Document:

<PAGE>   1
                                                                  EXHIBIT 10.66

                     SECOND FORBEARANCE EXTENSION AGREEMENT

                  SECOND FORBEARANCE EXTENSION AGREEMENT, dated as of September
30, 2000 (this "Forbearance Extension"), among

                  (i)      DENALI INCORPORATED (the "Borrower");

                  (ii)     each of the guarantors which are signatories hereto
         (each a "Guarantor", collectively, the "Guarantors");

                  (iii)    CANADIAN IMPERIAL BANK OF COMMERCE (in its capacity
         as administrative agent for the Lenders referenced below, the
         "Administrative Agent");

                  (iv)     ING (U.S.) CAPITAL LLC (in its capacity as
         documentation agent for the Lenders referenced below, the
         "Documentation Agent"); and

                  (v)      the lenders party to the Credit Agreement
         referenced below (the "Lenders"),

in respect of the Credit Agreement referenced below.

                                  WITNESSETH:

                  WHEREAS, the Borrower, the Lenders, the Administrative Agent
and the Documentation Agent have entered into that certain Credit Agreement,
dated as of January 12, 1999 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement");

                  WHEREAS, the Guarantors are party to that certain Guarantee,
dated as of January 12, 1999 (as amended, supplemented or otherwise modified
from time to time, the "Guarantee"), in favor of the Administrative Agent for
the benefit of the Lenders;

                  WHEREAS, the Borrower, the Guarantors, the Lenders, the
Administrative Agent and the Documentation Agent have entered into that certain
Forbearance Agreement, dated as of June 30, 2000 (the "Forbearance Agreement"),
as extended by that certain Forbearance Agreement Extension, dated as of July
31, 2000 (the "First Forbearance Extension"); and

                  WHEREAS, in addition to the Specified Events of Default (as
defined in the Forbearance Agreement), (i) an Event of Default (as defined in
the Credit Agreement) shall exist under Section 11(a) of the Credit Agreement
based upon the failure of the Borrower to pay installments of principal due as
of September 30, 2000 and (ii) Events of Default shall exist under Section
11(c) of the Credit Agreement relating to the failure of the Borrower to comply
with the financial covenants contained in Section 10.1 of the Credit Agreement
as of June 30, 2000 and September 30, 2000 (collectively (i) and (ii), the
"Additional Specified Events of Default");

                  WHEREAS, the Borrower and the Guarantors have requested that
the Lenders, the Administrative Agent and the Documentation Agent extend the
Forbearance Termination Date (as defined in the Forbearance Agreement) and to
provide for certain other amendments or modifications to the Credit Agreement
and the Forbearance Agreement.

                  NOW, THEREFORE, in consideration of the premises, the mutual
covenants contained herein and for other valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Borrower, the Guarantors,
the Administrative Agent, the Documentation Agent and the Lenders hereby agree
as follows:

<PAGE>   2

                                       2

                  1.       Definitions. Capitalized terms used and not otherwise
defined herein shall have the meanings ascribed thereto in the Credit
Agreement, the Forbearance Agreement or the First Forbearance Extension.

                  2.       Forbearance Extension; Additional Forbearance;
Deferral of Principal; Other Modifications.

                           (a) The Forbearance Termination Date is hereby
         amended to be the earliest to occur of (i) October 31, 2000, (ii) the
         closing of the Blair Transaction and (iii) the occurrence of a
         Forbearance Event of Default.

                           (b) In addition to the forbearance set forth in
         Section 3(a) of the Forbearance Agreement, subject to the terms and
         conditions set forth herein, none of the Administrative Agent, the
         Documentation Agent or any Lender shall exercise any of the remedies
         set forth in the Credit Agreement or in any of the other Loan
         Documents in respect of the Additional Specified Events of Default
         during the Forbearance Period.

                           (c) In addition to the deferral of payments set
         forth in Section 3(b) of the Forbearance Agreement, subject to the
         terms and conditions set forth herein, the unpaid principal
         installments of the Term Loans and the Acquisition Loans which were
         due on September 30, 2000 shall be deferred until, and shall be due
         on, the Forbearance Termination Date.

                           (d) Section 3(a) of the First Forbearance Extension
         is hereby superceded by the following. Subject to the terms and
         conditions set forth herein, interest shall accrue on all unpaid
         Obligations during the Forbearance Period at an interest rate equal to
         the highest non-default interest rate for the related Type of Loan set
         forth in Section 6.1 of the Credit Agreement and shall be paid in
         accordance with the Credit Agreement. Additional interest shall accrue
         at a rate equal to the difference between the applicable default rate
         for each Loan provided in the Credit Agreement and applicable interest
         rate set forth in the preceding sentence, which additional interest
         shall be due and payable on the Forbearance Termination Date. During
         the Forbearance Period, no Eurodollar Loan shall be made or continued
         with an Interest Period that ends later than October 31, 2000.

