Dated 28 February, 2003





                          (1) THE GOVERNOR AND COMPANY
                             OF THE BANK OF SCOTLAND



                                       AND



                        (2) LONDON PACIFIC GROUP LIMITED





--------------------------------------------------------------------------------
                               SECURITY AGREEMENT
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                                 Bedell Cristin
                                  26 New Street
                                   St. Helier
                                     Jersey
                                 Channel Islands
                               PJB/KLD/087408/0051
                                     522608

<PAGE>



12

<TABLE>
<CAPTION>

                                    CONTENTS




CLAUSE                                                                                                    Page


<C>                                                                                                           <C>
1.       Interpretation...................................................................................    1

2.       Security Interests...............................................................................    3

3.       Further Assurance and Power of Attorney..........................................................    3

4.       Representations and Warranties...................................................................    4

5.       Covenants........................................................................................    5

6.       Share Rights and Restrictions....................................................................    6

7.       Events of Default and Enforcement................................................................    7

8.       Currency.........................................................................................    8

9.       New Accounts.....................................................................................    8

10.      Conditional Discharge and Retention of Collateral................................................    9

11.      Continuing Security and Preservation of Security.................................................    9

12.      Release of Security Interests....................................................................   10

13.      Set off and Combination of Accounts..............................................................   10

14.      Expenses and Indemnity...........................................................................   10

15.      Substitutions and Additions......................................................................   11

16.      Notices..........................................................................................   11

17.      Miscellaneous....................................................................................   11

</TABLE>

<PAGE>


THIS SECURITY AGREEMENT is made the 28th day of February, Two Thousand and Three
BETWEEN:

(1)  THE  GOVERNOR  AND  COMPANY  OF THE BANK OF  SCOTLAND  of 155  Bishopsgate,
     London,  EC2M 3YB (the "Secured Party" which  expression  shall include the
     Secured Party's successors and assigns); and

(2)  LONDON PACIFIC GROUP LIMITED whose  registered  office is situate at Minden
     House, 6 Minden Place, St. Helier,  Jersey,  Channel Islands (the "Obligor"
     which expression shall include the Obligor's successors and assigns).

WHEREAS:

(A)  Pursuant to a term loan and  guarantee  facility  letter dated 20 December,
     2002 from the Secured Party to the Borrowers  (the  "Facility  Agreement"),
     the  Secured  Party made  available  to the  Borrowers  an  extension  of a
     multicurrency facility reduced to US$23,000,000.

(B)  Pursuant to an  extension/waiver  letter dated 21  February,  2003 from the
     Obligor to the Secured  Party,  the Secured  Party  agreed  (inter alia) to
     waive the condition  subsequent that the Obligor procure that the shares of
     London Pacific Advisors,  Inc. are pledged to the Secured Party on or prior
     to 21 February,  2003  subject to the further  condition to the effect that
     the  Obligor  enter  into this  Agreement,  which  constitutes  a  Security
     Document.

(C)  This Agreement  includes the terms of and constitutes a security  agreement
     in accordance  with the provisions of the Security  Interests  (Jersey) Law
     1983 (the "1983 Law") and for the purposes of Article 3 thereof the Obligor
     is the debtor.

NOW BY THIS AGREEMENT:

1.       INTERPRETATION

(1)  Definitions

     In this Agreement:

     (a)  this  "Agreement"   shall  mean  and  extend  to  every  separate  and
          independent   stipulation   contained   herein   including,    without
          limitation, the parties clause and the recitals;

     (b)  "bankruptcy"  shall have the meaning  contained in the  Interpretation
          Law and shall also include any  proceedings of a similar nature in any
          place outside Jersey and "bankrupt" shall be construed accordingly;

     (c)  the  "Collateral"  means all of the Obligor's right title and interest
          in and to the Shares (including  without limitation (i) any securities
          substituted for the Shares or added thereto from time to time and (ii)
          all dividends interest and other income paid or payable after the date
          hereof on the  Shares or such  other  securities  and (iii) all stocks
          shares (and the dividends  interest and other income  thereon)  rights
          moneys or other  property  accruing  or  offered at any time by way of
          redemption  bonus  preference  option  consolidation  sub-division  or
          otherwise to or in respect of the Shares or such other securities);

<PAGE>

     (d)  the  "Company"  means  Frederick   Morgan  &  Co.  Limited  a  company
          incorporated  under the law of the Island of Jersey  whose  registered
          office is situate at Minden House, 6 Minden Place, St. Helier, Jersey,
          Channel Islands;

