<PAGE>
 
                                                                     EXHIBIT 4.1

                                                                  EXECUTION COPY

================================================================================


                                CMI CORPORATION



                                  $30,000,000


              7.68 % Series A Senior Notes due September 15, 2006



                                  __________

                            NOTE PURCHASE AGREEMENT
                                  __________



                         Dated as of September 1, 1996



================================================================================

                                                               PPN:  125761 A# 3
<PAGE>
 
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
        Section                                                                                     Page
        -------                                                                                     ----
<C> <S>                                                                                            <C>
 
        1.    AUTHORIZATION OF NOTES..............................................................     1

        2.    SALE AND PURCHASE OF NOTES..........................................................     1

        3.    CLOSING.............................................................................     1

        4.    CONDITIONS TO CLOSING...............................................................     2
              4.1.  Representations and Warranties................................................     2
              4.2.  Performance; No Default.......................................................     2
              4.3.  Compliance Certificates.......................................................     2
              4.4.  Opinions of Counsel...........................................................     3
              4.5.  Purchase Permitted By Applicable Law, etc.....................................     3
              4.6.  Payment of Special Counsel Fees...............................................     3
              4.7.  Private Placement Number......................................................     3
              4.8.  Changes in Corporate Structure................................................     3
              4.9.  Proceedings and Documents.....................................................     4

        5.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................     4
              5.1.  Organization; Power and Authority.............................................     4
              5.2.  Authorization, etc............................................................     4
              5.3.  Disclosure....................................................................     4
              5.4.  Organization and Ownership of Shares of Subsidiaries; Affiliates; Agreements..     5
              5.5.  Financial Statements..........................................................     6
              5.6.  Compliance with Laws, Other Instruments, etc..................................     6
              5.7.  Governmental Authorizations, etc..............................................     6
              5.8.  Litigation; Observance of Agreements, Statutes and Orders.....................     6
              5.9.  Taxes.........................................................................     7
             5.10.  Title to Property; Leases.....................................................     7
             5.11.  Licenses, Permits, etc........................................................     7
             5.12.  Compliance with ERISA.........................................................     8
             5.13.  Private Offering by the Company...............................................     9
             5.14.  Use of Proceeds; Margin Regulations...........................................     9
             5.15.  Existing Indebtedness; Future Liens...........................................     9
             5.16.  Foreign Assets Control Regulations, etc.......................................    10
             5.17.  Status Under Certain Statutes.................................................    10
             5.18.  Environmental Matters.........................................................    10
</TABLE>
<PAGE>
 
<TABLE>
<C>   <S>                                                              <C>
        6.    REPRESENTATIONS OF THE PURCHASER..........................  11
              6.1.  Purchase for Investment.............................  11
              6.2.  Source of Funds.....................................  11

        7.    INFORMATION AS TO COMPANY.................................  12
              7.1.  Financial and Business Information..................  12
              7.2.  Officer's Certificate...............................  15
              7.3.  Inspection..........................................  16

        8.    PREPAYMENT OF THE NOTES...................................  16
              8.1.  Required Prepayments................................  16
              8.2.  Optional Prepayments with Make-Whole Amount.........  17
              8.3.  Allocation of Partial Prepayments...................  18
              8.4.  Maturity; Surrender, etc............................  18
              8.5.  Purchase of Notes...................................  18
              8.6.  Make-Whole Amount...................................  18
       
        9.    AFFIRMATIVE COVENANTS.....................................  20
              9.1.  Compliance with Law.................................  20
              9.2.  Insurance...........................................  20
              9.3.  Maintenance of Properties...........................  20
              9.4.  Payment of Taxes and Claims.........................  21
              9.5.  Corporate Existence, etc............................  21

       10.    NEGATIVE COVENANTS........................................  21
              10.1.  Transactions with Affiliates.......................  21
              10.2.  Merger, Consolidation, etc.........................  22
              10.3.  Sale of Assets.....................................  22
              10.4.  Liens..............................................  23
              10.5.  Net Worth..........................................  24
              10.6.  Funded Debt........................................  24
              10.7.  Fixed Charge Coverage Ratio........................  25
              10.8.  Disposition of Stock of Subsidiaries...............  25
              10.9.  Nature of Business.................................  25

       11.    EVENTS OF DEFAULT.........................................  25

       12.    REMEDIES ON DEFAULT, ETC..................................  28
              12.1.  Acceleration.......................................  28
              12.2.  Other Remedies.....................................  28
              12.3.  Rescission.........................................  29
              12.4.  No Waivers or Election of Remedies, Expenses, etc..  29
</TABLE>

                                      ii
<PAGE>
 
<TABLE>
<C>             <S>                                                     <C>
           13.   REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.........  29
                 13.1.  Registration of Notes..........................  29
                 13.2.  Transfer and Exchange of Notes.................  30
                 13.3.  Replacement of Notes...........................  30

           14.   PAYMENTS ON NOTES.....................................  31
                 14.1.  Place of Payment...............................  31
                 14.2.  Home Office Payment............................  31

           15.   EXPENSES, ETC.........................................  31
                 15.1.  Transaction Expenses...........................  31
                 15.2.  Survival.......................................  32

           16.   SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
                 AGREEMENT.............................................  32

           17.   AMENDMENT AND WAIVER..................................  32
                 17.1.  Requirements...................................  32
                 17.2.  Solicitation of Holders of Notes...............  33
                 17.3.  Binding Effect, etc............................  33
                 17.4.  Notes Held by Company, etc.....................  33

           18.   NOTICES...............................................  34

           19.   REPRODUCTION OF DOCUMENTS.............................  34

           20.   CONFIDENTIAL INFORMATION..............................  34

           21.   SUBSTITUTION OF PURCHASERS............................  35

           22.   ADDITIONAL SERIES OF NOTES............................  36
           
           23.   MISCELLANEOUS.........................................  36
                 23.1.  Successors and Assigns.........................  36
                 23.2.  Payments Due on Non-Business Days..............  36
                 23.3.  Severability...................................  37
                 23.4.  Construction...................................  37
                 23.5.  Counterparts...................................  37
                 23.6.  Governing Law..................................  37
                 23.7.  Accounting Principles..........................  37
                 23.8.  Valuation Principles...........................  38
</TABLE>

                                      iii
<PAGE>
 
SCHEDULE B        -   Defined Terms
 
EXHIBIT 1         -   Form of Note
 







                                      iv
<PAGE>
 
                                CMI CORPORATION
                              I-40 & Morgan Road
                                 P.O. Box 1985
                        Oklahoma City, Oklahoma  73101
                                (405) 787-6020



              7.68% Series A Senior Notes due September 15, 2006


                                                       As of September 1, 1996


TO EACH OF THE PURCHASERS LISTED IN
  THE ATTACHED SCHEDULE A:

Ladies and Gentlemen:

    CMI Corporation, an Oklahoma corporation (the "Company"), agrees with you as
follows:

1.  AUTHORIZATION OF NOTES.

         The Company has authorized the issue and sale of $30,000,000 aggregate
principal amount of its 7.68% Series A Senior Notes due September 15, 2006 (the
"Notes," such term to include any such notes issued in substitution therefor
pursuant to Section 13 of this Note Purchase Agreement (the "Agreement")). The
Notes shall be substantially in the form set out in Exhibit 1, with such changes
therefrom, if any, as may be approved by you and the Company.  Certain
capitalized terms used in this Agreement are defined in Schedule B; references
to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule
or an Exhibit attached to this Agreement.

2.  SALE AND PURCHASE OF NOTES.

         Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Notes in the principal amount specified opposite your
name in Schedule A at the purchase price of 100% of the principal amount
thereof.

3.  CLOSING.

         The sale and purchase of the Notes to be purchased by you shall occur
at the office of Gardner, Carton & Douglas, 321 North Clark Street, Chicago,
Illinois 60010 at 9:00 a.m., Chicago time, at a closing (the "Closing") on
September 17, 1996 or on such other
<PAGE>
 
Business Day thereafter on or prior to September 30, 1996 as may be agreed upon
by the Company and you. At the Closing the Company will deliver to you the Notes
to be purchased by you in the form of a single Note (or such greater number of
Notes in denominations of at least $100,000 as you may request) dated the date
of the Closing and registered in your name (or in the name of your nominee),
against delivery by you to the Company or its order of immediately available
funds in the amount of the purchase price therefor by wire transfer of
immediately available funds for the account of CMI Corporation Depository
Account to account number 814032955 at Bank of Oklahoma, N.A., 201 Robert S.
Kerr, P.O. Box 24128, Oklahoma City, Oklahoma 73124, ABA #103900036. If at the
Closing the Company shall fail to tender such Notes to you as provided above in
this Section 3, or any of the conditions specified in Section 4 shall not have
been fulfilled to your satisfaction, you shall, at your election, be relieved of
all further obligations under this Agreement, without thereby waiving any rights
you may have by reason of such failure or such nonfulfillment.

4.  CONDITIONS TO CLOSING.

         Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:

4.1.  Representations and Warranties.

         The representations and warranties of the Company in this Agreement
shall be correct when made and at the time of the Closing.

4.2.  Performance; No Default.

         The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after giving effect to the issue and sale
of the Notes (and the application of the proceeds thereof as contemplated by
Schedule 5.14) no Default or Event of Default shall have occurred and be
continuing.  Neither the Company nor any Subsidiary shall have entered into any
transaction since the date of the Memorandum  (as defined below) that would have
been prohibited by this Agreement had it applied since such date.

4.3.  Compliance Certificates.

          (a) Officer's Certificate.  The Company shall have delivered to you an
              ---------------------                                             
     Officer's Certificate, dated the date of the Closing, certifying that the
     conditions specified in Sections 4.1, 4.2 and 4.8 have been fulfilled.

          (b) Secretary's Certificate.  The Company shall have delivered to you
              -----------------------                                          
     a certificate certifying as to the resolutions attached thereto and other
     corporate proceedings relating to the authorization, execution and delivery
     of the Notes and the Agreements.





                                       2
<PAGE>
 
4.4.  Opinions of Counsel.

         You shall have received opinions in form and substance satisfactory to
you, dated the date of Closing, (a) from Hartzog Conger & Cason, counsel for the
                                 -                                              
Company, covering the matters set forth in Exhibit 4.4(a) and covering such
other matters incident to the transactions contemplated hereby as you or your
counsel may reasonably request (and the Company hereby instructs its counsel to
deliver such opinion to you) and (b) from Gardner, Carton & Douglas, your
                                  -                                      
special counsel in connection with such transactions, substantially in the form
set forth in Exhibit 4.4(b) and covering such other matters incident to such
transactions as you may reasonably request.

4.5.  Purchase Permitted By Applicable Law, etc.

         On the date of Closing your purchase of Notes shall (i) be permitted by
                                                              - 
the laws and regulations of each jurisdiction to which you are subject, without
recourse to provisions (such as Section 1405(a)(8) of the New York Insurance
Law) permitting limited investments by insurance companies without restriction
as to the character of the particular investment, (ii) not violate any
                                                   --  
applicable law or regulation (including, without limitation, Regulations G, T or
X of the Board of Governors of the Federal Reserve System) and (iii) not subject
                                                                ---             
you to any tax, penalty or liability under or pursuant to any applicable law or
regulation, which law or regulation was not in effect on the date hereof.  If
requested by you, you shall have received an Officer's Certificate certifying as
to such matters of fact as you may reasonably specify to enable you to determine
whether such purchase is so permitted.

4.6.  Payment of Special Counsel Fees.

         Without limiting the provisions of Section 15.1, the Company shall have
paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4 to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.

4.7.  Private Placement Number.

         A Private Placement number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the Notes.

4.8.  Changes in Corporate Structure.

         Except as specified in Schedule 4.8, the Company shall not have changed
its jurisdiction of incorporation or been a party to any merger or consolidation
and shall not have succeeded to all or any substantial part of the liabilities
of any other entity, at any time following the date of the most recent financial
statements referred to in Schedule 5.5.




