Document:

FIXED RATE SENIOR NOTE

REGISTERED                                                 REGISTERED
No. FXR                                                    U.S. $
                                                           CUSIP: 61746S570

     Unless this certificate is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York) to the issuer or
its agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as requested
by an authorized representative of The Depository Trust Company and any payment
is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof,
Cede & Co., has an interest herein.

                                      A-1
<PAGE>

                                 MORGAN STANLEY
                    SENIOR GLOBAL MEDIUM-TERM NOTE, SERIES C

                PERFORMANCE LEVERAGED UPSIDE SECURITIES ("PLUS")

                             PLUS DUE JULY 15, 2006
                            MANDATORILY EXCHANGEABLE
                      FOR AN AMOUNT PAYABLE IN U.S. DOLLARS
                      BASED ON THE VALUE OF COMMON STOCK OF
                 FIFTEEN COMPANIES IN THE SEMICONDUCTOR INDUSTRY

<TABLE>
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<S>                           <C>                          <C>                         <C>
ORIGINAL ISSUE DATE:          INITIAL REDEMPTION           INTEREST RATE: None         MATURITY DATE:
    July     , 2004               DATE: N/A                                                See "Maturity Date"
                                                                                           below.
--------------------------------------------------------------------------------------------------------------------

INTEREST ACCRUAL DATE: N/A    INITIAL REDEMPTION           INTEREST PAYMENT            OPTIONAL REPAYMENT
                                  PERCENTAGE: N/A              DATES: N/A                  DATE(S):  N/A
--------------------------------------------------------------------------------------------------------------------

SPECIFIED CURRENCY:           ANNUAL REDEMPTION            INTEREST PAYMENT            APPLICABILITY OF
    U.S. dollars                  PERCENTAGE                   PERIOD: N/A                MODIFIED PAYMENT UPON
                                  REDUCTION: N/A                                           ACCELERATION: See
                                                                                           "Alternate Exchange
                                                                                           Calculation in Case of
                                                                                           an Event of Default"
                                                                                           below.
--------------------------------------------------------------------------------------------------------------------

IF SPECIFIED                  REDEMPTION NOTICE PERIOD:    APPLICABILITY OF            If yes, state Issue Price:
    CURRENCY OTHER THAN U.S.      N/A                          ANNUAL INTEREST             N/A
    DOLLARS, OPTION TO ELECT                                   PAYMENTS: N/A
    PAYMENT IN U.S. DOLLARS:
    N/A
--------------------------------------------------------------------------------------------------------------------

EXCHANGE RATE                 TAX REDEMPTION AND PAYMENT                               ORIGINAL YIELD TO
   AGENT: N/A                     OF ADDITIONAL AMOUNTS:                                   MATURITY: N/A
                                  N/A
--------------------------------------------------------------------------------------------------------------------

OTHER PROVISIONS: See below   If yes, state Initial
                              Offering Date: N/A
--------------------------------------------------------------------------------------------------------------------
</TABLE>

Maturity Date............   July 15, 2006, subject to extension in the event of
                            a Market Disruption Event on the scheduled Basket
                            Valuation Date (as defined below).

                            If due to a Market Disruption Event or otherwise,
                            the Basket Valuation Date occurs on or after July
                            14, 2006, the Maturity Date shall be the second
                            Trading Day

                                      A-2
<PAGE>

                            following the Basket Valuation Date as postponed.
                            See "Basket Valuation Date" below.

                            In the event that the Maturity Date of the PLUS is
                            postponed due to postponement of the Basket
                            Valuation Date as described in the immediately
                            preceding paragraph, the Issuer shall give notice of
                            such postponement and, once it has been determined,
                            of the date to which the Maturity Date has been
                            rescheduled (i) to the holder of this PLUS by
                            mailing notice of such postponement by first class
                            mail, postage prepaid, to the holder's last address
                            as it shall appear upon the registry books, (ii) to
                            the Trustee by telephone or facsimile confirmed by
                            mailing such notice to the Trustee by first class
                            mail, postage prepaid, at its New York office and
                            (iii) to The Depository Trust Company (the
                            "Depositary") by telephone or facsimile confirmed by
                            mailing such notice to the Depositary by first class
                            mail, postage prepaid. Any notice that is mailed in
                            the manner herein provided shall be conclusively
                            presumed to have been duly given, whether or not the
                            holder of this PLUS receives the notice. The Issuer
                            shall give such notice as promptly as possible, and
                            in no case later than (i) with respect to notice of
                            postponement of the Maturity Date, the Business Day
                            immediately following July 13, 2006, and (ii) with
                            respect to notice of the date to which the Maturity
                            Date has been rescheduled, the Business Day
                            immediately following the actual Basket Valuation
                            Date for determining the Final Basket Value (as
                            defined below).

Denominations............   $5 and integral multiples thereof

Payment at Maturity......   At maturity, upon delivery of this PLUS to the
                            Trustee, the Issuer shall pay with respect to each
                            $5 principal amount of this PLUS an amount in cash
                            equal to (i) if the Final Basket Value is greater
                            than the Initial Basket Value (as defined below),
                            the lesser of (a) $5 plus the Leveraged Upside
                            Payment (as defined below) and (b) the Maximum
                            Payment at Maturity (as defined below) or (ii) if
                            the Final Basket Value is less than or equal to the
                            Initial Basket Value, $5 times the Basket
                            Performance Factor (as defined below).

                            The Issuer shall, or shall cause the Calculation
                            Agent to, (i) provide written notice to the Trustee
                            and to the

                                      A-3
<PAGE>

                            Depositary of the amount of cash to be delivered
                            with respect to each $5 principal amount of this
                            PLUS, on or prior to 10:30 a.m. on the Trading Day
                            preceding the Maturity Date (but if such Trading Day
                            is not a Business Day, prior to the close of
                            business on the Business Day preceding the Maturity
                            Date), and (ii) deliver the aggregate cash amount
                            due with respect to this PLUS to the Trustee for
                            delivery to the holder of this PLUS on the Maturity
                            Date.

Leveraged Upside Payment    The product of (i) $5 and (ii) 250% and (iii) the
                            Basket Percent Increase (as defined below).

Maximum Payment at
Maturity.................   $

Basket Stocks............   The Basket Stocks are the stocks of the fifteen
                            issuers set forth in the table below. The table also
                            indicates the ticker symbol for each Basket Stock,
                            the U.S. exchange on which each Basket Stock is
                            listed and the Exchange Ratio with respect to each
                            Basket Stock, each as determined on July 23, 2004.

                     Issuer of                    Ticker    Exchange    Exchange
                     Basket Stock                 Symbol                  Ratio
                     ------------                 ------    --------      -----
                     Advanced Micro Devices,
                     Inc.                          AMD        NYSE
                     Altera Corporation            ALTR      NASDAQ
                     Amkor Technology, Inc.        AMKR      NASDAQ
                     Analog Devices, Inc.          ADI        NYSE
                     Applied Materals, Inc.        AMAT      NASDAQ
                     Broadcom Corporation          BRCM      NASDAQ
                     Intel Corporation             INTC      NASDAQ
                     LSI Logic Corporation         LSI        NYSE
                     Micron Technology, Inc.        MU        NYSE
                     National
                     Semiconductor
                     Corporation                   NSM        NYSE
                     Novellus Systems, Inc.        NVLS      NASDAQ
                     SanDisk Corporation           SNDK      NASDAQ
                     Taiwan Semiconductor
                     Manufacturing  Company Ltd.   TSM*       NYSE
                     Texas
                     Instruments                   TXN
                     Incorporated                             NYSE
                     Xilinx, Inc.                  XLNX      NASDAQ

                     * Trades as American Depositary Shares

Basket...................   The Basket is initially composed of the common stock
                            of the fifteen companies in the semiconductor
                            industry listed in the table under "Basket Stocks"
                            above and shall consist of a number of shares of
                            each

                                      A-4
<PAGE>

                            Basket Stock equal to the Exchange Ratio with
                            respect to such Basket Stock.

Exchange Ratio...........   The Exchange Ratio for each Basket Stock is set
                            forth in the table under "Basket Stocks" above and
                            shall remain constant for the term of this PLUS,
                            subject to adjustment for certain corporate and
                            other events relating to the issuer of that Basket
                            Stock. See "Adjustments to the Exchange Ratios"
                            below.

Basket Percent Increase..   A fraction, the numerator of which is the Final
                            Basket Value minus the Initial Basket Value and the
                            denominator of which is the Initial Basket Value.

Basket Performance Factor   A fraction, the numerator of which is the Final
                            Basket Value and the denominator of which is the
                            Initial Basket Value.

Final Basket Value.......   The Basket Value on the Basket Valuation Date.

Basket Valuation Date....   July 13, 2006; provided that if any such date is not
                            a Trading Day or if there is a Market Disruption
                            Event on such date, the Basket Valuation Date shall
                            be the first Trading Day occurring on or after July
                            14, 2006 on which no Market Disruption Event shall
                            have occurred.

Initial Basket Value.....   $5.00

Basket Value.............   The Basket Value on any date shall equal the sum of
                            the products of the Closing Price and the Exchange
                            Ratio for each Basket Stock, each determined as of
                            such date by the Calculation Agent.

Closing Price............   The Closing Price for one share of a Basket Stock
                            (or one unit of any other security for which a
                            Closing Price must be determined) on any Trading Day
                            (as defined below) means:

                            o    if a Basket Stock (or any such other security)
                                 is listed or admitted to trading on a national
                                 securities exchange, the last reported sale
                                 price, regular way, of the principal trading
                                 session on such day on the principal United
                                 States securities exchange registered under the
                                 Securities Exchange Act of 1934, as amended

                                       A-5

<PAGE>

                                 (the "Exchange Act"), on which such Basket
                                 Stock (or any such other security) is listed or
                                 admitted to trading,

                            o    if a Basket Stock (or any such other security)
                                 is a security of the Nasdaq National Market
                                 (and provided that the Nasdaq National Market
                                 is not then a national securities exchange),
                                 the Nasdaq official closing price published by
                                 The Nasdaq Stock Market, Inc. on such day, or

                            o    if a Basket Stock (or any such other security)
                                 is neither listed or admitted to trading on any
                                 national securities exchange nor a security of
                                 the Nasdaq National Market but is included in
                                 the OTC Bulletin Board Service (the "OTC
                                 Bulletin Board") operated by the National
                                 Association of Securities Dealers, Inc., the
                                 last reported sale price of the principal
                                 trading session on the OTC Bulletin Board on
                                 such day.

                            If a Basket Stock (or any such other security) is
                            listed or admitted to trading on any national
                            securities exchange or is a security of the Nasdaq
                            National Market but the last reported sale price or
                            Nasdaq official closing price, as applicable, is not
                            available pursuant to the preceding sentence, then
                            the Closing Price for one share of such Basket Stock
                            (or one unit of any such other security) on any
                            Trading Day shall mean the last reported sale price
                            of the principal trading session on the
                            over-the-counter market as reported on the Nasdaq
                            National Market or the OTC Bulletin Board on such
                            day. If, because of a Market Disruption Event (as
                            defined below) or otherwise, the last reported sale
                            price or Nasdaq official closing price, as
                            applicable, for a Basket Stock (or any such other
                            security) is not available pursuant to either of the
                            two preceding sentences, then the Closing Price for
                            any Trading Day shall be the mean, as determined by
                            the Calculation Agent, of the bid prices for such
                            Basket Stock (or any such other security) obtained
                            from as many recognized dealers in such security,
                            but not exceeding three, as shall make such bid
                            prices available to the Calculation Agent. Bids of
                            MS & Co. or any of its affiliates may be included in
                            the calculation of such mean, but only to the extent
                            that

                                       A-6

<PAGE>

                            any such bid is the highest of the bids obtained.
                            The term "security of the Nasdaq National Market"
                            shall include a security included in any successor
                            to such system, and the term "OTC Bulletin Board
                            Service" shall include any successor service
                            thereto.

Trading Day..............   A day, as determined by the Calculation Agent, on
                            which trading is generally conducted on the New York
                            Stock Exchange (the "NYSE"), the American Stock
                            Exchange LLC, the Nasdaq National Market, the
                            Chicago Mercantile Exchange and the Chicago Board of
                            Options Exchange and in the over-the- counter market
                            for equity securities in the United States.

Calculation Agent........   Morgan Stanley & Co. Incorporated and its successors
                            ("MS & Co.").

                            All determinations made by the Calculation Agent
                            shall be at the sole discretion of the Calculation
                            Agent and shall, in the absence of manifest error,
                            be conclusive for all purposes and binding on the
                            holder of this PLUS, the Trustee and the Issuer.

                            All calculations with respect to the Exchange Ratio
                            for each Basket Stock and the Payment at Maturity,
                            if any, will be made by the Calculation Agent and
                            will be rounded to the nearest one billionth, with
                            five ten- billionths rounded upward (e.g.,
                            .8765432105 would be rounded to .876543211); all
                            dollar amounts related to determination of the
                            amount of cash payable for each $5 principal amount
                            of this PLUS shall be rounded to the nearest
                            ten-thousandth, with five one hundred-thousandths
                            rounded upward (e.g., .76545 would be rounded up to
                            .7655); and all dollar amounts paid on the aggregate
                            number of PLUS shall be rounded to the nearest cent,
                            with one-half cent rounded upward.