     (e)  "Event of Default" shall have the meaning given to it in Clause 7(1);

     (f)  the "Interpretation Law" means the Interpretation (Jersey) Law 1954;

     (g)  the "Obligation" means:

          (i)  all  present  and future  obligations  and  liabilities  (whether
               actual or  contingent,  primary or  otherwise,  and whether  owed
               jointly or severally or in any other capacity whatsoever) whether
               of payment or performance  owed by the Obligor  pursuant to or in
               connection with the Facility Agreement together with such further
               obligations and liabilities as shall hereafter be entered into by
               the Obligor in favour of the Secured Party and as shall be agreed
               between the Obligor and the Secured Party to  constitute  part of
               the Obligation;

          (ii) the obligation of the Obligor arising under this Agreement to pay
               on a full  indemnity  basis  (a) all  sums  (including  interest)
               referred to at Clause 14 and (b) all other sums whether by way of
               costs, charges, expenses, losses, interest or otherwise howsoever
               due under or in connection with this Agreement;

     (h)  the "Powers of Attorney Law" means the Powers of Attorney (Jersey) Law
          1995;

     (i)  the "Shares" means six thousand  shares of US$1.00 each in the capital
          of the Company  which shares are issued to and  registered in the name
          of the Obligor.

(2)  Facility Agreement Definitions

     Unless otherwise specifically provided herein terms defined in the Facility
Agreement when used in this  Agreement  shall bear the same meaning herein as in
the Facility Agreement.

(3)  Interpretation

     In this Agreement, unless the context otherwise requires:

     (a)  words in the singular shall include the plural and words in the plural
          shall include the singular;

     (b)  words denoting any gender shall include all genders;

     (c)  headings  are used for  convenience  only and  shall  not  affect  the
          interpretation of this Agreement;

     (d)  references  to Clauses are to be construed as references to clauses of
          this Agreement;

     (e)  references   to  any   agreement  or  document   (including,   without
          limitation,  references to this Agreement)  shall be deemed to include
          references to such  agreement or document as from time to time varied,
          amended, supplemented or replaced;
<PAGE>

     (f)  references to any enactment  shall be deemed to include  references to
          such enactment as from time to time amended,  extended,  re-enacted or
          consolidated;

     (g)  references to a person shall include any body of persons  corporate or
          unincorporate;

     (h)  words and expressions  defined in the 1983 Law, the Interpretation Law
          or the Powers of Attorney  Law shall have the same  meanings  and bear
          the same interpretations when used in this Agreement.

2. SECURITY INTERESTS

(1)  In order to provide  continuing  security for the payment or performance of
     the Obligation,  the Obligor hereby vests possession of the certificates of
     title to the  Collateral  in the Secured Party (or its agent) to the intent
     that the Secured  Party shall have a security  interest or interests in the
     Collateral in accordance with Article 2 (3) of the 1983 Law but so that the
     Secured  Party shall not in any  circumstances  incur any  liability  or be
     under any obligation whatsoever in connection with the Collateral.

(2)  Possession by the Secured Party (or its agent) of the certificates of title
     to the Collateral shall be deemed to be pursuant to this Agreement  whether
     such  possession  were  vested  before  or  after  the  execution  of  this
     Agreement.

(3)  The Obligor  shall deliver to the Secured Party (or its agent) on or before
     the date hereof duly executed  blank share transfer forms in respect of the
     Shares  so as to enable  the  Shares  to be  registered  in the name of the
     Secured  Party (or its agent)  and any  purchasers  together  with all such
     consents or waivers as may be necessary to enable, following the occurrence
     of an Event of Default, such registration to take place.


3.   FURTHER ASSURANCE AND POWER OF ATTORNEY

(1)  The Obligor  hereby agrees that, at any time and from time to time upon the
     written request of the Secured Party, it will forthwith do any and all such
     acts and things and execute and deliver any and all such  documents  as the
     Secured Party may deem desirable for  perfecting,  maintaining or enforcing
     its security interest or interests in the Collateral (whether in accordance
     with paragraph (3) of Article 2 of the 1983 Law or in accordance with other
     paragraphs of Article 2 of the 1983 Law as the Secured Party (or its agent)
     may deem  appropriate)  for vesting the Collateral in the Secured Party (or
     its agent) for selling the Collateral and vesting the same in any purchaser
     or in any  respect  whatsoever  for  obtaining  the  full  benefit  of this
     Agreement and of the rights, powers and discretions herein granted.

