AMERICAN HOMESTAR CORP
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>10
<FILENAME>doc13.txt
<TEXT>
                                                                    EXHIBIT 10.6
                      NONQUALIFIED STOCK OPTION AGREEMENT
                          AMERICAN HOMESTAR CORPORATION
                        2001 MANAGEMENT INCENTIVE PROGRAM

     THIS  STOCK  OPTION  AGREEMENT  (the  "Agreement") is made between AMERICAN
HOMESTAR  CORPORATION,  a Texas corporation (the "Company"), and JAMES J. FALLON
(the "Optionee"). The Board of Directors of the Company has adopted the American
Homestar  Corporation  2001  Management Incentive Program (the "Plan"), which is
incorporated  by reference herein. The Company considers that its interests will
be  served  by  granting  the  Optionee an option to purchase shares of Series M
Common  Stock  of  the  Company as an inducement for the continued and effective
performance  of  services  for  the  Company and as additional consideration for
Optionee's  agreement  not  to compete against the Company. Any capitalized term
used  in  this  Agreement that is not specifically defined herein shall have its
meaning  specified  in  the  Plan.

                               A G R E E M E N T:

SECTION  1.     GRANT  OF  OPTION.  Subject  to  the  terms of the Plan and this
                -----------------
Agreement,  on  October 3, 2001 (the "Date of Grant"), the Company hereby grants
to  the  Optionee a nonqualified stock option (the "Option") to purchase 250,000
shares  of  the Series M Common Stock of the Company, $0.01 par value per share,
at  a  price  of  $1.35 per share (the "Option Price"), subject to adjustment as
provided  in  the  Plan.

SECTION  2.     VESTING  SCHEDULE. Except as specified below or in the Plan, the
Option  is  exercisable  in  accordance  with  the  following  schedule:

     (a)     the  Option  will  vest  and  will  be exercisable as to 15% of the
shares  granted  subject  to  the  Option  at the end of each fiscal year of the
Company  after  the  date hereof in which the performance targets established by
the  Board  of Directors or the Committee, if any, as applicable to Optionee are
met.  The  option  to  acquire shares which are not vested in a given year shall
carry  over  to  future  years and shall vest in future years on such reasonable
cumulative  performance  targets  as  are  reasonably  adopted  by  the Board of
Directors  from  time-to-time;

     (b)     the Option will vest and will be exercisable as to an additional 5%
of  the  shares  granted subject to the Option at the end of each fiscal year of
the Company after the date hereof in which such performance targets are exceeded
by  target  amounts  established  by the Board of Directors or the Committee, if
any,  from  time to time. The option to acquire shares which are not vested in a
given  year  shall  carry over to future years and shall vest in future years on
such  reasonable cumulative performance targets as are reasonably adopted by the
Board  of  Directors  from  time-to-time;

     (c)     to  the  extent  not  exercised,  vested  installments  shall  be
cumulative and may be exercised in whole or in part at any time; and

     (d)     to  the  extent not previously vested or exercised, the Option will
be  exercisable as to 100% of the shares subject to the Option at the end of the
seventh  year  after  the  date  hereof.


<PAGE>
     SECTION  3.     EARLY TERMINATION OF OPTION. If the employment relationship
                     ---------------------------
between  the  Optionee  and  the Company is terminated, for any reason, prior to
full  vesting  hereunder,  then, subject to the terms of Section 2(c) above, all
unvested shares subject to such Options shall terminate upon such termination of
employment,  and  the  following rules shall apply to vested, unexercised shares
subject  to  the  Option:

     (a)     Early  Termination  of Option Due to Termination of Employment. The
Option  shall  terminate  on  the  earlier  of the date of the expiration of the
general  term of the Option or three months after the date of the termination of
the  employment relationship between the Optionee and the Company by the Company
on  account  of  a  Change  of  Control  (as  such term is defined in the Plan).

     (b)     Early  Termination  of  Option  Due  to Death.  In the event of the
death  of the Optionee while in the employ of the Company and before the date of
the  expiration of the general term of the Option, the Option shall terminate on
the  earlier of the date of expiration of the general term of the Option or nine
months  after  the  date  of  the  Optionee's termination of employment with the
Company  due  to  death.  This  Option  shall not vest further in the nine-month
period  following  Optionee's  termination of employment with the Company due to
death.

