<PAGE> 1                                                             Exhibit 4.2

                                                          Exhibit C to Revolving
                                                              Credit Agreement



                          SECURITY AND PLEDGE AGREEMENT

SECURITY AND PLEDGE AGREEMENT (the  "Agreement"),  dated as of July 21, 1997, by
and between PAYLESS  CASHWAYS,  INC., an Iowa  corporation  (the  "Grantor"),  a
debtor and  debtor-in-possession  under Chapter 11 of the  Bankruptcy  Code, and
CANADIAN IMPERIAL BANK OF COMMERCE,  as coordinating  agent and collateral agent
(in such  capacity,  the "Agent") for the lenders (the  "Lenders")  party to the
Credit   Agreement  (as   hereinafter   defined)  and  the  Fronting  Banks  and
Underwriters (each as therein defined):
         WHEREAS,  contemporaneously  with the  execution  and  delivery of this
Agreement,  the Agent, the Lenders, the Fronting Banks, the Underwriters and the
Grantor are entering  into a Revolving  Credit  Agreement,  dated as of the date
hereof (as amended, amended and restated,  modified or supplemented from time to
time, the "Credit Agreement"); and
         WHEREAS,  unless otherwise defined herein,  terms defined in the Credit
Agreement are used herein as therein defined; and
         WHEREAS,  it is a  condition  precedent  to the making of Loans and the
issuance  of Letters of Credit that the  Grantor  shall have  granted a security
interest,  pledge  and lien on  substantially  all of the  Grantor's  assets and
properties and the proceeds thereof to the Agent pursuant to Sections 364(c)(2),
364(c)(3) and 364(d) of the Bankruptcy Code; and
         WHEREAS, the grant of such security interest,  pledge and lien has been
authorized  pursuant  to  Section  364(c)(2),  364(c)(3)  and  364(d)(1)  of the
Bankruptcy  Code by the Interim Order and,  after the entry  thereof,  will have
been so authorized by the Final Order (collectively, the "Order"); and
         WHEREAS,  to  supplement  the Order without in any way  diminishing  or
limiting  the  effect of the Order or the  security  interest,  pledge  and lien
granted  thereunder,  the  parties  hereto  desire to set forth more fully their
respective  rights in connection with such security  interest,  pledge and lien;
and
         WHEREAS, this Agreement has been approved by the Order;
         NOW, THEREFORE, in consideration of the premises and in order to induce
the Lenders to make Loans and the Fronting Banks to issue Letters of Credit, the
Grantor hereby agrees with the Agent as follows:
         SECTION 1. Grant of Security and Pledge.  The Grantor hereby transfers,
grants, bargains, sells, conveys,  hypothecates,  assigns, pledges and sets over
to the Agent  for its  benefit  and the  ratable  benefit  of the  Lenders,  the
Fronting  Banks  and the  Underwriters  and  hereby  grants to the Agent for its
benefit  and the  ratable  benefit of the  Lenders,  the  Fronting  Bank and the
Underwriters,  a perfected pledge and security  interest in all of the Grantor's
right,  title and interest in and to the  following  (the  "Collateral"),  which
pledge and security  interest shall be (x) for all purposes senior to, and shall
prime pursuant to Section  364(d)(1) of the Bankruptcy Code, all of the existing
Liens that secure the  obligations of the Grantor under the Existing  Agreements
and any Liens  granted after the Filing Date to provide  adequate  protection in
respect  of  the  Existing  Agreements,   (y)  junior  to  the  Prudential  Lien
hereinafter referred to and subject to the prior rights of the Credit Card Banks
under  the  GE  Credit  Program  Documents  with  respect  to  certain  accounts
receivable, returned merchandise and general intangibles financed thereunder and
Commerce under the Commerce Bank  Agreement  with respect to certain  documents,
inventory and related collateral and (z) subject to the Carve-Out:

                  (a) all present and future accounts,  accounts  receivable and
other  rights of the Grantor to payment for goods sold or leased or for services
rendered  (except those evidenced by instruments or chattel paper),  whether now
existing or hereafter arising and wherever arising, and

<PAGE> 2


whether or not they have been earned by performance (collectively,  the 
"Accounts"); it being agreed that the security interest and lien granted hereby
in and on any Account representing a GECC  Receivable,  Contractor  Receivable
or  Monogram  Receivable  (each  as hereinafter  defined) shall only attach to
those of such  Receivables  which the Borrower purchases pursuant to the terms 
of the GE Credit Program Documents and, as to such Receivables,  shall be 
subject and subordinate to perfected security interests in or liens on such 
Account in favor of any Credit Card Bank,  as well as to any rights of set-off
or recoupment of the Credit Card Banks in respect of such Account;

                  (b) all goods and merchandise now owned or hereafter  acquired
by the Grantor wherever located,  whether in the possession of the Grantor or of
a bailee  or  other  person  for  sale,  storage,  transit,  processing,  use or
otherwise  consisting  of  whole  goods,  components,  supplies,  materials,  or
consigned, returned or repossessed goods) which are held for sale or lease or to
be furnished (or have been furnished) under any contract of service or which are
raw materials, work-in-process,  finished goods or materials used or consumed in
the   Grantor's   business  or   processed  by  or  on  behalf  of  the  Grantor
(collectively,  the "Inventory"); it being agreed that the security interest and
lien granted hereby in and on any Inventory constituting returned merchandise in
respect of a Contractor Receivable or a Monogram Receivable shall be subject and
subordinate  to perfected  security  interests in or liens on such  Inventory in
favor of any Credit Card Bank;
                  (c) all machinery, all manufacturing,  distribution,  selling,
data processing and office equipment,  all furniture,  furnishings,  appliances,
fixtures and trade fixtures,  tools, tooling, molds, dies, vessels, aircraft and
all other goods of every type and description  (other than Inventory)  which are
used or bought for use primarily in business, in each instance whether now owned
or hereafter  acquired by the Grantor and wherever  located  (collectively,  the
"Equipment");
                  (d) all cars, trucks, trailers,  construction and earth moving
equipment and other vehicles  covered by a certificate of title law of any state
wherever located and whether now owned or hereafter acquired, and, in any event,
shall include, without limitation, the vehicles listed on Schedule 7 hereto, and
all tires and other  appurtenances  to any of the foregoing  (collectively,  the
"Vehicles");
                  (e) all rights, interests, choses in action, causes of action,
claims and all other intangible property of the Grantor of every kind and nature
(other than  Accounts,  Trademarks,  Patents and  Copyrights),  in each instance
whether now owned or  hereafter  acquired  by the  Grantor,  including,  without
limitation,  all general intangibles;  all corporate and other business records;
all loans, royalties, and other obligations receivable; all inventions, designs,
trade  secrets,  computer  programs,  software,  printouts  and  other  computer
materials, goodwill,  registrations,  copyrights, licenses, franchises, customer
lists, credit files, correspondence, and advertising materials; all customer and
supplier  contracts,  firm sale  orders,  rights  under  license  and  franchise
agreements,   and  other  contracts  and  contract  rights;   all  interests  in
partnerships  and joint  ventures;  all tax refunds and tax refund  claims;  all
right, title and interest under leases, subleases,  licenses and concessions and
other agreements relating to real or personal property; all payments due or made
to the Grantor in connection with any requisition,  confiscation,  condemnation,
seizure or forfeiture of any property by any person or  governmental  authority;
all  deposit  accounts  (general or  special)  with any bank or other  financial
institution;  all credits with and other claims  against  carriers and shippers;
all rights to indemnification;  all reversionary interests in pension and profit
sharing plans and reversionary,  beneficial and residual interest in trusts; all
proceeds of  insurance of which the Grantor is  beneficiary;  and all letters of
credit,  guaranties,  liens,  security  interest and other  security  held by or
granted  to the  Grantor;  and all other  intangible  property,  whether  or not
similar to the foregoing;  in

