10-12B/A

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 2007

File No. 001-33378

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 2 TO FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12(b) OR 12(g) OF

THE SECURITIES EXCHANGE ACT OF 1934

Discover Financial Services

(Exact Name of Registrant as Specified in Its Charter)

Delaware	36-2517428
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2500 Lake Cook Road, Riverwoods, Illinois	60015
(Address of Principal Executive Offices)	(Zip Code)

(224) 405-0900

(Registrant’s telephone number, including area code)

Securities to be registered

pursuant to Section 12(b) of the Act:

Title of each class to be so registered	Name of each exchange on which each class is to be registered
Common Stock, par value $0.01 per share	New York Stock Exchange

Securities to be registered pursuant to Section 12(g) of the Act:

None

Discover Financial Services

Information Included in Information Statement

and Incorporated by Reference Into Form 10

Item 1. Business.

The information required by this item is contained in the sections “Summary,” “Risk Factors,” “The Distribution,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Arrangements Between Us and Morgan Stanley,” “Where You Can Find More Information” and “Index to Financial Statements” (and the statements referenced therein) of the information statement. Those sections are incorporated herein by reference.

Item 1A. Risk Factors.

The information required by this item is contained in the section “Risk Factors” of the information statement. That section is incorporated herein by reference.

Item 2. Financial Information.

The information required by this item is contained in the sections “Summary,” “Risk Factors,” “Capitalization,” “Unaudited Pro Forma Condensed Combined Financial Statements,” “Selected Historical and Pro Forma Combined Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Index to Financial Statements” (and the statements referenced therein) of the information statement. Those sections are incorporated herein by reference.

Item 3. Properties.

The information required by this item is contained in the section “Business—Properties” of the information statement. That section is incorporated herein by reference.

Item 4. Security Ownership of Certain Beneficial Owners and Management.

The information required by this item is contained in the section “Ownership of our Stock” of the information statement. That section is incorporated herein by reference.

Item 5. Directors and Executive Officers.

The information required by this item is contained in the section “Management” of the information statement. That section is incorporated herein by reference.

Item 6. Executive Compensation.

The information required by this item is contained in the section “Management” of the information statement. That section is incorporated herein by reference.

Item 7. Certain Relationships and Related Transactions.

The information required by this item is contained in the sections “Arrangements Between Us and Morgan Stanley” and “Certain Relationships and Related Transactions” of the information statement. Those sections are incorporated herein by reference.

Item 8. Legal Proceedings.

The information required by this item is contained in the section “Business—Legal Proceedings” of the information statement. That section is incorporated herein by reference.

Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

The information required by this item is contained in the sections “Summary,” “Risk Factors,” “The Distribution,” “Dividend Policy” and “Description of Capital Stock” of the information statement. Those sections are incorporated herein by reference.

Item 10. Recent Sales of Unregistered Securities.

The Registrant has not sold any securities, registered or otherwise, within the past three years.

Item 11. Description of Registrant’s Securities to Be Registered.

The information required by this item is contained in the section “Description of Capital Stock” of the information statement. That section is incorporated herein by reference.

Item 12. Indemnification of Directors and Officers.

The information required by this item is contained in the section “Limitation of Liability and Indemnification of Directors and Officers” of the information statement. That section is incorporated herein by reference.

Item 13. Financial Statements and Supplementary Data.

The information required by this item is contained in the sections “Summary,” “Capitalization,” “Unaudited Pro Forma Condensed Combined Financial Statements,” “Selected Historical and Pro Forma Combined Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Index to Financial Statements” (and the statements referenced therein) of the information statement. Those sections are incorporated herein by reference.

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 15. Financial Statements and Exhibits.

(a) Financial Statements

The information required by this item is contained in the section “Index to Financial Statements” (and the statements referenced therein) of the information statement. That section is incorporated herein by reference.

(b) Exhibits

Certain of the following exhibits, as indicated parenthetically, were previously filed as exhibits to registration statements or reports filed by Discover Card Master Trust I or Discover Bank under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and are hereby incorporated by reference to such statements or reports. The exhibits to this Form 10 are as follows:

Exhibit Number	Exhibit Title
2.1	—       Form of Separation and Distribution Agreement
3.1	—     *Form of Amended and Restated Certificate of Incorporation
3.2	—     *Form of Amended and Restated Bylaws
4.1	—     *Form of Specimen Certificate for Discover Financial Services Common Stock
10.1	—       Form of Tax Sharing Agreement
10.2	—       Form of U.S. Employee Matters Agreement
10.3	—       Form of Transition Services Agreement
10.4	—     *Form of Brand License Agreement
10.5	—     Amended and Restated Pooling and Servicing Agreement, dated as of November 3, 2004, between Discover Bank, as Master Servicer, Servicer and Seller, and U.S. Bank National Association, as Trustee, (Exhibit 4.2 to the Discover Card Master Trust I Current Report on Form 8-K dated October 29, 2004 (Exchange Act file number 0-23108)) as amended by Amendment dated as of January 4, 2006, between Discover Bank, as Master Servicer, Servicer and Seller, and U.S. Bank National Association, as Trustee, (Exhibit 4.1 to the Discover Card Master Trust Current Report on Form 8-K dated January 4, 2006) and Second Amendment dated as of March 30, 2006, between Discover Bank, as Master Servicer, Servicer and Seller, and U.S. Bank National Association, as Trustee, (Exhibit 4.3 to the Discover Bank Registration Statement on Form S-3/A (No. 333-131898-01))
10.6	—     Form of Series Supplement with respect to Discover Card Master Trust I between Discover Bank, as Master Servicer, Servicer and Seller, and U.S. Bank National Association, as Trustee (Exhibit 4.4 to Discover Bank’s Registration Statement on Form S-3 (No. 333-131898-01))
10.7	— *Form of Executive Severance Plan
10.8	— *Form of Omnibus Incentive Plan
10.9	— *Form of Directors’ Compensation Plan
11.1	— *Statement Regarding Computation of Per Share Earnings
14.1	—   Code of Ethics and Business Conduct
21.1	— *Subsidiaries of the Registrant
99.1	— **Information Statement dated [·], 2007

* To be filed by amendment.

** Previously filed as an exhibit to Amendment No. 1 to Form 10 Registration Statement of Discover Financial Services filed with the Securities and Exchange Commission on April 30, 2007.

SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused amendment no. 2 to this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

Discover Financial Services
By:	/s/    DAVID W. NELMS
Name:	David W. Nelms
Title:	Chairman and Chief Executive Officer

Date: May 8, 2007

EX-2.1

Exhibit 2.1

SEPARATION AND DISTRIBUTION AGREEMENT

by and between

MORGAN STANLEY

and

DISCOVER FINANCIAL SERVICES

Dated as of [                    ], 2007

TABLE OF CONTENTS

	PAGE
ARTICLE 1 DEFINITIONS
Section 1.01. Definitions.	2
Section 1.02. Interpretation	9
ARTICLE 2
PRIOR TO THE DISTRIBUTION
Section 2.01. Information Statement; Listing	10
Section 2.02. Cash Dividend	10
Section 2.03. Special Dividend	10
Section 2.04. Intercompany Accounts	10
Section 2.05. Financial Instruments	10
Section 2.06. Shared Employees	11
Section 2.07. Further Assurances and Consents	11
ARTICLE 3
DISTRIBUTION
Section 3.01. Conditions Precedent to Distribution	11
Section 3.02. The Distribution	13
Section 3.03. Subdivision of Discover Common Stock to Accomplish the Distribution	13
Section 3.04. Fractional Shares	14
Section 3.05. NO REPRESENTATIONS OR WARRANTIES	14
ARTICLE 4
INSURANCE MATTERS
Section 4.01. Insurance Prior to the Distribution Date	14
Section 4.02. Ownership of Existing Policies and Programs	15
Section 4.03. Maintenance of Insurance for Discover	15
Section 4.04. Acquisition and Maintenance of Post-Distribution Insurance by Discover	15
Section 4.05. Rights Under Shared Policies	16
Section 4.06. Administration and Reserves	17
Section 4.07. Insurance Premiums	17
Section 4.08. Agreement for Waiver of Conflict and Shared Defense	18
Section 4.09. Duty to Mitigate Settlements	18
Section 4.10. Non-Waiver of Rights to Coverage	18

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ARTICLE 5
ACCESS TO INFORMATION
Section 5.01. Access to Information	18
Section 5.02. Litigation Cooperation	19
Section 5.03. Reimbursement; Ownership of Information	20
Section 5.04. Retention of Records	20
Section 5.05. Confidentiality	21
Section 5.06. Privileged Information	22
Section 5.07. Confidential Personal Information	22
Section 5.08. Inapplicability of Sections 5.01 through 5.07 to Tax Matters	23
ARTICLE 6
OTHER AGREEMENTS
Section 6.01. Settlement of Intercompany Accounts	24
ARTICLE 7
INDEMNIFICATION
Section 7.01. Discover Indemnification of the Morgan Stanley Group	24
Section 7.02. Morgan Stanley Indemnification of Discover Group	24
Section 7.03. Procedures	25
Section 7.04. Calculation of Indemnification Amount	26
Section 7.05. Contribution	26
Section 7.06. Non-Exclusivity of Remedies	27
Section 7.07. Survival of Indemnities	27
ARTICLE 8
MISCELLANEOUS
Section 8.01. Notices	27
Section 8.02. Amendments; No Waivers	27
Section 8.03. Expenses	28
Section 8.04. Successors and Assigns	28
Section 8.05. Governing Law	28
Section 8.06. Counterparts; Effectiveness; Third-Party Beneficiaries	28
Section 8.07. Entire Agreement	28
Section 8.08. Tax Matters	29
Section 8.09. Jurisdiction	29
Section 8.10. WAIVER OF JURY TRIAL	29
Section 8.11. Existing Agreements	29
Section 8.12. Termination	30
Section 8.13. Severability	30
Section 8.14. Survival	30
Section 8.15. Captions	30
Section 8.16. Specific Performance	30
Section 8.17. Performance	30

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SEPARATION AND DISTRIBUTION AGREEMENT

SEPARATION AND DISTRIBUTION AGREEMENT dated as of [                    ], 2007 (the “Agreement”) between Morgan Stanley, a Delaware corporation (“Morgan Stanley”), and Discover Financial Services, a Delaware corporation (“Discover”).

