Document:

Exhibit
      4.1

     

    FORM
      OF FLOATING RATE SENIOR NOTE

     

    
      	
              REGISTERED

            	
              REGISTERED

            
	
              No.
                FLR-1

            	
              U.S.
                $

            
	 	
              CUSIP:
                61747W745

            

    

     

    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.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    MORGAN
      STANLEY

    SENIOR
      GLOBAL MEDIUM-TERM NOTES, SERIES F

    (Floating
      Rate)

    

    PROTECTED
      ABSOLUTE RETURN BARRIER NOTE DUE JUNE 20, 2009

    BASED
      ON THE VALUE OF THE S&P 500®
      INDEX

     

    
      	
              BASE
                RATE: None

            	
              ORIGINAL
                ISSUE DATE:

            	
              MATURITY
                DATE: 

              See  “Maturity
                Date” below.

            
	
              INDEX
                MATURITY: N/A

            	
              INTEREST
                ACCRUAL DATE: N/A

            	
              INTEREST
                PAYMENT DATE(S): N/A

            
	
              SPREAD
                (PLUS OR MINUS): N/A

            	
              INITIAL
                INTEREST RATE: N/A

            	
              INTEREST
                PAYMENT PERIOD: N/A

            
	
              SPREAD
                MULTIPLIER: N/A

            	
              INITIAL
                INTEREST RESET DATE: N/A

            	
              INTEREST
                RESET PERIOD: N/A

            
	
              REPORTING
                SERVICE: N/A

            	
              MAXIMUM
                INTEREST RATE: N/A

            	
              INTEREST
                RESET DATE(S): N/A

            
	
              INDEX
                CURRENCY: N/A

            	
              MINIMUM
                INTEREST RATE: N/A

            	
              CALCULATION
                AGENT: See “Calculation Agent” below.

            
	
              EXCHANGE
                RATE AGENT: N/A

            	
              INITIAL
                REDEMPTION DATE: N/A

            	
              SPECIFIED
                CURRENCY:

              U.S.
                dollars

            
	
              APPLICABILITY
                OF MODIFIED PAYMENT UPON ACCELERATION: See “Alternate Exchange Calculation
                in Case of an Event of Default” below.

            	
              INITIAL
                REDEMPTION PERCENTAGE: N/A

            	
              IF
                SPECIFIED CURRENCY OTHER THAN U.S. DOLLARS, OPTION TO ELECT PAYMENT
                IN
                U.S. DOLLARS: N/A

            
	 	
              ANNUAL
                REDEMPTION PERCENTAGE REDUCTION: N/A

            	
              DESIGNATED
                CMT TELERATE PAGE: N/A

            
	 	
              OPTIONAL
                REPAYMENT DATE(S): N/A

            	
              DESIGNATED
                CMT MATURITY INDEX: N/A

            
	 	
              REDEMPTION
                NOTICE PERIOD: N/A

            	 
	 	
              TAX
                REDEMPTION AND PAYMENT OF ADDITIONAL AMOUNTS: No

            	 
	 	
              IF
                YES, STATE INITIAL OFFERING DATE: N/A

            	
              OTHER
                PROVISIONS: See below.

            

    

     

    
      	
              Maturity
                Date

            	 	
              June
                20, 2009, subject to extension if the Index Valuation Date is postponed
                in
                accordance with the definition thereof.  If the Index Valuation
                Date is postponed so that it falls less than two scheduled Business
                Days
                prior to the scheduled Maturity
                Date,

            

    

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    
 

    
      	 	 	
              the
                Maturity Date shall be the second scheduled Business Day following
                the
                Index Valuation Date as postponed.

               

            
	 	 	
              In
                the event that the Maturity Date of this Note is postponed due to
                postponement of the Index Valuation Date, as described in the immediately
                preceding paragraph, the Issuer shall give notice of such postponement
                and, once it has been determined, of the date to which the Maturity
                Date
                has been rescheduled (i) to the holder of this Note 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 Note receives the
                notice.  The Issuer shall give such notice as promptly as
                possible, and in no case later than (i) with respect to notice of
                postponement of the Maturity Date, the Business Day immediately following
                the scheduled Index Valuation Date and (ii) with respect to notice
                of the
                date to which the Maturity Date has been rescheduled, the Business
                Day
                immediately following the actual Index Valuation Date.

               

            
	
              Observation
                Period

            	 	
              The
                period of regular trading hours on each Index Business Day on which
                there
                is no Market Disruption Event with respect to the Index, beginning
                on, and
                including, the Index Business Day following the Pricing Date and
                ending
                on, and including, the Index Valuation Date.

               

            
	
              Pricing
                Date

            	 	
               

               

            
	
              Authorized
                Denominations

            	 	
              $10
                and integral multiples thereof.

               

            
	
              Stated
                Principal Amount

            	 	
              $10

               

            
	
              Index

            	 	
              S&P
                500®
                Index

            

    

     

     

    
      
        
        

      

      
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              Payment
                at Maturity

            	 	
              At
                maturity, upon delivery of this Note to the Trustee, the Issuer shall
                pay
                with respect to the Stated Principal Amount an amount in cash equal
                to $10
                plus the Supplemental Redemption Amount, if any, as determined by
                the
                Calculation Agent.

               

            
	 	 	
              The
                Payment at Maturity per Stated Principal Amount shall not be less
                than the
                Stated Principal Amount of $10.

            
	 	 	 
	 	 	
              The
                Issuer shall, or shall cause the Calculation Agent to, (i) provide
                written
                notice to the Trustee and to the Depositary, on which notice the
                Trustee
                and the Depositary may conclusively rely, of the amount of cash to
                be
                delivered with respect to the Stated Principal Amount, on or prior
                to
                10:30 a.m. on the Business Day preceding the Maturity Date, and (ii)
                deliver the aggregate cash amount due with respect to this Note to
                the
                Trustee for delivery to the holder of this Note, on the Maturity
                Date.

               

            
	
              Supplemental
                Redemption Amount

            	 	
              The
                Supplemental Redemption Amount with respect to the Stated Principal
                Amount
                shall equal:

               

            
	 	 	
              if
                at all times during the Observation Period the Index
                Value is within the Index Range, $10 times the Absolute Index
                Return; or

               

            
	 	 	
              if
                at any time on any day during the Observation Period the
                Index Value is outside the Index Range, $0.

               

            
	 	 	
              The
                Supplemental Redemption Amount shall not be less than $0.

               

            
	 	 	
              The
                Calculation Agent shall calculate the Supplemental Redemption Amount
                on
                the Index Valuation Date.

               

            
	
              Index
                Value

            	 	
              The
                Index Value at any time on any day during the Observation Period
                shall
                equal the value of the Index published at such time on such day on
                Bloomberg page “SPX” or any successor page, or in the case of any
                Successor Index (as defined below), the Bloomberg page or successor
                page
                for any such Successor Index.

            

    

     

     

    
      
        
        

      

      
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              Index
                Range

            	 	
              The
                Index Range includes any value of the Index that is:

               

            
	 	 	
              (i)
                greater than or equal to the Initial Index Value
                times        %
                and

               

            
	 	 	
              (ii)
                less than or equal to the Initial Index Value
                times           %.

               

            
	 	 	
              The
                Index Range can also be expressed as follows:

               

            
	 	 	
              Index
                Range =

               

            
	 	 	
              >  (Initial
                Index Value
                x                     );
                and

               

            
	 	 	
              < (Initial
                Index Value
                x                     )

               

            
	
              Absolute
                Index Return

            	 	
              The
                Absolute Index Return is the absolute value of the following
                formula:

            

    

    
    

    
      	 	 	 
	 	
              Final
                Index Value – Initial Index Value

            	 
	 	
              Initial
                Index Value

            	 

    

     

    
      	
              Initial
                Index Value

            	 	
               

               

            
	
              Index
                Closing Value

            	 	
              The
                Index Closing Value on any Index Business Day shall equal the closing
                value of the Index or any Successor Index (as defined below) published
                at
                the regular weekday close of trading on that Index Business
                Day.  In certain circumstances, the Index Closing Value shall be
                based on the alternate calculation of the Index described under
                “Discontinuance of the Index; Alteration of Method of
                Calculation.”

               

            
	
              Final
                Index Value

            	 	
              The
                Index Closing Value on the Index Valuation Date, as determined by
                the
                Calculation Agent.

               

            
	
              Index
                Valuation Date

            	 	
              The
                Index Valuation Date shall be June 18, 2009, subject to adjustment
                for
                Market Disruption Events as described in the following
                paragraph.

               

            
	 	 	
              If
                a
                Market Disruption Event with respect to the Index occurs on the scheduled
                Index Valuation Date, or if such Index Valuation Date is not an Index
                Business Day, the Index Closing Level on such date shall be determined
                on
                the immediately succeeding Index Business Day on which no Market
                Disruption Event

            

    

     

     

    
      
        
        

      

      
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              shall
                have occurred; provided that the Final Index Value shall not be
                determined on a date later than the fifth scheduled Index Business
                Day
                after the scheduled Index Valuation Date, and if such date is not
                an Index
                Business Day or if there is a Market Disruption Event on such date,
                the
                Calculation Agent shall determine the Final Index Value on such date
                in
                accordance with the formula for calculating the Index last in effect
                prior
                to the commencement of the Market Disruption Event (or prior to the
                non-Index Business Day), without rebalancing or substitution, using
                the
                closing price (or, if trading in the relevant securities has been
                materially suspended or materially limited, its good faith estimate
                of the
                closing price that would have prevailed but for such suspension,
                limitation or non-Index Business Day) on such date of each security
                most
                recently constituting the Index.

               

            
	
              Index
                Business Day

            	 	
              Index
                Business Day means a day, for the Index, as determined by the Calculation
                Agent, on which trading is generally conducted on each of the Relevant
                Exchange(s) for the Index, and on each exchange on which futures
                or
                options contracts related to the Index (or Successor Index) are traded,
                other than a day on which trading on such exchange(s) is scheduled
                to
                close prior to the time of the posting of its regular final weekday
                closing price.

               

            
	
              Calculation
                Agent

            	 	
              Morgan
                Stanley & Co. Incorporated and its successors (“MS &
                Co.”)

               

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

               

            
	 	 	
              All
                calculations with respect to the Payment at Maturity 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 determination of the amount of cash payable per
                Stated
                Principal Amount shall be rounded to the nearest ten-thousandth,
                with five
                one hundred-thousandths rounded upward (e.g., .76545 would be
                rounded up to .7655); and all dollar amounts paid
                on

            

    

     

     

    
      
        
        

      

      
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              the
                aggregate principal amount of this Note shall be rounded to the nearest
                cent, with one-half cent rounded upward.

