<PAGE> 1

                              AMENDED AND RESTATED
                          BORROWER SECURITY AGREEMENT

         AMENDED AND RESTATED BORROWER SECURITY  AGREEMENT,  dated as of October
3, 1996,  between PAYLESS CASHWAYS,  INC., an Iowa corporation (the "Borrower"),
and CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as Administrative Agent
and as  Collateral  Agent  (in such  capacities,  together  with  any  successor
administrative agent or successor  collateral agent, the "Administrative  Agent"
and the "Collateral Agent", respectively) for the benefit of the Secured Parties
(as hereinafter defined).


                             W I T N E S S E T H :

         WHEREAS,  pursuant  to  that  certain  Credit  Agreement,  dated  as of
November 18, 1994, as amended and restated  pursuant to that certain Amended and
Restated Credit  Agreement,  dated as of November 20, 1995 (the "Existing Credit
Agreement"), among the Borrower, the Administrative Agent, the Collateral Agent,
The Bank of Nova Scotia, NationsBank of Texas, N.A. and Bank of America National
Trust and Savings Association, as Co-Agents (in such capacity, the "Co-Agents"),
Canadian Imperial Bank of Commerce,  as letter of credit bank (together with any
Lender  (as  defined  in the  Credit  Agreement  referred  to below)  which is a
commercial  bank and is  designated  as the Letter of Credit Bank in  accordance
with the Credit Agreement (as hereinafter defined),  the Letter of Credit Bank )
and the Restructuring  Lenders, (as defined in the Credit Agreement  hereinafter
referred to) the  Restructuring  Lenders and the Letter of Credit Bank severally
agreed to  restructure  and  extend  credit to the  Borrower  upon the terms and
subject to the conditions set forth therein;

         WHEREAS,  the  Borrower and the  Merchandise  Letter of Credit Bank (as
defined in the Credit  Agreement)  are parties to the Letter of Credit  Issuance
and Reimbursement Agreement,  dated as of November 18, 1994, as amended (as such
agreement may be amended, supplemented, otherwise modified or replaced from time
to time with the  consent  of the  Majority  Lenders  (as  defined in the Credit
Agreement), the "Merchandise Letter of Credit Facility"),  pursuant to which the
Merchandise  Letter  of  Credit  Bank  makes  available  to the  Borrower  up to
$15,000,000  of commercial  letters of credit at any one time  outstanding  (the
"Merchandise Letters of Credit");

         WHEREAS,  the  Borrower  and the Hedging Bank (as defined in the Credit
Agreement)  are parties to that certain ISDA Master  Agreement,  dated as of May
22, 1995,  together  with all  schedules  executed in  connection  therewith (as
amended, modified and supplemented from time to time, the "Hedging Agreement");





<PAGE> 2

         WHEREAS,  the Borrower has existing cash management  arrangements  with
the Existing Cash Management  Banks (as defined in the Credit  Agreement) and is
entering into a new cash management  arrangement for its primary cash management
operations  with  the  New  Cash  Management  Bank  (as  defined  in the  Credit
Agreement);

         WHEREAS,  the  Borrower  has  an  existing  $500,000  foreign  currency
exchange  line  with  the  Foreign  Exchange  Bank  (as  defined  in the  Credit
Agreement);

         WHEREAS,  the  Borrower  and the  Collateral  Agent are parties to that
certain  Borrower  Security  Agreement,  dated  as of  November  18,  1994  (the
"Existing  Security  Agreement"),  pursuant to which the Borrower has granted to
the Collateral Agent a security  interest in certain of the Borrower's assets to
secure all of the Existing Obligations (as defined in the Credit Agreement);

         WHEREAS,  contemporaneously  herewith,  the  Administrative  Agent, the
Collateral Agent, the Co-Agents,  the Letter of Credit Bank, and the Lenders are
entering  into an Amended and Restated  Credit  Agreement,  dated as of the date
hereof (as amended, amended and restated, modified and supplemented from time to
time,  the "Credit  Agreement"),  pursuant to which,  inter alia,  the Swingline
Lenders (as defined in the Credit  Agreement)  have agreed to make a $60,000,000
senior secured swingline revolving loan facility available to the Borrower,  and
the  Restructuring  Lenders (as defined in the Credit  Agreement) have agreed to
restructure the Existing  Obligations,  in each case, upon the terms and subject
to the conditions set forth therein;

         WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement  that the Borrower shall have executed and delivered to the Collateral
Agent this Amended and Restated  Security  Agreement  (as amended,  modified and
supplemented  from time to time,  this "Security  Agreement") for the benefit of
the Secured Parties;

         NOW, THEREFORE,  in consideration of the premises and (i) to induce the
Administrative Agent, the Collateral Agent, the Co-Agents,  the Letter of Credit
Bank and the  Lenders  to enter into the  Credit  Agreement,  (ii) to induce the
Lenders  to make and  continue  their  respective  loans,  and for the Letter of
Credit Bank to continue to issue, and for the Lenders to continue to participate
in, the letters of credit (the "Bank  Letters of Credit ) provided for under the
Credit  Agreement,  (iii) in connection  with the  Merchandise  Letter of Credit
Bank's  continued  issuance of the  Merchandise  Letters of Credit  provided for
under the  Merchandise  Letter of Credit  Facility,  (iv) to induce the New Cash
Management  Bank and the Existing Cash  Management  Banks to continue to provide
their  respective  cash  management  services for the Borrower's cash management
operations,  (v) to induce the  Foreign  Exchange  Bank to continue to provide a
foreign exchange line, and (vi) for other



<PAGE> 3

good and valuable consideration,  the receipt and sufficiency of which is hereby
acknowledged,  the  Borrower  hereby  agrees with the  Collateral  Agent and the
Administrative Agent, for the benefit of the Secured Parties as follows:

         1. Defined Terms. (a) Unless otherwise defined herein,  terms which are
defined in the Credit  Agreement and used herein are so used as so defined;  and
the following terms shall have the following meanings:

                  "Account"  means any right to payment for goods sold or leased
         or for services  rendered  which is not  evidenced by an  Instrument or
         Chattel Paper, whether or not it has been earned by performance.

                  "Chattel  Paper"  means  a  writing  or  writings  (including,
         without  limitation,  one or more  Instruments)  which  evidence both a
         monetary  obligation and a security  interest in or a lease of specific
         goods (other than a vessel).

                  "Code" means the Uniform  Commercial Code as from time to time
         in effect in the State of New York.

                  "Collateral"  shall have the meaning assigned to it in Section
         2 hereof.

                  "Contractor Receivables" means those certain commercial credit
         accounts  sold by the  Borrower  and its  Subsidiaries  (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 8.16 of the Credit Agreement).

                  "Contracts"  means all  contracts  of the  Borrower  listed on
         Schedule I hereto and any  interest  rate swap,  cap or other  interest
         rate  protection  arrangement,  as the same  may  from  time to time be
         amended,   supplemented  or  otherwise  modified,   including,  without
         limitation, (a) all rights of the Borrower to receive moneys due and to
         become due to it thereunder or in connection therewith,  (b) all rights
         of the Borrower to damages arising out of, or for, breach or default in
         respect  thereof  and (c) all rights of the  Borrower to perform and to
         exercise all remedies thereunder.

                  "Document" means a document of title (as defined in the UCC as
         defined  in the  Credit  Agreement)  and a receipt  in the  nature of a
         warehouse  receipt issued for goods stored under a statute  requiring a
         bond against withdrawal or a license for the issuance of such receipts.





<PAGE> 4

                  "Equipment"  means  Goods  which  are used or  bought  for use
         primarily in business.

                  "Farm  Products"  means crops or livestock or supplies used or
         produced  in farming  operations  or if they are  products  of crops or
         livestock  in  their  unmanufactured  states  and  if  they  are in the
         possession of a debtor engaged in raising, fattening,  grazing or other
         farming operations.

                  "Fixtures"  means  goods  which  have  become  so  related  to
         particular  real estate  that an  interest  in them  arises  under real
         estate law.

                  "GECC" means General Electric Credit  Corporation,  a New York
         corporation.

                  "GECC  Receivables"  means  receivables  (i)  payable  to  the
         Borrower and its Subsidiaries by Monogram or GECC pursuant to the terms
         of the GE Credit Program  Documents arising out of private label credit
         card  sales  or  commercial  credit  account  sales of  merchandise  or
         services made by the Borrower and its  Subsidiaries  or (ii) payable to
         or purchased by any other  Person  pursuant to any similar  contractual
         arrangement  (but in such case solely to the extent such an arrangement
         is permitted by Section 8.16 of the Credit Agreement).

                  "GE Credit Program  Documents"  means (a) the Monogram  Credit
         Card Bank of Georgia Program Agreement,  dated as of November 27, 1989,
         between  the  Borrower,  Somerville  and  Monogram,  together  with any
         agreements entered into by the Borrower and Monogram,  or any affiliate
         of Monogram, in replacement of such agreement, as such agreement or any
         such  replacement  agreement  has  been or may  hereafter  be  amended,
         restated,  supplemented  or  modified  from  time to time;  and (b) the
         Commercial Credit Account Purchase and Service Program Agreement, dated
         as of April 8, 1991,  between  the  Borrower  and GECC,  as amended and
         restated by the Amended and Restated Commercial Credit Account Purchase
         and Service  Program  Agreement,  effective  as of November  28,  1993,
         together with any agreements  entered into by the Borrower and GECC, or
         any  affiliate  of GECC,  in  replacement  of such  agreement,  as such
         agreement or any such  replacement  agreement has been or may hereafter
         be further  amended,  restated,  supplemented  or modified from time to
         time.

                  "General  Intangibles" means any personal property  (including
         things in action) other than Accounts, Chattel Paper, Documents, Goods,
         Instruments and money (as defined in the UCC).

                  "Goods"  means  all  things  which are  movable  at the time a
         security  interest in them  attaches or which are Fixtures but does not
         include  money  (as  defined  in the  UCC),  Accounts,



<PAGE> 5

         Chattel Paper, Documents, General Intangibles,  Instruments or minerals
         or the like before extraction.

