Document:

Exhibit 4.23

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                        CALIFORNIA WATER SERVICE COMPANY

            AMENDED AND RESTATED EIGHTH SUPPLEMENT TO NOTE AGREEMENT

                             Dated as of May 1, 2003

         Re:           5.44% $10,000,000 Series J Senior Notes
                                 Due May 1, 2018

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California Water Service Company
Eighth Supplement

            AMENDED AND RESTATED EIGHTH SUPPLEMENT TO NOTE AGREEMENT

                                                                     Dated as of
                                                                     May 1, 2003

To the Purchasers named in
Schedule A hereto

Ladies and Gentlemen:

         Reference is hereby made to that certain original Eighth  Supplement to
Note  Agreement  dated as of May 1,  2003  (the  "Original  Eighth  Supplement")
entered  into on December  6, 2002 by  California  Water  Service  Company  (the
"Company") and the institutional  investors named on Schedule I attached thereto
(the  "Purchasers").  Section 4 of the Original Eighth Supplement  provides that
the Interest  Rate for the Series J Notes will be determined by the Company five
Business Days prior to the Closing Date.

         For purposes of convenience and reference,  the Company now desires and
the  Purchasers  agree to amend and restate the Original  Eighth  Supplement  to
reflect the Interest Rate, as determined by the Company and certified to each of
you pursuant to the Notice of Interest Rate  Certificate in the form attached as
Exhibit 5 to the Original Eighth  Supplement.  Accordingly,  the Original Eighth
Supplement  shall be and is hereby  amended  in its  entirety  and as so amended
shall read as follows (as so amended, the "Eighth Supplement"):

         This  Eighth  Supplement  to  Note  Purchase   Agreement  (the  "Eighth
Supplement") is between  California  Water Service Company (the "Company") whose
address  is  1720  North  First  Street,  San  Jose,  California  95112  and the
institutional investors named on Schedule A attached hereto (the "Purchasers").

         Reference  is hereby made to that certain  Note  Agreement  dated as of
March 1, 1999 (the "Note  Agreement")  between the  Company  and the  purchasers
listed on Schedule I thereto. All capitalized terms not otherwise defined herein
shall have the same  meaning as specified  in the Note  Agreement.  Reference is
further made to Section 4.3 thereof which requires  that,  prior to the delivery
of any Additional Notes, the Company and each Additional Purchaser shall execute
and deliver a Supplement.

         The  Company  hereby  agrees  with the  Purchasers  named on Schedule A
hereto as follows:

         1. The  Company  has  authorized  the  issue  and  sale of  $10,000,000
aggregate  principal  amount of its 5.44%  Series J Senior Notes due May 1, 2018
(the  "Series J Notes").  The Series J Notes,  together  with the Series B Notes
initially  issued  pursuant  to the Note  Agreement,  the Series C Notes  issued
pursuant to the First  Supplement to Note Agreement dated as of October 1, 2000,
the Series D Notes issued  pursuant to the Second  Supplement to Note  Agreement
dated as of September 1, 2001,  the Series E Notes issued  pursuant to the Third
Supplement to Note Agreement  dated as of May 1, 2002, the Series F Notes issued
pursuant to the Fourth Supplement to Note Agreement dated as of August 15, 2002,
the Series G Notes issued  pursuant to the Fifth  Supplement  to Note  Agreement
dated as of November 1, 2002,  the Series H Notes  issued  pursuant to the Sixth
Supplement to Note  Agreement  dated as of December 1, 2002,  the Series I Notes
issued  pursuant to the Seventh  Supplement to Note Agreement dated as of May 1,
2003 and each Series of  Additional  Notes which may from time to time be issued
pursuant  to  the  provisions  of

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California Water Service Company
Eighth Supplement

Section 1.4 of the Note Agreement,  are collectively  referred to as the "Notes"
(such term shall also  include any such notes  issued in  substitution  therefor
pursuant  to Section  9.2 of the Note  Agreement).  The Series J Notes  shall be
substantially  in the  form  set out in  Exhibit  1  hereto  with  such  changes
therefrom, if any, as may be approved by the Purchasers and the Company.

         2. Subject to the terms and  conditions  hereof and as set forth in the
Note  Agreement  and  on  the  basis  of  the   representations  and  warranties
hereinafter  set forth,  the Company agrees to issue and sell to the Purchasers,
and the Purchasers agree to purchase from the Company, the Series J Notes in the
principal amount set forth opposite the Purchasers' name on Schedule A hereto at
a price of 100% of the principal  amount  thereof on the closing date  hereafter
mentioned.

         3. Delivery of the  $10,000,000  in aggregate  principal  amount of the
Series J Notes  will be made at the  offices  of Chapman  and  Cutler,  111 West
Monroe Street, Chicago,  Illinois 60603-4080 against payment therefor in Federal
Reserve or other funds current and immediately available at the principal office
of Bank of America,  ABA No. 121000358,  Account No. 14879-00161,  Account Name:
California  Water Service Company  Security Sales, in the amount of the purchase
price at 11:00 A.M.,  San  Francisco,  California  time,  on May 1, 2003 or such
later date (not later than May 7, 2003) as shall  mutually be agreed upon by the
Company and the Purchasers of the Series J Notes (the "Closing Date").

         4. The interest rate for the Series J Notes (the  "Interest  Rate") has
been  determined  by the Company on April 24, 2003 pursuant to the Interest Rate
Determination  Procedure,  and the Company has  provided  written  notice of the
Interest  Rate to each  Purchaser  named on Schedule A attached  hereto at least
three Business Days prior to the Closing Date by the Chief Financial  Officer of
the Company  completing and executing the Notice of Interest Rate Certificate in
the form attached as Exhibit 5 to the Original Eighth  Supplement and faxing the
same to the Purchasers,  together with and attached as Annex A thereto a copy of
the  Bloomberg  Financial  Markets  Services  Screen  PX1 (or  other  applicable
publication  used to set the Interest Rate) and the  calculation of the Interest
Rate for such Notes.

         For purposes of this Section 4 "Interest Rate Determination  Procedure"
shall mean the  Interest  Rate  determined  on April 24,  2003  pursuant  to the
following:  the Interest  Rate shall be equal to the sum of 1.55% plus the yield
to  maturity  implied  by (i) the  yields  reported  as of 9:00 a.m.  (San Jose,
California  time) on April 24, 2003 on the display page of  Bloomberg  Financial
Markets  Services  Screen PX1 or the  equivalent  screen  provided by  Bloomberg
Financial Markets  Commodities News for actively traded U.S. Treasury Securities
having a maturity equal to 10 years as of May 1, 2003 or if (ii) such yields are
not  reported  as of such time or the  yields  reported  as of such time are not
ascertainable,  the Treasury Constant  Maturity Series Yields reported,  for the
latest day for which such yields have been so reported as of April 24, 2003,  in
Federal  Reserve  Statistical  Release H.15 (519) (or any  comparable  successor
publication)  for actively  traded U.S.  Treasury  Securities  having a constant
maturity  equal to 10 years,  and such  implied  yield  will be  determined,  if
necessary,  by (a)  converting  U.S.  Treasury  bill  quotations  to  bond-yield
equivalents in accordance with accepted financial practice and (b) interpolating
linearly  between  (1) the  actively  traded  U.S.  Treasury  security  with the
maturity  closest to and greater than 10 years and (2) the actively  traded U.S.
Treasury security with the maturity closest to and less than 10 years.

         5. Prepayment of Notes.

         (a)  Required  Prepayments.  On May 1,  2008 and on May 1 of each  year
thereafter  to and including  May 1, 2017,  the Company will prepay  $909,090.91
principal

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California Water Service Company
Eighth Supplement

amount (or such lesser  principal  amount as shall then be  outstanding)  of the
Series  J Notes at par and  without  payment  of the  Make-Whole  Amount  or any
premium,  provided that upon any partial prepayment permitted by Section 5(b) or
5(c),  the principal  amount of each  required  prepayment of the Series J Notes
becoming due under this Section 5(a) on and after the date of such prepayment or
purchase  shall  be  reduced  in the same  proportion  as the  aggregate  unpaid
principal amount of the Series J Notes is reduced as a result of such prepayment
or purchase.  No other  prepayments  are required to be made with respect to the
Series  J  Notes  prior  to the  expressed  maturity  date  thereof  other  than
prepayments  made in  connection  with an  acceleration  of the  Series  J Notes
pursuant to the provisions of Section 6.3 of the Note Agreement.

         (b) Optional Prepayment with Premium. Upon compliance with Section 5(d)
below the Company shall have the  privilege,  at any time and from time to time,
of prepaying  the  outstanding  Notes of any Series,  either in whole or in part
(but if in part then in a minimum  principal  amount of  $100,000) by payment of
the  principal  amount of the Notes of such  Series,  or  portion  thereof to be
prepaid,  and accrued interest thereon to the date of such prepayment,  together
with a premium equal to the  Make-Whole  Amount,  determined as of five Business
Days prior to the date of such prepayment pursuant to this Section 5(b).

         (c) Optional  Prepayment  at Par in the Event of  Condemnation.  In the
event a Material  Condemnation  shall have occurred with respect to any property
of the Company or a Restricted  Subsidiary,  then upon  compliance  with Section
5(d) below the Company  shall have the privilege of applying the proceeds of any
condemnation award received in connection with such Material Condemnation to the
prepayment of the principal amount of the Notes of any Series then  outstanding,
or any portion  thereof to the extent of such  proceeds,  together  with accrued
interest  thereon to the date of such prepayment.  Any optional  prepayment made
pursuant to this Section 5(c) shall be without premium.

         (d) Notice of Optional Prepayments. The Company will give notice of any
prepayment of the Notes pursuant to Section 5(b) or 5(c) to each Holder of Notes
to be prepaid  not less than 30 days nor more than 60 days before the date fixed
for such optional  prepayment  specifying (a) such date, (b) the Section of this
Eighth  Supplement  under which the  prepayment is to be made, (c) the principal
amount of the Holder's  Notes to be prepaid on such date,  (d) whether a premium
may be payable,  (e) the date when the premium, if any, will be calculated,  (f)
the estimated premium,  together with a reasonably detailed  computation of such
estimated  premium,  and (g) the accrued interest  applicable to the prepayment.
Such  notice of  prepayment  shall also  certify  all facts,  if any,  which are
conditions precedent to any such prepayment. Notice of prepayment having been so
given, the aggregate  principal  amount of the Notes to be prepaid  specified in
such notice,  together with accrued  interest  thereon and the premium,  if any,
payable with respect thereto shall become due and payable on the prepayment date
specified  in said  notice.  Not  later  than  two  Business  Days  prior to the
prepayment date specified in such notice,  the Company shall provide each Holder
of a Note to be  prepaid  written  notice of the  premium,  if any,  payable  in
connection with such prepayment  and,  whether or not any premium is payable,  a
reasonably detailed computation of the Make-Whole Amount.

         (e) Application of Prepayments.  In the case of each partial prepayment
of the Notes  pursuant to the  provisions of Section 5(b) or 5(c), the principal
amount of the Notes of the Series to be prepaid shall be allocated  among all of
the Notes of such Series at the time  outstanding  in  proportion,  as nearly as
practicable, to the respective unpaid principal amounts thereof.

         (f) Direct Payment.  Notwithstanding anything to the contrary contained
in the Note Agreement,  this Eighth  Supplement or the Notes, in the case of any
Note owned by any Holder that is a Purchaser,  Additional Purchaser or any other
Institutional  Holder which has given written  notice to the

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Eighth Supplement

Company  requesting  that the  provisions of this Section 5(f) shall apply,  the
Company will punctually pay when due the principal thereof, interest thereon and
premium,  if any, due with respect to said  principal,  without any  presentment
thereof,  directly to such Holder at its address set forth  herein or such other
address as such Holder may from time to time designate in writing to the Company
or,  if a bank  account  with a United  States  bank is so  designated  for such
Holder,  the Company will make such payments in immediately  available  funds to
such bank account, marked for attention as indicated, or in such other manner or
to such other  account in any United States bank as such Holder may from time to
time direct in writing.