                           (e) Section 3(d) of the First Forbearance Extension
         is hereby superceded by the following. Subject to the terms and
         conditions set forth herein, the Lenders shall defer their rights to
         exercise any warrants held by the Lenders relating to the Borrower
         that are exercisable on July 31, 2000, on August 31, 2000 and on
         September 30, 2000 until the Forbearance Termination Date. If the
         Blair Transaction is consummated on or prior to October 31, 2000, the
         Lenders shall surrender such warrants to the Borrower for
         cancellation.

                           (f) Section 3(f) of the First Forbearance Extension
         is hereby superceded by the following. The Borrower shall deliver
         notice to the Administrative Agent if it becomes reasonably likely
         that the Blair Transaction will not close on or prior to November 30,
         2000 and shall describe the circumstances relating to the Blair
         Transaction at that time. The Borrower shall promptly give notice to
         the Administrative Agent of all material developments relating to the
         Blair Transaction.

                  3.       Termination. The forbearance and deferral of
principal payments set forth in Section 3 of the Forbearance Agreement, as
modified by Section 2 of the First Forbearance Extension and Section 2 of this
Forbearance Extension shall terminate on the Forbearance Termination Date. Upon
such termination, the Administrative Agent, the Documentation Agent and the
Lenders shall be entitled to exercise all rights and remedies granted to them
pursuant to the Credit Agreement and the other Loan Documents or under
applicable law.

                  4.       Representations and Warranties. In order to induce
the Administrative Agent, the Documentation Agent and the Lenders to enter into
this Forbearance Extension, the Borrower and each Guarantor hereby represents
and warrants to the Administrative Agent, the Documentation Agent and to each
Lender that:

<PAGE>   3

                                       3

                           (a) Other than as set forth in Section 4(b), each of
         the representations and warranties made by the Borrower and each of
         the Guarantors in each Loan Document to which it is a party is true
         and correct in all material respects as of the date hereof.

                           (b) Other than the Specified Events of Default and
         the Additional Specified Events of Default, no Default or Event of
         Default has occurred and is continuing as of the date hereof.

                  5.       Conditions Precedent to Effectiveness of Forbearance
Extension. This Forbearance Extension shall not become effective unless and
until:

                           (a) the Administrative Agent has received this
         Forbearance Extension, executed and delivered by a duly authorized
         officer of the Borrower, each Guarantor, the Required Lenders, the
         Administrative Agent and the Documentation Agent;

                           (b) the Administrative Agent shall have received for
         the account of each Lender payment of all accrued interest, including
         any accrued default interest, through September 30, 2000;

                           (c) payments due to the holders of the Permanent
         Subordinated Debt as of the date hereof shall have been deferred
         pursuant to a waiver agreement, dated as of the date hereof, among the
         Borrower and the holders of the Permanent Subordinated Debt and such
         waiver agreement shall have been duly executed by the Borrower and
         each such noteholder and shall be in form and substance satisfactory
         to the Administrative Agent; and

                           (d) the Administrative Agent has received such other
         documents and information as the Administrative Agent may reasonably
         require, which documents and information shall be satisfactory to the
         Administrative Agent in its sole discretion.

                  6.       Forbearance Events of Default. The Forbearance Period
shall immediately terminate and the forbearance and deferral of principal
payments set forth in Section 3 of the Forbearance Agreement, as modified by
Section 2 of the First Forbearance Extension and Section 2 of this Forbearance
Extension shall be of no further force and effect upon the occurrence of any of
the following (each, a "Forbearance Event of Default"):

                           (a) the occurrence of one or more Defaults or Events
         of Default under the Credit Agreement (other than a Specified Event of
         Default or an Additional Specified Event of Default); or

                           (b) any representation or warranty made or deemed
         made by the Borrower or any Guarantor herein, in the Forbearance
         Agreement, the First Forbearance Extension or this Forbearance
         Extension or which is contained in any certificate, document or
         financial or other statement created and/or delivered at any time
         under or in connection with the Forbearance Agreement, the First
         Forbearance Extension or this Forbearance Extension or on or
         subsequent to the date hereof under or in connection with any other
         Loan Document shall prove to have been incorrect in any material
         respect on or as of the date made or deemed made; or

                           (c) the Borrower or any Subsidiary shall default in
         the observance or performance of any agreement contained herein or in
         the Forbearance Agreement, the First Forbearance Extension or this
         Forbearance Extension (after giving effect to the provisions hereof);
         or

                           (d) the Borrower shall make, or permit to be made by
         any Guarantor, any payment to any Person in respect of the Permanent
         Subordinated Debt so long as an Event of Default shall continue to
         exist under the Credit Agreement and such payment shall be waived by
         the holders of the Permanent Subordinated Debt or a payment blockage
         notice shall remain in effect, in each case without the prior written
         consent of the Administrative Agent, the Documentation Agent and the
         Lenders; or

                           (e) the Administrative Agent shall determine in good
         faith that the Blair Transaction will not close on or prior to
         November 30, 2000.