                  "Instrument" means a negotiable  instrument (as defined in the
         UCC) or a  certificated  security  (as defined in the UCC) 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 in the
         ordinary course of business  transferred by delivery with any necessary
         indorsement or assignment.

                  "Inventory"  means  all  goods  and  merchandise  now owned or
         hereafter acquired by the Borrower  (wherever  located,  whether in the
         possession  of the  Borrower  or of a bailee or other  person for sale,
         storage,  transit,  processing,  use or otherwise,  consisting of whole
         goods, components,  supplies,  materials, returned or repossessed goods
         or goods consigned by the Borrower to a third party) 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 Borrower's business
         or processed by or on behalf of the Borrower.

                  "Keeper" has the meaning set forth in Section 9(b) hereof.

                  "Liened  Trademarks" has the meaning set forth in Section 5(q)
         hereof.

                  "Louisiana  Collateral"  has the  meaning set forth in Section
         9(b) hereof.

                  "Monogram"  means  Monogram  Credit  Card Bank of  Georgia,  a
         Georgia banking corporation.

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

                  "Obligations"  means (i) the  unpaid  principal  amount of the
         Loans and Reimbursement Obligations, (ii) interest (including,  without
         limitation,  interest  accruing at the then applicable rate provided in
         the  Credit  Agreement  after the  maturity  of the Loans and  interest
         accruing at the then applicable  rate provided in the Credit  Agreement
         or other  applicable  agreement  after the  filing of any  petition  in
         bankruptcy,  or the commencement of any insolvency,  reorganization  or
         like   proceeding,   relating  to  the  Borrower)  on  the  Loans,  the
         Reimbursement  Obligations and on all other



<PAGE> 6

         obligations  and  liabilities   secured  hereby  and  (iii)  all  other
         obligations  and  liabilities  of the Borrower to the Secured  Parties,
         whether direct or indirect,  absolute or  contingent,  due or to become
         due, or now existing or hereafter incurred,  which may arise under, out
         of, or in connection  with, the Credit  Agreement,  the Notes, the Bank
         Letters of  Credit,  the  Merchandise  Letter of Credit  Facility,  the
         Merchandise  Letters  of Credit,  this  Security  Agreement,  the other
         Credit   Documents,   the  Hedging   Agreement,   the  Cash  Management
         Obligations,  the Foreign Exchange Obligations,  and any other document
         made, delivered or given in connection  therewith or herewith,  in each
         case  whether  on  account  of   principal,   interest,   reimbursement
         obligations,  fees,  indemnities,  costs, expenses (including,  without
         limitation, all fees and disbursements of counsel to any of the Secured
         Parties that are  required to be paid by the  Borrower  pursuant to the
         terms  of the  Credit  Agreement,  the  Merchandise  Letter  of  Credit
         Facility,  this Security  Agreement,  the other Credit  Documents,  the
         Hedging  Agreement,  the  agreements in respect of the Cash  Management
         Obligations,  the  Foreign  Exchange  Obligations  or any other  Credit
         Document) or otherwise.

                  "Permitted  Liens"  means the Liens set forth on  Schedule  II
         hereto.

                  "Proceeds" means whatever is received upon the sale, exchange,
         collection or other disposition of Collateral or proceeds of Collateral
         and includes (without  limitation)  insurance payable by reason of loss
         or damage to Collateral.

                  "Secured    Parties"   means   the   Collateral   Agent,   the
         Administrative Agent, the Co-Agents,  the Lenders, the Letter of Credit
         Bank,  the Hedging Bank,  the Foreign  Exchange Bank, the Existing Cash
         Management  Banks,  the New Cash  Management  Bank and the  Merchandise
         Letter of Credit Bank.

                  "Trademark  License"  means any  agreement,  written  or oral,
         providing  for the grant by or to the  Borrower of any right to use any
         Trademark.

                  "Trademarks" means (a) all trademarks,  trade names, corporate
         names, company names, business names,  fictitious business names, trade
         styles,  service marks, logos and other source or business  identifiers
         owned by the  Borrower,  and the  goodwill  associated  therewith,  now
         existing  or  hereafter  adopted or  acquired,  all  registrations  and
         recordings  thereof,  and all  applications  in  connection  therewith,
         whether 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,  or otherwise and
         (b) all renewals thereof.





<PAGE> 7

                  "Vehicles" means all cars, trucks, trailers,  construction and
         earth moving  equipment and other vehicles  covered by a certificate of
         title  law of any state  and,  in any  event,  shall  include,  without
         limitation,  the vehicles set forth on that certain Car and Light Truck
         Inventory  list on Schedule V hereto and that  certain  Delivery  Truck
         Fleet Inventory list on Schedule V hereto  (collectively,  the "Vehicle
         Lists") and all tires and other appurtenances to any of the foregoing.

         (b) The words  "hereof,"  "herein" and "hereunder" and words of similar
import  when  used in this  Security  Agreement  shall  refer  to this  Security
Agreement  as a  whole  and not to any  particular  provision  of this  Security
Agreement,  and section and paragraph  references are to this Security Agreement
unless otherwise specified.

         (c) The  meanings  given  to terms  defined  herein  shall  be  equally
applicable to both the singular and plural forms of such terms.

         (d) The  Collateral  Agent  acknowledges  that,  for  purposes  of this
Security  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 Borrower to GECC, (ii) the Borrower
has no right, title or interest in or to any Monogram  Receivables or Contractor
Receivables,  except to the extent Borrower purchases such receivables  pursuant
to the terms of the GE Credit  Program  Documents and (iii) except to the extent
so purchased by the Borrower,  no Monogram  Receivable or Contractor  Receivable
shall  constitute  Collateral (or any category of property  included  within the
definition  thereof) for purposes of this  Security  Agreement.  The  Collateral
Agent agrees with the Borrower that neither the security interest created herein
nor any related  financing  statements may be assigned by the  Collateral  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.

         2. Grant of  Security  Interest.  (a) As  collateral  security  for the
prompt and  complete  payment and  performance  when due  (whether at the stated
maturity, by acceleration or otherwise) of the Obligations,  the Borrower hereby
pledges,  hypothecates,  assigns,  transfers and grants to the Collateral Agent,
for the  ratable  benefit of the  Secured  Parties as herein  provided,  a first
priority  security  interest and lien,  senior to any and all other Liens (other
than any Permitted Liens which may be entitled to priority by operation of law),
in and  on  all  of the  Borrower's  right,  title  and  interest  in and to the
following assets now owned




<PAGE> 8

or at any time hereafter acquired  (collectively,  the "Collateral");  provided,
that the  Covered  Obligations,  the New  Cash  Management  Obligations  and the
Obligations  owing to the Swingline  Lenders in their  capacity as such shall be
secured  only by the  Collateral  referred  to in  clauses  (vi) and (ix)  below
(Fixtures and  Inventory)  and, to the extent the same relates  thereto,  by the
Collateral referred to in clauses (xiii), (xiv) and (xv) below (moneys and books
and  records  with  respect to, and  Proceeds  and  products  of,  Fixtures  and
Inventory):

                           (i)all  Accounts (it being agreed that no  Contractor
                      Receivable  or  Monogram   Receivable   shall   constitute
                      Collateral for purposes of this Security  Agreement except
                      to the  extent the  Borrower  purchases  such  receivables
                      pursuant to the terms of the GE Credit  Program  Documents
                      and that the security  interest and lien granted hereby in
                      and on any Account representing a GECC Receivable shall be
                      subject and subordinate to perfected security interests in
                      or liens on such Account in favor of GECC or Monogram,  as
                      well as to any rights of set-off or  recoupment of GECC or
                      Monogram in respect of such Account);

                           (ii)all Chattel Paper;

                           (iii)all Contracts;

                           (iv)all Documents;

                           (v)all  Equipment  (including,   without  limitation,
                      mobile goods);

                           (vi)all  Fixtures  (except to the  extent  affixed to
                      properties  subject to  mortgages  constituting  Permitted
                      Liens) and all trade fixtures;

                           (vii)all  General  Intangibles   including,   without
                      limitation,  all  intercompany  obligations  owing  to the
                      Borrower by any of its  Subsidiaries (it being agreed that
                      the security  interest  and lien granted  hereby in and on
                      any General  Intangible  representing a GECC Receivable or
                      other obligation of GECC or Monogram to the Borrower shall
                      be subject and subordinate to perfected security interests
                      in or liens on such General Intangible in favor of GECC or
                      Monogram,   as  well  as  to  any  rights  of  set-off  or
                      recoupment  of GECC or Monogram in respect of such General
                      Intangible);

                           (viii)all Instruments;

                           (ix)all  Inventory (it being agreed that the security
                      interest and lien granted  hereby in and on any




<PAGE> 9

                       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  GECC or
                       Monogram);

                           (x)all   Trademark    Licenses   including   (without
                      limitation) those on Schedule IV thereto;

                           (xi)all  Trademarks,  including (without  limitation)
                      those listed on Schedule IV hereto;

                           (xii)all Vehicles;

                           (xiii)all   money   (including   all  cash  and  cash
                      equivalents  and  the  like)  whether  or not  held in any
                      deposit or other accounts;

                           (xiv)all  books and records in  whatever  form in any
                      way pertaining to the Collateral; and

                           (xv)to  the  extent  not  otherwise   included,   all
                      Proceeds and products of any and all of the foregoing;

but excluding Collateral, if any, expressly subject to the liens in existence on
the date hereof  granted under the  Prudential  Real Estate  Financing or to any
Permitted Lien to the extent that the terms of the agreement  granting such Lien
prohibits granting a second lien on such assets.

         (b)   Subject  to  the  terms  and   conditions   and  relying  on  the
representations,  warranties  and  covenants  set forth  herein and in the other
Credit Documents, the Existing Security Agreement is hereby amended and restated
in its entirety and each reference to this Security Agreement shall be deemed to
include a reference to the Existing  Security  Agreement as amended and restated
hereby.  The Borrower agrees that the Liens and security interests granted under
the Existing Security Agreement,  and the Borrower's  obligations thereunder and
in respect thereof, are continuing, valid and enforceable and are not subject to
any defense, counterclaim, setoff or cause of action of any kind whatsoever.