<PAGE> 3


each instance,  however and wherever arising,  but
excluding any contract,  agreement or license which  prohibits the assignment or
encumbrance  by the Grantor of such  contract,  agreement  or license (or of its
rights  thereunder),  except  to the  extent  that  such  prohibition  would  be
ineffective  pursuant to Section  9-318(4) of the Uniform  Commercial Code as in
effect in the State of New York (collectively,  the "General  Intangibles");  it
being  agreed that the security  interest and lien granted  hereby in and on any
General  Intangibles  representing a GECC Receivable or other  obligation of any
Credit Card Bank to the Grantor  shall be subject and  subordinate  to perfected
security interests in or liens on such General Intangible in favor of any Credit
Card Bank, as well as to any rights of set-off or recoupment of such Credit Card
Bank in respect of such General Intangible;
                  (f) all chattel paper, all instruments,  all notes (including,
but not  limited to, the notes  listed on  Schedule 8 annexed  hereto and made a
part  hereof)  (the  "Pledged  Notes")  and debt  instruments  and all  payments
thereunder  and  instruments  and other  property from time to time delivered in
respect  thereof or in  exchange  therefor,  and all bills of lading,  warehouse
receipts and other  documents of title and documents,  in each instance  whether
now owned or hereafter acquired by the Grantor;
                  (g) all  property or  interests  in property  now or hereafter
acquired  by the  Grantor  which  may be owned or  hereafter  may come  into the
possession,  custody  or  control  of the  Agent  or any of the  Lenders  or the
Fronting  Banks or any agent or  affiliate of the Agent or any of the Lenders in
any way or for any purpose (whether for safekeeping,  deposit,  custody, pledge,
transmission,  collection  or  otherwise),  and all rights and  interests of the
Grantor,  now existing or hereafter arising and however and wherever arising, in
respect of any and all (i) notes, drafts, letters of credits, stocks, bonds, and
debt and equity securities,  whether or not certificated, and warrants, options,
puts and calls and other  rights to acquire or  otherwise  relating to the same;
(ii) money (including all cash and cash equivalents held in the Letter of Credit
Accounts (as defined and referred to in the Credit  Agreement));  (iii) proceeds
of loans, including,  without limitation, Loans made under the Credit Agreement;
and (iv)  insurance  proceeds  and  books  and  records  relating  to any of the
property  covered  by this  Agreement;  together,  in each  instance,  with  all
accessions and additions  thereto,  substitutions  therefor,  and  replacements,
proceeds and products thereof;
                  (h) all  trademarks,  trade names,  corporate  names,  company
names, business names,  fictitious business names, trade styles,  service marks,
logos and other source or business identifiers,  prints and labels on which said
trademarks,  trade  names,  corporate  names,  company  names,  business  names,
fictitious  business names, trade styles,  service marks, logos and other source
or  business  identifiers,   have  appeared  or  appear,   designs  and  general
intangibles of like nature,  now existing or hereafter adopted or acquired,  and
all  registrations  and  recordings  thereof,  including,   without  limitation,
applications,  registrations  and  recordings  in the United  States  Patent and
Trademark  Office or in any similar office or agency of the United  States,  any
State thereof, or any other country or political subdivision thereof (except for
"intent to use" applications for trademark or service mark  registrations  filed
pursuant to Section  1(b) of the Lanham Act,  unless and until an  Amendment  to
Allege  Use or a  Statement  of Use  under  Sections  1(c) of said  Act has been
filed), all whether now owned or hereafter  acquired by the Grantor,  including,
but not limited to, those described in Schedule 3 annexed hereto and made a part
hereof,  and all  reissues,  extensions  or renewals  thereof  and all  licenses
thereof together, in each case, with the goodwill of the business connected with
the use of, and symbolized by each such trademark, service marks, trade name and
trade dress (all of the foregoing being herein referred to as the "Trademarks");
                  (i) all  letters  patent  of the  United  States  or any other
country,  and all  registrations

<PAGE> 4


and  recordings  thereof,  including,  without
limitation,  applications,  registrations  and  recordings  in the United States
Patent and  Trademark  Office or in any  similar  office or agency of the United
States,  any State  thereof or any other  country or any  political  subdivision
thereof, all whether now owned or hereafter acquired by the Grantor,  including,
but not limited to, those  described in Schedule 4 annexed hereto and made apart
hereof,  and  (ii)  all  reissues,   continuations,   continuations-in-part   or
extensions  thereof and all licenses  thereof (all of the foregoing being herein
referred to as the "Patents");
                  (j) all copyrights of the United States, or any other country,
and all registrations and recordings  thereof,  including,  without  limitation,
applications, registrations and recordings in the United States Copyright Office
or in any similar office or agency of the United States,  any State thereof,  or
any other  country or political  subdivision  thereof,  all whether now owned or
hereafter  acquired  by the  Grantor,  including,  but  not  limited  to,  those
described in Schedule 5 hereto and all renewals and  extensions  thereof and all
licenses  thereof  (all  of  the  foregoing  being  herein  referred  to as  the
"Copyrights");
                  (k) all books, records, ledger cards and other property at any
time  evidencing or relating to the Accounts,  Inventory,  Equipment,  Vehicles,
General Intangibles, Trademarks, Patents or Copyrights;
                  (l) (i) all the shares of capital  stock owned by the Grantor,
listed on  Schedule 6 hereto of the issuers  listed  thereon  (individually,  an
"Issuer",  and  collectively,  the "Issuers") and all shares of capital stock of
any  Issuer  obtained  in  the  future  by  the  Grantor  and  the  certificates
representing  or  evidencing  all such shares (the "Pledged  Shares");  (ii) all
other property which may be delivered to and held by the Agent in respect of the
Pledged Shares  pursuant to the terms hereof;  (iii) subject to Section 9 below,
all dividends,  cash, instruments and other property from time to time received,
receivable or otherwise distributed,  in respect of, in exchange for or upon the
conversion of the securities referred to in clauses (i) and (ii) above; and (iv)
subject  to  Section 9 below,  all  rights and  privileges  of the  Grantor,  as
applicable,  with respect to the securities  and other  property  referred to in
clauses (i),  (ii) and (iii) (the items  referred to in clauses (i) through (iv)
being collectively called the "Pledged Stock Collateral");
                  (m)  all  other  personal  property  of the  Grantor,  whether
tangible or intangible, and whether now owned or hereafter acquired; and
                  (n) all proceeds and products of any of the foregoing,  in any
form, including,  without limitation,  any claims against third parties for loss
or damage to or destruction of any or all of the foregoing.
         As used herein, the following terms shall have the following meanings:

         "Contractor  Receivables"  shall mean those certain  commercial  credit
accounts  sold by the  Grantor or extended  directly to a Grantor  customer by a
Credit  Card  Bank  (including  any  documents,  instruments,  chattel  paper or
intangibles evidencing any such transferred receivable or the transaction giving
rise  thereto) (i) pursuant to the terms of the GE Credit  Program  Documents or
(ii) to any other Person pursuant to any similar contractual arrangement (but in
such case solely to the extent such an  arrangement  is permitted by Section 5.9
of the Credit Agreement).

         "Credit Card Banks" shall mean General Electric Capital Corporation and
Monogram Credit Card Bank of Georgia.



<PAGE> 5


         "Existing  Credit  Agreement"  shall  mean  that  certain  Amended  and
Restated Credit Agreement,  dated as of October 3, 1996, among the Grantor,  the
Existing  Lenders,  the Agent,  CIBC as Letter of Credit Bank and the  Co-Agents
named therein, as amended,  amended and restated,  supplemented or modified from
time to time.

         "Existing  Lenders" shall mean,  collectively,  those certain financial
institutions  which have  provided  loans and other  extensions of credit to the
Grantor under, among other agreements,  the Existing Credit Agreement,  together
with any successors or assigns thereof.

         "GECC  Receivables"  shall mean  receivables  (including any documents,
instruments,  chattel  paper or  intangibles  evidencing  any  such  transferred
receivable or the transaction giving rise thereto) (i) payable to the Grantor by
Credit  Card  Banks  pursuant  to the terms of the GE Credit  Program  Documents
arising  out of sales of  merchandise  or  services  made by the Grantor or (ii)
payable to or purchased by any other Person pursuant to any similar  contractual
arrangement solely to the extent such an arrangement is permitted by Section 5.9
of the Credit Agreement.

