<PAGE>
                                                                    EXHIBIT 10.3

 
                              AMENDED AND RESTATED
                               SECURITY AGREEMENT


          THIS AMENDED AND RESTATED SECURITY AGREEMENT, dated as of January 29,
1999, is made and given by OMEGA CABINETS, LTD., a Delaware corporation (the
"Grantor"), to U.S. BANK NATIONAL ASSOCIATION, a national banking association,
as collateral agent for the "Lenders" (as defined below) pursuant to the
"Intercreditor Agreement" (as defined below) (in such capacity, the "Secured
Party").

                                    RECITALS
                                    --------

          A.  The Grantor, together with certain Affiliates, certain financial
institutions (the "Banks") and U.S. Bank National Association, as Agent, have
entered into an Amended and Restated Credit Agreement dated as of  January 29,
1999 (as the same may hereafter be amended, supplemented, extended, restated, or
otherwise modified from time to time, the "USBNA Credit Agreement") pursuant to
which the Banks have agreed to extend to the Grantor certain credit
accommodations.

          B.  The Grantor has executed and delivered a guaranty (the "CIBC
Guaranty") to the financial institutions party to a Credit Agreement dated as of
January 29, 1999 among 3578275 Canada, Inc., as assumed by operation of law in
an amalgamation by Kitchen Craft of Canada, Ltd. ("New Kitchen Craft"), such
financial institutions and Canadian Imperial Bank of Commerce, as Agent (as the
same may hereafter be amended, supplemented, extended, restated or otherwise
modified from time to time, the "CIBC Credit Agreement", and together with the
USBNA Credit Agreement, the "Credit Agreements"), pursuant to which CIBC
Guaranty the Grantor has guaranteed the obligations of New Kitchen Craft under
the CIBC Credit Agreement.

          C.  It is a condition precedent to the obligation of the Lenders to
extend credit accommodations pursuant to the terms of the Credit Agreements that
this Agreement be executed and delivered by the Grantor.

          D.  The Grantor finds it advantageous, desirable and in its best
interests to comply with the requirement that it execute and deliver this
Security Agreement to the Secured Party.

          NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to enter into the Credit Agreements and to extend credit
accommodations thereunder, the Grantor hereby agrees with the Secured Party, for
the benefit of the Lenders and the Agent, as follows:

          Section 1.  Defined Terms.
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<PAGE>
 
          1(a)  As used in this Agreement, terms defined above shall have the
meanings given to them and the following terms shall have the meanings
indicated:

          "Account" shall mean the rights of the Grantor to payment for goods
           -------                                                           
     sold or leased or for services rendered which is not evidenced by an
     Instrument or Chattel Paper, whether or not such right has been earned by
     performance, all guaranties and security therefor, and all interests in the
     goods the sale or lease of which gave rise thereto, including the right to
     stop such goods in transit.

          "Account Debtor" shall mean a Person who is obligated on or under any
           --------------                                                      
     Account, Chattel Paper, Instrument or General Intangible.

           "Affiliate":  When used with reference to any Person, (a) each Person
            ---------                                                           
     that, directly or indirectly, controls, is controlled by or is under common
     control with, the Person referred to, (b) each Person which beneficially
     owns or holds, directly or indirectly, ten percent or more of any class of
     voting stock of the Person referred to (or if the Person referred to is not
     a corporation, five percent or more of the equity interest), (c) each
     Person, ten percent or more of the voting stock (or if such Person is not a
     corporation, ten percent or more of the equity interest) of which is
     beneficially owned or held, directly or indirectly, by the Person referred
     to, and (d) each of such Person's officers, directors, joint venturers and
     partners.  The term control (including the terms "controlled by" and "under
     common control with") means the possession, directly, of the power to
     direct or cause the direction of the management and policies of the Person
     in question.

          "Affiliate Debt" shall mean indebtedness owing to the Grantor from any
           --------------                                                       
     Affiliate.

          "Agents" shall mean the "Agent" (as defined in the USBNA Credit
           ------                                                        
     Agreement) and the "Agent" (as defined in the CIBC Credit Agreement).

          "Chattel Paper" shall mean a writing or writings which evidence both a
           -------------                                                        
     monetary obligation and a security interest in or lease of specific goods;
     when a transaction is evidenced by both a security agreement or a lease and
     by an Instrument or a series of Instruments, the group of writings taken
     together constitutes Chattel Paper.

          "Collateral" shall mean all property and rights in property now owned
           ---------                                                           
     or hereafter at any time acquired by the Grantor in or upon which a
     Security Interest is granted to the Secured Party by the Grantor under this
     Agreement.

          "Document" shall mean any bill of lading, dock warrant, dock receipt,
           --------                                                            
     warehouse receipt or order for the delivery of goods, together with any
     other document or receipt which in the regular course of business or
     financing is treated as adequately evidencing 

                                      -2-
<PAGE>
 
     that the Person in possession of it is entitled to receive, hold and
     dispose of the document and the goods it covers.

          "Equipment"  shall mean all machinery, equipment, furniture,
           ---------                                                  
     furnishings and fixtures, including all accessions, accessories and
     attachments thereto, and any guaranties, warranties, indemnities and other
     agreements of manufacturers, vendors and others with respect to such
     Equipment.

