Document:

FORM OF FIXED RATE SENIOR NOTE

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

     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.

<PAGE>

                                               MORGAN STANLEY
                                  SENIOR GLOBAL MEDIUM-TERM NOTES, SERIES F
                                                (Fixed Rate)

                                        STOCK PARTICIPATION ACCRETING
                             REDEMPTION QUARTERLY-PAY SECURITIES(SM) ("SPARQS")

                                       9% SPARQS(R) DUE JANUARY 30, 2006
                                          MANDATORILY EXCHANGEABLE
                                        FOR SHARES OF COMMON STOCK OF
                                          LYONDELL CHEMICAL COMPANY

<TABLE>
<S>                           <C>                          <C>                          <C>
--------------------------------------------------------------------------------------------------------------------
ORIGINAL ISSUE DATE:          INITIAL REDEMPTION DATE:     INTEREST RATE:        per    MATURITY DATE: See
                                 See "Morgan Stanley Call     annum (equivalent to $       "Maturity Date" below.
                                 Right" below.                per annum per SPARQS)
--------------------------------------------------------------------------------------------------------------------
INTEREST ACCRUAL DATE:        INITIAL REDEMPTION           INTEREST PAYMENT DATE(S):    OPTIONAL REPAYMENT
                                 PERCENTAGE: See "Morgan      See "Interest Payment        DATE(S):  N/A
                                 Stanley Call Right" and      Dates" below.
                                 "Call Price" below.
--------------------------------------------------------------------------------------------------------------------
SPECIFIED CURRENCY: U.S.      ANNUAL REDEMPTION            INTEREST PAYMENT PERIOD:     APPLICABILITY OF MODIFIED
   dollars                       PERCENTAGE REDUCTION: N/A    Quarterly                    PAYMENT UPON
                                                                                           ACCELERATION OR
                                                                                           REDEMPTION: See
                                                                                           "Alternate Exchange
                                                                                           Calculation in Case of
                                                                                           an Event of Default"
                                                                                           below.
--------------------------------------------------------------------------------------------------------------------
IF SPECIFIED CURRENCY OTHER   REDEMPTION NOTICE PERIOD:    APPLICABILITY OF ANNUAL      If yes, state Issue Price:
   THAN U.S. DOLLARS, OPTION     At least 10 days but no      INTEREST PAYMENTS: N/A       N/A
   TO ELECT PAYMENT IN U.S.      more than 30 days.  See
   DOLLARS: N/A                  "Morgan Stanley Call
                                 Right" and "Morgan
                                 Stanley Notice Date"
                                 below.
--------------------------------------------------------------------------------------------------------------------
EXCHANGE RATE AGENT: N/A      TAX REDEMPTION AND PAYMENT   PRICE APPLICABLE UPON        ORIGINAL YIELD TO
                                 OF ADDITIONAL AMOUNTS:       OPTIONAL REPAYMENT: N/A      MATURITY: N/A
                                 N/A
--------------------------------------------------------------------------------------------------------------------
OTHER PROVISIONS: See below.  IF YES, STATE INITIAL
                                 OFFERING DATE: N/A
--------------------------------------------------------------------------------------------------------------------
</TABLE>

Issue Price................   $          per each $          principal amount
                              of this SPARQS

                                      A-2
<PAGE>

Maturity Date..............   January 30, 2006, subject to acceleration as
                              described below in "Price Event Acceleration" and
                              "Alternate Exchange Calculation in Case of an
                              Event of Default" and subject to extension if the
                              Final Call Notice Date is postponed in accordance
                              with the following paragraph.

                              If the Final Call Notice Date is postponed because
                              it is not a Trading Day or due to a Market
                              Disruption Event or otherwise and the Issuer
                              exercises the Morgan Stanley Call Right, the
                              Maturity Date shall be postponed so that the
                              Maturity Date will be the tenth calendar day
                              following the Final Call Notice Date. See "Final
                              Call Notice Date" below.

                              In the event that the Final Call Notice Date is
                              postponed because it is not a Trading Day or due
                              to a Market Disruption Event or otherwise, the
                              Issuer shall give notice of such postponement as
                              promptly as possible, and in no case later than
                              two Business Days following the scheduled Final
                              Call Notice Date, (i) to the holder of this SPARQS
                              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
                              SPARQS receives the notice. Notice of the date to
                              which the Maturity Date has been rescheduled as a
                              result of postponement of the Final Call Notice
                              Date, if applicable, shall be included in the
                              Issuer's notice of exercise of the Morgan Stanley
                              Call Right.

Interest Payment Dates.....   April 30, 2005, July 30, 2005, October 30, 2005
                              and the Maturity Date.

                              If the scheduled Maturity Date is postponed due to
                              a Market Disruption Event or otherwise, the Issuer
                              shall pay interest on the Maturity Date as
                              postponed rather

                                      A-3
<PAGE>

                              than on January 30, 2006, but no interest will
                              accrue on this SPARQS or on such payment during
                              the period from or after the scheduled Maturity
                              Date.

Record Date................   Notwithstanding the definition of "Record Date" on
                              page 23 hereof, the Record Date for each Interest
                              Payment Date, including the Interest Payment Date
                              scheduled to occur on the Maturity Date, shall be
                              the date 5 calendar days prior to such scheduled
                              Interest Payment Date, whether or not that date is
                              a Business Day; provided, however, that in the
                              event that the Issuer exercises the Morgan Stanley
                              Call Right, no Interest Payment Date shall occur
                              after the Morgan Stanley Notice Date, except for
                              any Interest Payment Date for which the Morgan
                              Stanley Notice Date falls on or after the
                              "ex-interest" date for the related interest
                              payment, in which case the related interest
                              payment shall be made on such Interest Payment
                              Date; and provided, further, that accrued but
                              unpaid interest payable on the Call Date, if any,
                              shall be payable to the person to whom the Call
                              Price is payable. The "ex-interest" date for any
                              interest payment is the date on which purchase
                              transactions in the SPARQS no longer carry the
                              right to receive such interest payment.

                              In the event that the Issuer exercises the Morgan
                              Stanley Call Right and the Morgan Stanley Notice
                              Date falls before the "ex-interest" date for an
                              interest payment, so that as a result a scheduled
                              Interest Payment Date will not occur, the Issuer
                              shall cause the Calculation Agent to give notice
                              to the Trustee and to the Depositary, in each case
                              in the manner and at the time described in the
                              second and third paragraphs under "Morgan Stanley
                              Call Right" below, that no Interest Payment Date
                              will occur after such Morgan Stanley Notice Date.

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

Morgan Stanley Call Right..   On any scheduled Trading Day on or after July ,
                              2005 or on the Maturity Date (including the
                              Maturity Date as it may be extended and regardless
                              of whether the Maturity Date is a Trading Day),
                              the Issuer may call the SPARQS, in whole but not
                              in part, for mandatory

                                      A-4
<PAGE>

                              exchange for the Call Price paid in cash (together
                              with accrued but unpaid interest) on the Call
                              Date.

                              On the Morgan Stanley Notice Date, the Issuer
                              shall give notice of the Issuer's exercise of the
                              Morgan Stanley Call Right (i) to the holder of
                              this SPARQS by mailing notice of such exercise,
                              specifying the Call Date on which the Issuer shall
                              effect such exchange, 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 Depositary in accordance with the
                              applicable procedures set forth in the Blanket
                              Letter of Representations prepared by the Issuer.
                              Any notice which is mailed in the manner herein
                              provided shall be conclusively presumed to have
                              been duly given, whether or not the holder of this
                              SPARQS receives the notice. Failure to give notice
                              by mail or any defect in the notice to the holder
                              of any SPARQS shall not affect the validity of the
                              proceedings for the exercise of the Morgan Stanley
                              Call Right with respect to any other SPARQS.

                              The notice of the Issuer's exercise of the Morgan
                              Stanley Call Right shall specify (i) the Call
                              Date, (ii) the Call Price payable per SPARQS,
                              (iii) the amount of accrued but unpaid interest
                              payable per SPARQS on the Call Date, (iv) whether
                              any subsequently scheduled Interest Payment Date
                              shall no longer be an Interest Payment Date as a
                              result of the exercise of the Morgan Stanley Call
                              Right, (v) the place or places of payment of such
                              Call Price, (vi) that such delivery will be made
                              upon presentation and surrender of this SPARQS,
                              (vii) that such exchange is pursuant to the Morgan
                              Stanley Call Right and (viii) if applicable, the
                              date to which the Maturity Date has been extended
                              due to a Market Disruption Event as described
                              under "Maturity Date" above.

                              The notice of the Issuer's exercise of the Morgan
                              Stanley Call Right shall be given by the Issuer
                              or, at the Issuer's request, by the Trustee in the
                              name and at the expense of the Issuer.

                                      A-5
<PAGE>

                              If this SPARQS is so called for mandatory exchange
                              by the Issuer, then the cash Call Price and any
                              accrued but unpaid interest on this SPARQS to be
                              delivered to the holder of this SPARQS shall be
                              delivered on the Call Date fixed by the Issuer and
                              set forth in its notice of its exercise of the
                              Morgan Stanley Call Right, upon delivery of this
                              SPARQS to the Trustee. The Issuer shall, or shall
                              cause the Calculation Agent to, deliver such cash
                              to the Trustee for delivery to the holder of this
                              SPARQS.

                              If this SPARQS is not surrendered for exchange on
                              the Call Date, it shall be deemed to be no longer
                              Outstanding under, and as defined in, the Senior
                              Indenture after the Call Date, except with respect
                              to the holder's right to receive cash due in
                              connection with the Morgan Stanley Call Right.