                                       3
<PAGE>
 
4.9.  Proceedings and Documents.

         All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to you and your special counsel, and you
and your special counsel shall have received all such counterpart originals or
certified or other copies of such documents as you or they may reasonably
request.

5.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company represents and warrants to you that:

5.1.  Organization; Power and Authority.

         The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or to be in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or hold
under lease the properties it purports to own or hold under lease, to transact
the business it transacts and proposes to transact, to execute and deliver this
Agreement and the Notes and to perform the provisions hereof and thereof.

5.2.  Authorization, etc.

         This Agreement and the Notes have been duly authorized by all necessary
corporate action on the part of the Company, and this Agreement constitutes, and
upon execution and delivery thereof each Note will constitute, a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (i)
                                                                            - 
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii) general
                                                                   --         
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

5.3.  Disclosure.

         The Company, through its agents, SPP Hambro & Co., LLC and Boatmen's
Capital Markets, has delivered to you a copy of the Confidential Direct
Placement Memorandum, dated July 1996 (the "Memorandum"), relating to the
transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Company and its Subsidiaries. Except as disclosed in this Agreement, the
Memorandum, the documents, certificates or other writings delivered to you by or
on behalf


                                       4
<PAGE>
 
of the Company in connection with the transactions contemplated hereby and the
financial statements listed in Schedule 5.5, taken as a whole, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed in the Memorandum,
or in one of the documents, certificates or other writings delivered to you by
or on behalf of the Company in connection with the transactions contemplated
hereby, or in the financial statements listed in Schedule 5.5, since December
31, 1995, there has been no change in the financial condition, operations,
business, properties or prospects of the Company or any Subsidiary except
changes that individually or in the aggregate could not reasonably be expected
to have a Material Adverse Effect. There is no fact known to the Company that
could reasonably be expected to have a Material Adverse Effect that has not been
set forth herein or in the Memorandum or in the other documents, certificates
and other writings delivered to you by or on behalf of the Company specifically
for use in connection with the transactions contemplated hereby.

5.4.  Organization and Ownership of Shares of Subsidiaries; Affiliates;
Agreements.

          (a) Schedule 5.4 contains (except as noted therein) complete and
     correct lists (i) of the Company's Subsidiaries, showing, as to each
                    -                                                    
     Subsidiary, the correct name thereof, the jurisdiction of its organization,
     and the percentage of shares of each class of its capital stock or similar
     equity interests outstanding owned by the Company and each other
     Subsidiary, (ii) of the Company's Affiliates, other than Subsidiaries and
                  --                                                          
     (iii) of the Company's directors and senior officers.  Schedule 5.4 also
     ----                                                                    
     identifies each Subsidiary that is inactive and has no, or only minimal,
     assets and liabilities.

          (b) All of the outstanding shares of capital stock or similar equity
     interests of each Subsidiary shown in Schedule 5.4 as being owned by the
     Company and its Subsidiaries have been validly issued, are fully paid and
     nonassessable and are owned by the Company or another Subsidiary free and
     clear of any Lien (except as otherwise disclosed in Schedule 5.4).

          (c) Each Subsidiary identified in Schedule 5.4 is a corporation or
     other legal entity duly organized, validly existing and in good standing
     under the laws of its jurisdiction of organization, and is duly qualified
     as a foreign corporation or other legal entity and is in good standing in
     each jurisdiction in which such qualification is required by law, other
     than those jurisdictions as to which the failure to be so qualified or to
     be in good standing could not, individually or in the aggregate, reasonably
     be expected to have a Material Adverse Effect.  Each such Subsidiary has
     the corporate or other power and authority to own or hold under lease the
     properties it purports to own or hold under lease and to transact the
     business it transacts and proposes to transact.

          (d) No Subsidiary is a party to, or otherwise subject to, any legal
     restriction or any agreement (other than this Agreement, the agreements
     listed on Schedule 5.4 and customary limitations imposed by corporate law
     statutes) restricting the ability of such



                                       5
<PAGE>
 
     Subsidiary to pay dividends out of profits or make any other similar
     distributions of profits to the Company or any of its Subsidiaries that
     owns outstanding shares of capital stock or similar equity interests of
     such Subsidiary.

5.5.  Financial Statements.

         The Company has delivered to you copies of the financial statements of
the Company and its Subsidiaries listed on Schedule 5.5. All of said financial
statements (including in each case the related schedules and notes) fairly
present in all material respects the consolidated financial position of the
Company and its Subsidiaries as of the respective dates specified in such
Schedule and the consolidated results of their operations and cash flows for the
respective periods so specified and have been prepared in accordance with GAAP
consistently applied throughout the periods involved except as set forth in the
notes thereto (subject, in the case of any interim financial statements, to
normal year-end adjustments).

5.6.  Compliance with Laws, Other Instruments, etc.

         The execution, delivery and performance by the Company of this
Agreement and the Notes will not (i) contravene, result in any breach of, or
                                  -                              
constitute a default under, or result in the creation of any Lien in respect of
any property of the Company or any Subsidiary under, any indenture, mortgage,
deed of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other agreement or instrument to which the Company or any
Subsidiary is bound or by which the Company or any Subsidiary or any of their
respective properties may be bound or affected, (ii) conflict with or result in
                                                 --
a breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to the Company or any Subsidiary or (iii) violate any provision of any statute
                                     ---

or other rule or regulation of any Governmental Authority applicable to the
Company or any Subsidiary.

5.7.  Governmental Authorizations, etc.

         No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Notes.

5.8.  Litigation; Observance of Agreements, Statutes and Orders.

          (a) Except as disclosed in Schedule 5.8, there are no actions, suits
     or proceedings pending or, to the knowledge of the Company, threatened
     against or affecting the Company or any Subsidiary or any property of the
     Company or any Subsidiary in any court or before any arbitrator of any kind
     or before or by any Governmental Authority that, individually or in the
     aggregate, could reasonably be expected to have a Material Adverse Effect.



                                       6
<PAGE>
 
          (b) Neither the Company nor any Subsidiary is in default under any
     term of any agreement or instrument to which it is a party or by which it
     is bound, or any order, judgment, decree or ruling of any court, arbitrator
     or Governmental Authority or is in violation of any applicable law,
     ordinance, rule or regulation (including, without limitation, Environmental
     Laws) of any Governmental Authority, which default or violation,
     individually or in the aggregate, could reasonably be expected to have a
     Material Adverse Effect.

5.9.  Taxes.

         The Company and its Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (i) the amount of which is not
                                                  -
individually or in the aggregate Material or (ii) the amount, applicability or
                                              --
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or a Subsidiary, as the case
may be, has established adequate reserves in accordance with GAAP. The Company
knows of no basis for any other tax or assessment that could reasonably be
expected to have a Material Adverse Effect. The charges, accruals and reserves
on the books of the Company and its Subsidiaries in respect of Federal, state or
other taxes for all fiscal periods are adequate.

5.10. Title to Property; Leases.

         The Company and its Subsidiaries have good and sufficient title to
their respective properties that individually or in the aggregate are Material,
including all such properties reflected in the most recent audited balance sheet
referred to in Section 5.5 or purported to have been acquired by the Company or
any Subsidiary after said date (except as sold or otherwise disposed of in the
ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement. All leases that individually or in the aggregate are Material
are valid and subsisting and are in full force and effect in all material
respects.

5.11. Licenses, Permits, etc.

         Except as disclosed in Schedule 5.11,

          (a) the Company and its Subsidiaries own or possess all licenses,
     permits, franchises, authorizations, patents, copyrights, service marks,
     trademarks and trade names, or rights thereto, that individually or in the
     aggregate are Material, without known conflict with the rights of others;

          (b) to the best knowledge of the Company, no product of the Company
     infringes in any material respect any license, permit,




                                       7
<PAGE>
 
     franchise, authorization, patent, copyright, service mark, trademark, trade
     name or other right owned by any other Person; and

          (c) to the best knowledge of the Company, there is no Material
     violation by any Person of any right of the Company or any of its
     Subsidiaries with respect to any patent, copyright, service mark,
     trademark, trade name or other right owned or used by the Company or any of
     its Subsidiaries.

5.12.  Compliance with ERISA.

          (a) The Company and each ERISA Affiliate have operated and
     administered each Plan in compliance with all applicable laws except for
     such instances of noncompliance as have not resulted in and could not
     reasonably be expected to result in a Material Adverse Effect.  Neither the
     Company nor any ERISA Affiliate has incurred any liability pursuant to
     Title I or IV of ERISA or the penalty or excise tax provisions of the Code
     relating to employee benefit plans (as defined in Section 3 of ERISA), and
     no event, transaction or condition has occurred or exists that could
     reasonably be expected to result in the incurrence of any such liability by
     the Company or any ERISA Affiliate, or in the imposition of any Lien on any
     of the rights, properties or assets of the Company or any ERISA Affiliate,
     in either case pursuant to Title I or IV of ERISA or to such penalty or
     excise tax provisions or to Section 401(a)(29) or 412 of the Code, other
     than such liabilities or Liens as would not be individually or in the
     aggregate Material.

          (b) The present value of the aggregate benefit liabilities under each
     of the Plans (other than Multiemployer Plans), determined as of the end of
     such Plan's most recently ended plan year on the basis of the actuarial
     assumptions specified for funding purposes in such Plan's most recent
     actuarial valuation report, did not exceed the aggregate current value of
     the assets of such Plan allocable to such benefit liabilities.  The term
     "benefit liabilities" has the meaning specified in section 4001 of ERISA
     and the terms "current value" and "present value" have the meaning
     specified in section 3 of ERISA.

          (c) The Company and its ERISA Affiliates have not incurred withdrawal
     liabilities (and are not subject to contingent withdrawal liabilities)
     under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
     individually or in the aggregate are Material.

          (d) The expected post retirement benefit obligation (determined as of
     the last day of the Company's most recently ended fiscal year in accordance
     with Financial Accounting Standards Board Statement No. 106, without regard
     to liabilities attributable to continuation coverage mandated by section
     4980B of the Code) of the Company and its Subsidiaries is not Material.




                                       8
<PAGE>
 
          (e) The execution and delivery of this Agreement and the issuance and
     sale of the Notes hereunder will not involve any transaction that is
     subject to the prohibitions of section 406 of ERISA or in connection with
     which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the
     Code.  The representation by the Company in the first sentence of this
     Section 5.12(e) is made in reliance upon and subject to the accuracy of
     your representation in Section 6.2 as to the sources of the funds used to
     pay the purchase price of the Notes to be purchased by you.

5.13. Private Offering by the Company.

         Neither the Company nor anyone acting on its behalf has offered the
Notes or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
any person other than you and not more than 30 other Institutional Investors,
each of which has been offered the Notes as a private sale for investment.
Neither the Company nor anyone acting on its behalf has taken, or will take, any
action that would subject the issuance or sale of the Notes to the registration
requirements of Section 5 of the Securities Act.

5.14. Use of Proceeds; Margin Regulations.

         The Company will apply the proceeds of the sale of the Notes as set
forth in Schedule 5.14. No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR 207), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of said Board (12 CFR 224) or
to involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). Margin stock does not constitute more than 0.1% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company does not
have any present intention that margin stock will constitute more than 0.1% of
the value of such assets. As used in this Section 5.14, the terms "margin stock"
and "purpose of buying or carrying" shall have the meanings assigned to them in
said Regulation G.

5.15. Existing Indebtedness; Future Liens.

          (a) Except as described therein, Schedule 5.15 sets forth a complete
     and correct list of all outstanding Indebtedness of the Company and its
     Subsidiaries as of August 31, 1996, since which date there has been no
     Material change in the amounts, interest rates, sinking funds, installment
     payments or maturities of the Indebtedness of the Company or its
     Subsidiaries.  Neither the Company nor any Subsidiary is in default and no
     waiver of default is currently in effect, in the payment of any principal
     or interest on any Indebtedness of the Company or any Subsidiary and no
     event or condition exists with respect to any Indebtedness of the Company
     or any Subsidiary that would permit (or that with notice or the lapse of
     time, or both, would permit) one or more Persons to cause such



                                       9
<PAGE>
 
     Indebtedness to become due and payable before its stated maturity or before
     its regularly scheduled dates of payment.

