Document:

<PAGE>   1
                                 EXHIBIT 10(h)

                                 LOAN AGREEMENT

                                     between

                          CITY OF HUNTINGBURG, INDIANA

                                       and

                               DMI FURNITURE, INC.

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

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

                                      Dated
                                      as of

                                 October 1, 1993

                              Brown, Todd & Heyburn
                                  Bond Counsel

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         INDEX

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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                                  EXHIBIT 10(h)

                                 LOAN AGREEMENT

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

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

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

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

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

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

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

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

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

                                    ARTICLE I

                                   DEFINITIONS

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

         Section 1.2. DEFINITIONS. As used herein:

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

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

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

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

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

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

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

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

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

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

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

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

         "Notice Address" means:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                   ARTICLE 11

                                 REPRESENTATIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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<PAGE>   11

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

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

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

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

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

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

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<PAGE>   12

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

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

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

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

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

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

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

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

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

                                     - 85 -
<PAGE>   13

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

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

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

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

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

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

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

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

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

                                     - 86 -
<PAGE>   14

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

                                   ARTICLE III

                           COMPLETION OF THE PROJECT;
                          ISSUANCE OF THE PROJECT BONDS

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

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

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

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

                                     - 87 -
<PAGE>   15

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

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

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

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

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

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

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

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

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

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

                                     - 88 -
<PAGE>   16

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

                  (h) Payments made to the Rebate Fund.

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

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

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

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

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

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

                                     - 89 -
<PAGE>   17

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

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

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

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

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

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

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

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

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

                                     - 90 -
<PAGE>   18

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

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

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

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

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

                                   ARTICLE IV

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

                                     - 91 -
<PAGE>   19

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

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

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

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

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

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

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

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

                                     - 92 -
<PAGE>   20

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

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

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

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

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

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

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

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

                                     - 93 -
<PAGE>   21

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

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

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

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

                                    ARTICLE V

                       ADDITIONAL AGREEMENTS AND COVENANTS

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

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

                                     - 94 -
<PAGE>   22

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

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

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

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

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

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

                                     - 95 -
<PAGE>   23

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

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

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

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

                                   ARTICLE VI

                           REDEMPTION OF PROJECT BONDS

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

                                     - 96 -
<PAGE>   24

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

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

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

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

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

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

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

                                     - 97 -
<PAGE>   25

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

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

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

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

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

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

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

                                     - 98 -
<PAGE>   26

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

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

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

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

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

                                   ARTICLE VII

                         EVENTS OF DEFAULT AND REMEDIES

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

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

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

                                     - 99 -
<PAGE>   27

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

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

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

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

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

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

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

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

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

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

                                    - 100 -
<PAGE>   28

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

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

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

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

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

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

                                    - 101 -
<PAGE>   29

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

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

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

                                  ARTICLE VIII

                                  MISCELLANEOUS

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

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

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

                                    - 102 -
<PAGE>   30

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

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

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

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

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

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

                                    - 103 -
<PAGE>   31

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

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

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

                                         CITY OF HUNTINGBURG, INDIANA

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

Attest:

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

                                         DMI FURNITURE, INC.,
                                         a Delaware corporation

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

                                    - 104 -
<PAGE>   32

                                    EXHIBIT A

                                  PROJECT NOTE

$3,420,000                                                      October __, 1993

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

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

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

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

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

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

                                       A-1
<PAGE>   33

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

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

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

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

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

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

                                       A-2
<PAGE>   34

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

                                             DMI FURNITURE, INC.

                                             By ____________________________
                                             Authorized Representative

                                       A-3
<PAGE>   35

                                    EXHIBIT B

                               PROJECT FACILITIES

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

                                       B-1
<PAGE>   36

                                    EXHIBIT C

                                  PROJECT SITE
                                LEGAL DESCRIPTION

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

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

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

                                       C-1
<PAGE>   37

x                                    EXHIBIT D

                          FORM OF DISBURSEMENT REQUEST

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

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

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

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

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

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

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

                                      D-1
<PAGE>   38

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

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

         This ____ day of ____________, 19___.

                                             __________________________________
                                             Authorized Borrower Representative

Approved By Bank:

Bank One, Indianapolis, N.A.

By _________________________________________
         Title:

                                      D-2
<PAGE>   39

                              DISBURSEMENT SCHEDULE

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

PAYEE                      AMOUNT                                 PURPOSE
-----                      ------                                 -------<PAGE>   1

                                  Exhibit 10(i)

                                 LOAN AGREEMENT

         THIS LOAN AGREEMENT is made and entered into as of June 1, 1994 between
the City of Huntingburg, Indiana, a municipality and political subdivision
existing under the laws of the State of Indiana (the "Issuer"), and DMI
Furniture, Inc., a Delaware corporation (the "Borrower"), under the
circumstances summarized in the following recitals (the capitalized terms not
defined above or in the recitals being used therein as defined in or pursuant to
Article 1 hereof):

         A.       Pursuant to the provisions of the laws of the State of
Indiana, including the Act, the Issuer has heretofore issued the Prior Bonds to
provide financing for costs of the Project, and to reduce the financing costs of
the Project the Issuer has now determined to issue, sell and deliver the Project
Bonds and to loan the proceeds thereof to the Borrower to be applied to the
refunding of the Prior Bonds.

         B.      The Borrower and the Issuer have full right and lawful
authority to enter into this Agreement and to perform and observe the provisions
hereof on their respective parts to be performed and observed.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto covenant, agree and bind
themselves as follows (provided that any obligation of the Issuer created by or
arising out of this Agreement shall not be a general debt on its part but shall
be payable solely out of the Revenues):

                                    ARTICLE I
                                   DEFINITIONS

         Section 1.1. USE OF DEFINED TERMS. Words and terms defined in the
Indenture shall have the same meanings when used herein, unless the context or
use clearly indicates another meaning or intent. In addition, the words and
terms set forth in Section 1.2 hereof shall have the meanings set forth therein
unless the context or use clearly indicates another meaning or intent.

