<PAGE>
 
Exhibit 10.4


                               SECURITY AGREEMENT
                               ------------------


     SECURITY AGREEMENT (the "Agreement"), made as of this 26th day of December,
1997, by and between WPI GROUP, INC., WPI ELECTRONICS, INC., WPI MAGNETEC, INC.,
WPI MICRO PALM, INC., WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC., WPI MICRO
PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK
HOLDING II, INC., and WPI OYSTER TERMINALS, INC., each a New Hampshire
corporation, and WPI HUSKY COMPUTERS, INC., a Florida corporation, all such
corporations having their principal offices at 1155 Elm Street Manchester, New
Hampshire 03101 (all of the foregoing corporations are hereinafter referred to
individually and collectively as the "Debtor"), and FLEET BANK - NH, a bank
organized under the laws of the State of New Hampshire with an address of Mail
Stop NHNA E02A, 1155 Elm Street, Manchester, New Hampshire 03101 (the "Secured
Party").

                                  WITNESSETH:
                                  ---------- 

     WHEREAS, pursuant to an Amended and Restated Commercial Loan Agreement of
even date (the "Loan Agreement") between the Secured Party and the Debtor,
Secured Party has granted to Debtor (i) a certain revolving line of credit in
the principal amount of up to Thirty Million Dollars ($30,000,000.00), and (ii)
a certain term loan in the principal amount of Fifteen Million Dollars
($15,000,000.00) (collectively, the "Loan"), all as set forth and described in
the Loan Agreement; and

     WHEREAS, the obligation of the Secured Party to make the Loan to the Debtor
is subject to the condition, among others, that the Debtor shall execute and
deliver this Agreement and grant the security interests hereinafter described.
Terms not otherwise defined herein shall have the meanings ascribed to them in
the Loan Agreement.

     NOW, THEREFORE, in consideration of the willingness of the Secured Party to
make the Loan to the Debtor and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

     1.  Security Interest.  As security for the Secured Obligations described
         -----------------                                                    
in Section 2 hereof, Debtor hereby grants to the Secured Party a first priority
security interest in and lien on all of the property and assets of each Debtor
(other than real estate), including, but not limited to the property of the
types described below (hereinafter referred to collectively as the
"Collateral"):

          (a)  All equipment, including machinery, motor vehicles, office
     equipment, furniture, fixtures, along with all other parts, tools, trade-
     ins, repairs, accessories, accessions, modifications, and replacements,
     whether now owned or subsequently acquired, constructed, or attached or
     added to, or placed in, the foregoing (collectively, the "Equipment");

          (b)  All inventory, wherever located, including goods, merchandise and
     other 
<PAGE>
 
     personal property, held for sale or lease or furnished or to be furnished
     under a contract of service, or constituting raw materials, work in process
     or materials used or consumed in the Debtor's business, or consigned to
     others or held by others for return to the Debtor, whether now owned or
     subsequently acquired or manufactured and wherever located (collectively,
     the "Inventory");

          (c)  All accounts receivable, including, without limitation, accounts,
     contracts, contract rights, chattel paper, instruments, rents, deposits,
     general intangibles, and any other obligations of any kind whether now
     existing or hereafter arising out of or in connection with the sale or
     lease of goods or the rendering of services, and all rights now or
     hereafter existing in and to all security agreements, notes, leases,
     licenses, franchises, supply agreements, and other contracts securing or
     otherwise relating to any such accounts, contracts, contract rights,
     chattel paper, instruments, rents, deposits, general intangibles, or
     obligations (any and all such accounts, contracts, contract rights, chattel
     paper, instruments, rents, deposits, general intangibles, and obligations
     being the "Receivables", and any and all such security agreements, notes,
     leases, licenses, franchises, supply agreements, and other contracts being
     the "Related Contracts");

          (d)  All general intangibles, including, but not limited to, corporate
     names, trade names, trademarks, trade secrets, books and records, customer
     lists, catalogs, blue prints and plans, computer programs, tapes and
     related electronic data, processing software, and all corporate ledgers;