(2)  In accordance with Article 5 (2) (a) of the Powers of Attorney Law, for the
     purpose of  facilitating  the  exercise of the powers of the Secured  Party
     under the 1983 Law and of the powers given pursuant to this Agreement,  the
     Obligor  hereby  irrevocably  appoints  the  Secured  Party and the persons
     deriving  rights  under the  Secured  Party  jointly  and also each of them
     severally as the Obligor's  attorney  (with full power of  substitution  in
     accordance  with  Article 8 of the Powers of Attorney  Law) for the Obligor
     and in the name and on behalf of the  Obligor to execute and  complete  any
     transfers or other documents whatsoever which the Secured Party may require
     for perfecting  maintaining or enforcing its security interest or interests
     in the Collateral (whether in accordance with paragraph (3) of Article 2 of
     the 1983 Law or in  accordance  with other  paragraphs  of Article 2 of the
     1983 Law as the Secured Party (or its agent) may deem  appropriate)  or for
     vesting the  Collateral  in the Secured Party (or its agent) or for selling
     the  Collateral  and vesting the same in any  purchaser  and  generally  to
     execute and deliver or otherwise  perfect any such  transfers and to do any
     such acts and things as the  Secured  Party may
<PAGE>

     require in order to obtain the full  benefit of this  Agreement  and of the
     rights, powers and discretions herein granted. The Obligor hereby covenants
     with the Secured  Party and the persons  deriving  rights under the Secured
     Party to ratify and confirm any lawful  exercise or  purported  exercise of
     the power of attorney granted in this sub-clause(2).

(3)  The Obligor  hereby  agrees to indemnify and keep  indemnified  the Secured
     Party and the persons  deriving  rights under the Secured Party  (including
     substitute  attorneys) against all losses,  liabilities,  costs (including,
     without  limitation,  legal fees),  claims,  actions,  demands and expenses
     which may be incurred by the Secured Party or the persons  deriving  rights
     under the Secured Party  (including  substitute  attorneys) or which may be
     made or brought  against the Secured Party or the persons  deriving  rights
     under the Secured Party (including  substitute attorneys) as a result of or
     in  connection  with  anything  done by the  Secured  Party or the  persons
     deriving rights under the Secured Party  (including  substitute  attorneys)
     under or pursuant to the power of attorney granted in sub-clause (2) hereof
     other than where any such losses,  liabilities,  costs (including,  without
     limitation,  legal fees), claims,  actions,  demands or expenses arise as a
     result of the fraud,  wilful  misconduct or gross negligence of the Secured
     Party or the persons  deriving  rights under the Secured  Party  (including
     substitute attorneys).

(4)  Without  prejudice to the foregoing,  the Obligor hereby agrees that,  upon
     the written  request of the Secured Party,  it will forthwith  execute such
     further   security   agreement  or   agreements   (in  form  and  substance
     satisfactory  to the  Secured  Party) as the  Secured  Party may require in
     respect of the Collateral.

4.   REPRESENTATIONS AND WARRANTIES

     The Obligor represents and warrants to the Secured Party to the intent that
the  same  shall  be  continuing  representations  and  warranties  whilst  this
Agreement remains in place:

(1)  subject only to any security interest or interests created pursuant to this
     Agreement,  the Obligor is and will remain the sole absolute and beneficial
     owner of the Collateral;

(2)  other than as provided in this Agreement,  there are no security interests,
     charges,  liens,  rights  of set off or other  encumbrances  affecting  the
     Collateral;

(3)  the Obligor is duly incorporated under the law of its place of registration
     or  incorporation  with full power and authority to conduct its  activities
     and to enter into this  Agreement and that it has taken all such  corporate
     action as may be required to authorise it to enter into this  Agreement and
     to create any security interest or interests  hereunder and the obligations
     expressed to be assumed by the Obligor  under this  Agreement and under the
     Obligation  constitute the Obligor's legal, valid,  binding and enforceable
     obligations  and  performance of such  obligations  will not contravene any
     provision  of the  Obligor's  constitutional  documents or any law or other
     obligation whatsoever binding upon the Obligor;

(4)  the  Obligor  has not been  declared  bankrupt  or had any  judgment  taken
     against it in any court or  suffered or  committed  any act  indicative  of
     insolvency by the law of any jurisdiction;

(5)  all the  Shares  are fully  paid up and there are no moneys or  liabilities
     outstanding or payable in relation thereto;

(6)  the Shares are not subject to any options to purchase warrants  pre-emption
     or similar rights;
<PAGE>

(7)  save as provided in this Agreement,  there are no  restrictions  imposed by
     the Company's  constitutional documents or otherwise upon the voting rights
     associated with, or upon the transfer of, the Shares.