<PAGE>   4

                                       4

                  7.       Absence of Waiver. The parties hereto agree that the
agreements set forth herein shall not be deemed to:

                           (a) be a consent to cure, or waiver of, any Default
         or Event of Default;

                           (b) except as expressly set forth herein, modify or
         limit any other term or condition of the Credit Agreement, the
         Forbearance Agreement, the First Forbearance Extension or any other
         Loan Document;

                           (c) impose upon any Lender, the Administrative Agent
         or the Documentation Agent any commitment or obligation, express or
         implied, to consent to any amendment or further modification of the
         Credit Agreement, the Forbearance Agreement, the First Forbearance
         Extension or other Loan Documents;

                           (d) impose upon any Lender, the Administrative Agent
         or any Documentation Agent any commitment or obligation, express or
         implied, to grant or extend any financial accommodations to the
         Borrower or the Guarantors (other than as expressly set forth herein)
         or to modify or extend the Forbearance Agreement, the First
         Forbearance Extension or this Forbearance Extension; or

                           (e) prejudice any right or remedy that the
         Administrative Agent, the Documentation Agent or the Lenders may now
         have or may in the future have under the Credit Agreement or under or
         in connection with the other Loan Documents or any instrument or
         agreement referred to therein including, without limitation, any right
         or remedy resulting from any Default or Event of Default.

                  8.       Release of Claims and Waiver. Each of the Borrower
and each Guarantor hereby releases, remises, acquits and forever discharges each
Lender, the Administrative Agent and the Documentation Agent and each of their
employees, agents, representative, consultants, attorneys, officers, directors,
partners, fiduciaries, predecessors, successors and assigns, subsidiary
corporations, parent corporations and related corporate divisions (collectively,
the "Released Parties"), from any and all actions, causes of action, judgments,
executions, suits, debts, claims, demands, liabilities, obligations, damages and
expenses of any and every character, known or unknown, direct or indirect, at
law or in equity, of whatever nature or kind, whether heretofore or hereafter
arising, for or because of any matter or things done, omitted or suffered to be
done by any of the Released Parties prior to and including the date of execution
hereof, and in any way directly or indirectly arising out of any or in any way
connected to this Agreement or the Loan Documents (collectively, the "Released
Matters"). Each of the Borrower and each Guarantor hereby acknowledges that the
agreements in this Section 8 are intended to be in full satisfaction of all or
any alleged injuries or damages arising in connection with the Released Matters.
Each of the Borrower and each Guarantor hereby represents and warrants to the
Administrative Agent, the Documentation Agent and each Lender that it has not
purported to transfer, assign or otherwise convey any right, title or interest
of the Borrower or any Guarantor in any Released Matter to any other Person and
that the foregoing constitutes a full and complete release of all Released
Matters.

                  9.       Miscellaneous.

                           (a) Section headings used in this Forbearance
         Extension are for convenience of reference only and shall not affect
         the construction of this Forbearance Extension.

                           (b) This Forbearance Extension may be executed by
         one or more of the parties hereto by facsimile or in any number of
         separate counterparts and all of said counterparts taken together
         shall be deemed to constitute one and the same instrument.

                           (c) This Forbearance Extension and the rights and
         obligations of the parties under this Forbearance Extension shall be
         governed by, and construed and interpreted in accordance with, the law
         of the State of New York.

<PAGE>   5

                                       5

                           (d) This Forbearance Extension shall be deemed a
         "Loan Document" for purposes of the Credit Agreement and the other
         Loan Documents.

                           (e) This Forbearance Extension constitutes the
         entire agreement among the parties with respect to the subject matter
         hereof and supersedes all prior and contemporaneous oral or written
         agreements with respect to the subject matter hereof.

                           (f) Time is of the essence in this Forbearance
         Extension.

                           (g) No amendment or modification of this Forbearance
         Extension shall be effective unless made in writing and signed by all
         parties. Each of the Borrower and each of the Guarantors acknowledges
         and agrees that any and all future discussions with any Lender, the
         Administrative Agent or the Documentation Agent shall be without
         prejudice to any Lender, the Administrative Agent or the Documentation
         Agent and shall not be deemed to modify, waive, or amend any term or
         provision of this Forbearance Extension or the Loan Documents.