         (g) Make Whole Amount. The term "Make-Whole Amount" means, with respect
to any Series J Note, an amount equal to the excess,  if any, of the  Discounted
Value of the Remaining  Scheduled  Payments with respect to the Called Principal
of such  Note  over the  amount  of such  Called  Principal,  provided  that the
Make-Whole  Amount  may in no event  be less  than  zero.  For the  purposes  of
determining  the  Make-Whole  Amount,  the  following  terms have the  following
meanings:

                  "Called  Principal"  means, with respect to any Series J Note,
         the  principal  of such Note that is to be prepaid  pursuant to Section
         5(b) or has become or is  declared  to be  immediately  due and payable
         pursuant to Section 6.3 of the Note Agreement, as the context requires.

                  "Discounted Value" means, with respect to the Called Principal
         of any Series J Note, the amount  obtained by discounting all Remaining
         Scheduled  Payments  with respect to such Called  Principal  from their
         respective  scheduled due dates to the Settlement  Date with respect to
         such Called Principal,  in accordance with accepted  financial practice
         and at a discount factor (applied on the same periodic basis as that on
         which  interest  on  the  Series  J  Notes  is  payable)  equal  to the
         Reinvestment Yield with respect to such Called Principal.

                  "Reinvestment   Yield"  means,  with  respect  to  the  Called
         Principal  of any  Series J Note,  0.50%,  plus the  yield to  maturity
         implied by (i) the  yields  reported,  as of 10:00 A.M.  (New York City
         time) on the fifth  Business Day  preceding  the  Settlement  Date with
         respect to such Called Principal,  on the display page of the Bloomberg
         Financial Markets Services Screen PX1 or the equivalent screen provided
         by Bloomberg  Financial  Markets  Commodities  News for actively traded
         U.S.  Treasury  securities  having a  maturity  equal to the  Remaining
         Average Life of such Called  Principal as of such  Settlement  Date, or
         (ii) if such  yields  are not  reported  as of such time or the  yields
         reported as of such time are not  ascertainable,  the Treasury Constant
         Maturity  Series  Yields  reported,  for the  latest day for which such
         yields have been so reported as of the second  Business  Day  preceding
         the Settlement Date with respect to such Called  Principal,  in Federal
         Reserve  Statistical  Release H.15 (519) (or any  comparable  successor
         publication)  for actively  traded U.S.  Treasury  securities  having a
         constant  maturity  equal to the Remaining  Average Life of such Called
         Principal  as of such  Settlement  Date.  Such  implied  yield  will be
         determined,   if  necessary,  by  (a)  converting  U.S.  Treasury  bill
         quotations  to  bond-equivalent  yields  in  accordance  with  accepted
         financial  practice  and (b)  interpolating  linearly  between  (1) the
         actively traded U.S. Treasury security with the maturity closest to and
         greater than the  Remaining  Average  Life and (2) the actively  traded
         U.S.  Treasury  security with the maturity closest to and less than the
         Remaining Average Life.

                  "Remaining  Average  Life"  means,  with respect to any Called
         Principal,  the number of years (calculated to the nearest  one-twelfth
         year) obtained by dividing (i) such Called  Principal into (ii) the sum
         of the products obtained by multiplying (a) the principal  component of
         each

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California Water Service Company
Eighth Supplement

         Remaining  Scheduled  Payment with respect to such Called  Principal by
         (b) the number of years  (calculated to the nearest  one-twelfth  year)
         that will  elapse  between  the  Settlement  Date with  respect to such
         Called Principal and the scheduled due date of such Remaining Scheduled
         Payment.

                  "Remaining  Scheduled  Payments"  means,  with  respect to the
         Called  Principal  of any Series J Note,  all  payments  of such Called
         Principal and interest  thereon that would be due after the  Settlement
         Date with respect to such Called Principal if no payment of such Called
         Principal  were made prior to its scheduled due date,  provided that if
         such Settlement  Date is not a date on which interest  payments are due
         to be made  under the terms of the  Series J Notes,  then the amount of
         the next succeeding  scheduled  interest payment will be reduced by the
         amount of interest  accrued to such  Settlement Date and required to be
         paid on such Settlement Date pursuant to Section 5(b) hereof or Section
         6.3 of the Note Agreement.

                  "Settlement  Date" means, with respect to the Called Principal
         of any Series J Note, the date on which such Called  Principal is to be
         prepaid pursuant to Section 5(b) hereof or has become or is declared to
         be  immediately  due and  payable  pursuant  to Section 6.3 of the Note
         Agreement, as the context requires.

         6.       Closing Conditions.

         (a) Conditions. The obligation of the Purchasers to purchase the Series
J Notes on the Closing Date shall be subject to the  performance  by the Company
of its agreements  hereunder which by the terms hereof are to be performed at or
prior to the time of delivery of the Series J Notes and to the following further
conditions precedent:

                   (i) Closing Certificate. The Purchasers shall have received a
         certificate  dated the Closing Date,  signed by the President or a Vice
         President  of the  Company,  the truth and accuracy of which shall be a
         condition to the Purchasers'  obligation to purchase the Series J Notes
         proposed  to be sold to the  Purchasers  and to the effect that (1) the
         representations  and  warranties  of the Company set forth in Exhibit 2
         hereto are true and correct on and with  respect to the  Closing  Date,
         (2) the Company has performed all of its  obligations  hereunder  which
         are to be performed on or prior to the Closing Date, and (3) no Default
         or Event of Default has occurred and is continuing.

                  (ii)  Compliance   Certificate.   The  Purchasers  shall  have
         received a  certificate  dated the Closing  Date,  signed by the Senior
         Financial Officer of the Company stating that such officer has reviewed
         the  provisions of the Note  Agreement and this Eighth  Supplement  and
         setting forth the information  and  computation (in sufficient  detail)
         required in order to  establish  whether  the Company is in  compliance
         with Section 5.6 of the Note Agreement on the Closing Date.

                 (iii) Legal Opinions.  The Purchasers  shall have received from
         Bingham McCutchen LLP, counsel for the Company, and Chapman and Cutler,
         special  counsel for the  Purchasers,  their opinions dated the Closing
         Date,  in  form  and  substance  satisfactory  to the  Purchasers,  and
         covering the matters set forth respectively in Exhibits 3 and 4 hereto.

                  (iv) Regulatory Approval. Prior to the Closing Date, the issue
         and sale of the  Series J Notes  shall  have  been duly  authorized  or
         approved by appropriate order of the Public

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Eighth Supplement

         Utilities  Commission  of the State of California  (the  "Commission").
         Such order  shall be final and in full force and effect and not subject
         to any appeal, hearing,  rehearing or contest. All conditions contained
         in any such order which are to be fulfilled on or prior to the issuance
         of the Series J Notes shall have been fulfilled. The Company shall have
         delivered to the Purchasers and their special  counsel a certified copy
         of such order and the application therefor.

                   (v) Calculation of Interest Rate.  Prior to the Closing Date,
         the   Purchasers   shall  have  received  a  Notice  of  Interest  Rate
         Certificate  at least three  Business  Days prior to the Closing  Date,
         signed by the Chief Financial Officer of the Company in accordance with
         Section 4 of this Eighth Supplement.

                  (vi) Related Transactions.  The Company shall have consummated
         the sale of the entire principal amount of the Series J Notes scheduled
         to be sold on the Closing Date pursuant to this Eighth Supplement.

                 (vii)  Satisfactory  Proceedings.   All  proceedings  taken  in
         connection   with  the   transactions   contemplated   by  this  Eighth
         Supplement,  and all documents  necessary to the consummation  thereof,
         shall be  satisfactory  in form and substance to the Purchasers and the
         Purchasers'  special counsel,  and the Purchasers shall have received a
         copy  (executed  or  certified  as may  be  appropriate)  of all  legal
         documents or proceedings  taken in connection with the  consummation of
         said transactions.

                (viii)  Purchase  Permitted  by  Applicable  Law. On the Closing
         Date,  the purchase of the Series J Notes shall (a) be permitted by the
         laws and  regulations of each  jurisdiction to which the Purchasers are
         subject,  without recourse to provisions (such as Section 1405(a)(8) of
         the New York Insurance Law) permitting limited investments by insurance
         companies  without  restriction  as to the character of the  particular
         investment,   (b)  not  violate  any   applicable   law  or  regulation
         (including,  without  limitation,  Regulation U, T or X of the Board of
         Governors  of the  Federal  Reserve  System)  and (c) not  subject  the
         Purchasers  to any tax,  penalty or liability  under or pursuant to any
         applicable law or regulation, which law or regulation was not in effect
         on the date of  execution  and  delivery of the Eighth  Supplement.  If
         requested by the  Purchasers,  the  Purchasers  shall have  received an
         Officer's  Certificate  certifying  as to such  matters  of fact as the
         Purchasers may reasonably specify to enable the Purchasers to determine
         whether such purchase is so permitted.

                  (ix) Payment of Special  Counsel Fees.  The Company shall have
         paid,   on  or  before  the  Closing  Date,   the  fees,   charges  and
         disbursements  of the Purchasers'  special counsel referred to in (iii)
         above, to the extent  reflected in a statement of such counsel rendered
         to the Company at least one Business Day prior to the Closing Date.

                   (x) Private  Placement  Number.  A Private  Placement  Number
         issued by Standard & Poor's CUSIP Service Bureau (in  cooperation  with
         the  Securities   Valuation  Office  of  the  National  Association  of
         Insurance  Commissioners)  shall  have been  obtained  for the Series J
         Notes.

         (b) The  obligation  of the  Company  to  deliver  the  Series  J Notes
hereunder  is  subject  to the  conditions  that (i) the  Commission  shall have
authorized  the  issuance  and sale by the  Company of the Series J Notes at the
price herein provided and said  authorization  shall be in full force and effect
and (ii) the

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Eighth Supplement

entire  principal  amount  of the  Series  J Notes  scheduled  to be sold on the
Closing Date pursuant to this Eighth  Supplement shall have been tendered by the
Purchasers.  If the condition specified in this Section 6(b) shall not have been
fulfilled  prior to or on the Closing Date,  this Eighth  Supplement and all the
obligations of the Company  hereunder,  except as provided in Section 9.4 of the
Note Agreement, may be cancelled by the Company.

         (c)  If on  the  Closing  Date  the  Company  fails  to  tender  to the
Purchasers  the Series J Notes to be issued to the Purchasers on such date or if
the conditions specified in Section 6(a) have not been fulfilled, the Purchasers
may thereupon elect to be relieved of all further  obligations under this Eighth
Supplement.  Without  limiting the  foregoing,  if the  conditions  specified in
Section 6(a) have not been fulfilled, the Purchasers may waive compliance by the
Company with any such  condition to such extent as the  Purchasers  may in their
sole discretion determine. Nothing in this Section 6(c) shall operate to relieve
the  Company of any of its  obligations  hereunder  or to waive the  Purchasers'
rights against the Company.

         7. Each Purchaser  represents and warrants that the representations and
warranties  set forth in Section 3.2 of the Note  Agreement are true and correct
on the date of execution and acceptance of this Eighth  Supplement  with respect
to the Series J Notes purchased by such Purchasers.

         8. The Company and each Purchaser  agree to be bound by and comply with
the terms and  provisions  of the Note  Agreement as if such  Purchaser  were an
original signatory to the Note Agreement.

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         The execution  hereof shall  constitute a contract  between the Company
and the Purchasers  for the uses and purposes  hereinabove  set forth,  and this
agreement  may  be  executed  in  any  number  of  counterparts,  each  executed
counterpart constituting an original but all together only one agreement.

