Exhibit 10.1

SECOND AMENDED AND RESTATED COMPENSATION AGREEMENT

     This Amended and Restated Compensation Agreement (“Agreement”) is made and
entered into by and between Palm Harbor Homes, Inc., a Florida corporation
(“Palm Harbor”), and Lee Posey (“Employee”), and is dated to be effective as of
July 1, 2005.

W I T N E S S E T H:

     WHEREAS, effective March 27, 1999, Palm Harbor and Employee entered into
that certain Amended and Restated Compensation Agreement, which was amended
pursuant to that certain Amendment No. 1 to Amended and Restated Compensation
Agreement dated to be effective March 29, 2002 (collectively, the “Original
Agreement”); and

     WHEREAS, the parties desire to amend and restate the Original Agreement to
reflect the current agreement between the parties;

     NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the employment and payment of compensation to Employee upon the terms and
conditions set forth herein and each act done pursuant hereto, the parties
hereto agree as follows:

Employment

     1. Nature of Employment. For the term of employment as below stated, and
subject to general supervision by the Board of Directors of Palm Harbor (the
“Board”), to whom Employee shall exclusively report, Palm Harbor hereby employs
Employee as its Chairman Emeritus to perform such duties as are customarily
provided by persons in similar officer positions with companies of the same
general size and engaged in comparable businesses as the Company and as the
Board shall from time to time reasonably prescribe. Employee shall have the
authority to bind Palm Harbor to contracts to the same extent as the Chief
Executive Officer and/or President of Palm Harbor, without the necessity of
having the Board adopt a specific resolution in each such instance in which the
Chief Executive Officer and/or President has or is given authority to execute
contracts.

     2. Term. Subject to earlier termination as hereinafter provided, the term
of employment of Employee hereunder shall commence on the date hereof, and
continue for a period of eight years (the “Term”).

     3. Termination. This Agreement shall be terminated prior to the expiration
of the Term only as follows:

  (a)   by mutual consent of the parties;     (b)   upon the death or permanent
disability (as determined in accordance with the then existing policy of Palm
Harbor) of Employee;

 

--------------------------------------------------------------------------------

 

  (c)   by Palm Harbor, upon conviction of a felony by Employee;     (d)   by
Palm Harbor, upon commission of any intentional misconduct relating to the
business of Palm Harbor which causes material damage to Palm Harbor; or     (e)
  at Employee’s option.

     4. Relationship. In performing the services described under this Agreement,
it is mutually understood and agreed that Employee will at all times be acting
and performing as an employee. This Agreement creates the relationship of
principal and agent between Palm Harbor and Employee during the Term. Subject to
the limitations in Section 1, Employee shall have the authority to create
obligations and make any contracts, agreements, representations and warranties
on behalf of and in the name of Palm Harbor during the employment period.

     5. Compensation. As compensation for his services to Palm Harbor and other
duties and responsibilities herein contemplated during the Term, Employee shall
receive from Palm Harbor $100,000 per annum. Upon termination of this Agreement
for any reason other than death or disability, Palm Harbor shall have no further
obligations to Employee. If this Agreement terminates due to death or
disability, Palm Harbor shall pay to Employee or his spouse, as applicable, the
sum of $8,333.33 per month for a number of months equal to 96 minus the number
of months Employee received payments under this Agreement prior to his death or
disability.

     6. Sick Leave, etc. During the term of employment, Employee shall be
entitled to sick leave of such duration as he is currently entitled, and dental,
medical and other insurance and other fringe benefits, as are consistent with
Palm Harbor’s policy for its executive level employees. All reasonable travel
expenses and other business expenses incurred by Employee in connection with the
performance of his services for Palm Harbor shall be reimbursed to Employee by
Palm Harbor. Such reimbursement shall be made upon presentation to Palm Harbor
of vouchers, receipts, business purpose summaries and other statements itemizing
such expenses in detail complying with all tax reporting requirements therefor
and reimbursement policies of Palm Harbor.

     7. Arbitration. THE PARTIES AGREE THAT ANY AND ALL DISPUTES BETWEEN THEM
RELATED HERETO AND ANY RELATED CLAIM BY ANY PARTY THAT CANNOT AMICABLY BE
SETTLED SHALL BE DETERMINED SOLELY AND EXCLUSIVELY BY ARBITRATION IN ACCORDANCE
WITH THE RULES THEN PROMULGATED BY THE AMERICAN ARBITRATION ASSOCIATION (“AAA”)
OR ANY SUCCESSOR AT ITS OFFICES NEAREST DALLAS, TEXAS, UNLESS THE PARTIES
OTHERWISE AGREE IN WRITING. A DISPUTE SUBJECT TO THE PROVISIONS OF THIS SECTION
8 WILL EXIST IF EITHER PARTY NOTIFIES THE OTHER IN WRITING THAT A DISPUTE
SUBJECT TO ARBITRATION EXISTS AND STATES WITH REASONABLE SPECIFICITY THE ISSUES
SUBJECT TO DISPUTE (THE “ARBITRATION NOTICE”). THE PARTIES AGREE THAT AFTER THE
ISSUANCE OF AN ARBITRATION NOTICE, THE

 

--------------------------------------------------------------------------------

 

