Document:

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                                                                    Exhibit 10.4

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

1.       IDENTIFICATION.
         ---------------

         This Security Agreement (the "Agreement"), dated as of February 16,
2006, is entered into by and between One Voice Technologies, Inc., a Nevada
corporation ("Debtor"), and Eric Weisblum, as collateral agent acting in the
manner and to the extent described in the Collateral Agent Agreement defined
below (the "Collateral Agent"), for the benefit of the parties identified on
Schedule A hereto (collectively, the "Lenders").

2.       RECITALS.
         ---------

         2.1 The Lenders have made and will be making loans to Debtor (the
"Loans"). It is beneficial to Debtor that the Loans were made and will be made.

         2.2 The Loans are and will be evidenced by certain convertible
promissory notes (each a "Convertible Note") issued by Debtor on or about March
18, 2005 and July 13, 2005 and after the date of this Agreement pursuant to
subscription agreements (each a "Subscription Agreement") to which Debtor and
Lenders are parties. The Convertible Notes are further identified on Schedule A
hereto and were and will be executed by Debtor as "Borrower" or "Debtor" for the
benefit of each Lender as the "Holder" or "Lender" thereof. Subject to the
approval of the Collateral Agent, Schedule A hereto may be amended to include
such other Lenders who become parties hereto and sign this Agreement, the
Collateral Agent Agreement and any other agreement reasonably requested by the
Collateral Agent.

         2.3 In consideration of the Loans made and to be made by Lenders to
Debtor and for other good and valuable consideration, and as security for the
performance by Debtor of its obligations under the Convertible Notes and as
security for the repayment of the Loans and all other sums due from Debtor to
Lenders arising under the Transaction Documents (as defined in the Subscription
Agreement), and any other agreement between or among them (collectively, the
"Obligations"), Debtor, for good and valuable consideration, receipt of which is
acknowledged, has agreed to grant to the Collateral Agent, for the benefit of
the Lenders, a security interest in the Collateral (as such term is hereinafter
defined), on the terms and conditions hereinafter set forth.

         2.4 The Lenders have appointed Eric Weisblum as Collateral Agent
pursuant to that certain Collateral Agent Agreement dated at or about February
16, 2006 ("Collateral Agent Agreement"), among the Lenders and Collateral Agent.

         2.5 The Debtor and the Lenders agree to expeditiously negotiate in good
faith the investment by Lenders in additional convertible notes of Debtor, which
such notes will become part of the Obligations.

         2.6 The following defined terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents, Equipment, General
Intangibles, Instruments, Inventory and Proceeds.

3.       GRANT OF GENERAL SECURITY INTEREST IN COLLATERAL.
         -------------------------------------------------

         3.1 As security for the Obligations of Debtor, Debtor hereby grants the
Collateral Agent, for the benefit of the Lenders, a security interest in the
Collateral.

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         3.2 "Collateral" shall mean all of the following property of Debtor:

                  (A) All now owned and hereafter acquired right, title and
interest of Debtor in, to and in respect of all Accounts, Goods, real or
personal property, all present and future books and records relating to the
foregoing and all products and Proceeds of the foregoing, and as set forth
below:

                           (i) ACCOUNTS: All now owned and hereafter acquired
right, title and interest of Debtor in, to and in respect of all: Accounts,
interests in goods represented by Accounts, returned, reclaimed or repossessed
goods with respect thereto and rights as an unpaid vendor; contract rights;
Chattel Paper; investment property; General Intangibles (including but not
limited to, tax and duty claims and refunds, registered and unregistered
patents, trademarks, service marks, certificates, copyrights trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, chooses
in action and other claims, and existing and future leasehold interests in
equipment, real estate and fixtures); Documents; Instruments; letters of credit,
bankers' acceptances or guaranties; cash moneys, deposits; securities, bank
accounts, deposit accounts, credits and other property now or hereafter owned or
held in any capacity by Debtor, as well as its affiliates, agreements or
property securing or relating to any of the items referred to above;

                           (ii) GOODS: All now owned and hereafter acquired
right, title and interest of Debtor in, to and in respect of goods, including,
but not limited to:

                                    (a) All Inventory, wherever located, whether
now owned or hereafter acquired, of whatever kind, nature or description,
including all raw materials, work-in-process, finished goods, and materials to
be used or consumed in Debtor' business; finished goods, timber cut or to be
cut, oil, gas, hydrocarbons, and minerals extracted or to be extracted, and all
names or marks affixed to or to be affixed thereto for purposes of selling same
by the seller, manufacturer, lessor or licensor thereof and all Inventory which
may be returned to Debtor by its customers or repossessed by Debtor and all of
Debtor' right, title and interest in and to the foregoing (including all of
Debtor' rights as a seller of goods);

                                    (b) All Equipment and fixtures, wherever
located, whether now owned or hereafter acquired, including, without limitation,
all machinery, motor vehicles, furniture and fixtures, and any and all
additions, substitutions, replacements (including spare parts), and accessions
thereof and thereto (including, but not limited to Debtor' rights to acquire any
of the foregoing, whether by exercise of a purchase option or otherwise);

                           (iii) PROPERTY: All now owned and hereafter acquired
right, title and interests of Debtor in, to and in respect of any real or other
personal property in or upon which Debtor has or may hereafter have a security
interest, lien or right of setoff;

                           (iv) BOOKS AND RECORDS: All present and future books
and records relating to any of the above including, without limitation, all
computer programs, printed output and computer readable data in the possession
or control of the Debtor, any computer service bureau or other third party;

                           (v) Patents: Without limiting the foregoing, all
right, title, and interest in, and to and under United States Patent No.
6434524; United States Patent No. 6499013; and United States Patent No.:
6532444, inclusive of all rights and letters of the patent and all other patent
registrations and recordings in the U.S. Patent and Trademark Office; and

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                           (vi) PRODUCTS AND PROCEEDS: All products and Proceeds
of the foregoing in whatever form and wherever located, including, without
limitation, all insurance proceeds and all claims against third parties for loss
or destruction of or damage to any of the foregoing.

                  (B) All now owned and hereafter acquired right, title and
interest of Debtor in, to and in respect of the following:

                           (i) the shares of stock, partnership interests,
member interests or other equity interests at any time and from time to time
acquired by Debtor of any and all entities now or hereafter existing, all or a
portion of such stock or other equity interests which are acquired by such
entities at any time (such entities, together with the existing issuers, being
hereinafter referred to collectively as the "Pledged Issuers" and individually
as a "Pledged Issuer"), the certificates representing such shares, partnership
interests, member interests or other interests all options and other rights,
contractual or otherwise, in respect thereof and all dividends, distributions,
cash, instruments, investment property and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shares, partnership interests, member interests or other
interests;

                           (ii) all additional shares of stock, partnership
interests, member interests or other equity interests from time to time acquired
by Debtor, of any Pledged Issuer, the certificates representing such additional
shares, all options and other rights, contractual or otherwise, in respect
thereof and all dividends, distributions, cash, instruments, investment property
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
shares, interests or equity; and

                           (iii) all security entitlements of Debtor in, and all
Proceeds of any and all of the foregoing in each case, whether now owned or
hereafter acquired by Debtor and howsoever its interest therein may arise or
appear (whether by ownership, security interest, lien, claim or otherwise).

         3.3 The Collateral Agent is hereby specifically authorized after the
occurrence of in an Event of Default (as defined herein), to transfer any
Collateral into the name of the Collateral Agent and to take any and all action
deemed advisable to the Collateral Agent to remove any transfer restrictions
affecting the Collateral.

         3.4 It is a precondition to the granting of the security interest
described herein that within two business days after the receipt by Alpha
Capital Aktiengesellschaft of proof of filing of an amendment to the SB-2
Registration Statement filed by the Debtor on April 18, 2005 (as amended)
relating to the reduction of the Purchase Price of 14,300,000 Class A Warrants
issued on July 13, 2005 (as described in the Transaction Documents) to $0.014,
that Alpha Capital Aktiengesellschaft exercise such 14,300,000 Class A Warrants
at a Purchase Price of $0.014 per share of Common Stock.

4.       PERFECTION OF SECURITY INTEREST.
         --------------------------------

         4.1 Debtor shall prepare, execute and deliver to the Collateral Agent
UCC-1 Financing Statements. The Collateral Agent is instructed to prepare and
file at Debtor's cost and expense, financing statements in such jurisdictions
deemed advisable to the Collateral Agent, including but not limited to the State
of Nevada. The Financing Statements are deemed to have been filed for the
benefit of the Collateral Agent and Lenders identified on Schedule A hereto.

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         4.2 In the event of Default, all other certificates and instruments
constituting Collateral from time to time required to be pledged to Collateral
Agent pursuant to the terms hereof (the "Additional Collateral") shall be
delivered to Collateral Agent promptly upon receipt thereof by or on behalf of
Debtor. All such certificates and instruments shall be held by or on behalf of
Collateral Agent pursuant hereto and shall be delivered in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment or undated stock powers executed in blank, all in form
and substance satisfactory to Collateral Agent. If any Collateral consists of
uncertificated securities, unless the immediately following sentence is
applicable thereto, Debtor shall cause Collateral Agent (or its custodian,
nominee or other designee) to become the registered holder thereof, or cause
each issuer of such securities to agree that it will comply with instructions
originated by Collateral Agent with respect to such securities without further
consent by Debtor. If any Collateral consists of security entitlements, Debtor
shall transfer such security entitlements to Collateral Agent (or its custodian,
nominee or other designee) or cause the applicable securities intermediary to
agree that it will comply with entitlement orders by Collateral Agent without
further consent by Debtor.

         4.3 Within five (5) days after the receipt by Debtor of any such
Additional Collateral, a Pledge Amendment, duly executed by Debtor, in
substantially the form of Annex I hereto (a "Pledge Amendment"), shall be
delivered to Collateral Agent in respect of the Additional Collateral to be
pledged pursuant to this Agreement. Debtor hereby authorizes Collateral Agent to
attach each Pledge Amendment to this Agreement and agrees that all certificates
or instruments listed on any Pledge Amendment delivered to Collateral Agent
shall for all purposes hereunder constitute Collateral.

         4.4 If Debtor shall receive, by virtue of Debtor being or having been
an owner of any Collateral, any (i) stock certificate (including, without
limitation, any certificate representing a stock dividend or distribution in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off or
split-off), promissory note or other instrument, (ii) option or right, whether
as an addition to, substitution for, or in exchange for, any Collateral, or
otherwise, (iii) dividends payable in cash (except such dividends permitted to
be retained by Debtor pursuant to Section 5.2 hereof) or in securities or other
property or (iv) dividends or other distributions in connection with a partial
or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in surplus, Debtor shall receive such stock
certificate, promissory note, instrument, option, right, payment or distribution
in trust for the benefit of Collateral Agent and, in the event of Default, shall
segregate it from Debtor's other property and shall deliver it forthwith to
Collateral Agent, in the exact form received, with any necessary endorsement
and/or appropriate stock powers duly executed in blank, to be held by Collateral
Agent as Collateral and as further collateral security for the Obligations.

5.       DISTRIBUTION ON LIQUIDATION.
         ----------------------------

         5.1 If any sum is paid as a liquidating distribution on or with respect
to the Collateral, Debtor shall deliver same to the Collateral Agent to be
applied to the Obligations, then due, in accordance with the terms of the
Convertible Notes.

         5.2 So long as no Event of Default exists, Debtor shall be entitled (i)
to exercise all voting power pertaining to any of the Collateral, provided such
exercise is not contrary to the interests of the Lenders and does not impair the
Collateral and (ii) may receive and retain any and all dividends, interest
payments or other distributions paid in respect of the Collateral.

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         5.3. Upon the occurrence and during the continuation of an Event of
Default, all rights of Debtor, upon notice given by Collateral Agent, to
exercise the voting power and receive payments, which it would otherwise be
entitled to pursuant to Section 5.2, shall cease and all such rights shall
thereupon become vested in Collateral Agent, which shall thereupon have the sole
right to exercise such voting power and receive such payments.

         5.4 Subject to Section 5.2, all dividends, distributions, interest and
other payments which are received by Debtor contrary to the provisions of
Section 5.3 shall be received in trust for the benefit of Collateral Agent,
shall be segregated from other funds of Debtor, and shall be forthwith paid over
to Collateral Agent as Collateral in the exact form received with any necessary
endorsement and/or appropriate stock powers duly executed in blank, to be held
by Collateral Agent as Collateral and as further collateral security for the
Obligations.

6.       FURTHER ACTION BY DEBTOR; COVENANTS AND WARRANTIES.
         ---------------------------------------------------

         6.1 Collateral Agent at all times shall have a perfected security
interest in the Collateral. Debtor has and will continue to have full title to
the Collateral free from any liens, leases, encumbrances, judgments or other
claims. Collateral Agent's security interest in the Collateral constitutes and
will continue to constitute a first, prior and indefeasible security interest in
favor of Collateral Agent. Debtor will do all acts and things, and will execute
and file all instruments (including, but not limited to, security agreements,
financing statements, continuation statements, etc.) reasonably requested by
Collateral Agent to establish, maintain and continue the perfected security
interest of Collateral Agent in the Collateral, and will promptly on demand, pay
all costs and expenses of filing and recording, including the costs of any
searches reasonably deemed necessary by Collateral Agent from time to time to
establish and determine the validity and the continuing perfection of the
security interest of Collateral Agent, and also pay all other claims and charges
that, in the opinion of Collateral Agent, exercised in good faith, are
reasonably likely to materially prejudice, imperil or otherwise affect the
Collateral or Collateral Agent's or Lenders' security interests therein.

         6.2 Other than in the ordinary course of business, and except for
Collateral which is substituted by assets of identical or greater value or which
has become obsolete or is of inconsequential in value, Debtor will not sell,
transfer, assign or pledge those items of Collateral (or allow any such items to
be sold, transferred, assigned or pledged), without the prior written consent of
Collateral Agent other than a transfer of the Collateral to a wholly-owned
subsidiary on prior notice to Collateral Agent, and provided the Collateral
remains subject to the security interest herein described. Such consent will not
be unreasonably withheld. Although Proceeds of Collateral are covered by this
Agreement, this shall not be construed to mean that Collateral Agent consents to
any sale of the Collateral, except as provided herein. Sales of Collateral in
the ordinary course of business shall be free of the security interest of
Lenders and Collateral Agent and Lenders and Collateral Agent shall promptly
execute such documents (including without limitation releases and termination
statements) as may be required by Debtor to evidence or effectuate the same.