         Section 1.2. DEFINITIONS. As used herein:

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

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

                                      -4-
<PAGE>   2

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

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

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

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

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

         "Loan Payment Date" means any date on which any of the Loan Payments
are due and payable, whether at maturity, upon acceleration, call for redemption
or prepayment, or otherwise.

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

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

         "Notice Address" means:

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

                                        Attention:  Mayor

         (b) As to the Borrower:        DMI Furniture, Inc.
                                        101 Bullitt Lane
                                        Louisville, Kentucky 40222

                                        Attention: Mr. Joe Hill

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

                                        Attention: Corporate Trust Department

                                      -5-
<PAGE>   3

         (d) As to the Bank:            Bank One, Indianapolis, NA
                                        Bank One Center/Tower
                                        111 Monument Circle, Suite 1911
                                        Post Office Box 7000
                                        Indianapolis, Indiana 46277-0119

                                        Attention:  Manager, Mid-America
                                                    Department B

         (e) As to the
             Remarketing Agent:         Bank One, Columbus, NA
                                        100 East Broad Street
                                        Columbus, Ohio  43215

                                        Attention:  Ms. Linda Vining

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

         "Prior Bonds" means the Issuer's Economic Development Revenue Bonds
(DMI Furniture, Inc. Project), Series 1989, in the original principal amount of
$3,780,000 and dated as of April 15, 1989 and presently outstanding in the
principal amount of $2,940,000.

         "Prior Bond Owners" means the holders of the Prior Bonds.

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

         "Project Bonds" means the City of Huntingburg, Indiana Adjustable Rate
Economic Development Revenue Refunding Bonds, Series 1994 (DMI Furniture
Project) authorized in the Indenture in the original principal amount of
$2,940,000.

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

         "Project Note" means the promissory note of the Borrower, dated as of
even date with the Project Bonds, in the form attached hereto as Exhibit A and
in the principal amount of $2,940,000 evidencing the obligation of the Borrower
to make Loan Payments.

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

                                      -6-
<PAGE>   4

         "Remarketing Agreement" means the Remarketing Agreement of even date
herewith between the Borrower and Bank One, Columbus, NA, as Remarketing Agent,
as amended and supplemented from time to time.

         "Tax Certificate" means the Certificate of Tax Covenants and
Representations of the Borrower delivered in connection with the initial
issuance and delivery of the Project Bonds.

         "Trustee" means the Trustee at the time acting as such under the
Indenture, originally PNC Bank, Indiana, Inc., as Trustee, and any successor
Trustee as determined or designated under or pursuant to the Indenture.

         "Unassigned Issuer's Rights" means all of the rights of the Issuer to
receive Additional Payments under Section 4.2 hereof, to be held harmless and
indemnified under Section 5.3 hereof, to be reimbursed for attorney's fees and
expenses under Section 7.4 hereof, and to give or withhold consent to
amendments, changes, modifications, alterations and termination of this
Agreement under Section 8.5 hereof.

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

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

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

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

                                   ARTICLE II
                   REPRESENTATIONS, WARRANTIES AND COVENANTS

                                      -7-
<PAGE>   5

         Section 2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ISSUER.
The Issuer represents and warrants that:

                  (a) It is a duly organized and validly existing municipality
and political subdivision existing under the laws of the State.

                  (b) It has full legal right, power and authority pursuant to
the Act to finance the Project through the issuance of the Prior Bonds and to
refinance the Project and refund the Prior Bonds through the issuance of the
Project Bonds; has made the necessary findings of public purpose, has given any
necessary notices and has taken all other steps and followed all procedures
required by the Constitution and laws of the State (including the Act) in
connection therewith; and has full legal right, power and authority to (i) enter
into this Agreement, the Bond Placement Agreement, the Letter of Representations
and the Indenture, (ii) issue, sell and deliver the Project Bonds and (iii)
carry out and consummate all other transactions contemplated by this Agreement,
the Bond Placement Agreement, the Letter of Representations and the Indenture.

                  (c) It has duly authorized (i) the execution, delivery and
performance of this Agreement, the Project Bonds, the Bond Placement Agreement,
the Letter of Representations and the Indenture, and (ii) the taking of any and
all such actions as may be required on the part of the Issuer to carry out, give
effect to and consummate the transactions contemplated by such instruments.

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

                  (e) There is no action, suit, proceeding, inquiry, or
investigation at law or in equity or before or by any court, public board or
body, pending or, to the best of the knowledge of the Issuer, threatened
against the Issuer, nor to the best of the knowledge of the Issuer is there any
basis therefor, which in any manner questions the validity of the Act, the
powers of the Issuer referred to in paragraph (b) above or the validity of any
proceedings taken by the Issuer in connection with the issuance of the Prior
Bonds or the Project Bonds or wherein any unfavorable decision, ruling or
finding could materially adversely affect the transactions contemplated by this
Agreement or which, in any way, would adversely affect the validity or
enforceability of the Project Bonds, the Indenture, the Letter of
Representations, the Bond Placement Agreement or this Agreement (or of any other
instrument required or contemplated for use in consummating the transactions
contemplated thereby and hereby).

                  (f) The execution and delivery by the Issuer of this
Agreement, the Project Bonds, the Letter of Representations, the Bond Placement
Agreement and the Indenture in compliance with the provisions of each of such
instruments will not conflict with or constitute a breach of, or default under,
any

                                      -8-
<PAGE>   6

material commitment, agreement or other instrument to which the Issuer is a
party or by which it is bound, or under any provision of the Act, the
Constitution of the State or any existing law, rule, regulation, ordinance,
judgment, order or decree to which the Issuer is subject.

                  (g) The Issuer will do or cause to be done all things
necessary, so far as lawful, to preserve and keep in full force and effect its
existence or to assure the assumption of its obligations under this Agreement,
the Letter of Representations, the Indenture and the Bonds by any successor
public body.