W I T N E S S E T H:

WHEREAS, Morgan Stanley, through the Discover Group (as defined below), is currently engaged in the credit card and electronic payments business;

WHEREAS, the Board of Directors of Morgan Stanley has determined that it is in the best interests of Morgan Stanley, Discover and the shareholders of Morgan Stanley to distribute to the holders of the issued and outstanding shares of common stock, par value $0.01 per share, of Morgan Stanley (the “Morgan Stanley Common Stock”) as of the Record Date (as defined below), by means of a pro rata dividend, 100% of the issued and outstanding shares of common stock, par value $0.01 per share, of Discover (the “Discover Common Stock”), on the basis of one share of Discover Common Stock for every two then issued and outstanding shares of Morgan Stanley Common Stock (the “Distribution”);

WHEREAS, Morgan Stanley and Discover have prepared, and Discover has filed with the Commission, the Form 10 (as defined below), which includes the Information Statement (as defined below), and which sets forth appropriate disclosure concerning Discover and the Distribution, and the Form 10 has become effective under the Exchange Act (as defined below);

WHEREAS, it is intended that the Distribution will be preceded by the Cash Dividend, the Special Dividend and the Restructuring (each as defined below);

WHEREAS, for United States federal and state income tax purposes, the Distribution is intended to qualify as a tax-free transaction under Sections 355 and 368 of the Internal Revenue Code of 1986, as amended (the “Code”), and the corresponding provisions of state law, and Morgan Stanley has applied for certain tax rulings to such effect; and

WHEREAS, the parties hereto have determined to set forth the principal actions required to effect the Distribution and to set forth certain agreements that will govern the relationship between the parties following the Distribution.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties hereby agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Definitions. The following terms, as used herein, have the following meanings:

“Action” means any demand, claim, suit, action, arbitration, inquiry, investigation or other proceeding by or before any Governmental Authority or any arbitration or mediation tribunal.

“Affiliate” means, with respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with, such other Person; provided that for purposes of this Agreement, any Person who was a member of both Groups prior to the Distribution shall be deemed to be an Affiliate only of the Group of which such Person is a member following the Distribution. For the purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing. Any contrary provision of this Agreement notwithstanding, members of the Morgan Stanley Group, on the one hand, and members of the Discover Group, on the other hand, shall not be deemed to be Affiliates of the other.

“Agreement” has the meaning set forth in the preamble.

“Ancillary Agreement” means each of the Corporate Card Agreement, the U.S. Employee Matters Agreement, the Intellectual Property Agreement, the Investment Banking Agreement, the Lease Agreements, the Licensing Agreement, the Tax Sharing Agreement, the Transition Services Agreement, the U.K. Asset Transfer Agreement, the U.K. Employee Matters Agreement and the U.K. Tax Sharing Agreement.

“Applicable Law” means, with respect to any Person, any federal, state, local or foreign law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling, directive, guidance, instruction, direction, permission, waiver, notice, condition, limitation, restriction or prohibition or other similar requirement enacted, adopted, promulgated, imposed, issued or applied by a Governmental Authority that is binding upon or applicable to such Person, its properties or assets or its business or operations, as amended unless expressly specified otherwise.

“Business” means, as the context requires, the Morgan Stanley Business or the Discover Business.

“Cash Dividend” has the meaning set forth in Section 2.02.

“Claim” has the meaning set forth in Section 7.03(a).

2

“Claims Administration” means the processing of claims made under Morgan Stanley Policies, including the reporting of claims to the insurance carrier, management and defense of claims, and providing for appropriate releases upon settlement of claims.

“Claims Made Policies” has the meaning set forth in Section 4.05(a).

“Code” has the meaning set forth in the recitals to this Agreement.

“Commission” means the U.S. Securities and Exchange Commission.

“Confidential Information” has the meaning set forth in Section 5.05.

“Confidential Personal Information” means any identifiable information about individuals (including, without limitation, identifiable consumers or employees or other personnel) to which any member of a Group provides access or transfers to any member of the other Group solely pursuant to this Agreement or any Ancillary Agreement or which any member of such Group otherwise collects, uses, discloses, processes or otherwise handles from or for the other Group solely in connection with this Agreement or any Ancillary Agreement.

“Corporate Card Agreement” means the Corporate Card Agreement between Morgan Stanley and Discover to be entered into as of the Distribution Date, substantially in the form of Exhibit A.

“Discover” has the meaning set forth in the preamble.

“Discover Assumed Actions” has the meaning set forth in Section 5.02(a).

“Discover Business” means the business conducted by the Discover Group from time to time, whether before, on or after the Distribution. For clarity, the “Discover Business” shall include (i) the credit card and related assets and business transferred from MSBIL to Goldfish Bank as contemplated pursuant to paragraph 2(a) of Schedule 1 and (ii) Goldfish Card Services transferred from MSGE to Goldfish Bank as contemplated pursuant to paragraph 2(c) of Schedule 1, and exclude the mortgage businesses that were transferred from the Discover business segment of Morgan Stanley to the Institutional Securities business segment of Morgan Stanley in 2005, in each case as conducted from time to time, whether before, on or after the Distribution.

“Discover Common Stock” has the meaning set forth in the recitals to this Agreement.

“Discover Group” means Discover and its Subsidiaries.

“Discover Indemnitees” has the meaning set forth in Section 7.02(a).

3

“Discover Insured Party” means any member of the Discover Group that is named insured, additional named insured or insured under any Shared Policy.

“Discover Liabilities” means, except as otherwise specifically provided for in this Agreement or any Ancillary Agreement, all Liabilities (whether arising before, on or after the Distribution Date and whether based on facts occurring before, on or after the Distribution Date) of or relating to, or arising from or in connection with, the Discover Group, the conduct of the Discover Business or the ownership or use of assets in connection therewith. For clarity, Discover Liabilities shall exclude all Liabilities of or relating to, or arising from or in connection with the mortgage businesses that were transferred from the Discover business segment of Morgan Stanley to the Institutional Securities business segment of Morgan Stanley in 2005, as conducted from time to time, whether before, on or after the Distribution, except as expressly contemplated by the Loan Services Agreement referred to in Schedule 5.

“Disposing Party” has the meaning set forth in Section 5.04.

“Distribution” has the meaning set forth in the recitals to this Agreement.

“Distribution Agent” means [                    ].

“Distribution Date” means [                    ], 2007.

“Distribution Documents” means this Agreement and the Ancillary Agreements.

“Distribution Time” means [                    ] p.m. on the Distribution Date.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“FIFO Basis” means, with respect to the payment of Unrelated Claims pursuant to the same Shared Policy, the payment in full of each successful claim (regardless of whether a Morgan Stanley Insured Party or a Discover Insured Party is the claimant) in the order in which such successful claim is approved by the insurance carrier, until the limit of the applicable Shared Policy is met.

“Financial Instruments” means, with respect to any party, all credit facilities, guarantees, comfort letters, letters of credit and similar instruments related primarily to such party’s Business under which any member of such party’s Group has any primary, secondary, contingent, joint, several or other liability.

“Form 10” means the registration statement on Form 10 filed by Discover with the Commission to effect the registration of Discover Common Stock pursuant to the Exchange Act in connection with the Distribution, as such registration statement may be amended or supplemented from time to time.

4

“Goldfish Bank” means Goldfish Bank Limited.

“Goldfish Card Services” means Goldfish Card Services Limited.

“Governmental Authority” means any multinational, foreign, federal, state, local or other governmental, statutory or administrative authority, regulatory body or commission or any court, tribunal or judicial or arbitral authority which has any jurisdiction or control over either party (or their Affiliates), including without limitation the United Kingdom Financial Services Authority (or any successor thereto).

“Group” means, as the context requires, the Discover Group or the Morgan Stanley Group.

“Indemnified Party” has the meaning set forth in Section 7.03(a).

“Indemnifying Party” has the meaning set forth in Section 7.03(a).

“Information Statement” means the Information Statement to be sent to each holder of Morgan Stanley Common Stock in connection with the Distribution.

“Insured Party” means a Morgan Stanley Insured Party or a Discover Insured Party.

“Intellectual Property Agreement” means the Intellectual Property Agreement between Morgan Stanley and Discover to be entered into as of the Distribution Date, substantially in the form of Exhibit B.

“Intercompany Accounts” has the meaning set forth in Section 2.04.

“Investment Banking Agreement” means the Investment Banking Agreement between Morgan Stanley and Discover to be entered into as of the Distribution Date, substantially in the form of Exhibit C.

“IRS” means the Internal Revenue Service.

“Lease Agreements” means the amendments to the Lease Agreement between Morgan Stanley and Discover to be entered into as of the Distribution Date, substantially in the form of Exhibit D.

“Liabilities” means any and all claims, debts, liabilities and obligations, absolute or contingent, matured or not matured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, including all costs and expenses relating thereto, and including, without limitation, those debts, liabilities and obligations arising under this Agreement, any Applicable Law, or any award of any arbitrator of any kind, and those arising under any agreement, commitment or undertaking.

5

“Licensing Agreement” means the Licensing Agreement between Morgan Stanley and Discover to be entered into as of the Distribution Date, substantially in the form of Exhibit E.

“Losses” means, with respect to any Person, any and all damages, losses, liabilities and expenses incurred or suffered by such Person (including, without limitation, reasonable expenses of investigation and reasonable attorneys’ fees and expenses in connection with any and all Actions or threatened Actions).

“Morgan Stanley” has the meaning set forth in the preamble.

“Morgan Stanley Assumed Actions” has the meaning set forth in Section 5.02(a).

“Morgan Stanley Business” means the business conducted by the Morgan Stanley Group for time to time, whether before, on or after the Distribution (but excluding the Discover Business).

“Morgan Stanley Common Stock” has the meaning set forth in the recitals to this Agreement.

“Morgan Stanley Group” means Morgan Stanley and its Subsidiaries (other than any Subsidiary or member of, or other entity in, the Discover Group).

“Morgan Stanley Indemnitees” has the meaning set forth in Section 7.01(a).

“Morgan Stanley Insured Party” means any member of the Morgan Stanley Group that is named insured, additional named insured or insured under any Shared Policy.

“Morgan Stanley Liabilities” means, except as otherwise specifically provided in this Agreement or any Ancillary Agreement, all Liabilities (whether arising before, on or after the Distribution Date and whether based on facts occurring before, on or after the Distribution Date) of or relating to, or arising from or in connection with, the Morgan Stanley Group, the conduct of the Morgan Stanley Business or the ownership or use of assets in connection therewith, but excluding any Discover Liabilities.

“Morgan Stanley Policies” has the meaning set forth in Section 4.02.

“MSBIL” means Morgan Stanley Bank International Limited, a private limited company incorporated in England and Wales.