          "Event of Default" shall have the meaning given to such term in
           ---------------                                               
     Section 18 hereof.

          "Financing Statement" shall have the meaning given to such term in
           -------------------                                              
     Section 4 hereof.

          "General Intangibles" shall mean any personal property (other than
           -------------------                                              
     goods, Accounts, Chattel Paper, Documents, Instruments and money) including
     choses in action, causes of action, contract rights, corporate and other
     business records, inventions, designs, patents, patent applications,
     service marks, trademarks, tradenames, trade secrets, engineering drawings,
     good will, registrations, copyrights, licenses, franchises, customer lists,
     tax refund claims, royalties, licensing and product rights, rights to the
     retrieval from third parties of electronically processed and recorded data
     and all rights to payment resulting from an order of any court.

          "Instrument" shall mean a draft, check, certificate of deposit, note,
           ----------                                                          
     bill of exchange, security or any other writing which evidences a right to
     the payment of money and is not itself a security agreement or lease and is
     of a type which is transferred in the ordinary course of business by
     delivery with any necessary endorsement or assignment.

          "Intercreditor Agreement" means the Intercreditor Agreement dated as
           -----------------------                                            
     of January 29, 1999 among the Lenders, as the same may hereafter be
     amended, supplemented, extended, restated or otherwise modified from time
     to time.

          "Inventory" shall mean any and all goods owned or held by or for the
           ---------                                                          
     account of the Grantor for sale or lease, or for furnishing under a
     contract of service, or as raw materials, work in process, materials
     incorporated in or consumed in the production of any of the foregoing and
     supplies, in each case wherever the same shall be located, whether in
     transit, on consignment, in retail outlets, warehouses, terminals or
     otherwise, and all property the sale, lease or other disposition of which
     has given rise to an Account and which has been returned to the Grantor or
     repossessed by the Grantor or stopped in transit.

          "Lenders" shall mean, collectively, the "Banks" (as defined in the
           -------                                                          
     USBNA Credit Agreement), and the "Lenders" (as defined in the CIBC Credit
     Agreement).

                                      -3-
<PAGE>
 
          "Lien" shall mean any security interest, mortgage, pledge, lien,
           ----                                                           
     charge, encumbrance, title retention agreement or analogous instrument or
     device (including the interest of the lessors under capitalized leases),
     in, of or on any assets or properties of the Person referred to.

          "Obligations" shall mean (a) all indebtedness, liabilities and
           -----------                                                  
     obligations of the Grantor to the Lenders and Agents of every kind, nature
     or description under the USBNA Credit Agreement or the CIBC Guaranty,
     including without limitation the Grantor's obligation on any promissory
     note or notes under the USBNA Credit Agreement and any note or notes
     hereafter issued in substitution or replacement thereof and any letter of
     credit reimbursement obligations and fees, (b) all liabilities of the
     Grantor under this Agreement, and (c) any and all other liabilities and
     obligations of the Grantor to the Secured Party,  the Lenders and the
     Agents of every kind, nature and description, whether direct or indirect or
     hereafter acquired by the Secured Party, the Lenders, or the Agents from
     any Person, absolute or contingent, regardless of how such liabilities
     arise or by what agreement or instrument they may be evidenced, and in all
     of the foregoing cases whether due or to become due, and whether now
     existing or hereafter arising or incurred.

          "Person" shall mean any individual, corporation, partnership, limited
           ------                                                              
     liability company or partnership, joint venture, firm, association, trust,
     unincorporated organization, government or governmental agency or political
     subdivision or any other entity, whether acting in an individual, fiduciary
     or other capacity.

          "Security Interest" shall have the meaning given such term in Section
           -----------------                                                   
     2 hereof.

          1(b)  All other terms used in this Agreement which are not
specifically defined herein shall have the meaning assigned to such terms in the
Uniform Commercial Code in effect in the State of Minnesota as of the date of
this Agreement to the extent such other terms are defined therein.

          1(c)  Unless the context of this Agreement otherwise clearly requires,
references to the plural include the singular, the singular, the plural and "or"
has the inclusive meaning represented by the phrase "and/or."  The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation."  The words "hereof," "herein," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement.  References to Sections are
references to Sections in this Security Agreement unless otherwise provided.

          Section 2.  Grant of Security Interest.  As security for the payment
                      -------------------------                               
and performance of all of the Obligations, the Grantor hereby grants to the
Secured Party, for the benefit of the Secured Party, the Lenders and the Agents,
a security interest (the "Security Interest") in all of the Grantor's right,
title, and interest in and to the following, whether now or hereafter owned,
existing, arising or acquired and wherever located:

                                      -4-
<PAGE>
 
          2(a)  All Accounts.

          2(b)  All Chattel Paper.

          2(c)  All Documents.

          2(d)  All Equipment.

          2(e)  All General Intangibles, including, without limitation,
          Affiliate Debt.

          2(f)  All Instruments.

          2(g)  All Inventory.