         Section 2.2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
The Borrower represents, warrants and covenants that:

                  (a) The Borrower is a Delaware corporation, duly organized and
validly existing in good standing under the laws of the State of Delaware, duly
authorized to transact business in the State and has full power and authority to
execute, deliver and perform this Agreement, the Bond Placement Agreement, the
Reimbursement Agreement, the Remarketing Agreement and the Project Note and to
enter into and carry out the transactions contemplated by those documents. That
execution, delivery and performance do not, and will not violate any provision
of law applicable to the Borrower or its Articles of Incorporation or Bylaws and
do not, and will not conflict with or result in a default under any agreement or
instrument to which the Borrower is a party or by which the Borrower is bound.
This Agreement, the Bond Placement Agreement, the Reimbursement Agreement, the
Remarketing Agreement and the Project Note, by proper corporate action, have
been duly authorized, executed and delivered by the Borrower and are valid and
binding obligations of the Borrower.

                  (b) The Project is owned by the Borrower for use as a
furniture manufacturing, distribution and warehouse facility. The Project has
created or preserved jobs and employment opportunities within the boundaries of
the State and Issuer, and the Project is and will be operated and maintained in
such manner as to conform in all material respects with all applicable zoning,
planning, building, health, environmental and other applicable governmental
rules and regulations and as to be consistent with the Act.

                  (c) The representations contained in the Tax Certificate
(which is incorporated herein by this reference thereto) are true and correct
and the Borrower will observe the covenants contained therein as fully as if set
forth herein.

                  (d) The undertaking of the financing of a portion of the cost
of the Project by the Issuer and the loan of the proceeds of the Prior Bonds and
the Project Bonds has constituted an inducement to the Borrower to acquire,
construct and maintain the Project in Huntingburg, Dubois County, Indiana.

                  (e) The Borrower is not in default in the payment of principal
of, or interest on, any of the Borrower's indebtedness for borrowed money, or in
default under any instrument under which, or subject to which, any indebtedness
has been incurred, and no event has occurred and is continuing under the
provisions of any agreement involving the Borrower that, with the lapse of time
or the giving of notice, or both, would constitute an event of default
thereunder.

                                      -9-
<PAGE>   7

                  (f) No litigation at law or in equity nor any proceeding
before any governmental agency or other tribunal involving the Borrower is
pending or, to the knowledge of the Borrower, threatened, in which any liability
of the Borrower is not adequately covered by insurance or in which any judgment
or order would have a material and adverse effect upon the business or assets of
the Borrower or would materially and adversely affect the operation of the
Project, the validity of this Agreement, the Bond Placement Agreement, the
Reimbursement Agreement, the Remarketing Agreement and the Project Note or the
performance of the Borrower's obligations thereunder or the transactions
contemplated hereby.

                  (g) The Borrower has not made and will not make any changes to
the Project or to the operation thereof which would affect the qualification of
the Project under the Act or impair the exclusion from gross income for federal
income tax purposes of the interest on the Project Bonds.

                                   ARTICLE III
                          ISSUANCE OF THE PROJECT BONDS

         Section 3.1. ISSUANCE OF THE PROJECT BONDS; APPLICATION OF PROCEEDS. To
provide funds to make the loan for purposes of refunding the Prior Bonds and
thereby refinancing costs of the Project, the Issuer will issue, sell and
deliver the Project Bonds as required by the provisions of the Bond Placement
Agreement. The Project Bonds will be issued pursuant to the Indenture in the
aggregate principal amount, will bear interest, will mature and will be subject
to redemption as set forth therein. The Borrower hereby approves the terms and
conditions of the Indenture and the Project Bonds, and the terms and conditions
under which the Project Bonds will be issued, sold and delivered.

         The proceeds from the sale of the Project Bonds shall be loaned to the
Borrower by depositing such proceeds with the Trustee which shall deposit them
in the Project Fund as provided in the Indenture.

         At the request of the Borrower, and for the purposes and upon
fulfillment of the conditions specified in the Indenture, the Issuer, in its
sole discretion, may provide for the issuance, sale and delivery of Additional
Bonds and loan the proceeds from the sale thereof to the Borrower.

         The Trustee is hereby instructed to disburse the entire balance in the
Project Fund to the Prior Bonds Trustee on June 9, 1994. Such disbursement shall
be made by wire transfer of immediately available funds on June 9, 1994. The
Issuer and the Borrower shall provide notice to the Prior Bonds Trustee of such
disbursement. Such notice shall direct the Prior Bonds Trustee to utilize such
disbursement, together with other funds provided by the Borrower and available
for such purpose, to reimburse Bank One, Indianapolis, N.A., as the issuer of a
Letter of Credit securing the Prior Bonds, for a draw made upon the Prior Bonds
Letter of Credit in the amount of $2,940,000, used to defease the Prior Bonds on
June 9, 1994, as provided in Section 6.01 of the Trust Indenture between the
Issuer and PNC Bank, Indiana, Inc. (f/k/a Citizens Fidelity Bank and Trust
Company -- Indiana), which Indenture secured the Prior Bonds.

                                      -10-
<PAGE>   8

         Section 3.2. INVESTMENT OF FUND MONEYS. At the written or oral request
(promptly confirmed in writing) of the Authorized Borrower Representative, any
moneys held as part of the Bond Fund (except moneys held in the Bond Fund from
draws on the Letter of Credit for purposes of defeasing the Project Bonds
pursuant to Article IX of the Indenture), the Project Fund or the Rebate Fund
shall be invested or reinvested by the Trustee in Eligible Investments. The
Issuer and the Borrower each hereby covenants that it will restrict that
investment and reinvestment and the use of the proceeds of the Project Bonds in
such manner and to such extent, if any, as may be necessary, after taking into
account reasonable expectations at the time of delivery of and payment for the
Project Bonds, so that the Project Bonds will not constitute arbitrage bonds
under Section 148 of the Code.

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

         Section 3.3. REBATE FUND. The Borrower agrees to make such payments to
the Trustee as are required of it under Section 5.11 of the Indenture. The
obligation of the Borrower to make such payments shall remain in effect and be
binding upon the Borrower notwithstanding the release and discharge of the
Indenture.

