<PAGE>   1
                                 EXHIBIT 10(h)

                                 LOAN AGREEMENT

                                     between

                          CITY OF HUNTINGBURG, INDIANA

                                       and

                               DMI FURNITURE, INC.

                         -------------------------------
                                   $3,420,000

                          City of Huntingburg, Indiana
                      Adjustable Rate Economic Development
                           Revenue Bonds, Series 1993
                          (DMI Furniture, Inc. Project)


                                      Dated
                                      as of

                                 October 1, 1993





                              Brown, Todd & Heyburn
                                  Bond Counsel

<PAGE>   2


         INDEX

                   (This Index is not a part of the Agreement
                but rather is for convenience of reference only.)


ARTICLE I  DEFINITIONS .......................................................79

         Section 1.1. Use of Defined Terms....................................79
         Section 1.2. Definitions.............................................79
         Section 1.3. Interpretation..........................................82
         Section 1.4. Captions and Headings...................................82

ARTICLE 11  REPRESENTATIONS...................................................82

         Section 2.1. Representations of the Issuer...........................82
         Section 2.2. Representations and Covenants of the Company............83
         Section 2.3. Actions Under Section 144(a) (4) of the Code............86

ARTICLE III  COMPLETION OF THE PROJECT; ISSUANCE OF THE PROJECT BONDS.........87

         Section 3.1. Expansion, Acquisition, Construction and Installation of
                      the Project.............................................87
         Section 3.2. Plans and Specifications................................87
         Section 3.3. Issuance of the Project Bonds: Application of Proceeds..87
         Section 3.4. Disbursements from the Project Fund.....................88
         Section 3.5. Company Required to Pay Costs in Event Project Fund
                      Insufficient............................................90
         Section 3.6. Completion Date.........................................90
         Section 3.7. Investment of Fund Moneys...............................91
         Section 3.8. Rebate Fund.............................................91

ARTICLE IV  LOAN BY ISSUER; REPAYMENT OF THE LOAN; LOAN PAYMENTS AND ADDITIONAL
            PAYMENTS..........................................................91

         Section 4.1. Loan Repayment, Delivery of Notes and Letter of
                      Credit..................................................92
         Section 4.2. Additional Payments.....................................93
         Section 4.3. Place of Payments.......................................93
         Section 4.4. Obligations Unconditional...............................93
         Section 4.5. Assignment of Agreement and Revenues....................94
         Section 4.6. Letter of Credit........................................94


<PAGE>   3


ARTICLE V  ADDITIONAL AGREEMENTS AND COVENANTS................................94

         Section 5.1. Right of Inspection.....................................94
         Section 5.2. Lease, Sale or Grant of Use by Company..................94
         Section 5.3. Indemnification.........................................95
         Section 5.4. Company Not to Adversely  Affect Exclusion from Gross
                      Income of Interest on Project Bonds.....................96
         Section 5.5. Company to Maintain its Existence, Sales of Assets or
                      Mergers.................................................96

ARTICLE VI  REDEMPTION OF PROJECT BONDS.......................................96

         Section 6.1. Optional Redemption.....................................96
         Section 6.2. Extraordinary Optional Redemption.......................97
         Section 6.3. Mandatory  Redemption  in Event of Inclusion in Gross
                      Income of Interest on Project Bonds.....................98
         Section 6.4. Mandatory Redemption....................................99
         Section 6.5. Actions by Issuer.......................................99
         Section 6.6. Required Deposits for Optional Redemption...............99

ARTICLE VII  EVENTS OF DEFAULT AND REMEDIES...................................99

         Section 7.1. Events of Default.......................................99
         Section 7.2. Remedies on Default....................................100
         Section 7.3. No Remedy Exclusive....................................101
         Section 7.4. Agreement to Pay Attorneys' Fees and Expenses..........101
         Section 7.5. No Waiver..............................................101
         Section 7.6. Notice of Default......................................102
         Section 7.7. Remedies Subject to Bank's Direction...................102

ARTICLE VIII  MISCELLANEOUS..................................................102

         Section 8.1. Term of Agreement......................................102
         Section 8.2. Amounts Remaining in Funds.............................102
         Section 8.3. Notices................................................103
         Section 8.4. Extent of Covenants of the Issuer No Personal
                      Liability..............................................103
         Section 8.5. Binding Effect.........................................103
         Section 8.6. Amendments and Supplements.............................103
         Section 8.7. Execution Counterparts.................................103
         Section 8.8. Severability...........................................103
         Section 8.9. Governing Law..........................................104


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EXHIBIT A  PROJECT NOTE .....................................................A-1

EXHIBIT B  PROJECT FACILITIES................................................B-1

EXHIBIT C  PROJECT SITE LEGAL DESCRIPTION....................................C-1

EXHIBIT D  FORM OF DISBURSEMENT REQUEST......................................D-1




                                      -3-

<PAGE>   5

                                  EXHIBIT 10(h)

                                 LOAN AGREEMENT


         THIS LOAN AGREEMENT is made and entered into as of October 1, 1993,
between the CITY OF HUNTINGBURG, INDIANA, a municipality and political
subdivision of the State of Indiana (the "Issuer"), and DMI FURNITURE, INC., a
Delaware corporation qualified to transact business in the State of Indiana (the
"Company"), under the following circumstances summarized in the following
recitals (the capitalized terms not defined in the recitals being used therein
as defined in Article I hereof):

         WHEREAS, pursuant to the Constitution and the statutes of the State of
Indiana (the "State"), particularly Title 36, Article 7, Chapters 11.9 and 12 of
the Indiana Code, as supplemented and amended (the "Act"), in order to create or
preserve jobs and employment opportunities and improve the economic welfare of
the people of the State, the Issuer may issue revenue bonds to provide funds for
the making of loans for the acquisition, construction, reconstruction,
enlargement, improvement, furnishing or equipping of "projects" (as defined in
the Act) or parts thereof; and

         WHEREAS, the Issuer has found and determined, and does hereby find and
determine, that the expansion, acquisition, construction and installation of the
Project by the Company promotes the general welfare of the people of the Issuer,
provides employment, and that the Issuer, by assisting with the financing of the
expansion, acquisition, construction and installation of the Project is acting
in a manner consistent with and in furtherance of the provisions of the Act; and

         WHEREAS, pursuant to and in accordance with the provisions of the Act
and an ordinance enacted by the Issuer on October 4, 1993, as supplemented and
amended by an ordinance enacted on November 1, 1993, the Issuer has determined
to issue and sell $3,420,000 aggregate principal amount of its Adjustable Rate
Economic Development Revenue Bonds, Series 1993 (DMI Furniture, Inc. Project)
(the "Project Bonds"), to provide funds to pay the cost of financing the
expansion of the Company's existing furniture manufacturing and warehouse
facility, including the construction and equipping of an approximately 150,000
square foot manufacturing and warehouse facility constituting a "project,"
within the meaning of the Act (the "Project"); and

         WHEREAS, the Act provides that such Project Bonds shall be secured by a
pledge of, and have a lien upon, the revenues and receipts derived pursuant to
this Agreement and the Company has agreed to make payments pursuant to this
Agreement sufficient in the aggregate to pay fully when due the principal of,
premium, if any, and interest on the Project Bonds, the purchase price of
Project Bonds tendered for purchase, and related expenses; and

         WHEREAS, the Company and the Issuer each have full right and lawful
authority to enter into this Agreement and to perform and observe the provisions
hereof on their respective parts to be performed and observed; and



                                     - 78 -
<PAGE>   6

         WHEREAS, as security for the repayment of the Loan, the Company will be
required to deliver to PNC Bank, Indiana, Inc., New Albany, Indiana, as Trustee
(the "Trustee") under the Indenture (as herein defined) a letter of credit (the
"Letter of Credit") of Bank One, Indianapolis, National Association (the
"Bank"), against which the Trustee shall be entitled to draw, in accordance with
the terms thereof, up to (a) an amount sufficient (i) to pay the aggregate
principal amount of the Project Bonds, or (ii) to pay the purchase price or a
portion of the purchase price equal to the aggregate principal amount of Project
Bonds delivered to it for purchase, plus (b) an amount equal to 45 days' accrued
interest on the Project Bonds, calculated at an interest rate of ten percent
(10%) per annum; and

         WHEREAS, the Issuer and the Company desire to enter into this Agreement
to set forth the terms and conditions upon which the Issuer will make the Loan,
as hereinafter defined.

         NOW, THEREFORE, in consideration of the above premises and of the
mutual covenants hereinafter contained and for other good and valuable
consideration, the parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         Section 1.1. USE OF DEFINED TERMS. In addition to the words and terms
defined elsewhere in this Agreement or by reference to another document, the
words and terms set forth in Section 1.2 hereof shall have the meanings set
forth therein unless the context or use clearly indicates another meaning or
intent. Any capitalized term used but not defined herein shall have the meaning
ascribed to such term in the Indenture. Such definitions shall be equally
applicable to both the singular and plural forms of any of the words and terms
defined therein.

         Section 1.2. DEFINITIONS. As used herein:

         "Additional Payments" means the amounts required to be paid by the
Company pursuant to the provisions of Section 4.2 hereof.

         "Agreement" means this Loan Agreement as amended or supplemented from
time to time.

         "Completion Date" means the date of completion of the Project evidenced
in accordance with the requirements of Section 3.6 hereof.

         "Construction Period" means the period between the beginning of the
expansion, acquisition, installation, equipment or improvement of the Project or
the date on which the Project Bonds are delivered to the original purchasers
thereof, whichever is earlier, and the Completion Date.

         "Engineer" means an individual or firm acceptable to the Trustee and
qualified to practice the profession of engineering or architecture under the
laws of the State.



                                     - 79 -
<PAGE>   7

         "Event of Default" means any of the events described as an Event of
Default in Section 7.1 hereof.

         "Force Majeure" means any of the causes, circumstances or events
described as constituting Force Majeure in Section 7.1 hereof.

         "Indenture" means the Trust Indenture, dated as of even date herewith,
between the Issuer and the Trustee, as amended or supplemented from time to
time.

         "Loan" means the loan by the Issuer to the Company of the proceeds
received from the sale of the Project Bonds.

         "Loan Payment Date" means any date on which any principal of or
interest or any premium on the Project Bonds shall be due and payable, whether
at maturity, upon acceleration, call for redemption or otherwise.

         "Loan Payments" means the amounts required to be paid by the Company in
repayment of the Loan pursuant to the provisions of the Notes and of Section 4.1
hereof.

         "Notes" means the Project Note and any Additional Notes.

