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                                                                  EXHIBIT 10.50
                               SECURITY AGREEMENT

         SECURITY AGREEMENT, dated as of January 12, 1999, made by DENALI
INCORPORATED, a Delaware corporation (the "Borrower") and each subsidiary of
the Borrower which is a signatory hereto (together with the Borrower, each a
"Grantor" collectively the "Grantors") in favor of CANADIAN IMPERIAL BANK OF
COMMERCE, as administrative agent (in such capacity, the "Administrative
Agent") for the Lenders (the "Lenders") and CANADIAN IMPERIAL BANK OF COMMERCE
(the "Issuing Lender") parties to the Credit Agreement referred to below.


                                    RECITALS

         Pursuant to the Credit Agreement, dated as of January 12, 1999 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the Lenders, the Administrative Agent and ING
(U.S.) Capital Corporation, as documentation agent, the Lenders have severally
agreed to make loans to and the Issuing Lender has agreed to issue letters of
credit for the account of the Borrower upon the terms and subject to the
conditions set forth therein, such loans to be evidenced by the Notes issued by
the Borrower thereunder. It is a condition precedent to the obligation of the
Lenders to make their respective loans to the Borrower, and of the Issuing
Lender to issue its letters of credit, under the Credit Agreement that each
Grantor shall have executed and delivered this Security Agreement to the
Administrative Agent for the ratable benefit of the Lenders and the Issuing
Lender.

         NOW, THEREFORE, in consideration of the premises and to induce the
Lenders, the Issuing Lender and the Administrative Agent to enter into the
Credit Agreement and to induce the Lenders to make their respective loans to
the Borrower, and the Issuing Lender to issue its letters of credit, under the
Credit Agreement, each Grantor hereby agrees with the Administrative Agent, for
the ratable benefit of the Lenders and the Issuing Lender, as follows:

         1. Defined Terms. (a) Unless otherwise defined herein, capitalized
terms which are defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement; the following terms which are
defined in the Uniform Commercial Code in effect in the State of New York on
the date hereof are used herein as so defined: Accounts, Chattel Paper,
Documents, Equipment, Farm Products, General Intangibles, Instruments,
Inventory and Proceeds; and the following terms shall have the following
meanings:

         "Bank Account": (i) a deposit, custody or other account (whether, in
any case, time or demand or interest or non-interest bearing) maintained by any
Grantor with the Administrative Agent, any Lender or the Issuing Lender, (ii)
all cash and securities from time



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to time standing to the credit of such account, and (iii) all interest,
principal and other distributions payable on or with respect to, such account
or such cash or securities.

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

         "Collateral": as defined in Section 2 of this Security Agreement.

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

         "Copyright": (a) any copyright in any original work of authorship
fixed in any tangible medium of expression (including, without limitation, any
thereof referred to on Schedule II hereto), including, without limitation, all
databases, source codes, object codes and manuals, whether published or
unpublished, whether now or hereafter existing, and whether in the United
States or any other country, and all applications, registrations, renewals,
extensions and recordings relating thereto filed in the United States Copyright
Office or in any other governmental office or agency in the United States or
any other country or political subdivision thereof, in each case in which any
Grantor has any right, title or interest, whether as author, assignee,
transferee or otherwise, and all other rights which any Grantor presently has
or hereafter acquires pursuant to any Copyright License relating to any such
copyright, including, without limitation, copyright assignments, and exclusive
and nonexclusive licenses, and (b) all right, title and interest of any Grantor
in all physical materials embodying any work with respect to which any Grantor
owns or holds rights in any Copyright or Copyright License.

         "Copyright License": (a) any agreement, written or oral, naming any
Grantor as licensor or licensee, granting any right in or to any Copyright or
copyright registration in the United States or any foreign country (including,
without limitation, any thereof referred to on Schedule II hereto) or (b) any
and all present and future agreements, including, without limitation,
assignments and consents, as any such agreements may from time to time be
amended or supplemented, pursuant to which any Grantor now has or hereafter
acquires any direct or beneficial interest in any Copyright, or is a grantor of
rights to any third party with respect to any copyright, whether as a party to
any such agreement or as an assignee of any rights under any such agreement
(including, without limitation, any thereof referred to on Schedule II hereto)
excluding, however, non-exclusive computer software licenses.

         "Hedge Agreement": as to any Person, any swap, cap, collar or similar
arrangement entered into by such Person providing for protection against
fluctuations in interest rates or currency exchange rates or the exchange of
nominal interest obligations, either generally or under specific contingencies.



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         "Patents": (a) all letters patent of the United States or any other
country, including patents, design patents and utility models, and all
registrations and recordings thereof, including, without limitation, any
thereof referred to in Schedule III hereto, (b) all applications for letters
patent of the United States or any other country and (c) all reissues,
extensions, divisions, continuations and continuations-in-part thereof, and the
inventions disclosed or claimed therein, including the right to make, sell
and/or use the inventions disclosed or claimed therein; including, without
limitation, any thereof referred to in Schedule III hereto.

         "Patent License": any agreement, whether written or oral, providing
for the grant by or to any Grantor of any right to manufacture, use or sell any
invention covered by a Patent, and all rights of any Grantor under such
agreement; including, without limitation, any thereof referred to in Schedule
III hereto.