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

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

         Section 4.1. LOAN REPAYMENT; DELIVERY OF NOTES AND LETTER OF CREDIT.
Upon the terms and conditions of this Agreement, the Issuer will make the Loan
to the Borrower. In consideration of and in repayment of the Loan, the Borrower
shall make, as Loan Payments, payments sufficient in time and amount to pay when
due all Bond Service Charges, all as more particularly provided in the Project
Note and any Additional Note. The Project Note shall be executed and delivered
by the Borrower concurrently with

                                      -11-
<PAGE>   9

the execution and delivery of this Agreement. All Loan Payments shall be paid to
the Trustee in accordance with the terms of the Notes for the account of the
Issuer and shall be held and applied in accordance with the provisions of the
Indenture and this Agreement. To the extent of payments made with, respect to
Bond Service Charges pursuant to draws upon the Letter of Credit, the Borrower
shall receive a credit against its obligation to make Loan Payments under this
Agreement and the Project Note.

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

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

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

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

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

         All Notes shall secure equally and ratably all outstanding Bonds,
except that, so long as no Event of Default described in paragraph (a), (b),
(c), (g) or (h) of Section 7.01 of the Indenture has occurred and is continuing,
payments by the Borrower on the Project Note shall be used by the Trustee to
reimburse the Bank for drawings on the Letter of Credit used to pay Bond Service
Charges on the Project Bonds.

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

                                      -12-
<PAGE>   10

this Agreement or the Notes, all payments on each of the Notes shall be in the
full amount required thereunder.

         Except for such interest of the Borrower and the Bank as may hereafter
arise pursuant to Section 5.07 or 5.08 of the Indenture, the Borrower and the
Issuer each acknowledge that neither the Borrower nor the Issuer has any
interest in the Bond Fund and any moneys deposited therein shall be in the
custody of and held by the Trustee in trust for the benefit of the Holders and,
to the extent of amounts due under the Reimbursement Agreement, the Bank.

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

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

         The Borrower also shall pay the Remarketing Agent remarketing fees in
respect of the Project Bonds as provided in the Remarketing Agreement.

         Any payments under this Section not paid when due shall bear interest
at the Interest Rate for Advances.

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

         Section 4.4. OBLIGATIONS UNCONDITIONAL. The obligations of the Borrower
to make Loan Payments, Additional Payments and any payments required of the
Borrower under Section 5.08 or Section 6.03 of the Indenture shall be absolute
and unconditional, and the Borrower shall make such payments without abatement,
diminution or deduction regardless of any cause or circumstances whatsoever
including, without limitation, any defense, set-off, recoupment or counterclaim
which the Borrower may have or assert against the Issuer, the Trustee, any
Paying Agent or Authenticating Agent, the Remarketing Agent, the Bank or any
other Person; provided that the Borrower may contest or dispute the amount of
any such obligation (other than Loan Payments) so long as such contest or
dispute does not result in an Event of Default under the Indenture.

         Section 4.5. ASSIGNMENT OF AGREEMENT AND REVENUES. To secure the
payment of Bond Service Charges, the Issuer shall assign to the Trustee, by the
Indenture, all its right, title and interest in and to the Revenues, the
Agreement (except for Unassigned Issuer's Rights) and the Project Note. The
Borrower hereby agrees and consents to that assignment.

                                      -13-
<PAGE>   11

         Section 4.6. LETTER OF CREDIT. Simultaneously with the initial delivery
of the Project Bonds pursuant to the Indenture and the Bond Placement Agreement,
the Borrower shall cause the Bank to issue and deliver the Letter of Credit to
the Trustee. The Letter of Credit may be replaced by an Alternate Letter of
Credit complying with the provisions of Section 5.09 of the Indenture and shall
be in substantially the form attached to the Reimbursement Agreement and made a
part thereof. The Borrower shall take whatever action may be necessary to
maintain the Letter of Credit or an Alternate Letter of Credit in full force and
effect during the period required by the Indenture, including the payment to the
Bank of all amounts due and payable under the Reimbursement Agreement.

                                    ARTICLE V
                       ADDITIONAL AGREEMENTS AND COVENANTS

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

         Section 5.2. SALE, LEASE OR GRANT OF USE BY BORROWER. With the written
consent of the Bank, and subject to any lease or other agreement to which the
Borrower is a party or by which it is bound, the Borrower may sell, lease or
grant the right to occupy and use the Project, in whole or in part, to others,
provided that:

                  (a) No such sale, lease or grant shall relieve the Borrower
from the Borrower's obligations under this Agreement or the Notes;

                  (b) In connection with any such sale, lease or grant the
Borrower shall retain such rights and interests as will permit the Borrower to
comply with the Borrower's obligations under this Agreement and the Notes;

                  (c) No such sale, lease or grant shall impair materially the
purposes of the Act to be accomplished by operation of the Project Facilities as
herein provided or adversely affect the exclusion from gross income for federal
income tax purposes of the interest on the Bonds.

         Section 5.3. INDEMNIFICATION. The Borrower releases the Issuer from,
agrees that the Issuer shall not be liable for, and shall indemnify the Issuer
against, all liabilities, claims, costs and expenses, including attorneys fees
and expenses, imposed upon, incurred or asserted against the Issuer on account
of: (a) any loss or damage to property or injury to or death of or loss by any
person that may be occasioned by any cause whatsoever pertaining to the
construction, maintenance, operation and use of the Project; (b) any breach or
default on the part of the Borrower in the performance of any covenant or
agreement of the Borrower under this Agreement, the Reimbursement Agreement, the
Project Note or any related document, or arising from any act or failure to act
by the Borrower, or any of the Borrower's agents, contractors, servants,
employees or licensees; (c) the authorization, issuance, sale, trading,
redemption or servicing of the Project Bonds, and the provision of any
information or certification furnished in connection therewith

                                      -14-
<PAGE>   12

concerning the Project Bonds, the Project or the Borrower including, without
limitation, the Preliminary Offering Memorandum and the Offering Memorandum
(each as defined in the Bond Placement Agreement), any information furnished by
the Borrower for, and included in, or used as a basis for preparation of, any
certifications, information statements or reports furnished by the Issuer, and
any other information or certification obtained from the Borrower to assure the
exclusion of the interest on the Project Bonds from gross income of the Holders
thereof for federal income tax purposes; (d) the Borrower's failure to comply
with any requirement of this Agreement, the Prior Code or the Code pertaining to
such exclusion of that interest, including the covenants in section 5.4 hereof;
and (e) any claim, action or proceeding brought with respect to the matters set
forth in (a), (b), (c), or (d) above.