5.   COVENANTS

     The  Obligor  agrees  and  covenants  throughout  the  continuance  of this
Agreement:

(1)  to procure that the board of directors of the Company  will,  following the
     occurrence of an Event of Default and upon the request of the Secured Party
     (or its agent), forthwith register the Secured Party (or its agent) and any
     purchasers of the Collateral as shareholders of the Company and issue share
     certificates in respect thereof;

(2)  not to assign or otherwise  create any  security  interest,  charge,  lien,
     right of set off or other encumbrance  affecting the Collateral without the
     prior written consent of the Secured Party;

(3)  not to sell,  transfer or otherwise dispose of the benefit of the Obligor's
     interest  in the  Collateral  or to agree to do the same  without the prior
     written consent of the Secured Party;

(4)  not to take any  action  which  might  (and not to omit to take any  action
     where any such  omission to act might)  impair the  interest of the Secured
     Party or the Obligor or both of them in the Collateral;

(5)  to pay duly and promptly all calls, instalments or other payments which may
     from time to time be made or become  due in respect  of the  Collateral  in
     default of which the Secured  Party may if the Secured  Party with absolute
     discretion thinks fit make any such payments on behalf of the Obligor.  All
     such payments made by the Secured Party shall be repayable on demand by the
     Obligor to the Secured Party together with all costs and expenses  incurred
     by the Secured Party.  The Obligor agrees to pay interest on such payments,
     costs and  expenses  from the date of payment by the  Secured  Party to the
     date of payment by the  Obligor to the Secured  Party at the Default  Rate,
     both before and after any judgment;

(6)  not to do or cause  or  permit  to be done  anything  which in the  Secured
     Party's  opinion may in any way adversely  affect any security  interest or
     interests  created pursuant to this Agreement or prejudice the value of the
     security hereby created,  and without  limitation,  not without the Secured
     Party's  prior  written  consent to take or permit the taking of any action
     whereby  the rights  attaching  to the  Collateral  are altered or diluted,
     whether  by the  issue  of  further  shares  in the  Company  or  otherwise
     howsoever.

6.   SHARE RIGHTS AND RESTRICTIONS

     The Secured Party and Obligor agree:

(1)  that,  notwithstanding  that the Obligor  retains the right to vote (unless
     and until an Event of Default  occurs) in relation to the  Collateral,  the
     Obligor shall not (without the prior written  consent of the Secured Party)
     vote in  favour of any  resolution  the  effect of which  will be to affect
     adversely  the  value  of the  Collateral  or in any way to  prejudice  the
     security  interest or  interests  hereby  created or the  interests  of the
     Secured Party hereunder;

(2)  upon the  occurrence  of an Event of  Default,  the  Secured  Party (or its
     agent)  shall have the right to vote in respect of the  Collateral  and the
     Obligor  hereby  irrevocably  appoints the Secured  Party its proxy in that
     regard, but so that the Secured Party shall not in any


<PAGE>

     circumstances incur any liability or be under any obligation  whatsoever as
     a result thereof and, without limitation,  the Secured Party shall be under
     no obligation to exercise its right to vote in respect of the Collateral in
     any manner or at all  following  the  occurrence of an Event of Default and
     shall incur no liability either for doing so or for failing so to do;

(3)  the Secured  Party  agrees  that until an Event of Default  shall occur the
     Obligor  shall be  entitled to receive all  dividends,  interest  and other
     income  paid or payable on the  Collateral  (and the  Secured  Party  shall
     account to the  Obligor  therefor  if and to the  extent  that the same are
     received by the Secured  Party,  retaining  therefrom  only such amount (if
     any) in respect of which the  Secured  Party shall be liable to account for
     tax  and  the  reasonable  expenses  of the  Secured  Party  in  connection
     therewith and with such accounting);  and this applies  notwithstanding the
     fact that such dividends,  interest and other income constitute part of the
     Collateral;

(4)  all stocks,  shares (and the dividends  interest and other income thereon),
     rights,  moneys or other property accruing or offered at any time by way of
     redemption,  bonus,  preference,  option,  consolidation,  sub-division  or
     otherwise  to or in  respect of the  Shares or any  securities  substituted
     therefor or added  thereto  shall accrue or be offered to the Secured Party
     and shall  form part of the  Collateral  and the  Obligor  agrees  that the
     further  assurance  and power of  attorney  provisions  set out in Clause 3
     shall apply thereto;