          (b) Except as disclosed in Schedule 5.15, neither the Company nor any
     Subsidiary has agreed or consented to cause or permit in the future (upon
     the happening of a contingency or otherwise) any of its property, whether
     now owned or hereafter acquired, to be subject to a Lien not permitted by
     Section 10.4.

5.16. Foreign Assets Control Regulations, etc.

         Neither the sale of the Notes by the Company hereunder nor its use of
the proceeds thereof will violate the Trading with the Enemy Act, as amended, or
any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.

5.17. Status Under Certain Statutes.

         Neither the Company nor any Subsidiary is subject to regulation under
the Investment Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the
Federal Power Act, as amended.

5.18. Environmental Matters.

         Neither the Company nor any Subsidiary has knowledge of any claim or
has received any notice of any claim, and no proceeding has been instituted
raising any claim against the Company or any of its Subsidiaries or any of their
respective real properties now or formerly owned, leased or operated by any of
them or other assets, alleging any damage to the environment or violation of any
Environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect. Except as otherwise disclosed
to you in writing,

          (a) neither the Company nor any Subsidiary has knowledge of any facts
     which would give rise to any claim, public or private, of violation of
     Environmental Laws or damage to the environment emanating from, occurring
     on or in any way related to real properties now or formerly owned, leased
     or operated by any of them or to other assets or their use, except, in each
     case, such as could not reasonably be expected to result in a Material
     Adverse Effect;

          (b) neither the Company nor any of its Subsidiaries has stored any
     Hazardous Materials on real properties now or formerly owned, leased or
     operated by any of them and has not disposed of any Hazardous Materials in
     a manner contrary to any Environmental Laws in each case in any manner that
     could reasonably be expected to result in a Material Adverse Effect; and



                                      10
<PAGE>
 
          (c) all buildings on all real properties now owned, leased or operated
     by the Company or any of its Subsidiaries are in compliance with applicable
     Environmental Laws, except where failure to comply could not reasonably be
     expected to result in a Material Adverse Effect.

6.  REPRESENTATIONS OF THE PURCHASER.

6.1.  Purchase for Investment.

         You represent that you are purchasing the Notes for your own account or
for one or more separate accounts maintained by you or for the account of one or
more pension or trust funds and not with a view to the distribution thereof,
provided that the disposition of your or their property shall at all times be
--------                                                                     
within your or their control.  You understand that the Notes have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.

6.2.  Source of Funds.

         You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:

          (a) if you are an insurance company, the Source does not include
     assets allocated to any separate account maintained by you in which any
     employee benefit plan (or its related trust) has any interest, other than a
     separate account that is maintained solely in connection with your fixed
     contractual obligations under which the amounts payable, or credited, to
     such plan and to any participant or beneficiary of such plan (including any
     annuitant) are not affected in any manner by the investment performance of
     the separate account; or

          (b) the Source is either (i) an insurance company pooled separate
     account, within the meaning of Prohibited Transaction Exemption ("PTE") 90-
     1 (issued January 29, 1990), or (ii) a bank collective investment fund,
     within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as
     you have disclosed to the Company in writing pursuant to this paragraph
     (b), no employee benefit plan or group of plans maintained by the same
     employer or employee organization beneficially owns more than 10% of all
     assets allocated to such pooled separate account or collective investment
     fund; or

          (c) the Source constitutes assets of an "investment fund" (within the
     meaning of Part V of the QPAM Exemption) managed by a "qualified
     professional asset manager" or "QPAM" (within the meaning of Part V of the
     QPAM Exemption), no employee



                                      11
<PAGE>
 
     benefit plan's assets that are included in such investment fund, when
     combined with the assets of all other employee benefit plans established or
     maintained by the same employer or by an affiliate (within the meaning of
     Section V(c)(1) of the QPAM Exemption) of such employer or by the same
     employee organization and managed by such QPAM, exceed 20% of the total
     client assets managed by such QPAM, the conditions of Part I(c) and (g) of
     the QPAM Exemption are satisfied, neither the QPAM nor a person controlling
     or controlled by the QPAM (applying the definition of "control" in Section
     V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and
     (i) the identity of such QPAM and (ii) the names of all employee benefit
      -                                 -- 
     plans whose assets are included in such investment fund have been disclosed
     to the Company in writing pursuant to this paragraph (c); or

          (d) the Source is a governmental plan; or

          (e) the Source is one or more employee benefit plans, or a separate
     account or trust fund comprised of one or more employee benefit plans, each
     of which has been identified to the Company in writing pursuant to this
     paragraph (e); or

          (f) the Source does not include assets of any employee benefit plan,
     other than a plan exempt from the coverage of ERISA; or

          (g) the Source is an "insurance company general account" as such term
     is defined in the Department of Labor Prohibited Transaction Class
     Exemption 95-60 (issued July 12, 1995) ("PTE 95-60") and as of the date of
     this Agreement there is no "employee benefit plan" with respect to which
     the aggregate amount of such general account's reserves and liabilities for
     the contracts held by or on behalf of such employee benefit plan and all
     other employee benefit plans maintained by the same employer (and
     affiliates thereof as defined in Section V(a)(1) of PTE 95-60) or by the
     same employee organization (in each case determined in accordance with the
     provisions of PTE 95-60) exceeds 10% of the total reserves and liabilities
     of such general account (as determined under PTE 95-60) (exclusive of
     separate account liabilities) plus surplus as set forth in the National
     Association of Insurance Commissioners Annual Statement filed with the
     state of domicile of such Purchaser.

As used in this Section 6.2, the terms "employee benefit plan," "governmental
plan," "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.

7.  INFORMATION AS TO COMPANY.

7.1.  Financial and Business Information.

         The Company shall deliver to each holder of Notes that is an
Institutional Investor:



                                      12
<PAGE>
 
          (a) Quarterly Statements -- within 45 days after the end of each
              --------------------                                        
     quarterly fiscal period in each fiscal year of the Company (other than the
     last quarterly fiscal period of each such fiscal year), duplicate copies
     of,

               (i)  a consolidated balance sheet of the Company and its
     Subsidiaries as of the end of such quarter, and

               (ii) consolidated statements of income, changes in shareholders'
     equity and cash flows of the Company and its Subsidiaries, for such quarter
     and (in the case of the second and third quarters) for the portion of the
     fiscal year ending with such quarter,

setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being reported on and their
results of operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified above of
             --------                                                        
copies of the Company's Quarterly Report on Form 10-Q prepared in compliance
with the requirements therefor and filed with the Securities and Exchange
Commission, if any, shall be deemed to satisfy the requirements of this Section
7.1(a);

          (b) Annual Statements -- within 90 days after the end of each fiscal
              -----------------                                               
     year of the Company, duplicate copies of,

               (i)  a consolidated balance sheet of the Company and its
     Subsidiaries, as of the end of such year, and

               (ii) consolidated statements of income, changes in shareholders'
     equity and cash flows of the Company and its Subsidiaries, for such year,

setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied

               (A)  by an opinion thereon of independent certified public
     accountants of recognized national standing, which opinion shall state that
     such financial statements present fairly, in all material respects, the
     financial position of the companies being reported upon and their results
     of operations and cash flows and have been prepared in conformity with
     GAAP, and that the examination of such accountants in connection with such
     financial statements has been made in accordance with generally accepted
     auditing standards, and that such audit provides a reasonable basis for
     such opinion in the circumstances, and



               
                                      13
<PAGE>
 
               (B) a certificate of such accountants stating that they have
     reviewed this Agreement and stating further whether, in making their audit,
     they have become aware of any condition or event that then constitutes a
     Default or an Event of Default, and, if they are aware that any such
     condition or event then exists, specifying the nature and period of the
     existence thereof (it being understood that such accountants shall not be
     liable, directly or indirectly, for any failure to obtain knowledge of any
     Default or Event of Default unless such accountants should have obtained
     knowledge thereof in making an audit in accordance with generally accepted
     auditing standards or did not make such an audit),

     provided that the delivery within the time period specified above of the
     --------                                                                
     Company's Annual Report on Form 10-K for such fiscal year (together with
     the Company's annual report to shareholders, if any, prepared pursuant to
     Rule 14a-3 under the Exchange Act) prepared in accordance with the
     requirements therefor and filed with the Securities and Exchange
     Commission, if any, together with the accountant's certificate described in
     clause (B) above, shall be deemed to satisfy the requirements of this
     Section (b);

          (c) SEC and Other Reports -- promptly upon their becoming available,
              ---------------------                                           
     one copy of (i) each financial statement, report, notice or proxy statement
                  -                                                             
     sent by the Company or any Subsidiary to public securities holders
     generally, if any, and (ii) each regular or periodic report, each
                             --                                       
     registration statement (without exhibits except as expressly requested by
     such holder), and each prospectus and all amendments thereto filed by the
     Company or any Subsidiary with the Securities and Exchange Commission, if
     any, and of all press releases and other statements made available
     generally by the Company or any Subsidiary to the public concerning
     developments that are Material;

          (d) Notice of Default or Event of Default -- promptly, and in any
              -------------------------------------                        
     event within five days after a Responsible Officer becoming aware of the
     existence of any Default or Event of Default or that any Person has given
     any notice or taken any action with respect to a claimed default hereunder
     or that any Person has given any notice or taken any action with respect to
     a claimed default of the type referred to in Section 11(f), a written
     notice specifying the nature and period of existence thereof and what
     action the Company is taking or proposes to take with respect thereto;

          (e) ERISA Matters -- promptly, and in any event within five days after
              -------------                                                     
     a Responsible Officer becoming aware of any of the following, a written
     notice setting forth the nature thereof and the action, if any, that the
     Company or an ERISA Affiliate proposes to take with respect thereto:

               (i)   with respect to any Plan, any reportable event, as defined
     in section 4043(b) of ERISA and the regulations thereunder, for which
     notice thereof has not been waived pursuant to such regulations as in
     effect on the date hereof; or

                                      14
<PAGE>
 
               (ii)  the taking by the PBGC of steps to institute, or the
     threatening by the PBGC of the institution of, proceedings under section
     4042 of ERISA for the termination of, or the appointment of a trustee to
     administer, any Plan, or the receipt by the Company or any ERISA Affiliate
     of a notice from a Multiemployer Plan that such action has been taken by
     the PBGC with respect to such Multiemployer Plan; or

               (iii) any event, transaction or condition that could result in
     the incurrence of any liability by the Company or any ERISA Affiliate
     pursuant to Title I or IV of ERISA or the penalty or excise tax provisions
     of the Code relating to employee benefit plans, or in the imposition of any
     Lien on any of the rights, properties or assets of the Company or any ERISA
     Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax
     provisions, if such liability or Lien, taken together with any other such
     liabilities or Liens then existing, could reasonably be expected to have a
     Material Adverse Effect;

          (f) Notices from Governmental Authority -- promptly, and in any event
              -----------------------------------                              
     within 30 days of receipt thereof, copies of any notice to the Company or
     any Subsidiary from any Federal or state Governmental Authority relating to
     any order, ruling, statute or other law or regulation that could reasonably
     be expected to have a Material Adverse Effect; and

          (g) Requested Information -- with reasonable promptness, such other
              ---------------------                                          
     data and information relating to the business, operations, affairs,
     financial condition, assets or properties of the Company or any of its
     Subsidiaries or relating to the ability of the Company to perform its
     obligations hereunder and under the Notes as from time to time may be
     reasonably requested by any such holder of Notes.

