GUARANTY AGREEMENT


                  THIS  GUARANTY  AGREEMENT is executed as of December 18, 1998,
by Cavalier Homes,  Inc., a Delaware  corporation (the  "Guarantor") in favor of
First  Commercial Bank, a banking  corporation  organized and existing under the
laws of the State of Alabama (the "Bank").

                                    Recitals

                  A. The Bank has agreed to lend Lamraft L.P.  (the  "Borrower")
an amount  not to  exceed  $2,000,000  in  principal  amount  (the  "Loan"),  as
evidenced by the Borrower's  promissory  note (the "Note") of even date herewith
payable to the order of the Bank.

                  B. Because the Guarantor is a limited  partner of the Borrower
and expects to benefit materially from the business of the Borrower that will be
made possible by the Loan, the Guarantor has requested the Bank to make the Loan
to the Borrower.

                  C. The Bank has required, as a condition to making the Loan to
the Borrower, the execution of this Agreement by the Guarantor.

                                    Agreement

                  NOW,  THEREFORE,  in order to induce the Bank to make the Loan
to the Borrower  pursuant to the Note,  the Guarantor  covenants and agrees with
the Bank as follows:

                  1.  Guaranteed  Payments.   Subject  to  and  limited  by  the
provisions of Section 1A hereof,  the Guarantor  hereby  guarantees  the due and
punctual  payment to the Bank when and as the same shall  become due and payable
(whether by acceleration or otherwise) of the following amounts (the "Guaranteed
Payments"):

                  (a) all amounts of  principal  becoming due and payable on the
         Note in accordance  with the terms thereof,  whether at stated maturity
         or as an  installment  or by required  prepayment or notice of optional
         prepayment or declaration of acceleration or otherwise;

                  (b) all  amounts of interest  becoming  due and payable on the
         Note in accordance  with the terms thereof,  including  interest on any
         overdue  principal and (to the extent  permitted by applicable  law) on
         any overdue interest;

                  (c) all  other amounts payable by the Borrower under the Note;

                  (d) all amounts payable by the Borrower under the terms of any
         mortgages,  security  agreements,  pledge agreements or other documents
         evidencing or securing the Loan (the "Security Documents"); and


<PAGE>


                  (f) all   Recovered   Payments   (as   hereinafter  defined in
         Section 14).

                  The  guaranty  provided  for in this Section 1 is an absolute,
unconditional,   present  and   continuing   guaranty  of  payment  and  not  of
collectibility  and is in no way  conditioned  upon or limited by any attempt to
collect  from the  Borrower or the  exercise of any other  remedies the Bank may
have  against  any  other  person,  firm  or  corporation  (including,   without
limitation,  any other guarantors and any other maker,  endorser,  surety of, or
other party to, any of the Loan Documents,  as hereinafter defined, the Borrower
and such other persons,  firms and corporations  being hereinafter  collectively
referred to as the "Obligors" and individually as an "Obligor") or the resort to
any other  security,  guaranty  or  collateral  held by the  Bank,  or any other
action,  occurrence or circumstance whatsoever. If any Guaranteed Payment is not
made when and as the same shall become due and payable,  the Guarantor  shall on
demand forthwith make such Guaranteed Payment, in immediately available funds in
lawful money of the United States, directly to the Bank at its address specified
in or pursuant to Section 13 of this Agreement.  The Guarantor further agrees to
be  bound  by all of the  terms  and  provisions  appearing  on the  face of any
instrument or agreement now or hereafter evidencing,  guaranteeing,  securing or
in any other way relating to any of the Guaranteed Payments,  including, without
limitation,  the Note (all such  instruments  and agreements  being  hereinafter
collectively  called the "Loan  Documents"),  and of any instrument or agreement
extending or renewing any such  instrument  or  agreement  (including  any terms
waiving notice and agreeing to pay costs and expenses of collection in the event
of  default)  just as  though  the  Guarantor  had  signed  such  instrument  or
agreement;  and that the Bank will not be required first to proceed  against the
Borrower or resort to the security,  guaranty or collateral,  pledged or granted
to it by any instrument or agreement  (including,  without limitation,  the Loan
Documents),  or otherwise  assigned or conveyed to it, but in case of default in
the payment of any of the  Guaranteed  Payments,  the Bank may forthwith look to
the Guarantor for payment under the provisions hereof.