“MSDCI” means Morgan Stanley Domestic Capital, Inc., a Delaware corporation, which is a wholly owned indirect Subsidiary of Morgan Stanley and the sole shareholder of Discover, and its successors and assigns (including without limitation, any Person which may acquire all or substantially all of MSDCI’s assets or business, or with or into which MSDCI may be consolidated or merged).

6

“MSGE” means Morgan Stanley Group (Europe), an unlimited company incorporated in England and Wales.

“NYSE” means The New York Stock Exchange, Inc.

“Occurrence Based Policies” has the meaning set forth in Section 4.05(a).

“Person” means an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a governmental or political subdivision or an agency or instrumentality thereof.

“Personal Information Incident” means any actual or threatened unauthorized access, acquisition, use, alteration, creation, destruction, loss, theft, copying or disclosure of Confidential Personal Information of the other Group, including user IDs or passwords, regardless of whether such has been encrypted, only if such incident is reasonably likely to result in harm to a consumer or customer by way of misuse of such consumer’s or customer’s Confidential Personal Information.

“Privilege” has the meaning set forth in Section 5.06.

“Privileged Information” has the meaning set forth in Section 5.06.

“Receiving Party” has the meaning set forth in Section 5.04.

“Record Date” means [                    ], 2007.

“Related Claims” means a claim or claims against a Shared Policy made by one or more Discover Insured Parties, on the one hand, and one or more Morgan Stanley Insured Parties, on the other hand, filed in connection with Losses suffered by either a Discover Insured Party or a Morgan Stanley Insured Party, as the case may be, arising out of the same underlying transaction or series of transactions or event or series of events that have also given rise to Losses suffered by a Morgan Stanley Insured Party or a Discover Insured Party, as the case may be, which Losses are the subject of a claim or claims by such Person against a Shared Policy.

“Representatives” has the meaning set forth in Section 5.05.

“Restructuring” means the reorganization of certain businesses of the Discover Group and the Morgan Stanley Group intended to be completed on or before the Distribution Date, as described in Schedule 1.

7

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Shared Policies” has the meaning set forth in Section 4.05(a).

“Special Dividend” has the meaning set forth in Section 2.03.

“Subsidiary” means, with respect to any Person, any other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. For clarity, Goldfish Bank and Goldfish Card Services are Subsidiaries of Discover for purposes of this Agreement.

“Tax Sharing Agreement” means the Tax Sharing Agreement between Morgan Stanley and Discover to be entered into as of the Distribution Date, substantially in the form of Exhibit F.

“Third-Party Claim” has the meaning set forth in Section 7.03(b).

“Third Party” means a Person that is not an Affiliate of the Discover Group or Morgan Stanley Group.

“Transferred Actions” has the meaning set forth in Section 5.02(b).

“Transition Services Agreement” means the Transition Services Agreement between Morgan Stanley and Discover to be entered into as of the Distribution Date, substantially in the form of Exhibit G.

“U.K. Asset Transfer Agreement” means the Asset Transfer Agreement between MSBIL and Goldfish Bank to be entered into as of the Distribution Date, substantially in the form of Exhibit H.

“U.K. Employee Matters Agreement” means the U.K. Employee Matters Agreement between Morgan Stanley and Discover to be entered into as of the Distribution Date, substantially in the form of Exhibit I.

“U.K. Tax Sharing Agreement” means the Supplemental Tax Sharing Agreement Relating to Direct Tax and VAT in the United Kingdom between Morgan Stanley and Discover to be entered into as of the Distribution Date, substantially in the form of Exhibit J.

“Unrelated Claims” means a claim or claims against a Shared Policy that is not a Related Claim.

“U.S. Employee Matters Agreement” means the U.S. Employee Matters Agreement between Morgan Stanley and Discover to be entered into as of the Distribution Date, substantially in the form of Exhibit K.

8

“Visa/MasterCard Litigation” has the meaning set forth in Section 2.03.

Section 1.02. Interpretation. (a) In this Agreement, unless the context clearly indicates otherwise:

(i) words used in the singular include the plural and words used in the plural include the singular;

(ii) references to any Person include such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement;

(iii) reference to any gender includes the other gender;

(iv) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”;

(v) reference to any Article, Section, Exhibit or Schedule means such Article or Section of, or such Exhibit or Schedule to, this Agreement, as the case may be, and references in any Section or definition to any clause means such clause of such Section or definition;

(vi) the words “herein,” “hereunder,” “hereof,” “hereto” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof;

(vii) reference to any agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement;

(viii) reference to any law (including statutes and ordinances) means such law (including all rules and regulations promulgated thereunder) as amended, modified, codified or reenacted, in whole or in part, and in effect at the time of determining compliance or applicability;

(ix) relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding” and “through” means “through and including”;

(x) the titles to Articles and headings of Sections contained in this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of or to affect the meaning or interpretation of this Agreement; and

(xi) unless otherwise specified in this Agreement, all references to dollar amounts herein shall be in respect of lawful currency of the United States.

9

ARTICLE 2

PRIOR TO THE DISTRIBUTION

On or prior to the Distribution Date:

Section 2.01. Information Statement; Listing. Morgan Stanley shall mail the Information Statement to the holders of Morgan Stanley Common Stock as of the Record Date. Morgan Stanley and Discover shall take all such actions as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States and shall use reasonable efforts to comply with all applicable foreign securities laws in connection with the transactions contemplated by this Agreement and the Ancillary Agreements. Discover shall prepare, file and pursue an application to permit listing of the Discover Common Stock on the NYSE.

Section 2.02. Cash Dividend. Prior to the declaration of the Special Distribution, Discover shall declare and distribute to MSDCI a cash dividend (the “Cash Dividend”) in an amount equal to the excess of Discover’s balance sheet capital over the estimated amount that is determined to be necessary as of the Distribution Time, based on Morgan Stanley’s and Discover’s views (which will take into consideration, among other things, the amount of managed credit card receivables, deferred tax assets and intangible assets of the Discover Group) of underlying business risk, regulatory requirements and rating agency views.

Section 2.03. Special Dividend. Prior to completion of the Restructuring, Discover shall declare and distribute to MSDCI a dividend (the “Special Dividend”) in the form of an undertaking by Discover to pay to MSDCI a portion of the after-tax proceeds received by Discover or any of its Affiliates in connection with the litigation Discover is as of the date hereof pursuing against Visa U.S.A, Inc. and MasterCard Worldwide (the “Visa/MasterCard Litigation”) pursuant to the terms and conditions set forth in Schedule 2. Discover hereby agrees to comply with the terms and conditions set forth in Schedule 2 relating to the Special Dividend. Without limiting the generality of the foregoing, Discover shall pay or cause to be paid such amounts to MSDCI as set forth in Schedule 2 and take or cause to be taken any and all actions as may be necessary or appropriate to comply with the terms and conditions set forth in Schedule 2.

Section 2.04. Intercompany Accounts. The parties shall use reasonable efforts to settle all intercompany receivables, payables and other balances (“Intercompany Accounts”) between members of the Morgan Stanley Group, on the one hand, and members of the Discover Group, on the other hand, except for any such intercompany receivable, payable or other balance to the extent arising under or specifically provided for this Agreement or any Ancillary Agreement.

Section 2.05. Financial Instruments. Each party shall use reasonable efforts to take or cause to be taken all actions, and enter into such agreements and

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arrangements as shall be necessary, to (i) terminate all obligations of the other party (and members of its Group) under any of the first party’s Financial Instruments that is in existence immediately prior to the Distribution or (ii) cause itself (or another member of its Group) to be substituted for the other party (and members of its Group) in respect of their obligations under any of the first party’s Financial Instruments that is in existence immediately prior to the Distribution; provided that if such a termination or substitution is not effected by the Distribution (i) each party shall indemnify and hold harmless the other party from and against any Losses arising from or relating to its Financial Instruments in accordance with the applicable provisions of Section 7.01 or Section 7.02 and (ii) without the prior written consent of the other party (or the applicable members of its Group), such party shall not, and shall not permit any other member of its Group to, renew or extend the term of, increase the obligations or Liabilities under, or transfer to a third party, any such Financial Instrument unless all obligations of the other party (and members of its Group) with respect thereto are thereupon terminated by documentation reasonably satisfactory in form and substance to the other party (or the applicable members of its Group).

Section 2.06. Shared Employees. Each individual who is an officer, director or employee of any member of the Morgan Stanley Group and any member of the Discover Group shall resign, effective at or prior to the Distribution, from all positions such individual holds with all members of one or the other Group, such that following the Distribution such individual will not hold such positions in both Groups.

Section 2.07. Further Assurances and Consents. In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto shall use its reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under Applicable Laws, regulations and agreements or otherwise to consummate and make effective the transactions contemplated by this Agreement, including but not limited to using its reasonable efforts to obtain any consents and approvals and to make any filings and applications necessary or desirable in order to consummate the transactions contemplated by this Agreement.

ARTICLE 3

DISTRIBUTION

Section 3.01. Conditions Precedent to Distribution. In no event shall the Distribution occur unless each of the following conditions shall have been satisfied (or waived by Morgan Stanley in its sole discretion):

(i) the Board of Directors of Morgan Stanley shall be satisfied that the Distribution will be made out of surplus within the meaning of Section 170 of the General Corporation Law of the State of Delaware and shall have received a solvency opinion in form and substance satisfactory to the Board of Directors of Morgan Stanley to that effect;

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(ii) prior to the declaration of the Special Dividend and the Restructuring, the Cash Dividend shall have been declared and distributed by Discover;

(iii) prior to the Restructuring, the Special Dividend shall have been declared and distributed by Discover;

(iv) the Restructuring shall have been consummated;

(v) all material Intercompany Accounts shall have been settled;

(vi) no stop order suspending the effectiveness of the Form 10 shall be in effect, no proceedings for such purpose shall be pending before or threatened by the Commission, and the Information Statement shall have been mailed to holders of the Morgan Stanley Common Stock as of the Record Date;

(vii) all actions and filings necessary or appropriate under applicable federal, state or foreign securities or “blue sky” laws and the rules and regulations thereunder shall have been taken and, where applicable, become effective or been accepted;

(viii) the Discover Common Stock to be delivered in the Distribution shall have been approved for listing on the NYSE, subject to official notice of issuance;

(ix) the Board of Directors of Discover, as named in the Information Statement, shall have been elected by Morgan Stanley, as sole stockholder of Discover, and the amended and restated certificate of incorporation and bylaws of Discover, each in substantially the form filed as an exhibit to the Form 10, shall be in effect;

(x) each of the Ancillary Agreements shall have been duly executed and delivered by the parties thereto;

(xi) Morgan Stanley shall have received a private letter ruling from the IRS and/or an opinion of Davis Polk & Wardwell, in either case reasonably satisfactory to the Board of Directors of Morgan Stanley, confirming the application of Sections 355 and 368 of the Code to the Distribution and certain related matters, and a ruling from the California Franchise Tax Board or an opinion of counsel, in either case reasonably satisfactory to the Board of Directors of Morgan Stanley, confirming the application of the corresponding provisions of California state tax law to the Distribution;

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(xii) no Applicable Law shall have been adopted, promulgated or issued that prohibits the consummation of the Distribution and the other transactions contemplated hereby;

(xiii) all material governmental approvals and consents and all material permits, registrations and consents from third parties, in each case, necessary to effect the Distribution and to permit the operation of the Discover Business after the Distribution Date substantially as it is conducted at the date hereof shall have been obtained;

(xiv) Discover shall have received credit ratings from the rating agencies that are satisfactory to Morgan Stanley; and

(xv) no event or development shall have occurred or exist that, in the judgment of the Board of Directors of Morgan Stanley, in its sole discretion, makes it inadvisable to effect the Distribution or the other transactions contemplated hereby.