         "Notice Address" means:

                  (a) As to the Issuer:    City of Huntingburg, Indiana
                                                 City Office Building
                                                 511 Fourth Street
                                                 Huntingburg, Indiana 47542
                                                 Attention: Mayor

                  (b) As to the Company:   DMI Furniture, Inc.
                                                 One Oxmoor Place
                                                 101 Bullitt Lane
                                                 Louisville, Kentucky 40222
                                                 Attention: Joseph G. Hill,
                                                              Vice President,
                                                              Finance/Chief
                                                              Financial Officer

                  (c) As to the Trustee:   PNC Bank, Indiana, Inc.
                                                 400 State Street
                                                 New Albany, Indiana 47150
                                                 Attention: Corporate Trust
                                                              Department



                                     - 80 -
<PAGE>   8

                  (d) As to the Letter     Bank One, Indianapolis, N.A.
                      of Credit Bank:      Bank One Center/Tower
                                                 111 Monument Circle, Suite 1911
                                                 Indianapolis, Indiana 46277
                                                 Attention: Manager, Mid-America
                                                         Department B

                  (e) As to the            Bank One, Columbus, NA
                      Remarketing Agent:   100 East Broad Street
                                                 Columbus, Ohio 43271-0209
                                                 Attention: Linda Vining
                                                         Vice President

                  with a copy to:          Banc One Capital Corporation
                                                 10 West Broad Street
                                                 Columbus, Ohio 43215
                                                 Attention: Boyd S. Crall, Jr.

or such additional or different address, notice of which is given under Section
8.3 hereof.

         "Plans and Specifications" means the plans and specifications herein
provided from time to time.

         "Project" means, collectively, the Project Site and the Project
Facilities, together constituting a "project" as defined in the Act.

         "Project Costs" means the costs of the Project specified in Section 3.4
hereof.

         "Project Facilities" means the Company's facilities described in
Exhibit B hereto, together with any additions, modifications and substitutions
to those facilities.

         "Project Fund" means the Project Fund created in the Indenture.

         "Project Purposes" means acquiring, constructing, equipping, improving,
and installing facilities (including a building), machinery, equipment and other
personal property for use in the manufacture and warehousing of furniture, or
any other use which may be permitted by the Act.

         "Project Site" means the real estate described in Exhibit C hereto, and
any additions thereto, less any removals therefrom.

         "Unassigned Issuer's Rights" means all of the rights of the Issuer to
receive Additional Payments under Section 4.2 hereof, to be held harmless and
indemnified under Section 5.3 hereof, to be reimbursed for attorney's fees and
expenses under Section 7.4 hereof, and to give or withhold consent to
amendments, changes, modifications, alterations and termination of this
Agreement under Section 8.6 hereof.



                                     - 81 -
<PAGE>   9

         Section 1.3. Interpretation. Any reference herein to the Issuer, or to
any member or officer of the Issuer includes entities or officials succeeding to
their respective functions, duties or responsibilities pursuant to or by
operation of law or lawfully performing their functions.

         Any reference to a section or provision of the constitution of the
State or the Act, or to a section, provision or chapter of the Indiana statutes
or to any statute of the United States of America, includes that section,
provision or chapter or statute as amended, modified, revised, supplemented or
superseded from time to time; provided, that no amendment, modification,
revision, supplement or superseding section, provision or chapter or statute
shall be applicable solely by reason of this provision, if it constitutes in any
way an impairment of the rights or obligations of the Issuer, the Holders, the
Trustee, the Bank or the Company under this Agreement.

         Unless the context indicates otherwise, words importing the singular
number include the plural number, and vice versa; the terms "hereof", "hereby",
"herein", "hereto", "hereunder" and similar terms refer to this Agreement; and
the term "hereafter" means after, and the term "heretofore" means before, the
date of delivery of the Project Bonds. Words of any gender include the
correlative words of the other genders, unless the sense indicates otherwise.

         Section 1.4. CAPTIONS AND HEADINGS. The captions and headings in this
Agreement are solely for convenience of reference and in no way define, limit or
describe the scope or intent of any Articles, Sections, subsections, paragraphs,
subparagraphs or clauses hereof.

                                   ARTICLE 11

                                 REPRESENTATIONS

         Section 2.1. REPRESENTATIONS OF THE ISSUER. The Issuer represents
that:

                  (a) It is a duly organized and validly existing municipality
and political subdivision of the State of Indiana, created and existing as such
under the Constitution and laws of the State of Indiana.

                  (b) It has full power and authority to finance the Project;
has made the necessary findings of public purpose, and has taken all procedures
required by the Constitution and laws of the State of Indiana (including the
Act), as amended and supplemented, and other applicable law in connection
therewith; and has full legal right, power and authority to (i) enter into this
Agreement and the Indenture, (ii) issue, sell and deliver the Project Bonds and
(iii) carry out and consummate all other transactions contemplated by this
Agreement and the Indenture.

                  (c) It has complied with all provisions of applicable law,
including the Act, and all material matters relating to the transactions
contemplated by this Agreement and the Indenture.

                  (d) It has duly authorized (i) the execution, delivery of and
the performance of its obligations under this Agreement, the Project Bonds and
the Indenture, and (ii) the taking of any




                                     - 82 -
<PAGE>   10

and all such actions as may be required on the part of the Issuer to carry out,
give effect to and consummate the transactions contemplated by such instruments.

                  (e) This Agreement, the Project Bonds and the Indenture
constitute legal, valid and binding obligations of the Issuer in accordance with
their respective terms; and, when authenticated by the Trustee in accordance
with the provisions of the Indenture, the Project Bonds will have been duly
authorized, executed, issued and delivered and will constitute legal, valid and
binding obligations of the Issuer in conformity with the provisions of the Act
and the Constitution of the State of Indiana.

                  (f) There is no action, suit, proceeding, inquiry or
investigation at law, in equity or before or by any court, public board or body,
pending or, to the best of the knowledge of the Issuer is there any basis
therefor, which in any manner questions the validity of the Act, the powers of
the Issuer referred to in paragraph (b) above or the validity of any proceedings
taken by the Issuer in connection with the issuance of the Project Bonds or
wherein any unfavorable decision, ruling or finding could materially adversely
affect the transactions contemplated by this Agreement or which, in any way,
would adversely affect the validity or enforceability of the Project Bonds, the
Indenture or this Agreement (or of any other instrument required or contemplated
for use in consummating the transactions contemplated thereby and hereby).

                  (g) The execution and delivery of this Agreement, the Project
Bonds and the Indenture in compliance with the provisions of each of such
instruments will not conflict with or constitute a breach of, or default under,
any material commitment, agreement or other instrument to which the Issuer is a
party or by which it is bound, or under any provision of the Act, the
Constitution of the State of Indiana or any existing law, rule, regulation,
ordinance, judgment, order or decree to which the Issuer is subject,

                  (h) The Issuer will do or cause to be done all things
necessary, so far as lawful, to preserve and keep in full force and effect its
existence.

                  (i) The Project Bonds are to be issued under and secured by
the Indenture, pursuant to which certain of the Issuer's interests in this
Agreement, and the revenues and receipts to be derived by the Issuer pursuant to
this Agreement, will be pledged and assigned to the Trustee as security for
payment of the principal or purchase price of, premium, if any, and interest on
the Project Bonds. The Issuer covenants that it has not and will not pledge or
assign its interest in this Agreement, or the revenues and receipts derived
pursuant to this Agreement, excepting Unassigned Issuer's Rights, other than to
the Trustee under the Indenture to secure the Project Bonds.

         Section 2.2. REPRESENTATIONS AND COVENANTS OF THE COMPANY. The Company
represents and covenants that:

                  (a) It is a Delaware corporation in good standing and
qualified to transact business in the State of Indiana.



                                     - 83 -
<PAGE>   11

                  (b) It has full power and authority to execute, deliver and
perform this Agreement, the Bond Placement Agreement, the Reimbursement
Agreement, the Remarketing Agreement, and the Project Note and to enter into and
carry out the transactions contemplated by those documents; and that the
execution, delivery and performance of those documents do not, and will not,
violate any provision of law applicable to the Company or the provisions of the
Articles of Incorporation of the Company and do not, and will not, conflict with
or result in a default under any agreement or instrument to which the Company is
a party or by which it is bound. This Agreement, the Bond Placement Agreement,
the Reimbursement Agreement, the Remarketing Agreement, and the Project Note
have, by proper action, been duly authorized, executed and delivered by the
Company and all steps necessary have been taken to make this Agreement, the Bond
Placement Agreement, the Reimbursement Agreement, the Remarketing Agreement and
the Project Note the valid and binding obligations of the Company.

                  (c) The expansion, acquisition, construction and installation
of the Project were not commenced (within the meaning of Section 144(a) of the
Code) prior to the passage of the inducement resolution of the Issuer on May 3,
1993, with respect to the Project.

                  (d) The provision of financial assistance to be made available
to it under this Agreement and the commitments therefor made by the Issuer have
induced the Company to locate within the boundaries of the Issuer that business
of the Company to be conducted by use of the Project and such business will
preserve and create additional jobs and employment opportunities within the
Issuer.

                  (e) The Project will be completed substantially in accordance
with the Plans and Specifications and the Project will be operated and
maintained in such manner as to conform in all material respects with all
applicable zoning, planning, building, environmental and other applicable
governmental rules and regulations and as to be consistent with the Act.

                  (f) It presently intends to use or operate the Project in a
manner consistent with the Project Purposes until the date on which the Project
Bonds have been fully paid and knows of no reason why the Project will not be so
used or operated. If, in the future, there is a cessation of that use or
operation, it will use its best efforts to resume that use or operation or
accomplish an alternate use or operation by the Company or others which will be
consistent with the Act and this Agreement.

                  (g) At least 95 % of the "net proceeds" of the Project Bonds
(as defined in Section 150 of the Code) will be used to provide manufacturing
facilities (within the meaning of Section 144(a)(12)(C) of the Code) and for the
acquisition, construction, reconstruction, or improvement of land or property of
a character subject to the allowance for depreciation under Section 167 of the
Code. The Company will not request or authorize any disbursement pursuant to
Section 3.4 hereof, which, if paid, would result in less than 95% of the net
proceeds of the Project Bonds being so used. No more than 2% of the proceeds of
the Project Bonds will be used to pay the costs of issuance of the Project Bonds
(within the meaning of Section 147(g) of the Code). None of the proceeds of the
Project Bonds will be used to provide working capital.



