Document:

NEITHER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON
THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES
LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL
AND OPINION ARE SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS.

     

    PALM
HARBOR HOMES, INC.

    WARRANT
TO PURCHASE COMMON STOCK

     

    
      Warrant
No.: C-6

    

    Date of
Issuance: January 29, 2010 (“Issuance Date”)

     

    
      Palm
Harbor Homes, Inc., a Florida corporation (the “Company”), certifies that, for
good and valuable consideration, the receipt and sufficiency of which are
acknowledged, Virgo – Magnolia, LP, the registered holder hereof or its
permitted assigns (the “Holder”), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon surrender of this Warrant to
Purchase Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or
times from the Issuance Date, but not after 5:30 p.m., New York Time, on the
Expiration Date (as defined below), Eighty-Seven Thousand Three Hundred
Eighty-Nine (87,389) fully paid and nonassessable shares of Common Stock (as
defined below) (the
“Warrant
Shares”).  Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in
Section 17.  This Warrant is issued pursuant to that certain
Credit Agreement, dated as of January 29, 2010 (the “Loan Date”), by and among
Countryplace Acceptance Corporation, a Nevada corporation, Countryplace
Mortgage, Ltd., a Texas limited partnership, Countryplace Mortgage Holdings,
LLC, a Delaware limited liability company, Palm Harbor Homes, Inc., a Florida
corporation, Countryplace Acceptance G.P., LLC, a Texas limited liability
company, Countryplace Acceptance L.P., LLC, a Delaware limited liability
company, the lenders party thereto and Virgo Service Company, LLC, a Delaware
limited liability company, as administrative agent and collateral agent for the
lenders (the “Credit
Agreement”).

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1.           Exercise of
Warrant.

     

    (a)           Mechanics of
Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(e)),
this Warrant may be exercised by the Holder on any day on or after the Issuance
Date, in whole or in part (but not as to fractional shares), by
(i) delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant and (ii) payment to the Company
of an amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in
cash or wire transfer of immediately available funds.  The Holder
shall not be required to surrender this Warrant in order to effect an exercise
hereunder, provided that this
Warrant is surrendered to the Company by the second Trading Day following the
date on which the Company has received each of the Exercise Notice and the
Aggregate Exercise Price (the “Exercise Delivery
Documents”).  On or before the first Trading Day following the
date on which the Company has received the Exercise Delivery Documents, the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of the Exercise Delivery Documents to the Holder and the Company’s transfer
agent for the Common Stock (the “Transfer
Agent”).  The Company shall deliver any objection to the
Exercise Delivery Documents on or before the second Trading Day following the
date on which the Company has received all of the Exercise Delivery
Documents.  In the event of any discrepancy or dispute, the records of
the Company shall be controlling and determinative in the absence of manifest
error.  On or before the third Trading Day following the date on which
the Company has received all of the Exercise Delivery Documents and after the
Company shall have received this Warrant, the Company shall, (X) provided that the
Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program (the “FAST Program”) and so long as
the certificates therefor are not required to bear a legend regarding
restriction on transferability, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (Y), if the
Transfer Agent is not participating in the FAST Program or if the certificates
are required to bear a legend regarding restriction on transferability, issue
and dispatch by overnight courier to the address as specified in the Exercise
Notice, a certificate, registered in the Company’s share register in the name of
the Holder or its designee, for the number of shares of Common Stock to which
the Holder is entitled pursuant to such exercise.  Upon proper
delivery of the Exercise Delivery Documents, the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder’s DTC account or the date of
delivery of the certificates evidencing such Warrant Shares, as the case may
be.  If this Warrant is submitted in connection with any exercise
pursuant to this Section 1(a) and the number of Warrant Shares represented
by this Warrant submitted for exercise is greater than the number of Warrant
Shares being acquired upon an exercise, then the Company shall as soon as
practicable and in no event later than five Trading Days after any exercise and
at its own expense, issue a new Warrant (in accordance with Section 8(e))
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised.  The
Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this Warrant; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder or an
affiliate thereof.  The Holder shall be responsible for all other tax
liabilities that may arise as a result of holding or transferring this Warrant
or receiving Warrant Shares upon exercise hereof.

     

    
      
        
        

      

      
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    (b)           Exercise
Price.  For purposes of this Warrant, “Exercise Price” means $2.1594
per share of Common Stock, subject to adjustment as provided
herein.

     

    (c)           Failure to Timely Deliver
Shares.  In addition to any other rights available to a Holder,
if the Company fails to deliver to the Holder a certificate representing Warrant
Shares by the third Trading Day after the date on which delivery of such
certificate is required by this Warrant, and if after such third Trading Day the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares
that the Holder anticipated receiving from the Company, then the Company shall,
within three Trading Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased less the Exercise Price (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to
the Holder a certificate or certificates representing such Common Stock and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times
(B) the Closing Price on the date of the event giving rise to the Company’s
obligation to deliver such certificate.

     

    (d)           Cashless Exercise.
 Notwithstanding
anything contained herein to the contrary, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the “Net Number” of shares of Common Stock determined according to the
following formula:

     

    
      
        
          	
                  Net
      Number =

                	
                  
                    (A x B) - (A x C)

                  

                
	
                  B

                

        

      

    

     

    For
purposes of the foregoing formula:

     

    
      	
               
      

            	
              A

            	
              =

            	
              the
      total number of shares with respect to which this Warrant is then being
      exercised.

            

    

     

    
      	
               
      

            	
              B

            	
              =

            	
              the
      Fair Market Value of the shares of Common
Stock.

            

    

     

    
      	
               
      

            	
              C

            	
              =

            	
              the
      Exercise Price then in effect for the applicable Warrant Shares at the
      time of such exercise.

            

    

     

    (e)           No Fractional Shares or
Scrip.  No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant.  As to any
fraction of a share that the Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise
Price.

     

    2.           Adjustment of Exercise Price
and Number of Warrant Shares.  The Exercise Price and the
number of Warrant Shares shall be adjusted from time to time as
follows:

    
       

      
        
          
          

        

        
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    (a)           Adjustment upon Subdivision
or Combination of Shares of Common Stock.  If the Company at
any time on or after the Loan Date subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of Warrant Shares will be proportionately increased.  If
the Company at any time on or after the Loan Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of Warrant Shares will be proportionately decreased.  Any
adjustment under this Section 2(a) shall become effective at the close of
business on the date the subdivision or combination becomes
effective.

     

    (b)           Other
Events.  If any event occurs of the type contemplated by the
provisions of Section 2(a) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features to any of the
holders of the Company’s Common Stock other than pursuant to the Company's stock
incentive plan for employees), then the Company’s Board of Directors will make
an appropriate adjustment in the Exercise Price and the number of Warrant Shares
so as to protect the rights of the Holder; provided, that no
such adjustment pursuant to this Section 2(b) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant
to this Section 2(b).

     

    (c)           Adjustment for Issuance of
Additional Securities in Certain Dilutive Issuances.  If the
Company at any time prior to the fourth anniversary of the Issuance Date while
this Warrant, or any portion hereof, remains outstanding shall (i) issue
Securities with Respect to a Debt or Equity Conversion, then upon such issuance
the number of Warrant Shares issuable upon exercise of this Warrant shall be
increased, concurrently with such issuance, such that the issuance of Securities
with Respect to a Debt of Equity Conversion shall have no dilutive effect upon
the percentage of Common Stock (measured on a fully diluted basis) that would be
held by the Holder upon the exercise of the Warrant Shares as of the date
hereof, or (ii) issue Other Additional Securities in one or more issuances
such that the percentage of the Common Stock (measured on a fully diluted basis)
that would be held by the Holder upon the exercise of the Warrant Shares as of
the date hereof would be reduced by greater than ten percent (10%) upon such
issuance of Other Additional Securities, then the number of Warrant Shares
issuable upon exercise of this Warrant shall be increased, concurrently with
such issuance, such that the dilutive effect would not exceed ten percent (10%)
and the Exercise Price shall be proportionately decreased.