7.2. Officer's Certificate.

          Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1 (a) or Section (b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:

          (a) Covenant Compliance -- the information (including detailed
              -------------------                                       
     calculations) required in order to establish whether the Company was in
     compliance with the requirements of Section 10.2 through Section 10.8,
     inclusive, during the quarterly or annual period covered by the statements
     then being furnished (including with respect to each such Section, where
     applicable, the calculations of the maximum or minimum amount, ratio or
     percentage, as the case may be, permissible under the terms of such
     Sections, and the calculation of the amount, ratio or percentage then in
     existence); and

          (b) Event of Default -- a statement that such officer has reviewed the
              ----------------                                                  
     relevant terms hereof and has made, or caused to be made, under his or her
     supervision, a review of the transactions and conditions of the Company and
     its Subsidiaries from the

                                      15
<PAGE>
 
     beginning of the quarterly or annual period covered by the statements then
     being furnished to the date of the certificate and that such review shall
     not have disclosed the existence during such period of any condition or
     event that constitutes a Default or an Event of Default or, if any such
     condition or event existed or exists (including, without limitation, any
     such event or condition resulting from the failure of the Company or any
     Subsidiary to comply with any Environmental Law), specifying the nature and
     period of existence thereof and what action the Company shall have taken or
     proposes to take with respect thereto.

7.3.  Inspection.

          The Company shall permit the representatives of each holder of Notes
that is an Institutional Investor:

          (a) No Default -- if no Default or Event of Default then exists, at
              ----------                                                     
     the expense of such holder and upon reasonable prior notice to the Company,
     to visit the principal executive office of the Company, to discuss the
     affairs, finances and accounts of the Company and its Subsidiaries with the
     Company's officers, and (with the consent of the Company, which consent
     will not be unreasonably withheld) its independent public accountants, and
     (with the consent of the Company, which consent will not be unreasonably
     withheld) to visit the other offices and properties of the Company and each
     Subsidiary, all at such reasonable times and as often as may be reasonably
     requested in writing; and

          (b) Default -- if a Default or Event of Default then exists, at the
              -------                                                        
     expense of the Company, to visit and inspect any of the offices or
     properties of the Company or any Subsidiary, to examine all their
     respective books of account, records, reports and other papers, to make
     copies and extracts therefrom, and to discuss their respective affairs,
     finances and accounts with their respective officers and independent public
     accountants (and by this provision the Company authorizes said accountants
     to discuss the affairs, finances and accounts of the Company and its
     Subsidiaries), all at such times and as often as may be requested.

8.    PREPAYMENT OF THE NOTES.

8.1.  Required Prepayments.

          (a) On September 15, 2000 and on each September 15 thereafter to and
     including September 15, 2005 the Company will prepay $4,285,715 principal
     amount (or such lesser principal amount as shall then be outstanding) of
     the Notes at 100% of the principal amount thereof and without payment of
     the Make-Whole Amount or any premium, provided that upon any partial
                                           --------                      
     prepayment of the Notes pursuant to Section 8.2 or purchase of the Notes
     permitted by Section 8.5, the principal amount of each required


                                      16
<PAGE>
 
     prepayment of the Notes becoming due under this Section 8.1 on and after
     the date of such prepayment or purchase shall be reduced in the same
     proportion as the aggregate unpaid principal amount of the Notes is reduced
     as a result of such prepayment or purchase.

          (b) In the event of a Change of Control Event, the Company, upon
     notice as provided below, shall offer to prepay the entire principal amount
     of the Notes at 100% of the principal amount thereof and without payment of
     the Make-Whole Amount or any premium.  The Company shall give notice of any
     offer to prepay the Notes to each holder of the Notes immediately and in
     any event not later than the date of a Change of Control Event.  Such
     notice shall be certified by a Senior Financial Officer and shall specify
     (i) the nature of the Change of Control Event, (ii) the date fixed for
     prepayment which shall be not less than 30 or more than 60 calendar days
     after the date of such notice but in any event shall not be later than the
     Effective Date of the Change of Control, (iii) the accrued interest
     applicable to the prepayment and (iv) the date by which any holder of a
     Note that wishes to accept such offer must deliver notice thereof to the
     Company which shall not be later than 7 Business Days prior to the date
     fixed for prepayment.  Not later than 5 Business Days prior to the date
     fixed for prepayment, the Company shall give written notice to each holder
     of the Notes of those holders who have given notices of acceptance of the
     Company's offer, and the principal amount of Notes held by each, and
     thereafter any holder may change its response to the Company's offer by
     written notice to such effect delivered to the Company not less than 2
     Business Days prior to the date fixed for prepayment.  Upon receipt by the
     Company of any non-revoked notice of acceptance from any holder within the
     required time period, the aggregate principal amount of Notes held by such
     holder shall become due and payable on the prepayment date.  Failure of a
     holder to respond to a notice shall be deemed to be an election by such
     holder to accept the offer to prepay.


8.2.  Optional Prepayments with Make-Whole Amount.

        The Company may, at its option, upon notice as provided below, prepay at
any time all, or from time to time any part of, the Notes, in an amount not less
than $1,000,000 in the case of a partial prepayment, at 100% of the principal
amount so prepaid, plus the Make-Whole Amount determined for the prepayment date
with respect to such principal amount. The Company will give each holder of
Notes written notice of each optional prepayment under this Section 8.2 not less
than 30 days and not more than 60 days prior to the date fixed for such
prepayment. Each such notice shall specify such date, the aggregate principal
amount of the Notes to be prepaid on such date, the principal amount of each
Note held by such holder to be prepaid (determined in accordance with Section
8.3), and the interest to be paid on the prepayment date with respect to such
principal amount being prepaid, and shall be accompanied by a certificate of a
Senior Financial Officer as to the estimated Make-Whole Amount due in connection
with such prepayment (calculated as if the date of such notice were the date of
the


                                      17
<PAGE>
 
prepayment), setting forth the details of such computation. Two Business Days
prior to such prepayment, the Company shall deliver to each holder of Notes a
certificate of a Senior Financial Officer specifying the calculation of such
Make-Whole Amount as of the specified prepayment date.

8.3.  Allocation of Partial Prepayments.

        In the case of each partial prepayment of the Notes, the principal
amount of the Notes to be prepaid shall be allocated among all of the Notes at
the time outstanding in proportion, as nearly as practicable, to the respective
unpaid principal amounts thereof not theretofore called for prepayment.

8.4.  Maturity; Surrender, etc.

        In the case of each prepayment of Notes pursuant to this Section 8, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any.  From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest and Make-
Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue.  Any Note paid or prepaid in full shall be surrendered to the
Company and canceled and shall not be reissued, and no Note shall be issued in
lieu of any prepaid principal amount of any Note.

8.5.  Purchase of Notes.

        The Company will not and will not permit any Affiliate to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.

8.6.  Make-Whole Amount.

        The term "Make-Whole Amount" means, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Note over the amount of
such Called Principal, provided that the Make-Whole Amount may in no event be
                       --------
less than zero. For the purposes of determining the Make-Whole Amount, the
following terms have the following meanings:

        "Called Principal" means, with respect to any Note, the principal of
     such Note that is to be prepaid pursuant to Section 8.2 or has become or is
     declared to be immediately due and payable pursuant to Section 12.1, as the
     context requires.


                                      18
<PAGE>
 
        "Discounted Value" means, with respect to the Called Principal of any
     Note, the amount obtained by discounting all Remaining Scheduled Payments
     with respect to such Called Principal from their respective scheduled due
     dates to the Settlement Date with respect to such Called Principal, in
     accordance with accepted financial practice and at a discount factor
     (applied on the same periodic basis as that on which interest on the Notes
     is payable) equal to the Reinvestment Yield with respect to such Called
     Principal.

        "Reinvestment Yield" means, with respect to the Called Principal of any
     Note, .60% over the yield to maturity implied by (i) the yields reported,
                                                       -
     as of 10:00 a.m. (New York City time) on the second Business Day preceding
     the Settlement Date with respect to such Called Principal, on the display
     designated as "Page 500" on the Telerate Access Service (or such other
     display as may replace Page 500 on Telerate Access Service) for actively
     traded U.S. Treasury securities having a maturity equal to the Remaining
     Average Life of such Called Principal as of such Settlement Date or (ii) if
                                                                          --
     such yields are not reported as of such time or the yields reported as of
     such time are not ascertainable, the Treasury Constant Maturity Series
     Yields reported, for the latest day for which such yields have been so
     reported as of the second Business Day preceding the Settlement Date with
     respect to such Called Principal, in Federal Reserve Statistical Release
     H.15 (519) (or any comparable successor publication) for actively traded
     U.S. Treasury securities having a constant maturity equal to the Remaining
     Average Life of such Called Principal as of such Settlement Date. Such
     implied yield will be determined, if necessary, by (a) converting U.S.
                                                         -
     Treasury bill quotations to bond-equivalent yields in accordance with
     accepted financial practice and (b) interpolating linearly between (1) the
                                      -                                  -
     actively traded U.S. Treasury security with the final maturity closest to
     and greater than the Remaining Average Life and (2) the actively traded
                                                      -
     U.S. Treasury security with the final maturity closest to and less than the
     Remaining Average Life.

        "Remaining Average Life" means, with respect to any Called Principal,
     the number of years (calculated to the nearest one-twelfth year) obtained
     by dividing (i) such Called Principal into (ii) the sum of the products
                  -                              --
     obtained by multiplying (a) the principal component of each Remaining
                              -
     Scheduled Payment with respect to such Called Principal by (b) the number
                                                                 -
     of years (calculated to the nearest one-twelfth year) that will elapse
     between the Settlement Date with respect to such Called Principal and the
     scheduled due date of such Remaining Scheduled Payment.

        "Remaining Scheduled Payments" means, with respect to the Called
     Principal of any Note, all payments of such Called Principal and interest
     thereon that would be due after the Settlement Date with respect to such
     Called Principal if no payment of such Called Principal were made prior to
     its scheduled due date, provided that if such Settlement Date is not a date
                             --------
     on which interest payments are due to be made under the terms of the Notes,
     then the amount of the next succeeding scheduled interest payment will be
     reduced by the amount of interest accrued to such Settlement Date and
     required to be paid on such Settlement Date pursuant to Section 8.2 or
     12.1.

                                      19
<PAGE>
 
        "Settlement Date" means, with respect to the Called Principal of any
     Note, the date on which such Called Principal is to be prepaid pursuant to
     Section 8.2 or has become or is declared to be immediately due and payable
     pursuant to Section 12.1, as the context requires.

9.   AFFIRMATIVE COVENANTS.

        The Company covenants that so long as any of the Notes are outstanding:

9.1. Compliance with Law.

        The Company will and will cause each of its Subsidiaries to comply with
all laws, ordinances or governmental rules or regulations to which each of them
is subject, including, without limitation, Environmental Laws, and will obtain
and maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

9.2. Insurance.

        The Company will and will cause each of its Subsidiaries to maintain,
with financially sound and reputable insurers, insurance with respect to their
respective properties and businesses against such casualties and contingencies,
of such types, on such terms and in such amounts (including deductibles, co-
insurance and self-insurance, if adequate reserves are maintained with respect
thereto) as is customary in the case of entities of established reputations
engaged in the same or a similar business and similarly situated.

9.3. Maintenance of Properties.

        The Company will and will cause each of its Subsidiaries to maintain and
keep, or cause to be maintained and kept, their respective properties in good
repair, working order and condition (other than ordinary wear and tear), so that
the business carried on in connection therewith may be properly conducted at all
times, provided that this Section 9.3 shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Company has concluded that such discontinuance could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
                                      20
<PAGE>
 
9.4.  Payment of Taxes and Claims.

        The Company will and will cause each of its Subsidiaries to file all tax
returns required to be filed in any jurisdiction and to pay and discharge all
taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
                                                                        --------
that neither the Company nor any Subsidiary need pay any such tax or assessment
or claims if (i) the amount, applicability or validity thereof is contested by
              -                                                               
the Company or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in
                       --                                                     
the aggregate could not reasonably be expected to have a Material Adverse
Effect.

