Document:

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(SM) ("SPARQS")

                        7% SPARQS(R) DUE NOVEMBER 1, 2005
                            MANDATORILY EXCHANGEABLE
                          FOR SHARES OF COMMON STOCK OF
                                BIOGEN IDEC INC.

<TABLE>
==================================================================================================================
<S>                           <C>                          <C>                          <C>
ORIGINAL ISSUE DATE:          INITIAL REDEMPTION           INTEREST RATE:   % per       MATURITY DATE:
                                 DATE: See "Morgan            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              DATE(S): See "Interest       REPAYMENT
                                 "Morgan Stanley Call         Payment Dates" below.        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 OR
                                                                                           REDEMPTION: 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               PRICE APPLICABLE             ORIGINAL YIELD TO
   AGENT: N/A                    AND PAYMENT OF            UPON OPTIONAL                   MATURITY: N/A
                                 ADDITIONAL                REPAYMENT: N/A
                                 AMOUNTS: N/A
------------------------------------------------------------------------------------------------------------------
OTHER PROVISIONS:             IF YES, STATE INITIAL
   See below.                 OFFERING DATE: N/A
==================================================================================================================
</TABLE>

For the purposes of this SPARQS, the tenth paragraph of Section 2.08 of the
Amended and Restated Indenture, dated as of May 1, 1999, between the Issuer and
JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank) as Trustee,
shall not apply.

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

Maturity Date...............  November 1, 2005, subject to acceleration as
                              described below in "Price Event Acceleration" and
                              "Alternate

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                              Exchange Calculation in Case of an Event of
                              Default" and subject to extension if the Final
                              Call Notice Date is postponed in accordance with
                              the following paragraph.

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

                              In the event that the Final Call Notice Date is
                              postponed because it is not a Trading Day or due
                              to a Market Disruption Event or otherwise, the
                              Issuer shall give notice of such postponement as
                              promptly as possible, and in no case later than
                              two Business Days following the scheduled Final
                              Call Notice Date, (i) to the holder of this SPARQS
                              by mailing notice of such postponement by first
                              class mail, postage prepaid, to the holder's last
                              address as it shall appear upon the registry
                              books, (ii) to the Trustee by telephone or
                              facsimile confirmed by mailing such notice to the
                              Trustee by first class mail, postage prepaid, at
                              its New York office and (iii) to The Depository
                              Trust Company (the "Depositary") by telephone or
                              facsimile confirmed by mailing such notice to the
                              Depositary by first class mail, postage prepaid.
                              Any notice that is mailed in the manner herein
                              provided shall be conclusively presumed to have
                              been duly given, whether or not the holder of this
                              SPARQS receives the notice. Notice of the date to
                              which the Maturity Date has been rescheduled as a
                              result of postponement of the Final Call Notice
                              Date, if applicable, shall be included in the
                              Issuer's notice of exercise of the Morgan Stanley
                              Call Right.

Interest Payment Dates......  February 1, 2005, May 1, 2005, August 1, 2005 and
                              the Maturity Date.

                              If the scheduled Maturity Date is postponed due to
                              a Market Disruption Event or otherwise, the Issuer
                              shall pay interest on the Maturity Date as
                              postponed rather than on November 1, 2005, but no
                              interest will accrue on this SPARQS or on such
                              payment during the period from or after the
                              scheduled Maturity Date.

                                      A-3
<PAGE>

Record Date.................  Notwithstanding the definition of "Record Date" on
                              page 22 hereof, the Record Date for each Interest
                              Payment Date, including the Interest Payment Date
                              scheduled to occur on the Maturity Date, shall be
                              the date 5 calendar days prior to such scheduled
                              Interest Payment Date, whether or not that date is
                              a Business Day; provided, however, that in the
                              event that the Issuer exercises the Morgan Stanley
                              Call Right, no Interest Payment Date shall occur
                              after the Morgan Stanley Notice Date, except for
                              any Interest Payment Date for which the Morgan
                              Stanley Notice Date falls on or after the
                              "ex-interest" date for the related interest
                              payment, in which case the related interest
                              payment shall be made on such Interest Payment
                              Date; and provided, further, that accrued but
                              unpaid interest payable on the Call Date, if any,
                              shall be payable to the person to whom the Call
                              Price is payable. The "ex-interest" date for any
                              interest payment is the date on which purchase
                              transactions in the SPARQS no longer carry the
                              right to receive such interest payment.

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

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

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

                                      A-4
<PAGE>

                              postage prepaid, to the holder's last address as
                              it shall appear upon the registry books, (ii) to
                              the Trustee by telephone or facsimile confirmed by
                              mailing such notice to the Trustee by first class
                              mail, postage prepaid, at its New York office and
                              (iii) to the Depositary in accordance with the
                              applicable procedures set forth in the Blanket
                              Letter of Representations prepared by the Issuer.
                              Any notice which is mailed in the manner herein
                              provided shall be conclusively presumed to have
                              been duly given, whether or not the holder of this
                              SPARQS receives the notice. Failure to give notice
                              by mail or any defect in the notice to the holder
                              of any SPARQS shall not affect the validity of the
                              proceedings for the exercise of the Morgan Stanley
                              Call Right with respect to any other SPARQS.

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

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

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

                                      A-5
<PAGE>

                              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......  October 22, 2005; provided that if October 22,
                              2005 is not a Trading Day or if a Market
                              Disruption Event occurs on such day, the Final
                              Call Notice Date will be the immediately
                              succeeding Trading Day on which no Market
                              Disruption Event occurs.

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

Call Price..................  The Call Price with respect to any Call Date is an
                              amount of cash per each $         principal amount
                              of this SPARQS, as calculated by the Calculation
                              Agent, such that the sum of the present values of
                              all cash flows on each $          principal amount
                              of this SPARQS to and including the Call Date
                              (i.e., the Call Price and all of the interest
                              payments, including accrued and unpaid interest
                              payable on the Call Date), discounted to the
                              Original Issue Date from the applicable payment
                              date at the Yield to Call rate of   % per annum
                              computed on the basis of a 360-day year of twelve
                              30-day months, equals the Issue Price, as
                              determined by the Calculation Agent.