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

         In case any action or proceeding is brought against the Issuer or the
Trustee in respect of which indemnity may be sought hereunder, the party seeking
indemnity promptly shall give notice of that action or proceeding to the
Borrower, and the Borrower upon receipt of that notice shall have the obligation
and the right to assume the defense of the action or proceeding; provided, that
failure of a party to give that notice shall not relieve the Borrower from any
of the Borrower's obligations under this Section unless that failure materially
prejudices the defense of the action or proceeding by the Borrower and then,
only to the extent of such prejudice to the Borrower. At the Borrower's expense,
an indemnified party may employ separate counsel and participate in the defense.
The Borrower shall not be liable for any settlement made without the Borrower's
consent.

         If the Borrower shall not have employed counsel to have charge of the
defense of the action, claim or proceeding, or if an indemnified party shall
have concluded reasonably that there may be a defense available to it or to any
other indemnified party which is different from or in addition to those
available to the Borrower or to any other indemnified party or if an indemnified
party shall have reasonably concluded that counsel representing other
indemnified parties cannot fairly represent such indemnified party because of a
conflict of interest, (i) the Borrower shall not have the right to direct the
defense of the action, claim or proceeding on behalf of that indemnified party
and (ii) legal and other expenses incurred by the indemnified party (including
without limitation, to the extent permitted by law, reasonable attorney's fees
and expenses) shall be borne by the Borrower.

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

                                      -15-
<PAGE>   13

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

         Section 5.5. ASSIGNMENT BY ISSUER. Except for the assignment of this
Agreement to the Trustee, the Issuer shall not attempt to further assign,
transfer or convey its interest in the Revenues or this Agreement or create any
pledge or lien of any form or nature with respect to the Revenues or the
payments hereunder.

         Section 5.6. BORROWER'S PERFORMANCE UNDER INDENTURE. The Borrower has
examined the Indenture and approves the form and substance of, and agrees to be
bound by, its terms. The Borrower, for the benefit of the Issuer and each
Bondholder, shall do and perform all acts and things required or contemplated in
the Indenture to be done or performed by the Borrower. The Borrower is a third
party beneficiary of certain provisions of the Indenture, and Section 8.05 of
the Indenture is hereby incorporated herein by reference.

         Section 5.7. MAINTENANCE OF PROJECT. The Borrower shall keep and
maintain or make arrangements with others to maintain the Project in good order
and condition and in rentable and tenantable state of repair, and will make or
make arrangements with others to make, as and when necessary, all repairs,
renewals and replacements, structural and nonstructural, exterior and interior,
ordinary and extraordinary, foreseen and unforeseen.

         Section 5.8. CONTINUED EXISTENCE. Except as otherwise provided in or
permitted pursuant to the Reimbursement Agreement, the Borrower shall maintain
its existence and continue to be a corporation duly formed, validly existing and
in good standing under the laws of the State of Delaware and duly authorized to
transact business in the State.

                                   ARTICLE VI
                           REDEMPTION OF PROJECT BONDS

         Section 6.1. OPTIONAL REDEMPTION. Provided no Event of Default shall
have occurred and be continuing, at any time and from time to time, the
Borrower, with the consent of the Bank, may deliver moneys to the Trustee in
addition to Loan Payments or Additional Payments required to be made and direct
the Trustee to use the moneys so delivered for the purpose of purchasing Project
Bonds or of reimbursing the Bank for drawings on the Letter of Credit used to
redeem Project Bonds called for optional redemption in accordance with the
applicable provisions of the Indenture.

         Section 6.2. EXTRAORDINARY OPTIONAL REDEMPTION. The Borrower, with the
consent of the Bank, shall have, subject to the conditions hereinafter imposed,
the option to direct the redemption of the entire

                                      -16-
<PAGE>   14

unpaid principal balance of the Project Bonds in accordance with the applicable
provisions of the Indenture upon the occurrence of any of the following events:

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

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

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

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

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

                                      -17-
<PAGE>   15

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

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

         Section 6.3. MANDATORY REDEMPTION OF PROJECT BONDS. If, as provided in
the Project Bonds and the Indenture, the Project Bonds become subject to
mandatory redemption as a result of a Determination of Taxability or termination
of the Letter of Credit or any Alternate Letter of Credit, the Borrower shall
deliver to the Trustee, upon the date requested by the Trustee, moneys
sufficient to pay in full the Project Bonds in accordance with the mandatory
redemption provisions relating thereto set forth in the Indenture.

         Section 6.4. ACTIONS BY ISSUER. At the request of the Borrower or the
Trustee, the Issuer shall take all steps required of it under the applicable
provisions of the Indenture or the Bonds to effect the redemption of all or a
portion of the Bonds pursuant to this Article VI.

         Section 6.5. REQUIRED DEPOSITS FOR OPTIONAL REDEMPTION. Except with the
prior written consent of the Bank, the Trustee shall not give notice of call to
the Holders pursuant to the optional redemption provisions of Section 4.01 of
the Indenture and Sections 6.1 and 6.2 hereof unless prior to the date by which
the call notice is to be given there shall be on deposit with the Trustee funds
sufficient to redeem at the redemption price thereof, including interest accrued
to the redemption date, all Project Bonds for which notice of redemption is to
be given.

         All amounts paid by the Borrower pursuant to this Article which are
used to pay principal of, premium, if any, or interest on the Bonds, or to
reimburse the Bank for moneys drawn under the Letter of Credit and used for such
purposes, shall constitute prepaid Loan Payments.

