise be agreed by the parties (collectively,  "Qualified Insurers").
Green Tree agrees that  Cavalier  and its  affiliates  shall have the  exclusive
right to solicit Borrowers under Consumer Loans which were or are CAC Loans with
respect to insurance products, service contracts,  extended warranty protection,
service  contracts  or other  tangible or  intangible  products  which relate to
manufactured  home  ownership (the  "Ancillary  Products") and Green Tree agrees
that it will not solicit, or permit others to utilize  information  contained in
the  related  Borrower  loans  files  or  Manufactured  Housing  Retail  Finance
Contracts to solicit,  such Borrowers with respect to Ancillary Products for the
duration of such Consumer Loan,  notwithstanding  any prior  termination of this
Agreement;  provided that the foregoing shall not restrict or impair the ability
or right of Green Tree to  force-place  collateral  protection  insurance in the
event that any Borrower  fails to meet such  Borrower's  requirements  under the
related  Manufactured  Housing Retail Finance  Contract and applicable  law; and
provided  further  that Green Tree may from time to time solicit any Borrower on
whom insurance was previously  force-placed  (and not later  flat-canceled)  for
other insurance  products  notwithstanding  any provision in this section to the
contrary.  If and to the extent that QCI does  not  have a  relationship  with a
Qualified  Insurer  with  respect  to a particular  CAC Loan or  Transferred CAC
Loan which permits  QCI  to place an  insurance  product  with  respect  to such
Consumer Loan but Green Tree does,  Green Tree agrees to  appoint  QCI as a sub-
agent or  subproducer,  to the extent QCI is licensed  to act as such, and Green
Tree shall share any related  commissions  received by Green Tree from placement
of such insurance product with QCI in accordance  with the  commission  schedule
set forth on Exhibit M hereto (in no  event to exceed the compensation  received
by Green Tree);  provided that CAC  may not,  as a sub-agent  or a  subproducer,
write a  greater  amount of  premiums  in areas  designated on Exhibit M  (which
locations may be revised by Green Tree from time to time by  written  notice  to
reflect changes in the requirements of insurers) as a percentage of all premiums
written by CAC as a sub-agent or subproducer than that which is permitted by the
relevant  insurer to be written by Green Tree.  Green Tree agrees  that Cavalier
will own the book of business  Cavalier  generates  with  respect  to  Ancillary
Products, including renewal commissions, to that book of  business,  subject  to
the terms of  Exhibit M if applicable.

                  Section 3.7  [Reserved].

                  Section 3.8  Green  Tree covenants and agrees that it will not
enter into or permit the continued  operation of any agreement or  understanding
with any Exclusive  Dealer whereby Green Tree shall (i) be granted any exclusive
right to  purchase,  (ii) be  granted  any "first  look" or  similar  right with
respect to, or (iii) be the  beneficiary of any covenant or condition  requiring
the offer or delivery  (including  any right of first  refusal) to Green Tree or
its affiliates  of, in each case,  any Consumer Loans  originated or held by the
Dealer.

                  Section 3.9  (a)  Green   Tree   agrees   to   purchase   each
Conforming  Manufactured Housing Retail Finance Contract which constitutes a CAC
Loan  purchased or originated  by CAC from and after the Effective  Date hereof,
subject to Section 5.4 (the  "Available  CAC  Loans")  pursuant to the terms set
forth herein.  Green Tree agrees to purchase the Available CAC Loans from CAC on
a weekly  basis.  CAC agrees to package the  Available CAC Loans for delivery to
the address specified by Green Tree, in writing by a reputable overnight courier
each  Friday  (or if not a  business  day,  the next  succeeding  business  day)
together with a remittance  computation  reflecting  the  outstanding  principal
balance  of such  Available  CAC Loans  and the  amount,  including  Acquisition
Premium, insurance commission, Origination Fee, Yield Differential and any other
relevant  fees,  to be  remitted  to CAC.  Green Tree agrees to remit to CAC the
specified  remittance  amount by wire or ACH transfer in  immediately  available
funds to the account designated by CAC within one business day of receipt of the
package of Available CAC Loans and related  "remittance  statement" and any late
payment shall bear interest at the interest rates provided for in the respective
related  Manufactured  Housing Retail  Installment  Contracts.  The  "Remittance
Statement" shall set forth the outstanding  principal  balance of each loan, its
origination date, accrued but unpaid interest with respect thereto,  any charges
or premiums relating to Ancillary Products and the related Acquisition  Premium,
including  as  separate  components  thereof  any  Yield  Differential  and  any
Origination  Fee, and  subtotals for each of the foregoing and a total amount to
be remitted by Green Tree to CAC. Each of CAC and Green Tree shall have a period
of sixty (60) days to  confirm  the  accuracy  of the  remittance  computations.
Thereafter, such remittance computations as provided by CAC and accepted without
written protest by Green Tree shall be presumed accurate in the absence of clear
and convincing evidence otherwise.  To the extent that adjustments are necessary
in remittances,  such adjustments,  if made more than thirty (30) days after the
original   transmission   of  funds  shall  bear  interest  from  such  date  of
transmission of funds at the Prime Rate.

                  (b)  Green  Tree  and  CAC hereby agree that the Available CAC
Loans shall be evidenced by such documentation as may be specified by Green Tree
in its sole discretion in writing from time to time, which  documentation  shall
be generally  consistent with the documentation  used by Green Tree with respect
to Green Tree Loans (the  "Chattel  Paper  Forms").  Green Tree and CAC  further
agree that the security  interest in collateral for Available CAC Loans shall be
timely  perfected by CAC in its name pursuant to CAC's standard lien  perfection
procedures  relating to manufactured  homes and shall be done in compliance with
applicable state law (including,  without  limitation,  certificate of title law
and/or Uniform Commercial Code).

                  Section 3.10  CAC represents and warrants with respect to each
Available CAC Loan that, as of the date of transfer to Green Tree that:

                  (a)  Such available CAC Loan was purchased by CAC  pursuant to
the terms  of a  Qualifying  Non-Recourse Manufactured Home Time Sales Agreement
("Chattel Paper Purchase Agreement"), attached hereto as Exhibit E, which within
a reasonable time upon the request of Green Tree shall contain substantially the
same terms as Green Tree's Manufactured Home Dealer Agreement, and in connection
therewith,  CAC agrees to assign to Green  Tree all of its  rights and  remedies
contained in the Chattel Paper Purchase Agreement with respect to such Available
CAC Loan;

                  (b)  CAC  purchased  the  Available  CAC  loan in the ordinary
course of business and is selling,  transferring and otherwise assigning without
recourse  all  right,  title  and  interest  it has in such  CAC Loan and in the
underlying  manufactured  home,  including  all  Chattel  Paper  Forms  and lien
perfection  instruments  (certificate of title or UCC-1), to Green Tree free and
clear of any lien,  encumbrance or prior assignment,  and CAC has good title to,
and full right,  power and  authority to transfer and assign the  Available  CAC
Loan and all relevant loan documents to Green Tree;

                  (c)  The  Chattel   Paper   Purchase  Agreement,  pursuant  to
which CAC acquired the Available CAC Loan,  has been duly executed and delivered
by the related Dealer and is in full force and effect and, subject to applicable
limitations  on creditors  rights  generally and principles of equity and public
policy, is enforceable in accordance with its terms;

                  (d)  CAC  has  not  received  any payment on the Available CAC
Loan  except  payments  disclosed  to  Green  Tree in  writing  at the  time the
Available  CAC Loan is  transferred  to Green  Tree  and any such  payments  are
accurately reflected in the remittance statement relating thereto;

                  (e)  Up  to  the  Conversion  Date, to  the  knowledge of CAC,
the Available CAC Loan and the Borrower thereunder meet the Initial Underwriting
Guidelines or any alternative  requirements for Special  Contracts,  as the case
may be, in effect on the date such  Available CAC Loan was approved for purchase
by CAC from a Dealer;

                  (f)  The  Transferred  CAC  Loan  is  not and shall not in the
future be subject to all of the  following:  (i) a lien  avoidance  claim (based
upon a preferential  transfer) by a bankruptcy trustee, (ii) bankruptcy petition
filed by the related  Borrower  within ninety (90) days after the origination of
such  Transferred  CAC Loan;  and (iii)  failure  by CAC to timely  perfect  its
security  interest  pursuant to applicable  bankruptcy  law and state law in the
manufactured home serving as collateral for such Transferred CAC Loan;

                  (g)  The  Transferred  CAC  Loan  (i)  prior to the Conversion
Date, satisfies in all material respects the Initial Underwriting Guidelines, or
(ii) from and after the Conversion Date was not  purchased based on  information
input by CAC into the Credit Scoring profile which proves to be materially false
or misleading when made; provided that CAC shall have no liability or obligation
with respect to the foregoing representation and warranty to the extent that the
breach thereof is caused by any negligence,  lack of due care,  fraud,  reckless
act or omission or intentional misconduct of the related  Dealer, if CAC did not
have actual  knowledge  thereof; and  provided further  that this  paragraph (g)
shall have no force or effect with respect to a particular Transferred  CAC Loan
unless  Green Tree  provides CAC with  notice in  reasonable  detail of a breach
under this  paragraph (g) within  a period of  sixty (60) days  from the date of
transfer of such Transferred CAC Loan;

                  (h)  CAC  has  not  been  negligent such that (i) prior to the
Conversion  Date,  such  Transferred  CAC  Loan fails to satisfy in all material
respects  the  Initial  Underwriting  Guidelines,  or (ii)  from and  after  the
Conversion  Date such  Transferred  CAC Loan was purchased  based on information
input by CAC into the Credit Scoring profile which proves to be materially false
or misleading when made; provided that CAC shall have no liability or obligation
with respect to the foregoing representation and warranty to the extent that the
breach thereof is caused by any negligence,  lack of due care,  fraud,  reckless
act or omission or intentional  misconduct of the related Dealer, if CAC did not
have actual  knowledge  thereof;  and provided  further that this  paragraph (h)
shall have no force or effect with respect to a particular  Transferred CAC Loan
unless  Green Tree  provides  CAC with notice in  reasonable  detail of a breach
under this  paragraph (h) within a period of one hundred  eighty (180) days from
the date of transfer of such Transferred CAC Loan;