          (e)  Any and all additions, accessions, substitutions or replacements
     to or for any of the foregoing;

          (f)  Any and all products and proceeds of any or all of the foregoing,
     including, without limitation, cash, cash equivalents, tax refunds and the
     proceeds of insurance policies providing coverage against the loss or
     destruction of or damage to any of the Collateral, or any indemnity,
     warranty, or guarantee payable by reason of loss or damage to or otherwise
     with respect to any of the Collateral (whether or not the Secured Party is
     the loss payee thereof);

          (g)  All intercompany accounts, accounts receivable and promissory
     notes evidencing any intercompany indebtedness, including without
     limitation the promissory notes and obligations listed in Exhibit 1
                                                               ---------
     attached hereto;
 
          (h)  All of the Debtor's after-acquired property of the kinds and
     types described in paragraphs (a) - (g) herein;

          (i)  All records and data relating to any of the property described
     above, whether in the form of a writing, photograph, microfilm, microfiche,
     or electronic media, together with all of the Debtor's right, title, and
     interest in and to all computer software required to utilize, create,
     maintain and process any of such records or data or electronic media; and

also in (1) all checks, money, securities, bank accounts, deposit accounts, and
other accounts in the possession of or held by the Secured Party whether in the
name of the Debtor or in the name of the Secured Party, and (2) all other
property given by the Debtor to the Secured Party pursuant 
<PAGE>
 
to this Agreement.

     2.  Secured Obligations.  The security interest hereby granted shall secure
         -------------------                                                    
the following (the "Secured Obligations"):

          (a)  The Debtor's repayment to the Secured Party of the Loan, together
     with interest, late charges, and any other applicable charges thereon or
     respecting thereto;

          (b)  The Debtor's payment or performance of its obligations under the
     Loan Agreement and under the other Loan Documents (as defined, described
     and identified in the Loan Agreement, hereinafter the "Loan Documents"), as
     the same may be amended, modified, extended, renewed, replaced or restated;

          (c)  The payment of all other sums with interest and charges thereon
     advanced in accordance herewith to protect the validity, security, and
     priority of this Agreement, the Loan Agreement, or the Loan Documents; and

          (d)  Any and all other obligations of Debtor to Secured Party of every
     kind and description, direct or indirect, absolute or contingent, due or to
     become due, now existing or hereafter arising, including without limitation
     increases in any of such Secured Obligations.

     3.  Warranties and Representations of the Debtor.  Debtor hereby makes the
         --------------------------------------------                          
following representations and warranties which shall survive the execution and
delivery of this Agreement and shall be continuing representations and
warranties as long as any Secured Obligation remains outstanding:

          (a)  All representations and warranties made in the Loan Agreement and
     the Loan Documents relating to the Debtor and the Collateral are true,
     accurate and complete in all material respects;

          (b)  The Debtor's principal place of business is located at the
     address first set forth above, except as such address may be changed upon
     prior written notice to the Secured Party; the Debtor's executive offices
     and the office where its books and records are kept and are to be kept
     concerning the Inventory, Receivables, Related Contracts and other
     Collateral are at the same address; and the Debtor has no other places of
     business except for manufacturing, sales and service facilities, and
     warehouses at the locations listed on Schedule I hereto;
                                           ----------        
 
          (c)  No material authorization, approval or other action by, and no
     notice to or filing with, any governmental authority or other person is
     required either (i) for the grant by the Debtor of the security interests
     granted hereby or for the execution, delivery or performance of this
     Agreement by the Debtor, or (ii) for the perfection of or the exercise by
     the Secured Party of its respective rights and remedies hereunder, except
     the filing of financing statements;

          (d)  The Debtor has good and marketable title to all of the Collateral
     pledged by it hereunder, free and clear of any liens, security interests,
     encumbrances or interests or 
<PAGE>
 
     claims of any other person or entity, except those set forth on Schedule II
                                                                     -----------
     hereto (the "Permitted Encumbrances"), and there are no sums owed with
     respect to the Collateral other than as disclosed on the Debtor's financial
     statements delivered to the Secured Party and other than trade payables
     incurred in the ordinary course of business since the date of such
     financial statements;