     

    3.           Rights Upon Distribution of
Assets.  If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case:

     

    
      
        
        

      

      
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    (a)           any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the Fair
Market Value of the shares of Common Stock on the Trading Day immediately
preceding such record date minus the value of the Distribution (as determined in
good faith by the Company’s Board of Directors) applicable to one share of
Common Stock, and (ii) the denominator shall be the Fair Market Value of
the shares of Common Stock on the Trading Day immediately preceding such record
date; and

     

    (b)           the
number of Warrant Shares shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of shares of
Common Stock entitled to receive the Distribution multiplied by the reciprocal
of the fraction set forth in the immediately preceding paragraph (a); provided, that in the
event that the Distribution is of shares of Common Stock or Common Stock of a
company whose common shares are traded on a national securities exchange or a
national automated quotation system (“Other Shares of Common
Stock”), then the Holder may elect to receive a warrant to purchase Other
Shares of Common Stock in lieu of an increase in the number of Warrant Shares,
the terms of which shall be identical to those of this Warrant, except that such
warrant shall be exercisable into the number of shares of Other Shares of Common
Stock that would have been payable to the Holder pursuant to the Distribution
had the Holder exercised this Warrant immediately prior to such record date and
with an aggregate Exercise Price equal to the product of the amount by which the
Exercise Price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph
(b).

     

    4.           Purchase Rights; Fundamental
Transactions.

     

    (a)           Purchase
Rights.  In addition to any adjustments pursuant to
Section 2 above, if at any time prior to the Expiration Date the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “Purchase Rights”), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant) immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of shares of Common Stock are
to be determined for the grant, issue or sale of such Purchase
Rights.

     

    
      
        
        

      

      
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    (b)           Fundamental
Transactions.  Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Warrant referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Warrant with the same effect as
if such Successor Entity had been named as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon exercise of this
Warrant at any time after the consummation of the Fundamental Transaction, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property purchasable upon the exercise of the Warrant prior to such
Fundamental Transaction), such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights), if any, that the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction had this Warrant been exercised
immediately prior to such Fundamental Transaction, as adjusted in accordance
with the provisions of this Warrant.  In addition to and not in
substitution for any other rights hereunder, prior to the consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in exchange
for shares of Common Stock (a “Corporate Event”), the Company
shall notify the Holders of at least ten (10) Business Days prior to the
Closing  of the Fundamental Transaction and shall make appropriate
provision to insure that the Holder will receive upon an exercise of this
Warrant contemporaneously with consummation of the Fundamental Transaction, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) purchasable upon the exercise of the Warrant prior to such
Fundamental Transaction, such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had the Warrant been exercised immediately prior
to such Fundamental Transaction.  The provisions of this
Section shall apply similarly and equally to successive Fundamental
Transactions and Corporate Events and shall be applied without regard to any
limitations on the exercise of this Warrant.

     

    5.           Noncircumvention.  The
Company covenants and agrees that the Company will not, by amendment of its
Certificate of Incorporation, Bylaws or through any reorganization, transfer of
assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the
holder.  Without limiting the generality of the foregoing, the Company
(i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant and (iii)
shall, so long as any of the warrants are outstanding, take all action necessary
to reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of effecting the exercise of the warrants,
the number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of the warrants then outstanding (without regard to any
limitations on exercise).

     

    6.           Reservation of Warrant
Shares.  The Company covenants that it will at all times
reserve and keep available out of the aggregate of its authorized but unissued
and otherwise unreserved Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of shares of Common Stock which are then issuable and deliverable upon
the exercise of this entire Warrant, free from preemptive or any other
contingent purchase rights of Persons other than the Holder (taking into account
the adjustments and restrictions in Section 2).  Such reservation
shall comply with the provisions of Section 1.  The Company
covenants that all shares of Common Stock so issuable and deliverable shall,
upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.  The Company will take all such actions as may be
necessary to assure that such shares of Common Stock may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of any securities exchange or automated quotation system upon which
the Common Stock may be listed.

     

    
      
        
        

      

      
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    7.           Warrant Holder Not Deemed a
Stockholder.  Except as otherwise specifically provided herein,
the Holder, solely in such Person’s capacity as a holder of this Warrant, shall
not be entitled to vote or receive dividends or be deemed the holder of share
capital of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the Holder, solely in such Person’s capacity
as the Holder of this Warrant, any of the rights of a stockholder of the Company
or any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant.  In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company.

     

    8.           Registration and Reissuance
of Warrants.

     

    (a)           Registration of Warrant
Shares.  The Company agrees to provide mandatory registration
rights for the resale of the Warrant Shares under the Act on the terms and
subject to the conditions set forth in the Registration Rights Agreement between
the Company and the Holder.

     

    (b)           Transfer of
Warrant.  This Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may
otherwise be required by applicable securities laws.  Subject to
applicable securities laws, if this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company together with all applicable
transfer taxes, whereupon the Company will forthwith issue and deliver upon the
order of the Holder a new Warrant (in accordance with Section 8(e)),
registered as the Holder may request, representing the right to purchase the
number of Warrant Shares being transferred by the Holder and, if less then the
total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with Section 8(e)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

     

    (c)           Lost, Stolen or Mutilated
Warrant.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form or
the provision of reasonable security by the Holder to the Company and, in the
case of mutilation, upon surrender and cancellation of this Warrant, the Company
shall execute and deliver to the Holder a new Warrant (in accordance with
Section 8(e)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

     

    
      
        
        

      

      
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    (d)           Exchangeable for Multiple
Warrants.  Subject to Section 8(b), this Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company together with all applicable transfer taxes, for a new Warrant or
Warrants (in accordance with Section 8(e)) representing in the aggregate
the right to purchase the number of Warrant Shares then underlying this Warrant,
and each such new Warrant will represent the right to purchase such portion of
such Warrant Shares as is designated by the Holder at the time of such
surrender; provided, however, that the
Company shall not be required to issue Warrants for fractional shares of Common
Stock hereunder.

     

    (e)           Issuance of New
Warrants.  Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant and to the extent permitted by
law, such new Warrant shall (i) be of like tenor with this Warrant,
(ii) represent, as indicated on the face of such new Warrant, the right to
purchase the Warrant Shares then underlying this Warrant (or in the case of a
new Warrant being issued pursuant to Section 8(b),(c) or (d), the Warrant
Shares designated by the Holder which, when added to the number of shares of
Common Stock underlying the other new Warrants issued in connection with such
issuance, does not exceed the number of Warrant Shares then underlying this
Warrant), (iii) have an issuance date, as indicated on the face of such new
Warrant which is the same as the Issuance Date and (iv) have the same rights and
conditions as this Warrant.

     

    9.           Notices.  Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with the information set forth
in the Warrant Register.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including,
in reasonable detail, a description of such action and the reason or reasons
therefore.  Without limiting the generality of the foregoing, the
Company will give written notice to the Holder (i) immediately (and in any
event, no later than five business days) upon any adjustment of the Exercise
Price, setting forth in reasonable detail, and certifying, the calculation of
such adjustment and (ii) at least 10 days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation and, in any event, at least twenty (20)
days prior to the consummation of any Fundamental Transaction; provided, that in
each case, such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.

     

    10.         Amendment and
Waiver.  Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Required Holders;
provided, that except as provided by Section 2, no such action may increase the
Exercise Price of any Warrant or decrease the number of shares or class of stock
obtainable upon exercise of any Warrant without the written consent of the
Holder.  No such amendment shall be effective to the extent that it
applies to less than all of the holders of the Warrants then
outstanding.

     

    
      
        
        

      

      
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    11.         Governing
Law.  This Warrant shall be governed by and construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

     

    12.         Construction;
Headings.  This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any person as
the drafter hereof.  The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.

     

    13.         Dispute
Resolution.  In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within two Trading Days of receipt of the Exercise Notice giving rise
to such dispute, as the case may be, to the Holder.  If the Holder and
the Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within five Trading Days of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within two Trading Days submit via facsimile (a) the disputed
determination of the Exercise Price to an independent, reputable investment bank
selected by the Company and approved by the Holder (which consent shall not be
unreasonably withheld or delayed) or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside
accountant.  The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than 10 Trading
Days from the time it receives the disputed determinations or
calculations.  Such investment bank’s or accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.  The expenses of the investment bank and
accountant will be borne by the Company unless the investment bank or accountant
determines that the determination of the Exercise Price or the arithmetic
calculation of the Warrant Shares by the Holder was incorrect, in which case the
expenses of the investment bank and accountant will be borne by the
Holder.