                  (i)  CAC  has  not  engaged  in  any fraud,  grossly negligent
or reckless  act or omission or  intentional  misconduct  which  materially  and
adversely effects the value of an Available CAC Loan;

                  (j)  No  Conforming   Manufactured   Housing   Retail  Finance
Contract shall have a principal  balance which exceeds $60,000 unless  otherwise
approved by Green Tree in writing;

                  (k)  All   Available   CAC   Loans   were   originated  and/or
purchased by CAC in compliance with applicable federal, state and local laws and
regulations;

                  (l)  The   Chattel   Paper   Forms   utilized  by  CAC (to the
extent not provided in substance by Green Tree) comply with applicable  federal,
state and local laws and regulations;

                  (m)  In  the  event  any  Transferred  CAC  Loans  include  in
their principal  balance the financed  premiums for various  Ancillary  Products
offered  by CAC or QCI to  Borrowers,  CAC or QCI shall  notify  the  applicable
insurance  carrier of the assignment of the  Transferred  CAC Loan to Green Tree
and shall  request  that Green Tree be named as  beneficiary  or loss payee,  as
applicable; and

                  (n)  CAC  holds  a  valid  and enforceable first priority lien
in the manufactured home and, further,  CAC has properly  perfected its security
interest in the home (in CAC's name) in compliance with applicable state law.

                  Section 3.11    Except as expressly set forth herein or in any
other agreement  contemplated hereby, CAC makes no representations or warranties
whatsoever  with respect to the  Available CAC Loans and, upon purchase by Green
Tree, Green Tree shall bear all risk of loss with respect thereto.

                  Section 3.12    The transfer of the Available CAC Loans by CAC
to Green Tree  shall be on a  "servicing  released"  basis and CAC shall have no
further interest therein or obligation  thereunder except as expressly  provided
herein.  CAC covenants and agrees that it shall direct any Borrower  under a CAC
Loan  acquired by Green Tree to make  payment to Green Tree or such  servicer as
may be  designated  by Green Tree at its address  specified  by Green Tree.  CAC
hereby  appoints Green Tree as attorney in fact to endorse  payments made to CAC
which are payments  under a CAC Loan  transferred  to Green Tree.  CAC agrees to
promptly convey to Green Tree or its designated  servicer any monies received by
CAC relative to any CAC Loan transferred to Green Tree.

                  Section 3.13   CAC agrees to repurchase  any  Transferred  CAC
Loan  which is in breach of any  representation  or  warranty  made by CAC under
Section 3.10 at a price equal to the sum of the outstanding  principal  balance,
Acquisition Premium (including Origination Fee and Yield Differential),  accrued
but unpaid  interest,  and any other relevant fee, of such Transferred Loan (the
"Repurchase Price");  provided that CAC shall have thirty (30) days during which
it may cure  such  breach,  if  possible  under the law,  and to the  reasonable
satisfaction  of Green  Tree.  Green Tree and CAC agree that the sole  remedy of
Green Tree with  respect to a breach of any  representation  or  warranty by CAC
under Section 3.10 is the repurchase of the related  Consumer Loan by CAC at the
Repurchase  Price;  provided that if CAC does not  repurchase a Transferred  CAC
Loan within ten (10) business days of a written request from Green Tree to do so
that states in reasonable detail the basis for such request, CAC shall be liable
for any  reasonable  attorneys  fees and related costs incurred by Green Tree in
connection with the related  Transferred CAC Loan from and after the date of the
related repurchase request by Green Tree.

                  Section 3.14   [Reserved].

                  Section 3.15   CAC agrees that if a  Transferred  CAC Loan is
prepaid as a result of a  refinancing  by a lender  other than Green Tree within
the period set forth in Exhibit X (item 14),  CAC shall refund to Green Tree the
amount specified in Exhibit X (item 15).


                                   ARTICLE IV
                            COVENANTS AND AGREEMENTS

                  Section 4.1   It is understood and agreed that the obligations
of Cavalier under the Repurchase  Agreement  relate solely to the Dealer to whom
the  Cavalier  Product  was  originally  invoiced  and shall  cease and be of no
further force and effect with respect to such Cavalier  Product upon any sale or
other  conveyance  of the Cavalier  Product,  whether in the ordinary  course of
business  or in  connection  with  any sale of all or  substantially  all of the
assets  of such  Dealer,  the  sole  exception  being  the  acquisition  of such
collateral  by Green  Tree  pursuant  to  foreclosure  or other  acquisition  in
satisfaction of debts previously contracted.

                  Section 4.2    Green  Tree  and  Cavalier  agree  to work  and
negotiate in good faith for the development of a program for refurbishing by CMI
of repossessed  manufactured  homes held by Green Tree.  This program shall only
apply  to  those  repossessed  homes  in which  Green  Tree  has  completed  its
foreclosure of the Borrower's rights.

                  Section 4.3   Green Tree agrees to work and  negotiate in good
faith with CAC to  develop  products  and  programs  pursuant  to which CAC will
promote,  and Green Tree will purchase,  otherwise  Non-Conforming  Manufactured
Housing Retail Finance  Contracts  which in the good faith judgment of CAC meet,
or likely meet, the criteria  mutually agreed to by Green Tree and CAC ("Special
Contracts").  Programs to be considered  shall  include,  but not be limited to,
manufacturer rebate transactions and first time home buyer programs.

                  Section 4.4   Green Tree agrees to work and  negotiate in good
faith with Cavalier to develop a private label,  customized  financing  proposal
which will be made  available  only to Exclusive  Dealers and Preferred  Dealers
which  meet  Green  Tree's   standards  of   creditworthiness   and  upon  terms
satisfactory  to Green Tree in its sole  discretion  regarding  the  matters set
forth on Exhibit X (item 18). The terms of such financing  must be  satisfactory
to Green Tree in its sole discretion.

                  Section 4.5    The parties  hereto  covenant  and agree not to
disclose any proprietary and/or confidential  information contained in Exhibit X
to any person  except (i) on an internal need to know basis where such person is
bound by this provision  (including  appropriate  internal  safeguards) or other
appropriate   confidentiality  agreements  or  ethical  obligations,   it  being
understood that such disclosure may be made to certain  relevant  professionals,
persons  purchasing or considering  purchase of loan  participations  related to
Transferred CAC Loans, Green Tree Floor Plan Loans, or securities backed by such
loans,  or to rating  agencies  or as  otherwise  required  in  connection  with
securitization transactions or similar funding transactions, or (ii) as required
by law or pursuant to court  order.  Each party  agrees to give the other prompt
written  notice in the event that it is presented  with a legal  requirement  to
disclose Exhibit X; provided that such notification is not prohibited by law.

                  Section 4.6   Green  Tree hereby  represents  and  warrants to
Cavalier,  as of the date  hereof,  and as of all  times up to and  through  the
termination of this Agreement, as follows:

                  (a)  Green  Tree  has  been  duly  organized  and  is  validly
existing  and in  good  standing  under  the  laws  of the  jurisdiction  of its
organization  with the power and authority to own its  properties  and engage in
the transactions contemplated by this Agreement;

                  (b)  The   execution,   delivery  and  performance   of   this
Agreement,  and the consummation of the transactions  contemplated  hereby, have
been duly authorized by each of them and, at the time of execution,  performance
or  consummation,  shall not  constitute or result in any breach or violation of
any of the terms or provisions or conditions of or constitute default under, any
statute,  law,  regulation  or  ordinance  of the  United  States,  any state or
political subdivision thereof or any material contract, agreement,  indenture or
trust  to which  such  person  is a party or by which it is bound or any  order,
arbitration  award,  judgment,  decree or  ruling  of any court or  governmental
agency or body having jurisdiction over such party;

                  (c)  There  is  not  pending  or, to  the  knowledge  of Green
Tree,  threatened,  any  action,  suit or  proceeding  before  or by any  court,
governmental  agency,  arbitral authority,  body or administrator to which Green
Tree is a party, or by which any of its property is subject,  which might result
in a material  adverse  change in the  condition,  financial  or  otherwise,  or
business prospects of Green Tree;

                  (d)  This  Agreement  and each of the agreements referenced by
exhibit herein, constitutes the legal, valid and binding agreement of Green Tree
enforceable in accordance with its terms;

                  (e)  The  Credit   Scoring   performed  shall  comply  in  all
material respects with applicable federal, state and local law and regulation.

                  Section 4.7   Cavalier hereby represents and warrants to Green
Tree,  as of the  date  hereof,  and  as of all  times  up to  and  through  the
termination of this Agreement, as follows:

                  (a)  Cavalier   has   been   duly  organized  and  is  validly
existing  and in  good  standing  under  the  laws  of the  jurisdiction  of its
organization  with the power and authority to own its  properties  and engage in
the transactions contemplated by this Agreement;

                  (b)  The   execution,    delivery   and  performance  of  this
Agreement,  and the consummation of the transactions  contemplated  hereby, have
been duly authorized by each of them and, at the time of execution,  performance
or  consummation,  shall not  constitute or result in any breach or violation of
any of the terms or provisions or conditions of or constitute default under, any
statute,  law,  regulation  or  ordinance  of the  United  States,  any state or
political subdivision thereof or any material contract, agreement,  indenture or
trust  to which  such  person  is a party or by which it is bound or any  order,
arbitration  award,  judgment,  decree or  ruling  of any court or  governmental
agency or body having jurisdiction over such party;

                  (c)  There  is  not  pending or, to the knowledge of Cavalier,
threatened,  any action, suit or proceeding before or by any court, governmental
agency, arbitral authority,  body or administrator to which Cavalier is a party,
or by which any of its  property  is subject,  which might  result in a material
adverse change in the condition,  financial or otherwise,  or business prospects
of Cavalier;

                  (d)  This  Agreement  and each of the agreements referenced by
exhibit herein,  constitutes the legal,  valid and binding agreement of Cavalier
enforceable in accordance with its terms.