     (c)     Early  Termination of Option Due to Disability. In the event of the
disability  of  the  Optionee, as determined by the Board in its discretion, the
Option  shall  terminate on the earlier of the expiration of the general term of
the  Option  or  six  months  after  the  date  of the Optionee's termination of
employment  with  the  Company  due  to  disability.  Further, if the Optionee's
employment  with  the  Company  is  terminated  due to disability and within the
six-month  period following the termination of employment the Optionee dies, the
Option  shall terminate on the earlier of (1) the expiration of the general term
of  the  Option, or (2) six months after the date of the Optionee's death.  This
Option  shall  not  vest  further  in  the six-month period following Optionee's
termination  of  employment  with  the  Company  due  to  disability or any time
thereafter.

     (d)     No  Other  Early  Termination. Except as set forth in Section 3(a),
(b) or (c) or Section 12 of this Agreement or Section 11 of the Plan, the Option
shall  not  terminate prior to the expiration of the general term of the Option.

SECTION  4.     ASSIGNMENT  OF OPTION.  The Option granted to the Optionee under
                ---------------------
this  Agreement  shall  not  be transferable or assignable by the Optionee other
than  by  will or the laws of descent and distribution, and shall be exercisable
during  the  Optionee's  lifetime  only  by the Optionee; provided, however, the
Option  may  be  assigned  to a family partnership, limited liability company or
other-  similar  entity 100% owned and controlled by the Optionee and members of
his  family  and  such  entity  may  exercise  the Option on the same terms, but
subject to the same limitations, as are set forth herein; provided further that,
in  the  event  of  such  assignment,  the  term "Optionee" used hereunder shall
continue  to  refer  to  the  individual who assigned the Option with respect to
provisions  relating  to  the  employment  of  the  Optionee  with  the Company.

SECTION  5.     GENERAL  TERM  OF OPTION.  Unless earlier terminated pursuant to
                ------------------------
the  terms  of this Agreement or the Plan, the Option shall terminate and become
null  and void on the last day of the nine-year period commencing on the Date of
Grant.


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<PAGE>
SECTION  6.     EXERCISE  OF  OPTION.  To exercise the Option, the Optionee must
                --------------------
notify  the  Company in writing that the Optionee wishes to exercise the Option,
the  number  of  shares with respect to which the Option is to be exercised, and
the address to which any stock certificates should be mailed. The written notice
should  be  accompanied  by  the  Optionee's  payment of the Option Price of the
shares in the form of (a) a cashier's check payable to the order of the Company,
(b)  shares  of common stock of the Company, provided that it in order to comply
with Section 16 of the Securities Exchange Act of 1934 as amended (to the extent
it  is  applicable),  the  Optionee  must  tender shares that have been owned by
Optionee  free  of  restrictions, other than securities law restrictions, for at
least  six  months,  or  (c) any other form of payment that is acceptable to the
Board.

SECTION  7.     TAX  WITHHOLDING.  With  respect to federal, state, or local tax
                ----------------
law,  the  Company  may  either  deduct  from  other compensation payable to the
Optionee  an  amount required to be withheld with respect to the exercise of the
Option,  or  require,  as  a  condition  to the exercise of the Option, that the
Optionee  pay  in  cash  or by check (or other form of payment acceptable to the
Company)  the  required  amount directly to the Company on the date of exercise.

SECTION  8.     DEATH  OF  OPTIONEE.  Within  nine months after the death of the
                -------------------
Optionee,  the  executors  or  administrators  of  the Optionee or any person or
persons  to  whom  the  Option may be transferred by beneficiary designation, by
will  or  by  the laws of descent and distribution, shall have the right, at any
time  prior  to the expiration of the Option to exercise the Option with respect
to  the  number of shares that the Optionee would have been entitled to exercise
prior  to  the  Optionee's  death.

SECTION  9.     AMENDMENT  AND TERMINATION. This Agreement may not be amended or
                --------------------------
terminated  orally  but  only  by  an  agreement  in writing signed by the party
against  whom  enforcement  of  any  such  change  or  termination  is  sought.

