Exhibit 10.2

EXECUTION COPY

U.S. EMPLOYEE MATTERS AGREEMENT

by and between

MORGAN STANLEY

and

DISCOVER FINANCIAL SERVICES

Dated as of June 30, 2007

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TABLE OF CONTENTS

 

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         PAGE

ARTICLE 1

SCOPE AND DEFINITIONS

 

Section 1.01.   Scope    1 Section 1.02.   Definitions    2 Section 1.03.  
Interpretation    5

 

ARTICLE 2

ASSIGNMENT OF EMPLOYEES

 

Section 2.01.   Active Employees    7 Section 2.02.   Former Employees    8
Section 2.03.   Employment Law Obligations    9 Section 2.04.   Employee Records
   10 Section 2.05.   Morgan Stanley Executive Compensation Website    11

 

ARTICLE 3

EQUITY COMPENSATION PLANS

 

Section 3.01.   Stock Options    13 Section 3.02.   Restricted Stock Units    14
Section 3.03.   Approval and Terms of Equity Awards    14 Section 3.04.  
Responsibility For Tax Withholding, Reporting, And Social Insurance
Contributions    15 Section 3.05.   No Change of Control    16

 

ARTICLE 4

EMPLOYEE STOCK PURCHASE PLAN

 

Section 4.01.   ESPP    16

 

ARTICLE 5

GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES

 

Section 5.01.   General Principle    17 Section 5.02.   Establishment of
Discover Plans    18 Section 5.03.   Transfer of Assets and Liabilities    18
Section 5.04.   Exceptions    19 Section 5.05.   Cooperation    19 Section 5.06.
  Service Credit    19 Section 5.07.   Plan Administration    20

 

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ARTICLE 6

U.S. PENSION PLAN SPIN-OFF

 

   Section 6.01.   General Principle    21 Section 6.02.   Determination and
Transfer of Initial Transfer Amount    22 Section 6.03.   Determination of the
Final Pension Transfer Amount    22 Section 6.04.   True-Up Adjustment    24
Section 6.05.   Form and Selection of Assets to be Transferred    24
Section 6.06.   Adjustment Payment for Data Errors    25

 

ARTICLE 7

U.S. 401(K) PLAN AND ESOP

 

Section 7.01.   General Principle    25 Section 7.02.   Transfer of Accounts   
26 Section 7.03.   Funding of 2007 Matching Contribution    26 Section 7.04.  
Continuing Obligations Regarding Proxy Statement, Tender Offers and Similar
Rights and Restrictions    27

 

ARTICLE 8

U.S. WELFARE BENEFIT PLANS

 

Section 8.01.   General Principle and Exceptions    27 Section 8.02.  
Establishment of Discover Plans    28 Section 8.03.   No Transfer of Assets   
29 Section 8.04.   Insurance Contracts    29 Section 8.05.   Third Party Vendors
   30

 

ARTICLE 9

FRINGE BENEFIT AND OTHER U.S. PLANS AND PROGRAMS

 

Section 9.01.   General Principle and Exceptions    30 Section 9.02.  
Transition of Coverage Under Plans and Programs    31

 

ARTICLE 10

WORKERS COMPENSATION AND UNEMPLOYMENT COMPENSATION

 

Section 10.01.   Allocation of Workers Compensation and Unemployment Claims   
32

 

ARTICLE 11

COMPENSATION MATTERS AND GENERAL BENEFIT AND EMPLOYEE MATTERS

 

Section 11.01.   Restrictive Covenants in Employment and Other Agreements    32
Section 11.02.   Non-Solicitation of Employees    33 Section 11.03.   Severance
   33

 

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Section 11.04.   Accrued Vacation Days Off    34 Section 11.05.   Leaves of
Absence    34 Section 11.06.   Morgan Stanley Assets    34 Section 11.07.  
Morgan Stanley Deferred Compensation Plans    34

 

ARTICLE 12

GENERAL PROVISIONS

 

Section 12.01.   Preservation of Rights to Amend    35 Section 12.02.  
Confidentiality    35 Section 12.03.   Administrative Complaints/Litigation   
35 Section 12.04.   Reimbursement and Indemnification    35 Section 12.05.  
Costs of Compliance with Agreement    36

 

ARTICLE 13

MISCELLANEOUS

 

Section 13.01.   Notices    36 Section 13.02.   Amendments; No Waivers    37
Section 13.03.   Successors and Assigns    37 Section 13.04.   Governing Law   
37 Section 13.05.   Counterparts; Effectiveness; Third-Party Beneficiaries    37
Section 13.06.   Entire Agreement    38 Section 13.07.   Jurisdiction    38
Section 13.08.   WAIVER OF JURY TRIAL    38 Section 13.09.   Severability    39
Section 13.10.   Survival    39 Section 13.11.   Captions    39 Section 13.12.  
Specific Performance    39 Section 13.13.   Limited Liability    39
Section 13.14.   Mutual Drafting    40 Section 13.15.   Implementation    40
Section 13.16.   Effect if Distribution Does Not Occur    40 Section 13.17.  
Corporate Authorization    40

 

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U.S. EMPLOYEE MATTERS AGREEMENT

THIS U.S. EMPLOYEE MATTERS AGREEMENT dated as of June 30, 2007 between Morgan
Stanley, a Delaware corporation (“Morgan Stanley”), and Discover Financial
Services, a Delaware corporation (“Discover”) (collectively, the “Parties”).

RECITALS

WHEREAS, Morgan Stanley and Discover have entered into a Separation and
Distribution Agreement of even date herewith (the “Distribution Agreement”)
pursuant to which Morgan Stanley will distribute on a pro rata basis to the
holders of Morgan Stanley’s Common Stock, par value $0.01 per share (“Morgan
Stanley Common Stock”), without any consideration being paid by such holders,
all of the outstanding shares of Common Stock, par value $0.01 per share of
Discover (“Discover Common Stock”) then owned by Morgan Stanley (the
“Distribution”).

WHEREAS, in connection with the Distribution, Morgan Stanley and Discover desire
to enter into this U.S. Employee Matters Agreement as a complement to the
Distribution Agreement.

NOW THEREFORE, in consideration of the mutual covenants contained herein and in
the Distribution Agreement, the Parties hereto agree as follows:

ARTICLE 1

SCOPE AND DEFINITIONS

Section 1.01. Scope. Notwithstanding anything to the contrary contained herein
(i) this Agreement shall not apply with respect to any Employee whose primary
employer within the Morgan Stanley Group or Discover Group is or was an entity
domiciled in the United Kingdom, except that this Agreement shall apply with
respect to the employees listed on Schedule 1.01(i) solely to the extent
relevant with respect to the appropriate treatment of the benefits of such
employees addressed herein and not addressed in the U.K. Employee Matters
Agreement and (ii) the terms of this Agreement shall apply only to the extent
relevant with respect to the appropriate treatment of any Employee whose primary
employer within the Morgan Stanley Group or Discover Group is or was an entity
domiciled in a country other than the United Kingdom or the U.S. or in Puerto
Rico. For the avoidance of doubt, any relevant portions of this Agreement shall
apply with respect to the Employees listed on Schedule 1.01(ii) hereof (who are
Employees who are or have been located outside the U.S., but are or have been
covered under U.S. compensation and benefit plans and arrangements). However,

 

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this Agreement shall not apply with respect to the Employees listed on Schedule
1.01(iii) hereof (who are Employees who are, as of the date hereof, located
within the U.S. but are employed by U.K. entities and covered under U.K.
compensation arrangements and benefit plans and arrangements).

Section 1.02. Definitions. Unless otherwise defined herein, each capitalized
term shall have the meaning specified for such term in the Distribution
Agreement. As used in this Agreement:

“Agreement” means this U.S. Employee Matters Agreement together with those parts
of the Distribution Agreement referenced herein, all Schedules hereto and all
amendments, modifications and changes hereto and thereto.

“Business Day” means any day, other than a Saturday, a Sunday or a day on which
banks in New York, New York are authorized or obligated by law to close.

“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as
codified at Part 6 of Subtitle B of Title I of ERISA and at Section 4980B of the
Code, as amended.

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“Conversion Ratio” means the closing price of Morgan Stanley common stock
immediately prior to the Distribution divided by the opening price of Discover
common stock immediately following the Distribution, in each case as reported on
the New York Stock Exchange.

“Discover Business Employee” means any individual who is, immediately prior to
the Distribution, employed by Morgan Stanley, Discover or any of their
respective Subsidiaries and has employment duties primarily related to the
Discover Business, as reasonably agreed by the Parties consistent with the
foregoing description. A Discover Business Employee may not be a Morgan Stanley
Business Employee.

“Discover Equity Plans” shall mean one or more plans adopted by Discover and
approved by Morgan Stanley, as shareholder of Discover, under the authority of
which the Discover equity awards described in Article 3 shall be issued.

“Discover Initial Price” shall mean the opening price of Discover common stock
immediately following the Distribution as reported on the New York Stock
Exchange.

“Discover Non-ERISA U.S. Benefit Arrangement” means any Non-ERISA U.S. Benefit
Arrangement sponsored or maintained by Discover.

 

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“Discover Pension and Welfare Benefit Plan” means any Pension Plan or Welfare
Plan sponsored or maintained by Discover or a Discover Subsidiary.

“Discover RSU” shall mean a right, issued in accordance with Section 3.02,
representing the contractual entitlement to receive one share of Discover Common
Stock in accordance with the terms and conditions of the award and the Discover
Equity Plans under which the Discover RSU is granted.

“Discover Stock Option” shall mean a right, issued in accordance with
Section 3.01, representing the contractual entitlement to purchase one share of
Discover Common Stock in accordance with the terms and conditions of the award
and the Discover Equity Plans under which the Discover Stock Option is granted.

“Discover Subsidiary” means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are expected to be
directly or indirectly owned by Discover immediately after the Distribution.

“Employee” means any Morgan Stanley Business Employee or Former Morgan Stanley
Employee or Discover Business Employee or Former Discover Employee.

“ERISA” means the U.S. Employee Retirement Income Security Act of 1974, as
amended.

“FMLA” means the U.S. Family Medical Leave Act, as amended.

“Former Discover Employees” has the meaning set forth in Section 2.02(c).

“Former Morgan Stanley Employees” has the meaning set forth in Section 2.02(b).

“HIPAA” means the U.S. Health Insurance Portability and Accountability Act, as
amended.

“IRS” means the U.S. Internal Revenue Service.

“Morgan Stanley Business Employee” means any individual who is, immediately
prior to the Distribution, employed by Morgan Stanley or any of its Subsidiaries
or Affiliates and is not a Discover Business Employee.

“Morgan Stanley CMDS Committee” shall mean the Compensation, Management
Development and Succession Committee of the Board of Directors of Morgan
Stanley.

 

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“Morgan Stanley Equity Plans” shall mean any plan or arrangement under the
authority of which Morgan Stanley has granted compensatory stock options,
restricted stock units or any other compensatory awards based on Morgan Stanley
Common Stock, which awards are outstanding on the Distribution Date.

“Morgan Stanley ESPP” means the Morgan Stanley Employee Stock Purchase Plan.

“Morgan Stanley Final Price” shall mean the closing price of Morgan Stanley
common stock immediately prior to the Distribution as reported on the New York
Stock Exchange.

“Morgan Stanley Non-ERISA U.S. Benefit Arrangement” means any Non-ERISA U.S.
Benefit Arrangement sponsored or maintained by Morgan Stanley.

“Morgan Stanley Pension and Welfare Benefit Plan” means any Pension Plan or
Welfare Plan sponsored or maintained by Morgan Stanley or a Morgan Stanley
Subsidiary.

“Morgan Stanley RSU” shall mean a right representing a contractual entitlement
to one share of Morgan Stanley Common Stock, in accordance with the terms of the
relevant award and the Morgan Stanley Equity Plans under which the Morgan
Stanley RSU is granted.