                  Section 4.8   Green Tree agrees to indemnify and hold harmless
Cavalier  from and  against any and all losses,  claims,  damages,  liabilities,
costs  and  expenses  (including  reasonable  attorneys'  and  experts'  fee and
expenses) to which CAC or any of its employees, directors, officers, accountants
and affiliates may become subject arising from any act or omission of Green Tree
in  connection  with its servicing of  Transferred  CAC Loans from and after the
date of the transfer of such CAC Loan.

                  Section 4.9   Green Tree agrees to offer the  Preferred  Floor
Plan Financing to all of the Exclusive  Dealers and Preferred  Dealers,  whether
now or hereafter  identified  by CMI,  provided  that such  Exclusive  Dealer or
Preferred  Dealer,  as the case may be,  meets  the  creditworthiness  standards
established by Green Tree in its sole discretion.

                  Section 4.10   CAC  agrees  that  it will  not  refinance  any
Borrower under any CAC Loan  transferred to Green Tree hereunder (a "Transferred
CAC Loan");  provided  that the  foregoing  restrictions  shall not be deemed to
apply with respect to the origination or purchase of a Consumer Loan by CAC from
a Borrower  under a Transferred  CAC Loan if the new Consumer Loan is secured by
different  collateral  (i.e., CAC may freely finance  Borrowers trading in homes
for new Cavalier Product)  ("Trade-in  Loans").  Except with respect to Trade-in
Loans, CAC agrees that,  notwithstanding anything else to the contrary contained
herein, the Acquisition Premium on any Available CAC Loan which results from the
refinancing  of any  Green  Tree  Loan  shall  be a  zero  percent  (0%)  of the
outstanding principal balance of the new CAC Loan related thereto.

                  Section  4.11   Green Tree and  Cavalier  agree to provide the
other with such reports and information most conveniently at the disposal of the
other, on a timely basis, as each shall reasonably request regarding Transferred
CAC Loans, including the amount and aging of Pre-Sold Financing,  the Pass Rate,
the number and amount of Green Tree Loans  acquired from  Exclusive  Dealers and
Preferred  Dealers and the performance of Transferred CAC Loans, and the average
outstanding  daily  balance of Green Tree Floor Plan Loans to each of  Exclusive
Dealers and  Preferred  Dealers.  Each party shall  obtain the consent  from all
necessary parties in order to provide such information.

                                   ARTICLE V
                             SALE OF PORTFOLIO LOANS

                  Section 5.1  Green Tree agrees to purchase,  and CAC agrees to
sell, the amount set forth in Exhibit X (item 8) in Manufactured  Housing Retail
Finance Contracts held by CAC, excluding (i) CAC Loans that are ninety (90) days
or more  delinquent,  (ii) CAC  Loans  which  are  presently  the  subject  of a
bankruptcy  proceeding or other legal action (including where the collateral has
been repossessed), or (iii) CAC Loans that are in process of repossession or for
which  specific  loss reserves  have been  established  (items (i) through (iii)
being referred to as the "Carved-Out CAC Loans"), at a price equal to the amount
set forth in Exhibit X (item 9), plus accrued but unpaid interest,  on customary
terms and  conditions  for the sale of  consumer  loans  without  recourse  (but
recognizing  repurchase  remedies for certain warranty breaches will exist) on a
servicing-released   basis,  not   inconsistent   with  the  provisions  of  the
Manufactured  Home Loan  Purchase  Agreement  attached  hereto as Exhibit K (the
"MLPA"),  providing  for an "all or none" sale except with respect to Carved-Out
CAC Loans,  and  providing for a payment to CAC and  conveyance  and delivery to
Green  Tree not later  than  March 1,  1998,  or such later date that Green Tree
using its  reasonable  efforts may assume the  servicing of such.  The CAC Loans
purchased by Green Tree shall be CAC Loans  purchased and made in 1996, 1997 and
1998 (prior to the  Effective  Date) subject to the  foregoing  exclusions.  The
parties  acknowledge  that the MLPA is subject to completion upon terms mutually
acceptable  to the  parties and  expresses  only the  preliminary  intent of the
parties,  particularly with respect to administrative and transition provisions,
but shall not  impose on CAC  obligations  for  representations  and  warranties
beyond its direct  control  (i.e.,  actions  taken by Dealers  originating  such
Consumer Loans) or provide remedies that are materially different than those set
forth in Section 3.13 of this  Agreement.

                  Section 5.2  On a date to be selected by CAC and  consented to
by Green Tree, which consent shall not be unreasonably withheld, within eighteen
(18) months of the date of this  Agreement,  Green Tree  agrees to purchase  the
balance  of the CAC Loan  portfolio  acquired  by CAC  prior to 1996 on the same
terms and conditions set forth in the MLPA, excluding Carved-Out CAC Loans.

                  Section 5.3  [Reserved]

                  Section 5.4  Green Tree agrees that,  notwithstanding anything
else to the contrary contained in this Agreement, CAC shall be permitted, at its
option,  to  keep  and  retain  for its own account  such  amount of  Conforming
Manufactured Housing Retail Finance Contracts, whether now existing or hereafter
arising, as it determines in its discretion;  provided that,  to the extent that
CAC retains CAC Loans  arising  after the  Effective Date,  such  retained loans
shall be a representative sampling of all CAC Loans arising  after the Effective
Date,  where such sampling shall be determined by  stratifying  CAC Loans into 4
groups  according to  quality and  ensuring  that  the  percentage of  CAC Loans
retained by CAC under this Section from each  group is  approximately  the  same
percentage as such group bears to the whole.  CAC agrees that, for a  period  of
one year following any termination of this Agreement  (other  than  pursuant  to
Sections 6.2 (a) through (d), 6.2 (f) through (j) and 6.2 (l)), it will not sell
Conforming Manufactured Retail Finance contracts purchsed  or  originated by CAC
during the term of this Agreement in an aggregate amount in  excess  of $250,000
to any third party unless CAC shall  have first given Green Tree  the  option to
purchase such loans on the same terms and conditions  as  Green  Tree  purchased
loans under Article III of this Agreement.  Green  Tree  shall  be  required  to
exercise such option within fifteen (15) days  after  receiving  written  notice
from CAC of its desire to sell such loans to a  third  party,  and  the  sale to
Green Tree shall be consummated within thirty (30) days after Green  Tree  gives
written notice that it exercises such option.  The option shall  be inapplicable
and of no further force or effect following the expiration of one year after the
termination of this Agreement  or in the event such termination occurs  pursuant
to  Sections 6.2 (a) through (d), 6.2 (f) through (j), or 6.2 (l).


                                   ARTICLE VI
                              TERM AND TERMINATION

                  Section  6.1  Unless   earlier  terminated   pursuant  to  the
provisions  set forth below,  the term of this  Agreement  shall commence on the
Effective  Date hereof and shall expire  three (3) years from the date  thereof;
provided that this Agreement shall be automatically  extended for successive one
(1) year periods  unless either party hereto gives  written  notice to the other
parties at least  ninety (90) days prior to the end of the then  current term of
its intention not to extend this Agreement.

                  Section 6.2. This Agreement may be terminated by Cavalier upon
sixty (60) days prior written  notice to Green Tree,  except  immediately in the
case of items (c),  (d),  (i) and (j),  in the event  that any of the  following
shall occur:

                  (a)  Green  Tree  ceases to be the servicer or subservicer, as
the case may be, of any  material  portion of the  Transferred  CAC Loans or any
Preferred Floor Plan Financing  (except in the case where a special servicer may
be appointed under terms of a securitization document);

                  (b)  Green Tree or any of its affiliates shall acquire,  other
than in satisfaction of debts previously contracted, any Dealer;

                  (c)  Green Tree shall undergo a Change in Control;

                  (d)  Green Tree or any of  its  affiliates  shall  become  the
subject of any voluntary or involuntary bankruptcy proceeding;

                  (e)  The transaction  contemplated  by Section  shall not have
been consummated by April 17, 1998;

                  (f)  Green  Tree  acquires  any  material  manufactured   home
manufacturing operation;

                  (g)  The   financial   condition   of  Green  Tree  or  market
conditions  reasonably  appear likely to restrict the sale of CAC Loans to Green
Tree to less than $250,000,000.00 per annum;

                  (h)  Green Tree's "Pass Rate" for Available  CAC  Loans  which
are  Conforming  Manufactured  Housing  Retail  Finance  Contracts  exceeds  the
"Acceptance Tolerance";

                  (i)  Green  Tree  fails  to remit when due any of the payments
required  under  this  Agreement  or  contemplated  hereby  or under  any  other
agreement  with or for the benefit of  Cavalier,  after notice and ten (10) days
grace;

                  (j)  Green Tree is in breach, default or violation  of  any of
its  representations,  warranties,  covenants  or  agreements  contained in this
Agreement or  contemplated  hereby or under any other  agreement with or for the
benefit of Cavalier and such continues for thirty (30) days or more after notice
by Cavalier;

                  (k)  CMI  determines,  in  its  reasonable  and   good   faith
judgment,  that  continuation  of this  Agreement is  materially  adverse to the
continued  development,  maintenance or  administration  of its exclusive dealer
program or the sale of Cavalier Product to Dealers; or

                  (l)  Green  Tree,   without  the   prior  written  consent  of
Cavalier,  modifies any of the Floor Plan  Agreement,  the Used Inventory  Floor
Plan  Financing  terms or the  Chattel  Paper  Forms in a manner  which,  in the
reasonable judgment of Cavalier, is adverse to the interests of Cavalier.