                  1A. Limitation of Obligations. Notwithstanding anything herein
to the contrary,  the  obligations of the Guarantor for the Guaranteed  Payments
shall be limited to 24% of the Guaranteed  Payments that are  outstanding at the
time  demand for  payment  thereof  is made,  without  regard to or taking  into
account any demand upon, or payment or  contribution  by, any other Obligor with
respect to such Guaranteed Payments.

                  2. Nature of  Obligations.  The obligations and liabilities of
the Guarantor under this Agreement are primary obligations of the Guarantor, are
continuing,   absolute   and   unconditional,   shall  not  be  subject  to  any
counterclaim,  recoupment,  set-off,  reduction or defense  based upon any claim
that the Guarantor may have against the Borrower,  the Bank, any of the Obligors
or any of their respective affiliates, and shall remain in full force and effect
until all of the Guaranteed  Payments have been paid in full, without regard to,
and  without  being  released,  discharged,  impaired,  modified  or in any  way
affected  by, the  occurrence  from time to time of any event,  circumstance  or
condition  (whether  or not the  Guarantor  shall have any  knowledge  or notice
thereof),  including,  without  limitation,  any one or  more of the  following,
whether or not with notice to, or consent of, the Guarantor:

                  (a) any term or provision of   any  instrument   or  agreement
         (including,  without  limitation, the Loan Documents) applicable to the
         Borrower or any of the Obligors;


<PAGE>



                  (b) the   invalidity   or  unenforceability    of   any   such
         instrument   or   agreement  (including,   without limitation, the Loan
         Documents);

                  (c) the failure or refusal to give notice to the  Guarantor of
         the  occurrence  of any event of default  under any such  instrument or
         agreement (including, without limitation, the Loan Documents);

                  (d)  any  modification,   amendment  or  supplement   (whether
         material  or  otherwise)  of  any  obligation,  covenant  or  agreement
         contained  in any such  instrument  or  agreement  (including,  without
         limitation,  the Loan Documents);  provided,  however, that if any such
         modification, amendment or supplement increases the principal amount of
         the Loan,  the interest  rate borne by the Loan,  or any other  charges
         payable under the Loan Documents  without the consent of the Guarantor,
         the  Guarantor  shall not be liable for any  portion of such  increased
         principal  amount  or  charges  or any  amounts  due  because  of  such
         increased interest rate;

                  (e) any  assignment  or  transfer  of any such  instrument  or
         agreement (including, without limitation, the Loan Documents) or of any
         interest thereunder;

                  (f) the compromise,  settlement, release or termination of any
         or all of the obligations, covenants or agreements of the Borrower, any
         of the  Obligors  or any  other  party  under  any such  instrument  or
         agreement (including, without limitation, the Loan Documents);

                  (g) any waiver of payment,  performance  or  observance by the
         Borrower,  any of the  Obligors  or any  other  party  of any of  their
         respective   obligations,   covenants  or  agreements  under  any  such
         instrument  or  agreement  (including,  without  limitation,  the  Loan
         Documents);

                  (h) any  consent,  extension,  indulgence  or other  action or
         inaction  (including,  without  limitation,  any lack of  diligence  or
         failure to mitigate damages) under or in respect of any such instrument
         or agreement (including,  without limitation,  the Loan Documents),  or
         any exercise or non-exercise of any right,  remedy,  power or privilege
         under or in respect of any such  instrument  or  agreement  (including,
         without limitation, the Loan Documents);

                  (i) the failure,  omission,  delay or lack of diligence on the
         part of the Bank,  or any  assignee or successor  thereto,  to enforce,
         assert or exercise any right, power, privilege or remedy conferred upon
         the  Bank by any  such  instrument  or  agreement  (including,  without
         limitation, the Loan Documents);

                  (j) the  extension of time for payment of the principal of, or
         interest on, any of the  Guaranteed  Payments,  or the extension of the
         time for performance of any other obligations,  covenants or agreements
         under any such instrument or agreement (including,  without limitation,
         the Loan  Documents)  or under any  renewals or  extensions  thereof or
         successor agreements thereto;