          2(h)  To the extent not otherwise included in the foregoing, (i) all
     other rights to the payment of money, including rents and other sums
     payable to the Grantor under leases, rental agreements and other Chattel
     Paper and insurance proceeds; (ii) all books, correspondence, credit files,
     records, invoices, bills of lading, and other documents relating to any of
     the foregoing, including, without limitation, all tapes, cards, disks,
     computer software, computer runs, and other papers and documents in the
     possession or control of the Grantor or any computer bureau from time to
     time acting for the Grantor; (iii) all rights in, to and under all policies
     insuring the life of any officer, director, stockholder or employee of the
     Grantor, the proceeds of which are payable to the Grantor; and (iv) all
     accessions and additions to, parts and appurtenances of, substitutions for
     and replacements of any of the foregoing.

          2(i)  To the extent not otherwise included, all proceeds and products
     of any and all of the foregoing.

     Notwithstanding Sections 2(a) through 2(i), the payment and performance of
the Obligations shall not be secured by (i) any Instrument, contract, license or
other agreement, or permit or franchise that validly prohibits the creation by
the Grantor of a security interest in such Instrument, contract, license or
other agreement, permit or franchise (or in any rights or property obtained by
the Grantor under such contract, license or other agreement, or permit or
franchise); provided, however, that nothing in this clause (i) shall apply to
            --------                                                         
any Account, or (ii) any rights or property to the extent that any valid and
enforceable law or regulation applicable to such rights or property prohibits
the creation of a security interest therein.  In addition, in the event the
Grantor disposes of assets to third parties in a transaction permitted by
Section 6.2 of the Credit Agreement, such assets, but  not the proceeds or
products thereof, shall be released from the Lien of the Security Interest.

                                      -5-
<PAGE>
 
          Section 3.  Grantor Remains Liable.  Anything herein to the contrary
                      ----------------------                                  
notwithstanding, (a) the Grantor shall remain liable under the Accounts, Chattel
Paper, General Intangibles and other items included in the Collateral to the
extent set forth therein to perform all of its duties and obligations thereunder
to the same extent as if this Agreement had not been executed, (b) the exercise
by the Secured Party of any of the rights hereunder shall not release the
Grantor from any of its duties or obligations under any items included in the
Collateral, and (c) the Secured Party, the Lenders and the Agents shall have no
obligation or liability under Accounts, Chattel Paper, General Intangibles and
other items included in the Collateral by reason of this Agreement, nor shall
the Secured Party, the Lenders or the Agents be obligated to perform any of the
obligations or duties of the Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.

          Section 4.  Title to Collateral.  The Grantor has (or will have at the
                      -------------------                                       
time it acquires rights in Collateral hereafter acquired or arising) and will
maintain so long as the Security Interest may remain outstanding, title to each
item of Collateral (including the proceeds and products thereof), free and clear
of all Liens except the Security Interest and except Liens permitted by the
Credit Agreement.  The Grantor will defend the Collateral against all claims or
demands of all Persons (other than the Secured Party) claiming the Collateral or
any interest therein.  As of the date of execution of this Security Agreement,
no effective financing statement or other similar document used to perfect and
preserve a security interest under the laws of any jurisdiction (a "Financing
Statement") covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed (a) in favor of the Secured
Party relating to this Agreement, or (b) to perfect Liens permitted by the
Credit Agreement.

          Section 5.  Disposition of Collateral.  The Grantor will not sell,
                      -------------------------                             
lease or otherwise dispose of, or discount or factor with or without recourse,
any Collateral, except sales of items of Inventory in the ordinary course of
business and other sales of assets permitted under the Credit Agreement.

          Section 6.  Names, Offices, Locations.  The Grantor does business
                      -------------------------                            
solely under its own name and the trade names and styles, if any, set forth on
Schedule II hereto.  Except as noted on said Schedule, no such trade names or
styles and no trademarks or other similar marks owned by the Grantor are
registered with any governmental unit.  The chief place of business and chief
executive office and the office where it keeps its books and records concerning
the Accounts and General Intangibles and the originals of all Chattel Paper,
Documents and Instruments are located at its address set forth on the signature
page hereof.  All items of Equipment and Inventory existing on the date of this
Agreement are located at the places specified on Schedule I hereto. The Grantor
will promptly notify the Secured Party of any additional state in which any item
of Inventory or Equipment is hereafter located.  The Grantor will from time to
time at the request of the Secured Party provide the Secured Party with current
lists as to the locations of the Equipment and Inventory.  The Grantor will not
permit any Inventory, Equipment, Chattel Paper or Documents or any records
pertaining to Accounts and General Intangibles to be located in any state or
area in which, in the event of such location, a financing statement covering
such 

                                      -6-
<PAGE>
 
Collateral would be required to be, but has not in fact been, filed in order to
perfect the Security Interest. The Grantor will not change its name or the
location of its chief place of business and chief executive office or use any
trade name or trade style in any state other than as indicated on Schedule II
unless the Secured Party has been given at least 30 days prior written notice
thereof and the Grantor has executed and delivered to the Secured Party such
Financing Statements and other instruments required or appropriate to continue
the perfection of the Security Interest.