          (e)  Upon the filing of UCC-1 financing statements being delivered at
     or prior to the execution hereof, the Secured Party will have a valid,
     perfected first security interest in all of the Collateral which may be
     perfected by filing of financing statements, subject to the Permitted
     Encumbrances;

          (f)  The Debtor has not performed any acts which might prevent the
     Secured Party from enforcing any of the material terms and conditions of
     this Agreement or which would limit any of them in any such enforcement;

          (g)  Schedule III attached hereto sets forth the description and
               ------------                                               
     location of all Collateral not located at the Debtor's principal place of
     business, together with a list of the record owners of the real estate on
     which any Collateral constituting fixtures is located; and

          (h)  No effective financing statements or other similar instrument in
     effect covering all or any part of the Collateral is on file in any
     recording office, except as may have been filed in favor of Secured Party
     relating to this Agreement and as filed to perfect the Permitted
     Encumbrances.

     4.   Affirmative Covenants of the Debtor.
          ----------------------------------- 

          (a)  The Debtor shall promptly notify and provide the Secured Party
     with a complete description of the opening of any new places of business,
     the closing of any existing places of business, the conduct of business
     under any names or through any entities other than those set forth herein,
     the relocation of any of the Collateral to any new place of business or any
     other act which would affect the financing statements filed by the Secured
     Party;

          (b)  The Debtor shall continuously take all steps that are necessary
     or prudent to protect the security interests of the Secured Party in the
     Collateral;

          (c)  The Debtor shall defend the Collateral against the claims and
     demands of all persons;
 
          (d)  The Debtor shall deliver and pledge to the Secured Party,
     endorsed or accompanied by instruments of assignment or transfer
     satisfactory to the Secured Party, any instruments, documents, and chattel
     paper which the Secured Party may reasonably specify, including without
     limitation the promissory notes identified in Exhibit 1 attached hereto;
                                                   ---------                 

          (e)  The Debtor shall comply, in all material respects, with all
     governmental regulations applicable to the Collateral or any part thereof
     or to the operation of the 
<PAGE>
 
     Debtor's business; provided, however, that the Debtor may contest any
     governmental regulation in any reasonable manner which shall not in the
     reasonable opinion of the Secured Party adversely affect the Secured
     Party's rights or the first priority of its security interest in the
     Collateral;

          (f)  The Debtor shall 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, 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 danger of the sale, forfeiture or loss of
     any of the Collateral or any interest therein; and (iii) such charge is
     adequately reserved against in accordance with the generally accepted
     accounting principles;

          (g)  The Debtor shall cause the Equipment to be maintained and
     preserved in good working order, and shall make all repairs, replacements,
     additions, and other improvements necessary to maintain the Equipment in
     such condition;

          (h)  The Debtor shall exercise its best efforts to preserve all
     beneficial Related Contracts;

          (i)  The Debtor shall take all commercially reasonable steps necessary
     to collect the Receivables;

          (j)  The Debtor shall use its best efforts to assure that (i) no
     Receivable is or shall be subject to any defense, offset, counterclaim, or
     discounts or allowances other than such as customarily arise in the
     ordinary course of Debtor's business, (ii) all statements made and all
     unpaid balances appearing in the invoices, documents, agreements relating
     to each Receivable are and shall be true, genuine, and correct in all
     respects, and (iv) no Receivable shall be converted to a note or other
     instrument in face amount of $20,000 US or more, or when aggregated with
     the unpaid balances of similar notes or instruments exceeds $100,000,
     unless the same shall be delivered to the possession of the Secured Party
     within ten (10) days of the date of execution of such note or instrument;