Morgan Stanley Notice
Date.......................   The scheduled Trading Day on which the Issuer
                              issues its notice of mandatory exchange, which
                              must be at least 10 but not more than 30 days
                              prior to the Call Date.

Final Call Notice Date.....   January 20, 2006; provided that if January 20,
                              2006 is not a Trading Day or if a Market
                              Disruption Event occurs on such day, the Final
                              Call Notice Date will be the immediately
                              succeeding Trading Day on which no Market
                              Disruption Event occurs.

Call Date..................   The day specified in the Issuer's notice of
                              mandatory exchange, on which the Issuer shall
                              deliver cash to the holder of this SPARQS, for
                              mandatory exchange, which day may be any scheduled
                              Trading Day on or after July , 2005 or the
                              Maturity Date (including the Maturity Date as it
                              may be extended and regardless of whether the
                              Maturity Date is a scheduled Trading Day). See
                              "Maturity Date" above.

Call Price.................   The Call Price with respect to any Call Date is an
                              amount of cash per each $ principal amount of this
                              SPARQS, as calculated by the Calculation Agent,
                              such that the sum of the present values of all
                              cash flows on each $ principal amount of this
                              SPARQS to and including the Call Date (i.e., the
                              Call Price and all of the interest payments,
                              including accrued and unpaid

                                      A-6
<PAGE>

                              interest payable on the Call Date), discounted to
                              the Original Issue Date from the applicable
                              payment date at the Yield to Call rate of % per
                              annum computed on the basis of a 360-day year of
                              twelve 30-day months, equals the Issue Price, as
                              determined by the Calculation Agent.

Exchange at Maturity.......   At maturity, subject to a prior call of this
                              SPARQS for cash in an amount equal to the Call
                              Price by the Issuer as described under "Morgan
                              Stanley Call Right" above or any acceleration of
                              the SPARQS, upon delivery of this SPARQS to the
                              Trustee, each $ principal amount of this SPARQS
                              shall be applied by the Issuer as payment for a
                              number of shares of the common stock of Lyondell
                              Chemical Company ("Lyondell Stock") at the
                              Exchange Ratio, and the Issuer shall deliver with
                              respect to each $ principal amount of this SPARQS
                              an amount of Lyondell Stock equal to the Exchange
                              Ratio.

                              The amount of Lyondell Stock to be delivered at
                              maturity shall be subject to any applicable
                              adjustments (i) to the Exchange Ratio (including,
                              as applicable, any New Stock Exchange Ratio or any
                              Basket Stock Exchange Ratio, each as defined in
                              paragraph 5 under "Antidilution Adjustments"
                              below) and (ii) in the Exchange Property, as
                              defined in paragraph 5 under "Antidilution
                              Adjustments" below, to be delivered instead of, or
                              in addition to, such Lyondell Stock as a result of
                              any corporate event described under "Antidilution
                              Adjustments" below, in each case, required to be
                              made through the close of business on the third
                              Trading Day prior to maturity.

                              The Issuer shall, or shall cause the Calculation
                              Agent to, provide written notice to the Trustee at
                              its New York Office and to the Depositary, on
                              which notice the Trustee and Depositary may
                              conclusively rely, on or prior to 10:30 a.m. on
                              the Trading Day immediately prior to maturity of
                              this SPARQS (but if such Trading Day is not a
                              Business Day, prior to the close of business on
                              the Business Day preceding maturity of this
                              SPARQS), of the amount of Lyondell Stock (or the
                              amount of Exchange Property) or cash to be
                              delivered with respect to each $        principal
                              amount of

                                      A-7
<PAGE>

                              this SPARQS and of the amount of any cash to be
                              paid in lieu of any fractional share of Lyondell
                              Stock (or of any other securities included in
                              Exchange Property, if applicable); provided that
                              if the maturity date of this SPARQS is accelerated
                              (x) because of a Price Event Acceleration (as
                              described under "Price Event Acceleration" below)
                              or (y) because of an Event of Default Acceleration
                              (as defined under "Alternate Exchange Calculation
                              in Case of an Event of Default" below), the Issuer
                              shall give notice of such acceleration as promptly
                              as possible, and in no case later than (A) in the
                              case of an Event of Default Acceleration, two
                              Trading Days following such deemed maturity date
                              or (B) in the case of a Price Event Acceleration,
                              10:30 a.m. on the Trading Day immediately prior to
                              the date of acceleration (as defined under "Price
                              Event Acceleration" below), (i) to the holder of
                              this SPARQS by mailing notice of such acceleration
                              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 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 SPARQS receives the notice. If
                              the maturity of this SPARQS is accelerated, no
                              interest on the amounts payable with respect to
                              this SPARQS shall accrue for the period from and
                              after such accelerated maturity date; provided
                              that the Issuer has deposited with the Trustee the
                              Lyondell Stock, the Exchange Property or any cash
                              due with respect to such acceleration by such
                              accelerated maturity date.

                              The Issuer shall, or shall cause the Calculation
                              Agent to, deliver any such shares of Lyondell
                              Stock (or any Exchange Property) and cash in
                              respect of interest and any fractional share of
                              Lyondell Stock (or any Exchange Property) and cash
                              otherwise due upon any acceleration described
                              above to the Trustee for delivery to the holder of
                              this Note. References to

                                      A-8
<PAGE>

                              payment "per SPARQS" refer to each $     principal
                              amount of this SPARQS.

                              If this SPARQS is not surrendered for exchange at
                              maturity, it shall be deemed to be no longer
                              Outstanding under, and as defined in, the Senior
                              Indenture, except with respect to the holder's
                              right to receive the Lyondell Stock (and, if
                              applicable, any Exchange Property) and any cash in
                              respect of interest and any fractional share of
                              Lyondell Stock (or any Exchange Property) and any
                              other cash due at maturity as described in the
                              preceding paragraph under this heading.

Price Event Acceleration...   If on any two consecutive Trading Days during the
                              period prior to and ending on the third Business
                              Day immediately preceding the Maturity Date, the
                              product of the Closing Price per share of Lyondell
                              Stock and the Exchange Ratio is less than $2.00,
                              the Maturity Date of this SPARQS shall be deemed
                              to be accelerated to the third Business Day
                              immediately following such second Trading Day (the
                              "date of acceleration"). Upon such acceleration,
                              the holder of each $      principal amount of this
                              SPARQS shall receive per SPARQS on the date of
                              acceleration:

                                   (i) a number of shares of Lyondell Stock at
                                   the then current Exchange Ratio;

                                   (ii)accrued but unpaid interest on each $
                                   principal amount of this SPARQS to but
                                   excluding the date of acceleration; and

                                   (iii) an amount of cash as determined by the
                                   Calculation Agent equal to the sum of the
                                   present values of the remaining scheduled
                                   payments of interest on each $      principal
                                   amount of this SPARQS (excluding the amounts
                                   included in clause (ii) above) discounted to
                                   the date of acceleration. The present value
                                   of each remaining scheduled payment will be
                                   based on the comparable yield that the Issuer
                                   would pay on a non-interest bearing, senior
                                   unsecured debt obligation of the Issuer
                                   having a maturity equal to

                                      A-9
<PAGE>

                                   the term of each such remaining scheduled
                                   payment, as determined by the Calculation
                                   Agent.

No Fractional Shares.......   Upon delivery of this SPARQS to the Trustee at
                              maturity, the Issuer shall deliver the aggregate
                              number of shares of Lyondell Stock due with
                              respect to this SPARQS, as described above, but
                              the Issuer shall pay cash in lieu of delivering
                              any fractional share of Lyondell Stock in an
                              amount equal to the corresponding fractional
                              Closing Price of such fraction of a share of
                              Lyondell Stock as determined by the Calculation
                              Agent as of the second scheduled Trading Day prior
                              to maturity of this SPARQS.

Exchange Ratio.............   1.0, subject to adjustment for corporate events
                              relating to Lyondell Chemical Company ("Lyondell")
                              described under "Antidilution Adjustments" below.

Closing Price..............   The Closing Price for one share of Lyondell 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 Lyondell 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 (the "Exchange Act"), on
                                   which Lyondell Stock (or any such other
                                   security) is listed or admitted to trading,

                              o    if Lyondell 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 Lyondell 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")

                                      A-10
<PAGE>

                                   operated by the National Association of
                                   Securities Dealers, Inc. (the "NASD"), the
                                   last reported sale price of the principal
                                   trading session on the OTC Bulletin Board on
                                   such day.

                              If Lyondell 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
                              Lyondell Stock (or one unit of any such other
                              security) on any Trading Day will 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 Lyondell 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 will be
                              the mean, as determined by the Calculation Agent,
                              of the bid prices for Lyondell Stock (or any such
                              other security) obtained from as many recognized
                              dealers in such security, but not exceeding three,
                              as will 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 any such
                              bid is the highest of the bids obtained. The term
                              "security of the Nasdaq National Market" will
                              include a security included in any successor to
                              such system, and the term OTC Bulletin Board
                              Service will 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, Inc. ("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..........   MS & Co. and its successors.

                                      A-11
<PAGE>

                              All calculations with respect to the Exchange
                              Ratio and Call Price for the SPARQS shall be made
                              by the Calculation Agent and shall be rounded to
                              the nearest one hundred-thousandth, with five
                              one-millionths rounded upward (e.g., .876545 would
                              be rounded to .87655); all dollar amounts related
                              to the Call Price resulting from such calculations
                              shall be rounded to the nearest ten-thousandth,
                              with five one hundred-thousandths rounded upward
                              (e.g., .76545 would be rounded to .7655); and all
                              dollar amounts paid with respect to the Call Price
                              on the aggregate number of SPARQS shall be rounded
                              to the nearest cent, with one-half cent rounded
                              upward.