PARTIES WILL TRY IN GOOD FAITH TO RESOLVE THE DISPUTE BY MEDIATION IN ACCORDANCE
WITH THE COMMERCIAL MEDIATION RULES OF THE AAA BETWEEN THE DATE OF ISSUANCE OF
THE ARBITRATION NOTICE AND THE DATE SET FOR ARBITRATION. THE PARTIES ALSO AGREE
THAT THE AAA OPTIONAL RULES FOR EMERGENCY MEASURES OF PROTECTION SHALL APPLY TO
THE PROCEEDING. IF THE DISPUTE IS NOT SETTLED BY THE DATE SET FOR ARBITRATION,
THEN ANY REMAINING UNRESOLVED CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE BREACH THEREOF WILL BE RESOLVED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AAA, AND JUDGMENT UPON
THE AWARD RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED AND ENFORCED IN ANY COURT
OF COMPETENT JURISDICTION. ANY MEDIATOR OR ARBITRATOR SELECTED TO RESOLVE SUCH A
DISPUTE MUST HAVE AT LEAST 10 YEARS EXPERIENCE IN THE FINANCE FIELD AND MUST
HAVE ACTED AS MEDIATOR OR ARBITRATOR IN AT LEAST FIVE PRIOR DISPUTES WHERE THE
AMOUNT IN CONTROVERSY EQUALS OR EXCEEDS THE AMOUNT IN CONTROVERSY IN THE SUBJECT
DISPUTE. ANY SUCH MEDIATOR OR ARBITRATOR MUST BE ACCEPTABLE TO EMPLOYEE AND PALM
HARBOR AND MUST BE KNOWLEDGEABLE ABOUT MANUFACTURED HOUSING AND RELATED
FINANCIAL ISSUES; PROVIDED, HOWEVER, THAT SUCH MEDIATOR OR ARBITRATOR SHALL NOT
BE EMPLOYED BY OR ACTING AS A CONSULTANT TO A COMPETITOR OF PALM HARBOR. IF THE
PARTIES ARE UNABLE TO REACH AGREEMENT ON A MEDIATOR OR ARBITRATOR WITHIN SEVEN
DAYS AFTER RECEIPT OF THE ARBITRATION NOTICE, THEN A MEDIATOR OR ARBITRATOR
MEETING THE REQUIREMENTS OF THIS SECTION 7 WILL BE SELECTED BY THE AAA.

     8. Confidentiality. During the term of this Agreement, and thereafter,
Employee shall not use for his personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company other than Palm Harbor or its affiliates, any
Confidential Information. “Confidential Information” means information relating
to the operations of Palm Harbor or any subsidiaries or affiliates thereof that
is not generally known, is proprietary to Palm Harbor, its subsidiaries or
affiliates or is made known to Employee or learned or acquired by Employee while
in the employ of Palm Harbor, including, without limitation, information
relating to advertising, marketing, accounting, purchasing, selling, finance and
business methods and techniques.

     9. Notice. Whenever, in connection with this Agreement, any notice is
required to be given or any other act or event is to be done or occur on or by a
particular number of days, and the date thus particularized should be a
Saturday, Sunday, or bank holiday in the City of Dallas, Texas, such date shall
be postponed to the next day which shall not be a Saturday, Sunday, or bank
holiday in the City of Dallas, Texas. In the event a notice or other document is
required to be given hereunder to Palm Harbor or Employee, such notice or other
document shall either be personally delivered or be mailed to the party entitled
to receive the same by registered or certified mail, return receipt requested,
at the appropriate address set forth below or at such

 

--------------------------------------------------------------------------------

 

other address as such party shall designate in a written notice given in
accordance with this Section:

      Palm Harbor:   Employee:
 
   
Palm Harbor Homes, Inc.
  Lee Posey
15303 Dallas Parkway, Suite 800
  17427 Club Hill Drive
Addison, Texas 75001
  Dallas, Texas 75248

Notice shall be deemed given on the date of actual delivery, if delivered in
person, or, if mailed, then on the date noted on the return receipt.

     10. Severability and Reformation. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future law,
and if the rights or obligations of Employee or Palm Harbor under this Agreement
would not be materially and adversely affected thereby, such provision shall be
fully severable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part thereof,
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance herefrom, and in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible, and Palm Harbor and
Employee hereby request the court or any arbitrator to whom disputes relating to
this Agreement are submitted to reform the otherwise unenforceable covenant in
accordance with this Section 10.

     11. Waiver, Modification, and Integration. The waiver by any party hereto
of a breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach by any party. This instrument contains the
entire agreement of the parties and supersedes all prior and contemporaneous
representations, understandings and agreements, either oral or in writing,
between the parties and all such prior or contemporaneous representations,
understandings and agreements (including, but not limited to, the Original
Agreement) are hereby terminated. This Agreement may not be modified, altered or
amended except by written agreement executed by all the parties hereto.

     12. Binding Effect and Assignability. Employee and Palm Harbor understand
and acknowledge that Employee’s duties and responsibilities under this Agreement
are personal in nature and shall not be assigned by Employee or Palm Harbor to
any other person or entity without the prior written consent of the other party
hereto, which consent may be withheld in such party’s sole discretion.

     13. Law Applicable; Venue. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas; this
Agreement is performable in, and venue for any litigation shall lie in, Dallas
County, Texas.

     14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original instrument, and
all of which together shall constitute one and the same Agreement.

 

--------------------------------------------------------------------------------

 

     15. Attorney’s Fees. The prevailing party in any arbitration brought by or
against the other party to enforce any provision of this Agreement shall be
entitled to recover against the non-prevailing party the reasonable attorney’s
fees, court or arbitration costs and other expenses incurred by the prevailing
party.

     IN WITNESS WHEREOF, this Agreement is executed as of the date first set
above.

     
PALM HARBOR HOMES, INC.,
a Florida corporation
  EMPLOYEE
 
   
/s/ Larry Keener                    
  /s/ Lee Posey                              
LARRY KEENER, CHAIRMAN AND
  LEE POSEY
CHIEF EXECUTIVE OFFICER