Second Amended and Restated Compensation Agreement

Exhibit 10.1

SECOND AMENDED AND RESTATED COMPENSATION AGREEMENT

     This Amended and Restated Compensation Agreement (“Agreement”) is made and entered into by and between Palm Harbor Homes, Inc., a Florida corporation (“Palm Harbor”), and Lee Posey (“Employee”), and is dated to be effective as of July 1, 2005.

W I T N E S S E T H:

     WHEREAS, effective March 27, 1999, Palm Harbor and Employee entered into that certain Amended and Restated Compensation Agreement, which was amended pursuant to that certain Amendment No. 1 to Amended and Restated Compensation Agreement dated to be effective March 29, 2002 (collectively, the “Original Agreement”); and

     WHEREAS, the parties desire to amend and restate the Original Agreement to reflect the current agreement between the parties;

     NOW, THEREFORE, in consideration of the mutual covenants herein contained, the employment and payment of compensation to Employee upon the terms and conditions set forth herein and each act done pursuant hereto, the parties hereto agree as follows:

Employment

     1. Nature of Employment. For the term of employment as below stated, and subject to general supervision by the Board of Directors of Palm Harbor (the “Board”), to whom Employee shall exclusively report, Palm Harbor hereby employs Employee as its Chairman Emeritus to perform such duties as are customarily provided by persons in similar officer positions with companies of the same general size and engaged in comparable businesses as the Company and as the Board shall from time to time reasonably prescribe. Employee shall have the authority to bind Palm Harbor to contracts to the same extent as the Chief Executive Officer and/or President of Palm Harbor, without the necessity of having the Board adopt a specific resolution in each such instance in which the Chief Executive Officer and/or President has or is given authority to execute contracts.

     2. Term. Subject to earlier termination as hereinafter provided, the term of employment of Employee hereunder shall commence on the date hereof, and continue for a period of eight years (the “Term”).

     3. Termination. This Agreement shall be terminated prior to the expiration of the Term only as follows:

     4. Relationship. In performing the services described under this Agreement, it is mutually understood and agreed that Employee will at all times be acting and performing as an employee. This Agreement creates the relationship of principal and agent between Palm Harbor and Employee during the Term. Subject to the limitations in Section 1, Employee shall have the authority to create obligations and make any contracts, agreements, representations and warranties on behalf of and in the name of Palm Harbor during the employment period.

     5. Compensation. As compensation for his services to Palm Harbor and other duties and responsibilities herein contemplated during the Term, Employee shall receive from Palm Harbor $100,000 per annum. Upon termination of this Agreement for any reason other than death or disability, Palm Harbor shall have no further obligations to Employee. If this Agreement terminates due to death or disability, Palm Harbor shall pay to Employee or his spouse, as applicable, the sum of $8,333.33 per month for a number of months equal to 96 minus the number of months Employee received payments under this Agreement prior to his death or disability.

     6. Sick Leave, etc. During the term of employment, Employee shall be entitled to sick leave of such duration as he is currently entitled, and dental, medical and other insurance and other fringe benefits, as are consistent with Palm Harbor’s policy for its executive level employees. All reasonable travel expenses and other business expenses incurred by Employee in connection with the performance of his services for Palm Harbor shall be reimbursed to Employee by Palm Harbor. Such reimbursement shall be made upon presentation to Palm Harbor of vouchers, receipts, business purpose summaries and other statements itemizing such expenses in detail complying with all tax reporting requirements therefor and reimbursement policies of Palm Harbor.

     7. Arbitration. THE PARTIES AGREE THAT ANY AND ALL DISPUTES BETWEEN THEM RELATED HERETO AND ANY RELATED CLAIM BY ANY PARTY THAT CANNOT AMICABLY BE SETTLED SHALL BE DETERMINED SOLELY AND EXCLUSIVELY BY ARBITRATION IN ACCORDANCE WITH THE RULES THEN PROMULGATED BY THE AMERICAN ARBITRATION ASSOCIATION (“AAA”) OR ANY SUCCESSOR AT ITS OFFICES NEAREST DALLAS, TEXAS, UNLESS THE PARTIES OTHERWISE AGREE IN WRITING. A DISPUTE SUBJECT TO THE PROVISIONS OF THIS SECTION 8 WILL EXIST IF EITHER PARTY NOTIFIES THE OTHER IN WRITING THAT A DISPUTE SUBJECT TO ARBITRATION EXISTS AND STATES WITH REASONABLE SPECIFICITY THE ISSUES SUBJECT TO DISPUTE (THE “ARBITRATION NOTICE”). THE PARTIES AGREE THAT AFTER THE ISSUANCE OF AN ARBITRATION NOTICE, THE