                              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 SPARQS, the Trustee and the Issuer.

Antidilution Adjustments...   The Exchange Ratio shall be adjusted as follows:

                              1. If Lyondell Stock is subject to a stock split
                              or reverse stock split, then once such split has
                              become effective, the Exchange Ratio shall be
                              adjusted to equal the product of the prior
                              Exchange Ratio and the number of shares issued in
                              such stock split or reverse stock split with
                              respect to one share of Lyondell Stock.

                              2. If Lyondell Stock is subject (i) to a stock
                              dividend (issuance of additional shares of
                              Lyondell Stock) that is given ratably to all
                              holders of shares of Lyondell Stock or (ii) to a
                              distribution of Lyondell Stock as a result of the
                              triggering of any provision of the corporate
                              charter of Lyondell, then once the dividend has
                              become effective and Lyondell Stock is trading
                              ex-dividend, the Exchange Ratio shall be adjusted
                              so that the new Exchange Ratio shall equal the
                              prior Exchange Ratio plus the product of (i) the
                              number of shares issued with respect to one share
                              of Lyondell Stock and (ii) the prior Exchange
                              Ratio.

                              3. If Lyondell issues rights or warrants to all
                              holders of Lyondell Stock to subscribe for or
                              purchase Lyondell Stock at an exercise price per
                              share less than

                                      A-12
<PAGE>

                              the Closing Price of Lyondell 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 this SPARQS, then the
                              Exchange Ratio shall be adjusted to equal the
                              product of the prior Exchange Ratio and a
                              fraction, the numerator of which shall be the
                              number of shares of Lyondell Stock outstanding
                              immediately prior to the issuance of such rights
                              or warrants plus the number of additional shares
                              of Lyondell Stock offered for subscription or
                              purchase pursuant to such rights or warrants and
                              the denominator of which shall be the number of
                              shares of Lyondell Stock outstanding immediately
                              prior to the issuance of such rights or warrants
                              plus the number of additional shares of Lyondell
                              Stock which the aggregate offering price of the
                              total number of shares of Lyondell 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 warrants and
                              dividing the product so obtained by such Closing
                              Price.

                              4. There shall be no adjustments to the Exchange
                              Ratio to reflect cash dividends or other
                              distributions paid with respect to Lyondell Stock
                              other than distributions described in paragraph 2,
                              paragraph 3 and clauses (i), (iv) and (v) of the
                              first sentence of paragraph 5 and Extraordinary
                              Dividends. "Extraordinary Dividend" means each of
                              (a) the full amount per share of Lyondell Stock of
                              any cash dividend or special dividend or
                              distribution that is identified by Lyondell as an
                              extraordinary or special dividend or distribution,
                              (b) the excess of any cash dividend or other cash
                              distribution (that is not otherwise identified by
                              Lyondell as an extraordinary or special dividend
                              or distribution) distributed per share of Lyondell
                              Stock over the immediately preceding cash dividend
                              or other cash distribution, if any, per share of
                              Lyondell Stock that did not include an
                              Extraordinary Dividend (as adjusted for any
                              subsequent corporate

                                      A-13
<PAGE>

                              event requiring an adjustment hereunder, such as a
                              stock split or reverse stock split) if such excess
                              portion of the dividend or distribution is more
                              than 5% of the Closing Price of Lyondell Stock on
                              the Trading Day preceding the "ex-dividend date"
                              (that is, the day on and after which transactions
                              in Lyondell Stock on an organized securities
                              exchange or trading system no longer carry the
                              right to receive that cash dividend or other cash
                              distribution) for the payment of such cash
                              dividend or other cash distribution (such Closing
                              Price, the "Base Closing Price") and (c) the full
                              cash value of any non-cash dividend or
                              distribution per share of Lyondell Stock
                              (excluding Marketable Securities, as defined in
                              paragraph 5 below). Subject to the following
                              sentence, if any cash dividend or distribution of
                              such other property with respect to Lyondell Stock
                              includes an Extraordinary Dividend, the Exchange
                              Ratio with respect to Lyondell Stock shall be
                              adjusted on the ex-dividend date so that the new
                              Exchange Ratio shall equal the product of (i) the
                              prior Exchange Ratio and (ii) a fraction, the
                              numerator of which is the Base Closing Price, and
                              the denominator of which is the amount by which
                              the Base Closing Price exceeds the Extraordinary
                              Dividend. If any Extraordinary Dividend is at
                              least 35% of the Base Closing Price, then, instead
                              of adjusting the Exchange Ratio, the amount
                              payable upon exchange at maturity shall be
                              determined as described in paragraph 5 below, and
                              the Extraordinary Dividend shall be allocated to
                              Reference Basket Stocks in accordance with the
                              procedures for a Reference Basket Event as
                              described in clause (c)(ii) of paragraph 5 below.
                              The value of the non-cash component of an
                              Extraordinary Dividend shall be determined on the
                              ex-dividend date for such distribution by the
                              Calculation Agent, whose determination shall be
                              conclusive in the absence of manifest error. A
                              distribution on Lyondell Stock described in clause
                              (i), (iv) or (v) of the first sentence of
                              paragraph 5 below shall cause an adjustment to the
                              Exchange Ratio pursuant only to clause (i), (iv)
                              or (v) of the first sentence of paragraph 5, as
                              applicable.

                              5. Any of the following shall constitute a
                              Reorganization Event: (i) Lyondell Stock is

                                      A-14
<PAGE>

                              reclassified or changed, including, without
                              limitation, as a result of the issuance of any
                              tracking stock by Lyondell, (ii) Lyondell has been
                              subject to any merger, combination or
                              consolidation and is not the surviving entity,
                              (iii) Lyondell completes a statutory exchange of
                              securities with another corporation (other than
                              pursuant to clause (ii) above), (iv) Lyondell is
                              liquidated, (v) Lyondell issues to all of its
                              shareholders equity securities of an issuer other
                              than Lyondell (other than in a transaction
                              described in clause (ii), (iii) or (iv) above) (a
                              "spinoff stock") or (vi) Lyondell Stock is the
                              subject of a tender or exchange offer or going
                              private transaction on all of the outstanding
                              shares. If any Reorganization Event occurs, in
                              each case as a result of which the holders of
                              Lyondell Stock receive any equity security listed
                              on a national securities exchange or traded on The
                              Nasdaq National Market (a "Marketable Security"),
                              other securities or other property, assets or cash
                              (collectively "Exchange Property"), the amount
                              payable upon exchange at maturity with respect to
                              each $ principal amount of this SPARQS following
                              the effective date for such Reorganization Event
                              (or, if applicable, in the case of spinoff stock,
                              the ex-dividend date for the distribution of such
                              spinoff stock) shall be determined in accordance
                              with the following:

                                   (a) if Lyondell Stock continues to be
                                   outstanding, Lyondell Stock (if applicable,
                                   as reclassified upon the issuance of any
                                   tracking stock) at the Exchange Ratio in
                                   effect on the third Trading Day prior to the
                                   scheduled Maturity Date (taking into account
                                   any adjustments for any distributions
                                   described under clause (c)(i) below); and

                                   (b) for each Marketable Security received in
                                   such Reorganization Event (each a "New
                                   Stock"), including the issuance of any
                                   tracking stock or spinoff stock or the
                                   receipt of any stock received in exchange for
                                   Lyondell Stock, the number of shares of the
                                   New Stock received with respect to one share
                                   of Lyondell Stock multiplied by the Exchange
                                   Ratio for Lyondell Stock on the Trading Day
                                   immediately prior to the effective date of
                                   the

                                      A-15
<PAGE>

                              Reorganization Event (the "New Stock Exchange
                              Ratio"), as adjusted to the third Trading Day
                              prior to the scheduled Maturity Date (taking into
                              account any adjustments for distributions
                              described under clause (c)(i) below); and

                              (c) for any cash and any other property or
                              securities other than Marketable Securities
                              received in such Reorganization Event (the
                              "Non-Stock Exchange Property"),

                                   (i) if the combined value of the amount of
                                   Non-Stock Exchange Property received per
                                   share of Lyondell Stock, as determined by the
                                   Calculation Agent in its sole discretion on
                                   the effective date of such Reorganization
                                   Event (the "Non-Stock Exchange Property
                                   Value"), by holders of Lyondell Stock is less
                                   than 25% of the Closing Price of Lyondell
                                   Stock on the Trading Day immediately prior to
                                   the effective date of such Reorganization
                                   Event, a number of shares of Lyondell Stock,
                                   if applicable, and of any New Stock received
                                   in connection with such Reorganization Event,
                                   if applicable, in proportion to the relative
                                   Closing Prices of Lyondell Stock and any such
                                   New Stock, and with an aggregate value equal
                                   to the Non-Stock Exchange Property Value
                                   multiplied by the Exchange Ratio in effect
                                   for Lyondell Stock on the Trading Day
                                   immediately prior to the effective date of
                                   such Reorganization Event, based on such
                                   Closing Prices, in each case as determined by
                                   the Calculation Agent in its sole discretion
                                   on the effective date of such Reorganization
                                   Event; and the number of such shares of
                                   Lyondell Stock or any New Stock determined in
                                   accordance with this clause (c)(i) shall be
                                   added at the time of such adjustment to the
                                   Exchange Ratio in subparagraph (a) above
                                   and/or the New Stock Exchange Ratio in
                                   subparagraph (b) above, as applicable, or