                                       CALIFORNIA WATER SERVICE COMPANY

                                       By
                                       Name:    Richard D. Nye
                                       Title:   Vice President, Chief Financial
                                                Officer and Treasurer

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California Water Service Company
Eighth Supplement

Accepted as of April ___, 2003

                                       NATIONWIDE LIFE INSURANCE COMPANY

                                       By: _____________________________________
                                          Name:
                                          Title:

                                       NATIONWIDE INDEMNITY COMPANY

                                       By: _____________________________________
                                          Name:
                                          Title:

                                       NATIONWIDE MUTUAL INSURANCE COMPANY

                                       By: _____________________________________
                                          Name:
                                          Title:

                                       AMCO INSURANCE COMPANY

                                       By: _____________________________________
                                          Name:
                                          Title:

                                       63
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                     INFORMATION RELATING TO THE PURCHASERS

                                                    PRINCIPAL AMOUNT OF SERIES J
NAME AND ADDRESS OF PURCHASER                          NOTES TO BE PURCHASED

NATIONWIDE LIFE INSURANCE COMPANY                           $5,000,000
One Nationwide Plaza (1-33-07)
Columbus, Ohio  43215-2220
Attention:  Corporate Fixed-Income Securities
Facsimile:  (614) 249-4553

Payments

All  payments  on or in  respect  of the  Notes to be by bank wire  transfer  of
Federal  or other  immediately  available  funds  (identifying  each  payment as
"California Water Service Company, Series J Senior Notes due 2018, PPN 130789 N#
3, principal, premium or interest") to:

         The Bank of New York
         ABA #021-000-018
         BNF:  IOC566
         F/A/O Nationwide Life Insurance Company
         Attention:  P&I Department
         PPN 130789 N# 3
         Security Description:  California Water Series J Senior Notes

Notices

All notices of payment on or in respect of the Notes and written confirmation of
each such payment to:

         Nationwide Life Insurance Company
         c/o The Bank of New York
         P. O. Box 19266
         Newark, New Jersey 07195
         Attention: P&I Department

         With a copy to:

         Nationwide Life Insurance Company
         One Nationwide Plaza (1-32-05)
         Columbus, Ohio 43215-2220
         Attention: Investment Accounting

All  notices  and  communications  other than those in respect to payments to be
addressed as first provided above.

Name of Nominee in which Notes are to be issued:  None
Taxpayer I.D. Number:  31-4156830

                                   Schedule A
                                 (to Supplement)

<PAGE>

                                                    PRINCIPAL AMOUNT OF SERIES J
NAME AND ADDRESS OF PURCHASER                           NOTES TO BE PURCHASED

NATIONWIDE INDEMNITY COMPANY                                $2,000,000
One Nationwide Plaza (1-33-07)
Columbus, Ohio  43215-2220
Attention:  Corporate Fixed-Income Securities
Facsimile:  (614) 249-4553

Payments

All  payments  on or in  respect  of the  Notes to be by bank wire  transfer  of
Federal  or other  immediately  available  funds  (identifying  each  payment as
"California Water Service Company, Series J Senior Notes due 2018, PPN 130789 N#
3, principal, premium or interest") to:

         The Bank of New York
         ABA #021-000-018
         BNF:  IOC566
         F/A/O Nationwide Indemnity Company
         Attention:  P&I Department
         PPN 130789 N# 3
         Security Description: California Water Series J Senior Notes

Notices

All notices of payment on or in respect of the Notes and written confirmation of
each such payment to:

         Nationwide Indemnity Company
         c/o The Bank of New York
         P. O. Box 19266
         Newark, New Jersey 07195
         Attention: P&I Department

         With a copy to:

         Nationwide Indemnity Company
         One Nationwide Plaza (1-32-05)
         Columbus, Ohio 43215-2220
         Attention: Investment Accounting

All  notices  and  communications  other than those in respect to payments to be
addressed as first provided above.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  31-1399201

                                      A-2
<PAGE>

                                                    PRINCIPAL AMOUNT OF SERIES J
NAME AND ADDRESS OF PURCHASER                          NOTES TO BE PURCHASED

NATIONWIDE MUTUAL INSURANCE COMPANY                       $2,000,000
One Nationwide Plaza (1-33-07)
Columbus, Ohio  43215-2220
Attention:  Corporate Fixed-Income Securities
Facsimile: (614) 249-4553

Payments

All notices of payment on or in respect of the Notes and written confirmation of
each such payment to:

         WIRING INSTRUCTIONS:
         The Bank of New York
         ABA #021-000-018
         BNF:  IOC566
         F/A/O Nationwide Mutual Insurance Company
         Attention:  P&I Department
         PPN 130789 N# 3
         Security Description: California Water Series J Senior Notes

Notices

All notices of payment on or in respect of the Notes and written confirmation of
each such payment to:

         Nationwide Mutual Insurance Company
         c/o The Bank of New York
         P. O. Box 19266
         Newark, New Jersey 07195
         Attention: P&I Department

         With a copy to:

         Nationwide Mutual Insurance Company
         One Nationwide Plaza (1-32-05)
         Columbus, Ohio 43215-2220
         Attention: Investment Accounting

All  notices  and  communications  other than those in respect to payments to be
addressed as first provided above.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  31-4177100

                                      A-3
<PAGE>

                                                    PRINCIPAL AMOUNT OF SERIES J
NAME AND ADDRESS OF PURCHASER                          NOTES TO BE PURCHASED

AMCO INSURANCE COMPANY                                     $1,000,000
One Nationwide Plaza (1-33-07)
Columbus, Ohio  43215-2220
Attention:  Corporate Fixed-Income Securities

Payments

All  payments  on or in  respect  of the  Notes to be by bank wire  transfer  of
Federal  or other  immediately  available  funds  (identifying  each  payment as
"California Water Service Company, Series J Senior Notes due 2018, PPN 130789 N#
3, principal, premium or interest") to:

         The Bank of New York
         ABA #021-000-018
         BNF:  IOC566
         F/A/O AMCO Insurance Company
         Attention:  P&I Department
         PPN 130789 N# 3
         Security Description:  California Water Series J Senior Notes

Notices

All notices of payment on or in respect of the Notes and written confirmation of
each such payment to:

         AMCO Insurance Company
         c/o The Bank of New York
         P. O. Box 19266
         Newark, New Jersey  07195
         Attention:  P&I Department

         With a copy to:

         AMCO Insurance Company
         One Nationwide Plaza (1-32-05)
         Columbus, Ohio  43215-2220
         Attention:  Investment Accounting

All  notices  and  communications  other than those in respect to payments to be
addressed as first provided above.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  42-6054959

                                      A-4

<PAGE>

                             [FORM OF SERIES J NOTE]

THIS NOTE HAS NOT BEEN  REGISTERED  WITH THE SECURITIES AND EXCHANGE  COMMISSION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY SALE, TRANSFER,  PLEDGE OR
OTHER DISPOSITION THEREOF MAY BE MADE ONLY (1) IN A TRANSACTION REGISTERED UNDER
SAID ACT OR (2) IF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE.

                        CALIFORNIA WATER SERVICE COMPANY

                           5.44% Series J Senior Note
                                 Due May 1, 2018

                                PPN: 130789 N# 3

No.                                                                May ___, 2003

$

         California  Water  Service  Company,  a  California   corporation  (the
"Company"), for value received, hereby promises to pay to

                              or registered assigns
                         on the first day of May, 2018,
                             the principal amount of

                                                         DOLLARS ($____________)

and to pay interest  (computed  on the basis of a 360-day year of twelve  30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate  of  5.44%  per  annum  from  the  date  hereof  until  maturity,   payable
semiannually on the first day of each May and November in each year  (commencing
on the first of such dates after the date hereof) and at  maturity.  The Company
agrees to pay interest on overdue  principal  (including any overdue required or
optional  prepayment  of  principal)  and  premium,  if any,  and (to the extent
legally  enforceable)  on any overdue  installment  of interest,  at the rate of
7.44% per annum after the due date, whether by acceleration or otherwise,  until
paid. Both the principal hereof and interest hereon are payable at the principal
office of the Company in San Jose,  California in coin or currency of the United
States of  America  which at the time of payment  shall be legal  tender for the
payment of public and private debts.

         This Note is one of a series of Notes (the "Notes")  issued pursuant to
the Amended and Restated  Eighth  Supplement  (the "Amended and Restated  Eighth
Supplement")  to the Note  Agreement  dated as of March 1, 1999 (as from time to
time amended and supplemented,  the "Note Agreement"),  between the Company, the
Purchasers  named therein and  Additional  Purchasers of Notes from time to time
issued
                                    EXHIBIT 1
                                 (to Supplement)

<PAGE>

pursuant  to any  Supplement  to the Note  Agreement.  This Note and the  holder
hereof are  entitled  equally and ratably with the holders of all other Notes of
all Series from time to time  outstanding  under the Note  Agreement  to all the
benefits  provided for thereby or referred to therein.  Each holder of this Note
will be deemed, by its acceptance  hereof, to have made the  representation  set
forth in Section 3.2 of the Note  Agreement,  provided  that such holder may (in
reliance  upon  information  provided  by  the  Company,   which  shall  not  be
unreasonably  withheld) make a representation to the effect that the purchase by
such holder of any Note will not constitute a non-exempt prohibited  transaction
under Section 406(a) of ERISA.

         This Note and the other Notes  outstanding under the Note Agreement may
be declared due prior to their expressed  maturity dates, all in the events,  on
the terms and in the manner and amounts as provided in the Note Agreement.

         The Company  will make the  required  prepayments  of  principal on the
dates and in the amounts  specified  in Section 5(a) of the Amended and Restated
Eighth  Supplement and at maturity will pay the principal balance due. The Notes
are not subject to  prepayment  or redemption at the option of the Company prior
to their expressed  maturity dates except on the terms and conditions and in the
amounts and with the premium, if any, set forth in the Note Agreement.

         This Note is registered on the books of the Company and is transferable
only by surrender  thereof at the principal  office of the Company duly endorsed
or  accompanied  by a  written  instrument  of  transfer  duly  executed  by the
registered  holder of this Note or its  attorney  duly  authorized  in  writing.
Payment of or on account of  principal,  premium,  if any,  and interest on this
Note  shall be made  only to or upon  the  order in  writing  of the  registered
holder.

         This Note shall be construed and enforced in accordance  with,  and the
rights of the parties  shall be governed by, the law of the State of  California
excluding  choice-of-law  principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.

                                       CALIFORNIA WATER SERVICE COMPANY

                                       By
                                       Name:  __________________________________
                                       Title:  _________________________________

                                     E-1-2
<PAGE>

                         REPRESENTATIONS AND WARRANTIES

         The Company represents and warrants to each Purchaser that:

          1. Corporate Organization, Subsidiaries. The Company is duly organized
and existing and in good  standing  under and by virtue of the laws of the State
of  California  and is duly  authorized  and  empowered  to own and  operate its
properties  and to carry on its  business,  all as and in the places  where such
properties  are now owned and  operated  and such  business  is  conducted.  The
Company has no Subsidiaries.

          2.  Corporate  Authority.  The  Company has full  corporate  power and
corporate  authority to sell and issue the Series J Notes. The issuance and sale
of the Series J Notes and the  execution  and delivery of the Eighth  Supplement
will have been duly  authorized  by the Board of Directors of the Company and by
the Public  Utilities  Commission of the State of California (the  "Commission")
prior to the Closing  Date,  and no other action is required to be taken by, and
no consents or approvals are required to be obtained from, the  shareholders  of
the Company or any public body or bodies,  and no other corporate  action of the
Company is requisite to such issue and sale.

          3.  Business  and  Property.   The  Purchasers  have  heretofore  been
furnished with a copy of the Company  Information which generally sets forth the
principal  properties of the Company and the business  conducted and proposed to
be conducted by the Company.

          4.  Indebtedness.  Annex A attached  hereto  correctly  describes  all
Current Debt, Funded Debt and Capitalized  Leases of the Company  outstanding on
September 30, 2002.