     

    14.         Remedies, Other Obligations,
Breaches and Injunctive Relief.  The remedies provided in this
Warrant shall be cumulative and in addition to all other remedies available
under this Warrant and the Credit Agreement, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and nothing
herein shall limit the right of the Holder to pursue actual damages (but
excluding punitive or consequential damages) for any failure by the Company to
comply with the terms of this Warrant.  The Company acknowledges that
a breach by it of its obligations hereunder may cause irreparable harm to the
Holder and that the remedy at law for any such breach may be
inadequate.  The Company therefore agrees that, in the event of any
such breach or threatened breach, the holder of this Warrant shall be entitled,
in addition to all other available remedies, to seek an injunction restraining
any breach.  Notwithstanding the foregoing, the absence of an
effective registration statement relating to the issuance of Warrant Shares upon
exercise of the Warrant shall not provide the Holder with the right to
net-settle this Warrant in cash.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    15.         Binding Effect on
Successors.  This Warrant shall be binding upon any corporation
succeeding the Company by merger or consolidation, and all of the obligations of
the Company relating to the Warrant Shares issuable upon the exercise of this
Warrant shall be as set forth in the Company’s Articles of Incorporation and the
Company’s Bylaws (each as amended from time to time) and shall survive the
exercise and termination of this Warrant and all of the covenants and agreements
herein and in such other documents and instruments of the Company shall inure to
the benefit of the successors and assigns of the Holder.  The Company
will, at the time of the exercise of this Warrant, in whole or in part, upon
request of the Holder but at the Company’s expense, acknowledge in writing its
continuing obligation to the Holder in respect of any rights to which the Holder
shall continue to be entitled after such exercise in accordance with this
Warrant; provided, that the failure of the Holder to make any such request shall
not affect the continuing obligation of the Company to the Holder in respect of
such rights.

     

    16.         Notices:  All
notices and other communications hereunder shall be in writing and shall be
delivered by facsimile where confirmation of good transmission or receipt by the
receiving party’s receiver is documented, or personally delivered by hand or by
reputable overnight courier or mailed by first class certified or registered
mail, postage prepaid, as follows:

     

    If to the
Company:

     

    Palm
Harbor Homes, Inc.

    15303
Dallas Parkway, Suite 800

    Addison,
TX  75001-4600

    Attn:  Ms.
Kelly Tacke

    Facsimile:
(972) 764-9018

    

    With a
copy to (which copy shall not constitute notice):

     

    Locke
Lord Bissell & Liddell LLP

    2200 Ross
Avenue, Suite 2200

    Dallas,
TX  75201

    Attn:  Gina
E. Betts, Esq.

    Facsimile:
(214) 756-8515

     

    If to
Holder:

     

    
      Virgo –
Magnolia, LP

      Name:  Bob
Racusin

    

    Address:  667
Madison Avenue, Fl 11

    New York,
NY  10065

    Attn:  Bob
Racusin

    Facsimile: (646) 619-4035

     

    With a
copy to (which copy shall not constitute notice):

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    Morrison & Foerster
LLP

    
      425
Market Street

    

    
      San
Francisco, CA 94105

    

    
      Attn:
Robert Townsend, Esq.

    

    Facsimile:
(415) 268-7522

     

    17.         Certain
Definitions.  For purposes of this Warrant, the following terms
shall have the following meanings:

     

    (a)           “Act” means the Securities Act
of 1933, as amended.

     

    (b)          “Aggregate Exercise Price” has
the meaning set forth in Section 1(a).

     

    (c)           “Buy-In Price” has the meaning
set forth in Section 1(c).

     

    (d)           “Change of Control” means any
Fundamental Transaction following which the holders of the Company’s voting
power immediately prior to such Fundamental Transaction do not, immediately
thereafter, hold, directly or indirectly, voting power of the surviving or
successor entity or entities sufficient to elect a majority of the members of
the board of directors (or their equivalent if other than a corporation) of such
entity or entities.

     

    (e)           “Common Stock” means
(i) the Company’s shares of Common Stock, $0.001 par value per share, and
(ii) any capital share into which such Common Stock shall have been changed
or any share capital resulting from a reclassification of such Common
Stock.

     

    (f)           “Company” has the meaning set
forth in the introductory paragraph.

     

    (g)          “Convertible Securities” means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for shares of Common Stock.

     

    (h)          “Corporate Event” has the
meaning set forth in Section 4(b).

     

    (i)          
 “Credit Agreement”
has the meaning set forth in the introductory paragraph.

     

    (j)           
“Distribution” has the
meaning set forth in Section 1(a).

     

    (k)          “DTC” has the meaning set forth
in Section 3.

     

    (l) 
          “Eligible Market” means the
Principal Market, The New York Stock Exchange, Inc., the NYSE Amex LLC, The
Nasdaq Stock Market, or the OTC Bulletin Board®.

     

    (m)          “Exercise Delivery Documents”
has the meaning set forth in Section 1(a).

     

    (n)          “Exercise Notice” has the
meaning set forth in Section 1(a).

     

    (o)          “Exercise Price” has the
meaning set forth in Section 1(b).

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (p)           “Expiration Date” means the
fifth anniversary of the Issuance Date or, if such date falls on a day other
than a Trading Day or on which trading does not take place on the Principal
Market (a “Holiday”),
the next date that is not a Holiday.

     

    (q)           “Fair Market Value” means with
respect to a Warrant Share or a shares of Common Stock:

     

    (i)           If
traded on a securities exchange or the Nasdaq National Market, the Fair Market
Value shall be the closing price of the Common Stock of the Company on such
exchange or market reported for the business day immediately before Holder
delivers its Exercise Notice to the Company.

     

    (ii)          If
actively traded over-the-counter, the Fair Market Value shall be deemed to be
the average of the closing bid prices over the 30-day period ending immediately
prior to the applicable date of valuation.

     

    (iii)         If
there is no active public market, the Fair Market Value shall be the Fair Market
Value as mutually determined by the Company and the Required
Holders.  If the Company and the Required Holders are unable to agree
upon the Fair Market Value of such security, then such dispute shall be resolved
pursuant to Section 13 with the term “Fair Market Price” being substituted for
the term “Exercise Price.”

     

    (r)           “FAST Program” has the meaning
set forth in Section 1(a).

     

    (s)           “Fundamental Transaction” means
that the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into another Person,
(ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
(iii) allow another Person to make a purchase (other than in a firm commitment
public offering of equity securities by the Company), tender or exchange offer
that is accepted by the holders of more than the 50% of either the outstanding
shares of Common Stock (not including any shares of Common Stock held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), (v) reorganize, recapitalize
or reclassify its Common Stock or (vi) any “person” or “group” (as these terms
are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or
shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock, other than in connection
with a firm commitment underwritten public offering of the Company’s equity
securities.

     

    (t)           “Holder” has the meaning set
forth in the introductory paragraph.

     

    (u)           “Issuance Date” has the meaning
set forth in the introductory paragraph.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (v)           “Loan Date” has the meaning set
forth in the introductory paragraph.

     

    (w)          “Options” means any rights,
warrants or options to subscribe for or purchase shares of Common Stock or
Convertible Securities.

     

    (x)           “Other Additional Securities”
means any shares of Common Stock or Options issued by the Company other than
issuances of Securities with Respect to a Debt or Equity Conversion including,
without limitation, issuances of Common Stock or Options to (i) employees
or directors of, or consultants or advisors to, the Company or any of its
affiliates pursuant to a plan, agreement or arrangement, (ii) banks,
equipment lessors or other financial institutions, or to real property lessors,
pursuant to a debt financing, equipment leasing or real property leasing
transaction, and (iii) any parties in connection with the acquisition of
another Person by the Company by merger, purchase of substantially all of the
assets or other reorganization or pursuant to any partnership, joint venture,
collaboration or similar agreement or arrangement.

     

    (y)          “Other Shares of Common Stock”
has the meaning set forth in Section 3(b).

     

    (z)           “Parent Entity” of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose Common Stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

     

    (aa)         “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

     

    (bb)        “Principal Market” means the
Nasdaq Global Market.

     

    (cc)        
“Purchase Rights” has
the meaning set forth in Section 4(a).

     

    (dd)        “Required Holders” means the
holders of the Warrants representing at least a majority of shares of Common
Stock underlying the Warrants then outstanding.

     

    (ee)         “Securities with Respect to a Debt or
Equity Conversion” means shares of Common Stock, Options or Convertible
Securities issued upon conversion of any securities of the Company.

     

    (ff)          “Successor Entity” means the
Person (or, if so elected by the Required Holders, the Parent Entity) formed by,
resulting from or surviving any Fundamental Transaction or the Person (or, if so
elected by the Required Holders, the Parent Entity) with which such Fundamental
Transaction shall have been entered into.