(5)  without limitation,

     (i)  if any such property as is referred to in sub-clause (4) hereof should
          at any time during the continuance of this Agreement; and/or

     (ii) if any such  property  as is  referred  to in  sub-clause  (3)  hereof
          should,  after the  occurrence of an Event of Default,

     be received by the Obligor (or by some person on its behalf) such  property
     shall be held by the  Obligor  (or such  person)  on trust for the  Secured
     Party and  immediately  be paid or transferred to the Secured Party (or its
     agent);

(6)  the Obligor shall continue to be responsible  (notwithstanding  anything to
     the contrary  herein  contained)  for all  liabilities  and  obligations in
     respect of the  Collateral and the Secured Party shall have no liability or
     obligation  in  relation  to the  Collateral  or any  matter or  proceeding
     arising out of or related thereto and, without  limitation,  shall be under
     no  liability to the Obligor for failure to present any  interest,  coupon,
     bond or stock which may be called or drawn for  repayment or  redemption or
     to pay any calls, instalments or other payments which may become payable on
     or to accept any offer  relating to the Collateral or to notify the Obligor
     of any such matters whether or not such failure is caused or contributed to
     by  negligence on the part of the Secured Party or of any employee or agent
     of the Secured Party.

7.   EVENTS OF DEFAULT AND ENFORCEMENT

(1)  The  occurrence  of any of the  following  shall  constitute  an  Event  of
     Default:

     (a)  a breach of any term hereof or of the Obligation;

     (b)  any  representation,  warranty,  covenant or statement  in  connection
          herewith  or with the  Obligation  made by the Obligor or any agent of
          the  Obligor  being or  becoming  incorrect  or being  breached in any
          material respect;
<PAGE>

     (c)  the  failure  of the  Obligor  to  disclose  any  matter  which in the
          reasonable opinion of the Secured Party is material to the Obligation,
          the Collateral or this Agreement;

     (d)  the  failure  of the  Obligor to pay any sum for the time being due to
          the Secured Party by virtue hereof or of the Obligation;

     (e)  the Obligor  becoming  bankrupt or  suffering  or  committing  any act
          indicative of bankruptcy or insolvency by the law of any jurisdiction;

     (f)  the Obligor entering into composition with creditors of the Obligor or
          being  the  subject  of  any  procedure   analogous  to   liquidation,
          dissolution or receivership in any jurisdiction;

     (g)  any  distress or  execution  or other legal  process  being  levied or
          enforced upon any property of the Obligor in any part of the world.

(2)  Upon the occurrence of an Event of Default, subject to Articles 6 (5) and 8
     (3) of the 1983 Law, the Secured Party without having to apply to the Royal
     Court  for  authority  to do so  shall  have  the  power  of  sale  of  the
     Collateral.

(3)  Such power of sale shall be exercisable by the Secured Party in such manner
     as the Secured Party may in its absolute  discretion  deem  appropriate and
     with all the powers of a beneficial owner. Without limitation,  the Secured
     Party may sell or  dispose of the whole or part of the  Collateral  at such
     times in such manner and  generally  on such terms and  conditions  and for
     such  consideration  as the Secured  Party may think fit.  Any such sale or
     disposal may be for cash, debentures or other obligations,  shares, stocks,
     securities or other valuable  consideration and may be payable  immediately
     or by  instalments  spread over such period as the Secured  Party may think
     fit.  The  Secured  Party  shall have the right of  recourse  to any moneys
     forming part of the  Collateral and may apply such moneys in the payment or
     discharge of the Obligation as if such moneys were proceeds of sale.

(4)  No  purchaser or other person shall be bound or concerned to see or enquire
     whether  the right of the Secured  Party to exercise  the power of sale has
     arisen  or not or be  concerned  with  notice to the  contrary  or with the
     propriety of the exercise or purported exercise of such power.

(5)  Subject to  sub-clause  (6) of this Clause,  the proceeds of an exercise by
     the Secured Party of the power of sale shall be applied in accordance  with
     the  provisions  of Article 8 (6) (b) of the 1983 Law and the Secured Party
     may determine the order in which  individual  obligations  and  liabilities
     comprising the Obligation are paid or discharged.