                                   (ii) if the Non-Stock Exchange Property Value
                                   is equal to or exceeds 25% of the Closing
                                   Price of Lyondell Stock on the Trading Day

                                      A-16
<PAGE>

                                   immediately prior to the effective date
                                   relating to such Reorganization Event or, if
                                   Lyondell Stock is surrendered exclusively for
                                   Non-Stock Exchange Property (in each case, a
                                   "Reference Basket Event"), an initially
                                   equal-dollar weighted basket of three
                                   Reference Basket Stocks (as defined below)
                                   with an aggregate value on the effective date
                                   of such Reorganization Event equal to the
                                   Non-Stock Exchange Property Value multiplied
                                   by the Exchange Ratio in effect for Lyondell
                                   Stock on the Trading Day immediately prior to
                                   the effective date of such Reorganization
                                   Event. The "Reference Basket Stocks" shall be
                                   the three stocks with the largest market
                                   capitalization among the stocks that then
                                   comprise the S&P 500 Index (or, if
                                   publication of such index is discontinued,
                                   any successor or substitute index selected by
                                   the Calculation Agent in its sole discretion)
                                   with the same primary Standard Industrial
                                   Classification Code ("SIC Code") as Lyondell;
                                   provided, however, that a Reference Basket
                                   Stock shall not include any stock that is
                                   subject to a trading restriction under the
                                   trading restriction policies of Morgan
                                   Stanley or any of its affiliates that would
                                   materially limit the ability of Morgan
                                   Stanley or any of its affiliates to hedge the
                                   SPARQS with respect to such stock (a "Hedging
                                   Restriction"); provided further that if three
                                   Reference Basket Stocks cannot be identified
                                   from the S&P 500 Index by primary SIC Code
                                   for which a Hedging Restriction does not
                                   exist, the remaining Reference Basket
                                   Stock(s) shall be selected by the Calculation
                                   Agent from the largest market capitalization
                                   stock(s) within the same Division and Major
                                   Group classification (as defined by the
                                   Office of Management and Budget) as the
                                   primary SIC Code for Lyondell. Each Reference
                                   Basket Stock shall be assigned a Basket Stock
                                   Exchange Ratio equal to the number of shares
                                   of such Reference Basket Stock with a Closing
                                   Price on the effective date of such
                                   Reorganization Event equal to the

                                      A-17
<PAGE>

                                   product of (a) the Non-Stock Exchange
                                   Property Value, (b) the Exchange Ratio in
                                   effect for Lyondell Stock on the Trading Day
                                   immediately prior to the effective date of
                                   such Reorganization Event and (c) 0.3333333.

                              Following the allocation of any Extraordinary
                              Dividend to Reference Basket Stocks pursuant to
                              paragraph 4 above or any Reorganization Event
                              described in this paragraph 5, the amount payable
                              upon exchange at maturity with respect to each $
                              principal amount of this SPARQS shall be the sum
                              of:

                                   (x) if applicable, Lyondell Stock at the
                                       Exchange Ratio then in effect; and

                                   (y) if applicable, for each New Stock, such
                                       New Stock at the New Stock Exchange Ratio
                                       then in effect for such New Stock; and

                                   (z) if applicable, for each Reference Basket
                                       Stock, such Reference Basket Stock at the
                                       Basket Stock Exchange Ratio then in
                                       effect for such Reference Basket Stock.

                              In each case, the applicable Exchange Ratio
                              (including for this purpose, any New Stock
                              Exchange Ratio or Basket Stock Exchange Ratio)
                              shall be determined by the Calculation Agent on
                              the third Trading Day prior to the scheduled
                              Maturity Date.

                              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

                                      A-18
<PAGE>

                              and amount of cash and other property received by
                              offerees who elect to receive cash.

                              Following the occurrence of any Reorganization
                              Event referred to in paragraphs 4 or 5 above, (i)
                              references to "Lyondell Stock" under "No
                              Fractional Shares," "Closing Price" and "Market
                              Disruption Event" shall be deemed to also refer to
                              any New Stock or Reference Basket Stock, and (ii)
                              all other references in this SPARQS to "Lyondell
                              Stock" shall be deemed to refer to the Exchange
                              Property into which this SPARQS is thereafter
                              exchangeable and references to a "share" or
                              "shares" of Lyondell Stock shall be deemed to
                              refer to the applicable unit or units of such
                              Exchange Property, including any New Stock or
                              Reference Basket Stock, unless the context
                              otherwise requires. The New Stock Exchange
                              Ratio(s) or Basket Stock Exchange Ratios resulting
                              from any Reorganization Event described in
                              paragraph 5 above or similar adjustment under
                              paragraph 4 above shall be subject to the
                              adjustments set forth in paragraphs 1 through 5
                              hereof.

                              If a Reference Basket Event occurs, 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 DTC of the occurrence of
                              such Reference Basket Event and of the three
                              Reference Basket Stocks selected as promptly as
                              possible and in no event later than five Business
                              Days after the date of the Reference Basket Event.

                              No adjustment to any Exchange Ratio (including for
                              this purpose, any New Stock Exchange Ratio or
                              Basket Stock Exchange Ratio) shall be required
                              unless such adjustment would require a change of
                              at least 0.1% in the Exchange Ratio then in
                              effect. The Exchange Ratio resulting from any of
                              the adjustments specified above will be rounded to
                              the nearest one hundred-thousandth, with five
                              one-millionths rounded upward. Adjustments to the
                              Exchange Ratios will be made up to the close of
                              business on the third Trading Day prior to the
                              Maturity Date.

                                      A-19
<PAGE>

                              No adjustments to the Exchange Ratio or method of
                              calculating the Exchange Ratio shall be made other
                              than those specified above.

                              The Calculation Agent shall be solely responsible
                              for the determination and calculation of any
                              adjustments to the Exchange Ratio, any New Stock
                              Exchange Ratio or Basket Stock Exchange Ratio 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 paragraphs 1 through 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 the Exchange Ratio, or to
                              the method of calculating the amount payable upon
                              exchange at maturity of the SPARQS made pursuant
                              to paragraph 5 above, upon written request by the
                              holder of this SPARQS.

Market Disruption Event....   "Market Disruption Event" means, with respect to
                              Lyondell Stock:

                                   (i) a suspension, absence or material
                                   limitation of trading of Lyondell Stock on
                                   the primary market for Lyondell Stock 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 Lyondell Stock as a result of which the
                                   reported trading prices for Lyondell Stock
                                   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 Lyondell Stock,
                                   if available, during the one-half hour period
                                   preceding the close of the principal trading
                                   session in the applicable market, in each

                                      A-20
<PAGE>

                                   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 the Issuer or
                                   any of its affiliates to unwind or adjust all
                                   or a material portion of the hedge with
                                   respect to the SPARQS due January 30, 2006,
                                   Mandatorily Exchangeable for Shares of Common
                                   Stock of Lyondell Chemical Company.

                              For purposes 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
                              self-regulatory organization or the Securities and
                              Exchange Commission 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 Lyondell Stock 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 Lyondell
                              Stock and (5) a suspension, absence or material
                              limitation of trading on the primary securities
                              market on which options contracts related to
                              Lyondell Stock are traded shall not include any
                              time when such securities market is itself closed
                              for trading under ordinary circumstances.

                                      A-21
<PAGE>

Alternate Exchange
Calculation in Case of
  an Event of Default......   In case an event of default with respect to the
                              SPARQS shall have occurred and be continuing, the
                              amount declared due and payable per each $
                              principal amount of this SPARQS upon any
                              acceleration of this SPARQS (an "Event of Default
                              Acceleration") shall be determined by the
                              Calculation Agent and shall be an amount in cash
                              equal to the lesser of (i) the product of (x) the
                              Closing Price of Lyondell Stock (and/or the value
                              of any Exchange Property) as of the date of such
                              acceleration and (y) the then current Exchange
                              Ratio and (ii) the Call Price calculated as though
                              the date of acceleration were the Call Date (but
                              in no event less than the Call Price for the first
                              Call Date), in each case plus accrued but unpaid
                              interest to but excluding the date of
                              acceleration; provided that if the Issuer has
                              called the SPARQS in accordance with the Morgan
                              Stanley Call Right, the amount declared due and
                              payable upon any such acceleration shall be an
                              amount in cash for each $ principal amount of this
                              SPARQS equal to the Call Price for the Call Date
                              specified in the Issuer's notice of mandatory
                              exchange, plus accrued but unpaid interest to but
                              excluding the date of acceleration.

Treatment of SPARQS for
  United States Federal
  Income Tax Purposes......   The Issuer, by its sale of this SPARQS, and the
                              holder of this SPARQS (and any successor holder
                              of, or holder of a beneficial interest in, this
                              SPARQS), by its respective purchase hereof, agree
                              (in the absence of an administrative determination
                              or judicial ruling to the contrary) to
                              characterize each $       principal amount of this
                              SPARQS for all tax purposes as an investment unit
                              consisting of (A) a terminable contract (the
                              "Terminable Forward Contract") that (i) requires
                              the holder of this SPARQS (subject to the Morgan
                              Stanley Call Right) to purchase, and the Issuer to
                              sell, for an amount equal to $       (the "Forward
                              Price"), Lyondell Stock at maturity and (ii)
                              allows the Issuer, upon exercise of the Morgan
                              Stanley Call Right, to terminate the Terminable
                              Forward Contract by returning to such holder the
                              Deposit (as defined below) and paying to such
                              holder an amount of cash equal to the difference

                                      A-22
<PAGE>

                              between the Deposit and the Call Price and (B) a
                              deposit with the Issuer of a fixed amount of cash,
                              equal to the Issue Price per each $      principal
                              amount of this SPARQS, to secure the holder's
                              obligation to purchase Lyondell Stock pursuant to
                              the Terminable Forward Contract (the "Deposit"),
                              which Deposit bears a quarterly compounded yield
                              of    % per annum.