               

            
	
              Market
                Disruption Event

            	 	
              Market
                Disruption Event means, with respect to the Index:

               

            
	 	 	
              (i)
                the occurrence or existence of a suspension, absence or material
                limitation of trading of stocks then constituting 20 percent or more
                of
                the level of the Index (or the Successor Index) on the Relevant Exchanges
                for such securities for more than two hours of trading or during
                the
                one-half hour period preceding the close of the principal trading
                session
                on such Relevant Exchange; or a breakdown or failure in the price
                and
                trade reporting systems of any Relevant Exchange as a result of which
                the
                reported trading prices for stocks then constituting 20 percent or
                more of
                the level of the Index (or the Successor Index) during the last one-half
                hour preceding the close of the principal trading session on such
                Relevant
                Exchange are materially inaccurate; or the suspension, material limitation
                or absence of trading on any major U.S. securities market for trading
                in
                futures or options contracts or exchange traded funds related to
                the Index
                (or the Successor Index) for more than two hours of trading or during
                the
                one-half hour period preceding the close of the principal trading
                session
                on such 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
                Issuer’s ability or the ability of any of the Issuer’s affiliates to
                unwind or adjust all or a material portion of the hedge position
                with
                respect to the Protected Absolute Return Barrier Note Due June 20,
                2009
                Based on the Value of the S&P 500®
                Index.

               

            
	 	 	
              For
                the purpose of determining whether a Market Disruption Event exists
                at any
                time, if trading in a security included in the Index is materially
                suspended or materially limited at that time, then the relevant percentage
                contribution of that security to the level of the Index shall be
                based on
                a comparison of (x) the

            

    

     

     

    
      
        
        

      

      
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              portion
                of the value of the Index attributable to that security relative
                to (y)
                the overall value of the Index, in each case immediately before that
                suspension or limitation.

               

            
	 	 	
              For
                the purpose of determining whether a Market Disruption Event has
                occurred:  (1) a limitation on the hours or number of days of
                trading shall not constitute a Market Disruption Event if it results
                from
                an announced change in the regular business hours of the Relevant
                Exchange
                or market, (2) a decision to permanently discontinue trading in the
                relevant futures or options contract or exchange traded fund shall
                not
                constitute a Market Disruption Event, (3) limitations pursuant to
                the
                rules of any Relevant Exchange similar to NYSE Rule 80A (or any applicable
                rule or regulation enacted or promulgated by any other self-regulatory
                organization or any government agency of scope similar to NYSE Rule
                80A as
                determined by the Calculation Agent) on trading during significant
                market
                fluctuations shall constitute a suspension, absence or material limitation
                of trading, (4) a suspension of trading in futures, options contracts
                or
                exchange traded funds on the Index by the primary securities market
                trading in such contracts or funds by reason of (a) a price change
                exceeding limits set by such securities exchange or market, (b) an
                imbalance of orders relating to such contracts or funds or (c) a
                disparity
                in bid and ask quotes relating to such contracts or funds shall constitute
                a suspension, absence or material limitation of trading in futures,
                options contracts or exchange traded funds related to the Index and
                (5) a
                “suspension, absence or material limitation of trading” on any Relevant
                Exchange or on the primary market on which futures, options contracts
                or
                exchange traded funds related to the Index are traded shall not include
                any time when such securities market is itself closed for trading
                under
                ordinary circumstances.

               

            
	
              Relevant
                Exchange

            	 	
              Relevant
                Exchange means, with respect to the Index or any Successor Index
                (as
                defined below), the primary exchange or market of trading for (i)
                any
                security then included in the Index, or any Successor Index, and
                (ii) any
                futures or options contracts related to the Index,
                or

            

    

     

     

    
      
        
        

      

      
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              any
                Successor Index, or to any security then included in the Index, or
                any
                Successor Index.

               

            
	
              Alternate
                Exchange Calculation

            	 	 
	
              in
                Case of an Event of Default

            	 	
              In
                case an event of default with respect to this Note shall have occurred
                and
                be continuing, the amount declared due and payable per Stated Principal
                Amount upon any acceleration of this Note (the “Acceleration Amount”)
                shall be equal to $10 plus the Supplemental Redemption Amount, if
                any,
                determined as though the Observation Period ended at 4:00 p.m. on
                the date
                of acceleration and using the Index Closing Value on the date of
                such
                acceleration as the Final Index Value.

               

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

               

            
	
              Discontinuance
                of the Index;

            	 	 
	
              Alteration
                of Method of Calculation

            	 	
              If
                Standard & Poor’s®
                Corporation
                (“S&P”) discontinues publication of the Index and S&P or another
                entity (including MS & Co.) publishes a successor or substitute index
                that MS & Co., as the Calculation Agent, determines, in its sole
                discretion, to be comparable to the discontinued Index (such index
                being
                referred to herein as a “Successor Index”), then any subsequent Index
                Closing Value shall be determined by reference to the published value
                of
                such Successor Index at the regular weekday close of trading on the
                Index
                Business Day that any Index Closing Value is to be
                determined.

               

            
	 	 	
              Upon
                any selection by the Calculation Agent of a Successor Index, the
                Calculation Agent shall cause written notice thereof to be furnished
                to
                the Trustee, to the Issuer and to the holder of this Note, within
                three
                Business Days of such selection.

               

            
	 	 	
              If
                S&P discontinues publication of the Index prior to, and such
                discontinuance is continuing on, the
                Index

            

    

     

     

    
      
        
        

      

      
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              Valuation
                Date, any Index Business Day (on which determination need be made
                as to
                whether the Index Value is outside of the Index Range) or the date
                of
                acceleration and MS & Co., as the Calculation Agent, determines, in
                its sole discretion, that no Successor Index is available at such
                time,
                then the Calculation Agent shall determine the Index Closing Value
                for
                such date.  Following any such determination, the Calculation
                Agent shall not compute the Index Value on any Index Business Day
                and
                shall instead rely on the Index Closing Value as computed by the
                Calculation Agent for the purpose of determining whether the Index
                Value
                is outside the Index Range.  The Index Closing Value shall be
                computed by the Calculation Agent in accordance with the formula
                for
                calculating the Index last in effect prior to such discontinuance,
                using
                the closing price (or, if trading in the relevant securities has
                been
                materially suspended or materially limited, its good faith estimate
                of the
                closing price that would have prevailed but for such suspension or
                limitation) at the close of the principal trading session of the
                Relevant
                Exchange on such date of each security most recently constituting
                the
                Index without any rebalancing or substitution of such securities
                following
                such discontinuance.

               

            
	 	 	
              If
                at any time the method of calculating the Index or a Successor Index,
                or
                the value thereof, is changed in a material respect, or if the Index
                or a
                Successor Index is in any other way modified so that such index does
                not,
                in the opinion of MS & Co., as the Calculation Agent, fairly represent
                the value of the Index or such Successor Index had such changes or
                modifications not been made, then, from and after such time, the
                Calculation Agent shall, at the close of business in New York City
                on each
                date or during such day on which the Index Closing Value or Index
                Value,
                respectively, is to be determined, make such calculations and adjustments
                as, in the good faith judgment of the Calculation Agent, may be necessary
                in order to arrive at a value of a stock index comparable to the
                Index or
                such Successor Index, as the case may be, as if such changes or
                modifications had not been made, and the Calculation Agent shall
                calculate
                the Final Index Value or Index Values
                with

            

    

     

     

    
      
        
        

      

      
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              reference
                to the Index or such Successor Index, as adjusted.  Accordingly,
                if the method of calculating the Index or a Successor Index is modified
                so
                that the value of such index is a fraction of what it would have
                been if
                it had not been modified (e.g., due to a split in the index),
                then the Calculation Agent shall adjust such index in order to arrive
                at a
                value of the Index or such Successor Index as if it had not been
                modified
                (e.g., as if such split had not
                occurred).

            

    

     

     

    
      
        
        

      

      
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    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 cash, as determined
      in
      accordance with the provisions set forth under “Payment at Maturity” above, due
      with respect to the principal sum of U.S.
      $                      (UNITED
      STATES
      DOLLARS                                 )
      on the Maturity Date specified above (except to the extent redeemed or repaid
      prior to the maturity) and to pay interest thereon from and including the
      Interest Accrual Date specified above at a rate per annum equal to the Initial
      Interest Rate specified above or determined in accordance with the provisions
      specified on the reverse hereof until the Initial Interest Reset Date specified
      above, and thereafter at a rate per annum determined in accordance with the
      provisions specified on the reverse hereof until the principal hereof is paid
      or
      duly made available for payment. Unless such rate is otherwise specified on
      the
      face hereof, the Calculation Agent shall determine the Initial Interest Rate
      for
      this Note in accordance with the provisions specified on the reverse hereof.
      The
      Issuer will pay interest in arrears weekly, monthly, quarterly, semiannually
      or
      annually as specified above as the Interest Payment Period on each Interest
      Payment Date (as specified above), commencing with the first Interest Payment
      Date next succeeding the Interest Accrual Date specified above, and on the
      Maturity Date (or 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 an Interest Payment Date (other than the Maturity
      Date
      or redemption or repayment date) would fall on a day that is not a Business
      Day,
      as defined on the reverse hereof, such Interest Payment Date shall be the
      following day that is a Business Day, except that if the Base Rate specified
      above is LIBOR or EURIBOR and such next Business Day falls in the next calendar
      month, such Interest Payment Date shall be the immediately preceding day that
      is
      a Business Day; and provided, further, that if the Maturity
      Date or redemption or repayment date would fall on a day that is not a Business
      Day, such payment shall be made on the following day that is a Business Day
      and
      no interest shall accrue for the period from and after such Maturity Date or
      redemption or repayment date.

     

    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) (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.

     

    Payment
      of
      the principal of and premium, if any, and interest on this Note 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 

     

     

    
      
        
        

      

      
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    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 any date of redemption or
      repayment, will be made by U.S. dollar check mailed to the address of the person
      entitled thereto as such address shall appear in the Note register.  A
      holder of U.S. $10,000,000 (or the equivalent in a Specified Currency) or more
      in aggregate principal amount of Notes having the same Interest Payment Date,
      the interest on which is payable in U.S. dollars, shall be entitled to receive
      payments of interest, other than interest due at maturity or on any date of
      redemption or repayment, by wire transfer of immediately available funds if
      appropriate wire transfer instructions have been received by the Paying Agent
      in
      writing not less than 15 calendar days prior to the applicable Interest Payment
      Date.

     

    If
      this
      Note is denominated in a Specified Currency other than U.S. dollars, and the
      holder does not elect (in whole or in part) to receive payment in U.S. dollars
      pursuant to the next succeeding paragraph, payments of principal, premium,
      if
      any, and interest 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 

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    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 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.

     

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    
      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.

