AMERICAN HOMESTAR CORP, 10-Q, 1997-04-09

AMERICAN HOMESTAR CORP
10-Q, 1997-04-09
PREFABRICATED WOOD BLDGS & COMPONENTS

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<PAGE> 1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarterly period ended February 28, 1997

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

Commission File Number 0-24210

AMERICAN HOMESTAR CORPORATION
(Exact name of registrant as specified in its charter)

TEXAS 76-0070846
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)

2450 SOUTH SHORE BOULEVARD, SUITE 300, LEAGUE CITY, TEXAS 77573
(Address of principal executive offices, including zip code)

(281) 334-9700
(Registrant's telephone number, including area code)

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 [ ]

The number of shares outstanding of the registrant's Common Stock, par value
$.05 per share, as of April 2, 1997 was 10,791,795.
<PAGE> 2
PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - May 31, 1996 and February 28, 1997 . . . . . . . . . . . 2
Consolidated Statements of Operations - three months ended
February 29, 1996 and February 28, 1997 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations - nine months ended
February 29, 1996 and February 28, 1997 . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - nine months ended
February 29, 1996 and February 28, 1997 . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 6

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>

1
<PAGE> 3

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1996 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,178,000 $ 12,212,000
Cash in transit from financial institutions . . . . . . . . . 22,148,000 25,189,000
------------ ------------
Total cash and cash equivalents . . . . . . . . . . . . 34,326,000 37,401,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 35,363,000 49,094,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 5,229,000 14,596,000
Manufacturer incentives receivable . . . . . . . . . . . . . . 1,143,000 1,018,000
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . -- 4,749,000
Prepaid expenses and other current assets . . . . . . . . . . 4,625,000 4,589,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . 80,686,000 111,447,000
Property, plant and equipment, net . . . . . . . . . . . . . . . 19,569,000 37,519,000
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . -- 28,045,000
Investment in affiliate . . . . . . . . . . . . . . . . . . . . . 2,435,000 2,547,000
Note receivable . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 --
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 3,165,000 4,194,000
------------ ------------
$108,855,000 $183,752,000
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Floor plan payable . . . . . . . . . . . . . . . . . . . . . . $ 19,886,000 $ 39,014,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 10,924,000 16,701,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 10,871,000 19,588,000
Accrued warranty costs . . . . . . . . . . . . . . . . . . . . 1,166,000 4,737,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . 263,000 4,123,000
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . 43,110,000 84,163,000
Notes payable, less current installments . . . . . . . . . . . . 3,663,000 25,555,000
Reserve for future policy benefits . . . . . . . . . . . . . . . 3,358,000 5,319,000
Minority interest in consolidated subsidiary . . . . . . . . . . 710,000 858,000
Shareholders' equity:
Preferred stock, no par value, authorized 5,000,000 shares; no
shares issued . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, $0.05 par value; authorized 20,000,000 shares;
issued and outstanding 10,771,463 and 10,791,795 shares at
May 31, 1996 and February 28, 1997, respectively . . . . . . 538,000 540,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . 36,005,000 36,133,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 21,471,000 31,184,000
------------ ------------
Total shareholders' equity . . . . . . . . . . . . . . . 58,014,000 67,857,000
------------ ------------
$108,855,000 $183,752,000
============ ============
</TABLE>

2
<PAGE> 4

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
----------- -----------
<S> <C> <C>
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $48,452,000 $78,551,000
Other revenues . . . . . . . . . . . . . . . . . . . . . . . 4,975,000 5,838,000
----------- -----------
Total revenues . . . . . . . . . . . . . . . . . . . . 53,427,000 84,389,000
----------- -----------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 35,704,000 59,000,000
Selling, general and administrative . . . . . . . . . . . . 13,529,000 18,693,000
----------- -----------
Total costs and expenses . . . . . . . . . . . . . . . 49,233,000 77,693,000
----------- -----------
Operating income . . . . . . . . . . . . . . . . . . . 4,194,000 6,696,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (827,000) (1,503,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000 2,000
----------- -----------
Income before items shown below . . . . . . . . . . . 3,481,000 5,195,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . 1,371,000 2,097,000
----------- -----------
Income before items shown below . . . . . . . . . . . 2,110,000 3,098,000
Earnings (loss) in affiliate . . . . . . . . . . . . . . . . . (19,000) 46,000
Minority interest in income of consolidated subsidiary . . . . (63,000) (34,000)
----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 2,028,000 $ 3,110,000
=========== ===========
Earnings per common share . . . . . . . . . . . . . . . . . . . $ 0.21 $ 0.28
=========== ===========
Weighted average number of shares outstanding . . . . . . . . . 9,754,251 11,226,403
=========== ===========
</TABLE>

3
<PAGE> 5

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ -------------
<S> <C> <C>
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $147,700,000 $ 221,447,000
Other revenues . . . . . . . . . . . . . . . . . . . . . . . 16,191,000 18,954,000
------------ -------------
Total revenues . . . . . . . . . . . . . . . . . . . . 163,891,000 240,401,000
------------ -------------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 109,938,000 165,801,000
Selling, general and administrative . . . . . . . . . . . . 40,903,000 54,992,000
------------ -------------
Total costs and expenses . . . . . . . . . . . . . . . 150,841,000 220,793,000
------------ -------------
Operating income . . . . . . . . . . . . . . . . . . . 13,050,000 19,608,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (2,235,000) (3,238,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,000 43,000
------------ -------------
Income before items shown below . . . . . . . . . . . 11,009,000 16,413,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . 4,331,000 6,606,000
------------ -------------
Income before items shown below . . . . . . . . . . . 6,678,000 9,807,000
Earnings (loss) in affiliate . . . . . . . . . . . . . . . . . (31,000) 112,000
Minority interest in income of consolidated subsidiary . . . . (224,000) (206,000)
------------ -------------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 6,423,000 $ 9,713,000
============ =============
Earnings per common share . . . . . . . . . . . . . . . . . . . $ 0.67 $ 0.87
============ =============
Weighted average number of shares outstanding . . . . . . . . . 9,658,073 11,197,816
============ =============
</TABLE>

4
<PAGE> 6

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,423,000 $ 9,713,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 1,083,000 2,345,000
Loss (earnings) in affiliate . . . . . . . . . . . . . . . 31,000 (112,000)
Minority interest in income of consolidated subsidiary . . 224,000 206,000
Compensation expense on sale of common stock . . . . . . . 45,000 23,000
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . 323,000 270,000
Change in assets and liabilities, net of acquisitions:
Increase in receivables . . . . . . . . . . . . . . . . (727,000) (4,209,000)
Increase in inventories . . . . . . . . . . . . . . . . (3,999,000) (8,801,000)
Decrease (increase) in prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . . . . . . . . (618,000) 531,000
Increase in other assets . . . . . . . . . . . . . . . . (1,163,000) (1,613,000)
Increase in accounts payable . . . . . . . . . . . . . . 654,000 363,000
Increase (decrease) in accrued expenses and other . . . 1,115,000 (3,003,000)
Increase in other liabilities . . . . . . . . . . . . . 2,162,000 1,962,000
------------ ------------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . 5,553,000 (2,325,000)
------------ ------------
Cash flows from investing activities:
Payment for purchase of acquisitions, net of cash acquired . -- (10,217,000)
Purchases of property, plant and equipment . . . . . . . . . (5,944,000) (3,856,000)
Note receivable . . . . . . . . . . . . . . . . . . . . . . (3,000,000) --
Investment in mortgage affiliate . . . . . . . . . . . . . . (2,500,000) --
------------ ------------
Net cash used in investing activities . . . . . . (11,444,000) (14,073,000)
------------ ------------
Cash flows from financing activities:
Borrowings under floor plan payable . . . . . . . . . . . . 89,395,000 107,977,000
Repayment of floor plan payable . . . . . . . . . . . . . . (83,240,000) (97,908,000)
Participations in floor plan payable . . . . . . . . . . . . 3,996,000 9,059,000
Principal payments on long-term debt . . . . . . . . . . . . (270,000) (20,233,000)
Borrowings under long-term debt . . . . . . . . . . . . . . 911,000 20,530,000
Exercise of stock options . . . . . . . . . . . . . . . . . 41,000 112,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (170,000) (64,000)
------------ ------------
Net cash provided by financing activities . . . . 10,663,000 19,473,000
------------ ------------
Net increase (decrease) in cash and cash equivalents . . . . . 4,772,000 3,075,000
Cash and cash equivalents, beginning of period . . . . . . . . 26,066,000 34,326,000
------------ ------------
Cash and cash equivalents, end of period . . . . . . . . . . . $ 30,838,000 $ 37,401,000
============ ============
Noncash investing and financing activity - purchase of property
through the issuance of long-term debt . . . . . . . . . . . $ 2,000,000 4,500,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . $ 1,931,000 $ 3,375,000
Cash paid for income taxes . . . . . . . . . . . . . . . . . 3,509,000 5,687,000
============ ============
</TABLE>

5
<PAGE> 7
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
American Homestar Corporation and subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Because of the seasonal nature of the Company's business,
operating results for the three and nine months ended February 28, 1997, are
not necessarily indicative of the results that may be expected for the fiscal
year ending May 31, 1997. These condensed consolidated financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K.

REPURCHASE AGREEMENTS

The Company has entered into agreements with various financial institutions and
other credit sources under which the Company has agreed to repurchase
manufactured homes sold to independent dealers in the event of default by a
dealer in its obligation to such credit sources. Under the terms of such
agreements, the Company agrees to repurchase manufactured homes at declining
prices over the periods of the agreements (which generally range from twelve to
fifteen months). At February 28, 1997, the Company's contingent repurchase
liability was approximately $36.5 million.

INVENTORIES

A summary of inventories follows:

<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1996 1997
----------- -----------
<S> <C> <C>
Manufactured homes:
New . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,818,000 $36,757,000
Used . . . . . . . . . . . . . . . . . . . . . . . . . . 1,878,000 3,699,000
Furniture and supplies . . . . . . . . . . . . . . . . . . 1,505,000 2,870,000
Raw materials and work-in-process . . . . . . . . . . . . . 2,162,000 5,768,000
----------- -----------
$35,363,000 $49,094,000
=========== ===========
</TABLE>

EARNINGS PER SHARE

The consolidated financial statements, including all references to the number
of shares of common stock and all per share information, have been adjusted to
reflect the 5-for-4 stock split effected on February 7, 1997. Earnings per
common share are computed based on the weighted average number of shares
outstanding during the periods presented and are adjusted for common stock
equivalents when dilutive.

ACQUISITIONS

On September 3, 1996, the Company acquired all of the common stock of Heartland
Homes, Inc. ("Heartland") and certain operating assets of Manu-Fac Homes, Inc.
("Manu-Fac") for a combination of cash and notes totaling $8.9 million.
Heartland is a single-plant manufactured housing producer in Henderson, North
Carolina. Heartland markets its homes through 65 independent retailers in
North Carolina and three surrounding states. Manu-Fac was a contractually
affiliated group of independent retailers throughout North Carolina, operating
under the CHOICENTER or WESTWOOD Homes trade names. In connection with the
acquisition of such assets of Manu-Fac, these retailers became franchisees of
Associated Retailers Group, Inc., a wholly-owned subsidiary of the Company, and
continue to operate under the CHOICENTER or WESTWOOD trade name. The results
of the

6
<PAGE> 8
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

acquired operations of Heartland and Manu-Fac have been included with those of
the Company from the date of acquisition. The excess purchase price over the
estimated fair value of the net assets as of the acquisition date of $6.2
million has been recorded as goodwill and is being amortized over 25 years.
The allocation of the purchase price, in certain instances, is based on
preliminary information and is therefore subject to revision when additional
information concerning asset and liability valuations is obtained.

On September 24, 1996, the Company completed the acquisition of Guerdon
Holdings, Inc. and its subsidiary, Guerdon Homes, Inc. (collectively,
"Guerdon"). Guerdon produces manufactured homes in four facilities located in
Oregon, Idaho, Nebraska and Mississippi, and sells its homes through
approximately 150 independent retailers located primarily in the Pacific
Northwest, Rocky Mountain, and South-Central regions of the United States. The
results of the acquired operations of Guerdon have been included with those of
the Company from the date of acquisition. The excess purchase price over the
estimated fair value of the net assets as of the acquisition date of $22.1
million has been recorded as goodwill and is being amortized over 40 years. The
allocation of the purchase price, in certain instances, is based on preliminary
information and is therefore subject to revision when additional information
concerning asset and liability valuations is obtained.

The estimated fair value of assets acquired and liabilities assumed in these
acquisitions is summarized as follows:

<TABLE>
<S> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 9,327,000
Property, plant and equipment . . . . . . . . . . . . . . . . 11,584,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,323,000
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . 4,511,000
Current liabilities . . . . . . . . . . . . . . . . . . . . . (20,749,000)
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . (22,911,000)
-------------
$ 10,085,000
=============

Consideration:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,150,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
Acquisition costs . . . . . . . . . . . . . . . . . . . . . 935,000
-------------
$ 10,085,000
=============
</TABLE>

Unaudited pro forma results of operations of the Company for the periods
presented, assuming the acquisitions discussed above had been consummated at
June 1, 1995, are as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $246,898,000 $277,940,000
Operating income . . . . . . . . . . . . . . 11,713,000 20,014,000
Net income before taxes . . . . . . . . . . . 7,777,000 15,965,000
Net income . . . . . . . . . . . . . . . . . 4,264,000 9,415,000
Earnings per common share . . . . . . . . . . $ 0.44 $ 0.84
============ ============
</TABLE>

The Company intends to sell two facilities acquired in connection with the
Guerdon acquisition. The facilities are recorded at their estimated fair value
less estimated costs to sell the two facilities. Although, it is the Company's
intention to dispose of the facilities within one year, there can be no
assurance that the Company's efforts will be successful. Consequently, the
carrying values of these facilities are classified as long-term in the
Company's balance sheet and as "Assets to Be Disposed Of" in accordance with
SFAS 121.

7
<PAGE> 9
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

On September 24, 1996, the Company established a $25 million credit facility
through Bank One, Texas N.A. These funds, together with the capital raised in
the March 1996 public offering of the Company's common stock, will be used to
support the Company's internal growth strategy as well as the aforementioned
acquisitions. At February 28, 1997, the Company borrowed all amounts available
under this credit facility, which is secured by certain property, plant and
equipment of the Company's manufacturing plants. The Company used the
remaining $7.0 million in the third quarter to purchase five manufacturing
plants formerly under lease.

8
<PAGE> 10

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

This Form 10-Q contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available
to the Company's management. When used in this document, the words
"anticipate," "believe," "estimate," "should," and "expect" and similar
expressions as they relate to the Company or management of the Company are
intended to identify forward- looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions, including the risk factors
described in the Company's most recently filed registration statement. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected. The Company
does not intend to update these forward-looking statements.

VERTICAL INTEGRATION AND INTERNALIZATION

Several elements of the Company's growth strategy are based on an increasing
degree of vertical integration over time. By combining its retail and
manufacturing operations in fiscal 1994 and then developing transportation,
insurance and finance subsidiaries, the Company potentially benefits from
multiple income sources as the result of each retail sale. Increasing the
degree of vertical integration will affect the Company's revenues and margins
in two important ways:

o A key element of the Company's growth strategy is to increase the rate of
"internalization" of its retail sales (i.e., the proportion of new homes
sold by Company-owned retail sales centers that are manufactured by the
Company). This strategy enables the Company to earn both a manufacturing
profit and a retailing profit on those home sales; however, only retail
sales revenue is recognized. Accordingly, increasing the internalization
rate (without otherwise affecting the Company's level of manufacturing and
retailing activity) has the effect of increasing gross margins and reducing
reported revenues; however, aggregate gross profit (in dollars) is not
materially affected by changes in the internalization rate.

o Another key element of the Company's growth strategy is to increase the
degree of retail penetration of its financial services. As insurance
product penetration increases, both reported revenues and earnings should
increase without a corresponding increase in retail unit sales. Similarly,
as 21st Century Mortgage Corporation, the Company's mortgage affiliate
("21st Century"), finances more of the Company's retail sales, the
Company's earnings should increase without a corresponding increase in
retail unit sales.