9.5.  Corporate Existence, etc.

        The Company will at all times preserve and keep in full force and effect
its corporate existence. Subject to Sections 10.2 and 10.3, the Company will at
all times preserve and keep in full force and effect the corporate existence of
each of its Subsidiaries (unless merged into the Company or a Subsidiary) and
all rights and franchises of the Company and its Subsidiaries unless, in the
good faith judgment of the Company, the termination of or failure to preserve
and keep in full force and effect such corporate existence, right or franchise
could not, individually or in the aggregate, have a Material Adverse Effect.

10.  NEGATIVE COVENANTS.

        The Company covenants that so long as any of the Notes are outstanding:

10.1.  Transactions with Affiliates.

        The Company will not and will not permit any Subsidiary to enter into
directly or indirectly any transaction or Material group of related transactions
(including, without limitation, the purchase, lease, sale or exchange of
properties of any kind or the rendering of any service) with any Affiliate
(other than the Company or another Subsidiary), except in the ordinary course
and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would be obtainable in a comparable arm's-
length transaction with a Person not an Affiliate.


                                      21
<PAGE>
 
10.2.  Merger, Consolidation, etc.

        The Company will not consolidate with or merge with any other
corporation or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to any Person unless:

        (a)  the successor formed by such consolidation or the survivor of such
     merger or the Person that acquires by conveyance, transfer or lease
     substantially all of the assets of the Company as an entirety, as the case
     may be, shall be a solvent corporation organized and existing under the
     laws of the United States or any State thereof (including the District of
     Columbia), and, if the Company is not such corporation, (i) such
                                                              -
     corporation shall have executed and delivered to each holder of any Notes
     its assumption of the due and punctual performance and observance of each
     covenant and condition of this Agreement and the Notes and (ii) shall have
                                                                 --
     caused to be delivered to each holder of any Notes an opinion of nationally
     recognized independent counsel, or other independent counsel reasonably
     satisfactory to the Required Holders, to the effect that all agreements or
     instruments effecting such assumption are enforceable in accordance with
     their terms and comply with the terms hereof;

        (b)  immediately after giving effect to such transaction, no Default or
     Event of Default shall have occurred and be continuing.

No such conveyance, transfer or lease of substantially all of the assets of the
Company shall have the effect of releasing the Company or any successor
corporation that shall theretofore have become such in the manner prescribed in
this Section 10.2 from its liability under this Agreement or the Notes.

10.3.  Sale of Assets.

        The Company will not and will not permit any Subsidiary to sell, lease,
transfer or otherwise (including by way of merger) dispose of (collectively a
"Disposition") any assets, including any shares of capital stock of Subsidiaries
in one or a series of transactions, other than in the ordinary course of
business, to any Person, except to the Company or a Wholly-Owned Subsidiary, (i)
if, after giving effect to such Disposition and all prior Dispositions since the
Date of Closing, the aggregate net book value of assets subject to Dispositions
would exceed, on a cumulative basis, 25% of Consolidated Total Assets as of the
end of the immediately preceding fiscal quarter or (ii) if a Default or Event of
Default exists; provided, that such Disposition shall not be subject to or
included in the foregoing limitation and computation in clause (i) if the net
proceeds of such Disposition are (x) reinvested or committed to be reinvested in
productive assets of a similar nature and at least equivalent value within 12
months of such Disposition, or (y) applied to reduce Funded Debt of the Company
or its Subsidiaries, including the Notes (other than Funded Debt that by its
terms is subordinate to the Notes), on a pro rata basis, and in the


                                      22
<PAGE>
 
case of those proceeds applied to reduce the Notes, the provisions of Sections
8.2 and 8.3 shall apply.

10.4.  Liens.

         The Company will not and will not permit any Subsidiary to permit to
exist, create, assume or incur, directly or indirectly, any Lien on its
properties or assets, whether now owned or hereafter acquired, except:

          (a) Liens existing on property or assets of the Company or any
     Subsidiary as of the date of this Agreement that are described in Schedule
     10.4;

          (b) Liens for taxes, assessments or governmental charges not then due
     and delinquent or the validity of which is being contested in good faith by
     appropriate proceedings and as to which the Company has established
     adequate reserves on its books in accordance with GAAP;

          (c) Liens arising in connection with court proceedings, provided the
     execution of such Liens is effectively stayed, such Liens are being
     contested in good faith by appropriate proceedings and as to which the
     Company has established adequate reserves on its books in accordance with
     GAAP;

          (d) Liens arising in the ordinary course of business and not incurred
     in connection with the borrowing of money (including encumbrances in the
     nature of zoning restrictions, easements, rights and restrictions of record
     on the use of real property, defects in title and landlord's, lessor's,
     mechanics' and materialmen's liens) that in the aggregate do not materially
     interfere with the conduct of the business of the Company and its
     Subsidiaries taken as a whole or materially impair the use or value of the
     property or assets subject thereto;

          (e) Liens securing Indebtedness of a Subsidiary to the Company or to a
     Wholly-Owned Subsidiary;

          (f) Liens (i) existing on property at the time of its acquisition by
     the Company or a Subsidiary and not created in contemplation thereof,
     whether or not the Indebtedness secured by such Lien is assumed by the
     Company or a Subsidiary; or (ii) on property created contemporaneously with
     its acquisition or within 180 days of the acquisition or completion of
     construction thereof to secure or provide for all or a portion of the
     purchase price or cost of construction of such property; or (iii) existing
     on property of a Person at the time such Person is merged or consolidated
     with, or substantially all of its assets are acquired by, the Company or a
     Subsidiary and not created in contemplation thereof; provided that in the
     case of clauses (i), (ii) and (iii) such Liens do not extend to other
     property of the Company or any Subsidiary and that the aggregate principal
     amount of


                                      23
<PAGE>
 
     Indebtedness secured by each such Lien does not exceed 100% of the fair
     market value of the property subject thereto;

          (g) Additional Liens securing Indebtedness not otherwise permitted by
     paragraphs (a) through (f) above, provided that at the time of creation,
     assumption or incurrence thereof and immediately after giving effect
     thereto and to the application of the proceeds therefrom, the sum (without
     duplication) of (i) the outstanding principal amount of Indebtedness of the
     Company and its Subsidiaries secured by Liens, and (ii) the outstanding
     principal amount of Funded Debt of Subsidiaries, does not exceed 15% of
     Consolidated Net Worth; and

          (h) Liens resulting from extensions, renewals or replacements of Liens
     permitted by paragraphs (a) and (f), provided that there is no increase in
     the principal amount of Indebtedness secured thereby at the time of
     extension, renewal or replacement and any new Lien attaches only to the
     same property theretofore subject to such earlier Lien.

10.5.  Net Worth.

         The Company will not permit its Consolidated Net Worth at any time to
be less than $45,000,000 plus the cumulative sum of 50% of Consolidated Net
Income (without reduction for any losses) for each of its fiscal years ending
after December 31, 1995.

10.6.  Funded Debt.

         The Company will not and will not permit any Subsidiary to create,
assume, incur or otherwise become liable for, directly or indirectly, any Funded
Debt other than:

          (a) the Notes;

          (b) outstanding Funded Debt of the Company and its Subsidiaries
     described in Schedule 5.15 and extensions, renewals or replacements of such
     Funded Debt, provided that the outstanding principal amount of such Funded
     Debt at the time of such extension, renewal or replacement is not
     increased;

          (c) additional Funded Debt, provided that at the time of incurrence
     and after giving effect thereto and to the application of the proceeds
     therefrom, the Consolidated Funded Debt then to be outstanding does not
     exceed 60% of Consolidated Total Capitalization; and

          (d) additional Funded Debt of Subsidiaries, provided that at the time
     of incurrence and after giving effect thereto and to the application of the
     proceeds therefrom,



                                      24
<PAGE>
 
               (i)   such Funded Debt may be incurred pursuant to paragraph (c)
     of this Section 10.6, and

               (ii)  the sum (without duplication) of outstanding (x) Funded
     Debt of Subsidiaries (other than Funded Debt of Subsidiaries owed to the
     Company) and (y) Indebtedness of the Company or any Subsidiary secured by
     Liens permitted by Section 10.4(g) does not exceed 15% of Consolidated Net
     Worth.

10.7.  Fixed Charge Coverage Ratio.

        The Company will not permit the ratio (calculated as of the end of each
fiscal quarter) of Consolidated Income Available for Fixed Charges to
Consolidated Fixed Charges for the period of four quarters ending as of each
fiscal quarter to be less than 2.00 to 1.00. If any Indebtedness is incurred or
assumed by the Company or any Subsidiary in connection with an acquisition, the
Company shall determine compliance with this Section 10.7 for the applicable
period ending as of its most recently completed fiscal quarter, (A) calculating
Consolidated Income Available for Fixed Charges, on a pro forma basis, as if the
acquisition had occurred on the first day of the period of four consecutive
fiscal quarters ending with the most recently completed fiscal quarter, and (B)
calculating Consolidated Fixed Charges, on a projected basis, giving effect to
any Indebtedness incurred in connection with the acquisition for the four fiscal
quarters following the acquisition.

10.8.  Disposition of Stock of Subsidiaries.

        The Company will not, and will not permit any Subsidiary to, issue, sell
or transfer capital stock of a Subsidiary to any Person other than the Company
or a Wholly-Owned Subsidiary if such issuance, sale or transfer would cause it
to cease to be a Subsidiary, unless (i) all shares of capital stock of such
Subsidiary and all Indebtedness of such Subsidiary owned by the Company and by
every other Subsidiary shall simultaneously be sold, transferred or otherwise
disposed of, (ii) such Subsidiary does not thereafter own any shares of capital
stock or Indebtedness of the Company or another Subsidiary and (iii) such sale
would not be prohibited under Section 10.3.

10.9.  Nature of Business.

        The Company will not, and will not permit any of its Subsidiaries to,
engage to any substantial extent in any business other than the businesses in
which the Company and its Subsidiaries are engaged on the date of this Agreement
as described in the Memorandum and businesses reasonably related thereto or in
furtherance thereof.