         3.       Rights of Secured Parties; Limitations on Secured
Parties' Obligations.

         (a) Borrower  Remains  Liable under  Accounts and  Contracts.  Anything
herein to the contrary  notwithstanding,  the Borrower shall remain liable under
each of the Accounts and Contracts to observe and perform all the conditions and
obligations  to be observed and  performed by it  thereunder,  all in accordance
with  the  terms  of any  agreement  giving  rise to each  such  Account  and in
accordance  with and pursuant to the terms and provisions of each such Contract.




<PAGE> 10

None of the Secured  Parties shall have any  obligation  or liability  under any
Account (or any  agreement  giving rise thereto) or under any Contract by reason
of or arising out of this  Security  Agreement  or the  receipt by such  Secured
Party of any payment relating to such Account or Contract  pursuant hereto,  nor
shall  any  Secured  Party be  obligated  in any  manner to  perform  any of the
obligations  of the Borrower  under or pursuant to any Account (or any agreement
giving rise thereto) or under or pursuant to any Contract,  to make any payment,
to make any inquiry as to the nature or the sufficiency of any payment  received
by it or as to the sufficiency of any performance by any party under any Account
(or any agreement giving rise thereto) or under any Contract, to present or file
any claim,  to take any  action to enforce  any  performance  or to collect  the
payment of any amounts  which may have been assigned to it or to which it may be
entitled at any time or times.

         (b) Notice to Account Debtors and Contract Parties. Upon the request of
the Collateral Agent at any time after the occurrence and during the continuance
of an Event of  Default,  the  Borrower  shall  notify  account  debtors  on the
Accounts and parties to the Contracts  that the Accounts and the Contracts  have
been assigned to the  Collateral  Agent for the benefit of the Secured  Parties,
and that payments in respect  thereof  shall be made directly to the  Collateral
Agent.  The  Collateral  Agent  may in its  own  name or in the  name of  others
communicate with account debtors on the Accounts and parties to the Contracts to
verify  with them to its  satisfaction  the  existence,  amount and terms of any
Accounts or Contracts.

         (c) Analysis of Accounts.  The Collateral Agent shall have the right to
make test  verifications  of the  Accounts  in any manner and through any medium
that it reasonably considers advisable,  and the Borrower shall furnish all such
assistance and  information as the  Collateral  Agent may reasonably  require in
connection  therewith.  At any time and from time to time,  upon the  Collateral
Agent's  request and at the expense of the  Borrower,  the Borrower  shall cause
independent public accountants or others satisfactory to the Collateral Agent to
furnish to the Collateral Agent reports showing reconciliations,  aging and test
verifications of, and trial balances for, the Accounts.

         (d) Collections on Accounts. The Collateral Agent hereby authorizes the
Borrower  to collect  the  Accounts,  and the  Collateral  Agent may  curtail or
terminate  said  authority  at any time  after the  occurrence  and  during  the
continuance of an Event of Default.  If required by the Collateral  Agent at any
time after the occurrence and during the continuance of an Event of Default, any
payments of Accounts,  when collected by the Borrower,  shall be forthwith (and,
in any event,  within two Domestic  Business Days)  deposited by the Borrower in
the exact form received,  duly indorsed by the Borrower to the Collateral  Agent
if required,  in a special collateral account maintained by the Collateral Agent
at its  offices or at the



<PAGE> 11

offices of any Lender,  subject to  withdrawal by the  Collateral  Agent for the
account of the Secured  Parties only, as  hereinafter  provided,  and,  until so
turned  over,  shall be held by the  Borrower in trust for the Secured  Parties,
segregated  from other funds of the Borrower.  Each deposit of any such Proceeds
shall be accompanied by a report identifying in reasonable detail the nature and
source of the  payments  included  in the  deposit.  All  Proceeds  constituting
collections of Accounts  while held by the Collateral  Agent (or by the Borrower
in trust for the Secured  Parties) shall continue to be collateral  security for
all of the Obligations and shall not constitute payment thereof until applied as
hereinafter  provided.  At such  intervals as may be agreed upon by the Borrower
and the Collateral  Agent, or, if an Event of Default shall have occurred and be
continuing, at any time at the Collateral Agent's election, the Collateral Agent
shall  cause the  Administrative  Agent to apply all or any part of the funds on
deposit in said special collateral account on account of the Obligations in such
order as is  required by Section  9.2 of the Credit  Agreement,  and any part of
such funds  which the  Collateral  Agent  elects not to have the  Administrative
Agent so apply and deems not required as collateral security for the Obligations
shall be paid over from time to time by the Collateral  Agent to the Borrower or
to whomsoever  may be lawfully  entitled to receive the same. At the  Collateral
Agent's  request at any time when an Event of Default shall have occurred and be
continuing,  the Borrower shall deliver to the Collateral Agent all original and
other  documents  evidencing,  and relating to, the agreements and  transactions
which gave rise to the Accounts,  including,  without  limitation,  all original
orders, invoices and shipping receipts.

         4.  Representations and Warranties.  The Borrower hereby represents and
warrants that:

                  (a) Title; No Other Liens.  Except for the Lien granted to the
         Collateral  Agent for the  benefit of the Secured  Parties  pursuant to
         this Security  Agreement  and the other Credit  Documents and Permitted
         Liens,  the Borrower owns each item of the Collateral free and clear of
         any and all Liens or claims of others. No effective security agreement,
         financing  statement or other public  notice with respect to all or any
         part of the  Collateral  is on file or of record in any public  office,
         except  such as may have been filed in favor of the  Collateral  Agent,
         for the  benefit  of the  Secured  Parties  pursuant  to this  Security
         Agreement  and the other Credit  Documents or with respect to Permitted
         Liens or other Liens  permitted  pursuant to Section 8.10 of the Credit
         Agreement.

                  (b) Perfected First Priority Liens. Except with respect to any
         Accounts  owing  from  Governmental  Authorities  in  which a  security
         interest  cannot be  perfected  under the UCC,  upon the  filing in the
         proper locations of appropriate UCC financing statements, the filing of
         notices of lien or other



<PAGE> 12

         documents with pertinent  state motor vehicle  offices (with respect to
         Vehicles), the filing of this Security Agreement with the United States
         Patent  and  Trademark  Office  (with  respect to  Trademarks)  and the
         transfer of possession to the  Collateral  Agent of any  instruments or
         other  assets,  a  security  interest  in which  must be  perfected  by
         possession,  the Liens granted pursuant to this Security  Agreement (i)
         constitute perfected Liens on the Collateral in favor of the Collateral
         Agent, for the benefit of the Secured  Parties,  which are prior to all
         other Liens on the Collateral (except for any Permitted Liens which may
         be entitled to priority by  operation of law) created or allowed by the
         Borrower and in  existence on the date hereof and (ii) are  enforceable
         as prior  perfected  Liens against all creditors of and purchasers from
         the Borrower  (other than  purchasers of Inventory sold in the ordinary
         course of the Borrower's  business and other than unrelated third party
         purchasers  with  respect  to other  asset  dispositions  permitted  by
         Section  8.11  of the  Credit  Agreement)  and  against  any  owner  or
         purchaser of the real property  where any of the Inventory or Equipment
         is located and any present or future  creditor of the  Borrower  (other
         than any holder of a  purchase  money lien on  Inventory  permitted  by
         Section  8.10(viii)  of  the  Credit  Agreement),   or  such  owner  or
         purchaser, obtaining a Lien on such real property.

                  (c) Accounts.  Any amount which is at any time  represented by
         the Borrower to the Lenders as owing by each account  debtor in respect
         of any Account constituting part of the Collateral will at such time be
         the correct amount actually owing by such account debtor thereunder. No
         amount payable to the Borrower under or in connection  with any Account
         is  evidenced  by any  Instrument  or Chattel  Paper which has not been
         delivered to the Collateral Agent. As of the Closing Date, the Borrower
         keeps its records  concerning all the Accounts at the locations  listed
         on Schedule III hereto.

                  (d)  Contracts.  No  consent  of any  party  (other  than  the
         Borrower) to any Contract is required,  or purports to be required,  in
         connection  with  the  execution,  delivery  and  performance  of  this
         Security Agreement.  To the best of the Borrower's  knowledge after due
         inquiry,  each  contract is in full force and effect and  constitutes a
         valid and legally enforceable obligation of the parties thereto, except
         as   enforceability   may  be   limited  by   bankruptcy,   insolvency,
         reorganization, moratorium or similar laws affecting the enforcement of
         creditors'  rights  generally,  and  by  general  equitable  principles
         (whether  enforcement is sought by proceedings in equity or at law). No
         consent or authorization  of, filing with or other act by or in respect
         of any  Governmental  Authority  is  required  in  connection  with the
         execution, delivery, performance,  validity or enforceability of any of
         the  Contracts  by the  Borrower,  or to  the  best  of the



<PAGE> 13

         Borrower's knowledge after due inquiry, any other party thereto,  other
         than those which have been duly  obtained,  made or  performed,  are in
         full force and effect and do not subject the scope of any such Contract
         to any  material  adverse  limitation,  either  specific  or general in
         nature.  Neither  the  Borrower  nor  (to the  best  of the  Borrower's
         knowledge  after due  inquiry)  any other  party to any  Contract is in
         default  or is  likely  to  become in  default  in the  performance  or
         observance  of  any  of the  terms  thereof.  The  Borrower  has  fully
         performed all its  obligations to date under each Contract.  The right,
         title and interest of the  Borrower in, to and under each  Contract are
         not, to the best of the Borrower's knowledge after due inquiry, subject
         to any defense,  offset,  counterclaim or claim which would  materially
         adversely affect the value of such Contract as Collateral, nor have any
         of the foregoing  been  asserted or alleged  against the Borrower as to
         any  Contract.  The Borrower has  delivered to the  Collateral  Agent a
         complete and correct copy of each Contract,  including all  amendments,
         supplements and other  modifications  thereto. No amount payable to the
         Borrower  under or in connection  with any Contract is evidenced by any
         Instrument  or  Chattel  Paper  which  has not  been  delivered  to the
         Collateral Agent.