(6)  Any amount received or recovered by the Secured Party in respect of any sum
     due or payable by the  Obligor  pursuant to the  Obligation  and any amount
     received  or  recovered  pursuant  to this  Agreement  may be  placed  in a
     suspense account for so long as the Secured Party thinks fit.

(7)  Subject to Clause 10, if any balance  remains  after the  discharge  of the
     Obligation  following an exercise by the Secured Party of the power of sale
     such balance  shall be placed in an account  with the Secured  Party in the
     name  of  the  Obligor  and  the  Secured   Party  shall  have  no  greater
     responsibility with respect thereto than it has in the normal course of its
     business as a banker holding an account for its customer.
<PAGE>

(8)  Subject to  Article 8 (6) (a) of the 1983 Law,  the  Obligor  shall have no
     right or claim  against the Secured Party in respect of loss arising out of
     a sale of or recourse against the Collateral pursuant hereto howsoever such
     loss  may have  been  caused  and in the  case of a sale of the  Collateral
     whether or not a better price might have been obtained.

8.   CURRENCY

(1)  All moneys  received or held by the Secured Party under this  Agreement may
     from time to time after an Event of Default has occurred be converted  into
     such other currency as the Secured Party  considers  necessary or desirable
     to cover the  Obligation  or any part thereof at the then  prevailing  spot
     rate of exchange of the Secured  Party (as  conclusively  determined by the
     Secured  Party)  for  purchasing  that  other  currency  with the  existing
     currency.

(2)  After the  occurrence of an Event of Default,  the Secured Party may in its
     absolute  discretion  without notice to the Obligor purchase so much of any
     currency as the Secured Party considers necessary or desirable to cover the
     Obligation or any part thereof at the then prevailing spot rate of exchange
     of the Secured Party (as conclusively  determined by the Secured Party) for
     purchasing  such currency  with  sterling and the Obligor  hereby agrees to
     indemnify  the Secured  Party against the full cost incurred by the Secured
     Party for such purchase.

(3)  The Secured Party shall not be liable to the Obligor for any loss resulting
     from any  fluctuation in exchange rates before or after the exercise of the
     foregoing powers.

(4)  Subject to Clause 10, no payment to the Secured  Party shall  discharge the
     Obligation  in whole or in part  unless and until the  Secured  Party shall
     have received payment in full in the currency or currencies provided for by
     the  Obligation  and to the extent that the Obligation is not discharged in
     full the  Secured  Party  shall  have a  further  separate  cause of action
     against the Obligor and shall be entitled to enforce this  Agreement  until
     the Obligation is discharged in full.

9.   NEW ACCOUNTS

     If the Secured Party receives  notice of any subsequent  security  interest
charge  lien right of set off or other  encumbrance  or disposal  affecting  the
Collateral or any part thereof or interest therein, the Secured Party may open a
new account for the  Obligor.  If the Secured  Party does not open a new account
then,  unless the Secured Party gives express  written notice to the contrary to
the Obligor,  it shall  nevertheless be treated as if it had done so at the time
when it received  such notice and as from that time all  payments  made by or on
behalf of the  Obligor to the  Secured  Party shall be credited or be treated as
having  been  credited  to the new  account  and shall not operate to reduce the
amount  outstanding  under  the  Obligation  at the time when it  received  such
notice.

10.  CONDITIONAL DISCHARGE AND RETENTION OF COLLATERAL

     Any  discharge of the  Obligation  in whole or in part  hereunder  shall be
conditional on no security,  payment or other  disposition  given or made by the
Obligor to the  Secured  Party being  avoided or being  required to be repaid on
bankruptcy,  liquidation or otherwise howsoever and this Agreement, the security
interest or interests  created  hereunder in the  Collateral  and the Obligation
shall  remain in place until all time periods  during  which any such  security,
payment or other  disposition  might be so avoided or required to be repaid have
passed  and the  Obligation  has  been  unconditionally  and  irrevocably  paid,
performed or otherwise discharged in full.