                                   ARTICLE VII
                         EVENTS OF DEFAULT AND REMEDIES

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

                  (a) The Borrower shall fail to observe and perform any
agreement, term or condition contained in this Agreement, and the continuation
of such failure for a period of 30 days after notice thereof shall have been
given to the Borrower by the Issuer or the Trustee, or for such longer period as
the Issuer and the Trustee may agree to in writing; provided, that if the
failure is other than the payment of money and is of such nature that it can be
corrected but not within the applicable period, that failure shall not
constitute

                                      -18-
<PAGE>   16

an Event of Default so long as the Borrower institutes curative action within
the applicable period and diligently pursues that action to completion; and
provided further that no such failure shall constitute an Event of Default
solely because it results in a Determination of Taxability;

                  (b) The Borrower shall: (i) admit in writing its inability to
pay its debts generally as they become due; (ii) have an order for relief
entered in any case commenced by or against it under the federal bankruptcy
laws, as now or hereafter in effect; (iii) commence a proceeding under any other
federal or state bankruptcy, insolvency, reorganization or similar law, or have
such a proceeding commenced against it and either have an order of insolvency or
reorganization entered against it or have the proceeding remain undismissed and
unstayed for 90 days; (iv) make an assignment for the benefit of creditors; or
(v) have a receiver or trustee appointed for it or for the whole or any
substantial part of its property;

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

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

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

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

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

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

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

                                      -19-
<PAGE>   17

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

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

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

         Notwithstanding the foregoing, the Issuer shall not be obligated to
take any step which in its opinion will or might cause it to expend time or
money or otherwise incur liability unless and until a satisfactory indemnity
bond has been furnished to the Issuer at no cost or expense to the Issuer. Any
amounts collected as Loan Payments or applicable to Loan Payments and any other
amounts which would be applicable to payment of Bond Service Charges collected
pursuant to action taken under this Section shall be paid into the Bond Fund and
applied in accordance with the provisions of the Indenture or, if the
outstanding Bonds have been paid and discharged in accordance with the
provisions of the Indenture, shall be paid as provided in Section 5.08 of the
Indenture for transfers of remaining amounts in the Revenue Fund and the Bond
Fund.

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

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

         Section 7.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. If an Event
of Default should occur and the Issuer or the Trustee should incur expenses,
including attorneys' fees, in connection with the enforcement of this Agreement,
the Letter of Credit or any Note or the collection of sums due thereunder,

                                      -20-
<PAGE>   18

the Borrower shall reimburse the Issuer and the Trustee, as applicable, for the
reasonable expenses so incurred upon demand.

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

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

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

                                  ARTICLE VIII
                                  MISCELLANEOUS

         Section 8.1. TERM OF AGREEMENT. This Agreement shall be and remain in
full force and effect from the date of initial delivery of the Project Bonds
until such time as all of the Bonds shall have been fully paid (or provision
made for such payment) pursuant to the Indenture and all other sums payable by
the Borrower under this Agreement and the Notes shall have been paid, except for
obligations of the Borrower under Sections 3.3, 4.2 and 5.3 hereof, which shall
survive any termination of this Agreement.

         Section 8.2. NOTICES. All notices, certificates, requests or other
communications hereunder shall be in writing and shall be deemed to be
sufficiently given when mailed by first class mail, postage prepaid, and
addressed to the appropriate Notice Address. A duplicate copy of each notice,
certificate, request or other communication given hereunder to the Issuer, the
Borrower, the Bank, the Remarketing Agent or the Trustee shall also be given to
the others. The Borrower, the Issuer, the Bank, the Remarketing Agent, and the
Trustee, by notice given hereunder, may designate any further or different
addresses to which subsequent notices, certificates, requests or other
communications shall be sent.

         Section 8.3. EXTENT OF COVENANTS OF THE ISSUER; NO PERSONAL LIABILITY.
All covenants, obligations and agreements of the Issuer contained in this
Agreement or the Indenture shall be effective to the extent authorized and
permitted by applicable law. No such covenant, obligation or agreement shall be
deemed to be a covenant, obligation or agreement of any present or future
member, officer, agent or employee of the Issuer or the Issuing Authority in
other than his official capacity, and neither the members of the Issuing
Authority nor any official executing the Bonds shall be liable personally on the
Bonds or be subject to any personal liability or accountability by reason of the
issuance thereof or by reason of the covenants, obligations or agreements of the
Issuer contained in this Agreement or in the Indenture.

                                      -21-
<PAGE>   19

         Section 8.4. BINDING EFFECT. This Agreement shall inure to the benefit
of and shall be binding in accordance with its terms upon the Issuer, the
Borrower and their respective successors and assigns; provided that this
Agreement may not be assigned by the Borrower (except in connection with a sale,
lease or grant of use pursuant to Section 5.2 hereof) and may not be assigned by
the Issuer except to the Trustee pursuant to the Indenture or as otherwise may
be necessary to enforce or secure payment of Bond Service Charges. This
Agreement may be enforced only by the parties, their assignees and others who
may, by law, stand in their respective places.

         Section 8.5. AMENDMENTS AND SUPPLEMENTS. Except as otherwise expressly
provided in this Agreement, any Note or the Indenture, subsequent to the
issuance of the Project Bonds and prior to all conditions provided for in the
Indenture for release of the Indenture having been met, this Agreement or any
Note may not be effectively amended, changed, modified, altered or terminated
except in accordance with the applicable provisions of Article XI of the
Indenture.

         Section 8.6. EXECUTION COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be regarded as an original and
all of which shall constitute but one and the same instrument.

         Section 8.7. SEVERABILITY. If any provision of this Agreement, or any
covenant, obligation or agreement contained herein, is determined by a court of
competent jurisdiction to be invalid or unenforceable, that determination shall
not affect any other provision, covenant, obligation or agreement, each of which
shall be construed and enforced as if the invalid or unenforceable portion were
not contained herein. That invalidity or unenforceability shall not affect any
valid and enforceable application thereof, and each such provision, covenant,
obligation or agreement shall be deemed to be effective, operative, made,
entered into or taken in the manner and to the full extent permitted by law.