Market Disruption Event..   "Market Disruption Event" means, with respect to any
                            Basket Stock (or the ordinary shares of Taiwan
                            Semiconductor Manufacturing Company Ltd. ("Taiwan
                            Semiconductor")):

                                 (i) the occurrence or existence of a
                                 suspension, material limitation or absence of

                                       A-7

<PAGE>

                                 trading of such Basket Stock (or ordinary
                                 shares of Taiwan Semiconductor) on the primary
                                 market for such Basket Stock (or ordinary
                                 shares of Taiwan Semiconductor) for more than
                                 two hours of trading or during the one-half
                                 hour period preceding the close of the
                                 principal trading session in such market; or a
                                 breakdown or failure in the price and trade
                                 reporting systems of the primary market for
                                 such Basket Stock (or ordinary shares of Taiwan
                                 Semiconductor) as a result of which the
                                 reported trading prices for such Basket Stock
                                 (or ordinary shares of Taiwan Semiconductor)
                                 during the last one-half hour preceding the
                                 close of the principal trading session in such
                                 market are materially inaccurate; or the
                                 suspension, absence or material limitation of
                                 trading on the primary market for trading in
                                 options contracts related to such Basket Stock
                                 (or ordinary shares of Taiwan Semiconductor),
                                 if available, during the one-half hour period
                                 preceding the close of the principal trading
                                 session in the applicable market, in each case
                                 as determined by the Calculation Agent in its
                                 sole discretion; and

                                 (ii) a determination by the Calculation Agent
                                 in its sole discretion that any event described
                                 in clause (i) above materially interfered with
                                 the ability of Morgan Stanley or any of its
                                 affiliates to unwind or adjust all or a
                                 material portion of the hedge position in such
                                 Basket Stock with respect to the PLUS.

                            For purpose of determining whether a Market
                            Disruption Event has occurred: (1) a limitation on
                            the hours or number of days of trading shall not
                            constitute a Market Disruption Event if it results
                            from an announced change in the regular business
                            hours of the relevant exchange, (2) a decision to
                            permanently discontinue trading in the relevant
                            options contract shall not constitute a Market
                            Disruption Event, (3) limitations pursuant to NYSE
                            Rule 80A (or any applicable rule or regulation
                            enacted or promulgated by the NYSE, any other United
                            States self-regulatory

                                       A-8

<PAGE>

                            organization, the Securities and Exchange Commission
                            or any other relevant authority of scope similar to
                            NYSE Rule 80A as determined by the Calculation
                            Agent) on trading during significant market
                            fluctuations shall constitute a suspension, absence
                            or material limitation of trading, (4) a suspension
                            of trading in options contracts on any Basket Stock
                            (or ordinary shares of Taiwan Semiconductor) by the
                            primary securities market trading in such options,
                            if available, by reason of (x) a price change
                            exceeding limits set by such securities exchange or
                            market, (y) an imbalance of orders relating to such
                            contracts or (z) a disparity in bid and ask quotes
                            relating to such contracts shall constitute a
                            suspension, absence or material limitation of
                            trading in options contracts related to such Basket
                            Stock (or ordinary shares of Taiwan Semiconductor)
                            and (5) a suspension, absence or material limitation
                            of trading on the primary securities market on which
                            options contracts related to any Basket Stock (or
                            ordinary shares of Taiwan Semiconductor) are traded
                            shall not include any time when such securities
                            market is itself closed for trading under ordinary
                            circumstances.

Alternate Exchange
Calculation in Case of an
Event of Default..........  In case an event of default with respect to the PLUS
                            shall have occurred and be continuing, the amount
                            declared due and payable for each $5 principal
                            amount of this PLUS upon any acceleration of this
                            PLUS shall be determined by the Calculation Agent
                            and shall be an amount in cash equal to the Payment
                            at Maturity calculated using the Basket Value as of
                            the date of acceleration as the Final Basket Value.

                            If the maturity of the PLUS is accelerated because
                            of an event of default as described above, the
                            Issuer shall, or shall cause the Calculation Agent
                            to, provide written notice to the Trustee at its New
                            York office, on which notice the Trustee may
                            conclusively rely, and to the Depositary of the
                            aggregate cash amount due with respect to each $5
                            principal amount of this PLUS as promptly as
                            possible and in no event later than two Business
                            Days after the date of acceleration.

                                       A-9

<PAGE>

Adjustments to the
Exchange Ratios..........   The Exchange Ratio with respect to a Basket Stock
                            shall be adjusted as follows:

                            1. If a Basket Stock (or ordinary shares of Taiwan
                            Semiconductor) is subject to a stock split or
                            reverse stock split, then once such split has become
                            effective, the Exchange Ratio for such Basket Stock
                            shall be adjusted to equal the product of the prior
                            Exchange Ratio for such Basket Stock and the number
                            of shares issued in such stock split or reverse
                            stock split with respect to one share of such Basket
                            Stock; provided, however, that, with respect to
                            Taiwan Semiconductor's Basket Stock that trades as
                            ADS, if (and to the extent that) Taiwan
                            Semiconductor or the depositary for the ADS has
                            adjusted the number of ordinary shares represented
                            by each ADS so that the price of the ADS would not
                            be affected by such stock split or reverse stock
                            split, no adjustment to the Exchange Ratio shall be
                            made.

                            2. If a Basket Stock (or ordinary shares of Taiwan
                            Semiconductor) is subject (i) to a stock dividend
                            (issuance of additional shares of such Basket Stock
                            or ordinary shares of Taiwan Semiconductor) that is
                            given ratably to all holders of shares of such
                            Basket Stock or (ii) to a distribution of such
                            Basket Stock (or ordinary shares of Taiwan
                            Semiconductor), as a result of the triggering of any
                            provision of the corporate charter of the issuer of
                            such Basket Stock, then once the dividend has become
                            effective and such Basket Stock is trading
                            ex-dividend, the Exchange Ratio for such Basket
                            Stock shall be adjusted so that the new Exchange
                            Ratio for such Basket Stock shall equal equal the
                            prior Exchange Ratio for such Basket Stock plus the
                            product of (i) the number of shares issued with
                            respect to one share of such Basket Stock and (ii)
                            the prior Exchange Ratio for such Basket Stock;
                            provided, however, that, with respect to Taiwan
                            Semiconductor's Basket Stock traded as ADS, if (and
                            to the extent that) Taiwan Semiconductor or the
                            depositary for the ADS has adjusted the number of
                            ordinary shares represented by each ADS so that the
                            price of the ADS would not be affected by such stock
                            dividends or stock distributions, no adjustment to
                            the Exchange Ratio shall be made.

                                      A-10

<PAGE>

                            3. There shall be no adjustments to the Exchange
                            Ratio for any Basket Stock to reflect cash dividends
                            or other distributions paid with respect to the
                            Basket Stock (or ordinary shares of Taiwan
                            Semiconductor) other than distributions described in
                            clauses (i), (iv) and (v) of paragraph 5 below and
                            Extraordinary Dividends as described below. For
                            Taiwan Semiconductor's Basket Stock that is traded
                            as ADS, cash dividends or other distributions paid
                            on the ordinary shares represented by such ADS shall
                            not be considered Extraordinary Dividends unless
                            such cash dividends or other distributions, when
                            passed through to the holder of such shares, would
                            constitute Extraordinary Dividends as described
                            below. A cash dividend or other distribution with
                            respect to a Basket Stock shall be deemed to be an
                            "Extraordinary Dividend" if such dividend or other
                            distribution exceeds the immediately preceding
                            non-Extraordinary Dividend for such Basket Stock by
                            an amount equal to at least 10% of the Closing Price
                            of such Basket Stock (as adjusted for any subsequent
                            corporate event requiring an adjustment hereunder,
                            such as a stock split or reverse stock split) on the
                            Trading Day preceding the "ex-dividend date" (that
                            is, the day on and after which transactions in a
                            Basket Stock on the primary United States organized
                            securities exchange or trading system for such
                            Basket Stock no longer carry the right to receive
                            that cash dividend or other cash distribution) for
                            the payment of such Extraordinary Dividend. If an
                            Extraordinary Dividend occurs with respect to a
                            Basket Stock, the Exchange Ratio with respect to
                            such Basket Stock shall be adjusted on the
                            ex-dividend date with respect to such Extraordinary
                            Dividend so that the new Exchange Ratio for such
                            Basket Stock shall equal the product of (i) the then
                            current Exchange Ratio for such Basket Stock and
                            (ii) a fraction, the numerator of which is the
                            Closing Price of the Basket Stock on the Trading Day
                            preceding the ex-dividend date, and the denominator
                            of which is the amount by which the Closing Price of
                            the Basket Stock on the Trading Day preceding the
                            ex-dividend date exceeds the Extraordinary Dividend
                            Amount. The "Extraordinary Dividend Amount" with
                            respect to an Extraordinary Dividend for a Basket
                            Stock shall equal (i) in the case of cash dividends
                            or other distributions that constitute

                                      A-11

<PAGE>

                            regular dividends, the amount per share of such
                            Extraordinary Dividend minus the amount per share of
                            the immediately preceding non-Extraordinary Dividend
                            for such Basket Stock or (ii) in the case of cash
                            dividends or other distributions that do not
                            constitute regular dividends, the amount per share
                            of such Extraordinary Dividend. To the extent an
                            Extraordinary Dividend is not paid in cash, the
                            value of the non-cash component shall be determined
                            by the Calculation Agent, whose determination shall
                            be conclusive. A distribution on a Basket Stock
                            described in clause (i), (iv) or (v) of paragraph 5
                            below that also constitutes an Extraordinary
                            Dividend shall cause an adjustment to the Exchange
                            Ratio pursuant only to clause (i), (iv) or (v) of
                            paragraph 5, as applicable.

                            4. If the issuer of a Basket Stock issues rights or
                            warrants to all holders of a Basket Stock to
                            subscribe for or purchase such Basket Stock at an
                            exercise price per share less than the Closing Price
                            of such Basket Stock on both (i) the date the
                            exercise price of such rights or warrants is
                            determined and (ii) the expiration date of such
                            rights or warrants, and if the expiration date of
                            such rights or warrants precedes the maturity of the
                            PLUS, then the Exchange Ratio for such Basket Stock
                            shall be adjusted to equal the product of the prior
                            Exchange Ratio for such Basket Stock and a fraction,
                            the numerator of which shall be the number of shares
                            of such Basket Stock outstanding immediately prior
                            to the issuance of such rights or warrants plus the
                            number of additional shares of such Basket Stock
                            offered for subscription or purchase pursuant to
                            such rights or warrants and the denominator of which
                            shall be the number of shares of such Basket Stock
                            outstanding immediately prior to the issuance of
                            such rights or warrants plus the number of
                            additional shares of such Basket Stock which the
                            aggregate offering price of the total number of
                            shares of such Basket Stock so offered for
                            subscription or purchase pursuant to such rights or
                            warrants would purchase at the Closing Price on the
                            expiration date of such rights or warrants, which
                            shall be determined by multiplying such total number
                            of shares offered by the exercise price of such
                            rights or

                                      A-12

<PAGE>

                            warrants and dividing the product so obtained by
                            such Closing Price.

                            5. Any of the following shall constitute a
                            Reorganization Event: (i) there occurs any
                            reclassification or change of a Basket Stock (or
                            ordinary shares of Taiwan Semiconductor), including,
                            without limitation, as a result of the issuance of
                            any tracking stock by the issuer of such Basket
                            Stock, (ii) the issuer of a Basket Stock or any
                            surviving entity or subsequent surviving entity of
                            the issuer of such Basket Stock (an "Issuer
                            Successor") has been subject to a merger,
                            combination or consolidation and is not the
                            surviving entity, (iii) any statutory exchange of
                            securities of the issuer of a Basket Stock or any
                            Issuer Successor with another corporation occurs
                            (other than pursuant to clause (ii) above), (iv) the
                            issuer of a Basket Stock is liquidated, (v) the
                            issuer of a Basket Stock issues to all of its
                            shareholders equity securities of an issuer other
                            than the issuer of such Basket Stock (other than in
                            a transaction described in clause (ii), (iii) or
                            (iv) above) (a "Spinoff Event") or (vi) a tender or
                            exchange offer or going-private transaction is
                            consummated for all the outstanding shares of such
                            Basket Stock. If any Reorganization Event occurs, in
                            each case as a result of which the holders of a
                            Basket Stock are entitled to receive stock, other
                            securities or other property or assets (including,
                            without limitation, cash or other classes of
                            securities of the issuer of such Basket Stock and
                            including (x) in the case of the issuance of
                            tracking stock, the reclassified share of the Basket
                            Stock, (y) in the case of a Spin-off Event, the
                            share of the Basket Stock with respect to which the
                            spun-off security was issued and (z) in the case of
                            any other Reorganization Event where the Basket
                            Stock continues to be held by the holders receiving
                            such distribution, the Basket Stock) (collectively,
                            "Exchange Property") with respect to or in exchange
                            for such Basket Stock, then in lieu of using the
                            product of the Closing Price and the Exchange Ratio
                            for such Basket Stock to calculate the Basket Value
                            on any date, the Calculation Agent shall use the
                            Exchange Property Value on such date. The Exchange
                            Property Value at any date means (i) for any cash
                            received per share of Basket Stock, the amount of
                            cash received per share of Basket Stock as

                                      A-13

<PAGE>

                            adjusted by the applicable Exchange Ratio for such
                            Basket Stock on the date of such Reorganization
                            Event, (ii) for any property other than cash or
                            securities received in such distribution, the market
                            value, as determined by the Calculation Agent, as of
                            the date of receipt, of such Exchange Property
                            received for each share of Basket Stock, as adjusted
                            by the Exchange Ratio for such Basket Stock on the
                            date of such Reorganization Event, (iii) for any
                            security received in any such distribution, an
                            amount equal to the Closing Price, as of the date on
                            which the Exchange Property Value is determined, per
                            share of such security multiplied by the quantity of
                            such security received for each share of Basket
                            Stock, as adjusted by the Exchange Ratio for such
                            Basket Stock on the date of the initial distribution
                            of such Exchange Property (such as-adjusted
                            quantity, a "New Exchange Ratio") and (iv) if the
                            Exchange Property was distributed with respect to,
                            rather than in exchange for, a Basket Stock, an
                            amount equal to the Closing Price, as of the date on
                            which the Exchange Property Value is determined, for
                            such Basket Stock multiplied by the Exchange Ratio
                            as of the date on which the Exchange Property Value
                            is determined. Holders of PLUS shall not receive any
                            interest accrued on the cash component of any
                            Exchange Property. Any New Exchange Ratio shall also
                            be subject to the adjustments set forth in
                            paragraphs 1 through 5 hereof.