11.  CONTINUING SECURITY AND PRESERVATION OF SECURITY
<PAGE>

(1)  The security interest or interests hereunder shall:

     (a)  continue in existence and shall not  terminate  until such time as the
          Obligation has been unconditionally and irrevocably paid, performed or
          otherwise discharged in full and the applicable  provisions of Article
          9 of the 1983 Law have been satisfied;

     (b)  constitute  a continuing  security  notwithstanding  any  intermediate
          payment or  settlement of account or any other matter  whatsoever  and
          shall  be in  addition  to and  shall  not  merge  with  or  otherwise
          prejudice  or affect any  contractual  or other right or remedy or any
          guarantee,  indemnity, lien, set off, combination,  security interest,
          mortgage,  charge or other  security or other  right now or  hereafter
          held by or available to the Secured  Party and shall not be prejudiced
          or  affected  thereby or by the  invalidity  thereof or by the Secured
          Party now or hereafter dealing with, exchanging, releasing, varying or
          abstaining  from perfecting or enforcing any of the same or any rights
          which the Secured  Party may now or hereafter  have or giving time for
          payment or indulgence or  compounding  with any other person liable in
          respect of the Obligation;

     (c)  not be discharged by the death,  bankruptcy,  insolvency or incapacity
          of the Obligor or by any change in the  constitution of the Obligor or
          by the Obligor becoming involved in any amalgamation,  reorganisation,
          reconstruction or merger;

     (d)  not be affected by any variation of the terms of the Obligation.

(2)  A  certificate  of the Secured  Party setting forth the amount due from the
     Obligor under the Obligation or pursuant to this Agreement howsoever shall,
     as against the Obligor,  in the absence of manifest  error,  be  conclusive
     evidence of such amount.

(3)  No failure or delay by the Secured Party in exercising  any right or remedy
     shall operate as a waiver thereof nor shall any single or partial  exercise
     or waiver  of any right or remedy  preclude  its  further  exercise  or the
     exercise of any other right or remedy.

(4)  This Agreement and the  obligations of the Obligor  hereunder  shall not be
     affected by any act, omission or circumstances which but for this provision
     might  operate to release or  otherwise  exonerate  the  Obligor  from this
     Agreement or such obligations.

12.  RELEASE OF SECURITY INTERESTS

     Upon unconditional and irrevocable payment,  performance or other discharge
of the Obligation in full the Secured Party shall,  subject to the rights of any
persons  for the time being  entitled  thereto in priority to the Obligor or any
rights of set off, at the request and cost of the Obligor release to the Obligor
the  certificates  of title to so much (if any) of the  Collateral  as shall not
have  been  applied  by the  Secured  Party in or  towards  satisfaction  of the
Obligation.

13.  SET OFF AND COMBINATION OF ACCOUNTS

(1)  The Secured Party shall be entitled (as well before as after the occurrence
     of an Event of Default),  so long as the Obligation remains  outstanding in
     whole or in part,  to combine or  consolidate  all moneys now or  hereafter
     standing to the Obligor's credit in any account held with the Secured Party
     (whether in the Obligor's  sole name or in joint names with the Obligor and
     any other  person or persons or otherwise  howsoever)  whether a current or
     other  account and  wheresoever  situate and to set off or transfer any sum
     standing  to the  credit of any one or more  such  accounts  in or  towards
     satisfaction
<PAGE>

     of the  Obligation  whether the  Obligation or any part thereof be present,
     future,  actual,  contingent,  primary,  collateral,  several  or  joint or
     otherwise howsoever.

(2)  Where such  combination,  consolidation,  set off or transfer  requires the
     conversion  of  one  currency  into  another,   such  conversion  shall  be
     calculated  at the then  prevailing  spot rate of  exchange  of the Secured
     Party (as conclusively  determined by the Secured Party) for purchasing the
     latter currency with the former currency.

14.  EXPENSES AND INDEMNITY

(1)  The Obligor agrees to pay to the Secured Party on demand all costs, charges
     and expenses whatsoever  (including,  without limitation,  all professional
     fees and  disbursements  and all taxes)  incurred by the  Secured  Party in
     negotiating,  preparing,  executing  and  administering  this  Agreement or
     perfecting  the  security  interest or  interests  created  under it and in
     connection with the enforcement,  preservation or attempted preservation of
     rights of the Secured Party under this Agreement.

(2)  All such costs, charges and expenses shall be paid by the Obligor on a full
     indemnity  basis with interest at the Default Rate from the date of payment
     by the  Secured  Party to the date of payment by the Obligor to the Secured
     Party, both before and after any judgment.

(3)  The Obligor  agrees to indemnify  and hold  harmless the Secured Party from
     and against all losses, actions, claims, expenses,  demands and liabilities
     incurred by the Secured Party in the exercise or purported  exercise of the
     powers herein  contained or resulting from any breach by the Obligor of its
     obligations  hereunder  and/or under the  Obligation  other than where such
     losses,  actions,  claims,  expenses,  demands and  liabilities  arise as a
     result of the fraud,  wilful  misconduct or gross negligence of the Secured
     Party.  The Obligor  shall pay interest on any sums demanded by the Secured
     Party  hereunder at the Default Rate from the date of demand to the date of
     payment, both before and after any judgment.

