ASSIGNMENT AND ASSUMPTION AGREEMENT


                             Dated January 13, 1999


                                       By

                                       and

                                      Among


                                  JOHN W. LOWE,

                       ESTATE OF JERRY F. WILSON, DECEASED,

                                       and

                              ROBERT LOWELL BURDICK
                              as tenants in common

                                       and

                          CAVALIER MANUFACTURING, INC.
                      (Cavalier Homes of Alabama Division)
                             a Delaware corporation

                                       and


                         CAVALIER REAL ESTATE CO., INC.
                             a Delaware corporation

<PAGE>


                       ASSIGNMENT AND ASSUMPTION AGREEMENT

         This ASSIGNMENT AND ASSUMPTION  AGREEMENT is made and entered into this
13,  day of January, 1999  by and among JOHN W. LOWE, ESTATE OF JERRY F. WILSON,
Deceased,  AND  ROBERT  LOWELL  BURDICK,  as tenants  in  common,  as  assignors
(collectively the "Assignors"),  CAVALIER MANUFACTURING, INC. (Cavalier Homes of
Alabama Division),  a Delaware corporation,  formerly known as Cavalier Homes of
Alabama,  Inc. ("Cavalier  Manufacturing") and CAVALIER REAL ESTATE CO., INC., a
Delaware corporation, as assignee (the "Assignee").


                                    Recitals

         Pursuant  to the  Constitution  and laws of the State of  Alabama,  The
Industrial  Development  Board  of the Town of  Addison  has  heretofore  issued
revenue  bonds to finance the  acquisition  and  construction  of an  industrial
project (the "Project") on and including the real property  described on Exhibit
A hereto and has  heretofore  leased the  Project to the  Assignors  pursuant to
Lease Agreement dated as of June 1, 1984,  recorded in Volume 275 at Page 376 in
the  Office of the Judge of  Probate  of Winston  County,  Alabama  (the  "Lease
Agreement").

         The Assignors have heretofore exercised the option to renew the term of
the Lease Agreement pursuant to Section 9.2 of the Lease Agreement.

         The  Assignors  have  heretofore  subleased  the  Project  to  Cavalier
Manufacturing  pursuant to Commercial  Sub-Lease dated July 30, 1996, as amended
by Addendum to Commercial Sub-Lease dated March 31, 1997 (the "Sublease").

         The  Assignors  and  Cavalier  Manufacturing  desire to  terminate  the
Sublease for the purpose of  transferring  the interests of the Assignors in and
to the Project and the Lease Agreement to the Assignee.

         The Assignors  desire to assign and transfer,  and the Assignee desires
to acquire and assume, as provided herein,  all right, title and interest of the
Assignors in and to the Project and the Lease  Agreement and the  obligations of
the Assignors with respect thereto.

                                    Agreement

         NOW THEREFORE,  in  consideration of the premises and of the payment of
ten dollars  ($10.00) and other good and valuable  consideration by the Assignee
to the Assignors,  the receipt and sufficiency of which is hereby  acknowledged,
and  in  consideration  of  the  mutual  promises,  covenants  and  undertakings
contained  herein,  the  Assignors and Cavalier  Manufacturing  and the Assignee
hereby agree as follows:

         Section 1. Cavalier  Manufacturing  hereby (a) exercises the option set
forth in paragraph  4(f) of the  Sublease  for the  purchase  price set forth in
paragraph  4(a)  of the  Sublease,  (b)  waives  and  releases  all  rights  and
privileges of Cavalier  Manufacturing  set forth in paragraphs  4(c) and 4(d) of
the Sublease,  and (c) directs the assignment and conveyance by the Assignors of
all right  title and  interest  of the  Assignors  in and to the Project and the
Lease Agreement to the Assignee.

         Section  2.  The  Assignors,   for  themselves  and  their   respective
successors and assigns,  hereby assign, sell,  transfer,  set over and convey to
the Assignee all of the rights, title and interests of the Assignors in and to

                  (1) the real property   and   personal  property  described on
         Exhibit A hereto, and

                  (2) the Project (as defined in the Lease Agreement), and

                  (3) the  Lease  Agreement,  the   leasehold  interest  created
         thereby,  and all rights,  privileges  and options  (including  without
         limitation  each of the  options  set forth in  Article IX of the Lease
         Agreement), of the lessee set forth therein, and

                  (4) all rights as a named  insured under any policy   of title
         insurance  with respect to the Project.