The recent acquisition of Heartland and Guerdon will have the effect of adding
significant revenues to the Company with little, if any, immediate benefit from
vertical integration. Those benefits should reflect gradually, over time, as
the Company executes its vertical integration strategy in the new regional
markets which these acquisitions encompass.

9
<PAGE> 11

RESULTS OF OPERATIONS

The following table summarizes certain operating data for the Company for
the periods presented:

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
February 29, February 28, February 29, February 28,
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Company-manufactured new homes sold at
retail . . . . . . . . . . . . . . . . 594 757 1,598 2,303
Total new homes sold at retail . . . . . 914 1,012 2,726 3,277
Internalization rate (1) . . . . . . . . 65% 75% 59% 70%
Previously-owned homes sold at retail . . 248 328 745 975
Average number of new homes sold per
retail sales center . . . . . . . . . 23 21 72 70
Average retail selling price--new homes . $43,698 $45,794 $43,141 $45,509
Number of retail sales centers at end of
period . . . . . . . . . . . . . . . . 43 49 43 49
Manufacturing shipments . . . . . . . . . 855 1,699 2,571 4,505
Manufacturing shipments to independent
dealers . . . . . . . . . . . . . . . 202 867 683 1,919
</TABLE>

(1) The internalization rate is the proportion of new homes sold by
Company-owned retail sales centers that are manufactured by the Company.

Three months ended February 28, 1997 compared to three months ended February
29, 1996

Net Sales. Net sales of manufactured homes were $78.6 million for the three
months ended February 28, 1997, as compared to $48.4 million for the three
months ended February 29, 1996. Sales from the Company's newly acquired
manufacturing operations were $25.5 million for the three months ended February
28, 1997. On a basis comparable to fiscal 1996, net sales increased 10% to
$53.1 million. This increase was primarily the result of a 15% increase in the
number of new and previously-owned homes sold at retail and a 5% increase in
the average selling price of new homes. The decrease in the average number of
new homes sold per retail sales center from 23 for the three months ended
February 29, 1996 to 21 for the three months ended February 28, 1997 was
primarily due to adverse weather conditions during the past winter in the South
and Southwest regions of the United States. In addition, adverse weather
conditions delayed the opening of three new retail sales centers from the
Company's third fiscal quarter to the fourth quarter. The Company added one
new retail sales center during the third quarter of fiscal 1997 in response to
continuing increases in demand for new manufactured homes.

Other Revenues. Transportation revenues for the three months ended February
28, 1997 were $2.7 million, an increase of 5% over $2.6 million for the three
months ended February 29, 1996. This increase was primarily due to an increase
in transportation activity in response to generally higher demand for
transportation services. Other revenues increased 31% to $3.1 million for the
three months ended February 28, 1997, as compared to $2.4 million for the three
months ended February 29, 1996. This increase was primarily attributable to
increased commissions and premiums generated by the Company's insurance
operations as well as revenue associated with the Company's franchising
operations acquired in connection with the purchase of Manu-Fac in September,
1996.

Cost of Sales. Cost of manufactured homes sold were $56.7 million (72.2% of
net sales) for the three months ended February 28, 1997, as compared to $33.6
million (69.3% of net sales) for the three months ended

10
<PAGE> 12

February 29, 1996. Cost of manufactured homes attributable to the newly
acquired manufacturing operations for the three months ended February 28, 1997
were $21.4 million. On a basis comparable to fiscal 1996, cost of manufactured
homes increased 5% to $35.3 million (66.4% of net sales) for the three months
ended February 28, 1997 from $33.6 million (69.3% of net sales) for the three
months ended February 29, 1996. This increase in cost of sales was primarily
due to higher sales volume. The decrease in cost of sales, expressed as a
percentage of sales, was the result of an increase in the internalization rate
from 65% for the three months ended February 29, 1996, to 75% for the three
months ended February 28, 1997, and increased operating efficiencies at the
Company's three Texas manufacturing facilities. Cost of sales attributable to
transportation operations for the three months ended February 28, 1997 were
$2.3 million (83.8% of transportation revenues), an increase of 7% from $2.1
million (82.3% of transportation revenues) for the three months ended February
29, 1996. This increase was due to increased transportation activity. The
increase in cost of sales expressed as a percentage of transportation revenues
was largely the result of increased rates paid to independent owner-operators.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended February 28, 1997, were
$18.7 million (22.2% of total revenues), as compared to $13.5 million (25.3% of
total revenues) for the three months ended February 29, 1996. Selling, general
and administrative expenses attributable to the Company's newly acquired
operations were $2.9 million for the three months ended February 28, 1997. On
a basis comparable to fiscal 1996, selling, general and administrative expenses
were $15.8 million (26.8% of total revenues) for the three months ended
February 28, 1997, as compared to $13.5 million (25.3% of total revenues) for
the three months ended February 29, 1996. This increase in selling, general and
administrative expenses was attributable to increased sales, manufacturing,
transportation and insurance activities as well as an increase in fixed costs
and expenses associated with new retail sales centers and expanded
manufacturing capacity. The increase in selling, general and administrative
expenses, expressed as a percentage of total revenues, was the result of an
increase in the internalization rate from 65% for the three months ended
February 29, 1996 to 75% for the three months ended February 28, 1997. This
increase was partially offset by a decrease in warranty expenses, expressed as
a percentage of net revenues.

Interest Expense. Interest expense increased 82% to $1.5 million for the
three months ended February 28, 1997, from $827,000 for the three months ended
February 29, 1996. This increase was attributable to increased borrowings of
$25 million under a credit facility established with Bank One, Texas N.A.,
which was used to fund the Company's internal growth strategy as well as fund
its acquisition of Guerdon and Heartland, and an increase in floor plan debt
used to support a higher level of inventory due to the opening of new retail
sales centers.

Earnings (Loss) in Affiliate. In fiscal 1996, the Company invested $2.5
million to provide one-half of the initial capitalization of 21st Century, a
mortgage company which provides retail financing to manufactured home buyers.
The Company's proportionate share of 21st Century's earnings (losses) were
($19,000) and $46,000 for the three months ended February 29, 1996 and February
28, 1997, respectively.

Nine months ended February 28, 1997 compared to nine months ended February 29,
1996

Net Sales. Net sales of manufactured homes were $221.4 million for the nine
months ended February 28, 1997, as compared to $147.7 million for the nine
months ended February 29, 1996. Sales from the Company's newly acquired
manufacturing operations were $49.3 million for the nine months ended February
28, 1997. On a basis comparable to fiscal 1996, net sales increased 17% to
$172.1 million. The increase was primarily the result of a 23% increase in the
number of new and previously-owned homes sold at retail, and a 5% increase in
the average selling price of new homes. The decrease in the average number of
new homes sold per retail sales center from 72 for the nine months ended
February 29, 1996 to 70 for the nine months ended February 28, 1997 was
primarily due to adverse weather conditions during the past winter in the South
and Southwest regions of the United States. In addition, adverse weather
conditions delayed the opening of three new retail sales centers from the
Company's third fiscal quarter to the fourth quarter. The Company added five
new

11
<PAGE> 13

retail sales centers during the nine months ended February 28, 1997, in
response to continuing increases in demand for new manufactured homes.

Other Revenues. Transportation revenues for the nine months ended February
28, 1997 were $9.9 million, an increase of 16% over $8.6 million for the nine
months ended February 29, 1996. This increase was primarily due to an increase
in transportation activity in response to generally higher demand for
transportation services. Other revenues increased to $9.0 million for the nine
months ended February 28, 1997, as compared to $7.6 million for the nine months
ended February 29, 1996. The increase was primarily attributable to increased
commissions and premiums generated by the Company's insurance operations as
well as revenues associated with the Company's franchising operations acquired
in connection with the purchase of Manu-Fac in September, 1996.

Cost of Sales. Cost of manufactured homes sold were $157.6 million (71.1%
of net sales) for the nine months ended February 28, 1997, as compared to
$102.9 million (69.6% of net sales) for the nine months ended February 29,
1996. Cost of manufactured homes attributable to the newly acquired
manufacturing operations for the nine months ended February 28, 1997 were $42.0
million. On a basis comparable to fiscal 1996, cost of manufactured homes
increased 12% to $115.6 million (67.1% of net sales) for the nine months ended
February 28, 1997 from $102.9 million (69.6% of net sales) for the nine months
ended February 29, 1996. The increase in cost of sales was primarily due to
higher sales volume. The decrease in cost of sales, expressed as a percentage
of sales, was the result of an increase in the internalization rate from 59%
for the nine months ended February 29, 1996 to 70% for the nine months ended
February 28, 1997 and increased operating efficiencies at the Company's three
Texas manufacturing facilities. Cost of sales attributable to transportation
operations for the nine months ended February 28, 1997 were $8.2 million (82.9%
of transportation revenues), an increase of 16% from $8.1 million (82.5% of
transportation revenues) for the nine months ended February 29, 1996. This
increase was due to increased transportation activity.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended February 28, 1997, were $55.0
million (22.9% of total revenues), as compared to $40.9 million (25.0% of total
revenues) for the nine months ended February 29, 1996. Selling, general and
administrative expenses attributable to the Company's newly acquired operations
were $5.3 million for the nine months ended February 28, 1997. On a basis
comparable to fiscal 1996, selling, general and administrative expenses were
$49.7 million (26.0% of total revenues) for the nine months ended February 28,
1997 as compared to $40.9 million (25.0% of total revenues) for the nine months
ended February 29, 1996. The increase in selling, general and administrative
expenses was attributable to increased sales, manufacturing, transportation and
insurance activities, as well as an increase in fixed costs and expenses
associated with new retail sales centers and expanded manufacturing capacity.
The increase in selling, general and administrative expenses, expressed as a
percentage of total revenues, was the result of an increase in the
internalization rate from 59% for the nine months ended February 29, 1996, to
70% for the nine months ended February 28, 1997. This increase was partially
offset by a decrease in warranty expenses, expressed as a percentage of net
revenues.

Interest Expense. Interest expense increased 45% to $3.2 million for the
nine months ended February 28, 1997, from $2.2 million for the nine months
ended February 29, 1996. This increase was primarily attributable to increased
borrowings during the first nine months of fiscal 1997 of $25 million under a
credit facility established with Bank One, Texas N.A., which was used to fund
the Company's internal growth strategy as well as fund its acquisition of
Guerdon and Heartland, and an increase in floor plan debt used to support a
higher level of inventory due to the opening of new retail sales centers.

Earnings (Loss) in Affiliate. In fiscal 1996, the Company invested $2.5
million to provide one-half of the initial capitalization of 21st Century. The
Company's proportionate share of 21st Century's earnings (losses) were
($31,000) and $112,000 for the nine months ended February 29, 1996 and February
28, 1997, respectively.

12
<PAGE> 14

LIQUIDITY AND CAPITAL RESOURCES.

Cash used in operating activities was $2.3 million for the nine months ended
February 28, 1997. Net income accounted for the significant cash provided by
operating activities for the nine months ended February 28, 1997. Accrued
expenses, including accrued warranty costs, increased from $12.0 million at May
31, 1996 to $24.3 million at February 28, 1997, primarily as a result of
acquisitions of manufacturing facilities in several new market regions. The
Company's reserve for future policy benefits increased from $3.4 million at May
31, 1996 to $5.3 million at February 28, 1997 which is consistent with the
increasing premiums generated by the Company's credit life subsidiary.
Substantial increases in inventory and other working capital items required to
open or acquire Company-owned retail sales centers accounted for most of the
cash used during these periods. An important part of the Company's growth
strategy is to expand the number of Company-owned retail sales centers and
increase its manufacturing production. Management estimates the capital
required to open a new retail sales center to be approximately $1.0 to $1.25
million, primarily for inventory and working capital. Subject to continued
increases in demand, the Company may incur additional capital expenditures to
further increase its manufacturing capacity. Management currently plans to
open or acquire a minimum of eight to ten retail sales centers each year for
the next two years, and in connection therewith, will use cash to purchase
inventory and operating assets and for working capital purposes. Management
expects increased cash generated by the Company's retail sales centers and
manufacturing operations to substantially fund the working capital required to
open new retail sales centers.

The Company paid approximately $10.2 million in cash, net of cash acquired,
to purchase Guerdon, Heartland and certain operating assets of Manu-Fac. Total
tangible assets purchased were approximately $25.4 million with total
liabilities assumed of $43.7 million, giving rise to $28.3 million in goodwill.
In addition, the Company had capital expenditures of $8.4 million for the nine
months ended February 28, 1997. Approximately $4.5 million of these
expenditures, which were financed through the issuance of notes payable, were
used to acquire five manufacturing plants formerly under lease by the Company.
The remaining expenditures were used primarily to fund new retail sales centers
opened during the first nine months of fiscal 1997 and additions to
manufacturing capacity.

The Company has a $100.0 million floor plan credit facility with Ford
Consumer Finance Company, Inc. ("Ford"), with an interest rate at Ford's prime
rate. The facility is similar to a revolving credit facility and is used to
finance the purchase of inventory of new homes at Company-owned retail sales
centers. In order to satisfy greater working capital requirements, and to fund
capital expenditures in connection with the Company's expanding operations, the
Company increased its gross borrowings under the facility by $10.1 million in
the first nine months of fiscal 1997. At February 28, 1997, the Company had
net borrowings of $39.0 million (gross borrowings of $59.0 million less
participations of $20.0 million). The Company reduced its participations in
its floor plan credit facility by $9.1 million during the first nine months of
fiscal 1997, principally to fund the acquisitions of Guerdon, Heartland and
certain operating assets of Manu-Fac. The Company's participations in its
floor plan credit facility earn interest at Ford's prime rate less .375%, and
are immediately available to the Company in cash.

Total funded debt, including floor plan, expressed as a percentage of
equity, increased from 41% at May 31, 1996, to 101% at February 28, 1997,
principally the result of acquisitions of manufacturing facilities in several
new market regions. As the Company continues to explore strategic acquisition
opportunities in new regions, the Company's leverage will continue to increase.
The Company is in the process of securing additional debt facilities which
management believes, when coupled with its current unused floorplan facility,
will be sufficient to satisfy working capital and capital expenditure
requirements over the next two years.