(4)  The Secured Party shall not be liable for any losses  arising in connection
     with the  exercise or purported  exercise of any of its rights,  powers and
     discretions hereunder,  save those arising as a result of the fraud, wilful
     misconduct or gross  negligence of the Secured Party, and the Secured Party
     shall not be liable to account for anything except actual receipts.
<PAGE>

15.  SUBSTITUTIONS AND ADDITIONS

     If the Obligor  shall make a request to the Secured  Party to substitute or
add  property  for or to  the  property  from  time  to  time  constituting  the
Collateral,  the Secured  Party  shall have  absolute  discretion  to approve or
refuse such  request.  If the Secured  Party agrees to any such request then the
additional or substituted property shall thenceforth form part of the Collateral
and shall be subject to a security interest or interests  hereunder (pursuant to
whichever paragraph or paragraphs of Article 2 of the 1983 Law may be considered
by the Secured  Party to be  appropriate)  and the Obligor  shall do any and all
such acts and things and execute and deliver any and all such  documents  as the
Secured Party may deem  desirable in order to perfect such security  interest or
interests.

16.  NOTICES

(1)  Any notice or other document  required or authorised  hereby or by the 1983
     Law may be served on the  parties  hereto at the  following  addresses  and
     facsimile numbers and upon the persons specified:

     (a)  for the Secured Party:
                Address:                155  Bishopsgate,
                                        London,
                                        EC2M 3YB
                Facsimile number:       020 7012 9459
                Attention:              G. Mackie

     (b)  for the Obligor:
                Address:                Minden House,
                                        6 Minden Place,
                                        St. Helier,
                                        Jersey,  Channel Islands
                Facsimile  number:      01534 607799
                Attention:              Company Secretary

(2)  Any such notice or other document shall be deemed to be duly served:

     (a)  if delivered by hand, at the time of delivery;

     (b)  if sent by post, at noon on the next Business Day following the day of
          posting;

     (c)  if transmitted  by facsimile,  at the time of  transmission;

     provided that,  where delivery or transmission  occurs after 6.00 p.m. on a
     Business Day or occurs on a day which is not a Business Day,  service shall
     be deemed to occur at 9.00 a.m. on the next Business Day.

17.  MISCELLANEOUS

(1)  Each of the  provisions of this Agreement is separate and distinct from the
     others  and if at any time  one or more of such  provisions  is or  becomes
     invalid,   illegal   or   unenforceable,   the   validity,   legality   and
     enforceability  of the remaining  provisions hereof shall not in any way be
     affected or impaired thereby.

(2)  This Agreement may be executed in counterparts both of which taken together
     shall constitute a single agreement.

(3)  Unless the context otherwise  requires,  where the Obligor comprises two or
     more persons, all agreements, warranties, undertakings and covenants on the
     part of the Obligor are given  jointly and severally and shall be construed
     accordingly.
<PAGE>

(4)  The rights of the Secured  Party shall not be affected or prejudiced in any
     way  by  any  change  in  its  constitution  or by  its  reconstruction  or
     reorganisation  or its absorption in or amalgamation  with any other person
     or the acquisition of all or part of its undertaking by any other person.

(5)  The Secured Party shall be entitled to assign all or any part of its right,
     title, interest and benefit under this Agreement and for such purpose shall
     be entitled and  authorised  to disclose  any  information  concerning  the
     Obligor to any proposed assignee,  provided that any such proposed assignee
     undertakes  to the Secured  Party to maintain the  confidentiality  of such
     information.

(6)  The  Obligor  may not,  without  the prior  written  consent of the Secured
     Party,  assign  transfer,  novate or dispose of any of, or any interest in,
     its rights and obligations under this Agreement.

(7)  This Agreement shall be governed by and construed in accordance with Jersey
     law and the parties hereto submit to the non-exclusive  jurisdiction of the
     courts of the Island of Jersey.

IN WITNESS WHEREOF the parties hereto have entered into this Agreement on the
date first above written.



SIGNED by                                            )
for and on behalf of                                 )
THE GOVERNOR AND COMPANY OF         )
THE BANK OF SCOTLAND                )





SIGNED by John Clennett and Ronald W. Green)
for and on behalf of                                 )
LONDON PACIFIC GROUP LIMITED        )




Director



Secretary