                            For purposes of paragraph 5 above, in the case of a
                            consummated tender or exchange offer or going-
                            private transaction involving Exchange Property of a
                            particular type, Exchange Property shall be deemed
                            to include the amount of cash or other property paid
                            by the offeror in the tender or exchange offer with
                            respect to such Exchange Property (in an amount
                            determined on the basis of the rate of exchange in
                            such tender or exchange offer or going-private
                            transaction). In the event of a tender or exchange
                            offer or a going-private transaction with respect to
                            Exchange Property in which an offeree may elect to
                            receive cash or other property, Exchange Property
                            shall be deemed to include the kind and amount of
                            cash and other property received by offerees who
                            elect to receive cash.

                                      A-14

<PAGE>

                            6. In the event of a public announcement that a
                            Basket Stock will no longer be listed on the NYSE or
                            any other primary U.S. securities exchange or traded
                            through the facilities of a U.S. national securities
                            system, that Basket Stock will be removed from the
                            Basket (the "Removed Basket Stock") effective as of
                            the Trading Day prior to the first date on which
                            such Basket Stock is no longer listed on the NYSE or
                            any other primary U.S. securities exchange or traded
                            through the facilities of a U.S. national securities
                            system (the "Delisting Date"), and the Exchange
                            Ratio of each remaining Basket Stock will be
                            adjusted as described in the following sentence. The
                            Calculation Agent will, as of the close of trading
                            on the Trading Day prior to the Delisting Date (if
                            the announcement of an actual delisting is made
                            after trading hours on a Trading Day or on a
                            non-Trading Day, "the Trading Day prior to the
                            Delisting Date" will be deemed to have occurred on
                            the next Trading Day), increase the Exchange Ratio
                            of each remaining Basket Stock by a number of shares
                            of such Basket Stock equal to the amount obtained by
                            multiplying (A) the product of the Closing Price of
                            the Removed Basket Stock and the Exchange Ratio of
                            the Removed Basket Stock, each determined by the
                            Calculation Agent on such Trading Day, by (B) a
                            fraction the numerator of which is the product of
                            the Closing Price of such Basket Stock and the
                            Exchange Ratio of such Basket Stock each as of such
                            Trading Day and the denominator of which is the sum
                            of the products of the Closing Price of each of the
                            Basket Stocks other than the Removed Basket Stock
                            and the corresponding Exchange Ratio of such Basket
                            Stock, each determined by the Calculation Agent on
                            such Trading Day. The Calculation Agent will make,
                            and will not reverse, this adjustment, even if the
                            Removed Basket Stock is subsequently listed on the
                            NYSE or other primary U.S. securities exchange or
                            traded through the facilities of a U.S. national
                            securities system at a later date.

                            No adjustment will be made to the Basket pursuant to
                            paragraph 6 above if the Calculation Agent
                            determines that any such adjustment is not necessary
                            in light of adjustments made, or to be made,
                            pursuant to paragraph 5 above, and its
                            determinations with

                                      A-15

<PAGE>

                            respect thereto shall be conclusive in the absence
                            of manifest error.

                            If a Closing Price for a Basket Stock is no longer
                            available for a Basket Stock for whatever reason,
                            including the liquidation of the issuer of such
                            Basket Stock or the subjection of such issuer to a
                            proceeding under any applicable bankruptcy,
                            insolvency or other similar law, then the value of
                            such Basket Stock shall equal zero for so long as no
                            Closing Price is available. There shall be no
                            substitution for any such Basket Stock. In the event
                            that Taiwan Semiconductor's Basket Stock is no
                            longer listed on a primary U.S. securities exchange
                            or traded through the facilities of a U.S. national
                            securities system and underlying ordinary shares are
                            then listed on a primary U.S. securities exchange or
                            traded through the facilities of a U.S. national
                            securities system, the Calculation Agent in its sole
                            discretion will adjust the Exchange Ratio for such
                            Basket Stock such that the product of the last
                            reported sale price of such Basket Stock and its
                            Exchange Ratio at the last time such Basket Stock
                            was listed or traded equals the product of the last
                            reported sale price of the related ordinary share
                            and such adjusted Exchange Ratio at such time.

                            With respect to Taiwan Semiconductor's Basket Stock
                            that is traded as ADS, in the event that Taiwan
                            Semiconductor or the depositary for such ADS elects,
                            in the absence of any of the events described above,
                            to change the number of ordinary shares that are
                            represented by such ADS, the Exchange Ratio for such
                            Basket Stock on any Trading Day after the change
                            becomes effective shall be proportionately adjusted.

                            No adjustment to the Exchange Ratio for any Basket
                            Stock shall be required unless such adjustment would
                            require a change of at least .1% in the Exchange
                            Ratio of such Basket Stock then in effect. The
                            Exchange Ratio resulting from any of the adjustments
                            specified above shall be rounded to the nearest one
                            billionth, with five ten-billionths rounded upward.
                            Adjustments to the Exchange Ratio of a Basket Stock
                            shall be made up to and including the final
                            scheduled Basket Valuation Date.

                                      A-16

<PAGE>

                            No adjustments to the Exchange Ratio for any Basket
                            Stock shall be required other than those specified
                            above. The adjustments specified above do not cover
                            all of the events that could affect the Closing
                            Price of a Basket Stock, including, without
                            limitation, a partial tender or exchange offer for a
                            Basket Stock or the ordinary shares of Taiwan
                            Semiconductor.

                            The Calculation Agent shall be solely responsible
                            for the determination and calculation of any
                            adjustments to any Exchange Ratio for a Basket Stock
                            or method of calculating the Exchange Property Value
                            and of any related determinations and calculations
                            with respect to any distributions of stock, other
                            securities or other property or assets (including
                            cash) in connection with any corporate event
                            described in paragraph 5 above, and its
                            determinations and calculations with respect thereto
                            shall be conclusive in the absence of manifest
                            error.

                            The Calculation Agent shall provide information as
                            to any adjustments to any Exchange Ratio upon
                            written request by any investor in the PLUS.

Treatment of PLUS for
United States Federal
Income Tax Purposes......   The Issuer, by its sale of this PLUS, and the holder
                            of this PLUS (and any successor holder of, or holder
                            of a beneficial interest in, this PLUS), by its
                            respective purchase hereof, agree (in the absence of
                            an administrative determination or judicial ruling
                            to the contrary) to characterize each $5 principal
                            amount of this PLUS for all tax purposes as a single
                            financial contract with respect to the Basket that
                            (i) requires the holder of this PLUS to pay to the
                            Issuer at inception an amount equal to $5 and (ii)
                            entitles the holder to receive at maturity an amount
                            in cash based upon the performance of the Basket.

                                      A-17

<PAGE>

     Morgan Stanley (formerly known as Morgan Stanley Dean Witter & Co.), a
Delaware corporation (together with its successors and assigns, the "Issuer"),
for value received, hereby promises to pay to CEDE & Co., or registered
assignees, the amount of cash, as determined in accordance with the provisions
set forth under "Payment at Maturity" above, due with respect to the principal
sum of U.S.$        (UNITED STATES DOLLARS          ), on the Maturity Date
specified above (except to the extent redeemed or repaid prior to maturity) and
to pay interest thereon at the Interest Rate per annum specified above, from and
including the Interest Accrual Date specified above until the principal hereof
is paid or duly made available for payment weekly, monthly, quarterly,
semiannually or annually in arrears as specified above as the Interest Payment
Period on each Interest Payment Date (as specified above), commencing on the
Interest Payment Date next succeeding the Interest Accrual Date specified above,
and on the Maturity Date (or on any redemption or repayment date); provided,
however, that if the Interest Accrual Date occurs between a Record Date, as
defined below, and the next succeeding Interest Payment Date, interest payments
shall commence on the second Interest Payment Date succeeding the Interest
Accrual Date to the registered holder of this Note on the Record Date with
respect to such second Interest Payment Date; and provided, further, that if
this Note is subject to "Annual Interest Payments," interest payments shall be
made annually in arrears and the term "Interest Payment Date" shall be deemed to
mean the first day of March in each year.

     Interest on this Note shall accrue from and including the most recent date
to which interest has been paid or duly provided for, or, if no interest has
been paid or duly provided for, from and including the Interest Accrual Date,
until but excluding the date the principal hereof has been paid or duly made
available for payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date shall, subject to certain exceptions
described herein, be paid to the person in whose name this Note (or one or more
predecessor Notes) is registered at the close of business on the date 15
calendar days prior to such Interest Payment Date (whether or not a Business Day
(as defined below)) (each such date, a "Record Date"); provided, however, that
interest payable at maturity (or any redemption or repayment date) shall be
payable to the person to whom the principal hereof shall be payable. As used
herein, "Business Day" means any day, other than a Saturday or Sunday, (a) that
is neither a legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close (x) in The City of New York
or (y) if this Note is denominated in a Specified Currency other than U.S.
dollars, euro or Australian dollars, in the principal financial center of the
country of the Specified Currency, or (z) if this Note is denominated in
Australian dollars, in Sydney and (b) if this Note is denominated in euro, that
is also a day on which the Trans-European Automated Real-time Gross Settlement
Express Transfer System ("TARGET") is operating (a "TARGET Settlement Day").

     Payment of the principal of this Note, any premium and the interest due at
maturity (or any redemption or repayment date), unless this Note is denominated
in a Specified Currency other than U.S. dollars and is to be paid in whole or in
part in such Specified Currency, shall be made in immediately available funds
upon surrender of this Note at the office or agency of the Paying Agent, as
defined on the reverse hereof, maintained for that purpose in the Borough of
Manhattan, The City of New York, or at such other paying agency as the Issuer
may determine, in U.S. dollars. U.S. dollar payments of interest, other than
interest due at maturity or on any date of redemption or repayment, shall be
made by U.S. dollar check mailed to the address of the person entitled thereto
as such address shall appear in the Note register. A holder of U.S. $10,000,000
(or the equivalent

                                      A-18

<PAGE>

in a Specified Currency) or more in aggregate principal amount of Notes having
the same Interest Payment Date, the interest on which is payable in U.S.
dollars, shall be entitled to receive payments of interest, other than interest
due at maturity or on any date of redemption or repayment, by wire transfer of
immediately available funds if appropriate wire transfer instructions have been
received by the Paying Agent in writing not less than 15 calendar days prior to
the applicable Interest Payment Date.

     If this Note is denominated in a Specified Currency other than U.S.
dollars, and the holder does not elect (in whole or in part) to receive payment
in U.S. dollars pursuant to the next succeeding paragraph, payments of interest,
principal or any premium with regard to this Note shall be made by wire transfer
of immediately available funds to an account maintained by the holder hereof
with a bank located outside the United States if appropriate wire transfer
instructions have been received by the Paying Agent in writing, with respect to
payments of interest, on or prior to the fifth Business Day after the applicable
Record Date and, with respect to payments of principal or any premium, at least
ten Business Days prior to the Maturity Date or any redemption or repayment
date, as the case may be; provided that, if payment of interest, principal or
any premium with regard to this Note is payable in euro, the account must be a
euro account in a country for which the euro is the lawful currency, provided,
further, that if such wire transfer instructions are not received, such payments
shall be made by check payable in such Specified Currency mailed to the address
of the person entitled thereto as such address shall appear in the Note
register; and provided, further, that payment of the principal of this Note, any
premium and the interest due at maturity (or on any redemption or repayment
date) shall be made upon surrender of this Note at the office or agency referred
to in the preceding paragraph.

     If so indicated on the face hereof, the holder of this Note, if denominated
in a Specified Currency other than U.S. dollars, may elect to receive all or a
portion of payments on this Note in U.S. dollars by transmitting a written
request to the Paying Agent, on or prior to the fifth Business Day after such
Record Date or at least ten Business Days prior to the Maturity Date or any
redemption or repayment date, as the case may be. Such election shall remain in
effect unless such request is revoked by written notice to the Paying Agent as
to all or a portion of payments on this Note at least five Business Days prior
to such Record Date, for payments of interest, or at least ten calendar days
prior to the Maturity Date or any redemption or repayment date, for payments of
principal, as the case may be.

     If the holder elects to receive all or a portion of payments of principal
of, premium, if any, and interest on this Note, if denominated in a Specified
Currency other than U.S. dollars, in U.S. dollars, the Exchange Rate Agent (as
defined on the reverse hereof) shall convert such payments into U.S. dollars. In
the event of such an election, payment in respect of this Note shall be based
upon the exchange rate as determined by the Exchange Rate Agent based on the
highest bid quotation in The City of New York received by such Exchange Rate
Agent at approximately 11:00 a.m., New York City time, on the second Business
Day preceding the applicable payment date from three recognized foreign exchange
dealers (one of which may be the Exchange Rate Agent unless such Exchange Rate
Agent is an affiliate of the Issuer) for the purchase by the quoting dealer of
U.S. dollars for the Specified Currency of U.S. dollars for settlement on such
payment date in the amount of the Specified Currency payable in the absence of
such an election to such holder and at which the applicable dealer commits to
execute a contract. If such bid quotations are not available, such

                                      A-19

<PAGE>

payment shall be made in the Specified Currency. All currency exchange costs
shall be borne by the holder of this Note by deductions from such payments.

     Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.

     Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefit under the Senior Indenture, as defined on the
reverse hereof, or be valid or obligatory for any purpose.

                                      A-20

<PAGE>

     IN WITNESS WHEREOF, the Issuer has caused this Note to be duly executed.

DATED: July   , 2004                      MORGAN STANLEY

                                          By:
                                              ----------------------------------
                                              Name:   Jai Sooklal
                                              Title:  Assistant Treasurer

TRUSTEE'S CERTIFICATE
      OF AUTHENTICATION

This is one of the Notes referred
      to in the within-mentioned
      Senior Indenture.

JPMORGAN CHASE BANK,
      as Trustee

By:
    -------------------------------
    Authorized Officer

                                      A-21

<PAGE>

                               REVERSE OF SECURITY

     This Note is one of a duly authorized issue of Senior Global Medium-Term
Notes, Series C, having maturities more than nine months from the date of issue
(the "Notes") of the Issuer. The Notes are issuable under an Amended and
Restated Senior Indenture, dated as of May 1, 1999, between the Issuer and
JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as Trustee
(the "Trustee," which term includes any successor trustee under the Senior
Indenture) (as may be amended or supplemented from time to time, the "Senior
Indenture"), to which Senior Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities of the Issuer, the Trustee and holders of the
Notes and the terms upon which the Notes are, and are to be, authenticated and
delivered. The Issuer has appointed JPMorgan Chase Bank at its corporate trust
office in The City of New York as the paying agent (the "Paying Agent," which
term includes any additional or successor Paying Agent appointed by the Issuer)
with respect to the Notes. The terms of individual Notes may vary with respect
to interest rates, interest rate formulas, issue dates, maturity dates, or
otherwise, all as provided in the Senior Indenture. To the extent not
inconsistent herewith, the terms of the Senior Indenture are hereby incorporated
by reference herein.