          Section 7.  Rights to Payment.  Except as the Grantor may otherwise
                      -----------------                                      
advise the Secured Party in writing, to the knowledge of the Grantor, each
Account, Chattel Paper, Document, General Intangible and Instrument constituting
or evidencing Collateral is (or, in the case of all future Collateral, will be
when arising or issued) the valid, genuine and legally enforceable obligation of
the Account Debtor or other obligor named therein or in the Grantor's records
pertaining thereto as being obligated to pay or perform such obligation.
Without the Secured Party's prior written consent, the Grantor will not agree to
any modifications, amendments, subordinations, cancellations or terminations of
material obligations of any Account Debtors or other obligors except in the
ordinary course of business.  The Grantor will perform and comply in all
material respects with all its obligations under any items included in the
Collateral and exercise promptly and diligently its rights thereunder.  The
Grantor does not currently hold any Instrument or Document evidencing amounts
owed to the Grantor by any Subsidiary.

          Section 8.   Further Assurances; Attorney-in-Fact.
                       ------------------------------------ 

               8(a)  The Grantor agrees that from time to time, at its expense,
     it will promptly execute and deliver all further instruments and documents,
     and take all further action, that may be necessary or that the Secured
     Party may reasonably request, in order to perfect and protect the Security
     Interest granted or purported to be granted hereby or to enable the Secured
     Party to exercise and enforce its rights and remedies hereunder with
     respect to any Collateral (but any failure to request or assure that the
     Grantor execute and deliver such instrument or documents or to take such
     action shall not affect or impair the validity, sufficiency or
     enforceability of this Agreement and the Security Interest, regardless of
     whether any such item was or was not executed and delivered or action taken
     in a similar context or on a prior occasion).  Without limiting the
     generality of the foregoing, the Grantor will, promptly and from time to
     time at the request of the Secured Party:  (i) mark, or permit the Secured
     Party to mark, conspicuously its books, records, and accounts showing or
     dealing with the Collateral, and each item of Chattel Paper included in the
     Collateral, with a legend, in form and substance reasonably satisfactory to
     the Secured Party, indicating that each such item of Collateral and each
     such item of Chattel Paper is subject to the Security Interest granted
     hereby; (ii) deliver and pledge to the Secured Party, all Instruments and
     Documents (specifically including any Instrument or Document evidencing
     amounts owed to the Grantor by any Subsidiary), duly indorsed or
     accompanied by duly executed instruments of transfer or assignment, with
     full recourse to the Grantor, all in form and substance satisfactory to the
     Secured Party; (iii) 

                                      -7-
<PAGE>
 
     execute and file such Financing Statements or continuation statements in
     respect thereof, or amendments thereto, and such other instruments or
     notices (including fixture filings with any necessary legal descriptions as
     to any goods included in the Collateral which the Secured Party determines
     might be deemed to be fixtures, and instruments and notices with respect to
     vehicle titles), as may be necessary or desirable, or as the Secured Party
     may request, in order to perfect, preserve, and enhance the Security
     Interest granted or purported to be granted hereby; and (iv) use reasonable
     efforts to obtain waivers, in form satisfactory to the Secured Party, of
     any claim to any Collateral from any landlords or mortgagees of any
     property where any Inventory or Equipment is located.

               8(b)  The Grantor hereby authorizes the Secured Party to execute
     and file one or more Financing Statements or continuation statements in
     respect thereof, and amendments thereto, in the event that the Secured
     Party reasonably believes that prompt action would be necessary to protect
     its rights in all or any part of the Collateral.  The Secured Party may
     file such Financing Statements or continuation statements without the
     signature of the Grantor where permitted by law.  A photocopy or other
     reproduction of this Agreement or any Financing Statement covering the
     Collateral or any part thereof shall be sufficient as a Financing Statement
     where permitted by law.

               8(c)  The Grantor will furnish to the Secured Party from time to
     time statements and schedules further identifying and describing the
     Collateral and such other reports in connection with the Collateral as the
     Secured Party may reasonably request, all in reasonable detail and in form
     and substance reasonably satisfactory to the Secured Party.

          Section 9.  Taxes and Claims.  The Grantor will promptly pay all taxes
                      ----------------                                          
and other governmental charges levied or assessed upon or against any Collateral
or upon or against the creation, perfection or continuance of the Security
Interest, as well as all other claims of any kind (including claims for labor,
material and supplies) against or with respect to the Collateral, except to the
extent (a) such taxes, charges or claims are being contested in good faith by
appropriate proceedings, (b) such proceedings do not involve any material danger
of the sale, forfeiture or loss of any of the Collateral or any interest therein
and (c) such taxes, charges or claims are adequately reserved against on the
Grantor's books in accordance with generally accepted accounting principles.

          Section 10.  Books and Records.  The Grantor will keep and maintain at
                       -----------------                                        
its own cost and expense satisfactory and complete records of the Collateral,
including a record of all payments received and credits granted with respect to
all Accounts, Chattel Paper and other items included in the Collateral.