                                      A-23
<PAGE>

     Morgan Stanley, 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 Lyondell Stock (or other Exchange
Property), as determined in accordance with the provisions set forth under
"Exchange 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 at maturity (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 will
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 will 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 will, 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) will 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, will 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,

                                      A-24
<PAGE>

in U.S. dollars. U.S. dollar payments of interest, other than interest due at
maturity or on any date of redemption or repayment, will 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 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 will 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
will 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) will 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) will convert such payments into U.S. dollars. In
the event of such an election, payment in respect of this Note will 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

                                      A-25
<PAGE>

Agent unless such Exchange Rate Agent is an affiliate of the Issuer) for the
purchase by the quoting dealer of the Specified Currency for 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 payment will be made in the Specified Currency. All currency exchange costs
will 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-26
<PAGE>

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

DATED:                               MORGAN STANLEY

                                     By:
                                         -------------------------------------
                                         Name:
                                         Title:

TRUSTEE'S CERTIFICATE
   OF AUTHENTICATION

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

JPMORGAN CHASE BANK, N.A.,
   as Trustee

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

                                      A-27
<PAGE>

                               REVERSE OF SECURITY

     This Note is one of a duly authorized issue of Senior Global Medium-Term
Notes, Series F, having maturities more than nine months from the date of issue
(the "Notes") of the Issuer. The Notes are issuable under a Senior Indenture,
dated as of November 1, 2004, between the Issuer and JPMorgan Chase Bank, N.A.
(formerly known as JPMorgan Chase 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, N.A. 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 will 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, will not be
redeemable or subject to repayment at the option of the holder prior to
maturity.

     If so indicated on the face 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 will 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 this Note, this Note will 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 will 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

                                      A-28
<PAGE>

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 if this Note is issued with original
issue discount, this Note will 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, will 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 will 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 will 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

                                      A-29
<PAGE>

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 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
will 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 will
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 will 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

                                      A-30
<PAGE>

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 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 or 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-31
<PAGE>

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 will 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 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 will 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 will 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 will, 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, will not be less than the amount provided for in this Note to be then
due and payable. The Issuer will not, however, 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 of 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;

                                      A-32
<PAGE>

          (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;

          (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.

                                      A-33
<PAGE>

     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 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 will 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 will 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 will 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.

                                      A-34
<PAGE>

     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 will 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 will not be obligated to withhold or deduct tax 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

                                      A-35
<PAGE>

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-36
<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-37
<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-38
<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-39<PAGE>

                                                                    EXHIBIT 10.1

                        NORTH POINTE HOLDINGS CORPORATION
                              EQUITY INCENTIVE PLAN

SECTION 1. PURPOSE

            The purpose of this North Pointe Holdings Corporation Equity
Incentive Plan ("Plan") is to promote the best interests of North Pointe
Holdings Corporation ( "Company") and its shareholders by providing key
employees of the Company and its Affiliates (as defined below) and members of
the Company's Board of Directors who are not employees of the Company or its
Affiliates with an opportunity to acquire a proprietary interest in the Company.
It is intended that the Plan will promote continuity of management and increased
incentive and personal interest in the welfare of the Company by those key
employees who are primarily responsible for shaping and carrying out the
long-range plans of the Company and securing its continued growth and financial
success, all of which benefits the shareholders. In addition, by encouraging
stock ownership by directors who are not employees of the Company or its
Affiliates, the Company seeks to attract and retain on its Board of Directors
persons of exceptional competence and to provide a further incentive to serve as
a director of the Company.

SECTION 2. DEFINITIONS

            As used in the Plan, the following terms shall have the respective
meanings set forth below:

            (a)   "Affiliate" shall mean any entity that, directly or through
one or more intermediaries, is Controlled by, Controls, or is under common
Control with, the Company.

            (b)   "Available Shares" shall mean that number of Shares with
respect to which Awards may be granted under the Plan.

            (c)   "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock or Performance Share granted under the Plan.

            (d)   "Award Agreement" shall mean any written agreement, contract,
or other instrument or document evidencing any Award granted under the Plan.

            (e)   "Board" shall mean the board of directors of the Company.

            (f)   "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.

            (g)   "Committee" shall mean a committee of the Board that the Board
designates to administer the Plan and composed of not less than two directors,
each of whom is a "non-employee director for purposes of Section 16" within the
meaning of Rule 16b-3 and each of whom is an "outside director" within the
meaning of Code Section 162(m)(4)(C).

            (h)   "Control" shall mean: (A) for a corporation, ownership of more
than 50% of the combined voting power of all classes of stock entitled to vote;
and (B) for a partnership or

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<PAGE>

limited liability company, ownership of more than 50% of the profits or capital
interest of such a business entity.

            (i)   "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.

            (j)   "Excluded Items" shall mean any items that the Committee
determines shall be excluded in fixing Performance Goals, such as any gains or
losses from discontinued operations, any extraordinary gains or losses and the
effects of accounting changes.

            (k)   "Fair Market Value" shall mean, per Share on a particular
date: (i) if the Shares are listed for trading on the New York Stock Exchange,
the last reported sales price on the date in question as reported in The Wall
Street Journal, or if no sales of Shares occur on the date in question, on the
last preceding date on which there was a sale on that exchange; (ii) if the
Shares are not listed or admitted to trading on the New York Stock Exchange, the
last reported sales price on the date in question on the principal national
securities exchange on which the Shares are listed or admitted to trading, or if
no sales of Shares occur on the date in question, on the last preceding date on
which there was a sale on that exchange; (iii) if the Shares are not listed or
admitted to trading on any national securities exchange, the last reported sales
price on the date in question in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or if no sales of Shares occur on
the date in question, on the last preceding date on which there was a sale; (iv)
if on any such date the Shares are not quoted by any such organization, the last
sales price on the date in question as furnished by a professional market maker
making a market in the Shares selected by the Board for the date in question, or
if no sales of Shares occur on the date in question, on the last preceding date
on which there was a sale; or (v) if on any such date no market maker is making
a market in the Shares, the price as determined in good faith by the Committee.

            (l)   "Incentive Stock Option" shall mean an option granted under
Section 6(a) that is intended to meet the requirements of Code Section 422.

            (m)   "Key Employee" shall mean any officer or other key employee of
the Company or of any Affiliate who is responsible for or contributes to the
management, growth or profitability of the business of the Company or any
Affiliate as determined by the Committee, except that only Key Employees of the
Company or a subsidiary within the meaning of Code Section 424(f) may be granted
Incentive Stock Options.

            (n)   "Non-Employee Director" shall mean any member of the Company's
Board who is not an employee of the Company or of any Affiliate.

            (o)   "Non-Qualified Stock Option" shall mean an option granted
under Section 6(a) that is not intended to be an Incentive Stock Option.

            (p)   "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.

            (q)   "Participating Key Employee" shall mean a Key Employee to whom
an Award is granted under the Plan.

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<PAGE>

            (r)   "Performance Goals" shall mean one or any combination of the
following (in all cases after excluding the impact of applicable Excluded
Items):

                  (i)   Return on equity for the Performance Period for the
      Company on a consolidated basis.

                  (ii)  Return on investment for the Performance Period (aa) for
      the Company on a consolidated basis, (bb) for any one or more Affiliates
      or divisions of the Company and/or (cc) for any other business unit or
      units of the Company as defined by the Committee at the time of selection.

                  (iii) Return on net assets for the Performance Period (aa) for
      the Company on a consolidated basis, (bb) for any one or more Affiliates
      or divisions of the Company and/or (cc) for any other business unit or
      units of the Company as defined by the Committee at the time of selection.

                  (iv)  Economic value added (as defined by the Committee at the
      time of selection) for the Performance Period (aa) for the Company on a
      consolidated basis, (bb) for any one or more Affiliates or divisions of
      the Company and/or (cc) for any other business unit or units of the
      Company as defined by the Committee at the time of selection.

                  (v)   Earnings from operations for the Performance Period (aa)
      for the Company on a consolidated basis, (bb) for any one or more
      Affiliates or divisions of the Company and/or (cc) for any other business
      unit or units of the Company as defined by the Committee at the time of
      selection.

                  (vi)  Pre-tax profits for the Performance Period (aa) for the
      Company on a consolidated basis, (bb) for any one or more Affiliates or
      divisions of the Company and/or (cc) for any other business unit or units
      of the Company as defined by the Committee at the time of selection.

                  (vii) Net earnings for the Performance Period (aa) for the
      Company on a consolidated basis, (bb) for any one or more Affiliates or
      divisions of the Company and/or (cc) for any other business unit or units
      of the Company as defined by the Committee at the time of selection.

                  (viii) Net earnings per Share for the Performance Period for
      the Company on a consolidated basis.

                  (ix)  Working capital as a percent of net sales for the
      Performance Period (aa) for the Company on a consolidated basis, (bb) for
      any one or more Affiliates or divisions of the Company and/or (cc) for any
      other business unit or units of the Company as defined by the Committee at
      the time of selection.

                  (x)   Net cash provided by operating activities for the
      Performance Period (aa) for the Company on a consolidated basis, (bb) for
      any one or more Affiliates or divisions of the Company and/or (cc) for any
      other business unit or units of the Company as defined by the Committee at
      the time of selection.