          5. Financial  Statements  and Reports.  The Company has furnished each
Purchaser with a copy of its audited  financial  reports for 1999, 2000 and 2001
hereinafter  called  the  "Company  Reports,"  and a copy of Form 10-K  filed by
California Water Service Group ("CWSG")  hereinafter called the "CWSG 10-K" with
the  Securities and Exchange  Commission for 2001,  together with all reports or
documents  required to be filed by CWSG  pursuant to Sections  13(a) or 15(d) of
the  Securities  Exchange Act of 1934, as amended,  since the filing of the CWSG
10-K. The Company has also furnished each Purchaser with an unaudited  quarterly
financial  statement for the Company for the fiscal quarter ended  September 30,
2002,  and Forms 10 Q for CWSG for the fiscal  quarter ended  September 30, 2002
(the "Quarterly  Reports").  The financial statements contained in the foregoing
Company Reports, the CWSG 10-K, the Quarterly Reports and such other reports and
documents  were  prepared  in  accordance  with  generally  accepted  accounting
principles upon a consistent  basis and are complete and correct and the balance
sheets included therein fairly present the financial condition of the Company or
CWSG, as the case may be, as at the respective  dates thereof and the Statements
of Income,  Common  Shareholders'  Equity and Cash Flows included therein fairly
present the  results of the  operations  of the Company for the periods  covered
thereby,  subject  in the  case  of  unaudited  statements  to  normal  year-end
adjustments.

          6. Material  Contracts.  The Company has no contracts or  commitments,
whether  contingent  or other,  which are material to the Company and which were
not made in the ordinary course of business.  Certain material contracts related
to water  supply are listed in Annex B hereto.  The Company has no  contracts or
commitments,  contingent or other,  which  materially and adversely affect or in
the future may (so far as the  Company can  foresee)  materially  and  adversely
affect the Company or its business,  property,

                                    EXHIBIT 2
                                 (to Supplement)

<PAGE>

assets,  operations or condition,  financial or other.  As of December 31, 2001,
there were no  material  liabilities  of the  Company  (other  than those  under
contracts  entered into in the normal and ordinary course of business),  actual,
contingent or accrued,  which were not reflected in the Company Reports and CWSG
10-K except for (i) liability in respect of uncompleted  construction work under
open contracts in connection  with the Company's  construction  program and (ii)
the  obligations  of the Company to  contribute to a pension plan, an employees'
savings plan and a health and welfare plan.

          7. No  Material  Adverse  Change.  (a) There has been no change in the
condition of the Company,  financial or other,  from that set forth or reflected
in the Company  Information,  other than changes  which may have occurred in the
ordinary course of business or by reason of ordinary  dividends paid or declared
or outstanding  First Mortgage Bonds redeemed by the Company in accordance  with
their terms,  and no such changes in the ordinary  course of business  have been
material adverse changes.

         (b)  Since  December  31,  2001,  neither  the  business,   operations,
properties  nor  assets of the  Company  have  been  adversely  affected  in any
material way by any casualties such as fire, windstorm, riot, strike, explosion,
accident, flood, earthquake,  lockout, sabotage, activities of armed forces, act
of God or the public enemy or  condemnation  of  properties by the United States
government or any municipal governmental agency, authority or body.

          8. Title to  Properties.  The Company is engaged in the  business of a
public utility water company  serving all or a portion of the California  cities
and  communities  listed in the 2001 Company Report and paragraph 9 hereof.  The
Company  has  good  and  merchantable  title,  subject  only to the  lien of the
Mortgage  Indenture  and to current  tax and  assessment  liens,  rights-of-way,
easements  and certain  minor  liens,  encumbrances,  clouds or defects in title
which do not  materially  affect  the use  thereof,  to all the  material  water
distribution  facilities  (including,   without  limitation,   transmission  and
distribution  mains,  pump stations,  wells,  storage tanks and  reservoirs) and
other material units of property used in its business except as follows:

                   (a) some of the offices, but not its principal office, are in
         leased premises and some wells, well sites and other minor distribution
         facilities are rented; and

                   (b) several  wells are located on property  which the Company
         does not own but in which it has an easement  for the  location of such
         wells;

and except as to easements and  rights-of-way  and certain  parcels of land (not
exceeding for said parcels of land an aggregate book value of  $1,000,000)  with
respect to which there is a possibility of reverter if the property ceases to be
used for public utility  purposes,  and,  except that the greater portion of its
transmission and distribution  systems is located in public highways and streets
and in  rights-of-way  owned by the Company over lands of others,  the Company's
title thereto is fee simple. Except for parcels of land having an aggregate book
value of not more than $1,000,000,  the Company has good and merchantable  title
to all its other  property  and assets  subject only to the lien of the Mortgage
Indenture  and the lien of the Dominguez  Mortgage  Indenture and to current tax
and assessment  liens and minor liens and  encumbrances  which do not materially
affect the use thereof.  All of the properties of the Company are located in the
State of California and  substantially all of the properties of the Company used
or useful in its public utility business are subject to the Mortgage  Indenture.
As used  herein,  the  term  "Dominguez  Mortgage  Indenture"  means  the  Trust
Indenture dated as of August 1, 1954, as supplemented from time to time, between
the Company,  as successor to Dominguez  Water  Company  ("Dominguez")  and U.S.
Bank,  as

                                     E-2-2

<PAGE>

Trustee,  which  provides a lien on  properties  owned by Dominguez  immediately
prior  to the  merger  described  in  paragraph  9  hereof  which  lien  secures
$9,000,000 in aggregate  principal  amount of Dominguez bonds which were assumed
by the Company upon the merger.

          9. Franchises.  The Company has, in its judgment,  adequate franchises
and  permits  without  burdensome   restrictions  (other  than  those  typically
contained  in  franchises  and  permits  of this  type) to allow the  Company to
conduct the business in which it is engaged.

         The Company has two classes of  franchises to install and operate water
pipes and mains under public streets and highways:

                   (a) so-called "constitutional"  franchises obtained by virtue
         of the  provisions  of  Article  XI,  Section  19,  of  the  California
         Constitution, as in effect prior to 1911; and

                   (b) franchises granted pursuant to statutory authority.

         The Company  believes,  based on the advice of counsel (which is itself
based upon the assumption of the accuracy of information obtained by the Company
from sources  believed to be reliable  that the  following  cities served by the
Company were all incorporated prior to 1911:

                  Bakersfield        Marysville           South San Francisco
                  Chico              Oroville             Stockton
                  Dixon              Redondo Beach        Visalia
                  Hermosa Beach      Salinas              Willows
                  King City          San Mateo
                  Livermore          Selma

that water  distribution  systems were constructed and service  furnished to the
inhabitants  of each by various  predecessors  of the Company prior to 1911, and
that there were no public water works owned or controlled by the municipality in
any of them prior to 1911), that the Company has a "constitutional" franchise in
each of the above cities and under such constitutional franchise has a perpetual
right which was not  repealed  by the repeal of Article  XI,  Section 19, of the
California  Constitution  to continue to occupy  public  streets of each of said
cities  with its pipes and mains and to lay down  additional  pipes and mains in
said streets for the supplying of water, subject to reasonable regulation by the
respective  municipalities.  The Company also  believes,  based on the advice of
counsel,  that this right is not limited to streets in which pipes or mains were
laid  prior  to  1911  but   extends  at  least  to  all  streets  in  the  said
municipalities  as they  existed  at the date of  repeal  of the  constitutional
provision in 1911 and probably also extends to territory  incorporated into each
respective  city  after such  repeal,  although  this  latter  question  remains
somewhat in doubt in the absence of a final decision of the courts thereon.  The
Company  holds either by assignment or as original  grantee  franchises  granted
under  statutory  authority by the Counties of Kern,  Los Angeles,  San Joaquin,
Santa  Clara and  Monterey,  the  Cities  of  Montebello,  Torrance,  Cupertino,
Sunnyvale, Los Altos, Mountain View, Bakersfield,  Commerce, San Carlos, Rolling
Hills Estates and Thousand  Oaks, and the Towns of Los Altos Hills and Atherton.
Following  incorporation of the City of Rancho Palos Verdes in 1973, the Company
made franchise  payments to the City and the City accepted the same as successor
in interest to the grantor's  rights under the Company's  former  franchise from
the County of Los Angeles; the City has agreed that the Company may exercise its
rights in the City under its current  County  franchise  until the expiration of
that franchise in 2012. The Company's franchises from the Cities of Palos Verdes
Estates,   Menlo  Park  and  Woodside   terminated  in  1977,   1993  and  1994,
respectively.  While  none of the  Cities and the  Company

                                     E-2-3
<PAGE>

have executed a new franchise agreement,  the Company has made and will continue
to make  franchise  payments  to each  of the  Cities  in  accordance  with  the
provisions  of the prior  franchise.  In other  areas  where the  Company has no
franchise, the Company or its predecessors have distributed water for many years
and, to the  Company's  knowledge,  no  question  has ever been raised as to the
right to make such  distribution  and to maintain all pipes and mains  necessary
therefor.

         On May 25,  2000,  Dominguez  Service  Corporation  was merged into the
Company and subsequently  Dominguez and its  subsidiaries  were also merged into
the Company (collectively,  the "merger"). The Company acquired in the Dominguez
merger  operations in the following  cities,  counties,  townships or localities
that Dominguez previously served:

         Bodfish                 Kern County         Los Angeles County
         Carson                  Kernville           Lucerne
         Compton                 Lake Hughes         Mountain Shadows
         Duncans Mills           Lakeland            Onyx
         Fremont Valley          Lancaster           Squirrel Valley
         Guerneville             Leona Valley        Torrance
         Harbor City             Long Beach          Wofford Heights

Water  distribution  systems  were  constructed  and  service  furnished  to the
inhabitants of the localities currently known as Carson,  Compton,  Harbor City,
Long Beach and Torrance by various predecessors of the Company prior to 1911 and
the Company  believes  that it has a prior  right to operate in these  locations
which right was not extinguished by the incorporation of these cities subsequent
to 1911.  Except as noted below,  Dominguez has no franchises  from these cities
and has made no franchise payments to them and, to the Company's  knowledge,  no
question has ever been raised as to the right to make water  distribution and to
maintain all pipes and mains necessary therefor.

         As  to  the  remaining  localities,   Dominguez  has  received  written
franchise  agreements  which  are in full  force  and  effect  and has  paid all
franchise  fees to date,  with the  exception  of Compton and the City of Carson
Redevelopment Project #2, as to which the franchises expired without renewal in,
respectively,  1994 and 1998.  Dominguez  continued to provide water services to
Compton  and the City of  Carson  Redevelopment  Project  #2  subsequent  to the
expiration of the respective  franchises,  and to pay franchise fees, and to the
Company's  knowledge  no  question  has ever been raised as to the right to make
such distribution and to maintain all pipes and mains necessary therefor.

         10.  Condition  of Assets.  The  physical  assets of the Company are in
sound operating  condition,  there are no material arrears in the maintenance of
any such physical assets and the Company  believes that its sources of water are
adequate to meet its requirements for the foreseeable future.

         11. Pending Litigation, Proceedings. (a) There are no actions, suits or
proceedings  pending  at law or in equity or  before or by any  federal,  state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality,  domestic  or foreign,  or, to the  knowledge  of the  Company,
threatened  against or affecting the Company not adequately covered by insurance
or for  which  reserves  adequate  in  the  Company's  judgment  have  not  been
established  which  involve,  in  the  opinion  of  the  Company,  a  reasonable
possibility of judgments or liabilities  exceeding $500,000 in the aggregate net
of insurance, or which may, in the opinion of the Company result in any material
adverse change in the

                                     E-2-4

<PAGE>

business or properties or in the condition,  financial or other, of the Company,
or the  ability  of the  Company  to perform  its  obligations  under the Eighth
Supplement or the Series J Notes.

         (b) There  are no  proceedings  pending  or,  to the  knowledge  of the
Company,  threatened  against the  Company  before or by any  federal,  state or
municipal commission, board or other administrative agency, which materially and
adversely affect the water rates of the Company presently in effect.