              	 
	 	 
	
                THE
                  BANK OF NEW YORK, as

                Trustee

              	 
	 	 	 
	 	 	 
	
                By:

              	 	 
	
                Authorized
                  Signatory

              	 

      

       

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

       

    

    FORM
      OF REVERSE OF SECURITY

     

    This
      Note
      is one of a duly authorized issue of Senior Global Medium-Term Notes, Series
      F,
      (the “Notes”) of the Issuer.  The Notes are issuable
      under a Senior Indenture, dated as of November 1, 2004, between the Issuer
      and
      The Bank of New York, a New York banking corporation (as successor to JPMorgan
      Chase Bank, N.A. (formerly known as JPMorgan Chase Bank)), as Trustee (the
      “Trustee,” which term includes any successor trustee under the
      Senior Indenture) (as may be amended or supplemented from time to time, the
      “Senior Indenture”), to which Senior Indenture and all
      indentures supplemental thereto reference is hereby made for a statement of
      the
      respective rights, limitations of rights, duties and immunities of the Issuer,
      the Trustee and holders of the Notes and the terms upon which the Notes are,
      and
      are to be, authenticated and delivered.  The Issuer has appointed The
      Bank of New York, 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, 

     

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    together
      with interest accrued and unpaid hereon to the date of repayment.  For
      this Note to be repaid at the option of the holder hereof, the Paying Agent
      must
      receive at its corporate trust office in the Borough of 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.

     

    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, if the Issuer determines that, as a result of any change in or
      amendment to the laws (including a holding, judgment or as ordered by a court
      of
      competent jurisdiction), 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 occurs, becomes effective or, in the case of a change in official
      position, is announced on or after the Initial Offering Date hereof, the Issuer
      has or will become obligated to pay Additional Amounts, as defined below, with
      respect to this Note as described below.  Prior to the giving of any
      notice of redemption pursuant to this paragraph, the Issuer shall deliver to
      the
      Trustee (i) a certificate stating that the Issuer is entitled to effect
      such redemption and setting forth a statement of facts showing that the
      conditions precedent to the right of the Issuer to so redeem have occurred,
      and
      (ii) an opinion of independent legal counsel satisfactory to the Trustee to
      such effect based on such statement of facts; provided that no such
      notice of redemption shall be given earlier than 60 calendar days prior to
      the
      earliest date on which the Issuer would be obligated to pay such Additional
      Amounts if a payment in respect of this Note were then due.

     

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

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    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 U.S.
      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 U.S. 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 U.S. 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 controlled foreign corporation or passive foreign
      investment company with respect to the United States or as a corporation which
      accumulates earnings to avoid U.S. federal income tax or as a private foundation
      or other tax-exempt organization or a bank receiving interest under Section
      881(c)(3)(A) of the Internal Revenue Code of 1986, as amended;

     

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

     

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

     

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

     

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (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 U.S. 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.

     

    This
      Note
      will bear interest at the rate determined in accordance with the applicable
      provisions below by reference to the Base Rate shown on the face hereof based
      on
      the Index Maturity, if any, shown on the face hereof (i) plus or minus the
      Spread, if any, and/or (ii) multiplied by the Spread Multiplier, if any,
      specified on the face hereof.  Commencing with the Initial Interest
      Reset Date specified on the face hereof, the rate at which interest on this
      Note
      is payable shall be reset as of each Interest Reset Date specified on the face
      hereof (as used herein, the term “Interest Reset Date” shall
      include the Initial Interest Reset Date). For the purpose of determining the
      Initial Interest Rate, references in this paragraph, the next succeeding
      paragraph and, if applicable, clauses (i) and (ii) under “Determination of
      EURIBOR” below to Interest Reset Date shall be deemed to mean the Original Issue
      Date. The determination of the rate of interest at which this Note will be
      reset
      on any Interest Reset Date shall be made on the Interest Determination Date
      (as
      defined below) pertaining to such Interest Reset Dates.  The Interest
      Reset Dates will be the Interest Reset Dates specified on the face hereof;
      provided, however, that (a) the interest rate in effect for the
      period from the Interest Accrual Date to the Initial Interest Reset Date will
      be
      the Initial Interest Rate and (b) unless otherwise specified on the face hereof,
      the interest rate in effect for the ten calendar days immediately prior to
      maturity, redemption or repayment will be that in effect on the tenth calendar
      day preceding such maturity, redemption or repayment date.  If any
      Interest Reset Date would otherwise be a day that is not a Business Day, such
      Interest Reset Date shall be postponed to the next succeeding day that is a
      Business Day, except that if the Base Rate specified on the face hereof is
      LIBOR
      or EURIBOR and such Business Day is in the next succeeding calendar month,
      such
      Interest Reset Date shall be the immediately preceding Business
      Day.  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 

     

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

     

    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”).

     

    The
      Interest Determination Date pertaining to an Interest Reset Date for Notes
      bearing interest calculated by reference to the Federal Funds Rate, Federal
      Funds (Open) Rate and Prime Rate shall be on the Business Day prior to the
      Interest Reset Date.  The Interest Determination Date pertaining to an
      Interest Reset Date for Notes bearing interest calculated by reference to the
      CD
      Rate, Commercial Paper Rate and CMT Rate will be the second Business Day prior
      to such Interest Reset Date.  The Interest Determination Date
      pertaining to an Interest Reset Date for Notes bearing interest calculated
      by
      reference to EURIBOR (or to LIBOR when the Index Currency is euros) shall be
      the
      second TARGET Settlement Day prior such Interest Reset Date.  The
      Interest Determination Date pertaining to an Interest Reset Date for Notes
      bearing interest calculated by reference to LIBOR (other than for LIBOR Notes
      for which the Index Currency is euros) shall be the second London Banking Day
      prior such Interest Reset Date, except that the Interest Determination Date
      pertaining to an Interest Reset Date for a LIBOR Note for which the Index
      Currency is pounds sterling will be such Interest Reset Date.  As used
      herein, “London Banking Day” means any day on which dealings in
      deposits in the Index Currency (as defined herein) are transacted in the London
      interbank market.  The Interest Determination Date pertaining to an
      Interest Reset Date for Notes bearing interest calculated by reference to the
      Treasury Rate shall be the day of the week in which such Interest Reset Date
      falls on which Treasury bills normally would be auctioned.  Treasury
      Bills are normally sold at auction on Monday of each week, unless that day
      is a
      legal holiday, in which case the auction is normally held on the following
      Tuesday, except that the auction may be held on the preceding Friday;
provided, however, that if an auction is held on the Friday of
      the week preceding such Interest Reset Date, the Interest Determination Date
      shall be such preceding Friday; and provided, further, that if
      an auction shall fall on any Interest Reset Date, then the Interest Reset Date
      shall instead be the first Business Day following the date of such
      auction.  The Interest Determination Date pertaining to an Interest
      Reset Date for Notes bearing interest calculated by reference to two or more
      base rates will be the latest Business Day that is at least two Business Days
      before the Interest Reset Date for the applicable Note on which each base rate
      is determinable.

     

    Unless
      otherwise specified on the face hereof, the “Calculation Date”
pertaining to an Interest Determination Date, including the
      Interest
      Determination Date as of which the Initial Interest Rate is determined, will
      be
      the earlier of (i) the tenth calendar day after such Interest Determination
      Date
      or, if such day is not a Business Day, the next succeeding Business Day, or
      (ii)
      the Business Day immediately preceding the applicable Interest Payment Date
      or
      Maturity Date (or, with respect to any principal amount to be redeemed or
      repaid, any redemption or repayment date), as the case may be.

     

    Determination
      of CD Rate.  If the Base Rate specified on the face hereof is the
“CD Rate,” for any Interest Determination Date, the CD
      Rate with respect to this Note shall be the rate on 

     

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    that
      date
      for negotiable U.S. dollar certificates of deposit having the Index Maturity
      specified on the face hereof as published by the Board of Governors of the
      Federal Reserve System in “Statistical Release H.15(519), Selected Interest
      Rates,” or any successor publication of the Board of Governors of the Federal
      Reserve System (“H.15(519)”) under the heading “CDs (Secondary
      Market).”

     

    The
      following procedures shall be followed if the CD Rate cannot be determined
      as
      described above:

     

    (i)
      If the
      above rate is not published in H.15(519) by 3:00 p.m., New York City time,
      on
      the Calculation Date, the CD Rate shall be the rate on that Interest
      Determination Date set forth in the daily update of H.15(519), available through
      the world wide website of the Board of Governors of the Federal Reserve System
      at http://www.federalreserve.gov/releases/h15/update, or any successor site
      or
      publication (“H.15 Daily Update”) for the Interest
      Determination Date for certificates of deposit having the Index Maturity
      specified on the face hereof, under the caption “CDs (Secondary
      Market).”

     

    (ii) If
      the above rate is not yet published in either H.15(519) or the H.15 Daily Update
      by 3:00 p.m., New York City time, on the Calculation Date, the Calculation
      Agent
      shall determine the CD Rate to be the arithmetic mean of the secondary market
      offered rates as of 10:00 a.m., New York City time, on that Interest
      Determination Date of three leading nonbank dealers in negotiable U.S. dollar
      certificates of deposit in The City of New York, which may include the initial
      dealer and its affiliates, selected by the Calculation Agent (after consultation
      with the Issuer), for negotiable U.S. dollar certificates of deposit of major
      U.S. money center banks of the highest credit standing in the market for
      negotiable certificates of deposit with a remaining maturity closest to the
      Index Maturity specified on the face hereof in an amount that is representative
      for a single transaction in that market at that time.

     

    “Initial
      dealer” with respect to this Note means either Morgan Stanley & Co.
      Incorporated or Morgan Stanley DW Inc., as applicable.

     

    (iii) If
      the dealers selected by the Calculation Agent are not quoting as set forth
      above, the CD Rate for that Interest Determination Date shall remain the CD
      Rate
      for the immediately preceding Interest Reset Period, or, if there was no
      Interest Reset Period, the rate of interest payable shall be the Initial
      Interest Rate.

     

    Determination
      of Commercial Paper Rate.  If the Base Rate specified on the face
      hereof is the “Commercial Paper Rate,” for any Interest
      Determination Date, the Commercial Paper Rate with respect to this Note shall
      be
      the Money Market Yield (as defined herein), calculated as described below,
      of
      the rate on that date for U.S. dollar commercial paper having the Index Maturity
      specified on the face hereof, as that rate is published in H.15(519), under
      the
      heading “Commercial Paper —
      Nonfinancial.”

     

    The
      following procedures shall be followed if the Commercial Paper Rate cannot
      be
      determined as described above:

     

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (i)
      If the
      above rate is not published by 3:00 p.m., New York City time, on the Calculation
      Date, then the Commercial Paper Rate shall be the Money Market Yield of the
      rate
      on that Interest Determination Date for commercial paper of the Index Maturity
      specified on the face hereof as published in the H.15 Daily Update, or other
      recognized electronic source used for the purpose of displaying the applicable
      rate, under the heading “Commercial Paper — Nonfinancial.”

     

    (ii) If
      by 3:00 p.m., New York City time, on that Calculation Date the rate is not
      yet
      published in either H.15(519) or the H.15 Daily Update, or other recognized
      electronic source used for the purpose of displaying the applicable rate, then
      the Calculation Agent shall determine the Commercial Paper Rate to be the Money
      Market Yield of the arithmetic mean of the offered rates as of 11:00 a.m.,
      New
      York City time, on that Interest Determination Date of three leading dealers
      of
      U.S. dollar commercial paper in The City of New York, which may include the
      initial dealer and its affiliates, selected by the Calculation Agent (after
      consultation with the Issuer), for commercial paper of the Index Maturity
      specified on the face hereof, placed for an industrial issuer whose bond rating
      is “Aa,” or the equivalent, from a nationally recognized statistical rating
      agency.