13
<PAGE> 15

PART II -- OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT REPORT WITH WHICH
DESCRIPTION NO. EXHIBIT WAS FILED
- ----------- ------- ------------------
<S> <C> <C>
Restated Articles of Incorporation of the Company 3.1 S-1 Registration Statement
No. 33-78630
Amended and Restated Bylaws of the Company 3.2 S-1 Registration Statement
No. 33-78630
Specimen Common Stock Certificate 4.1 S-1 Registration Statement
No. 33-78630
Shareholders Agreement, dated as of August 31, 1993, by and among 4.2 S-1 Registration Statement
the Company and certain shareholders of the Company No. 33-78630
Form of Amendment to Shareholders Agreement 4.3 S-1 Registration Statement
No. 33-78630
Loan Agreement, dated September 24, 1996, among American Homestar 10.1 Filed herewith
Corporation, Oak Creek Housing Corporation, Nationwide Housing
Systems, Inc., American Homestar Financial Services, Inc.,
Heartland Homes, Inc., Guerdon Homes, Inc., Oak Creek Homes,
Inc., American Homestar of Burleson, Inc., American Homestar of
Lancaster, Inc. and Bank One, Texas, N.A.
$2,100,000 Term Promissory Note, dated September 24, 1996, by and 10.2 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$4,600,000 Term Promissory Note, dated September 24, 1996, by and 10.3 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$11,300,000 Term Promissory Note, dated September 24, 1996, by and 10.4 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$7,000,000 Term Promissory Note, dated September 24, 1996, by and 10.5 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
Amendment to Life Reinsurance Contract, dated December 31, 1996, 10.6 Filed herewith
by and between Lifestar Reinsurance Limited and American Bankers
Life Assurance Company of Florida.
Employment Agreement, dated November 15, 1996, between Finis F. 10.7 Filed herewith
Teeter and American Homestar Corporation.
Employment Agreement, dated November 15, 1996, between Laurence A. 10.8 Filed herewith
Dawson, Jr. and American Homestar Corporation.
Nonqualified Stock Option Agreement, dated November 15, 1996 10.9 Filed herewith
between Finis F. Teeter and American Homestar Corporation.
Nonqualified Stock Option Agreement, dated November 15, 1996 10.10 Filed herewith
between Laurence A. Dawson, Jr. and American Homestar
Corporation.
Statement Re Computation of Per Share Earnings 11 Filed herewith
None 15
None 18
</TABLE>

14
<PAGE> 16
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT REPORT WITH WHICH
DESCRIPTION NO. EXHIBIT WAS FILED
----------- ------- ------------------
<S> <C> <C>
None 19
List of Subsidiaries 21 Filed herewith
None 22
None 23
None 24
Financial Data Schedules 27 Filed herewith
None 99
</TABLE>

(b) REPORTS ON FORM 8-K - The Company filed a Current Report on Form 8-K on
October 9, 1996, regarding the acquisition of Guerdon Holdings, Inc. The
Current Report on Form 8-K dated October 9, 1996 was amended on Form
8-K/A and filed on December 6, 1996 to include financial statements of
Guerdon Holdings, Inc. and Pro Forma Financial Information for the
transaction.

15
<PAGE> 17

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.

AMERICAN HOMESTAR CORPORATION

Date: April 7, 1997 By: /s/ Craig A. Reynolds
-------------------------------------------
Craig A. Reynolds
Executive Vice President, Chief Financial
Officer, Secretary and Director
(Principal Financial and Accounting
Officer)

16
<PAGE> 18

EXHIBIT INDEX
<TABLE>
<CAPTION>

EXHIBIT REPORT WITH WHICH
DESCRIPTION NO. EXHIBIT WAS FILED
- ----------- ------- ------------------
<S> <C> <C>
Restated Articles of Incorporation of the Company 3.1 S-1 Registration Statement
No. 33-78630
Amended and Restated Bylaws of the Company 3.2 S-1 Registration Statement
No. 33-78630
Specimen Common Stock Certificate 4.1 S-1 Registration Statement
No. 33-78630
Shareholders Agreement, dated as of August 31, 1993, by and among 4.2 S-1 Registration Statement
the Company and certain shareholders of the Company No. 33-78630
Form of Amendment to Shareholders Agreement 4.3 S-1 Registration Statement
No. 33-78630
Loan Agreement, dated September 24, 1996, among American Homestar 10.1 Filed herewith
Corporation, Oak Creek Housing Corporation, Nationwide Housing
Systems, Inc., American Homestar Financial Services, Inc.,
Heartland Homes, Inc., Guerdon Homes, Inc., Oak Creek Homes,
Inc., American Homestar of Burleson, Inc., American Homestar of
Lancaster, Inc. and Bank One, Texas, N.A.
$2,100,000 Term Promissory Note, dated September 24, 1996, by and 10.2 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$4,600,000 Term Promissory Note, dated September 24, 1996, by and 10.3 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$11,300,000 Term Promissory Note, dated September 24, 1996, by and 10.4 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$7,000,000 Term Promissory Note, dated September 24, 1996, by and 10.5 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
Amendment to Life Reinsurance Contract, dated December 31, 1996, 10.6 Filed herewith
by and between Lifestar Reinsurance Limited and American Bankers
Life Assurance Company of Florida.
Employment Agreement, dated November 15, 1996, between Finis F. 10.7 Filed herewith
Teeter and American Homestar Corporation.
Employment Agreement, dated November 15, 1996, between Laurence A. 10.8 Filed herewith
Dawson, Jr. and American Homestar Corporation.
Nonqualified Stock Option Agreement, dated November 15, 1996 10.9 Filed herewith
between Finis F. Teeter and American Homestar Corporation.
Nonqualified Stock Option Agreement, dated November 15, 1996 10.10 Filed herewith
between Laurence A. Dawson, Jr. and American Homestar
Corporation.
Statement Re Computation of Per Share Earnings 11 Filed herewith
None 15
None 18
</TABLE>

<PAGE> 19

<PAGE> 1
EXHIBIT 10.1

LOAN AGREEMENT

BANK ONE, TEXAS, NATIONAL ASSOCIATION
Loans to
AMERICAN HOMESTAR CORPORATION

This Loan Agreement (this "Agreement") is signed on September 24,
1996, among AMERICAN HOMESTAR CORPORATION, a Texas corporation ("American
Homestar"), OAK CREEK HOUSING CORPORATION, a Texas corporation ("Oak Creek"),
and NATIONWIDE HOUSING SYSTEMS, INC., a Texas corporation ("Nationwide")
(singly "Borrower" and collectively "Borrowers"); AMERICAN HOMESTAR FINANCIAL
SERVICES, INC., a Texas corporation ("AHFSI"), HEARTLAND HOMES, INC.
("Heartland"), a North Carolina corporation, GUERDON HOMES, INC. (after
acquisition by Borrowers), a Delaware corporation, OAK CREEK HOMES, INC., a
Nevada corporation ("OCHI"), AMERICAN HOMESTAR OF BURLESON, INC. ("AHBI"), a
Texas corporation, AMERICAN HOMESTAR OF LANCASTER, INC. ("AHLI"), a Texas
corporation, and Oak Creek and Nationwide in their capacity as guarantors of
some of the loans on which they are not directly liable described below
(collectively "Guarantors"); and BANK ONE, TEXAS, NATIONAL ASSOCIATION
("Lender"), a national banking association doing business in Fort Worth, Texas.

Borrower and Guarantors have requested that Lender loan funds to
Borrower for the purposes set out herein, and Lender is willing to do so upon
the terms, conditions, and provisions of this Agreement. This Agreement
restates, consolidates, and replaces a prior loan agreement dated June 15,
1995, among Borrowers, Guarantors, and Lender (the "Prior Loan Agreement").

Definitions:

Capitalized terms used in this Agreement have the meanings assigned
below:

"Advance" means a disbursement by Lender to Borrowers of any of the
proceeds of the Loans.

"Closing" means the date that this Agreement is signed by all parties.

"Debtor Relief Laws" means any applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
reorganization, or similar laws affecting the rights or remedies of creditors
generally, as in effect from time to time.

"Facilities" means collectively the real estate and improvements
mortgaged to Lender (i) owned by Oak Creek in Burleson, Johnson County, Texas,
and used as a manufacturing facility, (ii) owned by Oak Creek in Lancaster,
Dallas County, Texas, and used as a

Loan Agreement - Page 1
<PAGE> 2
manufacturing facility, (iii) owned by Nationwide in Houston, Harris County,
Texas, and used as a retail facility, (iv) owned by Oak Creek in Fort Worth,
Tarrant County, Texas, used as a manufacturing facility, and not previously
mortgaged to Lender, (v) the Heartland Facility not previously mortgaged to
Lender, and (vi) after acquisition by Borrowers, the Guerdon Facilities.

"GAAP" means generally accepted accounting principles.

"Governmental Authority" means the United States, the state, the
county, the city, or any other political subdivision in which the Borrowers
conduct business, and any other political subdivision, agency, or
instrumentality exercising jurisdiction over Borrowers, Guarantors, the Loans,
or the Properties.

"Governmental Requirements" means all laws, ordinances, rules,
regulations, judgments, decrees, orders, permits, concessions, grants,
franchises, licenses, agreements, or other restrictions of any Governmental
Authority applicable to Borrowers, Guarantors, the Loans, or the Properties.

"Guerdon" means collectively Guerdon Holdings, Inc., a Delaware
corporation, and its wholly-owned subsidiary, Guerdon Homes, Inc., a Delaware
corporation, to be acquired as a subsidiary of American Homestar.

"Guerdon Facilities" means collectively the real estate and
improvements to be mortgaged to Lender now leased by Guerdon, but to be owned
by Guerdon, and used as manufacturing facilities in Boise, Idaho; Vicksburg,
Mississippi; Gering, Nebraska; and Pendleton and Stayton, Oregon.

"Heartland Facility" means the real estate and improvements owned by
Heartland to be mortgaged to Lender, used as a manufacturing facility in
Henderson, North Carolina.

"Loan Documents" means this Agreement, the Notes, all mortgages, deeds
of trust, security agreements, financing statements, or other documents
securing payment of the Loans, all other documents and instruments executed in
connection with this Agreement, and such other instruments evidencing,
securing, or pertaining to the Loans as shall, from time to time, be executed
and delivered to Lender by any Borrowers, Guarantors, or any other party
pursuant to this Agreement, all of which shall be in Proper Form.

Loan Agreement - Page 2
<PAGE> 3
"Loans" mean the aggregate of the following:

(1) Loan 1, Loan 2, Loan 3, Loan 4, Loan 5, Loan 6, and
Loan 7 (as defined below);

(2) All indebtedness now or hereafter owing by any
Borrowers to Lender under this Agreement, whether evidenced by the Notes or
otherwise;

(3) Any and all other or additional indebtedness or
liabilities for which any Borrowers are now or may hereafter become liable to
Lender in any manner (including without limitation overdrafts in a bank
account), whether under this Agreement or otherwise, regardless of whether the
same originated with Lender or was originally payable to or in favor of someone
other than Lender and is or was acquired by Lender by assignment or other
transfer [Notwithstanding this subsection (3) of the definition, if Borrowers
repay to Lender all of the loans described in subsection (1) above, Lender will
release its liens and security interests against the Property and Facilities.];
and

(4) Any and all extensions or renewals of or
substitutions for any of the foregoing indebtedness and liabilities or any part
thereof.

"Notes" means Note 1, Note 2, Note 3, Note 4, Note 5, Note 6, Note 7
(as defined below), any promissory note (now existing or hereafter executed)
evidencing any of the Loans, and any renewals, extensions, or substitutions
therefor.

"Obligated Parties" means Borrowers, Guarantors, any other party
liable, in whole or in part, for the payment of the Notes, whether as maker,
endorser, guarantor, surety, or otherwise, and any party executing any deed of
trust, mortgage, security agreement, pledge agreement, assignment, or other
contract of any kind executed as security in connection with or otherwise
pertaining to the Notes or Loans.

"Proper Form" means in form, substance, and detail acceptable to
Lender in its sole discretion.

"Property" means Oak Creek, OCHI, AHBI, AHLI, and Heartland's accounts
receivable, equipment, and inventory, now owned or hereafter acquired, and all
other collateral of any kind securing payment of the Loans, and Guerdon's
accounts receivable, equipment, and inventory, now owned or hereafter acquired,
after Guerdon's acquisition by Borrowers.

"Related Parties" means any entity owned, controlled, or operated by
any Borrowers or Guarantors, or any entity that owns, controls, or operates any
Borrowers, or any entity which has common shareholders, officers, or directors
with any Borrowers.

Loan Agreement - Page 3
<PAGE> 4
I. Article - Amount and Terms of Credit.

1.1 General Plan. (a) Lender has made three loans to
Borrowers. Borrowers and Guarantors have requested that Lender make four
additional loans to finance the acquisition of Guerdon. American Homestar has
acquired Heartland. American Homestar has contracted to buy all of the stock
of Guerdon Holdings, Inc. which owns all of the stock in Guerdon. American
Homestar has also contracted with the Guerdon Real Estate Trust for the option
to buy the Guerdon Facilities. This Agreement contemplates that Lender will
make the Loans described below to Borrowers, that the Loans will be secured by
the Property and the Facilities (including the Guerdon Facilities, after
acquisition), and that the funds loaned will be used for the purposes set forth
below.

(b) This Agreement and the Loan Documents are to be liberally
construed for the benefit of Lender to ensure the prompt payment of the Loans
in accordance with the Notes and to ensure Lender's realization of the benefits
intended to be derived from all such agreements and instruments.

1.2 Existing Loans. (a) Pursuant to the Prior Loan
Agreement, and subject to the terms and conditions set forth in this Agreement
and the Loan Documents, Lender has made a loan in the amount of $1,000,000 to
American Homestar and Oak Creek ("Loan 1") on the terms set forth in the
Commercial Term Note attached as Exhibit A ("Note 1"). Loan 1 is
unconditionally guaranteed by Nationwide and AHFSI.

(b) Pursuant to the Prior Loan Agreement, and subject to
the terms and conditions set forth in this Agreement and the Loan Documents,
Lender has made a loan in the amount of $1,000,000 to American Homestar and Oak
Creek ("Loan 2") on the terms set forth in the Commercial Term Note attached as
Exhibit B ("Note 2"). Loan 2 is unconditionally guaranteed by Nationwide and
AHFSI.

(c) Pursuant to the Prior Loan Agreement, and subject to
the terms and conditions set forth in this Agreement and the Loan Documents,
Lender has made a loan in the amount of $720,000 to American Homestar and
Nationwide ("Loan 3") on the terms set forth in the Commercial Term Note
attached as Exhibit C ("Note 3"). Loan 3 is unconditionally guaranteed by Oak
Creek and AHFSI.

1.3 New Loans. (a) Subject to the terms and conditions
set forth in this Agreement and the Loan Documents, Lender agrees to make a
term loan in the amount of $2,100,000 to American Homestar and Oak Creek ("Loan
4") on the terms set forth in the Term Promissory Note attached as Exhibit D
("Note 4"). The proceeds of Loan 4 will be used for the purposes of (i)
refinancing Borrowers' existing debt owed to Compass Bank and secured by Oak
Creek's Fort Worth manufacturing Facilities, and (ii) financing a portion of
the initial investment in Guerdon Holdings, Inc.

Loan Agreement - Page 4
<PAGE> 5
(b) Subject to the terms and conditions set forth in this
Agreement and the Loan Documents, Lender agrees to make a term loan in the
amount of $4,600,000 to American Homestar and Oak Creek ("Loan 5") on the terms
set forth in the Term Promissory Note attached as Exhibit E ("Note 5"). The
proceeds of Loan 5 will be used for the purposes of (i) financing a portion of
the initial investment in Guerdon, (ii) financing the acquisition of common and
preferred stock in Guerdon, (iii) retiring subordinated indebtedness owed by
Guerdon, (iv) refinancing the revolving line of credit of Guerdon and debt
related to the Pendleton, Oregon Guerdon Facilities, (v) acquiring the Guerdon
Facilities, and (vi) refinancing existing debt of Heartland. Borrowers may
advance up to $1,000,000 in the aggregate on Note 5 until the merger with
Guerdon is completed, and Borrowers may advance up to $1,500,000 additionally
upon the acquisition of Heartland (the "Heartland Advance"). Thereafter,
Borrowers may advance the remaining $2,100,000, on Note 5 upon the acquisition
of Guerdon (the "Guerdon Advance"). After February 28, 1997, Lender will have
no further obligation to advance on Note 5, and total advances may not exceed
$6,500,000 in the aggregate. The Guerdon Advance may not exceed eighty percent
(80%) of the appraised value of the equipment of Guerdon under an appraisal in
Proper Form, subject to the security interests of Lender and securing payment
of the Loans. The Heartland Advance may not exceed eighty percent (80%) of the
appraised value of the equipment of Heartland under an appraisal in Proper
Form, subject to the security interests of Lender and securing payment of the
Loans. If the appraised value of the equipment of Guerdon is less than
$5,000,000 under an appraisal in Proper Form, Lender agrees to allow aggregate
advances on Loan 5 up to the lesser of (A) $6,500,000, or (B) eighty percent
(80%) of the appraised value of the equipment and machinery of Oak Creek, OCHI,
AHBI, AHLI, Heartland, and Guerdon, under an appraisal in Proper Form, subject
to the security interests of Lender securing payment of the Loans.