         (c) The  Company is not in  default  with  respect to any order,  writ,
injunction  or  decree  of  any  court,  or  any  federal,  state  or  municipal
commission,  board or other  administrative  agency and the Company has complied
with all applicable statutes and regulations of the United States of America and
of any state,  municipality or agency of any thereof,  in respect of the conduct
of its business known or believed by the Company to be applicable  thereto,  the
failure to comply  with which  could  reasonably  be expected to have a material
adverse effect on the Company or its properties.

         12. No  Condemnation  Proceedings.  Since January 1, 1995, no elections
have  been  held  or  other  actions  taken   authorizing  the  commencement  of
proceedings for  condemnation of any of the properties of the Company.  However,
from time to time  there are  expressions  of  interest  made by public  bodies,
elected or appointed municipal officials,  persons seeking political position or
citizens groups urging acquisition of the Company's facilities in one or more of
the  communities  served by the  Company.  The Company does not believe that any
acquisition  by a city or  municipality  of its  properties by  condemnation  or
threat thereof would be adverse to the holders of the Series J Notes.

         13. No  Burdensome  Restrictions.  The  Company  is not  subject to any
burdensome corporate  restrictions in its Articles of Incorporation,  By-Laws or
otherwise, which materially and adversely affect or in the future may (so far as
the Company can  foresee)  materially  and  adversely  affect the Company or its
business, property, assets, operations or condition, financial or other.

         14. Regulatory  Status,  Approval.  (a) The Company is not a registered
holding company or a subsidiary of a registered  holding company and the Company
is not  required to register  under the Public  Utility  Holding  Company Act of
1935, as amended. The Company is subject to the jurisdiction of the Commission.

         (b) No consent of, approval or authorization by, filing or registration
with, or notice to any  governmental  or public  authority or agency is required
for the  issuance,  sale or  delivery  of the  Series J Notes or the  execution,
delivery or performance of the Eighth  Supplement,  other than the authorization
of the Commission,  which authorization has been duly obtained, is in full force
and effect and is not subject to any appeal, hearing,  rehearing or contest. All
conditions  contained in any such authorization which were to be fulfilled on or
prior to the issuance of the Series J Notes have been fulfilled. The Company has
furnished  to your special  counsel  true,  correct and complete  copies of said
authorization  and all  applications  heretofore  filed with or submitted to the
Commission in connection with its action to obtain said authorization.

         15. No Defaults,  Compliance with Other Instruments. The Company is not
in default under any outstanding  indentures,  contracts or agreements which are
material to the Company including,  without limitation,  the Mortgage Indenture;
and on the  Closing  Date there will not exist any  condition  which  would be a
default  under any such  indenture,  contract or  agreement.  The  execution and
delivery of the Eighth Supplement,  the consummation of the transactions therein
provided for and compliance with the provisions

                                     E-2-5

<PAGE>

of the Eighth  Supplement and the Series J Notes by the Company will not violate
or result in any breach of the terms, conditions or provisions of, or constitute
a default  under,  its  Articles  of  Incorporation,  By-Laws or any  indenture,
mortgage,  deed of  trust,  bank  loan or credit  agreement,  or other  material
agreement or  instrument to which the Company is a party or by which the Company
may be bound,  nor will such acts result in the violation of any applicable law,
rule, regulation or order applicable to the Company of any court or governmental
authority  having  jurisdiction in the premises or in the creation or imposition
of any lien, charge or encumbrance of any nature  whatsoever,  upon any property
or assets of the Company.

         16. Leases.  The Company has the right to, and does, enjoy peaceful and
undisturbed possession under all material leases to which it is a party or under
which it is operating.  All such leases are valid,  subsisting and in full force
and effect, and the Company is not in default under any thereof and no event has
occurred  and is  continuing,  and no  condition  exists  that,  after notice or
passage of time or both could become a material default under any such Lease.

         17. Use of Proceeds.  The Company will use the gross  proceeds  derived
from the sale of the Series J Notes  under the Eighth  Supplement  to  refinance
existing  Indebtedness.  None of the  transactions  contemplated  in the  Eighth
Supplement (including,  without limitation thereof, the use of the proceeds from
the sale of the Series J Notes) will violate or result in a violation of Section
7 of the Securities  Exchange Act of 1934, as amended, or any regulations issued
pursuant thereto,  including without  limitation,  Regulations U, T and X of the
Board of Governors of the Federal  Reserve  System,  12 C.F.R.,  Chapter II. The
Company  does not own or intend to carry or purchase any "margin  stock"  within
the meaning of said Regulation U, including  margin stock  originally  issued by
it.  None of the  proceeds  from the sale of the  Series J Notes will be used to
purchase or carry (or refinance any borrowing the proceeds of which were used to
purchase or carry) any margin stock.

         18. ERISA.  (a) The fair market value of all assets under all "employee
pension  benefit  plans" (as such term is  defined  in  Section  3(2) of ERISA),
maintained  by the  Company,  as from  time to time in  effect,  exceeded  as of
December 31, 2001, the last annual  valuation date, the actuarial  present value
of all benefits vested under the Plans by more than $10,898,000.

         (b) Neither any of the Plans nor any of the trusts created  thereunder,
nor  any  trustee  or  administrator  thereof,  has  engaged  in  a  "prohibited
transaction,"  as such term is defined in Section  4975 of the Code which  could
subject  the  Plans  or  any  of  them,  any  such  trust,  or  any  trustee  or
administrator  thereof,  or any disqualified person with respect to the Plans to
the tax or penalty on  prohibited  transactions  imposed by said  Section  4975,
except  that,  with  respect to any  actions  or  omissions  of  administrators,
trustees,  other fiduciaries,  parties in interest or disqualified persons of or
in respect to the Plans (other than  employees of the Company),  the Company has
no knowledge  that any of such persons has  committed a prohibited  transaction,
nor has the Company participated knowingly in or knowingly undertaken to conceal
a prohibited  transaction with or by any of such persons nor enabled any of them
to commit a prohibited transaction.

         (c)  Neither  any of the  Plans  subject  to Title IV of ERISA  nor any
trusts  related  to such  plans  have been  terminated,  nor have there been any
Reportable Events, as that term is defined in Section 4043 of ERISA (as modified
by the  regulations  thereunder),  in respect of those plans since the effective
date of ERISA.

                                     E-2-6

<PAGE>

         (d)  Neither any of the Plans which are subject to Section 302 of ERISA
nor any trusts  related to such plans have  incurred  any  "accumulated  funding
deficiency,"  as such  term is  defined  in said  Section  302  (whether  or not
waived), since the effective date of ERISA.

         (e) The  consummation  of the  transactions  provided for in the Eighth
Supplement  and  compliance by the Company with the  provisions  thereof and the
Series J Notes issued  thereunder  will not involve any  prohibited  transaction
within the meaning of ERISA or Section 4975 of the Code.

         19. Taxes. All Federal,  state and local taxes and assessments due from
the Company have been (a) fully paid or adequately  provided for on the books of
the Company in accordance with generally accepted  accounting  principles or (b)
are being contested in good faith by the Company.  There has been no examination
of the Federal income tax returns of the Company by the Internal Revenue Service
subsequent to the examinations of the returns for tax years 1984-1991.

         20. Compliance with Laws. To the best of the Company's knowledge, after
due inquiry, the Company is in compliance with all applicable Federal, state, or
local laws, statutes, rules, regulations or ordinances relating to public heath,
safety or the environment,  including, without limitation, relating to releases,
discharges,  emissions or disposals to air, water,  land or ground water, to the
withdrawal  or use of  ground  water,  to  the  use,  handling  or  disposal  of
polychlorinated  biphenyls  (PCB's),  asbestos  or  urea  formaldehyde,  to  the
treatment,  storage,  disposal or management of hazardous substances (including,
without   limitation,   petroleum,   its   derivatives,   by-products  or  other
hydrocarbons),  and to exposure to hazardous  substances,  the failure to comply
with which could reasonably be expected to have a material adverse effect on the
Company or its properties.  Except as disclosed in the  "Environmental  Matters"
section  of Item 1 of the CWSG  10-K,  the  "Environmental  Matters"  section of
CWSG's 2001 Annual Report and the "Legal  Proceedings"  section of Item 3 of the
CWSG 10-K with  respect  to  matters in Chico and  Marysville,  California,  the
Company does not know of any  liability of the Company  under the  Comprehensive
Environmental  Response,  Compensation  and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601
et seq.) with respect to any property now or  heretofore  owned or leased by the
Company.

         21. Full Disclosure. The financial statements referred to in the Eighth
Supplement do not, nor does the Eighth  Supplement,  the Company  Information or
any written statement  (including without limitation the 2001 Company Report and
the 2001 CWSG  Report)  furnished by the Company to you in  connection  with the
negotiation of the sale of the Series J Notes, contain any untrue statement of a
material fact or, taken  together,  omit a material  fact  necessary to make the
statements  contained  therein or herein not misleading.  There is no fact which
the  Company  has not  disclosed  to you in  writing  which  materially  affects
adversely  nor, so far as the Company can now foresee,  will  materially  affect
adversely the properties,  business,  prospects, profits or condition (financial
or  otherwise)  of the  Company  or the  ability of the  Company to perform  its
obligations  under the Note  Agreement,  the Eighth  Supplement  or the Series J
Notes.

         22. Private Offering.  Neither the Company, directly or indirectly, nor
any agent on its  behalf  has  offered  or will  offer the Series J Notes or any
similar Security or has solicited or will solicit an offer to acquire the Series
J Notes or any similar  Security from or has otherwise  approached or negotiated
or will  approach or  negotiate  in respect of the Series J Notes or any similar
Security  with any Person  other than the  Purchasers  and not more than 7 other
institutional  investors,  each of whom was  offered a portion  of the  Series J
Notes  at  private  sale  for  investment.  Neither  the  Company,  directly  or
indirectly,  nor any agent on

                                      E-2-7
<PAGE>

its behalf has offered or will offer the Series J Notes or any similar  Security
or has  solicited  or will solicit an offer to acquire the Series J Notes or any
similar  Security  from any Person so as to cause the  issuance  and sale of the
Series  J Notes  not to be  exempt  from  the  provisions  of  Section  5 of the
Securities Act of 1933, as amended.

                                     E-2-8
<PAGE>

                CURRENT DEBT, FUNDED DEBT AND CAPITALIZED LEASES
                            AS OF SEPTEMBER 30, 2002

         1.       Current Debt

                  $11,000,000  borrowed under the Company's bank short-term line
                  of credit with Bank of America.

         2.       Funded Debt

                  $111,865,000 outstanding under the Company's various series of
                  First Mortgage Bonds with due dates ranging from 2002 to 2023.

                  $4,000,000  First Mortgage Bonds,  Series J due 2023 (formerly
                  Dominguez Water Company)

                  $5,000,000  First Mortgage Bonds,  Series K due 2012 (formerly
                  Dominguez Water Company)

                  $20,000,000 Series A Senior Notes due November 1, 2025.

                  $20,000,000 Series B Senior Notes due November 1, 2028.

                  $20,000,000 Series C Senior Notes due November 1, 2030.

                  $20,000,000 Series D Senior Notes due November 1, 2031.

                  $20,000,000 Series E Senior Notes due May 1, 2032.

                  $20,000,000 Series F Senior Notes due November 1, 2017.

                  $2,725,000  California  Department  of Water  Resources  Loans
                  maturing 2011 to 2032.

                  $459,000 obligations due on water system acquisitions.

         3.       Capitalized Leases

                  None.

                                     ANNEX A
                                 (to Exhibit 2)

<PAGE>

                         MATERIAL WATER SUPPLY CONTRACTS

1.       Water  Supply  Contract  between  the  Company  and the County of Butte
         relating to the Company's Oroville District.

2.       Water Supply Contract  between the Company and Kern County Water Agency
         relating to the Company's Bakersfield District.

3.       Water  Supply  Contract  between the Company  and  Stockton  East Water
         District relating to the Company's Stockton District.

4.       Amended  Contract  between the Company and Stockton East Water District
         relating to the Company's Stockton District.

