<PAGE>
 
                                                                    Exhibit 10.4
                                                                    ------------


                              SECURITY AGREEMENT

     This SECURITY AGREEMENT, dated as of October 14, 1998 is granted by ACT
MANUFACTURING, INC. (the "Borrower") and ACT MANUFACTURING SECURITIES
                          --------                                   
CORPORATION (collectively with the Borrower, the "Debtors") to THE CHASE
                                                  -------               
MANHATTAN BANK, as collateral agent for the Lenders under the Credit Agreement
defined below (the "Collateral Agent" and, together with the Lenders, the
                    ----------------                                     
"Secured Parties").
 ---------------   

                           STATEMENT OF THE PREMISES
                           -------------------------

     WHEREAS, the Debtors are entering into a Credit Agreement of even date
herewith (as the same may be modified, amended, supplemented or restated from
time to time, the "Credit Agreement"), with The Chase Manhattan Bank ("Chase")
                   ----------------                                    -----  
as administrative, documentation, collateral and syndication agent, and the
Lenders from time to time party thereto; and

     WHEREAS, in connection with the execution and delivery of the Credit
Agreement, the Collateral Agent has requested that the Debtors, and the Debtors
have agreed to, enter into this Security Agreement (this "Security Agreement"),
                                                          ------------------   
pursuant to which the Debtors are pledging and granting a security interests in
favor of the Collateral Agent for the benefit of the Secured Parties;

     NOW, THEREFORE, in consideration of the willingness of the Secured Parties
to enter into the Credit Agreement and of the Lenders to agree, subject to the
terms and conditions set forth therein, to make the Loans and issue Letters of
Credit to the Borrower pursuant thereto, and for other good and valuable
consideration, receipt of which is hereby acknowledged, it is hereby agreed as
follows.

                           STATEMENT OF CONSIDERATION
                           --------------------------

     To induce the Secured Parties to enter into the Credit Agreement and to
induce the Lenders to make Loans and issue Letters of Credit to the Borrower
thereunder, the Debtors hereby execute and deliver this Security Agreement to
the Collateral Agent for the benefit of the Secured Parties, for the purpose of
pledging and granting to the Collateral Agent for the benefit of the Secured
Parties, security interests in substantially all of the Debtors' properties and
assets.

                                   AGREEMENT
                                   ---------

     1.   Definitions.
          ----------- 

          1.1   Incorporation by Reference. All terms defined in Schedule A
                --------------------------                       ----------
annexed hereto are hereby incorporated by reference and all such terms and words
so defined are used herein with the same meanings therein set forth. All
capitalized terms used herein without definition shall have the meanings set
forth in the Credit Agreement.

          1.2   Additional Definitions. The following terms shall have the
                ----------------------
following meanings for purposes of this Security Agreement (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
<PAGE>
 
     "Collateral" means, collectively, all of the right, title and interest of
      ----------
the Debtors in and to all tangible and intangible personal property of the
Debtors, whether now owned or existing or hereafter acquired or arising,
including, without limitation, the property described on Schedule A annexed
hereto, together with any and all additions thereto and replacements therefor
and proceeds and products thereof.

     "Corresponding", when used in conjunction with any defined term (the
      -------------
"referred term"), refers to such specific persons, items or documents to which
such referred term pertains which are related or connected to another defined
term in the context.

     "Event of Default" means: (i) any event, condition or act (including notice
      ----------------
and lapse of time, if specified) which is defined or described as an event of
default in any Secured Loan Document; and (ii) in the case of any evidence of
indebtedness constituting a Secured Loan Document which does not prescribe any
event of default therein, (A) the failure by Debtors to pay when due any such
indebtedness, or (B) the occurrence of any event, condition or act (including
notice and lapse of time, if specified) which pursuant to the terms of any such
Secured Loan Document gives the Secured Parties the right to accelerate the
payment of any Secured Obligation, regardless of whether the Secured Parties
exercise such right.