     

    (iii)
      If
      the dealers selected by the Calculation Agent are not quoting as set forth
      in
      (ii) above, the Commercial Paper Rate for that Interest Determination Date
      shall
      remain the Commercial Paper Rate for the immediately preceding Interest Reset
      Period, or, if there was no Interest Reset Period, the rate of interest payable
      shall be the Initial Interest Rate.

     

    The
      “Money Market Yield” shall be a yield calculated in accordance
      with the following formula:

     

    
      	
               

              Money
                Market Yield =  

               

            	
              D
                x
                360

            	
               x
                100

            
	
              360
                – (D x M)

            

    

     

    where
“D”
      refers to the applicable per year rate for commercial paper quoted on a bank
      discount basis and expressed as a decimal and “M” refers to the actual number of
      days in the interest period for which interest is being calculated.

     

    Determination
      of EURIBOR.  If the Base Rate specified on the face hereof is
“EURIBOR,” for any Interest Determination Date, EURIBOR with
      respect to this Note shall be the rate for deposits in euros as sponsored,
      calculated and published jointly by the European Banking Federation and ACI
      -
      The Financial Market Association, or any company established by the joint
      sponsors for purposes of compiling and publishing those rates, for the Index
      Maturity specified on the face hereof as that rate appears on the display on
      Moneyline Telerate, or any successor service, on page 248 or any other page
      as
      may replace page 248 on that service (“Telerate Page 248”)
      as of 11:00 a.m., Brussels time.

     

    The
      following procedures shall be followed if the rate cannot be determined as
      described above:

     

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (i)
      If the
      above rate does not appear, the Calculation Agent shall request the principal
      Euro-zone office of each of four major banks in the Euro-zone interbank market,
      as selected by the Calculation Agent (after consultation with the Issuer),
      to
      provide the Calculation Agent with its offered rate for deposits in euros,
      at
      approximately 11:00 a.m., Brussels time, on the Interest Determination
      Date, to prime banks in the Euro-zone interbank market for the Index Maturity
      specified on the face hereof commencing on the applicable Interest Reset Date,
      and in a principal amount not less than the equivalent of U.S.$1 million in
      euro that is representative of a single transaction in euro, in that market
      at
      that time.  If at least two quotations are provided, EURIBOR shall be
      the arithmetic mean of those quotations.

     

    (ii) If
      fewer than two quotations are provided, EURIBOR shall be the arithmetic mean
      of
      the rates quoted by four major banks in the Euro-zone interbank market, as
      selected by the Calculation Agent (after consultation with the Issuer), at
      approximately 11:00 a.m., Brussels time, on the applicable Interest Reset
      Date for loans in euro to leading European banks for a period of time equivalent
      to the Index Maturity specified on the face hereof commencing on that Interest
      Reset Date in a principal amount not less than the equivalent of
      U.S.$1 million in euro.

     

    (iii)
      If
      the banks so selected by the Calculation Agent are not quoting as set forth
      above, the EURIBOR rate for that Interest Determination Date shall remain the
      EURIBOR for the immediately preceding Interest Reset Period, or, if there was
      no
      Interest Reset Period, the rate of interest payable shall be the Initial
      Interest Rate.

     

    “Euro-zone”
      means the region comprised of member states of the European Union that adopt
      the
      single currency in accordance with the relevant treaty of the European Union,
      as
      amended.

     

    Determination
      of the Federal Funds Rate.  If the Base Rate specified on the
      face hereof is the “Federal Funds Rate,” for any Interest
      Determination Date, the Federal Funds Rate with respect to this Note shall
      be
      the rate on that date for U.S. dollar federal funds as published in H.15(519)
      under the heading “Federal Funds (Effective)” as displayed on Moneyline
      Telerate, or any successor service, on page 120 or any other page as may
      replace page 120 on that service (“Telerate
      Page 120”).

     

    The
      following procedures shall be followed if the Federal Funds Rate cannot be
      determined as described above:

     

    (i)
      If the
      above rate is not published by 3:00 p.m., New York City time, on the Calculation
      Date, the Federal Funds Rate shall be the rate on that Interest Determination
      Date as published in the H.15 Daily Update, or other recognized electronic
      source used for the purpose of displaying the applicable rate, under the heading
      “Federal Funds (Effective).”

     

    (ii) If
      the above rate is not yet published in either H.15(519) or the H.15 Daily
      Update, or other recognized electronic source used for the purpose of displaying
      the applicable rate, by 3:00 p.m., New York City time, on the Calculation Date,
      the Calculation Agent shall determine the Federal Funds Rate to be the
      arithmetic mean of the rates for the last transaction in overnight U.S. dollar
      federal funds prior to 9:00 a.m., New York City time, on that Interest
      Determination Date, by each of three leading brokers of U.S. dollar federal
      funds transactions in The City of

     

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    New
      York,
      which may include the initial dealer and its affiliates, selected by the
      Calculation Agent (after consultation with the Issuer).

     

    (iii) If
      the brokers selected by the Calculation Agent are not quoting as set forth
      in
      (ii) above, the Federal Funds Rate for that Interest Determination Date shall
      remain the Federal Funds Rate for the immediately preceding Interest Reset
      Period, or, if there was no Interest Reset Period, the rate of interest payable
      shall be the Initial Interest Rate.

     

    Determination
      of Federal Funds (Open) Rate. If the Base Rate specified on the face hereof
      is the “Federal Funds (Open) Rate”, for any Interest
      Determination Date, the Federal Funds (Open) Rate with respect to this Note
      shall be the rate on that date for U.S. dollar federal funds as published in
      H.15(519) under the heading “Federal Funds (Open)” as displayed on Moneyline
      Telerate, or any successor service, on page 5 or any other page as may replace
      page 5 on that service, (“Telerate Page 5”).

     

    The
      following procedures shall be followed if the Federal Funds (Open) Rate cannot
      be determined as described above:

     

    
      	
              ·  

            	
              If
                the above rate is not published by 3:00 p.m., New York City time,
                on the
                Calculation Date, the Federal Funds (Open) Rate will be the rate
                on that
                Interest Determination Date as published in the H.15 Daily Update,
                or
                other recognized electronic source used for the purpose of displaying
                the
                applicable rate, under the heading “Federal Funds
                (Open).”

            

    

     

    
      	
              ·  

            	
              If
                the above rate is not yet published in either H.15(519) or the H.15
                Daily
                Update, or other recognized electronic source used for the purpose
                of
                displaying the applicable rate, by 3:00 p.m., New York City time,
                on the
                Calculation Date, the Calculation Agent will determine the Federal Funds
                (Open) Rate to be the arithmetic mean of the rates for the last
                transaction in overnight U.S. dollar federal funds (based on the
                Federal
                Funds (Open) Rate) prior to 9:00 a.m., New York City time, on that
                Interest Determination Date, by each of three leading brokers of
                U.S.
                dollar federal funds transactions in the City of New York, which
                may
                include the agent and its affiliates, selected by the Calculation
                Agent,
                after consultation with the Issuer.

            

    

     

    
      	
              ·  

            	
              If
                the brokers selected by the Calculation Agent are not quoting as
                set forth
                above, the Federal Funds (Open) Rate for that Interest Determination
                Date
                shall remain the Federal Funds (Open) Rate for the immediately preceding
                Interest Reset Period, or, if there was no Interest Reset Period,
                the rate
                of interest payable will be the Initial Interest
                Rate.

            

    

     

    Determination
      of LIBOR.  If the Base Rate specified on the face hereof is
“LIBOR,” LIBOR with respect to this Note shall be based on
      London Interbank Offered Rate. The Calculation Agent shall determine LIBOR
      for
      each Interest Determination Date as follows:

     

    (i)
      As of
      the Interest Determination Date, LIBOR shall be either (a)  if
“LIBOR Reuters” is specified as the Reporting Service on the
      face hereof, the arithmetic mean of the offered rates for deposits in the Index
      Currency having the Index Maturity designated on the face hereof, 

     

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

     

    commencing
      on the second London Banking Day immediately following that Interest
      Determination Date, that appear on the Designated LIBOR Page, as defined below,
      as of 11:00 a.m., London time, on that Interest Determination Date, if at least
      two offered rates appear on the Designated LIBOR Page; except that if the
      specified Designated LIBOR Page, by its terms provides only for a single rate,
      that single rate shall be used; or (b) if “LIBOR Telerate” is
      specified as the Reporting Service on the face hereof, the rate for deposits
      in
      the Index Currency having the Index Maturity designated on the face hereof,
      commencing on the second London Banking Day immediately following that Interest
      Determination Date or, if pounds sterling is the Index Currency, commencing
      on
      that Interest Determination Date, that appears on the Designated LIBOR Page
      at
      approximately 11:00 a.m., London time, on that Interest Determination
      Date.

     

    (ii) If
      (a) fewer than two offered rates appear and LIBOR Reuters is specified on the
      face hereof, or (b) no rate appears and the face hereof specifies either (x)
      LIBOR Telerate or (y) LIBOR Reuters and the Designated LIBOR Page by its terms
      provides only for a single rate, then the Calculation Agent shall request the
      principal London offices of each of four major reference banks in the London
      interbank market, as selected by the Calculation Agent (after consultation
      with
      the Issuer), to provide the Calculation Agent with its offered quotation for
      deposits in the Index Currency for the period of the Index Maturity specified
      on
      the face hereof commencing on the second London Banking Day immediately
      following the Interest Determination Date or, if pounds sterling is the Index
      Currency, commencing on that Interest Determination Date, to prime banks in
      the
      London interbank market at approximately 11:00 a.m., London time, on that
      Interest Determination Date and in a principal amount that is representative
      of
      a single transaction in that Index Currency in that market at that
      time.

     

    (iii)
      If
      at least two quotations are provided, LIBOR determined on that Interest
      Determination Date shall be the arithmetic mean of those
      quotations.  If fewer than two quotations are provided, LIBOR shall be
      determined for the applicable Interest Reset Date as the arithmetic mean of
      the
      rates quoted at approximately 11:00 a.m., London time, or some other time
      specified on the face hereof, in the applicable principal financial center
      for
      the country of the Index Currency on that Interest Reset Date, by three major
      banks in that principal financial center selected by the Calculation Agent
      (after consultation with the Issuer) for loans in the Index Currency to leading
      European banks, having the Index Maturity specified on the face hereof and
      in a
      principal amount that is representative of a single transaction in that Index
      Currency in that market at that time.

     

    (iv) If
      the banks so selected by the Calculation Agent are not quoting as set forth
      above, the LIBOR rate for that Interest Determination Date shall remain the
      LIBOR for the immediately preceding Interest Reset Period, or, if there was
      no
      Interest Reset Period, the rate of interest payable shall be the Initial
      Interest Rate.