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<PAGE>

                  (xi)  Market price per Share for the Performance Period.

                  (xii) Total shareholder return for the Performance Period for
      the Company on a consolidated basis.

            (s)   "Performance Period" shall mean any period for which a
Performance Goal or Goals have been established.

            (t)   "Performance Share" shall mean any right granted under Section
6(e) that will be paid out as a Share (which, in specified circumstances, may be
a Share of Restricted Stock).

            (u)   "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or related political subdivision.

            (v)   "Released Securities" shall mean Shares of Restricted Stock
with respect to which all applicable restrictions have expired, lapsed, or been
waived.

            (w)   "Restricted Securities" shall mean Awards of Restricted Stock
or other Awards under which issued and outstanding Shares are held subject to
certain restrictions.

            (x)   "Restricted Stock" shall mean any Share granted under Section
6(c) or 6(d) or, in specified circumstances, a Share paid in connection with a
Performance Share under Section 6(e).

            (y)   "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the SEC
under the Exchange Act.

            (z)   "SEC" shall mean the United States Securities and Exchange
Commission or any successor agency.

            (aa)  "Shares" shall mean shares of common stock of the Company and
such other securities or property as may become subject to Awards pursuant to an
adjustment made under Section 4(e).

            (bb)  "Stock Appreciation Right" shall mean any right granted under
Section 6(b).

SECTION 3. ADMINISTRATION

      (a)   ADMINISTRATION BY THE COMMITTEE. The Committee shall administer the
Plan. If at any time the Committee shall not be in existence, the Committee's
functions as specified in the Plan shall be exercised by a committee consisting
of those members of the Board of Directors of the Company who qualify as
"non-employee directors for purposes of Section 16" under Rule 16b-3 and as
"outside directors" under Code Section 162(m)(4)(C).

      (b)   DELEGATION OF AUTHORITY. To the extent permitted by applicable law,
the Committee may delegate to one or more of the Company's executive officers
any of its authority

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<PAGE>

and responsibility with respect to the Plan, other than with respect to Persons
who are subject to Section 16 of the Exchange Act. To the extent that the
Committee has done so, all references to the Committee in this Plan shall
include this officer(s).

      (c)   AUTHORITY. Subject to the Plan's terms, the Committee's authority
includes the following:

      (i)   designate Participating Key Employees;

      (ii)  determine the type(s) of Awards to be granted to each Participating
Key Employee;

      (iii) determine the number of Shares to be covered by (or with respect to
which payments, rights, or other matters are to be calculated in connection
with) Awards granted to Participating Key Employees;

      (iv)  determine the terms of any Award granted to a Participating Key
Employee;

      (v)   determine whether, to what extent, and under what circumstances
Awards granted to Participating Key Employees may be settled or exercised in
cash, Shares, other securities, other Awards, or other property, and the method
or methods by which Awards may be settled, exercised, cancelled, forfeited, or
suspended;

      (vi)  determine whether, to what extent, and under what circumstances
cash, Shares, other Awards, and other amounts payable with respect to an Award
granted to Participating Key Employees under the Plan shall be deferred either
automatically or at the election of the holder thereof or of the Committee;

      (vii) interpret and administer the Plan and any instrument or agreement
relating to, or Award made under, the Plan (including any Award Agreement);

      (viii) establish, amend, suspend, or waive rules and regulations and
appoint such agents as it shall deem appropriate for proper Plan administration;
and

      (ix)  make any other determination and take any other action that the
Committee deems necessary or desirable for Plan administration.

Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions made under or with respect
to the Plan or any Award shall be within the sole discretion of the Committee,
may be made at any time, and shall be final, conclusive, and binding upon all
Persons, including the Company, any Affiliate, any Participating Key Employee,
any Non-Employee Director, any holder or beneficiary of any Award, any
shareholder, and any employee of the Company or of any Affiliate.

Notwithstanding the foregoing, Awards to Non-Employee Directors under the Plan
shall be automatic. The amount and terms of such Awards shall be determined as
provided in Section 6(d).

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<PAGE>

SECTION 4. AVAILABLE SHARES

      (a)   NUMBER OF SHARES AVAILABLE. The number of Shares with respect to
which Awards may be granted under the Plan shall be an amount equal to 12.5% of
the then-current Company shares issued and outstanding. Notwithstanding the
foregoing, the Company may grant Incentive Stock Options for no more than
___,000 [INSERT NUMBER EQUAL TO 12.5% OF SHARES] Shares. If, after the effective
date of the Plan, any Shares covered by an Award granted under the Plan, or to
which any Award relates, are forfeited or if an Award otherwise terminates,
expires or is cancelled prior to the delivery of all of the Shares or of other
consideration issuable or payable pursuant to such Award, then the number of
Shares counted against the number of Shares in question will once more be
available for granting of additional Awards.

      (b)   LIMITATIONS ON AWARDS TO INDIVIDUAL PARTICIPANTS. During any one
calendar year, no Participating Key Employee shall be granted Options for more
than ___,000 Shares, Stock Appreciation Rights with respect to more than __,000
Shares, more than __,000 Shares of Restricted Stock and/or an Award for more
than __,000 Performance Shares under the Plan. [IN EACH CASE, INSERT NUMBER
EQUAL TO 12.5% OF SHARES] The Committee may adjust these limitations as provided
below. In all cases, determinations under this Subsection shall be made in a
manner that is consistent with the exemption for performance-based compensation
provided by Code Section 162(m).

      (c)   ACCOUNTING FOR AWARDS. The number of Shares covered by an Award, or
to which such Award relates, shall be counted on the date of grant of such Award
against the number of Shares available for granting Awards.

      (d)   SOURCES OF SHARES DELIVERABLE UNDER AWARDS. Shares delivered
pursuant to an Award shall consist of authorized and unissued Shares.

      (e)   ADJUSTMENTS. This Section's terms are subject to this Subsection's
terms as to adjustments. If the Committee determines that any dividend or other
distribution (whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Shares or other securities of the Company, issuance of warrants or other
rights to purchase Shares or other securities of the Company, or other similar
corporate transaction or event ("Adjustment Event") affects the Shares such that
the Committee determines that an adjustment in the Plan is appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or any Award, then the Committee
may, in any manner it deems equitable, adjust any or all of:

      (i)   the number and type of Available Shares,

      (ii)  the Share limits specified in Sections 4(a), 4(b), 6(c), 6(d) and
6(e),

      (iii) the number and type of Shares subject to outstanding Awards, and

      (iv)  the grant, purchase, or exercise price with respect to any Award.

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<PAGE>

If the Committee deems it appropriate, it may make provision for a cash payment
to the holder of an outstanding Award in lieu of any such adjustment. With
respect to Awards of Incentive Stock Options no such adjustment is authorized to
the extent that that authority would cause the Plan to violate Code Section
422(b). The number of Shares subject to any Award payable or denominated in
Shares shall always be a whole number. Notwithstanding the foregoing, Restricted
Stock subject to grant or previously granted but not yet vested to Non-Employee
Directors under Section 6(d) at the time of any Adjustment Event shall be
subject to only those adjustments necessary to maintain the relative
proportionate interest represented thereby immediately prior to the Adjustment
Event and to preserve, without exceeding, the value of the Restricted Stock.

SECTION 5. ELIGIBILITY

            Any Key Employee, including any executive officer or
employee-director of the Company or of any Affiliate, shall be eligible to be
designated a Participating Key Employee. All Non-Employee Directors shall
receive Awards of Restricted Stock as provided in Section 6(d).

SECTION 6. AWARDS

            (a)   OPTION AWARDS TO KEY EMPLOYEES. The Committee is authorized to
grant Options to Key Employees with the terms set forth below and with any
additional terms not inconsistent with this Plan's provisions as the Committee
shall determine. Non-Employee Directors are not eligible to be granted Options
pursuant to this Section 6(a).

                  (i)   EXERCISE PRICE. The exercise price per Share of an
      Option shall be determined by the Committee; provided, however, that (A)
      the exercise price shall not be less than 100% of the Fair Market Value of
      a Share on the date of grant of the Option and (B) the exercise price may
      vary during the term of the Option if the Committee determines that there
      should be adjustments to the exercise price relating to achievement of
      Performance Goals and/or to changes in an index or indices that the
      Committee determines is appropriate (but in no event may the exercise
      price per Share be less than the Fair Market Value of a Share as
      determined on the date of grant).

                  (ii)  OPTION TERM. The Committee will fix the term of each
      Option. No Option term shall exceed a period of ten years from the date of
      its grant.

                  (iii) EXERCISABILITY AND METHOD OF EXERCISE. The Committee
      will determine each Option's manner and time of exercise. The Committee
      also shall determine the method(s) by which, and the form(s) in which,
      payment of the exercise price with respect to any Option may be made or
      deemed to have been made, including cash, Shares, other securities, other
      Awards, or other property, or any combination, having a Fair Market Value
      on the exercise date equal to the relevant exercise price.

                  (iv)  INCENTIVE STOCK OPTIONS. The terms of any Incentive
      Stock Option granted under the Plan shall comply in all respects with the
      provisions of Code Section 422.