                  (e)  Equipment  and  Inventory.  As of the Closing  Date,  the
         Equipment and Inventory is kept at the locations listed on Schedule III
         hereto.

                  (f) Chief  Executive  Office.  The Borrower's  chief executive
         office and chief  place of  business  is  located at 2300 Main  Street,
         Kansas City, Missouri 64108.

                  (g) Farm Products. None of the Collateral  constitutes,  or is
         the Proceeds of, Farm Products.

                  (h) Trademarks. Schedule IV hereto includes all Trademarks and
         Trademark  Licenses  owned  by the  Borrower  in its own name as of the
         Closing Date, and the Borrower shall not sell Inventory under any other
         Trademark without providing the Collateral Agent 30 days' prior written
         notice  of its  intention  to do  so.  To the  best  of the  Borrower's
         knowledge after due inquiry, each such Trademark is valid,  subsisting,
         unexpired,  enforceable and has not been abandoned. Except as set forth
         on Schedule IV hereto,  none of such  Trademarks  is the subject of any
         licensing or franchise agreement. No holding,  decision or judgment has
         been rendered by any Governmental  Authority which would limit,  cancel
         or  question  the  validity  of any such  Trademark  or the  Borrower's
         ownership  thereof.  No action or  proceeding is pending (i) seeking to
         limit,  cancel or question the validity of any such Trademark,  or (ii)
         which, if adversely determined, would have a material



<PAGE> 14

         adverse  effect on the value of any such  Trademark  or the  Borrower's
         ownership thereof.

                  (i)  Vehicles.   The  Vehicle  Lists  together   constitute  a
         substantially  complete and correct  list of all Vehicles  owned by the
         Borrower as of the Closing Date.

                  (j)  Governmental  Obligors.  On the Closing  Date,  less than
         $1,000,000  of the Accounts of the Borrower are owed to the Borrower by
         obligors which are Governmental Authorities.

                  (k) Bank  Accounts.  Schedule  III sets forth the  location of
         each cash concentration  account and all significant operating accounts
         and demand deposit  accounts used for paying and receiving  purposes in
         the ordinary course of the Borrower's business.

The foregoing  representations  and warranties set forth in this Section 4 shall
survive (i) the execution and delivery of this Security Agreement,  (ii) and the
making  and/or  continuing  of the Loans or the  issuance of the Bank Letters of
Credit or the  Merchandise  Letters of Credit and (iii) the  termination  of the
Merchandise  Letter  of  Credit  Facility,  the  Hedging  Agreement,   the  cash
management  arrangements with the New Cash Management Bank and the Existing Cash
Management Banks, the foregoing exchange  arrangements with the Foreign Exchange
Bank and the  Commitments,  and shall be deemed to be repeated and  confirmed on
the date of the making of each  Revolving Loan or Swingline Loan or the issuance
of each Bank  Letter of Credit  and each  Merchandise  Letter of Credit and each
time additional Collateral becomes pledged hereunder.

         5.  Covenants.  The Borrower  covenants and agrees with the  Collateral
Agent for the benefit of the Secured  Parties  that,  from and after the date of
this Security Agreement until the payment in full in cash and the performance of
all  Obligations,  the expiration or  cancellation of all of the Bank Letters of
Credit  and  the  Merchandise  Letters  of  Credit  and the  termination  of the
Merchandise  Letter  of  Credit  Facility,  the  Hedging  Agreement,   the  cash
management  arrangements with the New Cash Management Bank and the Existing Cash
Management  Banks, the foreign exchange  arrangements  with the Foreign Exchange
Bank and the Commitments:

                  (a) Further  Documentation;  Pledge of Instruments and Chattel
         Paper.  At any time and from  time to  time,  upon the  request  of the
         Collateral Agent, and at the sole expense of the Borrower, the Borrower
         will promptly and duly execute and deliver such further instruments and
         documents  and take such  further  action as the  Collateral  Agent may
         reasonably  request for the purpose of obtaining or preserving the full
         benefits of this Security Agreement and of the rights and powers herein
         granted, including,  without limitation, the filing of any financing or
         continuation  statements  under the Uniform



<PAGE> 15

         Commercial Code as then in effect in any  jurisdiction  with respect to
         the Liens  created  hereby.  The Borrower  also hereby  authorizes  the
         Collateral  Agent to file any such financing or continuation  statement
         without  the  signature  of the  Borrower  to the extent  permitted  by
         applicable  law;  provided,  that the Collateral  Agent delivers to the
         Borrower a copy of each  financing or  continuation  statement so filed
         promptly  after the filing  thereof.  A carbon,  photographic  or other
         reproduction  of this  Security  Agreement  shall  be  sufficient  as a
         financing  statement  for  filing in any  jurisdiction.  If any  amount
         payable under or in connection  with any of the Collateral  shall be or
         become evidenced by any Instrument or Chattel Paper, such Instrument or
         Chattel Paper shall be immediately  delivered to the Collateral  Agent,
         duly endorsed in a manner  satisfactory to the Collateral  Agent, to be
         held as Collateral pursuant to this Security Agreement.

                  (b) Indemnification.  The Borrower agrees to pay, and to save,
         indemnify and keep the Secured Parties and their respective  directors,
         officers, employees,  attorneys, experts, and agents harmless from, any
         and all liabilities, costs and expenses (including, without limitation,
         legal fees and  expenses),  losses or damages  (i) with  respect to, or
         resulting  from,  any  delay by the  Borrower  in  paying,  any and all
         excise,  sales or other taxes which may be payable or  determined to be
         payable with respect to any of the Collateral, (ii) with respect to, or
         resulting  from,  any  delay  by the  Borrower  in  complying  with any
         Requirement  of Law  applicable  to any of the  Collateral  or (iii) in
         connection with any of the  transactions  contemplated by this Security
         Agreement,  including the fees and  disbursements of counsel and of any
         other  experts,  which any of the Secured  Parties or their  respective
         directors, officers, employees,  attorneys, experts or agents may incur
         in  connection  with  (w) the  administration  or  enforcement  of this
         Security Agreement, including such expenses as are incurred to preserve
         the value of the  Collateral  and the  validity,  perfection,  rank and
         value of any Liens granted hereunder, (x) the collection, sale or other
         disposition  of  any  of  the  Collateral,  (y)  the  exercise  by  the
         Administrative  Agent  or the  Collateral  Agent  of any of the  rights
         conferred upon it hereunder or (z) any Default or Event of Default, but
         excluding any such liabilities,  costs and expenses,  losses or damages
         incurred solely by reason of the gross negligence or willful misconduct
         of the party seeking to be  indemnified  as determined by a final order
         or judgment of a court of competent jurisdiction.

         In any suit, proceeding or action brought by any of the Secured Parties
         under any  Account  or  Contract  for any sum owing  thereunder,  or to
         enforce any provisions of any Account or Contract,  the Borrower agrees
         to pay, and will save,  indemnify  and keep such Secured  Party and its
         directors,



<PAGE> 16

         officers,  employees,  attorneys,  experts and agents harmless from and
         against,  all  liabilities,  costs  and  expenses  (including,  without
         limitation,  legal fees and  expenses),  losses or damages  suffered by
         reason of any defense, set-off,  counterclaim,  recoupment or reduction
         or liability  whatsoever of the account  debtor or obligor  thereunder,
         arising out of a breach by the Borrower of any obligation thereunder or
         arising out of any other  agreement,  indebtedness  or liability at any
         time  owing to or in favor of such  account  debtor or  obligor  or its
         successors from the Borrower or any of its Subsidiaries,  but excluding
         any such  liabilities,  costs and expenses,  losses or damages incurred
         solely by reason of the gross  negligence or willful  misconduct of the
         party  seeking to be  indemnified  as  determined  by a final  order or
         judgment of a court of competent jurisdiction.

         Any  amount  due  hereunder  which is not  paid on  demand  shall  bear
         interest at a rate equal to the sum of 2% plus the CIBC  Alternate Base
         Rate in effect at such time.

         The  agreements  of the  Borrower  contained in this Section 5(b) shall
         survive  the  payment  and  performance  of  the  Obligations  and  the
         termination  of  the  security  interests  granted  hereby.  All of the
         Borrower's   obligations  to  indemnify  each  Secured  Party  and  its
         directors, officers, employees, attorneys, experts and agents hereunder
         shall (without  duplication)  be in addition to, and shall not limit in
         any way, the Borrower's  indemnification  obligations  contained in the
         Credit  Agreement.  Without  limiting  the  foregoing,  the  agreements
         contained  in Section  5(b) of the Existing  Security  Agreement  shall
         continue in full force and effect as to matters covered thereby.

                  (c)  Maintenance  of  Records.  The  Borrower  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  Borrower  shall make  available  any such books and
         records to the Collateral Agent or to its representatives during normal
         business hours at the request of the Collateral Agent.

                  (d) Right of  Inspection.  The  Secured  Parties  shall at all
         times have full and free access during normal business hours to all the
         books,  correspondence  and  records of the  Borrower,  and the Secured
         Parties and their  representatives  may examine the same, take extracts
         therefrom  and make  photocopies  thereof,  and the Borrower  agrees to
         render to the Secured Parties at the Borrower's cost and expense,  such
         clerical  and other  assistance  as may be  reasonably  requested  with
         regard thereto. The Secured Parties and their  representatives shall at
         all times also have the right to enter into and upon any premises where
         any of the  Equipment



<PAGE> 17

         or the  Inventory  is located for the purpose of  inspecting  the same,
         observing its use or otherwise protecting its interests therein.