         6.3 Debtor will, at all reasonable times and upon reasonable notice,
allow Collateral Agent or its representatives free and complete access to the
Collateral and all of Debtor's records which in any way relate to the
Collateral, for such inspection and examination as Collateral Agent reasonably
deems necessary.

         6.4 Debtor, at its sole cost and expense, will protect and defend this
Agreement, all of the rights of Collateral Agent and Lenders hereunder, and the
Collateral against the claims and demands of all other persons.

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         6.5 Debtor will promptly notify Collateral Agent of any levy, distraint
or other seizure by legal process or otherwise of any part of the Collateral,
and of any threatened or filed claims or proceedings that are reasonably likely
to affect or impair any of the rights of Collateral Agent under this Agreement
in any material respect.

         6.6 Debtor, at its own expense, at the request of Collateral Agent,
will obtain and maintain in force insurance policies covering losses or damage
to those items of Collateral which constitute physical personal property. The
insurance policies to be obtained by Debtor shall be in form and amounts
reasonably acceptable to Collateral Agent. Debtor shall make the Collateral
Agent first a loss payee thereon to the extent of its interest in the
Collateral. Collateral Agent is hereby irrevocably (until the Obligations are
paid in full) appointed Debtor' attorney-in-fact to endorse any check or draft
that may be payable to Debtor so that Collateral Agent may collect the proceeds
payable for any loss under such insurance. The proceeds of such insurance
(subject to the rights of senior secured parties), less any costs and expenses
incurred or paid by Collateral Agent in the collection thereof, shall be applied
either toward the cost of the repair or replacement of the items damaged or
destroyed, or on account of any sums secured hereby, whether or not then due or
payable.

         6.7 Collateral Agent may, at its option, and without any obligation to
do so, pay, perform and discharge any and all amounts, costs, expenses and
liabilities herein agreed to be paid or performed by Debtor. Upon Debtor's
failure to do so, all amounts expended by Collateral Agent in so doing shall
become part of the Obligations secured hereby, and shall be immediately due and
payable by Debtor to Collateral Agent upon demand and shall bear interest at the
lesser of 15% per annum or the highest legal amount from the dates of such
expenditures until paid.

         6.8 Upon the request of Collateral Agent, Debtor will furnish to
Collateral Agent within five (5) business days thereafter, or to any proposed
assignee of this Agreement, a written statement in form reasonably satisfactory
to Collateral Agent, duly acknowledged, certifying the amount of the principal
and interest and any other sum then owing under the Obligations, whether to its
knowledge any claims, offsets or defenses exist against the Obligations or
against this Agreement, or any of the terms and provisions of any other
agreement of Debtor securing the Obligations. In connection with any assignment
by Collateral Agent of this Agreement, Debtor hereby agrees to cause the
insurance policies required hereby to be carried by Debtor, if any, to be
endorsed in form satisfactory to Collateral Agent or to such assignee, with loss
payable clauses in favor of such assignee, and to cause such endorsements to be
delivered to Collateral Agent within ten (10) calendar days after request
therefor by Collateral Agent.

         6.9 Debtor will, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Collateral Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other reasonable assurances or instruments and take further steps relating to
the Collateral and other property or rights covered by the security interest
hereby granted, as the Collateral Agent may reasonably require to perfect its
security interest hereunder.

         6.10 Debtor represents and warrants that it is the true and lawful
exclusive owner of the Collateral, free and clear of any liens and encumbrances.

         6.11 Debtor hereby agrees not to divest itself of any right under the
Collateral except as permitted herein absent prior written approval of the
Collateral Agent, except to a subsidiary organized and located in the United
States on prior notice to Collateral Agent provided the Collateral remains
subject to the security interest herein described. Such consent will not be
unreasonably withheld. Moreover, Debtor does not need such consent to enter into
licensee agreements related to the collateral in the normal course of business.

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         6.12 Debtor shall cause each Subsidiary of Debtor in existence on the
date hereof and each subsidiary that becomes a subsidiary after the date hereof
to execute and deliver to Collateral Agent promptly and in any event within 10
days after the formation, acquisition or change in status thereof (A) a guaranty
guaranteeing the Obligations and (B) if requested by Collateral Agent, a
security and pledge agreement substantially in the form of this Agreement
together with (x) certificates evidencing all of the capital stock of each
Subsidiary and any entity owned by such Subsidiary, (y) undated stock powers
executed in blank with signatures guaranteed, and (z) such opinion of counsel
and such approving certificate of such Subsidiary as Collateral Agent may
reasonably request in respect of complying with any legend on any such
certificate or any other matter relating to such shares and (E) such other
agreements, instruments, approvals, legal opinions or other documents reasonably
requested by Collateral Agent in order to create, perfect, establish the first
priority of or otherwise protect any lien purported to be covered by any such
pledge and security agreement or otherwise to effect the intent that all
property and assets of such Subsidiary shall become Collateral for the
Obligations. For purposes of this Agreement, "SUBSIDIARY" means, with respect to
any entity at any date, any corporation, limited or general partnership, limited
liability company, trust, estate, association, joint venture or other business
entity) of which more than 50% of (A) the outstanding capital stock having (in
the absence of contingencies) ordinary voting power to elect a majority of the
board of directors or other managing body of such entity, (B) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (C) in the case of a trust,
estate, association, joint venture or other entity, the beneficial interest in
such trust, estate, association or other entity business is, at the time of
determination, owned or controlled directly or indirectly through one or more
intermediaries, by such entity. Debtor has no Subsidiaries as of the date of
this Agreement.

7.       POWER OF ATTORNEY.
         ------------------

         After the occurrence and during the uncured continuation of an Event of
Default as defined in Section 9 below, Debtor hereby irrevocably constitutes and
appoints the Collateral Agent as the true and lawful attorney of Debtor, with
full power of substitution, in the place and stead of Debtor and in the name of
Debtor or otherwise, at any time or times, in the discretion of the Collateral
Agent, to take any action and to execute any instrument or document which the
Collateral Agent may deem necessary or advisable to accomplish the purposes of
this Agreement. This power of attorney is coupled with an interest and is
irrevocable until the Obligations are satisfied.

8.       PERFORMANCE BY THE COLLATERAL AGENT.
         ------------------------------------

         If Debtor fails to perform any material covenant, agreement, duty or
obligation of Debtor under this Agreement, the Collateral Agent may, after any
applicable cure period, at any time or times in its discretion, take action to
effect performance of such obligation. All reasonable expenses of the Collateral
Agent incurred in connection with the foregoing authorization shall be payable
by Debtor as provided in Paragraph 12.1 hereof. No discretionary right, remedy
or power granted to the Collateral Agent under any part of this Agreement shall
be deemed to impose any obligation whatsoever on the Collateral Agent with
respect thereto, such rights, remedies and powers being solely for the
protection of the Collateral Agent.

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9.       EVENT OF DEFAULT.
         -----------------

         An event of default ("Event of Default") shall be deemed to have
occurred hereunder upon the occurrence of any event of default as defined and
described in this Agreement, or Sections 3.1, 3.4, 3.7, 3.8, 3.9 or 3.10 of the
Notes, except that a default under Section 3.10 of the Note shall be deemed to
occur if the failure to deliver either Common Stock or a replacement Note
continues for ten days. Upon and after an Event of Default, after the applicable
cure period, if any, any or all of the Obligations shall become immediately due
and payable at the option of the Collateral Agent, for the benefit of the
Lenders, and the Collateral Agent may dispose of Collateral as provided below. A
default by Debtor of any of its material obligations pursuant to this Agreement
shall be an Event of Default hereunder and an "Event of Default" as defined in
the Convertible Notes.

10.      DISPOSITION OF COLLATERAL.
         --------------------------

         Upon and after an Event of Default which is then continuing,

         10.1 The Collateral Agent may exercise its rights with respect to each
and every component of the Collateral, without regard to the existence of any
other security or source of payment for the Obligations. In addition to other
rights and remedies provided for herein or otherwise available to it, the
Collateral Agent shall have all of the rights and remedies of a lender under the
Uniform Commercial Code then in effect in the State of New York.

         10.2 If any notice to Debtor of the sale or other disposition of
Collateral is required by then applicable law, five business (5) days prior
written notice (which Debtor agrees is reasonable notice within the meaning of
Section 9.612(a) of the Uniform Commercial Code) shall be given to Debtor of the
time and place of any sale of Collateral which Debtor hereby agrees may be by
private sale. The rights granted in this Section are in addition to any and all
rights available to Collateral Agent under the Uniform Commercial Code.

         10.3 The Collateral Agent is authorized, at any such sale, if the
Collateral Agent deems it advisable to do so, in order to comply with any
applicable securities laws, to restrict the prospective bidders or purchasers to
persons who will represent and agree, among other things, that they are
purchasing the Collateral for their own account for investment, and not with a
view to the distribution or resale thereof, or otherwise to restrict such sale
in such other manner as the Collateral Agent deems advisable to ensure such
compliance. Sales made subject to such restrictions shall be deemed to have been
made in a commercially reasonable manner.

         10.4 All proceeds received by the Collateral Agent for the benefit of
the Lenders in respect of any sale, collection or other enforcement or
disposition of Collateral, shall be applied (after deduction of any amounts
payable to the Collateral Agent pursuant to Paragraph 12.1 hereof) against the
Obligations pro rata among the Lenders in proportion to their interests in the
Obligations. Upon payment in full of all Obligations, Debtor shall be entitled
to the return of all Collateral, including cash, which has not been used or
applied toward the payment of Obligations or used or applied to any and all
costs or expenses of the Collateral Agent incurred in connection with the
liquidation of the Collateral (unless another person is legally entitled
thereto). Any assignment of Collateral by the Collateral Agent to Debtor shall
be without representation or warranty of any nature whatsoever and wholly
without recourse. To the extent allowed by law, each Lender may purchase the
Collateral and pay for such purchase by offsetting up to such Lender's pro rata
portion of the purchase price with sums owed to such Lender by Debtor arising
under the Obligations or any other source.

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         10.5 The security interest described herein will be released by the
Collateral Agent upon ten business days prior notice from the Debtor to the
Collateral Agent after the aggregate amount of the Obligations is less than
$500,000. At such time, this Agreement shall terminate and no longer be in force
or effect. Collateral Agent shall, at the Debtor's sole cost and expense, take
all steps reasonably necessary to effectuate the release of such interest.

11. WAIVER OF AUTOMATIC STAY. Debtor acknowledges and agrees that should a
proceeding under any bankruptcy or insolvency law be commenced by or against
Debtor, or if any of the Collateral should become the subject of any bankruptcy
or insolvency proceeding, then the Collateral Agent should be entitled to, among
other relief to which the Collateral Agent or Lenders may be entitled under the
Convertible Notes, Subscription Agreement and any other agreement to which the
Debtor, Lenders or Collateral Agent are parties (collectively "Loan Documents"),
and/or applicable law, an order from the court granting immediate relief from
the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Collateral
Agent to exercise all of its rights and remedies pursuant to the Loan Documents
and/or applicable law. Debtor EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY
IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, Debtor EXPRESSLY ACKNOWLEDGES AND
AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE
BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11
U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY
WAY THE ABILITY OF THE COLLATERAL AGENT TO ENFORCE ANY OF ITS RIGHTS AND
REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. Debtor hereby consents
to any motion for relief from stay which may be filed by the Collateral Agent in
any bankruptcy or insolvency proceeding initiated by or against Debtor, and
further agrees not to file any opposition to any motion for relief from stay
filed by the Collateral Agent. Debtor represents, acknowledges and agrees that
this provision is a specific and material aspect of this Agreement, and that the
Collateral Agent would not agree to the terms of this Agreement if this waiver
were not a part of this Agreement. Debtor further represents, acknowledges and
agrees that this waiver is knowingly, intelligently and voluntarily made, that
neither the Collateral Agent nor any person acting on behalf of the Collateral
Agent has made any representations to induce this waiver, that Debtor has been
represented (or has had the opportunity to be represented) in the signing of
this Agreement and in the making of this waiver by independent legal counsel
selected by Debtor and that Debtor has had the opportunity to discuss this
waiver with counsel. Debtor further agrees that any bankruptcy or insolvency
proceeding initiated by Debtor will only be brought in the Federal Court within
the Southern District of New York.

12.      MISCELLANEOUS.
         --------------

         12.1 EXPENSES. Debtor shall pay to the Collateral Agent, on demand, the
amount of any and all reasonable expenses, including, without limitation,
attorneys' fees, legal expenses and brokers' fees, which the Collateral Agent
may incur in connection with (a) sale, collection or other enforcement or
disposition of Collateral; (b) exercise or enforcement of any the rights,
remedies or powers of the Collateral Agent hereunder or with respect to any or
all of the Obligations upon breach or threatened breach; or (c) failure by
Debtor to perform and observe any agreements of Debtor contained herein which
are performed by the Collateral Agent.

         12.2 WAIVERS, AMENDMENT AND REMEDIES. No course of dealing by the
Collateral Agent and no failure by the Collateral Agent to exercise, or delay by
the Collateral Agent in exercising, any right, remedy or power hereunder shall
operate as a waiver thereof, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise of any other
right, remedy or power of the Collateral Agent. No amendment, modification or
waiver of any provision of this Agreement and no consent to any departure by

                                       9

<PAGE>

Debtor therefrom, shall, in any event, be effective unless contained in a
writing signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. The rights, remedies and powers of the Collateral Agent, not only
hereunder, but also under any instruments and agreements evidencing or securing
the Obligations and under applicable law are cumulative, and may be exercised by
the Collateral Agent from time to time in such order as the Collateral Agent may
elect.

         12.3 NOTICES. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being faxed (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section:

                  To Debtor:                 One Voice Technologies, Inc.
                                             4275 Executive Square, Suite 200
                                             San Diego, CA 92037
                                             Fax: (858) 552-4474

                  To Lenders:                To the addresses and telecopier
                                             numbers set forth on Schedule A

                  To the Collateral Agent:   Eric Weisblum
                                             c/o Grushko & Mittman, P.C.
                                             551 Fifth Avenue, Suite 1601
                                             New York, New York 10176
                                             Fax: (212) 697-3575

Any party may change its address by written notice in accordance with this
paragraph.

         12.4 TERM; BINDING EFFECT. This Agreement shall (a) remain in full
force and effect until payment and satisfaction of the Obligations as set forth
in Paragraph 10.5; (b) be binding upon Debtor, and its successors and permitted
assigns; and (c) inure to the benefit of the Collateral Agent, for the benefit
of the Lenders and their respective successors and assigns. All the rights and
benefits granted by Debtor to the Collateral Agent and Lenders in the Loan
Documents and other agreements and documents delivered in connection therewith
are deemed granted to both the Collateral Agent and Lenders.