Each of the foregoing conditions is for the sole benefit of Morgan Stanley and shall not give rise to or create any duty on the part of Morgan Stanley or its Board of Directors to waive or not to waive any such condition or to effect the Distribution, or in any way limit Morgan Stanley’s rights of termination set forth in this Agreement. Any determination made by Morgan Stanley on or prior to the Distribution concerning the satisfaction or waiver of any or all of the conditions set forth in this Section 3.01 shall be conclusive and binding on the parties.

Section 3.02. The Distribution. Subject to the terms and conditions set forth in this Agreement, (i) on or prior to the Distribution Date, Morgan Stanley shall deliver to the Distribution Agent for the benefit of holders of record of Morgan Stanley Common Stock on the Record Date, book-entry transfer authorizations for 100% of the issued and outstanding shares of Discover Common Stock, (ii) the Distribution shall be effective at the Distribution Time, and (iii) Morgan Stanley shall instruct the Distribution Agent to distribute, on or as soon as practicable after the Distribution Date, to each holder of record of Morgan Stanley Common Stock as of the Record Date, by means of a pro rata dividend, one share of Discover Common Stock for every two shares of Morgan Stanley Common Stock so held. Following the Distribution Date, Discover agrees to provide all book-entry transfer authorizations for shares of Discover Common Stock that Morgan Stanley or the Distribution Agent shall require (after giving effect to Sections 3.03 and 3.04) in order to effect the Distribution.

Section 3.03. Subdivision of Discover Common Stock to Accomplish the Distribution. Effective upon the filing of the amended and restated certificate of incorporation of Discover with the Secretary of State of the State of Delaware, each share of Discover Common Stock then issued and outstanding shall, without any action on the part of the holder thereof, be subdivided and converted into that number of fully paid and non-assessable shares of Discover Common Stock issued and outstanding equal to the number necessary to effect the Distribution.

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Section 3.04. Fractional Shares. No fractional shares of Discover Common Stock will be distributed in the Distribution. The Distribution Agent will be directed to determine the number of whole shares and fractional shares of Discover Common Stock allocable to each holder of Morgan Stanley Common Stock as of the Record Date. Upon the determination by the Distribution Agent of such number of fractional shares, as soon as practicable after the Distribution Date, the Distribution Agent, acting on behalf of the holders thereof, shall sell such fractional shares for cash on the open market and shall thereafter promptly disburse to each such holder entitled thereto its ratable portion of the resulting cash proceeds, after making appropriate deductions of the amounts required to be withheld for United States federal income tax purposes, if any, and after deducting an amount equal to all brokerage charges, commissions and transfer taxes attributed to the sale of fractional shares pursuant to this Section 3.04.

Section 3.05. NO REPRESENTATIONS OR WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY OTHER DISTRIBUTION DOCUMENT, NO MEMBER OF EITHER GROUP MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, TO ANY MEMBER OF THE OTHER GROUP OR ANY OTHER PERSON WITH RESPECT TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, OR THE BUSINESS, ASSETS, CONDITION OR PROSPECTS (FINANCIAL OR OTHERWISE) OF, OR ANY OTHER MATTER INVOLVING, EITHER BUSINESS, OR THE SUFFICIENCY OF ANY ASSETS TRANSFERRED TO THE APPLICABLE GROUP, OR THE TITLE TO ANY SUCH ASSETS, OR THAT ANY REQUIREMENTS OF APPLICABLE LAW ARE COMPLIED WITH WITH RESPECT TO THE RESTRUCTURING OR THE DISTRIBUTION. EACH MEMBER OF EACH GROUP SHALL TAKE ALL OF THE BUSINESS, ASSETS AND LIABILITIES TRANSFERRED TO OR ASSUMED BY IT PURSUANT TO THIS AGREEMENT OR ANY DISTRIBUTION DOCUMENT ON AN “AS IS, WHERE IS” BASIS, AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A SPECIFIC PURPOSE OR OTHERWISE ARE HEREBY EXPRESSLY DISCLAIMED.

ARTICLE 4

INSURANCE MATTERS

Section 4.01. Insurance Prior to the Distribution Date. Except as may otherwise be expressly provided in this Article 4, Discover does hereby agree, for itself and on behalf of the Discover Group, that the Morgan Stanley Group shall not have any Liability whatsoever as a result of the insurance policies, insurance contracts and claim administration contracts and practices related to the foregoing of the Morgan Stanley Group in effect at any time prior to the Distribution Time,

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including as a result of the level or scope of any such insurance policies, insurance contracts, claim administration contracts, the creditworthiness of any insurance carrier, the terms and conditions of any policy or contract and the adequacy or timeliness of any notice to any insurance carrier or claims administrator with respect to any actual claim or potential claim or otherwise.

Section 4.02. Ownership of Existing Policies and Programs. Morgan Stanley or any member of the Morgan Stanley Group will continue to own all insurance policies, insurance contracts and claim administration contracts of any kind of any member of the Morgan Stanley Group which were or are in effect at any time at or prior to the Distribution Time (other than insurance policies, insurance contracts and claim administration contracts established in contemplation of the Distribution to cover only the Discover Group after the Distribution Time), including general liability (whether primary, excess or umbrella), fiduciary liability, automobile, aircraft hull and liability, all risk property (including business interruption) and casualty, directors and officers liability, employer’s liability, workers’ compensation, comprehensive crime, errors and omissions and property/boiler and machinery insurance policies, together with all rights, benefits and privileges thereunder (collectively, the “Morgan Stanley Policies”). Subject to the provisions of this Agreement, (a) the members of the Morgan Stanley Group shall retain all of their respective rights, benefits and privileges, if any, under the Morgan Stanley Policies and (b) subject to the Discover Group’s rights under Section 4.05, coverage of the Discover Group under the Morgan Stanley Policies shall cease as of the Distribution Time. Nothing contained herein shall be construed to be an attempted assignment of or a change to any part of the ownership of the Morgan Stanley Policies.

Section 4.03. Maintenance of Insurance for Discover. Until the Distribution Time, Morgan Stanley shall maintain in full force and effect the Morgan Stanley Policies to the extent that such policies apply to the Discover Business.

Section 4.04. Acquisition and Maintenance of Post-Distribution Insurance by Discover. Commencing on and as of the Distribution Date, Discover shall be responsible for establishing and maintaining separate property damage and business interruption and liability insurance policies and programs (including general liability (whether primary, excess or umbrella), fiduciary liability, automobile, aircraft hull and liability, all risk property (including business interruption) and casualty, directors and officers liability, employer’s liability, workers’ compensation, comprehensive crime, errors and omissions and property/boiler and machinery insurance policies) for activities and claims involving any member of the Discover Group. Each member of the Discover Group, as appropriate, shall be responsible for all administrative and financial matters relating to insurance policies established and maintained by any member of the Discover Group claims relating to any period at or after the Distribution Time involving any member of the Discover Group.

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Section 4.05. Rights Under Shared Policies. (a) At and after the Distribution Time: (i) Discover and the other members of the Discover Group will have the right to assert claims for any Losses with respect to the Discover Business, under Morgan Stanley Policies that cover any member of the Discover Group and/or any or all of the Discover Business within the definition of the named insured, additional named insured, additional insured or insured (excluding, for the avoidance of doubt, any group health and welfare insurance policies) (“Shared Policies”) with Third Party insurers that are “occurrence based” insurance policies (“Occurrence Based Policies”) arising out of insured occurrences occurring from the date coverage thereunder first commenced until the Distribution Time to the extent that the terms and conditions of any such Occurrence Based Policies and agreements relating thereto so allow; (ii) Discover and the other members of the Discover Group will have the right to prosecute or continue to prosecute claims with respect to the Discover Business properly asserted under Occurrence Based Policies for claims which arose at or prior to the Distribution Time to the extent that the terms and conditions of any such Occurrence Based Policies and agreements relating thereto so allow; and (iii) Discover and the other members of the Discover Group will have the right to assert and/or continue to prosecute claims with respect to the Discover Business under Shared Policies with Third Party insurers that are made under liability insurance policies written on a “claims made” basis (“Claims Made Policies”) arising out of insured incidents occurring from the date coverage thereunder first commenced until the Distribution Time to the extent that the terms and conditions of any such Claims Made Policies and agreements relating thereto so allow; provided, that in the case of clauses (i), (ii) and (iii), (A) subject to Section 4.05(b), the Morgan Stanley Group may, at any time, without liability or obligation to the Discover Group, amend, commute, terminate, buy-out, extinguish liability under or otherwise modify any Shared Policies (and such claims shall be subject to any such amendments, commutations, terminations, buy-outs, extinguishments and modifications), (B) such claims will be subject to (and recovery thereon will be reduced by the amount of) any applicable deductibles, retentions or self-insurance provisions, and, with respect to any such deductibles, retentions or self-insurance provisions which require a payment by a member of the Morgan Stanley Group in respect thereof, Discover shall reimburse such member of the Morgan Stanley Group for a pro rata portion of such payment based on Discover’s interest in such claim, (C) Discover shall be responsible for and shall pay any claims handling expenses or residual Liability arising from such claims and (D) such claims will be subject to exhaustion of existing sublimits and aggregate limits as provided in Section 4.05(b). No member of the Morgan Stanley Group will bear any Liability for the failure of an insurer to pay any claim under any Shared Policy. It is understood that any Claims Made Policies may not provide any coverage to the Discover Group for incidents occurring prior to the Distribution Time but that are asserted with the insurance carrier after the Distribution Time.