    
       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

    

     

    (gg)        “Trading Day” means any day on
which the Common Stock is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is
then traded; provided that
“Trading Day” shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00 p.m., New York Time).

     

    (hh)        “Transfer Agent” has the
meaning set forth in Section 1(a).

     

    (ii)           “Warrant” has the meaning set
forth in the introductory paragraph.

     

    (jj)           “Warrant Shares” has the
meaning set forth in the introductory paragraph.

     

    [Signature
Page Follows]

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

    IN WITNESS WHEREOF, the
Company has caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set out above.

     

    
      
        
          
            
              	 
      	
                      PALM
      HARBOR HOMES, INC.

                    
	 	 	 
	 
      	
                      By:

                    	/s/
      Larry Keener
	 
      	
                       

                    	
                       
      Name: Larry Keener

                    
	 
      	
                       

                    	 
      Title: CEO

            

          

        

      

    

     

    Signature Page to Warrant to
Purchase Common Stock

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
A

    

    EXERCISE
NOTICE

     

    TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

    WARRANT
TO PURCHASE COMMON STOCK

    

    PALM
HARBOR HOMES, INC.

     

    The
undersigned holder hereby exercises the right to purchase _________________ of
the shares of Common Stock (“Warrant Shares”) of Palm
Harbor Homes, Inc., a Florida corporation (the “Company”), evidenced by the
attached Warrant to Purchase Common Stock (the “Warrant”).  Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.

     

    1.  Exercise.  [The
Holder intends to pay the sum of $___________________ to the Company in
accordance with the terms of the Warrant in connection with the exercise of the
Warrant for ________ Warrant Shares.]  [The Holder hereby elects to
make a cashless exercise.]

     

    2.  Delivery of Warrant
Shares.  The Company shall deliver to the holder __________
Warrant Shares in accordance with the terms of the Warrant.

     

    
      
        
          
            	
                    Date:
      _______________ __, ______

                  
	 
      
	 
	
                    Name
      of Registered Holder

                  

          

           

          
            
              
                
                  
                    	
                            By:

                          	 
      
	 
      	
                            Name:

                          
	 
      	
                            Title:

                          

                  

                

              

            

          

        

         

        
          
            
            

          

          
            A-1

            
              

            

          

          
            
            

          

        

      

    

    

    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges this Exercise Notice.

     

    
      
        
          
            
              	 	
                      PALM
      HARBOR HOMES, INC.

                    
	 	 
      	 
      
	 	
                      By:

                    	 
      
	 	 
      	
                      Name:

                    
	 	 
      	
                      Title:

                    

            

          

        

      

    

     

    
      
        
        

      

      
        A-2REGISTRATION RIGHTS
AGREEMENT

    

    This
Registration Rights Agreement (this “Agreement”) is made
and entered into effective as of January 29, 2010, by and
among Virgo-Sierra, LP (“Sierra”), Virgo-Redwood, LP (“Redwood”), Virgo-Willow, LP (“Willow”), Virgo-Magnolia, LP (“Magnolia,” and collectively with
Sierra, Redwood and Willow, “Virgo”) and Palm Harbor Homes,
Inc., a Florida corporation (the “Company”).

     

    WHEREAS,
the parties have entered into that certain Credit Agreement by and among the
Company, Sierra, Redwood, Willow, Magnolia, and the other parties enumerated
therein, dated effective as of January 29, 2010; and

     

    WHEREAS,
as partial consideration for Virgo entering into the Credit Agreement, the
Company issued to each of Sierra, Redwood, Willow and Magnolia a
Warrant to purchase Common Stock of the Company (the “Warrant”), pursuant
to which such entities have the right to purchase, subject to adjustments, an
aggregate of 1,296,634 shares (as adjusted from time to time, the “Warrant Shares”) of
common stock of the Company (the “Common Stock”) and,
in connection with the issuance of the Warrant, the Company and Virgo have
agreed to enter into this Agreement.

     

    NOW,
THEREFORE, in consideration of the aforesaid, the mutual promises hereinafter
made and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as
follows

    

    ARTICLE
I

    Definitions

    

    Section
1.1.     Definitions.  The
following terms, as used herein, shall have the following meanings:

    

    “1933 Act” means the
Securities Act of 1933, as amended.

    

    “Advice” has the
meaning set forth in Section 2.3.16.

    

    “Affiliate” means,
with respect to any specified entity, any other entity directly or indirectly
controlling, controlled by or under direct or indirect common control with such
specified entity.  For the purposes of this definition, “control” when used
with respect to any specified entity means the power to direct the management
and policies of such entity, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms “controlling” and
“controlled”
have meanings correlative to the foregoing.  For purposes of this
definition, entity may include a corporation, partnership, limited partnership,
limited liability company, association, joint stock company, trust or joint
venture.

    

    “Agreement” has the
meaning set forth in the preamble to this Agreement.

    

    “Board” means the
Board of Directors of the Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Business Day” means
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York, New York are authorized or obligated by law or
executive order to close.

    

    “Commission” means the
Securities and Exchange Commission or any other Federal agency from time to time
administering the 1933 Act or the Exchange Act.

    

    “Common Stock” has the
meaning set forth in the recitals to this Agreement.

    

    “Common Stock
Equivalent” means any securities of any Person convertible into or
exchangeable or exercisable for Common Stock (whether at the option of such
Person or of the holder of such securities), including the Warrant.

    

    “Company” has the
meaning set forth in the preamble to this Agreement.

    

    “Demand Notice” has
the meaning set forth in Section 2.2.1(a).

    

    “Demand Registration”
has the meaning set forth in Section 2.2.1(a).

    

    “Exchange Act” means
the Securities Exchange Act of 1934, as amended.

    

    “Person” means any
individual, corporation, limited liability company, firm, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
any other entity or organization, including a government, a governmental body, a
political subdivision or an agency or instrumentality thereof.

    

    “Piggyback
Registration” has the meaning set forth in Section 2.1.1.

    

    “Registration” has the
meaning set forth in Section 2.3.

    

    “Registrable
Securities” means (x) any shares of Common Stock issued or issuable upon
exercise of the Warrants, if any, and (y) any shares of Common Stock which may
be issued or distributed or be issuable in respect of such shares of Common
Stock by way of concession, stock dividend or stock split or other distribution,
recapitalization or reclassification or similar transaction including any Common
Stock issued under the Warrant, but with respect to such shares of Common Stock,
only so long as such shares are “Restricted
Securities”.  A share of Common Stock shall be deemed to be a “Restricted Security”
until such time as such share (i) has been effectively registered under the 1933
Act pursuant to a registration statement with respect to the sale of such share
and disposed of pursuant to such registration statement, (ii) has been
distributed to the public pursuant to Rule 144 (or any similar provision then in
force) under the 1933 Act, (iii) has been otherwise transferred, new
certificates for it not bearing a legend restricting further transfer having
been delivered by the Company and may be publicly sold (without volume or manner
of sale restrictions) without registration under the 1933 Act or any state
securities or blue sky law then in force or (iv) has ceased to be
outstanding.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Request Notice” has
the meaning set forth in Section 2.2.1(a).

    

    “Shelf Registration
Statement” means a registration statement of the Company filed with the
Commission on Form S-3 (or any successor form or other appropriate form under
the 1933 Act) for an offering to be made on a continuous or delayed basis
pursuant to Rule 415 under the 1933 Act (or any similar rule that may be adopted
by the Commission) covering the Registrable Securities.

    

    “Stop Order” has the
meaning set forth in Section 2.2.3.

    

    “Third Party” has the
meaning set forth in Section 2.1.1.

    

    “Third Party
Registration” has the meaning set forth in Section 2.1.3.

    

    “Virgo” has the
meaning set forth in the preamble to this Agreement.

    

    “Warrant(s)” has the
meaning set forth in the recitals to this Agreement.

    

    “Warrant Shares” has
the meaning set forth in the recitals to this Agreement.

    

    ARTICLE
II

    Registration
and Related Rights

     

    Section
2.1.           Company
Registration.