(c) Subject to the terms and conditions set forth in this
Agreement and the Loan Documents, Lender agrees to make a term loan in the
amount of $11,300,000 to American Homestar and Oak Creek ("Loan 6") on the
terms set forth in the Term Promissory Note attached as Exhibit F ("Note 6").
The proceeds of Loan 6 will be used for the purposes of (i) financing a portion
of the initial investment in Guerdon, (ii) financing the acquisition of common
and preferred stock in Guerdon, (iii) retiring all subordinated debt owed by
Guerdon, (iv) refinancing the revolving line of credit of Guerdon and debt
related to the Pendleton, Oregon Guerdon Facilities, (v) acquiring the Guerdon
Facilities, and (vi) refinancing existing debt of Heartland. If less than all
of Guerdon's subordinated debt is retired or refinanced with proceeds from the
New Loans after the acquisition of Guerdon by Borrowers, Lender's commitment
and the amount available for advances to Borrowers on Loan 6 will be reduced by
the difference between $12,000,000 and the total principal balance of the
remaining Guerdon subordinated debt; provided, however, that Borrowers will
retire not less than $6,000,000 of Guerdon's subordinated debt with loan
proceeds of Loan 5, Loan 6, and Loan 7. Borrowers may advance up to $4,500,000
in the aggregate on Note 6 until the merger with Guerdon is completed, and
Borrowers may advance up to $400,000 additionally upon the acquisition of
Heartland. Thereafter Borrowers may advance the remaining $6,400,000 on Note 6
upon the acquisition of Guerdon. After February 28, 1997, Lender will have no
further obligation to

Loan Agreement - Page 5
<PAGE> 6
advance on Note 6, and total advances may not exceed $9,400,000 in the
aggregate. At each fiscal year end of Oak Creek, Heartland, and Guerdon (after
acquisition), the outstanding balance owed on Note 6 may not exceed one hundred
percent (100%) of the net book value of accounts receivable and raw material
and finished good inventory of Oak Creek, OCHI, AHBI, AHLI, Heartland, and
Guerdon, subject to the security interests of Lender securing payment of the
Loans.

(d) Subject to the terms and conditions set forth in this
Agreement and the Loan Documents, Lender agrees to make a term loan in the
amount of $7,000,000 to American Homestar and Oak Creek ("Loan 7") on the terms
set forth in the Term Promissory Note attached as Exhibit G ("Note 7"). The
proceeds of Loan 7 will be used for the purposes of (i) financing a portion of
the initial investment in Guerdon, (ii) financing the acquisition of common and
preferred stock in Guerdon, (iii) retiring subordinated debt owed by Guerdon,
(iv) refinancing the revolving line of credit of Guerdon, and debt related to
the Pendleton, Oregon Guerdon Facilities, (v) acquiring the Guerdon Facilities,
and (vi) refinancing existing debt of Heartland. Borrowers may advance up to
$2,500,000 in the aggregate on Note 7 upon the acquisition of Heartland.
Thereafter, Borrowers may advance the remaining $4,500,000 on Note 7 upon the
acquisition of Guerdon. After February 28, 1997, Lender will have no further
obligation to advance on Note 7, and total advances may not exceed $7,000,000
in the aggregate. All advances on Note 7 may not exceed eighty percent (80%)
of the appraised value of the Guerdon Facilities and the Heartland Facility,
under an appraisal in Proper Form, mortgaged to Lender and securing payment of
the Loans.

(e) Loan 4, Loan 5, Loan 6, and Loan 7 will be referred
to collectively as the "New Loans." Note 4, Note 5, Note 6, and Note 7 will be
referred to collectively as the "New Notes."

1.4 Interest (including Special LIBOR Provisions) and Fees. (a)
With respect to each of New Notes, Borrowers may choose prior to execution and
funding from the following interest rate options: (i) Bank One, Texas, N.A.
Base Rate floating, or (ii) the LIBOR Rate for 30, 60, and 90 day interest
periods, plus two percent (2.0%).

(b) Borrowers agree to pay Lender an origination fee equal
to one-half of one percent (0.5%) of all advances on New Notes. Borrower has
prepaid $5,000 of these origination fees with the acceptance of Lender's
commitment with respect to the New Loans, and this prepayment will be applied
to the fees owing on the initial advances under the New Notes.

(c) The terms "Adjusted LIBOR Rate," "LIBOR Rate," "LIBOR
Balance," "Base Rate Balance," "Interest Option," "Interest Period," "Business
Day," and "Dollars," are defined in the New Notes; and reference is made to the
New Notes for the options of Borrowers and rights of Lender with respect to
interest.

Loan Agreement - Page 6
<PAGE> 7
(d) If Lender determines that, by reason of circumstances
affecting the interbank Eurodollar market generally, deposits in Dollars (in
the applicable amounts) are not being offered to United States financial
institutions in the interbank Eurodollar market for the applicable Interest
Period, or that the rate at which such Dollar deposits are being offered will
not adequately and fairly reflect the cost to Lender of making or maintaining a
LIBOR Balance for the applicable Interest Period, Lender shall forthwith give
notice thereof to Borrowers, whereupon until Lender notifies Borrowers that the
circumstances giving rise to such suspension no longer exist, (i) the right of
Borrowers to select the Adjusted LIBOR Rate as an Interest Option under the New
Notes shall be suspended, and (ii) Borrowers shall be deemed to have converted
each LIBOR Balance to a Base Rate Balance under the New Notes in accordance
with the provisions hereof on the last day of the then-current Interest Period
applicable to such LIBOR Balance.

(e) If the adoption of any applicable law, rule, or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank, or agency
charged with the interpretation or administration thereof, or compliance by
Lender with any request or directive (whether or not having the force of law)
of any such authority, central bank, or agency shall make it unlawful or
impossible for Lender to make or maintain a LIBOR Balance, Lender shall so
notify Borrowers. Upon receipt of such notice, Borrowers shall be deemed to
have converted any LIBOR Balance to a Base Rate Balance under the New Notes, on
either (i) the last day of the then-current Interest Period applicable to such
LIBOR Balance if Lender may lawfully continue to maintain and fund such LIBOR
Balance to such day, or (ii) immediately if Lender may not lawfully continue to
maintain such LIBOR Balance to such day.

(f) Borrowers agree to pay Lender all Additional Costs
(as defined below) within ten (10) days of receipt of Borrowers from Lender of
a statement setting forth the amounts due and the basis for the determination
from time to time of such amounts, which statement shall be prima facie
evidence absent manifest error. Failure on the part of the Lender to demand
compensation for any Additional Costs in any Interest Period shall not
constitute a waiver of Lender's right to demand compensation for any Additional
Costs incurred during any subsequent or prior Interest Period. The term
"Additional Costs" shall mean such additional amounts as Lender shall
reasonably determine will compensate Lender for actual costs incurred by Lender
in maintaining Adjusted LIBOR Rates on the LIBOR Balances (or any portion) as a
result of any change, after the date of the New Notes, in any applicable law,
rule, or regulation or in the interpretation or administration thereof by, or
the compliance by Lender with any request or directive from, any domestic or
foreign governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law) or by any
domestic or foreign court changing the basis of taxation of payments to Lender
of the LIBOR Balances or interest on the LIBOR Balances (or any portion) or any
other fees or amounts payable under the New Notes or this Agreement (other than
taxes imposed on all or any portion of the overall net income of Lender by the
State of Texas or the Federal government), or imposing, modifying, or applying
any reserve, special deposit, or similar requirement against

Loan Agreement - Page 7
<PAGE> 8
assets of, deposits with or for the account of, credit extended by, or any
other acquisition of funds for loans by Lender, or imposing on Lender, or on
the interbank market, any other condition affecting the New Notes, this
Agreement, or the LIBOR Balances so as to increase the cost of Lender making or
maintaining Adjusted LIBOR Rates with respect to the LIBOR Balances (or any
portion) or to reduce the amount of any sum received or receivable by Lender
under the New Notes or this Agreement (whether of principal, interest, or
otherwise), by an amount deemed by Lender in good faith to be material.

(g) If (i) the obligation of Lender to permit LIBOR
Balance has been suspended pursuant to subsections (d) or (e) above or (ii)
Lender has demanded compensation under subsection (f) above, then, unless and
until Lender notifies Borrowers that the circumstances giving rise to such
suspension or demand for compensation no longer apply, all advances on Loans
which would otherwise be made by Lender as LIBOR Balance shall be made instead
as Base Rate Balance.

(h) All payments of principal of, and interest on, any of
the Notes shall be made by Borrowers to Lender before 2:00 p.m. (Fort Worth,
Texas time), in immediately available Dollars, at Lender's principal banking
office in Fort Worth. Lender intends to send Borrowers a monthly invoice
showing the principal and interest payable on each of the Loans; however,
Lender's failure to send any invoice will not excuse Borrowers' timely payment
in strict accordance with the Notes. Should the principal of, or any
installment of the principal or interest on, the Notes, or any commitment fee,
become due and payable on a day other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day. Whenever any payment to
be made under this Agreement or under the Notes shall be stated to be due on a
day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall be included in the
computation of the payment of interest, except, in the case of a LIBOR Balance,
if the result of such extension would be to extend such payment into another
Interest Period, such payment shall be made on the immediately preceding
Business Day. All payments made on the Notes shall be credited in the
following manner: (i) first to fees, costs, and expenses which Borrowers have
agreed to pay under this Agreement or the Loan Documents; (ii) second, against
the amount of interest accrued and unpaid on the Notes as of the date of such
payment; (iii) third, against all principal on the Notes as of the date of such
payment; (iv) fourth, as prepayment of any remaining obligations. Subject to
the foregoing, payments and prepayments of principal of the New Notes shall be
applied to such outstanding Base Rate Balance and LIBOR Balance under the New
Notes as Borrowers shall select; provided, however, that if an Event of Default
has occurred and is continuing at the time of such payment, then Lender will be
entitled to apply the payment to Base Rate Balance and LIBOR Balance in the
manner it deems appropriate. Borrowers authorize Lender, if and to the extent
payment is not made when due under this Agreement or under the Notes, to charge
from time to time against any account of Borrowers with Lender any amount as
due.

Loan Agreement - Page 8
<PAGE> 9
1.5 Security and Guaranties. (a) The Loans will be secured by a
first lien and security interest in the following: (i) the Property (including
assets of Guerdon after the acquisition), and (ii) the Facilities (including
the Guerdon Facilities and Heartland Facility). Borrowers and Guarantors agree
to execute and deliver all mortgages, deeds of trust, security agreements, and
financing statements, all in Proper Form, as may be reasonably required by
Lender to evidence and perfect the liens and security interests securing
payment of the Loans.

(b) Payment of Loan 1, Loan 2, Loan 4, Loan 5, Loan 6, and
Loan 7 will be unconditionally guaranteed by Nationwide, AHFSI, OCHI, AHBI,
AHLI, Heartland, and Guerdon (after acquisition) pursuant to guaranties in
Proper Form. Payment of Loan 3 will be unconditionally guaranteed by Oak
Creek, AHFSI, OCHI, AHBI, AHLI, Heartland, and Guerdon (after acquisition)
pursuant to guaranties in Proper Form. The unconditional guaranties will be
referred to collectively as the "Guaranties."

(c) All mortgages, deeds of trust, security agreements,
collateral assignments, and other collateral instruments hereafter executed by
Borrowers or Guarantors in favor of Lender, either pursuant to this Agreement
or otherwise, will secure payment of all of the Loans and will continue in full
force and effect until the Loans are fully paid and satisfied.

1.6 Cross-Collateralization and Cross-Default. (a) All
mortgages, deeds of trust, security agreements, collateral assignments, and
other collateral instruments now or hereafter executed by any Borrowers in
favor of Lender, including the deeds of trust executed in connection with the
Prior Loan Agreement as security for Loan 1, Loan 2, and Loan 3, will secure
payment of all of the Loans.

(b) An Event of Default under this Agreement, any of the
Notes, or any of the Loan Documents will be an Event of Default under all of
those agreements.

2. Article - Advances.

2.1 Initial Loan Advances. (a) Lender will not be obligated to
close any Loans until the following have been furnished to Lender, in Proper
Form, properly executed and acknowledged where required, and Lender has had a
reasonable opportunity to examine them if necessary:

(1) Copies of the articles of incorporation and
bylaws and any amendments thereto of each of the Borrowers and Guarantors,
certified by the President of each Borrower to be true and correct and
complete;

(2) Copies of the resolutions adopted by the
Board of Directors of each of the Borrowers and Guarantors, authorizing the
execution of this Agreement, the Notes, the Loan Documents, the Guaranties, and
all documents called for by this Agreement and the

Loan Agreement - Page 9
<PAGE> 10
performance of the obligations of Borrowers and Guarantors hereunder, certified
by the Secretary of each of the Borrowers and Guarantors and in Proper Form;

(3) The opinion of legal counsel for Borrowers
and Guarantors, addressed to Lender, stating that they have examined each
Borrowers' and Guarantors' articles of incorporation, bylaws, minutes, and
other incorporation papers and certificates available from public officials and
that based on such examination and the statements of Borrowers' officers and
Guarantors, in their opinion:

(i) Borrowers and Guarantors are duly
organized and existing under the laws of Texas (or the state of their
incorporation) and in good standing in Texas and in each state in which they
are doing business;

(ii) Borrowers and Guarantors have full
power and authority to execute and deliver this Agreement, the Notes, the Loan
Documents, the Guaranties, and all instruments and documents called for by this
Agreement;

(iii) Those actions have been duly
authorized and are not and will not be in conflict with any Borrowers' or
Guarantors' articles of incorporation, bylaws, or other incorporation papers,
and, to the best of their knowledge, are not and will not be in conflict with
any provision of law governing Borrowers or Guarantors, or any agreement or
undertaking to which any Borrowers or Guarantors are a party or by which any is
bound;

(iv) Upon execution and delivery, this
Agreement and all other instruments and documents called for by this Agreement
will be the valid and binding obligations of Borrowers and Guarantors
enforceable according to their terms and provisions, except to the extent that
enforceability may be limited by the Debtor Relief Laws;

(v) No approval of, or consent from, any
governmental authority, federal, state or otherwise, of which they have
knowledge, is required in connection with the execution and delivery of any
documents; and

(vi) They have no current actual
knowledge of any material legal or administrative proceedings pending or
threatened against or affecting any Borrowers, Guarantors, or the Property;

(4) Modifications of the deeds of trust executed
under the Prior Loan Agreement as security for Loan 1, Loan 2, and Loan 3, to
secure all of the Loans;

(5) Security Agreements executed by Oak Creek,
OCHI, AHBI, AHLI, and Heartland in favor of Lender and covering the Property;

Loan Agreement - Page 10
<PAGE> 11
(6) Evidence that the security interests of
Lender are not subordinate to security interests of third parties;

(7) Landlord's Waiver, subordinating any liens or
claims of Borrowers' landlords, if any, to the liens and security interests of
Lender; and

(8) Tenant's Subordination, subordinating any
rights or claims of Borrowers' tenants to the liens and security interests of
Lender.