<PAGE>



                  (k) the  furnishing  or  accepting of  additional  collateral,
         guaranties or other security for any of the Guaranteed  Payments or the
         release, modification,  substitution, nonexistence or invalidity of any
         collateral,  guaranties  or other  security  for any of the  Guaranteed
         Payments;

                  (l) the death of,  voluntary  or  involuntary  liquidation  or
         dissolution of, sale or other  disposition of all or substantially  all
         of the  assets  of,  or the  marshalling  of  assets  and  liabilities,
         receivership,  insolvency,  bankruptcy,  assignment  for the benefit of
         creditors, reorganization, arrangement, composition or readjustment of,
         or other  similar  proceeding  affecting,  the  Borrower  or any of the
         Obligors or any of their respective  assets, or any action taken by any
         trustee  or  receiver  or by any court in any such  proceeding,  or the
         disaffirmance,  rejection or postponement in any such proceeding of any
         of the  Borrower's,  any Obligor's or any other party's  obligations or
         undertakings set forth in any such instrument or agreement  (including,
         without limitation, the Loan Documents);

                  (m) the failure of the Bank, in the event of the occurrence of
         any of the events specified in subsection (l) above, to file a claim or
         proof  of  claim  or  otherwise  pursue  any  of  its  remedies  in any
         proceeding resulting from such event;

                  (n)  the  release  or  discharge   (by  operation  of  law  or
         otherwise) of the Borrower, any of the Obligors or any other party from
         the performance or observance of any obligation,  covenant,  agreement,
         undertaking  or  condition  to be  performed by the same under any such
         instrument  or  agreement  (including,  without  limitation,  the  Loan
         Documents);

                  (o) any  limitation on the  liabilities  or obligations of the
         Borrower,  any of the  Obligors  or any  other  party  under  any  such
         instrument  or  agreement  (including,  without  limitation,  the  Loan
         Documents), or any termination,  cancellation,  frustration, invalidity
         or  unenforceability,  in whole or in part,  of any such  instrument or
         agreement  (including,  without limitation,  the Loan Documents) or any
         limitation on the method or terms of payment thereunder that may now or
         hereafter be caused or imposed in any manner whatsoever;

                  (p)  any  failure  on the  part  of the  Borrower,  any of the
         Obligors  or any other  party for any  reason  fully to  perform  or to
         comply with any term of any such  instrument  or agreement  (including,
         without limitation, the Loan Documents);

                  (q)      any   claim   whatsoever of the Guarantor against the
         Borrower or any of the Obligors;

                  (r) any understanding or agreement that any other person, firm
         or organization  was or is to execute this  Agreement,  any of the Loan
         Documents,  or any other instrument or agreement evidencing or securing
         any of the Guaranteed Payments; or

                  (s) any  other  matter  that  might  otherwise  be  raised  in
         avoidance  of,  or  in  defense  against  an  action  to  enforce,  the
         obligations of the Guarantor under this Agreement.


<PAGE>




                  3. Waiver by Guarantor. The Guarantor  unconditionally waives,
insofar as such Guarantor's obligations hereunder are concerned:

                  (a) notice  of   the  execution  and    delivery   of the Loan
         Documents;

                  (b) notice of the Bank's  acceptance  of and  reliance on this
         Agreement or the making of the Loan to the Borrower;

                  (c) notice of any   of   the  matters referred to in Section 2
         of this Agreement;

                  (d) all notices required by statute,  rule of law or otherwise
         to preserve  any rights  against the  Guarantor  hereunder,  including,
         without limitation,  any demand,  proof or notice of non-payment of any
         Guaranteed Payment by the Borrower or any of the Obligors and notice of
         any  failure  on the part of the  Borrower  or any of the  Obligors  to
         perform  or  comply  with  any  term  of any  instrument  or  agreement
         (including,  without  limitation,  the Loan  Documents)  to  which  the
         Borrower or any of the Obligors is a party;

                  (e) any right to the enforcement, assertion or exercise of any
         right,  power or remedy under or in respect of any such  instrument  or
         agreement (including, without limitation, the Loan Documents); and

                  (f) any requirement that the Borrower,  any of the Obligors or
         any  other  person  be  joined  as a party  to any  proceeding  for the
         enforcement of any term of any such instrument or agreement (including,
         without limitation,  the Loan Documents),  any requirement of diligence
         on the part of the Bank and any  requirement on the part of the Bank to
         mitigate any damages  resulting from any  non-payment of any Guaranteed
         Payment or any default or event of default under any such  agreement or
         instrument (including, without limitation, the Loan Documents).