(b) In the event that after the Distribution Time Morgan Stanley proposes to amend, commute, terminate, buy-out, extinguish liability under or

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otherwise modify any Shared Policies under which Discover, the Discover Business or and the other members of the Discover Group has or may in the future have rights to assert claims pursuant to this Article 4 in a manner that would adversely affect any such rights of Discover, the Discover Business or and the other members of the Discover Group, Morgan Stanley will give Discover prior notice thereof.

(c) To the extent that the limits of any Shared Policy preclude payment in full of Unrelated Claims filed by any member of the Morgan Stanley Group, on the one hand, and any member of the Discover Group, on the other hand, the insurance proceeds available under such Shared Policy shall be paid to Morgan Stanley and/or Discover, as applicable, on a FIFO Basis. In the event that any member of the Morgan Stanley Group, on the one hand, and any member of the Discover Group, on the other hand, file Related Claims under any Shared Policy, each of Morgan Stanley and Discover shall receive a pro rata amount of the available insurance proceeds, based on the relationship the Loss incurred by each such party bears to the total Loss to both such parties from the occurrence or event underlying the Related Claims.

Section 4.06. Administration and Reserves. (a) From and after the Distribution, the Morgan Stanley Group will be responsible for the Claims Administration with respect to claims of the Morgan Stanley Group under Shared Policies.

(b) From and after the Distribution, the Discover Group will be responsible for the Claims Administration with respect to claims of the Discover Group under Shared Policies. Discover shall provide advance notice to Morgan Stanley of any such claims.

(c) Each party agrees to consider in good faith (but shall have no obligation to accept) any requests by the other party to provide assistance to, and cooperate with, such party or any member of its Group with respect to the Claims Administration referred to in Sections 4.06 (a) and 4.06(b). None of the members of either Group and their respective directors, officers, agents and employees shall have any liability, whether direct or indirect, in contract or tort or otherwise, to any Person for or in connection with the provision of such assistance or cooperation. All out of pocket expenses incurred by either party in providing any such assistance or cooperation shall be reimbursed promptly by the other party.

Section 4.07. Insurance Premiums. From and after the Distribution Time, Morgan Stanley will pay all premiums, taxes, assessments or similar charges (retrospectively-rated or otherwise) as required under the terms and conditions of the respective Shared Policies in respect of periods of coverage prior to the Distribution Time, whereupon Discover will upon the request of Morgan Stanley promptly reimburse Morgan Stanley for that portion of such additional premiums and other payments paid by Morgan Stanley as are reasonably determined by Morgan Stanley to be attributable to the Discover Business. Notwithstanding the

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foregoing, to the extent that Discover has previously paid a premium (or has been allocated a portion of a premium by Morgan Stanley) or satisfied a deductible amount under a Shared Policy, Discover shall not be required to pay such premium pursuant to the foregoing sentence or satisfy such deductible again if Discover makes a claim under such Shared Policy in accordance with this Article 4.

Section 4.08. Agreement for Waiver of Conflict and Shared Defense. In the event that a Shared Policy provides coverage for both a member of the Morgan Stanley Group, on the one hand, and a member of the Discover Group, on the other hand, relating to the same occurrence, Morgan Stanley and Discover agree to defend jointly, provided that in the event there is a conflict of interest which in the reasonable opinion of either party would otherwise prevent the conduct of that joint defense, the parties shall cooperate to pursue coverage under such Shared Policy pursuant to appropriate arrangements (which may require separate counsel) as permitted by such Shared Policy. Nothing in this Section 4.08 will be construed to limit or otherwise alter in any way the indemnity obligations of the parties, including those created by this Agreement, by operation of law or otherwise.

Section 4.09. Duty to Mitigate Settlements. To the extent that either Morgan Stanley or Discover is responsible for the Claims Administration for any claims under any Shared Policies after the Distribution Time, such party shall use its reasonable efforts to mitigate the amount of any settlements of such claims.

Section 4.10. Non-Waiver of Rights to Coverage. An insurance carrier that would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto, or, solely by virtue of the provisions of this Article 4, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurance carrier or any Third Party shall be entitled to a benefit (i.e., a benefit such Person would not be entitled to receive had the Distribution not occurred or in the absence of the provisions of this Article 4) by virtue of the provisions hereof.

ARTICLE 5

ACCESS TO INFORMATION

Section 5.01. Access to Information. (a) For a period of six years after the Distribution Date, each Group shall afford promptly the other Group and its agents and, to the extent required by Applicable Law, authorized representatives of any Governmental Authority of competent jurisdiction, reasonable access during normal business hours to its books of account, financial and other records (including accountant’s work papers, to the extent consents have been obtained), information, employees and auditors to the extent necessary or useful for such other Group in connection with any audit, investigation, dispute or litigation, complying with their obligations under this Agreement or any Ancillary

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Agreement, any regulatory proceeding, any regulatory filings, complying with reporting disclosure requirements or any other requirements imposed by any Governmental Authority or any other reasonable business purpose of the Group requesting such access; provided that any such access shall not unreasonably interfere with the conduct of the business of the Group providing such access; provided further that in the event any party reasonably determines that affording any such access to the other party would be commercially detrimental in any material respect or violate any Applicable Law or agreement to which such party or member of its Group is a party, or waive any attorney-client privilege applicable to such party or any member of its Group, the parties shall use reasonable efforts to permit the compliance with such request in a manner that avoids any such harm or consequence.

(b) Without limiting the generality of the foregoing, until the end of the first full Discover fiscal year occurring after the Distribution Date (and for a reasonable period of time afterwards as required for each party to prepare consolidated financial statements or complete a financial statement audit for the fiscal year during which the Distribution Date occurs), each party shall use reasonable efforts, to cooperate with the other party’s information requests to enable the other party to meet its timetable for dissemination of its earnings releases, financial statements and enable such other party’s auditors to timely complete their audit of the annual financial statements and review of the quarterly financial statements.

Section 5.02. Litigation Cooperation. (a) (i) As of the Distribution, the applicable member of the Discover Group shall assume and thereafter, except as provided in Article 7, be responsible for all Liabilities that may result from the Discover Assumed Actions and all fees and costs relating to the defense of the Discover Assumed Actions, including attorneys’ fees and costs incurred after the Distribution. “Discover Assumed Actions” means those Actions primarily relating to the Discover Business in which any member of the Morgan Stanley Group or any Affiliate of a member of the Morgan Stanley Group, other than any member of the Discover Group, is a defendant or the party against whom the claim or investigation is directed; and (ii) as of the Distribution, the applicable member of the Morgan Stanley Group shall assume and thereafter, except as provided in Article 7, be responsible for all Liabilities that may result from the Morgan Stanley Assumed Actions and all fees and costs relating to the defense of the Morgan Stanley Assumed Actions, including attorneys’ fees and costs incurred after the Distribution. “Morgan Stanley Assumed Actions” means those Actions primarily related to the Morgan Stanley Business in which any member of the Discover Group or any Affiliate of a member of the Discover Group, other than any member of the Morgan Stanley Group, is a defendant or the party against whom the claim or investigation is directed.

(b) The applicable member of the Morgan Stanley Group shall transfer the Transferred Actions to the applicable member of the Discover Group, and the applicable member of the Discover Group shall receive and have the benefit of all

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of the proceeds of such Transferred Actions. “Transferred Actions” means those Actions (in which any member of the Morgan Stanley Group is a plaintiff or claimant) primarily relating to the Discover Business including those listed on Schedule 5.02(b).

(c) Each party agrees that at all times from and after the Distribution if an Action relating primarily to its Business is commenced by a third party naming a member of each Group as defendants thereto, then the party as to which the Action primarily relates shall use its reasonable efforts to cause the other party or member of its Group to be removed from such Action; provided that if the first party is unable to cause the member of the Group of the other party to be removed from such Action, the parties shall cooperate and consult to the extent necessary or advisable with respect to such Action.

(d) The parties agree that at all times from and after the Distribution if an Action which does not relate primarily to either party’s Business is commenced by a third party naming a member of each Group as defendants thereto, then the parties shall cooperate and consult to the extent necessary or advisable with respect to such Action.

(e) Each Group shall use reasonable efforts to make available to the other Group and its accountants, counsel, and other designated representatives, upon written request, its directors, officers, employees and representatives as witnesses, and shall otherwise cooperate with the other Group, to the extent reasonably required in connection with any Action arising out of either Group’s Business prior to the Distribution Date in which the requesting party may from time to time be involved.

Section 5.03. Reimbursement; Ownership of Information. (a) Each Group providing information or witnesses to the other Group, or otherwise incurring any expense in connection with cooperating, under Section 5.01 or Section 5.02 shall be entitled to receive from the recipient thereof, upon the presentation of invoices therefor, payment for all out-of-pocket costs and expenses (including attorney’s fees but excluding reimbursement for general overhead, salary and employee benefits) actually incurred in providing such access, information, witnesses or cooperation.

(b) All information owned by one party that is provided to the other party under Section 5.01 or Section 5.02 shall be deemed to remain the property of the providing party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed to grant or confer rights of license of otherwise in any such information.

Section 5.04. Retention of Records. Except as otherwise required by Applicable Law or agreed to in writing, each party shall, and shall cause the members of its Group to, retain, in accordance with the practice of such party applicable to the retention of its own information as in effect from time to time,

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any and all information in its possession or control relating to the other Group’s Business. Neither party shall destroy or otherwise dispose of any such information, subject to such retention practice, unless, prior to such destruction or disposal, the party proposing such destruction or disposal (the “Disposing Party”) provides not less than 30 days’ prior written notice to the other party (the “Receiving Party”), specifying the information proposed to be destroyed or disposed of and the scheduled date for such destruction or disposal. If the Receiving Party shall request in writing prior to the scheduled date for such destruction or disposal that any of the information proposed to be destroyed or disposed of be delivered to the Receiving Party, the Disposing Party shall promptly arrange for the delivery of such of the information as was requested at the expense of the Receiving Party; provided that in the event that the Disposing Party reasonably determines that any such provision of information would violate any Applicable Law or agreement to which such party or member of its Group is a party, or waive any attorney-client privilege applicable to such party or any member of its Group, the parties shall use reasonable efforts to permit the compliance with such request in a manner that avoids any such harm or consequence. Any records or documents that were subject to a litigation hold prior to the Distribution Date must be retained by the applicable party until such party is notified by the other party that the litigation hold is no longer in effect.