     

    The
      “Index Currency” means the currency specified on the face
      hereof as the currency for which LIBOR shall be calculated, or, if the euro
      is
      substituted for that currency, the Index Currency shall be the
      euro.  If that currency is not specified on the face hereof, the Index
      Currency shall be U.S. dollars.

     

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    “Designated
      LIBOR Page” means either: (a) if LIBOR Reuters is designated as
      the Reporting Service on the face hereof, the display on the Reuters Money
      3000
      Service for the purpose of displaying the London interbank rates of major banks
      for the applicable Index Currency or its designated successor, or (b) if LIBOR
      Telerate is designated as the Reporting Service on the face hereof, the display
      on Moneyline Telerate, or any successor service, on the page specified on the
      face hereof, or any other page as may replace that page on that service, for
      the
      purpose of displaying the London interbank rates of major banks for the
      applicable Index Currency.

     

    If
      neither
      LIBOR Reuters nor LIBOR Telerate is specified on the face hereof, LIBOR for
      the
      applicable Index Currency shall be determined as if LIBOR Telerate were
      specified, and, if the U.S. dollar is the Index Currency, as if Page 3750 had
      been specified.

     

    Determination
      of Prime Rate.  If the Base Rate specified on the face hereof is
“Prime Rate,” for any Interest Determination Date, the Prime
      Rate with respect to this Note shall be the rate on that date as published
      in
      H.15(519) under the heading “Bank Prime Loan.”

     

    The
      following procedures shall be followed if the Prime Rate cannot be determined
      as
      described above:

     

    (i)
      If the
      above rate is not published prior to 3:00 p.m., New York City time, on the
      Calculation Date, then the Prime Rate shall be the rate on that Interest
      Determination Date as published in the H.15 Daily Update under the heading
“Bank
      Prime Loan.”

     

    (ii) If
      the above rate is not published in either H.15(519) or the H.15 Daily Update
      by
      3:00 p.m., New York City time, on the Calculation Date, then the Calculation
      Agent shall determine the Prime Rate to be the arithmetic mean of the rates
      of
      interest publicly announced by each bank that appears on the Reuters Screen
      USPRIME 1 Page, as defined below, as that bank’s Prime Rate or base lending
      rate as in effect for that Interest Determination Date.

     

    (iii)
      If
      fewer than four rates for that Interest Determination Date appear on the Reuters
      Screen USPRIME 1 Page by 3:00 p.m., New York City time, on the Calculation
      Date, the Calculation Agent shall determine the Prime Rate to be the arithmetic
      mean of the Prime Rates quoted on the basis of the actual number of days in
      the
      year divided by 360 as of the close of business on that Interest Determination
      Date by at least three major banks in The City of New York, which may include
      affiliates of the initial dealer, selected by the Calculation Agent (after
      consultation with the Issuer).

     

    (iv) If
      the banks selected by the Calculation Agent are not quoting as set forth above,
      the Prime Rate for that Interest Determination Date shall remain the Prime
      Rate
      for the immediately preceding Interest Reset Period, or, if there was no
      Interest Reset Period, the rate of interest payable shall be the Initial
      Interest Rate.

     

    “Reuters
      Screen USPRIME 1 Page” means the display designated as page
“USPRIME 1” on the Reuters Money 3000 Service, or any successor service, or
      any other page as may replace the USPRIME 1 Page on that service for the
      purpose of displaying prime rates or base lending rates of major U.S.
      banks.

     

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    Determination
      of Treasury Rate.  If the Base Rate specified on the face hereof
      is “Treasury Rate,” the Treasury Rate with respect to this Note
      shall be

     

    (i)
      the
      rate from the Auction held on the applicable Interest Determination Date (the
      “Auction”) of direct obligations of the United States
      (“Treasury Bills”) having the Index Maturity specified on the
      face hereof as that rate appears under the caption “INVESTMENT RATE” on the
      display on Moneyline Telerate, or any successor service, on page 56 or any
      other page as may replace page 56 on that service (“Telerate
      Page 56”) or page 57 or any other page as may replace
      page 57 on that service (“Telerate Page 57”);
      or

     

    (ii)
      if
      the rate described in (i) above is not published by 3:00 p.m., New York City
      time, on the  Calculation Date, the Bond Equivalent Yield of the rate
      for the applicable Treasury Bills as published in the H.15 Daily Update, or
      other recognized electronic source used for the purpose of displaying the
      applicable rate, under the caption “U.S. Government Securities/Treasury
      Bills/Auction High”; or

     

    (iii)
      if
      the rate described in (ii) above is not published by 3:00 p.m., New York City
      time, on the related Calculation Date, the Bond Equivalent Yield of the Auction
      rate of the applicable Treasury Bills, announced by the United States Department
      of the Treasury; or

     

    (iv) if
      the rate described in (iii) above is not announced by the United States
      Department of the Treasury, or if the Auction is not held, the Bond Equivalent
      Yield of the rate on the applicable Interest Determination Date of Treasury
      Bills having the Index Maturity specified on the face hereof published in
      H.15(519) under the caption “U.S. Government Securities/Treasury Bills/Secondary
      Market”; or

     

    (v)
      if the
      rate described in (iv) above is not so published by 3:00 p.m., New York City
      time, on the related Calculation Date, the rate on the applicable Interest
      Determination Date of the applicable Treasury Bills as published in the H.15
      Daily Update, or other recognized electronic source used for the purpose of
      displaying the applicable rate, under the caption “U.S. Government
      Securities/Treasury Bills/Secondary Market”; or

     

    (vi)
      if
      the rate described in (v) above is not so published by 3:00 p.m., New York
      City
      time, on the related Calculation Date, the rate on the applicable Interest
      Determination Date calculated by the Calculation Agent as the Bond Equivalent
      Yield of the arithmetic mean of the secondary market bid rates, as of
      approximately 3:30 p.m., New York City time, on the applicable Interest
      Determination Date, of three primary U.S. government securities dealers, which
      may include the initial dealer and its affiliates, selected by the Calculation
      Agent, for the issue of Treasury Bills with a remaining maturity closest to
      the
      Index Maturity specified on the face hereof; or

     

    (vii)
      if
      the dealers selected by the Calculation Agent are not quoting as described
      in
      (vi), the Treasury Rate for the immediately preceding Interest Reset Period,
      or,
      if there was no Interest Reset Period, the rate of interest payable shall be
      the
      Initial Interest Rate.

     

    The
      “Bond Equivalent Yield” means a yield calculated in accordance
      with the following formula and expressed as a percentage:

     

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    
      	
              Bond
                Equivalent Yield =   

            	
              D
                x
                N

            	
               
                x 100

            
	
              360
                – (D x M)

            

    

     

    where
“D”
      refers to the applicable per annum rate for Treasury Bills quoted on a bank
      discount basis, “N” refers to 365 or 366, as the case may be, and “M” refers to
      the actual number of days in the interest period for which interest is being
      calculated.

     

    Determination
      of CMT Rate.  If the Base Rate specified on the face hereof is
      the “CMT Rate,” for any Interest Determination Date, the CMT
      Rate with respect to this Note shall be the rate displayed on the Designated
      CMT
      Telerate Page (as defined below) under the caption “... Treasury Constant
      Maturities ... Federal Reserve Board Release H.15... Mondays Approximately
      3:45 p.m.,” under the column for the Designated CMT Maturity Index, as defined
      below, for:

     

    (1)
      the
      rate on that Interest Determination Date, if the Designated CMT Telerate Page
      is
      7051; and

     

    (2)
      the
      week or the month, as applicable, ended immediately preceding the week in which
      the related Interest Determination Date occurs, if the Designated CMT Telerate
      Page is 7052.

     

    The
      following procedures shall be followed if the CMT Rate cannot be determined
      as
      described above:

     

    (i)
      If the
      above rate is no longer displayed on the relevant page, or if not displayed
      by
      3:00 p.m., New York City time, on the related Calculation Date, then the CMT
      Rate shall be the Treasury Constant Maturity rate for the Designated CMT
      Maturity Index as published in the relevant H.15(519).

     

    (ii) If
      the above rate is no longer published, or if not published by 3:00 p.m.,
      New York City time, on the related Calculation Date, then the CMT Rate shall
      be
      the Treasury Constant Maturity Rate for the Designated CMT Maturity Index or
      other U.S. Treasury rate for the Designated CMT Maturity Index on the Interest
      Determination Date as may then be published by either the Board of Governors
      of
      the Federal Reserve System or the United States Department of the Treasury
      that
      the Calculation Agent determines to be comparable to the rate formerly displayed
      on the Designated CMT Telerate Page and published in the relevant
      H.15(519).

     

    (iii)
      If
      the information set forth above is not provided by 3:00 p.m., New York City
      time, on the related Calculation Date, then the Calculation Agent shall
      determine the CMT Rate to be a yield to maturity, based on the arithmetic mean
      of the secondary market closing offer side prices as of approximately 3:30
      p.m.,
      New York City time, on the Interest Determination Date, reported, according
      to
      their written records, by three leading primary U.S. government securities
      dealers (“Reference Dealers”) in The City of New York, which
      may include the initial dealer or its affiliates, selected by the Calculation
      Agent as described in the following sentence.  The Calculation Agent
      shall select five reference dealers (after consultation with the Issuer) and
      shall eliminate the highest quotation or, in the event of equality, one of
      the
      highest, and the lowest quotation or, in the event of equality, one of the
      lowest, for the most recently issued direct 

     

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

     

    noncallable
      fixed rate obligations of the United States (“Treasury Notes”)
      with an original maturity of approximately the Designated CMT Maturity Index,
      a
      remaining term to maturity of no more than 1 year shorter than that Designated
      CMT Maturity Index and in a principal amount that is representative for a single
      transaction in the securities in that market at that time.  If two
      Treasury Notes with an original maturity as described above have remaining
      terms
      to maturity equally close to the Designated CMT Maturity Index, the quotes
      for
      the Treasury Note with the shorter remaining term to maturity shall be
      used.

     

    (iv) If
      the Calculation Agent cannot obtain three Treasury Notes quotations as described
      in (iii) above, the Calculation Agent shall determine the CMT Rate to be a
      yield
      to maturity based on the arithmetic mean of the secondary market offer side
      prices as of approximately 3:30 p.m., New York City time, on the Interest
      Determination Date of three reference dealers in The City of New York, selected
      using the same method described in (iii) above, for Treasury Notes with an
      original maturity equal to the number of years closest to but not less than
      the
      Designated CMT Maturity Index and a remaining term to maturity closest to the
      Designated CMT Maturity Index and in a principal amount that is representative
      for a single transaction in the securities in that market at that
      time.

     

    (v) If
      three or four, and not five, of the reference dealers are quoting as described
      in (iv) above, then the CMT Rate for that Interest Determination Date shall
      be
      based on the arithmetic mean of the offer prices obtained and neither the
      highest nor the lowest of those quotes shall be eliminated.

     

    (vi) If
      fewer than three reference dealers selected by the Calculation Agent are quoting
      as described in (iv) above, the CMT Rate for that Interest Determination Date
      shall remain the CMT Rate for the immediately preceding Interest Reset Period,
      or, if there was no Interest Reset Period, the rate of interest payable shall
      be
      the Initial Interest Rate.