         Section 3. The  Assignee,  for itself and its  successors  and assigns,
hereby accepts the aforesaid transfer,  sale,  conveyance and assignment of said
rights,  title,  interests,  privileges  and  options to it in  accordance  with
Section 1 hereof and in consideration therefor hereby assumes and agrees to duly
and punctually observe and perform all obligations,  covenants,  liabilities and
restrictions as lessee under the Lease Agreement from and after the date hereof.

         Section  4.  Each of the  Assignors  does  hereby  represent,  warrant,
covenant  and agree  that the  execution  and  delivery  of this  Agreement  and
compliance with the provisions  thereof will not conflict with, or constitute on
the part of the Assignors a breach of or default under, any indenture, mortgage,
deed of trust, agreement, contract or other document or instrument to which such
Assignor  is a party or by which such  Assignor  is bound or any  existing  law,
rule, regulation, judgment, order or decree to which such Assignor is subject.

         Section 5. The Assignee  agrees that from and after the date hereof the
Assignors  shall have no  liability or  obligation  to or for the benefit of the
Assignee for performance of the Lease Agreement or any provision thereof and the
Assignee  shall  defend,  indemnify  and save  harmless the  Assignors  from and
against  any and all  claims,  causes  of  action,  judgments,  damages,  fines,
penalties,  and other losses,  costs and expenses,  including without limitation
reasonable  attorneys' fees and costs of investigation and litigation,  asserted
against  or  suffered  by the  Assignors  and their  respective  successors  and
assigns, that are related to or arise out of, or result from, or are based upon,
the observance or performance of any provision of the Lease Agreement, including
without  limitation  the  presence  of any  pollutants,  contaminants,  toxic or
hazardous wastes,  or other substances  regulated by law or which might create a
hazard to health and  safety,  which at any time from and after the date  hereof
are  deposited or released on, under or included in the Project and any clean up
or other remedial  action with respect to any thereof,  and the violation of any
law,  rule,  regulation,  order,  ruling,  notice or decree of any  governmental
authority  relating  to  pollution  or the  protection  of human  health  or the
environment  (specifically  including any  liabilities  under the  Comprehensive
Environmental  Response,  Compensation and Liability Act of 1980, as amended, 42
U.S.C.  Sections 9601 et seq.) or claims based upon state or common law theories
such as trespass or nuisance.  The  provisions of this Section 5 shall remain in
full force and effect until  commencement  of an action with respect to any such
event or non-event or occurrence or non-occurrence shall be prohibited by law.

         Section 6. Cavalier  Manufacturing  agrees that from and after the date
hereof the Assignors shall have no liability or obligation to or for the benefit
of Cavalier  Manufacturing  for  performance  of the  Sublease or any  provision
thereof and Cavalier Manufacturing shall defend, indemnify and save harmless the
Assignors  from and  against any and all  claims,  causes of action,  judgments,
damages,  fines,  penalties,  and other losses,  costs and  expenses,  including
without  limitation  reasonable  attorneys' fees and costs of investigation  and
litigation,  asserted  against or suffered by the Assignors and their respective
successors and assigns,  that are related to or arise out of, or result from, or
are based upon,  the observance or performance of any provision of the Sublease,
including without limitation the presence of any pollutants, contaminants, toxic
or hazardous wastes, or other substances  regulated by law or which might create
a hazard to health and safety,  which at any time from and after the date hereof
are  deposited  or released on, under or included in the Project and any cleanup
or other remedial  action with respect to any thereof,  and the violation of any
law,  rule,  regulation,  order,  ruling,  notice or decree of any  governmental
authority  relating  to  pollution  or the  protection  of human  health  or the
environment  (specifically  including any  liabilities  under the  Comprehensive
Environmental  Response,  Compensation and Liability Act of 1980, as amended, 42
U.S.C.  Sections 9601 et seq.) or claims based upon state or common law theories
such as trespass or nuisance.  The  provisions of this Section 6 shall remain in
full force and effect until  commencement  of an action with respect to any such
event or non-event or occurrence or non-occurrence shall be prohibited by law.