         "GE Credit Program  Documents"  shall mean (a) the Amended and Restated
Monogram  Credit Card Bank of Georgia  Program  Agreement,  dated as of July 20,
1997,  between  the Grantor and  Monogram  Credit Card Bank of Georgia,  as such
agreement may hereafter be amended, restated, supplemented or modified from time
to time to the extent  permitted  by the  Credit  Agreement,  together  with any
agreements entered into by the Grantor and Monogram Credit Card Bank of Georgia,
or any affiliate,  in  replacement of such agreement to the extent  permitted by
the Credit Agreement;  and (b) the Second Amended and Restated Commercial Credit
Account  Purchase  and Service  Program  Agreement,  dated as of July 20,  1997,
between the Grantor and General Electric Capital Corporation,  as such agreement
may hereafter be further amended,  restated,  supplemented or modified from time
to time to the extent  permitted  by the  Credit  Agreement,  together  with any
agreement entered into by the Grantor and General Electric Capital  Corporation,
or any affiliate,  in  replacement of such agreement to the extent  permitted by
the Credit Agreement.

         "Monogram  Receivables"  shall mean all  obligations  now or  hereafter
owing to, and all rights now or hereafter acquired by, Monogram Credit Card Bank
of Georgia arising out of any of the private label credit card sales referred to
in clause (i) of the definition of "GECC Receivables."

         "Prudential" shall mean the Prudential Insurance Company of America.

         "Prudential  Lien"  shall mean Liens in  existence  on the date  hereof
granted under the Prudential Real Estate Financing.

         "Prudential Loan Agreement"  shall mean the Loan Agreement,  dated June
20, 1989, by and among the Borrower,  Knox Home Centers,  Inc.,  Somerville  and
Prudential,  as the same has been and may  hereafter  be  amended,  amended  and
restated, modified or supplemented to the extent permitted by this Agreement.

         "Prudential  Real  Estate   Financing"  shall  mean  the  financing  by
Prudential provided for by the Prudential Loan Agreement and other documentation
executed and delivered in connection therewith.

<PAGE> 6


         The Agent  acknowledges  that, for purposes of this Security and Pledge
Agreement,  (i) the private label credit card sales and commercial account sales
referred to in clause (i) of the  definition  of "GECC  Receivables"  constitute
extensions  of credit  directly from  Monogram to  cardholders  or true sales of
accounts  and  indebtedness  from the  Grantor to GECC,  (ii) the Grantor has no
right,  title  or  interest  in or to any  Monogram  Receivables  or  Contractor
Receivables,  except  to the  extent  the  Grantor  purchases  such  receivables
pursuant to the terms of the GE Credit Program Documents and (iii) except to the
extent so  purchased  by the  Grantor,  no  Monogram  Receivable  or  Contractor
Receivable  shall  constitute  Collateral (or any category of property  included
within  the  definition  thereof)  for  purposes  of this  Security  and  Pledge
Agreement.  The Agent agrees with the Grantor that neither the security interest
created herein nor any related financing statements may be assigned by the Agent
unless, prior to any such assignments, such financing statements are amended (a)
to include the definition of "GE Credit Program Documents" set forth herein, and
(b)  specifically  to  exclude  the  Monogram  Receivables  and  the  Contractor
Receivables from the collateral covered by such financing statements.

         SECTION 2. Security for Obligations.  This Agreement and the Collateral
secure  the  prompt  and  complete  payment  and  performance  when  due  of all
obligations  of the  Grantor,  now  or  hereafter  existing,  under  the  Credit
Agreement,  the Notes and the  other  Loan  Documents,  whether  for  principal,
interest,  fees,  expenses or  otherwise,  including  (without  limitation)  all
obligations of the Grantor now or hereafter existing under or in respect of this
Agreement  including,  but not limited to, (a) the due and  punctual  payment of
principal  of and interest on the Loans and the Notes and the  reimbursement  of
all amounts drawn under Letters of Credit,  and (b) the due and punctual payment
of the Fees,  indemnities and all other present and future, fixed or contingent,
direct or indirect,  monetary  obligations  of the Grantor to the  Lenders,  the
Fronting  Banks,  the  Underwriters  and the Agent under the Loan Documents (all
such obligations of the Grantor being herein called the "Obligations").
         SECTION 3.  Delivery of Pledged  Stock  Collateral  and Pledged  Notes;
Other Action.  Upon written  request by the Agent (and without  further order of
the  Bankruptcy  Court),   all  certificates  or  instruments   representing  or
evidencing the Pledged Stock Collateral and the Pledged Notes shall be delivered
to and held by the  Agent  pursuant  hereto  and  shall be  accompanied  by duly
executed  instruments  of  transfer  or  assignment  in  blank,  all in form and
substance  satisfactory  to the  Agent.  Upon  the  occurrence  and  during  the
continuance  of any Event of  Default,  the Agent  shall have the right (for the
ratable  benefit of the  Lenders),  at any time in its  discretion  and  without
notice to the Grantor, to transfer to or to register in the name of the Agent or
any of its nominees any or all of the Pledged  Stock  Collateral  and all of the
Pledged Notes.
         SECTION 4.  Representations and Warranties.  The Grantor represents and
warrants as follows:

                  (a) All of the  Inventory  and/or  Equipment is located at the
places  specified  in Schedule 1 hereto.  The chief places of business and chief
executive  offices of the Grantor and the  offices  where the Grantor  keeps its
records  concerning  any Accounts and all  originals of all chattel  paper which
evidence  any Account are located at the places  specified in Schedule 2 hereto.
All trade names under  which the  Grantor has sold and will sell  Inventory  are
listed on Schedule 3 hereto.


<PAGE> 7



                  (b) The  Grantor  owns the  Collateral  free and  clear of any
lien, security interest,  charge or encumbrance except for the security interest
created by this  Agreement  and except as  permitted  under  Section  6.1 of the
Credit Agreement.  No effective  financing statement or other instrument similar
in effect covering all or any part of the Collateral is on file in any recording
office, except (x) such as may have been filed in favor of the Agent relating to
this Agreement or in connection with the Existing  Credit  Agreement in favor of
the  Agent  thereunder  and  (y) in  favor  of any  holder  of a Lien  otherwise
permitted under Section 6.1 of the Credit Agreement.

                  (c) As of the  Filing  Date,  the  Grantor  does  not  own any
material  Trademarks,  Patents or  Copyrights  or have any material  Trademarks,
Patents or Copyrights  registered in, or the subject of pending applications in,
the United States Patent and Trademark Office or any similar office or agency in
any other  country  or any  political  subdivision  thereof,  other  than  those
described in Schedules 3, 4 and 5 hereto.  The  registrations for the Collateral
disclosed on such  Schedules 3, 4 and 5 hereto are valid and  subsisting  and in
full force and effect.  None of the  material  Patents or  Copyrights  have been
abandoned or dedicated.

                  (d) The Pledged  Shares have been duly  authorized and validly
issued and are fully paid and non-assessable.
                  (e) The  Grantor  is the  legal  and  beneficial  owner of the
Pledged  Shares  described  on  Schedule 6 free and clear of any lien,  security
interest,  option  or other  charge  or  encumbrance,  except  for the  security
interest  created by this Agreement and the Orders and Liens created pursuant to
the Existing Agreement and except as disclosed on Schedule 6.

                  (f) The  Pledged  Shares  described  in  Section  1(l)  hereof
constitute  all of the  issued  and  outstanding  shares of stock of each of the
Issuers  and no  Issuer  is  under  any  contractual  obligation  to  issue  any
additional shares of stock or any other securities, rights or indebtedness.

                  (g) The  Vehicles  listed on  Schedule 7 hereto  constitute  a
complete  and  correct  list of all  Vehicles  owned  by the  Grantor  as of the
Effective Date.

                  (h) The Pledged Notes  delivered at any time by the Grantor to
the Agent in accordance with this Agreement or the Credit Agreement shall at all
times  constitute  all of the  Pledged  Notes  owned by the Grantor at each such
time.