          Section 11.  Inspection, Reports, Verifications.  Upon one day's
                       ----------------------------------                 
advance notice, the Grantor will at all reasonable times during normal business
hours permit the Secured Party or its representatives to examine or inspect any
Collateral, any evidence of Collateral and the 

                                      -8-
<PAGE>
 
Grantor's books and records concerning the Collateral, wherever located. The
Grantor will from time to time when requested by the Secured Party furnish to
the Secured Party a report on its Accounts, Chattel Paper, General Intangibles
and Instruments, naming the Account Debtors or other obligors thereon, the
amount due and the aging thereof. Upon the occurrence and during the continuance
of an Event of Default, the Secured Party or its designee is authorized to
contact Account Debtors and other Persons obligated on any such Collateral from
time to time to verify the existence, amount and/or terms of such Collateral;
provided that nothing in this sentence shall restrict or limit in any manner the
--------
right of the Secured Party, either Agent or any Lender to contact such Account
Debtors or other Persons during the course of any audit conducted in accordance
with the "Loan Documents" (as defined in the Credit Agreement).

          Section 12.  Notice of Loss.  The Grantor will promptly notify the
                       --------------                                       
Secured Party of any loss of or material damage to any material item of
Collateral or of any substantial adverse change, known to Grantor, in any
material item of Collateral or the prospect of payment or performance thereof.

          Section 13.  Insurance.  The Grantor will keep the Equipment and
                       ---------                                          
Inventory insured against "all risks" for the full replacement cost thereof
subject to a deductible, and with an insurance company or companies,
satisfactory to the Secured Party, the policies to protect the Secured Party,
the Agents and the Lenders, as their interests may appear, with such policies or
certificates with respect thereto to be delivered to the Secured Party at its
request.  Each such policy or the certificate with respect thereto shall provide
that such policy shall not be canceled or allowed to lapse unless at least 30
days prior written notice is given to the Secured Party.

          Section 14.  Lawful Use; Fair Labor Standards Act. The Grantor will
                       ------------------------------------                  
use and keep the Collateral, and will require that others use and keep the
Collateral, only for lawful purposes, without violation of any federal, state or
local law, statute or ordinance.  All Inventory of the Grantor as of the date of
this Agreement that was produced by the Grantor or with respect to which the
Grantor performed any manufacturing  or assembly process was produced by the
Grantor (or such manufacturing or assembly process was conducted) in compliance
in all material respects with all requirements of the Fair Labor Standards Act,
and all Inventory produced, manufactured or assembled by the Grantor after the
date of this Agreement will be so produced, manufactured or assembled, as the
case may be.

          Section 15.  Action by the Secured Party; Power of Attorney.
                       ----------------------------------------------  
Effective upon and during the continuance of an Event of Default, if the Grantor
at any time fails to perform or observe any of the foregoing agreements, the
Secured Party shall have (and the Grantor hereby grants to the Secured Party)
the right, power and authority (but not the duty) to perform or observe such
agreement on behalf and in the name, place and stead of the Grantor (or, at the
Secured Party's option, in the Secured Party's name) and to take any and all
other actions which the Secured Party may reasonably deem necessary to cure or
correct such failure (including, without limitation, the payment of taxes, the
satisfaction of Liens, the procurement and maintenance of insurance, the
execution of assignments, security agreements and Financing 

                                      -9-
<PAGE>
 
Statements, and the indorsement of instruments); and the Grantor shall thereupon
pay to the Secured Party on demand the amount of all monies expended and all
reasonable costs and expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Secured Party in connection with or as a result of the
performance or observance of such agreements or the taking of such action by the
Secured Party, together with interest thereon from the date expended or incurred
at the highest lawful rate then applicable to any of the Obligations, and all
such monies expended, costs and expenses and interest thereon shall be part of
the Obligations secured by the Security Interest. The Grantor hereby appoints
the Secured Party the Grantor's attorney-in-fact, with full authority in the
place and stead of such Grantor and in the name of such Grantor or otherwise,
from time to time in the Secured Party's good-faith discretion, to take any
action and to execute any instrument that the Secured Party may reasonably
believe is necessary or advisable to accomplish the purposes of this Agreement,
in a manner consistent with the terms hereof and the terms of the Credit
Agreement, including, without limitation, to receive, indorse and collect all
instruments made payable to the Grantor representing any Collateral or any part
thereof and to give full discharge for the same; provided that the Secured Party
                                                 --------
shall not exercise such power of attorney hereunder prior to the occurrence and
continuance of an Event of Default except to the extent necessary to exercise
its rights under Section 8(b) and Section 16 hereof.  The Grantor agrees that
the foregoing may be done by the Secured Party in its own name (to the same
extent and with the same force and effect as could have been done by the Grantor
had this Agreement not been made) or in the name of the Grantor.  The foregoing
power of attorney is coupled with an interest and is therefore irrevocable by
the Grantor.