         Section 7. The  Assignee  agrees that the  Assignors  make no warranty,
either  express or implied,  or offer any  assurances,  that the Project will be
adequate for the purposes or needs of the Assignee with respect thereto.

         Section 8. The  Assignee  has been  provided  with and has reviewed the
Lease Agreement and consents and agrees to the terms thereof.

         Section 9. The  Assignors  and Cavalier  Manufacturing  hereby  cancel,
terminate  and  discharge  the  Sublease  save and  excepting  any  agreement or
obligation  of  Cavalier   Manufacturing  to  indemnify  the  Assignors,   which
agreements and  obligations  shall survive such  termination  and remain in full
force and  effect  until  commencement  of an action  based  thereupon  shall be
prohibited by law, and Cavalier  Manufacturing does hereby waive and release any
and  all  claims  against  the  Assignors  for  payment  or  performance  of any
obligation or agreement thereunder.

         Section 10. Cavalier    Manufacturing  and  the  Assignee  each  hereby
represents  and warrants that (a) the  execution and delivery of this  Agreement
and compliance with the provisions  hereof will not conflict with, or constitute
on the part of such  person a breach of or  default  under (i) its  articles  of
incorporation  or (ii)  any  indenture,  mortgage,  deed of  trust,  commitment,
agreement or other  instrument to which such person is a party or by which it is
bound, or (iii) any existing law, rule, regulation, judgment, order or decree to
which such person is subject,  and (b) the  operations  of the  Assignee (i) are
consistent  with and in  furtherance  of the  purposes of the  Enabling  Law (as
defined in the Lease  Agreement)  and (ii) will  preserve  the  character of the
Project  as a  "project"  under  the  Enabling  Law  (as  defined  in the  Lease
Agreement).
<PAGE>
         Section 11. The Assignors and Cavalier  Manufacturing  and the Assignee
hereby  covenant  and agree  each for the  benefit  of the  other  that (a) this
Agreement  has been  delivered  in, and shall be  governed by and  construed  in
accordance with the laws of, the State of Alabama;  (b) all covenants,  promises
and agreements in this Agreement contained by or on behalf of the Assignors,  or
by or on behalf of Cavalier Manufacturing and the Assignee, shall bind and inure
to the benefit of their respective successors,  assigns,  heirs,  administrators
and  executors,  as the  case  may be,  whether  or not so  expressed;  (c) this
Agreement  may be  executed in several  counterparts,  each of which shall be an
original and all of which shall constitute one and the same instrument;  and (d)
if any provision in this Agreement shall be invalid,  illegal or  unenforceable,
the validity,  legality and enforceability of the remaining provisions shall not
in any way be affected or in any way impaired thereby.

         IN WITNESS  WHEREOF,  the Assignors  have executed this  Assignment and
Assumption Agreement under seal and Cavalier Manufacturing and the Assignee have
each caused this Assignment and Assumption Agreement to be executed in its name,
under  seal,  and  the  same  attested,  by  officers  thereof  duly  authorized
thereunto,  and the Assignors and Cavalier  Manufacturing  and the Assignee have
caused this  Assignment and Assumption  Agreement to be dated as of the date and
year first above written.



                                    /S/ JOHN W LOWE                       (L.S.)
                                   ---------------------------------------------
                                   John W. Lowe

                                   /S/ ROBERT LOWELL BURDICK              (L.S.)
                                   ---------------------------------------------
                                   Robert Lowell Burdick


                                   Estate of Jerry F.  Wilson, Deceased


                                   By /S/ JUDITH H. WILSON                (L.S.)
                                     -------------------------------------------
                                     Judith H.  Wilson, Co-Executor


                                   By /S/ DAVID A. ROBERSON               (L.S.)
                                     -------------------------------------------
                                     David A.  Roberson, Co-Executor


                                   CAVALIER REAL ESTATE CO., INC.