“Morgan Stanley Subsidiary” means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are expected to
be directly or indirectly owned by Morgan Stanley immediately after the
Distribution.

“Morgan Stanley Stock Option” shall mean a right representing the contractual
entitlement to purchase one share of Morgan Stanley Common Stock in accordance
with the terms of the relevant award and the Morgan Stanley Equity Plans.

“MS 401(k) Plan” means the Morgan Stanley 401(k) Plan (f/k/a the Morgan Stanley
DSP/START Plan).

“MS ESOP” means the Morgan Stanley Employee Stock Ownership Plan.

“MS Excess Plan” means the Morgan Stanley & Co. Incorporated Excess Benefit
Plan.

“MS Pension Plan” means the Morgan Stanley Employees Retirement Plan.

 

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“MS Retiree Medical Plan” means that portion of the Morgan Stanley Health and
Welfare Benefits Plan that provides post-employment medical benefits beyond
those required to be provided pursuant to COBRA.

“MS SERP” means the Morgan Stanley Supplemental Executive Retirement Plan.

“Non-ERISA U.S. Benefit Arrangement” means any contract, agreement, policy,
practice, program, plan, trust or arrangement, other than a Pension Plan or
Welfare Plan, providing for benefits, perquisites or compensation of any nature
to any Employee, or to any family member, dependent or beneficiary of any such
Employee, including, without limitation, disability, severance, health, dental,
life, accidental death and dismemberment, travel and accident, tuition
reimbursement, supplemental unemployment, vacation, sick, personal or
bereavement days, holidays, retirement, deferred compensation, profit sharing,
bonus, stock-based compensation or other forms of incentive compensation.

“Pension Plan” means any pension plan as defined in Section 3(2) of ERISA,
without regard to Section 4(b)(4) or 4(b)(5) of ERISA.

“Welfare Plan” means any employee welfare plan as defined in Section 3(1) of
ERISA, without regard to Section 4(b)(4) of ERISA.

“WARN” means the U.S. Workers Adjustment Retraining and Notification Act, as
amended.

Section 1.03. Interpretation. In this Agreement, unless the context clearly
indicates otherwise:

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

(b) references to any Person include such Person’s successors and assigns but,
if applicable, only if such successors and assigns are permitted by this
Agreement, and a reference to such Person’s “Affiliates” shall be deemed to mean
such Person’s Affiliates following the Distribution;

(c) references to any gender include the other gender;

(d) the words “include,” “includes” and “including” shall be deemed to be
followed by the words “without limitation”;

(e) references to any Article, Section or Schedules mean such Article or Section
of, or such Schedule to, this Agreement, as the case may be, and references in
any Section or definition to any clause mean such clause of such Section or
definition;

 

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(f) the words “herein,” “hereunder,” “hereof,” “hereto” and words of similar
import shall be deemed references to this Agreement as a whole and not to any
particular Section or other provision hereof;

(g) references to any agreement, instrument or other document mean such
agreement, instrument or other document as amended, supplemented and modified
from time to time to the extent permitted by the provisions thereof and by this
Agreement;

(h) references to any law (including statutes and ordinances) mean such law
(including all rules and regulations promulgated thereunder) as amended,
modified, codified or reenacted, in whole or in part, and in effect at the time
of determining compliance or applicability;

(i) relative to the determination of any period of time, “from” means “from and
including,” “to” means “to but excluding” and “through” means “through and
including”;

(j) accounting terms used herein shall have the meanings historically ascribed
to them by Morgan Stanley and its Subsidiaries, including Discover, in its and
their internal accounting and financial policies and procedures in effect prior
to the date of this Agreement;

(k) if there is any conflict between the provisions of the Distribution
Agreement and this Agreement, the provisions of this Agreement shall control
with respect to the subject matter hereof; if there is any conflict between the
provisions of the body of this Agreement and the Schedules hereto, the
provisions of the body of this Agreement shall control unless explicitly stated
otherwise in such Schedule;

(l) the titles to Articles and headings of Sections contained in this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of or to affect the meaning or interpretation of this Agreement;

(m) any portion of this Agreement obligating a Party to take any action or
refrain from taking any action, as the case may be, shall mean that such Party
shall also be obligated to cause its relevant Affiliates to take such action or
refrain from taking such action, as the case may be; and

(n) unless otherwise specified in this Agreement, all references to dollar
amounts herein shall be in respect of lawful currency of the United States.

 

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ARTICLE 2

ASSIGNMENT OF EMPLOYEES

Section 2.01. Active Employees.

(a) Discover Business Employees. Except as otherwise set forth in this
Agreement, effective not later than the Distribution Date, the employment of
each Discover Business Employee who is employed by Morgan Stanley or a Morgan
Stanley Subsidiary shall be assigned and transferred to Discover or a Discover
Subsidiary. As of the Distribution Date, Discover shall and shall cause each
Discover Subsidiary to continue the employment of each Discover Business
Employee who is employed by Discover or a Discover Subsidiary. Discover shall,
or shall cause the appropriate Discover Subsidiary to, honor any legal right of
any Discover Business Employee or Former Discover Employee in a leave or other
non-working status to return to work by providing such employee employment on
terms that comply with such right.

(b) Morgan Stanley Business Employees. Effective not later than the Distribution
Date, the employment of each Morgan Stanley Business Employee who is employed by
Discover or a Discover Subsidiary shall be assigned and transferred to Morgan
Stanley or a Morgan Stanley Subsidiary. As of the Distribution Date, Morgan
Stanley shall and shall cause each Morgan Stanley Subsidiary to continue the
employment of each Morgan Stanley Business Employee who is employed by Morgan
Stanley or a Morgan Stanley Subsidiary. Morgan Stanley shall, or shall cause the
appropriate Morgan Stanley Subsidiary to, honor any legal right of any Morgan
Stanley Business Employee or Former Morgan Stanley Employee in a leave or other
non-working status to return to work by providing such employee employment on
terms that comply with such right.

(c) At-Will Status. Notwithstanding the above or any other provision of this
Agreement, nothing in this Agreement shall create any obligation on the part of
Morgan Stanley, Discover or any of their respective Affiliates to continue the
employment of any employee for any definite period following the Distribution
Date or to change the employment status of any employee from “at will.”

(d) Employee Secondment. Concurrently with the execution of this Agreement, the
parties are entering into one or more Transition Services Agreements pursuant to
which Morgan Stanley has agreed to provide certain services relating to the
subject matter of this Agreement. In addition, and notwithstanding the
foregoing, if and only to the extent necessary to preserve payroll, benefits, or
other legal entitlements with respect to any employees (whether inside or
outside the United States), a Discover Subsidiary and a Morgan Stanley
Subsidiary may enter into one or more agreements whereby one such subsidiary may
lease employees from another for a period of not more than three

 

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calendar months following the Distribution Date. Any such agreement(s) shall
require the company benefiting from the services of such employee(s) to fully
reimburse the leasing company for the full cost of the employee(s) remuneration
and shall contain other terms and conditions consistent with an arm’s length
commercial relationship between the leasing entity and the service recipient.

(e) Severance. Neither the Distribution nor any of the assignment, transfer or
continuation of the employment of employees in connection therewith shall be
deemed a severance of employment of any employee for purposes of any plan,
policy, practice or arrangement of Morgan Stanley, Discover or any of their
respective Subsidiaries, except as otherwise provided herein.

Section 2.02. Former Employees.

(a) General Principal. Except as otherwise provided in this Agreement, each
former employee of Morgan Stanley or any Morgan Stanley Subsidiary or Discover
or any Discover Subsidiary as of the Distribution Date will be considered a
former employee of the business as to which his or her duties were primarily
related immediately prior to his or her termination of employment with all of
Morgan Stanley, Discover and their respective Affiliates.

(b) Former Morgan Stanley Employees. For these purposes, former employees of
Morgan Stanley and the Morgan Stanley Subsidiaries shall be deemed to include
(i) all employees who, as of their last day of employment with all of Morgan
Stanley, Discover and their respective Affiliates, had employment duties
primarily related to the Morgan Stanley Business and (ii) without limiting the
foregoing, (x) all employees who, as of their last day of employment with all of
Morgan Stanley, Discover and their respective Affiliates were employed by Morgan
Stanley entities providing institutional or asset management services,
including, without limitation, Van Kampen Funds Inc., Miller Anderson &
Sherrard, LLP, Discover Brokerage Direct, Barra, Inc. and any other former
Affiliate of the Dean Witter or Morgan Stanley Asset Management or Morgan
Stanley Institutional Securities group and (y) all former employees of Morgan
Stanley Credit Corporation (“MSCC”) whose last day of employment with MSCC and
its Affiliates was on or after January 1, 2006 (collectively, the “Former Morgan
Stanley Employees”).

(c) Former Discover Employees. Former employees of Discover and the Discover
Subsidiaries shall be deemed to include (i) all employees who, as of their last
day of employment with all of Morgan Stanley, Discover and their respective
Affiliates, had employment duties primarily related to the Discover Business and
(ii) without limiting the foregoing, (x) all employees who, as of their last day
of employment with all of Morgan Stanley, Discover and their respective
Affiliates were employed by Sears Roebuck and Co./Sears Holdings Corporation,
The Allstate Corporation, Coldwell Banker Real Estate Corporation, Sears

 

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Mortgage Corporation/Sears Mortgage Banking Group, Sears Savings Bank, any other
former Sears Affiliate (other than an entity in the Dean Witter or Morgan
Stanley Asset Management or Morgan Stanley Institutional Securities lines of
business), former employees of SPS Payment Systems, Inc. and former employees of
PULSE EFT Association LP and (y) all former employees of MSCC whose last day of
employment with MSCC and its Affiliates was prior to January 1, 2006
(collectively, the “Former Discover Employees”).

Section 2.03. Employment Law Obligations.

(a) WARN Act. Morgan Stanley and the Morgan Stanley Subsidiaries shall be
responsible for providing any necessary WARN notice (and meeting any similar
state law notice requirements) with respect to any termination of any Morgan
Stanley Business Employee. Discover and the Discover Subsidiaries shall be
responsible for providing any necessary WARN notice (and meeting any similar
state law notice requirements) with respect to any termination of any Discover
Business Employee; provided, however, that Morgan Stanley and the Morgan Stanley
Subsidiaries shall be responsible for providing any necessary WARN notice (and
any similar state law notice requirements) to any Discover Business Employee or
any governmental authority in connection with any transfer of the employment of
any Discover Business Employee from a Morgan Stanley Group entity to a Discover
Group entity in contemplation of the Distribution.

(b) Compliance With Employment Laws. On and after the Distribution Date
(i) Morgan Stanley and the Morgan Stanley Subsidiaries shall be responsible for
adopting and maintaining any policies or practices, and for all other actions
and inactions, necessary to comply with employment-related laws and requirements
relating to the employment of the Morgan Stanley Business Employees and the
treatment of the Former Morgan Stanley Employees in respect of their former
employment with Morgan Stanley and its Affiliates and (ii) Discover and the
Discover Subsidiaries shall be responsible for adopting and maintaining any
policies or practices, and for all other actions and inactions, necessary to
comply with employment-related laws and requirements relating to the employment
of the Discover Business Employees and the treatment of the Former Discover
Employees in respect of their former employment with Morgan Stanley, Discover
and their respective Affiliates. Without limiting the generality of the
foregoing (i) Morgan Stanley and the Morgan Stanley Subsidiaries shall be
responsible for administering compliance with the Morgan Stanley Group employee
leave policies and the FMLA (and any similar applicable state law) as relates to
Morgan Stanley Business Employees following the Distribution Date and
(ii) Discover and the Discover Subsidiaries shall be responsible for
administering compliance with the Discover Group employee leave policies and the
FMLA (and any similar applicable state law) as relates to Discover Business
Employees following the Distribution Date.