PARTIES WILL TRY IN GOOD FAITH TO RESOLVE THE DISPUTE BY MEDIATION IN ACCORDANCE WITH THE COMMERCIAL MEDIATION RULES OF THE AAA BETWEEN THE DATE OF ISSUANCE OF THE ARBITRATION NOTICE AND THE DATE SET FOR ARBITRATION. THE PARTIES ALSO AGREE THAT THE AAA OPTIONAL RULES FOR EMERGENCY MEASURES OF PROTECTION SHALL APPLY TO THE PROCEEDING. IF THE DISPUTE IS NOT SETTLED BY THE DATE SET FOR ARBITRATION, THEN ANY REMAINING UNRESOLVED CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BREACH THEREOF WILL BE RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AAA, AND JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED AND ENFORCED IN ANY COURT OF COMPETENT JURISDICTION. ANY MEDIATOR OR ARBITRATOR SELECTED TO RESOLVE SUCH A DISPUTE MUST HAVE AT LEAST 10 YEARS EXPERIENCE IN THE FINANCE FIELD AND MUST HAVE ACTED AS MEDIATOR OR ARBITRATOR IN AT LEAST FIVE PRIOR DISPUTES WHERE THE AMOUNT IN CONTROVERSY EQUALS OR EXCEEDS THE AMOUNT IN CONTROVERSY IN THE SUBJECT DISPUTE. ANY SUCH MEDIATOR OR ARBITRATOR MUST BE ACCEPTABLE TO EMPLOYEE AND PALM HARBOR AND MUST BE KNOWLEDGEABLE ABOUT MANUFACTURED HOUSING AND RELATED FINANCIAL ISSUES; PROVIDED, HOWEVER, THAT SUCH MEDIATOR OR ARBITRATOR SHALL NOT BE EMPLOYED BY OR ACTING AS A CONSULTANT TO A COMPETITOR OF PALM HARBOR. IF THE PARTIES ARE UNABLE TO REACH AGREEMENT ON A MEDIATOR OR ARBITRATOR WITHIN SEVEN DAYS AFTER RECEIPT OF THE ARBITRATION NOTICE, THEN A MEDIATOR OR ARBITRATOR MEETING THE REQUIREMENTS OF THIS SECTION 7 WILL BE SELECTED BY THE AAA.

     8. Confidentiality. During the term of this Agreement, and thereafter, Employee shall not use for his personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Palm Harbor or its affiliates, any Confidential Information. “Confidential Information” means information relating to the operations of Palm Harbor or any subsidiaries or affiliates thereof that is not generally known, is proprietary to Palm Harbor, its subsidiaries or affiliates or is made known to Employee or learned or acquired by Employee while in the employ of Palm Harbor, including, without limitation, information relating to advertising, marketing, accounting, purchasing, selling, finance and business methods and techniques.

     9. Notice. Whenever, in connection with this Agreement, any notice is required to be given or any other act or event is to be done or occur on or by a particular number of days, and the date thus particularized should be a Saturday, Sunday, or bank holiday in the City of Dallas, Texas, such date shall be postponed to the next day which shall not be a Saturday, Sunday, or bank holiday in the City of Dallas, Texas. In the event a notice or other document is required to be given hereunder to Palm Harbor or Employee, such notice or other document shall either be personally delivered or be mailed to the party entitled to receive the same by registered or certified mail, return receipt requested, at the appropriate address set forth below or at such

other address as such party shall designate in a written notice given in accordance with this Section:

Notice shall be deemed given on the date of actual delivery, if delivered in person, or, if mailed, then on the date noted on the return receipt.

     10. Severability and Reformation. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of Employee or Palm Harbor under this Agreement would not be materially and adversely affected thereby, such provision shall be fully severable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof, the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible, and Palm Harbor and Employee hereby request the court or any arbitrator to whom disputes relating to this Agreement are submitted to reform the otherwise unenforceable covenant in accordance with this Section 10.

     11. Waiver, Modification, and Integration. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any party. This instrument contains the entire agreement of the parties and supersedes all prior and contemporaneous representations, understandings and agreements, either oral or in writing, between the parties and all such prior or contemporaneous representations, understandings and agreements (including, but not limited to, the Original Agreement) are hereby terminated. This Agreement may not be modified, altered or amended except by written agreement executed by all the parties hereto.

     12. Binding Effect and Assignability. Employee and Palm Harbor understand and acknowledge that Employee’s duties and responsibilities under this Agreement are personal in nature and shall not be assigned by Employee or Palm Harbor to any other person or entity without the prior written consent of the other party hereto, which consent may be withheld in such party’s sole discretion.

     13. Law Applicable; Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas; this Agreement is performable in, and venue for any litigation shall lie in, Dallas County, Texas.

     14. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument, and all of which together shall constitute one and the same Agreement.

     15. Attorney’s Fees. The prevailing party in any arbitration brought by or against the other party to enforce any provision of this Agreement shall be entitled to recover against the non-prevailing party the reasonable attorney’s fees, court or arbitration costs and other expenses incurred by the prevailing party.

     IN WITNESS WHEREOF, this Agreement is executed as of the date first set above.