          (k)  The Debtor shall, with respect to any Collateral which consists
     of trucks, automobiles, or other motor vehicles, or any other Collateral
     required to be titled, deliver all titles thereto to the Secured Party to
     be held by the Secured Party and Debtor shall make, execute, and deliver
     any and all applications, and take such other action to assure that the
     Secured Party is listed of record as the first priority and sole lienholder
     on all title certificates;

          (l)  Debtor shall keep accurate and complete records listing and
     describing the Collateral.  Secured Party shall have the right at any time
     to inspect the Collateral and to audit and make copies of any records or
     other writings which relate to the Collateral or the general financial
     condition of Debtor.  Secured Party may remove such records and writings
     for the purpose of having copies made thereof;

          (m)  The Debtor shall advise the Secured Party promptly, in reasonable
     detail, (i) of any lien, security interest, encumbrance, or claim made or
     asserted against any of the 
<PAGE>
 
     Collateral, (ii) of any material change, substantial loss or depreciation
     in the composition of the Collateral, and (iii) of the occurrence of any
     other material adverse effect on the aggregate value, enforceability or
     collectibility of the Collateral or on the security interests created
     hereunder;

          (n)  The Debtor shall give, execute, deliver and file or record in the
     proper governmental offices, any instrument, paper or document, including,
     but not limited to, one or more financing statements under the Uniform
     Commercial Code, reasonably satisfactory to the Secured Party, or take any
     action which the Secured Party may deem necessary or desirable in order to
     create, preserve, perfect, extend, continue, modify, terminate or otherwise
     effect any security interest granted pursuant hereto, or to enable the
     Secured Party to exercise or enforce any of its rights hereunder; and

          (o)  The Debtor shall keep, and stamp or otherwise mark, any of its
     documents, instruments and chattel paper and its books and records relating
     to any of the Collateral in such manner as the Secured Party may reasonably
     require.

     5.  Negative Covenants of the Debtor.  Except as otherwise provided in the
         --------------------------------                                      
Loan Agreement, including without limitation the provisions of Section VII(G) of
the Loan Agreement respecting Permitted Divestitures, or in this Agreement,
without the prior written consent of the Secured Party, the Debtor shall not:

          (a)  Transfer, sell or assign any of the Collateral other than
     Inventory in the ordinary course of business and Equipment which has become
     obsolete or is surplus or is being replaced;

          (b)  Allow or permit any other security interest or lien to attach to
     any of the Collateral;

          (c)  File, authorize, or permit to be filed in any jurisdiction any
     financing statement relating to any of the Collateral unless the Secured
     Party is named as sole secured party;

          (d)  Permit any of the Collateral to be levied upon under any legal
     process;

          (e)  Permit anything to be done that may materially impair the value
     of any of the Collateral or the security therein intended to be afforded
     hereby; or

          (f)  Use the Collateral in violation of any law or in any manner
     inconsistent with any policy of insurance thereon.

     6.  Fixtures.  It is the intention of the parties hereto that none of the
         --------                                                             
Collateral shall become fixtures.  Without limiting the generality of the
foregoing, the Debtor will, if requested by the Secured Party, use reasonable
efforts to obtain waivers of lien, in form satisfactory to the Secured Party,
from each mortgagee or lessor of real property (other than the Secured Party) on
which any fixtures included in the Collateral is or is to be located.
 
     7.  Insurance.  Debtor shall, at its own expense, maintain insurance
         ---------                                                       
covering the Collateral against such risks, with such insurers, in such form,
and in such amounts as acceptable to Secured 
<PAGE>
 