Section 5.05. Confidentiality. Each party acknowledges that it may have in its possession, and, in connection with this Agreement and the Ancillary Agreements, may receive, confidential information of the other party, any member of its Group (including information in the possession of such other party relating to its clients or customers) (“Confidential Information”). Each party shall hold and shall cause its directors, officers, employees, agents, consultants and advisors (“Representatives”) to hold in strict confidence and not to use except as permitted by this Agreement or any Ancillary Agreement all such Confidential Information concerning the other party unless (i) such party or any of its Representatives is compelled to disclose such Confidential Information by judicial or administrative process or by other requirements of Applicable Law or (ii) such Confidential Information can be shown to have been (A) in the public domain through no fault of such party or any of its Representatives, (B) lawfully acquired after the Distribution Date on a non-confidential basis from other sources not known by such party to be under any legal obligation to keep such information confidential or (C) developed by such party or any of its Representatives without the use of any Confidential Information of the other party. Notwithstanding the foregoing, such party may disclose such Confidential Information to its Representatives so long as such Persons are informed by such party of the confidential nature of such Confidential Information and are directed by such party to treat such information confidentially. The obligation of each party and its Representatives to hold any such Confidential Information in confidence shall be satisfied if they exercise the same level of care with respect to such Confidential Information as they would with respect to their own proprietary information. If such party or any of its Representatives becomes legally compelled to disclose any documents or information subject to this Section 5.05,

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such party will promptly notify the other party and, upon request, use reasonable efforts to cooperate with the other party’s efforts to seek a protective order or other remedy. If no such protective order or other remedy is obtained or if the other party waives in writing such party’s compliance with this Section 5.05, such party may furnish only that portion of the information which it concludes, after consultation with counsel, is legally required to be disclosed and will exercise its reasonable efforts to obtain reliable assurance that confidential treatment will be accorded such information. Each party agrees to be responsible for any breach of this Section 5.05 by it and its Representatives.

Section 5.06. Privileged Information. (a) The parties acknowledge that members of the Morgan Stanley Group, on the one hand, and members of the Discover Group, on the other hand, may possess documents or other information regarding the other Group that is or may be subject to the attorney-client privilege, the work product doctrine or common interest privilege (collectively, “Privileges”; and such documents and other information collectively, the “Privileged Information”). Each party agrees to use reasonable efforts to protect and maintain, and to cause their respective Affiliates to protect and maintain, any applicable claim to Privilege in order to protect any of the other party’s Privileged Information from disclosure without the other party’s consent. Without limiting the generality of the foregoing, the parties and their respective Affiliates shall not, without the other party’s prior written consent, (i) waive any Privilege with respect to any of the other party’s Privileged Information, (ii) fail to defend any Privilege with respect to any such Privileged Information, or (iii) fail to take any other actions necessary to preserve any Privilege with respect to any such Privileged Information.

(b) Upon receipt by either party of any subpoena, discovery or other request that calls for the production or disclosure of Privileged Information of the other party, such party shall promptly notify the other party of the existence of the request and shall provide the other party a reasonable opportunity to review the information and to assert any rights it may have under this Section 5.06 or otherwise to prevent the production or disclosure of such Privileged Information. Each party agrees that it will not produce or disclose any information that may be covered by a Privilege of the party under this Section 5.06 unless (i) the other party has provided its written consent to such production or disclosure (which consent shall not be unreasonably withheld) or (ii) a court of competent jurisdiction has entered a final, nonappealable order finding that the information is not entitled to protection under any applicable Privilege.

Section 5.07. Confidential Personal Information. (a) From and after the Distribution Date, to the extent required by Applicable Law, each of Morgan Stanley and Discover shall, and shall cause their respective Subsidiaries and Affiliates and its and their Representatives, to only use Confidential Personal Information: (i) in connection with the receiving party’s performance of this Agreement and/or as described in an Ancillary Agreement or any agreement contemplated hereby; or (ii) in compliance with any express written instructions

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given by the party from which the Confidential Personal Information originates, as may be modified from time to time. Upon completion of either party’s use of Confidential Personal Information pursuant to this subsection, the receiving party will maintain the Confidential Personal Information in compliance with the applicable requirements of this Section 5.07 and with its reasonable record retention and destruction policies.

(b)(i) Each of Morgan Stanley and Discover and their respective Subsidiaries and Affiliates will comply with Applicable Law with respect to the Confidential Personal Information received by it from the disclosing party and shall maintain procedures reasonably designed to detect and respond to Personal Information Incidents, including procedures for corrective action.

(ii) If a receiving party uses agents or subcontractors who will access, use or otherwise have control over Confidential Personal Information of the disclosing party, the receiving party will enter into a written agreement with such agents and subcontractors that will include confidentiality obligations that are at least as restrictive as those provisions to which the receiving party subjects such agents or subcontractors who have access to the receiving party’s Confidential Personal Information.

(iii) Subject to any other obligations either Morgan Stanley or Discover may have under Applicable Law, each of Morgan Stanley and Discover agrees to promptly notify the other party upon such party’s discovery of a potential or actual Personal Information Incident. Each of Morgan Stanley and Discover understands and agrees that the receiving party or its Affiliates may be required to report Personal Information Incidents to affected individuals and/or any governmental authority or agency having supervisory or oversight authority over the receiving party and the disclosing party may provide such reports, provided that, the receiving party agrees that it will not notify any affected individuals or authority or agency until the receiving party first consults with and the disclosing party has had an opportunity to review any such notice.

(c) In addition to any other obligations a receiving party may have under this Agreement, in the event of a Personal Information Incident, at the request of the disclosing party, a receiving party shall: (i) assist in the identification of affected persons and relevant jurisdictions; (ii) reimburse the disclosing party for any costs associated with providing affected persons with any assistance (credit monitoring, etc.) as the disclosing party deems reasonable; and (iii) undertake a procedural review/audit to determine any appropriate corrective measures to avoid a similar situation recurring, and report to the disclosing party the corrective measures undertaken.

Section 5.08. Inapplicability of Sections 5.01 through 5.07 to Tax Matters. Sections 5.01 through 5.07 shall not apply with respect to information, records, Actions and other matters relating to tax matters, all of which shall be governed by the Tax Sharing Agreement and the U.K. Tax Sharing Agreement.

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ARTICLE 6

OTHER AGREEMENTS

Section 6.01. Settlement of Intercompany Accounts. From and after the Distribution Date, the parties shall use reasonable efforts to settle any Intercompany Accounts that are not settled as of the Distribution within 90 days after the Distribution.

ARTICLE 7

INDEMNIFICATION

Section 7.01. Discover Indemnification of the Morgan Stanley Group. (a) Effective at and after the Distribution, Discover shall indemnify, defend and hold harmless the Morgan Stanley Group and the respective directors, officers, employees and Affiliates of each Person in the Morgan Stanley Group (the “Morgan Stanley Indemnitees”) from and against any and all Losses incurred or suffered by any of the Morgan Stanley Indemnitees arising out of or in connection with (i) any of the Discover Liabilities, or the failure of any member of the Discover Group to pay, perform or otherwise discharge any of the Discover Liabilities, (ii) any of Discover’s Financial Instruments, and (iii) any breach by Discover of this Agreement.

(b) Except to the extent set forth in Section 7.02(b), Discover shall indemnify, defend and hold harmless each of the Morgan Stanley Indemnitees and each Person, if any, who controls any Morgan Stanley Indemnitee within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all Losses caused by any untrue statement or alleged untrue statement of a material fact contained in the Form 10 or any amendment thereof or the Information Statement (as amended or supplemented if Discover shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

Section 7.02. Morgan Stanley Indemnification of Discover Group. (a) Effective at and after the Distribution, Morgan Stanley shall indemnify, defend and hold harmless the Discover Group and the respective directors, officers, employees and Affiliates of each Person in the Discover Group (the “Discover Indemnitees”) from and against any and all Losses incurred or suffered by any of the Discover Indemnitees and arising out of or in connection with (i) any of the Morgan Stanley Liabilities, or the failure of any member of the Morgan Stanley Group to pay, perform or otherwise discharge any of the Morgan Stanley Liabilities, (ii) any of Morgan Stanley’s Financial Instruments, and (iii) any breach by Morgan Stanley of this Agreement.

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(b) Morgan Stanley shall indemnify, defend and hold harmless each of the Discover Indemnitees and each Person, if any, who controls any Discover Indemnitee within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all Losses caused by any untrue statement or alleged untrue statement of a material fact contained in the Form 10 or any amendment thereof or the Information Statement (as amended or supplemented if Discover shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such Losses are caused by any such untrue statement or omission or alleged untrue statement or omission arising out of information set forth in Schedule 4.

Section 7.03. Procedures. (a) The party seeking indemnification under Section 7.01 or Section 7.02 (the “Indemnified Party”) agrees to give prompt notice to the party against whom indemnity is sought (the “Indemnifying Party”) of the assertion of any claim, or the commencement of any suit, action or proceeding (“Claim”) in respect of which indemnity may be sought hereunder and will provide the Indemnifying Party such information with respect thereto that the Indemnifying Party may reasonably request. The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have materially prejudiced the Indemnifying Party.

(b) The Indemnifying Party shall be entitled to participate in the defense of any Claim asserted by any third party (“Third-Party Claim”) and, subject to the limitations set forth in this Section 7.03, if it so notifies the Indemnified Party no later than 30 days after receipt of the notice described in Section 7.03(a), shall be entitled to control and appoint lead counsel for such defense, in each case at its expense. If the Indemnifying Party does not, the Indemnified Party shall have the right to defend or contest such Third-Party Claim through counsel chosen by the Indemnified Party reasonably acceptable to the Indemnifying Party, subject to the provisions of this Section 7.03. The Indemnified Party shall provide the Indemnifying Party and such counsel with such information regarding such Third-Party Claim as either of them may reasonably request (which request may be general or specific).

(c) If the Indemnifying Party shall assume the control of the defense of any Third-Party Claim in accordance with the provisions of this Section 7.03, (i) the Indemnifying Party shall obtain the prior written consent of the Indemnified Party (which shall not be unreasonably withheld) before entering into any settlement of such Third-Party Claim, if the settlement does not release the Indemnified Party from all liabilities and obligations with respect to such Third-

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Party Claim or the settlement imposes injunctive or other equitable relief against the Indemnified Party and (ii) the Indemnified Party shall be entitled to participate in (but not control) the defense of such Third-Party Claim and to employ separate counsel of its choice for such purpose. The fees and expenses of such separate counsel shall be paid by the Indemnified Party.