All waivers granted by the Guarantor hereunder,  including,  without limitation,
the waiver by the Guarantor of the rights of subrogation to any Lender's  rights
against the Borrower and others as provided herein,  shall be unconditional  and
irrevocable  irrespective  of whether the Guaranteed  Payments have been paid in
full by the Guarantor or any other party.



                  4.       Subordination, Assignment, Agreement not to   Enforce
Subrogation Rights.



<PAGE>



                  (a)  Subordination.  Any  interest  of  the  Guarantor  in any
         collateral assigned to the Bank as security for the Guaranteed Payments
         or any portion of them,  whether now owned or hereafter acquired by the
         Guarantor,  is hereby subordinated to the interest of the Bank therein.
         Any  indebtedness of the Borrower to the Guarantor,  whether  presently
         existing  or  hereafter   incurred,   is  hereby  subordinated  to  all
         indebtedness of the Borrower to the Bank;  provided,  however,  that so
         long as no default or Event of Default has occurred  and is  continuing
         with  respect to the Loan,  the  Borrower  may pay the  Guarantor  such
         subordinated  indebtedness  when due and payable (but not in advance of
         originally  scheduled due dates). Any notes now or hereafter evidencing
         indebtedness  of the Borrower to the Guarantor  shall,  upon request of
         the Bank,  be marked  with a legend  that the same are  subject to this
         Agreement, and/or endorsed and delivered to the Bank.

                  (b)  Assignment.  Any  indebtedness  of  the  Borrower  to the
         Guarantor  is  hereby   assigned  to  the  Bank  as  security  for  the
         performance  of the  Guarantor's  obligations  hereunder  and  for  the
         performance  of the  obligations  of the Borrower to the Bank under the
         Loan  Documents.  If the  Bank so  requests,  any  indebtedness  of the
         Borrower to the Guarantor shall be collected,  enforced and received by
         the  Guarantor as trustee for the Bank,  to be paid over to the Bank on
         account of the indebtedness and obligations of the Borrower  guaranteed
         hereunder,  but  without  reducing  or  affecting  in  any  manner  the
         liability of the Guarantor under the provisions of this Agreement.  The
         Guarantor agrees to and the Bank is hereby  authorized,  in the name of
         the  Guarantor  from  time to  time,  to  execute  and  file  financing
         statements,  security instruments and other documents, and to take such
         other  action as the Bank deems  necessary  or  appropriate  to effect,
         preserve and enforce its rights hereunder.

                  (c) Agreement Not to Enforce  Subrogation  Rights.  So long as
         any Guaranteed  Payment remains unpaid and the possibility  exists that
         the Guarantor could be liable to the Bank for a Recovered Payment,  the
         Guarantor  hereby  agrees not to assert,  enforce or attempt to enforce
         any right  (individually,  a "Subrogation  Right" and  collectively the
         "Subrogation  Rights"),  whether at law, in equity, or otherwise,  that
         the Guarantor now or hereafter may have (including  without  limitation
         any right of indemnity,  contribution,  reimbursement,  exoneration  or
         subrogation) to recover from the Borrower,  or from any person, firm or
         corporation that may now or hereafter have such a right to recover from
         the Borrower, any amounts paid by the Guarantor to satisfy, in whole or
         in part,  the  Guaranteed  Payments or any  Recovered  Payment.  If any
         amount  shall be paid to the  Guarantor  on account of the  Subrogation
         Rights at any time when all of the  Guaranteed  Payments shall not have
         been paid in full,  such amount shall be held by the Guarantor in trust
         for the Bank, segregated from other funds of the Guarantor,  and shall,
         forthwith upon receipt by the Guarantor,  be turned over to the Bank in
         the  exact  form  received  by  the  Guarantor  (duly  endorsed  by the
         Guarantor to the Bank,  if required by the Bank) to be applied  against
         the Guaranteed Payments, whether matured or unmatured, in such order as
         the Bank may determine.