                  Section 6.3  This  Agreement  may  be terminated by Green Tree
upon one hundred  eighty (180) days prior  written  notice to  Cavalier,  except
immediately  for items  (b),  (c),  (d) and (h),  in the  event  that any of the
following shall occur:

                  (a)  After  Green Tree  determines  that the loss ratio on CAC
Loans exceeds the loss ratio both on 6.5.  Consumer Loans  acquired  directly by
Green Tree from Exclusive Dealers and Preferred Dealers, and 6.6. Consumer Loans
of a comparable  type  acquired by Green Tree from all sellers,  in each case by
25% or more  (e.g.,  the loss ratio for CAC Loans is 1.8% and the loss ratio for
Green Tree Loans is 1.5%, or a 0.3% difference, or 20%);

                  (b)  Cavalier shall undergo a Change in Control;

                  (c)  Cavalier  or  any  of  its  affiliates  shall  become the
subject of any voluntary or involuntary bankruptcy proceeding;

                  (d)  Cavalier  breaches  the  Repurchase  Agreement   or   the
Guaranty, after at least 15 days written notice and opportunity to cure;

                  (e)  Fewer  than  50%  of the Exclusive  Dealers and Preferred
Dealers to whom Preferred Floor Plan Financing  is  offered  become  Floor  Plan
Customers;

                  (f)  CMI has fewer than 75 Dealers who exclusively deal in new
Cavalier Product;

                  (g)  The  New  Inventory  Floor  Plan  Financing,  taken  as a
whole, has a loss ratio, determined on a rolling annual basis in accordance with
prudent and customary banking practices, equal to or greater than 1%;

                  (h)  Cavalier  is  in  breach,  default or violation of any of
its  representations,  warranties,  covenants  or  agreements  contained in this
Agreement or  contemplated  hereby or under any other  agreement with or for the
benefit of Green  Tree and such  continues  for  thirty  (30) days or more after
notice by Green Tree; or

                  (i)  Green  Tree  determines, in its good faith and reasonable
judgment, that (1) continued performance of this Agreement is materially adverse
to the  financial  and business  interests of Green Tree,  (2) Green Tree is not
obtaining the expected financial and business benefits reasonably expected to be
achieved  under this  Agreement,  and (3) Green Tree is  unlikely to obtain such
benefits in the foreseeable future.

                  Section 6.4  No party under this  Agreement  shall be entitled
to consequential,  punitive or exemplary damages or damages for profits expected
to be obtained in connection with the performance of this Agreement.  Each party
to this  Agreement  shall be entitled to the remedies of injunction and specific
performance  to enforce the  obligations of any other party with respect to this
Agreement.


                                   ARTICLE VII
                                  MISCELLANEOUS

                  Section 7.1  Assignment.  This  Agreement   or   any  interest
herein  shall  not  be  assigned  by any party hereto  without the prior written
consent of the other parties;  provided that the foregoing shall not prohibit or
impair the ability of Green Tree to assign its rights and  benefits  (but  Green
Tree may not delegate its obligations) hereunder with respect to Transferred CAC
Loans or Floor Plan Loans,  in  connection  with  a  securitization transaction,
i.e., the conveyance of such Transferred CAC Loans or Floor Plan Loans the grant
of a participation interest therein  or  in  connection  with  conveyance  to  a
special  purpose  vehicle  which  shall hold such  Transferred CAC Loans for the
benefit of, or as  collateral  for,  security  holders of such  special  purpose
vehicle   (a  "Securitization")   or  a  similar  funding  arrangement   whereby
Transferred CAC Loans or Floor Plan Loans are pledged, transferred or assigned.

                  Section 7.2  Notices.  Any   notice   or  other  communication
required  or  permitted  hereunder  will  be  in  writing  and  will  be  deemed
sufficiently given only if delivered in person, by reputable  overnight courier,
or by first class or certified mail,  postage  prepaid,  or sent by facsimile or
telex and confirmed by mail, postage prepaid, addressed as follows:

                  If to CMfg, CInd, SHom, DHom, BHom or XHom:
                           Cavalier Manufacturing, Inc.
                           Highway 41 North and Cavalier Road
                           P.O. Box 300
                           Addison, Alabama 35540
                           Attn: Mike Murphy
                           Fax (256) 747-3044
                           Telephone (256) 747-0044

                  If to QCI:
                           Quality Certified Insurance Services, Inc.
                           P.O. Box 898
                           Hamilton, Alabama 35570
                           Attn: Robert F. Blake, Jr.
                           Fax: (800) 844-4965
                           Telephone (205) 921-4814

                  If to CAC:
                           Cavalier Acceptance Corporation
                           P.O. Box 898
                           Hamilton, Alabama 35570
                           Attn: Jerry F. Wilson, Jr.
                           Fax: (800) 844-4965
                           Telephone (205) 921-4814

                  If to Green Tree:
                           Green Tree Financial Servicing Corporation
                           100 Northpoint Center East, Suite 200
                           Alpharetta, GA 30202
                           Attn: Robert Byrne

                  and to:
                           Green Tree Financial Servicing Corporation
                           1100 Landmark Towers
                           345 St. Peter St.
                           St. Paul, MN 55102
                           Attn: General Counsel


or to such other address as the party may have  specified in a notice duly given
to the other party as provided  herein.  Such  notice or  communication  will be
deemed to have been given as of the date so delivered,  so faxed, telexed or, if
mailed, on the date received.

                  Section 7.3  Waivers.  No  waiver  by any party of any default
with respect to any provision,  condition or requirement  hereof shall be deemed
to be a waiver of any other  provision,  condition or  requirement  hereof;  nor
shall any delay or omission of any party to exercise any right  hereunder in any
manner impair the exercise of any such right accruing to it thereafter.

                  Section 7.4  Preservation of Intent.  Should any  provision of
this  Agreement  be  determined  by  a  court  or  arbitral   authority   having
jurisdiction  over the subject  matter  hereof to be illegal or in conflict with
any applicable laws of any state or jurisdiction,  the parties hereto agree that
such  provision  shall be  modified to the extent  legally  possible so that the
intent of this Agreement may be legally carried out.

                  Section 7.5  Relationship of Parties. Nothing herein contained
shall constitute the parties members of  any  partnership,association, syndicate
or other entity. Nothing herein contained shall be deemed to confer on either of
them any express,  implied  or  apparent  authority to  incur any  obligation or
liability on behalf of the other except as expressly  provided herein.

                  Section 7.6  Third Party Beneficiaries.  The     terms     and
provisions  of this  Agreement  are not intended to confer upon any person other
than the parties hereto and their  respective  permitted  successors and assigns
any rights or remedies,  and such terms and provisions will be enforceable  only
by the parties hereto and their respective permitted successors and assigns.

                  Section 7.7  Entire Agreement.  This  Agreement  and the other
written agreements  referenced herein set forth the entire and only agreement or
understanding  between the parties  relating  to the subject  matter  hereof and
supersedes and cancels all previous  agreements,  negotiations,  commitments and
representations  in respect thereof between them, and no party shall be bound by
any  conditions,  warranties,  or  representations  with respect to the specific
subject matter of this Agreement except as provided in this Agreement.

                  Section 7.8  Amendment.  This Agreement may not be amended  in
any respect except by an instrument in writing signed by the parties hereto.

                  Section 7.9  Further Actions.  At any  time  and  from time to
time,  each party  shall,  at its  expense,  take such  actions  and execute and
deliver such documents as may be reasonably  necessary in the opinion of counsel
(which may be internal  counsel) to the parties to  effectuate  the  purposes of
this Agreement.  Without  limiting the generality of the foregoing,  the parties
shall  cooperate  and use their  reasonable  efforts  to obtain as  promptly  as
practicable  any  governmental  approvals and to make promptly any filings which
are necessary for the  consummation of any of the  transactions  contemplated by
this Agreement.

                  Section 7.10  Headings.  The  headings  in this  Agreement are
solely  for  convenience  of  reference  and  shall be given  no  effect  in the
construction  or  interpretation  of  this  Agreement.  Whenever  used  in  this
Agreement,  the  singular  number  shall  include  the plural and the plural the
singular.  Pronouns of one gender shall include all genders. The words "hereof",
"herein",  and terms of similar  import  shall refer to this  entire  Agreement.
Unless the context clearly requires otherwise, the use of the terms "including",
"included",  "such as", or terms of similar  meaning,  shall not be construed to
imply the exclusion of any other  particular  elements.  The term "person" shall
mean all natural persons, entities,  corporations,  partnerships,  companies and
governmental units of every nature whatsoever.

                  Section 7.11  Counterparts.  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.  This  Agreement  may  be
executed and delivered by facsimile transmission of an executed counterpart.

                  Section 7.12  Governing Law.  This Agreement shall be governed
by and construed in accordance with the internal laws of the State of Georgia.

                  Section 7.13  Arbitration.  The  parties  hereto,  by entering
into this  Agreement,  hereby  waive their  right to trial by jury of  disputes,
claims or controversies  between  themselves  arising out of or relating to this
Agreement or any  agreements or  instruments  relating to this  Agreement or the
transactions  and services  contemplated  hereby and the parties  agree that all
such disputes,  claims or controversies  shall be settled exclusively by binding
arbitration in accordance  with the Federal  Arbitration  Act and the Commercial
Financial Disputes  Arbitration Rules of the American  Arbitration  Association.
Such arbitration shall be conducted in Atlanta, Georgia.