(b) Lender will not be obligated to make the initial
Advance to Borrowers under Loan 4 until the following have been furnished to
Lender, in Proper Form, properly executed and acknowledged where required, and
Lender has had a reasonable opportunity to examine them if necessary:

(1) Note 4;

(2) The mortgages, deeds of trust, security
agreements, and financing statements from Borrowers, Heartland, and Guerdon
securing Loan 4, including a deed of trust covering Oak Creek's Fort Worth
manufacturing facility and the Heartland Facility;

(3) A mortgagee's title policy in the amount of
the fair market value of Oak Creek's Fort Worth manufacturing Facilities, and
the Heartland Facility, insuring that the lien of Lender securing payment of
the Loans is a valid, first lien on Oak Creek's Fort Worth manufacturing
Facilities, and the Heartland Facility, with a survey deletion, and containing
only other exceptions approved by Lender and such endorsements as may be
required by Lender, all in Proper Form; surveys of Oak Creek's Fort Worth
manufacturing Facilities, and the Heartland Facility, acceptable to Lender and
the title company; MAI appraisals of Oak Creek's Fort Worth manufacturing
Facilities, and the Heartland Facility, acceptable to Lender; and environmental
site assessments of Oak Creek's Fort Worth manufacturing Facilities, and the
Heartland Facility, acceptable to Lender; and

(4) The guaranties of Nationwide, AHFSI, OCHI,
AHBI, AHLI, Heartland, and Guerdon (after acquisition) guaranteeing payment of
Note 4.

(c) Lender will not be obligated to make the initial Advance
to Borrowers under Loan 5 until the following have been furnished to Lender, in
Proper Form, properly executed and acknowledged where required, and Lender has
had a reasonable opportunity to examine them if necessary:

(1) Note 5;

(2) The mortgages, deeds of trust, security
agreements, and financing statements from Borrowers, Heartland, and Guerdon
securing Loan 5; and

Loan Agreement - Page 11
<PAGE> 12
(3) The guaranties of Nationwide, AHFSI, OCHI,
AHBI, AHLI, Heartland, and Guerdon (after acquisition) guaranteeing payment of
Note 5.

(d) Lender will not be obligated to make the initial Advance
to Borrowers under Loan 6 until the following have been furnished to Lender, in
Proper Form, properly executed and acknowledged where required, and Lender has
had a reasonable opportunity to examine them if necessary:

(1) Note 6;

(2) The mortgages, deeds of trust, security
agreements, and financing statements from Borrowers, Heartland, and Guerdon
securing Loan 6; and

(3) The guaranties of Nationwide, AHFSI, OCHI,
AHBI, AHLI, Heartland, and Guerdon (after acquisition) guaranteeing payment of
Note 6.

(d) Lender will not be obligated to make the initial Advance
to Borrowers under Loan 7 until the following have been furnished to Lender, in
Proper Form, properly executed and acknowledged where required, and Lender has
had a reasonable opportunity to examine them if necessary:

(1) Note 7;

(2) The mortgages, deeds of trust, security
agreements, and financing statements from Borrowers, Heartland, and Guerdon
securing Loan 7, including mortgages or deeds of trust covering the Guerdon
Facilities;

(3) A mortgagee's title policy in the amount of
the lesser of (i) the Loans or (ii) the fair market value of the respective
Guerdon Facilities, insuring that the lien of Lender securing payment of the
Loans is a valid, first lien on each of the Guerdon Facilities, and containing
only other exceptions approved by Lender and such endorsements as may be
required by Lender, all in Proper Form; surveys of the Guerdon Facilities
acceptable to Lender; MAI appraisals of the Guerdon Facilities acceptable to
Lender and environmental site assessments of the Guerdon Facilities acceptable
to Lender; and

(4) The guaranties of Nationwide, AHFSI, OCHI,
AHBI, AHLI, Heartland, and Guerdon (after acquisition) guaranteeing payment of
Note 7.

2.2 Conditions to Obligation to Advance. (a) Notwithstanding
any other provisions in this Agreement, Lender will not be obligated to make
any Advance unless:

(1) Lender has reviewed and is satisfied with
Borrowers', Heartland's, and Guerdon's books, records, and accounting systems
and procedures;

Loan Agreement - Page 12
<PAGE> 13
(2) All documents furnished by Borrowers and
Guarantors to Lender are in Proper Form;

(3) There neither has occurred (without having
been waived) nor exists any Event of Default or any event which might mature
into an Event of Default;

(4) No litigation or governmental proceedings
have been instituted, or any other claim has been made, against Borrowers,
Guarantors, or ManuFac Homes, Inc. ("ManuFac"), which, in the opinion of
Lender, will to have a material adverse effect on the financial condition of
any Borrowers, Guarantors, or ManuFac; and there has been no material adverse
change in the financial condition of any Borrowers, Guarantors, or ManuFac; and

(5) There has been no attachment, garnishment, or
other seizure by judicial proceeding of any amount loaned or advanced or to be
loaned or advanced to Borrowers under this Agreement.

(b) Prior to making any Advance, Lender may at its option
require the delivery to it of appropriate affidavits and certificates that the
conditions prescribed in Section 2.2(a) do in fact exist, including
certificates from any officers of Borrowers that there neither has occurred nor
exists any Event of Default or any event which might mature into an Event of
Default. Lender, at its option, may waive the requirement of furnishing any of
the documents or papers called for in Section 2.1 with respect to any Advance
without thereby waiving the right to require the same to be furnished for any
subsequent Advance.

Article 3. - Warranties and Covenants.

3.1. Warranties. (a) To induce Lender to enter into this
Agreement and to lend to Borrowers and for Lender's reliance in so doing,
Borrowers and Guarantors warrant to Lender the following:

(1) The proceeds of the Loans will be used only
for the purposes set forth in this Agreement.

(2) Borrowers and Guarantors are corporations
duly organized, validly existing, and in good standing in Texas and in all
other states in which they are doing business (or in which they will do
business after acquiring Guerdon). Borrowers have and will continue to have
corporate power and authority to execute and deliver to Lender this Agreement
and all documents called for by this Agreement, to borrow from Lender under
this Agreement, and to perform all of their obligations under this Agreement
and all documents called for by this Agreement. The execution, delivery, and
performance of this Agreement, Notes, the Guaranties, and all of the other Loan
Documents by Borrowers and Guarantors have been duly

Loan Agreement - Page 13
<PAGE> 14
authorized by their boards of directors and constitute legal, valid, and
binding obligations, enforceable in accordance with their respective terms.
Upon execution and delivery, this Agreement, the Loan Documents, the
Guaranties, and all documents called for by this Agreement will be the valid
and binding obligations of Borrowers and Guarantors.

(3) All information supplied and statements and
representations made to Lender by or on behalf of Borrowers or Guarantors in
any financial, credit, or accounting statement, application for credit, or
other statement furnished to Lender prior to, contemporaneously with, or
subsequent to the execution of this Agreement, and any certificate, documents,
schedule, or other writing furnished to Lender pursuant to this Agreement or in
response to a request made by Lender pursuant to this Agreement, are and shall
be true, correct, complete, valid, genuine, in Proper Form, and truly disclose
and fairly present the Borrower's financial condition as of the date of each
such statement. Each financial statement of Borrowers or Guarantors, now or
hereafter supplied to Lender, was (or will be) prepared in accordance with
GAAP, consistently applied, in effect on the date such statement was prepared.

(4) The execution, delivery, and performance of
this Agreement, the Notes, and the other Loan Documents, and the consummation
of the transaction contemplated, do not require the consent, approval, or
authorization of any third party, other than those already obtained, and do not
and will not conflict with, result in a violation of, or constitute a default
under (i) any provision of any agreement or other instrument binding upon any
Borrowers, or (ii) any law, regulation, or court order applicable to any
Borrowers, unless such default would not have a material adverse effect on such
Borrower. No litigation is pending which prohibits the execution and delivery
of this Agreement, the Notes, the Loan Documents, or any document called for by
this Agreement or affects Borrowers' ability to perform under them.

(5) As of the date of this Agreement, there has
been no material adverse change in the financial condition of any Borrowers or
Guarantors from that reflected by the information supplied and statements and
representations made to Lender; there are no actions, suits, or proceedings
pending or to the knowledge of Borrowers threatened against or affecting any
Borrowers or any of the Property or Facilities, before any court or
governmental department, commission, or board, which, if determined adversely,
would have a material adverse effect on any of the Property or Facilities or
operations of any Borrowers; and there is no fact known to any Borrowers that
has not been disclosed to Lender in writing which may result in any material
adverse change in any Borrower's business or the Property or Facilities.

(6) Borrowers and Guarantors are not in default
with respect to any material obligation to which any of them is a party or by
which any of them is bound. The consummation of the transactions contemplated
hereby, and the performance of any of the terms and conditions hereof and of
the other Loan Documents, will not result in a breach of, or constitute a
default in, any mortgage, deed of trust, lease, promissory note, loan
agreement,

Loan Agreement - Page 14
<PAGE> 15
credit agreement, partnership agreement, or other agreement to which Borrowers
or Guarantors are a party or by which Borrowers or Guarantors may be bound or
affected.

(7) Borrowers have obtained all authorizations,
licenses, permits, consents, approvals, and undertakings which are required
under any applicable law in connection with the execution and delivery of and
the performance of their obligations under or in connection with this
Agreement.

(8) Except for borrowings hereunder, Borrowers
have no outstanding indebtedness owing except for (i) usual and customary
amounts incurred by Borrowers in the ordinary course of business, (ii)
Borrowers' floor planning inventory financing with the Ford Consumer Finance
Company, and (iii) other indebtedness disclosed in writing to Lender. Except
as provided herein, Borrowers are not a guarantor or surety or otherwise
responsible in any manner with respect to any debt or undertaking of another.

(9) Immediately after closing the purchase of
each of the Guerdon Facilities, Borrowers will hold full legal and equitable
title to all of the Facilities, the Facilities will not be subject to any
mortgage or encumbrances (other than those shown in the mortgagee's title
policies), and the mortgages or deeds or trust in favor of Lender will create a
valid, first lien and first security interest on the Facilities and other
collateral described therein.

(10) Borrowers have filed all federal, state, and
local tax reports and returns required by any law or regulation and has either
duly paid all taxes, duties, and charges indicated due on the basis of such
returns and reports, or made adequate provision for the payment thereof, and
the assessment of any material amount of additional taxes in excess of those
paid and reported is not reasonably expected.

(11) The acquisitions of Guerdon, Heartland, and
ManuFac by Borrowers are friendly and not hostile takeovers.

(b) All warranties and representations contained in this
Agreement are and will be in all respects true and correct as of this date and
the date of each Advance, and the warranties contained in Section 3.1(a)(3)
will be true and correct as of the date each item there mentioned is furnished
to Lender. Borrowers and Guarantors shall immediately notify Lender if any of
the warranties set forth in this section are no longer true in any material
respect at any time.

3.2. Affirmative Covenants. From the date of this Agreement and
until the Loans are fully paid, Borrowers and Guarantors agree, in addition to
their other promises, that they shall:

(a) (i) Maintain each Borrowers' and Guarantors'
corporate existence in good standing and maintain full legal capacity to
perform all of their obligations under this Agreement, the Notes, the Loan
Documents, and all documents called for by this Agreement,

Loan Agreement - Page 15
<PAGE> 16
(ii) not permit any of their dissolution, liquidation, or other termination of
existence or forfeiture of right to do business.

(b) At all times keep complete and accurate business
records in conformity with GAAP, consistently applied, the records to be kept
at Borrowers' address stated herein, and permit Lender to examine, audit, and
make and take away copies of Borrower's books and records relating to its
operations, the Property, and the Facilities, as reasonably requested by
Lender, at all reasonable times.

(c) Furnish the following financial information to Lender
at Borrowers' expense in Proper Form and prepared in accordance with GAAP
consistently applied:

(1) As soon as available, and in any event within
one hundred twenty (120) days after the end of each fiscal year, American
Homestar's annual 10K report, containing the annual audited financial
statements of Borrowers on a consolidated basis, in Proper Form, consisting of
at least a balance sheet, a cash flow statement, and a statement of commitments
and contingencies, prepared by an independent certified public accountant
acceptable to Lender, and duly certified (i) as being true and correct in all
material aspects, (ii) as fairly presenting the financial condition of
Borrowers, and (iii) as having been prepared in accordance with GAAP,
consistently applied;

(2) Within sixty (60) days after the end of each
quarter, a Compliance Certificate, in the form attached as Exhibit H, prepared
as of the end of the quarter, signed by an authorized officer of Borrowers,
certifying that Borrowers are in compliance with this Agreement and the
covenants set out in Section 3.2(n), and that no Event of Default or event
which might mature into an Event of Default has occurred or exists;

(3) Upon filing with the Securities Exchange
Commission, copies of American Homestar's quarterly 10Q report within sixty
(60) days of quarter-end;

(4) Within sixty (60) days after the end of each
quarter until the merger of Guerdon with Oak Creek is consummated, unaudited
quarterly financial statements for Guerdon, consisting of at least a balance
sheet as of the close of the quarter and an income statement for the quarter
and for the period from the beginning of the fiscal year to the close of the
quarter;

(5) Financial statements, consisting of at least
a balance sheet and an income statement, prepared in accordance with GAAP, and
access to the books and records and any other financial information reasonably
requested by Lender, for any entity or business to be acquired by Borrowers,
not less than thirty (30) days prior to the consummation of the acquisition;

Loan Agreement - Page 16
<PAGE> 17
(6) Evidence of payment of all ad valorem taxes
against the Facilities, and upon request of Lender, evidence of payment of all
other assessments, taxes, charges, levies, liens, and claims against Borrowers
or the Facilities; and

(7) Such other information respecting the
condition and the operations, financial or otherwise, of Borrowers, the
Property, and the Facilities as Lender may from time to time reasonably
request.

(d) Allow Lender or any party designated by Lender to
perform such audits of Borrowers' accounts receivable, accounts payable, and
other business records as Lender may require (Borrowers agree that Lender may
require one audit per year to be performed, with Borrowers paying one-half of
all reasonable costs and expenses related to the audit), and permit any person
designated by Lender to visit and inspect at reasonable places and times the
Facilities, the Property, and any of the properties, books, and records of
Borrowers, as often as Lender may reasonably request.

(e) Promptly and fully perform all of their obligations
under this Agreement and all other agreements with Lender (whether now existing
or entered into hereafter).

(f) Pay the cost of preparing, obtaining, and furnishing
to Lender any statements, opinions, certificates, schedules, documents,
insurance policies, and all other items required to be furnished to Lender
pursuant to this Agreement or to any reasonable request made pursuant to this
Agreement.

(g) Maintain adequate casualty insurance on all property,
improvements, and equipment and maintain liability insurance to such extent and
against such hazards and liabilities, consistent with Borrowers' current
insurance, including but not limited to, fire insurance for not less than the
appraised value of the Facilities, comprehensive property damage and general
liability, and casualty insurance, and provide Lender with evidence of the
continual coverage of those policies prior to the lapse of any policy. Each
policy of insurance must be with responsible insurers licensed to do business
in the State of Texas as applicable and must name Lender as a loss payee and
additional insured as its interest shall appear.

(h) Maintain in good repair and working order all
property owned by Borrowers and used in the normal course of their business.

(i) Maintain their primary depository accounts for Oak
Creek and the manufacturing operations and for Nationwide and retail operations
at Lender (provided however that Borrowers will have a one-year grace period in
which to use their best efforts to move the depository accounts for Nationwide
and the retail operations to Lender).