                                     - 84 -
<PAGE>   12

                  (h) The Project will be located at 903 North Chestnut Street
in the City of Huntingburg, Indiana.

                  (i) There have never been issued any bonds with respect to
"facilities", as defined in Section 144(a) (4) (B) of the Code, (i) which are to
be or have been used by the Company or any other "principal user" of the Project
or any "related person" to either the Company or such other "principal user", as
those terms are used and defined in Sections 144(a)(2) and 144(a)(3) of the
Code, respectively, and which are located within the incorporated areas of the
City of Huntingburg, Indiana, and (ii) which bonds would have to be taken into
account in determining the aggregate face amount of the Project Bonds as
provided in Section 144(a) (4) (A) (ii) of the Code.

                  (j) For each "test-period beneficiary" (as defined in Section
144(a)(10)(D) of the Code) of the Project, the sum of (i) the aggregate
authorized face amount of the Project Bonds allocated in accordance with Section
144(a)(10)(C) of the Code to such beneficiary and (ii) the aggregate outstanding
principal amount of any other tax-exempt obligation described in Section
144(a)(10)(B)(ii) of the Code, wherever and whenever issued, allocated to such
beneficiary does not and will not exceed $40,000,000.

                  (k) In accordance with Section 147(b) of the Code, the average
maturity of the Project Bonds does not exceed 120% of the average reasonably
expected economic life of the facilities being financed with the net proceeds of
the Project Bonds, determined as of the later of the date the Project Bonds are
issued or the date the facilities are expected to be placed in service.

                  (1) None of the proceeds of the Project Bonds will be used to
provide any private or commercial golf course, country club, massage parlor,
tennis club, skating facilities (including roller skating, skateboard and ice
skating), racquet sports facility (including handball or racquetball court), hot
tub facility, suntan facility, racetrack, airplane, skybox or other private
luxury box, or health club facility; any facility primarily used for gambling;
or any store the principal business of which is the sale of alcoholic beverages
for consumption off premises.

                  (m) No portion of the proceeds of the Project Bonds will be
used to provide facilities for retail food and beverage services, automobile
sales or service, or the provision of recreation or entertainment.

                  (n) No portion of the proceeds of the Project Bonds will be
used directly or indirectly to acquire land or any interest therein.

                  (o) No portion of the proceeds of the Project Bonds will be
used to acquire existing property or any interest therein unless the first use
of such property is to be by the Company and unless such acquisition meets the
requirements of Section 147(d) of the Code.

                  (p) The information furnished by the Company and used by the
Issuer in preparing the certification pursuant to Section 148 of the Code and
information statement pursuant to Section 149(e) of the Code, as well as the
federal tax election pursuant to Section 144(a)(4) of



                                     - 85 -
<PAGE>   13

the Code referred to in the Bond Legislation, is accurate and complete in all
material respect as of the date of the issuance of the Project Bonds.

                  (q) In connection with any lease or grant by the Company of
the use of the Project or Project Facilities, the Company shall require that the
lessee or user of any portion of the Project shall not (i) violate the covenant
set forth in subsection (j) above and (ii) use that portion of the Project in
any manner which would violate the covenants set forth in subsections (1), (in),
(n) and (o) above.

                  (r) The Project Bonds are not being issued to finance
facilities which are within or part of "a single building, an enclosed shopping
mall, or a strip of offices, stores or warehouses using substantial common
facilities" (within the meaning of Section 144(a)(9) of the Code) which have
heretofore been financed with obligations issued and still outstanding under
Section 144(a) of the Code.

                  (s) The Project Bonds are not "federally guaranteed" within
the meaning of Section 149(b) of the Code.

         Section 2.3. ACTIONS UNDER SECTION 144(a) (4) OF THE CODE. The Issuer
is issuing the Project Bonds pursuant to an election made by it, at the
Company's request, under Section 144(a)(4) of the Code. In connection with that
election, the Company represents and covenants that:

                  (a) The sum of (i) the principal amount of the Project Bonds,
(ii) the outstanding face amount of prior issues, if any, described in Section
144(a)(2) of the Code and (iii) the amount of capital expenditures with respect
to "facilities" as defined in Section 144(a)(4)(B) of the Code, other than those
financed or to be financed out of proceeds of the Project Bonds or any such
prior issues or those mentioned in Section 144(a)(4)(C) of the Code ("Capital
Expenditures"), made during the three-year period preceding the date of delivery
of the Project Bonds to the original purchasers thereof (the "Issue Date"), does
not exceed $10,000,000.

                  (b) During the three-year period following the Issue Date, the
Company does not intend to make or cause or permit to be made any Capital
Expenditures in an amount which would cause the interest on the Project Bonds to
be included in the gross income of the Holders thereof for federal income tax
purposes.

                  (c) The Company shall maintain records listing Capital
Expenditures made since the Issue Date through and including the third
anniversary of the Issue Date and will furnish those records to the Trustee upon
request.

                  (d) In the event, on account of a lease, sublease, management
contract or other agreement relating to the Project, or any portion thereof,
permitted by the terms hereof, any person other than the Company becomes a
"principal user" of the Project (as referred to in Section 2.2(i) hereof), the
Company shall promptly advise the Trustee of the identity of such person and
furnish to the Trustee a copy of such lease, sublease, management contract or
other agreement. In connection with any such lease, sublease, management
contract or other agreement, the Company



                                     - 86 -
<PAGE>   14

will require by covenant that any lessee, sublessee, manager or user who is a
"principal user" of the Project and any "related person" thereto also shall
comply with the covenants set forth in subsections (b) and (c) of this Section
as if those covenants were made herein by such lessee, sublessee, manager, user
or "related person" thereto.

                                   ARTICLE III

                           COMPLETION OF THE PROJECT;
                          ISSUANCE OF THE PROJECT BONDS

         Section 3.1. EXPANSION, ACQUISITION, CONSTRUCTION AND INSTALLATION OF
THE PROJECT. The Company shall expand, acquire, construct and install, equip,
and improve the Project Facilities on the Project Site with all reasonable
dispatch and in accordance with the Plans and Specifications, (b) shall pay when
due all fees, costs and expenses incurred in connection with that expansion,
acquisition, construction, installation, equipment and improvement from funds
made available therefor in accordance with this Agreement or otherwise, and (c)
shall ask, demand, sue for, levy, recover and receive all those sums of money,
debts and other demands whatsoever which may be due, owing and payable under the
terms of any contract, order, receipt, writing and instruction in connection
with the expansion, acquisition, construction, installation, equipment, and
improvement of the Project, and shall enforce the provisions of any contract,
agreement, obligation, bond or other performance security with respect thereto.
It is understood that the Project is that of the Company and any contracts made
by the Company with respect thereto, whether expansion contracts, acquisition
contracts, construction contracts or otherwise, or any work to be done by the
Company on the Project are made or done by the Company in its own behalf and not
as agent or contractor for the Issuer or the Bank.

         Section 3.2. PLANS AND SPECIFICATIONS. The Plans and specifications
have been filed with the Issuer. The Company may revise the Plans and
Specifications from time to time, provided that no revision shall be made which
would change the Project Purposes, without the approval of the Issuer, and no
revision shall be made which would change the Project Purposes to other than
purposes permitted by the Act and the Code.

         Section 3.3. ISSUANCE OF THE PROJECT BONDS: APPLICATION OF PROCEEDS. To
provide funds to make the Loan for purposes of assisting paying the Project
Costs, the Issuer shall issue, sell and deliver the Project Bonds to the
original purchasers thereof. The Project Bonds will be issued pursuant to the
Indenture in the aggregate principal amount, will bear interest, will mature and
will be subject to redemption as set forth therein. The Company hereby approves
the terms and conditions of the Indenture and the Project Bonds, and of the
terms and conditions under which the Project Bonds will be issued, sold and
delivered.

         The proceeds from the sale of the Project Bonds shall be loaned to the
Company and paid over to the Trustee for the benefit of the Company and the
Holders of the Project Bonds and deposited as follows: (a) a sum equal to any
accrued interest paid by the original purchasers of the Project Bonds shall be
deposited in the Bond Fund, and (b) the balance of the proceeds shall be
deposited in the Project Fund. Pending disbursement pursuant to Section 3.4
hereof, the proceeds so



                                     - 87 -
<PAGE>   15

deposited in the Project Fund, together with any investment earnings thereon,
shall constitute a part of the Revenues assigned by the Issuer to the payment of
Bond Service Charges as provided in the Indenture.

         At the request of the Company, and for the purposes and upon
fulfillment of the conditions specified in the Indenture, the Issuer may,
subject to the prior written consent of the Bank, provide for the issuance, sale
and delivery of Additional Bonds and loan the proceeds from the sale thereof to
the Company.

         Neither the Issuer nor the Company nor its officers have or shall have
any interest in the Letter of Credit, the proceeds of any draws on the Letter of
Credit, or the proceeds of the remarketing of the Project Bonds from whatever
source and wherever deposited,

         Section 3.4. DISBURSEMENTS FROM THE PROJECT FUND. Subject to the
provisions below, disbursements from the Project Fund shall be made only to
reimburse or pay the Company, or any Person designated by the Company, for the
following Project Costs:

                  (a) Costs incurred indirectly or indirectly for or in
connection with the expansion, acquisition, construction, installation,
equipment or improvement of the Project, including costs incurred in respect of
the Project for preliminary planning and studies; architectural, legal,
engineering, accounting, consulting, supervisory and other services; labor,
services and materials; and recording of documents and title work.

                  (b) Premiums attributable to any surety bonds and insurance
required to be taken out and maintained during the Construction Period with
respect to the Project Site and the Project Facilities.

                  (c) Taxes, assessments and other governmental charges in
respect of the Project that may accrue or become due and payable during the
Construction Period.

                  (d) Costs incurred directly or indirectly in seeking to
enforce any remedy against any contractor or subcontractor in respect of any
actual or claimed default under any contract relating to the Project Facilities.

                  (e) Financial, legal, accounting, printing and engraving fees,
charges and expenses, and all other such fees, charges and expenses incurred in
connection with the authorization, sale, issuance and delivery of the Project
Bonds, including, without limitation, the fees and expenses of the Trustee and
any paying agent properly incurred under the Indenture that may become due and
payable during the Construction Period; provided that the amount of the proceeds
of the Project Bonds used to finance issuance costs shall not exceed 2% of the
aggregate face amount of the Project Bonds within the meaning of Section 147(g)
of the Code.

                  (f) Any other costs, expenses, fees and charges properly
chargeable to the cost of expansion, acquisition, construction, installation,
equipment or improvement of the Project.