            (b)   STOCK APPRECIATION RIGHTS. The Committee is authorized to
grant Stock Appreciation Rights to Key Employees. Non-Employee Directors are not
eligible to be granted

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<PAGE>

Stock Appreciation Rights under the Plan. Subject to the Plan's terms and any
applicable Award Agreement, a Stock Appreciation Right granted under the Plan
shall confer on its holder a right to receive upon its exercise the excess of
(i) the Fair Market Value of one Share on the date of exercise over (ii) the
grant price of the Stock Appreciation Right as specified by the Committee, which
shall not be less than 100% of the Fair Market Value of one Share on the date of
grant of the Stock Appreciation Right. Subject to the Plan's terms the grant
price, term, methods of exercise, methods of settlement (including whether the
Participating Key Employee will be paid in cash, Shares, other securities, other
Awards, or other property, or any combination), and any other terms of any Stock
Appreciation Right shall be as determined by the Committee. In no event shall
the term of any Stock Appreciation Right exceed ten (10) years from the date of
grant. The Committee may impose those conditions or restrictions on the exercise
of any Stock Appreciation Right as it may deem appropriate.

            (c)   RESTRICTED STOCK AWARDS.

                  (i)   ISSUANCE. The Committee is authorized to grant Awards of
      Restricted Stock to Key Employees. The aggregate number of Shares of
      Restricted Stock granted under the Plan to all Participating Key Employees
      as a group shall not exceed ___,000 [INSERT NUMBER EQUAL TO 5% OF SHARES].
      Non-Employee Directors are not eligible to be granted Restricted Stock
      under this Section.

                  (ii)  RESTRICTIONS. Shares of Restricted Stock granted to
      Participating Key Employees shall be subject to those restrictions as the
      Committee may impose (including any limitation on the right to vote a
      Share of Restricted Stock or the right to receive any dividend or other
      right or property), which restrictions may lapse separately or in
      combination at such time(s) (including upon the achievement of Performance
      Goals), in such installments or otherwise, as the Committee may deem
      appropriate. In addition, the Committee shall determine whether dividends
      paid with respect to an Award of Restricted Stock will be immediately paid
      or held in escrow or otherwise deferred and whether those dividends shall
      be subject to the same terms as the Award to which they relate.

                  (iii) REGISTRATION. Any Restricted Stock granted under the
      Plan to a Participating Key Employee may be evidenced in any manner that
      the Committee may deem appropriate, including book-entry registration or
      issuance of a stock certificate or certificates. The Restricted Stock may
      be held in escrow pending lapse of all restrictions. If any stock
      certificate is issued in respect of Shares of Restricted Stock granted
      under the Plan to a Participating Key Employee, the certificate shall be
      registered in the name of the Participating Key Employee and shall bear an
      appropriate legend (as determined by the Committee) referring to the
      terms, conditions, and restrictions applicable to such Restricted Stock.

                  (iv)  PAYMENT OF RESTRICTED STOCK. At the end of the
      applicable restriction period relating to Restricted Stock granted to a
      Participating Key Employee, one or more stock certificates for the
      appropriate number of Shares, free of restrictions imposed under the Plan,
      shall be delivered to the Participating Key Employee, or, if the
      Participating Key Employee received stock certificates representing the
      Restricted Stock at the time of grant, the legends placed on such
      certificates shall be removed.

                                       8
<PAGE>

                  (v)   FORFEITURE. Except as otherwise determined by the
      Committee, upon termination of a Participating Key Employee's employment
      for any reason during the applicable restriction period, all Shares of
      Restricted Stock still subject to restriction shall be forfeited by the
      Participating Key Employee. The Committee may, when it finds that a waiver
      would be in the best interests of the Company, waive in whole or in part
      any or all remaining restrictions with respect to Shares of Restricted
      Stock held by a Participating Key Employee.

            (d)   RESTRICTED STOCK AWARDS TO NON-EMPLOYEE DIRECTORS.

                  (i)   ELIGIBILITY. Each Non-Employee Director shall
      automatically be granted Restricted Stock under the Plan in the manner set
      forth in this Section.

                  (ii)  ANNUAL RESTRICTED STOCK AWARDS TO NON-EMPLOYEE
      DIRECTORS. Each Non-Employee Director (if he or she continues to serve in
      such capacity) shall, on the day following the annual meeting of
      shareholders in [each year during the time the Plan] is in effect,
      automatically be granted a number of Shares of Restricted Stock equal to
      the lesser of (A) 1,000 Shares, or (B) the number of Shares determined by
      dividing $15,000 by the Fair Market Value of a Share on the date of grant
      (rounded to the nearest whole number). A Person who is first elected as a
      Non-Employee Director on the date of an annual meeting of shareholders
      shall not be eligible to begin to receive grants pursuant to this Section
      until the day following the next succeeding annual meeting of
      shareholders.

                  (iii) VESTING. The Shares of Restricted Stock granted under
      this Subsection shall vest _____.

                  (iv)  GRANT LIMITATION. Notwithstanding the provisions of this
      Section, Restricted Stock shall be automatically awarded to Non-Employee
      Directors under the Plan only for so long as the Plan remains in effect
      and there are a sufficient number of Available Shares for these awards.

            (e)   PERFORMANCE SHARES.

                  (i)   ISSUANCE. The Committee is authorized to grant Awards of
      Performance Shares to Participating Key Employees. The aggregate number of
      Performance Shares granted under the Plan to all Participating Key
      Employees as a group shall not exceed ___,000 [INSERT NUMBER EQUAL TO 5%
      OF SHARES]. Non-Employee Directors are not eligible to be granted
      Performance Shares under the Plan.

                  (ii)  PERFORMANCE GOALS AND OTHER TERMS. The Committee shall
      determine the Performance Period (which must be at least one year), the
      Performance Goal or Goals (and the related performance level(s)) to be
      achieved during any Performance Period, any proportion of payments to be
      made for performance between the minimum and full performance levels for
      any Performance Goal and, if applicable, the relative percentage weighting
      given to each of the selected Performance Goals, the restrictions
      applicable to Shares of Restricted Stock received upon payment of
      Performance Shares if Performance Shares are paid in such manner, and any
      other terms and rights relating to a grant of Performance Shares. The
      Committee shall have sole discretion to alter the

                                       9
<PAGE>

      selected Performance Goals as that term is defined above, subject to
      shareholder approval, to the extent required to qualify the Award for the
      performance-based exemption provided by Code Section 162(m).
      Notwithstanding the foregoing, if the Committee determines it is advisable
      to grant Performance Shares which do not qualify for the performance-based
      exemption under Code Section 162(m), the Committee may make those grants
      without satisfying that section's requirements.

                  (iii) RIGHTS AND BENEFITS DURING THE PERFORMANCE PERIOD. The
      Committee may provide that, during a Performance Period, a Participating
      Key Employee shall be paid cash, with respect to each Performance Share
      held by such Participating Key Employee, in the same manner, at the same
      time, and in the same amount paid, as a cash dividend on a Share.

                  (iv)  PAYMENT OF PERFORMANCE SHARES. As soon as is reasonably
      practicable following the end of the applicable Performance Period, and
      subject to the Committee certifying in writing as to the satisfaction of
      the requisite Performance Goal(s) if such a certification is required in
      order to qualify the Award for the performance-based exemption provided by
      Code Section 162(m), one or more certificates representing the number of
      Shares equal to the number of Performance Shares payable shall be
      registered in the name of and delivered to the Participating Key Employee.
      Any Shares of Restricted Stock that are payable in connection with
      Performance Shares shall, pending the expiration, lapse, or waiver of the
      applicable restrictions, be evidenced in the manner as set forth in the
      subsection discussing Restricted Stock.

            (f)   GENERAL.

                  (i)   NO CONSIDERATION FOR AWARDS. Awards shall be granted to
      Participating Key Employees for no cash consideration unless otherwise
      determined by the Committee. Awards of Restricted Stock granted to
      Non-Employee Directors under this Section shall be granted for no cash
      consideration unless otherwise required by law.

                  (ii)  AWARD AGREEMENTS. An Award Agreement in the form
      (consistent with the terms of the Plan) that the Committee approves shall
      evidence each Award.

                  (iii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards to
      Participating Key Employees under the Plan may be granted either alone or
      in addition to, in tandem with, or in substitution for any other Award or
      any award granted under any other plan of the Company or any Affiliate.
      Awards granted in addition to or in tandem with other Awards, or in
      addition to or in tandem with awards granted under any other plan of the
      Company or any Affiliate, may be granted either at the same time as or at
      a different time from the grant of such other Awards or awards.

                  (iv)  FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of
      the Plan and of any applicable Award Agreement, payments or transfers to
      be made by the Company or an Affiliate upon the grant, exercise, or
      payment of an Award to a Participating Key Employee may be made in the
      form(s) that the Committee shall determine, and may be made in a single
      payment or transfer, in installments, or on a

                                       10
<PAGE>

      deferred basis, in each case in accordance with rules and procedures
      established by the Committee. These rules and procedures may include
      provisions for the payment or crediting of interest on installment or
      deferred payments.

                  (v)   LIMITS ON TRANSFER OF AWARDS. No Award (other than
      Released Securities), and no right under any such Award, shall be
      assignable, alienable, saleable, or transferable by a Participating Key
      Employee or a Non-Employee Director otherwise than by will or by the laws
      of descent and distribution (or, in the case of an Award of Restricted
      Securities, to the Company). Subject to applicable law, a Participating
      Key Employee at the discretion of the Committee may, and a Non-Employee
      Director shall, be entitled, in the manner established by the Committee,
      to designate a beneficiary or beneficiaries to exercise his or her rights,
      and to receive any property distributable, with respect to any Award upon
      the death of the Participating Key Employee or the Non-Employee Director,
      as the case may be. Each Award, and each right under any Award, shall be
      exercisable, during the lifetime of the Participating Key Employee or the
      Non-Employee Director, only by the Award recipient or, if permissible
      under applicable law, by his or her guardian or legal representative. No
      Award (other than Released Securities), and no right under any such Award,
      may be pledged, alienated, attached, or otherwise encumbered, and any
      purported pledge, alienation, attachment, or encumbrance of an Award shall
      be void and unenforceable against the Company or any Affiliate.