(j) Comply in the operation of their business with all
Governmental Requirements relating to or affecting their business or the
Property, including Governmental

Loan Agreement - Page 17
<PAGE> 18
Requirements relating to the environment or the treatment, transportation,
storage, handling, generation, discharge, or release of pollutants,
contaminants, chemicals, waste, or any other industrial, toxic, flammable,
corrosive, hazardous, or harmful substances. If requested by Lender, Borrowers
will deliver to Lender signed statements of Borrowers in Proper Form as
evidence of such compliance.

(k) Inform Lender of any liability in excess of
$1,000,000, arising hereafter, whether direct or indirect, and actual or
contingent, excluding, however, liability of 21st Century Mortgage Corporation
incurred in the ordinary course of business.

(l) Manage the Facilities in an orderly and efficient
manner consistent with good business practices, and perform and comply with all
statutes, rules, regulations, and ordinances imposed by any Governmental
Authority upon any of the Facilities or any Borrower and their operations
including, without limitation, compliance with all applicable laws relating to
manufacturing, except where such non-performance or non-compliance would not
have a material adverse effect on the Facilities or any Borrowers, and except
such shut-downs of the Facilities as is necessary in the reasonable
determination of Borrowers.

(m) Pay and discharge when due all indebtedness and
obligations, including without limitation, all assessments, taxes, governmental
charges, levies, and liens, of every kind and nature, imposed upon any
Borrowers or the Facilities, prior to the date on which penalties would attach,
and all lawful claims that, if unpaid, might become a lien or charge upon any
of the Facilities, income, or profits; provided, however, Borrowers will not be
required to pay and discharge any such assessment, tax, charge, levy, lien, or
claim so long as (i) the legality of the same shall be contested in good faith
by appropriate judicial, administrative, or other legal proceedings, and (ii)
Borrowers have established adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with GAAP.

(n) Execute and deliver, or cause to be executed and
delivered, any and all other agreements, instruments, or documents which Lender
may reasonably request in order to give effect to the transactions contemplated
under this Agreement and the Loan Documents, and to grant, perfect, and
maintain liens and security interests on or in the Facilities, and promptly
cure any defects in the execution and delivery of any of the Loan Documents.

3.3 Negative Covenants. From the date of this Agreement until the
Loans are fully paid, Borrowers and Guarantors agree, in addition to their
other promises, that they shall not, without Lender's prior written consent:

(a) Directly or indirectly create, incur, assume, or
permit to exist, any indebtedness, secured or unsecured, except (i)
indebtedness arising under or contemplated by this Agreement; (ii) indebtedness
attributable to trade payables and accrued liabilities incurred in the ordinary
course of business; (iii) indebtedness for current taxes, assessments, and
other

Loan Agreement - Page 18
<PAGE> 19
governmental charges not delinquent; (iv) indebtedness already incurred and
disclosed in writing to Lender; (v) new indebtedness not to exceed $5,000,000
annually in the aggregate or $15,000,000 for the term of this Agreement; (vi)
Borrowers' floor planning inventory financing; (vii) indebtedness of 21st
Century Mortgage Corporation incurred in the ordinary course of business; and
(viii) indebtedness assumed with respect to permissible mergers and
acquisitions.

(b) Create or permit to exist any mortgage, pledge, title
retention, lien, encumbrance, or security interest with respect to any of
their assets except (i) those in favor of Lender; (ii) for current taxes,
assessments, and other governmental charges not delinquent or as security for
those items being contested in good faith; (iii) deposits made in the ordinary
course of business in connection with worker's compensation insurance,
unemployment insurance, social security, performance bonds, surety bonds, and
other similar items; (iv) easements, rights-of-way, restrictions, and other
similar encumbrances incurred in the ordinary course of business and not
interfering with the ordinary conduct of the business of Borrowers; (v)
mortgages, liens, or security interests on the assets of Nationwide (excluding
the Facilities); (vi) those created by 21st Century Mortgage Corporation in the
ordinary course of business; and (vii) those permitted under this Agreement.

(c) Agree to purchase or repurchase, guarantee, endorse,
or become liable, directly or indirectly, with respect to, any indebtedness or
obligation or liability of any other person, except for (i) endorsements of
negotiable instruments for deposit or collection in the ordinary course of
business; (ii) indebtedness already incurred and disclosed in writing to
Lender; and (iii) new indebtedness not to exceed $5,000,000 annually in the
aggregate or $15,000,000 for the term of this Agreement.

(d) Change any of their fiscal years.

(e) Assign or transfer this Agreement.

(f) Make any loans to any third parties [excluding (i)
the existing $3 million loan to Guerdon, (ii) letters of credit in the total
amount of $2,250,000, issued for the account of Borrowers as credit support for
Guerdon, (iii) loans from 21st Century Mortgage Corporation in the ordinary
course of business, and (iv) loans to Laurence A. Dawson, Jr. pursuant to a
split-dollar insurance agreement]; provided however that Borrowers may make
loans up to $25,000, in the aggregate to any employees of Borrowers, excluding
Borrowers' officers and directors.

(g) Permit a material change in the general nature of
Borrowers' business.

(h) Permit a change in control of greater than fifty
percent (50%) of the outstanding common stock of any of the Borrowers.

Loan Agreement - Page 19
<PAGE> 20
(i) Enter into an agreement to acquire, merge, or
consolidate with any other entity or business (excluding the Guerdon
acquisition) or purchase or otherwise acquire all or substantially all of the
assets of any person, corporation, or other entity (except as permitted
hereunder with respect to Guerdon, and excluding retail lot acquisitions and
capital expenditures in the ordinary course of business) costing in excess in
the aggregate the sum of $25,000,000, plus seventy-five percent (75%) of the
net proceeds from any stock offering of Borrowers after the date of this
Agreement; and provided that no acquisition, merger, or consolidation will be
permitted if there is an uncured Event of Default hereunder or if such would
create an Event of Default.

3.34. Financial Covenants. From the date of this Agreement until
the Loans are fully paid, American Homestar will maintain the following
financial covenants, calculated in accordance with GAAP, consistently applied,
unless otherwise provided below:

(a) American Homestar will maintain at all times a ratio
of total liabilities to total equity capital less than or equal to 2.0:1.0.

(b) American Homestar will maintain at the end of each
fiscal quarter a minimum Debt Services Coverage Ratio greater than or equal to
1.75:1.0. "Debt Service Coverage Ratio" is defined as the ratio of (1) the sum
of (x) Borrower's most recent four-quarter net income, plus (y) interest
expense and depreciation and amortization for the same period, divided by (2)
the sum of the following for the most recent four-quarters: (x) interest
expense, plus (y) current maturities of long-term debt, plus (z) cash
dividends. Current maturities of long-term debt will exclude the portion of
current maturities which will become due solely as a result of the maturity of
a balloon note so long as management intends and can reasonably be expected to
renew or refinance such balloon indebtedness.

(c) American Homestar will maintain a minimum Tangible
Net Worth greater than or equal to the amounts set forth below during the
periods shown:

<TABLE>
<CAPTION>
Period Minimum Tangible Net Worth
-------- --------------------------
<S> <C>
5/31/96 through 8/29/96 $20,000,000
8/30/96 through 11/29/96 $22,500,000
11/30/96 through 2/27/97 $25,000,000
2/28/97 through 5/30/97 $27,000,000
5/31/97 $30,000,000
</TABLE>

After May 31, 1997, American Homestar will maintain a minimum Tangible Net
Worth greater than or equal to the sum of $30,000,000 plus 50% of Borrower's
cumulative net income accruing after that date plus the net proceeds of any new
equity stock offerings by American Homestar. "Tangible Net Worth" is defined
as American Homestar's total equity capital less intangible assets.

Loan Agreement - Page 20
<PAGE> 21
(d) American Homestar will maintain a minimum Current
Ratio greater than or equal to 1.10:1.0 from the date of this Agreement until
May 31, 1997, and greater than 1.15:1.0 thereafter. "Current Ratio" is defined
as the ratio of current assets to current liabilities.

3.5. Environmental. (a) Borrowers covenant and warrant that the
Facilities and Borrowers' operations and use of the Facilities will at all
times comply with and conform to all Governmental Requirements relating to the
environment and to the transportation, distribution, storage, placement,
handling, treatment, discharge, manufacture, generation, production,
processing, or disposal (collectively "Treatment") or any emissions,
discharges, leakage, venting, exposure, releases, or threatened releases
(collectively "Release") of pollutants, contaminants, chemicals, waste, waste
products, petroleum products, radio-active waste, poly-chlorinated biphenyls,
asbestos, or any other industrial, toxic, flammable, corrosive, hazardous, or
harmful substances (collectively "Waste") into the environment including,
without limitation, ambient air, surface water, ground water, or land
(collectively the "Environmental Laws"), except where such failure to comply
would not have a material adverse effect on any of the Facilities or any
Borrowers.

(b) Borrowers further warrant that, except as disclosed in
writing to Lender: (i) Borrowers are not aware and have not received notice of
any past or present violations by any party, including prior operators or
owners, of the Environmental Laws affecting the Facilities; (ii) Borrowers have
obtained all permits, licenses, and authorizations required under the
Environmental Laws affecting the Facilities; (iii) no liens arising under the
Environmental Laws affect the Facilities or any of the Borrowers; (iv)
Borrowers do not have any liability for the Treatment or Release of Waste in
violation of the Environmental Laws; (v) Borrowers and the Facilities are not
the subject of any existing, pending, or to Borrowers' knowledge threatened
claim, action, or investigation for violations of the Environmental Laws; and
(vi) all Waste generated in connection with the operations on the Facilities
has been transported, treated, and disposed of in accordance with the
Environmental Laws.

(c) Immediately upon receipt of any notice from any party
of a violation of subsection (a) or if any of the warranties in subsection (b)
become false, Borrowers shall fully inform Lender of the violation and take all
steps required by any Governmental Authority to clean up all contamination
related to the Treatment or Release of Waste affecting the Facilities. Without
being liable for any discoveries, Lender has the right, but not the obligation,
with prior notice to Borrowers to inspect and monitor Borrowers' compliance
with the terms of this Section.

(d) Notwithstanding any other limitation of liability in
this Agreement or any other Loan Documents, Borrowers agree to indemnify Lender
and its officers, directors, employees, agents, and attorneys against, and to
reimburse Lender with respect to, all claims, actions, liabilities, damages,
and losses, including claims for bodily injury, property damage, abatement,
remediation, and strict liability claims (collectively "Claims"), and all costs
and

Loan Agreement - Page 21
<PAGE> 22
expenses and other charges of any description whatsoever, including (without
limitation) reasonable attorneys fees, court costs, administrative costs, costs
of appeal, and all costs and expenses incurred in investigating into or
defending against any Claims, made against or sustained or incurred by any of
the indemnified parties arising or related in any way to Treatment or Release
of any Waste in, on, or affecting the Facilities, whether or not caused by
Borrowers or by the violation of this Section or the Environmental Laws.

(e) Notwithstanding anything in this Agreement or any
other Loan Documents to the contrary, the undertakings of Borrowers in this
Section shall survive the expiration or termination of this Agreement
regardless of the means of the expiration or termination; provided, that such
indemnification shall not apply to occurrences caused by Lender or arising
after foreclosure of the Facilities or other possession of the Facilities by
Lender. Specifically, the indemnification in subsection (d) shall run from the
actual knowledge of Lender of any Treatment or Release of Waste or other
environmental condition covered by this Section.

(f) American Homestar, Oak Creek, and Lender have entered
into a letter agreement of even date providing for an escrow deposit for the
cleanup of certain environmental issues related to the Facilities.

Article 4. - Default

4.1. Events of Default. (a) As used in this Agreement, the term
"Event of Default" means the occurrence of any of the following events or
existence of any of the following conditions with respect to Borrowers:

(1) Failure to make punctual payment when due of
any sums owing on the Notes or any of the other Loans; or

(2) Breach of any of the material warranties
contained in, or failure of any of the Obligated Parties to properly perform
any of the material obligations, covenants, or agreements contained in, this
Agreement, the Notes, the Loan Documents, or any other written agreement (now
existing or made hereafter) relating to the Loan between Lender and Borrowers;
or

(3) Levy, execution, attachment, sequestration,
or other writ against any real or personal property, representing the security
for the Loans, valued in excess of $50,000, and remaining unstayed or unpaid;
or

(4) Any "Event of Default" under the Notes or any
of the Loan Documents, the Events of Default defined in the Notes and Loan
Documents being cumulative to those contained in this section; or

Loan Agreement - Page 22
<PAGE> 23
(5) The transfer, whether voluntarily or by
operation of law, of all or any portion of the Property or the Facilities
(except as permitted by this Agreement); or

(6) The making by any of the Obligated Parties of
a transfer in fraud of creditors; or

(7) The failure of any of the Borrowers to pay
any money judgment in excess of $50,000 within thirty (30) days after the
judgment becomes final unless such judgment is stayed; or; or

(8) Any Borrowers' liquidation, termination of
existence, merger or consolidation with another, forfeiture of right to do
business, or appointment of a trustee or receiver for any part of their
property, or the calling of any meeting of creditors of any of the Obligated
Parties for the purpose of considering an arrangement or composition; or

(9) A filing by any of the Borrowers of a
voluntary petition in bankruptcy, or taking advantage of any Debtor Relief
Laws; or an answer admitting the material allegations of a petition filed
against any of the Borrowers under any Debtor Relief Laws; or the failure of
any Borrowers to obtain dismissal within ninety (90) days of any involuntary
proceeding filed against it under any Debtor Relief Laws; or an admission by
any of the Borrowers in writing of an inability to pay its debts as they become
due; or the calling of any meeting of creditors of any Borrowers for the
purpose of considering an arrangement or composition.

(b) As used in this Agreement, the term "event which
might mature into an Event of Default" means any event which with the lapse of
time or with notice would constitute an Event of Default.

(c) The Events of Default contained herein are in
addition to and cumulative of any events of default set forth in the Notes, the
Loan Documents, or any other documents executed in connection with the Loans.

(d) Prior to any Event of Default due to the failure to
make punctual payment on any of the Notes, Lender will give Borrowers notice of
such event and Borrowers will have ten (10) days after such notice in order to
cure before the Event of Default is declared, the acceleration of the Notes,
and the exercise of any remedies. Prior to any other Event of Default, except
for a filing by any Borrowers under the Debtor Relief Laws, Bank will give
Borrowers notice of such event and Borrowers will have twenty-five (25) days
after such notice in order to cure before the Event of Default is declared, the
acceleration of the Notes, and the exercise of any remedies.

4.2. Remedies. Upon the occurrence of an Event of Default and
Borrowers' failure to timely cure such default after any notice specifically
required herein, and at any time thereafter,

Loan Agreement - Page 23
<PAGE> 24
Lender may do any and all of the following: (i) terminate Lender's obligations
hereunder as to Borrowers, or (ii) without additional presentment, demand, or
notice to Borrowers or Guarantors, all of which are waived by Borrowers and
Guarantors, declare the Loans immediately due and payable and proceed with
foreclosure of all liens and security interests securing the payment thereof
and take such action and exercise such rights and remedies as are available to
Lender under this Agreement and otherwise.

Article 5. - General Provisions.

5.1. Lender's Expenses. Without limiting the effect of any
provision of any Notes or any other document which provides for the payment of
expenses and attorneys fees upon the occurrence of certain events, Borrowers
shall reimburse Lender for all reasonable expenses (including attorneys fees
and legal expenses) incurred by Lender in connection with the negotiation and
preparation of this Agreement and related documents or the collection of the
Loans or enforcement of any of Borrowers' or Guarantors' obligations under this
Agreement or the Loan Documents. Lender may require reimbursement to be made
from loan proceeds to be advanced to Borrowers hereunder.

5.2. Survival of Agreements. Borrowers' and Guarantors' warranties
and obligations under this Agreement shall survive the termination of this
Agreement and the existence of any condition which relieves Lender from its
obligation to make Advances to Borrowers or which grants Lender the right to
declare any of the Loans due and to demand payment thereof.