                  Section 7.14  Joint and Several.  The   obligations   of   CMI
specified herein shall be the joint and several obligations of CMfg, CInd, BHom,
SHom and XHom and any other  Cavalier  affiliates  which  are  added by  written
agreement of all the parties hereto,  unless otherwise expressly  provided.  The
obligations  of  Cavalier  specified  herein  shall  be the  joint  and  several
obligations of CMfg,  CInd,  BHom,  DHom,  SHom, XHom, QCI and CAC and any other
Cavalier  affiliates  which are added by written  agreement  of all the  parties
hereto,  unless  otherwise  expressly  provided.  The  obligations of Green Tree
specified  herein shall be the joint and several obligations  of  GTFCA,  GTFSC,
GTC,  GTCC and GTCDC and any other  GTC  affiliates  which are added by  written
agreement of all the parties hereto, unless otherwise expressly provided. If not
prohibited by law of the jurisdiction in which enforcement is sought, the losing
party shall pay court costs and  reasonable  attorney's  fees of the  prevailing
party in the event a party is required to enforce its rights  hereunder  through
legal proceedings.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]



<PAGE>


                  IN WITNESS  WHEREOF,  the parties  hereto  have  caused  their
respective  duly authorized  representatives  to sign below as of the date first
above written.


                                                 CAVALIER MANUFACTURING, INC.

                                              By: /s/ Michael R. Murphy
                                                 _______________________________
                                              Its: Secretary
                                                 _______________________________
                                              Name: Michael R. Murphy
                                                 _______________________________


                                                CAVALIER ACCEPTANCE CORPORATION

                                              By: /s/ Jerry F. Wilson, Jr.
                                                 _______________________________
                                              Its: President
                                                 _______________________________
                                              Name: Jerry F. Wilson, Jr.
                                                 _______________________________


                                                   CAVALIER INDUSTRIES, INC.

                                              By: /s/ Michael R. Murphy
                                                 _______________________________
                                              Its: Secretary
                                                 _______________________________
                                              Name: Michael R. Murphy
                                                 _______________________________


                                                  QUALITY CERTIFIED INSURANCE
                                                         SERVICES, INC.

                                              By: /s/ Robert F. Blake, Jr.
                                                 _______________________________
                                              Its: President
                                                 _______________________________
                                              Name: Robert F. Blake, Jr.
                                                 _______________________________


                                                        DELTA HOMES, INC.

                                              By: /s/ Michael R. Murphy
                                                 _______________________________
                                              Its: Secretary
                                                 _______________________________
                                              Name: Michael R. Murphy
                                                 _______________________________


                                                       BELMONT HOMES, INC.

                                              By: /s/ Michael R. Murphy
                                                ________________________________
                                              Its: Secretary
                                                ________________________________
                                              Name: Michael R. Murphy
                                                ________________________________


                                                      BELLCREST HOMES, INC.

                                              By: /s/ Michael R. Murphy
                                                ________________________________
                                              Its: Secretary
                                                ________________________________
                                              Name: Michael R. Murphy
                                                ________________________________


                                                        SPIRIT HOMES,INC.

                                              By: /s/ Michael R. Murphy
                                                 _______________________________
                                              Its: Secretary
                                                 _______________________________
                                              Name: Michael R. Murphy
                                                 _______________________________


                                                      GREEN TREE FINANCIAL
                                                     SERVICING CORPORATION

                                              By: /s/ Joel H. Gottesman
                                                 _______________________________
                                              Its: Senior Vice President
                                                         and Secretary
                                                 _______________________________
                                              Name: Joel H. Gottesman
                                                 _______________________________


                                                      GREEN TREE FINANCIAL
                                                           CORPORATION

                                              By: /s/ Joel H. Gottesman
                                                ________________________________
                                              Its:  Sr. Vice President, General
                                                     Counsel and Secretary
                                                ________________________________
                                              Name: Joel H. Gottesman
                                                ________________________________


                                                     GREEN TREE CREDIT CORP.

                                              By: /s/ Joel H. Gottesman
                                                ________________________________
                                              Its:  Senior Vice President
                                                          and Secretary
                                                ________________________________
                                              Name: Joel H. Gottesman
                                                ________________________________


                                                  GREEN TREE CONSUMER DISCOUNT
                                                             COMPANY

                                              By: /s/ Joel H. Gottesman
                                                ________________________________
                                              Its:  Senior Vice President
                                                          and Secretary
                                                ________________________________
                                              Name: Joel H. Gottesman
                                                ________________________________


                                                   GREEN TREE FINANCIAL CORP.-
                                                             ALABAMA

                                              By: /s/ Joel H. Gottesman
                                                ________________________________
                                              Its:  Senior Vice President
                                                          and Secretary
                                                ________________________________
                                              Name: Joel H. Gottesman
                                                ________________________________



                                  EXHIBIT 10b
                                 LEASE AGREEMENT
                             WITH OPTION TO PURCHASE


THE STATE OF ALABAMA       )
                           )
COUNTY OF MARION           )

                                    Recitals

A.       Winfield   Industrial   Properties,   Inc.  ("Landlord"),   An  Alabama
corporation,  owns that  certain  real property in the city of  Winfield, Marion
County, Alabama more fully described as follows:

         A tract of land containing 3.62 acres, situated in the Northwest 1/4 of
         Northwest  1/4 of Section 14,  Township  13 South,  Rage [sic] 12 West,
         Marion  County,  Alabama  and  being  more  particularly  described  as
         follows: Commence at the Southwest corner of Northwest 1/4 of Northwest
         1/4 of said Section 14,  thence run N. 88 degrees 52 E. along the South
         boundary of said NW 1/4-NW 1/4 and along the centerline of First Avenue
         South, a distance of 25.00 feet to a point; thence run N. 04 degrees 15
         W., a distance  of 25.00 feet to an old angle iron pin  situated at the
         intersection  of the Northerly  right-of-way of First Avenue South with
         the Easterly  right-of-way  of a second Paved city of Winfield  Street,
         said iron and  intersection  point being the point of beginning for the
         tract  herein  described  to-wit:  thence  continue N. 04 degrees 15 W.
         along the Easterly  right-of-way  of said second Paved City of Winfield
         Street to an old fence post (cut  off);  thence run N. 88 degrees 52 E.
         and  parallel  with the South  boundary  of above  said NW 1/4-NW 1/4 a
         distance of 631.00 feet to a steel fence post situated in the center of
         a 20.0 foot wide  alley  (abandoned);  thence  run S. 04  degrees 15 E.
         along the center  abandoned  alley,  a distance  of 250.0 feet to a 1/2
         inch rebar  situated on the  Northerly  right-of-way  of the above said
         First Avenue South; thence run S. 88 degrees 52' W. along the Northerly
         right-of-way of said avenue,  a distance of 631.00 feet to the point of
         beginning.

         Description  furnished  by  Jack W. Loden & Associates, Land Surveyors,
         Hamilton, Al. reg. No 10681.

         Building  on said  Property  consist  of 30,000  square feet less 5,000
         square  feet and a yard which is  leased  to Roadway Services, Inc. for
         their exclusive use.  (See Exhibit A)

Said real property plus the improvements thereon shall  hereinafter be  referred
to as the "Leased Premises."

B.       Superior Door Company, Inc.("tenant"), an Alabama corporation,  desires
to  lease  the  Lease  Premises  from  Landlord  upon  the  terms and conditions
hereinafter set forth.




<PAGE>


                  NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS:

                  That, for value received, Landlord and Tenant have agreed:

         1.       Leased Premises.
                  1.1.  Lease.  Pursuant  to the terms of this  Lease  Agreement
("Lease"),  and subject to the provisions of Section 1.2 below,  Landlord hereby
leases and lets unto Tenant and Tenant does hereby take from Landlord the Leased
Premises.  Tenant  acknowledges  that it has fully inspected the Leased Premises
and accepts the Leased  Premises as suitable for the purposes for which the same
are hereby leased. Subject to the provisions of Section 11.2, Tenant accepts the
Lease Premises in their current condition AS IS, WHERE IS and WITH ALL FAULTS.

         2.       Term.
                  2.1.  Initial  Term.  The initial  term of this Lease is for a
period of 5 years  commencing as of December 1, 1995  ("Commencement  Date") and
ending  on  November  30,  2000.  Notwithstanding  the  foregoing,  if the Lease
Premises are occupied by Tenant prior to the Commencement Date, the initial term
of this  Lease  shall  be  deemed  to have  commenced  on the  date of  Tenant's
occupancy of the  termination  date of the initial term shall remain the same as
stated above.

                  2.2. Renewal Term.  Tenant shall have the option to renew this
Lease  for an  additional  term of five (5)  years,  by  written  notice of such
renewal  delivered to Landlord as  hereinafter  provided,  under the same terms,
conditions  and  covenants  set forth  herein,  except  that the  rents  payable
hereunder shall be adjusted as set forth in Section 3.2 and Tenant shall have no
additional options to renew this Lease.

                  2.3. Notice Requirements.  Not more than 180 days prior to the
expiration  of the  initial  term,  Landlord  shall give Tenant  written  notice
requesting that Tenant notify Landlord whether or not Tenant intends to exercise
its right of renewal  pursuant to Section or its option to purchase  pursuant to
Section 19. Within 60 days after  Tenant's receipt of such  notice, Tenant shall
notify Landlord in writing if Tenant desires to renew this Lease or exercise its
option to  purchase  the Lease  Premises.  If Tenant  fails to  respond  to such
written notice from  Landlord,  Tenant shall deemed to have elected to not renew
this Lease and not  exercise  its option to  Purchase  the Leased  Premises.  If
Landlord  fails to give such written notice to Tenant,  Tenant may  nevertheless
exercise  its right to renew  this Lease or its  option to  purchase  the Leased
Premises by giving Landlord written notice of the intention to do so at any time
prior to the expiration of the initial term of this Lease.  If Tenant  exercises
its right to renew this Lease (and  therefore  does not  exercise  its option to
purchase the Leased Premises at that time),  not more than 180 days prior to the
expiration of the renewal term, the notice  requirements  set forth herein shall
be applicable  and shall be utilized by Landlord and Tenant in  connection  with
the exercise (or not) of Tenant's option to purchase the Lease Premises.