     "Financing Statements" mean all UCC-1 Financing Statements to be filed in
      --------------------
any public office to perfect the security interest granted under this Security
Agreement.

     "Secured Loan Document" means the Credit Agreement and any other agreement,
      ---------------------                                                     
document or instrument executed by any of the Debtors, delivered to any Lender
or the Collateral Agent and pertaining to any Secured Obligation.

     "Secured Obligations" means all debts, liabilities and obligations of the
      -------------------                                                     
Debtors to the Secured Parties of every nature (including without limitation any
debts, liabilities or obligations pursuant to and under any and all Interest
Rate Protection Agreements), whether now existing or hereafter incurred at any
time or times, absolute or contingent, secured or unsecured, and any and all
renewals or extensions thereof or of any portion thereof, including without
limitation all principal, all interest, all prepayment premiums (if any), all
fees, all late charges and all penalties and all expenses of collection or
enforcement or attempted collection or enforcement thereof, including all
reasonable fees and disbursements of the Secured Parties' counsel in connection
therewith, whether within or apart from any legal action or proceeding.

     "Secured Parties" means Chase (or any affiliate of Chase), as
      --------------- 
administrative, documentation, collateral and syndication agent for the Lenders
under the Credit Agreement, the Lenders and the Collateral Agent, collectively;
and "Secured Party" means each of Chase (or any affiliate of Chase), as
     -------------
administrative, documentation, collateral and syndication agent for the Lenders
under the Credit Agreement, the Lenders and the Collateral Agent, individually.

     "UCC" means the Uniform Commercial Code of the State of New York, as
      ---
amended and in effect as of the date hereof.

     2.   Security Interest.
          ----------------- 

          2.1   The Debtors hereby grant to the Secured Parties, a security
interest in all of the Collateral as security for the payment of all Secured
Obligations.

                                       2
<PAGE>
 
          2.2   The Debtors irrevocably appoint the Collateral Agent as their
lawful attorney and authorize the Collateral Agent to execute any Financing
Statements in the Debtors' names and on the Debtors' behalf, and to file
Financing Statements against the Debtors signed by the Collateral Agent alone in
any appropriate public office, each to the extent permitted by applicable law.

          2.3   This Security Agreement is in addition to and without limitation
of any right of the Secured Parties under any of the Secured Loan Documents or
any other security agreement, mortgage or guaranty granted by the Debtors or any
other person to the Secured Parties.

     3.   Representation and Warranties.
          ----------------------------- 

     The Debtors represent and warrant that:

          3.1   Except as listed on the Schedules to the Credit Agreement, the
Debtors have granted no currently effective security interest in the Collateral
to any person other than to the Secured Parties, and no financing statement in
favor of any such other person as a secured party covering any of the Collateral
or any proceeds thereof is on file in any public office, and the Collateral is
free and clear of any Lien, charge or encumbrance, except pursuant to and under
this Security Agreement.

          3.2   The Debtors are the lawful owners of the Collateral; and all
information with respect to the Collateral set forth in any schedule,
certificate or other writing furnished by Debtors to the Secured Parties, is
true and correct as of the date furnished.  Debtors will have good title to all
Collateral acquired by them in the future and the Secured Parties will acquire
through this Security Agreement a valid, perfected prior security interest
therein, except to the extent that the Collateral is acquired with purchase
money Indebtedness secured by purchase money Liens, as permitted under the
Credit Agreement, in which case the Secured Parties will acquire a valid,
perfected, subordinate security interest.  Each statement of Accounts to be
delivered pursuant to the Credit Agreement will constitute a representation by
Debtors that the Accounts forming the basis therefor conform to the definitions
of Qualified Accounts.  Debtors will continue to hold all Collateral free and
clear of all Liens excepting the rights of the Collateral Agent hereunder and
those Liens permitted pursuant to the terms of the Credit Agreement.