 

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Section 2.04. Employee Records.

(a) Records Relating to Morgan Stanley Business Employees and Former Morgan
Stanley Employees. All records and data in any form relating to Morgan Stanley
Business Employees and Former Morgan Stanley Employees shall be the property of
Morgan Stanley, except that data pertaining to such an employee and relating to
any period that such employee was employed by Discover or a Discover Subsidiary
shall be jointly owned by Morgan Stanley and Discover.

(b) Records Relating to Discover Business Employees and Former Discover
Employees. All records and data in any form relating to Discover Business
Employees and Former Discover Employees shall be the property of Discover,
except that data pertaining to such an employee and relating to any period that
such employee was employed by Morgan Stanley, Discover or any of their
respective Subsidiaries prior to the Distribution shall be jointly owned by
Morgan Stanley and Discover.

(c) Sharing of Records. The Parties shall provide each other such records and
information only as necessary or appropriate to carry out their obligations
under law, this Agreement or any other Distribution Document, or for the
purposes of administering their respective employee benefit plans and policies.
Records and data described in Section 2.04(b) available to Morgan Stanley, which
are reasonably requested by Discover shall be provided to Discover as soon as
reasonably practicable upon such request; provided Morgan Stanley shall use its
reasonable best efforts to provide to Discover before the Distribution Date the
records and data available to Morgan Stanley and listed on Schedule 2.04(c)
hereof; and provided further that Discover shall reimburse Morgan Stanley for
the reasonable costs and expenses associated with the provision of such records
and data (including a reasonable allocable share of any compensation and
overhead expense of personnel deployed to assist in the provision of such
records and data, except to the extent that such cost is insignificant). Subject
to applicable law, all information and records regarding employment and
personnel matters of Discover Business Employees and Former Discover Employees
shall be accessed, retained, held, used, copied and transmitted after the
Distribution Date by Discover in accordance with all laws and policies relating
to the collection, storage, retention, use, transmittal, disclosure and
destruction of such records.

(d) Access to Records. To the extent consistent with this Agreement, access to
such records after the Distribution Date will be provided to Morgan Stanley and
Discover in accordance with the Distribution Agreement. In addition,
notwithstanding anything to the contrary, Morgan Stanley shall retain reasonable
access to those records necessary for Morgan Stanley’s continued administration
of any plans or programs on behalf of Employees after the Distribution Date,
provided that such access shall be limited to individuals who have a job-related

 

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need to access such records. Morgan Stanley shall also retain copies of all
confidentiality and non-compete agreements with any Discover Business Employee
or Former Discover Employee in which Morgan Stanley has a valid business
interest.

(e) Maintenance of Records. With respect to retaining, destroying, transferring,
sharing, copying and permitting access to all such information, Morgan Stanley
and Discover shall each comply with all applicable laws, regulations and
internal policies, and each Party shall indemnify and hold harmless the other
Party from and against any and all liability, claims, actions, and damages that
arise from a failure (by the indemnifying party or its agents) to so comply with
all applicable laws, regulations and internal policies applicable to such
information.

(f) No Access to Computer Systems or Files. Except as set forth in the
Distribution Agreement or any Transition Services Agreement(s), no provision of
this Agreement shall give either Party direct access to the computer systems or
other files, records or databases of the other Party, unless specifically
permitted by the owner of such systems, files, records or databases.

(g) Relation to Distribution Agreement. The provisions of this Section 2.04
shall be in addition to, and not in derogation of, the provisions of the
Distribution Agreement governing Confidential Information and access to and use
of employees, information and records, including Sections 5.01 and 5.05 of the
Distribution Agreement.

Section 2.05. Morgan Stanley Executive Compensation Website.

(a) For a period of 12 months after the Distribution Date (the “Services Term”),
Discover Business Employees and Former Discover Employees shall be afforded
access to the Morgan Stanley Executive Compensation Website (the “Website”) in
respect of equity awards relating to Discover shares. During such period,
Discover shall not, and shall not allow any third party to:

(i) edit, modify, truncate, filter or change the order of the information
contained on the Website including any Results Page or Destination Page, as such
terms are defined below;

(ii) frame, obscure or modify the Website or any Results Page or Destination
Page including (A) inserting any of Discover’s Brand Features, as such terms are
defined below, on the Website or any Results Page or Destination Page,
(B) displaying any other material or content in connection with the Website or
any Results Page or Destination Page other than such material or content
provided by Morgan Stanley in connection therewith or (C) providing a version of
any Results Page or Destination Page different from the page an employee would
access by going directly to the Results Page or Destination Page;

 

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(iii) display any information contained on the Website, including any Results
Page or Destination Page, to any third parties other than the employee accessing
such Website;

(iv) minimize, remove or otherwise inhibit the full and complete display of the
Website or any Results Page or Destination Page;

(v) modify, adapt, translate, prepare derivative works from, decompile, reverse
engineer, disassemble or otherwise attempt to derive source code from the
Website or any other Morgan Stanley technology, content, data, routines,
algorithms, methods, ideas, design, user interface techniques, software,
materials, and documentation; or

(vi) remove, deface, obscure, or alter Morgan Stanley’s copyright notice,
trademarks or other proprietary rights notices affixed to or displayed on the
Website or any Results Page or Destination Page, or any other Morgan Stanley
technology, software, materials and documentation;

(b) Morgan Stanley and Discover agree that, as between them (i) Morgan Stanley
shall own all right, title and interest, including without limitation all
Intellectual Property Rights, as such term is defined below, relating to the
Website, including any Results Page or Destination Page (and any derivative
works or enhancements thereof), and its Brand Features, including but not
limited to, all software, technology, information, content, materials,
guidelines and documentation provided in connection therewith; (ii) Discover
shall not acquire any right, title, or interest therein, except for the limited
use rights expressly set forth in this Section 2.05, and (iii) any rights not
expressly granted herein are deemed withheld and reserved to Morgan Stanley.

(c) Subject to the terms and conditions of this Section 2.05, Morgan Stanley
grants to Discover a limited, nonexclusive, nontransferable and nonsublicensable
license during the Services Term to access the Website and display Morgan
Stanley’s Brand Features in connection therewith, but in each case solely as
provided in this Section 2.05.

(d) For purposes of this Section 2.05, the following terms shall have the
meanings set forth below:

(i) “Brand Features” means the trade names, trademarks, service marks, logos,
domain names, and other distinctive brand features of each party, respectively,
as secured by such party from time to time.

 

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(ii) “Destination Page” means any web page on the Website which may be accessed
by clicking on any link on the Website or any Results Page.

(iii) “Intellectual Property Rights” means any trademark, service mark, trade
name, mask work, invention, patent, copyright, trade secret, know-how, software
(including any goodwill associated therewith) or any other similar type of
proprietary intellectual property right and all applications, renewals,
extensions, restorations and re-instatements thereof, now or hereafter in force
and effect worldwide.

(iv) “Results Page” means the web page on which the results of the employee’s
query are displayed.

ARTICLE 3

EQUITY COMPENSATION PLANS

Section 3.01. Stock Options. Morgan Stanley and Discover shall take any and all
action as shall be necessary or appropriate, so that each award of Morgan
Stanley Stock Options issued and currently outstanding under any Morgan Stanley
Equity Plan held at the time of the Distribution Date by a Discover Business
Employee shall be adjusted, pursuant to the terms of the Morgan Stanley Equity
Plans and the Morgan Stanley Stock Options, by converting such options into
Discover Stock Options on the first trading day immediately following the
Distribution. Such adjustment shall be effected by replacing such Morgan Stanley
Stock Options with substitute Discover Stock Options in a manner such that on
the first trading day immediately following the Distribution, (i) each such
holder of a Morgan Stanley Stock Option will receive a number of substitute
Discover Stock Options equal to the Conversion Ratio multiplied by the number of
Morgan Stanley Stock Options held by such holder, and (ii) the per share option
exercise price of each such Discover Stock Option will be determined by dividing
the exercise price of the original Morgan Stanley Stock Option by the Conversion
Ratio, and such adjustment shall be effected in a manner intended to satisfy
requirements of Section 424 of the Code and avoid treatment of the Discover
Stock Options as non-qualified deferred compensation subject to Section 409A of
the Code. Such substituted Discover Stock Options will in the sole and absolute
judgment of the Morgan Stanley CMDS Committee preserve the aggregate intrinsic
value of the original Morgan Stanley Stock Options for which they are
substituted and the ratio in the original option of the exercise price to the
fair market value of the stock by adjusting the number of shares purchasable and
the exercise price, based on a comparison of the Morgan Stanley Final Price and
the Discover Initial Price. Fractional shares shall be adjusted or compensated
by Morgan Stanley as appropriate in the sole discretion of the Morgan Stanley
CMDS Committee. Such substitute Discover Stock Options will take into

 

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account all employment with both Morgan Stanley and Discover, and their
respective Subsidiaries and Affiliates, for purposes of determining when the
Discover Stock Options will become exercisable and/or vest.

Section 3.02. Restricted Stock Units. Morgan Stanley and Discover shall take any
and all action as shall be necessary or appropriate so that Discover Business
Employees who hold Morgan Stanley RSUs will have each of their awards of Morgan
Stanley RSUs adjusted pursuant to the terms of the Morgan Stanley Equity Plans
and Morgan Stanley RSUs, by converting such Morgan Stanley RSUs into Discover
RSUs on the first trading day immediately after the Distribution. Such
adjustment shall be effected by replacing such Morgan Stanley RSUs with
substitute Discover RSUs in a manner such that on the first trading day
immediately following the Distribution each such holder of a Morgan Stanley RSU
will receive a number of substituted Discover RSUs equal to the Conversion Ratio
multiplied by the number of Morgan Stanley RSUs held by such holder. Such
substituted Discover RSUs will take into account all employment with both Morgan
Stanley and Discover, and their respective Subsidiaries and Affiliates, for
purposes of determining when the Discover RSUs will vest and/or be paid. Such
adjustment and replacement shall be conducted in a manner intended not to modify
the treatment of the Discover RSUs under Section 409A of the Code from the
treatment that would otherwise apply with respect to the corresponding Morgan
Stanley RSU award. Fractional shares shall be adjusted or compensated by Morgan
Stanley as appropriate in the sole discretion of the Morgan Stanley CMDS
Committee.

Section 3.03. Approval and Terms of Equity Awards. Morgan Stanley, acting as the
sponsor of the Morgan Stanley Equity Plans and as sole shareholder of Discover
shall, and shall cause Discover to, take such actions and give or obtain such
approvals as are necessary or desirable to ensure that the issuance of the
Discover awards provided for in this Article 3 shall comply with all applicable
tax, securities law and stock exchange requirements. The parties intend that
each Discover Stock Option and Discover RSU (each, a “Discover Adjustment
Award”) shall be (i) granted pursuant to governing plan terms of a Discover
Equity Plan which are substantially similar to the plan terms of the relevant
Morgan Stanley Equity Plan under which the relevant predecessor award was
granted and (ii) subject to the terms of the applicable award agreement under
which the relevant predecessor award was granted (as such plan and award
documents may have been duly amended from time to time), except to the extent
that the terms of such Discover Adjustment Award shall be varied pursuant to the
terms of this Agreement or by any action of Discover.

 

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Section 3.04. Responsibility For Tax Withholding, Reporting, And Social
Insurance Contributions.

(a) Morgan Stanley and Discover agree that, unless prohibited by applicable law,
Discover shall be responsible for all tax withholding and reporting obligations
and shall pay the employer’s share of any social insurance tax obligations that
arise in connection with the grant, vesting, exercise, transfer or other
settlement of the adjusted replacement awards held by Discover Business
Employees. Morgan Stanley and Discover further agree that, unless prohibited by
applicable law, Morgan Stanley shall be responsible for all tax withholding and
reporting obligations and shall pay the employer’s share of any social insurance
tax obligations that arise in connection with the grant, vesting, exercise,
transfer or other settlement of the equity awards held by Morgan Stanley
Business Employees and Former Morgan Stanley Business Employees.