          Section 16.  Insurance Claims.  As additional security for the payment
                       ----------------                                         
and performance of the Obligations, the Grantor hereby assigns to the Secured
Party, for the benefit of the Secured Party, the Agents and the Lenders, any and
all monies (including proceeds of insurance and refunds of unearned premiums)
due or to become due under, and all other rights of the Grantor with respect to,
any and all policies of insurance now or at any time hereafter covering the
Collateral or any evidence thereof or any business records or valuable papers
pertaining thereto.  The Secured Party may (but need not), in the Secured
Party's name or in Grantor's name, execute and deliver proofs of claim, receive
all such monies, indorse checks and other instruments representing payment of
such monies, and adjust, litigate, compromise or release any claim against the
issuer of any such policy  (a) for any loss from which insurance proceeds for
such loss are in excess of $100,000 whether or not a Default or Event of Default
has occurred or (b) for any reason upon the occurrence and during the
continuance of any Event of Default.  Notwithstanding any of the foregoing, so
long as no Event of Default exists the Grantor shall be entitled to all
insurance proceeds with respect to any of the Collateral; provided that any
                                                          --------         
proceeds received in respect of Equipment and Inventory are applied to the cost
of replacement of such Equipment or Inventory.

          Section 17.  The Secured Party's Duties.  The powers conferred on the
                       --------------------------                              
Secured Party hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such powers.  The Secured
Party shall be deemed to have exercised reasonable care in the safekeeping of
any Collateral in its possession if such Collateral is 

                                      -10-
<PAGE>
 
accorded treatment substantially equal to the safekeeping which the Secured
Party accords its own property of like kind. Except for the safekeeping of any
Collateral in its possession and the accounting for monies and for other
properties actually received by it hereunder, the Secured Party shall have no
duty, as to any Collateral, as to ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not the Secured Party has or is deemed to have
knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against any Persons or any other rights pertaining to any
Collateral. The Secured Party will take action in the nature of exchanges,
conversions, redemptions, tenders and the like requested in writing by the
Grantor with respect to the Collateral in the Secured Party's possession if the
Secured Party in its reasonable judgment determines that such action will not
impair the Security Interest or the value of the Collateral, but a failure of
the Secured Party to comply with any such request shall not of itself be deemed
a failure to exercise reasonable care.

          Section 18.  Default.  Each of the following occurrences shall
                       -------                                          
constitute an Event of Default under this Agreement:  (a) the Grantor shall fail
to observe or perform any covenant or agreement applicable to the Grantor under
this Agreement and such failure to comply shall continue for thirty (30)
calendar days after the earlier to occur of (i) the date the Grantor gives
notice of such failure to the Secured Party, or (ii) the date the Secured Party
gives written notice of such failure to the Grantor; or (b) any representation
or warranty made by the Grantor in this Agreement or any schedule, exhibit,
supplement or attachment hereto or in any reports or certificates heretofore or
at any time hereafter submitted by or on behalf of the Grantor to the Secured
Party shall prove to have been materially false or misleading when made; or (c)
any Event of Default shall occur under either Credit Agreement beyond the
applicable cure period specified therein.

          Section 19.  Remedies on Default.  Upon the occurrence of an Event of
                       -------------------                                     
Default and at any time thereafter:

               19(a)  The Secured Party may exercise and enforce any and all
     rights and remedies available upon default to a secured party under the
     Uniform Commercial Code.

               19(b)  The Secured Party shall have the right to enter upon and
     into and take possession of all or such part or parts of the properties of
     the Grantor, including lands, plants, buildings, Equipment, Inventory and
     other property as may be necessary or appropriate in the judgment of the
     Secured Party to permit or enable the Secured Party to manufacture,
     produce, process, store or sell or complete the manufacture, production,
     processing, storing or sale of all or any part of the Collateral, as the
     Secured Party may elect, and to use and operate said properties for said
     purposes and for such length of time as the Secured Party may deem
     necessary or appropriate for said purposes without the payment of any
     compensation to Grantor therefor.  The Secured Party may require the
     Grantor to, and the Grantor hereby agrees that it will, at its expense and
     upon request of the Secured Party forthwith, assemble all or part of the
     Collateral as directed by the 

                                      -11-
<PAGE>
 
     Secured Party and make it available to the Secured Party at a place or
     places to be designated by the Secured Party.

               19(c)  Any sale of Collateral may be in one or more parcels at
     public or private sale, at any of the Secured Party's offices or elsewhere,
     for cash, on credit, or for future delivery, and upon such other terms as
     the Secured Party may reasonably believe are commercially reasonable.  The
     Secured Party shall not be obligated to make any sale of Collateral
     regardless of notice of sale having been given, and the Secured Party may
     adjourn any public or private sale from time to time by announcement made
     at the time and place fixed therefor, and such sale may, without further
     notice, be made at the time and place to which it was so adjourned.

               19(d)  The Secured Party is hereby granted a license or other
     right to use, without charge, all of the Grantor's property, including,
     without limitation, all of the Grantor's labels, trademarks, copyrights,
     patents and advertising matter, or any property of a similar nature, as it
     pertains to the Collateral, in completing production of, advertising for
     sale and selling any Collateral, and the Grantor's rights under all
     licenses and all franchise agreements shall inure to the Secured Party's
     benefit until the Obligations are paid in full.

               19(e)  If notice to the Grantor of any intended disposition of
     Collateral or any other intended action is required by law in a particular
     instance, such notice shall be deemed commercially reasonable if given in
     the manner specified for the giving of notice in Section 24 hereof at least
     ten calendar days prior to the date of intended disposition or other
     action, and the Secured Party may exercise or enforce any and all other
     rights or remedies available by law or agreement against the Collateral,
     against the Grantor, or against any other Person or property.