     Unless otherwise indicated on the face hereof, this Note shall not be
subject to any sinking fund and, unless otherwise provided on the face hereof in
accordance with the provisions of the following two paragraphs, shall not be
redeemable or subject to repayment at the option of the holder prior to
maturity.

     If so indicated on the face of hereof, this Note may be redeemed in whole
or in part at the option of the Issuer on or after the Initial Redemption Date
specified on the face hereof on the terms set forth on the face hereof, together
with interest accrued and unpaid hereon to the date of redemption. If this Note
is subject to "Annual Redemption Percentage Reduction," the Initial Redemption
Percentage indicated on the face hereof shall be reduced on each anniversary of
the Initial Redemption Date by the Annual Redemption Percentage Reduction
specified on the face hereof until the redemption price of this Note is 100% of
the principal amount hereof, together with interest accrued and unpaid hereon to
the date of redemption. Notice of redemption shall be mailed to the registered
holders of the Notes designated for redemption at their addresses as the same
shall appear on the Note register not less than 30 nor more than 60 calendar
days prior to the date fixed for redemption or within the Redemption Notice
Period specified on the face hereof, subject to all the conditions and
provisions of the Senior Indenture. In the event of redemption of this Note in
part only, a new Note or Notes for the amount of the unredeemed portion hereof
shall be issued in the name of the holder hereof upon the cancellation hereof.

     If so indicated on the face of hereof, this Note shall be subject to
repayment at the option of the holder on the Optional Repayment Date or Dates
specified on the face hereof on the terms set forth herein. On any Optional
Repayment Date, this Note shall be repayable in whole or in part in increments
of $1,000 or, if this Note is denominated in a Specified Currency other than
U.S. dollars, in increments of 1,000 units of such Specified Currency (provided
that any remaining principal amount hereof shall not be less than the minimum
authorized denomination hereof) at the option of the holder hereof at a price
equal to 100% of the principal amount to be repaid, together with interest
accrued and unpaid hereon to the date of repayment, provided that this Note is
issued with original

                                      A-22

<PAGE>

issue discount, this Note shall be repayable on the applicable Optional
Repayment Date or Dates at the price(s) specified on the face hereof. For this
Note to be repaid at the option of the holder hereof, the Paying Agent must
receive at its corporate trust office in the Borough of Manhattan, The City of
New York, at least 15 but not more than 30 calendar days prior to the date of
repayment, (i) this Note with the form entitled "Option to Elect Repayment"
below duly completed or (ii) a telegram, telex, facsimile transmission or a
letter from a member of a national securities exchange or the National
Association of Securities Dealers, Inc. or a commercial bank or a trust company
in the United States setting forth the name of the holder of this Note, the
principal amount hereof, the certificate number of this Note or a description of
this Note's tenor and terms, the principal amount hereof to be repaid, a
statement that the option to elect repayment is being exercised thereby and a
guarantee that this Note, together with the form entitled "Option to Elect
Repayment" duly completed, shall be received by the Paying Agent not later than
the fifth Business Day after the date of such telegram, telex, facsimile
transmission or letter; provided, that such telegram, telex, facsimile
transmission or letter shall only be effective if this Note and form duly
completed are received by the Paying Agent by such fifth Business Day. Exercise
of such repayment option by the holder hereof shall be irrevocable. In the event
of repayment of this Note in part only, a new Note or Notes for the amount of
the unpaid portion hereof shall be issued in the name of the holder hereof upon
the cancellation hereof.

     Interest payments on this Note shall include interest accrued to but
excluding the Interest Payment Dates or the Maturity Date (or any earlier
redemption or repayment date), as the case may be. Unless otherwise provided on
the face hereof, interest payments for this Note shall be computed and paid on
the basis of a 360 day year of twelve 30 day months.

     In the case where the Interest Payment Date or the Maturity Date (or any
redemption or repayment date) does not fall on a Business Day, payment of
interest, premium, if any, or principal otherwise payable on such date need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the Interest Payment Date or on the
Maturity Date (or any redemption or repayment date), and no interest on such
payment shall accrue for the period from and after the Interest Payment Date or
the Maturity Date (or any redemption or repayment date) to such next succeeding
Business Day.

     This Note and all the obligations of the Issuer hereunder are direct,
unsecured obligations of the Issuer and rank without preference or priority
among themselves and pari passu with all other existing and future unsecured and
unsubordinated indebtedness of the Issuer, subject to certain statutory
exceptions in the event of liquidation upon insolvency.

     This Note, and any Note or Notes issued upon transfer or exchange hereof,
is issuable only in fully registered form, without coupons, and, if denominated
in U.S. dollars, unless otherwise stated above, is issuable only in
denominations of U.S. $1,000 and any integral multiple of U.S. $1,000 in excess
thereof. If this Note is denominated in a Specified Currency other than U.S.
dollars, then, unless a higher minimum denomination is required by applicable
law, it is issuable only in denominations of the equivalent of U.S. $1,000
(rounded to an integral multiple of 1,000 units of such Specified Currency), or
any amount in excess thereof which is an integral multiple of 1,000 units of
such Specified Currency, as determined by reference to the noon dollar buying
rate in The City of New York for cable transfers of such Specified Currency
published by the Federal

                                      A-23

<PAGE>

Reserve Bank of New York (the "Market Exchange Rate") on the Business Day
immediately preceding the date of issuance.

     The Trustee has been appointed registrar for the Notes, and the Trustee
shall maintain at its office in The City of New York a register for the
registration and transfer of Notes. This Note may be transferred at the
aforesaid office of the Trustee by surrendering this Note for cancellation,
accompanied by a written instrument of transfer in form satisfactory to the
Issuer and the Trustee and duly executed by the registered holder hereof in
person or by the holder's attorney duly authorized in writing, and thereupon the
Trustee shall issue in the name of the transferee or transferees, in exchange
herefor, a new Note or Notes having identical terms and provisions and having a
like aggregate principal amount in authorized denominations, subject to the
terms and conditions set forth herein; provided, however, that the Trustee shall
not be required (i) to register the transfer of or exchange any Note that has
been called for redemption in whole or in part, except the unredeemed portion of
Notes being redeemed in part, (ii) to register the transfer of or exchange any
Note if the holder thereof has exercised his right, if any, to require the
Issuer to repurchase such Note in whole or in part, except the portion of such
Note not required to be repurchased, or (iii) to register the transfer of or
exchange Notes to the extent and during the period so provided in the Senior
Indenture with respect to the redemption of Notes. Notes are exchangeable at
said office for other Notes of other authorized denominations of equal aggregate
principal amount having identical terms and provisions. All such exchanges and
transfers of Notes shall be free of charge, but the Issuer may require payment
of a sum sufficient to cover any tax or other governmental charge in connection
therewith. All Notes surrendered for exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Issuer and the Trustee and
executed by the registered holder in person or by the holder's attorney duly
authorized in writing. The date of registration of any Note delivered upon any
exchange or transfer of Notes shall be such that no gain or loss of interest
results from such exchange or transfer.

     In case this Note shall at any time become mutilated, defaced or be
destroyed, lost or stolen and this Note or evidence of the loss, theft or
destruction thereof (together with the indemnity hereinafter referred to and
such other documents or proof as may be required in the premises) shall be
delivered to the Trustee, the Issuer in its discretion may execute a new Note of
like tenor in exchange for this Note, but, if this Note is destroyed, lost or
stolen, only upon receipt of evidence satisfactory to the Trustee and the Issuer
that this Note was destroyed or lost or stolen and, if required, upon receipt
also of indemnity satisfactory to each of them. All expenses and reasonable
charges associated with procuring such indemnity and with the preparation,
authentication and delivery of a new Note shall be borne by the owner of the
Note mutilated, defaced, destroyed, lost or stolen.

     The Senior Indenture provides that (a) if an Event of Default (as defined
in the Senior Indenture) due to the default in payment of principal of, premium,
if any, or interest on, any series of debt securities issued under the Senior
Indenture, including the series of Senior Medium-Term Notes of which this Note
forms a part, or due to the default in the performance or breach of any other
covenant or warranty of the Issuer applicable to the debt securities of such
series but not applicable to all outstanding debt securities issued under the
Senior Indenture shall have occurred and be continuing, either the Trustee or
the holders of not less than 25% in aggregate principal amount of the
outstanding debt securities of each affected series, voting as one class, by
notice in writing to the Issuer and to the Trustee, if given by the
securityholders, may then declare the

                                      A-24

<PAGE>

principal of all debt securities of all such series and interest accrued thereon
to be due and payable immediately and (b) if an Event of Default due to a
default in the performance of any other of the covenants or agreements in the
Senior Indenture applicable to all outstanding debt securities issued
thereunder, including this Note, or due to certain events of bankruptcy,
insolvency or reorganization of the Issuer, shall have occurred and be
continuing, either the Trustee or the holders of not less than 25% in aggregate
principal amount of all outstanding debt securities issued under the Senior
Indenture, voting as one class, by notice in writing to the Issuer and to the
Trustee, if given by the securityholders, may declare the principal of all such
debt securities and interest accrued thereon to be due and payable immediately,
but upon certain conditions such declarations may be annulled and past defaults
may be waived (except a continuing default in payment of principal or premium,
if any, or interest on such debt securities) by the holders of a majority in
aggregate principal amount of the debt securities of all affected series then
outstanding.

     If the face hereof indicates that this Note is subject to "Modified Payment
upon Acceleration and Redemption," then (i) if the principal hereof is declared
to be due and payable as described in the preceding paragraph, the amount of
principal due and payable with respect to this Note shall be limited to the
aggregate principal amount hereof multiplied by the sum of the Issue Price
specified on the face hereof (expressed as a percentage of the aggregate
principal amount) plus the original issue discount amortized from the Interest
Accrual Date to the date of declaration, which amortization shall be calculated
using the "interest method" (computed in accordance with generally accepted
accounting principles in effect on the date of declaration), (ii) for the
purpose of any vote of securityholders taken pursuant to the Senior Indenture
prior to the acceleration of payment of this Note, the principal amount hereof
shall equal the amount that would be due and payable hereon, calculated as set
forth in clause (i) above, if this Note were declared to be due and payable on
the date of any such vote and (iii) for the purpose of any vote of
securityholders taken pursuant to the Senior Indenture following the
acceleration of payment of this Note, the principal amount hereof shall equal
the amount of principal due and payable with respect to this Note, calculated as
set forth in clause (i) above.

     If the face hereof indicates that this Note is subject to "Tax Redemption
and Payment of Additional Amounts," this Note may be redeemed, as a whole, at
the option of the Issuer at any time prior to maturity, upon the giving of a
notice of redemption as described below, at a redemption price equal to 100% of
the principal amount hereof, together with accrued interest to the date fixed
for redemption (except that if this Note is subject to "Modified Payment upon
Acceleration or Redemption," such redemption price would be limited to the
aggregate principal amount hereof multiplied by the sum of the Issue Price
specified on the face hereof (expressed as a percentage of the aggregate
principal amount) plus the original issue discount amortized from the Interest
Accrual Date to the date of redemption, which amortization shall be calculated
using the "interest method" (computed in accordance with generally accepted
accounting principles in effect on the date of redemption) (the "Amortized
Amount")), if the Issuer determines that, as a result of any change in or
amendment to the laws, or any regulations or rulings promulgated thereunder, of
the United States or of any political subdivision or taxing authority thereof or
therein affecting taxation, or any change in official position regarding the
application or interpretation of such laws, regulations or rulings, which change
or amendment becomes effective on or after the Initial Offering Date hereof, the
Issuer has or shall become obligated to pay Additional Amounts, as defined
below, with respect to this Note as described below. Prior to the giving of any
notice of redemption pursuant to this paragraph, the Issuer shall deliver to the
Trustee (i) a certificate stating that the Issuer is entitled to effect such

                                      A-25

<PAGE>

redemption and setting forth a statement of facts showing that the conditions
precedent to the right of the Issuer to so redeem have occurred, and (ii) an
opinion of independent legal counsel satisfactory to the Trustee to such effect
based on such statement of facts; provided that no such notice of redemption
shall be given earlier than 60 calendar days prior to the earliest date on which
the Issuer would be obligated to pay such Additional Amounts if a payment in
respect of this Note were then due.

     Notice of redemption shall be given not less than 30 nor more than 60
calendar days prior to the date fixed for redemption or within the Redemption
Notice Period specified on the face hereof, which date and the applicable
redemption price shall be specified in the notice.