5.       Settlement  Agreement and Master Water Sales Contract  between the City
         and County of San Francisco and Certain Suburban Purchasers.

6.       Supplement  to  Settlement  Agreement  and Master Water Sales  Contract
         between the Company and the City and County of San  Francisco  relating
         to the Company's Bear Gulch District.

7.       Supplement  to  Settlement  Agreement  and Master Water Sales  Contract
         between the Company and the City and County of San  Francisco  relating
         to the Company's San Carlos District.

8.       Supplement  to  Settlement  Agreement  and Master Water Sales  Contract
         between the Company and the City and County of San  Francisco  relating
         to the Company's San Mateo District.

9.       Supplement  to  Settlement  Agreement  and Master Water Sales  Contract
         between the Company and the City and County of San  Francisco  relating
         to the Company's South San Francisco District.

10.      Water Supply Contract  between the Company and Santa Clara Valley Water
         District relating to the Company's Los Altos District.

11.      Water Supply Contract  between the Company and Pacific Gas and Electric
         Company related to the Company's Oroville District.

12.      Water  Supply  Contract  between the Company and Alameda  County  Flood
         Control  and  Water  Conservation  District  related  to the  Company's
         Livermore District.

13.      Water Supply Contract  between the Company,  ARCO Products  Company and
         West Basin Municipal Water District relating to recycled water.

                                     ANNEX B
                                 (to Exhibit 2)

<PAGE>

                         DESCRIPTION OF CLOSING OPINION
                            OF COUNSEL TO THE COMPANY

         The closing opinion of Bingham  McCutchen LLP, counsel for the Company,
which is called for by Section  6(a)(iii)  of the  Amended and  Restated  Eighth
Supplement,  shall be dated the Closing Date and  addressed  to the  Purchasers,
shall be  satisfactory  in scope and form to the  Purchasers and shall be to the
effect that:

                    1. The Company is a corporation duly  incorporated,  validly
         existing and in corporate good standing under the laws of California.

                    2. The  execution  and  delivery  by the Company of the Note
         Agreement,  the Amended and Restated  Eighth  Supplement and the Notes,
         and the  performance by the Company of its  obligations  under the Note
         Agreement,  the Amended and Restated  Eighth  Supplement and the Notes,
         are within the Company's corporate powers and have been duly authorized
         by all  requisite  corporate  action  on the part of the  Company.  The
         Company has duly executed and delivered the Note Agreement, the Amended
         and Restated Eighth Supplement and the Notes.

                    3. Each of the Note  Agreement,  the  Amended  and  Restated
         Eighth  Supplement  and  the  Notes  constitutes  a valid  and  binding
         agreement of the Company, enforceable against the Company in accordance
         with its terms. Based on Section 1646.5 of the California Civil Code, a
         California state court and a Federal court which applies the law of the
         State of  California  to the Note  Agreement,  the Amended and Restated
         Eighth  Supplement and the Notes would recognize and give effect to the
         choice of law provisions set forth in the Note  Agreement,  the Amended
         and Restated Eighth Supplement and the Notes.

                    4. The  execution  and  delivery  by the Company of the Note
         Documents,  and compliance by the Company with the  provisions  thereof
         will not, to the best of our  knowledge,  result in a breach or default
         (or  give  rise  to  any   right  of   termination,   cancellation   or
         acceleration)  under the  Articles of  Incorporation  or By-Laws of the
         Company,  or the Mortgage  Indenture,  the Credit Agreement dated as of
         July  31,   2001,   between   the   Company  and  Bank  of  America  as
         Administrative  Agent,  or any  agreement or other  instrument  that is
         listed as a material  contract in CWSG's Annual Report on Form 10-K for
         the year ended  December 31,  2001.  To the best of our  knowledge,  no
         consent or approval  by, or any  notification  of or filing  with,  any
         court,  public body or authority of the State of California is required
         to be  obtained  or  effected  by the  Company in  connection  with the
         execution,  delivery  and  performance  by  the  Company  of  the  Note
         Documents  or the  issuance  or  sale  of the  Notes,  except  for  the
         authorization  of the  Commission,  which  authorization  has been duly
         obtained and is in full force and effect.

                    5. Based upon the  representations set forth in Section 6 of
         the Amended and Restated  Eighth  Supplement,  the accuracy of which we
         have not independently verified or investigated, the issuance, sale and
         delivery  of the Notes  under  the  circumstances  contemplated  by the
         Amended and Restated  Eighth  Supplement  do not,  under  existing law,
         require the registration of the Notes under the Securities Act of 1933,
         as amended,  or the  qualification  of the Amended and Restated  Eighth
         Supplement  or an indenture  under the Trust  Indenture Act of 1939, as
         amended.
                                    EXHIBIT 3
                                 (to Supplement)

<PAGE>

                    6. Based upon the  assumption of the accuracy of information
         obtained  by the  Company  from  sources  believed by the Company to be
         reliable (a) that the  following  cities served by the Company were all
         incorporated prior to 1911:

                 Bakersfield       Marysville            South San Francisco
                 Chico             Oroville              Stockton
                 Dixon             Redondo Beach         Visalia
                 Hermosa Beach     Salinas               Willows
                 King City         San Mateo
                 Livermore         Selma

                  (b) that  water  distribution  systems  were  constructed  and
service  furnished to the  inhabitants  of each by various  predecessors  of the
Company prior to 1911; and

                  (c) that there were no public water works owned or  controlled
by the municipality in any of them prior to 1911;

                         in our opinion,

                         (i) the Company  has a  "constitutional"  franchise  in
         each of the above cities and under such "constitutional"  franchise has
         a perpetual  right which was not  repealed by the repeal of Article XI,
         Section 19, of the California Constitution to continue to occupy public
         streets  of each of said  cities  with  pipes and mains and to lay down
         additional  pipes and mains in said streets for the supplying of water,
         subject to reasonable regulation by the respective municipalities;

                        (ii) this right is not limited to streets in which pipes
         or mains were laid prior to 1911 but extends at least to all streets in
         the said  municipalities  as they  existed at the date of repeal of the
         constitutional provision in 1911; and

                       (iii)  the  right  probably  also  extends  to  territory
         annexed  into each  respective  city after such repeal,  although  this
         latter  question  is not  entirely  free from doubt in the absence of a
         final decision of the courts thereon.

                    7.   Dominguez   Services   Corporation   (along   with  its
         subsidiaries,  "Dominguez")  was merged into the Company  effective May
         25, 2000 and  Dominguez  Water Company was also merged into the Company
         effective  October 12,  2000.  In the  Dominguez  mergers,  the Company
         acquired the operations of Dominguez,  which to our knowledge  included
         service to the following cities, counties, townships or localities:

                   Bodfish             Kernville              Mountain Shadows
                   Carson              Lake Hughes            Onyx
                   Compton             Lakeland               Torrance
                   Duncans Mills       Lancaster              Squirrel Valley
                   Fremont Valley      Leona Valley           Wofford Heights
                   Guerneville         Long Beach             Los Angeles County
                   Harbor City         Lucerne                Kern County

                    8. We note that the Officers'  Certificates  state that: (a)
         to the Company's knowledge, water distribution systems were constructed
         and service  furnished to the  inhabitants of the localities  currently
         known as Carson,  Compton,  Harbor  City,  Long Beach and  Torrance  by
         various  predecessors  of the  Company  prior to 1911;  (b) the Company
         believes that it has a prior

                                     E-3-2
<PAGE>

         right to operate in these locations which right was not extinguished by
         the  incorporation  of these cities  subsequent to 1911;  (c) except as
         noted below,  to the  Company's  knowledge  Dominguez has no franchises
         from these cities and has made no franchise  payments to them;  and (d)
         to the Company's knowledge,  no question has ever been raised as to the
         right to make water  distribution  and to maintain  all pipes and mains
         necessary therefor.

                    9. We note that the Officers'  Certificates  state that: (a)
         as to the remaining  localities listed in paragraph 7, to the Company's
         knowledge,  Dominguez has received written  franchise  agreements which
         are in full force and effect and has paid all  franchise  fees to date,
         with the  exception  of  Compton  and the City of Carson  Redevelopment
         Project  #2, as to which the  franchises  expired  without  renewal in,
         respectively,  1994 and 1998; (b) to the Company's knowledge, Dominguez
         continued to provide  water  services to Compton and the City of Carson
         Redevelopment Project #2 subsequent to the expiration of the respective
         franchises,  and to  pay  franchise  fees;  and  (c)  to the  Company's
         knowledge,  no  question  has ever been  raised as to the right to make
         such  distribution  and to  maintain  all  pipes  and  mains  necessary
         therefor.

         The opinion of Bingham  McCutchen  LLP shall  cover such other  matters
relating  to the sale of the  Series J Notes as the  Purchasers  may  reasonably
request and shall  provide  that  Chapman and Cutler in  delivering  its opinion
under the Note Agreement may rely on the opinion of Bingham  McCutchen LLP as to
matters of California law. With respect to matters of fact on which such opinion
is based, such counsel shall be entitled to rely on appropriate  certificates of
public officials and officers of the Company.

                                     E-3-3

<PAGE>

                DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION

         The  closing  opinion of Chapman  and  Cutler,  special  counsel to the
Purchasers,  called for by Section  6(a)(iii) of the Amended and Restated Eighth
Supplement,  shall be dated the Closing Date and  addressed  to the  Purchasers,
shall be  satisfactory  in form and substance to the  Purchasers and shall be to
the effect that:

                    1. The Company is a  corporation,  validly  existing  and in
         good  standing  under the laws of the State of  California  and has the
         corporate power and the corporate  authority to execute and deliver the
         Amended and Restated Eighth Supplement and to issue the Series J Notes.

                    2. The Note  Agreement  and the Amended and Restated  Eighth
         Supplement have been duly authorized by all necessary  corporate action
         on the part of the Company,  have been duly  executed and  delivered by
         the Company and constitute the legal, valid and binding contract of the
         Company   enforceable  in  accordance   with  its  terms,   subject  to
         bankruptcy,   insolvency,   fraudulent   conveyance  and  similar  laws
         affecting creditors' rights generally, and general principles of equity
         (regardless of whether the application of such principles is considered
         in a proceeding in equity or at law).

                    3. The  Series J Notes  have  been  duly  authorized  by all
         necessary  corporate action on the part of the Company,  have been duly
         executed and delivered by the Company and constitute  the legal,  valid
         and binding  obligations of the Company  enforceable in accordance with
         its terms, subject to bankruptcy, insolvency, fraudulent conveyance and
         similar  laws  affecting  creditors'  rights  generally,   and  general
         principles of equity  (regardless  of whether the  application  of such
         principles is considered in a proceeding in equity or at law).

                    4. The  issuance,  sale and  delivery  of the Series J Notes
         under the circumstances contemplated by the Amended and Restated Eighth
         Supplement  does not, under existing law,  require the  registration of
         the Series J Notes under the Securities Act of 1933, as amended, or the
         qualification of an indenture under the Trust Indenture Act of 1939, as
         amended.

         The  opinion of Chapman and Cutler may rely upon the opinion of Bingham
McCutchen LLP as to matters of California law. The opinion of Chapman and Cutler
shall also state that the opinion of Bingham  McCutchen LLP is  satisfactory  in
scope and form to Chapman and Cutler and that, in their opinion,  the Purchasers
are justified in relying thereon.

         In rendering  the opinion set forth in  paragraph 1 above,  Chapman and
Cutler may rely,  as to matters  referred  to in  paragraph  1,  solely  upon an
examination of the Articles of Incorporation  certified by, and a certificate of
good  standing  of the  Company  from,  the  Secretary  of State of the State of
California,  the By-laws of the Company and the general business corporation law
of the State of California.

         With  respect to  matters  of fact upon  which  such  opinion is based,
Chapman and Cutler may rely on appropriate  certificates of public officials and
officers  of the  Company  and  upon  representations  of the  Company  and  the
Purchasers  delivered in  connection  with the issuance and sale of the Series J
Notes.