Party, but in any event, in such amounts and with such coverage as is customary
in Debtor's type of business. All insurance policies shall be written so as to
be payable in the event of loss to Secured Party as lender loss payee and shall
provide for thirty (30) days' written notice to Secured Party of cancellation or
modification. At the request of Secured Party, all insurance policies shall be
furnished to and held by Secured Party. Debtor hereby collaterally assigns to
Secured Party return premiums, dividends and other amounts which may be or
become due upon cancellation of any such policies for any reason whatsoever and
directs the insurers to pay Secured Party any sums so due. Secured Party is
hereby appointed as attorney irrevocable to collect return premiums, dividends
and other amounts due on any insurance policy and the proceeds of such
insurance, to settle any claims with the insurers in the event of loss or
damage, to endorse settlement drafts, and to cancel, assign, or surrender any
insurance policies, provided that Secured Party shall only exercise the
foregoing powers upon the occurrence of an Event of Default (as defined
hereinbelow). If, while any Secured Obligations are outstanding, and so long as
no Event of Default exists, any return premiums, dividends, other amounts or
proceeds are paid to Secured Party under such policies, Secured Party shall pay
over such return premiums, dividends, other amounts and proceeds in whole or in
part to Debtor for the purpose of repairing or replacing the Collateral
destroyed or damaged, any return premiums, dividends, other amounts and proceeds
so paid over by Secured Party to be secured by this Agreement. If an Event of
Default exists, then the Secured Party may apply such return premiums,
dividends, other amounts and proceeds in whole or in part to the payment or
satisfaction of any of the Secured Obligations in whatever order Secured Party
determines.

     8.  Receivables. After the occurrence of an Event of Default, Debtor agrees
         -----------                                                            
that Secured Party may a) communicate with account debtors in order to verify
the existence, amount, and terms of any Receivables, and b) notify account
debtors of the security interests established herein and require that payments
on Receivables be made directly to Secured Party, and upon the request of
Secured Party, Debtor shall notify account debtors and indicate on all billings
that payments and returns are to be made directly to Secured Party.  In
furtherance of the foregoing, Debtor hereby appoints Secured Party attorney
irrevocable with full power to collect, compromise, endorse, sell, or otherwise
deal with the Receivables or proceeds thereof and to perform the terms of any
contract in order to create Receivables in Secured Party's name or in the name
of Debtor, provided that Secured Party shall only exercise such power following
the occurrence of an Event of Default.  This Agreement may be, but need not be,
supplemented by separate assignments of Receivables and contract rights and, if
such assignments are given, the rights and security interests given thereby
shall be in addition to and not in limitation of the rights and security
interests granted by this Agreement.

     9.  Events of Default.  The following events shall be deemed "Events of
         -----------------                                                  
Default" hereunder:

          (a)  The occurrence of an Event of Default under the Loan Agreement or
     any of the Loan Documents;

          (b)  Debtor fails to observe or perform any covenant, warranty, or
     agreement required to be observed or performed by it under this Agreement
     which is not cured within thirty (30) days after notice from Secured Party;
     or
          (c)  Uninsured loss, theft, damage, or destruction of any substantial
     portion of any 
<PAGE>
 
     of the Collateral which has a material adverse effect on the ability of the
     Debtor to make payments of its Secured Obligations or on the adequacy of
     the Collateral as security for the Secured Obligations.

     10.  Rights and Remedies of Secured Party on Default.  Upon the occurrence
          -----------------------------------------------                      
of any Event of Default, Secured Party shall have, by way of example and not of
limitation, the following rights and remedies:

          (a)  Secured Party may declare the Secured Obligations, or any of
     them, to be immediately due and payable without presentment, demand,
     protest or notice of any kind, all of which are hereby expressly waived;

          (b)  In addition to all other rights and remedies contained in this
     Agreement, the Loan Agreement, and in the Loan Documents, Secured Party may
     exercise the rights and remedies accorded Secured Party by the Uniform
     Commercial Code or by any other applicable law, all of which rights and
     remedies shall be cumulative and non-exclusive to the extent permitted by
     law;

          (c)  Secured Party shall have the right to enter and/or remain upon
     the Premises of Debtor, or any other place or places where any of the
     Collateral is located and kept, without any obligation to pay rent to
     Debtor or others, and remove Collateral therefrom to the premises of the
     Secured Party or any agent of Secured Party for such time as Secured Party
     may desire in order to maintain, collect, sell and/or prepare the
     Collateral for sale, liquidation or collection;