<PAGE>



                  5.  Enforcement  Expenses.  The Guarantor  shall indemnify and
hold  harmless the Bank against (a) 24% of the amount of any loss,  liability or
expense,  including  reasonable  attorneys' fees and disbursements and any other
fees and disbursements, that may result from any failure of the Borrower to make
any Guaranteed Payment when and as due and payable or that may be incurred by or
on behalf of the Bank in enforcing any  obligation of the Borrower or any of the
Obligors (other than the Guarantor) to make any such Guaranteed Payment, and (b)
any  loss,  liability  or  expense,  including  reasonable  attorneys'  fees and
disbursements and any other fees and  disbursements,  that may be incurred by or
on behalf of the Bank in enforcing any  obligation  of the Guarantor  hereunder;
provided  however, that  if  this  Agreement  is subject to  sec. 5-19-10 of the
Minicode,  sec. 5-19-1 et seq., Code of Alabama  1975, attorneys'  fees shall be
limited to 15% of the unpaid  balance of the debt after  default and referral to
an attorney not a salaried employee of the Bank.

                  6. Delay and Waiver by the Bank.  No delay in the  exercise of
or failure to exercise any right,  remedy or power  accruing upon any default or
failure  of the  Guarantor  in the  performance  of any  obligation  under  this
Agreement shall impair any such right,  remedy or power or shall be construed to
be a waiver thereof,  but any such right,  remedy or power may be exercised from
time to time and as often as may be  deemed by the Bank  expedient.  In order to
entitle the Bank to exercise any right,  remedy or power  reserved to it in this
Agreement, it shall not be necessary to give any notice to the Guarantor. If the
Guarantor  should default in the  performance of any obligation  hereunder,  and
such  default  should  thereafter  be waived by the Bank,  such waiver  shall be
limited to the particular  default so waived. No waiver,  amendment,  release or
modification of this Agreement shall be established by conduct, custom or course
of dealing, but solely by an instrument in writing duly executed by an executive
officer of the Bank.

<PAGE>

                  7.  Consent  to  Jurisdiction,   Waiver  of  Jury  Trial.  The
Guarantor  irrevocably (a) waives the Guarantors  right to a jury trial for any
controversy  arising out of this Agreement or any transaction  described herein;
(b)  submits  to the  jurisdiction  of any state or  federal  court  sitting  in
Birmingham,  Alabama  over any suit,  action  or  proceeding  arising  out of or
relating to this Agreement;  and (c) waives,  to the fullest extent permitted by
law, any objection that the Guarantor may now or hereafter have to the laying of
the venue of any such suit,  action or proceeding  brought in any such court and
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient  forum.  Final judgment in any such suit, action
or proceeding brought in any such court shall be conclusive and binding upon the
Guarantor  and may be  enforced  in any court to the  jurisdiction  of which the
Guarantor is subject,  by a suit upon such  judgment,  provided  that service of
process is effected upon the  Guarantor in one of the manners  specified in this
Section  7 or as  otherwise  permitted  by law and  provided,  further  that the
enforcement  of such  judgment  has not  been  stayed  by a court  of  competent
jurisdiction.   The  Guarantor  hereby   irrevocably   designates  and  appoints
_______________  of   __________________,   _____________,   Alabama,   as  such
Guarantor's  authorized  agent to accept  and  acknowledge  on such  Guarantor's
behalf service of any and all process that may be served in any suit,  action or
proceeding  of the nature  referred to in this Section 7 in any state or federal
court sitting in the State of Alabama.  If such agent shall cease so to act, the
Guarantor  shall  irrevocably  designate and appoint  without delay another such
agent in the  State of  Alabama  satisfactory  to the  Bank and  shall  promptly
deliver to the Bank evidence in writing of such other agent's acceptance of such
appointment and its agreement that such  appointment  shall be irrevocable.  The
Guarantor  hereby  consents  to  process  being  served in any  suit,  action or
proceeding  of the nature  referred to in this Section 7 by (a) the mailing of a
copy thereof by registered or certified mail,  postage  prepaid,  return receipt
requested,  to such  Guarantor   at the  Guarantors   address  designated  in or
pursuant to Section 13 hereof and (b) serving a copy thereof upon the agent,  if
any,  designated  and appointed by such Guarantor as the  Guarantor's  agent for
service of process by or pursuant to this Section 7. The  Guarantor  irrevocably
agrees that such service (i) shall be deemed in every respect  effective service
of process upon such  Guarantor in any such suit,  action or proceeding and (ii)
shall,  to the fullest  extent  permitted  by law, be taken and held to be valid
personal service upon such Guarantor. Nothing in this Section 7 shall affect the
right of the Bank to serve process in any manner  otherwise  permitted by law or
limit the right of the Bank otherwise to bring proceedings against the Guarantor
in the courts of any jurisdiction or jurisdictions.