         Section 8.8. GOVERNING LAW. This Agreement shall be deemed to be a
contract made under the laws of the State and for all purposes shall be governed
by and construed in accordance with the laws of the State.

         Section 8.9. AMOUNTS REMAINING IN FUNDS. Any amounts in the Bond Fund
remaining unclaimed by the Holders of Bonds for four years after the due date
thereof (whether at stated maturity, by redemption or pursuant to any mandatory
sinking fund requirements or otherwise), shall be paid to the Borrower provided
that if the Trustee shall have drawn on the Letter of Credit, and the Bank is
owed any amount by the Borrower pursuant to the Reimbursement Agreement, such
amounts remaining in the Bond Fund shall belong and be paid first to the Bank to
the extent of such unpaid amounts. With respect to that principal of and any
premium and interest on the Bonds to be paid from moneys paid to the Borrower or
the Bank pursuant to the preceding sentence, the Holders of the Bonds entitled
to those moneys shall look solely to the Borrower for the payment of those
moneys.

         Further, any amounts remaining in the Bond Fund (subject to any
limitations in the Indenture) and any other special funds or accounts (other
than the Project Fund and the Rebate Fund) created under this

                                      -22-
<PAGE>   20
Agreement or the Indenture after all of the outstanding Bonds shall be deemed
to have been paid and discharged under the provisions of the Indenture and all
other amounts required to be paid under this Agreement, the Notes and the
Indenture have been paid, shall be paid (to the extent that those moneys are in
excess of the amounts necessary to effect the payment and discharge of the
outstanding Bonds) first, to the Bank to the extent that any amount is owed by
the Borrower to the Bank under the terms of the Letter of Credit or
Reimbursement Agreement, and then to the Borrower.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -23-

<PAGE>   21

         IN WITNESS WHEREOF, the Issuer and the Borrower have executed this Loan
Agreement, all as of the date first above written.

                                 THE CITY OF HUNTINGBURG, INDIANA

ATTEST:

                                 By: /s/ Connie K. Nass
                                     ------------------
/s/ Thomas O. Ellsworth          Mayor
----------------------------
Clerk-Treasurer

                                 DMI FURNITURE, INC.

                                 By: /s/ Joseph G. Hill
                                     ------------------------------------------
                                 Title: Vice President, Chief Financial Officer
                                        ---------------------------------------

                                      -24-
<PAGE>   22

                                    EXHIBIT A

                                  PROJECT NOTE

$2,940,000                                                        June __, 1994

         DMI Furniture, Inc., a Delaware corporation (the "Borrower"), for value
received, promises to pay to PNC Bank, Indiana, Inc., as trustee (the "Trustee")
under the Indenture hereinafter referred to, the principal sum of

                 TWO MILLION NINE HUNDRED FORTY THOUSAND DOLLARS
                                  ($2,940,000)

and to pay (i) interest on the unpaid balance of such principal sum from and
after the date of this Note at the interest rate borne by the Project Bonds from
time to time and (ii) interest on overdue principal, and to the extent permitted
by law, on overdue interest, at the interest rate provided under the terms of
the Project Bonds.

         This Note has been executed and delivered by the Borrower pursuant to a
certain Loan Agreement (the "Agreement"), dated as of June 1, 1994, between the
City of Huntingburg, Indiana (the "Issuer") and the Borrower. Terms used but not
defined herein shall have the meanings ascribed to such terms in the Agreement
and the Indenture, as defined below.

         Under the Agreement, the Issuer has loaned the Borrower the proceeds
received from the sale of the $2,940,000 aggregate principal amount of City of
Huntingburg, Indiana Adjustable Rate Economic Development Revenue Refunding
Bonds, Series 1994 (DMI Furniture Project), dated the date of their initial
delivery (the "Project Bonds"), to be applied to the refunding of the Prior
Bonds and thereby to assist in the refinancing of the Project. The Borrower has
agreed to repay such loan by making Loan Payments at the times and in the
amounts set forth in this Note. The Project Bonds have been issued, concurrently
with the execution and delivery of this Note, pursuant to, and are secured by,
the Trust Indenture (the "Indenture"), dated as of June 1, 1994, between the
Issuer and the Trustee.

         To provide funds to pay the Bond Service Charges on the Project Bonds
as and when due, or to reimburse the Bank for draws under the Letter of Credit
to make such payments, the Borrower hereby agrees to and shall make Loan
Payments as follows: on each Interest Payment Date the amount equal to interest
due on the Project Bonds on such Interest Payment Date (each such day being a
"Loan Payment Date"). In addition, to provide funds to pay the Bond Service
Charges on the Project Bonds as and when due at any other time, the Borrower
hereby agrees to and shall make Loan Payments on any other date on which any
Bond Service Charges on the Project Bonds shall be due and payable, whether at
maturity, upon acceleration, call for redemption or otherwise.

                                      A-1
<PAGE>   23

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

         All Loan Payments shall be payable in lawful money of the United States
of America and shall be made to the Trustee at its corporate trust office for
the account of the Issuer, deposited in the Bond Fund and used as provided in
the Indenture.

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

         This Note is subject to optional, extraordinary optional and mandatory
prepayment, in whole or in part, upon the same terms and conditions, on the same
dates and at the same prepayment prices, as the Project Bonds are subject to
optional, extraordinary optional and mandatory redemption. Any optional or
extraordinary optional prepayment is also subject to satisfaction of any
applicable notice, deposit or other requirements set forth in the Agreement or
the Indenture.

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

         IN WITNESS WHEREOF, the Borrower has signed this Note on June __, 1994.

                                                DMI FURNITURE, INC.,
                                                a Delaware corporation

                                                By:
                                                   ----------------------------
                                                        Jospeh G. Hill
                                                        Chief Financial Officer

                                      A-2
<PAGE>   24

                                    EXHIBIT B

                               PROJECT FACILITIES

         The Project Facilities include the acquisition, construction and
equipping of a wood furniture manufacturing facility on the Project Site, and
all equipment, fixtures and furniture therein.