         12.5 CAPTIONS. The captions of Paragraphs, Articles and Sections in
this Agreement have been included for convenience of reference only, and shall
not define or limit the provisions hereof and have no legal or other
significance whatsoever.

         12.6 GOVERNING LAW; VENUE; SEVERABILITY. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to conflicts of laws principles that would result in the
application of the substantive laws of another jurisdiction, except to the
extent that the perfection of the security interest granted hereby in respect of
any item of Collateral may be governed by the law of another jurisdiction. Any
legal action or proceeding against Debtor with respect to this Agreement may be
brought in the courts in the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Agreement,
Debtor hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. Debtor
hereby irrevocably waives any objection which they may now or hereafter have to

                                       10

<PAGE>

the laying of venue of any of the aforesaid actions or proceedings arising out
of or in connection with this Agreement brought in the aforesaid courts and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid, such
invalidity shall not affect any other provisions which can be given effect
without the invalid provision or application, and to this end the provisions
hereof shall be severable and the remaining, valid provisions shall remain of
full force and effect.

         12.7 ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties and supersedes all other agreements and understandings, oral or
written, with respect to the matters contained herein.

         12.8 COUNTERPARTS/EXECUTION. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.

         13. INTERCREDITOR TERMS. As between the Lenders, any distribution under
paragraph 5 shall be made proportionately based upon the remaining principal
amount (plus accrued and unpaid interest) to each as to the total amount then
owed to the Lenders as a whole. The rights of each Lender hereunder are PARI
PASSU to the rights of the other Lenders hereunder. Any recovery hereunder shall
be shared ratably among the Lenders according to the then remaining principal
amount owed to each (plus accrued and unpaid interest) as to the total amount
then owed to the Lenders as a whole.

         14. NON-ASSIGNMENT. Neither this Agreement nor the Security Interest
granted herein is assignable without the express written consent of Debtor.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       11

<PAGE>

         IN WITNESS WHEREOF, the undersigned have executed and delivered this
Security Agreement, as of the date first written above.

"DEBTOR"                                     "THE COLLATERAL AGENT"
ONE VOICE TECHNOLOGIES INC.                  ERIC WEISBLUM
A Nevada corporation

By: /S/ Dean Weber                           /S/ Eric Weisblum
   -------------------------                 ---------------------------

Its: Chief Executive Officer
     -----------------------

                             APPROVED BY "LENDERS":
                             ----------------------

ALPHA CAPITAL AKTIENGESELLSCHAFT             WHALEHAVEN CAPITAL FUND LIMITED

By: /S/ Howard Ackermann                     By: /S/ Evan Schemenauer
   ------------------------                     ------------------------

        THIS SECURITY AGREEMENT MAY BE SIGNED BY FACSIMILE SIGNATURE AND
                 DELIVERED BY CONFIRMED FACSIMILE TRANSMISSION.

                                       12

<PAGE>

                        SCHEDULE A TO SECURITY AGREEMENT
                        --------------------------------

--------------------------------------------------- ----------------------------
LENDER                                              NOTE PRINCIPAL (BALANCE)
--------------------------------------------------- ----------------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT                    $575,000.00
Pradafant 7
9490 Furstentums
Vaduz, Lichtenstein
Fax: 011-42-32323196
--------------------------------------------------- ----------------------------
WHALEHAVEN CAPITAL FUND LIMITED                     $540,000.00
3rd Floor, 14 Par-Laville Road
Hamilton, Bermuda HM08
Fax: (441) 292-1373
--------------------------------------------------- ----------------------------
TOTAL                                               $1,115,000.00
--------------------------------------------------- ----------------------------

                                       13

<PAGE>

                                     ANNEX I

                                       TO

                               SECURITY AGREEMENT

                                PLEDGE AMENDMENT
                                ----------------

         This Pledge Amendment, dated _________ __ 200_, is delivered pursuant
to Section 4.3 of the Security Agreement referred to below. The undersigned
hereby agrees that this Pledge Amendment may be attached to the Security
Agreement, dated February 8, 2006, as it may heretofore have been or hereafter
may be amended, restated, supplemented or otherwise modified from time to time
and that the shares listed on this Pledge Amendment shall be hereby pledged and
assigned to Collateral Agent and become part of the Collateral referred to in
such Security Agreement and shall secure all of the Obligations referred to in
such Security Agreement.

------------------------ ----------------- ----------------------- -------------

                              Number                                Certificate
Name of Issuer               of Shares             Class             Number(s)
--------------               ---------             -----             ---------
------------------------ ----------------- ----------------------- -------------

------------------------ ----------------- ----------------------- -------------

------------------------ ----------------- ----------------------- -------------

------------------------ ----------------- ----------------------- -------------

------------------------ ----------------- ----------------------- -------------

                                                ONE VOICE TECHNOLOGIES, INC.

                                                By:      _______________________

                                       14Exhibit 10.19

 

FOREIGN EXCHANGE AND OPTIONS

 

MASTER AGREEMENT 

(FEOMA)

 

MASTER AGREEMENT dated as of
March 18, 2005 by and between Morgan Stanley Capital Group Inc., a
Delaware corporation and Morgan Stanley Spectrum Technical, L.P., a Delaware
Limited Partnership.

 

SECTION 1.                               DEFINITIONS

 

Unless otherwise required by
the context, the following terms shall have the following meanings in the
Agreement:

 

“Agreement” has the meaning given to it in Section 2.2.

 

“American Style Option”
means an Option which may be exercised on any Business Day up to and
including the Expiration Time.

 

“Base Currency”, as
to a Party, means the Currency agreed to as such in relation to it in Part VII
of the Schedule.

 

“Business Day” means
for purposes of: (i) Section 3.2, a day which is a Local Banking Day
for the applicable Designated Office of the Buyer; (ii) Section 5.1
and the definition of American Style Option, a day which is a Local Banking Day
for the applicable Designated Office of the Seller; (iii) clauses (i), (viii) and
(xii) of the definition of Event of Default, a day which is a Local Banking Day
for the Non-Defaulting Party, (iv) solely in relation to delivery of a
Currency, a day which is a Local Banking Day in relation to that Currency; and (v) any
other provision of the Agreement, a day which is a Local Banking Day for the
applicable Designated Offices of both Parties; provided, however,
that neither Saturday nor Sunday shall be considered a Business Day for any
purpose.

 

“Buyer” means the owner of an Option.

 

“Call” means an
Option entitling, but not obligating (except upon exercise), the Buyer to
purchase from the Seller at the Strike Price a specified quantity of the Call
Currency.

 

“Call Currency” means
the Currency agreed to as such at the time an Option is entered into, as
evidenced in a Confirmation.

 

“Close-Out Amount” has the meaning given to
it in Section 8.1.

 

“Close-Out Date”
means a day on which, pursuant to the provisions of Section 8.1, the
Non-Defaulting Party closes out Currency Obligations and/or Options or such
close-out occurs automatically.

 

“Closing Gain”, as to
the Non-Defaulting Party, means the difference described as such in relation to
a particular Value Date under the provisions of Section 8.1.

 

“Closing Loss”, as to the Non-Defaulting
Party, means the difference described as such in relation to a particular Value
Date under the provisions of Section 8.1.

 

“Confirmation” means
a writing (including telex, facsimile or other electronic means from which it
is possible to produce a hard copy) evidencing an FX Transaction or an Option,
and specifying:

 

(A) in the case of an FX Transaction, the
following information:

 

1

 

(i)                                     the Parties thereto and the Designated
Offices through which they are respectively acting,

(ii)                                  the amounts of the Currencies being bought or
sold and by which Party,

(iii)                               the Value Date, and

(iv)                              any other term generally included in such a
writing in accordance with the practice of the relevant foreign exchange market; and

 

(B) in the case of an Option, the following
information:

 

(i)                                     the Parties thereto and the Designated
Offices through which they are respectively acting,

(ii)                                  whether the Option is a Call or a Put,

(iii)                               the Call Currency and the Put Currency that
are the subject of the Option and their respective quantities,

(iv)                              which Party is the Seller and which is the
Buyer,

(v)                                 the Strike Price,

(vi)                              the Premium and the Premium Payment Date,

(vii)                           the Expiration Date,

(viii)                        the Expiration Time,

(ix)                                whether the Option is an American Style
Option or a European Style Option, and

(x)                                   such other matters, if any, as the Parties may agree.

 

“Credit Support” has the meaning given to it
in Section 8.2.

 

“Credit Support Document”,
as to a Party (the “first Party”), means a guaranty, hypothecation agreement,
margin or security agreement or document, or any other document containing an
obligation of a third party (“Credit Support Provider”) or of the first Party
in favor of the other Party supporting any obligations of the first Party under
the Agreement.

 

“Credit Support Provider” has the meaning
given to it in the definition of Credit Support Document.

 

“Currency” means money denominated in the
lawful currency of any country or the Ecu.

 

“Currency Obligation”
means any obligation of a Party to deliver a Currency pursuant to an FX
Transaction, the application of Section 6.3(a) or (b), or an
exercised Option (except, for the purposes of Section 8.1 only, one that
is to be settled at its In-the-Money Amount under Section 5.5).

 

“Currency Pair” means
the two Currencies which potentially may be exchanged in connection with
an FX Transaction or upon the exercise of an Option, one of which shall be the
Put Currency and the other the Call Currency.

 

“Custodian” has the
meaning given to it in the definition of Insolvency
Proceeding.

 

“Defaulting Party” has the meaning given to it
in the definition of Event of Default.

 

“Designated Office(s)”, as to a Party, means
the office or offices specified in Part II of the Schedule.

 

“Effective Date” means the date of this
Master Agreement.

 

“European Style Option”
means an Option for which Notice of Exercise may be given only on the
Option’s Expiration Date up to and including the Expiration Time, unless
otherwise agreed.

 

“Event of Default”
means the occurrence of any of the following with respect to a Party (the “Defaulting
Party”, the other Party being “Non-Defaulting Party”):

 

(i) the Defaulting
Party shall (A) default in any payment when due under the Agreement
(including, but not limited to, a Premium payment) to the Non-Defaulting Party
with respect to any Currency Obligation or Option and such failure shall
continue for two (2) Business Days after the Non-Defaulting Party has
given the Defaulting Party written notice of non-payment, or (B) fail to
perform or comply with any other obligation assumed by it under the
Agreement

 

2

 

and
such failure is continuing thirty (30) days after the Non-Defaulting Party has
given the Defaulting Party written notice thereof;

 

(ii) the Defaulting
Party shall commence a voluntary Insolvency Proceeding or shall take my
corporate action to authorize any such Insolvency Proceeding;

 

(iii) a governmental
authority or self-regulatory organization having jurisdiction over either the
Defaulting Party or its assets in the country of its organization or principal
office (A) shall commence an Insolvency Proceeding with respect to the
Defaulting Party or its assets or (B) shall take any action under any bankruptcy,
insolvency or other similar law or any banking, insurance or similar law or
regulation governing the operation of the Defaulting Party which may prevent
the Defaulting Party from performing its obligations under the Agreement as and
when due;

 

(iv) an involuntary
Insolvency Proceeding shall be commenced with respect to the Defaulting Party
or its assets by a person other than a governmental authority or
self-regulatory organization having jurisdiction over either the Defaulting
Party or its assets in the country of its organization or principal office and
such Insolvency Proceeding (A) results in the appointment of a Custodian
or a judgment of insolvency or bankruptcy or the entry of an order for
winding-up, liquidation, reorganization or other similar relief, or (B) is
not dismissed within five (5) days of its institution or presentation;

 

(v) the Defaulting
Party is bankrupt or insolvent, as defined under any bankruptcy or insolvency
law applicable to it;

 

(vi) the Defaulting Party fails, or shall
otherwise be unable, to pay its debts as they become due;

 

(vii) the Defaulting
Party or any Custodian acting on behalf of the Defaulting Party shall
disaffirm, disclaim or repudiate any Currency Obligation or Option;

 

(viii) any
representation or warranty made or given or deemed made or given by the
Defaulting Party pursuant to the Agreement or any Credit Support Document shall
prove to have been false or misleading in any material respect as at the time
it was made or given or deemed made or given and one (1) Business Day has
elapsed after the Non-Defaulting Party has given the Defaulting Party written
notice thereof;

 

(ix) the Defaulting
Party consolidates or amalgamates with or merges into or transfers all or
substantially all its assets to another entity and (A) the
creditworthiness of the resulting, surviving or transferee entity is materially
weaker than that of the Defaulting Party prior to such action, or (B) at
the time of such consolidation, amalgamation, merger or transfer the resulting,
surviving or transferee entity fails to assume all the obligations of the
Defaulting Party under the Agreement by operation of law or pursuant to an
agreement satisfactory to the Non-Defaulting Party;

 

(x) by reason of any
default, or event of default or other similar condition or event, any Specified
Indebtedness (being Specified Indebtedness of an amount which, when expressed
in the Currency of the Threshold Amount, is in aggregate equal to or in excess
of the Threshold Amount) of the Defaulting Party or any Credit Support Provider
in relation to it: (A) is not paid on the due date therefor and remains
unpaid after any applicable grace period has elapsed, or (B) becomes, or
becomes capable at any time of being declared, due and payable under agreements
or instruments evidencing such Specified Indebtedness before it would otherwise
have been due and payable;

 

(xi) the Defaulting Party is
in breach of or default under any Specified Transaction and any applicable
grace period has elapsed, and there occurs any liquidation or early termination
of, or acceleration of obligations under, that Specified Transaction or the
Defaulting Party (or any Custodian on its behalf) disaffirms, disclaims or
repudiates the whole or any part of a Specified Transaction;

 

(xii) (A) any Credit
Support Provider of the Defaulting Party or the Defaulting Party itself fails
to comply with or perform any agreement or obligation to be complied with
or performed by it in accordance with the applicable Credit Support Document
and such failure is continuing after any applicable grace period has elapsed; (B) any
Credit Support Document relating to the Defaulting Party expires or ceases to
be in full force and effect prior to the satisfaction of all obligations of the
Defaulting Party under the Agreement, unless otherwise agreed in writing by the
Non-Defaulting Party, (C) the Defaulting Party or any Credit Support
Provider of the Defaulting Party (or, in either case, any Custodian

 

3

 

acting on its behalf) disaffirms, disclaims or repudiates, in whole or
in part, or challenges the validity of, any Credit Support Document; (D) any
representation or warranty made or given or deemed made or given by any Credit
Support Provider of the Defaulting Party pursuant to any Credit Support
Document shall prove to have been false or misleading in any material respect
as at the time it was made or given or deemed made or given and one (1) Business
Day has elapsed after the Non-Defaulting Party has gives the Defaulting Party
written notice thereof; or (E) any event set out in (ii) to (vii) or
(ix) to (xi) above occurs in respect of any Credit Support Provider of the
Defaulting Party, or

 

(xiii) any other condition
or event specified in Part IX of the Schedule or in Section 11.14
if made applicable to the Agreement in Part XI of the Schedule.