                  IN WITNESS WHEREOF, the parties hereto have caused this
Forbearance Extension to be duly executed and delivered as of the day and year
first above written.

                               DENALI INCORPORATED,
                               as Borrower

                               By /s/ RICHARD W. VOLK
                                  ----------------------------------------------
                                  Name:  Richard W. Volk
                                  Title:  President, CEO & Chairman of the Board

                               CANADIAN IMPERIAL BANK OF COMMERCE,
                               as Administrative Agent

                               By: /s/ GERALD GIRARDI
                                   ---------------------------------------------
                                   Name:  GERALD GIRARDI
                                   Title:  EXECUTIVE DIRECTOR

                               ING (U.S.) CAPITAL LLC,
                               as Documentation Agent and as a Lender

                               By  /s/ ROBERT L. FELLOWS
                                   ---------------------------------------------
                                   Name: ROBERT L. FELLOWS
                                   Title:  DIRECTOR

                               CIBC INC.,
                               as a Lender

                               By /s/ GERALD GIRARDI
                                  ----------------------------------------------
                                  Name:  GERALD GIRARDI
                                  Title:  EXECUTIVE DIRECTOR

<PAGE>   6

                                       6

                                          KEY CORPORATE CAPITAL INC.,
                                          as a Lender

                                          By /s/ MICHAEL D. CARROLL
                                             -----------------------------------
                                             Name:  MICHAEL D. CARROLL
                                             Title:  VICE PRESIDENT

                                          BANK OF OKLAHOMA N.A.,
                                          as a Lender

                                          By /s/ PAMELA J. BEEN
                                             -----------------------------------
                                             Name:  PAMELA J. BEEN
                                             Title:  ASSISTANT VICE PRESIDENT

                                          SOUTHWEST BANK OF TEXAS, N.A.,
                                          as a Lender

                                          By /s/ CY CLARK
                                             -----------------------------------
                                             Name: CY CLARK
                                             Title:  SENIOR VICE PRESIDENT

                                          THE GUARANTORS:

                                          CONTAINMENT SOLUTIONS, INC.

                                          By /s/ JANICE C. MCCORMICK
                                             -----------------------------------
                                             Name:  JANICE C. MCCORMICK
                                             Title:  ASSISTANT SECRETARY

                                          CONTAINMENT SOLUTIONS SERVICES, INC.

                                          By /s/ JANICE C. MCCORMICK
                                             -----------------------------------
                                             Name:  JANICE C. MCCORMICK
                                             Title:  ASSISTANT SECRETARY

                                          INSTRUMENTATION SOLUTIONS, INC.

                                          By /s/ JANICE C. MCCORMICK
                                             -----------------------------------
                                             Name:  JANICE C. MCCORMICK
                                             Title:  ASSISTANT SECRETARY
                                             Title:

<PAGE>   7

                                       7

                                     DENALI MANAGEMENT, INC.

                                     By /s/ JANICE C. MCCORMICK
                                        -----------------------------
                                        Name:  JANICE C. MCCORMICK
                                        Title:  ASSISTANT SECRETARY

                                     SPECIALTY SOLUTIONS, INC.

                                     By /s/ JANICE C. MCCORMICK
                                        -----------------------------
                                        Name:  JANICE C. MCCORMICK
                                        Title:  ASSISTANT SECRETARY

                                     BELCO MANUFACTURING COMPANY, INC.

                                     By /s/ JANICE C. MCCORMICK
                                        -----------------------------
                                        Name:  JANICE C. MCCORMICK
                                        Title:  ASSISTANT SECRETARY

                                     ERSHIGS, INC.

                                     By /s/ JANICE C. MCCORMICK
                                        -----------------------------
                                        Name:  JANICE C. MCCORMICK
                                        Title:  ASSISTANT SECRETARY

                                     SEFCO, INC.

                                     By /s/ JANICE C. MCCORMICK
                                        -----------------------------
                                        Name:  JANICE C. MCCORMICK
                                        Title:  ASSISTANT SECRETARY

                                     FIBERCAST COMPANY

                                     By /s/ JANICE C. MCCORMICK
                                        -----------------------------
                                        Name:  JANICE C. MCCORMICK
                                        Title:  ASSISTANT SECRETARY

                                     PLASTI-FAB, INC.

                                     By /s/ JANICE C. MCCORMICK
                                        -----------------------------
                                        Name:  JANICE C. MCCORMICK
                                        Title:  ASSISTANT SECRETARY

<PAGE>   8

                                       8

                                           DENALI HOLDINGS MANAGEMENT L.L.C.