11.  EVENTS OF DEFAULT.

        An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:


                                      25
<PAGE>
 
          (a) the Company defaults in the payment of any principal or Make-Whole
     Amount, if any, on any Note when the same becomes due and payable, whether
     at maturity or at a date fixed for prepayment or by declaration or
     otherwise; or

          (b) the Company defaults in the payment of any interest on any Note
     for more than five Business Days after the same becomes due and payable; or

          (c) the Company defaults in the performance of or compliance with any
     term contained in Section 7.1(d) or Sections 10.1 through 10.9; or

          (d) the Company defaults in the performance of or compliance with any
     term contained herein (other than those referred to in paragraphs (a), (b)
     and (c) of this Section 11) and such default is not remedied within 30 days
     after the earlier of (i) a Responsible Officer obtaining actual knowledge
                           -                                                  
     of such default and (ii) the Company receiving written notice of such
                          --                                              
     default from any holder of a Note; or

          (e) any representation or warranty made in writing by or on behalf of
     the Company or by any officer of the Company in this Agreement or in any
     writing furnished in connection with the transactions contemplated hereby
     proves to have been false or incorrect in any material respect on the date
     as of which made; or

          (f) (i) the Company or any Subsidiary is in default (as principal or
               -                                                              
     as guarantor or other surety) in the payment of any principal of or premium
     or make-whole amount or interest on any Indebtedness that is outstanding in
     an aggregate principal amount of at least $2,000,000 beyond any period of
     grace provided with respect thereto, or (ii) the Company or any Subsidiary
                                              --                               
     is in default in the performance of or compliance with any term of any
     evidence of any Indebtedness in an aggregate outstanding principal amount
     of at least $2,000,000 or of any mortgage, indenture or other agreement
     relating thereto or any other condition exists, and as a consequence of
     such default or condition such Indebtedness has become, or has been
     declared (or one or more Persons are entitled to declare such Indebtedness
     to be), due and payable before its stated maturity or before its regularly
     scheduled dates of payment, or (iii) as a consequence of the occurrence or
                                     ---                                       
     continuation of any event or condition (other than the passage of time or
     the right of the holder of Indebtedness to convert such Indebtedness into
     equity interests), (x) the Company or any Subsidiary has become obligated
                         -                                                    
     to purchase or repay Indebtedness before its regular maturity or before its
     regularly scheduled dates of payment in an aggregate outstanding principal
     amount of at least $2,000,000, or (y) one or more Persons have the right to
                                        -                                       
     require the Company or any Subsidiary so to purchase or repay such
     Indebtedness; or

          (g) the Company or any Subsidiary (i) is generally not paying, or
                                             -                             
     admits in writing its inability to pay, its debts as they become due, (ii)
                                                                            -- 
     files, or consents by answer or otherwise to the filing against it of, a
     petition for relief or reorganization or


                                      26
<PAGE>
 
     arrangement or any other petition in bankruptcy, for liquidation or to take
     advantage of any bankruptcy, insolvency, reorganization, moratorium or
     other similar law of any jurisdiction, (iii) makes an assignment for the
                                             ---
     benefit of its creditors, (iv) consents to the appointment of a custodian,
                                --
     receiver, trustee or other officer with similar powers with respect to it
     or with respect to any substantial part of its property, (v) is adjudicated
                                                               -
     as insolvent or to be liquidated or (vi) takes corporate action for the
                                          --
     purpose of any of the foregoing; or

          (h) a court or governmental authority of competent jurisdiction enters
     an order appointing, without consent by the Company or any of its
     Subsidiaries, a custodian, receiver, trustee or other officer with similar
     powers with respect to it or with respect to any substantial part of its
     property, or constituting an order for relief or approving a petition for
     relief or reorganization or any other petition in bankruptcy or for
     liquidation or to take advantage of any bankruptcy or insolvency law of any
     jurisdiction, or ordering the dissolution, winding-up or liquidation of the
     Company or any of its Subsidiaries, or any such petition shall be filed
     against the Company or any of its Subsidiaries and such petition shall not
     be dismissed within 60 days; or

          (i) a final judgment or judgments for the payment of money aggregating
     in excess of $5,000,000 are rendered against one or more of the Company and
     its Subsidiaries which judgments are not, within 45 days after entry
     thereof, bonded, discharged or stayed pending appeal, or are not discharged
     within 45 days after the expiration of such stay; or

          (j) if (i) any Plan shall fail to satisfy the minimum funding
                  -                                                    
     standards of ERISA or the Code for any plan year or part thereof or a
     waiver of such standards or extension of any amortization period is sought
     or granted under section 412 of the Code, (ii) a notice of intent to
                                                --                       
     terminate any Plan shall have been or is reasonably expected to be filed
     with the PBGC or the PBGC shall have instituted proceedings under ERISA
     section 4042 to terminate or appoint a trustee to administer any Plan or
     the PBGC shall have notified the Company or any ERISA Affiliate that a Plan
     may become a subject of any such proceedings, (iii) the aggregate "amount
                                                    ---                       
     of unfunded benefit liabilities" (within the meaning of section 4001(a)(18)
     of ERISA) under all Plans, determined in accordance with Title IV of ERISA,
     shall exceed $2,000,000, (iv) the Company or any ERISA Affiliate shall have
                               --                                               
     incurred or is reasonably expected to incur any liability pursuant to Title
     I or IV of ERISA or the penalty or excise tax provisions of the Code
     relating to employee benefit plans, (v) the Company or any ERISA Affiliate
                                          -                                    
     withdraws from any Multiemployer Plan, or (vi) the Company or any
                                                --                    
     Subsidiary establishes or amends any employee welfare benefit plan that
     provides post-employment welfare benefits in a manner that would increase
     the liability of the Company or any Subsidiary thereunder; and any such
     event or events described in clauses (i) through (vi) above, either
     individually or together with any other such event or events, could
     reasonably be expected to have a Material Adverse Effect.


                                      27
<PAGE>
 
As used in Section 11(j), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.

12.    REMEDIES ON DEFAULT, ETC.

12.1.  Acceleration.

          (a) If an Event of Default with respect to the Company described in
     paragraph (g) or (h) of Section 11 (other than an Event of Default
     described in clause (i) of paragraph (g) or described in clause (vi) of
     paragraph (g) by virtue of the fact that such clause encompasses clause (i)
     of paragraph (g)) has occurred, all the Notes then outstanding shall
     automatically become immediately due and payable.

          (b) If any other Event of Default has occurred and is continuing, any
     holder or holders of more than 25% in principal amount of the Notes at the
     time outstanding may at any time at its or their option, by notice or
     notices to the Company, declare all the Notes then outstanding to be
     immediately due and payable.

          (c) If any Event of Default described in paragraph (a) or (b) of
     Section 11 has occurred and is continuing, any holder or holders of Notes
     at the time outstanding affected by such Event of Default may at any time,
     at its or their option, by notice or notices to the Company, declare all
     the Notes held by it or them to be immediately due and payable.

  Upon any Notes becoming due and payable under this Section 12.1, whether
automatically or by declaration, such Notes will forthwith mature and the entire
unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest
                                             -                                 
thereon and (y) the Make-Whole Amount determined in respect of such principal
             -                                                               
amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived.  The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.

12.2.  Other Remedies.

        If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 12.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an


                                      28
<PAGE>
 
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.

12.3.  Rescission.

        At any time after any Notes have been declared due and payable pursuant
to clause (b) or (c) of Section 12.1, the holders of not less than 66-2/3% in
principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
                                                                             - 
the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, (b) all Events of Default and Defaults, other than non-payment of amounts
       -                                                                       
that have become due solely by reason of such declaration, have been cured or
have been waived pursuant to Section 17, and (c) no judgment or decree has been
                                              -                                
entered for the payment of any monies due pursuant hereto or to the Notes.  No
rescission and annulment under this Section 12.3 will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.

12.4.  No Waivers or Election of Remedies, Expenses, etc.

        No course of dealing and no delay on the part of any holder of any Note
in exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Company under Section 15, the Company
will pay to the holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 12, including, without limitation,
reasonable attorneys' fees, expenses and disbursements.

13.    REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

13.1.  Registration of Notes.

        The Company will keep at its principal executive office a register for
the registration and registration of transfers of Notes. The name and address of
each holder of one or more Notes, each transfer thereof and the name and address
of each transferee of one or more Notes shall be registered in such register.
Prior to due presentment for registration of transfer, the Person in whose name
any Note shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes hereof, and the Company shall not be affected by any
notice or knowledge to the contrary. The Company shall give to any holder of a
Note that is an Institutional Investor promptly upon request therefor, a
complete and correct copy of the names and addresses of all registered holders
of Notes.


                                      29
<PAGE>
 
13.2.  Transfer and Exchange of Notes.

        Upon surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1. Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $1,000,000 provided that if necessary
                                                     --------
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $1,000,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
Section 6.2.

13.3.  Replacement of Notes.

        Upon receipt by the Company of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and

        (a)  in the case of loss, theft or destruction, of indemnity reasonably
     satisfactory to it (provided that if the holder of such Note is, or is a
                         --------                                            
     nominee for, an original Purchaser or another holder of a Note which is an
     Institutional Investor, such Person's own unsecured agreement of indemnity
     shall be deemed to be satisfactory), or

        (b) in the case of mutilation, upon surrender and cancellation thereof,

the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.


                                      30
<PAGE>
 
14.    PAYMENTS ON NOTES.

14.1.  Place of Payment.

        Subject to Section 14.2, payments of principal, Make-Whole Amount, if
any, and interest becoming due and payable on the Notes shall be made in
Oklahoma City, Oklahoma at the principal office of the Company in such
jurisdiction. The Company may at any time, by notice to each holder of a Note,
change the place of payment of the Notes so long as such place of payment shall
be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.

14.2.  Home Office Payment.

        So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that upon written
request of the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most recently designated
by the Company pursuant to Section 14.1.  Prior to any sale or other disposition
of any Note held by you or your nominee you will, at your election, either
endorse thereon the amount of principal paid thereon and the last date to which
interest has been paid thereon or surrender such Note to the Company in exchange
for a new Note or Notes pursuant to Section 13.2.  The Company will afford the
benefits of this Section 14.2 to any Institutional Investor that is the direct
or indirect transferee of any Note purchased by you under this Agreement and
that has made the same agreement relating to such Note as you have made in this
Section 14.2.

15.    EXPENSES, ETC.

15.1.  Transaction Expenses.

        Whether or not the transactions contemplated hereby are consummated, the
Company will pay all costs and expenses (including reasonable attorneys' fees of
a special counsel and, if reasonably required, local or other counsel) incurred
by you or any other holder of a Note in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of this
Agreement or the Notes (whether or not such amendment, waiver or consent becomes
effective), including, without limitation: (a) the costs and expenses incurred
                                            -                                 
in enforcing or defending (or determining whether or how to enforce or defend)
any rights under this Agreement or the Notes or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the Notes, or by


                                      31
<PAGE>
 
reason of being a holder of any Note, and (b) the costs and expenses, including
                                           -
financial advisors' fees, incurred in connection with the insolvency or
bankruptcy of the Company or any Subsidiary or in connection with any work-out
or restructuring of the transactions contemplated hereby and by the Notes. The
Company will pay, and will save you and each other holder of a Note harmless
from, all claims in respect of any fees, costs or expenses if any, of brokers
and finders (other than those retained by you).

15.2.  Survival.

        The obligations of the Company under this Section 15 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes and the termination of this Agreement.

16.  SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

        All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note.  All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement shall be
deemed representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between you and the Company and supersede all
prior agreements and understandings relating to the subject matter hereof.
  
17.    AMENDMENT AND WAIVER.

17.1.  Requirements.

        This Agreement and the Notes may be amended, and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the 
                               -
provisions of Sections 1, 2, 3, 4, 5, 6 or 21, or any defined term (as it is 
used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent of
              -
the holder of each Note at the time outstanding affected thereby, (i) subject to
                                                                   -
the provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the rate
or change the time of payment or method of computation of interest or of the
Make-Whole Amount on, the Notes, (ii) change the percentage of the principal
                                  --
amount of the Notes the holders of which are required to consent to any such
amendment or waiver or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or
                        ---
20.


                                      32
<PAGE>
 
17.2.  Solicitation of Holders of Notes.

          (a) Solicitation.  The Company will provide each holder of the Notes
              ------------                                                    
     (irrespective of the amount of Notes then owned by it) with sufficient
     information, sufficiently far in advance of the date a decision is
     required, to enable such holder to make an informed and considered decision
     with respect to any proposed amendment, waiver or consent in respect of any
     of the provisions hereof or of the Notes.  The Company will deliver
     executed or true and correct copies of each amendment, waiver or consent
     effected pursuant to the provisions of this Section 17 to each holder of
     outstanding Notes promptly following the date on which it is executed and
     delivered by, or receives the consent or approval of, the requisite holders
     of Notes.

          (b) Payment.  The Company will not directly or indirectly pay or cause
              -------                                                           
     to be paid any remuneration, whether by way of supplemental or additional
     interest, fee or otherwise, or grant any security, to any holder of Notes
     as consideration for or as an inducement to the entering into by any holder
     of Notes or any waiver or amendment of any of the terms and provisions
     hereof unless such remuneration is concurrently paid, or security is
     concurrently granted, on the same terms, ratably to each holder of Notes
     then outstanding even if such holder did not consent to such waiver or
     amendment.