         "Secured Obligations": the collective reference to (a) the
Obligations, and (b) all obligations and liabilities of any Grantor to the
Administrative Agent and the Lenders, 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 any Hedge Agreement entered into
by any Grantor with any Lender and any other document made, delivered or given
in connection therewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all fees and disbursements of counsel to the Administrative
Agent or to the Lenders that are required to be paid by any Grantor pursuant to
the terms of such Hedge Agreement or other documents) or otherwise.

         "Security Agreement": this Security Agreement, as amended,
supplemented or otherwise modified from time to time.

         "Trademarks": (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, all prints or labels on
which any of the foregoing appear, and all designs and general intangibles of a
like nature, and the goodwill associated therewith or symbolized thereby, and
all other assets, rights and interests that uniquely embody such goodwill, 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, including, without limitation, any thereof
referred to in Schedule IV hereto, and (b) all extensions or renewals thereof.

         "Trademark License": any agreement, written or oral, providing for the
grant by or to any Grantor of any right to use any Trademark, including,
without limitation, any thereof referred to in Schedule IV hereto.

         "Vehicles": 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,



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including, without limitation, the vehicles listed on Schedule V hereto 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, Schedule. Annex, and Exhibit references are to this
Security Agreement unless otherwise specified. The meanings given to terms
defined herein shall be equally applicable to both the singular and plural
forms of such terms.

         2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Secured Obligations, each Grantor hereby
grants to the Administrative Agent for the ratable benefit of the Lenders and
the Issuing Lender a security interest in all of the following property now
owned or at any time hereafter acquired by such Grantor or in which such
Grantor now has or at any time in the future may acquire any right, title or
interest (collectively, the "Collateral"):

                  (i)    all Accounts;
                 (ii)    all Bank Accounts;
                (iii)    all Chattel Paper;
                 (iv)    all Contracts;
                  (v)    all Copyrights;
                 (vi)    all Copyright Licenses;
                (vii)    all Documents;
               (viii)    all Equipment;
                 (ix)    all General Intangibles;
                  (x)    all Instruments;
                 (xi)    all Inventory;
                (xii)    all Patents;
               (xiii)    all Patent Licenses;
                (xiv)    all Trademarks;
                 (xv)    all Trademark Licenses;
                (xvi)    all Vehicles;
               (xvii)    all books and records pertaining to the Collateral; and
              (xviii)    to the extent not otherwise included, all Proceeds and
                         products of any and all of the foregoing.

         3. Rights of Agent and Lenders; Limitations on Agent's and Lenders'
Obligations.

         (a) Grantor Remains Liable under Accounts and Contracts. Anything
herein to the contrary notwithstanding, each Grantor 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



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each such Account and in accordance with and pursuant to the terms and
provisions of each such Contract. None of the Agent, any Lender nor the Issuing
Lender 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 the Administrative Agent or
any such Lender or the Issuing Lender of any payment relating to such Account
or Contract pursuant hereto, nor shall the Administrative Agent, any Lender nor
the Issuing Lender be obligated in any manner to perform any of the obligations
of such Grantor 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 Contracting Parties. Upon the
request of the Administrative Agent at any time during the continuance of an
Event of Default, each Grantor shall notify account debtors on the Accounts and
parties to the Contracts that the Accounts and the Contracts have been assigned
to the Administrative Agent for the ratable benefit of the Lenders and the
Issuing Lender and, so long as that Event of Default is continuing, that
payments in respect thereof shall be made directly to the Administrative Agent.

         (c) Analysis of Accounts and Contracts. After the occurrence and
during the continuance of an Event of Default, the Administrative 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 each Grantor
shall furnish all such assistance and information as the Administrative Agent
may require in connection therewith. At any time and from time to time, upon
the Administrative Agent's request and at the expense of the Grantors, the
Grantors shall cause independent public accountants or others satisfactory to
the Administrative Agent to furnish to the Administrative Agent reports showing
reconciliations, aging and test verifications of, and trial balances for, the
Accounts. After the occurrence and during the continuance of an Event of
Default, the Administrative 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.

         (d) Collections on Accounts. The Administrative Agent hereby
authorizes each Grantor to collect the Accounts, subject to the Administrative
Agent's direction and control, and the Administrative 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 Administrative Agent at
any time when an Event of Default shall have occurred and be continuing, any
payments of Accounts, when collected by a Grantor, shall be forthwith (and, in
any event, within two Business Days) deposited by such Grantor in the exact
form received, duly endorsed by such Grantor to the Administrative Agent if
required, in a special collateral account maintained by the Administrative
Agent, subject to withdrawal by the Administrative



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Agent for the account of the Lenders and the Issuing Lender only, as
hereinafter provided, and, until so turned over, shall be held by such Grantor
in trust for the Administrative Agent, the Lenders and the Issuing Lender,
segregated from other funds of the Grantors. 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 Administrative Agent (or by the
Grantors in trust for the Administrative Agent, the Lenders and the Issuing
Lender) shall continue to be collateral security for all of the Secured
Obligations and shall not constitute payment thereof until applied as
hereinafter provided. At such intervals as may be agreed upon by the Grantors
and the Administrative Agent, or, if an Event of Default shall have occurred
and be continuing, at any time at the Administrative Agent's election, the
Administrative Agent shall apply all or any part of the funds on deposit in
said Collateral Account on account of the Secured Obligations in such order as
the Administrative Agent may elect, and any part of such funds which the
Administrative Agent elects not so to apply and deems not required as
collateral security for the Secured Obligations shall be paid over from time to
time by the Administrative Agent to the Grantors or to whomsoever may be
lawfully entitled to receive the same. At the Administrative Agent's request,
the Grantors shall deliver to the Administrative 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. Each Grantor hereby represents and
warrants that:

         (a) Title; No Other Liens. Except for the Liens granted to the
     Administrative Agent for the ratable benefit of the Lenders and the
     Issuing Lender pursuant to this Security Agreement, and the other Liens
     permitted to exist on the Collateral pursuant to the Credit Agreement,
     each Grantor owns each item of the Collateral free and clear of any and
     all Liens or claims of others. No 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 Administrative Agent, for the ratable benefit of the
     Lenders and the Issuing Lender, pursuant to this Security Agreement or as
     may be permitted pursuant to the Credit Agreement.