                                     - 88 -
<PAGE>   16

                  (g) Payment of interest on the Project Bonds or fees for
credit enhancement devices applicable to the Project Bonds to the extent such
fees constitute a reasonable charge for the transfer of credit risk, during the
Construction Period.

                  (h) Payments made to the Rebate Fund.

         Any disbursements from the Project Fund for the payment of the Project
Costs shall be made by the Trustee only upon the written order of the Authorized
Borrower Representative with the written approval of the Bank. Each such written
order shall be in substantially the form of the disbursement request attached
hereto as Exhibit D and shall be consecutively numbered and accompanied by
invoices or other appropriate documentation supporting the payments or
reimbursements requested. Any disbursement for any item not described in, or the
cost for which item is other than as described in, the information statement
filed by the Issuer in connection with the issuance of the Project Bonds as
required by Section 149(e) of the Code and referred to in Section 2.2 hereof,
shall be accompanied by evidence satisfactory to the Trustee that the average
reasonably expected economic life of the facilities being financed by the
Project Bonds is not less than 5/6ths of the average maturity of the Project
Bonds or, if such evidence is not presented with the disbursement or at the
request of the Trustee, by an opinion of nationally recognized bond counsel to
the effect that such disbursement will not result in the interest on the Project
Bonds becoming included in the gross income of the Holders for federal income
tax purposes.

         Any moneys in the Project Fund remaining after the Completion Date and
payment, or provision for payment, in full of the Project Costs at the direction
of the Authorized Borrower Representative with the written consent of the Bank,
promptly shall be

                  (i) used to acquire, construct, install, equip and improve
such additional real or personal property in connection with the Project as is
designated by the Authorized Borrower Representative and the expansion,
acquisition, construction, installation, equipment and improvement of which will
be permitted under the Act, provided that any such use shall be accompanied by
evidence satisfactory to the Trustee that the average reasonably expected
economic life of such additional property, together with the other property
theretofore acquired with the proceeds of the Project Bonds, will not be less
than 5/6ths of the average maturity of the Project Bonds or, if such evidence is
not presented with the direction, an opinion of nationally recognized bond
counsel to the effect that the acquisition of such additional property will not
result in the interest on the Project Bonds becoming included in the gross
income of the Holders for federal income tax purposes;

                  (ii) used for the purchase of Project Bonds in the open market
for the purpose of cancellation at prices not exceeding the full market value
thereof plus accrued interest thereon to the date of payment therefor;

                  (iii) paid into the Bond Fund to be applied to the redemption
of Project Bonds; or

                  (iv) a combination of the foregoing as is provided in that
direction.



                                     - 89 -
<PAGE>   17

In all such cases, any payments made pursuant to this paragraph shall be made
only to the extent that such use or application will not, in the opinion of
nationally recognized bond counsel or under ruling of the Internal Revenue
Service, result in the interest on the Project Bonds becoming included in the
gross income of the Holders for federal income tax purposes.

         SECTION 3.5. COMPANY REQUIRED TO PAY COSTS IN EVENT PROJECT FUND
INSUFFICIENT. If moneys in the Project Fund are not sufficient to pay all
Project Costs, the Company nonetheless will complete the Project in accordance
with the Plans and Specifications and shall pay all such additional Project
Costs from its own funds. The Company shall not be entitled to any reimbursement
for any such additional Project Costs from the Issuer, the Trustee, the Bank or
any Holder; nor shall it be entitled to any abatement, diminution or
postponement of the Loan Payments. This Section shall not be operative if and to
the extent that compliance with it would, or reasonably might be anticipated by
the Company to, involve a violation of any provision of the Agreement including,
without limitation, Sections 2.2 and 5.4 of the Agreement.

         Section 3.6. COMPLETION DATE. The Company shall notify the Issuer, the
Bank and the Trustee of the Completion Date by a certificate signed by the
Authorized Borrower Representative stating

                  (a) the date on which the Project Facilities were
substantially completed,

                  (b) that all other facilities necessary in connection with the
Project have been acquired, constructed, installed, equipped and improved,

                  (c) that the expansion, acquisition, construction,
installation, equipment and improvement of the Project Facilities and those
other facilities have been accomplished in such a manner as to conform with all
applicable zoning, planning, building, environmental and other similar
governmental regulations,

                  (d) that except as provided in subsection (e) of this Section,
all costs of that expansion, acquisition, construction, installation, equipment
and improvement then or theretofore due and payable have been paid, and

                  (e) the amounts which the Trustee shall retain in the Project
Fund for the payment of Project Costs not yet due or for liabilities which the
Company is contesting or which otherwise should be retained and the reasons such
amounts should be retained.

That certificate may state that it is given without prejudice to any rights
against third parties which then exist or subsequently may come into being. The
Authorized Borrower Representative shall include with that certificate a
statement specifically describing all items of personal property comprising a
part of the Project Facilities. The certificate shall be delivered as promptly
as practicable after the occurrence of the events and conditions referred to in
subsections (a) through (d) of this Section.



                                     - 90 -
<PAGE>   18

         Section 3.7. INVESTMENT OF FUND MONEYS. At the written or oral request
(promptly confirmed in writing) of the Authorized Borrower Representative, any
moneys held as part of the Bond Fund (except moneys held in the Bond Fund from
draws on the Letter of Credit for purposes of defeasing the Project Bonds
pursuant to Article IX of the Indenture, or other moneys held in the Bond Fund
to pay redemption premium on the Project Bonds, if any), the Project Fund or the
Rebate Fund shall be invested or reinvested by the Trustee in Eligible
Investments. The Issuer and the Company each hereby covenants that it will
restrict that investment and reinvestment and the use of the proceeds of the
Project Bonds in such manner and to such extent, if any, as may be necessary,
after taking into account reasonable expectations at the time of delivery of and
payment for the Project Bonds, so that the Project Bonds will not constitute
arbitrage bonds under Section 148 of the Code.

         The Company shall provide the Issuer with, and the Issuer may base its
certifications as authorized by the Bond Legislation on, a certificate of an
appropriate officer, employee or agent of or consultant to the Company for
inclusion in the transcript of proceedings for the Project Bonds, setting forth
the reasonable expectations of the Company on the date of delivery of and
payment for the Project Bonds regarding the amount and use of the proceeds of
the Project Bonds and the facts, estimates and circumstances on which those
expectations are based.

         Section 3.8. REBATE FUND. The Company agrees to make such payments to
the Trustee as are required of it under Section 5.11 of the Indenture. The
obligation of the Company to make such payments shall remain in effect and be
binding upon the Company notwithstanding the release and discharge of the
Indenture.

         The Company and the Issuer each covenants to the owners of the Project
Bonds that, notwithstanding any other provision of this Agreement or any other
instruments, it shall take no action, nor shall the Company direct the Trustee
to take or approve the Trustee's taking any action or direct the Trustee to make
or approve the Trustee's making any investment or use of proceeds of the Project
Bonds or any other moneys which may arise out of or in connection with, this
Agreement, the Indenture or the Project, which would cause the Project Bonds to
be treated as "arbitrage bonds" within the meaning of Section 148 of the Code.
In addition, the Company covenants and agrees to comply with the requirements of
Section 148(f) of the Code as it may be applicable to the Project Bonds or the
proceeds derived from the sale of the Project Bonds or any other moneys which
may arise out of or in connection with, this Agreement, the Indenture or the
Project throughout the term of the Project Bonds.

         No provision of this Agreement shall be construed to impose upon the
Trustee any obligation or responsibility for compliance with arbitrage
regulations.


                                   ARTICLE IV

                     LOAN BY ISSUER; REPAYMENT OF THE LOAN;
                      LOAN PAYMENTS AND ADDITIONAL PAYMENTS


                                     - 91 -
<PAGE>   19


         Section 4.1. LOAN REPAYMENT, DELIVERY OF NOTES AND LETTER OF CREDIT.
Upon the terms and conditions of this Agreement, the Issuer will make the Loan
to the Company. In consideration of and in repayment of the Loan, the Company
shall make, as Loan Payments, payments which correspond, as to amount, to the
Bond Service Charges payable on each series of Bonds; provided that amounts
drawn by the Trustee under the Letter of Credit for the payment of Bond Service
Charges on the Project Bonds shall be credited against the Loan Payments
otherwise payable by the Company which correspond to the amount of Bond Service
Charges on such Project Bonds. All such Loan Payments shall be paid to the
Trustee in accordance with the terms of the Project Note for the account of the
Issuer on the Loan Payment Dates and shall be held and disbursed in accordance
with the provisions of the Indenture and this Agreement for application to the
payment of Bond Service Charges.

         The Company shall be entitled to a credit against the Loan Payments
next required to be made to the extent that the balance of the Bond Fund is then
in excess of amounts required (a) for the payment of Bonds theretofore matured
or theretofore called for redemption, (b) for the payment of interest for which
checks or drafts have been drawn and mailed by the Trustee, and (c) to be
deposited in the Bond Fund by the Indenture for use other than for the payment
of Bond Service Charges on the Interest Payment Date next following the
applicable Loan Payment Date. In any event, however, if on any Interest Payment
Date, the balance in the Bond Fund is insufficient to make required payments of
Bond Service Charges, the Company forthwith will pay to the Trustee, for the
account of the Issuer and for deposit into the Bond Fund, any deficiency.

         In connection with the issuance of any Additional Bonds permitted by
the Bank, the Company shall execute and deliver to the Trustee one or more
Additional Notes in a form substantially similar to the form of the Project
Note. All such Additional Notes shall:

                  (a) provide for payments of interest equal to the payments of
interest on the corresponding Additional Bonds;

                  (b) require payments of principal and redemption payments and
any premium equal to the payments of principal, prepayments and sinking fund
payments and any premium on the corresponding Additional Bonds;

                  (c) require all payments on any such Additional Notes to be
made no later than the due dates for the corresponding payments to be made on
the corresponding Additional Bonds; and

                  (d) contain by reference or otherwise optional and mandatory
redemption provisions and provisions in respect of the optional and mandatory
acceleration or prepayment of principal and any premium corresponding with the
redemption and acceleration provisions of the corresponding Additional Bonds.

         All Notes shall secure equally and ratably all outstanding Bonds,
except that, so long as no Event of Default has occurred and is continuing
hereunder, payments by the Company on any of the Notes shall be used by the
Trustee to make a like payment of Bond Service Charges on the




                                     - 92 -
<PAGE>   20

corresponding Bonds in connection with which those Notes were delivered and
shall constitute Loan Payments made in respect of the related Bonds.