                  (i) Except for the Orders, no authorization, approval or other
action  by,  and no notice to or filing  with,  any  governmental  authority  or
regulatory  body is required  either (i) for the grant and pledge by the Grantor
of the  security  interests  granted  hereby or for the  execution,  delivery or
performance  of this  Agreement by the Grantor or (ii) for the perfection of the
security  interests  or the  exercise  by the Agent of its rights  and  remedies
hereunder.

                  SECTION 5.          Further Assurances.

                  (a) The Grantor  agrees that from time to time, at the expense
of the Grantor, it will promptly execute and deliver all further instruments and
documents, and take all further action,

<PAGE> 8


that may be necessary,  or that the Agent may  reasonably  request,  in order to
perfect and protect any  security  interest  granted or  purported to be granted
hereby or to enable  the Agent to  exercise  and  enforce  any of its rights and
remedies  hereunder  with  respect  to  any  Collateral.  Without  limiting  the
generality of the foregoing,  and without further order of the Bankruptcy Court,
the Grantor will execute and file such financing or continuation statements,  or
amendments thereto,  and such other instruments or notices, as may be necessary,
or as the Agent may  reasonably  request,  in order to perfect and  preserve the
security interests granted or purported to be granted hereby.

                  (b) The  Grantor  hereby  authorizes  the Agent to file one or
more financing or continuation statements,  and amendments thereto,  relative to
all or any part of the  Collateral  without the  signature of the Grantor  where
permitted by law.

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

                  (d) The Grantor  hereby  agrees  from time to time  hereafter,
that upon the acquisition or creation of additional  Pledged Notes, that it will
execute and deliver to the Agent,  for the benefit of the Lenders,  the Fronting
Banks  and the  Underwriters,  such  additional  Pledged  Notes,  in each  case,
accompanied by appropriate endorsements executed in blank.

         SECTION 6.  As to Equipment and Inventory.  The Grantor shall:

                  (a) Keep the  Equipment and  Inventory  (other than  Inventory
sold in the ordinary  course of business)  at the places  specified  therefor in
Schedule 1 hereto or, upon 30 days' prior written notice to the Agent,  at other
places in  jurisdictions  where all action required by Section 5 shall have been
taken to assure the  continuation of the perfection of the security  interest of
the Agent (for its benefit and the ratable benefit of the Lenders,  the Fronting
Banks and the Underwriters) with respect to the Equipment and Inventory.

                  (b) Maintain or cause to be maintained in good repair, working
order  and  condition,  excepting  ordinary  wear  and tear  and  damage  due to
casualty,  all of the  Equipment,  and make or cause to be made all  appropriate
repairs,  renewals  and  replacements  thereof,  to the extent not  obsolete and
consistent  with past practice of the Grantor,  as quickly as practicable  after
the  occurrence of any loss or damage  thereto which are necessary or reasonably
desirable to such end.

                  (c) With respect to the  Inventory:  (a) the Grantor  shall at
all times maintain records with respect to Inventory reasonably  satisfactory to
the Agent,  keeping  correct and accurate  records  itemizing and describing the
kind, type,  quality and quantity of Inventory,  the Grantor's cost therefor and
daily withdrawals therefrom and additions thereto; (b) the Grantor shall conduct
a physical  count of the  Inventory at least once each year,  but at any time or
times as the Agent may  request  on or after an Event of  Default  occurs and is
continuing,  and promptly  following  such physical  inventory  shall supply the
Agent with a report in the form and with such  specificity  as may be reasonably
satisfactory to the Agent  concerning such physical count; (c) the Grantor shall
not remove any  Inventory  from the  locations  set forth or  permitted  herein,
without the prior  written  consent of the Agent,  except for sales of Inventory
and returns of Inventory to vendors, in each case

<PAGE> 9


in the ordinary  course of the Grantor's  business and except to move  Inventory
directly  from one  location  set  forth or  permitted  herein to  another  such
location;  (d) in addition to the requirements set forth above, upon the Agent's
request,  the Grantor shall,  at its expense,  conduct through the Asset Support
Group or another inventory counting service reasonably  acceptable to the Agent,
or shall permit the Agent to conduct (if the Agent so elects),  a physical count
of the Inventory in form,  scope and  methodology  reasonably  acceptable to the
Agent no more than once in any  twelve  (12)  month  period,  but at any time or
times as the Agent may  request  on or after an Event of  Default  occurs and is
continuing,  the results of which shall be reported  directly by such  inventory
counting   service  to  the  Agent  and  the  Grantor  shall  promptly   deliver
confirmation in a form  satisfactory to the Agent that  appropriate  adjustments
have  been  made to the  Inventory  records  of the  Grantor  to  reconcile  the
Inventory  count to the  Grantor's  Inventory  records;  (e) the  Grantor  shall
produce,  use,  store and maintain the Inventory,  with all reasonable  care and
caution and in  accordance  with  applicable  standards of any  insurance and in
conformity with applicable laws (including, but not limited to, the requirements
of the Federal  Fair Labor  Standards  Act of 1938,  as amended,  and all rules,
regulations  and orders  related  thereto);  (f) the Grantor  retains all of its
responsibility  and liability  arising from or relating to the production,  use,
sale or other  disposition of the Inventory;  and (g) the Grantor shall not sell
Inventory  to any customer on  approval,  or any other basis which  entitles the
customer to return or may  obligate  the Grantor to  repurchase  such  Inventory
(other than in the ordinary  course of business  consistent  with past practices
and policies of the Grantor or current market practice).

         SECTION 7.          As to Accounts.

                  (a) The Grantor  shall keep its chief  place of  business  and
chief executive office and the office where it keeps its records  concerning the
Accounts,  and the offices  where it keeps all  originals  of all chattel  paper
which evidence Accounts,  at the location therefor specified in Section 4(a) or,
upon 30 days' prior written  notice to the Agent,  at such other  locations in a
jurisdiction  where all actions required by Section 5 shall have been taken with
respect to the  Accounts.  The Grantor will hold and  preserve  such records and
chattel paper and will permit  representatives  of the Agent, at any time during
normal  business  hours,  to inspect and make  abstracts  from such  records and
chattel paper in accordance with Section 5.6 of the Credit Agreement.

                  (b) Except as otherwise  provided in this  subsection (b), the
Grantor shall continue to collect in accordance with its customary practice,  at
its own  expense,  all  amounts  due or to become due to the  Grantor  under the
Accounts and, prior to the occurrence of an Event of Default,  the Grantor shall
have the right to  adjust,  settle or  compromise  the  amount or payment of any
Account,  or release wholly or partly any account debtor or obligor thereof,  or
allow any credit or  discount  thereon,  all in  accordance  with its  customary
practices.  In  connection  with such  collections,  the Grantor  may,  upon the
occurrence and during the continuation of an Event of Default,  take (and at the
direction  of the Agent  shall take) such action as the Grantor or the Agent may
reasonably  deem  necessary or advisable to enforce  collection of the Accounts;
provided,  that upon written  notice by the Agent to the Grantor,  following the
occurrence and during the continuation of an Event of Default,  of its intention
so to do,  the Agent  shall  have the right to notify  the  account  debtors  or
obligors  under any Accounts of the assignment of such Accounts to the Agent and
to direct such account debtors or obligors to make payment of all amounts due or
to become due to the Grantor  thereunder  directly  to the Agent and,  upon such
notification  and at the expense of the Grantor,  to enforce  collection  of any
such Accounts, to take possession of and indorse and collect any checks, 

<PAGE> 10


drafts, notes,  acceptances or other instruments for payment of moneys due under
any  Account,  to file any claim or take any other action or  proceeding  in any
court of law or equity otherwise deemed appropriate by the Agent for the purpose
of collecting  any such money and to adjust,  settle or compromise the amount or
payment thereof,  in the same manner and to the same extent as the Grantor might
have done. After receipt by the Grantor of the notice referred to in the proviso
to the preceding sentence, (i) all amounts and proceeds (including  instruments)
received  by the Grantor in respect of the  Accounts  shall be received in trust
for the  benefit  of the Agent (for the  ratable  benefit  of the  Lenders,  the
Fronting Banks and the Underwriters)  hereunder,  shall be segregated from other
funds of the Grantor and shall be  forthwith  paid over to the Agent in the same
form  as so  received  (with  any  necessary  endorsement)  to be  held  as cash
collateral and either (A) released to the Grantor if such Event of Default shall
have been cured or waived or (B) if such Event of Default  shall be  continuing,
paid to the Agent and applied to the Obligations, and (ii) the Grantor shall not
adjust,  settle or compromise  the amount or payment of any Account,  or release
wholly or partly any account debtor or obligor  thereof,  or allow any credit or
discount thereon.