 

“Exercise Date”, in
respect of any Option, means the day on which a Notice of Exercise received by
the applicable Designated Office of the Seller becomes effective pursuant to Section 5.1.

 

“Expiration Date”, in
respect of any Option, means the date agreed to as such at the time the Option
is entered into, as evidenced in a Confirmation.

 

“Expiration Time”, in
respect of any Option, means the latest time on the Expiration Date on which
the Seller must accept a Notice of Exercise as agreed to at the time the Option
is entered into, as evidenced in a Confirmation.

 

“FX Transaction”
means any transaction between the Parties for the purchase by one Party of an
agreed amount in one Currency against the sale by it to the other of an agreed
amount in another Currency, both such amounts either being deliverable on the
same Value Date or, if the Parties have so agreed in Part VI of the
Schedule, being cash-settled in a single Currency, which is or shall become
subject to the Agreement and in respect of which transaction the Parties have
agreed (whether orally, electronically or in writing): the Currencies involved,
the amounts of such Currencies to be purchased and sold, which Party will
purchase which Currency and the Value Date.

 

“In-the-Money Amount”
means (i) in the case of a Call, the excess of the Spot Price over the
Strike Price, multiplied by the aggregate amount of the Call Currency to be
purchased under the Call, where both prices are quoted in terms of the amount
of the Put Currency to be paid for one unit of the Call Currency; and (ii) in
the case of a Put, the excess of the Strike Price over the Spot Price,
multiplied by the aggregate amount of the Put Currency to be sold under the
Put, where both prices are quoted in terms of the amount of the Call Currency
to be paid for one unit of the Put Currency.

 

“Insolvency Proceeding”
means a case or proceeding seeking a judgment of or arrangement for insolvency,
bankruptcy, composition, rehabilitation, reorganization, administration,
winding-up, liquidation or other similar relief with respect to the Defaulting
Party or its debts or assets, or seeking the appointment of a trustee,
receiver, liquidator, conservator, administrator, custodian or other similar
official (each, a “Custodian”) of the Defaulting Party or any substantial part of
its assets, under any bankruptcy, insolvency or other similar law or any
banking, insurance or similar law governing the operation of the Defaulting
Party.

 

“LIBOR”, with respect
to any Currency and date, means the average rate at which deposits in the
Currency for the relevant amount and time period are offered by major banks in
the London interbank market as of 11:00 a.m. (London time) on such date,
or, if major banks do not offer deposits in such Currency in the London
interbank market on such date, the average rate at which deposits in the
Currency for the relevant amount and time period are offered by major banks in
the relevant foreign exchange market at such time on such date as may be
determined by the Party making the determination.

 

“Local Banking Day” means (i) for any
Currency, a day on which commercial banks effect deliveries of that Currency in
accordance with the market practice of the relevant foreign exchange market,
and (ii) for any Party, a day in the location of the applicable Designated
Office of such Party on which commercial banks in mat location are not
authorized or required by law to close.

 

“Master Agreement”
means the terms and conditions set forth in this Master Agreement, including
the Schedule.

 

4

 

“Matched Pair Novation Netting Office(s)”, in
respect of a Party, means the Designated Office(s) specified in Part V of
the Schedule.

 

“Non-Defaulting Party”
has the meaning given to it in the definition of Event of Default.

 

“Notice of Exercise”
means telex, telephonic or other electronic notification (excluding facsimile
transmission) providing assurance of receipt, given by the Buyer prior to or at
the Expiration Time, of the exercise of an Option, which notification shall be
irrevocable.

 

“Novation Netting Office(s)”,
in respect of a Party, means the Designated Office(s) specified in Part V of
the Schedule.

 

“Option” means a currency option which is or
shall become subject to the Agreement.

 

“Parties” means the
parties to the Agreement, including their successors and permitted assigns (but
without prejudice to the application of clause (ix) of the definition of
Event of Default); and the term “Party” shall mean whichever of the Parties is
appropriate in the context in which such expression may be used.

 

“Premium”, in respect
of any Option, means the purchase price of the Option as agreed upon by the
Parties, and payable by the Buyer to the Seller thereof.

 

“Premium Payment Date”,
in respect of any Option, means the date on which the Premium is due and
payable, as agreed to at the time the Option is entered into, as evidenced in a
Confirmation.

 

“Proceedings” means
any suit, action or other proceedings relating to the Agreement, any FX
Transaction or any Option.

 

“Put” means an Option
entitling, but not obligating (except upon exercise), the Buyer to sell to the
Seller at the Strike Price a specified quantity of the Put Currency.

 

“Put Currency” means
the Currency agreed to as such at the time an Option is entered into, as
evidenced in a Confirmation,

 

“Schedule” means the Schedule attached
to and part of this Master Agreement, as it may be amended from time
to time by agreement of the Parties.

 

“Seller” means the Party granting an Option.

 

“Settlement Date”
means, in respect of: (i) an American Style Option, the Spot Date of the
Currency Pair on the Exercise Date of such Option, and (ii) a European
Style Option, the Spot Date of the Currency Pair on the Expiration Date of such
Option; and, where market practice in the relevant foreign exchange market in
relation to the two Currencies involved provides for delivery of one Currency
on one date which is a Local Banking Day in relation to that Currency but not
to the other Currency and for delivery of the other Currency on the next Local
Banking Day in relation to that other Currency, “Settlement Date” means such
two (2) Local Banking Days,

 

“Settlement Netting
Office(s)”, in respect of a Party, means the Designated Office(s) specified
in Part V of the Schedule.

 

“Specified Indebtedness”
means any obligation (whether present or future, contingent or otherwise, as
principal or surely or otherwise) in respect of borrowed money, other than in
respect of deposits received.

 

“Specified Transaction”
means any transaction (including an agreement with respect thereto) between one
Party to the Agreement (or any Credit Support Provider of such Party) and the
other Party to the Agreement (or any Credit Support Provider of such Party)
which is a rate swap transaction, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity linked swap, equity or
equity index option, bond option, interest rate option, foreign exchange
transaction, cap transaction, floor transaction, collar transaction, currency
swap transaction, cross-

 

5

 

currency rate swap transaction, currency
option or any other similar transaction (including any option with respect to
any of these transactions) or any combination of any of the foregoing.

 

“Spot Date” means the
spot delivery day for the relevant Currency Pair as generally used by the
relevant foreign exchange market.

 

“Spot Price” means
the rate of exchange at the time at which such price is to be determined for
foreign exchange transactions in the relevant Currency Pair for value on the
Spot Date, as determined in good faith: (i) by the Seller, for purposes of
Section 5, and (ii) by the Non-Defaulting Party, for purposes of Section 8.

 

“Strike Price”, in
respect of any Option, means the price at which the Currency Pair may be
exchanged, as agreed to at the time the Option is entered into, as evidenced in
a Confirmation.

 

“Threshold Amount” means
the amount specified as such for each Party in Part VIII of the Schedule.

 

“Value Date” means,
with respect to any FX Transaction, the Business Day (or where market practice
in the relevant foreign exchange market in relation to the two Currencies
involved provides for delivery of one Currency on one date which is a Local
Banking Day in relation to that Currency but not to the other Currency and for
delivery of the other Currency on the next Local Banking Day in relation to that
other Currency (“Split Settlement”) the two (2) Local Banking Days in
accordance with that market practice) agreed by the Parties for delivery of the
Currencies to be purchased and sold pursuant to such FX Transaction, and, with
respect to any Currency Obligation, the Business Day (or, in the case of Split
Settlement, Local Banking Day) upon which the obligation to deliver Currency
pursuant to such Currency Obligation is to be performed.

 

	
  SECTION 2.

  	
  FX TRANSACTIONS AND OPTIONS

  

 

2.1           Scope of the Agreement. The Parties (through their respective
Designated Offices) may enter into (i) FX Transactions, for such quantities of
such Currencies, as may be agreed subject to the terms of the Agreement, and
(ii) Options, for such Premiums, with such Expiration Dates, at such Strike
Prices and for the purchase or sale of such quantities of such Currencies, as may
be agreed subject to the terms of the Agreement; provided that neither
Party shall be required to enter into any FX Transaction or Option with the
other Party (other than in connection with an exercised Option). Unless
otherwise agreed in writing by the Parties, each FX Transaction and Option
entered into between Designated Offices of the Parties on or after the
Effective Date shall be governed by the Agreement. Each FX Transaction and
Option between any two Designated Offices of the Parties outstanding on the
Effective Date which is identified in Part I of the Schedule shall also be
governed by the Agreement.

 

2.2           Single Agreement. This Master Agreement, the terms agreed
between the Parties with respect to each FX Transaction and Option (and, to the
extent recorded in a Confirmation, each such Confirmation), and all amendments
to any of such items shall together form the agreement between the Parties (the
“Agreement”) and shall together constitute a single agreement between the
Parties. The Parties acknowledge that all FX Transactions and Options are
entered into in reliance upon such fact, it being understood mat the Parties
would not otherwise enter into any FX Transaction or Option.

 

2.3           Confirmations.   FX Transactions and
Options shall be promptly confirmed by the Parties by Confirmations exchanged
by mail, telex, facsimile or other electronic means from which it is possible
to produce a hard copy. The failure by a Party to issue a Confirmation shall
not prejudice or invalidate the terms of any FX Transaction or Option.

 

2.4           Inconsistencies. In the event of any inconsistency between
the provisions of the Schedule and the other provisions of the Agreement, the
Schedule will prevail. In the event of any inconsistency between the terms of a
Confirmation and the other provisions of the Agreement, (i) in the case of an
FX Transaction, the other provisions of the Agreement shall prevail, and the
Confirmation shall not modify the other terms of the Agreement and (ii) in the
case of an Option, the terms of the Confirmation shall prevail, and the other
terms of the Agreement shall be deemed modified with respect to such Option,
except for the manner of confirmation under Section 2.3 and, if applicable,
discharge of Options under Section 4.

 

6

 

	
  SECTION 3.

  	
  OPTION PREMIUM

  

 

3.1           Payment of Premium. Unless otherwise agreed in writing by the
Parties, the Buyer shall be obligated to pay the Premium related to an Option
no later than its Premium Payment Date.

 

3.2           Late Payment or Non-Payment of Premium.  If any Premium is not received
on or before the Premium Payment Date, the Seller may elect: (i) to accept a
late payment of such Premium; (ii) to give written notice of such non-payment
and, if such payment shall not be received within two (2) Business Days of such
notice, treat the related Option as void; or (iii) to give written notice of
such non-payment and, if such payment shall not be received within two (2)
Business Days of such notice, treat such non-payment as an Event of Default
under clause (i) of the definition of Event of Default. If the Seller elects to
act under either clause (i) or (ii) of the preceding sentence, the Buyer shall
pay all out-of-pocket costs and actual damages incurred in connection with such
unpaid or late Premium or void Option, including, without limitation, interest
on such Premium from and including the Premium Payment Date to but excluding
the late payment date in the same Currency as such Premium at overnight LIBOR
and any other losses, costs or expenses incurred by the Seller in connection
with such terminated Option, for the loss of its bargain, its cost of funding,
or the loss incurred as a result of terminating, liquidating, obtaining or
re-establishing a delta hedge or related trading position with respect to such
Option.

 

	
  SECTION 4.

  	
  DISCHARGE AND TERMINATION
  OF OPTIONS; NETTING OF OPTION PREMIUMS

  

 

4.1           Discharge and Termination.  If agreed in Part V of the
Schedule, any Call or any Put written by a Party will automatically be discharged
and terminated, in whole or in part, as applicable, against a Call or a Put, respectively,
written by the other Party, such discharge and termination to occur
automatically upon the payment in full of the last Premium payable in respect
of such Options; provided that such discharge and termination may only
occur in respect of Options:

 

(i)            each being with respect to the same Put
Currency and the same Call Currency;

(ii)           each having the same Expiration Date and
Expiration Time;

(iii)          each being of the same style, i.e. either
both being American Style Options or both being European Style Options;

(iv)          each having the same Strike Price;

(v)           each being transacted by the same pair of
Designated Offices of Buyer and Seller; and

(vi)          neither of which shall have been exercised by
delivery of a Notice of Exercise;

 

and, upon the occurrence of
such discharge and termination, neither Party shall have any further obligation
to the other Party in respect of the relevant Options or, as the case may be,
parts thereof so discharged and terminated. Such discharge and termination
shall be effective notwithstanding that either Party may fail to record such
discharge and termination in its books. In the case of a partial discharge and
termination (i.e., where the relevant Options are for different amounts of the
Currency Pair), the remaining portion of the Option which is partially
discharged and terminated shall continue to be an Option for all purposes of
the Agreement, including this Section 4.1.

 

4.2           Netting of Option Premiums.  If agreed in Part V of the
Schedule and if, on any date, Premiums would otherwise be payable under the
Agreement in the same Currency between the same respective Designated Offices of
the Parties, then, on such date, each Party’s obligation to make payment of any
such Premium will be automatically satisfied and discharged and, if the
aggregate Premium(s) that would otherwise have been payable by such Designated Office
of one Party exceeds the aggregate Premium(s) that would otherwise have been
payable by such Designated Office of the other Party, replaced by an obligation
upon the Party by whom the larger aggregate Premium(s) would have been payable
to pay the other Party the excess of the larger aggregate Premium(s) over the
smaller aggregate Premium(s) and, if the aggregate Premiums are equal, no
payment shall be made.

 

7

 

	
  SECTION 5.