(d) Each party shall cooperate, and cause their respective Affiliates to cooperate, in the defense or prosecution of any Third-Party Claim and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested in connection therewith.

(e) Each Indemnified Party shall use reasonable efforts to collect any amounts available under insurance coverage, or from any other Person alleged to be responsible, for any Losses payable under Section 7.01 or Section 7.02.

Section 7.04. Calculation of Indemnification Amount. Any indemnification amount pursuant to Section 7.01 or Section 7.02 shall be paid (i) net of any amounts recovered by the Indemnified Party under applicable insurance policies or from any other Person alleged to be responsible therefor, and (ii) taking into account any tax benefit actually realized and any tax cost incurred by the Indemnified Party arising from the incurrence or payment of the relevant Losses. Morgan Stanley and Discover agree that, for federal income tax purposes, any payment made pursuant to this Article 7 will be treated as an adjustment to the contributions to Discover, or, if appropriate, the distributions from Discover to MSDCI, occurring immediately prior to the Distribution. If the Indemnified Party receives any amounts under applicable insurance policies, or from any other Person alleged to be responsible for any Losses, subsequent to an indemnification payment by the Indemnifying Party, then such Indemnified Party shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by such Indemnifying Party in connection with providing such indemnification payment up to the amount received by the Indemnified Party, net of any expenses incurred by such Indemnified Party in collecting such amount. The Indemnifying Party shall not be liable for any Losses under Section 7.01 or Section 7.02 to the extent they are special, indirect, incidental, consequential or punitive damages or lost profits.

Section 7.05. Contribution. If for any reason the indemnification provided for in Section 7.01 or Section 7.02 is unavailable to any Indemnified Party, or insufficient to hold it harmless, then the Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the Morgan Stanley Group, on the one hand, and the Discover Group, on the other hand, in connection with the conduct, statement or omission that resulted in such Losses. In case of any Losses arising out of or related to information contained in the Form 10 or any amendment thereof or the Information Statement (as amended or supplemented), the relative fault of the Morgan Stanley Group, on the one

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hand, and the Discover Group, on the other hand, shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or the omission or alleged omission of a material fact relates to information supplied by Morgan Stanley or Discover. The parties hereby agree that information set forth in Schedule 4 shall be deemed supplied by Morgan Stanley, and all other information shall be deemed supplied by Discover.

Section 7.06. Non-Exclusivity of Remedies. The remedies provided for in this Article 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Party at law or in equity; provided that the procedures set forth in Sections 7.03 and 7.04 shall be the exclusive procedures governing any indemnity action brought under this Agreement.

Section 7.07. Survival of Indemnities. The rights and obligations of any Indemnified Party or Indemnifying Party under this Article 7 shall survive the sale or other transfer of any party of any of its assets, business or liabilities.

ARTICLE 8

MISCELLANEOUS

Section 8.01. Notices. Any notice, instruction, direction or demand under the terms of this Agreement required to be in writing shall be duly given upon delivery, if delivered by hand, facsimile transmission, or mail, to the following addresses:

If to Morgan Stanley to:

[            ]

If to Discover to:

[            ]

or to such other addresses or telecopy numbers as may be specified by like notice to the other party. All such notices, requests and other communications shall be deemed given, (a) when delivered in person or by courier or a courier services, (b) if sent by facsimile transmission (receipt confirmed) on a Business Day prior to 5 p.m. in the place of receipt, on the date of transmission (or, if sent after 5 p.m., on the following Business Day) or (c) if mailed by certified mail (return receipt requested), on the date specified on the return receipt.

Section 8.02. Amendments; No Waivers. (a) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Morgan Stanley and Discover, or in the case of a waiver, by the party against whom the waiver is to be effective.

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(b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 8.03. Expenses. Except as specifically provided otherwise in this Agreement or any Ancillary Agreement, all costs and expenses incurred by the Morgan Stanley Group in connection with the Distribution and related transactions shall be paid by Morgan Stanley, and all costs and expenses incurred by the Discover Group in connection with the Distribution and related transactions shall be paid by Discover.

Section 8.04. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided that neither party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties hereto. If any party or any of its successors or permitted assigns (i) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any Person, then, and in each such case, proper provisions shall be made so that the successors and assigns of such party shall assume all of the obligations of such party under the Distribution Documents.

Section 8.05. Governing Law. This Agreement shall be construed in accordance with and governed by the law of the State of New York, without regard to the conflicts of laws rules thereof.

Section 8.06. Counterparts; Effectiveness; Third-Party Beneficiaries. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. Until and unless each party has received a counterpart hereof signed by the other party hereto, this Agreement shall have no effect and no party shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication). Except for the indemnification and release provisions of Article 7, neither this Agreement nor any provision hereof is intended to confer any rights, benefits, remedies, obligations, or liabilities hereunder upon any Person other than the parties hereto and their respective successors and permitted assigns.

Section 8.07. Entire Agreement. This Agreement and the other Distribution Documents constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersedes all prior agreements, understandings and negotiations, both written and oral, between the

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parties with respect to the subject matter hereof and thereof. No representation, inducement, promise, understanding, condition or warranty not set forth herein or in the other Distribution Documents has been made or relied upon by any party hereto or any member of their Group with respect to the transactions contemplated by the Distribution Documents. To the extent that the provisions of this Agreement are inconsistent with the provisions of any other Distribution Document, the provisions of such other Distribution Document shall prevail.

Section 8.08. Tax Matters. Except as otherwise provided herein and not inconsistent with the Tax Sharing Agreement, the U.S. Employee Matters Agreement, the U.K. Tax Sharing Agreement and the U.K. Employee Matters Agreement, this Agreement (including Article 7) shall not govern tax matters, which shall be exclusively governed by such other agreements.

Section 8.09. Jurisdiction. Any Action seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Southern District of New York or any other New York State court sitting in New York County, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 8.01 shall be deemed effective service of process on such party.

Section 8.10. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 8.11. Existing Agreements. Except as otherwise contemplated hereby or by the other Distribution Documents or as set forth in Schedule 5, all prior agreements or arrangements between (or relating to) any member(s) of the Discover Group or the Discover Business, on the one hand, and any member(s) of the Morgan Stanley Group or the Morgan Stanley Business, on the other hand (other than any agreement to which any Person other than the parties hereto and the members of their respective Groups is a party) shall be terminated effective as of the Distribution, if not therefore terminated, and shall be of no further force or effect (including any provision thereof that purports to survive termination). No such agreements or arrangements (other than those set forth in Schedule 5) shall be in effect after the Distribution unless embodied in the Distribution Documents.

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Section 8.12. Termination. Notwithstanding any provisions hereof, the Morgan Stanley Board of Directors may, in its sole discretion, at any time prior to the Distribution terminate this Agreement and/or abandon the Distribution, whether or not it has theretofore approved this Agreement and/or the Distribution. In the event this Agreement is terminated pursuant to the preceding sentence, neither party nor any of its directors or officers shall have any liability or further obligation to the other party.

Section 8.13. Severability. If any one or more of the provisions contained in this Agreement should be declared invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained in this Agreement shall not in any way be affected or impaired thereby so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a declaration, the parties shall modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby are consummated as originally contemplated to the fullest extent possible.

Section 8.14. Survival. All covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date indefinitely, unless a specific survival or other applicable period is expressly set forth herein.

Section 8.15. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

Section 8.16. Specific Performance. Each party to this Agreement acknowledges and agrees that damages for a breach or threatened breach of any of the provisions of this Agreement would be inadequate and irreparable harm would occur. In recognition of this fact, each party agrees that, if there is a breach or threatened breach, in addition to any damages, the other nonbreaching party to this Agreement, without posting any bond, shall be entitled to seek and obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction, attachment, or any other equitable remedy which may then be available to obligate the breaching party (i) to perform its obligations under this Agreement or (ii) if the breaching party is unable, for whatever reason, to perform those obligations, to take any other actions as are necessary, advisable or appropriate to give the other party to this Agreement the economic effect which comes as close as possible to the performance of those obligations (including, but not limited to, transferring, or granting liens on, the assets of the breaching party to secure the performance by the breaching party of those obligations).

Section 8.17. Performance. Each party shall cause to be performed all actions, agreements and obligations set forth herein to be performed by any member of such party’s Group.

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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.

MORGAN STANLEY

By:

Name:

Title:

DISCOVER FINANCIAL SERVICES

By:

Name:

Title:

EX-10.1

Exhibit 10.1

TAX SHARING AGREEMENT

between

MORGAN STANLEY,

on behalf of itself

and the members

of the Distributing Group,

and

DISCOVER FINANCIAL SERVICES,

on behalf of itself

and the members

of the Controlled Group

This Agreement is entered into as of the [    ] day of [                    ], 2007 between Morgan Stanley (“Distributing”), a Delaware corporation, on behalf of itself and the members of the Distributing Group, as defined below, and Discover Financial Services (“Controlled”), a Delaware corporation, on behalf of itself and the members of the Controlled Group, as defined below.

W I T N E S S E T H:

WHEREAS, pursuant to the tax laws of various jurisdictions, certain members of the Controlled Group presently file certain tax returns on an affiliated, consolidated, combined, unitary, fiscal unity or other, group basis (including as permitted by Section 1501 of the Internal Revenue Code of 1986, as amended (the “Code”)) with certain members of the Distributing Group;

WHEREAS, Distributing and Controlled intend to enter into a Separation and Distribution Agreement, dated as of [                    ], 2007 (the “Separation Agreement”), providing for the distribution by Distributing to its shareholders of all of the common stock of Controlled that is held by Distributing and certain other matters;

WHEREAS, Distributing and Controlled desire to set forth their agreement on the rights and obligations of Distributing, Controlled and the members of the Distributing Group and the Controlled Group, respectively, with respect to (A) the handling and allocation of federal, state, local and foreign taxes (other than the U.K. taxes governed by the U.K. Tax Sharing Agreement) incurred in taxable periods beginning prior to the Distribution Date, (B) taxes resulting from transactions effected in connection with the Distribution, including but not limited to the Distribution and the transactions (i) described in or contemplated by the private letter ruling requests, dated March 7, 2007, March 22, 2007 and

April 12, 2007 (collectively, with all attachments, exhibits and supplements thereto dated March 21, 2007, April 17, 2007, April 26, 2007, April 27, 2007 and [                    ], the “Ruling Request”), submitted by Distributing to the IRS and the FTB (in each case as defined below), (ii) effected pursuant to, or otherwise described in or contemplated by, the Separation Agreement (including, but not limited to, Schedule 1 thereto) or any Ancillary Agreement and (iii) described in or otherwise contemplated by the Form 10 (such transactions described in clauses (i), (ii) and (iii) are collectively referred to as the “Restructuring”), and (C) various other tax matters;

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties agree as follows:

1. Definitions.

(a) As used in this Agreement:

“Active Business” shall mean an active trade or business relied upon in the Ruling Request in connection with the Restructuring or the Distribution.