Exchange at Maturity........  At maturity, subject to a prior call of this
                              SPARQS for cash in an amount equal to the Call
                              Price by the Issuer as described under "Morgan
                              Stanley Call Right" above or any acceleration of
                              the SPARQS, upon delivery of this SPARQS to the
                              Trustee, each $        principal amount of this
                              SPARQS shall be applied by the Issuer as payment
                              for a number of shares of the common stock of
                              Biogen Idec

                                      A-6
<PAGE>

                              Inc. ("Biogen Stock") at the Exchange Ratio, and
                              the Issuer shall deliver with respect to each
                              $        principal amount of this SPARQS an amount
                              of Biogen Stock equal to the Exchange Ratio.

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

                              The Issuer shall, or shall cause the Calculation
                              Agent to, provide written notice to the Trustee at
                              its New York Office and to the Depositary, on
                              which notice the Trustee and Depositary may
                              conclusively rely, on or prior to 10:30 a.m. on
                              the Trading Day immediately prior to maturity of
                              this SPARQS (but if such Trading Day is not a
                              Business Day, prior to the close of business on
                              the Business Day preceding maturity of this
                              SPARQS), of the amount of Biogen 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 Biogen Stock (or of any other securities
                              included in Exchange Property, if applicable);
                              provided that if the maturity date of this SPARQS
                              is accelerated (x) because of a Price Event
                              Acceleration (as described under "Price Event
                              Acceleration" below) or (y) because of an Event
                              of Default Acceleration (as defined under
                              "Alternate Exchange Calculation in Case of an
                              Event of Default" below), the Issuer shall give
                              notice of such acceleration as promptly as
                              possible, and in no case later than (A) in the
                              case of an Event of Default Acceleration, two
                              Trading Days following such deemed maturity date
                              or (B) in the case of a Price Event Acceleration,
                              10:30 a.m. on the Trading Day immediately prior
                              to the date of acceleration (as defined under
                              "Price Event Acceleration" below), (i) to the
                              holder of this SPARQS by mailing notice of such

                                      A-7
<PAGE>

                              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 Biogen Stock, the Exchange
                              Property or any cash due with respect to such
                              acceleration by such accelerated maturity date.

                              The Issuer shall, or shall cause the Calculation
                              Agent to, deliver any such shares of Biogen Stock
                              (or any Exchange Property) and cash in respect of
                              interest and any fractional share of Biogen 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 Biogen Stock (and, if
                              applicable, any Exchange Property) and any cash in
                              respect of interest and any fractional share of
                              Biogen Stock (or any Exchange Property) and any
                              other cash due at maturity as described in the
                              preceding paragraph under this heading.

Price Event Acceleration....  If on any two consecutive Trading Days during the
                              period prior to and ending on the third Business
                              Day immediately preceding the Maturity Date, the
                              product of the Closing Price per share of Biogen
                              Stock and the Exchange Ratio is less than $0.20,
                              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

                                      A-8
<PAGE>

                              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 Biogen 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.

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

Exchange Ratio..............  0.1, subject to adjustment for corporate events
                              relating to Biogen Idec Inc. ("Biogen") described
                              under "Antidilution Adjustments" below.

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

                              o if Biogen Stock (or any such other security) is
                              listed or admitted to trading on a national
                              securities exchange, the last reported sale price,
                              regular way, of the principal

                                      A-9
<PAGE>

                              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 Biogen Stock (or
                              any such other security) is listed or admitted to
                              trading,

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

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

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

                                     A-10
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                              "security of the Nasdaq National Market" will
                              include a security included in any successor to
                              such system, and the term OTC Bulletin Board
                              Service will include any successor service
                              thereto.

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

Calculation Agent...........  MS & Co. and its successors.

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

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

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

                                  1. If Biogen 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 Biogen Stock.

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

                                     A-11
<PAGE>

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

                                  3. If Biogen issues rights or warrants to all
                              holders of Biogen Stock to subscribe for or
                              purchase Biogen Stock at an exercise price per
                              share less than the Closing Price of Biogen 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 Biogen Stock outstanding
                              immediately prior to the issuance of such rights
                              or warrants plus the number of additional shares
                              of Biogen Stock offered for subscription or
                              purchase pursuant to such rights or warrants and
                              the denominator of which shall be the number of
                              shares of Biogen Stock outstanding immediately
                              prior to the issuance of such rights or warrants
                              plus the number of additional shares of Biogen
                              Stock which the aggregate offering price of the
                              total number of shares of Biogen Stock so offered
                              for subscription or purchase pursuant to such
                              rights or warrants would purchase at the Closing
                              Price on the expiration date of such rights or
                              warrants, which shall be determined by multiplying
                              such total number of shares offered by the
                              exercise price of such rights or warrants and
                              dividing the product so obtained by such Closing
                              Price.

                                  4. There shall be no adjustments to the
                              Exchange Ratio to reflect cash dividends or other
                              distributions paid with respect to Biogen Stock
                              other than distributions described in paragraph 2,
                              paragraph 3 and clauses (i), (iv) and (v) of the
                              first sentence of paragraph 5 and Extraordinary
                              Dividends. "Extraordinary Dividend" means each of
                              (a) the full amount per share of Biogen Stock of
                              any cash dividend or special dividend or
                              distribution that is identified by Biogen as an