     

    2.1.1.     
Right to Piggyback on
Company Registration of Common Stock.  Subject to Section
2.1.3, if the Company proposes, on its own initiative or at the request of a
party holding rights to demand registrations of the Common Stock other than
under this Agreement (a “Third Party”) to
register any Common Stock under the 1933 Act in connection with the offering of
a primary issuance or, in the case of such Third Party, a secondary issuance, of
such Common Stock on any form other than Form S-4 or Form S-8 or any form
substituting therefor (except for a registration in connection with an exchange
offer of securities solely to existing securityholders of the Company) and such
proposal would result in the filing of a registration statement with the
Commission in connection therewith at any time, the Company shall at such time
promptly give Virgo, and any successor, assign or transferee of Virgo then
owning Registrable Securities (collectively, the “Holders”) written
notice of such determination no later than thirty (30) days prior to the
proposed filing date (such proposed filing date to be specified by the Company
in the written notice) of the registration statement to be prepared in
connection with such proposed registration.  Any Holder wishing to
register all or any portion of such Holder’s Registrable Securities pursuant to
such proposed registration (a “Piggyback
Registration”) must give written notice to the Company of its intent to
participate in such proposed registration no later than fifteen (15) days after
receipt of the notice delivered by the Company.  Subject to the
allocations set forth in Section 2.1.3, upon receipt of such written request of
any such Holder, the Company will use its reasonable best efforts to effect the
registration under the 1933 Act of all Registrable Securities which the Company
has been so requested to register by the Holders.    Any
Holder holding Registrable Securities that has requested to be included in such
registration may elect, in writing at least twenty (20) Business Days prior to
the effective date of the registration statement filed in connection with such
registration, not to register such Registrable Securities in such
registration.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    2.1.2.      
Selection of
Underwriters.  If the Company or, in the case of a Third Party
Registration, such Third Party, in its sole discretion decides a Piggyback
Registration shall be underwritten, the Company, or such Third Party, as the
case may be, shall have sole discretion in the selection of any underwriter or
underwriters to manage such Piggyback Registration.

     

    2.1.3.      
Priority on Piggyback
Registrations.  If the managing underwriter or underwriters of
a Piggyback Registration (or in the case of a Piggyback Registration not being
underwritten, holders of a majority of the shares of Common Stock proposed to be
registered) advise the Company in writing that in its or their opinion the
number of shares of Common Stock proposed to be sold in such Piggyback
Registration exceeds the number which can be sold, or would adversely affect the
price at which the Common Stock could be sold in such offering, the Company will
include in such Piggyback Registration only that number of shares of Common
Stock which, in the opinion of such underwriter or underwriters (or in the case
of a Piggyback Registration not being underwritten, holders of a majority of the
shares of Common Stock proposed to be registered), can be sold in such offering
without so affecting such price.  The shares of Common Stock to be
included in such Piggyback Registration shall be apportioned (a) first, in the
case of a primary issuance by the Company, to any shares of Common Stock that
the Company proposes to sell, or in the case of a registration at the request of
a Third Party, to any shares of Common Stock that such Third Party proposes to
sell; and (b) second, pro rata among any shares
of Common Stock proposed to be sold by any Holder, according to the total number
of shares of Common Stock requested for inclusion by each Holder, or in such
other proportions as shall be mutually agreed to among such selling
Holders.

     

    Section
2.2           Demand Registration
Rights.

     

    2.2.1.      Right to Demand
Registration.

     

    (a)           If,
at any time one or more of the Holders holding Registrable Securities
representing 2.0% or more in the aggregate of the then outstanding Common Stock
(assuming conversion or exercise of all Common Stock Equivalents held by the
Holders into Common Stock at the then conversion price or exercise price)
submits a written request (a “Request Notice”) to
the Company for registration with the Commission under and in accordance with
the provisions of the 1933 Act of all or part of the Registrable Securities then
owned by such Holder or Holders (a “Demand
Registration”), the Company shall thereupon, as expeditiously as
possible, use its reasonable best efforts to file a registration statement with
the Commission and have the registration statement declared effective by the
Commission and the number of Registrable Securities as to which such request is
made shall represent not less than 2.0% of the then outstanding Common Stock and
Common Stock Equivalents.  The Holders acknowledge that, within ten
(10) days after receipt of such Request Notice, the Company will serve written
notice of such registration request to all other Holders (the “Demand Notice”), and,
subject to the pro rata allocations set
forth in Section 2.2.4, the Company will include in such Demand Registration all
such shares of Common Stock held by the Holders with respect to which the
Company has received a written request for inclusion therein within twenty (20)
days after the giving of the Demand Notice.  Any Demand Registration
representing 4.5% or more in the aggregate of the then outstanding Common Stock
(assuming conversion or exercise of all Common Stock Equivalents held by the
Holders into Common Stock at the then conversion price or exercise price) shall,
at the majority of the Holders’ option, be underwritten by one or more
underwriters and shall be subject to Section 2.2.2 if such Demand Registration
has not previously been designated an underwritten offering.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (b)           All
Holders requesting registration of their Registrable Securities pursuant to this
Section 2.2.1 shall specify the aggregate number of Registrable Securities
proposed to be registered and the intended methods of disposition
thereof.  The Holders shall collectively be entitled to request, three
Demand Registrations (the last of which shall be a Shelf Registration Statement
pursuant to Rule 415 under the 1933 Act to be effective for not less than 180
days) pursuant to which a registration statement covering Registrable Securities
shall be filed with and declared effective by the Commission, the expenses of
which shall be borne by the Company in accordance with Section 2.4, and no more
than one Demand Registration may be requested by any Holder in any 12-month
period.  If, following the effective date of any registration
statement filed pursuant to a Demand Registration, any Holder whose Registrable
Securities are to be included in such Demand Registration pursuant to this
Section 2.2.1 elects, by giving written notice to the Company not later than
thirty (30) days after such effective date, not to dispose of its Registrable
Securities because of a material adverse change or event in the business,
condition (financial or otherwise), or assets of the Company and its
subsidiaries, taken as a whole, or because of a material adverse change or event
with respect to the Company and its subsidiaries, taken as a whole, not
disclosed in the final prospectus prepared in connection with such Demand
Registration, then such Demand Registration shall not count as one of the three
Demand Registrations permitted hereunder unless shares of Common Stock
representing 1% or more of the then outstanding Common Stock, including Common
Stock Equivalents, are sold pursuant to the registration statement prepared in
connection with such Demand Registration within thirty (30) days of the
effective date of such registration statement and prior to the occurrence of
such material adverse change or event.

     

    (c)           If
at the time of any Request Notice (i) the Company is engaged in a registered
public offering as to which the Holders had the right to include their
Registrable Securities, whether as a Piggyback Registration or otherwise, (ii)
the Company is engaged in any other activity outside of the ordinary course of
business, such as a merger, consolidation, recapitalization or acquisition
which, in the good faith judgment of the Board, would be materially and
adversely affected by the requested registration or (iii) the Board makes a good
faith determination that the public disclosures required to be made in the
requested registration statement would have a material and adverse impact on the
business, financial condition or prospects of the Company, the Company may at
its option direct that such request be delayed for a period of not more than
ninety (90) days, which right to delay may be exercised by the Company only one
time in respect of each Demand Registration.

     

    
      
        
        

      

      
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    2.2.2.      Selection of
Underwriters.    If a proposed Demand Registration
involves either a firm or best efforts underwritten offering, the Company shall
have the right, subject to approval by the Holders of a majority of the shares
covered by the Request Notice (which approval shall not be unreasonably withheld
or delayed), to select the underwriter or underwriters to manage such Demand
Registration.

     

    2.2.3.      Effective Registration
Statement.    A registration requested pursuant to
this Section 2.2 shall not be deemed to have been effected unless the
registration statement prepared in connection therewith has become effective
unless, within seventy-five (75) days after such registration statement has
become effective (135 days in the case of the Shelf Registration Statement), the
offering of Registrable Securities pursuant to such registration statement is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court (collectively, a “Stop Order”), in
which case such registration shall be deemed not to have been
effected.  Notwithstanding the preceding sentence, if any such Stop
Order is rescinded, the effective period shall continue upon such rescission and
be extended by the number of days by which such Stop Order reduced the effective
period.

     

    2.2.4.      Priority on Demand
Registrations.    If the managing underwriter or
underwriters of a Demand Registration initiated under this Agreement advise the
Company in writing that in its or their opinion the number of shares of Common
Stock proposed to be sold in such Demand Registration exceeds the number which
can be sold, or would adversely affect the price at which the Common Stock could
be sold in such offering, the Company will include in such registration only
that number of shares of Common Stock which, in the opinion of such underwriter
or underwriters, can be sold in such offering without so affecting such
price.  The shares of Common Stock to be included in such Demand
Registration shall be apportioned (x) first, to shares of Common Stock held by
Holders (pro rata as among such Holders based on the number of shares of Common
Stock requested for inclusion by each Holder, or in such other proportions as
shall be mutually agreed to among such selling Holders) who have made a request
to be included in such Demand Registration, and (y) second, pro rata among any other
shares of Common Stock proposed to be included in such Demand Registration,
including any shares proposed to be sold by the Company pursuant to such Demand
Registration.