  	
  EXERCISE AND SETTLEMENT OF OPTIONS

  

 

5.1           Exercise of Options.  The Buyer may exercise an Option
by delivery to the Seller of a Notice of Exercise. Subject to Section 5.3, if a
Notice of Exercise with respect to an Option has not been received by the
Seller prior to or at the Expiration Time, the Option shall expire and become
void and of no effect. Any Notice of Exercise shall (unless otherwise agreed):

 

(i) in respect of an
American Style Option, (A) if received at or prior to 3:00 p.m. on a Business
Day, be effective upon receipt thereof by the Seller, and (B) if received after
3:00 p.m. on a Business Day, be effective only as of the opening of business of
the Seller on the first Business Day subsequent to its receipt; and

 

(ii) in respect of a
European Style Option, if received on or, if the parties have so agreed, before
the Expiration Date, prior to or at the Expiration Time, be effective upon
receipt thereof by the Seller.

 

5.2           No
Partial Exercise.  Unless
otherwise agreed by the Parties, an Option may be exercised only in whole.

 

5.3           Automatic Exercise.  Unless otherwise agreed in Part
VI of the Schedule or unless the Seller is otherwise instructed by the Buyer,
if an Option has an In-the-Money Amount at its Expiration Time that equals or exceeds
the product of (x) 1% of the Strike Price (or such other percentage or amount
as may have been agreed by the Parties) and (y) the amount of the Call Currency
or Put Currency, as appropriate, then the Option shall be deemed automatically
exercised. In such case, the Seller may elect to settle such Option either in
accordance with Section 5.4 or by payment to the Buyer on the Settlement Date
for such Option of the In-the-Money Amount, as determined at the Expiration
Time or as soon thereafter as practicable. In the latter case, the sole
obligations of the Parties with respect to settlement of such Option shall be
to deliver or receive the In-the-Money Amount of such Option on the Settlement Date.
The Seller shall notify the Buyer of its election of the method of settlement
of an automatically exercised Option as soon as practicable after the
Expiration Time.

 

5.4           Settlement of Exercised Options.  An exercised Option shall settle
on its Settlement Date. Subject to Section 5.3 and 5.5, on the Settlement Date,
the Buyer shall pay the Put Currency to the Seller for value on the Settlement
Date and the Seller shall pay the Call Currency to the Buyer for value on the
Settlement Date. An exercised Option shall be treated as an FX Transaction and
a Currency Obligation (except, for the purposes of Section 8.1 only, if it is
to be settled at its In-the-Money Amount), and for this purpose the relevant
Settlement Date shall be treated as the Value Date of the FX Transaction.

 

5.5           Settlement at In-the-Money Amount.  An Option shall be settled at
its In-the-Money Amount if so agreed by the Parties at the time such Option is
entered into. In such case, the In-the-Money Amount shall be determined based
upon the Spot Price at the time of exercise or as soon thereafter as
practicable. The sole obligations of the Parties with respect to settlement of
such Option shall be to deliver or receive the In-the-Money Amount of such Option
on the Settlement Date.

 

	
  SECTION 6.

  	
  SETTLEMENT AND NETTING OF
  FX TRANSACTIONS

  

 

6.1           Settlement of FX Transactions.  Subject to Sections 6.2 and 6.3,
each Party shall deliver to the other Party the amount of the Currency to be
delivered by it under each Currency Obligation on the Value Date for such Currency
Obligation.

 

6.2           Settlement Netting.  If, on any date, more than one
delivery of a particular Currency under Currency Obligations is to be made
between a pair of Settlement Netting Offices, then each Party shall aggregate
the amounts of such Currency deliverable by it and only the difference between
these aggregate amounts shall be delivered by the Party owing the larger
aggregate amount to the other Party, and, if the aggregate amounts are equal,
no delivery of the Currency shall be made.

 

6.3           Novation Netting.  (a)  By Currency.  If
the Parties enter into an FX Transaction through a pair of Novation Netting
Offices giving rise to a Currency Obligation for the same Value Date and in the
same Currency as a

 

8

 

then existing Currency Obligation between the
same pair of Novation Netting Offices, then immediately upon entering into such
FX Transaction, each such Currency Obligation shall automatically and without
further action be individually canceled and simultaneously replaced by a new
Currency Obligation for such Value Date determined as follows: the amounts of
such Currency that would otherwise have been deliverable by each Party on such
Value Date shall be aggregated and the Party with the larger aggregate amount
shall have a new Currency Obligation to deliver to the other Party the amount of such Currency by which its
aggregate amount exceeds the other Party’s aggregate amount, provided
that if the aggregate amounts are equal, no new Currency Obligation shall
arise. This Section 6.3 shall not affect any other Currency Obligation of a
Party to deliver any different Currency on the same Value Date.

 

(b)           By Matched Pair.  If the Parties enter into an FX
Transaction between a pair of Matched Pair Novation Netting Offices then the
provisions of Section 6.3(a) shall apply only in respect of Currency
Obligations arising by virtue of FX Transactions entered into between such pair
of Matched Pair Novation Netting Offices and involving the same pair of
Currencies and the same Value Date.

 

6.4           General  (a)  Inapplicability of Sections 6.2 and 6.3.  The provisions of
Sections 6.2 and 6.3 shall not apply if a Close-Out Date has occurred or a
voluntary or involuntary Insolvency Proceeding or action of the kind described
in clause (ii), (iii) or (iv) of the definition of Event of Default has
occurred without being dismissed in relation to either Party.

 

(b)           Failure to Record.  The provisions of Section 6.3
shall apply notwithstanding that either Party may fail to record the new
Currency Obligation in its books.

 

(c)           Cut-off Date and Time.  The provisions of Section 6.3
are subject to any cut-off date and cut-off time agreed between the applicable
Novation Netting Offices and Matched Pair Novation Netting Offices of the
Parties.

 

	
  SECTION 7.

  	
  REPRESENTATIONS. WARRANTIES
  AND COVENANTS

  

 

7.1           Representations and Warranties.  Each Party represents and
warrants to the other Party as of the Effective Date and as of the date of each
FX Transaction and each Option that: (i) it has authority to enter into the
Agreement (including such FX Transaction or Option, as the case may be); (ii)
the persons entering into the Agreement (including such FX Transaction or
Option, as the case may be) on its behalf have been duly authorized to do so;
(iii) the Agreement (including such FX Transaction or Option, as the case may be)
is binding upon it and enforceable against it in accordance with its terms
(subject to applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors’ rights generally and applicable principles of
equity) and does not and will not violate the terms of any agreements to which
such Party is bound; (iv) no Event of Default, or event which, with notice or
lapse of time or both, would constitute an Event of Default, has occurred and
is continuing with respect to it; (v) it acts as principal in entering into
each FX Transaction and Option and exercising each and every Option; and (vi)
if the Parties have so specified in Part XV of the Schedule, it makes the
representations and warranties set forth in such Part XV.

 

7.2           Covenants.  Each Party covenants to the
other Party that: (i) it will at all times obtain and comply with the terms of
and do all that is necessary to maintain in full force and effect all
authorizations, approvals, licenses and consents required to enable it lawfully
to perform its obligations under the Agreement; (ii) it will promptly notify
the other Party of the occurrence of any Event of Default with respect to itself or any Credit Support
Provider in relation to it; and (iii) if the Parties have set forth additional
covenants in Part XVI of the Schedule, it makes the covenants set forth in such
Part XVI.

 

	
  SECTION 8.

  	
  CLOSE-OUT AND LIQUIDATION

  

 

8.1           Manner of Close-Out and Liquidation.  (a)  Close-Out.  If
an Event of Default has occurred and is continuing, then the Non-Defaulting
Party shall have the right to close out all, but not less than all, outstanding
Currency Obligations (including any Currency Obligation which has not been
performed and in respect of which the Value Date is on or precedes the
Close-Out Date) and Options, except to the extent that in the good faith
opinion of the Non-Defaulting Party certain of such Currency Obligations or
Options may not be closed out under applicable law. Such close-out shall be
effective upon receipt by the Defaulting Party of notice that the
Non-Defaulting Party is terminating

 

9

 

such Currency Obligations and Options.
Notwithstanding the foregoing, unless otherwise agreed by the Parties in Part X
of the Schedule, in the case of an Event of Default in clause (ii), (iii) or (iv)
of the definition thereof with respect to a Party and, if agreed by the Parties
in Part IX of the Schedule, in the case of any other Event of Default specified
and so agreed in Part IX with respect to a Party, close-out shall be automatic
as to all outstanding Currency Obligations and Options, as of the time
immediately preceding the institution of the relevant Insolvency Proceeding or
action. The Non-Defaulting Party shall have the right to liquidate such closed-out
Currency Obligations and Options as provided below.

 

(b)           Liquidation of Currency Obligations.  Liquidation of Currency
Obligations terminated by close-out shall be effected as follows:

 

(i)            Calculating Closing Gain or Loss.  The Non-Defaulting Party shall
calculate in good faith, with respect to each such terminated Currency
Obligation, except to the extent that in the good faith opinion of the
Non-Defaulting Party certain of such Currency Obligations may not be liquidated
as provided herein under applicable law, as of the Close-Out Date or as soon
thereafter as reasonably practicable, the Closing Gain, or, as appropriate, the
Closing Loss, as follows:

 

(A)          for each Currency Obligation calculate a
“Close-Out Amount” as follows:

 

(1)           in the case of a Currency Obligation whose Value
Date is the same as or is later than the Close-Out Date, the amount of such
Currency Obligation; or

 

(2)           in the case of a Currency Obligation whose
Value Date precedes the Close-Out Date, the amount of such Currency Obligation
increased, to the extent permitted by applicable law, by adding interest
thereto from and including the Value Date to but excluding the Close-Out Date
at overnight LIBOR; and

 

(3)           for each such amount in a Currency other than
the Non-Defaulting Party’s Base Currency, convert such amount into the
Non-Defaulting Party’s Base Currency at the rate of exchange at which, at the time
of the calculation, the Non-Defaulting Party can buy such Base Currency with or
against the Currency of the relevant Currency Obligation for delivery (x) if
the Value Date of such Currency Obligation is on or after the Spot Date as of
such time of calculation for the Base Currency, on the Value Date of that
Currency Obligation or (y) if such Value Date precedes such Spot Date, for
delivery on such Spot Date (or, in either case, if such rate of exchange is not
available, conversion shall be accomplished by the Non-Defaulting Party using
any commercially reasonable method); and

 

(B)           determine in relation to each Value Date: (1)
the sum of all Close-Out Amounts relating to Currency Obligations under which
the Non-Defaulting Party would otherwise have been entitled to receive the
relevant amount on that Value Date; and (2) the sum of all Close-Out Amounts
relating to Currency Obligations under which the Non-Defaulting Party would
otherwise have been obliged to deliver the relevant amount to the Defaulting
Party on that Value Date; and

 

(C)           if the sum determined under (B)(1) is greater
than the sum determined under (B)(2), the difference shall be the Closing Gain
for such Value Date; if the sum determined under (B)(l) is less than the sum determined
under (B)(2), the difference shall be the Closing Loss for such Value Date.

 

(ii)           Determining Present Value.  To the extent permitted by
applicable law, the Non-Defaulting Party shall adjust the Closing Gain or
Closing Loss for each Value Date falling after the Close-Out Date to present
value by discounting the Closing Gain or Closing Loss from and including the
Value Date to but excluding the Close-Out Date, at LIBOR with respect to the
Non-Defaulting Party’s Base Currency as at the Close-Out Date or at such other
rate as may be prescribed by applicable law.

 

(iii)          Netting.  The Non-Defaulting Party shall aggregate the following
amounts so that all such amounts are netted into a single liquidated amount
payable to or by the Non-Defaulting Party: (x) the sum of the Closing Gains for
all Value Dates (discounted to present value, where appropriate, in accordance
with the provisions of Section 8.1(b)(ii)) (which for the purposes of the
aggregation shall be a positive figure); and (y) the sum of the Closing Losses
for all Value Dates (discounted to present value, where appropriate, in
accordance with the provisions of Section 8.1(b)(ii)) (which for the purposes
of the aggregation shall be a negative figure).

 

10

 

(c)                                     Liquidation of Options. To liquidate unexercised Options and
exercised Options to be settled at their In-the-Money Amounts that have been
terminated by close-out, the Non-Defaulting Party shall:

 

(i)                                       Calculating Settlement Amount. Calculate in good faith with respect to
each such terminated Option, except to the extent that in the good faith
opinion of the Non-Defaulting Party certain of such Options may not be
liquidated as provided herein under applicable law, as of the Close-Out Date or
as soon as reasonably practicable thereafter a settlement amount for each Party
equal to the aggregate of:

 

(A)                                   with respect to each Option purchased by such
Party, and which the other Party has not elected to treat as void pursuant to Section 3.2(ii) for
lack of payment of the Premium, the current market premium for such Option;

 

(B)                                     with respect to each Option sold by such
Party and which such Party has not elected to treat as void pursuant to Section 3.2(ii) for
lack of payment of the Premium, any unpaid Premium, provided that, if
the Close- Out Date occurs before the Premium Payment Date, such amount shall
be discounted from and including the Premium Payment Date to but excluding the
Close-Out Date at a rate equal to LIBOR on the Close-Out Date and, if the
Close-Out Date occurs after the Premium Payment Date, to the extent permitted
by applicable law, the settlement amount shall include interest on any unpaid
Premium from and including the Premium Payment Date to but excluding the
Close-Out Date in the same Currency as such Premium at overnight LIBOR;

 

(C)                                     with respect to any exercised Option to be
settled at its In-the-Money Amount: (whether or not the Close-Out Date occurs
before the Settlement Date for such Option), any unpaid amount due to such
Party in settlement of such Option and, if the Close-Out Date occurs after the
Settlement Date for such Option, to the extent permitted by applicable law,
interest thereon from and including the applicable Settlement Date to but
excluding the Close-Out Date at overnight LIBOR; and

 

(D)                                    without duplication, the amount that the
Non-Defaulting Party reasonably determines in good faith, as of the Close-Out
Date or as of the earliest date thereafter that is reasonably practicable, to
be its additional losses, costs and expenses in connection with such terminated
Option, for the loss of its bargain, its cost of funding, or the loss incurred
as a result of terminating, liquidating, obtaining or re-establishing a delta
hedge or related trading position with respect to such Option;

 

(ii)                                    Converting to Base Currency. Convert any settlement amount calculated in
accordance with clause (i) above in a Currency other than the
Non-Defaulting Party’s Base Currency into such Base Currency at the Spot Price
at which, at the time of the calculation, the Non-Defaulting Party could enter
into a contract in the foreign exchange market to buy the Non-Defaulting Party’s
Base Currency in exchange for such Currency (or, if such Spot Price is not
available, conversion shall be accomplished by the Non-Defaulting Patty using
any commercially reasonable method); and

 

(iii)                                 Netting. Net such settlement amounts with respect to each Party so that all
such amounts are netted to a single liquidated amount payable by one Party to
the other Party.