                                     A-12
<PAGE>

                              extraordinary or special dividend or distribution,
                              (b) the excess of any cash dividend or other cash
                              distribution (that is not otherwise identified by
                              Biogen as an extraordinary or special dividend or
                              distribution) distributed per share of Biogen
                              Stock over the immediately preceding cash dividend
                              or other cash distribution, if any, per share of
                              Biogen Stock that did not include an Extraordinary
                              Dividend (as adjusted for any subsequent corporate
                              event requiring an adjustment hereunder, such as a
                              stock split or reverse stock split) if such excess
                              portion of the dividend or distribution is more
                              than 5% of the Closing Price of Biogen Stock on
                              the Trading Day preceding the "ex-dividend date"
                              (that is, the day on and after which transactions
                              in Biogen Stock on an organized securities
                              exchange or trading system no longer carry the
                              right to receive that cash dividend or other cash
                              distribution) for the payment of such cash
                              dividend or other cash distribution (such Closing
                              Price, the "Base Closing Price") and (c) the full
                              cash value of any non-cash dividend or
                              distribution per share of Biogen Stock (excluding
                              Marketable Securities, as defined in paragraph 5
                              below). Subject to the following sentence, if any
                              cash dividend or distribution of such other
                              property with respect to Biogen Stock includes an
                              Extraordinary Dividend, the Exchange Ratio with
                              respect to Biogen Stock shall be adjusted on the
                              ex-dividend date so that the new Exchange Ratio
                              shall equal the product of (i) the prior Exchange
                              Ratio and (ii) a fraction, the numerator of which
                              is the Base Closing Price, and the denominator of
                              which is the amount by which the Base Closing
                              Price exceeds the Extraordinary Dividend. If any
                              Extraordinary Dividend is at least 35% of the Base
                              Closing Price, then, instead of adjusting the
                              Exchange Ratio, the amount payable upon exchange
                              at maturity shall be determined as described in
                              paragraph 5 below, and the Extraordinary Dividend
                              shall be allocated to Reference Basket Stocks in
                              accordance with the procedures for a Reference
                              Basket Event as described in clause (c)(ii) of
                              paragraph 5 below. The value of the non-cash
                              component of an Extraordinary Dividend shall be
                              determined on the ex-dividend date for such
                              distribution by the Calculation Agent, whose
                              determination shall be conclusive in the absence
                              of manifest error. A distribution on Biogen Stock
                              described in clause (i), (iv) or (v) of the first
                              sentence of paragraph 5 below shall cause an
                              adjustment to the Exchange Ratio

                                     A-13
<PAGE>

                              pursuant only to clause (i), (iv) or (v) of the
                              first sentence of paragraph 5, as applicable.

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

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

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

                                     A-14
<PAGE>

                              Maturity Date (taking into account any adjustments
                              for distributions described under clause (c)(i)
                              below); and

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

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

                                 (ii) if the Non-Stock Exchange Property Value
                                 is equal to or exceeds 25% of the Closing Price
                                 of Biogen Stock on the Trading Day immediately
                                 prior to the effective date relating to such
                                 Reorganization Event or, if Biogen Stock is
                                 surrendered exclusively for Non-Stock Exchange
                                 Property (in each case, a "Reference Basket
                                 Event"), an initially equal-dollar weighted
                                 basket of three Reference Basket Stocks (as
                                 defined below) with an aggregate value on the
                                 effective date of such Reorganization Event
                                 equal to

                                     A-15
<PAGE>

                                 the Non-Stock Exchange Property Value
                                 multiplied by the Exchange Ratio in effect for
                                 Biogen Stock on the Trading Day immediately
                                 prior to the effective date of such
                                 Reorganization Event. The "Reference Basket
                                 Stocks" shall be the three stocks with the
                                 largest market capitalization among the stocks
                                 that then comprise the S&P 500 Index (or, if
                                 publication of such index is discontinued, any
                                 successor or substitute index selected by the
                                 Calculation Agent in its sole discretion) with
                                 the same primary Standard Industrial
                                 Classification Code ("SIC Code") as Biogen;
                                 provided, however, that a Reference Basket
                                 Stock shall not include any stock that is
                                 subject to a trading restriction under the
                                 trading restriction policies of Morgan Stanley
                                 or any of its affiliates that would materially
                                 limit the ability of Morgan Stanley or any of
                                 its affiliates to hedge the SPARQS with respect
                                 to such stock (a "Hedging Restriction");
                                 provided further that if three Reference Basket
                                 Stocks cannot be identified from the S&P 500
                                 Index by primary SIC Code for which a Hedging
                                 Restriction does not exist, the remaining
                                 Reference Basket Stock(s) shall be selected by
                                 the Calculation Agent from the largest market
                                 capitalization stock(s) within the same
                                 Division and Major Group classification (as
                                 defined by the Office of Management and Budget)
                                 as the primary SIC Code for Biogen. Each
                                 Reference Basket Stock shall be assigned a
                                 Basket Stock Exchange Ratio equal to the number
                                 of shares of such Reference Basket Stock with a
                                 Closing Price on the effective date of such
                                 Reorganization Event equal to the product of
                                 (a) the Non-Stock Exchange Property Value, (b)
                                 the Exchange Ratio in effect for Biogen Stock
                                 on the Trading Day immediately prior to the
                                 effective date of such Reorganization Event and
                                 (c) 0.3333333.

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

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

                                     A-16
<PAGE>

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

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

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

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

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

                                     A-17
<PAGE>

                              the adjustments set forth in paragraphs 1 through
                              5 hereof.

                              If a Reference Basket Event occurs, the Issuer
                              shall, or shall cause the Calculation Agent to,
                              provide written notice to the Trustee at its New
                              York office, on which notice the Trustee may
                              conclusively rely, and to DTC of the occurrence of
                              such Reference Basket Event and of the three
                              Reference Basket Stocks selected as promptly as
                              possible and in no event later than five Business
                              Days after the date of the Reference Basket Event.

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

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

                              The Calculation Agent shall be solely responsible
                              for the determination and calculation of any
                              adjustments to the Exchange Ratio, any New Stock
                              Exchange Ratio or Basket Stock Exchange Ratio or
                              method of calculating the Exchange Property Value
                              and of any related determinations and calculations
                              with respect to any distributions of stock, other
                              securities or other property or assets (including
                              cash) in connection with any corporate event
                              described in paragraphs 1 through 5 above, and its
                              determinations and calculations with respect
                              thereto shall be conclusive in the absence of
                              manifest error.

                              The Calculation Agent shall provide information as
                              to any adjustments to the Exchange Ratio or to the
                              method of calculating the amount payable upon
                              exchange at maturity of the SPARQS made pursuant
                              to paragraphs 1 through 5 above upon written
                              request by any holder of this SPARQS.