                                   EXHIBIT 3
                                (to Supplement)EXHIBIT 4.1

                             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.

                                      A-1
<PAGE>

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

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

                          8% SPARQS DUE JUNE 15, 2004
                            MANDATORILY EXCHANGEABLE
                         FOR SHARES OF COMMON STOCK OF
                          SCHERING-PLOUGH CORPORATION

<TABLE>
<S>                          <C>                                 <C>                                <C>
ORIGINAL ISSUE DATE:         INITIAL REDEMPTION                  INTEREST RATE:     %               MATURITY DATE:
                                 DATE: See "Morgan                   per annum (equivalent              See "Maturity Date"
                                 Stanley Call Right"                 to $       per annum per           below.
                                 below.                              SPARQS)

INTEREST ACCRUAL             INITIAL REDEMPTION                  INTEREST PAYMENT                   OPTIONAL
    DATE:                        PERCENTAGE: See                     DATES:                             REPAYMENT
                                 "Morgan Stanley Call                                                   DATE(S):  N/A
                                 Right" and "Call Price"
                                 below.

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

IF SPECIFIED                 REDEMPTION NOTICE                   APPLICABILITY OF                   If yes, state Issue Price:
    CURRENCY OTHER               PERIOD: At least 10                 ANNUAL INTEREST                    N/A
    THAN U.S. DOLLARS,           days but no more than               PAYMENTS: N/A
    OPTION TO ELECT              30 days.  See "Morgan
    PAYMENT IN U.S.              Stanley Call Right" and
    DOLLARS: N/A                 "Morgan Stanley Notice
                                 Date" below.

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

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

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

Maturity Date.........................  June 15, 2004, subject to acceleration
                                        as described below in "Price Event
                                        Acceleration," "Antidilution
                                        Adjustments" and "Alternate Exchange
                                        Calculation in

                                      A-2
<PAGE>

                                        case of an Event of Default," and
                                        subject to extension in accordance with
                                        the following paragraph in the event of
                                        a Market Disruption Event on June 4,
                                        2004.

                                        If the Final Call Notice Date is
                                        postponed 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 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.

Record Date...........................  Notwithstanding the definition of
                                        "Record Date" on page 18 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 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;

                                      A-3
<PAGE>

                                        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 November 30, 2003 or on the
                                        Maturity Date, the Issuer may call the
                                        SPARQS, in whole but not in part, for
                                        mandatory 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 Letter of
                                        Representations related to this SPARQS.
                                        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.

                                      A-4
<PAGE>

                                        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.

                                        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 the 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................  June 4, 2004; provided that if June 4,
                                        2004 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.

                                      A-5
<PAGE>

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
                                        November 30, 2003 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 on each SPARQS),
                                        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
                                        Schering-Plough Corporation
                                        ("Schering-Plough Stock") at the
                                        Exchange Ratio, and the Issuer shall
                                        deliver with respect to each $
                                        principal amount of this SPARQS an
                                        amount of Schering-Plough Stock equal
                                        to the Exchange Ratio.

                                        The amount of Schering-Plough Stock to
                                        be delivered at maturity shall be
                                        subject to any applicable adjustments
                                        (i) to the Exchange Ratio 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
                                        Schering-Plough 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,

                                      A-6
<PAGE>

                                        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, of the amount
                                        of Schering-Plough Stock (or the
                                        amount of Exchange Property) or cash to
                                        be delivered with respect to each
                                        $         principal amount of this
                                        SPARQS and of the amount of any cash to
                                        be paid in lieu of any fractional share
                                        of Schering-Plough 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 the
                                        consummation of a Reorganization Event
                                        Acceleration (as defined in paragraph 5
                                        of "Antidilution Adjustments" below) or
                                        (y) because of a Price Event
                                        Acceleration (as described under "Price
                                        Event Acceleration" below) or (z)
                                        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 Reorganization
                                        Event Acceleration or 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 Schering-Plough Stock, the
                                        Exchange Property or any cash due with
                                        respect to such acceleration on the
                                        accelerated maturity date.

                                      A-7
<PAGE>

                                        The Issuer shall, or shall cause the
                                        Calculation Agent to, deliver any such
                                        shares of Schering-Plough Stock (or any
                                        Exchange Property) and cash in respect
                                        of interest and any fractional share of
                                        Schering-Plough 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 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 Schering-
                                        Plough Stock (and, if applicable, any
                                        Exchange Property) or cash due at
                                        maturity.

Price Event Acceleration..............  If on any two consecutive Trading Days
                                        prior to or ending on the third
                                        Business Day immediately preceding the
                                        Maturity Date the product of the Market
                                        Price per share of Schering-Plough
                                        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
                                            Schering-Plough 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
                                            the term of each such remaining
                                            scheduled payment, as determined by
                                            the Calculation Agent.

                                      A-8
<PAGE>

No Fractional Shares..................  Upon delivery of this SPARQS to the
                                        Trustee at maturity, the Issuer shall
                                        deliver the aggregate number of shares
                                        of Schering-Plough Stock due with
                                        respect to this SPARQS, as described
                                        above, but the Issuer shall pay cash in
                                        lieu of delivering any fractional share
                                        of Schering-Plough Stock in an amount
                                        equal to the corresponding fractional
                                        Market Price of such fraction of a
                                        share of Schering-Plough 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
                                        Schering-Plough Corporation
                                        ("Schering-Plough") described under
                                        "Antidilution Adjustments" below.

Market Price..........................  If Schering-Plough Stock (or any other
                                        security for which a Market Price must
                                        be determined) is listed on a national
                                        securities exchange, is a security of
                                        the Nasdaq National Market or is
                                        included in the OTC Bulletin Board
                                        Service ("OTC Bulletin Board") operated
                                        by the National Association of
                                        Securities Dealers, Inc. (the "NASD"),
                                        the Market Price for one share of
                                        Schering-Plough Stock (or one unit of
                                        any such other security) on any Trading
                                        Day means (i) 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
                                        Schering-Plough Stock is listed or
                                        admitted to trading (which may be the
                                        Nasdaq National Market if it is then a
                                        national securities exchange) or (ii)
                                        if not listed or admitted to trading on
                                        any such securities exchange or if such
                                        last reported sale price is not
                                        obtainable (even if Schering-Plough
                                        Stock is listed or admitted to trading
                                        on such securities exchange), the last
                                        reported sale price of the principal
                                        trading session on the over-the-counter
                                        market as reported on the Nasdaq
                                        National Market (if it is not then a
                                        national securities exchange) or OTC
                                        Bulletin Board on such day. If the last
                                        reported sale price of the principal
                                        trading session is not available
                                        pursuant to clause (i) or (ii) of the
                                        preceding sentence because of a Market
                                        Disruption Event or otherwise, the
                                        Market Price for any Trading Day shall
                                        be the mean, as determined by the
                                        Calculation Agent, of the bid prices
                                        for Schering-Plough Stock obtained from
                                        as many dealers in such security, but
                                        not exceeding three, as will make such
                                        bid prices available to the Calculation
                                        Agent. Bids of Morgan Stanley & Co.
                                        Incorporated ("MS & Co.") or any of its
                                        affiliates may be included in the

                                      A-9
<PAGE>

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

Trading Day...........................  A day, as determined by the Calculation
                                        Agent, on which trading is generally
                                        conducted on the New York Stock
                                        Exchange, 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.

                                        All calculations with respect to the
                                        Exchange Ratio and Call Price for the
                                        SPARQS 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 will be at the sole
                                        discretion of the Calculation Agent and
                                        will, in the absence of manifest error,
                                        be conclusive for all purposes and
                                        binding on the holder of this SPARQS
                                        and the Issuer.

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

                                            1. If Schering-Plough 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 Schering-Plough
                                        Stock.

                                            2. If Schering-Plough Stock is
                                        subject (i) to a stock dividend
                                        (issuance of additional shares of
                                        Schering-Plough Stock) that is given
                                        ratably to all holders of shares

                                      A-10
<PAGE>

                                        of Schering-Plough Stock or (ii) to a
                                        distribution of Schering-Plough Stock
                                        as a result of the triggering of any
                                        provision of the corporate charter of
                                        Schering-Plough, then once the dividend
                                        has become effective and
                                        Schering-Plough 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 Schering-Plough Stock and
                                        (ii) the prior Exchange Ratio.

                                            3. There shall be no adjustments to
                                        the Exchange Ratio to reflect cash
                                        dividends or other distributions paid
                                        with respect to Schering-Plough Stock
                                        other than distributions described in
                                        clauses (i), (iv) and (v) of paragraph
                                        5 below and Extraordinary Dividends as
                                        described below. A cash dividend or
                                        other distribution with respect to
                                        Schering-Plough Stock shall be deemed
                                        to be an "Extraordinary Dividend" if
                                        such dividend or other distribution
                                        exceeds the immediately preceding non-
                                        Extraordinary Dividend for
                                        Schering-Plough Stock by an amount
                                        equal to at least 10% of the Market
                                        Price of Schering-Plough Stock (as
                                        adjusted for any subsequent corporate
                                        event requiring an adjustment
                                        hereunder, such as a stock split or
                                        reverse stock split) on the Trading Day
                                        preceding the ex-dividend date for the
                                        payment of such Extraordinary Dividend
                                        (the "ex-dividend date"). If an
                                        Extraordinary Dividend occurs with
                                        respect to Schering-Plough Stock, the
                                        Exchange Ratio with respect to
                                        Schering-Plough Stock shall be adjusted
                                        on the ex-dividend date with respect
                                        to such Extraordinary Dividend so that
                                        the new Exchange Ratio shall equal the
                                        product of (i) the then current
                                        Exchange Ratio and (ii) a fraction, the
                                        numerator of which is the Market Price
                                        on the Trading Day preceding the
                                        ex-dividend date, and the denominator
                                        of which is the amount by which the
                                        Market Price on the Trading Day
                                        preceding the ex-dividend date exceeds
                                        the Extraordinary Dividend Amount. The
                                        "Extraordinary Dividend Amount" with
                                        respect to an Extraordinary Dividend
                                        for Schering-Plough Stock shall equal
                                        (i) in the case of cash dividends or
                                        other distributions that constitute
                                        regular dividends, the amount per share
                                        of such Extraordinary Dividend minus
                                        the amount per share of the immediately
                                        preceding non-Extraordinary Dividend
                                        for Schering-Plough Stock or (ii) in
                                        the case of cash dividends or other
                                        distributions that do not constitute
                                        regular dividends, the amount per share
                                        of

                                      A-11
<PAGE>

                                        such Extraordinary Dividend. To the
                                        extent an Extraordinary Dividend is not
                                        paid in cash, the value of the non-cash
                                        component shall be determined by the
                                        Calculation Agent, whose determination
                                        shall be conclusive. A distribution on
                                        Schering-Plough Stock described in
                                        clause (i), (iv) or (v) of paragraph 5
                                        below that also constitutes an
                                        Extraordinary Dividend shall cause an
                                        adjustment to the Exchange Ratio
                                        pursuant only to clause (i), (iv) or
                                        (v) of paragraph 5, as applicable.

                                            4. If Schering-Plough issues rights
                                        or warrants to all holders of Schering-
                                        Plough Stock to subscribe for or
                                        purchase Schering-Plough Stock at an
                                        exercise price per share less than the
                                        Market Price of Schering-Plough 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 Schering-Plough
                                        Stock outstanding immediately prior to
                                        the issuance of such rights or warrants
                                        plus the number of additional shares of
                                        Schering-Plough Stock offered for
                                        subscription or purchase pursuant to
                                        such rights or warrants and the
                                        denominator of which shall be the
                                        number of shares of Schering-Plough
                                        Stock outstanding immediately prior to
                                        the issuance of such rights or warrants
                                        plus the number of additional shares of
                                        Schering-Plough Stock which the
                                        aggregate offering price of the total
                                        number of shares of Schering-Plough
                                        Stock so offered for subscription or
                                        purchase pursuant to such rights or
                                        warrants would purchase at the Market
                                        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 Market Price.