                                   By  /S/ MICHAEL R. MURPHY
                                      ------------------------------------------
                                   Its  President
                                      ------------------------------------------
SEAL

Attest: /S/ MICHAEL R. MURPHY
        -------------------------------
        Its: Secretary
             -----------------------


                                   CAVALIER MANUFACTURING, INC.
                                   (Cavalier Homes of Alabama Division)



                                   By  /S/ JAMES C. CALDWELL
                                       -----------------------------
                                   Its President
                                       -----------------------------
SEAL

Attest: /S/ MICHAEL R. MURPHY
        --------------------------------
         Its: Secretary
              --------------------------
<PAGE>

                               CONSENT AND RELEASE

         The  Industrial  Development  Board of the Town of Addison  does hereby
represent,  covenant and agree that (1) The Industrial  Development Board of the
Town of Addision has received a copy of the foregoing  Assignment and Assumption
Agreement,  does hereby consent to the assignment of the leasehold  interests of
the Assignors (as defined in the said  Assignment and  Assumption  Agreement) in
and to the  property  and Lease  Agreement  referenced  in said  Assignment  and
Assumption  Agreement  to the  Assignee  (as  defined  in  said  Assignment  and
Assumption Agreement) and will deal with the Assignee, as lessee under the Lease
Agreement,  for  all  purposes  of  the  Lease  Agreement,  (2)  The  Industrial
Development  Board of the Town of Addison does hereby release and discharge each
of the Assignors from the observance and  performance of all  obligations of the
lessee  arising on and after the date hereof under the Lease  Agreement  and any
other  document  executed in connection  with the Lease  Agreement,  and (3) the
Assignors have heretofore properly exercised the option to renew the term of the
Lease  Agreement  pursuant to Section 9.2 thereof for a renewal term expiring on
midnight of May 31, 2024 and the Lease Agreement is in full force and effect and
the Board has not declared any default thereunder.

         IN WITNESS  WHEREOF,  The Industrial  Development  Board of the Town of
Addison has caused this  instrument to be executed in its name,  under seal, and
the same attested,  by officers thereof duly authorized thereunto as of the date
of the acknowledgement hereof.

                                   THE INDUSTRIAL DEVELOPMENT BOARD OF
                                   THE TOWN OF ADDISON



                                   By:  /S/ KENNETH SUDDERT
                                        -----------------------------
                                   Its: Chairman
                                        -----------------------------

S E A L


Attest: /S/ GARY HYATT
        ----------------------------
         Its: Secretary
              ----------------------



STATE OF ALABAMA  )
                  )
WINSTON COUNTY    )

         I, the  undersigned,  a Notary  Public  in and for said  County in said
State,  hereby  certify  that  John W Lowe,  an  individual,  is  signed  to the
foregoing   Assignment  and  Assumption  Agreement  and  who  is  known  to  me,
acknowledged  before me on this day that, being informed of the contents of said
Assignment and Assumption Agreement, he executed the same voluntarily.

         Given under my hand and seal this the 11th day of January, 1999.



                                   /S/ FRANCES WAKEFIELD
                                   --------------------------------
                                   Notary Public

NOTARIAL SEAL

My commission expires:   January 15, 2001
                       -------------------

<PAGE>


STATE OF ALABAMA  )
                  )
WINSTON COUNTY    )

         I, the  undersigned,  a Notary  Public  in and for said  County in said
State,  hereby certify that Robert Lowell Burdick,  an individual,  is signed to
the  foregoing  Assignment  and  Assumption  Agreement  and who is  known to me,
acknowledged  before me on this day that, being informed of the contents of said
Assignment and Assumption Agreement, he executed the same voluntarily.

         Given under my hand and seal this the 12th day of January, 1999.