         Upon payment in full, in accordance with the Indenture, of the Bond
Service Charges on any or all Bonds, whether at maturity or by redemption or
other-wise, or upon provision for the payment thereof having been made in
accordance with the provisions of the Indenture, (i) the Notes issued
concurrently with those corresponding Bonds, of the same maturity, bearing the
same interest rate and in an amount equal to the aggregate principal amount of
the Bonds so surrendered and canceled or for the payment of which provision has
been made, shall be deemed fully paid, the obligations of the Company thereunder
shall be terminated, and any of those Notes shall be surrendered by the Trustee
to the Company, and shall be canceled by the Company, or (ii) in the event there
is only one of those Notes, an appropriate notation shall be endorsed thereon
evidencing the date and amount of the principal payment or prepayment equal to
the Bonds so paid, or with respect to which provision for payment has been made,
and that Note shall be surrendered by the Trustee to the Company for
cancellation if all Bonds shall have been paid (or provision made therefor) and
canceled as aforesaid. Unless the Company is entitled to a credit under express
terms of this Agreement or the Notes, all payments on each of the Notes shall be
in the full amount required thereunder.

         Except for such interest of the Company as may hereafter arise pursuant
to Section 8.2 hereof or Section 5.07 of the Indenture, the Company and the
Issuer each acknowledge that neither the Company nor the Issuer has any interest
in the Bond Fund and any moneys deposited therein shall be in the custody of and
held by the Trustee in trust for the benefit of the Holders and, to the extent
of amounts due under the Reimbursement Agreement, the Bank.

         Section 4.2. ADDITIONAL PAYMENTS. The Company shall pay to the Issuer,
as Additional Payments hereunder, any and all costs and expenses incurred or to
be paid by the Issuer in connection with the issuance and delivery of the
Project Bonds and Additional Bonds or otherwise related to actions taken by the
Issuer under this Agreement or the Indenture.

         The Company shall pay to the Trustee, the Registrar and any Paying
Agent or Authenticating Agent, their reasonable fees, charges and expenses for
acting as such under the Indenture.

         The Company shall pay the Remarketing Agent as Additional Payments
hereunder, the fees and expenses of the Remarketing Agent under the Indenture
for services rendered in connection with the Bonds.

         Section 4.3. PLACE OF PAYMENTS. The Company shall make all Loan
Payments directly to the Trustee at its principal corporate trust office.
Additional Payments shall be made directly to the person or entity to whom or to
which they are due.

         Section 4.4. OBLIGATIONS UNCONDITIONAL. The obligations of the Company
to make Loan Payments, Additional Payments and any payments required of the
Company under Section 5.08 of the Indenture shall be absolute and unconditional,
and the Company shall make such payments



                                     - 93 -
<PAGE>   21

without abatement, diminution or deduction regardless of any cause or
circumstances whatsoever including, without limitation, any defense, set-off,
recoupment or counterclaim which the Company may have or assert against the
Issuer, the Trustee, the Remarketing Agent, the Bank or any other person.

         Section 4.5. ASSIGNMENT OF AGREEMENT AND REVENUES. To secure the
payment of Bond Service Charges, the Issuer shall assign to the Trustee, by the
Indenture, all its right, title and interest in and to (1) the Revenues,
including, without limitation, all Loan Payments and other amounts receivable by
or on behalf of the Issuer under the Agreement in respect of repayment of the
Loan; (2) the Agreement, except for Unassigned Issuer's Rights; and (3) the
Project Note. The Company hereby agrees and consents to that assignment and
grant.

         Section 4.6. LETTER OF CREDIT. Prior to the initial delivery of the
Project Bonds to the original purchasers thereof pursuant to Section 2.06 of the
Indenture, the Company shall obtain and deliver, to the Trustee, the Letter of
Credit. The Letter of Credit shall be issued by the Bank pursuant to the
Reimbursement Agreement; shall be dated the date of delivery of the Project
Bonds; shall obligate the Bank to pay (a) the principal amount of the Project
Bonds (i) to pay the principal amount of the Project Bonds when due at maturity
or upon redemption or acceleration and (ii) to pay an amount equal to the
principal portion of the purchase price of any Project Bonds tendered for
purchase by the Holders thereof, plus (b) an amount equal to the interest due on
the Project Bonds but not to exceed 45 days' accrued interest at the Maximum
Rate to enable the Trustee to (i) pay interest on the Project Bonds when due and
(ii) pay an amount equal to the interest portion of the purchase price of
Project Bonds tendered for purchase by the Holder thereof; and shall be in
substantially the same form as the exhibit attached to the Reimbursement
Agreement and made a part thereof.

         The Company shall take whatever action may be necessary to maintain the
Letter of Credit in full force and effect during the period required by the
Indenture, including the payment of any transfer fees required by the Bank upon
any transfer of the Letter of Credit to any successor Trustee pursuant to
Section 5.09 of the Indenture.



                                    ARTICLE V

                       ADDITIONAL AGREEMENTS AND COVENANTS

         Section 5.1. RIGHT OF INSPECTION. Subject to reasonable security and
safety regulations and upon reasonable notice, the Issuer and the Trustee, and
their respective agents, shall have the right during normal business hours to
inspect the Project.

         Section 5.2. LEASE, SALE OR GRANT OF USE BY COMPANY. Subject to the
provisions of Section 2.2(q), and with the written consent of the Bank, the
Company may lease, sell or grant the right to occupy and use the Project, in
whole or in part, to others, provided that:



                                     - 94 -
<PAGE>   22

                  (a) No such grant, sale or lease shall relieve the Company
from its obligations under this Agreement, the Reimbursement Agreement or the
Project Note;

                  (b) In connection with any such grant, sale or lease the
Company shall retain such rights and interests as will permit it to comply with
its obligations under this Agreement, the Reimbursement Agreement and the
Project Note;

                  (c) No such grant, sale or lease shall impair materially the
purposes of the Act to be accomplished by operation of the Project Facilities as
herein provided.

         Section 5.3. INDEMNIFICATION. The Company releases the Issuer from,
agrees that the Issuer shall not be liable for, and indemnifies the Issuer
against, all liabilities, claims, costs and expenses imposed upon, incurred or
asserted against the Issuer on account of: (a) any loss or damage to property or
injury to or death of or loss by any person that may be occasioned by any cause
whatsoever pertaining to the construction, maintenance, operation and use of the
Project; (b) any breach or default on the part of the Company in the performance
of any covenant or agreement of the Company under this Agreement, the
Reimbursement Agreement, the Project Note or any related document, or arising
from any act or failure to act by the Company, or any of its agents,
contractors, servants, employees or licensees; (c) the authorization, issuance,
sale, trading, redemption or servicing of the Project Bonds, and the provision
of any information or certification furnished in connection therewith
concerning, the Project Bonds, the Project or the Company including, without
limitation, any information furnished by the Company for, and included in, or
used as a basis for preparation of, any certifications, information statements
or reports furnished by the Issuer, and any other information or certification
obtained from the Company to assure the exclusion of the interest on the Project
Bonds from gross income of the Holders thereof for federal income tax purposes;
(d) the Company's failure to comply with any requirement of this Agreement or
the Code pertaining to such exclusion of that interest including the covenants
in Section 5.4 hereof; (e) any failure of compliance with the provisions of the
Constitution of the State of Indiana and the Act; and (f) any claim, action or
proceeding brought with respect to the matters set forth in (a), (b), (c), (d)
and (e) above.

         The Company agrees to indemnify the Trustee for, and to hold it
harmless against, all liabilities, claims, costs and expenses incurred without
negligence or bad faith on the part of the Trustee on account of any action
taken or omitted to be taken by the Trustee in accordance with the terms of this
Agreement, the Bonds, the Reimbursement Agreement, the Letter of Credit, the
Project Note, or the Indenture or any action taken at the request of or with the
consent of the Company, including the costs and expenses of the Trustee in
defending itself against any such claim, action or proceeding brought in
connection with the exercise or performance of any of its powers or duties under
this Agreement, the Bonds, the Indenture, the Reimbursement Agreement, the
Letter of Credit, or the Project Note.

         In case any action or proceeding is brought against the Issuer or the
Trustee in respect of which indemnity may be sought hereunder, the party seeking
indemnity promptly shall give notice of that action or proceeding to the
Company, and the Company upon receipt of that notice shall have the obligation
and the right to assume the defense of the action or proceeding; provided, that



                                     - 95 -
<PAGE>   23

failure of a party to give that notice shall not relieve the Company from any of
its obligations under this Section unless that failure prejudices the defense of
the action or proceeding by the Company. At its own expense, an indemnified
party may employ separate counsel and participate in the defense. The Company
shall not be liable for any settlement made without its consent.

         The indemnification set forth above is intended to and shall include
the indemnification of all affected officials, directors, officers and employees
of the Issuer, and the Trustee, respectively. That indemnification is intended
to and shall be enforceable by the Issuer, the Remarketing Agent and the
Trustee, respectively, to the full extent permitted by law.

         Section 5.4. COMPANY NOT TO ADVERSELY AFFECT EXCLUSION FROM GROSS
INCOME OF INTEREST ON PROJECT BONDS. The Company hereby represents that it has
taken and caused to be taken, and covenants that it will take and cause to be
taken, all actions that may be required of it, alone or in conjunction with the
Issuer, for the interest on the Project Bonds to be and remain excluded from
gross income for federal income tax purposes, and represents that it has not
taken or permitted to be taken on its behalf, and covenants that it will not
take or permit to be taken on its behalf, any actions that would adversely
affect such exclusion under the provisions of the Code.

         Section 5.5. COMPANY TO MAINTAIN ITS EXISTENCE, SALES OF ASSETS OR
MERGERS. The Company shall do all things necessary to preserve and keep in full
force and effect its existence, except as otherwise permitted by this Section
5.5. In particular, the Company shall not sell, transfer or otherwise dispose of
all, or substantially all, of its assets or consolidate with or merge into
another entity unless (A) (i) in the case of a merger or consolidation other
than one in which the Company is the continuing entity or (ii) in the case of
the sale of all or substantially all of the assets of the Company, the entity
formed by such consolidation, or into which the Company shall have been merged,
or to which such assets have been sold, shall be an entity organized under the
laws of the United States or a state thereof and shall unconditionally assume
the obligation to perform and observe the agreements and obligations of the
Company under this Agreement and under the Project Note.