     

    2.2.5.      Additional
Rights.  If the Company at any time after the date hereof
grants to any other holders of Common Stock or Common Stock Equivalents any
rights to request the Company to effect the registration under the 1933 Act of
any such shares of Common Stock on terms more favorable to such holders than the
terms set forth in this Agreement, the terms of this Agreement shall be deemed
amended or supplemented to the extent necessary to provide the Holders with the
same, more favorable terms.  The Company shall not grant any other
Person rights to register securities of the Company on terms which are more
favorable than the rights of the Holders pursuant to this
Agreement.

     

    Section
2.3            Registration
Procedures.    It shall be a condition precedent to
the obligations of the Company and any underwriter or underwriters to take any
action pursuant to this Article II that the Holders requesting inclusion in any
Piggyback Registration, Shelf Registration Statement or Demand Registration
(collectively referred to as a “Registration”)
furnish to the Company such information regarding them, the Registrable
Securities held by them, the intended method of disposition of such Registrable
Securities, and such agreements regarding indemnification, disposition of such
securities and the other matters referred to in this Article II as the Company
may reasonably request and as may be required in connection with any action to
be taken by the Company or any such underwriter.  With respect to any
Registration which includes Registrable Securities held by a Holder, the Company
shall, subject to Sections 2.1 and 2.2;

     

    
      
        
        

      

      
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    2.3.1.      Prepare
and file with the Commission a registration statement on the appropriate form
prescribed by the Commission within ninety (90) days after the end of the period
within which requests for registration may be given to the Company, file with
the Commission any necessary amendments to the registration statement with
respect to such Registrable Securities and use its reasonable best efforts to
cause such registration statement to become effective.  At least five
(5) Business Days prior to filing a registration statement and at least three
(3) Business Days prior to the filing of a prospectus or any amendments or
supplements to a registration statement or a prospectus, the Company shall
furnish to the holders of the Registrable Securities covered by such
registration statement and the underwriter or underwriters, if any, copies of or
drafts of all such documents proposed to be filed, which documents shall be
subject to the reasonable review of such holders and underwriters, if any, and
such persons shall have three (3) Business Days to provide any written comments
to the registration statement or prospectus, as applicable.  If
comments are not provided within such time period, the Company shall file any
registration statement or amendment thereto or any prospectus or any supplement
thereto.  Any comments timely submitted shall be considered by the
Company.

     

    2.3.2.      Prepare
and file with the Commission such amendments and post-effective amendments to
such registration statement and any documents required to be incorporated by
reference therein as may be necessary to keep the registration statement
effective for a period of time as necessary to complete the offering, which
period shall be not less than ninety (90) days (or 180 days in the case of the
Shelf Registration Statement) (or such shorter period that shall terminate when
all Registrable Securities covered by such registration statement have been sold
or withdrawn, but not prior to the expiration of the time period referred to in
Section 4(3) of the 1933 Act and Rule 174 thereunder, if applicable); cause the
prospectus to be supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the 1933 Act (or any
successor rule); and comply with the provisions of the 1933 Act applicable to it
with respect to the disposition of all Registrable Securities covered by such
registration statement during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement or supplement to the prospectus;

     

    2.3.3.      Furnish
to each such Holder, without charge, at least one electronic or paper (if
printed) conformed copy of the registration statement and any post-effective
amendment thereto, upon request, and such number of copies of the prospectus
(including each preliminary prospectus) and any amendments or supplements
thereto, and any exhibits or documents incorporated by reference therein as any
such Holder or underwriter or underwriters, if any, may request in order to
facilitate the disposition of the securities being sold by any such Holder (it
being understood that the Company consents to the use of the prospectus and any
amendment or supplement thereto by any such Holder covered by the registration
statement and the underwriter or underwriters, if any, in connection with the
offering and sale of the securities covered by the prospectus or any amendments
or supplements thereto);

     

    
      
        
        

      

      
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    2.3.4.      Immediately
notify each such Holder, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, when the Company becomes aware of
the occurrence of any event as a result of which the prospectus included in such
registration statement (as then in effect) contains any untrue statement of
material fact or omits to state a material fact necessary to make the statements
therein (in the case of the prospectus or any preliminary prospectus, in light
of the circumstances under which they were made) not misleading and, as promptly
as practicable thereafter, prepare and file with the Commission and furnish a
supplement or amendment to such prospectus so that, as thereafter delivered to
the Holders (a reasonable number of such amended and supplemented prospectuses
having been delivered to the Holders), such prospectus will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading;

     

    2.3.5.      Use
its reasonable best efforts to cause all securities included in such
registration statement to be listed, by the date of the first sale of securities
pursuant to such registration statement, on each national securities exchange or
market on which the Common Stock is then listed;

     

    2.3.6.      Make
every reasonable effort to obtain the withdrawal of any Stop Order suspending
the effectiveness of the registration statement or other order suspending the
use of any preliminary or final prospectus at the earliest possible
moment;

     

    2.3.7.      Subject
to the time limitations specified in Section 2.3.2, if requested by the managing
underwriter or underwriters or any such Holder, promptly incorporate in a
prospectus supplement or post-effective amendment such information with respect
to the offering as the managing underwriter or underwriters or such Holder
reasonably requests to be included therein, including, without limitation, with
respect to the number of shares being sold by such Holder to such underwriter or
underwriters, the purchase price being paid therefor by such underwriter or
underwriters and with respect to any term of the underwritten offering of the
securities to be sold in such offering; and make all required filings of such
prospectus supplement or post-effective amendment as soon as practicable after
being notified of the matters to be incorporated in such prospectus supplement
or post-effective amendment;

     

    2.3.8.      Prior
to the date on which the registration statement is declared effective, use its
reasonable best efforts to register or qualify, and cooperate with such Holders,
the underwriter or underwriters, if any, and their counsel in connection with
the registration or qualification of, the securities covered by the registration
statement for offer and sale under the securities or blue sky laws of each state
and other jurisdiction of the United States as such Holders or managing
underwriter or underwriters, if any, requests in writing, use its reasonable
best efforts to keep each such registration or qualification effective,
including through new filings, or amendments or renewals, during the period such
registration statement is required to be kept effective and do any and all other
acts or things necessary or advisable to enable the disposition in all such
jurisdictions of the Registrable Securities covered by the applicable
registration statement; provided, however, the Company shall not be required to
subject itself to service of process in any state in which it is not then
subject to service of process;

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    2.3.9.      Enter
into such customary agreements (including an underwriting agreement in customary
form) and take such other actions customarily taken by registrants, if any, as
the Holders or the underwriters may reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;

     

    2.3.10.    Obtain
a “comfort” letter or letters from the Company’s independent public accountants
in customary form and covering matters of the type customarily covered by
“comfort” letters as the Holders or the underwriters, if any, may reasonably
request, dated the date of execution of the underwriting agreement, if
applicable, and brought down to the closing under the underwriting
agreement;

     

    2.3.11.    Obtain
for delivery to the Holders holding Registrable Securities covered by such
registration statement and to the underwriter or underwriters, if any, an
opinion or opinions from counsel for the Company dated the effective date of the
registration statement, or in the event of an underwritten offering, the date of
the closing under the underwriting agreement, in customary form, scope and
substance, which counsel and opinions shall be reasonably satisfactory to a
majority of the Holders and the underwriter or underwriters, if any, and their
respective counsel;

     

    2.3.12.    Make
available for inspection by any Holder holding Registrable Securities covered by
such registration statement, by any underwriter participating in any disposition
to be effected pursuant to such registration statement and by any attorney,
accountant or other agent retained by any such seller or any such underwriter,
all pertinent financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company’s officers, directors,
employees and independent public accountants to make themselves available to
discuss the business of the Company and to supply all information reasonably
requested by any such Holder, underwriter, attorney, accountant or agent in
connection with such registration statement;

     

    2.3.13.    Cooperate
with such Holders and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legends) representing securities to be sold under the registration
statement, and enable such securities to be in such denominations and registered
in such names as the Holders or the managing underwriter or underwriters, if
any, may request; and

     

    2.3.14.    Use
its reasonable best efforts to cause the securities covered by the registration
statement to be registered with or approved by such other governmental agencies
or authorities within the United States as may be necessary to enable the seller
or sellers thereof or the underwriter or underwriters, if any, to consummate the
disposition of such Registrable Securities.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    2.3.15.    The
Holders, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 2.3.4, shall forthwith discontinue
disposition of the securities until the Holders’ receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2.3.4 or until they
are advised in writing (the “Advice”) by the
Company that the use of the prospectus may be resumed, and have received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus, and, if so directed by the Company, each Holder shall, or shall
request the managing underwriter or underwriters, if any, to, deliver to the
Company (at the Company’s expense) all copies, other than permanent file copies
then in such Holder’s possession, of the prospectus covering such securities
which is current at the time of receipt of such notice.  In the event
that the Company gives any such notice, the time periods set forth in Section
2.3.4 shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date when
each seller of securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
Section 2.3.4 or the Advice.