                                           By /s/ JANICE C. MCCORMICK
                                              -----------------------------
                                              Name:  JANICE C. MCCORMICK
                                              Title:  ASSISTANT SECRETARY

                                           DENALI OPERATING MANAGEMENT, LTD

                                           By /s/ JANICE C. MCCORMICK
                                              -----------------------------
                                              Name:  JANICE C. MCCORMICK
                                              Title:  ASSISTANT SECRETARY<PAGE>   1
                                                                   EXHIBIT 10.16

                              EMPLOYMENT AGREEMENT

      THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective as of the 1st
day of April 2000 (the "Effective Date"), by and between American Homestar
Corporation, a Texas corporation ("Employer") and Ronald McCaslin ("Employee").
This Agreement supersedes and replaces all prior employment agreements by and
between Employer and Employee, including the Employment Agreement dated August
23, 1997.

                              W I T N E S S E T H:

      WHEREAS, Employee is the Executive Vice President of Employer and the
Chief Operating Officer of the manufacturing division of Employer (the
"Manufacturing Division"); and

      WHEREAS, Employee and Employer have determined that it is in their mutual
best interests to enter into this Agreement;

      NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:

                           ARTICLE I. RESPONSIBILITIES

      Employee shall have the title, and perform the duties, of Executive Vice
President of Employer and the Chief Operating Officer of the Manufacturing
Division and such other duties as reasonably requested from time to time by the
President and Chief Executive Officer or Board of Directors of Employer.
Employee will faithfully devote his best efforts and all his working time to and
for the benefit of Employer; provided, however, that Employee may, at his
option, devote reasonable time and attention to civic, charitable, business or
social organizations or speaking engagements as he deems appropriate. It is
anticipated that Employee will devote a reasonable amount of time to serving on
the board of directors of one or more public or private corporations, provided
that the business activities of any such corporation are not competitive with
those of Employer.

                            ARTICLE II. COMPENSATION

      SECTION 2.1 GENERAL TERMS. As compensation for his services rendered under
this Agreement, during the term of this Agreement, Employee shall be entitled to
receive the compensation as provided in EXHIBIT A attached hereto.

      SECTION 2.2 REIMBURSEMENT. It is acknowledged by the parties that
Employee, in connection with the services to be performed by him pursuant to the
terms of this Agreement, will be required to make payments for travel,
communications, entertainment of business associates and similar expenses.
Employer will reimburse Employee for all reasonable expenses of types authorized
by Employer and incurred by Employee in the performance of his duties
<PAGE>   2
hereunder. Employee will comply with such budget limitations and approval and
reporting requirements with respect to expenses as Employer may establish from
time to time.

                                  ARTICLE III.
                  NONDISCLOSURE OF CONFIDENTIAL INFORMATION

      SECTION 3.1 DEFINITIONS. For purposes of this Agreement, "Confidential
Information" is any data or information that is unique to Employer, proprietary,
competitively sensitive, and not generally known by the public, including, but
not limited to, Employer's initial business plan, prospective customers
("prospective customers" is understood to mean those potential customers with
whom or with which Employer is engaged in active discussion about a business
relationship) training manuals, product development plans, bidding and pricing
procedures, internal performance statistics, financial data, confidential
personnel information concerning employees of Employer, operational or
administrative plans, policy manuals, and terms and conditions of contracts and
agreements. The term "Confidential Information" shall not apply to information
which is (i) already in Employee's possession (unless such information was
obtained by Employee from Employer in the course of Employee's employment by
Employer); (ii) received by Employee from a third party with no restriction on
disclosure or (iii) required to be disclosed by any applicable law or by an
order of a court of competent jurisdiction.

      SECTION 3.2 USE AND DISCLOSURE. Employee recognizes and acknowledges that
the Confidential Information constitutes valuable, special and unique assets of
Employer and its affiliates. Except as required to perform Employee's duties as
an employee of Employer, until such time as they cease to be Confidential
Information through no act of Employee in violation of this Agreement, Employee
will not use or disclose any Confidential Information of Employer.

      SECTION 3.3 SURRENDER. Upon the request of Employer and, in any event,
upon the termination of this Agreement for any reason, Employee will surrender
to Employer (i) all memoranda, notes, records, drawings, manuals or other
documents pertaining to Employer's Business (as defined below) including all
copies and/or reproductions thereof and (ii) all materials involving any
Confidential Information of Employer.

                           ARTICLE IV. NONCOMPETITION

      SECTION 4.1 RESTRICTION. In consideration of the severance provisions
contained herein and the access to the Confidential Information granted to
Employee, Employee hereby agrees that, until one year after the termination of
Employee's employment hereunder (the "Restricted Period"), for any reason,
Employee will not solicit or encourage any officer, employee, or consultant of
Employer to leave its employ for employment by or with any competitor of
Employer in the business of producing manufactured homes.