     

    “Designated
      CMT Telerate Page” means the display on Moneyline Telerate, or any
      successor service, on the page designated on the face hereof or any other page
      as may replace that page on that service for the purpose of displaying Treasury
      Constant Maturities as reported in H.15(519).  If no page is specified
      on the face hereof, the Designated CMT Telerate Page shall be 7052, for the
      most
      recent week.

     

    “Designated
      CMT Maturity Index” means the original period to maturity of the U.S.
      Treasury securities, which is either 1, 2, 3, 5, 7, 10, 20 or 30 years, as
      specified in the applicable pricing supplement for which the CMT Rate shall
      be
      calculated.  If no maturity is specified on the face hereof, the
      Designated CMT Maturity Index shall be two years.

     

    Notwithstanding
      the foregoing, the interest rate hereon shall not be greater than the Maximum
      Interest Rate, if any, or less than the Minimum Interest Rate, if any, specified
      on the face hereof.  The Calculation Agent shall calculate the
      interest rate hereon in accordance with the foregoing on or before each
      Calculation Date.  The interest rate on this Note will in no event be
      higher than the maximum rate permitted by New York law, as the same may be
      modified by United States Federal law of general application.

     

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    At
      the
      request of the holder hereof, the Calculation Agent will provide to the holder
      hereof the interest rate hereon then in effect and, if determined, the interest
      rate that will become effective as of the next Interest Reset Date.

     

    Unless
      otherwise indicated on the face hereof, interest payments on this Note shall
      be
      the amount of interest accrued from and including the Interest Accrual Date
      or
      from and including the last date to which interest has been paid or duly
      provided for to but excluding the Interest Payment Dates or the Maturity Date
      (or any earlier redemption or repayment date), as the case may
      be.  Accrued interest hereon shall be an amount calculated by
      multiplying the face amount hereof by an accrued interest
      factor.  Such accrued interest factor shall be computed by adding the
      interest factor calculated for each day in the period for which interest is
      being paid.  The interest factor for each such date shall be computed
      by dividing the interest rate applicable to such day (i) by 360 if the Base
      Rate
      is CD Rate, Commercial Paper Rate, EURIBOR, Federal Funds Rate, Federal Funds
      (Open) Rate, Prime Rate or LIBOR (except if the Index Currency is pounds
      sterling); (ii) by 365 if the Base Rate is LIBOR and the Index Currency is
      pounds sterling; or (iii) by the actual number of days in the year if the Base
      Rate is the Treasury Rate or the CMT Rate.  All percentages resulting
      from any calculation of the rate of interest on this Note will be rounded,
      if
      necessary, to the nearest one hundred-thousandth of a percentage point with
      (.000005% being rounded up to .00001%) and all U.S. dollar amounts used in
      or
      resulting from such calculation on this Note will be rounded to the nearest
      cent, with one-half cent rounded upward.  All Japanese Yen amounts
      used in or resulting from such calculations will be rounded downwards to the
      next lower whole Japanese Yen amount.  All amounts denominated in any
      other currency used in or resulting from such calculations will be rounded
      to
      the nearest two decimal places in such currency, with .005 being rounded up
      to
      .01.  The interest rate in effect on any Interest Reset Date will be
      the applicable rate as reset on such date.  The interest rate
      applicable to any other day is the interest rate from the immediately preceding
      Interest Reset Date (or, if none, the Initial Interest Rate).

     

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

     

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

     

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

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

     

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

     

    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.

     

    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, (i)
      extend the final maturity of any such debt security, or reduce the principal
      amount thereof, or reduce the rate or extend the time of payment of interest
      thereon, or reduce any amount payable on redemption thereof, or change the
      currency of payment thereof, or modify or amend the provisions for conversion
      of
      any currency into any other currency, or modify or amend the provisions for
      conversion or exchange of the debt security for securities of the Issuer or
      other entities or for other property or the cash value of the property (other
      than as provided in the antidilution provisions or other similar adjustment
      provisions of the debt securities or otherwise in accordance with the terms
      thereof), or impair or affect the rights of any holder to institute suit for
      the
      payment thereof or (ii) 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 or 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

     

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

     

    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.

     

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

     

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

     

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    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 and 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 or 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 “U.S. Alien” means any person who is, for U.S. federal income
      tax purposes, (i) a non-resident alien individual, (ii) a foreign corporation,
      (iii) a non-resident alien fiduciary or a foreign estate or trust or (iv) a
      foreign partnership one or more members of which is, for U.S. federal income
      tax
      purposes, a non-resident alien individual, a foreign corporation or a
      non-resident alien fiduciary of a foreign estate or trust.

     

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

     

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    
      
        
          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.
	 	 

              

            

          

        

        
           

          
            

          

           

          
            
              
              

            

            
              35

              
                

              

            

            
              
              

            

          

           

          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.

                

              

            

          

          

          
            
              
              

            

            
              36

              
                

              

            

            
              
              

            

          

           

          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.

              

               

               

               

              37exv10w1

 

EXHIBIT 10.1

BEACHWOLD PARTNERS, L.P.

423 West 55th Street, 12th Floor

New York, NY 10019

November 7, 2007

Tarragon Corporation

423 West 55th Street

12th Floor

New York, NY 10019

	 	Re: 	 	March 6, 2006 Letter Agreement between Beachwold Partners, L.P.
(“Lender”), as lender and Tarragon Corporation (“Borrower”), as borrower, as
modified by a May 18, 2007 Letter Agreement between Lender and Borrower
(collectively, the “Agreement”)

Gentlemen:

     Reference is made to the Agreement, a true and correct copy of which is annexed hereto as
Exhibit A.

     Borrower and Lender agree that the “Maturity Date” specified in Paragraph 2 of the Agreement
is hereby extended to January 2, 2009.

     Borrower and Lender further agree that Paragraph 3 of the Agreement is hereby deleted, and
Lender shall have no further obligation to make Advances to Borrower under the Agreement.

     A copy of the $40,000,000 maximum principal amount Note executed in connection with the
Agreement (the “Note”) is annexed hereto as Exhibit B. Borrower and Lender agree that the
“Maturity Date” specified in Paragraph 3 of the Note is hereby extended to January 2, 2009.

     Except as set forth above, the Agreement and Note are unmodified and in full force and effect.
Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them
in the Agreement.

     Kindly indicate your agreement with the foregoing by countersigning a copy of this letter
where indicated below and returning it to us.

	 	 	 	 	 
	 	Very truly yours,

BEACHWOLD PARTNERS, L.P.

 	 
	 	By:  	/s/ William S. Friedman
 	 
	 	 	William S. Friedman 	 
	 	 	General Partner 	 
	 

TARRAGON CORPORATION

By: /s/ Robert P.
Rothenberg                                        

      Robert P. Rothenberg

      President

 

 

Exhibit A

 

 

BEACHWOLD PARTNERS, L.P.

423 West 55th Street, 12th Floor

New York, NY 10019

May 18, 2007

Tarragon Corporation

423 West 55th Street

12th Floor

New York, NY 10019

	 	Re:	 	March 6, 2006 Letter Agreement (the
“Agreement”) between Beachwold Partners, L.P. (“Lender”), as lender and
Tarragon Corporation (“Borrower”), as borrower

Gentlemen:

     Reference is made to the Agreement, a true and correct copy of which is annexed hereto as
Exhibit A. Borrower and Lender hereby agree that the “Maximum Amount of Facility”
specified in Paragraph 1 of the Agreement is hereby increased to $40,000,000 outstanding at any
time.

     The $30,000,000 maximum principal amount Note executed in connection with the Agreement is
hereby replaced and superceded by the $40,000,000 maximum principal amount delivered by Borrower in
connection herewith, a copy of which is annexed hereto as Exhibit B.

     Except as set forth above, the Agreement is unmodified and in full force and effect.
Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in
the Agreement.

     Kindly indicate your agreement with the foregoing by countersigning a copy of this letter
where indicated below and returning it to us.

	 	 	 	 	 
	 	Very truly yours,

BEACHWOLD PARTNERS, L.P.

 	 
	 	By:  	/s/ William S. Friedman
 	 
	 	 	William S. Friedman 	 
	 	 	General Partner 	 
	 

TARRAGON CORPORATION

By: /s/ Robert P.
Rothenberg                                        

     Robert P. Rothenberg

     President

 

 

Beachwold Partners, L.P.

1775 Broadway, 23rd Floor

New York, NY 10019

March 6, 2006

Tarragon Corporation

1775 Broadway, 23rd Floor

New York, NY 10019

	 	Re:	 	$30,000,000 Revolving Line of Credit

Gentlemen:

     This is to confirm the terms of the revolving credit facility (the “Loan”) pursuant to which
Beachwold Partners, L.P. (“Lender”) has been and will continue to lend funds to Tarragon
Corporation (“Borrower”) on a revolving basis:

	 	1.	 	Maximum Amount of Facility: $30,000,000 outstanding at any
time. Advances which have been repaid will be re-advanced by Lender during
the Loan term in accordance with Paragraph 3 below.
	 
	 	2.	 	Maturity Date: January 2, 2008
	 
	 	3.	 	Advances: Advances will be made to Borrower upon request by
Borrower from time-to-time, but not more frequently than monthly, upon not
less than five business days’ notice to Lender.
	 
	 	4.	 	Interest Rate: Advances will bear interest at the lesser of
(a) an adjustable rate equal to one hundred basis points over thirty day LIBOR
in effect at the time of each advance, as reasonably determined by Lender,
with adjustments made at the end of every thirty day period, or (b) the lowest
interest rate for an unsecured loan offered to the Borrower in writing by an
institutional lender.
	 
	 	5.	 	Payments: Interest only, payable on demand, no more frequently
than monthly during the term of the facility.
	 
	 	6.	 	Prepayment: Prepayments may be made without penalty or
premium, in whole or in part, at any time.
	 
	 	7.	 	Final Payment: All outstanding principal, plus interest
accrued thereon, and all other sums owed under the Loan, shall be due and
payable on the Maturity Date.
	 
	 	8.	 	Default: Upon any failure by Borrower to make any payment to
Lender within five (5) business days after the date it is due, Borrower shall
be in default under this facility and Lender shall have the right to declare
the entire indebtedness immediately due and payable. Following any such
default, interest shall, at Lender’s option, accrue and be payable at the
lesser of four percent (4%) per annum above the interest rate set forth in
Paragraph 4 above, or the highest interest rate permitted by law.

 

 

Tarragon Corporation

As of January 2, 2006

Page 2

	 	9.	 	Promissory Note and Further Documentation: Borrower shall
execute a Promissory Note in the form attached hereto as Exhibit A
(the “Note”) to evidence its indebtedness under the Loan. Advances and
repayments shall be recorded on the books and records of Lender, which shall
be deemed correct absent manifest error. Borrower shall execute such further
documentation as Lender may require, from time-to-time to confirm the terms
and/or status of the Loan.
	 