5.3. Maximum Interest Rates. No provision of the Notes or this
Agreement or any other agreement between the parties shall require the payment
or permit the collection of interest in excess of the maximum rate which
Borrowers lawfully may stipulate and agree to pay. If any excess interest is
provided for by the Notes or by this Agreement or in any other agreement
between the parties, then Borrowers shall not be obligated to pay the amount of
interest to the extent that it is in excess of the amount permitted by law, and
any excess interest previously paid shall be credited against the principal of
the Notes.

5.4. Entire Agreement. This Agreement constitutes the entire
agreement made by Lender with respect to the lending hereunder and supersedes
all prior loan agreements and other agreements between Borrowers, Guarantors,
and Lender.

5.5. Non-Waiver. No act, delay, omission, or course of dealing
between Lender and any party will be a waiver of any of Lender's rights or
remedies under this Agreement or otherwise, and no waiver, change, or
modification in whole or in part of this Agreement, any note, or any other
agreement will be effective unless in a writing signed by Borrowers,
Guarantors, and Lender. All rights and remedies of Lender are cumulative and
may be exercised singly or

Loan Agreement - Page 24
<PAGE> 25
concurrently. A waiver by Lender of any right or remedy as Borrowers on any
occasion will not be a bar to the exercise of any right or remedy on any
subsequent occasion.

5.6. Assignment. This Agreement is binding upon and inures to the
benefit of Lender, Borrowers, Guarantors, and their respective successors and
assigns; however, the rights and obligations of Borrowers or Guarantors may not
be assigned without Lender's prior written consent.

5.7 Notices. Any notice required or permitted by any party to
this Agreement must be in writing and must be made by personal delivery to the
party to the attention of the individual listed below or by certified mail,
return receipt requested, at the party's address indicated below, and any
notice will be effective upon delivery in the case of personal delivery or upon
depositing in the United States mail, postage prepaid, in the case of delivery
by mail. Until changed by written notice, the addresses of the parties are as
follows:

Lender: BANK ONE, TEXAS, N.A.
500 Throckmorton Street
Fort Worth, Texas 76102
Attn.: Mr. Barry B. Kromann,
Vice President

With copy to Paul D. Bradford
counsel for Harris, Finley & Bogle, P.C.
Lender: 1300 Bank One Tower
500 Throckmorton Street
Fort Worth, Texas 76102-3798

Borrowers: AMERICAN HOMESTAR CORPORATION
2450 South Shore Boulevard, Suite 300
League City, Texas 77573
Attn.: Executive Vice President

OAK CREEK HOUSING CORPORATION
Brookhollow Two
2221 Lamar Blvd., Suite 790
Arlington, Texas 76006
Attn.: President

Loan Agreement - Page 25
<PAGE> 26
NATIONWIDE HOUSING SYSTEMS, INC.
2450 South Shore Boulevard, Suite 300
League City, Texas 77573
Attn.: Vice President-Finance

Guarantors:
AMERICAN HOMESTAR FINANCIAL SERVICES, INC.
2450 South Shore Boulevard, Suite 300
League City, Texas 77573
Attn.: Executive Vice President

HEARTLAND HOMES, INC.
P. O. Box 1479
State Road 1216
Henderson, North Carolina 27536

GUERDON HOMES, INC.
5285 S.W. Meadows, Suite 131
Lake Oswego, Oregon 97035

OAK CREEK HOMES, INC.
2221 Lamar Blvd., Suite 790
Arlington, Texas 76006

AMERICAN HOMESTAR OF BURLESON, INC.

2221 Lamar Blvd., Suite 790
Arlington, Texas 76006

AMERICAN HOMESTAR OF LANCASTER, INC.

2221 Lamar Blvd., Suite 790
Arlington, TX 76006

With copy to Jackson & Walker, L.L.P.
counsel for 901 Main Street, Suite 6000
Borrowers and Dallas, Texas 75202
Guarantors: Attn.: Richard F. Dahlson

This provision shall not be construed to impose an obligation of notice where
notice is not otherwise required.

Loan Agreement - Page 26
<PAGE> 27
5.8. Form and Substance. All reports and certificates required of
Borrowers by this Agreement must be in Proper Form and must be, if requested by
Lender, verified by Borrowers' President. All documents, certificates,
insurance policies, and other items required under this Agreement to be
executed and delivered to Lender shall be in Proper Form.

5.9. Security Interest in Sums on Deposit. Borrowers and
Guarantors hereby grant to Lender a lien on and security interest in any and
all deposits or other sums at any time credited by or due from Lender to
Borrowers or Guarantors, whether in regular or special depository accounts or
otherwise, and in any and all monies, securities, and other properties of
Borrowers or Guarantors (and the proceeds thereof), now or hereafter held or
received by or in transit to Lender from or for Borrowers or Guarantors,
whether for safekeeping, custody, pledge, transmission, collection, or
otherwise. All deposits, sums, monies, securities, and other property may at
any time after default be set off, appropriated, and applied by Lender against
the Loans, whether now existing or hereafter arising, under this Agreement, the
Notes, or otherwise, whether or not the obligation is then due or secured by
any collateral or if it is so secured, whether or not the collateral is
considered to be adequate. In addition to the above rights, Lender shall have
all the rights and privileges granted a secured party under the Texas Business
and Commerce Code.

5.10. Election of Remedies. Lender shall have all of the rights and
remedies granted in all instruments between Lender and Borrowers or Guarantors
and available at law or in equity, and these same rights and remedies shall be
cumulative and may be pursued separately, successively, or concurrently against
Borrowers, Guarantors, or the Property at the sole discretion of Lender. The
exercise or failure to exercise any of the same shall not constitute a waiver
or release thereof or of any other right or remedy, and the same shall be
nonexclusive.

5.11. Interpretation. (a) This Agreement and all other instruments
executed with reference to the Loans shall be interpreted and construed in
accordance with the laws of the State of Texas.

(b) Article and section headings used in this Agreement
are for convenience only and shall be given no significance whatever in
interpreting and construing the provisions of this Agreement.

(1) "Lender," "Borrowers," and "Guarantors"
include their respective successors and assigns.

(2) Unless the context otherwise requires,
pronouns in the masculine, feminine, or neuter gender include each other, and
nouns and pronouns in the singular or plural number include each other.

Loan Agreement - Page 27
<PAGE> 28
(d) Unless otherwise indicated in this Agreement, the
financial terms used in this Agreement shall be defined the same as they are
defined under GAAP.

(e) In case any of the provisions of this Agreement shall
for any reason be held to be invalid, illegal, or unenforceable, such
invalidity, illegality, or unenforceability shall not affect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.

5.12. Performance. All of Borrowers' and Guarantors' obligations
are performable in Tarrant County, Texas. The parties irrevocably agree that
venue for any claim related to the Loans must be brought in Tarrant County,
Texas.

5.13. Multiple Counterparts. This Agreement may be executed in
multiple counterparts. No single counterpart of this Agreement must be
executed by all parties, and this Agreement will bind each party signing any
counterpart hereof. In the event of execution in multiple counterparts, Lender
is authorized to detach and retain only the signature and acknowledgment pages
from all but one counterpart.

5.14. Controlling Agreement. If there is a conflict between the
terms of this Agreement and the terms of any of the Loan Documents, this
Agreement will control.

EXECUTED in multiple originals in Fort Worth, Texas, as of the date
first written above.

LENDER:

BANK ONE, TEXAS,
NATIONAL ASSOCIATION

By: /s/ Barry B. Kromann
-----------------------
Barry B. Kromann,
Vice President

BORROWERS:

AMERICAN HOMESTAR CORPORATION

By: /s/ Laurence A. Dawson, Jr.
------------------------------
Laurence A. Dawson, Jr.,
President

Loan Agreement - Page 28
<PAGE> 29

OAK CREEK HOUSING CORPORATION

By: /s/ Laurence A. Dawson, Jr.
---------------------------
Laurence A. Dawson, Jr.,
President

NATIONWIDE HOUSING SYSTEMS, INC.

By: /s/ Finis F. Teeter
-------------------------------
Finis F. Teeter,
Vice President

GUARANTORS:

AMERICAN HOMESTAR FINANCIAL
SERVICES, INC.

By: /s/ Finis F. Teeter
-------------------
Finis F. Teeter,
President

HEARTLAND HOMES, INC.

By:/s/ Laurence A. Dawson, Jr.
---------------------------
Laurence A. Dawson, Jr.
Vice President

Date of Guerdon's execution: GUERDON HOMES, INC.

, 1996
- ---------------- By: /s/ Laurence A. Dawson, Jr.
----------------------------
Laurence A. Dawson, Jr.
President

Loan Agreement - Page 29
<PAGE> 30
OAK CREEK HOMES, INC.

By: /s/ Laurence A. Dawson, Jr.
----------------------------
Laurence A. Dawson, Jr.
President

AMERICAN HOMESTAR OF BURLESON, INC.

By: /s/ Craig A. Reynolds
---------------------
Craig A. Reynolds
Vice President - Finance

AMERICAN HOMESTAR OF LANCASTER, INC.

By: /s/ Craig A. Reynolds
----------------------
Craig A. Reynolds
Vice President - Finance

Loan Agreement - Page 30
<PAGE> 31
Exhibits:

A - Note 1 - Previous filed as an exhibit to the Company's Registration
Statement No. 333 - 1818.
B - Note 2 - Previous filed as an exhibit to the Company's Registration
Statement No. 333 - 1818.
C - Note 3 - Previous filed as an exhibit to the Company's Registration
Statement No. 333 - 1818.
D - Note
4 - Filed herewith.
E - Note 5 - Filed herewith.
F - Note 6 - Filed herewith.
G - Note 7 - Filed herewith.
H - Compliance Certificate - Filed herewith

Loan Agreement - Page 31
<PAGE> 32
EXHIBIT H

BANK ONE, TEXAS, NATIONAL ASSOCIATION
QUARTERLY COMPLIANCE CERTIFICATE

For quarter ending ____________, 19__

The undersigned, being a duly authorized officer of AMERICAN HOMESTAR
CORPORATION ("Borrower"), hereby certifies to BANK ONE, TEXAS, NATIONAL
ASSOCIATION, ("Lender"), in compliance with Section 3.2(c)(2) of the Loan
Agreement ("Loan Agreement") dated September 24, 1996, between Borrower,
Lender, and others that Borrower is as of this date complying in all respects
with the terms of the Loan Agreement, that no Event of Default is occurring,
and that Borrower has no defenses or setoffs with respect to payment of the
Notes (as defined in the Loan Agreement). Capitalized terms herein have the
meanings set forth in the Loan Agreement. Borrower specifically certifies to
Lender, without limiting the generality of the foregoing, the following
financial covenants, calculated in accordance with Section 3.4 of the Loan
Agreement:

Required Actual
-------- ------
Ratio of total liabilities to
total equity capital 2.0:1.0 ____:1.0

Debt Service Coverage Ratio 1.75:1.0 ____:1.0

Current ratio 1.10:1.0 ____:1.0
(until 5/31/97)
1.15:1.0
(thereafter)

Minimum Tangible Net Worth: DATES
-----
$22,500,000 8/30/96 -- 11/29/96
$25,000,000 11/30/96 -- 2/27/97
$27,000,000 2/28/97 -- 5/30/97
$30,000,000* 5/31/97 $_________

* After 5/31/97, $30,000,000 plus .50 times $_________ (Borrower's
cumulative net income after 5/31/97 __________, plus net proceeds
of any new equity stock offering since the date of the Loan
Agreement.)

By signing below, Borrower also certifies that, except as disclosed in
writing to Lender, there have been no material adverse changes in Borrower's
financial condition since the date of the Loan Agreement.

Dated: ,19 :
------------------ ---

AMERICAN HOMESTAR CORPORATION

By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------

<PAGE> 1
EXHIBIT 10.2

TERM PROMISSORY NOTE

$2,100,000.00 Fort Worth, Texas September 24, 1996

PROMISE TO PAY. For value received, on or before February 28, 2002
("Maturity Date"), AMERICAN HOMESTAR CORPORATION, a Texas corporation, and OAK
CREEK HOUSING CORPORATION, a Texas corporation (collectively "Borrowers"),
jointly and severally promise to pay to the order of BANK ONE, TEXAS, NATIONAL
ASSOCIATION ("Bank") at its offices in Tarrant County, Texas at 500
Throckmorton Street, Fort Worth, Texas, 76102, the principal amount of Two
Million One Hundred Thousand Dollars ($2,100,000.00) ("Total Principal
Amount"), or such amount less than the Total Principal Amount which has been
advanced to Borrowers under this Promissory Note ("Note"), together with
interest on such portion of the Total Principal Amount which has been advanced
to Borrowers from the date advanced until paid at the rates per annum provided
below.

DEFINITIONS. For purposes of this Note, unless the context otherwise
requires, certain terms used herein shall be defined as follows:

"Adjusted LIBOR Rate" means with respect to each Interest Period, an
amount equal to the sum of (i) two percent (2.0%), plus, (ii) the LIBOR Rate
with respect to such Interest Period. Each determination by Bank of the
Adjusted LIBOR Rate shall, in the absence of manifest error, be conclusive and
binding.

"Base Rate" means the rate established from time to time by Bank as
its Base Rate of interest (which may not be the lowest, best or most favorable
rate of interest which Bank may charge on loans to its customers).

"Base Rate Balance" means the principal balance of this Note bearing
interest at a rate based upon the Base Rate.

"Business Day" means any day other than a Saturday, Sunday or any
other day on which national banking associations are authorized to be closed.

"Consequential Loss" means, with respect to Borrowers' payment of all
or any portion of the then-outstanding principal amount of any LIBOR Balance on
a day other than the last day of the Interest Period related thereto, any loss,
cost, or expense incurred by Bank in redepositing such principal amount,
including the sum of (i) the interest which, but for such payment, Bank would
have earned in respect of such principal amount so paid, for the remainder of
the Interest Period applicable to such sum, reduced, if Bank is able to
redeposit such principal amount so paid for the balance of such Interest
Period, by the interest earned by Bank as a result of so redepositing such
principal amount plus (ii) any expense or penalty incurred by Bank on
redepositing such principal amount, but excluding taxes on the income of Bank
imposed by any governmental authority.

1
<PAGE> 2
"Contract Rate" means the Adjusted LIBOR Rate or the Base Rate, as in
effect from time to time under this Note.

"Dollars" means lawful currency of the United States of America.

"Excess Interest Amount" means, on any date, the amount by which (i)
the amount of all interest which would have accrued prior to such date on the
principal of this Note, had the applicable Contract Rate at all times been in
effect without limitation by the Maximum Rate, exceeds (ii) the aggregate
amount of interest accrued on this Note on or prior to such date as limited by
the Maximum Rate.

"Interest Notice" means the notice given by Borrowers to Bank of an
Interest Option selected hereunder. Each Interest Notice given by Borrowers
under this Note shall be irrevocable and must be given not later than 10:00
a.m. (Fort Worth, Texas time) on a day which is not less than the number of
Business Days or LIBOR Business Days required below for an Interest Option.
Borrowers may deliver to Bank written instructions for renewal or conversion of
Interest Options that will be effective until revoked or modified by Borrowers.

"Interest Option" means Borrowers' option to select an Adjusted LIBOR
Rate or the Base Rate, as described more fully below.

"Interest Payment Date" means the first day of each month hereafter
and on the Maturity Date.