          (d)  Secured Party may require the Debtor at Debtor's cost to assemble
     the Collateral and make it available to Secured Party at a place designated
     by Secured Party;

          (e)  Secured Party may take possession of and use and operate the
     Collateral in the manner and for the purposes as set forth in Section 11
     hereinbelow;

          (f)  Secured Party may sell, lease, or otherwise dispose of the
     Collateral as set forth in Section 12 hereinbelow;

          (g)  Secured Party shall have the right to set-off, without notice to
     the Debtor, any and all deposits or other sums at any time or times
     credited or due from Secured Party to Debtor, whether in a special account
     or other account or represented by a certificate of deposit (whether or not
     matured); which deposit and other sums shall at all times constitute
     additional security for the Secured Obligations;

          (h)  Secured Party may perform any warranty, covenant or agreement
     which Debtor has failed to perform under this Agreement; and

          (i)  Secured Party may take any other action which Secured Party deems
     necessary or desirable to protect the Collateral or the security interests
     granted herein.
 
     11.  Rights of Secured Party to Use and Operate Collateral. Upon the
          -----------------------------------------------------          
occurrence of any Event of Default, but subject to the provisions of the Uniform
Commercial Code or other 
<PAGE>
 
applicable law, the Secured Party shall have the right and power to take
possession of all or any part of the Collateral, and to exclude the Debtor and
all persons claiming under the Debtor wholly or partly therefrom, and thereafter
to hold, store, and/or use, operate, manage and control the same. Upon any such
taking of possession, the Secured Party may, from time to time, at the expense
of the Debtor, make all such repairs, replacements, alterations, additions and
improvements to and of the Collateral as the Secured Party may reasonably deem
proper. In any such case, subject as aforesaid, the Secured Party shall have the
right to manage and control the Collateral and to carry on the business and to
exercise all rights and powers of the Debtor in respect thereto as the Secured
Party shall deem best, including the right to enter into any and all such
agreements with respect to the leasing and/or operation of the Collateral or any
part thereof as the Secured Party may see fit; and the Secured Party shall be
entitled to collect and receive all rents, issues, profits, fees, revenues and
other income of the same and every part thereof. Such rents, issues, profits,
fees, revenues and other income shall be applied to pay the expenses of holding
and operating the Collateral and of conducting the business thereof, and of all
maintenance, repairs, replacements, alterations, additions, and improvements,
and to make all payments which the Secured Party may be required or may elect to
make, if any, for taxes, assessments, insurance and other charges upon the
Collateral or any part thereof, and all other payments which the Secured Party
may be required or authorized to make under any provision of this Agreement
(including reasonable legal costs and attorneys' fees). The remainder of such
rents, issues, profits, fees, revenues and other income shall be applied to the
payment of the Secured Obligations in such order of priority as the Secured
Party may determine in its sole discretion and any surplus shall be returned to
the Debtor. Without limiting the generality of the foregoing, the Secured Party
shall have the right to apply for and have a receiver appointed by a court of
competent jurisdiction in any action taken by the Secured Party to enforce its
rights and remedies hereunder in order to manage, protect and preserve the
Collateral and continue the operation of the business of the Debtor and to
collect all revenues and profits thereof and apply the same to the payment of
all expenses and other charges of such receivership including the compensation
of the receiver and to the payment of the Secured Obligations as aforesaid until
a sale or other disposition of such Collateral shall be finally made and
consummated.