         (b) Perfected First Priority Liens. When financing statements have
     been filed in the offices in the jurisdictions listed in Schedule 7.16 to
     the Credit Agreement, the Liens granted pursuant to this Security
     Agreement which may be perfected by the filing of financing statements
     will constitute perfected Liens in favor of the Administrative Agent, for
     the ratable benefit of the Lenders and the Issuing Lender, in the
     Collateral as collateral security for the Secured Obligations, which Liens
     are prior to all other Liens on the Collateral created by such Grantor and
     in existence on the date hereof and which are enforceable as such against
     all creditors of and purchasers from such Grantor and against any owner or
     purchaser of the real property where any of the



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     Equipment or Inventory is located and any present or future creditor
     obtaining a Lien on such real property.

         (c) Accounts. The amount represented by each Grantor to the
     Administrative Agent from time to time as owing by each account debtor or
     by all account debtors in respect of the Accounts will at such time be the
     correct amount actually owing by such account debtor or debtors
     thereunder. No amount payable to any Grantor under or in connection with
     any Account is evidenced by any Instrument or Chattel Paper which has not
     been delivered to the Administrative Agent. The place where each Grantor
     keeps its records concerning the Accounts is 1360 Post Oak Boulevard,
     Suite 2250, Houston, Texas 77056-3023.

         (d) Contracts. No consent of any party (other than the Grantors) to
     any Contract is required, or purports to be required, in connection with
     the execution, delivery and performance of this Security Agreement. 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, fraudulent conveyance,
     reorganization, moratorium or other similar laws affecting the enforcement
     of creditor's rights generally and general equitable principles (whether
     considered in a proceeding 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 any 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 Grantors nor (to the best of each Grantor's
     knowledge) any other party to any Contract is in default or is likely to
     become in default in the performance or observance or any of the terms
     thereof in any manner that, in the aggregate, could reasonably be expected
     to have a Material Adverse Effect. Each Grantor has fully performed all
     its obligations under each Contract. The right, title and interest of each
     Grantor in, to and under each Contract are not subject to any defense,
     offset, counterclaim or claim which could reasonably be expected to have a
     Material Adverse Effect, nor have any of the foregoing been asserted or
     alleged against any Grantor as to any Contract. Each Grantor has delivered
     to the Administrative Agent a complete and correct copy of each Contract,
     including all amendments, supplements and other modifications thereto. No
     amount payable to any Grantor under or in connection with any Contract is
     evidenced by any Instrument or Chattel Paper which has not been delivered
     to the Administrative Agent.

         (e) Inventory and Equipment. The Inventory and the Equipment are kept
     at the locations listed on Schedule VI hereto.

         (f) Chief Executive Office. Each Grantor's chief executive office and
     chief place of business is located at 1360 Post Oak Boulevard, Suite 2250,
     Houston, Texas 77056-3023.



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

         (h) Insurance Policies. None of the Collateral constitutes an interest
     or claim in or under any policy of insurance or contract for annuity,
     except to the extent the same constitutes Proceeds.

         (i) Copyrights, Patents and Trademarks. Schedule II hereto includes
     all Copyrights and Copyright Licenses owned by each Grantor in its own
     name as of the date hereof. Schedule III hereto includes all Patents and
     Patent Licenses owned by each Grantor in its own name as of the date
     hereof. Schedule IV hereto includes all Trademarks and Trademark Licenses
     owned by each Grantor in its own name as of the date hereof. To the best
     of each Grantor's knowledge, each Copyright, Patent and Trademark is
     valid, subsisting, unexpired, enforceable and has not been abandoned.
     Except as set forth in Schedule II, III or IV, none of such Copyrights,
     Patents and 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 Copyright, Patent or Trademark. Except as disclosed on Schedule II,
     III or IV, no action or proceeding is pending (i) seeking to limit, cancel
     or question the validity of any Copyright, Patent or Trademark, or (ii)
     which, if adversely determined, would have a material adverse effect on
     the value of any Copyright, Patent or Trademark.

         (j) Vehicles. Schedule V is a complete and correct list of all
     Vehicles owned by each Grantor.

         (k) Governmental Obligors. None of the obligors on any Accounts, and
     none of the parties to any Contracts, is a Governmental Authority.

         (l) Bank Accounts. All deposit, custody, money market or other
     accounts (whether, in any case, time or demand or interest or non-interest
     bearing) maintained by each Grantor with any bank or any other financial
     institution are Bank Accounts, except for the bank accounts and lockbox
     accounts listed on Schedule VII hereto.