 

(d)                                   Final Netting. The Non-Defaulting Party shall net (or, if
both are payable by one Party, add) the liquidated amounts payable under
Sections 8.1(b) and 8.1(c) with respect to each Party so that such
amounts are netted (or added) to a single liquidated amount payable by one
Party to the other Party as a settlement payment.

 

8.2                                   Set-Off Against Credit Support. Where close-out and liquidation occurs in
accordance with Section 8.1, the Non-Defaulting Party shall also be
entitled (i) to set off the net payment calculated in accordance with Section 8.1
(d) which the Non-Defaulting Party owes to the Defaulting Party, if any,
against any credit support or other collateral (“Credit Support”) held by the
Defaulting Party pursuant to a Credit Support Document or otherwise (including
the liquidated value of any non-cash Credit Support) in respect of the
Non-Defaulting Party’s obligations under the Agreement or (ii) to set off
the net payment calculated in accordance with Section 8.1(d) which
the Defaulting Party owes to the Non-Defaulting Party, if any, against any
Credit Support held by the Non-Defaulting Party (including the liquidated value
of any non-cash Credit Support) in respect of the Defaulting Party’s
obligations under the Agreement; provided that, for purposes of either
such set-off, any Credit Support denominated in a Currency other man the
Non-Defaulting Party’s Base Currency shall be converted into such Base Currency
at the rate specified in Section 8.1(c)(ii).

 

11

 

8.3                                    Other Foreign Exchange Transactions and
Currency Options. Where
close-out and liquidation occurs in accordance with Section 8.1, the
Non-Defaulting Party shall also be entitled to close-out and liquidate, to the
extent permitted by applicable law, any other foreign exchange transaction or
currency option entered into between the Parties which is then outstanding in
accordance with the provisions of Section 8.1, with each obligation of a
Party to deliver a Currency under such a foreign exchange transaction being treated
as if it were a Currency Obligation (including exercised options, provided that
cash-settled options shall be treated analogously to Options to be settled at
their In-the- Money Amount) and each unexercised option being treated as if it
were an Option under the Agreement.

 

8.4                                    Payment and Late Interest. The net amount payable by one Party to the
other Party pursuant to the provisions of Sections 8.1 and 8.3 above shall be
paid by the close of business on the Business Day following the receipt by the
Defaulting Party of notice of the Non-Defaulting Party’s settlement
calculation, with interest at overnight LIBOR from and including the Close-Out
Date to but excluding such Business Day (and converted as required by
applicable law into any other Currency, any costs of conversion to be borne by,
and deducted from any payment to, the Defaulting Party). To the extent
permitted by applicable law, any amounts owed but not paid when due under this Section 8
shall bear interest at overnight LIBOR (or, if conversion is required by
applicable law into some other Currency, either overnight LIBOR with respect to
such other Currency or such other rate as may be prescribed by such
applicable law) for each day for which such amount remains unpaid. Any addition
of interest or discounting required under this Section 8 shall be
calculated on the basis of a year of such number of days as is customary for
transactions involving the relevant Currency in the relevant foreign exchange
market.

 

8.5                                    Suspension of Obligations. Without prejudice to the foregoing, so long
as a Party shall be in default in payment or performance to the other Party
under the Agreement and the other Party has not exercised its rights under this
Section 8, or, if “Adequate Assurances” is specified as applying to the
Agreement in Part XI of the Schedule, during the pendency of a reasonable
request to a Party for adequate assurances of its ability to perform its
obligations under the Agreement, the other Party may, at its election and
without penalty, suspend its obligation to perform under the Agreement.

 

8.6                                    Expenses. The Defaulting Party shall reimburse the Non-Defaulting Party in
respect of all out-of- pocket expenses incurred by the Non-Defaulting Party
(including fees and disbursements of counsel, including attorneys who may be
employees of the Non-Defaulting Party) in connection with any reasonable
collection or other enforcement proceedings related to the payments required
under the Agreement.

 

8.7                                    Reasonable Pre-Estimate. The Parties agree that the amounts
recoverable under this Section 8 are a reasonable pre-estimate of loss and
not a penalty. Such amounts are payable for the loss of bargain and the loss of
protection against future risks and, except as otherwise provided in the
Agreement, neither Party will be entitled to recover any additional damages as
a consequence of such losses.

 

8.8                                 No Limitation of Other Rights: Set-Off. The Non-Defaulting Party’s rights under
this Section 8 shall be in addition to, and not in limitation or exclusion
of, any other rights which the Non-Defaulting Party may have (whether by
agreement, operation of law or otherwise), and, to the extent not prohibited by
law, the Non-Defaulting Party shall have a general right of set-off with
respect to all amounts owed by each Party to the other Party, whether due and
payable or not due and payable (provided that any amount not due and payable at
the time of such set-off shall, if appropriate, be discounted to present value
in a commercially reasonable manner by the Non-Defaulting Party). The
Non-Defaulting Party’s rights under this Section 8.8 are subject to Section 8.7.

 

SECTION 9.                            FORCE MAJEURE. ACT OF STATE. ILLEGALITY AND
IMPOSSIBILITY

 

9.1                                 Force Majeure, Act of State, Illegality and Impossibility. If either Party is prevented from or
hindered or delayed by reason of force majeure or act of state in the delivery
or receipt of any Currency in respect of a Currency Obligation or Option or if
it becomes or, in the good faith judgment of one of the Parties, may become
unlawful or impossible for either Party to make or receive any payment in
respect of a Currency Obligation or Option, then the Party for whom such
performance has been prevented, hindered or delayed or has become illegal or
impossible shall promptly give notice thereof to the other Party and either
Party may, by notice to the other Party, require the close-out and liquidation
of each affected Currency Obligation and Option in accordance with the
provisions of Section 8.1 and, for such purposes, the Party unaffected by
such force majeure, act of state, illegality or impossibility (or, if both
Parties are

 

12

 

so
affected, whichever Party gave the relevant notice) shall perform the
calculation required under Section 8.1 as if it were the Non-Defaulting
Party. Nothing in this Section 9.1 shall be taken as indicating that the
Party treated as the Defaulting Party for the purpose of calculations required by Section 8.1
has committed any breach or default

 

9.2                                 Transfer to Avoid Force Majeure, Act of
State, Illegality or Impossibility. If Section 9.1 becomes applicable, unless prohibited by law, the
Party which has been prevented, hindered or delayed from performing shall, as a
condition to its right to designate a close-out and liquidation of any affected
Currency Obligation or Option, use all reasonable efforts (which will not
require such Party to incur a loss, excluding immaterial, incidental expenses)
to transfer as soon as practicable, and in any event before the earlier to
occur of the expiration date of the affected Options or twenty (20) days after
it gives notice under Section 9.1, all its rights and obligations under
the Agreement in respect of the affected Currency Obligations and Options to
another of its Designated Offices so that such force majeure, act of state,
illegality or impossibility ceases to exist. Any such transfer will be subject
to the prior written consent of the other Party, which consent will not be
withheld if such other Party’s policies in effect at such time would permit it
to enter into transactions with the transferee Designated Office on the terms
proposed, unless such transfer would cause the other Party to incur a material
tax or other cost.

 

SECTION 10.                          PARTIES TO RELY ON THEIR OWN EXPERTISE

 

Each Party will be deemed to represent to the other Party on the date
on which it enters into an FX Transaction or Option that (absent a written
agreement between the Parties that expressly imposes affirmative obligations to
the contrary for that FX Transaction or Option): (i)(A) it is acting for
its own account, and it has made its own independent decisions to enter into
that FX Transaction or Option and as to whether that FX Transaction or Option
is appropriate or proper for it based upon its own judgment and upon advice
from such advisors as it has deemed necessary, (B) it is not relying on
any communication (written or oral) of the other Party as investment advice or
as a recommendation to enter into that FX Transaction or Option, it being understood
that information and explanations related to the terms and conditions of an FX
Transaction or Option shall not be considered investment advice or a
recommendation to enter into that FX Transaction or Option; and (C) it has
not received from the other Party any assurance or guarantee as to the expected
results of that FX Transaction or Option; (ii) it is capable of evaluating
and understanding (on its own behalf or through independent professional
advice), and understands and accepts, the terms, conditions and risks of mat FX
Transaction or Option; and (iii) the other Party is not acting as a
fiduciary or an advisor for it in respect of that FX Transaction or Option.

 

SECTION 11.                          MISCELLANEOUS

 

11.1                           Currency Indemnity. The receipt or recovery by either Patty
(the “first Party”) of any amount in respect of an obligation of the other
Party (the “second Party”) in a Currency other than that in which such amount
was due, whether pursuant to a judgment of any court or pursuant to Section 8
or 9, shall discharge such obligation only to the extent that, on the first day
on which the first Party is open for business immediately following such
receipt or recovery, the first Party shall be able, in accordance with normal
banking practice, to purchase the Currency in which such amount was due with
the Currency received or recovered. If the amount so purchasable shall be less
than the original amount of the Currency in which such amount was due, the
second Party shall, as a separate obligation and notwithstanding any judgment
of any court, indemnify the first Party against any loss sustained by it. The
second Party shall in any event indemnify the first Party against any costs
incurred by it in making any such purchase of Currency.

 

11.2                           Assignment. Neither Party may assign, transfer or charge or purport to
assign, transfer or charge its rights or obligations under the Agreement to a
third party without the prior written consent of the other Party and any
purported assignment, transfer or charge in violation of this Section 11.2
shall be void.

 

11.3                           Telephonic Recording. The Parties agree that each may electronically
record all telephonic conversations between them and that any such recordings may be
submitted in evidence to any court or in any Proceedings for the purpose of
establishing any matters pertinent to the Agreement.

 

11.4                           Notices. Unless otherwise agreed, all notices, instructions and other
communications to be given to a Party under the Agreement shall be given to the
address, telex (if confirmed by the appropriate answerback), facsimile

 

13

 

(confirmed
if requested) or telephone number and to the individual or department specified
by such Party in Part III of the Schedule. Unless otherwise specified, any
notice, instruction or other communication given in accordance with this Section 11.
4 shall be effective upon receipt

 

11.5                            Termination. Each of the Parties may terminate the Agreement at any time by
seven (7) days’ prior written notice to the other Party delivered as
prescribed in Section 11.4, and termination shall be effective at the end
of such seventh day, provided, however, that any such termination
shall not affect any outstanding Currency Obligations or Options, and the
provisions of the Agreement shall continue to apply until all the obligations
of each Party to the other under the Agreement have been fully performed.

 

11.6                            Severability. In the event any one or more of the
provisions contained in the Agreement should be held invalid, illegal or
unenforceable in any respect under the law of any jurisdiction, the validity,
legality and enforceability of the remaining provisions contained in the
Agreement under the law of such jurisdiction, and the validity, legality and
enforceability of such and any other provisions under the law of any other
jurisdiction shall not in any way be affected or impaired thereby. The Parties
shall endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

 

11.7                            No Waiver. No indulgence or concession granted by a Party and no omission or
delay on the part of a Party in exercising any right, power or privilege under
the Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.

 

11.8                            Master Agreement. What one of the Parties to the Agreement is
domiciled in the United States, the Parties intend mat the Agreement shall be a
master agreement, as referred to in 11 U.S.C. Section 101(53B)(C) and 12
U.S.C. Section 1821(e)(8)(D)(vii).

 

11.9                            Time of Essence, Etc. Time shall be of the essence in the
Agreement. Unless otherwise agreed, the times referred to in the Agreement with
respect to Options shall in each case refer to the local time of the relevant
Designated Office of the Seller of the relevant Option.

 

11.10                      Headings. Headings in the Agreement are for ease of reference only.

 

11.11                      Payments Generally. All payments to be made under the Agreement
shall be made in same day (or immediately available) and freely transferable
funds and, unless otherwise specified, shall be delivered to such office of
such bank, and in favor of such account as shall be specified by the Party
entitled to receive such payment in Part IV of the Schedule or in a
notice given in accordance with Section 1 1.4.

 

11.12                     Amendments. No
amendment, modification or waiver of the Agreement will be effective unless in
writing executed by each of the Parties; provided that the Parties may agree
in a Confirmation that complies with Section 2.3 to amend the Agreement
solely with respect to the Option that is the subject of the Confirmation.

 

11.13                     Credit Support. A
Credit Support Document between the Parties may apply to obligations
governed by the Agreement. If the Parties have executed a Credit Support
Document, such Credit Support Document shall be subject to the terms of the
Agreement and is hereby incorporated by reference in the Agreement. In the
event of any conflict between a Credit Support Document and the Agreement, the
Agreement shall prevail, except for any provision in such Credit Support
Document in respect of governing law.

 

11.14                     Adequate Assurances.
If the Parties have so agreed in Part XI of the Schedule, the failure by a
Party to give adequate assurances of its ability to perform any of its
obligations under the Agreement within two (2) Business Days of a written
request to do so when the other Party has reasonable grounds for insecurity
shall be an Event of Default under the Agreement.

 

11.15                     Correction of Confirmations. Unless either Party objects to the terms contained in any
Confirmation sent by the other Party or sends a corrected Confirmation within
three (3) Business Days of receipt of such Confirmation, or such shorter
time as may be appropriate given the Value Date of an FX Transaction, the
terms of such

 

14

 

Confirmation
shall be deemed correct and accepted absent manifest error. If the Party
receiving a Confirmation sends a corrected Confirmation within such three (3) Business
Days, or shorter period, as appropriate, then the Party receiving such
corrected Confirmation shall have three (3) Business Days, or shorter
period, as appropriate, after receipt thereof to object to the terms contained
in such corrected Confirmation.

 

SECTION 12.                         LAW AND JURISDICTION

 

12.1                            Governing Law. The Agreement shall be governed by, and
construed in accordance with, the laws of the jurisdiction set forth in Part XII
of the Schedule without giving effect to conflict of laws principles.

 

12.2                            Consent to Jurisdiction. (a) With respect to any Proceedings,
each Party irrevocably (i) submits to the non-exclusive jurisdiction of
the courts of the jurisdiction set forth in Part XIII of the Schedule and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought many such court, waives any claim that such
Proceedings have been brought in an inconvenient forum and further waives the
right to object, with respect to such Proceedings, that such court does not
have jurisdiction over such Party. Nothing in the Agreement precludes either
Party from bringing Proceedings in any other jurisdiction nor will the bringing
of Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.