                  (e) Compliance with Laws, etc. The Borrower will comply in all
         respects with all  Requirements  of Law applicable to the Collateral or
         any part thereof or to the operation of the Borrower's  business except
         where the necessity of compliance  therewith is contested in good faith
         by  appropriate  proceedings  or where the failure to comply  therewith
         would not have a Materially Adverse Effect; provided, that the Borrower
         must comply  therewith any  Requirement  of Law if the failure to do so
         would adversely affect the Secured Parties' rights in the Collateral or
         the priority of the Collateral Agent's Liens on the Collateral.

                  (f) Compliance with Terms of Contracts, etc. The Borrower will
         perform and comply in all material  respects  with all its  obligations
         under the Contracts and all its other contractual  obligations relating
         to the Collateral.

                  (g) Payment of  Obligations.  The  Borrower  will pay promptly
         when due all  taxes,  assessments  and  governmental  charges or levies
         imposed  upon the  Collateral  or in  respect  of its income or profits
         therefrom,  as well  as all  claims  of any  kind  (including,  without
         limitation,  claims for labor,  materials and supplies) against or with
         respect to the  Collateral,  except that no such charge need be paid if
         the  Borrower  is  permitted  not  to  do so  pursuant  to  the  Credit
         Agreement.

                  (h) Limitation on Liens on  Collateral.  The Borrower will not
         create,  incur or permit to exist, will defend the Collateral  against,
         and will take such other action as is necessary to remove,  any Lien or
         claim on or to the  Collateral,  other than the Liens  created  hereby,
         other than the Permitted Liens and other than as permitted  pursuant to
         Section 8.10 of the Credit Agreement,  and will defend the right, title
         and interest of the Collateral  Agent and the other Secured  Parties in
         and to any of the  Collateral  against  the claims  and  demands of all
         Persons whomsoever.

                  (i)  Limitations  on  Dispositions  of  Collateral.  Except as
         permitted  under the  Credit  Agreement,  the  Borrower  will not sell,
         transfer, lease or otherwise dispose of any of the Collateral.

                  (j)  Limitations  on  Modifications,  Waivers,  Extensions  of
         Contracts and Agreements Giving Rise to Accounts. The Borrower will not
         (i) amend, modify,  terminate or waive any provision of any Contract or
         any  agreement  giving rise to a material  Account in any manner  which
         could  reasonably  be




<PAGE> 18

         expected  to  adversely  affect the value of such  Contract or material
         Account as  Collateral,  (ii) fail to exercise  promptly and diligently
         each and every  substantive right which it may have under each Contract
         or material Account (other than any right of termination) or (iii) fail
         to deliver to the Collateral Agent a copy of each  substantive  demand,
         notice or document  received by it relating in any way to any  Contract
         or material Account.

                  (k)  Limitations  on  Discounts,  Compromises,  Extensions  of
         Accounts.  Other than in the ordinary course of business,  the Borrower
         will not  grant  any  extension  of the time of  payment  of any of the
         Accounts,  compromise  or settle the same for less than the full amount
         thereof,  release,  wholly or  partially,  any  Person  liable  for the
         payment thereof, or allow any credit or discount whatsoever thereon.

                  (l) Maintenance of Equipment.  The Borrower will maintain each
         item of Equipment 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.

                  (m)  Maintenance of Insurance.  The Borrower will maintain the
         insurance required by Section 8.3 of the Credit Agreement.

                  (n) Further  Identification  of Collateral.  The Borrower will
         furnish  to the  Collateral  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 Collateral Agent
         may reasonably request, all in reasonable detail.

                  (o) Notices.  The Borrower  will advise the  Collateral  Agent
         promptly,  in reasonable  detail, at the Collateral Agent's address set
         forth in the  Credit  Agreement,  (i) of any  Lien  (other  than  Liens
         created  hereby or  permitted  pursuant  to Section  8.10 of the Credit
         Agreement)  on, or claim  asserted  against,  any of the Collateral and
         (ii) of the  occurrence  of any other event which could  reasonably  be
         expected to have an adverse effect on the value of any material portion
         of the Collateral or on the Liens created hereunder.

                  (p) Changes in  Locations,  Name,  etc. The Borrower will not,
         unless it shall have given the Collateral Agent at least 30 days' prior
         written notice  thereof (i) change the location of its chief  executive
         office/chief  place of business  from that  specified  in Section  4(f)
         hereof or remove its books and records from any  location  specified in
         Section 4(c) hereof, (ii) permit any of the Equipment and the Inventory
         to be kept in  jurisdictions  other than those  listed on Schedule  III


<PAGE> 19

         hereto  or (iii)  change  its name  (or any  name  under  which it does
         business),  identity or corporate  structure to such an extent that any
         financing  statement  filed by the Collateral  Agent in connection with
         this Security Agreement would become seriously misleading.

                  (q) Trademarks.

                           (i) Except  with  respect to any  Trademark  that the
                  Borrower shall reasonably  determine is of negligible economic
                  value to it (and so advise the  Collateral  Agent in writing),
                  the Borrower  (either itself or through  licensees) will, with
                  respect to any  Trademark on which a Lien has been or shall be
                  created pursuant to this Agreement (a "Liened Trademark"), (i)
                  continue  to use  each  Liened  Trademark  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 such Liened  Trademark in full force free
                  from any claim of abandonment for non-use, (ii) maintain as in
                  the past the quality of products  and services  offered  under
                  such Liened Trademark, (iii) employ such Liened Trademark with
                  the appropriate notice of registration,  (iv) not adopt or use
                  any mark which is confusingly similar or a colorable imitation
                  of such Liened Trademark unless the Collateral  Agent, for the
                  benefit  of the  Secured  Parties,  shall  obtain a  perfected
                  security  interest  in such  mark  pursuant  to this  Security
                  Agreement,  and  (v) not  (and  not  permit  any  licensee  or
                  sublicensee thereof to) do any act or knowingly omit to do any
                  act whereby any Liened Trademark may become invalidated.

                           (ii) The Borrower  will notify the  Collateral  Agent
                  immediately  if it  knows,  or has  reason  to know,  that any
                  application or registration  relating to any Liened  Trademark
                  may  become   abandoned  or  dedicated,   or  of  any  adverse
                  determination or development  (including,  without limitation,
                  the institution of, or any such  determination  or development
                  in, any  proceeding  in the United States Patent and Trademark
                  Office or any court or tribunal in any country)  regarding the
                  Borrower's  ownership of any Liened  Trademark or its right to
                  register the same or to keep and maintain the same.

                           (iii)  Whenever  the  Borrower,  either  by itself or
                  through any agent, employee,  licensee or designee, shall file
                  an application for the  registration of any Trademark with the
                  United  States  Patent  and  Trademark  Office or any  similar
                  office  or  agency  in any  other  country  or  any  political
                  subdivision  thereof, the Borrower shall report such filing to
                  the Collateral Agent within fifteen days




<PAGE> 20

                  after the last day of the fiscal  quarter in which such filing
                  occurs.  Upon request of the  Collateral  Agent,  the Borrower
                  shall execute and deliver any and all agreements, instruments,
                  documents,  and papers as the Collateral  Agent may request to
                  create a security interest in its favor for the benefit of the
                  Secured  Parties in any such  Trademark  and the  goodwill and
                  General  Intangibles  of  the  Borrower  relating  thereto  or
                  represented  thereby,  and the Borrower hereby constitutes and
                  appoints the Collateral Agent its  attorney-in-fact to execute
                  and file,  in the event of the  failure of the  Borrower to do
                  so, all such writings for the foregoing purposes,  all acts of
                  such attorney being hereby ratified and confirmed;  such power
                  being coupled with an interest, it is and shall be irrevocable
                  until  the  payment  in full in cash  and  performance  of all
                  Obligations, the expiration or cancellation of all of the Bank
                  Letters  of Credit and the  Merchandise  Letters of Credit and
                  the termination of the Merchandise  Letter of Credit Facility,
                  the Hedging Agreement,  the cash management  arrangements with
                  the New Cash  Management Bank and the Existing Cash Management
                  Banks,  the  foreign  exchange  arrangements  with the Foreign
                  Exchange Bank and the Commitments.

                           (iv)  The  Borrower  will  take  all  reasonable  and
                  necessary  steps,  including,   without  limitation,   in  any
                  proceeding  before the  United  States  Patent  and  Trademark
                  Office,  or any similar  office or agency in any other country
                  or any political  subdivision thereof, in which the applicable
                  Liened  Trademark  is used by the  Borrower,  to maintain  and
                  pursue   each   application   (and  to  obtain  the   relevant
                  registration)  and to maintain each registration of the Liened
                  Trademarks,   including,   without   limitation,   filing   of
                  applications for renewal,  affidavits of use and affidavits of
                  incontestability.

                           (v) In the event that any Liened  Trademark  included
                  in the Collateral is infringed,  misappropriated or diluted by
                  a  third  party,   the  Borrower  shall  promptly  notify  the
                  Collateral  Agent after the Borrower learns thereof and shall,
                  unless  the  Borrower  shall  reasonably  determine  that such
                  Liened  Trademark  is of  negligible  economic  value  to  the
                  Borrower  (which  determination  the Borrower  shall  promptly
                  report   to  the   Collateral   Agent),   promptly   sue   for
                  infringement, misappropriation or dilution, to seek injunctive
                  relief  where  appropriate  and to recover any and all damages
                  for such infringement,  misappropriation or dilution,  or take
                  such  other  actions as the  Borrower  shall  reasonably  deem
                  appropriate  or the Collateral  Agent may  reasonably  request
                  under the circumstances to protect such Liened Trademark.





<PAGE> 21

                  (r) Vehicles.  The Borrower 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
         Borrower   subsequent  to  the  date  hereof,   all   applications  for
         certificates of title indicating the Collateral  Agent's first priority
         Lien  on the  Vehicle  covered  by  such  certificate,  and  any  other
         necessary documentation,  shall be filed by the Borrower in each office
         in each jurisdiction which the Collateral Agent shall deem advisable to
         perfect its Liens on the Vehicles.  In connection  with the  foregoing,
         the Borrower shall notify the Collateral  Agent, in writing,  within 30
         days after the date of acquisition, of each Vehicle acquired subsequent
         to the date hereof.