         5. Covenants. Each Grantor covenants and agrees with the
Administrative Agent, the Lenders and the Issuing Lender that, from and after
the date of this Security Agreement until the Secured Obligations are paid in
full and the Commitments have expired or been terminated:

         (a) Maintenance of Perfected Security Interests; Further
     Documentation; Pledge of Instruments and Chattel Paper. Each Grantor shall
     maintain the security interest created by this Security Agreement as a
     perfected security interest having at least the priority described in
     Section 4(b) hereof and shall defend such security interest against the
     claims and demands of all Persons whomsoever. At any time and from time to
     time, upon the written request of the Administrative Agent, and at the
     sole expense of the Grantors, each Grantor will promptly and duly execute
     and deliver such further



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     instruments and documents and take such further action as the
     Administrative 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
     Commercial Code in effect in any jurisdiction with respect to the Liens
     created hereby. Each Grantor also hereby authorizes the Administrative
     Agent to file any such financing or continuation statement without the
     signature of such Grantor to the extent permitted by applicable law. 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 Administrative Agent, duly endorsed in a manner satisfactory to the
     Administrative Agent, to be held as Collateral pursuant to this Security
     Agreement.

         (b) Indemnification. Each Grantor agrees to pay, and to save the
     Administrative Agent, the Lenders and the Issuing Lender harmless from,
     any and all liabilities, costs and expenses (including, without
     limitation, legal fees and expenses) (i) with respect to, or resulting
     from, any delay 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 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. In any suit, proceeding or action brought by the
     Administrative Agent, any Lender or the Issuing Lender under any Account
     or Contract for any sum owing thereunder, or to enforce any provisions of
     any Account or Contract, each Grantor will save, indemnify and keep the
     Administrative Agent, such Lender and the Issuing Lender harmless from and
     against all expense, loss or damage suffered by reason of any defense,
     setoff, counterclaim, recoupment or reduction or liability whatsoever of
     the account debtor or obligor thereunder, arising out of a breach by such
     Grantor 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 such Grantor. None
     of the foregoing indemnities shall cover the gross negligence or willful
     misconduct of the Administrative Agent, the Lenders or the Issuing Lender.

         (c) Maintenance of Records. Each Grantor will keep and maintain at its
     own cost and expense satisfactory and complete records of the Collateral,
     including, without limitation, a record of all payments received and all
     credits granted with respect to the Accounts. Each Grantor will mark its
     books and records pertaining to the Collateral to evidence this Security
     Agreement and the security interests granted hereby. Upon the occurrence
     and during the continuance of an Event of Default, upon written request
     therefor, each Grantor shall turn over any books and records pertaining to
     the Collateral to the Administrative Agent or to its representatives
     during normal business hours at the request of the Administrative Agent so
     that the Administrative



<PAGE>   10


     Agent may make copies thereof, and upon acceleration of the Secured
     Obligations, each Grantor shall turn over the originals of such books and
     records.

         (d) Right of Inspection. The Administrative Agent, the Lenders and the
     Issuing Lender shall at all times have full and free access during normal
     business hours, with at least 48 hours prior written notice (except during
     the continuance of an Event of Default, during which such notice
     requirement shall be inapplicable) to all the books, correspondence and
     records of each Grantor, and the Administrative Agent, the Lenders and the
     Issuing Lender or their respective representatives may examine the same,
     take extracts therefrom and make photocopies thereof, and each Grantor
     agrees to render to the Administrative Agent, the Lenders and the Issuing
     Lender, at each Grantor's cost and expense, such clerical and other
     assistance as may be reasonably requested with regard thereto. The
     Administrative Agent, the Lenders and the Issuing Lender and their
     respective representatives shall at all times also have the right, during
     regular business hours with at least 48 hours prior written notice (except
     during the continuance of an Event of Default, during which such notice
     requirement shall be inapplicable) to enter into and upon any premises
     where any of the Inventory or Equipment is located for the purpose of
     inspecting the same, observing its use or otherwise protecting its
     interests therein.

         (e) Compliance with Laws, etc. Each Grantor will comply in all
     material respects with all Requirements of Law applicable to the
     Collateral or any part thereof or to the operation of such Grantor's
     business; provided, however, that such Grantor may contest any Requirement
     of Law in any reasonable manner which shall not, in the sole opinion of
     the Administrative Agent, adversely affect the Administrative Agent's, the
     Lenders' or the Issuing Lender's rights or the priority of its Liens on
     the Collateral.

         (f) Compliance with Terms of Contracts, etc. Each Grantor 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. Each Grantor 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 (i) the validity thereof is being
     contested in good faith by appropriate proceedings, (ii) such proceedings
     do not involve any material danger of the sale, forfeiture or loss of a
     material portion of the Collateral or any interest therein and (iii) such
     charge is adequately reserved against on such Grantor's books in
     accordance with GAAP.

         (h) Limitation on Liens on Collateral. No Grantor will 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 and other than as
     permitted pursuant to the Credit Agreement, and will



<PAGE>   11


     defend the right, title and interest of the Administrative Agent, the
     Lenders and the Issuing Lender in and to any of the Collateral against the
     claims and demands of all Persons whomsoever.

         (i) Limitations on Dispositions of Collateral. No Grantor will sell,
     transfer, lease or otherwise dispose of any of the Collateral, or attempt,
     offer or contract to do so except for (x) sales of Inventory in the
     ordinary course of its business and (y) so long as no Default or Event of
     Default has occurred and is continuing, sales, transfers and other
     dispositions of Collateral permitted under Section 10.6 of the Credit
     Agreement or as otherwise permitted under the Credit Agreement.