(b) With respect to equity awards held by Former Discover Employees, Morgan
Stanley and Discover further agree that Discover shall be responsible for all
tax withholding and reporting obligations and shall pay the employer’s share of
any social insurance tax obligations that arise in connection with the exercise,
transfer or other settlement of such awards, and that Morgan Stanley shall
transfer to Discover, on a timely basis after such event, to the extent that
such event gives rise to tax withholding or reporting obligations for Discover,
the amount in cash of any income tax withholding and employee’s share of social
insurance tax obligations, as well as any information regarding such event that
Discover is obligated to report to the IRS, arising in connection therewith. For
a period of two years following the Distribution Date, Morgan Stanley shall act
as the agent of Discover for purposes of withholding income and payroll taxes
and reporting and remitting such amounts to the IRS arising from or in
connection with the exercise or settlement of equity awards held by such Former
Discover Business Employees in accordance with the terms of this Section 3.04(b)
and the agreements referred to in paragraph (c) below; provided, however that
Morgan Stanley’s role as agent hereunder shall not extend to services which
Morgan Stanley reasonably determines cannot practicably be performed by it, in
light of applicable legal requirements and procedures of federal and state tax
authorities. Without limiting the generality of the foregoing, during the second
year of such two year period, Morgan Stanley shall not file or be responsible
for filing Forms 940 or 941 on behalf of Discover, but in accordance with this
Section 3.04(b) and with paragraph (c) below shall cooperate with Discover as
necessary to timely provide the information needed by Discover for such forms in
connection with the exercise and settlement of such equity awards. In addition,
Morgan Stanley will remit to Discover for distribution through Discover payroll
channels, all dividend equivalent amounts owing to Former Discover Business
Employees in respect of outstanding Morgan Stanley equity awards. The agency and
other services to be provided by Morgan Stanley pursuant to this Section 3.04
will be deemed to be “Services” being provided by Morgan Stanley as the
“Provider” within the

 

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meaning of such terms as set forth in the Transition Services Agreement by and
between Morgan Stanley and Discover dated as of June 30, 2007 (the “Transition
Services Agreement”), and such Services will be provided in accordance with and
governed by the terms of such agreement.

(c) Morgan Stanley and Discover agree to enter into any necessary agreements,
including but not limited to the Transition Services Agreement, regarding the
subject matter of this Section 3.04 to enable them to fulfill their respective
obligations hereunder, including but not limited to compliance with all
applicable laws and regulations regarding the reporting, withholding or
remitting of income and social insurance taxes.

Section 3.05. No Change of Control. For the avoidance of doubt, the Distribution
will not constitute a “change of ownership” or a “change in control” or a
termination of the employment of any employee for purposes of Morgan Stanley
equity awards which are outstanding as of the Distribution Date.

ARTICLE 4

EMPLOYEE STOCK PURCHASE PLAN

Section 4.01. ESPP. Discover Business Employees and Former Discover Employees
shall be treated for purposes of the Morgan Stanley ESPP as terminated Morgan
Stanley employees as of and after the Distribution Date and shall be entitled to
receive benefits in accordance with the provisions of the ESPP; provided,
however, that Morgan Stanley may take such actions as it deems appropriate with
respect to the shares of Discover Common Stock received by participant accounts
under the Morgan Stanley ESPP as a result of the Distribution, including,
without limitation, modification of the plan and notification to plan
participants to facilitate (i) the retention of such shares within the
participant’s accounts under the plan in lieu of an automatic distribution of
such shares to participants and/or (ii) an election by participants to receive
distribution of such shares or direct the sale of such shares and the
distribution of the proceeds of such sale to the participant; provided, further
that Discover Business Employees shall not, as a result of any such changes, be
treated any less favorably under the ESPP than similarly situated Morgan Stanley
Business Employees. Discover Business Employees shall not contribute to the
Morgan Stanley ESPP after the Distribution Date, unless they shall become
employed by Morgan Stanley following the Distribution Date.

 

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ARTICLE 5

GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES

Section 5.01. General Principle.

(a) Cessation of Participation in Morgan Stanley Pension and Welfare Benefit
Plans and Non-ERISA U.S. Benefit Arrangements. Morgan Stanley and Discover shall
take any and all action as shall be necessary or appropriate so that
participation in Morgan Stanley Pension and Welfare Benefit Plans and Morgan
Stanley Non-ERISA U.S. Benefit Arrangements by all Discover Business Employees
and Former Discover Employees shall terminate in connection with the
Distribution as and when provided under this Agreement (or if not specifically
provided under this Agreement, as of the close of business on the Distribution
Date) and Discover and each Discover Subsidiary shall cease to be a
participating employer under the terms of such Morgan Stanley Pension and
Welfare Benefit Plans and Morgan Stanley Non-ERISA U.S. Benefit Arrangements as
of such time.

Except as otherwise agreed below, Discover shall have all liabilities and all
assets relating to employee benefits for Discover Business Employees and Former
Discover Employees and Morgan Stanley shall have all liabilities and all assets
relating to employee benefits for Morgan Stanley Business Employees and Former
Morgan Stanley Employees.

(b) Assumption of Certain Obligations by Discover Group. Except as otherwise
provided in this Agreement, effective as of the close of business on the
Distribution Date, Discover shall assume or continue the sponsorship of, and
none of Morgan Stanley or any Morgan Stanley Subsidiary shall have any further
liability for or under, the following agreements, obligations and liabilities,
and Discover shall indemnify Morgan Stanley and the Morgan Stanley Subsidiaries,
and the officers, directors, and employees of each, and hold them harmless with
respect to such agreements, obligations or liabilities:

(i) Agreements entered into between Morgan Stanley, its Subsidiaries or
Affiliates and Discover Business Employees and Former Discover Employees;

(ii) Agreements entered into between Morgan Stanley, its Subsidiaries or
Affiliates and independent contractors providing services primarily to the
Discover Business;

(iii) All collective bargaining agreements, collective agreements, trade union,
or works council agreements entered into between Morgan Stanley, its
Subsidiaries or Affiliates and any union, works council, or other body
representing only Discover Business Employees and Former Discover Employees;

 

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(iv) All wages, salary, incentive compensation, commissions, bonuses and results
share payable to Discover Business Employees and Former Discover Employees on or
after the Distribution Date, without regard to when such wages, salary,
incentive compensation, commissions, bonuses and results share are or may have
been earned;

(v) All moving expenses and obligations related to relocation, repatriation,
transfers, or similar items incurred by or owed to Discover Business Employees
and Former Discover Employees;

(vi) All immigration-related, visa, work application, or similar rights,
obligations and liabilities related to Discover Business Employees and Former
Discover Employees; and

(vii) All liabilities and obligations whatsoever of the Discover Business with
respect to claims made by or with respect to Discover Business Employees and
Former Discover Employees or any other persons who at any time prior to the
Distribution Date had employment duties primarily related to the Discover
Business relating to any employee benefit plan, program or policy not otherwise
retained or assumed by Morgan Stanley pursuant to this Agreement, including such
liabilities relating to actions or omissions of or by Discover or any officer,
director, employee or agent thereof prior to the Distribution Date.

Section 5.02. Establishment of Discover Plans. Except as otherwise provided in
this Agreement, sponsorship of Morgan Stanley benefit plans that cover solely
Discover Business Employees and Former Discover Employees shall be transferred
to Discover no later than the Distribution Date. Morgan Stanley benefit plans
that cover Discover Business Employees and Former Discover Employees and that
also cover Morgan Stanley Business Employees and/or Former Morgan Stanley
Employees shall be split into two separate plans, one covering Discover Business
Employees and Former Discover Employees and one covering Morgan Stanley Business
Employees and/or Former Morgan Stanley Employees, and sponsorship of the plans
covering Discover Business Employees and Former Discover Employees shall be
transferred to Discover immediately prior to the Distribution Date.

Section 5.03. Transfer of Assets and Liabilities. To the extent necessary to
effectuate the foregoing, Discover and Morgan Stanley shall, in compliance with
applicable law, transfer assets (if any) and liabilities of any such benefit
plans to each other, including under the following plans:

(i) the MS Pension Plan;

 

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(ii) the MS 401(k) Plan;

(iii) the MS ESOP;

(iv) MS Excess Plan; and

(v) MS SERP.

Section 5.04. Exceptions. Notwithstanding Section 5.02, Section 5.03, or any
other provision of this Agreement to the contrary, the following plans in which
both Morgan Stanley and Discover participate shall not be split:

(i) health, welfare and wellness plans described below in Section 8.01;

(ii) the MS ESPP; and

(iii) fringe benefit plans.

In addition, no transfer of assets or liabilities shall be made with respect to
such plans.

Section 5.05. Cooperation. Discover and Morgan Stanley and their respective
Affiliates shall cooperate to share data necessary for each other to administer
their respective benefit plans. Except as provided under any Transition Services
Agreement(s) or in any secondment agreement that may be entered into in
accordance with Section 2.01(d), neither Discover nor Morgan Stanley shall
charge the other any fee for such cooperation. Except as set forth in the
Distribution Agreement or any Transition Services Agreement(s), this provision
shall not require Discover or Morgan Stanley to provide the other with direct
access to such company’s databases or records. This provision shall continue in
effect as long as necessary.

Section 5.06. Service Credit.

(a) Service for Eligibility and Vesting. Except as otherwise provided in any
other provision of this Agreement (i) for purposes of participation eligibility
and vesting under the Discover Pension and Welfare Benefit Plans, Discover
shall, and shall cause the Discover Subsidiaries to, give to each Discover
Business Employee and Former Discover Employee service credit for any employment
with Morgan Stanley or any Morgan Stanley Affiliate prior to the Distribution
Date to the extent that such service is taken into account pursuant to the terms
of the comparable Morgan Stanley plan and (ii) for purposes of participation
eligibility and vesting under the Morgan Stanley Pension and Welfare Benefit

 

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Plans, Morgan Stanley shall, and shall cause the Morgan Stanley Subsidiaries to,
give to each Morgan Stanley Business Employee and Former Morgan Stanley Employee
service credit for any employment with Discover or any Discover Affiliate prior
to the Distribution Date, except under the MS SERP and MS Excess Plan; and
provided, further, that the foregoing vesting service credit under any plan
subject to Section 401(a) of the Code will be limited to the minimum amount of
service credit required to fully vest the employee under the relevant plan.

(b) Service for Benefit Purposes. Except as otherwise provided in any other
provision of this Agreement (i) for purposes of benefit levels and accruals,
post-retirement welfare benefit contribution rates and benefit commencement
entitlements under the Discover Pension and Welfare Benefit Plans, Discover
shall, and shall cause the Discover Subsidiaries to, give to each Discover
Business Employee and Former Discover Employee service credit for any employment
with Morgan Stanley or any Morgan Stanley Affiliate prior to the Distribution
Date to the extent that such service is taken into account pursuant to the terms
of the comparable Morgan Stanley plan and (ii) for purposes of benefit levels
and accruals, post-retirement welfare benefit contribution rates and benefit
commencement entitlements under the Morgan Stanley Pension and Welfare Benefit
Plans, Morgan Stanley shall, and shall cause the Morgan Stanley Subsidiaries to,
give to each Morgan Stanley Business Employee and Former Morgan Stanley Employee
service credit for any employment with Discover or any Discover Affiliate prior
to the Distribution Date (including under the MS Retiree Medical Plan and for
determining the level of retirement credits under the post-July 1, 2007
retirement design under the MS Pension Plan).

(c) Evidence of Prior Service. Notwithstanding anything to the contrary, but
subject to applicable law, upon reasonable request by one Party to the other
Party, the first Party will provide to the other copies of any records available
to the first Party to document such service, plan participation and membership
and cooperate with the first Party to resolve any discrepancies or obtain any
missing data for purposes of determining benefit eligibility, participation,
vesting and calculation of benefits with respect to such Discover Business
Employees and Former Discover Employees.