17.3.  Binding Effect, etc.

        Any amendment or waiver consented to as provided in this Section 17
applies equally to all holders of Notes and is binding upon them and upon each
future holder of any Note and upon the Company without regard to whether such
Note has been marked to indicate such amendment or waiver. No such amendment or
waiver will extend to or affect any obligation, covenant, agreement, Default or
Event of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and the holder of any Note nor
any delay in exercising any rights hereunder or under any Note shall operate as
a waiver of any rights of any holder of such Note. As used herein, the term
"this Agreement" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.

17.4.  Notes Held by Company, etc.

        Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.


                                      33
<PAGE>
 
18.  NOTICES.

        All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
                  -
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
                       -
requested (postage prepaid) or (c) by a recognized overnight delivery service
                                -
(with charges prepaid). Any such notice must be sent:

        (i)   if to you or your nominee, to you or it at the address specified
     for such communications in Schedule A, or at such other address as you or
     it shall have specified to the Company in writing,

        (ii)  if to any other holder of any Note, to such holder at such address
     as such other holder shall have specified to the Company in writing, or

        (iii) if to the Company, to the Company at its address set forth at the
     beginning hereof to the attention of the Chief Financial Officer, or at
     such other address as the Company shall have specified to the holder of
     each Note in writing.

Notices under this Section 18 will be deemed given only when actually received.

19.  REPRODUCTION OF DOCUMENTS.

        This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
             -                                                           
executed, (b) documents received by you at the Closing (except the Notes
           -                                                            
themselves) and (c) financial statements, certificates and other information
                 -                                                          
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced.  The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence.  This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.

20.  CONFIDENTIAL INFORMATION.

        For the purposes of this Section 20, "Confidential Information" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified when


                                      34
<PAGE>
 
received by you as being confidential information of the Company or such
Subsidiary, provided that such term does not include information that (a) was
            --------                                                   -
publicly known or otherwise known to you prior to the time of such disclosure,
(b) subsequently becomes publicly known through no act or omission by you or any
 -
person acting on your behalf, (c) otherwise becomes known to you other than
                               -
through disclosure by the Company or any Subsidiary or (d) constitutes financial
                                                        -
statements delivered to you under Section 7.1 that are otherwise publicly
available. You will maintain the confidentiality of such Confidential
Information in accordance with your current practice or your policies and
procedures from time to time in effect to protect confidential information of
third parties delivered to you, provided that you may deliver or disclose
                                --------
Confidential Information to (i) your directors, officers, employees, agents,
                             -
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of the investment represented by your Notes), (ii) your
                                                                  --
financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this Section 20, (iii) any other holder of any Note, (iv) any
                           ---                                 --
Institutional Investor to which you sell or offer to sell such Note or any part
thereof or any participation therein, (v) any Person from which you offer to
                                       -
purchase any security of the Company, (vi) any federal or state regulatory
                                       --
authority having jurisdiction over you, (vii) the National Association of
                                         ---
Insurance Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information about your
investment portfolio or (viii) any other Person to which such delivery or
                         ----
disclosure may be necessary or appropriate (w) to effect compliance with any
                                            -
law, rule, regulation or order applicable to you, (x) in response to any
                                                   -
subpoena or other legal process, (y) in connection with any litigation to which
                                  -
you are a party or (z) if an Event of Default has occurred and is continuing, to
                    -
the extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under your Notes and this Agreement. Each holder of a Note, by its
acceptance of a Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 20.

21.  SUBSTITUTION OF PURCHASERS.

        You shall have the right to substitute any one of your Affiliates as the
purchaser of the Notes that you have agreed to purchase hereunder, by written
notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6.  Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you.  In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,


                                      35
<PAGE>
 
wherever the word "you" is used in this Agreement (other than in this Section
21), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.

22.  ADDITIONAL SERIES OF NOTES.

        The Company may, from time to time, issue and sell additional series of
its unsecured promissory notes (each additional series being designated by the
next succeeding letter of the alphabet following designation of the immediately
preceding series) to one or more additional purchasers (which may include one or
more of the Purchasers if such Purchaser or Purchasers shall in its or their
sole discretion consent thereto) and may, in connection with the documentation
of such additional series, incorporate by reference all of or certain of the
provisions of this Agreement; provided, however, that such incorporation by
                              --------
reference shall not dilute or otherwise affect the relative priority or other
rights of the Purchasers of the Notes hereunder or any subsequent series of
notes, including, without limitation, the percentages of the Notes required to
approve an amendment to this Agreement or to effect a waiver pursuant to Section
17.1 hereof or the percentages of the Notes required to accelerate the maturity
of the Notes or to rescind such an acceleration of the maturity of the Notes
pursuant to Sections 12.1 and 12.3 hereof. This Section 22 does not in any
manner obligate any of the Purchasers or the holders of the Notes to purchase or
agree to purchase additional series of the Company's unsecured promissory notes
now or at any time in the future. In the event that the Company and one or more
of the Purchasers shall mutually agree to such an additional purchase, the
issuance of each such additional series of promissory notes shall occur upon the
execution by the Company and each of such Purchasers participating therein of a
terms agreement substantially in the form of Exhibit 22 hereto, appropriately
completed, and satisfaction by the Company of all of the conditions to closing
and funding set forth in Section 4 hereof, with such changes as shall be
appropriate to such additional series of promissory notes, and the delivery of
such additional closing documents and opinions as such Purchasers shall request.

23.    MISCELLANEOUS.

23.1.  Successors and Assigns.

        All covenants and other agreements contained in this Agreement by or on
behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent
holder of a Note) whether so expressed or not.

23.2.  Payments Due on Non-Business Days.

        Anything in this Agreement or the Notes to the contrary notwithstanding,
any payment of principal of or Make-whole Amount or interest on any Note that is
due on a date other than a Business Day shall be made on the next succeeding
Business Day without including


                                      36
<PAGE>
 
the additional days elapsed in the computation of the interest payable on such
next succeeding Business Day.

23.3.  Severability.

        Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.

23.4.  Construction.

        Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein, so that compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.

23.5.  Counterparts.

        This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.

23.6.  Governing Law.

        This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of Illinois
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.

23.7.  Accounting Principles.

        Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, the same shall be done in accordance with GAAP, except where such
principles are inconsistent with the requirements of this Agreement.


                                      37
<PAGE>
 
23.8.  Valuation Principles.

        Except where indicated expressly to the contrary by the use of terms
such as "fair value," "fair market value" or "market value," each asset, each
liability and each capital item of any Person, and any quantity derivable by a
computation involving any of such assets, liabilities or capital items, shall be
taken at the net book value thereof for all purposes of this Agreement. "Net
book value" with respect to any asset, liability or capital item of any Person
shall mean the amount at which the same is recorded or, in accordance with GAAP
should have been recorded, in the books of account of such Person, as reduced by
any reserves which have been or, in accordance with GAAP should have been, set
aside with respect thereto, but in every case (whether or not permitted in
accordance with GAAP) without giving effect to any write-up, write-down or
write-off (other than any write-down or write-off the entire amount of which was
charged to Consolidated Net Income or to a reserve which was a charge to
Consolidated Net Income) relating thereto which was made after the date of this
Agreement.

                              *    *    *    *    *


                                      38
<PAGE>
 
        If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.

                                        Very truly yours,

                                        CMI CORPORATION


                                        By:  ________________________________
                                        Title:  _______________________________


The foregoing is agreed
to as of the date thereof.

PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY


By:  __________________________________
Title:  _________________________________

By:  __________________________________
Title:  _________________________________

                                      39
<PAGE>
 
                                                                      SCHEDULE B
                                                                      ----------


                                 DEFINED TERMS
                                 -------------

  As used herein, the following terms have the respective meanings set forth
below or set forth in the Section hereof following such term:

  "Affiliate" means, at any time, and with respect to any Person, (a) any other
Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person and (b) any Person beneficially owning or holding, directly or
indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests.  As used in this
definition, "Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the context otherwise clearly requires, any reference to an "Affiliate"
is a reference to an Affiliate of the Company.

  "Business Day" means (a) for the purposes of Section 8.6 only, any day other
                        -                                                     
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed and (b) for the purposes of any other
                                             -                               
provision of this Agreement, any day other than a Saturday, a Sunday or a day on
which commercial banks in New York City, Chicago or Des Moines, Iowa are
required or authorized to be closed.

  "Capital Lease" means, at any time, a lease with respect to which the lessee
is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.

  "Capitalized Lease Obligation" means, with respect to any Person and a Capital
Lease, the amount of the obligation of such Person as the lessee under such
Capital Lease which would, in accordance with GAAP, appear as a liability on a
balance sheet of such Person or for which the amount of the asset and liability
thereunder as if so capitalized should be disclosed in a note to such balance
sheet.

  "Change of Control Event" means, the (i) acquisition through purchase or
otherwise by any Person, or group of Persons acting in concert, directly or
indirectly, in one or more transactions, of beneficial ownership or control of
securities representing more than 50% of the combined voting power of the
Company's Voting Stock (including the agreement to act in concert by Persons who
beneficially own or control securities representing more than 50% of the
combined voting power of the Company's Voting Stock), (ii) expiration, without
withdrawals reducing such percentage to 50% or less, of ten days following the
date on which shares 

                                  Schedule B
<PAGE>
 
representing more than 50% of the combined voting power of the Company's Voting
Stock have been tendered pursuant to a tender offer by any Person for securities
representing more than 50% of the combined voting power of the Company's Voting
Stock, whether or not such securities are purchased pursuant to such tender
offer or (iii) entering into by the Company of a written agreement providing for
or contemplating an acquisition described in clause (i) or (ii) hereof. For
purposes of the foregoing sentence, "Person" or "group of Persons" shall not
include (x) the Company (y) the Principal Stockholders of the Company, their
heirs, or personal representatives or trusts created for the benefit of the
families of the Principal Stockholders, their heirs or personal representatives,
or (z) the Current Management of the Company or a "group of Persons" that
includes the Current Management of the Company. The date on which an acquisition
described in the first sentence hereof occurs is referred to as the "Effective
Date of the Change of Control."

  "Closing" is defined in Section 3.

  "Code" means the Internal Revenue Code of 1986, as amended from time to time,
and the rules and regulations promulgated thereunder from time to time.

  "Company" means CMI Corporation, an Oklahoma corporation.

  "Confidential Information"  is defined in Section 20.

  "Consolidated Fixed Charges" means, for any period, the sum of (i)
Consolidated Interest Expense for such period and (ii) Consolidated Rentals for
such period under all leases other than Capitalized Leases.

  "Consolidated Funded Debt" means Funded Debt of the Company and its
Subsidiaries determined on a consolidated basis in accordance with GAAP.

  "Consolidated Income Available for Fixed Charges" means, for any period,
Consolidated Net Income for such period, plus, to the extent deducted in
determining such Consolidated Net Income, (i) income tax expense and (ii)
Consolidated Fixed Charges.

  "Consolidated Interest Expense" means, for any period, the consolidated
interest expense of the Company and its Subsidiaries for such period determined
in accordance with GAAP, including imputed interest on Capitalized Lease
Obligations, amortization of debt discount and expense, fees and commissions for
letters of credit and bankers' acceptance financing and Swaps.

  "Consolidated Net Income" means, for any period, the net income (or deficit)
of the Company and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, but excluding in any event (a) net
                                                                        -     
earnings and losses of any Subsidiary accrued prior to the date it became a
Subsidiary; (b) net earnings and losses of any Person (other 
             -

                                       2

                                  Schedule B
<PAGE>
 
than a Subsidiary), substantially all the assets of which have been acquired in
any manner, realized by such other Person prior to the date of such acquisition;
(c) net earnings and losses of any Person (other than a Subsidiary) with which
 -
the Company or a Subsidiary shall have consolidated or which shall have merged
into or with the Company or a Subsidiary prior to the date of such consolidation
or merger; (d) net earnings of any business entity (other than a Subsidiary) in
            -
which the Company or any Subsidiary has an ownership interest unless such net
earnings shall have actually been received by the Company or such Subsidiary in
the form of cash distributions and (e) extraordinary, unusual or nonrecurring
gains or losses.