                                     Page 2
<PAGE>   3
      SECTION 4.2 COMPETITION DURING EMPLOYMENT. Employee agrees that during the
Term, neither he, nor any of his affiliates, will directly or indirectly compete
with Employer or its affiliates in any way, and that he will not act as an
officer, director, employee, consultant, shareholder, lender, or agent of any
entity which is engaged in any business of the same nature as, or in competition
with, the businesses in which Employer and its affiliates are now engaged or in
which Employer or its affiliates become engaged during the Term; provided,
however, that this Section 4.2 shall not prohibit Employee or any of his
affiliates from (i) serving as a director (or similar capacity) of any entity
which is not in direct competition with Employer or its affiliates or (ii)
purchasing or holding an aggregate equity interest of up to 5%, so long as
Employee and his affiliates combined do not purchase or hold an aggregate equity
interest of more than 5%, in any business in competition with Employer and its
affiliates.

      SECTION 4.3 COMPETITION FOLLOWING EMPLOYMENT. If this Agreement is
terminated for any reason, then Employee agrees that for a period of one (1)
year after such termination or cessation of his employment with Employer,
neither Employee, nor any of his affiliates, shall, directly or indirectly, for
itself or himself or on behalf of any other corporation, person, firm,
partnership, association, or any other entity (whether as an individual, agent,
servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity):

      (i)   engage or participate in any business which engages in
            competition with such businesses being conducted by Employer or
            any of its affiliates during the Term anywhere in the United
            States; provided, however, that this Section 5(e) shall not
            prohibit Employee or any of his affiliates from (i) serving as a
            director (or similar capacity) of any entity which is not in
            direct competition with Employer or its affiliates or (ii)
            purchasing or holding an aggregate equity interest of up to 5%,
            so long as Employee and his affiliates combined do not purchase
            or hold an aggregate equity interest of more than 5%, in any
            business in competition with Employer;

      (ii)  induce or attempt to influence any employee of Employer or its
            affiliates to terminate his/her employment; or

      (iii) assist or finance any person or entity in any manner or in any way
            inconsistent with the intents and purposes of this Agreement.

Notwithstanding the above, in the event this Agreement is terminated for any
reason other than "just cause," Employee may terminate this Section 4.3 upon
written notice to Employer, in which event Employer's obligation to pay any
remaining post-termination compensation payable to Employee under the last
paragraph of Section 6(d) below shall thereafter terminate.

                                     Page 3
<PAGE>   4
      SECTION 4.2 REFORMATION AND SEVERANCE. If a judicial determination is made
that any of the provisions of the above restriction constitutes an unreasonable
or otherwise unenforceable restriction against Employee, it shall be rendered
void only to the extent that such judicial determination finds such provisions
to be unreasonable or otherwise unenforceable. In this regard, the parties
hereby agree that any judicial authority construing this Agreement shall be
empowered to sever any portion of the prohibited business activity from the
coverage of this restriction and to apply the restriction to the remaining
portion of the business activities not so severed by such judicial authority.
Moreover, notwithstanding the fact that any provisions of this restriction are
determined by a court not be specifically enforceable through injunctive relief,
Employer shall nevertheless be entitled to seek to recover monetary damages as a
result of the breach of such provision by Employee. The time period during which
the restrictions shall apply shall be tolled and suspended as to Employee for a
period equal to the aggregate quantity of time during which Employee violates
such prohibitions in any respect.

                                 ARTICLE V. TERM

      Subject to Article VI below, this Agreement shall continue in full force
and effect from the Effective Date until August 30, 2002. Thereafter, this
Agreement shall automatically renew for successive additional one year terms
unless either party provides the other with written notice of its intent not to
renew this Agreement at least ninety (90) days prior to the end of the term.

                             ARTICLE VI. TERMINATION

      Employee's employment hereunder will terminate prior to the time set forth
in Article V hereof upon the occurrence of the following events:

            (a) BY COMPANY WITHOUT CAUSE. Employer may terminate this Agreement
      at any time, for any reason or without cause. In the event of the
      termination of this Agreement pursuant to this Subsection, Employee shall
      be entitled to receive the salary and bonuses, as if Employee continued to
      be employed by Employer, and stock options shall continue to vest as
      provided in Exhibit A until the later of (i) the date that this Agreement
      would have expired had it not been terminated pursuant to this Subsection
      or (ii) one year after termination pursuant to this Subsection.