                  (c) The  Grantor  will keep and  maintain  at its own cost and
expense  satisfactory  and  complete  records  with  respect to the  Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Accounts,  and the Grantor shall make  available any
such books and  records  to the Agent or to its  representatives  during  normal
business hours at the request of the Agent.

         SECTION 8.   As to Trademarks, Patents and Copyrights.
                  (a) Except  with  respect to any  Trademark  that the  Grantor
shall reasonably  determine is of negligible economic value to it (and so advise
the Agent in writing),  the Grantor shall,  either itself or through  licensees,
(i) continue to use the  Trademarks on each and every  trademark  class of goods
applicable to its current line as reflected in its current  catalogs,  brochures
and price lists in order to maintain the  Trademarks in full force free from any
claim of  abandonment  for nonuse,  (ii)  maintain as in the past the quality of
products and services offered under the Trademarks,  (iii) employ the Trademarks
with the  appropriate  notice  of  registration,  (iv) not adopt or use any mark
which is confusingly  similar or a colorable  imitation of the Trademarks unless
the Agent shall obtain a perfected  security  interest  therein and (v) not (and
will not permit any licensee  thereof to) do any act or knowingly omit to do any
act whereby any Trademark may become invalidated.
                  (b) The  Grantor  will not do any act,  or omit to do any act,
whereby the Patents or  Copyrights  may become  abandoned or  dedicated  and the
Grantor  shall  notify  the Agent  immediately  if it knows of any reason or has
reason to know that any  application  or  registration  may become  abandoned or
dedicated.

                  (c) The Grantor will not,  either itself or through any agent,
employee,  licensee or designee, (i) file an application for the registration of
any Patent or Trademark  with the United States  Patent and Trademark  Office or
any similar  office or agency in any other country or any political  subdivision
thereof  or (ii)  file any  assignment  of any  patent or  trademark,  which the
Grantor  may  acquire  from a third  party,  with the United  States  Patent and
Trademark  Office or any  similar  office or agency in any other  country or any
political  subdivision  thereof,  unless the Grantor shall, within 15 days after
the date of such  filing,  notify the Agent  thereof,  and,  upon request of the
Agent,  execute and deliver any and all  assignments,  agreements,  instruments,
documents  and papers as the 

<PAGE> 11


Agent may request to evidence  the Agent's  interest in such Patent or Trademark
and the  goodwill and general  intangibles  of the Grantor  relating  thereto or
represented   thereby,   and  the  Grantor  hereby  constitutes  the  Agent  its
attorney-in-fact  to  execute  and  file  all such  writings  for the  foregoing
purposes,  all lawful acts of such attorney being hereby ratified and confirmed;
such power being coupled with an interest is irrevocable  until the full payment
and performance of the Obligations, the expiration or cancellation of all of the
Letters of Credit and the termination of the Commitment.
                  (d) The Grantor will take all reasonable  and necessary  steps
in any  proceeding  before the United States Patent and  Trademark  Office,  the
United  States  Copyright  Office or any  similar  office or agency in any other
country or any political  subdivision  thereof, to maintain each application and
registration  of all material  Trademarks,  Patents and  Copyrights,  including,
without  limitation,  filing  of  renewals,  affidavits  of use,  affidavits  of
incontestability and opposition, interference and cancellation proceedings.
                  (e) The Grantor will,  without further order of the Bankruptcy
Court,  perform all acts and execute  and  deliver all further  instruments  and
documents,  including,  without  limitation,  assignments  for  security in form
suitable for filing with the United States Patent and Trademark Office,  and the
United States Copyright Office, respectively,  reasonably requested by the Agent
at any time to  evidence,  perfect,  maintain,  record and  enforce  the Agent's
interest in all  material  Trademarks,  Patents and  Copyrights  or otherwise in
furtherance  of the  provisions  of  this  Agreement,  and  the  Grantor  hereby
authorizes  the  Agent  to  execute  and  file  one or more  accurate  financing
statements  (and similar  documents) or copies thereof or of this Agreement with
respect to material Patents, Trademarks and Copyrights signed only by the Agent.
                  (f) The Grantor will,  upon acquiring  knowledge of any use by
any person of any term or design  likely to cause  confusion  with any  material
Trademark, promptly notify the Agent of such use, and if requested by the Agent,
shall join with the  Agent,  at the  Grantor's  expense,  in such  action as the
Agent,  in its reasonable  discretion,  may deem advisable for the protection of
the Agent's interest in and to the Trademarks.
         SECTION 9.  As to the Pledged Stock  Collateral;  Voting  Rights; 
Dividends;  Etc.

(a) So long as no Event of Default shall have occurred and be continuing:
                           (i) the Grantor shall be entitled to exercise any and
              all voting and other consensual  rights  pertaining to the Pledged
              Stock   Collateral  or  any  part  thereof  for  any  purpose  not
              inconsistent with the terms of this Agreement;  provided, that the
              Grantor  shall not exercise or shall refrain from  exercising  any
              such right if, in the  Agent's  reasonable  judgment,  such action
              would have a material  adverse  effect on the value of the Pledged
              Stock Collateral or any part thereof;
                           (ii)  notwithstanding  the  provisions  of  Section 1
              hereof,  the  Grantor  shall be entitled to receive and retain any
              and all dividends paid in respect of the Pledged Stock Collateral;
              provided, that any and all
                                    (A) dividends  paid or payable other than in
                            cash  in  respect  of,  and  instruments  and  other
                            property    received,    receivable   or   otherwise
                            distributed  in respect of, or in exchange  for, any
                            Pledged Stock Collateral, and
                                    (B) dividends and other  distributions  paid
                             or payable in cash in respect of any Pledged  Stock
                             Collateral  in  connection  with a partial or total
                             liquidation or dissolution or in connection  with a
                             reduction   of   capital,    capital   surplus   or
                             paid-in-surplus,
              shall be, and shall be  forthwith  delivered  to the Agent to hold
              as,  Pledged  Stock  


<PAGE> 12

              Collateral  and  shall,  if  received  by the
              Grantor,  be received  in trust for the  benefit of the Agent,  be
              segregated from the other property or funds of the Grantor, and be
              forthwith  delivered to the Agent as Pledged  Stock  Collateral in
              the same form as so received (with any necessary endorsement); and
                               (iii) the Agent  shall  execute  and  deliver (or
                  cause to be executed  and  delivered)  to the Grantor all such
                  proxies and other  instruments  as the Grantor may  reasonably
                  request for the  purpose of  enabling  the Grantor to exercise
                  the voting and other  rights  which it is entitled to exercise
                  pursuant to paragraph  (i) above and to receive the  dividends
                  which it is  authorized  to  receive  and retain  pursuant  to
                  paragraph (ii) above;
(b)      Upon the occurrence and during the continuance of an Event of Default:
                               (i)      upon  written  notice  from the Agent to
                  the  Grantor to such  effect,  all rights  of the  Grantor  to
                  exercise  the  voting  and  other consensual  rights  which it
                  would  otherwise  be  entitled to exercise  pursuant  to 
                  Section 9(a)(i) and to receive the dividends  which it would 
                  otherwise be  authorized to receive and retain pursuant to 
                  Section  9(a)(ii) shall  cease,  and all such  rights  shall 
                  thereupon  become vested in the Agent,  who  shall  thereupon
                  have the sole right to exercise  such voting and other 
                  consensual rights and to receive and hold as Pledged
                  Stock Collateral any such dividends; and