     If the face hereof indicates that this Note is subject to "Tax Redemption
and Payment of Additional Amounts," the Issuer shall, subject to certain
exceptions and limitations set forth below, pay such additional amounts (the
"Additional Amounts") to the holder of this Note who is a United States Alien as
may be necessary in order that every net payment of the principal of and
interest on this Note and any other amounts payable on this Note, after
withholding or deduction for or on account of any present or future tax,
assessment or governmental charge imposed upon or as a result of such payment by
the United States, or any political subdivision or taxing authority thereof or
therein, shall not be less than the amount provided for in this Note to be then
due and payable. The Issuer shall not, however, be required to make any payment
of Additional Amounts to any such holder who is a United States Alien for or on
account of:

          (a) any present or future tax, assessment or other governmental charge
     that would not have been so imposed but for (i) the existence of any
     present or former connection between such holder, or between a fiduciary,
     settlor, beneficiary, member or shareholder of such holder, if such holder
     is an estate, a trust, a partnership or a corporation for United States
     federal income tax purposes, and the United States, including, without
     limitation, such holder, or such fiduciary, settlor, beneficiary, member or
     shareholder, being or having been a citizen or resident thereof or being or
     having been engaged in a trade or business or present therein or having, or
     having had, a permanent establishment therein or (ii) the presentation by
     or on behalf the holder of this Note for payment on a date more than 15
     calendar days after the date on which such payment became due and payable
     or the date on which payment thereof is duly provided for, whichever occurs
     later;

          (b) any estate, inheritance, gift, sales, transfer, excise or personal
     property tax or any similar tax, assessment or governmental charge;

          (c) any tax, assessment or other governmental charge imposed by reason
     of such holder's past or present status as a personal holding company or
     foreign personal holding company or controlled foreign corporation or
     passive foreign investment company with respect to the United States or as
     a corporation which accumulates earnings to avoid United States federal
     income tax or as a private foundation or other tax exempt organization or a
     bank receiving interest under Section 881(c)(3)(A) of the Internal Revenue
     Code of 1986, as amended;

          (d) any tax, assessment or other governmental charge that is payable
     otherwise than by withholding or deduction from payments on or in respect
     of this Note;

                                      A-26

<PAGE>

          (e) any tax, assessment or other governmental charge required to be
     withheld by any Paying Agent from any payment of principal of, or interest
     on, this Note, if such payment can be made without such withholding by any
     other Paying Agent in a city in Western Europe;

          (f) any tax, assessment or other governmental charge that would not
     have been imposed but for the failure to comply with certification,
     information or other reporting requirements concerning the nationality,
     residence or identity of the holder or beneficial owner of this Note, if
     such compliance is required by statute or by regulation of the United
     States or of any political subdivision or taxing authority thereof or
     therein as a precondition to relief or exemption from such tax, assessment
     or other governmental charge;

          (g) any tax, assessment or other governmental charge imposed by reason
     of such holder's past or present status as the actual or constructive owner
     of 10% or more of the total combined voting power of all classes of stock
     entitled to vote of the Issuer or as a direct or indirect subsidiary of the
     Issuer; or

          (h) any combination of items (a), (b), (c), (d), (e), (f) or (g).

In addition, the Issuer shall not be required to make any payment of Additional
Amounts (i) to any such holder where such withholding or deduction is imposed on
a payment to an individual and is required to be made pursuant to any law
implementing or complying with, or introduced in order to conform to, any
European Union Directive on the taxation of savings; or (ii) by or on behalf of
a holder who would have been able to avoid such withholding or deduction by
presenting this Note or the relevant coupon to another Paying Agent in a member
state of the European Union. Nor shall the Issuer pay Additional Amounts with
respect to any payment on this Note to a United States Alien who is a fiduciary
or partnership or other than the sole beneficial owner of such payment to the
extent such payment would be required by the laws of the United States (or any
political subdivision thereof) to be included in the income, for tax purposes,
of a beneficiary or settlor with respect to such fiduciary or a member of such
partnership or a beneficial owner who would not have been entitled to the
Additional Amounts had such beneficiary, settlor, member or beneficial owner
been the holder of this Note.

     The Senior Indenture permits the Issuer and the Trustee, with the consent
of the holders of not less than a majority in aggregate principal amount of the
debt securities of all series issued under the Senior Indenture then outstanding
and affected (voting as one class), to execute supplemental indentures adding
any provisions to or changing in any manner the rights of the holders of each
series so affected; provided that the Issuer and the Trustee may not, without
the consent of the holder of each outstanding debt security affected thereby,
(a) extend the final maturity of any such debt security, or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon, or reduce any amount payable on redemption thereof, or change the
currency of payment thereof, or modify or amend the provisions for conversion of
any currency into any other currency, or modify or amend the provisions for
conversion or exchange of the debt security for securities of the Issuer or
other entities or for other property or the cash value of the property (other
than as provided in the antidilution provisions or other similar adjustment
provisions of the debt securities or otherwise in accordance with the terms
thereof), or impair or affect the rights of any holder to institute suit for the
payment thereof or (b) reduce the aforesaid percentage in principal

                                      A-27

<PAGE>

amount of debt securities the consent of the holders of which is required for
any such supplemental indenture.

     Except as set forth below, if the principal of, premium, if any, or
interest on this Note is payable in a Specified Currency other than U.S. dollars
and such Specified Currency is not available to the Issuer for making payments
hereon due to the imposition of exchange controls or other circumstances beyond
the control of the Issuer or is no longer used by the government of the country
issuing such currency or for the settlement of transactions by public
institutions within the international banking community, then the Issuer shall
be entitled to satisfy its obligations to the holder of this Note by making such
payments in U.S. dollars on the basis of the Market Exchange Rate on the date of
such payment or, if the Market Exchange Rate is not available on such date, as
of the most recent practicable date; provided, however, that if the euro has
been substituted for such Specified Currency, the Issuer may at its option (or
shall, if so required by applicable law) without the consent of the holder of
this Note effect the payment of principal of, premium, if any, or interest on
any Note denominated in such Specified Currency in euro in lieu of such
Specified Currency in conformity with legally applicable measures taken pursuant
to, or by virtue of, the Treaty establishing the European Community, as amended.
Any payment made under such circumstances in U.S. dollars or euro where the
required payment is in an unavailable Specified Currency shall not constitute an
Event of Default. If such Market Exchange Rate is not then available to the
Issuer or is not published for a particular Specified Currency, the Market
Exchange Rate shall be based on the highest bid quotation in The City of New
York received by the Exchange Rate Agent at approximately 11:00 a.m., New York
City time, on the second Business Day preceding the date of such payment from
three recognized foreign exchange dealers (the "Exchange Dealers") for the
purchase by the quoting Exchange Dealer of the Specified Currency for U.S.
dollars for settlement on the payment date, in the aggregate amount of the
Specified Currency payable to those holders or beneficial owners of Notes and at
which the applicable Exchange Dealer commits to execute a contract. One of the
Exchange Dealers providing quotations may be the Exchange Rate Agent unless the
Exchange Rate Agent is an affiliate of the Issuer. If those bid quotations are
not available, the Exchange Rate Agent shall determine the market exchange rate
at its sole discretion.

     The "Exchange Rate Agent" shall be Morgan Stanley & Co. Incorporated,
unless otherwise indicated on the face hereof.

     All determinations referred to above made by, or on behalf of, the Issuer
or by, or on behalf of, the Exchange Rate Agent shall be at such entity's sole
discretion and shall, in the absence of manifest error, be conclusive for all
purposes and binding on holders of Notes and coupons.

     So long as this Note shall be outstanding, the Issuer shall cause to be
maintained an office or agency for the payment of the principal of and premium,
if any, and interest on this Note as herein provided in the Borough of
Manhattan, The City of New York, and an office or agency in said Borough of
Manhattan for the registration, transfer and exchange as aforesaid of the Notes.
The Issuer may designate other agencies for the payment of said principal,
premium and interest at such place or places (subject to applicable laws and
regulations) as the Issuer may decide. So long as there shall be such an agency,
the Issuer shall keep the Trustee advised of the names and locations of such
agencies, if any are so designated. If any European Union Directive on the
taxation of savings comes into force, the Issuer will, to the extent possible as
a matter of law, maintain a Paying Agent in a member state of the European Union
that shall not be obligated to withhold or deduct tax

                                      A-28

<PAGE>

pursuant to any such Directive or any law implementing or complying with, or
introduced in order to conform to, such Directive.

     With respect to moneys paid by the Issuer and held by the Trustee or any
Paying Agent for payment of the principal of or interest or premium, if any, on
any Notes that remain unclaimed at the end of two years after such principal,
interest or premium shall have become due and payable (whether at maturity or
upon call for redemption or otherwise), (i) the Trustee or such Paying Agent
shall notify the holders of such Notes that such moneys shall be repaid to the
Issuer and any person claiming such moneys shall thereafter look only to the
Issuer for payment thereof and (ii) such moneys shall be so repaid to the
Issuer. Upon such repayment all liability of the Trustee or such Paying Agent
with respect to such moneys shall thereupon cease, without, however, limiting in
any way any obligation that the Issuer may have to pay the principal of or
interest or premium, if any, on this Note as the same shall become due.

     No provision of this Note or of the Senior Indenture shall alter or impair
the obligation of the Issuer, which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on this Note at the time, place, and
rate, and in the coin or currency, herein prescribed unless otherwise agreed
between the Issuer and the registered holder of this Note.

     Prior to due presentment of this Note for registration of transfer, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
holder in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and none of the Issuer, the
Trustee or any such agent shall be affected by notice to the contrary.

     No recourse shall be had for the payment of the principal of, premium, if
any, or the interest on this Note, for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Senior Indenture or any
indenture supplemental thereto, against any incorporator, shareholder, officer
or director, as such, past, present or future, of the Issuer or of any successor
corporation, either directly or through the Issuer or any successor corporation,
whether by virtue of any constitution, statute or rule of law or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.

     This Note shall for all purposes be governed by, and construed in
accordance with, the laws of the State of New York.

     As used herein, the term "United States Alien" means any person who is, for
United States federal income tax purposes, (i) a nonresident alien individual,
(ii) a foreign corporation, (iii) a nonresident alien fiduciary of a foreign
estate or trust or (iv) a foreign partnership one or more of the members of
which is, for United States federal income tax purposes, a nonresident alien
individual, a foreign corporation or a nonresident alien fiduciary of a foreign
estate or trust.

     All terms used in this Note which are defined in the Senior Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Senior Indenture.

                                      A-29

<PAGE>

                                  ABBREVIATIONS

     The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

   TEN COM  -  as tenants in common
   TEN ENT  -  as tenants by the entireties
   JT TEN   -  as joint tenants with right of survivorship and not as tenants in
               common

     UNIF GIFT MIN ACT -                        Custodian
                         ----------------------           ----------------------
                                (Minor)                           (Cust)

     Under Uniform Gifts to Minors Act
                                       -----------------------------------------
                                                      (State)

     Additional abbreviations may also be used though not in the above list.

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

                                      A-30

<PAGE>

     FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto

---------------------------------------
[PLEASE INSERT SOCIAL SECURITY OR OTHER
     IDENTIFYING NUMBER OF ASSIGNEE]

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

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

--------------------------------------------------------------------------------
[PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE]

the within Note and all rights thereunder, hereby irrevocably constituting and
appointing such person attorney to transfer such note on the books of the
Issuer, with full power of substitution in the premises.

Dated:
       ---------------------

NOTICE:    The signature to this assignment must correspond with the name as
           written upon the face of the within Note in every particular without
           alteration or enlargement or any change whatsoever.

                                      A-31

<PAGE>

                            OPTION TO ELECT REPAYMENT

     The undersigned hereby irrevocably requests and instructs the Issuer to
repay the within Note (or portion thereof specified below) pursuant to its terms
at a price equal to the principal amount thereof, together with interest to the
Optional Repayment Date, to the undersigned at

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

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

--------------------------------------------------------------------------------
        (Please print or typewrite name and address of the undersigned)

     If less than the entire principal amount of the within Note is to be
repaid, specify the portion thereof which the holder elects to have repaid:
________________________; and specify the denomination or denominations (which
shall not be less than the minimum authorized denomination) of the Notes to be
issued to the holder for the portion of the within Note not being repaid (in the
absence of any such specification, one such Note shall be issued for the portion
not being repaid): _________________.

Dated:
      ------------------------------   -----------------------------------------
                                       NOTICE: The signature on this Option to
                                       Elect Repayment must correspond with the
                                       name as written upon the face of the
                                       within instrument in every particular
                                       without alteration or enlargement.

                                      A-32<PAGE>

                                                                    Exhibit 10.2

                              MANNKIND CORPORATION
                           2004 EQUITY INCENTIVE PLAN

       ORIGINALLY ADOPTED AS THE 2001 STOCK AWARDS PLAN ON OCTOBER 7, 2001
             ORIGINALLY APPROVED BY STOCKHOLDERS ON OCTOBER 7, 2001
                     AMENDED AND RESTATED ON MARCH 23, 2004
                   APPROVED BY STOCKHOLDERS ON MARCH 23, 2004
                        TERMINATION DATE: MARCH 22, 2014

1.    PURPOSES.

      (a) AMENDMENT AND RESTATEMENT. The Plan amends and restates the MannKind
Corporation 2001 Stock Awards Plan adopted October 7, 2001 (the "PRIOR PLAN").
All outstanding awards granted under the Prior Plan shall remain subject to the
terms of the Prior Plan. All options granted subsequent to the effective date of
this Plan shall be subject to the terms of this Plan.

      (b) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock
Awards are Employees, Directors and Consultants.

      (c) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) Restricted Stock Awards, (iv) Stock Appreciation Rights, (v)
Phantom Stock Awards and (vi) Other Stock Awards.

      (d) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.

2.    DEFINITIONS.

      (a) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

      (b) "BOARD" means the Board of Directors of the Company.

      (c) "CAPITALIZATION ADJUSTMENT" has the meaning ascribed to that term in
Section 11(a).

      (d) "CAUSE" means, with respect to a Participant, the occurrence of any of
the following: (i) such Participant's conviction of any felony or any crime
involving fraud or dishonesty which, in the Board's sole discretion, materially
affects the business of the Company; (ii) such Participant's participation
(whether by affirmative act or omission) in a fraud, act of dishonesty or other
act of misconduct against the Company and/or its Affiliates which, in the

                                       1.
<PAGE>

Board's sole discretion, materially affects the business of the Company; (iii)
conduct by such Participant which, based upon a good faith and reasonable
factual investigation by the Company (or, if such Participant is an Officer, by
the Board), demonstrates such Participant's gross unfitness to serve; (iv) such
Participant's violation of any statutory or fiduciary duty, or duty of loyalty,
owed to the Company and/or its Affiliates; (v) such Participant's breach of any
material term of any material contract between such Participant and the Company
and/or its Affiliates; and (vi) such Participant's repeated violation of any
material Company policy. Notwithstanding the foregoing, such Participant's
Disability shall not constitute Cause as set forth herein. The determination
that a termination is for Cause shall be by the Committee in its sole and
exclusive judgment and discretion.