SECTION 10.     NO REQUIREMENT OF CONTINUED EMPLOYMENT. The Company shall not be
                --------------------------------------
deemed  by  the grant of the Option (as distinguished from a separate employment
agreement  or service contract, if any) to be required to retain the services of
the  Optionee  for  any  period.

SECTION 11.     NO RIGHTS AS STOCKHOLDER. The Optionee shall not have any rights
                ------------------------
as a stockholder with respect to any shares covered by the Option until the date
of  the  issuance  of  the  stock  certificate  or  certificates for such shares
following  the  exercise  of the Option pursuant to its terms and conditions and
payment  for the shares. Except as expressly provided in the Plan, no adjustment
shall  be  made for dividends or other rights for which the record date is prior
to,  the  date  such  certificate  or  certificates  are  issued.

SECTION  12.     FORFEITURE  FOR  CAUSE  AND  DISGORGEMENT  OF  PROFITS.  If the
                 ------------------------------------------------------
Optionee, before or after severance of employment with the Company (a) committed
a  fraud,  embezzlement,  theft, felony or an act of dishonesty in the course of
the  Optionee's  employment  by the Company which conduct damaged the Company or
(b) disclosed trade secrets of the Company, then, to the extent outstanding, the
Option  will  be  forfeited.  If  the Option would be forfeited pursuant to this
Section  12  but  for  the  fact  that  the  Option has been exercised, then the
Optionee  must,  upon demand by the Company, which demand must be made within 90
days  of  the  Company's  discovery of the violation and within 24 months of the
Optionee's severance of employment with the Company (i) sell to the Company, for
the  per  share  exercise price applicable under the Option, the shares of Stock
purchased under the


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<PAGE>
Option  that  have  not  yet  been sold to another party and (ii) deliver to the
Company  cash  in an amount equal to the proceeds the Optionee realized upon the
sale  of  any  of  the Stock purchased under the Option, reduced by the exercise
price  paid  by  the  Optionee.

SECTION  13.     NOTICES. All offers, notices, demands, requests, acceptances or
                 -------
other  communications  hereunder shall be in writing and shall be deemed to have
been  duly  made  or  given  if  mailed  by registered or certified mail, return
receipt  requested.  Any such notice mailed to the Company shall be addressed to
its  principal  office, and any notice mailed to the Optionee shall be addressed
to  the  Optionee's  residence address as it appears on the books and records of
the  Company or to such other address as either party may hereafter designate in
writing  to  the  other.

SECTION  14.     INUREMENT. This Agreement shall, except as herein stated to the
                 ---------
contrary, inure to the benefit of and bind the legal representatives, successors
and  assigns  of  the  parties  hereto.

SECTION  15.    TYPE OF OPTION. This Option is a nonqualified stock option which
                --------------
is  not  intended  to be governed by section 422 of the Internal Revenue Code of
1986,  as  amended, but is intended to be a nonqualified stock option subject to
the  provisions  of  Section  83  of  the  Code.

SECTION  16.     AGREEMENT TO PLAN TERMS. In accepting this Option, the Optionee
                 -----------------------
accepts  and agrees to be bound by all the terms and conditions of the Plan that
pertain  to  Options  granted  under  the  Plan.

SECTION  17.     GOVERNING LAW AND SEVERABILITY.  The validity, construction and
                 ------------------------------
performance  of  this  Agreement shall be governed by the internal laws (and not
the  principles  relating  to conflicts of law) of the State of Texas, except as
superseded  by  applicable  federal law. Any invalidity of any provision of this
Agreement  shall  not  affect  the  validity  of  any  other  provision.


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<PAGE>
IN  WITNESS  WHEREOF,  this Agreement has been duly executed and delivered to be
effective  as  of  the  day  and  year  first  above  written.

                                 AMERICAN HOMESTAR CORPORATION


                                 Signature: /s/ Craig A Reynolds
                                           -------------------------------------
                                 Name:  Craig  A.  Reynolds
                                 Title: Executive Vice President, CFO
                                 Effective Date: October 3, 2001


                                 OPTIONEE:


                                 Signature: /s/ James J. Fallon
                                           -------------------------------------
                                 Name:  James J. Fallon
                                 Title: Vice President, Chief Operating Officer-
                                 Manufacturing Operations


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</DOCUMENT>