         (j) Limitations on Modifications of Contracts and Agreements Giving
     Rise to Accounts; Exercise of Rights; Notices. No Grantor will, without
     the written consent of the Administrative Agent, (i) amend, modify,
     terminate or waive any provision of any Contract or any other agreement
     giving rise to an Account, which constitutes more than 5% of the aggregate
     amount of the Accounts, in any manner which could reasonably be expected
     to materially adversely affect the value of such Contract or such Account
     as Collateral, (ii) other than in the ordinary course of business as
     generally conducted by such Grantor over a period of time, fail to
     exercise promptly and diligently each and every material right which it
     may have under each Contract and each agreement giving rise to an Account,
     which constitutes more than 5% of the aggregate amount of the Accounts,
     (other than any right of termination) or (iii) fail to deliver to the
     Administrative Agent a copy of each material demand, notice or document
     received by it relating in any way to any Contract or any agreement giving
     rise to an Account that questions the validity or enforceability of such
     Contract or Accounts constituting more than 5% of the aggregate amount of
     the Accounts.

         (k) Limitations on Discounts, Compromises, Extensions of Accounts.
     Other than in the ordinary course of business consistent with its past
     practice, no Grantor will (i) grant any extension of the time of payment
     of any Account, (ii) compromise, compound or settle any Account for less
     than the full amount thereof, (iii) release, wholly or partially, any
     Person liable for the payment of any Account, or (iv) allow any credit or
     discount whatsoever on any Account.

         (l) Maintenance of Equipment. Each Grantor 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, except that each Grantor's obligations pursuant to this Section
     5(l) shall not extend to obsolete Equipment.

         (m) Maintenance of Insurance. Each Grantor will maintain, with
     financially sound and reputable companies, insurance policies (i) insuring
     the Inventory, Equipment and Vehicles against loss by fire, explosion,
     theft and such other casualties as may be reasonably satisfactory to the
     Administrative Agent in amounts comparable to amounts of insurance
     coverage obtained by similar businesses of similar size acting



<PAGE>   12


     prudently and (ii) insuring the Grantors, the Administrative Agent, the
     Lenders and the Issuing Lender against liability for personal injury and
     property damage relating to such Inventory, Equipment and Vehicles, such
     policies to be in such form and amounts and having such coverage as shall
     be comparable to forms, amounts and coverage, respectively, obtained by
     similar businesses of similar size acting prudently, with losses payable
     to the Grantors, the Administrative Agent, the Lenders and the Issuing
     Lender as their respective interests may appear or, in the case of
     liability insurance, showing the Administrative Agent, the Lenders and the
     Issuing Lender as additional insured parties. All such insurance shall (i)
     provide that no cancellation, material reduction in amount or material
     change in coverage thereof shall be effective until at least 30 days after
     receipt by the Administrative Agent of written notice thereof, (ii) name
     the Administrative Agent, the Lenders and the Issuing Lender as insured
     parties and loss payees, (iii) include a breach of warranty clause and
     (iv) be reasonably satisfactory in all other respects to the
     Administrative Agent.

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

         (o) Notices. Each Grantor will advise the Administrative Agent
     promptly, in reasonable detail, at their respective addresses set forth in
     the Credit Agreement, (i) of any Lien (other than Liens created hereby or
     permitted under 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 a material adverse effect on the
     aggregate value of the Collateral or on the Liens created hereunder.

         (p) Changes in Locations, Name, etc. No Grantor will (i) change the
     location of its chief executive office/chief place of business from that
     specified in Section 4(f) or remove its books and records concerning the
     Accounts from the location specified in Section 4(c), (ii) permit any of
     the Inventory or Equipment to be kept at a location other than those
     listed on Schedule VI hereto or (iii) change its name, identity or
     corporate structure to such an extent that any financing statement filed
     by the Administrative Agent in connection with this Security Agreement
     would become seriously misleading, unless it shall have given the
     Administrative Agent at least 30 days prior written notice thereof.

         (q) Patents, Trademarks and Copyrights.

             (i) Each Grantor (either itself or through licensees) will, except
         with respect to any Trademark that such Grantor shall reasonably
         determine is of negligible economic value to it, (i) continue to use
         each 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 Trademark in full force free
         from any claim of abandonment for non-use, (ii) maintain as in



<PAGE>   13


         the past the quality of products and services offered under such
         Trademark, (iii) employ such Trademark with the appropriate notice of
         registration, (iv) not adopt or use any mark which is confusingly
         similar or a colorable imitation of such Trademark unless the
         Administrative Agent, for the ratable benefit of the Lenders and the
         Issuing Lender, 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 Trademark may become invalidated.

             (ii) No Grantor will, except with respect to any Patent that such
         Grantor shall reasonably determine is of negligible economic value to
         it, do any act, or omit to do any act, whereby any Patent may become
         abandoned or dedicated.

             (iii) Each Grantor (either itself or through licensees) will, for
         each work covered by a material Copyright, continue to publish,
         reproduce, display, adopt and distribute the work with appropriate
         copyright notice as necessary and sufficient to establish and preserve
         such Grantor's material rights under all applicable copyright laws.

             (iv) Each Grantor will notify the Administrative Agent immediately
         if it knows, or has reason to know, that any Patent, Trademark or
         Copyright, which is material to the operation of that Grantor's
         business or which has greater than negligible economic value for the
         Grantor's taken as a whole, or any application or registration
         relating to any thereof may become abandoned, lost 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, the United States Copyright Office or any court or
         tribunal or similar office in any country) regarding such Grantor's
         ownership of any Patent, Trademark or Copyright or its right to
         register the same or to keep and maintain the same.