	 	10.	 	Renewal and Extension: The Loan is a renewal and extension of
that certain $20,000,000 unsecured line of credit facility previously extended
by Lender to Borrower, which matured by its terms on January 2, 2006 (the
“Original Loan”). This letter agreement and the Note shall replace and
supercede any prior agreements, whether written or oral, between Lender and
Borrower concerning the Loan or the Original Loan.
	 
	 	11.	 	Costs/Attorneys Fees: Borrower shall be responsible for and
shall pay to Lender on demand, all of Lender’s costs and expenses incurred in
connection with the Loan, including without limitation, attorneys fees.

     Kindly indicate your agreement with, and acceptance of, the foregoing terms by countersigning
a copy of this letter agreement where indicated below and returning it to the undersigned.

	 	 	 	 	 
	 	Beachwold Partners, L.P.

 	 
	 	By:  	/s/ William S. Friedman
 	 
	 	 	William S. Friedman 	 
	 	 	General Partner 	 
	 

Agreed and Accepted:

Tarragon Corporation

By:  /s/ Robert P.
Rothenberg                                        

Name: Robert P. Rothenberg

Title: President

 

 

Promissory Note

Up to $30,000,000

     For value received, Tarragon Corporation, a Nevada corporation (“Borrower”), promises
to pay to the order of Beachwold Partners, L.P., the principal sum of Thirty Million
Dollars ($30,000,000), or so much thereof as may be outstanding, with interest on the unpaid
principal balance thereof at the rate set forth in the Letter Agreement (as defined below).

     1. Defined Terms. This Note is given pursuant to that certain letter agreement dated
as of the date hereof between Borrower and Lender (the “Letter Agreement”). As used in this Note,
(i) the term “Lender” means the holder of this Note, (ii) the term “Indebtedness” means the
principal of, interest on, or any other amounts due at any time under, this Note including late
charges and default interest, and (iii) “Event of Default” means any failure to pay the principal
balance hereof on the Maturity Date, or any failure by Borrower to make interest payments or other
payments due within applicable grace periods herein or under the Letter Agreement, or to otherwise
comply in any respect with its obligations under the Letter Agreement.

     2. Address for Payment. All payments due under this Note shall be payable at 1775
Broadway, 23rd Floor, New York, NY, Attn: William S. Friedman.

     3. Payment of Principal and Interest. Principal and interest shall be paid as
follows:

         Installments of interest only shall be payable within five days after demand, no more
frequently than monthly. All outstanding principal and interest shall be due and payable on the
earliest to occur of (i) January 2, 2008, or (ii) any earlier date on which the unpaid principal
balance of this Note becomes due and payable, by acceleration or otherwise (the “Maturity Date”).

     4. Application of Payments. If at any time Lender receives, from Borrower or
otherwise, any amount applicable to the Indebtedness which is less than all amounts due and payable
at such time, Lender may apply that payment to amounts then due and payable in any manner and in
any order determined by Lender, in Lender’s discretion. Borrower agrees that neither Lender’s
acceptance of a payment from Borrower in an amount that is less than all amounts then due and
payable nor Lender’s application of such payment shall constitute or be deemed to constitute either
a waiver of the unpaid amounts or an accord and satisfaction.

     5. Acceleration. If an Event of Default has occurred and is continuing, the entire
unpaid principal balance, any accrued interest, if any, and all other amounts payable under this
Note and any other loan document shall at once become due and payable, at the option of

 

 

Lender, without any prior notice to Borrower. Lender may exercise this option to accelerate regardless of
any prior forbearance.

     6. Late Charge. If any amount payable under this Note or the Letter Agreement or if
the principal amount due at the Maturity Date is not received by Lender within 20 days after the
amount is due, Borrower shall pay to Lender, within five days after demand by Lender, a late charge
equal to 4 percent of such amount. Borrower acknowledges that its failure to make timely payments
will cause Lender to incur additional expenses in servicing and processing the loan evidenced by
this Note (the “Loan”), and that it is extremely difficult and impractical to determine those
additional expenses. Borrower agrees that the late charge payable pursuant to this Paragraph
represents a fair and reasonable estimate, taking into account all circumstances existing on the
date of this Note, of the additional expenses Lender will incur by reason of such late payment.
The late charge is payable in addition to, and not in lieu of, any interest payable at the Default
Rate pursuant to Paragraph 7.

     7. Default Rate. So long as any monthly installment or any other payment due under
this Note remains past due for 30 days or more, interest under this Note shall accrue on the unpaid
principal balance from the earlier of the due date of the first unpaid monthly installment or other
payment due, as applicable, at a rate (the “Default Rate”) equal to the lesser of 4 percentage
points above the rate stated in the Letter Agreement or the maximum interest rate which may be
collected from Borrower under applicable law. If the unpaid principal balance and all accrued
interest are not paid in full on the Maturity Date, the unpaid principal balance and all accrued
interest shall bear interest from the Maturity Date at the Default Rate. Borrower also
acknowledges that its failure to make timely payments will cause Lender to incur additional
expenses in servicing and processing the Loan, that, during the time that any monthly installment
or other payment under this Note is delinquent for more than 30 days, Lender will incur additional
costs and expenses arising from its loss of the use of the money due and from the adverse impact on
Lender’s ability to meet is other obligations and to take advantage of other investment
opportunities, and that it is extremely difficult and impractical to determine those additional
costs and expenses. Borrower also acknowledges that, during the time that any monthly installment
or other payment due under this Note is delinquent for more than 30 days, Lender’s risk of
nonpayment of this Note will be materially increased and Lender is entitled to be compensated for
such increased risk. Borrower agrees that the increase in the rate of interest payable under this
Note to the Default Rate represents a fair and reasonable estimate, taking into account all
circumstances existing on the date of this Note, of the additional costs and expenses Lender will
incur by reason of the Borrower’s delinquent payment and the additional compensation Lender is
entitled to receive for the increased risks of nonpayment associated with a delinquent loan.

     8. Prepayments. This Note is prepayable in full or in part at any time, without
premium.

     9. Costs and Expenses. Borrower shall pay on demand all expenses and costs, including
fees and out-of-pocket expenses of attorneys and expert witnesses and costs of investigation, incurred by Lender as a result of any default under this Note or the Letter
Agreement or in connection with efforts to collect any amount due under this Note, or to enforce
the provisions of the Letter Agreement, including those incurred in post-judgment collection

2

 

efforts and in any bankruptcy proceedings (including any action for relief from the automatic stay
of any bankruptcy proceeding) or judicial or non-judicial foreclosure proceeding.

     10. Forbearance. Any forbearance by Lender in exercising any right or remedy under
this Note or the Letter Agreement or otherwise afforded by applicable law, shall not be a waiver of
or preclude the exercise of that or any other right or remedy. The acceptance by Lender of any
payment after the due date of such payment, or in an amount which is less than the required
payment, shall not be a waiver of Lender’s right to require prompt payment when due of all other
payments or to exercise any right or remedy with respect to any failure to make prompt payment.
Enforcement by Lender of any remedy for Borrower’s obligations under this Note shall not constitute
an election by Lender of remedies so as to preclude the exercise of any other right or remedy
available to Lender.

     11. Waivers. Presentment, demand, notice of dishonor, protest, notice of
acceleration, notice of intent to demand or accelerate payment or maturity, presentment for
payment, notice of nonpayment, grace, and diligence in collecting the Indebtedness are waived by
Borrower, and all endorsers and guarantors of this Note and all other third party obligors.

     12. Loan Charges. Borrower and Lender intend at all times to comply with the laws of
the State of New York governing the maximum rate or amount of interest payable on or in connection
with this Note and the Indebtedness (or applicable United Sates federal law to the extent that it
permits Lender to contract for, charge, take, reserve, or receive a greater amount of interest than
under New York law). If the applicable law is ever judicially interpreted so as to render usurious
any amount payable under this Note, or contracted for, charged, taken, reserved or received with
respect to the Indebtedness, or of acceleration of the maturity of this Note, or if any prepayment
by Borrower results in Borrower having paid any interest in excess of that permitted by any
applicable law, then Borrower and Lender expressly intend that all excess amounts collected by
Lender shall be applied to reduce the unpaid principal balance of this Note (or, if this Note has
been or would thereby be paid in full, shall be refunded to Borrower), and the provisions of this
Note and the Letter Agreement immediately shall be deemed reformed and the amounts thereafter
collectible under this Note or the Letter Agreement reduced, without the necessity of the execution
of any new documents, so as to comply with any applicable law, but so as to permit the recovery of
the fullest amount otherwise payable under this Note or the Letter Agreement. The right to
accelerate the maturity of this Note does not include the right to accelerate any interest which
has not otherwise accrued on the date of such acceleration, and Lender does not intend to collect
any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender
for the use, forbearance or detention of the Indebtedness shall, to the extent permitted by any
applicable law, be amortized, prorated, allocated and spread throughout the full term of the
Indebtedness until payment in full so that the rate or amount of interest on account of the
Indebtedness does not exceed the applicable usury ceiling. Notwithstanding any provision contained
in this Note that permits the compounding of interest, including any provision by which any accrued
interest is added to the principal amount of this Note, the total amount of interest that Borrower
is obligated to pay and Lender is entitled to receive with respect to the Indebtedness shall not
exceed the amount calculated on a simple (i.e. noncompounded) interest basis at the maximum rate on principal amounts actually advanced to or
for the account of Borrower, including all current and prior advances.

3

 

     13. Commercial Purpose. Borrower represents that the Indebtedness is being incurred
by Borrower solely for the purpose of carrying on a business or commercial enterprise, and not for
personal, family or household purposes.

     14. Counting of Days. Except where otherwise specifically provided, any reference in
this Note to a period of “days” means calendar days, not Business Days.

     15. Governing Law. This Note shall be governed by the laws of the State of New York.

     16. Captions. The captions of the paragraphs of this Note are for convenience only
and shall be disregarded in construing this Note.

     17. Notices. All notices, demands and other communications required or permitted to
be given by Lender to Borrower pursuant to this Note shall be given by registered or certified
mail, or by overnight delivery service to Borrower at the address set forth below, and to the
Lender at the address set forth in Paragraph 2.

     18. Consent to Jurisdiction and Venue. Borrower agrees that any controversy arising
under or in relation to this Note shall be litigated exclusively in New York, New York (the
“Jurisdiction”). The state and federal courts and authorities with jurisdiction in the
Jurisdiction shall have exclusive jurisdiction over all controversies which shall arise under or in
relation to this Note. Borrower irrevocably consents to service, jurisdiction, and venue of such
courts for any such litigation and waives any other venue to which it might be entitled by virtue
of domicile, habitual residence or otherwise.

     19. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A) AGREE NOT TO ELECT A TRIAL BY JURY
WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS NOTE OR THE RELATIONSHIP BETWEEN THE PARTIES AS
LENDER AND BORROWER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVE ANY RIGHT TO TRIAL BY JURY
WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY, WITH
THE BENEFIT OF COMPETENT LEGAL COUNSEL.