                  (vi)  TERM OF AWARDS. Except as otherwise provided in the
      Plan, the term of each Award shall be for that period as may be determined
      by the Committee.

                  (vii) SHARE CERTIFICATES; REPRESENTATION. In addition to the
      restrictions imposed pursuant to Section 6(c), Section 6(d) and Section
      6(e), all certificates for Shares delivered under the Plan pursuant to any
      Award or its exercise shall be subject to those stop transfer orders and
      other restrictions as the Committee may deem advisable under the Plan or
      those rules, regulations, and other requirements of the SEC, any stock
      exchange or other market upon which the Shares are then listed or traded,
      and any applicable federal or state securities laws. The Committee may
      cause a legend or legends to be put on any such certificates to make
      appropriate reference to these restrictions. The Committee may require
      each Participating Key Employee, Non-Employee Director or other Person who
      acquires Shares under the Plan by means of an Award originally made to a
      Participating Key Employee or a Non-Employee Director to represent to the
      Company in writing that he or she is acquiring the Shares without a view
      to their distribution.

                  (viii) REPRICING PROHIBITED. Notwithstanding anything in this
      Plan to the contrary, and except for the adjustments provided in Section
      4, neither the Committee nor any other person may decrease the exercise
      price for any outstanding Option after the date of grant nor cancel or
      allow a Participating Key Employee to surrender an outstanding Option to
      the Company as consideration for the grant of a new Option with a lower
      exercise price or the grant of another type of Award the effect of which
      is to reduce the exercise price of any outstanding Option.

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<PAGE>

SECTION 7. AMENDMENT AND TERMINATION OF THE PLAN; CORRECTION OF DEFECTS AND
           OMISSIONS

            (a)   AMENDMENTS TO AND TERMINATION OF THE PLAN. The Board of
Directors of the Company may at any time amend, alter, suspend, discontinue, or
terminate the Plan. The provisions of Section 6 above concerning automatic
Awards to Non-Employee Directors shall not be amended more than once every six
months, other than to comport with changes in the Code and the Employee
Retirement Income Security Act of 1974, as amended. The shareholders must
approve any amendment of the Plan in order for it to be effective if: (i) the
amendment (A) increases the number of Shares with respect to which Awards may be
granted under the Plan (other than increases related to adjustments made as
provided in Section 4), (B) expands the class of persons eligible to participate
under the Plan, (C) otherwise increases in any material respect the benefits
payable under the Plan, or (D) changes the provisions prohibiting repricing in
Section 6; or (ii) if approval is otherwise required by: (A) the Code, (B) the
listing requirements of the Nasdaq Stock Market or any principal securities
exchange or market on which the Shares are then traded (in order to maintain the
listing of the Shares on that exchange), or (C) any other applicable law or
regulation. Termination of the Plan shall not affect the rights of Participating
Key Employees or Non-Employee Directors with respect to Awards previously
granted to them, and all unexpired Awards shall continue in force and effect
after termination of the Plan except as they may lapse or be terminated by their
own terms.

            (b)   CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The
Committee may correct any defect, supply any omission, or reconcile any
inconsistency in any Award or Award Agreement in the manner and to the extent it
shall deem desirable to carry the Plan into effect.

SECTION 8. GENERAL PROVISIONS

            (a)   NO RIGHTS TO AWARDS. No Key Employee, Participating Key
Employee or other Person (other than a Non-Employee Director to the extent
provided in Section 6 above ) shall have any claim to be granted any Award under
the Plan, and there is no obligation for uniformity of treatment of Key
Employees, Participating Key Employees, or holders or beneficiaries of Awards
under the Plan. The terms of Awards need not be the same with respect to each
Participating Key Employee.

            (b)   WITHHOLDING. No later than the date as of which an amount
first becomes includable in the gross income of a Participating Key Employee for
federal income tax purposes with respect to any Award under the Plan, the
Participating Key Employee shall pay to the Company, or make arrangements
satisfactory to the Company regarding the payment of, any federal, state, local
or foreign taxes of any kind required by law to be withheld with respect to such
amount. Unless otherwise determined by the Committee, the minimum tax
withholding obligations arising with respect to Awards to Participating Key
Employees under the Plan may be settled with Shares (other than Restricted
Securities), including Shares that are part of, or are received upon exercise
of, the Award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such a payment or
arrangement, and the Company and any Affiliate, to the extent permitted by law,
shall have the right to deduct any such taxes from any payment otherwise due to
the Participating Key Employee. The

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<PAGE>

Committee may establish such procedures as it deems appropriate for the settling
of withholding obligations with Shares, including, without limitation, the
establishment of such procedures as may be necessary to satisfy the requirements
of Rule 16b-3.

            (c)   NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements, and these
arrangements may be either generally applicable or applicable only in specific
cases.

            (d)   RIGHTS AND STATUS OF RECIPIENTS OF AWARDS. The grant of an
Award shall not be construed as giving a Participating Key Employee the right to
be retained in the employ of the Company or any Affiliate. Further, the Company
or any Affiliate may at any time dismiss a Participating Key Employee from
employment, free from any liability, or any claim under the Plan, unless
otherwise expressly provided in an Award Agreement. The grant of an Award to a
Non-Employee Director pursuant to Section 6 shall confer no right on the
Non-Employee Director to continue as a director of the Company. Except for
rights accorded under the Plan and under any applicable Award Agreement,
Participating Key Employees and Non-Employee Directors shall have no rights as
holders of Shares as a result of the granting of Awards. Unless the Committee
determines otherwise, for purposes of the Plan and all Awards, the following
rules shall apply:

                  (i)   a Participating Key Employee who transfers employment
      between the Company and any Affiliate, or between Affiliates, will not be
      considered to have terminated employment;

                  (ii)  an individual who ceases to be a Non-Employee Director
      because he or she becomes an employee of the Company or an Affiliate shall
      not be considered to have ceased service as a director with respect to any
      Award until such individual's termination of employment with the Company
      or its Affiliates;

                  (iii) a Participating Key Employee who ceases to be employed
      by the Company or an Affiliate of the Company and immediately thereafter
      becomes a Non-Employee Director, a non-employee director of any Affiliate,
      or a consultant to the Company or any Affiliate shall not be considered to
      have terminated employment until the Participating Key Employee's service
      as a director of, or consultant to, the Company or its Affiliates has
      ceased; and

                  (iv)  a Participating Key Employee employed by an Affiliate of
      the Company will be considered to have terminated employment when the
      entity ceases to be an Affiliate of the Company.

            (e)   UNFUNDED STATUS OF THE PLAN. Unless otherwise determined by
the Committee, the Plan shall be unfunded and shall not create (or be construed
to create) a trust or a separate fund or funds. The Plan shall not establish any
fiduciary relationship between the Company and any Participating Key Employee,
any Non-Employee Director or other Person. To the extent any Person holds any
right by virtue of a grant under the Plan, that right (unless the Committee
otherwise determines) shall be no greater than the right of an unsecured general
creditor of the Company.

                                       13
<PAGE>

            (f)   GOVERNING LAW. Michigan law (without reference to conflict of
law principles) and applicable federal law govern this Plan. Any legal action or
proceeding relating in any way to this Plan shall be heard in the Oakland County
(Michigan) Circuit Court or the Federal District Court for the Eastern District
of Michigan sitting in Detroit, Michigan. Any such action may be heard only in a
"bench" trial, and any party to such an action waives its right to assert a jury
trial. Any legal action or proceeding relating in any way to this Plan must be
brought within 365 days after the day the complaining party first knew or should
have known of the events giving rise to the complaint.

            (g)   SEVERABILITY. If any provision of the Plan or any Award
Agreement or any Award is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction, or as to any Person or Award, or would
disqualify the Plan, any Award Agreement or any Award under any law deemed
applicable by the Committee, that provision shall be construed or deemed amended
to conform to applicable laws, or if it cannot be so construed or deemed amended
without, in the Committee's determination, materially altering the intent of the
Plan, any Award Agreement or the Award, the provision shall be stricken as to
the jurisdiction, Person, or Award in question, and the remainder of the Plan,
the Award Agreement and the Award shall remain fully effective.

            (h)   NO FRACTIONAL SHARES. No fractional Shares or other securities
shall be issued or delivered pursuant to the Plan, any Award Agreement or any
Award, and the Committee shall determine (except as otherwise provided in the
Plan) whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or other securities, or whether
such fractional Shares or other securities or any related rights shall be
canceled, terminated, or otherwise eliminated.

            (i)   HEADINGS. Headings are given to the Sections and subsections
of the Plan solely as a convenience to facilitate reference. These headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any of its provisions.

SECTION 9. EFFECTIVE DATE OF THE PLAN

            The Plan shall be effective from and after the last to occur of the
following: (a) approval of the Plan by the Board; (b) approval of the Plan by a
vote of the Company's shareholders; and (c) the closing of the Company's initial
public offering of Shares registered with the SEC.

SECTION 10. INTERPRETATIONS

      All references in this Plan to a statute or regulation shall include any
then-current amendments of the statute or regulation, any successor statute or
regulation and, in the case of a statute, any rules and regulations promulgated
in connection with that statute. References to Sections mean sections in this
Plan.

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