                                   ARTICLE VI

                           REDEMPTION OF PROJECT BONDS

         Section 6.1. OPTIONAL REDEMPTION. Provided no Event of Default shall
have occurred and be subsisting, at any time and from time to time, the Company,
with the consent of the Bank, may deliver moneys to the Trustee in addition to
Loan Payments or Additional Payments required to be made and direct the Trustee
to use the moneys so delivered for the purpose of purchasing Project Bonds, or
of reimbursing the Bank for drawings on the Letter of Credit used to redeem
Project Bonds, or of calling Project Bonds for optional redemption in accordance
with the applicable provisions of the Bond Legislation and Indenture providing
for optional redemption at the redemption price stated in the Indenture;
provided, however, that any moneys so used for optional redemption shall be from
the same sources and used in the same priority as provided in Section 5.03 of
the Indenture for the payment of Bond Service Charges. Pending application for
those purposes, any moneys so delivered shall be held by the Trustee in a
special account in the Bond



                                     - 96 -
<PAGE>   24

Fund and delivery of those moneys shall not operate to abate or postpone Loan
Payments or Additional Payments otherwise becoming due or to alter or suspend
any other obligations of the Company under this Agreement.

         Section 6.2. EXTRAORDINARY OPTIONAL REDEMPTION. The Company, with the
consent of the Bank, shall have, subject to the conditions hereinafter imposed,
the option to direct the redemption of the entire unpaid principal balance of
the Project Bonds in accordance with the applicable provisions of the Indenture
upon the occurrence of any of the following events:

                  (a) The Project shall have been damaged or destroyed to such
an extent that (1) it cannot reasonably be expected to be restored, within a
period of three months, to the condition thereof immediately preceding such
damage or destruction or (2) its normal use and operation is reasonably expected
to be prevented for a period of three consecutive months;

                  (b) Title to, or the temporary use of, all or a significant
part of the Project shall have been taken under the exercise of the power of
eminent domain (1) to such extent that the Project cannot reasonably be expected
to be restored within a period of three months to a condition of usefulness
comparable to that existing prior to the taking or (2) as a result of the
taking, normal use and operation of the Project is reasonably expected to be
prevented for a period of three consecutive months;

                  (c) As a result of any changes in the Constitution of the
State, the constitution of the United States of America, or state or federal
laws, or as a result of legislative or administrative action (whether state or
federal) or by final decree, judgment or order of any court or administrative
body (whether state or federal) entered after the contest thereof by the Issuer
or the Company in good faith, this Agreement shall have become void or
unenforceable or impossible of performance in accordance with the intent and
purpose of the parties as expressed in this Agreement, or if unreasonable
burdens or excessive liabilities shall have been imposed with respect to the
Project or the operation thereof, including, without limitation, federal, state
or other ad valorem, property, income or other taxes not being imposed on the
date of this Agreement other than ad valorem taxes presently levied upon
privately owned property used for the same general purpose as the Project; or

                  (d) Changes in the economic availability of raw materials,
operating supplies, energy sources or supplies, or facilities (including, but
not limited to, facilities in connection with the disposal of industrial wastes)
necessary for the operation of the Project for the Project Purposes shall have
occurred or technological or other changes shall have occurred which the company
cannot reasonably overcome or control and which in the company's reasonable
judgment render the Project uneconomic for the Project Purposes.

         To exercise that option, the Company shall, within 90 days following
the event authorizing the exercise of that option, or at any time during the
continuation of the condition referred to in clause (d) above, give notice to
the Issuer and to the Trustee specifying the date on which the Company will
deliver the funds required for that redemption, which date shall be not more
than ninety days from the date that notice is mailed and shall make arrangements
satisfactory to the Trustee for the giving of the required notice of redemption.



                                     - 97 -
<PAGE>   25

         The amount payable by the Company in the event of its exercise of the
option granted in this Section shall be the sum of the following:

                  (i) An amount of money which, when added to the moneys and
investments held to the credit of the Bond Fund, will be sufficient pursuant to
the provisions of the Indenture to pay, at par, and discharge all then
outstanding Project Bonds on the earliest applicable redemption date, that
amount to be paid to the Trustee, plus

                  (ii) An amount of money equal to the Additional Payments
relating to the Project Bonds accrued and to accrue until actual final payment
and redemption of the Project Bonds, that amount or applicable portions thereof
to be paid to the Trustee or to the Persons to whom those Additional Payments
are or will be due.

         The requirement of (ii) above with respect to Additional Payments to
accrue may be met if provisions satisfactory to the Trustee and the Issuer are
made for paying those amounts as they accrue.

         The Company also shall have the option, with the consent of the Bank,
in the event that title to or the temporary use of a portion of the Project
shall be taken under the exercise of the power of eminent domain, even if the
taking is not of such nature as to permit the exercise of the redemption option
upon an event specified in (b) above, to direct the redemption, at a redemption
price of 100% of the principal amount thereof prepaid, plus accrued interest to
the redemption date, of that part of the outstanding principal balance of the
Project Bonds as may be payable from the proceeds received by the Company (after
the payment of costs and expenses incurred in the collection thereof) received
in the eminent domain proceeding. provided, that any such partial redemption
shall be in the amount of $100,000 or integral multiples of $5,000 in excess
thereof and provided further that the Company shall furnish to the Issuer and
the Trustee a certificate of an Engineer stating that (1) the property
comprising the part of the Project taken is not essential to continued
operations of the Project in the manner existing prior to that taking, (2) the
Project has been restored to a condition substantially equivalent to that
existing prior to the taking, or (3) other improvements have been acquired or
made which are suitable for the continued operation of the Project.

         The rights and options granted to the Company in this Section may be
exercised whether or not the Company is in default hereunder; provided, that
such default will not relieve the Company from performing those actions which
are necessary to exercise any such right or option granted hereunder.

         Section 6.3. MANDATORY REDEMPTION IN EVENT OF INCLUSION IN GROSS INCOME
OF INTEREST ON PROJECT BONDS. If, as provided in the Project Bonds and the
Indenture, the Project Bonds become subject to mandatory redemption because
interest on any of the Project Bonds is determined to be included for federal
income tax purposes in the gross income of the Holder of any Project Bonds
(other than because a Holder is a "substantial user of the Project or a "related
person", as those terms are used in Section 147(a) of the Code), the Company
shall deliver to the Trustee, upon the



                                     - 98 -
<PAGE>   26

date requested by the Trustee, the moneys needed to pay in full the Project
Bonds in accordance with the mandatory redemption provisions relating thereto
set forth in the Project Bonds and the Indenture.

         Section 6.4. MANDATORY REDEMPTION. The Company shall deliver to the
Trustee the moneys needed to redeem the Project Bonds in accordance with any
mandatory redemption provisions relating thereto as may be set forth in Section
4.01 of the Indenture.

         Section 6.5. ACTIONS BY ISSUER. At the request of the Company or the
Trustee, the Issuer shall take all steps required of it under the applicable
provisions of the Indenture or the Project Bonds to effect the redemption of all
or a portion of the Project Bonds pursuant to this Article VI.

         Section 6.6. REQUIRED DEPOSITS FOR OPTIONAL REDEMPTION. Except with
prior written consent of the Bank, the Trustee shall not give notice of call to
the Holders pursuant to the optional redemption provisions of Section 4.01 of
the Indenture and Sections 6.1 and 6.2 hereof unless prior to the date by which
the call notice is to be given there shall be on deposit with the Trustee funds
sufficient to redeem at the redemption price thereof, including interest accrued
to the redemption date, all Project Bonds for which notice of redemption is to
be given.

         All amounts paid by the Company pursuant to this Article which are used
to pay principal of, premium, if any, or interest on the Project Bonds, or to
reimburse the Bank for moneys drawn under the Letter of Credit and used for such
purposes, shall constitute prepaid Loan Payments. No moneys drawn under the
Letter of Credit shall be used to pay any portion of the premium on the Project
Bonds.

                                   ARTICLE VII

                         EVENTS OF DEFAULT AND REMEDIES

         Section 7.1. EVENTS OF DEFAULT. Each of the following shall be an Event
of Default:

                  (a) The Company shall fail to observe and perform any
agreement, term or condition contained in this Agreement (other than with
respect to Section 5.4 hereof), and the continuation of such failure for a
period of 30 days after notice thereof shall have been given to the Company by
the Issuer or the Trustee, or for such longer period as the Issuer and the
Trustee may agree to in writing; provided, that if the failure is other than the
payment of money and is of such nature that it can be corrected but not within
the applicable period, that failure shall not constitute an Event of Default so
long as the Company institutes curative action within the applicable period and
diligently pursues that action to completion;

                  (b) The Company shall: (i) admit in writing its inability to
pay its debts generally as they become due; (ii) have an order for relief
entered in any case commenced by or against it under the federal bankruptcy
laws, as now or hereafter in effect; (iii) commence a proceeding under any other
federal or state bankruptcy, insolvency, reorganization or similar law, or have
such a proceeding commenced against it and either have an order of insolvency or




                                     - 99 -
<PAGE>   27

reorganization entered against it or have the proceeding remain undismissed and
unstayed for 90 days; (iv) make an assignment for the benefit of creditors; or
(v) have a receiver or trustee appointed for it or for the whole or any
substantial part of its property;

                  (c) There shall occur an "Event of Default" as defined in
Section 7.01 of the Indenture.

         Notwithstanding the foregoing, if, by reason of Force Majeure, the
Company is unable to perform or observe any agreement, term or condition hereof
which would give rise to an Event of Default under subsection (a) hereof, other
than the payment of money, the Company shall not be deemed in default during the
continuance of such inability. However, the Company shall promptly give notice
to the Trustee and the Issuer of the existence of an event of Force Majeure and
shall use its best efforts to remove the effects thereof; provided that the
settlement of strikes or other industrial disturbances shall be entirely within
its discretion.

         The term Force Majeure shall mean, without limitation, the following:

                  (i) acts of God; strikes; lockouts or other industrial
disturbances; acts of public enemies; orders or restraints of any kind of the
government of the United States of America or of the State or any of their
departments, agencies, political subdivisions or officials, or any civil or
military authority; insurrections; civil disturbances; riots; epidemics;
landslides; lightning; earthquakes; fires; hurricanes; tornadoes; storms;
droughts; floods; arrests; restraint of government and people; explosions;
breakage, malfunction or accident to facilities, machinery, transmission pipes
or canals; partial or entire failure of utilities; shortages of labor,
materials, supplies or transportation; or

                  (ii) any cause, circumstance or event not reasonably within
the control of the Company.