          3.3   The true and correct locations of each Debtor's principal place
of business and chief executive office are set forth on Schedule B.
                                                        ---------- 

          3.4   The locations of all Equipment and Inventory of the Debtors set
forth on Schedule B hereto is a true and complete listing of all of the
         ----------
locations of the Debtors' Equipment and Inventory as of the date hereof, subject
to the Debtors' ordinary business practice which requires the temporary
relocation of Equipment from time to time, which shall be disclosed to the
Secured Parties pursuant to Section 4.5 of this Security Agreement.

          3.5   Except as noted on Schedule B hereto, the Debtors conduct no
                                   ----------
business, whether directly or indirectly or through any subsidiary or division,
under any name or trade name other than the names first recited above.


                                       3
<PAGE>
 
          3.6   Schedule C hereto is a true and complete list of all of the
                ----------
Debtors' registered patents, trademarks and copyrights.

     4.   Covenants and Agreements of Debtors.
          ----------------------------------- 

     The Debtors covenant and agree that:

          4.1   The Secured Parties may examine and inspect the Collateral at
any reasonable time during regular business hours upon reasonable prior notice
and wherever located.

          4.2   Subject to the limitations of this Security Agreement, the
Debtors will from time to time upon demand furnish to the Collateral Agent such
further information and will execute, acknowledge and deliver to the Collateral
Agent such financing statements and assignments and other papers, pay any costs
of searches and filing fees, and will do all such other acts and things as the
Collateral Agent may reasonably request as being necessary or appropriate to
establish, perfect and maintain a valid security interest in the Collateral as
security for the Secured Obligations. Without limitation of the foregoing, the
Debtors will execute and deliver to the Secured Parties any document required to
acknowledge, register or perfect the security interest granted in any of the
Patent Rights, Technical Information, Trademark Rights or Copyrights and in any
of the Collateral under the Federal Assignment of Claims Act.

          4.3   The Debtors will defend the Collateral against all claims and
demands of all other persons at any time claiming the same or an interest
therein. Except to the extent permitted in the Credit Agreement, Debtors shall
not encumber any Collateral to any person other than the Secured Parties, or
sell, assign or transfer the Collateral or any right, title or interest therein
(other than the sale of Inventory in the ordinary course of the Debtors'
business and the sale or disposal of obsolete or unnecessary equipment).

          4.4   If any action or proceeding shall be commenced, other than any
action to collect the Secured Obligations, to which action or proceeding the
Secured Parties are made parties and in which it becomes necessary to defend or
uphold the Secured Parties' security interests hereunder, all costs reasonably
incurred by the Secured Parties for the expenses of such litigation (including
reasonable counsel fees and expenses) shall be deemed part of the Secured
Obligations secured hereby, which the Debtors agree to pay or cause to be paid.

          4.5   All records of the Collateral will be located at the Debtors'
principal places of business. No Debtor shall change the location of any
Equipment or Inventory or the records pertaining to any Collateral to any
location not listed on Schedule B hereto unless such Debtor gives the Collateral
                       ----------                                               
Agent not less than 14 days' prior written notice.

          4.6   The Debtors will have and maintain Insurance at their expense at
all times in such amounts, in such form, containing such terms and written by
such companies as may be reasonably satisfactory to the Secured Parties (and as
more particularly set forth in the Credit Agreement). All policies of Insurance
shall be payable to the Collateral Agent and the Debtors, as their interests may
appear, and shall provide for thirty (30) days' written notice of cancellation
or modification to the Collateral Agent. The Collateral Agent is authorized by
the Debtors to act as its attorney in collecting, adjusting, settling or
canceling such Insurance and endorsing any drafts drawn by insurers. The
Collateral Agent shall apply the proceeds of Insurance received by 


                                       4
<PAGE>
 
it to the Secured Obligations as provided in the Credit Agreement. The Debtors
will immediately notify the Collateral Agent of any damage to or loss of the
Collateral in excess of $100,000. Not later than the expiration date of each
policy of Insurance then in effect, the Debtors shall deliver to the Collateral
Agent a certificate of Insurance certifying as to (i) the extension of such
policy or the issuance of a renewal policy therefor, describing the same in
reasonable detail satisfactory to the Collateral Agent and (ii) the payment in
full of the portion of the premium therefor then due and payable (or accompanied
by other proof of such payment satisfactory to the Secured Parties). The Debtors
shall be required forthwith to notify the Collateral Agent (by telephone,
confirmed in writing) if the Debtors shall determine at any time not to, or at
any time be unable to, extend or renew any such policy then in effect.