                                     A-18
<PAGE>

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

                                 (i) a suspension, absence or material
                                 limitation of trading of Biogen Stock on the
                                 primary market for Biogen 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
                                 Biogen Stock as a result of which the reported
                                 trading prices for Biogen 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 Biogen Stock, if
                                 available, during the one-half hour period
                                 preceding the close of the principal trading
                                 session in the applicable market, in each case
                                 as determined by the Calculation Agent in its
                                 sole discretion; and

                                 (ii) a determination by the Calculation Agent
                                 in its sole discretion that any event described
                                 in clause (i) above materially interfered with
                                 the ability of the Issuer or any of its
                                 affiliates to unwind or adjust all or a
                                 material portion of the hedge with respect to
                                 the SPARQS due November 1, 2005, Mandatorily
                                 Exchangeable for Shares of Common Stock of
                                 Biogen Idec Inc.

                              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

                                     A-19
<PAGE>

                              in options contracts on Biogen 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 Biogen
                              Stock and (5) a suspension, absence or material
                              limitation of trading on the primary securities
                              market on which options contracts related to
                              Biogen 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 determined by the
                              Calculation Agent and shall be an amount in cash
                              equal to the lesser of (i) the product of (x) the
                              Closing Price of Biogen Stock (and/or the value of
                              any Exchange Property) as of the date of such
                              acceleration and (y) the then current Exchange
                              Ratio and (ii) the Call Price calculated as though
                              the date of acceleration were the Call Date (but
                              in no event less than the Call Price for the first
                              Call Date), in each case plus accrued but unpaid
                              interest to but excluding the date of
                              acceleration; provided that if the Issuer has
                              called the SPARQS in accordance with the Morgan
                              Stanley Call Right, the amount declared due and
                              payable upon any such acceleration shall be an
                              amount in cash for each $         principal amount
                              of this SPARQS equal to the Call Price for the
                              Call Date specified in the Issuer's notice of
                              mandatory exchange, plus accrued but unpaid
                              interest to but excluding the date of
                              acceleration.

Treatment of SPARQS for
United States Federal
Income Tax Purposes.........  The Issuer, by its sale of this SPARQS, and the
                              holder of this SPARQS (and any successor holder
                              of, or holder of a beneficial interest in, this
                              SPARQS), by its respective purchase hereof, agree
                              (in the absence of an administrative determination
                              or judicial ruling to the contrary) to
                              characterize each $       principal amount of this
                              SPARQS for all tax purposes as an investment unit

                                     A-20
<PAGE>

                              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"), Biogen 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 Biogen Stock pursuant to the
                              Terminable Forward Contract (the "Deposit"),
                              which Deposit bears a quarterly compounded yield
                              of    % per annum.

                                     A-21
<PAGE>

     Morgan Stanley, a Delaware corporation (together with its successors and
assigns, the "Issuer"), for value received, hereby promises to pay to CEDE &
CO., or registered assignees, the amount of Biogen 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-22
<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 calendar days
prior to the Maturity Date or any redemption or repayment date, for payments of
principal, as the case may be.

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

                                     A-23
<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-24
<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-25
<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, provided that if this Note
is issued with original

                                     A-26
<PAGE>

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

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

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

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

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

                                     A-27
<PAGE>

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

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

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

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

                                     A-28
<PAGE>

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

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

     If the face hereof indicates that this Note is subject to "Tax Redemption
and Payment of Additional Amounts," this Note may be redeemed, as a whole, at
the option of the Issuer at any time prior to maturity, upon the giving of a
notice of redemption as described below, at a redemption price equal to 100% of
the principal amount hereof, together with accrued interest to the date fixed
for redemption (except that if this Note is subject to "Modified Payment upon
Acceleration or Redemption," such redemption price would be limited to the
aggregate principal amount hereof multiplied by the sum of the Issue Price
specified on the face hereof (expressed as a 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

                                     A-29
<PAGE>

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

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

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

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

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

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

                                     A-30
<PAGE>

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

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

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

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

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

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

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

                                     A-31
<PAGE>

than as provided in the antidilution provisions or other similar adjustment
provisions of the debt securities or otherwise in accordance with the terms
thereof), or impair or affect the rights of any holder to institute suit for the
payment thereof or (b) reduce the aforesaid percentage in principal amount of
debt securities the consent of the holders of which is required for any such
supplemental indenture.

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

     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

                                     A-32
<PAGE>

there shall be such an agency, the Issuer shall keep the Trustee advised of the
names and locations of such agencies, if any are so designated. If any European
Union Directive on the taxation of savings comes into force, the Issuer will, to
the extent possible as a matter of law, maintain a Paying Agent in a member
state of the European Union that will not be obligated to withhold or deduct tax
pursuant to any such Directive or any law implementing or complying with, or
introduced in order to conform to, such Directive.

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

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

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

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

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

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

                                     A-33
<PAGE>

     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-34
<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-35
<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-36
<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-37
<PAGE>EXHIBIT 10.1

 

SUPPLEMENTAL AGREEMENT TO

JOINT VENTURE AGREEMENT DATED DECEMBER 19, 1997

THIS SUPPLEMENTAL AGREEMENT is made this the 17th day of September, 2004

BETWEEN

	1.	 	CHARTERED SEMICONDUCTOR MANUFACTURING LTD (“CSM”), a company incorporated
under the laws of Singapore and having its registered address at 60
Woodlands Industrial Park D Street 2 Singapore 738406 on the one part; and
	 
	2.	 	AGERE SYSTEMS SINGAPORE PTE LTD (“AGERE”), a company incorporated under
the laws of Singapore and having its registered address at 3 Kallang
Sector, Kolam Ayer Industrial Park, Singapore 349278 on the other part.

WHEREAS

	A.	 	A Joint Venture Agreement relating to the incorporation and management of
SILICON MANUFACTURING PARTNERS PTE LTD (“SMP”) was entered into between
CSM and LUCENT TECHNOLOGIES MICROELECTRONICS PTE LTD (“Lucent”) on 19
December 1997, and subsequently assigned by Lucent to AGERE (the “JVA”) on
1 February 2001.
	 
	B.	 	AGERE and CSM further entered into the SMP Cash Distribution Agreement on
5 March 2004 (“Cash Distribution Agreement”) to address the cash
investment imbalances between AGERE and CSM in SMP, and to achieve a cash
investment in SMP in the proportion of the equity shareholdings of AGERE
and CSM in SMP.
	 