  "Consolidated Net Worth" means the sum of consolidated stockholders' equity
and minority interests of the Company and its Subsidiaries determined in
accordance with GAAP.

  "Consolidated Rentals" means, for any period, the Rentals of the Company and
its Subsidiaries for such period under all leases, determined on a consolidated
basis in accordance with GAAP.

  "Consolidated Total Assets" means the total assets of the Company and its
Subsidiaries determined on a consolidated basis in accordance with GAAP.

  "Consolidated Total Capitalization" means the sum of Consolidated Net Worth
and Consolidated Funded Debt.

  "Current Management of the Company" means Bill Swisher, Jim D. Holland, Ralph
P. Cordes, Thane A. Swisher, Murray A. Rowe and Ronald Markwood.

  "Default" means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.

  "Default Rate" means that rate of interest that is 2.0% per annum above the
rate of interest stated in clause (a) of the first paragraph of the Notes.

  "Environmental Laws" means any and all Federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.

  "ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time in effect.

                                       3

                                  Schedule B
<PAGE>
 
  "ERISA Affiliate" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.

  "Event of Default" is defined in Section 11.

  "Exchange Act" means the Securities Exchange Act of 1934, as amended.

  "Funded Debt" means, as of any date of determination, all Indebtedness
properly classified as long-term debt in accordance with GAAP, including but not
limited to (i) Indebtedness which by its terms matures more than one year from
the date of creation or which may be renewed or extended at the option of the
obligor for more than one year from such date, (ii) all Capitalized Lease
Obligations, (iii) any Guaranty of Funded Debt of another Person, and (iv)
notwithstanding clause (i) above, the smallest average daily amount of
Indebtedness, if any, outstanding under any revolving credit or similar
agreement of an obligor for borrowed money during a period of 30 consecutive
days during the 12 calendar months immediately preceding the date of
determination of Funded Debt, provided that reductions of such Indebtedness
using a short-term credit facility shall be ignored in determining average daily
amounts.

  "GAAP" means generally accepted accounting principles as in effect from time
to time in the United States of America.

  "Governmental Authority"  means

  (a)     the government of

          (i)  the United States of America or any State or other political
  subdivision thereof, or

          (ii) any jurisdiction in which the Company or any Subsidiary conducts
  all or any part of its business, or which asserts jurisdiction over any
  properties of the Company or any Subsidiary, or

  (b)     any entity exercising executive, legislative, judicial, regulatory or
  administrative functions of, or pertaining to, any such government.

  "Guaranty"  means, with respect to any Person, any obligation (except the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:

                                       4

                                  Schedule B
<PAGE>
 
          (a)     to purchase such indebtedness or obligation or any property
  constituting security therefor;

          (b)     to advance or supply funds (i) for the purchase or payment of
                                              -
  such indebtedness or obligation or (ii) to maintain any working capital or
                                      --
  other balance sheet condition or any income statement condition of any other
  Person or otherwise to advance or make available funds for the purchase or
  payment of such indebtedness or obligation;

          (c)     to lease properties or to purchase properties or services
  primarily for the purpose of assuring the owner of such indebtedness or
  obligation of the ability of any other Person to make payment of the
  indebtedness or obligation; or

          (d)     otherwise to assure the owner of such indebtedness or
  obligation against loss in respect thereof.

In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.

  "Hazardous Material" means any and all pollutants, toxic or hazardous wastes
or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polycholorinated biphenyls).

  "holder" means, with respect to any Note, the Person in whose name such Note
is registered in the register maintained by the Company pursuant to Section
13.1.

  "Indebtedness" with respect to any Person means, at any time, without
duplication,

          (a)    its liabilities for borrowed money and its redemption
  obligations in respect of mandatorily redeemable Preferred Stock;

          (b)    its liabilities for the deferred purchase price of property
  acquired by such Person (excluding accounts payable arising in the ordinary
  course of business but including all liabilities created or arising under any
  conditional sale or other title retention agreement with respect to any such
  property);

          (c)    its Capitalized Lease Obligations;

                                       5

                                  Schedule B
<PAGE>
 
        (d)  all liabilities for borrowed money secured by any Lien with respect
  to any property owned by such Person (whether or not it has assumed or
  otherwise become liable for such liabilities);

        (e)  all its liabilities in respect of letters of credit or instruments
  serving a similar function issued or accepted for its account by banks and
  other financial institutions (whether or not representing obligations for
  borrowed money);

        (f)  Swaps of such Person; and

        (g)  any Guaranty of such Person with respect to liabilities of a type
  described in any of clauses (a) through (f) hereof.

Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (g) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP.

  "Institutional Investor" means (a) any original purchaser of a Note, (b) any
                                  -                                     -     
holder of a Note holding more than 5% of the aggregate principal amount of the
Notes then outstanding and (c) any bank, trust company, savings and loan
                            -                                           
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.

  "Lien" means, with respect to any Person, any mortgage, lien, pledge, charge,
security interest or other encumbrance, or any interest or title of any vendor,
lessor, lender or other secured party to or of such Person under any conditional
sale or other title retention agreement or Capital Lease, upon or with respect
to any property or asset of such Person (including in the case of stock,
stockholder agreements, voting trust agreements and all similar arrangements).

  "Make-Whole Amount" is defined in Section 8.6.

  "Material" means material in relation to the business, operations, affairs,
financial condition, assets, properties, or prospects of the Company and its
Subsidiaries taken as a whole.

  "Material Adverse Effect" means a material adverse effect on (a) the business,
                                                                -               
operations, affairs, financial condition, assets or properties of the Company
and its Subsidiaries taken as a whole, or (b) the ability of the Company to
                                           -                               
perform its obligations under this Agreement and the Notes or (c) the validity
                                                               -              
or enforceability of this Agreement or the Notes.

  "Memorandum" is defined in Section 5.3.

                                       6

                                  Schedule B
<PAGE>
 
  "Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001(a)(3) of ERISA).

  "Notes" is defined in Section 1.

  "Officer's Certificate" means a certificate of a Senior Financial Officer or
of any other officer of the Company whose responsibilities extend to the subject
matter of such certificate.

  "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined
in ERISA or any successor thereto.

  "Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.

  "Plan" means an "employee benefit plan" (as defined in section 3(3) of ERISA)
that is or, within the preceding five years, has been established or maintained,
or to which contributions are or, within the preceding five years, have been
made or required to be made, by the Company or any ERISA Affiliate or with
respect to which the Company or any ERISA Affiliate may have any liability.

  "Preferred Stock" means any class of capital stock of a corporation that is
preferred over any other class of capital stock of such corporation as to the
payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.

  "Principal Stockholder" means Bill Swisher and members of his immediate family
("Swisher") or Recovery Equity Investors, L.P. ("REI"), so long as Swisher or
REI, as the case may be, owns at least 15% of the outstanding Voting Stock of
the Company at the time of determination.

  "Property" or "Properties" means, unless otherwise specifically limited, real
or personal property of any kind, tangible or intangible, choate or inchoate.

  "QPAM Exemption" means Prohibited Transaction Class Exemption 84-14 issued by
the United States Department of Labor.

  "Rentals" means, as of the date of any determination thereof, all fixed
payments (including all payments which the lessee is obligated to make to the
lessor on termination of the lease or surrender of the Property) payable by the
Company or any Subsidiary, as lessee or sublessee under any lease of real or
personal property, but exclusive of (i) the amount of any fixed rents paid to
the Company or any Subsidiary under noncellable subleases of one year or greater
on the Properties subject to such leases and (ii) any amounts required to be
paid (whether 

                                       7

                                  Schedule B
<PAGE>
 
or not designated as rents or additional rents) on account of maintenance,
repairs, insurance, taxes, assessments, amortization and similar charges. Fixed
rents under any so-called "percentage leases" shall be computed on the basis of
the actual rents paid by the lessee.

  "Required Holders" means, at any time, the holders of at least 66-2/3% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by the Company or any of its Affiliates).

  "Responsible Officer" means any Senior Financial Officer and any other officer
of the Company with responsibility for the administration of the relevant
portion of this Agreement.

  "Securities Act" means the Securities Act of 1933, as amended from time to
time.

  "Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.

  "Subsidiary" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries).  Unless the context otherwise clearly requires, any reference to
a "Subsidiary" is a reference to a Subsidiary of the Company.

  "Swaps" means, with respect to any Person, payment obligations with respect to
interest rate swaps, currency swaps and similar obligations obligating such
Person to make payments, whether periodically or upon the happening of a
contingency.  For the purposes of this Agreement, the amount of the obligation
under any Swap shall be the amount determined in respect thereof as of the end
of the then most recently ended fiscal quarter of such Person, based on the
assumption that such Swap had terminated at the end of such fiscal quarter, and
in making such determination, if any agreement relating to such Swap provides
for the netting of amounts payable by and to such Person thereunder or if any
such agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligation shall be the net
amount so determined.

  "Voting Stock" means capital stock of any class of a corporation having power
under ordinary circumstances to vote for the election of members of the board of
directors of such corporation, or persons performing similar functions.

                                       8

                                  Schedule B
<PAGE>
 
  "Wholly-Owned Subsidiary" means, at any time, any Subsidiary one hundred
percent (100%) of all of the equity interests (except directors' qualifying
shares) and voting interests of which are owned by any one or more of the
Company and the Company's other Wholly-Owned Subsidiaries at such time.

                                       9

                                  Schedule B
<PAGE>
 
                                                                       EXHIBIT 1
                                                                       ---------


                                [FORM OF NOTE]


                                CMI CORPORATION

               7.68% SERIES A SENIOR NOTE DUE SEPTEMBER 15, 2006

No. [_____]                                                          [Date]
$[_______]                                              PPN[______________]

     FOR VALUE RECEIVED, the undersigned, CMI CORPORATION (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Oklahoma, hereby promises to pay to [______________________], or registered
assigns, the principal sum of [_______________________________] DOLLARS on
[____________, _________], with interest (computed on the basis of a 360-day
year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of
                               -                                              
7.68% per annum from the date hereof, payable semiannually, on the fifteenth day
of March and September in each year, commencing with the March 15 or September
15 next succeeding the date hereof, until the principal hereof shall have become
due and payable and (b) to the extent permitted by law on any overdue payment
                     -                                                       
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the Note
Purchase Agreement referred to below), payable semiannually as aforesaid (or, at
the option of the registered holder hereof, on demand), at the rate of 9.68% per
annum.

     Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of the Company or at such other place as the
Company shall have designated by written notice to the holder of this Note as
provided in the Note Purchase Agreement referred to below.

     This Note is one of a series of Series A Senior Notes (herein called the
"Notes") issued pursuant to a Note Purchase Agreement, dated as of September 1,
1996 (as from time to time amended, the "Note Purchase Agreement"), between the
Company and the Purchaser named therein and is entitled to the benefits thereof.
Each holder of this Note will be deemed, by its acceptance hereof, (i) to have
                                                                    -         
agreed to the confidentiality provisions set forth in Section 20 of the Note
Purchase Agreement and (ii) to have made the representation set forth in Section
                        --                                                      
6.2 of the Note Purchase Agreement.

     This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and

                                   Exhibit 1
<PAGE>
 
registered in the name of, the transferee.  Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.

     The Company will make required prepayments of principal on the dates and in
the amounts specified in the Note Purchase Agreement.  This Note is also subject
to optional prepayment, in whole or from time to time in part, at the times and
on the terms specified in the Note Purchase Agreement, but not otherwise.

     If an Event of Default, as defined in the Note Purchase Agreement, occurs
and is continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner, at the price (including any applicable
Make-Whole Amount) and with the effect provided in the Note Purchase Agreement.

     This Note and the Note Purchase Agreement are governed by and construed in
accordance with the laws of the State of Illinois.
        

                                        CMI CORPORATION


                                        By:  
                                           ------------------------------------
                                        Title:

                                       2

                                   Exhibit 1