                  (s) Inventory. With respect to the Inventory: (a) the Borrower
         shall  at  all  times  maintain   records  with  respect  to  Inventory
         reasonably  satisfactory to the Collateral  Agent,  keeping correct and
         accurate records  itemizing and describing the kind, type,  quality and
         quantity  of  Inventory,   the  Borrower's   cost  therefor  and  daily
         withdrawals  therefrom and additions  thereto;  (b) the Borrower  shall
         conduct a physical  count of the Inventory at least once each year, but
         at any time or times as the Collateral Agent may request on or after an
         Event of Default occurs and is continuing,  and promptly following such
         physical  inventory shall supply the Collateral  Agent with a report in
         the form and with such specificity as may be reasonably satisfactory to
         the Collateral  Agent  concerning such physical count; (c) the Borrower
         shall  not  remove  any  Inventory  from  the  locations  set  forth or
         permitted  herein,  without the prior written consent of the Collateral
         Agent,  except  for sales of  Inventory  and  returns of  Inventory  to
         vendors, in each case in the ordinary course of the Borrower'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 Collateral Agent's request,  the
         Borrower shall, at its expense, conduct through the Asset Support Group
         or another  inventory  counting  service  reasonably  acceptable to the
         Collateral  Agent, or shall permit the Collateral  Agent to conduct (if
         the Collateral  Agent so elects),  a physical count of the Inventory in
         form,  scope and  methodology  reasonably  acceptable to the Collateral
         Agent no more than once in any  twelve  (12) month  period,  but at any
         time or times as the Collateral  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 Collateral
         Agent and the Borrower shall promptly  deliver  confirmation  in a form
         satisfactory to the Collateral Agent that appropriate  adjustments have
         been made to the  Inventory




<PAGE> 22

         records  of the  Borrower  to  reconcile  the  Inventory  count  to the
         Borrower's  Inventory  records;  (e) the Borrower 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
         Borrower retains all of its  responsibility  and liability arising from
         or relating to the  production,  use, sale or other  disposition of the
         Inventory; (g) the Borrower shall not sell Inventory to any customer on
         approval,  or any other basis which  entitles the customer to return or
         may obligate the Borrower to repurchase  such Inventory  (other than in
         the ordinary  course of business  consistent  with past  practices  and
         policies  of the  Borrower  or current  market  practice);  and (h) the
         Borrower shall keep the Inventory in good and marketable condition.

         6.   Collateral Agent's Appointment as Attorney-in Fact.

                  (a) Powers.  The Borrower hereby  irrevocably  constitutes and
appoints the Collateral Agent and any officer or agent thereof,  with full power
of substitution,  as its true and lawful  attorney-in-fact with full irrevocable
power and  authority  in the place and stead of the  Borrower and in the name of
the  Borrower or in its own name,  from time to time in the  Collateral  Agent's
discretion, for the purpose of carrying out the terms of this Security Agreement
where the Collateral Agent, in its sole discretion,  determines that to do so is
necessary  or  appropriate  to protect its interest in all or any portion of the
Collateral or the value thereof,  to take any and all appropriate  action and to
execute any and all documents and instruments which the Collateral Agent, in its
sole  discretion  determines,  may be  necessary  or  desirable  to protect  its
interest  in all or any portion of the  Collateral  or the value  thereof,  and,
without limiting the generality of the foregoing,  the Borrower hereby gives the
Collateral Agent the power and right, on behalf of the Borrower,  without notice
to or assent by the Borrower, to do the following:

                  (i) in the case of any Account, at any time when the authority
         of  the  Borrower  to  collect  the  Accounts  has  been  curtailed  or
         terminated pursuant to the first sentence of Section 3(d) hereof, or in
         the case of any other Collateral, at any time when any Event of Default
         shall have occurred and is  continuing,  in the name of the Borrower or
         its own name,  or  otherwise,  to take  possession  of and  indorse and
         collect any checks, drafts, notes, acceptances or other instruments for
         the  payment  of  moneys  due under any  Account,  Instrument,  General
         Intangible or Contract or with respect to any other  Collateral  and to
         file any claim or to take any other




<PAGE> 23

         action or proceeding in any court of law or equity or otherwise  deemed
         appropriate by the  Collateral  Agent for the purpose of collecting any
         and  all  such  moneys  due  under  any  Account,  Instrument,  General
         Intangible or Contract or with respect to any other Collateral whenever
         payable;

                  (ii) to pay or  discharge  taxes and Liens levied or placed on
         or threatened  against the Collateral (except where the Borrower is not
         required to discharge  such tax or Lien  pursuant to the  provisions of
         this Security Agreement or the Credit Agreement), to effect any repairs
         or any insurance called for by the terms of this Security  Agreement or
         the Credit Agreement,  to adjust the same and to pay all or any part of
         the premiums therefor and the costs thereof; and

                  (iii) upon the  occurrence  and during the  continuance of any
         Event of  Default,  (A) 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
         Collateral Agent or as the Collateral Agent shall direct; (B) to ask or
         demand for,  collect,  receive  payment of and receipt for, any and all
         moneys,  claims and other  amounts  due or to become due at any time in
         respect of or arising out of any  Collateral  and to extend the time of
         payment  of any or all  thereof  and to make any  allowance  and  other
         adjustments  with  reference  thereto;  (C) to  sign  and  indorse  any
         invoices,  freight  or  express  bills,  bills of  lading,  storage  or
         warehouse receipts, drafts against debtors, assignments, verifications,
         notices and other  documents in connection  with any of the Collateral;
         (D) to commence and prosecute any suits,  actions or proceedings at law
         or in equity in any court of  competent  jurisdiction  to  collect  any
         amounts  owing in  respect  of the  Collateral  or any  thereof  and to
         enforce any other right in respect of any Collateral; (E) to defend any
         suit, action or proceeding brought against the Borrower with respect to
         any Collateral; (F) to settle, compromise or adjust any suit, action or
         proceeding  described  in clauses (D) or (E) above and,  in  connection
         therewith,  to give such discharges or releases as the Collateral Agent
         may deem  appropriate;  (G) to assign  any  Trademark  (along  with the
         goodwill  of the  business  to  which  any  such  Trademark  pertains),
         throughout the world for such term or terms, on such conditions, and in
         such  manner,  as the  Collateral  Agent  shall in its sole  discretion
         determine; (H) to set off or cause to be set off amounts in any account
         maintained  with any Lender or otherwise  enforce rights against any of
         the  Collateral in the  possession of any Secured Party (other than the
         Merchandise  Letter  of



<PAGE> 24

         Credit Bank); and (I) 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  Collateral  Agent  were the
         absolute  owner thereof for all purposes,  and to do, at the Collateral
         Agent's option and the Borrower's expense, at any time, or from time to
         time, all acts and things which the Collateral Agent deems necessary to
         protect,  preserve or realize upon the  Collateral  and the  Collateral
         Agent's  Liens  thereon  and to  effect  the  intent  of this  Security
         Agreement, all as fully and effectively as the Borrower might do.

The Borrower  hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue  hereof.  This power of attorney is a power coupled with an
interest and is and shall be  irrevocable  until the payment in full in cash and
performance of all  Obligations,  the expiration or  cancellation  of all of the
Bank Letters of Credit and the Merchandise Letters of Credit and the termination
of the Merchandise Letter of Credit Facility,  the Hedging  Agreement,  the cash
management  arrangements with the New Cash Management Bank and the Existing Cash
Management  Banks, the foreign exchange  arrangements  with the Foreign Exchange
Bank, and the Commitments.

         (b) Other Powers. The Borrower also authorizes the Collateral Agent, at
any time and from time to time, to execute, in connection with any sale pursuant
to Section 9 hereof,  any  endorsements,  assignments  or other  instruments  of
conveyance or transfer with respect to any of the Collateral.

         (c) No Duty on  Secured  Parties'  Part.  The powers  conferred  on the
Collateral Agent hereunder are solely to protect the Secured Parties'  interests
in the Collateral and shall not impose any duty upon any of the Secured  Parties
to exercise any such powers.  The Secured Parties shall be accountable  only for
amounts that they  actually  receive as a result of the exercise of such powers,
and neither they nor any of their officers, directors, employees or agents shall
be responsible to the Borrower for any liabilities,  costs, expenses,  losses or
damages  incurred by the Borrower in  connection  with any act or failure to act
hereunder  on their  part,  except to the extent  arising  solely from their own
gross   negligence   or  willful   misconduct  as  determined  by  a  final  and
non-appealable order or judgment of a court of competent jurisdiction.

         7.  Performance by Collateral Agent of Borrower's  Obligations.  If the
Borrower fails to perform or comply with any of its agreements  contained herein
and the  Collateral  Agent,  as  provided  for by the  terms  of  this  Security
Agreement,  the Credit  Agreement  or any other  Credit  Document,  shall itself
perform or comply,  or otherwise  cause  performance  or  compliance,  with such
agreement, the expenses of the Collateral Agent incurred in



<PAGE> 25

connection with such  performance or compliance,  together with interest thereon
at a rate per  annum 2% above the CIBC  Alternate  Base Rate at the time of such
failure to perform or comply, shall be payable by the Borrower to the Collateral
Agent on demand and shall constitute Obligations secured hereby.