            (b) BY EMPLOYEE WITHOUT CAUSE. Employee may terminate this Agreement
      at any time, for any reason or without cause. In the event of the
      termination of this Agreement pursuant to this Subsection, Employee shall
      be entitled to receive only the compensation earned by him as of, and
      payable for the period prior to, the date of termination.

                                     Page 4
<PAGE>   5
            (c) BY COMPANY WITH CAUSE. This Agreement may be terminated by
      Company at any time upon written notice for any of the following reasons:

            I.    a substantial breach by the Employee of a material provision
                  of this Agreement, which breach remains uncorrected for more
                  than thirty (30) days following written notice detailing the
                  specific provision for which a breach is alleged, and setting
                  forth the actions, which, when taken, will correct the breach;

            II.   conviction of the Employee for a felony which materially
                  affects Employee's ability to perform his duties pursuant to
                  this Agreement; or

            III.  commission by Employee of an act of fraud, embezzlement, or
                  material dishonesty against Employer or its affiliates.

In the event of the termination of this Agreement pursuant to this Subsection,
Employee shall be entitled to receive only the compensation earned by him as of,
and payable for the period prior to, the date of termination.

            (d) BY EMPLOYEE FOR CAUSE. This Agreement may be terminated by
      Employee at any time upon written notice to Employer after the occurrence
      of a Constructive Termination. As used in this Agreement, the term
      "Constructive Termination" means any of the following:

            I.    a material reduction in Employee's duties and
                  responsibilities without Employee's consent; or

            II.   conviction of Employer for a felony related to activities in
                  which Employee has not participated.

In the event of the termination of this Agreement pursuant to this Subsection,
Employee shall be entitled to receive the salary and bonuses, as if Employee
continued to be employed by Employer, and stock options shall continue to vest,
as provided in Exhibit A until the later of (i) the date that this Agreement
would have expired had it not been terminated pursuant to this Subsection and
(ii) one year after termination pursuant to this Subsection.

            (e) TERMINATION ON DEATH. In the event of Employee's death, this
      Agreement will be deemed to have terminated on the date of his death. In
      the event of his death, Employer will pay to the testamentary trusts
      created by Employee's Will or, if there are no such trusts, to his estate,
      all salary due, plus all bonuses due and all bonuses that would have been
      earned by Employee, prorated to the date of death, together with a lump
      sum

                                     Page 5
<PAGE>   6
      payment in the amount of one hundred percent (100%) of the Employee's
      annual base salary as provided in Exhibit A.

            (f) TERMINATION ON DISABILITY. This Agreement will terminate
      immediately in the event Employee becomes physically or mentally disabled.
      Employee will be deemed disabled if, as a result of Employee's incapacity
      due to physical or mental illness, Employee shall have been absent from
      his duties with Employer on a full-time basis for 120 consecutive business
      days. In the event of the termination of this Agreement pursuant to this
      Subsection, Employee shall be entitled to receive all salary and bonuses
      due and owing through the date of disability, plus all bonuses that would
      have been earned by Employee through the date of disability (prorated to
      the date of disability).

               ARTICLE VII. CHANGE IN CONTROL TERMINATION PAYMENT

      SECTION 7.1 TERMINATION PAYMENT. Notwithstanding anything to the contrary
contained in Article VI hereof, if, Employee's employment with Employer
terminates within the twelve-month period following a Change In Control (as
defined in Section 7.2 hereof), the Employee shall be entitled to receive the
following:

      I.    The salary and bonuses provided for in Exhibit A, as if Employee
            continued to be employed by Employer until the later of (i) the date
            that this Agreement would have expired had a Change In Control not
            occurred; and (ii) one-year after the date of termination of
            Employee's employment with Employer.

      II.   All options to purchase common stock of Employer shall fully vest.

      III.  The deemed repayment of the principal amount of the promissory note
            described in Item 13 of Exhibit A shall be accelerated such that
            Employee is given credit for one-year of deemed repayment (i.e.,
            1/6th of the principal amount) in addition to any deemed repayments
            previously received.

      SECTION 7.2 CHANGE IN CONTROL. A Change In Control will be deemed to have
occurred for purposes hereof (i) when a change of stock ownership of Employer of
a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and any successor Item of a similar nature has occurred;
or (ii) upon the acquisition of beneficial ownership, directly or indirectly, by
any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) of securities of Employer representing 50% or more of the combined voting
power of Employer's then outstanding securities; or (iii) during any period of
two consecutive years, a majority of the Board of Directors ceases, for any
reason, to consist of Continuing Directors; provided that a Change In Control
will not be deemed to have occurred for purposes hereof with

                                     Page 6
<PAGE>   7
respect to any person meeting the requirements of clauses (i) and (ii) of Rule
13d-1(b)(1) promulgated under the Securities Exchange Act of 1934, as amended.
As used herein, "Continuing Director" shall mean a member of the Board of
Directors of Employer who either (i) was a member of the Board of Directors as
of the beginning of the relevant two year period or (ii) was nominated or
appointed (before initial election as a director) to serve as a director by a
majority of the then Continuing Directors.