      (e) "CHANGE IN CONTROL" means the occurrence, in a single transaction or
in a series of related transactions, of any one or more of the following events:

            (i)   any Exchange Act Person becomes the Owner, directly or
indirectly, of securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities
other than by virtue of a merger, consolidation or similar transaction.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
(A) on account of an Exchange Act Person as described in Section 2(s) (E)
transferring in a single act or series of related acts more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities
(1) by gift, (2) for estate planning purposes or (3) to any entity controlled
directly or indirectly by such Exchange Act Person, (B) on account of the
acquisition of securities of the Company by an investor, any affiliate thereof
or any other Exchange Act Person from the Company in a transaction or series of
related transactions the primary purpose of which is to obtain financing for the
Company through the issuance of equity securities or (C) solely because the
level of Ownership held by any Exchange Act Person (the "SUBJECT PERSON")
exceeds the designated percentage threshold of the outstanding voting securities
as a result of a repurchase or other acquisition of voting securities by the
Company reducing the number of shares outstanding, provided that if a Change in
Control would occur (but for the operation of this sentence) as a result of the
acquisition of voting securities by the Company, and after such share
acquisition, the Subject Person becomes the Owner of any additional voting
securities that, assuming the repurchase or other acquisition had not occurred,
increases the percentage of the then outstanding voting securities Owned by the
Subject Person over the designated percentage threshold, then a Change in
Control shall be deemed to occur;

            (ii)  there is consummated a merger, consolidation or similar
transaction involving (directly or indirectly) the Company and, immediately
after the consummation of such merger, consolidation or similar transaction, the
stockholders of the Company immediately prior thereto do not Own, directly or
indirectly, either (A) outstanding voting securities representing more than
fifty percent (50%) of the combined outstanding voting power of the surviving
Entity in such merger, consolidation or similar transaction or (B) more than
fifty percent (50%) of the combined outstanding voting power of the parent of
the surviving Entity in such merger, consolidation or similar transaction, in
each case in substantially the same proportions as their Ownership of the
outstanding voting securities of the Company immediately prior to such
transaction;

                                       2.
<PAGE>

            (iii) there is consummated a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries, other than a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the
combined voting power of the voting securities of which are Owned by
stockholders of the Company in substantially the same proportions as their
Ownership of the outstanding voting securities of the Company immediately prior
to such sale, lease, license or other disposition; or

            (iv)  individuals who, on the date this Plan is adopted by the
Board, are members of the Board (the "INCUMBENT BOARD") cease for any reason to
constitute at least a majority of the members of the Board; provided, however,
that if the appointment or election (or nomination for election) of any new
Board member was approved or recommended by a majority vote of the members of
the Incumbent Board then still in office, such new member shall, for purposes of
this Plan, be considered as a member of the Incumbent Board.

      Notwithstanding the foregoing or any other provision of this Plan, the
definition of Change in Control (or any analogous term) in an individual written
agreement between the Company or any Affiliate and the Participant shall
supersede the foregoing definition with respect to Stock Awards subject to such
agreement (it being understood, however, that if no definition of Change in
Control or any analogous term is set forth in such an individual written
agreement, the foregoing definition shall apply).

      (f) "CODE" means the Internal Revenue Code of 1986, as amended.

      (g) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with Section 3(c).

      (h) "COMMON STOCK" means the common stock of the Company.

      (i) "COMPANY" means MannKind Corporation, a Delaware corporation.

      (j) "CONSULTANT" means any person, including an advisor, who (i) is
engaged by the Company or an Affiliate to render consulting or advisory services
and is compensated for such services or (ii) is serving as a member of the Board
of Directors of an Affiliate and is compensated for such services. However,
service solely as a Director, or payment of a fee for such services, shall not
cause a Director to be considered a "Consultant" for purposes of the Plan.

      (k) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. A change in the capacity in which the Participant
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Participant renders such
service, provided that there is no interruption or termination of the
Participant's service with the Company or an Affiliate, shall not terminate a
Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or to a Director shall
not constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave. Notwithstanding

                                       3.
<PAGE>

the foregoing, a leave of absence shall be treated as Continuous Service for
purposes of vesting in a Stock Award only to such extent as may be provided in
the Company's leave of absence policy or in the written terms of the
Participant's leave of absence.

      (l) "CORPORATE TRANSACTION" means the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following
events:

            (i)   a sale or other disposition of all or substantially all, as
determined by the Board in its discretion, of the consolidated assets of the
Company and its Subsidiaries;

            (ii)  a sale or other disposition of at least ninety percent (90%)
of the outstanding securities of the Company;

            (iii) a merger, consolidation or similar transaction following which
the Company is not the surviving corporation; or

            (iv)  a merger, consolidation or similar transaction following which
the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger, consolidation or similar
transaction are converted or exchanged by virtue of the merger, consolidation or
similar transaction into other property, whether in the form of securities, cash
or otherwise.

      (m) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.

      (n) "DIRECTOR" means a member of the Board.

      (o) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

      (p) "EMPLOYEE" means any person employed by the Company or an Affiliate.
However, service solely as a Director, or payment of a fee for such services,
shall not cause a Director to be considered an "Employee" for purposes of the
Plan.

      (q) "ENTITY" means a corporation, partnership or other entity.

      (r) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

      (s) "EXCHANGE ACT PERSON" means any natural person, Entity or "group"
(within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that
"Exchange Act Person" shall not include (A) the Company or any Subsidiary of the
Company, (B) any employee benefit plan of the Company or any Subsidiary of the
Company or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Subsidiary of the Company, (C) an underwriter
temporarily holding securities pursuant to an offering of such securities, (D)
an Entity Owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their Ownership of stock of the Company;
or (E) any natural person, Entity

                                       4.
<PAGE>

or "group" (within the meaning of Section 13(d) or 14(d) of the Exchange Act)
that, as of the effective date of the Plan as set forth in Section 14, is the
Owner, directly or indirectly, of securities of the Company representing more
than fifty percent (50%) of the combined voting power of the Company's then
outstanding securities.

      (t) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

            (i)   If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.

            (ii)  In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.

      (u) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

      (v) "IPO DATE" means the effective date of the initial public offering of
the Common Stock.

      (w) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or an Affiliate, does not receive
compensation, either directly or indirectly, from the Company or an Affiliate
for services rendered as a consultant or in any capacity other than as a
Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("REGULATION S-K")), does not possess an interest in any other transaction for
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.

      (x) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.

      (y) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

      (z) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option to purchase shares of Common Stock granted pursuant to the Plan.

      (aa) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan.

                                       5.
<PAGE>

      (bb) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.

      (cc) "OTHER STOCK AWARD" means an award based in whole or in part by
reference to the Common Stock which is granted pursuant to the terms and
conditions of Section 7(d).

      (dd) "OTHER STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of an Other Stock Award evidencing the terms and conditions
of an Other Stock Award grant. Each Other Stock Award Agreement shall be subject
to the terms and conditions of the Plan.

      (ee) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" who receives
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year, has not been an officer of the Company
or an "affiliated corporation", and does not receive remuneration from the
Company or an "affiliated corporation," either directly or indirectly, in any
capacity other than as a Director or (ii) is otherwise considered an "outside
director" for purposes of Section 162(m) of the Code.

      (ff) "OWN," "OWNED," "OWNER," "OWNERSHIP" A person or Entity shall be
deemed to "Own," to have "Owned," to be the "Owner" of, or to have acquired
"Ownership" of securities if such person or Entity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares voting power, which includes the power to vote or to direct the
voting, with respect to such securities.

      (gg) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.

      (hh) "PHANTOM STOCK AWARD" means a right to receive shares of Common Stock
which is granted pursuant to the terms and conditions of Section 7(b).

      (ii) "PHANTOM STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Phantom Stock Award evidencing the terms and
conditions of a Phantom Stock Award grant. Each Phantom Stock Award Agreement
shall be subject to the terms and conditions of the Plan.

      (jj) "PLAN" means this MannKind Corporation 2003 Equity Incentive Plan.

      (kk) "RESTRICTED STOCK AWARD" means an award of shares of Common Stock
which is granted pursuant to the terms and conditions of Section 7(a).

      (ll) "RESTRICTED STOCK AWARD AGREEMENT" means a written agreement between
the Company and a holder of a Restricted Stock Award evidencing the terms and
conditions of a Restricted Stock Award grant. Each Restricted Stock Award
Agreement shall be subject to the terms and conditions of the Plan.

                                       6.
<PAGE>

      (mm) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

      (nn) "SECURITIES ACT" means the Securities Act of 1933, as amended.

      (oo) "STOCK APPRECIATION RIGHT" means a right to receive the appreciation
of Common Stock that is granted pursuant to the terms and conditions of Section
7(c).

      (pp) "STOCK APPRECIATION RIGHT AGREEMENT" means a written agreement
between the Company and a holder of a Stock Appreciation Right evidencing the
terms and conditions of a Stock Appreciation Right grant. Each Stock
Appreciation Right Agreement shall be subject to the terms and conditions of the
Plan.

      (qq) "STOCK AWARD" means any right granted under the Plan, including an
Option, a Restricted Stock Award, a Stock Appreciation Right, a Phantom Stock
Award or any Other Stock Award.

      (rr) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award Participant evidencing the terms and conditions of
a Stock Award grant. Each Stock Award Agreement shall be subject to the terms
and conditions of the Plan.

      (ss) "SUBSIDIARY" means, with respect to the Company, (i) any corporation
of which more than fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, Owned
by the Company, and (ii) any partnership in which the Company has a direct or
indirect interest (whether in the form of voting or participation in profits or
capital contribution) of more than fifty percent (50%).

      (tt) "TEN PERCENT STOCKHOLDER" means a person who Owns (or is deemed to
Own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.

3.    ADMINISTRATION.

      (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
Section 3(c).

      (b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

            (i)    To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.

                                       7.
<PAGE>

            (ii)  To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

            (iii) To effect, at any time and from time to time, with the consent
of any adversely affected Optionholder, (1) the reduction of the exercise price
of any outstanding Option under the Plan, (2) the cancellation of any
outstanding Option under the Plan and the grant in substitution therefor of (A)
a new Option under the Plan or another equity plan of the Company covering the
same or a different number of shares of Common Stock, (B) a Restricted Stock
Award (including a stock bonus), (C) a Stock Appreciation Right, (D) a Phantom
Stock Award (E) an Other Stock Award, (F) cash and/or (G) other valuable
consideration (as determined by the Board, in its sole discretion), or (3) any
other action that is treated as a repricing under generally accepted accounting
principles.

            (iv)  To amend the Plan or a Stock Award as provided in Section 12.

            (v)   To terminate or suspend the Plan as provided in Section 13.

            (vi)  Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company and that are not in conflict with the provisions of the Plan.

            (vii) To adopt such procedures and sub-plans as are necessary or
appropriate to permit participation in the Plan by Employees who are foreign
nationals or employed outside the United States.

      (c)   DELEGATION TO COMMITTEE.

            (i)   GENERAL. The Board may delegate administration of the Plan to
a Committee or Committees of one or more members of the Board, and the term
"COMMITTEE" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

            (ii)  SECTION 162(m) AND RULE 16b-3 COMPLIANCE. In the discretion of
the Board, the Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. In addition, the Board or
the Committee, in its sole discretion, may (1) delegate to a committee of one or
more members of the Board who need not be Outside Directors the authority to
grant Stock Awards to eligible persons who are either (a) not then Covered
Employees and are not expected to be Covered Employees at the time of
recognition of

                                       8.
<PAGE>

income resulting from such Stock Award, or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code, and/or (2)
delegate to a committee of one or more members of the Board who need not be
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.

      (d) DELEGATION TO AN OFFICER. The Board may delegate to one or more
Officers of the Company the authority to do one or both of the following (i)
designate Officers and Employees of the Company or any of its Subsidiaries to be
recipients of Stock Awards and (ii) determine the number of shares of Common
Stock to be subject to such Stock Awards granted to such Officers and Employees
of the Company; provided, however, that the Board resolutions regarding such
delegation shall specify the total number of shares of Common Stock that may be
subject to the Stock Awards granted by such Officer and that such Officer may
not grant a Stock Award to himself or herself. Notwithstanding anything to the
contrary in this Section 3(d), the Board may not delegate to an Officer
authority to determine the Fair Market Value of the Common Stock pursuant to
Section 2(t)(ii) above.

      (e) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.

4.    SHARES SUBJECT TO THE PLAN.

      (a) SHARE RESERVE. Subject to the provisions of Section 11(a) relating to
Capitalization Adjustments, the shares of Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate five million
(5,000,000) shares of Common Stock.

      (b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, or if any shares of Common Stock issued to a Participant
pursuant to a Stock Award are forfeited to or repurchased by the Company,
including, but not limited to, any repurchase or forfeiture caused by the
failure to meet a contingency or condition required for the vesting of such
shares, then the shares of Common Stock not issued under such Stock Award, or
forfeited to or repurchased by the Company, shall revert to and again become
available for issuance under the Plan. If any shares subject to a Stock Award
are not delivered to a Participant because such shares are withheld for the
payment of taxes or the Stock Award is exercised through a reduction of shares
subject to the Stock Award (i.e., "net exercised"), the number of shares that
are not delivered to the Participant shall remain available for issuance under
the Plan. If the exercise price of any Stock Award is satisfied by tendering
shares of Common Stock held by the Participant (either by actual delivery or
attestation), then the number of shares so tendered shall remain available for
issuance under the Plan. Notwithstanding anything to the contrary in this
Section 4(b), subject to the provisions of Section 11(a) relating to
Capitalization Adjustments the aggregate maximum number of shares of Common
Stock that may be issued as Incentive Stock Options shall be seven million
(7,000,000) shares of Common Stock.

      (c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.

                                       9.
<PAGE>

5.    ELIGIBILITY.

      (a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.

      (b) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock on the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.

      (c) SECTION 162(m) LIMITATION ON ANNUAL GRANTS. Subject to the provisions
of Section 11(a) relating to Capitalization Adjustments, at such time as the
Company may be subject to the applicable provisions of Section 162(m) of the
Code, no Employee shall be eligible to be granted Options or Stock Appreciation
Rights covering more than two million (2,000,000) shares of Common Stock during
any calendar year.

      (d) CONSULTANTS. A Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act ("FORM S-8") is not available to register either the offer or
the sale of the Company's securities to such Consultant because of the nature of
the services that the Consultant is providing to the Company, because the
Consultant is not a natural person, or because of any other rule governing the
use of Form S-8.