                                      B-1

<PAGE>   25

                                    EXHIBIT C

                                  PROJECT SITE

                                LEGAL DESCRIPTION

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

         Beginning South 1 degree 58 minutes East 1325.7 feet along the section
line and North 88 degrees 02 minutes East 30.0 feet from the northwest corner of
said quarter section; thence North 88 degrees 02 minutes East 805.78 feet;
thence South 1 degree 58 minutes East 287.70 feet along the west line of a
3.47-Acre tract heretofore conveyed to Steinkamp Warehouses, Inc. to the
southwest corner of said 3.47-Acre tract; thence North 88 degrees 02 minutes
East 230.8 feet to a point 30.0 feet South 88 degrees 02 minutes West of the
centerline of the Geiger Street extended north; thence South 0 degrees 00
minutes West 316.53 feet parallel with and 30 feet West of the centerline of
Geiger Street and/or the centerline projected; thence South 1 degree 58 minutes
East 100.0 feet; thence South 88 degrees 02 minutes West 522.96 feet; thence
South 1 degree 58 minutes East 152.69 feet; thence South 88 degrees 02 minutes
West 512.9 feet to the east line of Chestnut Street (30 feet from centerline);
thence North 1 degree 58 minutes West 856.53 feet to the point of beginning and
containing 16.68 Acres, more or less.

                                      C-1

<PAGE>   26
                                  EXHIBIT 10(i)

                                 LOAN AGREEMENT

                                     between

                          CITY OF HUNTINGBURG, INDIANA

                                       and

                               DMI FURNITURE, INC.

                      ------------------------------------

                                   Relating to
                                   $2,940,000

                          City of Huntingburg, Indiana
                      Adjustable Rate Economic Development
                      Revenue Refunding Bonds, Series 1994
                             (DMI Furniture Project)

                                      Dated

                                      as of

                                  June 1, 1994

                                                           Brown, Todd & Heyburn
                                                                    Bond Counsel

<PAGE>   27

DISCUSSION DRAFT

                                      INDEX

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

<TABLE>
<CAPTION>
Preambles                                                                                                      Page
---------                                                                                                      ----
<S>                                                                                                            <C>
ARTICLE I               4
         Section 1.1. USE OF DEFINED TERMS........................................................................4
         Section 1.2. DEFINITIONS.................................................................................4
         Section 1.3. INTERPRETATION..............................................................................7
         Section 1.4. CAPTIONS AND HEADINGS.......................................................................7

ARTICLE II              7
         Section 2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ISSUER.....................................8
         Section 2.2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER...................................9

ARTICLE III             10
         Section 3.1. ISSUANCE OF THE PROJECT BONDS; APPLICATION OF PROCEEDS.....................................10
         Section 3.2. INVESTMENT OF FUND MONEYS..................................................................11
         Section 3.3. REBATE FUND................................................................................11

ARTICLE IV              11
         Section 4.1. LOAN REPAYMENT; DELIVERY OF NOTES AND LETTER OF CREDIT.....................................11
         Section 4.2. ADDITIONAL PAYMENTS........................................................................13
         Section 4.3. PLACE OF PAYMENTS..........................................................................13
         Section 4.4. OBLIGATIONS UNCONDITIONAL..................................................................13
         Section 4.5. ASSIGNMENT OF AGREEMENT AND REVENUES.......................................................13
         Section 4.6. LETTER OF CREDIT...........................................................................14

ARTICLE V               14
         Section 5.1. RIGHT OF INSPECTION........................................................................14
         Section 5.2. SALE, LEASE OR GRANT OF USE BY BORROWER....................................................14
         Section 5.3. INDEMNIFICATION............................................................................14
         Section 5.4. BORROWER NOT TO ADVERSELY AFFECT EXCLUSION FROM GROSS INCOME OF INTEREST ON PROJECT BONDS..16
         Section 5.5. ASSIGNMENT BY ISSUER.......................................................................16
         Section 5.6. BORROWER'S PERFORMANCE UNDER INDENTURE.....................................................16
         Section 5.7. MAINTENANCE OF PROJECT.....................................................................16
         Section 5.8. CONTINUED EXISTENCE........................................................................16

ARTICLE VI              16
         Section 6.1. OPTIONAL REDEMPTION........................................................................16
         Section 6.2. EXTRAORDINARY OPTIONAL REDEMPTION..........................................................16
</TABLE>

                                       3
<PAGE>   28
<TABLE>
<CAPTION>

<S>                                                                                                             <C>
         Section 6.3. MANDATORY REDEMPTION OF PROJECT BONDS......................................................18
         Section 6.4. ACTIONS BY ISSUER..........................................................................18
         Section 6.5. REQUIRED DEPOSITS FOR OPTIONAL REDEMPTION..................................................18

ARTICLE VII             18
         Section 7.1. EVENTS OF DEFAULT..........................................................................18
         Section 7.2. REMEDIES ON DEFAULT........................................................................19
         Section 7.3. NO REMEDY EXCLUSIVE........................................................................20
         Section 7.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES..............................................20
         Section 7.5. NO WAIVER..................................................................................21
         Section 7.6. NOTICE OF DEFAULT..........................................................................21
         Section 7.7. REMEDIES SUBJECT TO BANK'S DIRECTION.......................................................21

ARTICLE VIII            21
         Section 8.1. TERM OF AGREEMENT..........................................................................21
         Section 8.2. NOTICES....................................................................................21
         Section 8.3. EXTENT OF COVENANTS OF THE ISSUER; NO PERSONAL LIABILITY...................................21
         Section 8.4. BINDING EFFECT.............................................................................22
         Section 8.5. AMENDMENTS AND SUPPLEMENTS.................................................................22
         Section 8.6. EXECUTION COUNTERPARTS.....................................................................22
         Section 8.7. SEVERABILITY...............................................................................22
         Section 8.8. GOVERNING LAW..............................................................................22
         Section 8.9. AMOUNTS REMAINING IN FUNDS.................................................................22
</TABLE>

         Exhibit A - PROJECT NOTE.................   A-1

         Exhibit B - PROJECT FACILITIES...........   B-1

         Exhibit C - PROJECT SITE.................   C-1

                                       4

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