                           (ii) all dividends  which are received by the Grantor
                  contrary to the  provisions  of paragraph  (i) of this Section
                  9(b) shall be  received in trust for the benefit of the Agent,
                  shall be segregated  from other funds of the Grantor and shall
                  be  forthwith   paid  over  to  the  Agent  as  Pledged  Stock
                  Collateral in the same form as so received (with any necessary
                  endorsement).
              SECTION 10.  Vehicles.  The Grantor will  maintain each Vehicle in
     good operating condition, ordinary wear and tear and immaterial impairments
     of  value  and  damage  by the  elements  excepted,  and will  provide  all
     maintenance, service and repairs necessary for such purpose. Promptly after
     the date hereof and,  with respect to any Vehicles  acquired by the Grantor
     subsequent to the date hereof,  all  applications for certificates of title
     indicating the Agent's first  priority Lien on the Vehicle  covered by such
     certificate,  and any other necessary documentation,  shall be filed by the
     Grantor  in each  office in each  jurisdiction  which the Agent  shall deem
     advisable to perfect or protect its Liens on the  Vehicles.  In  connection
     with the foregoing,  the Grantor shall notify the Agent, in writing, within
     30 days after the date of acquisition,  of each Vehicle acquired subsequent
     to the date hereof.
              SECTION 11.  Insurance.  The Grantor  shall,  at its own  expense,
     maintain  insurance  with respect to the  Inventory  and  Equipment in such
     amounts,  against such risks,  in such form and with such  insurers,  as is
     provided for in Section 5.3 of the Credit Agreement.  Following an Event of
     Default and during its  continuance,  the Grantor shall,  at the request of
     the Agent,  duly  execute and deliver  instruments  of  assignment  of such
     insurance policies and cause the respective  insurers to acknowledge notice
     of such assignment.
              Upon the  occurrence  and during the  continuance  of any Event of
     Default,  all insurance payments in respect of such Inventory and Equipment
     shall be held, paid to the Agent and applied to the Obligations.
              SECTION 12.  Transfers to Others; Liens; Additional Shares. 
 The Grantor shall not:


<PAGE> 13


                      (a) Sell,  assign (by  operation of law or  otherwise)  or
     otherwise  dispose  of any  of  the  Collateral,  except  for  dispositions
     otherwise permitted by the Credit Agreement.
                      (b) Create or suffer to exist any lien,  security interest
     or  other  charge  or  encumbrance  upon  or  with  respect  to  any of the
     Collateral to secure any obligation of any person or entity, except for the
     security  interest  created by this Agreement and the Orders,  or except as
     otherwise permitted by the Credit Agreement.
                      (c) The Grantor  agrees that it will (i) cause each of the
     Issuers  not to issue  any  stock or other  securities  in  addition  to or
     substitution  for the Pledged  Shares issued by such Issuer,  except to the
     Grantor  and  (ii)  pledge  hereunder,  immediately  upon  its  acquisition
     (directly or indirectly)  thereof,  any and all such  additional  shares of
     stock or other securities of each Issuer of the Pledged Shares.

              SECTION 13. Agent's Appointment as  Attorney-in-Fact.  The Grantor
     hereby irrevocably appoints the Agent the Grantor's attorney-in-fact (which
     appointment shall be irrevocable and deemed coupled with an interest), with
     full authority in the place and stead of the Grantor and in the name of the
     Grantor or otherwise, from time to time in the Agent's discretion, upon and
     during the occurrence and continuation of an Event of Default,  to take any
     action and to execute any instrument  which the Agent may deem necessary or
     advisable to accomplish the purposes of this Agreement,  including, without
     limitation:
                               (i) to obtain and adjust  insurance  required to 
                  be paid to the Agent  pursuant to Section 11;
                               (ii) to ask, demand,  collect,  sue for, recover,
                  compound, receive and give acquittance and receipts for moneys
                  due  and to  become  due  under  or in  respect  of any of the
                  Collateral;
                               (iii) to receive, endorse, and collect any drafts
                  or  other   instruments,   documents  and  chattel  paper,  in
                  connection with clause (i) or (ii) above;
                               (iv)  to   receive,   endorse   and  collect  all
                  instruments  made  payable  to the  Grantor  representing  any
                  dividend or other distribution in respect of the Pledged Stock
                  Collateral or any part thereof and to give full  discharge for
                  the same;
                               (v) to file  any  claims  or take any  action  or
                  institute or defend any  proceedings  which the Agent may deem
                  necessary  or  desirable  for  the  collection  of  any of the
                  Collateral  or  otherwise  to enforce  the rights of the Agent
                  with respect to any of the Collateral;

                           (vi) to direct any party  liable  for any  payment in
              respect of or arising out of any of the Collateral to make payment
              of any and all moneys due or to become due thereunder  directly to
              the Agent or as the Agent shall direct;

                           (vii) to  settle,  compromise  or  adjust  any  suit,
              action or  proceeding  described  in  clause  (v)  above  and,  in
              connection  therewith,  to give such discharges or releases as the
              Agent may deem appropriate;

                           (viii) to set off or cause to be set off  amounts  in
              any account  maintained  with any Lender,  Underwriter or Fronting
              Bank or otherwise  enforce rights against any of the Collateral in
              the possession of any Lender, Underwriter or Fronting Bank; and



<PAGE> 14


                           (ix) generally,  to sell,  transfer,  pledge and make
              any  agreement  with respect to or otherwise  deal with any of the
              Collateral  as fully and  completely  as though the Agent were the
              absolute owner thereof for all purposes, and to do, at the Agent's
              option and the  Grantor's  expense,  at any time,  or from time to
              time,  all acts and  things  which the Agent  deems  necessary  to
              protect,  preserve or realize upon the  Collateral and the Agent's
              Liens thereon and to effect the intent of this  Agreement,  all as
              fully and effectively as the Grantor might do.

                           SECTION 14. Agent May Perform.  If the Grantor  fails
              to perform any agreement  contained  herein,  the Agent may itself
              perform, or cause performance of, such agreement, and the expenses
              of the Agent incurred in connection  therewith shall be payable by
              the Grantor under Section 17(b).

                           SECTION 15. The Agent's Duties.  The powers conferred
              on the Agent  hereunder are solely to protect its interest and the
              interests  of the Lenders in the  Collateral  and shall not impose
              any duty upon it to exercise any such powers.  Except for the safe
              custody of any Collateral in its possession and the accounting for
              moneys actually received by it hereunder,  the Agent shall have no
              duty as to any  Collateral  or as to the  taking of any  necessary
              steps to preserve rights against prior parties or any other rights
              pertaining  to  any  Collateral,  including,  without  limitation,
              ascertaining or taking action with respect to calls,  conversions,
              exchanges,  maturities,  tenders or other matters  relative to any
              Pledged  Stock  Collateral,  whether  or not the  Agent  has or is
              deemed to have  knowledge of such  matters.  Neither the Agent nor
              any of the Lenders,  Fronting  Banks or  Underwriters,  nor any of
              their  respective  directors,   officers,  employees,   attorneys,
              experts or agents  shall be liable for failure to demand,  collect
              or realize upon all or any part of the Collateral or for any delay
              in doing so or shall be under any  obligation to sell or otherwise
              dispose  of any  Collateral  upon the  request  of the  Grantor or
              otherwise. The Grantor releases the Agent, the Fronting Banks, the
              Underwriters  and the  Lenders  and  their  respective  directors,
              officers,  employees,  attorneys,  experts  and  agents  from  any
              claims, causes of action and demands at any time arising out of or
              with respect to this Agreement, the Collateral, and/or any actions
              taken or  omitted to be taken by the Agent  with  respect  thereto
              (other  than any  claims,  causes of action  and  demands  arising
              solely  from the gross  negligence  or willful  misconduct  of the
              party which  desires to be so released  as  determined  by a final
              order or judgment of a court of competent  jurisdiction),  and the
              Grantor  hereby  agrees to hold the Lenders  and their  respective
              directors,  officers,  employees,  attorneys,  experts  and agents
              harmless from and with respect to any and all such claims,  causes
              of action and demands.  The agreements of the Grantor contained in
              this Section 15 shall survive the payment and  performance  of the
              Obligations,  the expiration or cancellation of all of the Letters
              of Credit,  the  termination of the Commitment and the termination
              of the security interests granted hereby.