6.    OPTION PROVISIONS.

      Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
shall be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:

      (a) TERM. The Board shall determine the term of an Option; provided
however that, subject to the provisions of Section 5(b) regarding Ten Percent
Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date on which it was granted.

      (b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions
of Section 5(b) regarding Ten Percent Stockholders, the exercise price of each
Incentive Stock Option shall be not less than one hundred percent (100%) of the
Fair Market Value of the Common Stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may
be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.

                                      10.
<PAGE>

      (c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The Board, in its
discretion, shall determine the exercise price of each Nonstatutory Stock
Option.

      (d) CONSIDERATION. The purchase price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable law, either (i)
in cash at the time the Option is exercised or (ii) at the discretion of the
Board at the time of the grant of the Option (or subsequently in the case of a
Nonstatutory Stock Option) (1) by delivery to the Company (either by actual
delivery or attestation) of other Common Stock at the time the Option is
exercised, (2) according to a deferred payment or other similar arrangement with
the Optionholder, (3) by a "net exercise" of the Option (as further described
below), (4) pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board that, prior to the issuance of Common Stock, results
in either the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to the Company from
the sales proceeds or (5) in any other form of legal consideration that may be
acceptable to the Board. Unless otherwise specifically provided in the Option,
the purchase price of Common Stock acquired pursuant to an Option that is paid
by delivery to the Company of other Common Stock acquired, directly or
indirectly from the Company, shall be paid only by shares of the Common Stock of
the Company that have been held for more than six (6) months (or such longer or
shorter period of time required to avoid a charge to earnings for financial
accounting purposes). At any time that the Company is incorporated in Delaware,
payment of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.

      In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid (1) the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement and (2) the treatment of the Option as a
variable award for financial accounting purposes.

      In the case of a "net exercise" of an Option, the Company will not require
a payment of the exercise price of the Option from the Participant but will
reduce the number of shares of Common Stock issued upon the exercise by the
largest number of whole shares that has a Fair Market Value that does not exceed
the aggregate exercise price. With respect to any remaining balance of the
aggregate exercise price, the Company shall accept a cash payment from the
Participant. Shares of Common Stock will no longer be outstanding under an
Option (and will therefore not thereafter be exercisable) following the exercise
of such Option to the extent of (i) shares used to pay the exercise price of an
Option under the "net exercise", (ii) shares actually delivered to the
Participant as a result of such exercise and (iii) shares withheld for purposes
of tax withholding.

      (e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form provided by or otherwise
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.

                                      11.
<PAGE>

      (f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
provided by or otherwise satisfactory to the Company, designate a third party
who, in the event of the death of the Optionholder, shall thereafter be entitled
to exercise the Option.

      (g) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this Section 6(g) are subject to any Option provisions governing
the minimum number of shares of Common Stock as to which an Option may be
exercised.

      (h) TERMINATION OF CONTINUOUS SERVICE. In the event that an Optionholder's
Continuous Service terminates (for reasons other than Cause or upon the
Optionholder's death or Disability), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise such Option
as of the date of termination) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of the
Optionholder's Continuous Service (or such longer or shorter period specified in
the Option Agreement or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination of Continuous Service, the
Optionholder does not exercise his or her Option within the time specified
herein or in the Option Agreement (as applicable), the Option shall terminate.

      (i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (for reasons other than Cause or upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in the Option
Agreement or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.

      (j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination of Continuous Service, the
Optionholder does not exercise his or her Option within the time specified
herein or in the Option Agreement (as applicable), the Option shall terminate.

                                      12.
<PAGE>

      (k) DEATH OF OPTIONHOLDER. In the event that (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to Section 6(e) or 6(f), but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death (or such longer or shorter period specified in the
Option Agreement or (2) the expiration of the term of such Option as set forth
in the Option Agreement. If, after the Optionholder's death, the Option is not
exercised within the time specified herein or in the Option Agreement (as
applicable), the Option shall terminate.

      (l) RETIREMENT. Notwithstanding the foregoing, if at the time of
termination of an Optionholder's Continuous Service for any reason other than
Cause, the Optionholder is at least fifty five (55) years old, then the
Optionholder (or such person or person(s) as may be entitled to exercise such
Option pursuant to Section 6(k) in the event of the Optionholder's death) may
exercise his or her Option (to the extent that the Optionholder was entitled to
exercise such Option as of the date of termination) within such period of time
ending on the earlier of (i) the date twenty four (24) months following such
termination or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Option is not exercised within the
time specified herein, the Option shall terminate.

      (m) TERMINATION FOR CAUSE. In the event an Optionholder's Continuous
Service is terminated for Cause, the Option shall terminate upon the termination
date of such Optionholder's Continuous Service and the Optionholder shall be
prohibited from exercising his or her Option from and after the time of such
termination of Continuous Service.

      (n) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate. The Company shall not be required to exercise its
repurchase option until at least six (6) months (or such longer or shorter
period of time required to avoid a charge to earnings for financial accounting
purposes) have elapsed following exercise of the Option unless the Board
otherwise specifically provides in the Option.

7.    PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

      (a) RESTRICTED STOCK AWARDS. Each Restricted Stock Award Agreement shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate. At the Board's election, shares of Common Stock may be (i)
held in book entry form subject to the Company's instructions until any
restrictions relating to the Restricted Stock Award lapse; or (ii) evidenced by
a certificate, which certificate shall be held in such form and manner as
determined by the Board. The terms and conditions of Restricted Stock Award
Agreements may change from time to time, and the terms and conditions of
separate Restricted Stock Award Agreements

                                      13.
<PAGE>

need not be identical, provided, however, that each Restricted Stock Award
Agreement shall include (through incorporation of the provisions hereof by
reference in the agreement or otherwise) the substance of each of the following
provisions:

            (i)   PURCHASE PRICE. At the time of the grant of a Restricted Stock
Award, the Board will determine the price to be paid by the Participant for each
share subject to the Restricted Stock Award. To the extent required by
applicable law, the price to be paid by the Participant for each share of the
Restricted Stock Award will not be less than the par value of a share of Common
Stock. A Restricted Stock Award may be awarded as a stock bonus (i.e., with no
cash purchase price to be paid) to the extent permissible under applicable law.

            (ii)  CONSIDERATION. At the time of the grant of a Restricted Stock
Award, the Board will determine the consideration permissible for the payment of
the purchase price of the Restricted Stock Award. The purchase price of Common
Stock acquired pursuant to the Restricted Stock Award shall be paid in one of
the following ways: (i) in cash at the time of purchase; (ii) at the discretion
of the Board, according to a deferred payment or other similar arrangement with
the Participant; (iii) by services previously rendered to the Company in the
case of a stock bonus; or (iv) in any other form of legal consideration that may
be acceptable to the Board and permissible under the Delaware Corporation Law.

            (iii) VESTING. Shares of Common Stock acquired under a Restricted
Stock Award may, but need not, be (i) subject to a share repurchase right or
option in favor of the Company or (ii) subject to a forfeiture right in favor of
the Company, each in accordance with a vesting schedule to be determined by the
Board.

            (iv)  TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event
that a Participant's Continuous Service terminates, the Company shall have the
right, but not the obligation, to repurchase, otherwise reacquire or receive by
a forfeiture right, any or all of the shares of Common Stock held by the
Participant that have not vested as of the date of termination under the terms
of the Restricted Stock Award Agreement. At the Board's election, the repurchase
right may be at the least of: (i) the Fair Market Value on the relevant date;
(ii) the Participant's original cost; or (iii) if the Participant paid the
purchase price for the shares of Common Stock with services rendered, then for
no consideration. The Company shall not be required to exercise its repurchase
option until at least six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes) have
elapsed following the purchase of the restricted stock unless otherwise
determined by the Board or provided in the Restricted Stock Award Agreement.

            (v)   TRANSFERABILITY. Rights to purchase or receive shares of
Common Stock granted under a Restricted Stock Award shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
Restricted Stock Award Agreement, as the Board shall determine in its
discretion, and so long as Common Stock awarded under the Restricted Stock Award
remains subject to the terms of the Restricted Stock Award Agreement.

      (b) PHANTOM STOCK. Each Phantom Stock Award Agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of Phantom Stock Award Agreements may
change from time to time, and the terms

                                      14.
<PAGE>

and conditions of separate Phantom Stock Award Agreements need not be identical,
provided, however, that each Phantom Stock Award Agreement shall include
(through incorporation of the provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:

            (i)   CONSIDERATION. At the time of grant of a Phantom Stock Award,
the Board will determine the consideration, if any, to be paid by the
Participant upon delivery of each share of Common Stock subject to the Phantom
Stock Award. To the extent required by applicable law, the consideration to be
paid by the Participant for each share of Common Stock subject to a Phantom
Stock Award will not be less than the par value of a share of Common Stock. Such
consideration may be paid in any form permitted under applicable law.

            (ii)  VESTING. At the time of the grant of a Phantom Stock Award,
the Board may impose such restrictions or conditions to the vesting of the
Phantom Stock Award as it, in its absolute discretion, deems appropriate.

            (iii) PAYMENT. A Phantom Stock Award may be settled by the delivery
of shares of Common Stock, their cash equivalent, any combination thereof or in
any other form of consideration as determined by the Board and contained in the
Phantom Stock Award Agreement.

            (iv)  ADDITIONAL RESTRICTIONS. At the time of the grant of a Phantom
Stock Award, the Board, as it deems appropriate, may impose such restrictions or
conditions that delay the delivery of the shares of Common Stock (or their cash
equivalent) subject to a Phantom Stock Award after the vesting of such Phantom
Stock Award.

            (v)   DIVIDEND EQUIVALENTS. Dividend equivalents may be credited in
respect of shares of Common Stock covered by a Phantom Stock Award, as
determined by the Board and contained in the Phantom Stock Award Agreement. At
the discretion of the Board, such dividend equivalents may be converted into
additional shares of Common Stock covered by the Phantom Stock Award in such
manner as determined by the Board. Any additional shares covered by the Phantom
Stock Award credited by reason of such dividend equivalents will be subject to
all the terms and conditions of the underlying Phantom Stock Award Agreement to
which they relate.

            (vi)  TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Except as
otherwise provided in the applicable Phantom Stock Award Agreement, such portion
of the Phantom Stock Award that has not vested will be forfeited upon the
Participant's termination of Continuous Service for any reason.

      (c) STOCK APPRECIATION RIGHTS. Each Stock Appreciation Right Agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of Stock Appreciation Right
Agreements may change from time to time, and the terms and conditions of
separate Stock Appreciation Right Agreements need not be identical, provided,
however, that each Stock Appreciation Right Agreement shall include (through
incorporation of the provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:

                                      15.
<PAGE>

            (i)   STRIKE PRICE AND CALCULATION OF APPRECIATION. Each Stock
Appreciation Right will be denominated in share of Common Stock equivalents. The
appreciation distribution payable on the exercise of a Stock Appreciation Right
will be not greater than an amount equal to the excess of (A) the aggregate Fair
Market Value (on the date of the exercise of the Stock Appreciation Right) of a
number of shares of Common Stock equal to the number of share of Common Stock
equivalents in which the Participant is vested under such Stock Appreciation
Right, and with respect to which the Participant is exercising the Stock
Appreciation Right on such date, over (B) an amount (the strike price) that will
be determined by the Board at the time of grant of the Stock Appreciation Right.

            (ii)  VESTING. At the time of the grant of a Stock Appreciation
Right, the Board may impose such restrictions or conditions to the vesting of
such Stock Appreciation Right as it, in its absolute discretion, deems
appropriate.

            (iii) EXERCISE. To exercise any outstanding Stock Appreciation
Right, the Participant must provide written notice of exercise to the Company in
compliance with the provisions of the Stock Appreciation Right Agreement
evidencing such Stock Appreciation Right.

            (iv)  PAYMENT. The appreciation distribution in respect to a Stock
Appreciation Right may be paid in Common Stock, in cash, in any combination
thereof or in any other form of consideration as determined by the Board and
contained in the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right.

            (v)   TERMINATION OF CONTINUOUS SERVICE. In the event that a
Participant's Continuous Service terminates, the Participant may exercise his or
her Stock Appreciation Right (to the extent that the Participant was entitled to
exercise such Stock Appreciation Right as of the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Participant's Continuous Service (or
such longer or shorter period specified in the Stock Appreciation Right
Agreement) or (ii) the expiration of the term of the Stock Appreciation Right as
set forth in the Stock Appreciation Right Agreement. If, after termination, the
Participant does not exercise his or her Stock Appreciation Right within the
time specified herein or in the Stock Appreciation Right Agreement (as
applicable), the Stock Appreciation Right shall terminate.

      (d) OTHER STOCK AWARDS. Other forms of Stock Awards valued in whole or in
part by reference to, or otherwise based on, Common Stock may be granted either
alone or in addition to Stock Awards provided for under Section 6 and the
preceding provisions of this Section 7. Subject to the provisions of the Plan,
the Board shall have sole and complete authority to determine the persons to
whom and the time or times at which such Other Stock Awards will be granted, the
number of shares of Common Stock (or the cash equivalent thereof) to be granted
pursuant to such Other Stock Awards and all other terms and conditions of such
Other Stock Awards.

                                      16.
<PAGE>

8.    COVENANTS OF THE COMPANY.

      (a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.

      (b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.

9.    USE OF PROCEEDS FROM STOCK.

      Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

10.   MISCELLANEOUS.

      (a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.

      (b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

      (c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.

      (d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any

                                      17.
<PAGE>

calendar year (under all plans of the Company and its Affiliates) exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof that exceed
such limit (according to the order in which they were granted) shall be treated
as Nonstatutory Stock Options, notwithstanding any contrary provision of the
applicable Option Agreement(s).

      (e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.

      (f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Company may in its sole discretion, satisfy any
federal, state or local tax withholding obligation relating to a Stock Award by
any of the following means (in addition to the Company's right to withhold from
any compensation paid to the Participant by the Company) or by a combination of
such means: (i) causing the Participant to tender a cash payment; (ii)
withholding shares of Common Stock from the shares of Common Stock issued or
otherwise issuable to the Participant in connection with the Stock Award; or
(iii) by such other method as may be set forth in the Stock Award Agreement.