     

    Section
2.4            Registration
Expenses.  In the case of any Registration, the Company shall
bear all of the costs and expenses of such Registration (including, without
limitation, the expenses of preparing any registration statement, Commission and
state “blue sky” filings, registration and qualification fees, the cost of
providing any legal opinion or “comfort” letters requested by the Holders and
printing costs) and reasonable legal fees or expenses of one counsel for the
Holders (such counsel being subject to the reasonable approval of the
Company).  The Company shall not be responsible for registration or
qualification fees or underwriter’s discounts or commissions that are
attributable to the Registrable Securities of a Holder.  In connection
with any Registration, the Company shall be required to obtain independent
outside counsel that is sophisticated in securities law matters and that is
reasonably satisfactory to a majority of the Holders that have shares of Common
Stock included in such Registration.  For purposes of this Agreement,
Locke Lord Bissell & Liddell LLP shall be deemed to qualify as counsel for
the Company.

     

    Section
2.5            Indemnification and
Contribution.

     

    2.5.1.      Indemnification by the
Company.  The Company agrees to indemnify and hold harmless
each Holder, its officers, directors, advisors and agents and each Person who
controls (within the meaning of the 1933 Act or the Exchange Act) such Person
from and against all losses, claims, damages, liabilities (or actions or
proceedings in respect thereof, whether or not such Person is a party thereto)
and expenses (including but not limited to reasonable cost of investigation and
reasonable legal expenses) arising out of or based upon any untrue or allegedly
untrue statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus in which such Holder is participating or in
any document incorporated by reference therein or any omission or alleged
omission to state therein a material fact necessary to make the statements
therein (in the case of the prospectus or any preliminary prospectus, in light
of the circumstances under which they were made) not misleading, except insofar
as the same are caused by, based upon or contained in any information with
respect to such Holder furnished in writing to the Company by such Holder
expressly for use therein.  The foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of any
Holder from whom the Person asserting such loss, claim, damage or liability
purchased shares of Common Stock if it is determined that it was the
responsibility of such Holder to provide such Person with a current copy of the
prospectus and such current copy of the prospectus would have cured such loss,
claim, damage or liability.  The Company shall also indemnify, if
applicable and if requested, underwriters (as such term is defined in the 1933
Act), their officers and directors and each Person who controls such Persons
(within the meaning of the 1933 Act and the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Holders.

     

    
      
        
        

      

      
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    2.5.2.      Indemnification by the
Holders.  In connection with any Registration in which a Holder
is participating, such Holder shall furnish to the Company in writing such
information and affidavits with respect to such Holder as the Company may
reasonably request for use in connection with any registration statement or
prospectus and the Holders agree to indemnify and hold harmless the Company, its
directors, officers and agents and each Person who controls (within the meaning
of the 1933 Act and the Exchange Act) the Company from and against any losses,
claims, damages, liabilities (or actions or proceedings in respect thereof,
whether or not the Company is a party thereto) and expenses (including
reasonable cost of investigation and reasonable legal expense) arising out of or
based upon any untrue statement of a material fact or any omission to state a
material fact necessary to make the statements in the registration statement or
prospectus or preliminary prospectus (in the case of the prospectus or
preliminary prospectus, in light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information or affidavit with respect
to such Holder furnished in writing to the Company by such Holder expressly for
use therein.  The amount recoverable by the Company from the Holder
under this indemnification provision together with any amounts recovered from
the Holders under Section 3.7 hereof shall not exceed the amount of net proceeds
received by all Holders from the sale of Registrable Securities in connection
with any such Registration.  The indemnity agreement contained in this
Section 2.5.2 shall not apply to amounts paid in settlement of any loss, claim,
damage, liability or action arising pursuant to a Registration if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld or delayed). Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company or any of the prospective sellers, or any of their respective
Affiliates, directors, officers or controlling Persons and shall survive the
transfer of such securities by such seller.  Each Holder shall also
indemnify, if applicable and if requested, underwriters (as such term is defined
in the 1933 Act), their officers and directors and each Person who controls such
Persons (within the meaning of the 1933 Act and the Exchange Act) to the same
extent as provided above with respect to the indemnification of the
Company.

     

    2.5.3.      Conduct of Indemnification
Proceedings.  Any Person entitled to indemnification hereunder
shall (x) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (y) unless in a written legal
opinion of counsel, such counsel advises that a conflict of interest may exist
between such indemnified and indemnifying party, permit the indemnifying party
to assume the defense of such claim, with counsel reasonably satisfactory to the
indemnified party.  The failure to so notify the indemnifying party
shall relieve the indemnifying party from any liability hereunder with respect
to the action to the extent that such failure materially prejudices the
indemnifying party.  Whether or not such defense is assumed by the
indemnifying party, the indemnifying party shall not be subject to any liability
for any settlement made without its consent (which consent shall not be
unreasonably withheld or delayed).  No indemnifying party shall
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect of such
claim or litigation. An indemnifying party who is not entitled to, or elects not
to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in a written legal opinion
of counsel, such counsel advises a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the
reasonable fees and expenses of such additional counsel or
counsels.

     

    
      
        
        

      

      
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    2.5.4.      Contribution.  If
for any reason the indemnification provided for in the preceding Sections 2.5.1
and 2.5.2 is unavailable to an indemnified party as contemplated by the
preceding Sections 2.5.1 and 2.5.2 for any reason, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnified party and the indemnifying party, but also the relative fault of the
indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. Notwithstanding the foregoing, if the indemnifying
party is any Holder, any contribution pursuant to this Section 2.5.4 shall be
several and not joint, and shall be limited to the amount of net proceeds
received by such Holder from the sale of Registrable Securities in connection
with the applicable Registration.

     

    2.5.5.      Other
Indemnification.  Indemnification similar to that set forth in
the preceding subdivisions of this Section 2.5 (with appropriate modifications)
shall be given by the Company with respect to any required registration or other
qualification of securities under any Federal or state law or regulation or
governmental authority other than the 1933 Act.

     

    Section
2.6            Exchange Act
Reports.  The Company agrees that it will use its reasonable
best efforts to file in a timely manner all reports required to be filed by it
pursuant to the Exchange Act to the extent the Company is required to file such
reports.  Upon the reasonable request of Virgo, the Company will
furnish Virgo with such information as may be necessary to enable Virgo to
effect sales pursuant to Rule 144A.

     

    Section
2.7            Restrictions on Public Sale
by Holder of Securities.  To the extent not inconsistent with
applicable law and requested by the managing underwriter or underwriters, any
Holder whose Registrable Securities are included in a Registration relating in
whole or in part to an underwritten public offering agrees not to effect any
public sale or distribution of the issue being registered or any similar
security of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, including a public sale pursuant to Rule 144
under the 1933 Act, during the fourteen (14) days prior to, and during the
180-day period beginning on, the effective date of such registration statement
(except as part of such Registration).

     

    Section
2.8            Participation in
Registrations.  No Holder may participate in any Registration
hereunder unless such Holder (x) agrees to sell such Holder’s securities on the
basis provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (y) completes and executes all
questionnaires, powers of attorney, underwriting agreements and other documents
customarily required under the terms of such underwriting
arrangements.

     

    
      
        
        

      

      
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    Section
2.9            Remedies.  Virgo
shall have the right and remedy to have the provisions of Sections 2.1 and 2.2
specifically enforced by any court having jurisdiction in the event that the
Company breaches such provisions, and the Company shall reimburse Virgo for the
reasonable costs of the expenses for counsel for Virgo incurred in connection
with such proceeding.