      SECTION 7.3 NO RIGHT TO CONTINUED EMPLOYMENT. This Article VII will not
give Employee any right of continued employment or any right to compensation or
benefits from Employer except the rights specifically stated herein.

                           ARTICLE VIII. GENERAL TERMS

      SECTION 8.1 NOTICES. All notices and other communications hereunder will
be in writing or by written telecommunication, and will be deemed to have been
duly given if delivered personally or if sent by overnight courier or by written
telecommunication, to the relevant address set forth below, or to such other
address as the recipient of such notice or communication will have specified to
the other party hereto in accordance with this Section:

      If to Employer, to:                       with a copy to:

      American Homestar Corporation             Jackson Walker, L.L.P.
      2221 E. Lamar Boulevard, Suite 790        901 Main Street Suite 6000
      Arlington, Texas 76006-7422               Dallas, Texas 75202
      Attention: President                      Attention: Richard F. Dahlson
      Fax No.: (817) 695-0120                   Fax No.: (214) 953-5822

      If to Employee, to:

      Ronald McCaslin
      1505 Roanoke Road
      Roanoke, Texas 76262

      SECTION 8.2 WITHHOLDING. All payments required to be made by Employer
under this Agreement to Employee will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.

      SECTION 8.3 ENTIRE AGREEMENT; MODIFICATION. This Agreement and Exhibit A
attached hereto constitute the complete and entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements
between the parties. The parties have

                                     Page 7
<PAGE>   8
executed this Agreement based upon the express terms and provisions set forth
herein and have not relied on any communications or representations, oral or
written, which are not set forth in this Agreement.

      SECTION 8.4 AMENDMENT. The covenants and/or provisions of this Agreement
may not be modified by any subsequent agreement unless the modifying agreement:
(i) is in writing; (ii) contains an express provision referencing this
Agreement; (iii) is signed and executed on behalf of Employer by an officer of
Employer other than Employee; (iv) is approved by resolution of the Board; and
(v) is signed by Employee.

      SECTION 8.5 LEGAL CONSULTATION. Both parties have been accorded a
reasonable opportunity to review this Agreement with legal counsel prior to
executing this Agreement.

      SECTION 8.6 CHOICE OF LAW. This Agreement and the performance hereof will
be construed and governed in accordance with the laws of the State of Texas,
without regard to its choice of law principles.

      SECTION 8.7 COSTS. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which he or it may be entitled.

      SECTION 8.8 SUCCESSORS AND ASSIGNS. The obligations, duties and
responsibilities of Employee under this Agreement are personal and shall not be
assignable. In the event of Employee's death or disability, this Agreement shall
be enforceable by Employee's estate, executors and/or legal representatives.

      SECTION 8.9 WAIVER OF PROVISIONS. Any waiver of any terms and conditions
hereof must be in writing and signed by the parties hereto. The waiver of any of
the terms and conditions of this Agreement shall not be construed as a waiver of
any subsequent breach of the same or any other terms and conditions hereof.

      SECTION 8.10 SEVERABILITY. The provisions of this Agreement shall be
deemed severable, and if any portion shall be held invalid, illegal or
enforceable for any reason, the remainder of this Agreement shall be effective
and binding upon the parties provided that the substance of the economic
relationship created by this Agreement remains materially unchanged.

      SECTION 8.11 REMEDIES. The parties hereto acknowledge and agree that upon
any breach by Employee of his obligations under either of Articles III and IV
hereof, Employer will have no adequate remedy at law, and accordingly will be
entitled to specific performance and other appropriate injunctive and equitable
relief. No remedy set forth in this Agreement or otherwise conferred upon or
reserved to any party shall be considered exclusive of any other remedy

                                     Page 8
<PAGE>   9
available to any party, but the same shall be distinct, separate and cumulative
and may be exercised from time to time as often as occasion may arise or as may
be deemed expedient.

      SECTION 8.12 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of which
together will constitute one and the same instrument.

      IN WITNESS WHEREOF, Employer and Employee have caused this Agreement as of
the day and year first above written.

                                          /s/ RONALD McCASLIN
                                          -----------------------------------
                                          Ronald McCaslin

                                    AMERICAN HOMESTAR CORPORATION

                                     By:  /s/ LAURENCE A. DAWSON JR.
                                          -----------------------------------
                                     Its: President

                                     Page 9

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