Section 5.07. Plan Administration.

(a) Transition Services. Morgan Stanley will administer Discover’s benefit
programs for a transitional period under the terms of the applicable Transition
Services Agreement, which will include appropriate provisions relating to HIPAA.

(b) Administration. Discover shall, and shall cause the Discover Subsidiaries
to, administer its benefit plans in a manner that does not jeopardize

 

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the tax favored status of the tax favored benefit plans maintained by Morgan
Stanley and the Morgan Stanley Subsidiaries. Morgan Stanley shall, and shall
cause the Morgan Stanley Subsidiaries to, administer its benefit plans in a
manner that does not jeopardize the tax favored status of the tax favored
benefit plans maintained by Discover and the Discover Subsidiaries.

(c) Participant Elections and Beneficiary Designations. All participant
elections and beneficiary designations made under any Morgan Stanley plan prior
to the date as of which assets or liabilities relating to that plan are
transferred to Discover shall continue in effect under any plan maintained by
Discover or any Discover Subsidiary to which liabilities are transferred
pursuant to this Agreement until such time as the participant changes his or her
elections or beneficiary designations in accordance with the procedures of the
relevant plan, as the case may be.

ARTICLE 6

U.S. PENSION PLAN SPIN-OFF

Section 6.01. General Principle. Effective on or before the Distribution Date,
Discover shall establish and adopt a defined benefit pension benefit plan and
trust (the “Discover Pension Plan”) intended to be qualified under Code
Section 401(a) and containing provisions that will provide to each Discover
Business Employee and Former Discover Employee (and each alternate payee or
beneficiary of such person) (the “Discover Pension Beneficiaries”) benefits
identical to those accrued with respect to such person under the MS Pension Plan
as of December 31, 2006 (the “Pension Measurement Date”). On or before the
Distribution Date, Morgan Stanley shall (i) determine the Initial Transfer
Amount (as defined below) and (ii) cause assets equal to the Initial Transfer
Amount (adjusted as provided below) to be transferred to the trust under the
Discover Pension Plan in the form described below (the “Initial Transfer”). As
of the date of such transfer of the Initial Transfer Amount (the “Initial
Transfer Date”), Discover shall commence making the required benefit payments
under the terms of the Discover Pension Plan and shall assume all liabilities
with respect to the payment of benefits previously accrued by the Discover
Pension Beneficiaries under the MS Pension Plan. A Discover Business Employee
shall not accrue benefits under the MS Pension Plan after the date on which such
employee becomes eligible to participate under the Discover Pension Plan, unless
such Discover Pension Beneficiary shall become employed by Morgan Stanley or a
Morgan Stanley Subsidiary after such date. A Morgan Stanley Business Employee
shall not accrue benefits under the Discover Pension Plan, unless such Morgan
Stanley Business Employee shall become employed by Discover or a Discover
Subsidiary. For purposes of the provisions in the MS Pension Plan bridging
service for breaks in service of less than 12 months, a break in the

 

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service of an employee which includes a period of service as a Discover Business
Employee or Former Discover Employee following the Distribution shall not be
counted as a bridgeable break in service. Following the Initial Transfer Date
(i) an enrolled actuary appointed by Morgan Stanley (the “MS Actuary”) shall
determine the Final Pension Transfer Amount (as defined below) and (ii) a
True-Up Adjustment shall be made with respect to the MS Pension Plan and the
Discover Pension Plan, as provided below. The Parties shall use reasonable best
efforts to cause the determination of the Final Pension Transfer Amount and the
True-Up Adjustment to be completed as reasonably promptly as practicable,
subject to the time frames established under Section 6.03, but in no event later
than December 31, 2007. Before or promptly after the date hereof, Morgan Stanley
and Discover shall file requests with the IRS for qualification determination
letters under Code Section 401(a) with respect to the MS Pension Plan and the
Discover Pension Plan and shall take any and all reasonable action, including
the adoption of any amendments requested by the IRS, as shall be necessary to
obtain such determination letters. The transfers hereunder shall occur prior to,
but subject to the subsequent receipt of, favorable determination letters issued
by the IRS with respect to the MS Pension Plan and Discover Pension Plan, copies
of which shall be shared among Morgan Stanley and Discover promptly upon
issuance.

Section 6.02. Determination and Transfer of Initial Transfer Amount. On or
before the Distribution Date, with the assistance of the MS Actuary, Morgan
Stanley shall establish and communicate to Discover the amount equal to 95% of
the amount carried on Morgan Stanley pension plan books as attributable to
benefits accrued by Discover Pension Beneficiaries under the MS Pension Plan as
of the Pension Measurement Date, adjusted for contributions, distributions,
trust gains and losses, payments and other appropriate items as of the Initial
Transfer Date, all as estimated in good faith by Morgan Stanley (the “Initial
Transfer Amount”). Following the determination of the Initial Transfer Amount by
Morgan Stanley, Morgan Stanley shall cause to be transferred from the trust
under the MS Pension Plan to the trust under the Discover Pension Plan assets
having an aggregate Value (as defined below) equal to the Initial Transfer
Amount. Such assets shall be in the form of cash, securities and other property,
determined in accordance with the provisions below.

Section 6.03. Determination of the Final Pension Transfer Amount.

(a) Calculation of the MS Actuary. Following the Distribution Date, the MS
Actuary shall determine the Final Pension Transfer Amount, which shall be equal
to the amount required to be transferred from the MS Pension Plan to the
Discover Pension Plan in respect of the assumption by the Discover Pension Plan
of the benefit obligations of the MS Pension Plan for benefits accrued by the
Discover Pension Beneficiaries as of the Pension Measurement Date plus any
additional pension obligations in respect of benefits accrued by the Discover

 

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Pension Beneficiaries under the MS Pension Plan between the Pension Measurement
Date and the Distribution Date, as determined in accordance with Section 414(l)
of the Code and the regulations thereunder and the actuarial assumptions and
methods set forth in Schedule 6.03 hereof, as appropriately adjusted to reflect
the following amounts arising after the Pension Measurement Date and before the
True-Up Adjustment: (A) any distributions and contributions made in respect of
the Discover Pension Beneficiaries, (B) administrative expenses of the MS
Pension Plan reasonably allocable to the Discover Pension Beneficiaries,
(C) earnings realized by the MS Pension Plan, (D) the net gain or loss (realized
and unrealized) of the MS Pension Plan and (E) other appropriate items (the
“Final Pension Transfer Amount”). Morgan Stanley and Discover shall each cause
the appropriate amount of assets to be contributed to the MS Pension Plan prior
to the Distribution Date so that the MS Pension Plan is deemed to be fully
funded as of December 31, 2006 and no ERISA Section 4044 allocation is required.
Promptly upon determination of the Final Pension Transfer Amount, Morgan Stanley
shall cause the MS Actuary to provide to Discover a written statement of the
Final Pension Transfer Amount, a summary of the calculation of such amount (the
“Pension Statement”) and a written statement that the sum of the Initial
Transfer Amount and the Final Transfer Amount satisfies the requirements of
Section 414(l) of the Code.

(b) Resolution of Differences. Morgan Stanley shall provide Discover with all
information reasonably necessary to review the calculation of the Final Pension
Transfer Amount in all material respects and to verify that such calculations
have been performed in a manner consistent with the terms of this Agreement. The
determination of the Final Pension Transfer Amount by the MS Actuary shall be
final, conclusive and binding for all purposes under this Agreement, unless
Discover provides to Morgan Stanley, within thirty (30) days after receipt of
the Pension Statement, a written objection prepared by an enrolled actuary
retained by Discover setting forth in detail a reasonable basis for the
conclusion that the Final Pension Transfer Amount set forth in the Pension
Statement is understated by an amount in excess of 5%. Upon receipt of such
objection, Morgan Stanley and Discover shall make a good faith attempt to
resolve their dispute as to the Final Pension Transfer Amount. Should such
dispute remain unresolved for more than thirty (30) days, Morgan Stanley and
Discover shall promptly select and appoint a third enrolled actuary who is
mutually satisfactory to both Parties. The third actuary shall recalculate the
Final Pension Transfer Amount and if such recalculated amount exceeds the Final
Pension Transfer Amount set forth in the Pension Statement by more than 5%, then
such recalculated amount shall serve as the Final Pension Transfer Amount for
all purposes under this Agreement. If such recalculated amount does not exceed
the Final Pension Transfer Amount set forth in the Pension Statement by more
than 5%, then for all purposes under this Agreement the Final Pension Transfer
Amount shall be the Final Pension Transfer Amount as set forth in the

 

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Pension Statement. The recalculation of such third party actuary shall be
completed within thirty (30) days of the retention of such third party actuary
and shall be conclusive as to any dispute with respect to the Final Pension
Transfer Amount, except as set forth in Section 6.06 below. The cost of such
third party actuary shall be divided equally between Morgan Stanley and
Discover. Each Party shall be responsible for the cost of its own actuary.

Section 6.04. True-Up Adjustment. The following transfer shall be made promptly
after the date that the Final Pension Transfer Amount is determined as set forth
above: (A) if the Final Pension Transfer Amount exceeds the Initial Transfer
Amount, Morgan Stanley shall promptly cause to be transferred from the MS
Pension Plan trust to the Discover Pension Plan trust assets having a Value
equal to such excess and (B) if the Initial Transfer Amount exceeds the Final
Pension Transfer Amount, Discover shall promptly cause to be transferred from
the Discover Pension Plan trust to the MS Pension Plan trust assets having a
Value equal to such excess.

Section 6.05. Form and Selection of Assets to be Transferred. The assets to be
transferred in the Initial Transfer and the True-Up Adjustment Assets will be
transferred in-kind or in cash pro rata from each investment manager under the
transferring plan in a manner that represents, as closely as commercially
practical, a pro rata portion of each asset and position held by the manager as
of the date of such transfer, except that reasonable adjustments shall be made
where Morgan Stanley determines such transfers cannot reasonably be made by the
MS Pension Plan due to investment manager account minimums or where other
considerations prevent such pro rata transfers or render such pro rata transfers
impractical. Notwithstanding the foregoing, in respect of long duration fixed
income investments to be transferred from the MS Pension Plan to the Discover
Pension Plan (i) a combination of cash and in-kind fixed income assets will be
transferred from the MS Pension Plan to the Discover Pension Plan, (ii) such
in-kind fixed income assets shall be transferred under accounts managed by State
Street Global Advisors (no assets shall be transferred from other fixed income
managers under the MS Pension Plan) and (iii) the Discover Pension Plan shall be
entitled to an added amount equal to 50% of the investment transaction expenses
associated with the initial investment of the cash transferred in respect of the
fixed income component. For purposes of the Agreement, the “Value” of all
pension assets shall be the value of such assets as determined in good faith by
Morgan Stanley based on all relevant information known to Morgan Stanley at the
time of such determination, including the most recent account statements or
schedules of asset values provided to Morgan Stanley by any service providers
maintaining or overseeing any such assets or any investment vehicles which
represent or hold the relevant plan assets. Morgan Stanley shall select the
assets to be transferred and provide a schedule of such assets to Discover 14
days prior to the transfer of such assets. Discover shall communicate to Morgan
Stanley any objection to the schedule of the assets to be transferred promptly,
and upon receipt by Morgan

 

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Stanley of such objection, Morgan Stanley and Discover shall make a good faith
attempt to resolve their dispute as to the assets to be transferred within the
period remaining prior to the transfer of the assets. Should such dispute remain
unresolved upon the asset transfer date, the assets shall be transferred in
accordance with the schedule provided by Morgan Stanley. Any assets that are
liquidated prior to transfer shall be reduced by the asset liquidation expenses
actually incurred.