     In Witness Whereof, Borrower has signed and delivered this Note, or has caused this
Note to be signed and delivered by its duly authorized representative, on the 6th day of
March, 2006, but effective for all purposes as of January 2, 2006.

Borrower:

Tarragon Corporation

By:

 /s/ William S. Friedman
                                        

Name: William S. Friedman

Title: Chief Executive Officer

4

 

Exhibit B

 

 

Promissory Note

$40,000,000

     FOR VALUE RECEIVED, TARRAGON CORPORATION, a Nevada Corporation (“Borrower”), promises
to pay to the order of BEACHWOLD PARTNERS, L.P., the principal sum of Forty Million Dollars
($40,000,000), or so much thereof as may be outstanding, with interest on the unpaid principal
balance thereof at the rate set forth in the Letter Agreement (as defined below).

     1. Defined Terms. This Note is given pursuant to that certain letter agreement dated
as of March 6, 2006 as amended by letter agreement dated as of the date hereof between Borrower and
Lender (as so amended, the “Letter Agreement”). As used in this Note, (i) the term “Lender” means
the holder of this Note, (ii) the term “Indebtedness” means the principal of, interest on, or any
other amounts due at any time under, this Note including late charges and default interest, and
(iii) “Event of Default” means any failure to pay the principal balance hereof on the Maturity
Date, or any failure by Borrower to make interest payments or other payments due within applicable
grace periods herein or under the Letter Agreement, or to otherwise comply in any respect with its
obligations under the Letter Agreement.

     2. Address for Payment. All payments due under this Note shall be payable at 423 West
55th Street, 12th Floor, New York, NY, 10019, Attn: William S. Friedman.

     3. Payment of Principal and Interest. Principal and interest shall be paid as
follows:

         Installments of interest only shall be payable within five (5) days after demand, no more
frequently than monthly. All outstanding principal and interest shall be due and payable on the
earliest to occur of (i) January 2, 2008, or (ii) any earlier date on which the unpaid principal
balance of this Note becomes due and payable, by acceleration or otherwise (the “Maturity Date”).

     4. Application of Payments. If at any time Lender receives, from Borrower or
otherwise, any amount applicable to the Indebtedness which is less than all amounts due and payable
at such time, Lender may apply that payment to amounts then due and payable in any manner and in
any order determined by Lender, in Lender’s discretion. Borrower agrees that neither Lender’s
acceptance of a payment from Borrower in an amount that is less than all amounts then due and
payable nor Lender’s application of such payment shall constitute or be deemed to constitute either
a waiver of the unpaid amounts or an accord and satisfaction.

     5. Acceleration. If an Event of Default has occurred and is continuing, the entire
unpaid principal balance, any accrued interest, if any, and all other amounts payable under this
Note and any other loan document shall at once become due and payable, at the option of

1

 

Lender, without any prior notice to Borrower. Lender may exercise this option to accelerate
regardless of any prior forbearance.

     6. Late Charge. If any amount payable under this Note or the Letter Agreement or if
the principal amount due at the Maturity Date is not received by Lender within 20 days after the
amount is due, Borrower shall pay to Lender, within five (5) days after demand by Lender, a late
charge equal to 4 percent of such amount. Borrower acknowledges that its failure to make timely
payments will cause Lender to incur additional expenses in servicing and processing the loan
evidenced by this Note (the “Loan”), and that it is extremely difficult and impractical to
determine those additional expenses. Borrower agrees that the late charge payable pursuant to this
Paragraph represents a fair and reasonable estimate, taking into account all circumstances existing
on the date of this Note, of the additional expenses Lender will incur by reason of such late
payment. The late charge is payable in addition to, and not in lieu of, any interest payable at
the Default Rate pursuant to Paragraph 7.

     7. Default Rate. So long as any monthly installment or any other payment due under
this Note remains past due for 30 days or more, interest under this Note shall accrue on the unpaid
principal balance from the earlier of the due date of the first unpaid monthly installment or other
payment due, as applicable, at a rate (the “Default Rate”) equal to the lesser of 4 percentage
points above the rate stated in the Letter Agreement or the maximum interest rate which may be
collected from Borrower under applicable law. If the unpaid principal balance and all accrued
interest are not paid in full on the Maturity Date, the unpaid principal balance and all accrued
interest shall bear interest from the Maturity Date at the Default Rate. Borrower also
acknowledges that its failure to make timely payments will cause Lender to incur additional
expenses in servicing and processing the Loan, that, during the time that any monthly installment
or other payment under this Note is delinquent for more than 30 days, Lender will incur additional
costs and expenses arising from its loss of the use of the money due and from the adverse impact on
Lender’s ability to meet is other obligations and to take advantage of other investment
opportunities, and that it is extremely difficult and impractical to determine those additional
costs and expenses. Borrower also acknowledges that, during the time that any monthly installment
or other payment due under this Note is delinquent for more than 30 days, Lender’s risk of
nonpayment of this Note will be materially increased and Lender is entitled to be compensated for
such increased risk. Borrower agrees that the increase in the rate of interest payable under this
Note to the Default Rate represents a fair and reasonable estimate, taking into account all
circumstances existing on the date of this Note, of the additional costs and expenses Lender will
incur by reason of the Borrower’s delinquent payment and the additional compensation Lender is
entitled to receive for the increased risks of nonpayment associated with a delinquent loan.

     8. Prepayments. This Note is prepayable in full or in part at any time, without
premium.

     9. Costs and Expenses. Borrower shall pay on demand all expenses and costs, including
fees and out-of-pocket expenses of attorneys and expert witnesses and costs of investigation,
incurred by Lender as a result of any default under this Note or the Letter Agreement or in
connection with efforts to collect any amount due under this Note, or to enforce the provisions of
the Letter Agreement, including those incurred in post-judgment collection

2

 

efforts and in any bankruptcy proceedings (including any action for relief from the automatic
stay of any bankruptcy proceeding) or judicial or non-judicial foreclosure proceeding.

     10. Forbearance. Any forbearance by Lender in exercising any right or remedy under
this Note or the Letter Agreement or otherwise afforded by applicable law, shall not be a waiver of
or preclude the exercise of that or any other right or remedy. The acceptance by Lender of any
payment after the due date of such payment, or in an amount which is less than the required
payment, shall not be a waiver of Lender’s right to require prompt payment when due of all other
payments or to exercise any right or remedy with respect to any failure to make prompt payment.
Enforcement by Lender of any remedy for Borrower’s obligations under this Note shall not constitute
an election by Lender of remedies so as to preclude the exercise of any other right or remedy
available to Lender.

     11. Waivers. Presentment, demand, notice of dishonor, protest, notice of
acceleration, notice of intent to demand or accelerate payment or maturity, presentment for
payment, notice of nonpayment, grace, and diligence in collecting the Indebtedness are waived by
Borrower, and all endorsers and guarantors of this Note and all other third party obligors.

     12. Loan Charges. Borrower and Lender intend at all times to comply with the laws of
the State of New York governing the maximum rate or amount of interest payable on or in connection
with this Note and the Indebtedness (or applicable United Sates federal law to the extent that it
permits Lender to contract for, charge, take, reserve, or receive a greater amount of interest than
under New York law). If the applicable law is ever judicially interpreted so as to render usurious
any amount payable under this Note, or contracted for, charged, taken, reserved or received with
respect to the Indebtedness, or of acceleration of the maturity of this Note, or if any prepayment
by Borrower results in Borrower having paid any interest in excess of that permitted by any
applicable law, then Borrower and Lender expressly intend that all excess amounts collected by
Lender shall be applied to reduce the unpaid principal balance of this Note (or, if this Note has
been or would thereby be paid in full, shall be refunded to Borrower), and the provisions of this
Note and the Letter Agreement immediately shall be deemed reformed and the amounts thereafter
collectible under this Note or the Letter Agreement reduced, without the necessity of the execution
of any new documents, so as to comply with any applicable law, but so as to permit the recovery of
the fullest amount otherwise payable under this Note or the Letter Agreement. The right to
accelerate the maturity of this Note does not include the right to accelerate any interest which
has not otherwise accrued on the date of such acceleration, and Lender does not intend to collect
any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender
for the use, forbearance or detention of the Indebtedness shall, to the extent permitted by any
applicable law, be amortized, prorated, allocated and spread throughout the full term of the
Indebtedness until payment in full so that the rate or amount of interest on account of the
Indebtedness does not exceed the applicable usury ceiling. Notwithstanding any provision contained
in this Note that permits the compounding of interest, including any provision by which any accrued
interest is added to the principal amount of this Note, the total amount of interest that Borrower
is obligated to pay and Lender is entitled to receive with respect to the Indebtedness shall not
exceed the amount calculated on a simple (i.e. noncompounded) interest basis at the maximum
rate on principal amounts actually advanced to or for the account of Borrower, including all
current and prior advances.

3

 

     13. Commercial Purpose. Borrower represents that the Indebtedness is being incurred
by Borrower solely for the purpose of carrying on a business or commercial enterprise, and not for
personal, family or household purposes.

     14. Counting of Days. Except where otherwise specifically provided, any reference in
this Note to a period of “days” means calendar days, not Business Days.

     15. Governing Law. This Note shall be governed by the laws of the State of New York.

     16. Captions. The captions of the paragraphs of this Note are for convenience only
and shall be disregarded in construing this Note.

     17. Notices. All notices, demands and other communications required or permitted to
be given by Lender to Borrower pursuant to this Note shall be given by registered or certified
mail, or by overnight delivery service to Borrower at the address set forth below, and to the
Lender at the address set forth in Paragraph 2.

     18. Consent to Jurisdiction and Venue. Borrower agrees that any controversy arising
under or in relation to this Note shall be litigated exclusively in New York, New York (the
“Jurisdiction”). The state and federal courts and authorities with jurisdiction in the
Jurisdiction shall have exclusive jurisdiction over all controversies which shall arise under or in
relation to this Note. Borrower irrevocably consents to service, jurisdiction, and venue of such
courts for any such litigation and waives any other venue to which it might be entitled by virtue
of domicile, habitual residence or otherwise.

     19. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A) AGREE NOT TO ELECT A TRIAL BY JURY
WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS NOTE OR THE RELATIONSHIP BETWEEN THE PARTIES AS
LENDER AND BORROWER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVE ANY RIGHT TO TRIAL BY JURY
WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY, WITH
THE BENEFIT OF COMPETENT LEGAL COUNSEL.

     20. Replacement Note. This Note replaces and supercedes that $30,000,000
maximum principal amount promissory note from Borrower to Lender dated as of March 6, 2006, and all
amounts outstanding thereunder are now owed and outstanding under this instrument.

4

 

     In Witness Whereof, Borrower has signed and delivered this Note, or has caused this
Note to be signed and delivered by its duly authorized representative, on the 16th day
of May, 2007.

	 	 	 	 	 
	 	Borrower:

Tarragon Corporation

 	 
	 	By:  	/s/ Robert P. Rothenberg
 	 
	 	 	Robert P. Rothenberg 	 
	 	 	 	 
	 

5

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