         The declaration of an Event of Default under subsection (b) above, and
the exercise of remedies upon any such declaration, shall be subject to any
applicable limitations of federal bankruptcy law affecting or precluding that
declaration or exercise during the pendency of or immediately following any
bankruptcy, liquidation or reorganization proceedings.

         Section 7.2. REMEDIES ON DEFAULT. Whenever an Event of Default shall
have happened and be subsisting, any one or more of the following remedial steps
may be taken:

                  (a) If acceleration of the principal amount of the Project
Bonds has been declared pursuant to Section 7.03 of the Indenture, the Trustee
shall declare all Loan Payments to be immediately due and payable, whereupon the
same shall become immediately due and payable;

                  (b) The Issuer, the Bank or the Trustee may have access to,
inspect, examine and make copies of the books, records, accounts and financial
data of the Company pertaining to the Project; or



                                    - 100 -
<PAGE>   28

                  (c) The Issuer or the Trustee may pursue all remedies now or
hereafter existing at law or in equity to collect all amounts then due and
thereafter to become due under this Agreement, the Letter of Credit or the
Project Note or to enforce the performance and observance of any other
obligation or agreement of the Company under those instruments.

         Notwithstanding the foregoing, the Issuer shall not be obligated to
take any step which in its opinion will or might cause it to expend time or
money or otherwise incur liability unless and until a satisfactory indemnity
bond has been furnished to the Issuer at no cost or expense to the Issuer. Any
amounts collected as Loan Payments or applicable to Loan Payments and any other
amounts which would be applicable to payment of Bond Service Charges collected
pursuant to action taken under this Section shall be paid into the Bond Fund and
applied in accordance with the provisions of the Indenture or, if the
outstanding Bonds have been paid and discharged in accordance with the
provisions of the Indenture, shall be paid as provided in Section 5.07 of the
Indenture for transfers of remaining amounts in the Bond Fund.

         The provisions of this section are subject to the further limitation
that the rescission by the Trustee of its declaration that all of the Project
Bonds are immediately due and payable also shall constitute an annulment of any
corresponding declaration made pursuant to paragraph (a) of this Section and a
waiver and rescission of the consequences of that declaration and of the Event
of Default with respect to which that declaration has been made, provided that
no such waiver or rescission shall extend to or affect any subsequent or other
default or impair any right consequent thereon.

         Section 7.3. NO REMEDY EXCLUSIVE. No remedy conferred upon or reserved
to the Issuer or the Trustee by this Agreement is intended to be exclusive of
any other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement, the Letter of Credit or the Project Note, or now or hereafter
existing at law, in equity or by statute. No delay or omission to exercise any
right or power accruing upon any default shall impair that right or power or
shall be construed to be a waiver thereof, but any such right and power may be
exercised from time to time and as often as may be deemed expedient. In order to
entitle the Issuer or the Trustee to exercise any remedy reserved to it in this
Article, it shall not be necessary to give any notice, other than any notice
required by law or for which express provision is made herein.

         Section 7.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. If an Event
of Default should occur and the Issuer or the Trustee should incur expenses,
including reasonable attorneys' fees, in connection with the enforcement of this
Agreement, the Letter of Credit or the Project Note or the collection of sums
due thereunder, the Company shall reimburse the Issuer and the Trustee, as
applicable, for the reasonable expenses so incurred upon demand.

         Section 7.5. NO WAIVER. No failure by the Issuer or the Trustee to
insist upon the strict performance by the Company of any provision hereof shall
constitute a waiver of their right to strict performance and no express waiver
shall be deemed to apply to any other existing or subsequent right to remedy the
failure by the Company to observe or comply with any provision hereof.



                                    - 101 -
<PAGE>   29

         The Issuer and the Trustee may waive any Event of Default hereunder
only with the prior written consent of the Bank.

         Section 7.6. NOTICE OF DEFAULT. The Company or the Issuer shall notify
the Trustee and the Bank immediately if it becomes aware of the occurrence of
any Event of Default hereunder or of any fact, condition or event which, with
the giving of notice or passage of time or both, would become an Event of
Default.

         Section 7.7. REMEDIES SUBJECT TO BANK'S DIRECTION. Except in the case
of an Event of Default pursuant to Section 7.01(g) or (h) of the Indenture, the
Bank shall have the right to direct the remedies to be exercised by the Trustee,
whether under Article VII of this Agreement or under Article VII of the
Indenture.


                                  ARTICLE VIII

                                  MISCELLANEOUS

         Section 8.1. TERM OF AGREEMENT. This Agreement shall be and remain in
full force and effect from the date of delivery of the Project Bonds to the
original purchasers thereof until such time as all of the Bonds shall have been
fully paid (or provision made for such payment) pursuant to the Indenture and
all other sums payable by the Company under this Agreement and the Project Note
shall have been paid, except for obligations of the Company under Sections 4.2
and 5.3 hereof, which shall survive any termination of this Agreement.

         Section 8.2. AMOUNTS REMAINING IN FUNDS. Any amounts in the Bond Fund
remaining unclaimed by the Holders of Bonds for four years after the due date
thereof (whether at stated maturity, by redemption or pursuant to any mandatory
sinking fund requirements or otherwise), shall be paid to the Company; provided
that if the Trustee shall have drawn on the Letter of Credit, and the Bank is
owed any amount by the Company pursuant to the Reimbursement Agreement, such
amounts remaining in the Bond Fund shall belong and be paid first to the Bank to
the extent of such unpaid amounts. With respect to that principal of and any
premium and interest on the Bonds to be paid from moneys paid to the Company or
the Bank pursuant to the preceding sentence, the Holders of the Bonds entitled
to those moneys shall look solely to the Company for the payment of those
moneys.

         Further, any amounts remaining in the Bond Fund (subject to any
limitations in the Indenture) and any other special funds or accounts (other
than the Project Fund and the Rebate Fund) created under this Agreement or the
Indenture after all of the outstanding Bonds shall be deemed to have been paid
and discharged under the provisions of the Indenture and all other amounts
required to be paid under this Agreement, the Notes and the Indenture have been
paid, shall be paid (to the extent that those moneys are in excess of the
amounts necessary to effect the payment and discharge of the outstanding Bonds)
first, to the Bank to the extent that any amount is owed by the Company to the
Bank under the terms of the Letter of Credit or Reimbursement Agreement, and
then to the Company.



                                    - 102 -
<PAGE>   30

         Section 8.3. NOTICES. All notices, certificates, requests or other
communications hereunder shall be in writing and shall be deemed to be
sufficiently given when mailed by registered or certified mail, postage prepaid,
and addressed to the appropriate Notice Address. A duplicate copy of each
notice, certificate, request or other communication given hereunder to the
Issuer, the Company, the Bank, the Remarketing Agent or the Trustee shall also
be given to the others. The Company, the Issuer, the Bank, the Remarketing
Agent, and the Trustee, by notice given hereunder, may designate any further or
different addresses to which subsequent notices, certificates, requests or other
communications shall be sent.

         Section 8.4. EXTENT OF COVENANTS OF THE ISSUER NO PERSONAL LIABILITY.
All covenants, obligations and agreements of the Issuer contained in this
Agreement or the Indenture shall be effective to the extent authorized and
permitted by applicable law. No such covenant, obligation or agreement shall be
deemed to be a covenant, obligation or agreement of any present or future
member, officer, agent or employee of the Issuer or the Legislative Authority in
other than his official capacity, and neither the members of the Legislative
Authority nor any official executing the Bonds shall be liable personally on the
Bonds or be subject to any personal liability or accountability by reason of the
issuance thereof or by reason of the covenants, obligations or agreements of the
Issuer contained in this Agreement or in the Indenture.

         Section 8.5. BINDING EFFECT. This Agreement shall inure to the benefit
of and shall be binding in accordance with its terms upon the Issuer, the
Company and their respective permitted successors and assigns provided that this
Agreement may not be assigned by the Company (except in connection with a lease,
sale or grant of use pursuant to Section 5.2 hereof or sale or transfer of
assets pursuant to Section 5.5 hereof) and may not be assigned by the Issuer
except to the Trustee pursuant to the Indenture or as otherwise may be necessary
to enforce or secure payment of Bond Service Charges. This Agreement may be
enforced only by the parties, their assignees and others who may, by law, stand
in their respective places.

         Section 8.6. AMENDMENTS AND SUPPLEMENTS. Except as otherwise expressly
provided in this Agreement, any Note or the Indenture, subsequent to the
issuance of the Project Bonds and prior to all conditions provided for in the
Indenture for release of the Indenture having been met, this Agreement or any
Note may not be effectively amended, changed, modified, altered or terminated
except in accordance with the provisions of Article XI of the Indenture, as
applicable.

         Section 8.7. EXECUTION COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be regarded as an original and
all of which shall constitute but one and the same instrument.

         Section 8.8. SEVERABILITY. If any provision of this Agreement, or any
covenant, obligation or agreement contained herein is determined by a court to
be invalid or unenforceable, that determination shall not affect any other
provision, covenant, obligation or agreement, each of which shall be construed
and enforced as if the invalid or unenforceable portion were not contained
herein. That invalidity or unenforceability shall not affect any valid and
enforceable application thereof,



                                    - 103 -
<PAGE>   31

and each such provision, covenant, obligation or agreement shall be deemed to be
effective, operative, made, entered into or taken in the manner and to the full
extent permitted by law.

         Section 8.9. GOVERNING LAW. This Agreement shall be deemed to be a
contract made under the laws of the State and for all purposes shall be governed
by and construed in accordance with the laws of the State of Indiana.

IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement to be
duly executed in their respective names, all as of the date herein before
written.

                                         CITY OF HUNTINGBURG, INDIANA


                                         By       /s/ Connie K. Nass
                                              --------------------------------
                                                          Mayor

Attest:


/s/ Thomas O. Ellsworth
-----------------------------
Clerk-Treasurer

                                         DMI FURNITURE, INC.,
                                         a Delaware corporation


                                         By       /s/ Joseph G. Hill
                                              --------------------------------
                                         Authorized Representative









                                    - 104 -
<PAGE>   32



                                    EXHIBIT A

                                  PROJECT NOTE

$3,420,000                                                      October __, 1993


         DMI FURNITURE, INC. (the "Company"), a Delaware corporation, in good
standing and qualified to transact business in the State of Indiana, for value
received, promises to pay to PNC Bank, Indiana, Inc., as Trustee (the "Trustee")
under the Indenture hereinafter referred to, the principal sum of

         THREE MILLION FOUR HUNDRED TWENTY THOUSAND DOLLARS ($3,420,000)

and to pay (i) interest on the unpaid balance of such principal sum from and
after October __, 1993 (the date of delivery of this Note) at the interest rate
borne by the Bonds from time to time and payable on each date that interest is
payable on the Bonds, and (ii) interest on overdue principal, and to the extent
permitted by law, on overdue interest, at the interest rate permitted under the
terms of the Bonds.