"Interest Period" means, with respect to any LIBOR Balance, a period
commencing: (i) on any date which, pursuant to an Interest Notice, the
principal amount of such LIBOR Balance begins to accrue interest at the
Adjusted LIBOR Rate, or (ii) the Business Day following the last day of the
immediately preceding Interest Period in the case of a rollover to a successive
Interest Period, and ending 30, 60, or 90 days thereafter as Borrowers shall
elect in accordance with the provisions hereof; provided that: (A) any Interest
Period which would otherwise end on a day which is not a LIBOR Business Day
shall be extended to the succeeding LIBOR Business Day and (B) any Interest
Period which would otherwise end after the Maturity Date shall end on the
Maturity Date.

"LIBOR Balance" means the principal balance of this Note, which,
pursuant to an Interest Notice, bears interest at the Adjusted LIBOR Rate.

"LIBOR Business Day" means a day on which dealings in Dollars are
carried out in the London interbank Eurodollar market.

"LIBOR Rate" means the rate of interest per annum at which deposits in
Dollars are offered by the major London clearing banks, as reported by
Knight-Ridder news service (or such other similar news reporting service as
Bank may subscribe to at the time such LIBOR Rate is determined), in the London
interbank Eurodollar market for a period of time equal or comparable to an
Interest Period and in an amount equal to or comparable to the principal amount
of the

2
<PAGE> 3
LIBOR Balance to which such Interest Period relates. The LIBOR Rate for the
Interest Period to which it relates shall (i) be determined as of 11:00 a.m.
(London, England time) two (2) LIBOR Business Days prior to the first day of
such Interest Period, and (ii) shall be rounded upward, if necessary, to the
nearest one-hundredth of one percent.

"Maximum Rate" means at the particular time in question the maximum
rate of interest which, under applicable law, may then be charged on this Note.
If such maximum rate of interest changes after the date hereof and this Note
provides for a fluctuating rate of interest, the Maximum Rate shall be
automatically increased or decreased, as the case may be, without notice to
Borrowers from time to time as of the effective date of each change in such
maximum rate. If applicable law ceases to provide for such a maximum rate of
interest, the Maximum Rate shall be equal to eighteen percent (18%) per annum.

PAYMENTS OF INTEREST AND PRINCIPAL. The principal of and all accrued
but unpaid interest on this Note shall be due and payable as follows:

(a) the principal of this Note shall be due and payable in
sixty-four (64) equal monthly installments in the amount of $11,667 each, plus
all accrued but unpaid interest thereon, commencing on the first (1st) day of
November, 1996, and continuing on the first (1st) day of each month thereafter
until maturity; and

(b) the outstanding principal balance of this Note, together with
all accrued but unpaid interest, shall be due and payable on the Maturity Date.

All payments and prepayments of principal of or interest on this Note shall be
made in Dollars in immediately available funds, at the address of Bank
indicated above, or such other place as the holder of this Note shall designate
in writing to Borrowers. The books and records of Bank shall be prima facie
evidence of all outstanding principal of and accrued and unpaid interest on
this Note. Should the principal of, or any interest on, this Note become due
and payable on any day other than a Business Day, the payment date shall be
extended to the next succeeding Business Day, and interest shall be payable
with respect to such extension. Payments made to Bank by Borrowers hereunder
shall be applied first to accrued but unpaid interest and then to outstanding
principal.

ACCRUAL OF INTEREST. The unpaid principal of the Base Rate Balance
shall bear interest at a rate per annum which shall from day to day be equal to
the lesser of (i) the Base Rate or (ii) the Maximum Rate. The unpaid principal
of each LIBOR Balance shall bear interest at a rate per annum which shall be
equal to the lesser of (i) the Adjusted LIBOR Rate for the Interest Period in
effect with respect to such LIBOR Balance, or (ii) the Maximum Rate. Each
change in the Base Rate shall become effective without prior notice to
Borrowers automatically as of the opening of business on the date of such
change in the Base Rate. Interest on this Note shall be calculated on the
basis of the actual days elapsed, but computed as if each year consisted of 365
days.

INTEREST OPTIONS. Subject to the provisions hereof, Borrowers shall
have the option (the "Interest Option") of having the unpaid principal balance
of this Note bear interest at the

3
<PAGE> 4
Adjusted LIBOR Rate or the Base Rate; provided, however, that only five (5)
Interest Period options shall be in effect at any one time during the term
hereof and the selection of the Adjusted Libor Rate for a particular Interest
Period shall be for no less than $100,000 of unpaid principal and in even
multiples of $100,000 in principal. The Interest Option shall be exercised in
the manner provided below:

(a) At Time of Advance. With each request for an Advance by
Borrowers, Borrowers shall give Bank an Interest Notice indicating the Interest
Option selected with respect to the principal balance of the Advance.

(b) Conversion From Base Rate. During any period in which the
principal hereof bears interest at the Base Rate, Borrowers shall have the
right, on any LIBOR Business Day (the "Conversion Date"), to convert the entire
principal balance owed on the Note from the Base Rate Balance to a LIBOR
Balance by giving Bank an Interest Notice of such selection at least two (2)
LIBOR Business Days prior to the Conversion Date.

(c) At Expiration of Interest Periods. At least two (2) LIBOR
Business Days prior to the termination of each Interest Period, Bank shall
receive from Borrowers an Interest Notice indicating the Interest Option to be
applicable to the corresponding LIBOR Balance upon the expiration of such
Interest Period. If the required Interest Notice shall not have been timely
received by Bank, Borrowers shall be deemed to have selected the Base Rate to
be applicable to the applicable LIBOR Balance upon the expiration of the
Interest Period and to have given Bank notice of such selection.

INTEREST RECAPTURE. If on each Interest Payment Date or any other
date on which interest payments are required hereunder, Bank does not receive
interest on this Note computed at the Base Rate or Adjusted LIBOR Rate (the
"Contract Rate") because such Contract Rate exceeds or has exceeded the Maximum
Rate, then Borrowers shall, upon the written demand of Bank, pay to Bank in
addition to the interest otherwise required to be paid hereunder, on each
Interest Payment Date thereafter, the Excess Interest Amount (calculated as of
such later Interest Payment Date); provided that in no event shall Borrowers be
required to pay, for any Interest Period, interest at a rate exceeding the
Maximum Rate effective during such period.

INTEREST ON PAST DUE AMOUNTS. To the extent any interest is not paid
on or before the date it becomes due and payable, Bank may, at its option, add
such accrued but unpaid interest to the principal of this Note.
Notwithstanding anything herein to the contrary, upon acceleration of the
maturity hereof following an uncured Event of Default (as hereinafter defined)
or at the Maturity Date, all principal of this Note shall, at the option of
Bank, bear interest at the Maximum Rate until paid.

SPECIAL PROVISIONS FOR LIBOR PRICING. The Loan Agreement contains
special provisions addressing unavailability or illegality of LIBOR pricing and
possible additional costs which Borrowers will reimburse to Bank with respect
to LIBOR Loans.

4
<PAGE> 5
LOAN AGREEMENT/SECURITY. This Note is subject to the terms and
provisions of a Loan Agreement dated September 24, 1996 (the "Loan Agreement"),
by and between Borrowers, Bank, and others. This Note is secured by, inter
alia, all liens and security interests created or described in the Loan
Agreement. This Note, the Loan Agreement, and all other documents evidencing,
securing, governing, guaranteeing, or pertaining to this Note, including but
not limited to those documents described above, are hereinafter collectively
referred to as the "Loan Documents." The holder of this Note is entitled to
the benefits and security provided in the Loan Documents.

PREPAYMENTS; CONSEQUENTIAL LOSS. Borrowers may from time to time
prepay all or any portion of the principal of this Note without premium or
penalty, except as set forth herein. Any prepayment made hereunder shall be
made together with all interest accrued but unpaid on this Note through the
date of such prepayment. If Borrowers make any prepayment of principal with
respect to any LIBOR Balance on any day prior to the last day of the Interest
Period applicable to such LIBOR Balance, Borrowers shall reimburse the Bank on
demand the Consequential Loss incurred by Bank as a result of the timing of
such payment. A certificate of Bank setting forth the basis for the
determination of a Consequential Loss shall be delivered to Borrowers and
shall, in the absence of manifest error, be prima facie evidence as to such
determination and amount.

BUSINESS LOAN. Borrowers agree that no advances under this Note shall
be used for personal, family, or household purposes, and that all advances
hereunder shall be used solely for business, commercial, investment, or other
similar purposes.

EVENT OF DEFAULT. Borrowers agree that upon the occurrence of any one
or more of the following events of default ("Event of Default"):

(a) failure of Borrowers to pay any installment of principal of or
interest on this Note or on any other indebtedness of either Borrowers to Bank
when due; or

(b) the occurrence of any Event of Default specified in any of the
other Loan Documents; or

(c) the bankruptcy or insolvency of, the assignment for the
benefit of creditors by, or the appointment of a receiver for any of the
property of, or the liquidation, termination, dissolution or death or legal
incapacity of, any party liable for the payment of this Note, whether as maker,
endorser, guarantor, surety or otherwise;

and the expiration of any notice and cure period provided in the Loan
Agreement, the holder of this Note may, at its option, without further notice
or demand, (i) declare the outstanding principal balance of and accrued but
unpaid interest on this Note at once due and payable, (ii) refuse to advance
any additional amounts under this Note, (iii) foreclose all liens securing
payment hereof, (iv) pursue any and all other rights, remedies and recourses
available to the holder hereof, including but not limited to any such rights,
remedies or recourses under the Loan Documents, at law or in equity, or (v)
pursue any combination of the foregoing.

5
<PAGE> 6
NO WAIVER BY BANK. The failure to exercise the option to accelerate
the maturity of this Note or any other right, remedy or recourse available to
the holder hereof upon the occurrence of an Event of Default hereunder shall
not constitute a waiver of the right of the holder of this Note to exercise the
same at that time or at any subsequent time with respect to such Event of
Default or any other Event of Default. The rights, remedies and recourses of
the holder hereof, as provided in this Note and in any of the other Loan
Documents, shall be cumulative and concurrent and may be pursued separately,
successively or together as often as occasion therefore shall arise, at the
sole discretion of the holder hereof. The acceptance by the holder hereof of
any payment under this Note which is less than the payment in full of all
amounts due and payable at the time of such payment shall not (i) constitute a
waiver of or impair, reduce, release or extinguish any right, remedy or
recourse of the holder hereof, or nullify any prior exercise of any such right,
remedy or recourse, or (ii) impair, reduce, release or extinguish the
obligations of any party liable under any of the Loan Documents as originally
provided herein or therein.

USURY SAVINGS CLAUSE. This Note and all of the other Loan Documents
are intended to be performed in accordance with, and only to the extent
permitted by, all applicable usury laws. If any provision hereof or of any of
the other Loan Documents or the application thereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the application of such provision to any other person or
circumstance nor the remainder of the instrument in which such provision is
contained shall be affected thereby, and all provisions shall be enforced to
the greatest extent permitted by law. It is expressly stipulated and agreed to
be the intent of the holder hereof to at all times comply with the usury and
other applicable laws now or hereafter governing the interest payable on the
indebtedness evidenced by this Note. If the applicable law is ever revised,
repealed, or judicially interpreted so as to render usurious any amount called
for under this Note or under any of the other Loan Documents, or contracted
for, charged, taken, reserved or received with respect to the indebtedness
evidenced by this Note, or if Bank's exercise of the option to accelerate the
maturity of this Note or if any prepayment by Borrowers results in Borrowers
having paid any interest in excess of that permitted by law, then it is the
express intent of Borrowers and Bank that all excess amounts theretofore
collected by Bank be credited on the principal balance of this Note (or, if
this Note and all other indebtedness arising under or pursuant to the other
Loan Documents have been paid in full, refunded to Borrowers), and the
provisions of this Note and the other Loan Documents immediately be deemed
reformed and the amounts thereafter collectable hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the then applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder or thereunder. All sums paid, or
agreed to be paid, by Borrowers for the use, forbearance, detention, taking,
charging, receiving or reserving of the indebtedness of Borrowers to Bank under
this Note or arising under or pursuant to the other Loan Documents shall, to
the maximum extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full term of such indebtedness until
payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the usury ceiling from time to time in effect and
applicable to such indebtedness for so long as such indebtedness is
outstanding. To the extent federal law permits Bank to contract for, charge or
receive a greater amount of interest, Bank will rely on federal law instead of
TEX. REV. CIV. STAT. ANN. art. 5069-1.04, as amended, for the purpose of
determining the Maximum Rate. Additionally, to the maximum extent permitted by
applicable law now or

6
<PAGE> 7
hereafter in effect, Bank may, at its option and from time to time, implement
any other method of computing the Maximum Rate under such Article 5069-1.04, as
amended, or under other applicable law by giving notice, if required, to
Borrowers as provided by applicable law now or hereafter in effect.
Notwithstanding anything to the contrary contained herein or in any of the
other Loan Documents, it is not the intention of Bank to accelerate the
maturity of any interest that has not accrued at the time of such acceleration
or to collect unearned interest at the time of such acceleration.

CHAPTER 15 INAPPLICABLE. In no event shall TEX. REV. CIV. STAT. ANN.
art. 5069 Ch. 15 (which regulates certain revolving loan accounts and revolving
tri-party accounts) apply to this Note. To the extent that TEX. REV. CIV.
STAT. ANN. art. 5069-1.04, as amended, is applicable to this Note, the
"indicated rate ceiling" specified in such article is the applicable ceiling;
provided that, if any applicable law permits greater interest, the law
permitting the greatest interest shall apply.

ATTORNEYS FEES. If this Note is placed in the hands of an attorney
for collection, or is collected in whole or in part by suit or through probate,
bankruptcy or other legal proceedings of any kind, Borrowers agree to pay, in
addition to all other sums payable hereunder, all costs and expenses of
collection, including but not limited to reasonable attorneys fees.

BORROWERS WAIVER. Except as expressly provided herein, Borrowers and
any and all endorsers and guarantors of this Note severally waive presentment
for payment, notice of nonpayment, protest, demand, notice of protest, notice
of intent to accelerate, notice of acceleration and dishonor, diligence in
enforcement and indulgences of every kind and without further notice hereby
agree to renewals, extensions, exchanges or releases of collateral, taking of
additional collateral, indulgences or partial payments, either before or after
maturity.

7
<PAGE> 8
APPLICABLE LAW. THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS,
EXCEPT AS SUCH LAWS ARE PREEMPTED BY APPLICABLE FEDERAL LAWS.

CAPTIONS. Captions used herein are for convenience only and should
not be used in interpreting this Note.

BORROWERS:

AMERICAN HOMESTAR CORPORATION

By: /s/ Laurence A. Dawon, Jr.
--------------------------------
Laurence A. Dawson, Jr.,
President

OAK CREEK HOUSING CORPORATION

By: /s/ Laurence A. Dawon, Jr.
--------------------------------
Laurence A. Dawson, Jr.,
President

<PAGE> 1
EXHIBIT 10.3

TERM PROMISSORY NOTE

$4,600,000.00 Fort Worth, Texas September 24, 1996

PROMISE TO PAY. For value received, on or before February 28, 2002
("Maturity Date"), AMERICAN HOMESTAR CORPORATION, a Texas corporation, and OAK
CREEK HOUSING CORPORATION, a Texas corporation (collectively "Borrowers"),
jointly and severally promise to pay to the order of BANK ONE, TEXAS, NATIONAL
ASSOCIATION ("Bank") at its offices in Tarrant County, Texas at 500
Throckmorton Street, Fort Worth, Texas, 76102, the principal amount of Six
Million Five Hundred Thousand Dollars ($6,500,000.00) ("Total Principal
Amount"), or such amount less than the Total Principal Amount which has been
advanced to Borrowers under this Promissory Note ("Note"), together with
interest on such portion of the Total Principal Amount which has been advanced
to Borrowers from the date advanced until paid at the rates per annum provided
below.