         3.       Rents.
                  3.1.  Initial Term. As rents for the Lease Premises during the
initial term, Tenant shall pay Landlord at Landlord' suffices [sic] in Winfield,
Marion County, Alabama the aggregate sum of $180,000 payable in 60 equal monthly
installments  of $3,000 each;  the first of such  installments  shall be due and
payable on or before the  Commencement  Date, and a similar payment shall be due
and  payable  on or  before  the  first day of each  successive  calendar  month
thereafter  until all of such  monthly  installments  have been so paid.  In the
event that the Lease  Premises  are  occupied  by Tenant on a day other than the
first day of a month,  rent for such partial month shall be calculated  and paid
on a  prorated  basis  according  to the  number of days in such month the Lease
Premises are occupied by Tenant.

                  3.2.  Renewal Term. In the event Tenant exercises its right to
renew this lease for an additional  five (5) year term, as set forth above,  the
rent payable  hereunder  shall be adjusted  effective as of the first day of the
renewal term in  accordance  with Section 3.2.  Effective  December 1, 2000, the
monthly  rent  payment due pursuant to this Lease shall be adjusted to an amount
equal to the product obtained by multiplying $3,000 by a fraction, the numerator
of which is the Consumer Price Index for All Urban Consumers, U.S. City Average,
For All Items,  as published by the U.S.  Bureau of Labor  Statistics  (the "CPI
Index") for November 30, 2000. and the denominator of which is the CPI Index for
December 31, 1995; provided, however, the monthly rent payment shall not be less
than  $4,000.  The monthly  rent payment  calculated  pursuant to the  preceding
sentence shall then remain constant during the remainder of the renewal term.

         4.       Insurance.

                  4.1. Required Coverage.  Tenant, at its sole cost and expense,
will obtain and maintain,  with insurance  carriers duly licensed to do business
in Alabama, the following insurance coverage with respect to the Lease Premises:

                           (a)  Fire  and  extended  coverage  insurance  in  an
amount  not  less  than  $530,000  or  the  full  replacement cost of the Leased
Premises, whichever is greater.

                           (b)  At Tenant's option,  fire  and extended coverage
insurance in an amount to be determined by Tenant insuring  Tenant's contents in
the Leased Premises.

                           (c)  General  liability  insurance  in  an amount not
less than  $1,000,000 per person and $1,000,000 per occurrence for bodily injury
and $1,000,000 for property damage.

         Each such  insurance  policy shall name  Landlord and Tenant as insured
parties and shall include Landlord's mortgage lender, if any, as a loss payee as
its interest may appear.  Tenant shall furnish to Landlord certificates or other
evidence of the required  insurance  coverage prior to Tenant's occupancy of the
Leased  Premises.  Prior to the  expiration of any such  coverage,  Tenant shall
furnish Landlord evidence of the continuation of such coverage.

                  4.2. Waiver of Subrogation Rights.  Landlord and Tenant hereby
waive their  respective  rights of subrogation  against the other for all claims
and causes  whatsoever  arising  out of any injury upon or loss or damage to the
Leased  Premises or any part  thereof  resulting  from a risk or peril  included
within the insurance  policies herein required and/or purchased by either party.
Each party will promptly notify their respective insurers of this waiver.

         5. Taxes. Tenant shall pay before they become delinquent all ad valorem
taxes and special  assessments  lawfully  levied or assessed  against the Leased
Premises  during the term of this Lease.  Landlord shall be responsible  for the
payment  of  all  such  taxes  and  assessments  for  any  period  prior  to the
Commencement  Date. Tenant shall pay such taxes and assessments  directly to the
taxing authority  entitled to receive such payment;  provided,  however,  Tenant
reserves the right to contest any such tax or  assessment  at Tenant's sole risk
and expense.  In the event of any such contest,  Tenant does not have to pay the
contested tax or assessment so long as Tenant diligently pursues such contest in
accordance  with the applicable  administrative  procedures and applicable  law.
Notwithstanding the foregoing,  however,  during the course of any such contest,
Tenant shall at all times  protect and preserve  Landlord's  title to the Leased
Premises,  and, if necessary to protect and preserve  Landlord's  title thereto,
Tenant shall pay the contested tax or posted  appropriate bond therefor prior to
allowing the taxing authority to take any action to enforce its tax lien against
the Leased Premises.

         6. Maintenance. Tenant, at its sole risk and expense, shall through the
term of this Lease and any renewal thereof  maintain the Leased Premises in good
repair and condition.  Subject to the  provisions of Section and hereof,  at the
end of the term of the Lease,  Tenant shall  surrender and deliver up the Leased
Premises to Landlord in good repair and  condition  (damage by fire,  tornado or
other casualty and reasonable wear and use excepted). In the event Tenant should
fail to maintain the Leased  Premises,  and such failure  should  continue for a
period of 30 days after Landlord's written notice to Tenant thereof,  or if such
failure cannot be reasonably  cured within the said 30 days and Tenant shall not
have commenced to cure such failure within said 30 days and shall not thereafter
with reasonable diligence and good faith proceed to cure such failure,  Landlord
shall have the right (but not the obligation) to cause repairs or corrections to
be made,  and the costs  thereof  shall be payable to Tenant to  Landlord on the
next rental installment date.

         7. Inspection. Landlord and Landlord's authorized agents shall have the
right to enter the Leased  Premises  during  Tenant's  normal  business hours of
operation  for the  purpose of  inspecting  the general  condition  and state of
repair of the Leased Premises or for any other reasonable purpose.

         8.  Use.  Tenant  may  occupy  and  use  the  Leased  Premises  for the
manufacture  and sale of doors and general  office  and/or  supply and warehouse
facilities in connection  therewith and/or for any other lawful purpose.  At all
times, Tenant shall occupy the Leased Premises, conduct its business and control
its agents,  employees,  invities  [sic] and  visitors in a way as is lawful and
reputable and will not create a nuisance or otherwise  interfere with,  annoy or
inconvenience  Landlord or the occupants of surrounding  real  property.  Tenant
shall  be  solely   responsible   to  obtain  at  its  sole  cost  any  and  all
authorizations  from  applicable  governing  authorities for the conduct of such
business, including waivers and certificates of permissive use and exemption, if
necessary, from applicable zoning ordinances.

         9. Utilities.  As of the Commencement Date,  Landlord shall provide the
normal and  customary  utility  connections  that are  currently in use into the
Leased Premises.  Tenant shall pay the cost of all utility  services,  including
but not  limited  to, all charges  for gas,  water and  electricity  used on the
Leased Premises and all costs of garbage and trash removal and sewer services.

         10.      Fire and Casualty Damage.

                  10.1.   Total.  If  the  Leased  Premises  should  be  totally
destroyed by fire,  tornado or other  casualty,  or if they should be so damaged
that  rebuilding or repairs  cannot  reasonably be completed  within 180 working
days from the date of the occurrence of the damage,  this Lease shall  terminate
at the option of the  Landlord,  otherwise,  repairs will be  completed  and the
Lease continue without abatement of rent.

                  10.2.    Partial.

                           (a)  If  the  Leased  Premises  should  be damaged by
fire,  tornado or other  casualty but not to such an extent that  rebuilding  or
repairs  cannot  reasonably  be  completed within 180 working days from the date
of the occurrence  of the damage,  this Lease shall not terminate,  but Landlord
shall, if the casualty has occurred  prior to the  final  180 days of the  lease
term,  at its sole  cost and  risk, proceed  forthwith to rebuild or repair  the
Leased Premises to substantially the condition existing prior to such damage. If
the casualty occurs during the final 180 days of the Lease term,  Landlord shall
not be required to rebuild or repair such damage unless Tenant notifies Landlord
in  writing  within  60  days  following  the date of such damage that Tenant is
exercising  its right to renew this lease or its option to  purchase  the Leased
Premises,  as the case may be.  If Tenant does not  exercise  its right to renew
this Lease or its option to purchase  the  Leased Premises and if Landlord  does
not elect  to  rebuild  or  repair such damage, then this lease shall terminate,
effective as of the date of said damage.  If  the  Leased  Premises  are  to  be
rebuilt or repaired and are  untenantable in whole or  in  part  following  such
damage,  the  rents  payable  hereunder  during  the   period  in  which  it  is
untenantable shall be adjusted equitably.

                           (b)  Notwithstanding   anything   in   this   Section
which  might be  deemed  to be the  contrary,  except as  hereinafter  provided,
Landlord  shall not be required to  spend any amount in  excess of the insurance
proceeds made available to Landlord  in connection with the rebuilding or repair
of the  Leased  Premises.   In the event the  insurance  proceeds  available  to
Landlord are insufficient for such purpose,  Landlord shall so  notify Tenant in
writing.  In such event Landlord  may elect not to  rebuild or repair the Leased
Premises  and  to  terminate the lease effective as  of the date of  such damage
unless,  Tenant  notifies Landlord in writing,  within 30  days  after  Tenant's
receipt of the notice from Landlord as  to  the insufficient insurance proceeds,
that Tenant will pay all of  the  repair  costs  in  excess  of  such  insurance
proceeds.  If  Tenant  so  notifies  Landlord,  Landlord  shall proceed with due
diligence to rebuild  and/or  repair  the  Leased  Premises to substantially the
condition existing prior to such damage.

         11.      Hold Harmless.

                  11.1. By Tenant.  Tenant shall indemnify,  defend and save and
hold  Landlord  harmless  from  and  against  any and all  liabilities,  losses,
damages, claims, fines, causes of action, attorney's fees and court costs due to
death,  personal  injury,  property  damage or financial  loss arising out of or
attributable to:

                           (a)  Tenant's  operations  and  the  conduct  of  its
business upon the Leased Premises; or

                           (b)  Any liability to any taxing authority  resulting
from or in any way relating  to  any  tax  abatements,  deductions or exemptions
relating to the Leased  Premises which are attributable to Tenant's occupancy of
the Leased Premises.

                           (c)  Tenant  shall  indemnify,  defend  and  save and
hold  Landlord  harmless  from  and  against  any  and  all liabilities, losses,
damages, claims, fines, causes of action,  attorney's fees  and court costs, due
to death,  personal injury,  property injury,  property damage or financial loss
arising out of or attributable to the  presence on  the  Leased  Premises of any
hazardous or regulated substance or product, including but not  limited to crude
oil products and asbestos, under any  applicable  federal or state law in effect
as of the date of  execution  of this Lease.