    

    ARTICLE
III

    Miscellaneous

     

    Section
3.1.           Notices.  All
notices or other communications required or permitted to be given hereunder
shall be in writing and shall be delivered by hand or sent by prepaid telex,
cable or telecopy or sent, postage prepaid, by registered, certified or express
mail or reputable overnight courier service and shall be deemed given when so
delivered by hand, telexed, cabled or facsimile, or if mailed, three (3) days
after mailing (one (1) Business Day in the case of express mail or overnight
courier service), as follows:

     

    if to the Company, to:

     

    Palm
Harbor Homes, Inc.

    15303
Dallas Parkway, Suite 800

    Addison,
Texas 75001-4600

    Attn:  Ms.
Kelly Tacke

    Facsimile:
(972) 764-9018

    

    with a
copy to (which copy shall not constitute notice):

     

    Locke
Lord Bissell & Liddell LLP

    2200 Ross
Avenue, Suite 2200

    Dallas,
Texas 75201

    Attn:  Gina
E. Betts, Esq.

    Facsimile:
(214) 756-8515:

    

    if to Virgo, to:

     

    Virgo-Sierra,
LP

    667
Madison Avenue, F1 11

    New York,
New York 10065

    Attn:  Bob
Racusin

    Facsimile:  (646)
619-4035

    

    Virgo-Redwood,
LP

    667
Madison Avenue, F1 11

    New York,
New York 10065

    Attn:  Bob
Racusin

    Facsimile:  (646)
619-4035

     

    
      
        
        

      

      
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    Virgo-Willow,
LP

    667
Madison Avenue, F1 11

    New York,
New York 10065

    Attn:  Bob
Racusin

    Facsimile:  (646)
619-4035

    

    Virgo-Magnolia,
LP

    667
Madison Avenue, F1 11

    New York,
New York 10065

    Attn:  Bob
Racusin

    Facsimile:  (646)
619-4035

    

    with a copy to (which copy
shall not constitute notice):

    

    Morrison
& Foerster LLP

    425
Market Street

    San
Francisco, California  94105

    Facsimile:  (415)
268-7522

    Attention: 
Robert Townsend, Esq. 

    

    Section
3.2.          Binding Effect;
Benefits.  This Agreement shall be binding upon and inure to
the benefit of the parties to this Agreement and their respective successors,
transferees and assigns.  Nothing in this Agreement, express or implied, is
intended or shall be construed to give any Person other than the parties to this
Agreement, the other Holders, if any, and their respective successors or assigns
any legal or equitable right, remedy or claim under or in respect of any
agreement or any provision contained herein.

    

    Section
3.3.         Waiver.  Any
party hereto may, by written notice to any other party (x) extend the time for
the performance of any of the obligations or other actions of such other party
under this Agreement to the extent that such obligations or other actions are
due to the party giving notice; (y) waive compliance with any of the conditions
or covenants of such other party contained in this Agreement to the extent that
such conditions or covenants relate to the party giving notice; and (z) waive or
modify performance of any of the obligations of such other party under this
Agreement to the extent that such obligations are due to the party giving
notice.  Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representation, warranty, covenant or
agreement contained herein.  Neither the waiver by any party hereto of a
breach of any provision hereof or any preceding or succeeding breach nor the
failure by any party to exercise any right or privilege hereunder shall be
deemed a waiver of such party’s rights or privileges hereunder nor shall it be
deemed a waiver of such party’s rights to exercise the same at any subsequent
time or times hereunder.

     

    
      
        
        

      

      
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    Section
3.4.         Amendments.  No
amendment or modification in respect of this Agreement shall be effective unless
it shall be in writing and signed by the Company and the Holders of a majority
of the Registrable Securities.  Any such amendment or modification in
respect of this Agreement executed by or on behalf of the Holders shall bind
each other Holder, if any, to the terms and conditions thereof.  The
Company agrees that all holders of Registrable Securities shall be notified by
the Company in advance of any proposed amendment or modification of this
Agreement, but failure to give such notice shall not in any way affect the
validity of any such amendment or modification.  In addition, promptly
after obtaining the written consent of the holders as herein provided, the
Company shall transmit a copy of any amendment or modification which has been
adopted to all holders of Registrable Securities then outstanding, but failure
to transmit copies shall not in any way affect the validity of any such
amendment or modification.

    

    Section
3.5.         Assignability.  Neither
this Agreement nor any right, remedy, obligation or liability arising hereunder
or by reason hereof shall be assignable by either the Company or Virgo (other
than by Virgo in connection with, and in compliance with the terms and
conditions of, a transfer, in whole or in part, of the Registrable Securities),
or any transferee of the foregoing.  Any assignment in violation of
this Section 3.5 shall be void and of no force or effect.

    

    Section
3.6.         Governing
Law.  This Agreement, and any dispute arising out of, relating
to or in connection with this Agreement, shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
Sate of New York or any other jurisdictions) that would cause the application of
the laws of any jurisdictions other than the State of New York.

    

    Section
3.7.         Attorney
Fees.  Subject to Section 2.5.2, a party found by a court of
competent jurisdiction in a final, non-appealable order, to be in breach of this
Agreement shall, on demand, indemnify and hold harmless the other parties hereto
from and against all reasonable out-of-pocket expenses, including legal fees,
incurred by such other parties by reason of the enforcement and protection of
their rights under this Agreement.  The payment of such expenses is in
addition to any other relief to which such other parties may be
entitled.

    

    Section
3.8.          Section and Other
Headings.  The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.

    

    Section
3.9.         Counterparts.  This
Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same agreement, and shall become effective when one or
more such counterparts have been signed by each of the parties and delivered to
the other parties.

    

    Section
3.10.       Entire
Agreement.  This Agreement and the instruments referenced
herein constitute the entire agreement among the parties hereto with respect to
the subject matter hereof.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to
herein.  This Agreement and the instruments referenced herein
supersede all prior agreements and understandings among the parties with respect
to the subject matter hereof.

    

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    

    IN
WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
effective as of the date first written above.

    

    
      
        
          
            
              
                
                  
                    	 
      	
                            PALM
      HARBOR HOMES, INC.

                          
	 
      	 
      	 
      
	 
      	
                            By:

                          	/s/
      Larry Keener
	 
      	 
      	
                            Name:  Larry
      Keener

                          
	 
      	 
      	
                            Title:  
      President and Chief Executive
Officer

                          

                  

                

              

            

          

        

      

    

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          	 
      	VIRGO-SIERRA,
      LP
	 
      	 	 
      	 
      	 
	 
      	 	
                                  By:

                                	
                                  Virgo
      Investment Group, LLC, its General
Partner

                                
	 
      	 	 
      	 
      	 
	 
      	 	 
      	
                                  By:

                                	/s/
      Jesse Watson
	 
      	 	 
      	
                                  Name:  Jesse
      Watson

                                
	 
      	 	 
      	
                                  Title:  Managing
      Member

                                

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              	 
      	VIRGO-REDWOOD,
      LP
	 
      	 	 
      	 
      
	 
      	 	
                                                      By:

                                                    	
                                                      Virgo
      Investment Group, LLC, its General
Partner

                                                    
	 
      	 	 
      	 
      
	 
      	 	 
      	
                                                      By:

                                                    	/s/
      Jesse Watson
	 
      	 	 
      	
                                                      Name:  Jesse
      Watson

                                                    
	 
      	 	 
      	
                                                      Title:  Managing
      Member

                                                    
	 
      	 	 
      	 
      
	 
      	VIRGO-WILLOW,
      LP
	 
      	 	 
      	 
      
	 
      	 	
                                                      By:

                                                    	
                                                      Virgo
      Investment Group, LLC, its General
Partner

                                                    
	 
      	 	 
      	 
      	 
	 
      	 	 
      	
                                                      By:

                                                    	/s/
      Jesse Watson
	 
      	 	 
      	
                                                      Name:  Jesse
      Watson

                                                    
	 
      	 	 
      	
                                                      Title:  Managing
      Member

                                                    

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      [Registration
Rights Agreement Signature Page]

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            	 
      	VIRGO-MAGNOLIA,
      LP
	 
      	 	 
      	 
      
	 
      	 	
                                    By:

                                  	
                                    Virgo
      Investment Group, LLC, its General
Partner

                                  
	 
      	 	 
      	 
      	 
	 
      	 	 
      	
                                    By:

                                  	/s/
      Jesse Watson
	 
      	 	 
      	
                                    Name:  Jesse
      Watson

                                  
	 
      	 	 
      	
                                    Title:  Managing
      Member

                                  

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    
      
        
        

      

      
        17

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