	C.	 	As contemplated under the Cash Distribution Agreement, AGERE and CSM now
desire to make amendments to the JVA and Articles of Association of SMP on
the terms and subject to the conditions set out hereunder.

NOW THEREFORE, the parties hereby agree as follows:

	1.	 	AMENDMENTS TO THE JVA
	 
	 	 	The parties agree that the following Clauses under the JVA shall be
amended as follows:
	 
	1.1	 	Clause 1
	 
	1.1.1	 	Clause 1 shall be amended by inserting the following word and its
corresponding definition after the word “Affiliate” and its corresponding
definition:-
	 
	 	 	“Agere” means Agere Systems Singapore Pte Ltd, a company incorporated in
Singapore with its registered address at 3 Kallang Sector, Kolam Ayer
Industrial Park, Singapore 349278;”
	 
	 	 	In connection thereto, the parties agree that all references to the word
“Lucent” in the JVA, other than in Recital A, the definitions of
“Completion”, “Lucent Fiscal Month”, “Lucent Fiscal Quarter”, “Lucent
Fiscal Year”, Clauses 3(E), 4, 6, 7(A)(vi), 7A(vii), 7A(viii), 7(B),
10(C), 10(E)(ii), 14(A), 14(F), 19(A), 19(F), 19(L) and Schedule A, shall
be deleted and substituted with the word “Agere”.

1

 

	1.1.2	 	Under the definition of “Indebtedness”, sub-clause (iv) shall be amended
by deleting it in its entirety and substituting it with the following:-

	 	“(iv)	 	all obligations of such Person as lessee under leases that
have been or should be, in accordance with Singapore GAAP, U.S. GAAP
or any other accounting principles as approved by the Board,
recorded as capital leases;”

	1.1.3	 	Under the definition of “Net Book Value”, the first paragraph shall be
amended by deleting it in its entirety and substituting it with the
following:-
	 
	 	 	“means the net worth (assets less liabilities) of the Company as of the
most recently audited balance sheet date as updated to the Net Book Value
Request Date or the Termination Date, as applicable. The net worth of
the Company is derived by adding the original cost value of the Company’s
assets less normal charges for depreciation and other adjustments as
prescribed by Singapore GAAP, U.S. GAAP or any other accounting
principles as approved by the Board, and subtracting the liabilities of
the Company.”
	 
	1.2	 	Clause 7(A)
	 
	1.2.1	 	Clause 7(A)(v) shall be amended by deleting it in its entirety and
substituting it with the following:

	 	“(v)	 	for each financial year, the Company shall, at its expense,
prepare annual accounts, in each case in accordance with Singapore
GAAP, U.S. GAAP or any other accounting principles as approved by
the Board, and in compliance with all applicable legislation in
respect of such financial year and shall procure that such accounts
are audited as soon as practicable and shall supply copies of the
same, both in draft and final form, to each of the Shareholders
within 90 days (in the case of the draft form) and 120 days (in the
case of the final form) after the end of the financial year of the
Company;”

	1.2.2	 	Clause 7(A)(vi) shall be amended by deleting it in its entirety and
substituting it with the following:

	 	“(vi)	 	the Company shall, at its expense, (a) prepare interim
accounts of the Company covering the period beginning on January 1
and ending on September 30 of each calendar year, (b) procure that
such interim accounts are audited within 60 days after the end of
the Agere Fiscal Year in accordance with Singapore GAAP, U.S. GAAP
or any other accounting principles as approved by the Board, and in
compliance with all applicable legislation in respect of such
interim period and (c) supply copies of such audited interim
accounts in final form to Agere within 60 days after the end of the
Agere Fiscal Year;”

	1.2.3	 	Clause 7(A)(viii) shall be amended by including the words “,U.S. GAAP or
any other accounting principles as approved by the Board” after the words
“in each case in accordance with Singapore GAAP” in the last line.
	 
	1.3	 	Clause 12
	 
	 	 	Clause 12 shall be amended by deleting it in its entirety and
substituting it with the following:

	 	“12.	 	DIVIDEND POLICY

2

 

	 	 	 	The dividends of the Company shall be recommended by the Board
from time to time, and to the extent permitted by law, determined
on a year to year basis and not on a cumulative basis. The Company
shall procure that in making any recommendation therefor, the
Board shall endeavour to distribute by way of dividends as soon as
permissible under applicable laws, the maximum allowable amount of
its profits available for distribution after taking into account
the working capital requirement and growth plans of the Company
and other provisions and reserves as may be required by law. It is
not the intention of the Shareholders for the Company to
accumulate excess retained earnings beyond what is reasonably
required for the needs of the Company. Accordingly, and in
furtherance of the foregoing, each Shareholder shall take such
action as may be necessary to procure that the Company shall
distribute all available cash to and among the Shareholders during
such times and in such amounts as contemplated by this Agreement
and in the Articles.”

	2.	 	AMENDMENT TO THE ARTICLES OF ASSOCIATION
	 
	2.1	 	The parties hereto agree that the Articles of SMP shall be amended in
accordance with Clause 5(I)(g) of the JVA, in substantially the same form
as set out in Annex 1, to ensure that the provisions in the Articles are
consistent with the terms and conditions of the JVA as supplemented by
this Supplemental Agreement.
	 