             (v) Whenever any Grantor, either by itself or through any agent,
         employee, licensee or designee, shall file an application for the
         registration of any Patent or Trademark with the United States Patent
         and Trademark Office or any similar office or agency in any other
         country or any political subdivision thereof, or shall file an
         application for registration of any Copyright with the United States
         Copyright Office or any similar office or agency in any other country
         or any political subdivision thereof, the Grantors shall report such
         filing to the Administrative Agent within five Business Days after the
         last day of the fiscal quarter in which such filing occurs.

             (vi) Each Grantor shall from time to time execute and deliver any
         and all agreements, instruments, documents, and papers as the
         Administrative Agent may reasonably request (including, without
         limitation, one or more Notice of



<PAGE>   14


         Security Interest in Patents attached hereto as Annex A, one or more
         Memorandum of Security Agreement - Trademarks attached hereto as Annex
         B and one or more Memorandum of Security Agreement - Copyrights
         attached hereto as Annex C, in each case with appropriate completions
         and schedules) to evidence the Administrative Agent's security
         interest for the ratable benefit of the Lenders and the Issuing Lender
         in any Patent, Trademark or Copyright and the goodwill and general
         intangibles of such Grantor relating thereto or represented thereby,
         and each Grantor hereby constitutes the Administrative Agent its
         attorney-in-fact to, during the continuation of an Event of Default,
         execute and file all such writings for the foregoing purposes, all
         acts of such attorney being hereby ratified and confirmed, such power
         being coupled with an interest is irrevocable until the Secured
         Obligations are paid in full and the Commitments are terminated.

             (vii) Each Grantor will take all reasonable and necessary steps,
         including, without limitation, in any proceeding before the United
         States Patent and Trademark Office or the United States Copyright
         Office, or any similar office or agency in any other country or any
         political subdivision thereof, to maintain and pursue each application
         (and to obtain the relevant registration) and to maintain each
         registration of the Patents, Trademarks and Copyrights necessary to
         that Grantor's business operations or of which have greater than
         negligible economic value for the Grantors taken as a whole,
         including, without limitation, timely filing of applications for
         renewal, affidavits of use and affidavits of incontestability and
         payment of maintenance fees.

             (viii) In the event that any Patent, Trademark or Copyright
         included in the Collateral is infringed, misappropriated or diluted by
         a third party, each Grantor shall promptly notify the Administrative
         Agent after it learns thereof and, at the Grantors' sole expense,
         shall, unless the Grantors shall reasonably determine that such
         Patent, Trademark or Copyright is of negligible economic value to the
         Grantors and not necessary to any Grantor's business operation,
         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 Grantors shall reasonably deem appropriate under
         the circumstances to protect such Patent, Trademark or Copyright.

             (ix) Upon and during the continuance of an Event of Default and at
         the reasonable request of the Administrative Agent, each Grantor shall
         use its reasonable efforts to obtain all requisite consents or
         approvals by the licensor of each Copyright License, Patent License or
         Trademark License to effect the assignment of all of the Grantors'
         rights, title and interest thereunder to the Administrative Agent or
         its designee.



<PAGE>   15


         (r) Vehicles. Each Grantor will use reasonable efforts to 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 reasonable maintenance, service and repairs necessary for
     such purpose. Each Grantor will notify the Administrative Agent of each
     acquisition or sale of a Vehicle, promptly following the acquisition or
     sale thereof. If an Event of Default shall occur and be continuing, at the
     request of the Administrative Agent each Grantor shall, within five
     Business Days after such request, file applications for certificates of
     title indicating the Administrative Agent's first priority Lien for the
     ratable benefit of the Lenders and the Issuing Lender on the Vehicles
     covered by such certificates, together with any other necessary
     documentation, in each office in each jurisdiction which the
     Administrative Agent shall deem advisable to perfect its Liens on the
     Vehicles.

         (s) Inventory. None of the Inventory of any Grantor shall be evidenced
     by a warehouse receipt.

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

         (a) Powers. Each Grantor hereby irrevocably constitutes and appoints
     the Administrative 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 such Grantor and
     in the name of such Grantor or in its own name, from time to time in the
     Administrative Agent's discretion, for the purpose of carrying out the
     terms of this Security Agreement, during the continuance of an Event of
     Default, to take any and all appropriate action and to execute any and all
     documents and instruments which may be necessary or desirable to
     accomplish the purposes of this Security Agreement, and, without limiting
     the generality of the foregoing, each Grantor hereby gives the
     Administrative Agent the power and right, on behalf of such Grantor,
     without notice to or assent by such Grantor, to do the following:

             (i) in the name of such Grantor or its own name, or otherwise, to
         take possession of and endorse 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 action or proceeding in any court of law or equity or otherwise
         deemed appropriate by the Administrative 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, to effect any repairs or any
         insurance called for by the terms of this Security Agreement and to
         pay all or any part of the premiums therefor and the costs thereof;



<PAGE>   16


             (iii) in the case of any Patent, Trademark or Copyright, to
         execute and deliver any and all agreements, instruments, documents and
         papers as the Administrative Agent may request to evidence the
         Administrative Agent's and the Lenders' security interest in such
         Patent, Trademark or Copyright and the goodwill and general
         intangibles of such Grantor relating thereto or represented thereby;

             (iv) to execute, in connection with any sale provided for in
         Section 9 hereof, any endorsements, assignments or other instruments
         of conveyance or transfer with respect to the Collateral; and