          Section 20.  Remedies as to Certain Rights to Payment.  Upon the
                       ----------------------------------------           
occurrence of an Event of Default and at any time thereafter the Secured Party
may notify any Account Debtor or other Person obligated on any Accounts or other
Collateral that the same have been assigned or transferred to the Secured Party
and that the same should be performed as requested by, or paid directly to, the
Secured Party, as the case may be.  The Grantor shall join in giving such
notice, if the Secured Party so requests.  The Secured Party may, in the Secured
Party's name or in the Grantor's name, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such Collateral or grant any extension to, make any compromise or settlement
with or otherwise agree to waive, modify, amend or change the obligation of any
such Account Debtor or other Person.  If any payments on any such Collateral are
received by the Grantor after an Event of Default has occurred, such payments
shall be held in trust by the Grantor as the property of the Secured Party and
shall not be commingled with any funds or property of the Grantor and shall be
forthwith remitted to the Secured Party for application on the Obligations.

                                      -12-
<PAGE>
 
          Section 21.  Application of Proceeds.   All cash proceeds received by
                       -----------------------                                 
the Secured Party in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in accordance with the
Intercreditor Agreement, be held by the Secured Party as collateral for, or then
or at any time thereafter be applied in whole or in part by the Secured Party
against, all or any part of the Obligations (including, without limitation, any
expenses of the Secured Party payable pursuant to Section 22 hereof).

          Section 22.  Costs and Expenses; Indemnity.  The Grantor will pay or
                       -----------------------------                          
reimburse the Secured Party on demand for all reasonable out-of-pocket expenses
(including in each case all filing and recording fees and taxes and all
reasonable fees and expenses of counsel and of any experts and agents) incurred
by the Secured Party in connection with the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest and the
preparation, administration, continuance, amendment or enforcement of this
Agreement, and all such costs and expenses shall be part of the Obligations
secured by the Security Interest.  The Grantor shall indemnify and hold the
Secured Party harmless from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) resulting from this Agreement
and the Security Interest hereby created (including enforcement of this
Agreement) or the Secured Party's actions pursuant hereto, except claims, losses
or liabilities resulting from the Secured Party's gross negligence or willful
misconduct.  Any liability of the Grantor to indemnify and hold the Secured
Party harmless pursuant to the preceding sentence shall be part of the
Obligations secured by the Security Interest.  The obligations of the Grantor
under this Section shall survive any termination of this Agreement.

          Section 23.  Waivers; Remedies; Marshaling.  Notwithstanding any
                       -----------------------------                      
provisions to the contrary herein, any term of this Agreement may be amended
with the written consent of the Grantor; provided that no amendment,
modification or waiver of any provision of this Agreement or consent to any
departure herefrom by the Grantor or other party thereto shall in any event be
effective unless the same shall be in writing and signed by the Secured Party,
and then such amendment, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given.  The Security
Interest can be released, only explicitly in a writing signed by the Secured
Party.  Mere delay or failure to act shall not preclude the exercise or
enforcement of any rights and remedies available to the Secured Party.  All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singly in any order or sequence, or concurrently, at the Secured
Party's option, and the exercise or enforcement of any such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. To the extent permitted by applicable law, the Grantor hereby waives all
requirements of law, if any, relating to the marshaling of assets which would be
applicable in connection with the enforcement by the Secured Party of its
remedies hereunder, absent this waiver.

          Section 24.  Notices.  Except when telephonic notice is expressly
                       -------                                             
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at 

                                      -13-
<PAGE>
 
the address specified pursuant to the applicable Credit Agreement. All periods
of notice shall be measured from the date of delivery thereof if manually
delivered, from the date of sending thereof if sent by telegram, telex or
facsimile transmission, from the first Business Day after the date of sending if
sent by overnight courier, or from three days after the date of mailing if
mailed.

          Section 25.   Grantor Acknowledgments.  The Grantor hereby
                        -----------------------                     
acknowledges that (a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement, (b) the Secured Party, the Agents and
the Lenders have no fiduciary relationship to the Grantor, the relationship
being solely that of debtor and creditor, and (c) no joint venture exists
between the Grantor, the Secured Party, the Agents and the Lenders.

          Section 26.  Continuing Security Interest; Assignments under Credit
                       ------------------------------------------------------
Agreement. This Agreement shall (a) create a continuing security interest in the
---------                                                                       
Collateral and shall remain in full force and effect until payment in full of
the Obligations and the expiration of the obligations, if any, of the Lenders to
extend credit accommodations to the Grantor or New Kitchen Craft, (b) be binding
upon the Grantor, its successors and assigns, and (c) inure to the benefit of
the Lenders and the Agent, and be enforceable by, the Secured Party, and their
respective successors, transferees, and assigns.  Without limiting the
generality of the foregoing clause (c), the Lenders or the Agents may assign or
otherwise transfer all or any portion of their rights and obligations under the
Credit Agreements to any other Persons to the extent and in the manner provided
in the Credit Agreements and may similarly transfer all or any portion of their
rights under this Security Agreement to such Persons.