	2.2	 	For the purposes of Clauses 2.3 and 2.4:

	 	2.2.1	 	“Cumulative Profit” or “Cumulative Loss” means the aggregate
of all Quarterly A Profits and Quarterly A Losses or Quarterly B
Profits and Quarterly B Losses (as the case may be) less any Interim
Dividends declared to the party with respect to such Profits at any
time during any Financial Year;
	 
	 	2.2.2	 	“Financial Year” means any financial year of SMP, commencing
from the financial year beginning on 1 January 2004;
	 
	 	2.2.3	 	“Quarterly A Loss” means, with respect to each quarter of
any Financial Year, the negative figure that results from the
application of the formula contained in Article 119A(4) of the
Articles of SMP save that any reference to “financial year” in the
definitions of “AGS”, “ATMC”, “AO” and “ATAX” shall be replaced with
“quarter of that Financial Year”;
	 
	 	2.2.4	 	“Quarterly A Profit” means, with respect to each quarter of
any Financial Year, the positive figure that results from the
application of the formula contained in Article 119A(4) of the
Articles of SMP save that any reference to “financial year” in the
definitions of “AGS”, “ATMC”, “AO” and “ATAX” shall be replaced with
“quarter of that Financial Year”;
	 
	 	2.2.5	 	“Quarterly B Loss” means, with respect to each quarter of
any Financial Year, the negative figure that results from the
application of the formula contained in Article 119A(5) of the
Articles of SMP save that any reference to “financial year” in the
definitions of “BGS”, “BTMC”, “BO” and “BTAX” shall be replaced with
“quarter of that Financial Year”;
	 
	 	2.2.6	 	“Quarterly B Profit” means, with respect to each quarter of
any Financial Year, the positive figure that results from the
application of the formula contained in Article 119A(5) of the
Articles of SMP save that any reference to “financial year” in the
definitions of “BGS”, “BTMC”, “BO” and “BTAX” shall be replaced with
“quarter of that Financial Year”;

3

 

	 	2.2.7	 	“Quarterly Loss” means, with respect to each quarter of any
Financial Year, the Quarterly A Loss or the Quarterly B Loss; and
	 
	 	2.2.8	 	“Quarterly Profit” means, with respect to each quarter of
any Financial Year, the Quarterly A Profit or the Quarterly B
Profit.

	2.3	 	To the extent permitted by law and without prejudice to the generality of
Clause 12 of the JVA:

	 	2.3.1	 	in the event that there is a Quarterly A Profit or a
Quarterly B Profit (as the case may be) in respect of any quarter of
a Financial Year, the parties hereto agree that if so requested by
the party entitled to such Quarterly Profit (the “Entitled Party”)
(it being understood that CSM is entitled to the Quarterly A Profit
and AGERE is entitled to the Quarterly B Profit), the Company shall
declare and distribute to the Entitled Party as interim dividends
(the “Interim Dividend”):

	 	(i)	 	the full amount of the Quarterly Profit (or
such lower amount as the Entitled Party may elect) and,
subject to the other provisions hereof, each party agrees to
take such action as may be necessary to procure and ensure
that the Directors appointed by such party shall vote in
favour of a board resolution declaring and distributing such
Interim Dividend to the Entitled Party; or
	 
	 	(ii)	 	the full amount of the Cumulative Profit (or
such lower amount as the Entitled Party may elect) in the
event that there have been no prior application of Clause
2.3.1(i) for any earlier quarter(s) above such that the
Quarterly Profit for any earlier quarter(s) of that Financial
Year had not been declared and distributed, and, subject to
the other provisions hereof, each party agrees to take such
action as may be necessary to procure and ensure that the
Directors appointed by such party shall vote in favour of a
board resolution declaring and distributing such Interim
Dividend to the Entitled Party;

	 	2.3.2	 	in the event that there is a Cumulative Loss and the amount
of such Cumulative Loss for which a party is responsible is greater
than US$5,000,000 (the “Excess Loss”) (it being understood that, for
the purpose of this Clause 2.3.2 and Clause 2.3.4, CSM shall be
responsible for all Quarterly A Losses and AGERE shall be
responsible for all Quarterly B Losses), then the parties hereto
agree that SMP shall bill the party responsible for such Excess Loss
for the purpose of reducing the Excess Loss to zero and the parties
hereto agree that the declaration of any Interim Dividend shall be
made by the Board of Directors only after the Cumulative Loss has
been so reduced. At that point, the Interim Dividend that shall be
declared and distributed to the Entitled Party shall be reduced by
the amount of the Cumulative Loss;
	 
	 	2.3.3	 	in any decision relating to making a declaration of the
Interim Dividend or the amount of Interim Dividend to be declared
pursuant to Clauses 2.3.1 and 2.3.2 above, the Directors shall
ensure that there will be cash in the Company in excess of
US$10,000,000 after the declaration and distribution of such Interim
Dividend, in compliance with Clause 6 of the Cash Distribution
Agreement;
	 
	 	2.3.4	 	unless otherwise agreed by the parties, in the event that at
the end of any Financial Year, there is a Cumulative Loss, then the
parties hereto agree that SMP shall bill the party responsible for
such Loss for the purpose of reducing the Cumulative Loss to zero no
later than the end of that Financial Year; and

4

 

	 	2.3.5	 	in the event that any Director, in good faith, requests a
legal opinion with respect to the declaration and distribution of an
Interim Dividend, the parties shall procure that SMP shall at its
cost obtain such an opinion for the benefit of the Directors of the
Board prior to any such declaration and distribution.

	2.4	 	In the event of any breach by either party of its obligations under
Clause 2.3, the party in breach covenants with the other party to
indemnify and save harmless the other party from and against any and all
losses arising as a result of the other party receiving an Interim
Dividend or a final dividend (if any) that is less than the amount such
party would receive if the party in breach had complied with its
obligations under Clause 2.3.
	 
	3.	 	This Supplemental Agreement shall constitute an instrument embodying
valid amendments of the JVA. The terms of this Supplemental Agreement
shall prevail over the terms of the JVA to the extent that the terms
thereof are inconsistent or conflict with the terms contained in this
Supplemental Agreement. In all other respects, the JVA remains unchanged
and in full force and effect as between the parties. The terms of the Cash
Distribution Agreement shall prevail over the terms of this Supplemental
Agreement to the extent that the terms hereof are inconsistent or conflict
with the terms contained in the Cash Distribution Agreement.
	 
	5.	 	Unless otherwise expressly defined, words and phrases as used in this
Supplemental Agreement shall have the same meaning attributed to them in
the JVA.
	 
	6.	 	This Supplemental Agreement shall be governed by and construed in
accordance with the laws of Singapore.

5

 

IN WITNESS WHEREOF the parties have executed this Supplemental Agreement on the
date above written.