             (v) (A) to direct any party liable for any payment under any of
         the Collateral to make payment of any and all moneys due or to become
         due thereunder directly to the Administrative Agent or as the
         Administrative 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; (C) to sign and endorse 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 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 such Grantor with respect to any Collateral; (F) to settle,
         compromise or adjust any such suit, action or proceeding and, in
         connection therewith, to give such discharges or releases as the
         Administrative Agent may deem appropriate; (G) to assign any Patent or
         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 Administrative Agent shall
         in its sole discretion determine; and (H) 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
         Administrative Agent were the absolute owner thereof for all purposes,
         and to do, at the Administrative Agent's option and such Grantor's
         expense, at any time, or from time to time, all acts and things which
         the Administrative Agent deems necessary to protect, preserve or
         realize upon the Collateral and the Administrative Agent's, Liens
         thereon for the ratable benefit of the Lenders and the Issuing Lender
         and to effect the intent of this Security Agreement, all as fully and
         effectively as such Grantor might do.

         Anything in this Section 6(a) to the contrary notwithstanding, the
     Administrative Agent agrees that it will not exercise any rights under the
     power of attorney provided for in this Section unless an Event of Default
     has occurred and is continuing.



<PAGE>   17


         Each Grantor 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 are irrevocable.

         (b) No Duty on Agent's, Lenders' or Issuing Lender's Part. The powers
     conferred on the Administrative Agent, the Lenders and the Issuing Lender
     hereunder are solely to protect the Administrative Agent's, the Lenders'
     and the Issuing Lender's interests in the Collateral and shall not impose
     any duty upon the Administrative Agent, any Lender or Issuing Lender to
     exercise any such powers. Each of the Administrative Agent, the Lenders
     and the Issuing Lender shall be accountable only for amounts that it
     actually receives 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 any Grantor for any act or failure to act hereunder, except
     for its own gross negligence or willful misconduct.

         7. Performance by Agent of Grantors' Obligations. If any Grantor fails
to perform or comply with any of its agreements contained herein, the
Administrative Agent, at its option, but without any obligation to do so, may
itself perform or comply, or otherwise cause performance or compliance, with
such agreement. The expenses of the Administrative Agent incurred in connection
with such performance or compliance, together with interest thereon at a rate
per annum 2.0% above the Base Rate, shall be payable by the Grantors to the
Administrative Agent on demand and shall constitute Secured Obligations secured
hereby.

         8. Proceeds. In addition to the rights of the Administrative Agent,
the Lenders and the Issuing Lender specified in Section 3(d) with respect to
payments of Accounts, it is agreed that, during the continuance of an Event of
Default, (a) all Proceeds received by any Grantor consisting of cash, checks
and other near-cash items shall be held by such Grantor in trust for the
Administrative Agent, the Lenders and the Issuing Lender, segregated from other
funds of the Grantors, and shall, forthwith upon receipt by any Grantor, be
turned over to the Administrative Agent in the exact form received by such
Grantor (duly endorsed by such Grantor to the Administrative Agent, if
required), and held by the Administrative Agent in a Collateral Account
maintained under the sole dominion and control of the Administrative Agent. Any
and all such Proceeds held by the Administrative Agent in a Collateral Account
(or by such Grantor in trust for the Administrative Agent and the Lenders and
the Issuing Lender) shall continue to be held as collateral security for the
Secured Obligations and shall not constitute payment thereof until applied as
provided in this Section. At such intervals as may be agreed upon between the
Administrative Agent and the Grantors or, if an Event of Default shall have
occurred and be continuing, at any time at the Administrative Agent's election,
the Administrative Agent may apply all or any part of the Proceeds held in any
Collateral Account or otherwise received by the Administrative Agent against
the Secured Obligations (whether matured or unmatured), such application to be
in such order as the Administrative Agent shall elect. Any balance of such
Proceeds remaining after the Secured Obligations shall have been paid in full
and the Commitments shall have expired or been terminated shall be paid over to
the Grantors or to whomsoever may be lawfully entitled to receive the same.



<PAGE>   18


         9. Remedies. If an Event of Default shall occur and be continuing, the
Administrative Agent, on behalf of the Lenders and the Issuing Lender, may
exercise, in addition to all other rights and remedies granted to it in this
Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Secured Obligations, all rights and remedies of a
secured party under the Code. Without limiting the generality of the foregoing,
the Administrative 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 Grantors or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, 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 the Administrative Agent, any Lender or
the Issuing Lender 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. The Administrative
Agent, any Lender or the Issuing Lender 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, free of any right or equity of redemption in the Grantors, which right or
equity is hereby waived or released. Each Grantor further agrees, at the
Administrative Agent's request, to assemble the Collateral and make it
available to the Administrative Agent at places which the Administrative Agent
shall reasonably select, whether at the Grantors' premises or elsewhere. The
Administrative Agent shall apply 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 Administrative Agent, the Lenders and the
Issuing Lender arising out of the exercise by the Administrative Agent
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Secured Obligations,
in such order as the Administrative Agent may elect, and only after such
application and after the payment by the Administrative Agent of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Administrative Agent account for the surplus,
if any, to the Grantors. To the extent permitted by applicable law, each
Grantor waives all claims, damages and demands it may acquire against the
Administrative Agent, any Lender or the Issuing Lender arising out of the
exercise by the Administrative Agent, any Lender or the Issuing Lender of any
of its 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.
Each Grantor shall remain liable for any deficiency if the proceeds of any sale
or other disposition of the Collateral are insufficient to pay the Secured
Obligations and the fees and disbursements of any attorneys employed by the
Administrative Agent, any Lender or the Issuing Lender to collect such
deficiency.