                  8. Financial Condition. The Guarantor hereby agrees to provide
 to the Bank the following:

                  (a) (i) if the Guarantor is a publicly held  corporation,  its
         annual report to shareholders and its Form 10K each year as soon as the
         same are  available;  or (ii) if the  Guarantor is not a publicly  held
         corporation,  within  90 days  after the end of the  Borrower's  fiscal
         year,  the balance sheet of the Borrower as of the end of such year and
         the related  statements of income and changes in financial  position of
         the Borrower for such fiscal year, together with supporting  schedules,
         all on a  comparative  basis with the prior fiscal year,  in reasonable
         detail  prepared  in  accordance  with  generally  accepted  accounting
         principles  consistently  applied throughout the periods involved,  and
         audited and certified by independent  certified  public  accountants of
         recognized  standing  selected by the Borrower and  satisfactory to the
         Lender (the form and substance of such audit and certification  also to
         be  satisfactory  to the  Lender),  showing  the  financial  condition,
         assets,  liabilities  and  stockholders'  equity of the Borrower at the
         close of such year and the results of the  operations  of the  Borrower
         during such year; and

                  (b) as soon  as  practical,  from  time to  time,  such  other
         information  regarding the financial  condition of the Guarantor as the
         Bank may reasonably request.

                  9. Intent. The purpose of this Agreement is to memorialize the
parties'  understanding  that, if the Borrower  does not pay or otherwise  fully
perform its  obligations  in a timely manner as provided in the Loan  Documents,
the  Guarantor  will  promptly pay the amount due and payable by the Borrower to
the Bank upon demand.

                  10.  Consideration.  In order to  induce  the Bank to make the
Loan, the Guarantor,  who acknowledges  that the Guarantor will benefit from the
Loan to the  Borrower,  has agreed to execute and deliver this  Agreement on the
understanding  that doing so is a condition  precedent to the Bank's  making the
Loan.

                  11.  Guarantor's  Warranty;  Related  Parties.  The  Guarantor
confirms and warrants that the Guarantor is limited partner of the Borrower, has
personal  knowledge of and is familiar  with the  Borrower's  business  affairs,
books and records,  has the ability to influence the Borrower's  decision-making
process, and warrants that the Borrower is in sound financial condition and will
perform in accordance with the terms and conditions of the Loan Documents.

<PAGE>

                  12. Reliance.  The Guarantor  acknowledges  that in making the
Loan the Bank is relying primarily upon the covenants of the Guarantor contained
in this Agreement and the Limited Credit Guaranty  Agreement dated July 15, 1997
and upon the  guaranties  of other  guarantors,  and  undertakes  to perform the
Guarantor's obligations hereunder promptly and in good faith. The Guarantor also
acknowledges  that because of the primary reliance that the Bank places upon the
Guarantor's  covenants  contained herein and the guaranties of other Guarantors,
the Bank has not monitored,  and will not in the future  monitor,  carefully the
progress of construction of such project being financed with the proceeds of the
Loan,  the Bank may not  secure  payment  of the Loan by a Deed of Trust on such
project  or  otherwise,  and the Bank does not intend to  conduct  any  physical
inspections  of project.  Any rights that the Bank has under the Loan  Documents
with respect to the Borrower and/or such project shall inure only to the benefit
of the Bank and not to the benefit of the Guarantor,  any other guarantor or any
other third parties.