	 	 	 	 	 	 	 
	Signed by

	 	 	)	 	 	 
	George Thomas

	 	 	)	 	 	 
	for and on behalf of

	 	 	)	 	 	/s/ George Thomas
	Chartered Semiconductor Manufacturing Ltd

	 	 	)	 	 	 
	in the presence of
	 	 	 	 	 	 
	Fidelia Yeo
	 	 	 	 	 	 
	/s/ Fidelia Yeo
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Signed by

	 	 	)	 	 	 
	John Docherty

	 	 	)	 	 	 
	for and on behalf of

	 	 	)	 	 	/s/ John Docherty
	Agere Systems Singapore Pte Ltd

	 	 	)	 	 	 
	in the presence of
	 	 	 	 	 	 
	Gary A. Henningsen, Jr.
	 	 	 	 	 	 
	/s/ Gary A. Henningsen, Jr.
	 	 	 	 	 	 

6

 

ANNEX 1

FORM OF AMENDMENTS TO THE

ARTICLES OF ASSOCIATION OF SMP

Article 2

Article 2 shall be amended by deleting the word “Lucent” and its corresponding
definition (and all references thereto in the Articles) in its entirety and
substituting it with the following word and its corresponding definition:-

		
	“Agere” 	(i) Agere Systems Singapore Pte Ltd, a company incorporated in
Singapore with its registered office at 3 Kallang Sector, Kolam
Ayer Industrial Park, Singapore 349278; or (ii) any Permitted
Transferee of Agere Systems Singapore Pte Ltd which holds all the
issued Class B ordinary shares at any time in the capital of the
Company.”

Article 85(7)

Article 85(7) shall be deleted in its entirety.

Article 85(8)

Article 85(8) shall be amended by deleting the words “Notwithstanding paragraph
(7) above,” in the first line of the Article.

Article 105

Article 105 shall be amended by deleting the last sentence in its entirety and
substituting it with the following:-

“The expressions “in writing” and “signed” include approval by any Director by
telefax, telex, cable or telegram or any form of electronic communication
approved by the Directors for such purpose from time to time incorporating, if
the Directors deem necessary, the use of security and/or identification
procedures and devices approved by the Board.”

Article 118

Article 118 shall be amended by deleting it in its entirety and substituting it
with the following:

“118. Subject to the provisions of Article 109, the Company may by Ordinary
Resolution declare dividends but (without prejudice to the powers of the
Company to pay interest on share capital as hereinbefore provided) no dividend
shall be payable except out of the profits of the Company, to the extent
permitted by law, determined on a year to year basis and not on a cumulative
basis, or in excess of the amount recommended by the Board.”

Article 119A(2)

Article 119A(2) shall be amended by deleting the following words and their
corresponding definitions:

“FY Loss” means the overall net loss of the Company for a financial year as
disclosed in the audited accounts of the Company for that financial year;

7

 

“A Loss” means the negative figure derived from the application of the formula
contained in paragraph (4) below;

“B Loss” means the negative figure derived from the application of the formula
contained in paragraph (5) below;

“Apportioned Loss” means, with respect to any financial year, in the case of
CSM, the A Loss or, in the case of Lucent, the B Loss, as applicable;”

Article 119A(3)

Article 119A(3) shall be amended by deleting it in its entirety and
substituting it with the following:

“119A(3) Except for the financial years of the Company prior to the financial
year beginning on 1 January 2004 for which the FY Profit for each such
financial year shall be apportioned between CSM and Agere in the manner agreed
by the Board, the FY Profit for each financial year of the Company shall be
apportioned between CSM and Agere in accordance with sub-paragraph 7(iii)
below.”

Article 119A(4)

Article 119A(4) shall be amended by deleting it in its entirety and
substituting it with the following:

	“119A(4)	 	The A Profit for a financial year shall be determined by applying the formula:-

AP = AGS - ATMC - AO - ATAX

where:-

“AP” means the A Profit, where AGS - ATMC - AO is a positive figure;

“AGS” means the total Net Sales derived in that financial year from sales of wafers (including Net Sales
derived from sales of wafers to CSM that are subsequently sold by CSM to Agere or any other person), or the provision
of services, by the Company to, or at the direction of, CSM;

“ATMC” means the cost of goods sold incurred by the Company
in that financial year in respect of the AGS, and ATMC
shall, in turn, be determined by applying the following
formula:

ATMC = Material Cost + Depreciation + Fixed
Overheads + Semi-Fixed Overheads + Variable Overheads
+/(-) Inventory Change

where:

“Material Cost” means the cost of raw wafers used by CSM;

“Depreciation” and “Fixed Overheads” means CSM’s
proportionate share of the total depreciation and
fixed Overheads which shall be the sum equal to the
total depreciation and fixed Overheads multiplied by
CSM’s Shareholding Percentage;

8

 

“Semi-Fixed Overheads” means the amount obtained
by multiplying 70% of total semi-fixed Overheads by
CSM’s Shareholding Percentage and 30% of total
semi-fixed Overheads by CSM’s proportionate share of
equivalent wafer starts and is to be calculated by
month for each month. The total amount for the
financial year is the aggregate amount of all the
months in the financial year;

“Variable Overheads” means CSM’s proportionate
share of equivalent wafer starts by month for each
month for shared Overheads and 100% of Overheads
incurred by CSM. The total amount for the financial
year is the aggregate amount of all the months in the
financial year;

“Inventory Change” means the income statement
impact of the value of CSM’s inventory holdings for
the period. Inventory change is calculated using
Standard Cost and adjusted via the capitalisation of
variances on a monthly basis. The total amount for
the financial year is the aggregate amount of all the
months in the financial year;

“AO” means the amount obtained by multiplying CSM’s
Shareholding Percentage by the Overheads for that financial
year; and

“ATAX” means CSM’s proportionate share of the total income
tax payable on shared income subject to income tax, which
shall be based on CSM’s Shareholding Percentage, as well as
100% of income tax payable on any of CSM’s income subject
to income tax.”