          4.7   The Debtors will use the Collateral for business purposes and
not in violation of any statute or ordinance.

          4.8   The Debtors will pay promptly when due all taxes and assessments
upon the Collateral or upon its use or sale ("Taxes"), except for any Taxes
                                              -----
which are being contested in good faith and for which adequate reserves under
generally accepted accounting principles have been established.

          4.9   The Debtors will at all times keep accurate and complete records
of the Accounts, Instruments and other Collateral and will deliver such
reconciliation reports and other financial information to the Collateral Agent
as the Collateral Agent may at any time reasonably request. The Collateral
Agent, or any of its agents, shall have the right to call at the Debtors' place
or places of business at reasonable intervals during regular business hours and
upon reasonable prior notice (except that no such prior notice shall be required
after the occurrence and during the continuance of a Default) to inspect, audit,
make test verifications and otherwise examine and make extracts from the books,
records, journals, orders, receipts, correspondence and other data relating to
any of the Collateral.

          4.10  Upon the occurrence and during a continuance of an Event of
Default, the Debtors agree to stamp all books and records pertaining to
Accounts, Instruments and General Intangibles to evidence the Secured Parties'
security interest therein in form satisfactory to the Collateral Agent
immediately upon the Collateral Agent's written demand.

          4.11  At its option, the Collateral Agent may discharge taxes, liens
or other encumbrances at any time levied against or placed on the Collateral
which have not been stayed as to execution and contested with due diligence in
appropriate legal proceedings, and the Collateral Agent may pay for Insurance on
the Collateral and may pay for maintenance and preservation of the Collateral.
The Debtors will, upon demand, remit to the Collateral Agent forthwith:

                4.11.1  The amount of any such Taxes, assessments, Insurance or
                        other expenses which the Collateral Agent shall have
                        been required or elected to pay; and

                4.11.2  The amount of any and all out-of-pocket expenses which
                        the Collateral Agent may reasonably incur in connection
                        with the

                                       5
<PAGE>
 
                        exercise by the Collateral Agent of any of the powers
                        conferred upon it hereunder; and

                4.11.3  interest on any amounts expended under Subsections
                        "4.11.1" and "4.11.2" of this Section 4.11 from the date
                        of such expenditure to the date of repayment in full to
                        the Collateral Agent at a rate per annum which shall
                        automatically increase and decrease so that at all times
                        such rate shall remain two (2) percentage points higher
                        than the Prime Rate.

          4.12  Each Debtor will notify the Collateral Agent in writing at least
thirty (30) days prior to changing its chief executive office or other locations
at which it does business or changing its name or conducting business under any
name or trade name other than as warranted under Sections 3.3, 3.4, and 3.5
hereof, in each case specifying the places or names involved.

          4.13  The Debtors will use commercially reasonable efforts to obtain
the consent of any person, governmental instrumentality or agency, or public
body or official to the assignment hereunder of any Account, Instrument,
Document or General Intangible if such consent may be required by the terms of
any contract or statute and if the such consent is reasonably necessary to
support the security interest hereunder and if the Collateral Agent so requests
in its discretion reasonably exercised.