 

(b)                                   Each Parry irrevocably appoints the agent for
service of process (if any) specified with respect to it in Part XIV of
the Schedule. If for any reason any Party’s process agent is unable to act as
such, such Party will promptly notify the other Party and within thirty (30)
days will appoint a substitute process agent acceptable to the other Party.

 

12.3                            Waiver of Jury Trial. Each Party irrevocably waives any and all
right to trial by jury in any Proceedings.

 

12.4                            Waiver of Immunities. Each Party irrevocably waives, to the
fullest extent permitted by applicable law, with respect to itself and its
revenues and assets (irrespective of their use or intended use), all immunity
on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction
of any court, (iii) relief by way of injunction, order for specific
performance or for recovery of property, (iv) attachment of its assets
(whether before or after judgment) and (v) execution or enforcement of any
judgment to which it or its revenues or assets might otherwise be entitled in
any Proceedings in the courts of any jurisdiction and irrevocably agrees, to
the extent permitted by applicable law, that it will not claim any such
immunity in any Proceedings.

 

	
  MORGAN STANLEY CAPITAL GROUP INC.

  

 

 

	
  By

  	
  /s/ G. WILLIAM BROWN,
  JR.

  	
   

  
	
  Name:

  	
  G. William Brown, Jr.

  
	
  Title:

  	
  Vice President

  
				

 

MORGAN STANLEY SPECTRUM TECHNICAL, L.P.

By:
Demeter Management Corporation

 

 

	
  By

  	
  /s/ JEFFREY ROTHMAN

  	
   

  
	
  Name: Jeffrey Rothman

  
	
  Title: President

  

 

15

 

SCHEDULE

 

Schedule to the International Foreign Exchange and Options Master
Agreement

dated as of March 18, 2005 (the “Agreement”)

between Morgan Stanley Capital Group Inc. (“Party A”)

and Morgan Stanley Spectrum Technical, L.P. (“Party B”).

 

Part I.                                         Scope of the Agreement

 

The
Agreement shall apply to all FX Transactions outstanding between any two
Designated Offices of the Parties on the Effective Date.

 

Part II.                                     Designated Offices

 

Each
of the following shall be a Designated Office: 

 

Party
A: New York 

 

Party
B: New York

 

Each
Party (the “first Party”) that enters into an FX Transaction through a
Designated Office other than its head or home office represents to the other
Party (the “second Party”) that, notwithstanding the place of booking office or
jurisdiction of incorporation or organization of the first Party, the
obligations of the first Party are the same as if it had entered into the FX
Transaction through its head or home office. This representation will be deemed
to be repeated by the first Party on each date on which it enters into an FX
Transaction.

 

Part III.                                 Notices

 

If
sent to Party A:

 

	
   

  	
  Address:

  	
  Morgan
  Stanley & Co. Incorporated

  
	
   

  	
   

  	
  1585
  Broadway, 3rd floor

  
	
   

  	
   

  	
  New
  York, New York 10036

  
	
   

  	
   

  	
   

  
	
   

  	
  Telephone
  Number:

  	
  (212)
  761-2700

  
	
   

  	
  Telex
  Number:

  	
  6801048   (Answerback: FXMS)

  
	
   

  	
  Facsimile
  Number:

  	
  (212)
  761-0296

  
	
   

  	
  SWIFT
  Number:

  	
  MSNYUS33

  
	
   

  	
  Name
  of Individual or Department

  
	
   

  	
  to
  whom Notices are to be sent: Foreign Exchange Trading Department

  
	
   

  	
   

  
	
   

  	
  If
  sent to Party B:

  
	
   

  	
   

  
	
   

  	
  Address:
  

  
	
   

  	
  Telephone
  Number:

  
	
   

  	
         Facsimile Number:

  
	
   

  	
  Name
  of Individual or Department to whom Notices are to be sent

  
				

 

Part IV.                                 Payment Instructions

 

ý Name of Bank and Office, Account Number and
Reference with respect to relevant Currencies: As specified in
the relevant Confirmation or as otherwise advised.

 

16

 

ý With respect to each Party, as may be
set forth in such Standard Settlement Instructions as may be specified by such
Party in a notice given in accordance with Section 11.4.

 

Part
V.            Netting

 

A.                    Discharge of Options

 

Not Applicable 

 

B.                    Netting of Premiums

 

Not Applicable 

 

C.                    Settlement Netting Offices

 

Each of the following shall be
a Settlement Netting Office:

 

Party A:  Same as
Part II.

 

Party B:  Same as
Part II.

 

Party A and Party B agree
that, notwithstanding Section 6.2 of
the Agreement, obligations to make payments pursuant to FX Transactions shall
only be netted, satisfied and discharged against obligations to make payments
arising out of the same or other FX Transactions between a pair of Settlement
Netting Offices.

 

D.                    Novation Netting Offices

 

Each of the following shall
be a Novation Netting Office:

Not applicable.

 

E.                     Matched Pair Novation Netting Offices

 

Each of the following shall
be a Matched Pair Novation Netting Office:

 

Not applicable.

 

	
  Part VI.

  	
  Automatic Exercise of
  Options; Cash Settlement of FX Transactions

  

 

A.                   Automatic Exercise of Options

 

Not applicable

 

B.                    Cash Settlement of FX Transactions

 

The following provision
shall apply:

 

The definition of FX
Transaction in Section 1 shall include foreign exchange transactions for the
purchase and sale of one Currency against another but which shall be settled by
the delivery of only one Currency based on the difference between exchange
rates as agreed by the Parties as evidenced in a Confirmation. Section 6.1 is
modified so that only one Currency shall be delivered for any such FX
Transaction in accordance with the formula agreed by the Parties. Section 8. l(b)(i)(A)
is modified so that the Close-Out Amount for any such FX Transaction for which
the cash settlement amount has been fixed on or before the Close-Out Date
pursuant to the terms of such FX Transaction shall be equal to the Currency
Obligation arising therefrom (increased by adding interest in the manner
provided in clause (A)(2) if the Value Date precedes the Close-Out Date) and
for any such FX Transaction for which the cash settlement amount has

 

17

 

not yet been fixed on the
Close-Out Date pursuant to the terms of such FX Transaction, the Close-Out
Amount shall be as reasonably determined by Party A in accordance with market
practice.

 

	
  Part VII.

  	
  Base Currency

  

 

Party A’s Base Currency is
U.S. Dollars.

 

Party B’s Base Currency is
U.S. Dollars.

 

Part VIII.        Threshold Amount

 

For purposes of clause (x)
of the definition of Event of Default:

 

Party A’s Threshold Amount
is U.S.D. $10,000,000.

 

Party B’s Threshold Amount
is U.S.D. $10,000,000.

 

Part IX.           Additional Events of Default

 

Clause (x) of the definition
of Event of Default shall be modified by deleting the words “, or becomes
capable at any time of being declared,” after the words “and remains unpaid
after any applicable grace period has elapsed, or (B) becomes”.

 

The following provisions
which are checked shall constitute Events of Default:

 

o (a)     occurrence
of garnishment or provisional garnishment against a claim against the
Defaulting Party acquired by the Non-Defaulting Party. The automatic
termination provision of Section 8.1 [shall][shall not] apply to either Party
that is a Defaulting Party in respect of this Event of Default.

 

o (b)     suspension
of payment by the Defaulting Party or any Credit Support Provider in accordance
with the Bankruptcy Law or the Corporate Reorganization Law in Japan. The
automatic termination provision of Section 8.1 [shall][shall not] apply to
either Party that is a Defaulting Party in respect of this Event of Default.

 

o (c)     disqualification
of the Defaulting Party or any Credit Support Provider by any relevant bill
clearing house located in Japan. The automatic termination provision of Section
8.1 [shall][shall not] apply to either Party that is a Defaulting Party in
respect of this Event of Default.

 

Part X.            Automatic Termination

 

The automatic termination
provision of Section 8.1 shall not apply to Party A as Defaulting Party in
respect of clause (ii), (iii) or (iv) of the definition of
Event of Default.

 

The automatic termination
provision of Section 8.1 shall not apply to Party B as Defaulting Party in
respect of clause (ii), (iii) or (iv) of the definition of Event of Default.

 

Part XI.           Adequate Assurances

 

Adequate Assurances under
Section 11. 14 shall not apply to the Agreement.

 

18

 

	
  Part XII.

  	
  Governing Law

  

 

In accordance with Section
12.1 of the Agreement, the Agreement shall be governed by the laws of the State
of New York.

 

	
  Part XIII.

  	
  Consent to Jurisdiction

  

 

In accordance with Section
12.2 of the Agreement, each Party irrevocably submits to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City.

 

	
  Part XIV.

  	
  Agent for Service of
  Process

  

 

Party A appoints the
following as its agent for service of process in any Proceedings in the State
of New York: Not applicable.

 

Party B appoints the
following as its agent for service of process in any Proceedings in State of
New York: Not applicable.

 

	
  Part XV.

  	
  Certain Regulatory
  Representations

  

 

A.                   The following FDICIA representation shall
apply:

 

1.     Party A represents and warrants that it qualifies as a “financial
institution” within the meaning of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (“FDICIA”) by virtue of being a:

 

ý broker or dealer within the meaning of
FDICIA;

 

o depository institution within the
meaning of FDICIA;

 

ý futures commission merchant within the
meaning of FDICIA;

 

o “financial institution” within the
meaning of Regulation EE (see below).

 

2.     Party B hereby represents and warrants that it qualifies as a “financial
institution” by virtue of being a:

 

o broker or dealer within the meaning of
FDICIA;

 

o depository institution within the
meaning of FDICIA;

 

o futures commission merchant within the
meaning of FDICIA;

 

o “financial institution” within the
meaning of Regulation EE (see below).

 

3.     A Party representing that it is a “financial institution” as that term
is defined in 12 C.F.R. Section 231.3 of Regulation EE issued by the Board of
Governors of the Federal Reserve System (“Regulation EE”) represents that:

 

(a)     it is wilting to enter into “financial contracts” as a counterparty “on
both sides of one or more financial markets” as those terms are used in Section
231.3 of Regulation EE; and

 

(b)     during the 15-month period immediately preceding the date it makes or
is deemed to make this representation, it has had on at least one (l) day
during such period, with counterparties that are not its affiliates (as defined
in Section 231.2(b) of Regulation EE) either:

 

19

 

(i)         one or more financial contracts of a total gross notional principal
amount of $1 billion outstanding; or

 

(ii)        total gross mark-to-market positions (aggregated across counterparties)
of $ 100 million; and

 

(c)     agrees that it will notify the other Party if it no longer meets the
requirements for status as a financial institution under Regulation EE.

 

4.     If both Parties are financial institutions in accordance with the
above, the Parties agree that the Agreement shall be a netting contract, as
defined in 12 U.S.C. Section 4402(14), and each receipt or payment or delivery
obligation under the Agreement shall be a covered contractual payment
entitlement or covered contractual payment obligation, respectively, as defined
in FDICIA.

 

B.                    The following ERISA representation shall
apply

 

Party B continuously
represents that it is not (i) an employee benefit plan (hereinafter an “ERISA
Plan”), as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (“ERISA”), subject to Tittle I of ERISA or Section 4975
of the Internal Revenue Code of 1986, as amended, (ii) a person acting on
behalf of an ERISA Plan or (iii) a person the assets of whom constitute assets
of an ERISA Plan. Party B will provide notice to Party A in the event that
Party B is aware that it is in breach of any aspect of this representation or
is aware that with the passing of time, giving of notice or expiry of any
applicable grace period Party B will breach this representation.

 

C.                    The following Commodity Exchange Act
representation shall apply:

 

Each Party represents and
warrants that it is an “eligible contract participant” under, and as defined
in, Section 1 (a)(12) of the Commodity Exchange Act, and was not
formed solely for the purposes of constituting an “eligible contract
participant.”

 

	
  Part XVI.

  	
  Representations and
  Warranties:

  

 

In addition to the
representations and warranties set forth in Section 7.1 of this Schedule, each
Party hereby represents and warrants to
the other Party on the date hereof and on the date of each FX
Transaction, as the case may be, that:  (a) it is a sophisticated investor able to
evaluate and assume the risks associated with transactions in currencies as
contemplated by the Agreement; (b) it is not relying upon any representations
(whether written or oral) of the other Party other than the representations
expressly set forth in the Agreement, this Schedule, any Credit Support
Document or in any Confirmation; (c) its execution and delivery of the
Agreement, and its performance of its obligations hereunder, do not and will
not conflict with any law or regulation of the jurisdiction of its organization
or other law or regulation applicable to it, and do not and will not violate,
constitute a default under, or result in the creation or imposition of any lien
or encumbrance on any of its property or assets under any agreement or
instrument to which it is a party or by which its assets are bound; (d) no
consent, authorization or approval (including exchange control approval) or
other action by, and no notice to or filing with, any person or entity,
including any governmental authority or regulatory body, other than any already
obtained, made or filed and remaining in full force and effect, and the
conditions of which have been duly complied with, is required in connection
with the performance of its obligations under the Agreement; and (e) there are
no actions, proceedings or claims pending or, to the best of its knowledge,
threatened, the adverse determination of which might have a materially adverse
effect on its ability to perform its obligations under, or affect the validity
or enforceability of, the Agreement.

 

	
  Part XVII.

  	
  Agreement Superseding

  

 

A new Section 11.16 shall be
added to the Agreement which shall read as follows: “The Agreement shall
supersede any other agreement between the Parties with respect to the subject
matter hereof.”

 

20

 

Part XVIII. 1998 FX
and Currency Option Definitions.

 

The 1998 FX and Currency Option Definitions as
published by ISDA, EMTA and The Foreign Exchange Committee (the “Definitions”)
shall be applicable to each FX Transaction under the Agreement, including any
FX Transaction outstanding on the date hereof, subject to the following:

 

A.                                   Definitions

 

1.                                   The term “Agreement” in Section 2.2 of
the Agreement shall include the Agreement as modified and supplemented by this
Part.

 

2.                                   The term “FX Transaction” in the Definitions
or in a Confirmation shall in all cases be considered references to an “FX
Transaction” under the Agreement.

 

3.                                   All terms in this Part shall have the
meanings given them above or in the Definitions, unless not defined above or in
the Definitions, in which case the term shall have the meaning given in the
Agreement.

 

B.                                     Scope

 

1.                                   Notwithstanding the absence of any reference
to the Definitions in a Confirmation, this Part and the Definitions shall
be applicable to any FX Transaction covered by the Agreement; provided that the
Parties may agree otherwise for any Transaction as evidenced by a
Confirmation that complies with Section 2.3 of the Agreement.