Section 6.06. Adjustment Payment for Data Errors. If, after the completion of
the True-Up Adjustment, critical data used in the determination of the Final
Pension Transfer Amount, the True-Up Adjustment or the Value of assets for
purposes of the transfers under this Article 6 are determined to have been
erroneous, the Final Pension Transfer Amount and True-Up Adjustment shall be
recalculated using corrected data (but otherwise applying the same methodologies
used to determine the Final Pension Transfer Amount) and upon completion of the
recalculation Discover shall pay to Morgan Stanley, or Morgan Stanley shall pay
to Discover, as the case may be, an amount necessary to reflect the corrected
data; provided that no such correction payment shall be made unless the
aggregate of all such correction adjustments is greater than 1% of the Final
Pension Transfer Amount used for purposes of the original True-Up Adjustment.
Any payment under this Section 6.06 shall be made by wire transfer in readily
available funds. Notwithstanding the foregoing provisions of this Section 6.06,
no payment or corrective adjustment shall be made by either Party with respect
to an error unless the Party seeking such payment or adjustment has provided
written notice identifying the specific error to the other Party prior to
June 30, 2008.

ARTICLE 7

U.S. 401(K) PLAN AND ESOP

Section 7.01. General Principle. Effective on or before the Distribution Date,
Discover shall establish and adopt a qualified employee cash or deferred
arrangement under Code Section 401(k) (the “Discover 401(k) Plan”) containing a
Discover common stock fund intended to be an employee stock ownership plan and a
Morgan Stanley common stock fund, and intended to be qualified under Code
Section 401(a) and containing provisions that will provide benefits for each
Discover Business Employee and Former Discover Employee (and each beneficiary
and alternate payee of such person) (the “Discover DC Plan Beneficiaries”) with
equivalent benefit levels and forms of distribution to those in effect for the
Discover DC Plan Beneficiaries as of the date of transfer of assets and
liabilities with respect to such plans (as described below). Before or as soon
as practicable after the Distribution Date, the assets and liabilities relating
to the Discover DC Plan Beneficiaries under the MS 401(k) Plan and the MS ESOP
shall be transferred to the Discover 401(k) Plan. Discover Business Employees

 

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shall not make or receive additional contributions under the MS 401(k) Plan and
the MS ESOP after the effective date of the Discover 401(k) Plan, unless such
Discover Business Employee shall become employed by Morgan Stanley or a Morgan
Stanley Subsidiary after such date. A Morgan Stanley Business Employee shall not
participate in the Discover 401(k) Plan after the effective date of the Discover
401(k) Plan, unless such Morgan Stanley Business Employee shall become employed
by Discover or a Discover Subsidiary after such date.

Section 7.02. Transfer of Accounts. Effective before or as soon as practical
following the Distribution Date, but in no event later than six months following
the Distribution Date, Morgan Stanley shall cause to be transferred from trusts
under the MS 401(k) Plan and the MS ESOP to the trust under the Discover 401(k)
Plan the aggregate amount that is credited to the accounts of the Discover DC
Plan Beneficiaries (disregarding any participant loans from the plans) as of the
date of transfer, but not less than or more than permitted by law, as determined
by Morgan Stanley. The transfer shall be an in-kind transfer, subject to fund
substitutions agreed between the relevant plan representatives and any other
substitutions made by Morgan Stanley subject to the reasonable consent of the
trustee of the Discover 401(k) Plan and shall include the transfer of the
aggregate assets held in the accounts relating to each Discover DC Plan
Beneficiary under the MS 401(k) Plan and MS ESOP and any participant loan notes
held under such plans. Any assets that are liquidated prior to transfer shall be
reduced by the asset liquidation expenses, such as commissions or early
withdrawal penalties, actually incurred. Morgan Stanley shall cause the Discover
401(k) Plan to allocate the portion of any forfeiture account under the MS
401(k) Plan that relates to forfeitures by Former Discover Employees consistent
with Morgan Stanley’s past practice regarding allocation of forfeitures under
the MS 401(k) Plan. Before or promptly after the date hereof, Morgan Stanley and
Discover shall file requests with the IRS for qualification determination
letters under Code Section 401(a) and 401(k) (as applicable) with respect to the
MS 401(k) Plan, MS ESOP and Discover 401(k) Plan and shall take any and all
reasonable actions, including the adoption of amendments requested by the IRS,
as shall be necessary to obtain such determination letters. The transfers under
this Section 7.02 shall occur prior to, but subject to the subsequent receipt of
favorable determination letters issued by the IRS with respect to the MS 401(k)
Plan, MS ESOP, Discover 401(k) Plan, copies of which shall be shared among
Morgan Stanley and Discover promptly upon issuance.

Section 7.03. Funding of 2007 Matching Contribution. Discover shall fund and
allocate the full amount of any 2007 matching contribution accrued under the
terms of the MS 401(k) Plan and MS ESOP to eligible Discover DC Plan
Beneficiaries under the Discover 401(k) Plan within the time permitted by law
(determined based on the terms of the MS 401(k) Plan and MS ESOP immediately
prior to the transfer to the Discover 401(k) Plan as if the transfer to the
Discover 401(k) Plan did not occur, but paid and contributed by Discover to the
Discover 401(k) Plan).

 

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Section 7.04. Continuing Obligations Regarding Proxy Statement, Tender Offers
and Similar Rights and Restrictions. Discover shall provide all proxy materials
to the trustee of the MS 401(k) Plan and MS ESOP to the extent necessary to pass
through the voting rights on any Discover shares held in the MS 401(k) Plan and
MS ESOP. Morgan Stanley shall provide all proxy materials to participants in the
Discover 401(k) Plan to the extent necessary to pass through the voting rights
on any Morgan Stanley shares held in the Discover 401(k) Plan.

ARTICLE 8

U.S. WELFARE BENEFIT PLANS

Section 8.01. General Principle and Exceptions.

(a) General Principle. Except as provided below and in Section 8.02, on or about
May 31, 2007, liabilities relating to Discover Business Employees and Former
Discover Employees shall be transferred to newly established Discover welfare
benefit plans that shall contain the same benefit provisions as in effect for
Discover Business Employees and Former Discover Employees immediately prior to
such date, and Discover Business Employees and Former Discover Employees shall
cease to participate in the Morgan Stanley welfare benefit plans. No assets
shall be transferred on account of any such plans. Welfare benefit plans include
health, welfare, and wellness benefits plans (including, medical, dental,
prescription drug and vision benefits, life insurance, accidental death and
disability insurance, business travel accident insurance, disability (STD and
LTD), long term care, flexible spending accounts, severance, Employee Assistance
Plan, wellness and similar types of plans). Discover Business Employees and
Former Discover Employees shall not participate in Morgan Stanley welfare
benefit plans following the effective date of the Discover plans described in
this section, unless they shall become employed by Morgan Stanley after such
date. Morgan Stanley Business Employees and Former Morgan Stanley Employees
shall not participate in any Discover welfare benefit plans following the
effective date of such plans, unless they shall become employed by Discover
after such date.

(b) Exceptions. The following provisions shall supersede the provisions of
Section 8.01(a) to the extent that the provisions of Section 8.01(a) are
inconsistent with the following provisions:

(i) Discover Business Employees and Former Discover Employees shall continue to
be covered under the Mayo Clinic and Medical Decision Support wellness plans
(except Harris Health Trends, which coverage shall terminate on or about May 31,
2007);

 

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(ii) Discover Business Employees and Former Discover Employees who participate
in the Winged Keel portion of the Morgan Stanley LTD plan as of May 31, 2007
shall be permitted to continue those policies and maintain them on an individual
basis;

(iii) Discover Business Employees and Former Discover Employees shall cease to
be covered under the Morgan Stanley executive disability and life insurance
plans on or about May 31, 2007, except that employees already contributing to an
executive disability or life insurance policy shall be permitted to continue
such policy on an individual basis;

(iv) Discover Business Employees and Former Discover Employees shall cease to be
covered under the Morgan Stanley severance plan as of the Distribution Date;

(v) Morgan Stanley Business Employees and Former Morgan Stanley Employees shall
cease to be covered under the Morgan Stanley SelectHealth Medical Option no
later than the Distribution Date, the CMO contract for which shall be
transferred to Discover effective no later than the Distribution Date;

(vi) Discover Business Employees and Former Discover Employees shall cease to be
covered under the Morgan Stanley Kaiser Medical Options as of the Distribution
Date; and

(vii) Discover Business Employees and Former Discover Employees shall cease to
be covered under the Morgan Stanley VEBA as of the Distribution Date.

Section 8.02. Establishment of Discover Plans.

(a) General Rule. Subject to the provisions of 8.01 and this 8.02, Discover
Business Employees and Former Discover Employees shall cease to participate in
the Morgan Stanley welfare benefit plans on or about May 31, 2007. Discover
shall indemnify Morgan Stanley for any liability relating to Discover Business
Employees or Former Discover Employees on account of any such plan.

(b) Treatment of Claims Incurred. Morgan Stanley shall retain the liability for
payment of all covered claims (including medical, dental, life insurance and
long-term disability) and expenses incurred by any Discover Business Employee
and beneficiaries thereof under the Morgan Stanley Welfare Plans and Morgan
Stanley Non-ERISA U.S. Benefit Arrangements, and Discover shall not assume nor
shall it be responsible for any liability with respect to any such claims or
expenses. Discover shall have the liability only for covered claims incurred
under the terms of the Discover Welfare Plans and Discover Non-ERISA U.S.
Benefit Arrangements.

 

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(c) Credit for Deductibles and Other Limits. With respect to each Discover
Business Employee and Former Discover Employee, and each covered dependent,
beneficiary, or other related party of such individual (the “Discover Welfare
Plan Participants”), the Discover welfare benefit plans will give credit in the
year of the Distribution Date for any amount paid under the comparable type
Morgan Stanley plan by such Discover Welfare Plan Participant in the year of the
Distribution Date toward deductibles, out-of-pocket maximum, or other, similar
limitations to the extent such amounts are taken into account under the
comparable type Morgan Stanley plan. For purposes of any life-time maximum
out-of-pocket limit on expenses paid by a covered participant, the Discover
welfare plans will recognize any expenses incurred by a Discover Welfare Plan
Participant prior to the Distribution to the same extent such expenses would be
recognized in respect of an active plan participant under the comparable type
Morgan Stanley plan.

(d) COBRA. Effective as of the date of cessation of participation in the Morgan
Stanley welfare benefit plans by the Discover Business Employees and Former
Discover Employees (as provided above), Discover shall assume and satisfy all
requirements under COBRA with respect to all Discover Business Employees and
Former Discover Employees and their qualified beneficiaries, including for
individuals who are already receiving benefits as of such date under COBRA.

(e) Disabled Persons. The Parties intend that any Employee who has, prior to the
Distribution Date, become eligible to receive any long-term disability benefits
pursuant to any third-party insurance policy applicable under any welfare
benefit plan shall continue to be eligible to receive such benefits in
accordance with the terms of such plan and policy.

Section 8.03. No Transfer of Assets. No assets held in the Morgan Stanley VEBA,
the Morgan Stanley short term disability trust or any other trust, account or
other funding vehicle shall be transferred between or on account of the Discover
and Morgan Stanley welfare benefit plans, unless any such trust, account or
funding vehicle shall have material net assets as of the Distribution Date, in
which case the Parties shall negotiate in good faith to determine an equitable
allocation of such assets.

Section 8.04. Insurance Contracts. To the extent any Morgan Stanley welfare
benefit plan is funded through the purchase of an insurance contract, Morgan
Stanley and Discover will cooperate and use their reasonable best efforts to
“clone” such insurance contracts for Discover and to maintain any pricing
discounts or other preferential terms for both Morgan Stanley and Discover

 

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through the end of the term of the applicable Transition Services Agreement.
Morgan Stanley shall not be liable for failure to obtain such pricing discounts
or other preferential terms for Discover. The cost of “cloning”, including any
increases in premiums, charges or administrative fees relating to Discover
Business Employees and Former Discover Employees shall be the obligation of
Discover.