          4.14  Upon the occurrence and during the continuance of an Event of
Default, the Collateral Agent shall have the right to notify the account debtors
obligated on any or all of a Debtor's Accounts, Chattel Paper, Instruments,
Documents, Securities or General Intangibles to make payment thereof directly to
the Collateral Agent, and the Collateral Agent may take control of all proceeds
of any thereof. The form of such notice to the account debtors shall be
substantially in the form of Exhibit 1 annexed hereto or such other form as the
                             ---------
Collateral Agent shall require.

     5.   Events of Default.
          ----------------- 

          5.1   Upon the occurrence and during the continuance of an Event of
Default, the Secured Parties shall have all of the rights, powers and remedies
set forth in the Secured Loan Documents, together with the rights and remedies
of Secured Parties under the UCC, including without limitation, the right to
sell, lease or otherwise dispose of any or all of the Collateral, and to take
possession of the Collateral, and for that purpose the Collateral Agent may
enter peaceably any premises on which the Collateral or any part thereof may be
situated and remove the same therefrom and the Debtors will not resist or
interfere with such action. The Collateral Agent may require the Debtors to
assemble the Collateral and make the same available to the Collateral Agent at a
place to be designated by the Collateral Agent which is reasonably convenient to
both parties. The Debtors hereby agree that the place or places of location of
the Collateral are places reasonably convenient to it to assemble the
Collateral. Unless the Collateral is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, the Collateral
Agent will send the Debtors reasonable notice of the time and place of any
public sale or reasonable notice of the time after which any private sale or any
other disposition thereof is to be made. The requirement of sending reasonable
notice shall be met if such notice is mailed, postage prepaid, to a Debtor at
least ten days before the time of the sale or 


                                       6
<PAGE>
 
disposition, or is personally delivered at least seven days before the time of
the sale or disposition.

          5.2   Upon demand by the Collateral Agent after the occurrence and
during the continuance of an Event of Default, the Debtors will immediately
deliver to the Collateral Agent all proceeds of Collateral, and all original
evidences of Accounts, Chattel Paper, Instruments, Documents, Securities or
General Intangibles, including, without limitation, all checks, drafts, cash and
other remittances, notes, trade acceptances or other instruments or contracts
for the payment of money, appropriately endorsed to the Collateral Agent's order
and, regardless of the form of such endorsement, the Debtors hereby waive
presentment, demand, notice of dishonor, protest and notice of protest and all
other notices with respect thereto; and the Debtors hereby appoint the
Collateral Agent as the Debtors' agent and attorney-in-fact to make such
endorsement on behalf of and in the name of the Debtors. Pending such deposit,
the Debtors agree that they will not commingle any such checks, drafts, cash and
other remittances with any of the Debtors' funds or property, but will hold them
separate and apart therefrom and upon an express trust for the Collateral Agent
until delivery thereof is made to the Collateral Agent.

          5.3   The reasonable costs of collection and enforcement of Accounts,
Chattel Paper, Instruments, Documents, Securities or General Intangibles
including attorneys' fees and outofpocket expenses, shall be borne solely by the
Debtors, whether the same are incurred by the Collateral Agent or the Debtors.
The Debtors will not, after the occurrence and during the continuance of an
Event of Default, except with the Collateral Agent's express written consent,
extend, compromise, compound or settle any Account, Chattel Paper, Instrument,
Document, Security or General Intangible, or release, wholly or partly, any
person liable for payment thereof, or allow any credit or discount thereon which
is not customarily allowed by the Debtors in the ordinary conduct of its
business.

          5.4   Effective immediately upon the occurrence and during the
continuance of an Event of Default, the Debtors hereby appoint the Collateral
Agent to be the Debtors' true and lawful attorney, with full power of
substitution, in the Collateral Agent's name or the Debtors' name or otherwise,
for the Collateral Agent's sole use and benefit, but at the Debtors' cost and
expense, to exercise at any time all or any of the following powers with respect
to all or any of the Accounts, Chattel Paper, Instruments, Documents, Securities
or General Intangibles:

                5.4.1  to demand, sue for, collect, receive and give acquittance
                       for any and all moneys due or to become due upon or by
                       virtue thereof;