                           SECTION 16.  Remedies.   If  any  Event  of  Default
              shall have occurred and  be continuing, and subject to the
              provisions of Section 7 of the Credit Agreement:

                               (a) The  Agent may  exercise  in  respect  of the
              Collateral,  in addition 



<PAGE> 15


              to other rights and remedies provided for
              herein or otherwise available to it, and without application to or
              order of the  Bankruptcy  Court,  all the rights and remedies of a
              secured  party on default  under the Uniform  Commercial  Code and
              also may (i) require the Grantor to, and the Grantor hereby agrees
              that  it  will  at its  expense  and  upon  request  of the  Agent
              forthwith,  assemble all or part of the  Collateral as directed by
              the  Agent  and make it  available  to the  Agent at a place to be
              reasonably  designated by the Agent and (ii) without notice except
              as specified below, sell the Collateral or any part thereof in one
              or more parcels at public or private  sale,  at any of the Agent's
              offices or elsewhere,  for cash, on credit or for future delivery,
              and at such price or prices and upon such other terms as the Agent
              may deem commercially reasonable.  The Grantor agrees that, to the
              extent  notice of such sale shall be required by law, at least ten
              days'  notice to the  Grantor  of the time and place of any public
              sale or the time after which any private  sale is to be made shall
              constitute  reasonable  notification.   The  Agent  shall  not  be
              obligated to make any sale of  Collateral  regardless of notice of
              sale  having  been  given.  The Agent may  adjourn  any  public or
              private  sale  from time to time by  announcement  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.
                               (b) The Agent may  instruct  the  Grantor  not to
              make any further use of the Patents,  Copyrights  or Trademarks or
              any mark similar thereto for any purpose.
                               (c)  The  Agent  may  license,  whether  general,
              special or otherwise,  and whether on an exclusive or nonexclusive
              basis, any of the Trademarks, Patents or Copyrights throughout the
              world  for such  term or terms,  on such  conditions,  and in such
              manner, as the Agent shall in its sole discretion determine.
                               (d)  The  Agent   may   (without   assuming   any
              obligations or liability  thereunder),  at any time,  enforce (and
              shall have the exclusive right to enforce) against any licensee or
              sublicensee  all rights and  remedies  of the  Grantor  in, to and
              under  any one or more  license  agreements  with  respect  to the
              Collateral,  and take or refrain  from taking any action under any
              thereof,  and the Grantor  hereby  releases  the Agent  from,  and
              agrees to hold the Agent free and  harmless  from and  against any
              claims  arising  out of, any  action  taken or omitted to be taken
              with respect to any such license agreement.
                               (e) In the event of any such license, assignment,
              sale or other  disposition  of the  Collateral,  or any of it, the
              Grantor shall supply its know-how and expertise in connection with
              the  manufacture  and sale of the products  bearing or relating to
              Trademarks,  Patents or  Copyrights,  and its  customer  lists and
              other records  relating to the  Trademarks,  Patents or Copyrights
              and to the  distribution  of said  products,  to the  Agent or its
              designee.
                               (f) In order to implement the assignment, sale or
              other  disposal of any of the  Trademarks,  Patents or Copyrights,
              the Agent may, at any time,  pursuant to the authority  granted in
              Section 13 hereof,  execute and deliver on behalf of the  Grantor,
              one or more  instruments of assignment of the Trademarks,  Patents
              or Copyrights (or any  application of  registration  thereof),  in
              form  suitable  for  filing,  recording  or  registration  in  any
              country.
                               (g) All cash  proceeds  received  by the Agent in
              respect of any sale of, collection from, or other realization upon
              all or any part of the  Collateral  may, in the  discretion of the
              Agent,  be held by the Agent as collateral for, and then or at any


<PAGE> 16

              time  thereafter  applied (after payment of any amounts payable to
              the Agent pursuant to Section 17) in whole or in part against, all
              or any part of the  Obligations  in such order as the Agent  shall
              elect. Any surplus of such cash or cash proceeds held by the Agent
              and remaining after payment in full of all the  Obligations  shall
              be paid  over to the  Grantor  or to  whomsoever  may be  lawfully
              entitled to receive such surplus.
                               (h) If at any time when the Agent shall determine
              to exercise its right to sell all or any part of the Pledged Stock
              Collateral  pursuant  to  this  Section  16,  such  Pledged  Stock
              Collateral or the part thereof to be sold shall not be effectively
              registered  under the Securities  Act of 1933, as amended,  and as
              from  time to time  in  effect,  and  the  rules  and  regulations
              thereunder (the  "Securities  Act"), the Agent is hereby expressly
              authorized  to sell such  Pledged  Stock  Collateral  or such part
              thereof   by   private   sale  in  such   manner  and  under  such
              circumstances  as the Agent may deem  necessary  or  advisable  in
              order  that  such  sale  may  legally  be  effected  without  such
              registration. Without limiting the generality of the foregoing, in
              any such event the Agent, in compliance with applicable securities
              laws,  (a) may proceed to make such private  sale  notwithstanding
              that a registration  statement for the purpose of registering such
              Pledged  Stock  Collateral  or such part  thereof  shall have been
              filed under such  Securities  Act, (b) may approach and  negotiate
              with a restricted  number of potential  purchasers  to effect such
              sale and (c) may  restrict  such  sale to  purchasers  as to their
              number,  nature of business  and  investment  intention  including
              without  limitation to purchasers  each of whom will represent and
              agree to the  satisfaction  of the Agent  that such  purchaser  is
              purchasing  for its own account,  for  investment,  and not with a
              view to the distribution or sale of such Pledged Stock Collateral,
              or part thereof,  it being  understood that the Agent may cause or
              require  the  Grantor,  and the  Grantor  hereby  agrees  upon the
              written  request of the Agent, to cause (i) a legend or legends to
              be placed on the  certificates  to be delivered to such purchasers
              to the  effect  that  the  Pledged  Stock  Collateral  represented
              thereby  have not been  registered  under the  Securities  Act and
              setting forth or referring to restrictions on the  transferability
              of such  securities;  and  (ii)  the  issuance  of  stop  transfer
              instructions to such Issuer's transfer agent, if any, with respect
              to the Pledged Stock Collateral,  or, if such Issuer transfers its
              own  securities,  a notation  in the  appropriate  records of such
              Issuer.  In the event of any such sale,  the  Grantor  does hereby
              consent and agree that the Agent shall incur no  responsibility or
              liability  for  selling  all or any  part  of  the  Pledged  Stock
              Collateral  at a price which the Agent may deem  reasonable  under
              the   circumstances,   notwithstanding   the  possibility  that  a
              substantially  higher  price  might be  realized  if the sale were
              public and deferred until after registration as aforesaid.

                               (i)  Until  the  payment  in  full  in  cash  and
              performance of all Obligations,  the expiration or cancellation of
              all of the Letters of Credit and the termination of the Commitment
              and at any time  when an  Event of  Default  has  occurred  and is
              continuing:  (i) the Grantor will  perform any and all  reasonable
              actions  requested  by the Agent to enforce the  Agent's  security
              interest in the Inventory and all of the Agent's rights hereunder,
              such as leasing  warehouses to the Agent or its designee,  placing
              and  maintaining  signs,   appointing   custodians,   transferring
              Inventory to  warehouses,  and  delivering to the Agent  warehouse
              receipts and documents of title in the 


<PAGE> 17


              Agent's  name;  (ii) if any
              Inventory is in the  possession of control of any of the Grantor's
              agents,  contractors  or processors or any other third party,  the
              Grantor will notify the Agent thereof and will notify such agents,
              contractors  or processors or third party of the Agent's  security
              interest therein and, upon request, instruct them to hold all such
              Inventory  for the Agent's  and the  Grantor's  account,  as their
              interests  may appear,  and  subject to the Agent's  instructions;
              (iii) the Agent shall have the right to hold all Inventory subject
              to the security  interest  granted  hereunder;  and (iv) the Agent
              shall have the right to take  possession  of the  Inventory or any
              part  thereof and to maintain  such  possession  on the  Grantor's
              premises  or to remove any or all of the  Inventory  to such other
              place or places as the Agent  desires in its sole  discretion.  If
              the Agent exercises its right to take possession of the Inventory,
              the Grantor,  upon the Agent's demand, will assemble the Inventory
              and make it  available to the Agent at the  Grantor's  premises at
              which it is located.