     12.  Rights of Secured Party to Sell Collateral.  Upon ten (10) days prior
          ------------------------------------------                           
written notice by registered or certified mail by Secured Party to Debtor at the
address of the Debtor set forth above (or at such other address or addresses as
the Debtor shall specify in writing by like notice to the Secured Party) of the
time and place of any intended disposition of Collateral, and following the
occurrence of an Event of Default, then Secured Party shall have the right and
power to sell, assign, lease, or otherwise dispose of the Collateral from any
business premises of the Debtor, either at public auction or private sale, by
liquidation sale or other disposition, or as if the sale was being made in the
ordinary course of Debtor's business, with or without notice to the public that
the said sale or disposition is for the benefit of the Secured Party; provided,
however, that if the Collateral is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, then Secured
Party shall have the right and power to dispose of the Collateral without prior
notice to Debtor and Debtor expressly waives any rights to notice under such
circumstances.  The notices described above shall be deemed to meet any
requirement hereunder or under any applicable law (including the Uniform
Commercial Code) that reasonable notification be given of the time and place of
such sale or other disposition.  After deducting all costs and expenses of
collection, storage, custody, sale or other disposition and delivery (including
reasonable legal costs and attorneys' fees) and all other charges against the
Collateral, the residue of the proceeds of any such sale or disposition shall be
applied to the 
<PAGE>
 
payment of the Secured Obligations in such order of priority as the Secured
Party may determine in its sole discretion and any surplus shall be returned to
the Debtor. In the event the proceeds of any sale, lease or other disposition of
the Collateral hereunder are insufficient to pay all of the Secured Obligations
in full, the Debtor will be liable for the deficiency, together with interest
thereon at the maximum rate provided in the Loan Agreement and the cost and
expenses of collection of such deficiency, including, without limitation,
reasonable fees of attorneys, experts, and agents, expenses and disbursements.
 
     13.  Attorney-in-Fact.  The Secured Party is hereby appointed the attorney-
          ----------------                                                     
in-fact, with full power of substitution, of the Debtor for the purpose of
carrying out the provisions of this Agreement and taking any action and
executing any instruments (including, without limitation, financing or
continuation statements, conveyances, assignments, and transfers) which the
Secured Party may deem necessary or advisable to accomplish the purposes hereof,
which appointment as attorney-in-fact is coupled with an interest and is
irrevocable, provided the Secured Party shall only exercise the power granted
herein following the occurrence of an Event of Default.

     14.  Waiver, etc. The Debtor hereby waives presentment, demand, notice,
          -----------                                                       
protest and, except as is otherwise provided herein, all other demands and
notices in connection with this Agreement or the enforcement of the Secured
Party's rights hereunder or in connection with any Secured Obligations or any
Collateral.  The Debtor further consents to and waives notice of the granting of
renewals, extensions of time for payment or other indulgences to the Debtor or
to any account debtor in respect of any Receivable, substitution, release or
surrender of any Collateral, addition or release of persons primarily or
secondarily liable on any Secured Obligation or on any Receivable or other
Collateral, or the acceptance of partial payments on any Secured Obligation or
on any account receivable or other Collateral and/or the settlement or
compromise thereof.  No delay or omission on the part of the Secured Party in
exercising any right hereunder shall operate as a waiver of such right or of any
other right hereunder.  Any waiver of any such right on any one occasion shall
not be construed as a bar to or waiver of any such right on any such future
occasion.

     15.  Termination; Assignments, etc.  This Agreement and the security
          ------------------------------                                 
interest in the Collateral created hereby shall terminate when all of the
Secured Obligations have been paid, performed, and finally discharged in full.
In the event of a sale or assignment by the Secured Party of all or any of the
Secured Obligations held by it, such Secured Party may assign or transfer its
rights and interests under this Agreement in whole or in part to the purchaser
or purchasers of such Secured Obligations, whereupon such purchaser or
purchasers shall become vested with all of the powers and rights of such Secured
Party hereunder, and such Secured Party shall thereafter be forever released and
fully discharged from any liability or responsibility hereunder, with respect to
the rights and interests so assigned.