                5.4.2  to receive, take, endorse, assign and deliver any and all
                       checks, notes, drafts and other negotiable and
                       nonnegotiable instruments taken or received by the
                       Collateral Agent in connection therewith, and the Debtors
                       waive notice of presentment, protest and nonpayment of
                       any instrument so endorsed or assigned;

                5.4.3  to settle, compromise, compound, prosecute or defend any
                       action or proceeding with respect thereto;

                5.4.4  to extend the time of payment of any or all thereof, to
                       make any allowance and other adjustments with reference
                       thereto;


                                       7
<PAGE>
 
               5.4.5   to sell, transfer, assign or otherwise deal in or with
                       the same or the proceeds or avails thereof or the
                       relevant goods, as fully and effectually as if the
                       Collateral Agent were the absolute owner thereof;

               5.4.6   to make any reasonable allowance and other reasonable
                       adjustments with reference thereto;

               5.4.7   to sign the Debtors' name on any Document, on invoices
                       relating to any Account, on drafts against customers, on
                       schedules of assignments of Accounts, on notices of
                       assignment, financing statements under the UCC and other
                       public records, on verifications of Accounts, and on
                       notices to customers;

               5.4.8   to file or record in any public office notices of
                       assignment or any other public notice required to effect
                       this Security Agreement;

               5.4.9   to notify the post office authorities to change the
                       address for delivery of the Debtors' mail to an address
                       designated by the Collateral Agent;

               5.4.10  to receive, open and as appropriate to the purposes of
                       this Security Agreement and the Credit Agreement, respond
                       to or deal with, all mail addressed to the Debtors;

               5.4.11  to discharge Taxes, liens or other encumbrances at any
                       time levied against or placed thereon;

               5.4.12  to send requests for verification of Accounts to the
                       Debtors' customers; and

               5.4.13  to do all other things the Collateral Agent deems
                       reasonably necessary or desirable to carry out the
                       purposes of this Security Agreement.

The Debtors hereby ratify and approve all acts of the attorney pursuant to this
Section 5.4, and neither the Collateral Agent nor the attorney will be liable
for any act of commission or omission, nor for any error of judgment or mistake
of fact or law, other than acts, errors or mistakes due to willful malfeasance
or gross negligence by the Collateral Agent or the attorney; provided further,
however, that the Debtors do not waive any right under the UCC against the
Secured Parties for any action taken hereunder which is other than commercially
reasonable.  This power, being coupled with an interest, is irrevocable so long
as any of the Secured Obligations remain outstanding.

          5.5  After deducting all reasonable expenses incurred by the
Collateral Agent in protecting or enforcing its rights in the Collateral, the
remainder of any proceeds of collection or sale of the Collateral shall be
applied to the payment of principal, interest or other charges comprising the
Secured Obligations in such order as the Collateral Agent may determine, and all
surplus shall be returned to the Debtors and the Debtors shall remain liable for
any deficiency.


                                       8
<PAGE>
 
Except to the extent provided in Section 2.03(b) of the Credit Agreement for
amounts remitted to Collateral Agent by account debtors of the Borrowers
pursuant to the Lock Box Agreement, the Collateral Agent shall apply the
proceeds of collection or sale of the Collateral, if any, at least once during
each calendar month, and until so applied, shall retain such proceeds in the
Collateral Account. The Collateral Agent alone shall have the power of
withdrawal from the Collateral Account.

          5.6   The Secured Parties may exercise their rights with respect to
Collateral without resorting to or regard to other collateral or sources of
reimbursement for the Secured Obligations.

          5.7   The exercise by the Secured Parties of or failure to so exercise
any authority granted under this Security Agreement shall in no manner affect
any liability of any Debtor to any Secured Party, and provided, further, that
the Secured Parties shall be under no obligation or duty to exercise any of the
powers hereby conferred upon them and they shall be without liability for any
act or failure to act in connection with the collection of, or the preservation
of any rights under any of the Collateral.