         8.  Proceeds.  In  addition  to  the  rights  of the  Collateral  Agent
specified in Section  3(d) hereof with  respect to payments of  Accounts,  it is
agreed that if an Event of Default shall occur and be continuing (a) upon demand
by the  Collateral  Agent all Proceeds  received by the Borrower  consisting  of
cash,  checks and other  near-cash  items shall be held by the Borrower in trust
for the Secured  Parties and  segregated  from other funds of the Borrower,  and
shall,  forthwith upon receipt by the Borrower, be turned over to the Collateral
Agent in the exact form received by the Borrower  (duly indorsed by the Borrower
to the Collateral Agent, if required), and (b) any and all such Proceeds held or
received by the Collateral  Agent (whether from the Borrower or otherwise)  may,
in the sole discretion of the Collateral  Agent, be held by the Collateral Agent
for the benefit of the Secured  Parties as collateral  security for, and/or then
or at any time thereafter be paid by the Collateral Agent to the  Administrative
Agent for application  against,  the Obligations (whether matured or unmatured),
such application to be in such order as is required by Section 9.2 of the Credit
Agreement, subject to the Inter-Facility Agreement to the extent applicable. Any
balance of such  Proceeds  remaining,  after the payment in full in cash and the
performance of all  Obligations,  the expiration or  cancellation  of all of the
Bank Letters of Credit and the Merchandise Letters of Credit and the termination
of the Merchandise Letter of Credit Facility,  the Hedging  Agreement,  the cash
management  arrangements with the New Cash Management Bank and the Existing Cash
Management  Banks, the foreign exchange  arrangements  with the Foreign Exchange
Bank and the  Commitments,  shall be paid over to the Borrower or to  whomsoever
may be lawfully entitled to receive the same.

         9.  Remedies.

         (a) General. If an Event of Default shall occur and be continuing,  the
Collateral Agent, on behalf of the Secured Parties may exercise,  in addition to
all other  rights and remedies  granted to it in this  Security  Agreement,  the
Credit Agreement and in any other instrument or agreement  securing,  evidencing
or relating to the Obligations, all rights and remedies of a secured party under
the Uniform Commercial Code, as then in effect in the jurisdiction in which such
rights are exercised.  Without  limiting the  generality of the  foregoing,  the
Collateral  Agent,  without demand of performance or other demand,  presentment,
protest,  advertisement or notice of any kind (except any notice required by law
referred to below) to or upon the  Borrower or any other Person (all and each of
which demands,  defenses,  advertisements and notices are hereby waived), may in
such circumstances forthwith collect, receive,


<PAGE> 26

appropriate  and realize upon the  Collateral,  or any part thereof,  and/or may
forthwith sell, lease, assign, give option or options to purchase,  or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any
of the foregoing), in one or more parcels at public or private sale or sales, at
any  exchange,  broker's  board  or  office  of any of the  Secured  Parties  or
elsewhere  upon such terms and  conditions as it may deem  advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption  of any  credit  risk.  In case of any sale of all or any part of the
Collateral  on credit or for  future  delivery,  the  Collateral  so sold may be
retained  by the  Collateral  Agent  until  the  selling  price  is  paid by the
purchaser thereof,  but none of the Secured Parties shall incur any liability in
case of the failure of such  purchaser to take up and pay for the  Collateral so
sold and, in case of any such failure,  such  Collateral  may again be sold upon
like notice.  The Collateral  Agent shall not be obligated to make any such sale
pursuant to any notice thereof, but may, without notice or publication,  adjourn
any public or private sale or cause the same to be  adjourned  from time to time
by  announcement  at the time and place fixed for the sale, and such sale may be
made at any  time or place to  which  the same may be so  adjourned.  Any of the
Secured Parties shall have the right upon any such public sale or sales, and, to
the extent  permitted by law,  upon any such private sale or sales,  to purchase
the whole or any part of the  Collateral so sold,  and each Secured Party (other
than the Merchandise  Letter of Credit Bank) shall be entitled,  for the purpose
of bidding and making settlement or payment of the purchase price for all or any
portion  of the  Collateral  sold at such  sale,  to use  and  apply  any of the
Obligations owed to such Person (or, in the case of the Collateral Agent, any or
all of the  Obligations  owed to the Secured  Parties) as a credit on account of
the purchase  price payable by such Person at such sale.  Each  purchaser at any
such sale shall  acquire the  property  sold  absolutely  free from any claim or
right on the part of the Borrower,  and the Borrower  hereby waives (to the full
extent  permitted by law) all rights of redemption,  stay and/or appraisal which
it now has or may at any  time  in the  future  have  under  any  rule of law or
statute now existing or hereafter  enacted.  The Borrower further agrees, at the
Collateral Agent's request,  to assemble the Collateral and make it available to
the  Collateral  Agent at places  which the  Collateral  Agent shall  reasonably
select,  whether at the Borrower's  premises or elsewhere.  The Collateral Agent
shall, at such time or times as it determines,  pay the net proceeds of any such
collection,  recovery,  receipt,  appropriation,   realization  or  sale,  after
deducting all  reasonable  costs and expenses of every kind incurred  therein or
incidental  to the care or  safekeeping  of any of the  Collateral or in any way
relating  to the  Collateral  or the rights of the  Secured  Parties  hereunder,
including,  without limitation,  reasonable attorneys' or other agents' fees and
disbursements,  to the  Administrative  Agent for  application to the payment in
whole or in part of the Obligations, in such order as is required by Section 9.2
of the Credit Agreement,  subject to the Inter-Facility




<PAGE> 27

Agreement to the extent  applicable,  and only after such  application and after
the  payment  by the  Collateral  Agent  of any  other  amount  required  by any
provision of law,  including,  without  limitation,  Section  9-504(1)(c) of the
Code,  need  the  Collateral  Agent  account  for the  surplus,  if any,  to the
Borrower.  To the extent  permitted by applicable  law, the Borrower  waives all
claims,  damages and demands it may acquire  against any of the Secured  Parties
arising out of the  exercise by it of any rights  hereunder.  If any notice of a
proposed sale or other  disposition of Collateral shall be required by law, such
notice  shall be deemed  reasonable  and proper if given at least 10 days before
such  sale or other  disposition.  The  Borrower  shall  remain  liable  for any
deficiency if the proceeds of any sale or other  disposition  of the  Collateral
are   insufficient  to  satisfy  the  Obligations  in  full  and  the  fees  and
disbursements  of any  attorneys or other agents  employed by any of the Secured
Parties to collect such deficiency.

         The  Collateral  Agent,  instead of exercising the power of sale herein
conferred  upon  it,  may  proceed  by a suit or suits  at law or in  equity  to
foreclose the security interests granted hereby and sell the Collateral,  or any
portion  thereof,  under a judgment or decree of a court or courts of  competent
jurisdiction.

         (b)  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 Borrower 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 Collateral  Agent,  for the benefit of the
Secured Parties, 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 Security  Agreement and applicable law, the Collateral  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 Collateral Agent deems acceptable.  The Borrower hereby waives
all and every appraisement of the Louisiana  Collateral and waives and renounces
the  benefit  of  appraisement  and the  benefit  of all  laws  relative  to the
appraisement  of the  Louisiana  Collateral  seized and sold under  executory or
other legal process.  The Borrower 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;





<PAGE> 28

         (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
Borrower and the Collateral Agent do hereby  expressly  designate the Collateral
Agent or its designee to be keeper or receiver ("Keeper") for the benefit of the
Collateral  Agent or any assignee of the Collateral  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 Collateral 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 Security Agreement.  The designation of Keeper made herein shall
not be deemed to require Mortgagee to provoke the appointment of a Keeper.

         (c) Additional  Inventory  Remedies.  Until the payment in full in cash
and performance of all Obligations, the expiration or cancellation of all of the
Bank Letters of Credit and the Merchandise Letters of Credit and the termination
of the Merchandise Letter of Credit Facility,  the Hedging  Agreement,  the cash
management  arrangements with the New Cash Management Bank and the Existing Cash
Management  Bank, the foreign  exchange  arrangements  with the Foreign Exchange
Bank and the  Commitments  and at any time when an Event of Default has occurred
and is continuing:  (i) the Borrower will perform any and all reasonable actions
requested by the  Collateral  Agent to enforce the Collateral  Agent's  security
interest in the Inventory and all of the Collateral  Agent's  rights  hereunder,
such as leasing warehouses to the Collateral Agent or its designee,  placing and
maintaining signs, appointing custodians,  transferring Inventory to warehouses,
and delivering to the Collateral Agent warehouse receipts and documents of title
in the  Collateral  Agent's name;  (ii) if any Inventory is in the possession or
control of any of the Borrower's




<PAGE> 29

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

         10.  Limitation on Duties  Regarding  Preservation  of Collateral.  The
Collateral  Agent's  sole duty with  respect  to the  custody,  safekeeping  and
physical  preservation of the Collateral in its possession,  under Section 9-207
of the Code or  otherwise,  shall be to deal with it in  substantially  the same
manner as the Collateral  Agent deals with similar property for its own account.
None of the Secured Parties,  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 Borrower or otherwise.  The Borrower releases
the  Secured  Parties  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  Security  Agreement,  the
Collateral,  and/or any actions,  taken or omitted to be taken by the Collateral
Agent with respect  thereto (other than any clams,  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 Borrower  hereby  agrees to hold the
Secured Parties 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 Borrower  contained in this
Section 10 shall survive the payment and  performance of the Obligations and the
termination of the security interests granted hereby.

         11. Powers Coupled with an Interest.  All  authorizations  and agencies
herein  contained  with  respect to the  Collateral  are powers  coupled with an
interest and are and shall be irrevocable  until the payment in full in cash and
performance of all  Obligations,




<PAGE> 30

the  expiration  or  cancellation  of all of the Bank  Letters of Credit and the
Merchandise  Letters of Credit and the termination of the Merchandise  Letter of
Credit Facility,  the Hedging Agreement,  the cash management  arrangements with
the New Cash Management Bank and the Existing Cash Management Banks, the foreign
exchange arrangements with the Foreign Exchange Bank and the Commitments.

         12.  Severability.  If any  provision  of this  Security  Agreement  is
invalid and  unenforceable  in any  jurisdiction,  then,  to the fullest  extent
permitted by law, (i) the other provisions hereof shall remain in full force and
effect in such  jurisdiction  and shall be  liberally  construed in favor of the
Collateral  Agent  and the  other  Secured  Parties  in order  to carry  out the
intentions  of the  parties  hereto as nearly as may be  possible;  and (ii) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not  affect  the  validity  or  enforceability  of such  provision  in any other
jurisdiction.

         13.  Section  Headings.  The  Section  headings  used in this  Security
Agreement  are for  convenience  of  reference  only and are not to  affect  the
construction hereof or be taken into consideration in the interpretation hereof.