         If Landlord  is made a party to any suit or action for damages  arising
from the negligence or actions of Tenant, its employees, invities and/or agents,
Tenant shall assume all of the burden,  cost and expense of the defense re [sic]
settlement of any such cause or action,  including reasonable attorney's fees in
connection  therewith,  and Tenant shall promptly pay any judgement which may be
obtained therein against Landlord.

         12.      Condemnation.

                  12.1.  Total.  If,  during  the  term of the  Lease,  all or a
substantial  part of the  Leased  Premises  should  be taken  for any  public or
quasi-public use under any governmental law, ordinance or regulation or by right
of eminent domain or should be sold to the condemning  authority under threat of
condemnation,  this Lease shall terminate and the rents payable  hereunder shall
be abated during the unexpired portion of this lease effective as of the date of
taking by the condemning authority.

                  12.2.  Partial.  If less than a substantial part of the Leased
Premises shall be so taken or sold,  this Lease shall not terminate but Landlord
shall  forthwith,  at its sole  expense,  restore  and  reconstruct  the  Leased
Premises,  providing such  restoration  and  reconstruction  shall make the same
reasonably  tenantable  and  suitable for the uses for which the same are hereby
leased.  If the use of the Leased  Premises  shall be impaired by such taking or
sale,  the rents payable  hereunder  during the unexpired  portion of this lease
shall be  adjusted  equitably.  If, in the option of Landlord  and Tenant,  such
restoration and reconstruction cannot be completed within 180 days following the
date of such  taking or sale,  Landlord  or Tenant may elect to  terminate  this
lease by giving prior written notice thereof to the other party.

                  12.3.  Condemnation Awards.  Landlord and Tenant shall each be
entitled  to  pursue,  receive  and retain  separate  condemnation  awards,  and
portions  of the lump  sum  awards,  as may be  allocated  to  their  respective
interests in any condemnation  proceedings.  The termination of this lease shall
not affect the rights of Landlord and Tenant to such awards.

         13. Holding Over.  Should Tenant hold over the Leased Premises,  or any
part thereof,  after the expiration of the term of this Lease,  unless otherwise
agreed in writing,  such  holding  over shall  constitute  and be  construed  as
tenancy  from month to month only,  at a monthly  rental equal to the rents paid
for the last month of the term of this Lease.  Nothing herein shall be deemed to
be Landlord's consent to such holding over.

         14.      Default by Tenant.

                  14.1.    Events.  The following  events  shall be deemed to be
events of default by Tenant under this Lease:

                           (a)  If Tenant shall fail to make any of the payments
required hereunder and such failure shall continue for a period of 15 days after
written notice thereof to Tenant;

                           (b)  If Tenant shall fail to comply  with  any  term,
condition  or covenant of this  Lease,  other than the payments set forth above,
and shall not cure such failure within 30 days after  written  notice thereof to
Tenant,  or if such failure cannot  reasonably be cured within the said  30 days
and tenant shall not have commenced to cure such failure within said 30 days and
thereafter proceeded with reasonable diligence  and  good  faith  to  cure  such
failure.

                  14.2.    Remedies.  Upon the  occurrence  of any such event of
default,  Landlord  shall  have  the  option  to  pursue  any one or more of the
following remedies:

                           (a)  Terminate  this  Lease,  in  which  event Tenant
shall immediately surrender the Leased Premises to Landlord, and if Tenant fails
so to do, Landlord may, without prejudice to any other remedy which landlord may
have for  possession or arrearages in rents,  enter upon and take  possession of
the Leased Premises and expel or remove any agent,  representative or  employees
of Tenant or any other  person who may be occupying  the Leased Premises  or any
part thereof, by force if necessary,  without being liable for persecution [sic]
or any claim for damages thereof;

                           (b)  Enter  upon  and  take  possession of the Leased
Premises and expel or remove any agent,  representative or  employees  of Tenant
and any other person who may be occupying  the same  or  any  part  thereof,  by
force  if  necessary,  without  being  liable  for  persecution or any claim for
damages  thereof,  and relet the Leased Premises and receive the rents therefor;
and Tenant agrees to pay to Landlord on demand  any  deficiency  that may  arise
by reason of such reletting  and the reasonable expenses incurred by Landlord in
connection with such reletting; or

                           (c)  Enter  upon  the  Leased  Premises  by  force if
necessary without being liable for prosecution or any claim for damages thereof,
and do whatever Tenant is obligated  to do under the  terms of this  lease,  and
Tenant shall reimburse Landlord on demand for expenses which Landlord  may incur
in thus  effecting compliance with Tenant's obligations under this Lease.

                  14.3.  No  Waiver.  Pursuit of any of the  foregoing  remedies
shall not preclude  pursuit of any of the other remedies  herein provided or any
other remedies  provided by law, nor shall pursuit of any remedy herein provided
constitute  a forfeiture  or waiver of any rent due to Landlord  hereunder or of
any  damages  accruing  to  Landlord  by reason of the  violation  of the terms,
conditions and covenants herein contained.

         15.      Assignment and Subleasing.

                  15.1.  By Tenant.  Tenant may not assign  this Lease or sublet
the Leased Premises or any portion thereof,  without obtaining the prior written
consent of Landlord which consent will not be withheld  unreasonably;  provided,
however,  no consent  shall be  required  for an  assignment  or  sublease  to a
corporation  or other  business  entity owned or controlled  by, or under common
control with, Tenant; provided further, however, no such permitted assignment or
sublease  shall relieve  Tenant of its  obligations  hereunder  unless  Landlord
otherwise consents in writing.

                  15.2.    By  Landlord.  Subject to the provisions  of  Section
hereof, Landlord  may assign or transfer all or any part of its interest in this
Lease.

         16.      Alterations, Additions and Improvements.

                  16.1. In General. Except as otherwise set forth in this Lease,
Tenant shall not make any alterations,  additions or improvements  (collectively
hereinafter  referred to as  "Improvements")  to the Leased Premises without the
prior written consent of Landlord.  Consent for nonstructural Improvements shall
not be reasonably  [sic] withheld by Landlord.  All  Improvements  so made shall
become the property of Landlord at the termination of this Lease.

                  16.2.  Manufacturing and Warehousing Housing.  Notwithstanding
the  foregoing,  Landlord  acknowledges  that  Tenant is  occupying  the  Leased
Premises  initially  for the  purpose of the  manufacture  and sale of doors and
general  office and/or supply and warehouse  facilities  relating  thereto,  and
Tenant  intends  to make  substantial  improvements  to the Leased  Premises  to
accommodate its intended use thereof. Landlord hereby consents to the remodeling
and  construction of  improvements  contemplated by Tenant to prepare the Leased
Premises for the Tenant's intended use thereof; provided, however, that all such
remodeling and construction be accomplished in a good and workmanlike manner, in
compliance with all applicable construction and local codes and ordinances,  and
that the value of the Leased Premises shall not be depreciated thereby.

                  16.3. Machinery and Equipment.  Tenant may, at any time and at
its sole expense,  erect or install  machinery and equipment in or on the Leased
Premises.  Provided  that Tenant is not then in default of any material  term or
condition  in this  Lease,  Tenant  shall  have  the  right to  remove  all such
machinery and  equipment  upon  termination  of this Lease;  provided,  however,
Tenant  shall  repair any damage done to the Leased  Premises  by such  removal.
Tenant shall have a period of up to 30 days after the  termination of this Lease
to remove all such items,  and Tenant shall  continue to pay rent at the monthly
rental rate then in effect until Tenant has  completed  such removal  process or
notified  Landlord that Tenant has abandoned any remaining items. All such items
remaining  on the Leased  premises  after the  expiration  of such 30 day period
shall become the property of Landlord.  All fixtures and permanent  improvements
erected or  installed  on the Leased  Premises  shall  become  the  property  of
Landlord and shall not be removed.

                  16.4.  Signs.  Tenant may erect and  install  such signs on or
attached to the Leased Premises as Tenant desires, provided that Tenant shall at
all times comply with all applicable laws,  ordinances and regulations  relating
thereto, and Tenant shall remove all such signs at the termination of this lease
and repair any damage resulting from such removal.

                  16.5. Mechanics' Lien.  Notwithstanding  anything herein which
might be deemed to be to the  contrary,  Tenant  shall at all times  protect and
preserve the Leased  Premises  from and against any  mechanics'  lien created in
connection  with, or resulting from, any  improvements to the Leased Premises by
Tenant.  Tenant  reserves the right to contest any claim by any person who might
be entitled to a mechanics' lien against the Leased  Premises,  at Tenant's sole
rick [sic] and expense.  In the event of any such contest,  Tenant does not have
to pay the contested amount so long as Tenant diligently pursues such contest in
accordance with applicable law; provided,  however,  in the event any mechanics'
lien is filed against the Leased Premises, Tenant shall file a bond to indemnify
Landlord  and the  Leased  Premises  against  the  lien in  accordance  with the
applicable  provision  of the Alabama  Property  Code prior to the time that any
action to enforce the mechanics' lien may be taken by the claimant.

         17.  Compliance with Law.  During the term hereof,  Tenant shall comply
with all governmental laws, ordinances and regulations  applicable to the use of
the Leased Premises and shall promptly comply with all  governmental  orders and
directives for the correction, prevention and abatement of nuisances in or upon,
or connected with the Leased Premises, all at Tenant's sole expense.

         18.      Quiet Enjoyment.

                  18.1. Landlord's Warranty.  Landlord warrants that it owns the
Leased  Premises,  that it has full right and power to execute and preform  this
Lease and that Tenant,  on payment of the rents and performance of the covenants
herein  contained,  shall  peaceably and quietly have, hold and enjoy the Leased
Premises during the full term of this Lease.