 

2.                                   In the event of any inconsistency between the
Definitions and a Confirmation, the terms of the Confirmation shall govern for
the purpose of the relevant Transaction. In the event of any inconsistency
between the Definitions and the Agreement, the Definitions shall prevail.

 

C.                                     Confirmations

 

Notwithstanding Sections 2.4 and 11.12 of the
Agreement, in the event of any inconsistency between the terms of a
Confirmation for an FX Transaction and the Agreement, the terms of the
Confirmation shall prevail.

 

D.                                    Disruption Events

 

With respect to any Disruption Event that is
applicable to an FX Transaction pursuant to the Definitions or as otherwise
agreed by the Parties as evidenced by a Confirmation, Section 9 of the
Agreement shall not be applicable in respect of such FX Transaction, and the
Parties shall be subject to the Disruption Fallbacks (including but not limited
to No Fault Termination) specified as applicable pursuant to the Definitions or
such Confirmation.

 

E.                                      Miscellaneous

 

The provisions of Part VI.B of this Schedule relating
to cash settlement of FX Transactions shall apply to Non-Deliverable FX
Transactions.

 

Part XIX. Force
Majeure, Act of State, Illegality and Impossibility

 

Section 9 of the Agreement is hereby amended by
deleting it in its entirety and inserting in its place the following
replacement Section:

 

21

 

9.1 Liquidation Rights. If a Force Majeure
Event occurs and is still in effect, then (but subject to Section 9.2)
either Party may, by notice to the other Party on any day or days after the
Waiting Period expires, require the close-out and liquidation of the Currency
Obligations under any or all of the Affected Transactions in accordance with
the provisions of Section 8.1 and, for such purposes, the Party unaffected
by such Force Majeure Event shall perform the calculation required under Section 8.1
as if it were the Non-Defaulting Party (or, if both Parties are Affected
Parties, but Parties shall so calculate in respect of all Affected Transactions
which either Party determines to liquidate and the average of the amounts so
determined shall be the relevant amount in respect of each Affected
Transaction, except that if a Party fails to so determine an amount, the amount
determined by the other Party shall govern). If a Party elects to so liquidate
less than all Affected Transactions, it may liquidate additional Affected
Transactions on a later day or days if the relevant Force Majeure Event is
still in effect.

 

9.2 Waiting Period. If the Value Date of
an FX Transaction which is an Affected Transaction, under Section 9.1
falls during the Waiting Period of the relevant Force Majeure Event, then such
Value Date will be deferred to the first Business Day (or the first day which,
but for such event, would have been a Business Day) after the end of that
Waiting Period (or, in the case of Split Settlement, the first Local Banking
Day or the first day which, but for such event, would have been a Local Banking
Day, after the end of the Waiting Period). Compensation for this deferral shall
be at then current market rates as determined in a commercially reasonable
manner by the calculating Party or Parties under Section 9.

 

9.3 Notice by Affected Party. If a Force
Majeure Event has occurred, an Affected Party shall promptly give notice
thereof to the other Party.

 

9.4  Force Majeure Event and Event of
Default.  Nothing in this Section 9 shall be taken as
indicating that the Party treated as the Defaulting Party for the purpose of
calculations required by Section 8.1 has committed any breach or default.
If an event occurs that would otherwise constitute both a Force Majeure Event
and an Event of Default, that event will be treated as a Force Majeure Event
and will not constitute an Event of Default.”

 

In
addition, the following definitions shall be added to Section 1 of the
Agreement:

 

““Force Majeure Event”, on any day determined
as if such day were a Value Date of an FX Transaction (even if it is not),
means (i) either Party, by reason of force majeure or act of state, is
prevented from or hindered or delayed in delivering or receiving, or it is
impossible to deliver or receive, any Currency in respect of a Currency
Obligation, and which event is beyond the control of such Party and which such
Party, with reasonable diligence, cannot overcome, or (ii) it is unlawful
for either Party to deliver or receive a payment of any Currency in respect of
a Currency Obligation. A Party whose delivery or receipt of Currency has been
or would be so prevented, hindered or delayed or made unlawful or impossible is
an “Affected Party”, and an FX Transaction under which performance has been or
would be so prevented, hindered or delayed or made unlawful or impossible is an
“Affected Transaction”, unless the Parties have expressly agreed in an
Agreement, another writing or in regard to a particular FX Transaction that
other disruption events or disruption fallbacks will apply to that FX
Transaction; in such event, that FX Transaction will be subject to such
disruption events or disruption fallbacks as the Parties have otherwise agreed.

 

“Waiting Period”, in respect of a Force Majeure
Event, means that first three days after such event occurs which are Business
Days or which, but for such event, would have been Business Days.”“

 

Part XX. Margin
and Security

 

A.                                                           Party
B shall at all times maintain with Dean Witter Reynolds Inc. (the “Custodian”),
for and on behalf of Party A, cash and securities acceptable to Party A
(together, the “Margin”) in order to secure the obligations of Party B under
all open FX Transactions entered into under the Agreement. The amount of Margin
which Party B shall maintain with Party A shall be determined by Party A in its
reasonable

 

22

 

judgment (which determination shall be conclusive in the absence of
manifest error), on a risk adjusted basis, taking into account historical
volatility, imputed volatility and/or such other factors as Party A reasonably
deems relevant to this determination (the “Aggregate Margin Requirement”). On
or prior to the date of the Agreement, Party B shall have established a pledge
account with the Custodian (the “Account”) for the purpose of holding custody
of the Margin for and on behalf of Party A, in accordance with the provisions
of the Custodian Account Addendum, dated the date hereof, and the Agreement.  Party B’s failure to deposit Margin or to establish the
Account as required herein shall be an Event of Default for all purposes under
the Agreement (it being understood that there shall be no grace period with
respect to obligations of Party B pursuant to this Part XX). Party A shall
settle all FX Transactions with Party B on a secured basis only, such that
Party A’s payment obligations to Party B shall be made (a) prior to
receipt of Party B’s counterpayment thereunder, only to the extent that the
amount by which Margin in the Account exceeds the Aggregate Margin Requirement
is greater than such counterpayment or the U.S. Dollar equivalent thereof, or (b) after
Party A has confirmed receipt of Party B’s counterpayment thereunder.

 

B.                                                             Whenever such Aggregate Margin Requirement
shall exceed the market value of Margin on deposit with the Custodian in the Account
as determined by Party A at such time in its reasonable judgment and which determination shall be conclusive in the absence of
manifest error (the “Margin Balance”, and the difference between such Aggregate
Margin Requirement and the Margin Balance being the “Shortfall”), then Party B
shall deposit immediately upon Party A’s request, additional Margin in an
amount at least equal to such Shortfall.

 

C.                                                             In furtherance of the foregoing, as security
for the prompt and complete payment when due and the performance by Party B of
all of its obligations to Party A under the Agreement, Party B hereby grants to
Party A a continuing first priority security interest in and to all of Party B’s
right, title and interest in and to the Margin, the Account, all financial
assets, investment property and other property and assets which are deposited
from time to time in, or credited from time to time to, the Account, all
security entitlements in respect thereof, all income and profits thereon, all interest,
dividends and other payments and distributions with respect thereto, and all
proceeds of any of the foregoing (the “Margin Collateral”). In addition, Party
B hereby grants to Party A and its affiliates a first priority security
interest in and to any property of Party B at any time held by Party A or any
affiliate of Party A for any purpose, including, without limitation, any
property of Party B held in any account with Party A or any affiliate of Party
A or with the Custodian, any financial assets, investment property and other
property and assets which are deposited from time to time in, or credited from
time to time to, any such account, all security entitlements in respect
thereof, all income and profits thereon, all interest, dividends and other
payments and distributions with respect thereto, and all proceeds of any of the
foregoing (the “Collateral”), to secure all obligations of Party B to Party A.
If Collateral was delivered in connection with a particular agreement between
Party B and Party A or any of its affiliates, then such Collateral shall secure
first the obligations of Party B with respect to such agreement and second all
other obligations of Party B to Party A or any of its affiliates (in such order
as Party A shall determine in its sole discretion). Party A, its affiliates and
the Custodian and Party B hereby each acknowledge and agree that (a) each
of Party A and its affiliates which holds Collateral holds such Collateral for
itself and also as agent and bailee for all other of Party A and its affiliates
which are secured parties hereunder or under any agreement between Party B and
Party A or any of its affiliates, and (b) the Custodian which holds
Collateral for and on behalf of Party A holds such Collateral as agent and
bailee for Party A and its affiliates which are secured parties hereunder and
under any agreement between Party B and Party A or any of its affiliates. If an
Event of Default hereunder shall occur, then each of Party A and its affiliates
shall be entitled to retain or sell all Collateral as security for Party B’s
obligations, even if otherwise required pursuant to the terms of an agreement
or otherwise to deliver any Collateral to Party B or Party B’s order. The
parties agree that Party A and its affiliates shall have the rights and remedies
of a secured creditor under the New York Uniform Commercial Code (the “UCC”)
and under any other applicable law or agreement
to exercise any right with respect to the Margin Collateral and the Collateral
subject to the security interest granted under the Agreement. Each of Party A
or any of its affiliates shall have free and unrestricted use of any Margin
Collateral and/or Collateral which it holds hereunder, including, without
limitation, the right, from time to time and without notice to Party B, to sell,
pledge, repledge, hypothecate, rehypothecate, assign, invest, use, commingle or
otherwise dispose of, or otherwise use in its business any Margin Collateral
and/or Collateral separately or in common with other securities, commodities or
other property, for the sum due to any of Party A or any of its affiliates or
for a

 

23

 

greater sum on terms which may otherwise impair the right of Party
B to redeem such Margin Collateral and/or Collateral, and free from any other
right of claim of any nature whatsoever of Party B, and without retaining
possession and control for delivery a like amount of similar securities,
commodities, or other property.

 

D.                                                            Party B represents and warrants that it owns
the Margin Collateral and the Collateral to be pledged and assigned to each of
Party A and its affiliates hereunder and under any other agreement between
Party B and Party A or any of its affiliates, free and clear of any liens,
equities, claims (including, without limitation, participation interests) and
transfer restrictions. Party B covenants and agrees that it will not sell,
assign, transfer, exchange or otherwise dispose of, or grant any option with
respect to, any of the Margin Collateral or the Collateral, nor will it create,
incur or permit to exist any lien on or with respect to any of the Margin
Collateral or the Collateral, any interest therein, or any proceeds thereof,
except for the security interests created under this Agreement or otherwise
under any agreement between Party B and Party A or any of its affiliates. Any
purported sale, assignment, transfer, exchange, disposition, grant or lien of
the Margin Collateral or the Collateral by Party B that is not permitted
under the foregoing sentence shall be null and void and shall constitute an
Event of Default hereunder and under any agreement between Party B and Party A
or any of its affiliates immediately prior to the taking of any such action, if
Party A so deems (it being understood that there shall be no grace period
with respect to obligations of Party B pursuant to this Part XX).

 

E.                                                              Party B shall, in its sole expense and as
Party A in its sole discretion may deem necessary or advisable from time
to time, (i) to create, preserve, protect and perfect the security
interests granted under the Agreement and (ii) to enable Party A to
exercise and enforce its rights with respect to such security interests, do all
acts and things and execute and deliver all documents and instruments in such
manner and form as Party A may require, including without limitation
UCC financing statements and continuation statements. Party B hereby appoints
Party A as its true and lawful attorney-in-fact, including without limitation,
to sign and file such documents and instruments on Party B’s behalf and without
Party B’s signature; such appointment, being coupled with an interest, shall be
irrevocable. Without limitation on the foregoing, Party B agrees to take such
action as Party A in its sole discretion may deem necessary or advisable in
the event of any change in applicable law, including, without limitation,
Articles 8 and 9 of the UCC and the Regulations of the Department of the
Treasury and other governmental bodies governing transfers of interests in U.S.
marketable treasury securities in book-entry form.

 

F.                                                              The parties hereto agree that each of the
Account and any account in which any Collateral is held or to which any Collateral is credited (a “Collateral
Account”) is a “securities account” within the meaning of Article 8 of the
UCC and that all property and assets (including, without limitation, cash) held
in or credited to (i) the Account or (ii) any Collateral Account
shall be treated as a “financial asset” for purposes of Article 8 of the
UCC.

 

Part XXI.                                              Miscellaneous

 

Trading Authorization for FX Transactions and
Options

 

Party B hereby makes the following additional
representations and warranties, which shall continue during the term of any FX
Transaction and Option:

 

(i)                                  Party B has duly authorized Demeter
Management Corporation (the “Agent”) to enter into FX Transactions and
Options on its behalf and to take all requisite action on behalf of Party B
contemplated by and in connection with the Agreement. Party B has designated
the Agent as its agent for performance of its obligations to Party A and
for receipt of performance by Party A of its obligations to Party B in
connection with any FX Transactions and Options under the Agreement
(including, among other things, as agent for Party B in connection with
transfers of cash or other property and as agent for giving and receiving of
all notices under the Agreement). Party B hereby agrees that it shall have in
connection with any FX Transaction and Option entered into by the Agent on
its behalf, the rights, responsibilities, privileges and obligations of a “Party”
directly entering into such FX Transactions with Party A under the
Agreement.

 

24

 

(ii)                              Party B shall indemnify Party A against any
damages incurred by Party A as a consequence of the failure of the above
representations made by Party B to be true at any time made or deemed to be
made, or for Agent’s failure to act as contemplated by the Agreement.

 

(iii)                            This authorization shall continue in full
force and effect, and may be relied upon by Party A, unless terminated by
Party B by giving two (2) Business Day’s written notice (by telex or
facsimile) of such termination to Party A, Party B will remain fully
responsible for any transactions effected by Party A for Party B prior to the
valid termination of this authority.

 

MORGAN STANLEY
CAPITAL
GROUP INC., as
Party A

 

 

	
  By

  	
  /s/ G. William BrOwn, Jr.

  	
   

  
	
   

  	
  Name:

  	
  G. William Brown, Jr.

  
	
   

  	
  Title:

  	
  Vice President

  
				

 

MORGAN
STANLEY SPECTRUM TECHNICAL, L.P., as Party B

By Demeter
Management Corporation

 

 

	
   

  	
  /s/ JEFFREY ROTHMAN

  	
   

  
	
   

  	
  Name: Jeffrey Rothman

  
	
   

  	
  Title: President

  

 

25

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