         14. No Waiver;  Cumulative Remedies;  Security Interests Absolute.  (a)
None of the Secured  Parties  shall by any act  (except by a written  instrument
executed and delivered in accordance with Section 15 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy  hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and  conditions  hereof.  No  failure  to  exercise,  nor any delay in
exercising,  on the part of any Secured  Party,  any right,  power or  privilege
hereunder  shall operate as a waiver thereof.  No single or partial  exercise of
any right,  power or  privilege  hereunder  shall  preclude any other or further
exercise  thereof or the  exercise of any other  right,  power or  privilege.  A
waiver by any Secured Party of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which such Secured  Party
would  otherwise  have on any future  occasion.  The rights and remedies  herein
provided  are  cumulative,  may  be  exercised  alternatively,  successively  or
concurrently and are not exclusive of any rights or remedies  provided by law or
at equity.

                  (b) All  rights  of the  Collateral  Agent  and the  Liens and
security interests granted under this Security Agreement, and all obligations of
the Borrower under this Security Agreement, shall be absolute and unconditional,
irrespective of any circumstance  which might constitute a defense available to,
or a  discharge  of,  the  Borrower  or any  other  obligor  in  respect  of the
Obligations.

         15. Waivers and Amendments; Successors and Assigns; Governing Law. None
of the terms or provisions of this  Security  Agreement



<PAGE> 31

may be waived,  amended,  supplemented or otherwise modified except by a written
instrument executed by the Borrower, the Administrative Agent and the Collateral
Agent; provided,  that any provision of this Security Agreement may be waived by
the  Collateral  Agent  or the  Administrative  Agent  in a  written  letter  or
agreement executed by the Collateral Agent or the  Administrative  Agent (as the
case  may be) or by  facsimile  transmission  from the  Collateral  Agent or the
Administrative  Agent.  Any amendment,  modification  or supplement of or to any
provision of this Security Agreement, any termination or waiver of any provision
of this Security Agreement and any consent to any departure by the Borrower from
the terms of any provision of this Security Agreement shall be effective only in
the specific  instance and for the specific  purpose for which made or given. No
notice to or demand upon the Borrower in any instance  hereunder  shall  entitle
the  Borrower  to any other or  further  notice or  demand in  similar  or other
circumstances.  This Security Agreement shall be binding upon and shall inure to
the  benefit  of the  Borrower  and the  Secured  Parties  and their  respective
successors  and assigns;  provided,  that the Borrower may not assign its rights
and   obligations   hereunder   without  the  prior   written   consent  of  the
Administrative  Agent and the Collateral  Agent, each Lender and the Merchandise
Letter  of  Credit  Bank.  THIS  SECURITY  AGREEMENT  SHALL BE  GOVERNED  BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES, AND BY FEDERAL LAW TO THE EXTENT APPLICABLE.

         16.   Notices.   All   notices,   demands,   instructions,   and  other
communications  and  distributions  hereunder  shall be given in accordance with
Section 11.1 of the Credit Agreement.  For the purposes hereof, the addresses of
the Collateral  Agent,  the  Administrative  Agent,  the Co-Agents and the other
Secured Parties (other than the Merchandise  Letter of Credit Bank) shall be the
addresses in effect from time to time under the Credit Agreement and the address
of the  Merchandise  Letter of Credit  Bank shall be the  address in effect from
time to time under the Merchandise Letter of Credit Facility.

         17.  Authority  of  Collateral  Agent;  Co-Collateral  Agents.  (a) The
provisions of Section 10 of the Credit  Agreement  shall inure to the benefit of
the Collateral Agent in respect of this Security  Agreement and shall be binding
upon the parties to the Credit Agreement in such respect. In furtherance and not
in derogation of the rights,  privileges and immunities of the Collateral  Agent
therein set forth:

                  (i) The Collateral Agent is authorized to take all such action
as is provided to be taken by it as  Collateral  Agent  hereunder  and all other
action reasonably  incidental  thereto. As to any matters not expressly provided
for herein or in the Credit Agreement, the Collateral Agent shall act or refrain
from acting in accordance with written  instructions  from the Majority  Lenders
or,



<PAGE> 32

in the absence of such instructions, in accordance with its discretion.

                  (ii) The  Collateral  Agent shall not be  responsible  for the
existence,  genuineness  or value of any of the  Collateral or for the validity,
perfection, priority or enforceability of the security interests in and Liens on
any of the Collateral,  whether impaired by operation of law or by reason of any
action or omission to act on its part hereunder. The Collateral Agent shall have
no duty to ascertain or inquire as to the  performance  or  observance of any of
the terms of this Security Agreement by the Borrower.

                  (b)  The   Borrower   acknowledges   that   the   rights   and
responsibilities  of the  Collateral  Agent under this Security  Agreement  with
respect  to any  action  taken  by the  Collateral  Agent  or  the  exercise  or
nonexercise by the Collateral Agent of any option, right,  request,  judgment or
other right or remedy  provided  for herein or  resulting or arising out of this
Security  Agreement  shall,  as among the  Secured  Parties,  be governed by the
Credit Agreement,  the Inter-Facility  Agreement to the extent applicable and by
such other  agreements with respect thereto as may exist from time to time among
them,  but, as between the  Collateral  Agent and the Borrower,  the  Collateral
Agent  shall be  conclusively  presumed  to be acting  as agent for the  Secured
Parties with full and valid authority so to act or refrain from acting,  and the
Borrower shall not be under any obligation, or entitlement,  to make any inquiry
respecting such authority.

                  (c) At any time or times,  in order to  comply  with any legal
requirement in any  jurisdiction,  the Collateral Agent may appoint another bank
or trust company or one or more other  Persons,  either to act as  co-collateral
agent or  agents,  jointly  with the  Collateral  Agent,  or to act as  separate
collateral  agent or agents on behalf of the Secured Parties with such power and
authority  as may be necessary  for the  effectual  operation of the  provisions
hereof and may be specified in the instrument of appointment  (which may, in the
discretion of the  Collateral  Agent,  include  provisions for the protection of
such co-collateral  agent or separate collateral agent similar to the provisions
herein contained.

         18. Execution in Counterparts.  This Security Agreement may be executed
in any number of counterparts,  each of which counterparts, when so executed and
delivered,  shall be deemed  to be an  original  and all of which  counterparts,
taken together, shall constitute one and the same Security Agreement.


         19. WAIVER OF JURY TRIAL;  CONSENT TO JURISDICTION.  THE BORROWER,  THE
ADMINISTRATIVE  AGENT AND THE  COLLATERAL  AGENT  HEREBY  WAIVE,  TO THE  EXTENT
PERMITTED BY APPLICABLE  LAW,  TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS SECURITY AGREEMENT OR THE
COLLATERAL,  OR  THE



<PAGE> 33

VALIDITY,  PROTECTION,  INTERPRETATION,  COLLECTION  OR  ENFORCEMENT  HEREOF  OR
THEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING,  BETWEEN THE BORROWER,
THE  ADMINISTRATIVE   AGENT  AND  THE  COLLATERAL  AGENT.  THE  BORROWER  HEREBY
IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK AND,  TO THE EXTENT  PERMITTED  BY  APPLICABLE  LAW,  OF ANY FEDERAL
COURT,  IN  EACH  CASE  LOCATED  IN NEW  YORK  COUNTY  AND ANY  APPELLATE  COURT
THEREFROM,  IN  CONNECTION  WITH ANY  ACTION  OR  PROCEEDING  ARISING  OUT OF OR
RELATING TO THIS  SECURITY  AGREEMENT  OR ANY DOCUMENT OR  INSTRUMENT  DELIVERED
PURSUANT  TO THIS  SECURITY  AGREEMENT  OR THE  COLLATERAL.  EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY  AGREES THAT ALL CLAIMS IN RESPECT
OF ANY SUCH ACTION OR  PROCEEDING  MAY BE HEARD AND  DETERMINED IN SUCH NEW YORK
STATE COURT OR, TO THE EXTENT  PERMITTED BY LAW, IN SUCH FEDERAL COURT.  EACH OF
THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE  AND MAY BE ENFORCED IN OTHER  JURISDICTIONS  BY SUIT ON THE
JUDGMENT  OR IN ANY OTHER  MANNER  PROVIDED  BY LAW.  NOTHING  IN THIS  SECURITY
AGREEMENT SHALL AFFECT ANY RIGHT THAT THE COLLATERAL AGENT OR THE ADMINISTRATIVE
AGENT OR ANY OTHER  SECURED  PARTY  MAY  OTHERWISE  HAVE TO BRING ANY  ACTION OR
PROCEEDING  RELATING TO THIS SECURITY  AGREEMENT OR THE  COLLATERAL  AGAINST THE
BORROWER  IN THE COURTS OF ANY  JURISDICTION.  THE  BORROWER  HEREBY  WAIVES THE
DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE.

         20. Privity.  Notwithstanding  anything  contained herein, in the other
Credit Documents or elsewhere to the contrary,  no Merchandise  Letter of Credit
Bank shall be entitled to the  benefits of this  Security  Agreement  until such
time as such Merchandise Letter of Credit Bank has agreed in writing to be bound
by the



<PAGE> 34

terms hereof and of the  Inter-Facility  Agreement and to appoint the Collateral
Agent to act as collateral agent on its behalf hereunder.

         IN WITNESS  WHEREOF,  the Borrower,  the  Administrative  Agent and the
Collateral  Agent have caused this  Security  Agreement to be duly  executed and
delivered  on and as of the date  first  above  written in the  presence  of the
undersigned competent witnesses and Notary.


WITNESSES:                                  PAYLESS CASHWAYS, INC.


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

                                        CANADIAN  IMPERIAL  BANK OF  COMMERCE,
                                        NEW  YORK  AGENCY,  as Administrative
                                        Agent and Collateral Agent


/s/ Douglas Smith                   By: /s/ Elizabeth Schreiber
----------------------                  -----------------------------
                                        Title:  As Agent




                       /s/ Brenda S. Yarema
                       ---------------------------------
                                 Notary Public