         19.     Option to Purchase.  At any time during the term of this Lease,
Tenant  shall have the option to purchase  the Leased  Premises and the property
leased by Roadway  Express on the terms and conditions set forth herein.  Tenant
may exercise this option by giving Landlord written notice of its election to do
so in accordance with the notice requirements  set forth in Section 2.3. In such
event,  the purchase price for the Leased Premises shall be $530,000.  Within 15
days after receipt of Tenant's  notice  exercising  this option,  Landlord shall
cause Lawyers Title Insurance  Corporation (or other title insurance approved by
Tenant) to furnish a commitment  for title  insurance  reflecting  the status of
title to the leased Premises.  If Tenant objects to any of the matters affecting
title to the Leased Premises,  Tenant shall notify Landlord in writing within 15
days after  Tenant's  receipt of the title  insurance  commitment,  and Landlord
shall  attempt to cure such  objections.  If Landlord is unable to cure any such
objections  within 15 days after  receipt  of  Tenant's  objections,  Tenant may
terminate its election to purchase the Leased  Premises (in which event,  Tenant
may then exercise its right to renew this Lease  pursuant to Section ) or Tenant
may waive such uncured  objections and proceed to purchase the Leased  Premises.
Unless  Landlord  and Tenant  otherwise  agree,  the  closing of the sale of the
Leased  Premises  shall  occur at the title  company  within  30 days  after the
termination  of this Lease.  At  the  closing:  (i)  Tenant  shall  pay the full
purchase price in cash or by certified cashiers check, and (ii)  Landlord  shall
execute  and  deliver a general  warranty  deed  conveying  title to the  Leased
Premises to Tenant free and clear of any liens created or caused by Landlord and
shall cause the title company to deliver to Tenant,  at Landlord's sole cost and
expense, a title insurance policy issued by Lawyers Title Insurance  Corporation
(or another title insurance  company  approved by Tenant) insuring title to such
property subject only to the matters reflected on the title insurance commitment
which remain in effect after the title curative process described above.  Tenant
shall pay rent at the rate then in effect  with  respect to the Leased  Premises
through the closing  date.  Each party shall be  responsible  for the normal and
customary  closing  costs  paid by a buyer and seller at a closing of this type;
provided,  however,  Tenant shall be  responsible  for all ad valorem  taxes and
insurance  provided in this Lease.  If Tenant does not  exercise  this option to
purchase the Leased  Premises  during the initial  term of this Lease,  but does
renew this Lease for the renewal term,  Tenant shall have the option to purchase
the Leased  Premises at any time  during the renewal  term on the same terms and
conditions as set forth above,  except that the purchase price shall be equal to
the product  obtained by  multiplying  $530,000 by a fraction,  the numerator of
which is the CPI Index for November  2000 and the  denominator  is the CPI Index
for  December  1995,  provided  that the  purchase  price shall not be less than
$630,000.

         20.  Rights of First  Refusal.  If at any time  during the term of this
Lease,  Landlord intends to sell the Leased Premises  pursuant to the terms of a
bona fide offer  ("Offer")  from a third party,  Landlord shall notify Tenant in
writing of such intent and such notice shall include terms and conditions of the
Offer.  Thereafter,  Tenant shall have a right of first  refusal to purchase the
Leased  Premises  on the same  terms and  conditions  as set forth in the offer,
provided  however,  that if Tenant fails to exercise such right of first refusal
by  notifying  Landlord in writing of its election to do so within 30 days after
Tenant's receipt of Landlord's notice of the offer, as aforesaid,  this right of
first  refusal shall  terminate and be of no further force or effect.  If Tenant
exercises its right of first  refusal  pursuant  hereto,  the sale of the Leased
Premises  on the terms  and  conditions  set forth in the offer  shall be closed
within  45 days of the  date  Landlord  receives  Tenant's  notice  to  exercise
pursuant  hereto.  In the event that Tenant does not exercise its right of first
refusal in accordance with the terms of this Section 20, if the Leased  Premises
are not sold pursuant to the terms of the Offer within 90 days after the date of
expiration  of the  Tenant's  right of first  refusal  as  foresaid,  the Leased
Premises may not  thereafter  be sold  pursuant to that Offer or any other offer
without  first  offering  the Leased  Premises  to the Tenant  pursuant  to this
Section 20. In the event  that the Leased Premises  are sold to any third  party
pursuant to the terms of any offer,  the Leased  Premises  shall be  transformed
subject to the terms and conditions of this Lease,  including but not limited to
Sections and hereof.

         21. Environmental  Remediation.  Tenant agrees it is satisfied with the
environmental condition of the Leased Premises at the commencement of this Lease
and that it shall not use any  hazardous  materials  in violation of any laws in
its  operation on the Leased  Premises and will keep the Leased  Premises at all
times free of any hazardous  materials.  Upon  vacation of the Leased  Premises,
Tenant,  at its  sole  cost,  shall  provide  an exit  Phase I  Audit  and  such
additional  environmental  work as required by Landlord to show the building and
Leased  Premises to be in  substantially  the same  environmental  condition  as
provided to Tenant based on the Environmental Laws at the time of the expiration
of this Lease.

         Tenant, at its sole expense, shall be responsible for any environmental
remediation  attributable to Tenant's operation that is necessary to deliver the
building  and  Leased  Premises  back to  Landlord  in  substantially  the  same
environmental condition as when occupied by Tenant.

         22. Waiver of Default.  No waiver by the parties  hereto of any default
or breach of any term, condition or covenant of this Lease shall be deemed to be
a waiver of any  subsequent  default  or  breach of the same or any other  term,
condition or covenant contained herein.

         23. Successors.  The terms,  conditions and covenants contained in this
Lease shall apply to,  inure to the benefit of, and be binding  upon the parties
hereto and their respective successors in interest.

         24.  Notices.  Any  notice or  document  required  or  permitted  to be
delivered hereunder shall be deemed to be delivered when delivered personally or
(whether  actually  received or not) when  deposited in the United  States mail,
postage  prepaid,  certified  or  registered  mail,  return  receipt  requested,
addressed to the parties  hereto at the  respective  addresses  set out opposite
their names below, or at such other address as they have  theretofore  specified
by written notice delivered in accordance herewith:

                           (a)     If to Landlord:

                                    Winfield Industrial Properties, Inc.
                                    Rt. 1 Box 420
                                    Winfield, Alabama 35594

                           (b)     If to Tenant:

                                    Superior Door Company, Inc.
                                    P.O. Box 97
                                    Winfield, Alabama 35594

         25.  Amendment.  This  Lease  may not be  amended  except  in a writing
executed by both Landlord and Tenant.

         26. Entire  Agreement.  This Lease  constitutes  the sole  agreement of
Landlord and Tenant and  supersedes any prior  understanding  or written or oral
agreements respecting the subject matter.

         27.  Attorney  Fees.  Tenant  agrees  to pay all  costs of  collection,
including a twenty-five (25%) percent attorney's fees, if all or any part of the
rent reserved  herein is collected  after maturity with the aid of any attorney;
also to pay reasonable attorney's fees in the event it becomes necessary for the
Landlord  to  employ an  attorney  to force  Tenant  to  comply  with any of the
covenants,  obligations  or  conditions  imposed  by this  Lease or any  renewal
thereof.

         28.  Memorandum of Lease Agreement.  Due to the length of this Lease, a
duplicate  original copy hereof will not be recorded in the appropriate  records
of Marion  County,  Alabama,  but instead  Landlord or Tenant is  authorized  to
execute,  record  and/or  file a  memorandum  of Lease  Agreement  which  may by
reference incorporate all of the terms hereof.

                  THUS  EXECUTED on the dates set forth below, and EFFECTIVE for
all purposes as of the last such date.


                                                  LANDLORD:
                                                  WINFIELD INDUSTRIAL PROPERTIES


Date: November   29 , 1995                           By    /s/ Paul B. Wilson
               ------                                   ------------------------
                                                              Its President



                                                  TENANT:
                                                  SUPERIOR DOOR COMPANY, INC.


Date: November   29 , 1995                           By    /s/ Jay G. Godsey
               ------                                   ------------------------



                              PART II. - EXHIBIT 11
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                   COMPUTATION OF NET INCOME PER COMMON SHARE


                                                          Thirteen Weeks Ended
                                                         -----------------------
                                                         March 27,     March 28,
                                                           1998          1997
                                                         ---------     ---------
 BASIC & PRIMARY
      Net Income                                       $ 3,042,000   $ 3,893,000
                                                        ==========    ==========
 SHARES:


   Weighted average common shares                       19,967,999    19,763,181
       outstanding (basic)

   Dilutive effect if stock options
     were exercised                                        192,537       217,437
                                                        ----------    ----------
  Weighted average common shares
       outstanding, assuming dilution (diluted)         20,160,536    19,980,618
                                                        ==========    ==========



   Basic net income per share                          $       .15   $       .20
                                                        ==========    ==========
   Diluted net income per share                        $       .15   $       .19
                                                        ==========    ==========
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>

<ARTICLE>                              5
                                       

<MULTIPLIER>                                                                1000
       
This schedule contains summary financial information extracted from the Cavalier
Homes, Inc. Consolidated Condensed Balance Sheets as of  March 27, 1998, and the
Consolidated  Condensed  Statements  of  Income and  Cash Flows for the Thirteen
Weeks ended March 27, 1998, and March 28, 1997,  in each case unaudited,  and is
qualified in its entirety by reference to such financial statements.
<S>                                                                         <C>          <C>
<PERIOD-TYPE>                                                               3-mos        3-mos
<FISCAL-YEAR-END>                                                           Dec-31-1998  Dec-31-1997
<PERIOD-END>                                                                Mar-27-1998  Mar-28-1997
<CASH>                                                                            33640        17865
<SECURITIES>                                                                          0            0
<RECEIVABLES>                                                                     32313        33783
<ALLOWANCES>                                                                       1175          843
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