     6.   Waivers.
          ------- 

          6.1   The Debtors waive all demands, notices and protests of every
kind which are not expressly required under this Security Agreement or the
Secured Loan Documents and which are permitted by law to be waived, and which
would, if not waived, impair the Secured Parties' enforcement of this Security
Agreement or release any Collateral from the security interest of the Secured
Parties under this Security Agreement. By way of example, but not in limitation
of the Secured Parties' rights under this Security Agreement, the Secured
Parties do not have to give the Debtors notice of any of the following:

                6.1.1   notice of acceptance of this Security Agreement;

                6.1.2   notice of advances made, credit extended, Collateral
                        received or delivered;

                6.1.3   any action which the Secured Parties do or do not take
                        regarding the Debtors, any other person, or any other
                        collateral securing the Secured Obligations;

                6.1.4   enforcement of this Security Agreement against the
                        Collateral; or

                6.1.5   any other action taken in reliance on this Security
                        Agreement.

          6.2   With respect both to Secured Obligations and Collateral, the
Debtors assent to any extension or postponement of the time of payment or any
other indulgence, to any substitution, exchange or release of Collateral, to the
addition or release of any party or person primarily or secondarily liable, to
the acceptance of partial payments thereon and the settlement, compromising or
adjusting of any thereof, all in such time or times as the Secured Parties may
deem advisable.


                                       9
<PAGE>
 
          6.3   The Secured Parties shall have no duty as to the collection or
protection of Collateral not in the Secured Parties' possession or control, and
the Secured Parties' duties with reference to Collateral in its possession or
control shall be to use reasonable care in the custody and preservation of such
Collateral, but such duty shall not require the Secured Parties to do any of the
following (although the Secured Parties are authorized to reasonably undertake
any such action if the Secured Parties deem such action appropriate):

                6.3.1  protect any of the Collateral against the claims of
                       others;

                6.3.2  collect any sums due on the Collateral;

                6.3.3  exercise any rights under the Collateral;

                6.3.4  notify the Debtors of any maturities or other similar
                       matters concerning the Collateral;

                6.3.5  act upon any request the Debtors may make; or

                6.3.6  preserve or protect the Debtors' rights in the
                       Collateral.

          6.4   Each Debtor waives all rules of suretyship law and any other law
whatsoever which is legally permitted to be waived and which would, if not
waived, impair the Secured Parties' enforcement of their security interests
hereunder. By way of example, but not in limitation of the Secured Parties'
rights under this Security Agreement, the Secured Parties may do any of the
following without notice to Debtor, except to the extent that notice to Debtor
is required under another Secured Loan Document or in each case in which the
agreement of Debtor is required because Debtor is a principal party to a Secured
Obligation and, as a matter of contract, the agreement of such Debtor is
required:

                6.4.1  change, renew or extend the time for repayment of all or
                       any part of the Secured Obligations;

                6.4.2  change the rate of interest or any other provisions with
                       respect to all or any part of the Secured Obligations;

                6.4.3  release, surrender, sell or otherwise dispose of any
                       money or property which is in the Secured Parties'
                       possession as collateral security for the Secured
                       Obligations;

                6.4.4  fail to perfect a security interest in any property which
                       is pledged or mortgaged as security for payment of the
                       Secured Obligations;

                6.4.5  release or discharge any party liable to the Secured
                       Parties in whole or in part for the Secured Obligations,
                       or accept any additional parties or guarantors;

                6.4.6  delay or refrain from exercising any of the Secured
                       Parties' rights;


                                      10
<PAGE>
 
              6.4.7   settle or compromise any and all claims pertaining to the
                      Secured Obligations and the Collateral; and

              6.4.8   apply any money or property of a Debtor or that of any
                      other party liable to the Secured Parties for any part of
                      the Secured Obligations in any order it chooses.