     16.  Notices.  All notices, requests, demands and other communications
          -------                                                          
provided for hereunder shall be in writing (including telegraphic communication)
and shall be either mailed by certified mail, return receipt requested, or
delivered by overnight courier service, to the applicable party at the addresses
first set forth above, or, as to each party, at such other address as shall be
designated by such parties in a written notice to the other party complying as
to delivery with the terms of this Section.  All such notices, requests, demands
and other communication shall be effective on the date of first attempted
delivery.
<PAGE>
 
     17.  Miscellaneous.
          ------------- 

          (a)  The powers conferred on the Secured Party hereunder are solely to
     protect its interest in the Collateral and shall not impose any duty upon
     it to exercise any such powers.  Except for the safe custody of any
     Collateral in its possession and the accounting for monies actually
     received by it hereunder, the Secured Party shall not have any duty as to
     any Collateral or as to the taking of any necessary steps to preserve any
     right of it or of the Debtor against other parties pertaining to any
     Collateral;

          (b)  No provision hereof shall be amended except by a writing signed
     by the Secured Party and the Debtor;

          (c)  Any provision of this Agreement which is prohibited or
     unenforceable shall be ineffective to the extent of such prohibition or
     unenforceability without invalidating the remaining provisions hereof;

          (d)  This Agreement shall be binding upon and shall inure to the
     benefit of the successors and assigns of the Secured Party and the Debtor;

          (e)  No delay, failure to enforce, or single or partial exercise on
     the part of the Secured Party in connection with any of its rights
     hereunder shall constitute an estoppel or waiver thereof, or preclude other
     or further exercises or enforcement thereof and no waiver of any default
     hereunder shall be a waiver of any subsequent default;

          (f)  This Agreement shall be governed as to its validity,
     interpretation and effect in accordance with the laws of the State of New
     Hampshire, except to the extent the laws of other states in which the
     Collateral may be located apply as to perfection of security interests in
     such Collateral and realization of the proceeds of such Collateral;
 
          (g)  As used herein, the term "Uniform Commercial Code" shall mean the
     Uniform Commercial Code as adopted by the State of New Hampshire, except
     that with respect to issues of perfection of security interests in
     Collateral located in other jurisdictions and realization of the proceeds
     of such Collateral while located in such jurisdiction it shall mean the
     Uniform Commercial Code as adopted by the jurisdiction in which such
     Collateral is located; and

          (h) DEBTOR AND SECURED PARTY MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY
     AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
     LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
     AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN
     CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
     STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER
     CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO ENTER INTO THIS AGREEMENT AND
     MAKE THE LOAN.

     IN WITNESS WHEREOF, the Debtor and the Secured Party have executed and
delivered this Agreement as of the day and year first above written.
<PAGE>
 
                              DEBTOR
                              ------
                              WPI GROUP, INC.,
                              WPI POWER SYSTEMS, INC.,
                              WPI MAGNETEC, INC.,
                              WPI ELECTRONICS, INC.,
                              WPI TERMIFLEX, INC.,
                              WPI MICRO PALM, INC.,
                              WPI MICRO PROCESSOR SYSTEMS, INC.,
                              WPI DECISIONKEY, INC.,
                              WPI UK HOLDING, INC.,
                              WPI UK HOLDING II, INC.,
                              WPI OYSTER TERMINALS, INC., and
                              WPI HUSKY COMPUTERS, INC.


/s/ Elizabeth M. Fogelgren    By: /s/ John W. Powers
--------------------------        -----------------------------------------
Witness                           John W. Powers, for, on behalf of, and as
                                  Duly Authorized Officer or Agent of each
                                  of the above-named corporations


                              SECURED PARTY
                              -------------

                              FLEET BANK - N H


/s/ Curtis W. Little, Jr.     By: /s/ Elizabeth M. Fogelgren
-------------------------         -------------------------------
Witness                           Elizabeth M. Fogelgren
                                  Assistant Vice President
<PAGE>
 
                               SECURITY AGREEMENT

                                   SCHEDULE I
                                   ----------

                        List of Other Business Locations
                        --------------------------------
<PAGE>
 
                               SECURITY AGREEMENT

                                  SCHEDULE II
                                  -----------

                   List of Other Liens and Encumbrances, etc.
                   ------------------------------------------
<PAGE>
 
                               SECURITY AGREEMENT

                                  SCHEDULE III
                                  ------------

                           Other Collateral Location
                           -------------------------