         SECTION 17.         Indemnity and Expenses.

                  (a) The Grantor agrees to indemnify the Agent from and against
any and all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims,  losses or  liabilities  directly  arising  from the  Agent's  own gross
negligence or willful misconduct.

                  (b) The  Grantor  will upon demand pay to the Agent the amount
of  any  and  all  reasonable  expenses,   including  the  reasonable  fees  and
disbursements of its counsel and of any experts and agents,  which the Agent may
incur in  connection  with (i) the  administration  of this  Agreement,(ii)  the
custody,  preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Agent  hereunder  or (iv) the failure by the Grantor
to perform or observe any of the provisions hereof.

                  (c) The  Grantor  assumes  all  responsibility  and  liability
arising from the use of the Trademarks,  Patents and Copyrights, and the Grantor
hereby  indemnifies  and holds the Agent  harmless  from and  against any claim,
suit, loss, damage or expense (including reasonable attorneys' fees) arising out
of any  alleged  defect in any  product  manufactured,  promoted  or sold by the
Grantor in connection with any Trademark or out of the  manufacture,  promotion,
labelling,  sale or  advertisement  of any such product by the Grantor except as
the same may have  resulted from the gross  negligence or willful  misconduct of
the Agent.

                  (d) The Grantor  agrees  that the Agent does not  assume,  and
shall have no  responsibility  for, the payment of any sums due or to become due
under any agreement or contract included in the Collateral or the performance of
any  Obligations to be performed  under or with respect to any such agreement or
contract by the Grantor, and except as the same may have resulted from the gross
negligence or willful  misconduct of the Agent,  the Grantor agrees to indemnify
and hold the Agent  harmless  with  respect  to any and all claims by any person
relating thereto.

         SECTION 18.  Security  Interest  Absolute.  All rights of the Agent and
security  interests  hereunder,  and all  Obligations of the Grantor  hereunder,
shall be absolute and  unconditional,


<PAGE> 18

irrespective  of any  circumstance  which might  constitute a defense  available
to, or a discharge  of, any guarantor or other obligor in respect of the
Obligations.

         SECTION 19. Amendments; Etc. No amendment or waiver of any provision of
this Agreement,  nor any consent to any departure by the Grantor herefrom, shall
in any event be effective  unless the same shall be in writing and signed by the
party against whom enforcement is sought,  and then such waiver or consent shall
be  effective  only in the specific  instance  and for the specific  purpose for
which given.

         SECTION 20. Louisiana Remedies. For purposes of executory process under
applicable  Louisiana law (and only for such purposes),  upon the occurrence and
during the continuance of an Event of Default,  the Grantor hereby  acknowledges
the  indebtedness  owed under the  Obligations,  CONFESSES  JUDGMENT thereon and
consents that judgment be rendered and signed,  whether  during the court's term
or during vacation,  in favor of the Agent, for the benefit of the Lenders,  the
Fronting  Banks and the  Underwriters,  for the full amount of the  Obligations.
Upon the  occurrence  of an  Event of  Default,  and in  addition  to all of its
rights,  powers and remedies under this Agreement and applicable  law, the Agent
may, at its option, cause all or any part of the Collateral located in Louisiana
(the "Louisiana  Collateral")  to be seized and sold under executory  process or
under writ of fieri facias issued in execution of an ordinary  judgment obtained
upon the Obligations,  without  appraisement to the highest bidder,  for cash or
under such terms as the Agent deems  acceptable.  The Grantor  hereby waives all
and every appraisement of the Louisiana  Collateral and waives and renounces the
benefit  of  appraisement  of the  Louisiana  Collateral  seized  and sold under
executory or other legal process.  The Grantor agrees to waive,  and does hereby
specifically waive:

                           (1)      the benefit of appraisement  provided for in
                                    Articles   2332,   2336,   2723  and   2724,
                                    Louisiana Code of Civil  Procedure,  and all
                                    other laws conferring such benefits;

                           (2)      the demand and three days delay  accorded by
                                    Articles 2639 and 2721,  Louisiana Code of 
                                    Civil Procedure;

                           (3)      the notice of seizure  required by Articles 
                                    2293 and 2721,  Louisiana  Code of Civil
                                    Procedure;

                           (4)      the three days delay  accorded by  Articles
                                    2331 and 2722,  Louisiana  Code of  Civil 
                                    Procedure;

                           (5)      the benefit of the other provisions of
                                    Articles 2331, 2722 and 2723,  Louisiana
                                    Code of Civil Procedure;

                           (6)      the benefit of the  provisions  of any other
                                    articles  of the  Louisiana  Code  of  Civil
                                    Procedure not specifically  mentioned above;
                                    and

                           (7)      all rights of division and  discussion  with
                                    respect to the Obligations.

Pursuant to the authority  contained in La.R.S.  9:5136  through  9:5140.1,  the
Grantor and the Agent 


<PAGE> 19

do hereby expressly designate the Agent or its designee to
be keeper or receiver ("Keeper") for the benefit of the Agent or any assignee of
the Agent,  such designation to take effect  immediately upon any seizure of any
of the  Louisiana  Collateral  under writ of executory  process or under writ of
sequestration  or fieri facias as an incident to an action brought by the Agent.
It  is  hereby   agreed  that  the  Keeper  shall  be  entitled  to  receive  as
compensation,  in excess of its  reasonable  costs and expenses  incurred in the
administration or preservation of the Louisiana  Collateral,  an amount equal to
the  lesser  of $200  per day or  four  percent  of the  gross  revenues  of the
Louisiana  Collateral  and the  payment  of such fees  shall be  secured  by the
security  interest in the Louisiana  Collateral  granted in this Agreement.  The
designation  of Keeper made herein  shall not be deemed to require  Mortgagee to
provoke the appointment of a Keeper.

         SECTION 21. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and shall be given in accordance with
the applicable provisions of the Credit Agreement.

         SECTION 22. Continuing Security Interest. This Agreement shall create a
continuing  security  interest  in the  Collateral  and shall (i) remain in full
force and effect until the payment and  performance in full of the  Obligations,
the  expiration  or  cancellation  of all of  the  Letters  of  Credit  and  the
termination of the Commitment,  (ii) be binding upon the Grantor, its successors
and assigns and (iii) inure,  together with the rights and remedies of the Agent
hereunder,  to the benefit of the Agent and each of the  Lenders,  the  Fronting
Banks and the  Underwriters  and their  respective  successors,  transferees and
assigns.  Upon the  payment  and  performance  in full of the  Obligations,  the
security  interest  granted  hereby  shall  terminate  and  all  rights  to  the
Collateral  shall revert to the Grantor subject to any existing liens,  security
interests or encumbrances on such  Collateral.  Upon any such  termination,  the
Agent will,  at the Grantor's  expense,  execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination.

         SECTION 23.  Governing  Law.  This  Agreement  shall be governed by and
construed  in  accordance  with the laws of the  State of New  York,  except  as
required  by  mandatory  provisions  of law and  except to the  extent  that the
validity  or  perfection  of  the  security  interest  hereunder,   or  remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction  other  than the State of New York and by Federal  law  (including,
without  limitation,  the Bankruptcy Code) to the extent the same has pre-empted
the law of the State of New York or such other jurisdiction.

         SECTION 24.  Headings.  Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.

         IN WITNESS WHEREOF, the Grantor and the Agent have caused this Security
and Pledge  Agreement  to be duly  executed and  delivered  by their  respective
officers thereunto duly authorized as of the date first above written.



                                            GRANTOR:


<PAGE> 20



                                            PAYLESS CASHWAYS, INC.


                                            By:   /s/ Stephen A. Lightstone
                                               ---------------------------------
                                               Title:  Senior Vice President

                                            AGENT:
                                    
                                            CANADIAN IMPERIAL BANK OF COMMERCE,
                                               as Agent
                                           
                                            By:   /s/ Robert N. Greer
                                               ---------------------------------
                                               Title:  Assistant General Manager