Section 8.05. Third Party Vendors. Except as provided below, to the extent any
Morgan Stanley welfare benefit plan is administered by a third-party vendor,
Morgan Stanley and Discover will cooperate and use their best efforts to “clone”
any contract with such third-party vendor for Discover and to maintain any
pricing discounts or other preferential terms for both Morgan Stanley and
Discover. Morgan Stanley shall not be liable for failure to obtain such pricing
discounts or other preferential terms for Discover. The cost of “cloning”,
including any increases in premiums, charges or administrative fees relating to
Discover Business Employees and Former Discover Employees shall be the
obligation of Discover. Notwithstanding the foregoing, the record keeping and
administration contract between Morgan Stanley and ACS and the consulting
agreements between Morgan Stanley and Mercer HR Consulting shall not be cloned.

ARTICLE 9

FRINGE BENEFIT AND OTHER U.S. PLANS AND PROGRAMS

Section 9.01. General Principle and Exceptions.

(a) General Principle. Except as otherwise provided under this Agreement,
effective on or about May 31, 2007, Discover Business Employees and Former
Discover Employees shall not be eligible to participate in any of the following
Morgan Stanley fringe benefit plans:

(i) the Morgan Stanley baby spoon program;

(ii) the Morgan Stanley service award program;

(iii) the Morgan Stanley adoption assistance program;

(iv) the Morgan Stanley commuter benefits plan;

(v) the Morgan Stanley legal assistance plan; and

(vi) any other plan, policy or arrangement of Morgan Stanley or a Morgan Stanley
Subsidiary providing fringe benefits to employees or former employees.

 

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Section 9.02. Transition of Coverage Under Plans and Programs.

(a) Commuter Benefit Plan. Effective as of June 1, 2007, Discover shall adopt a
commuter benefits plan for Discover Business Employees with substantially the
same terms as in effect as of May 31, 2007 under the Morgan Stanley commuter
benefits plan. No Morgan Stanley commuter benefits will paid to Discover
Business Employees in respect of commutation occurring after the Distribution
Date.

(b) Legal Assistance Plan. Legal assistance benefits will not be provided to
Discover Business Employees under the Morgan Stanley legal assistance program in
respect of legal services after the Distribution Date; provided, however, that
if a Discover Business Employee has begun a representation under the Morgan
Stanley legal assistance program on or prior to May 31, 2007, such
representation shall be covered under the Morgan Stanley legal assistance
program through December 31, 2007 in accordance with the terms of that program.

(c) Service Award Program. Discover Business Employees who have reached their
milestone anniversary on or prior to the date of the Distribution Date shall be
entitled to receive a gift under the Morgan Stanley Service Award Program.
Discover shall reimburse Morgan Stanley for the cost of providing such benefit
in an amount determined consistently with the cost allocation method in effect
prior to the Distribution Date. Discover Business Employees who reach their
milestone anniversary after the Distribution Date shall not be eligible to
receive a gift under the Morgan Stanley Service Award Program.

(d) Adoption Assistance Program. Discover Business Employees who have completed
an adoption that is eligible under the Morgan Stanley Adoption Assistance
Program on or prior to the Distribution Date shall be entitled to benefits under
that program. Discover shall reimburse Morgan Stanley for the cost of providing
such benefits in an amount determined consistently with the cost allocation
method in effect prior to the Distribution Date. Discover Business Employees who
complete an adoption after the Distribution Date shall not be eligible to
receive benefits under the Morgan Stanley adoption assistance program.

(e) Baby Spoon Program. Discover Business Employees who are employed as of
Distribution Date and have given birth to a baby or completed an eligible
adoption prior to the Distribution Date shall be entitled to receive a baby
spoon under the Morgan Stanley baby spoon program. Discover shall reimburse
Morgan Stanley for the cost of providing such benefit in an amount determined
consistently with the cost allocation method in effect prior to the Distribution
Date. Discover Business Employees who give birth or complete adoption of a child
after the Distribution Date shall not be eligible to receive a baby spoon under
the Morgan Stanley baby spoon program.

 

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ARTICLE 10

WORKERS COMPENSATION AND UNEMPLOYMENT COMPENSATION

Section 10.01. Allocation of Workers Compensation and Unemployment Claims.
Discover shall have and assume the obligations for all claims and liabilities
relating to workers compensation and unemployment compensation benefits for all
Discover Business Employees and Former Discover Employees. Morgan Stanley shall
have and assume the obligations for all claims and liabilities relating to
workers compensation and unemployment compensation benefits for all Morgan
Stanley Business Employees and Former Morgan Stanley Employees. Discover and
Morgan Stanley shall make reasonable efforts to provide that workers
compensation and unemployment insurance costs are not adversely affected for
either of them by reason of the Distribution.

ARTICLE 11

COMPENSATION MATTERS AND GENERAL BENEFIT AND EMPLOYEE MATTERS

Section 11.01. Restrictive Covenants in Employment and Other Agreements. To the
fullest extent permitted by the agreements and applicable law, Morgan Stanley
hereby assigns, for and on behalf of itself and its Affiliates, to Discover or
its appropriate Affiliate as designated by Discover all agreements containing
restrictive covenants (including but not limited to confidentiality and
non-competition provisions) between Morgan Stanley (or a Morgan Stanley
Affiliate) and a Discover Business Employee, effective as of the Distribution
Date. To the extent that assignment of such agreements is not permitted,
following the Distribution, Discover and its Subsidiaries and Affiliates shall
be considered to be successors to Morgan Stanley and its Subsidiaries and
Affiliates for purposes of, and third-party beneficiaries with respect to, all
agreements containing restrictive covenants (including but not limited to
confidentiality and non-competition provisions) between Morgan Stanley (or a
Morgan Stanley Subsidiary or Affiliate) and Discover Business Employees and
between Morgan Stanley (or a Morgan Stanley Subsidiary or Affiliate) and Morgan
Stanley Employees whom Discover reasonably determines have substantial knowledge
of the Discover Business, such that each of Morgan Stanley, Discover and their
respective Subsidiaries and Affiliates shall all enjoy the rights and benefits
under such agreements (including, without limitation, rights and benefits as a
third-party beneficiary), with respect to such Party’s and its respective
Subsidiaries’ and Affiliates’ business operations; provided, however, that
(a) in no event shall Morgan Stanley be permitted to enforce the restrictive
covenant agreements against Discover Business Employees for action taken in
their capacity as employees of Discover or its Subsidiaries, and (b) in no event
shall Discover be permitted to enforce the restrictive covenants agreements of
Morgan Stanley Business Employees for action taken in their capacity as
employees of Morgan Stanley or its Subsidiaries.

 

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Section 11.02. Non-Solicitation of Employees. For a period of eighteen months
following the Distribution (i) neither Discover nor any Discover Subsidiary
shall employ or knowingly solicit for employment any individual who is, or was
within the six-month period prior to the solicitation, an employee of Morgan
Stanley or any Morgan Stanley Affiliate, without the written consent of Morgan
Stanley and (ii) neither Morgan Stanley nor any Morgan Stanley Subsidiary shall
employ or knowingly solicit for employment any individual who is, or was within
the six-month period prior to the solicitation, an employee of Discover or any
Discover Affiliate, without the written consent of Discover. The foregoing shall
not apply (a) to any individual whose employment was involuntarily terminated by
the relevant former employer or (b) with respect to general solicitations made
through print, media or internet advertisements that are not directed or focused
on such individuals and any resulting employment.

Section 11.03. Severance. (a) Effective as of the Distribution Date, Discover
may establish one or more severance plans and policies with respect to Discover
Business Employees as Discover deems appropriate in its discretion. Morgan
Stanley shall have no liability or obligation under any Morgan Stanley severance
plan or policy with respect to Discover Business Employees who remain employed
or whose employment terminates on or after the Distribution Date.

(b) Following the Distribution Date, Morgan Stanley shall continue to be
responsible for administering all payments and benefits under the applicable
Morgan Stanley severance policies or any termination agreements with Former
Discover Employees whose employment has terminated prior to the Distribution
Date for an eligible reason under such policies or in accordance with such
agreements; provided that Discover shall reimburse, and shall indemnify Morgan
Stanley, and its Subsidiaries and Affiliates, for any amounts payable to Former
Discover Employees under such policies, and Discover shall be charged for the
continuation of welfare plan benefits to such Former Discover Employees and
their dependents on and after the Distribution Date on terms consistent with the
methodology specified in the appropriate costs and reimbursement provisions of
the applicable Transition Services Agreement.

(c) Morgan Stanley agrees to indemnify Discover against any loss or liability
resulting from Morgan Stanley’s gross negligence, willful misconduct or bad
faith in the administration of its severance policies or any termination
agreement with a Discover Business Employee.

(d) It is not intended that any Discover Business Employee will be eligible for
termination or severance payments or benefits from Morgan Stanley or its
Subsidiaries or Affiliates as a result of the transfer or change of employment
from Morgan Stanley to Discover or their respective Subsidiaries or Affiliates.
Notwithstanding the preceding sentence, in the event that any such termination
or

 

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severance payments or benefits become payable on account of such transfer,
change or the refusal of a Discover Business Employee to accept employment with
Discover, Discover shall indemnify Morgan Stanley, and its Subsidiaries and
Affiliates, for the amount of such termination or severance payments or
benefits.

Section 11.04. Accrued Vacation Days Off. Discover shall recognize and assume
all liability for all vacation, holiday, sick leave, flex days, personal days
and Paid-Time Off, including banked time, accrued by Discover Business Employees
as of the Distribution Date and Discover shall credit each Discover Business
Employee with such accrual.

Section 11.05. Leaves of Absence. Discover will continue to apply the leave of
absence policies maintained by Morgan Stanley to inactive Discover Business
Employees who are on an approved leave of absence as of the Distribution Date.
Leaves of absence taken by Discover Business Employees prior to the Distribution
Date shall be deemed to have been taken as employees of Discover.

Section 11.06. Morgan Stanley Assets. Except as otherwise set forth herein,
Morgan Stanley shall retain all reserves, bank accounts, trust funds or other
balances maintained with respect to Morgan Stanley Non-ERISA U.S. Benefit
Arrangements.

Section 11.07. Morgan Stanley Deferred Compensation Plans. (a) For purposes of
this Section 11.07, “Discover Deferred Compensation Accounts” shall mean, with
respect to all Morgan Stanley non-qualified cash-based deferred compensation
plans, the account balances under all such plans, as of June 30, 2007, of each
Discover Business Employee and each Former Discover Employee who is a
participant in any such plan. Morgan Stanley shall cause the Discover Deferred
Compensation Accounts under any of such plans to be fully vested, for purposes
of the respective plans, immediately prior to the Distribution Date. The
aggregate employer liability in respect of the Discover Deferred Compensation
Accounts shall be transferred to and assumed by Discover, except for any portion
thereof that was credited to such account in respect of a period during which
such employee was providing services to Morgan Stanley or to a Morgan Stanley
affiliate other than Discover and its Subsidiaries.

(b) Beginning on the Distribution Date and continuing through the date of
payment described herein, the return credited to the Discover Deferred
Compensation Accounts shall be based exclusively on LIBOR, as determined by
Morgan Stanley, reset monthly. On January 15, 2008, or as soon as
administratively practicable thereafter, Morgan Stanley and Discover, as
applicable, shall remit such account balances to the respective Discover
Business Employees and Former Discover Employees.

 

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ARTICLE 12

GENERAL PROVISIONS

Section 12.01. Preservation of Rights to Amend. The rights of Morgan Stanley or
Discover to amend or terminate any plan, program, or policy referred to herein
shall not be limited in any way by this Agreement.