                                   /S/ FRANCES  WAKEFIELD
                                   -------------------------------
                                   Notary Public

NOTARIAL SEAL

My commission expires:      January 15, 2001
                        ------------------------


STATE OF ALABAMA  )
                  )
WINSTON COUNTY    )

         I, the  undersigned,  a Notary  Public  in and for said  County in said
State,  hereby  certify that Judith H. Wilson,  whose name as Co-Executor of the
Estate of Jerry F. Wilson,  Deceased,  is signed to the foregoing Assignment and
Assumption  Agreement and who is known to me, acknowledged before me on this day
that,  being  informed  of  the  contents  of  said  Assignment  and  Assumption
Agreement,  (s)he  executed  the same  voluntarily  acting in such  capacity  as
Co-Executor of the Estate of Jerry F. Wilson, Deceased.

         Given under my hand and seal this the 11th day of January, 1999.



                                   /S/ FRANCES WAKEFIELD
                                   --------------------------------
                                   Notary Public

NOTARIAL SEAL

My commission expires:      January 15, 2001
                        ------------------------

<PAGE>


STATE OF ALABAMA  )
                  )
WINSTON COUNTY    )

         I, the  undersigned,  a Notary  Public  in and for said  County in said
State,  hereby certify that David A. Roberson,  whose name as Co-Executor of the
Estate of Jerry F. Wilson,  Deceased,  is signed to the foregoing Assignment and
Assumption  Agreement and who is known to me, acknowledged before me on this day
that,  being  informed  of  the  contents  of  said  Assignment  and  Assumption
Agreement,  (s)he  executed  the same  voluntarily  acting in such  capacity  as
Co-Executor of the Estate of Jerry F. Wilson, Deceased.

         Given under my hand and seal this the 13th day of January, 1999.



                                   /S/ SHIRLEY ANN BARNETT
                                   ---------------------------------
                                   Notary Public

NOTARIAL SEAL

My commission expires:       2-4-2001
                        ------------------



STATE OF ALABAMA  )
                  )
WINSTON COUNTY    )

         I, the  undersigned,  a Notary  Public  in and for said  County in said
State,  hereby  certify  that  Michael R.  Murphy,  whose name as  President  of
Cavalier  Real  Estate  Co.,  Inc.,  a  Delaware  corporation,  is signed to the
foregoing   Assignment  and  Assumption  Agreement  and  who  is  known  to  me,
acknowledged  before me on this day that, being informed of the contents of said
Assignment  and  Assumption  Agreement,  he,  as  such  officer  and  with  full
authority,  executed the same voluntarily for and as the act of said corporation
acting as office of such limited corporation as aforesaid.

         Given under my hand and seal this the 13th day of January, 1999.



                                   /S/ SHIRLEY ANN BARNETT
                                   ---------------------------------
                                   Notary Public

NOTARIAL SEAL

My commission expires:     2-4-2001
                        ------------

<PAGE>


STATE OF ALABAMA  )
                  )
WINSTON COUNTY    )

         I, the  undersigned,  a Notary  Public  in and for said  County in said
State,  hereby  certify  that  James C.  Caldwell,  whose name as  President  of
Cavalier  Manufacturing,  Inc. (Cavalier Homes of Alabama Division),  a Delaware
corporation,  is signed to the foregoing Assignment and Assumption Agreement and
who is known to me,  acknowledged  before me on this day that, being informed of
the contents of said  Assignment and Assumption  Agreement,  he, as such officer
and with full  authority,  executed the same  voluntarily  for and as the act of
said corporation acting as office of such limited corporation as aforesaid.

         Given under my hand and seal this the 13th day of January, 1999.



                                   /S/ LOU ANN MARCUM
                                   -----------------------------
                                    Notary Public

NOTARIAL SEAL

My commission expires:       7-13-99
                        ---------------

<PAGE>


                                    Exhibit A

                                       to

                       Assignment and Assumption Agreement

                                  By and Among


                                  John W. Lowe,

                       Estate of Jerry F. Wilson, Deceased,

                                       and

                              Robert Lowell Burdick


                                       and


                          Cavalier Manufacturing, Inc.
                      (Cavalier Homes of Alabama Division)


                                       and


                         Cavalier Real Estate Co., Inc.


--------------------------------------------------------------------------------
         The descriptions of the real and personal  property  referenced  herein
appear on the following pages.