Article 119A(5)

Article 119A(5) shall be amended by deleting it in its entirety and
substituting it with the following:

	“119A(5)	 	The B Profit for a financial year shall be determined by applying the formula:-

BP = BGS - BTMC - BO - BTAX

where:-

“BP” means the B Profit, where BGS - BTMC -BO is a positive figure;

“BGS” means the total Net Sales in that financial year
derived from sales of wafers (including Net Sales derived
from sales of wafers to Agere that are subsequently sold by
Agere to CSM or any other person), or the provision of
services, by the Company to, or at the direction of, Agere;

9

 

“BTMC” means the cost of goods sold incurred by the
Company in that financial year in respect of the BGS, and
BTMC shall, in turn, be determined by applying the following
formula:

BTMC = Material Cost + Depreciation + Fixed
Overheads + Semi-Fixed Overheads + Variable Overheads
+/(-) Inventory Change

where:

“Material Cost” means the cost of raw wafers used by Agere;

“Depreciation” and “Fixed Overheads” means
Agere’s proportionate share of the total depreciation
and fixed Overheads which shall be the sum equal to
the total depreciation and fixed Overheads multiplied
by Agere’s Shareholding Percentage;

“Semi-Fixed Overheads” means the amount obtained
by multiplying 70% of total semi-fixed Overheads by
Agere’s Shareholding Percentage and 30% of total
semi-fixed Overheads by Agere’s proportionate share
of equivalent wafer starts and is to be calculated by
month for each month. The total amount for the
financial year is the aggregate amount of all the
months in the financial year;

“Variable Overheads” means Agere’s proportionate
share of equivalent wafer starts by month for each
month for shared Overheads and 100% of Overheads
incurred by Agere. The total amount for the financial
year is the aggregate amount of all the months in the
financial year;

“Inventory Change” means the income statement
impact of the value of Agere’s inventory holdings for
the period. Inventory change is calculated using
Standard Cost and adjusted via the capitalisation of
variances on a monthly basis. The total amount for
the financial year is the aggregate amount of all the
months in the financial year;

“BO” means the amount obtained by multiplying Agere’s
Shareholding Percentage by the Overheads for that financial
year; and

“BTAX” means Agere’s proportionate share of the total income
tax payable on shared income subject to income tax, which
shall be based on Agere’s Shareholding Percentage, as well
as 100% of income tax payable on any of Agere’s income
subject to income tax.”

Article 119A(6)

Article 119A(6) shall be amended by deleting it in its entirety and
substituting it with the following:

10

 

“119A(6)    Notwithstanding anything contained in the foregoing paragraphs, the
amount derived from AP + BP for a financial year must be equal to the FY Profit
for that financial year.”

Article 119A(7)(iii)

Article 119A(7)(iii) shall be amended by deleting it in its entirety and
substituting it with the following:

“119A(7)(iii)    To the extent permitted by law, the aggregate amount
distributable as dividends pursuant to sub-paragraphs (i) and (ii) above with
respect to any financial year in which there is a FY Profit shall be
distributed such that CSM, as holder of the Class A Shares, shall be entitled
to have distributed to it dividends based on the A Profit and Agere, as holder
of the Class B Shares, shall be entitled to have distributed to it dividends
based on the B Profit.”

Article 119A(8)

Article 119A(8) shall be amended by deleting it in its entirety and
substituting it with the following:

“119A(8)    The Members shall procure that the Company shall maintain at all times
a memo account to track the Apportioned Profits and distributions with respect
to each Member for each financial year of the Company, which account shall be
made available at all reasonable times for inspection by the Members or their
representatives by prior appointment during office hours.”

11

 

ANNEX 2

DEFINITIONS IN RELATION TO ARTICLES 119A(4) AND 119A(5)

SMP COST STRUCTURE:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	BASIS OF PARTNERS’ SPLIT

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	AGR
	 	CHRT

	FIXED OVERHEAD:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	[1]

	 	RENTAL
	 	 	 	 	 	 	 	 	 	 	 	 	51	%	 	 	49	%
	[2]

	 	PROPERTY TAX
	 	 	 	 	 	 	 	 	 	 	 	 	51	%	 	 	49	%
	[3]

	 	CHRT ALLOCATION
	 	 	 	 	 	 	 	 	 	 	 	 	51	%	 	 	49	%
	[4]

	 	CHRT ALLOC –QA RELIABILITY
	 	 	 	 	 	 	 	 	 	 	 	NA
	 	 	100	%
	SEMI-FIXED OVERHEAD:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	[1]

	 	OH PAYROLL
	 	-FIXED
	 	 	70	%	 	 	 	 	 	 	51	%	 	 	49	%
	 	 	 	 	-VAR	 	 	30	%	 	 	-	 	 	Equivalent Start by partners
	[2]

	 	UPKEEP OF ASSETS
	 	-FIXED
	 	 	70	%	 	 	 	 	 	 	51	%	 	 	49	%
	 	 	 	 	-VAR	 	 	30	%	 	 	-	 	 	Equivalent Start by partners
	[3]

	 	UTILITIES
	 	-FIXED
	 	 	70	%	 	 	 	 	 	 	51	%	 	 	49	%
	 	 	 	 	-VAR	 	 	30	%	 	 	-	 	 	Equivalent Start by partners
	[4]

	 	INSURANCE
	 	-FIXED
	 	 	70	%	 	 	 	 	 	 	51	%	 	 	49	%
	 	 	 	 	-VAR	 	 	30	%	 	 	-	 	 	Equivalent Start by partners
	[5]

	 	OTHER FAC RELATED
	 	-FIXED
	 	 	70	%	 	 	 	 	 	 	51	%	 	 	49	%
	 	 	 	 	-VAR	 	 	30	%	 	 	-	 	 	Equivalent Start by partners
	VARIABLE OVERHEAD:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	PRODUCTION SUPPLIES	 	 	 	 	100	%	 	 	 	 	 	Equivalent Start by partners
	PROCESS WAFERS	 	 	 	 	100	%	 	 	 	 	 	Chartered
	TECH COST /MASK& RETICLES	 	 	 	 	100	%	 	 	 	 	 	Chartered
	SUBCON	 	 	 	 	100	%	 	 	 	 	 	Chartered
	MISC OVERHEAD	 	 	 	 	100	%	 	 	 	 	 	Equivalent Start by partners

12

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