Section 12.02. Confidentiality. Each Party agrees that the specific terms and
conditions of this Agreement and any information conveyed or otherwise received
by or on behalf of a Party in conjunction herewith are confidential and are
subject to the terms of the confidentiality provisions set forth in the
Distribution Agreement.

Section 12.03. Administrative Complaints/Litigation. Except as otherwise
provided in this Agreement, as of and after the Distribution Date, Discover
shall assume, and be solely liable for, the handling, administration,
investigation and defense of actions, including, without limitation, ERISA,
occupational safety and health, employment standards, union grievances, wrongful
dismissal, discrimination or human rights and unemployment compensation claims,
asserted at any time against Morgan Stanley, or Discover or their respective
Affiliates by any Discover Business Employee or Former Discover Employee
(including any dependent or beneficiary of any such Employee) or any other
person, to the extent such actions or claims arise out of or relate to
employment or the provision of services (whether as an employee, contractor,
consultant, or otherwise) to or with the Discover Business. To the extent that
any legal action relates to a putative or certified class of plaintiffs, which
includes both Morgan Stanley Business Employees (or Former Morgan Stanley
Employees) and Discover Business Employees (or Former Discover Employees) and
such action involves employment or benefit plan related claims, reasonable costs
and expenses incurred by the Parties in responding to such legal action shall be
allocated among the Parties equitably in proportion to a reasonable assessment
of the relative proportion of Morgan Stanley Business Employees (or Former
Morgan Stanley Employees) and Discover Business Employees (or Former Discover
Employees) included in or represented by the putative or certified plaintiff
class. The procedures contained in the indemnification and related litigation
cooperation provisions of the Distribution Agreement shall apply with respect to
each Party’s indemnification obligations under this Section 12.03.

Section 12.04. Reimbursement and Indemnification. The Parties hereto agree to
reimburse each other, within 30 days of receipt from the other Party of
reasonable verification, for all costs and expenses which each may incur on
behalf of the other as a result of any of the Welfare Plans, Pension Plans and
Non-ERISA U.S. Benefit Arrangements and, as contemplated by Section 11.03, any
termination or severance payments or benefits. All liabilities retained, assumed
or indemnified against by Discover pursuant to this Agreement, and all
liabilities

 

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retained, assumed or indemnified against by Morgan Stanley pursuant to this
Agreement, shall in each case be subject to the indemnification provisions of
the Distribution Agreement. Notwithstanding anything to the contrary, no
provision of this Agreement shall require Discover or any Discover Subsidiary to
pay or reimburse to Morgan Stanley or any Morgan Stanley Affiliate any
benefit-related cost item that Discover or any Discover Subsidiary has
previously paid or reimbursed to Morgan Stanley or any Morgan Stanley Affiliate.

Section 12.05. Costs of Compliance with Agreement. Except as otherwise provided
in this Agreement or any other Distribution Document, each Party shall pay its
own expenses in fulfilling its obligations under this Agreement.

ARTICLE 13

MISCELLANEOUS

Section 13.01. Notices. Any notice, instruction, direction or demand under the
terms of this Agreement required to be in writing shall be duly given upon
delivery, if delivered by hand, facsimile transmission, or mail, to the
following addresses:

 

  (a) If to Morgan Stanley to:

Morgan Stanley

1585 Broadway

New York, NY 10036

Attn: Martin M. Cohen, Director of Company Law

Facsimile: (212) 507-3334

with a copy to:

Davis Polk & Wardwell

450 Lexington Avenue

New York, NY 10017

Attn: Paul Kingsley, Esq./Jeffrey Small, Esq.

Facsimile: (212) 450-3277/(212) 450-3500

 

  (b) If to Discover to:

Discover Financial Services

2500 Lake Cook Road

Riverwoods, IL 60015

Attn: General Counsel—Contracts

Facsimile: (224) 405-4584

 

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or to such other addresses or telecopy numbers as may be specified by like
notice to the other Party. All such notices, requests and other communications
shall be deemed given, (a) when delivered in person or by courier or a courier
services, (b) if sent by facsimile transmission (receipt confirmed) on a
Business Day prior to 5 p.m. in the place of receipt, on the date of
transmission (or, if sent after 5 p.m., on the following Business Day) or (c) if
mailed by certified mail (return receipt requested), on the date specified on
the return receipt.

Section 13.02. Amendments; No Waivers. From and after the Distribution, any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
Morgan Stanley and Discover, or in the case of a waiver, by the Party against
whom the waiver is to be effective.

(a) No failure or delay by any Party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 13.03. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Parties hereto and their respective
successors and permitted assigns; provided that neither Party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other Party hereto. If any Party or any of
its successors or permitted assigns (i) shall consolidate with or merge into any
other Person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) shall transfer all or substantially all
of its properties and assets to any Person, then, and in each such case, proper
provisions shall be made so that the successors and assigns of such Party shall
assume all of the obligations of such Party under the Distribution Documents.

Section 13.04. Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of New York, without regard to the
conflicts of laws rules thereof.

Section 13.05. Counterparts; Effectiveness; Third-Party Beneficiaries. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement shall become effective when each party
hereto shall have received a counterpart hereof signed by the other party
hereto. Until and unless each party has received a counterpart hereof signed by
the other party hereto, this Agreement shall have no effect and no party shall

 

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have any right or obligation hereunder (whether by virtue of any other oral or
written agreement or other communication). Neither this Agreement nor any
provision hereof is intended to confer any rights, benefits, remedies,
obligations, or liabilities hereunder upon any Person other than the parties
hereto and their respective successors and permitted assigns. No Employee or
other current or former employee of Morgan Stanley or Discover or any Subsidiary
or Affiliate of either (or his/her spouse, dependent or beneficiary), or any
other person not a party to this Agreement, shall be entitled to assert any
claim hereunder. Without limiting the foregoing, the provisions of this
Agreement are not intended to, nor shall they confer upon any Person other than
the Parties hereto any right or expectation as to the adoption, amendment,
maintenance, continuation, operation or funding of any employee benefit plan,
policy or arrangement.

Section 13.06. Entire Agreement. This Agreement and the other Distribution
Documents constitute the entire understanding of the parties with respect to the
subject matter hereof and thereof and supersede all prior agreements,
understandings and negotiations, both written and oral, between the parties with
respect to the subject matter hereof and thereof. No representation, inducement,
promise, understanding, condition or warranty not set forth herein or in the
other Distribution Documents has been made or relied upon by any party hereto.
Regardless of anything else contained herein, the parties do not intend for this
Agreement to amend any employee benefit plans or arrangements.

Section 13.07. Jurisdiction. Any Action seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the
transactions contemplated hereby may be brought in the United States District
Court for the Southern District of New York or any other New York State court
sitting in New York County, and each of the Parties hereby consents to the
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding and irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such court has
been brought in an inconvenient forum. Process in any such suit, action or
proceeding may be served on any Party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
Party agrees that service of process on such Party as provided in Section 13.01
shall be deemed effective service of process on such Party.

Section 13.08. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

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Section 13.09. Severability. If any one or more of the provisions contained in
this Agreement should be declared invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained in this Agreement shall not in any way be affected or impaired thereby
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any Party. Upon such
a declaration, the Parties shall modify this Agreement so as to effect the
original intent of the Parties as closely as possible in an acceptable manner so
that the transactions contemplated hereby are consummated as originally
contemplated to the fullest extent possible.

Section 13.10. Survival. All covenants and agreements of the Parties contained
in this Agreement shall survive the Distribution Date indefinitely, unless a
specific survival or other applicable period is expressly set forth herein.

Section 13.11. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.

Section 13.12. Specific Performance. Each Party to this Agreement acknowledges
and agrees that damages for a breach or threatened breach of any of the
provisions of this Agreement would be inadequate and irreparable harm would
occur. In recognition of this fact, each Party agrees that, if there is a breach
or threatened breach, in addition to any damages, the other nonbreaching Party
to this Agreement, without posting any bond, shall be entitled to seek and
obtain equitable relief in the form of specific performance, temporary
restraining order, temporary or permanent injunction, attachment, or any other
equitable remedy which may then be available to obligate the breaching Party
(i) to perform its obligations under this Agreement or (ii) if the breaching
Party is unable, for whatever reason, to perform those obligations, to take any
other actions as are necessary, advisable or appropriate to give the other Party
to this Agreement the economic effect which comes as close as possible to the
performance of those obligations (including, but not limited to, transferring,
or granting liens on, the assets of the breaching Party to secure the
performance by the breaching Party of those obligations).

Section 13.13. Limited Liability. Notwithstanding any other provision of this
Agreement, no individual who is a stockholder, director, employee, officer,
agent or representative of Discover or Morgan Stanley, nor any individual
employed or previously employed by Discover or Morgan Stanley or their
respective Affiliates and serving or previously serving as a fiduciary of any
benefit plan of Discover or Morgan Stanley or their respective Affiliates (or
any body consisting of such individuals), in his, her or its capacity as such,
shall have any liability in respect of or relating to the covenants or
obligations of Discover or Morgan Stanley under this Agreement and, to the
fullest extent legally

 

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permissible, each of Discover and Morgan Stanley, for itself and its respective
stockholders, directors, employees, officers and Affiliates, waives and agrees
not to seek to assert or enforce any such liability that any such Person
otherwise might have pursuant to applicable law.

Section 13.14. Mutual Drafting. This Agreement shall be deemed to be the joint
work product of Morgan Stanley and Discover and any rule of construction that a
document shall be interpreted or construed against a drafter of such document
shall not be applicable.

Section 13.15. Implementation.

(a) The parties shall use an operating committee (the “Operating Committee”) to
implement the terms of this Agreement. Each of Morgan Stanley and Discover shall
appoint an equal number of employees to the Operating Committee, such number to
be as Morgan Stanley and Discover shall agree as appropriate. The Operating
Committee will oversee the implementation and ongoing operation of this
Agreement and shall attempt in good faith to resolve disputes between the
parties. Each of the parties shall have the right to replace one or more of its
Operating Committee members at any time with employees or officers with
comparable knowledge, expertise and decision-making authority.

(b) The Operating Committee shall act by a majority vote of its members. If the
Operating Committee fails to make a decision, resolve a dispute or agree upon
any necessary action, the unresolved matter shall be referred to a Senior
Officer of each of Morgan Stanley and Discover notified to the other party for
such purpose from time to time, who shall attempt in good faith within a period
of 14 days to conclusively resolve any such matter.

(c) During the term of this Agreement, the full Operating Committee shall meet
at such times as it considers appropriate. Meetings of the Operating Committee
may be in person or via teleconference and shall be convened and held in
accordance with such procedures as the Operating Committee may determine from
time to time.

Section 13.16. Effect if Distribution Does Not Occur. Notwithstanding anything
in this Agreement to the contrary, if the Distribution Agreement is terminated
prior to the Distribution Date, this Agreement shall be of no further force and
effect.

Section 13.17. Corporate Authorization. The officers of Morgan Stanley and
Discover are hereby authorized, empowered and directed, in the name and on
behalf of each of Morgan Stanley and Discover, respectively, to take or cause to
be taken all such further action, to execute and deliver or cause to be executed
and delivered all such further agreements, certificates, instruments and
documents, to

 

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make or cause to be made all such filings with governmental or regulatory
authorities, and to pay or cause to be paid all such fees and expenses, in each
case which shall in such officers’ judgment be deemed necessary, proper or
advisable to effect and carry out the intent of this Agreement, such
determination to be evidenced conclusively by such officers’ execution and
delivery thereof or taking of action in respect thereto.

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in
their names by a duly authorized officer as of the date first written above.

 

MORGAN STANLEY By:  

/s/ Robert W. Scully

Name:   Robert W. Scully Title:   Co-President

 

DISCOVER FINANCIAL SERVICES

By:  

/s/ David W. Nelms

Name:   David W. Nelms Title:   Chief Executive Officer