                                            5. If (i) there occurs any
                                        reclassification or change of
                                        Schering-Plough Stock, including,
                                        without limitation, as a result of the
                                        issuance of any tracking stock by
                                        Schering-Plough, (ii) Schering-Plough
                                        or any surviving entity or subsequent
                                        surviving entity of Schering-Plough (a
                                        "Schering-Plough Successor") has been
                                        subject to a merger, combination or
                                        consolidation and is not the surviving
                                        entity, (iii) any statutory exchange of
                                        securities

                                      A-12
<PAGE>

                                        of Schering-Plough or any Schering-
                                        Plough Successor with another
                                        corporation occurs (other than pursuant
                                        to clause (ii) above), (iv)
                                        Schering-Plough is liquidated, (v)
                                        Schering-Plough issues to all of its
                                        shareholders equity securities of an
                                        issuer other than Schering-Plough
                                        (other than in a transaction described
                                        in clause (ii), (iii) or (iv) above) (a
                                        "Spin-off Event") or (vi) a tender or
                                        exchange offer or going-private
                                        transaction is consummated for all the
                                        outstanding shares of Schering-Plough
                                        Stock (any such event in clauses (i)
                                        through (vi), a "Reorganization
                                        Event"), the method of determining the
                                        amount payable upon exchange at
                                        maturity for this SPARQS shall be
                                        adjusted to provide that the holder of
                                        this SPARQS shall be entitled to
                                        receive at maturity, in respect of each
                                        $         principal amount of this
                                        SPARQS, securities, cash or any other
                                        assets distributed to holders of
                                        Schering-Plough Stock in or as a result
                                        of any such Reorganization Event,
                                        including (i) in the case of the
                                        issuance of tracking stock, the
                                        reclassified share of Schering-Plough
                                        Stock, (ii) in the case of a Spin-off
                                        Event, the share of Schering-Plough
                                        Stock with respect to which the
                                        spun-off security was issued, and (iii)
                                        in the case of any other Reorganization
                                        Event where Schering-Plough Stock
                                        continues to be held by the holders
                                        receiving such distribution, the
                                        Schering-Plough Stock (collectively,
                                        the "Exchange Property"), in an amount
                                        with a value equal to the amount of
                                        Exchange Property delivered with
                                        respect to a number of shares of
                                        Schering-Plough Stock equal to the
                                        Exchange Ratio at the time of the
                                        Reorganization Event. Notwithstanding
                                        the above, if the Exchange Property
                                        received in any such Reorganization
                                        Event consists only of cash, the
                                        Maturity Date of this SPARQS shall be
                                        deemed to be accelerated (a
                                        "Reorganization Event Acceleration") to
                                        the third Business Day immediately
                                        following the date on which such cash
                                        is distributed to holders of
                                        Schering-Plough Stock (unless the
                                        Issuer exercises or has exercised the
                                        Morgan Stanley Call Right) and the
                                        holder of this SPARQS shall receive for
                                        each $         principal amount of this
                                        SPARQS on such date of acceleration in
                                        lieu of any Schering-Plough Stock and
                                        as liquidated damages in full
                                        satisfaction of the Issuer's
                                        obligations under this SPARQS the
                                        lesser of (i) the product of (x) the
                                        amount of cash received per share of
                                        Schering-Plough Stock 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

                                      A-13
<PAGE>

                                        to but excluding the date of
                                        acceleration. If Exchange Property
                                        consists of more than one type of
                                        property, the holder of this SPARQS
                                        shall receive at maturity a pro rata
                                        share of each such type of Exchange
                                        Property. If Exchange Property includes
                                        a cash component, the holder of this
                                        SPARQS will not receive any interest
                                        accrued on such cash component. In the
                                        event Exchange Property consists of
                                        securities, those securities shall, in
                                        turn, be subject to the antidilution
                                        adjustments set forth in paragraphs 1
                                        through 5.

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

                                        Following the occurrence of any
                                        Reorganization Event referred to in
                                        paragraph 5 above, (i) references to
                                        "Schering-Plough Stock" under "No
                                        Fractional Shares," "Market Price" and
                                        "Market Disruption Event" shall be
                                        deemed to also refer to any other
                                        security received by holders of
                                        Schering-Plough Stock in any such
                                        Reorganization Event, and (ii) all
                                        other references in this SPARQS to
                                        "Schering-Plough 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 Schering-Plough
                                        Stock shall be deemed to refer to the
                                        applicable unit or units of such
                                        Exchange Property, unless the context
                                        otherwise requires.

                                        No adjustment to the 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 Ratio will
                                        be made up to

                                      A-14
<PAGE>

                                        the close of business on the third
                                        Trading Day prior to the Maturity Date.

                                        No adjustments to the Exchange Ratio or
                                        method of calculating the Exchange
                                        Ratio shall be made other than those
                                        specified above. The adjustments
                                        specified above do not cover all events
                                        that could affect the Market Price of
                                        Schering-Plough Stock, including,
                                        without limitation, a partial tender or
                                        exchange offer for Schering-Plough
                                        Stock.

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

                                        The Calculation Agent shall provide
                                        information as to any adjustments to
                                        the Exchange Ratio or to the method of
                                        calculating the amount payable upon
                                        exchange at maturity of the SPARQS in
                                        accordance with paragraph 5 above upon
                                        written request by any holder of this
                                        SPARQS.

Market Disruption Event...............  "Market Disruption Event" means, with
                                        respect to Schering-Plough Stock:

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

                                      A-15
<PAGE>

                                            session in the applicable market,
                                            in each case as determined by the
                                            Calculation Agent in its sole
                                            discretion; and

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

                                        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
                                        Schering-Plough 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
                                        Schering-Plough Stock and (5) a
                                        suspension, absence or material
                                        limitation of trading on the primary
                                        securities market on which options
                                        contracts related to Schering-Plough
                                        Stock are traded shall not include any
                                        time when such securities market is
                                        itself closed for trading under
                                        ordinary circumstances.

Alternate Exchange Calculation
in Case of an Event of Default........  In case an event of default with
                                        respect to the 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

                                      A-16
<PAGE>

                                        determined by the Calculation Agent and
                                        shall be an amount in cash equal to the
                                        lesser of (i) the product of (x) the
                                        Market Price of Schering-Plough 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
                                        the 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 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"), Schering-Plough
                                        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 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 Schering-Plough Stock
                                        pursuant to the Terminable Forward
                                        Contract (the "Deposit"), which Deposit
                                        bears an annual yield of     % per
                                        annum.

                                      A-17
<PAGE>

     Morgan Stanley (formerly known as Morgan Stanley Dean Witter & Co.), a
Delaware corporation (together with its successors and assigns, the "Issuer"),
for value received, hereby promises to pay to CEDE & CO., or registered
assignees, the amount of Schering-Plough 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, 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

                                      A-18
<PAGE>

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

     If this Note is denominated in a Specified Currency other than U.S.
dollars, and the holder does not elect (in whole or in part) to receive payment
in U.S. dollars pursuant to the next succeeding paragraph, payments of
interest, principal or any premium with regard to this Note 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 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 and any premium 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 Agent unless such
Exchange Rate Agent is an affiliate of the Issuer) for the purchase by the
quoting dealer of U.S. dollars for the Specified Currency for settlement on
such payment date in the amount of the Specified Currency payable in the
absence of such an election to such holder and at which the applicable dealer
commits to execute a contract. If such bid quotations are not available, such

                                      A-19
<PAGE>

payment 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-20
<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,
   as Trustee

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

                                      A-21
<PAGE>

                              REVERSE OF SECURITY

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

     Unless otherwise indicated on the face hereof, this Note 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 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. 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

                                      A-22
<PAGE>

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
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.

                                      A-23
<PAGE>

     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
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
Trustee and executed by the registered holder in person or by the holder's
attorney duly authorized in writing. The date of registration of any Note
delivered upon any exchange or transfer of Notes shall be such that no gain or
loss of interest results from such exchange or transfer.

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

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

                                      A-24
<PAGE>

occurred and be continuing, either the Trustee or the holders of not less than
25% in principal amount of all debt securities issued under the Senior
Indenture then outstanding (treated as one class) 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 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," then (i) if the principal hereof is declared to be
due and payable as described in the preceding paragraph, the amount of
principal due and payable with respect to this Note shall be limited to the
aggregate principal amount hereof multiplied by the sum of the Issue Price
specified on the face hereof (expressed as a percentage of the aggregate
principal amount) plus the original issue discount amortized from the Interest
Accrual Date to the date of declaration, which amortization shall be calculated
using the "interest method" (computed in accordance with generally accepted
accounting principles in effect on the date of declaration), (ii) for the
purpose of any vote of securityholders taken pursuant to the Senior Indenture
prior to the acceleration of payment of this Note, the principal amount hereof
shall equal the amount that would be due and payable hereon, calculated as set
forth in clause (i) above, if this Note were declared to be due and payable on
the date of any such vote and (iii) for the purpose of any vote of
securityholders taken pursuant to the Senior Indenture following the
acceleration of payment of this Note, the principal amount hereof shall equal
the amount of principal due and payable with respect to this Note, calculated
as set forth in clause (i) above.

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

                                      A-25
<PAGE>

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 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 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, be required to make any payment of
Additional Amounts to any such holder for or on account of:

          (a) any such 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) and the United States and
     its possessions, 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 the holder of this Note
     for payment on a date more than 15 calendar days after the date on which
     such payment became due and payable or the date on which payment thereof
     is duly provided for, whichever occurs later;

          (b) any estate, inheritance, gift, sales, transfer 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 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;

                                      A-26
<PAGE>

          (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
European Union Directive on the taxation of savings implementing the agreement
reached in the ECOFIN Council meeting of 13 December 2001 or any law
implementing or complying with, or introduced in order to conform to, such
Directive; 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 Additional Amounts be paid with respect to any payment on this Note to a
United States Alien who is a fiduciary or partnership or other than the sole
beneficial owner of such payment to the extent such payment would be required
by the laws of the United States (or any political subdivision thereof) to be
included in the income, for tax purposes, of a beneficiary or settlor with
respect to such fiduciary or a member of such partnership or a beneficial owner
who would not have been entitled to the Additional Amounts had such
beneficiary, settlor, member or beneficial owner been the holder of this Note.

     The Senior Indenture permits the Issuer and the Trustee, with the consent
of the holders of not less than a majority in aggregate principal amount of the
debt securities of all series issued under the Senior Indenture then
outstanding and affected (voting as one class), to execute supplemental
indentures adding any provisions to or changing in any manner the rights of the
holders of each series so affected; provided that the Issuer and the Trustee
may not, without the consent of the holder of each outstanding debt security
affected thereby, (a) extend the final maturity of any such debt security, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or reduce any amount payable on redemption or
repayment 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 (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
without the consent of the holder of each debt security so affected 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.

                                      A-27
<PAGE>

     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.

     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 implementing the agreement reached in the ECOFIN
Council meeting of 13 December 2001 or any law implementing or complying with,
or introduced in order to conform to, such Directive is introduced and a Paying
Agent has been designated within the European Union, the Issuer will 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 law.

                                      A-28
<PAGE>

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

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

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

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

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

     As used herein, the term "United States Alien" means any person who, for
United States federal income tax purposes, is a foreign corporation, a
non-resident alien individual, a non-resident alien fiduciary of a foreign
estate or trust, or a foreign partnership one or more of the members of which
is a foreign corporation, a non-resident alien individual or a non-resident
alien fiduciary of a foreign estate or trust.

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

                                      A-29
<PAGE>

                                 ABBREVIATIONS

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

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

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

     Under Uniform Gifts to Minors Act ________________________________
                                                  (State)

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

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

                                      A-30
<PAGE>

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

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

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

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

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

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

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

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

                                      A-31
<PAGE>

                           OPTION TO ELECT REPAYMENT

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

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

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

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

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

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

                                      A-32

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