     7.  Actions and Proceedings.
         ----------------------- 

     IN THE EVENT OF ANY ACTION OR PROCEEDING WITH RESPECT TO ANY MATTER
PERTAINING TO THIS SECURITY AGREEMENT, THE DEBTORS AND THE COLLATERAL AGENT
HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY (BUT DO NOT WAIVE ANY DEFENSES OR
COUNTERCLAIMS). THE DEBTORS HEREBY IRREVOCABLY CONSENT TO THE NONEXCLUSIVE
JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF NEW YORK AND OF ANY FEDERAL
COURT LOCATED IN THE STATE OF NEW YORK IN CONNECTION WITH ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THE SECURED LOAN DOCUMENTS.

     8.  Address for Notices and Service of Process.
         ------------------------------------------ 

     All notices, requests and demands to be made hereunder shall be made as set
forth in the Credit Agreement.

     9.  Costs of Collection and Legal Fees.
         ---------------------------------- 

     The Debtors shall be liable to the Secured Parties and shall pay to the
Collateral Agent immediately on demand as part of their liability under this
Security Agreement all reasonable costs and expenses of the Secured Parties,
including all reasonable fees and disbursements of the Secured Parties' legal
counsel incurred in the collection or enforcement or attempted collection or
attempted enforcement of the Secured Parties' rights under this Security
Agreement, whether within or apart from any legal action or proceeding.

     10. No Waiver of Remedies.
         --------------------- 

     No failure to exercise and no delay in exercising, on the part of the
Secured Parties, any right, remedy, power or privilege under this Security
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege under this Security Agreement
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
provided under this Security Agreement are cumulative and not exclusive of any
other right, remedy, power and privilege provided by law.

     11. New York Law.
         ------------ 

     PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, THE
WHOLE OF THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE DEBTORS
AND THE SECURED PARTIES HEREUNDER SHALL BE GOVERNED, CONSTRUED AND INTERPRETED
IN 

                                      11
<PAGE>
 
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY
CONFLICTS OF LAWS RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY
OTHER JURISDICTION.

     12. Entire Agreement; Modifications.
         ------------------------------- 

     This Security Agreement contains the entire agreement between the Secured
Parties and the Debtors with respect to all subject matters contained herein.
This Security Agreement cannot be amended, modified or changed in any way except
by a written instrument executed by each of the Secured Parties and Debtors.

     13. Successors and Assigns.
         ---------------------- 

     The covenants, representations, warranties and agreements herein set forth
shall be binding upon the Debtors, their legal representatives, successors and
assigns and shall inure to the benefit of the Secured Parties, their successors
and assigns. Any successor or assign of the Secured Parties shall forthwith
become vested with and entitled to exercise all the powers and rights given by
this Security Agreement to the Secured Parties, as if such successor or assign
were originally named as a secured party herein.

     14. Severability.
         ------------ 

     The unenforceability or invalidity of any provision or provisions of this
Security Agreement or any of the other Secured Loan Documents shall not render
any other provision or provisions herein or therein contained unenforceable or
invalid.


         [The Remainder of This Page Has Been Intentionally Left Blank]


                                      12
<PAGE>
 
     IN WITNESS WHEREOF, the Debtors and the Collateral Agent have caused this
Security Agreement to be executed by their duly authorized officer or
representative as of the date and year first above written.


                         DEBTORS:

                              ACT MANUFACTURING, INC.


                              By: /s/ John A. Pino
                                 ------------------------------- 
                                 Name: John A. Pino
                                 Title: President


                              ACT MANUFACTURING SECURITIES CORPORATION


                              By: /s/ John A. Pino
                                 ------------------------------- 
                                 Name: John A. Pino
                                 Title: President


                         COLLATERAL AGENT:


                              THE CHASE MANHATTAN BANK,
                              as Collateral Agent for the Secured Parties


                              By: /s/ Peter N. Langburd
                                 ------------------------------- 
                                 Name: Peter N. Langburd
                                 Title: Vice President