                  13.  Notices  and   Communications.   All  notices  and  other
communications hereunder shall be in writing and shall be effective when sent by
certified or registered mail, return receipt requested, by courier service or by
hand  delivery:  (a) if to the  Guarantor,  at Highway 41 North  Cavalier  Road,
Addison, Alabama  35540 or at such other  address  as the  Guarantor  shall have
furnished  to the Bank,  or (b) if to the Bank,  addressed  to it at 800  Shades
Creek Parkway,  Birmingham,  Alabama 35288, Attention: Paul M. Schabacker, or at
such other address as the Bank shall have furnished to the Guarantor.

                  14.  Termination  of Agreement.  This Guaranty shall remain in
full force and effect until the Bank shall have  terminated  this  Guaranty in a
writing signed by a duly authorized officer of the Bank; provided, however, that
regardless of whether this Guaranty  shall have been  terminated,  this Guaranty
and the obligations of the Guarantor hereunder shall continue to be effective or
be automatically  reinstated, as the case may be, any time payment of all or any
part  of the  Guaranteed  Payments  is  recovered  (individually,  a  "Recovered
Payment" and collectively,  the "Recovered  Payments") from the Bank as a result
of  a  preference  or  other  claim  made  under  any  bankruptcy,   insolvency,
dissolution,  liquidation,  reorganization,   receivership  or  similar  law  or
otherwise.

                  15.    Survival   of   Agreements,    etc.   All   agreements,
representations  and  warranties  of the Guarantor  hereunder  shall survive the
execution and delivery of this Agreement,  any investigation at any time made by
or on  behalf  of the  Bank,  the  acceptance  of the  Note by the  Bank and any
disposition and payment of the Note.

                  16.  Successors  and Assigns.  All covenants and agreements of
the  Guarantor  set forth in this  Agreement  shall bind the  Guarantor  and the
Guarantor's personal  representatives,  heirs,  successors and assigns and shall
inure to the benefit of, and be enforceable  by, the Bank and its successors and
assigns  including,  without  limitation,  any  holder  of the  Note or any part
thereof.

                  17. No Oral  Agreements.  This written  Agreement is the final
expression  of the  agreement  between  the parties  hereto with  respect to the
subject matter hereof, and this Agreement may not be contradicted by evidence of
any prior agreement between such parties.  All previous oral agreements  between
the parties hereto have been incorporated  into this Agreement,  and there is no
unwritten oral agreement in existence between the parties hereto.


<PAGE>


                  18. Miscellaneous.  Neither this Agreement nor any term hereof
may be terminated,  amended, supplemented,  waived, released or modified orally,
but only by an  instrument  in  writing  signed by the party  against  which the
enforcement  of the  termination,  amendment,  supplement,  waiver,  release  or
modification is sought. This Agreement shall in all respects be governed by, and
construed and enforced in accordance with, the laws of the State of Alabama.  If
any  term of this  Agreement  or any  obligation  hereunder  shall be held to be
invalid, illegal or unenforceable, the remainder of this Agreement and any other
application of such term shall not be affected thereby.  The section headings of
this  Agreement have been inserted for  convenience  only, and shall not modify,
define, limit or expand the express provisions hereof.

                  IN WITNESS WHEREOF, the Guarantor has caused this Agreement to
be executed by its duly authorized officer as of the date first above written.

                                                       CAVALIER HOMES, INC.

                                                    By /s/ Michael R. Murphy    
                                                 ------------------------------ 
                                                      Name: Michael R. Murphy

                                                       Title: Vice President



<PAGE>



STATE OF ALABAMA                    )
                                    )
JEFFERSON COUNTY                    )

         I, the undersigned authority, a Notary Public in and for said County in
said State, hereby certify that Michael R. Murphy,  whose name as Vice President
of Cavalier Homes,  Inc., a corporation,  is signed to the foregoing  instrument
and who is known to me,  acknowledged before me on this day that, being informed
of the  contents  of said  instrument  , he/she,  as such  officer and with full
authority, executed the same voluntarily for and as the act of said corporation.

Given under my hand and official seal this the 10th day of December, 1998.


                                             /s/  Carol Burkett Crawford        
                                             ---------------------------
                                                    Notary Public
[AFFIX SEAL]

 My commission expires: August 5, 2000
                        ---------------