          Section 27.  Termination of Security Interest.  Upon payment in full
                       --------------------------------                       
of the Obligations (except for contingent indemnity and other contingent
Obligations not yet due and payable) and the expiration of any obligation of the
Lenders to extend credit accommodations to the Grantor or Kitchen Craft, the
Security Interest granted hereby shall terminate.  Upon any such termination,
the Secured Party will return to the Grantor such of the Collateral then in the
possession of the Secured Party as shall not have been sold or otherwise applied
pursuant to the terms hereof and execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination.
Any reversion or return of Collateral upon termination of this Agreement and any
instruments of transfer or termination shall be at the expense of the Grantor
and shall be without warranty by, or recourse on, the Secured Party.  As used in
this Section, "Grantor" includes any assigns of Grantor, any Person holding a
subordinate security interest in any of the Collateral or whoever else may be
lawfully entitled to any part of the Collateral.

          Section 28.  Affiliate Debt.  The Grantor represents and warrants that
                       --------------                                           
except for the "Kitchen Craft Note" (as defined in the USBNA Credit Agreement),
there are no Instruments evidencing Affiliate Debt in favor of or assigned to
the Grantor.  The Grantor hereby covenants and agrees that upon receipt of any
such Instrument, the Grantor shall promptly execute documents, which shall be
satisfactory in form and substance to the Secured Party, and which in any event,
shall not contain any term or provision which prohibits or restricts the
creation by the 

                                      -14-
<PAGE>
 
Grantor of a security interest therein in favor of the Secured Party, which
pledge such Instrument to the Secured Party, for the benefit of the Secured
Party, the Agents and the Lenders, and deliver such documents, together with
such Instrument, to the Secured Party for the purpose of securing payment of the
Obligations.

          Section 29.  Compliance with Pledge Agreement Covenants.   The Grantor
                       ------------------------------------------               
shall perform or comply with all covenants made by Omega Holdings, Inc.
("Omega") pertaining to the Grantor in Omega's Pledge Agreement, including but
not limited to the provisions of Section 7(b) of Omega's Pledge Agreement which
prohibit the issuance of stock or other securities in addition to or in
substitution of the "Pledged Shares" (as defined in the Pledge Agreement),
except to the Omega.

          SECTION 30.  GOVERNING LAW AND CONSTRUCTION.  THE VALIDITY,
                       ------------------------------                
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF MINNESOTA. Whenever possible, each provision of this Agreement and
any other statement, instrument or transaction contemplated hereby or relating
hereto shall be interpreted in such manner as to be effective and valid under
such applicable law, but, if any provision of this Agreement or any other
statement, instrument or transaction contemplated hereby or relating hereto
shall be held to be prohibited or invalid under such applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or any other statement, instrument or
transaction contemplated hereby or relating hereto.

          SECTION 31.  CONSENT TO JURISDICTION.  AT THE OPTION OF THE SECURED
                       -----------------------                               
PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY OR RAMSEY COUNTY, MINNESOTA; AND THE GRANTOR
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT.  IN THE EVENT THE GRANTOR COMMENCES
ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.

                                      -15-
<PAGE>
 
          SECTION 32.  WAIVER OF NOTICE AND HEARING.  THE GRANTOR HEREBY WAIVES
                       ----------------------------                            
ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE
SECURED PARTY OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL
PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT
PRIOR NOTICE OR HEARING.  THE GRANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY
COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND THIS AGREEMENT.

          SECTION 33.  WAIVER OF JURY TRIAL.  EACH OF THE GRANTOR AND THE
                       --------------------                              
SECURED PARTY, BY ITS ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

          Section 34.  Counterparts.  This Agreement may be executed in any
                       ------------                                        
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.

          Section 35.  General.  All representations and warranties contained in
                       -------                                                  
this Agreement or in any other agreement between the Grantor and the Secured
Party shall survive the execution, delivery and performance of this Agreement
and the creation and payment of the Obligations.  The Grantor waives notice of
the acceptance of this Agreement by the Secured Party.  Captions in this
Agreement are for reference and convenience only and shall not affect the
interpretation or meaning of any provision of this Agreement.

            THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

                                      -16-
<PAGE>
 
          IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.

                                    OMEGA CABINETS, LTD.

                                    By   /s/ ROBERT MORAN
                                       -------------------------------
                                    Name _____________________________
                                    Title ____________________________
Address for Grantor:

1205 Peters Drive
Waterloo, Iowa 50703

                                    U.S. BANK NATIONAL
                                     ASSOCIATION, as Collateral Agent


                                    By   /s/  MARK R. OLMON
                                       -------------------------------
                                    Name _____________________________
                                    Title ____________________________



Address for the Secured Party:

U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention:  Mark R. Olmon, MPFP0702
Telecopier No.: (612) 973-0825

                                      -17-
<PAGE>
 
                                   SCHEDULE I
                                       to
                               Security Agreement


Locations of Equipment and Inventory
as of Date of Security Agreement


[Locations to be provided, including county.  Locations not owned by Grantor
should be specified with name of landlord or warehouse.]

                                      -18-
<PAGE>
 
                                  SCHEDULE II
                                       to
                               Security Agreement


Trade Names and Trade Styles



[To be provided.]

                                      -19-