         This Note has been executed and delivered by the Company to the Trustee
pursuant to a certain Loan Agreement (the "Agreement"), dated as of October 1,
1993, between the City of Huntingburg, Indiana (the "Issuer") and the Company.
Terms used but not defined herein shall have the meaning ascribed to such term
in the Agreement or the Indenture.

         Under the Agreement, the Issuer has loaned the Company the proceeds
received from the sale of the Issuer's $3,420,000 aggregate principal amount of
City of Huntingburg, Indiana Adjustable Rate Economic Development Revenue Bonds,
Series 1993 (DMI Furniture, Inc. Project), dated the date of their initial
delivery to the original purchasers thereof (the "Project Bonds"), to assist in
the financing of the Project (as defined in the Agreement), and the Company has
agreed to repay such loan by making payments (the "Loan Payments") at the times
and in the amounts set forth in this Note for application to the payment of the
principal of and redemption premium, if any, and interest on the Project Bonds
as and when due. The Project Bonds have been issued, concurrently with the
execution and delivery of this Note, pursuant to, and are secured by, the Trust
Indenture (the "Indenture"), dated as of October 1, 1993, between the Issuer and
the Trustee.

         To provide funds to pay the principal of and redemption premium, if
any, and interest on the Project Bonds as and when due as above-specified, or to
reimburse the Bank for draws on the Letter of Credit to pay principal and
interest on the Project Bonds, the Company hereby agrees to and shall make Loan
Payments as follows: on each Interest Payment Date the amounts equal to


                                       A-1
<PAGE>   33



interest due on the Project Bonds on such Interest Payment Date and principal
payments necessary to make the mandatory redemption payment on the Project Bonds
at the terms and in the amounts set forth in Section 4.01 of the Indenture (each
such day being a "Loan Payment Date"). In addition, to provide funds to pay the
principal of and premium, if any, and interest on the Project Bonds as and when
due at any other time, the Company hereby agrees to and shall make Loan Payments
on any other date on which any principal of, or interest or any premium on the
Project Bonds shall be due and payable, whether at maturity, upon acceleration,
call for redemption or otherwise.

         If payment or provision for payment in accordance with the Indenture is
made in respect of the principal of and redemption premium, if any, and interest
on the Project Bonds from moneys other than Loan Payments, this Note shall be
deemed paid to the extent such payments or provision for payment of Project
Bonds has been made. The Company shall receive a credit against its obligation
to make Loan Payments hereunder to the extent of the moneys delivered on its
behalf to the Trustee under and pursuant to the Letter of Credit and the amounts
already on deposit in the Bond Fund, created by the Indenture, and available to
pay principal of and premium, if any, and interest on the Project Bonds pursuant
to the Indenture. Subject to the foregoing, all Loan Payments shall be in the
full amount required hereunder.

         All Loan Payments shall be payable in lawful money of the United States
of America and shall be made to the Trustee at its corporate trust office for
the account of the Issuer and deposited in the Bond Fund created by the
Indenture. Except as otherwise provided in the Indenture, such Loan Payments
shall be used by the Trustee to pay the principal of, redemption premium, if
any, and interest on the Project Bonds as and when due.

         The obligation of the Company to make the payments required hereunder
shall be absolute and unconditional and the Company shall make such payments
without abatement, diminution or deduction regardless of any cause or
circumstances whatsoever including, without limitation, any defense, set-off,
recoupment or counterclaim which the Company may have or assert against the
Issuer, the Trustee, the Remarketing Agent and the Bank or any other person.

         This Note is subject to optional, extraordinary optional and mandatory
prepayment in whole or in part, at the prepayment price, in the amounts and upon
the conditions that the Project Bonds are subject to, respectively, optional,
extraordinary optional and mandatory redemption. The Company will deliver or
cause to the delivered to the Trustee, for the account of the Issuer, such
moneys as are required to effect such prepayment under the applicable terms of
the Project Bonds.

         Whenever an Event of Default under Section 7.01 of the Indenture shall
have occurred and, as a result thereof, the principal of and any premium on all
Project Bonds then outstanding, and interest accrued thereon, shall have been
declared to be immediately due and payable pursuant to Section 7.03 of the
Indenture, the unpaid principal amount of and any premium and accrued interest
on this Note shall also be due and payable on the date on which the principal of
and premium and interest on the Project Bonds shall have been declared due and
payable; provided that the annulment of a declaration of acceleration with
respect to the Project Bonds shall also constitute an annulment of any
corresponding declaration with respect to this Note.


                                       A-2
<PAGE>   34




         IN WITNESS WHEREOF, the Company has caused this Note to be executed in
its name by its duly authorized officer(s) as of October __, 1993.

                                             DMI FURNITURE, INC.



                                             By ____________________________
                                             Authorized Representative





                                       A-3
<PAGE>   35




                                    EXHIBIT B

                               PROJECT FACILITIES


         The Project Facilities will consist of the following and other
machinery, equipment and personal property located on the project site and
identified as part of the Project Facilities:







                                       B-1
<PAGE>   36



                                    EXHIBIT C

                                  PROJECT SITE
                                LEGAL DESCRIPTION



A part of the Northwest Quarter of Section 34, Township 2 South, Range 5 West,
described as follows:

Beginning at an existing iron pin South 1 Degree 58 Minutes East 1325.7 Feet,
North 88 Degrees 02 Minutes East 30.0 feet and South 1 Degree 58 Minutes East
856.53 Feet from the Northwest Corner of said quarter section; thence South 1
Degree 58 Minutes East 44.77 Feet; thence North 10 Degrees 30 Minutes West 45.27
Feet; thence South 88 Degrees 02 Minutes West 8.33 Feet to a point 15 Feet East
of the West line of said quarter section; thence South 1 Degree 58 Minutes East
452.07 Feet to a concrete nail set on the South line of said quarter section 15
Feet East of the Southwest corner of said quarter section; thence North 85
Degrees 48 Minutes East (North 85 Degrees 40 Minutes East and East-West on
previous Deeds) 1050.90 Feet along the South line of said quarter section to a
concrete nail set on the West line of Geiger Street projected South; thence
North 1 Degree 53 Minutes West (North-South on previous Deeds) 563.70 Feet along
the West line of Geiger Street (60 Foot wide street) to an existing iron pin at
the Southeast Corner of a tract heretofore conveyed to Grantee; thence South 88
Degrees 02 Minutes West 522.96 Feet along Grantee's line to an existing iron
pin; thence South 1 Degree 58 Minutes East 152.69 Feet along Grantee's line to
an existing iron pin; thence South 88 Degrees 02 Minutes West 512.9 Feet along
Grantee's line to the point of beginning and containing 12.24 Acres, more or
less.

Subject to Chestnut Street and State Road 64 right-of-way, and subject to all
other easements and/or right-of-ways, if any, more.







                                       C-1
<PAGE>   37



x                                    EXHIBIT D

                          FORM OF DISBURSEMENT REQUEST

               STATEMENT NO. ____ REQUESTING DISBURSEMENT OF FUNDS
                FROM PROJECT FUND PURSUANT TO SECTION 3.4 OF THE
                   LOAN AGREEMENT DATED AS OF OCTOBER 1, 1993
                  BETWEEN THE CITY OF HUNTINGBURG, INDIANA AND
                               DMI FURNITURE, INC.

         Pursuant to Section 3.4 of the Loan Agreement (the "Agreement") between
the City of Huntingburg, Indiana (the "Issuer") and DMI Furniture, Inc. (the
"Company") dated as of October 1, 1993, the undersigned Authorized Borrower
Representative does request and authorize PNC Bank, Indiana, Inc., as trustee
(the "Trustee"), as depository of the Project Fund created by the Indenture and
defined in the Agreement, to pay to the Company or to the person(s) listed on
the Disbursement Schedule attached hereto out of the moneys deposited in the
Project Fund the aggregate sum of $_______________ to pay such person(s) or to
reimburse the Company in full, as indicated in the Disbursement Schedule, for
the advances, payments and expenditures made by it in connection with the items
listed in the Disbursement Schedule.

         In connection with the foregoing request and authorization, the
undersigned hereby certifies that:

                  (a) Each item for which disbursement is requested hereunder is
properly payable out of the Project Fund in accordance with the terms and
conditions of the Agreement and none of those items has formed the basis for any
disbursement heretofore made from said Project Fund.

                  (b) Each such item is or was necessary in connection with the
expansion, acquisition, installation, equipment or improvement of the Project,
as defined in the Agreement.

                  (c) The Company has received, or will concurrently with
payment receive and deliver to the Trustee, appropriate waivers of any
mechanics' or other liens with respect to each item for which disbursement is
requested hereunder.

                  (d) Each item for which disbursement is requested hereunder,
and the cost for each such item, is as described in the information statement
filed by the Issuer in connection with the issuance of the Project Bonds (as
defined in the Agreement), as requested by Section 149(e) of the Code; provided
that if any such item is not as described in that information statement,
attached hereto is a computation evidencing that the average reasonably expected
economic life of the facilities which have been and will be paid for with moneys
in the Project Fund is not less than 5/6ths of the average maturity of the
Project Bonds.


                                      D-1
<PAGE>   38



                  (e) This statement and all exhibits hereto, including the
Disbursement Schedule, shall be conclusive evidence of the facts and statements
set forth herein and shall constitute full warrant, protection and authority to
the Trustee for its actions taken pursuant hereto.

                  (f) This statement constitutes the approval of the Company of
each disbursement hereby requested and authorized.

         This ____ day of ____________, 19___.


                                             __________________________________
                                             Authorized Borrower Representative

Approved By Bank:

Bank One, Indianapolis, N.A.


By _________________________________________
         Title:







                                      D-2
<PAGE>   39




                              DISBURSEMENT SCHEDULE


         TO STATEMENT NO.___ REQUESTING AND AUTHORIZING DISBURSEMENT OF FUNDS
FROM PROJECT FUND PURSUANT TO SECTION 3.4 OF THE LOAN AGREEMENT DATED AS OF
OCTOBER 1, 1993 BETWEEN THE CITY OF HUNTINGBURG, INDIANA AND DMI FURNITURE, INC.

PAYEE                      AMOUNT                                 PURPOSE
-----                      ------                                 -------