         10. Grant of License to Use Patent, Trademark and Copyright
Collateral. For the purpose of enabling the Administrative Agent to exercise
rights and remedies under Section



<PAGE>   19


9 hereof at such time as the Administrative Agent shall be lawfully entitled to
exercise such rights and remedies, each Grantor hereby grants to the
Administrative Agent an irrevocable, non-exclusive license (exercisable without
payment of royalty or other compensation to the Grantors) to use, license or
sublicense any of the Copyrights, Patents and Trademarks, now owned or
hereafter acquired by the Grantors, and wherever the same may be located, and
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored. The use of such license by the
Administrative Agent shall be exercised, at the option of the Administrative
Agent for any purpose appropriate in connection with the exercise of remedies
hereunder, only upon the occurrence and during the continuance of an Event of
Default, provided that any license, sublicense or other transaction entered
into by the Administrative Agent in accordance herewith shall be binding upon
the Grantors notwithstanding any subsequent cure of an Event of Default. The
Administrative Agent agrees to apply the net proceeds received from any license
as provided in Section 8 hereof

         11. Limitation on Duties Regarding Presentation of Collateral. The
Administrative 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 the same manner as the
Administrative Agent deals with similar property for its own account. None of
the Administrative Agent, any Lender, nor the Issuing Lender nor any of their
respective directors, officers, employees 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 Grantors or any other Person or to
take any other action whatsoever with regard to the Collateral or any part
thereof. The powers conferred on the Administrative Agent and the Lenders and
the Issuing Lender hereunder are solely to protect the Administrative Agent's
and the Lenders' and the Issuing Lender's interests in the Collateral and shall
not impose any duty upon the Administrative Agent or any Lender or the Issuing
Lender to exercise any such powers. The Administrative Agent and the Lenders
and the Issuing Lender 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 any
Grantor for any act or failure to act hereunder, except for their own gross
negligence or willful misconduct.

         12. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.

         13. Notices. Notices, requests and demands to or upon the
Administrative Agent or the Grantors hereunder shall be effected in the manner
set forth in Section 13.2 of the Credit Agreement.

         14. Authority of Administrative Agent. Each Grantor acknowledges that
the rights and responsibilities of the Administrative Agent under this Security
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Security Agreement shall, as between the



<PAGE>   20


Administrative Agent and the Lenders and the Issuing Lender, be governed by the
Credit Agreement and by such other agreements with respect thereto as may exist
from time to time among them, but, as between the Administrative Agent and the
Grantors, the Administrative Agent shall be conclusively presumed to be acting
as agent for the Lenders and the Issuing Lender with full and valid authority
so to act or refrain from acting, and the Grantors shall be under no
obligation, or entitlement, to make any inquiry respecting such authority.

         15. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

         16. Paragraph Headings. The paragraph 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.

         17. No Waiver; Cumulative Remedies. None of the Administrative Agent,
any Lender nor the Issuing Lender shall by any act (except by a written
instrument pursuant to Section 18 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 the Administrative Agent, any Lender or the Issuing
Lender, 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 the Administrative Agent,
any Lender or the Issuing Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Administrative Agent, such Lender or the Issuing Lender would otherwise have on
any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.

         18. Waivers and Amendments; Successors and Assigns; Governing Law.
None of the terms or provisions of this Security Agreement may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Grantors and the Administrative Agent, provided that any
provision of this Security Agreement may be waived by the Administrative Agent
in a written instrument executed by the Administrative Agent. This Security
Agreement shall be binding upon the successors and assigns of the Grantors and
shall inure to the benefit of the Administrative Agent, the Lenders and the
Issuing Lender and their respective successors and assigns. This Security
Agreement shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York.

         19. Additional Grantors: Each Subsidiary of the Borrower is required
pursuant to Section 9.10 of the Credit Agreement to become party to this
Security Agreement



<PAGE>   21


and shall become a Grantor for all purposes of this Security Agreement upon
execution and delivery by such Subsidiary of a Supplement in the form of Annex
D hereto.

                            [SIGNATURE PAGE FOLLOWS]



<PAGE>   22


         IN WITNESS WHEREOF, each Grantor has caused this Security Agreement to
be duly executed and delivered as of the date first above written.

                                       DENALI INCORPORATED

                                       CONTAINMENT SOLUTIONS SERVICES, INC.

                                       INSTRUMENTATION SOLUTIONS, INC.,

                                       DENALI MANAGEMENT INC.,

                                       DENALI MANAGEMENT, L.L.C., and

                                       DENALI OPERATING MANAGMENT, LTD.

                                           By: DENALI MANAGEMENT, L.L.C.
                                                its general partner

                                       By: /s/ Janice C. McCormick
                                          --------------------------------------
                                        Name: Janice C. McCormick
                                        Title: Assistant Secretary



                                       CONTAINMENT SOLUTIONS, INC.,

                                       SPECIALTY SOLUTIONS, INC.,

                                       ERSHIGS, INC.,

                                       SEFCO, INC.,

                                       FIBERCAST COMPANY, and

                                       PLASTI-FAB, INC.

                                       By: /s/ Janice C. McCormick
                                          --------------------------------------
                                        Name:  Janice C. McCormick
                                        Title:  Asst. Secretary