11.   ADJUSTMENTS UPON CHANGES IN STOCK.

      (a) CAPITALIZATION ADJUSTMENTS. If any change is made in, or other event
occurs with respect to, the Common Stock subject to the Plan or subject to any
Stock Award without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company (each a "CAPITALIZATION ADJUSTMENT"), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to Sections 4(a) and 4(b) and the maximum number of securities subject
to award to any person pursuant to Section 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The

                                      18.
<PAGE>

Board shall make such adjustments, and its determination shall be final, binding
and conclusive. (Notwithstanding the foregoing, the conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)

      (b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Stock Awards shall terminate
immediately prior to the completion of such dissolution or liquidation.

      (c) CORPORATE TRANSACTION. In the event of a Corporate Transaction, any
surviving corporation or acquiring corporation may assume or continue any or all
Stock Awards outstanding under the Plan or may substitute similar stock awards
for Stock Awards outstanding under the Plan (including, but not limited to,
awards to acquire the same consideration paid to the stockholders of the
Company, as the case may be, pursuant to the Corporate Transaction), and any
reacquisition or repurchase rights held by the Company in respect of Common
Stock issued pursuant to Stock Awards may be assigned by the Company to the
successor of the Company (or the successor's parent company), if any, in
connection with such Corporate Transaction. In the event that any surviving
corporation or acquiring corporation does not assume or continue all such
outstanding Stock Awards or substitute similar stock awards for all such
outstanding Stock Awards, then with respect to Stock Awards that have been not
assumed, continued or substituted and that are held by Participants whose
Continuous Service has not terminated prior to the effective time of the
Corporate Transaction, the vesting of such Stock Awards (and, if applicable, the
time at which such Stock Awards may be exercised) shall (contingent upon the
effectiveness of the Corporate Transaction) be accelerated in full to a date
prior to the effective time of such Corporate Transaction as the Board shall
determine (or, if the Board shall not determine such a date, to the date that is
five (5) days prior to the effective time of the Corporate Transaction), and
such Stock Awards shall terminate if not exercised (if applicable) at or prior
to such effective time, and any reacquisition or repurchase rights held by the
Company with respect to such Stock Awards shall (contingent upon the
effectiveness of the Corporate Transaction) lapse. With respect to any other
Stock Awards outstanding under the Plan that have not been assumed, continued or
substituted, the vesting of such Stock Awards (and, if applicable, the time at
which such Stock Award may be exercised) shall not be accelerated, unless
otherwise provided in a written agreement between the Company or any Affiliate
and the holder of such Stock Award, and such Stock Awards shall terminate if not
exercised (if applicable) prior to the effective time of the Corporate
Transaction.

      (d) CHANGE IN CONTROL. A Stock Award may be subject to additional
acceleration of vesting and exercisability upon or after a Change in Control as
may be provided in the Stock Award Agreement for such Stock Award or as may be
provided in any other written agreement between the Company or any Affiliate and
the Participant, but in the absence of such provision, no such acceleration
shall occur.

12.   AMENDMENT OF THE PLAN AND STOCK AWARDS.

      (a) AMENDMENT OF PLAN. Subject to the limitations, if any, of applicable
law, the Board at any time, and from time to time, may amend the Plan. However,
except as provided in Section 11(a) relating to Capitalization Adjustments, no
amendment shall be effective unless

                                      19.
<PAGE>

approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy applicable law.

      (b) STOCKHOLDER APPROVAL. The Board, in its sole discretion, may submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to Covered Employees.

      (c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.

      (d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.

      (e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards, including, but not
limited to, amendments to provide terms more favorable than previously provided
in the agreement evidencing a Stock Award, subject to any specified limits in
the Plan that are not subject to Board discretion; provided, however, that the
rights under any Stock Award shall not be impaired by any such amendment unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.

13.   TERMINATION OR SUSPENSION OF THE PLAN.

      (a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

      (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.

14.   EFFECTIVE DATE OF PLAN.

      The Plan shall become effective on the IPO Date, but no Stock Award shall
be exercised (or, in the case of a stock bonus, shall be granted) unless and
until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan is
adopted by the Board.

                                      20.
<PAGE>

15.   CHOICE OF LAW.

      The laws of the State of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.

                                      21.
<PAGE>

                              MANNKIND CORPORATION
                           2004 EQUITY INCENTIVE PLAN

                             STOCK OPTION AGREEMENT
              (INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)

      Pursuant to your Stock Option Grant Notice ("GRANT NOTICE") and this Stock
Option Agreement, MannKind Corporation (the "COMPANY") has granted you an option
under its 2004 Equity Incentive Plan (the "PLAN") to purchase the number of
shares of the Company's Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.

The details of your option are as follows:

      1.    VESTING. Subject to the limitations contained herein, your option
will vest as provided in your Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.

      2.    NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments.

      3.    EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "EXERCISE SCHEDULE" indicates that "EARLY EXERCISE" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:

            a.    a partial exercise of your option shall be deemed to cover
first vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;

            b.    any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;

            c.    you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and

            d.    if your option is an Incentive Stock Option, then, to the
extent that the aggregate Fair Market Value (determined at the time of grant) of
the shares of Common Stock with respect to which your option plus all other
Incentive Stock Options you hold are exercisable for the first time by you
during any calendar year (under all plans of the Company and its Affiliates)
exceeds one hundred thousand dollars ($100,000), your option(s) or portions
thereof

                                      22.
<PAGE>

that exceed such limit (according to the order in which they were granted) shall
be treated as Nonstatutory Stock Options.

      4.    METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:

            a.    In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds. Payment of the
exercise price pursuant to this Section 5(a) must comply with applicable law,
including the Sarbanes-Oxley Act of 2002.

            b.    Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six (6)
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"DELIVERY" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.

            c.    Pursuant to the following deferred payment alternative:

                  1)    Not less than one hundred percent (100%) of the
aggregate exercise price, plus accrued interest, shall be due four (4) years
from date of exercise or, at the Company's election, upon termination of your
Continuous Service.

                  2)    Interest shall be compounded at least annually and shall
be charged at the minimum rate of interest necessary to avoid (1) the treatment
as interest, under any applicable provisions of the Code, of any amounts other
than amounts stated to be interest under the deferred payment arrangement and
(2) the treatment of the Option as a variable award for financial accounting
purposes.

                  3)    At any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall be made in cash and not by deferred payment.

                  4)    In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and,

                                      23.
<PAGE>

in order to secure the payment of the deferred exercise price to the Company
hereunder, if the Company so requests, you must tender to the Company a
promissory note and a pledge agreement covering the purchased shares of Common
Stock, both in form and substance satisfactory to the Company, or such other or
additional documentation as the Company may request.

      5.    WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.

      6.    SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option also must comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.

      7.    TERM. You may not exercise your option before the commencement or
after the expiration of its term. The term of your option commences on the Date
of Grant and expires upon the earliest of the following:

            a.    if you are less than fifty five (55) years old at the time of
such termination of your Continuous Service, three (3) months after the
termination of your Continuous Service for any reason other than Cause or upon
your Disability or death, provided that if during any part of such three (3)
month period your option is not exercisable solely because of the condition set
forth in Section 7, your option shall not expire until the earlier of the
Expiration Date or until it shall have been exercisable for an aggregate period
of three (3) months after the termination of your Continuous Service;

            b.    if you are less than fifty five (55) years old at the time of
such termination of your Continuous Service, twelve (12) months after the
termination of your Continuous Service due to your Disability;

            c.    if you are less than fifty five (55) years old at the time of
such termination of your Continuous Service, eighteen (18) months after your
death if you die either during your Continuous Service or within three (3)
months after your Continuous Service terminates;

            d.    if you are fifty five (55) years or older at the time of
termination of your Continuous Service for any reason other than Cause, twenty
four (24) months after such termination of your Continuous Service;

            e.    the Expiration Date indicated in your Grant Notice; or

            f.    the day before the tenth (10th) anniversary of the Date of
Grant.

      If your option is an Incentive Stock Option, note that to obtain the
federal income tax advantages associated with an Incentive Stock Option, the
Code requires that at all times

                                      24.
<PAGE>

beginning on the date of grant of your option and ending on the day three (3)
months before the date of your option's exercise, you must be an employee of the
Company or an Affiliate, except in the event of your death or your permanent and
total disability, as defined in Section 22(e) of the Code. The Company has
provided for extended exercisability of your option under certain circumstances
for your benefit but cannot guarantee that your option will necessarily be
treated as an Incentive Stock Option if you continue to provide services to the
Company or an Affiliate as a Consultant or Director after your employment
terminates or if you otherwise exercise your option more than three (3) months
after the date your employment with the Company or an Affiliate terminates.

      8.    EXERCISE.

            a.    You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

            b.    By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.

            c.    If your option is an Incentive Stock Option, by exercising
your option you agree that you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of your option that occurs within two (2) years after
the date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.

      9.    TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.

      10.   OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective stockholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

                                      25.
<PAGE>

      11.   WITHHOLDING OBLIGATIONS.

            a.    At the time you exercise your option, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with the exercise of your option.

            b.    Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable legal conditions or
restrictions, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the exercise of your option a number of whole
shares of Common Stock having a Fair Market Value, determined by the Company as
of the date of exercise, not in excess of the minimum amount of tax required to
be withheld by law (or such lower amount as may be necessary to avoid variable
award accounting). If the date of determination of any tax withholding
obligation is deferred to a date later than the date of exercise of your option,
share withholding pursuant to the preceding sentence shall not be permitted
unless you make a proper and timely election under Section 83(b) of the Code,
covering the aggregate number of shares of Common Stock acquired upon such
exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.

            c.    You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein unless such obligations are satisfied.

      12.   NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

      13.   GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations, which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.

                                      26.
<PAGE>

      14.   CHANGE IN CONTROL.

            a.    If a Change in Control occurs and as of, or within thirteen
(13) months after, the effective time of such Change in Control your Continuous
Service terminates due to an involuntary termination (not including death or
Disability) without Cause or due to a voluntary termination with Good Reason,
then, as of the date of termination of Continuous Service, the vesting and
exercisability of your option shall be accelerated in full.

            b.    "GOOD REASON" means that one or more of the following are
undertaken by the Company without your express written consent: (i) the
assignment to you of any duties or responsibilities that results in a material
diminution in your function as in effect immediately prior to the effective date
of the Change in Control; provided, however, that a change in your title or
reporting relationships shall not provide the basis for a voluntary termination
with Good Reason; (ii) a material reduction by the Company in your annual base
salary, as in effect on the effective date of the Change in Control or as
increased thereafter; provided, however, that Good Reason shall not be deemed to
have occurred in the event of a reduction in your annual base salary that is
pursuant to a salary reduction program affecting substantially all of the
employees of the Company and that does not adversely affect you to a greater
extent than other similarly situated employees; (iii) any failure by the Company
to continue in effect any benefit plan or program, including incentive plans or
plans with respect to the receipt of securities of the Company, in which you
were participating immediately prior to the effective date of the Change in
Control (hereinafter referred to as "BENEFIT PLANS"), or the taking of any
action by the Company that would adversely affect your participation in or
reduce your benefits under the Benefit Plans or deprive you of any fringe
benefit that you enjoyed immediately prior to the effective date of the Change
in Control; provided, however, that Good Reason shall not be deemed to have
occurred if the Company provides for your participation in benefit plans and
programs that, taken as a whole, are comparable to the Benefit Plans; (iv) a
relocation of your business office to a location more than fifty (50) miles from
the location at which you performed your duties as of the effective date of the
Change in Control, except for required travel by you on the Company's business
to an extent substantially consistent with your business travel obligations
prior to the effective date of the Change in Control; or (v) a material breach
by the Company of any provision of the Plan or the Option Agreement or any other
material agreement between you and the Company concerning the terms and
conditions of your employment.

            c.    If any payment or benefit you would receive pursuant to a
Change in Control from the Company or otherwise ("PAYMENT") would (i) constitute
a "parachute payment" within the meaning of Section 280G of the Code, and (ii)
but for this sentence, be subject to the excise tax imposed by Section 4999 of
the Code (the "EXCISE Tax"), then such Payment shall be equal to the Reduced
Amount. The "REDUCED AMOUNT" shall be either (x) the largest portion of the
Payment that would result in no portion of the Payment being subject to the
Excise Tax or (y) the largest portion, up to and including the total, of the
Payment, whichever amount, after taking into account all applicable federal,
state and local employment taxes, income taxes, and the Excise Tax (all computed
at the highest applicable marginal rate), results in your receipt, on an
after-tax basis, of the greater amount of the Payment notwithstanding that all
or some portion of the Payment may be subject to the Excise Tax. If a reduction
in payments or benefits constituting "parachute payments" is necessary so that
the Payment equals the Reduced Amount, reduction shall occur in the following
order unless you elect in writing a different order

                                      27.
<PAGE>

(provided, however, that such election shall be subject to Company approval if
made on or after the effective date of the event that triggers the Payment):
reduction of cash payments; cancellation of accelerated vesting of Stock Awards;
reduction of employee benefits. In the event that acceleration of vesting of
Stock Award compensation is to be reduced, such acceleration of vesting shall be
cancelled in the reverse order of the date of grant of your Stock Awards (i.e.,
earliest granted Stock Award cancelled last) unless you elect in writing a
different order for cancellation.

      The accounting firm engaged by the Company for general audit purposes as
of the day prior to the effective date of the Change in Control shall perform
the foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required hereunder. The Company shall
bear all expenses with respect to the determinations by such accounting firm
required to be made hereunder.

      The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
you and the Company within fifteen (15) calendar days after the date on which
your right to a Payment is triggered (if requested at that time by you or the
Company) or such other time as requested by you or the Company. If the
accounting firm determines that no Excise Tax is payable with respect to a
Payment, either before or after the application of the Reduced Amount, it shall
furnish you and the Company with an opinion reasonably acceptable to you that no
Excise Tax will be imposed with respect to such Payment. Any good faith
determinations of the accounting firm made hereunder shall be final, binding and
conclusive upon you and the Company.

                                      28.

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