“Actually Realized” or “Actually Realizes” shall mean, for purposes of determining the timing of the incurrence of any Tax liability or the realization of a Refund (or any related income tax or other Tax cost or benefit) in respect of any payment, transaction, occurrence or event, the time at which the amount of income taxes paid (or Refund realized) is increased above (or reduced below) the amount of income taxes that would otherwise have been required to be paid (or Refund that would otherwise have been realized) but for such payment, transaction, occurrence or event.

“Affiliate” of any Person shall mean any individual, corporation, partnership or other entity directly or indirectly owning more than 50 percent (by vote or value) of, owned more than 50 percent (by vote or value) by, or under more than 50 percent (by vote or value) common ownership with, such Person.

“After-Tax Amount” shall mean an additional amount necessary to reflect the hypothetical Tax consequences of the receipt or accrual of any payment, using the maximum statutory rate (or rates, in the case of an item that affects more than one Tax) applicable to the recipient of such payment for the relevant Taxable year, reflecting for example, the effect of the deductions available for interest paid or accrued and for Taxes, such as state and local income taxes.

“AMT” shall mean the alternative minimum tax, within the meaning of Section 55 of the Code.

“Ancillary Agreement” shall have the meaning ascribed to it in the Separation Agreement.

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“Code” shall have the meaning ascribed to it in the first “whereas” clause in this Agreement.

“Combined Apportionment Factor” shall mean the apportionment factor reflected on the applicable consolidated, combined or unitary state or local income tax return and utilized in computing the combined, consolidated or unitary state or local income tax liability.

“Company Proceedings” shall mean the ongoing Tax Proceedings between [            ] and Controlled.

“Consolidated Federal Return” shall mean a Pre-Distribution Period Return filed in respect of federal income taxes by a Consolidated Group.

“Consolidated Group” shall mean any group consisting of (i) at least one member of the Distributing Group that filed (or will file) any Pre-Distribution Period Return that reflects the income, assets or operations of any member of the Controlled Group or (ii) at least one member of the Controlled Group that filed (or will file) any Pre-Distribution Period Return that reflects the income, assets or operations of any member of the Distributing Group.

“Consolidated State Return” shall mean a Pre-Distribution Period Return filed in respect of state or local income taxes by a Consolidated Group.

“Controlled Group” shall mean one or more of Controlled and (i) any Person that is an Affiliate of Controlled immediately after the Distribution and (ii) to the extent not previously included by (i), any Person that was owned directly or indirectly by Controlled prior to the Distribution for such period of ownership by Controlled, including for both (i) and (ii) any predecessors thereto; provided, however, that for purposes of determining whether an entity is a member of the Controlled Group, a transfer of beneficial ownership of an entity shall be treated as a transfer of title, regardless of whether title has actually passed.

“Distributing Group” shall mean one or more of Distributing and its Affiliates other than those entities comprising the Controlled Group.

“Distribution” shall mean the distribution by Distributing of all of the common stock of Controlled that is held by Distributing to Distributing’s shareholders pursuant to the Separation Agreement.

“Distribution Date” shall mean the date on which the Distribution shall be effected.

“Federal Separate Group Tax Liability” shall mean the product of a Group’s Separate Group Taxable Income, computed for federal income tax purposes, and the highest federal income tax rate imposed under the Code on the

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Taxable income of a corporation for the relevant Taxable period (or portion thereof), reduced by any Tax credits that the Group would be able to use if it were calculating its federal income Tax liability on a stand-alone basis.

“Final Determination” shall mean (i) with respect to federal income taxes, (A) a “determination” as defined in Section 1313(a) of the Code, or (B) the date of acceptance by or on behalf of the IRS of Form 870-AD (or any successor form thereto), as a final resolution of Tax liability for any Taxable period, except that a Form 870-AD (or successor form thereto) that reserves the right of the taxpayer to file a claim for Refund or the right of the IRS to assert a further deficiency shall not constitute a Final Determination with respect to the item or items so reserved; (ii) with respect to Taxes other than federal income taxes, any final determination of liability in respect of a Tax that, under applicable law, is not subject to further appeal, review or modification through proceedings or otherwise; (iii) with respect to any Tax, any final disposition by reason of the expiration of the applicable statute of limitations; or (iv) with respect to any Tax, the payment of Tax by any member of the Distributing Group or the Controlled Group, whichever is responsible for payment of such Tax under applicable law, with respect to any item disallowed or adjusted by a Taxing Authority, provided that the provisions of Section 13 hereof have been complied with, or, if such section is inapplicable, that the party responsible under the terms of this Agreement for such Tax is notified by the party paying such Tax that it has determined that no action should be taken to recoup such disallowed item, and the other party agrees with such determination.

“FTB” shall mean the California Franchise Tax Board.

“Gain Group” shall mean a Group with Separate Group Taxable Income for the relevant Taxable period.

“Group” shall mean the Controlled Group or the Distributing Group, as appropriate.

“IRS” shall mean the Internal Revenue Service.

“Loss Group” shall mean a Group that incurs a Separate Group Taxable Loss for the relevant Taxable period.

“Overpayment Rate” shall mean the overpayment rate as set forth in Section 6621 of the Code.

“Person” shall have the meaning ascribed to it in Section 7701(a)(1) of the Code.

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“Post-Distribution Period” shall mean any Taxable period (or portion thereof) beginning after the close of business on the Distribution Date.

“Pre-Distribution Period” shall mean any Taxable period ending on or before the close of business on the Distribution Date; provided that if a Taxable period ending after the Distribution Date contains any days which fall prior to or on the Distribution Date, only the portion of such Taxable period up to and including the Distribution Date shall be included in the Pre-Distribution Period.

“Refund” shall mean any refund of taxes, including any reduction in taxes by means of a credit, offset or otherwise.

“Restructuring” shall have the meaning ascribed to it in the third “whereas” clause in this Agreement; provided, however, that “Restructuring” shall exclude any normal business operations.

“Return” shall mean any Tax return, statement, report, form, election, claim or surrender (including estimated Tax returns and reports, extension requests and forms, and information returns and reports) required to be filed with any Taxing Authority.

“Ruling Request” shall have the meaning ascribed to it in the third “whereas” clause in this Agreement.

“Separate Group Taxable Income” shall mean, with respect to a Group, such Group’s Taxable income computed as if such Group were a separate consolidated, combined or unitary group, and applying such Tax principles, including limitations and carryovers (excluding limits for charitable contributions and dividends received deduction, and accounting for deferred intercompany transactions consistent with the deferral and recognition rules of Treasury Regulations Section 1.1502-13 (or any successor rule) or analogous state or local rule), that would have been applicable to such Group had such Group never been part of the Consolidated Group or any other consolidated, combined or unitary group. In the context of state and local tax, Separate Group Taxable Income shall be computed prior to the application of any apportionment formula. Additionally, to the extent a member of a Group has a net operating loss or any other tax attribute that was created prior to becoming a member of the Group but can be carried forward and used by the Group (in the context of state or local law, either before or after apportionment, as determined under applicable law), such attribute will factor into such Group’s calculation of Separate Group Taxable Income (taking into account any applicable limitations on the use thereof).

“Separate Group Taxable Loss” shall mean, with respect to a Group, such Group’s Taxable loss computed as if such Group were a separate consolidated, combined or unitary group, and applying such Tax principles, including

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limitations and carryovers (excluding limits for charitable contributions and dividends received deduction, and accounting for deferred intercompany transactions consistent with the deferral and recognition rules of Treasury Regulations Section 1.1502-13 (or any successor rule) or analogous state or local rule), that would have been applicable to such Group had such Group never been part of the Consolidated Group or any other consolidated, combined or unitary group. In the context of state and local tax, Separate Group Taxable Loss shall be computed prior to the application of any apportionment formula. Additionally, to the extent a member of a Group has a net operating loss or any other Tax attribute that was created prior to becoming a member of the Group but can be carried forward and used by the Group (in the context of state or local law, either before or after apportionment, as determined under applicable law), such attribute will factor into the Group’s calculation of Separate Group Taxable Loss (taking into account any applicable limitations on the use thereof).

“Separation Agreement” shall have the meaning ascribed to it in the second “whereas” clause in this Agreement.

“State Separate Group Tax Liability” shall mean, with respect to a particular state or locality, the product of the Group’s Separate Group Taxable Income and the Combined Apportionment Factor and the State Tax Rate, reduced by any applicable Tax credits that the Group would be able to use if it were calculating its Tax liability on a stand-alone basis.

“State Tax Rate” shall mean, with respect to a particular state or locality, the highest applicable tax rate imposed under applicable law on the Separate Group Taxable Income of the Group for the relevant Taxable period (or portion thereof).

“Tax” (and the correlative meaning, “Taxes,” “Taxing” and “Taxable”) shall mean (A) any tax imposed under Subtitle A of the Code, or any net income, gross income, gross receipts, alternative or add-on minimum, sales, use, business and occupation, value-added, trade, goods and services, ad valorem, franchise, profits, license, business royalty, withholding, payroll, employment, capital, excise, transfer, recording, severance, stamp, occupation, premium, property, asset, real estate acquisition, environmental, custom duty, or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest and any penalty, addition to tax or additional amount imposed by a Taxing Authority; (B) any liability of a member of the Distributing Group or the Controlled Group, as the case may be, for the payment of any amounts of the type described in clause (A) for any Taxable period resulting from such member being a part of a consolidated group pursuant to the application of Treasury Regulations Section 1.1502-6 or any similar provision applicable under state, local or foreign law; or (C) any liability of a member of the Distributing Group or the Controlled Group for the payment of any amounts described in clause (A) as a result of any express or implied obligation to indemnify any other Person.

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“Tax Benefit” shall have the meaning ascribed to it in Section 10(d) of this Agreement.

“Tax Proceeding” shall mean any Tax audit, dispute or proceeding (whether administrative, judicial or contractual).

“Taxing Authority” shall mean any governmental authority (domestic or foreign), including, without limitation, any state, municipality, political subdivision or governmental agency, responsible for the imposition of any Tax.

“U.K. Tax Sharing Agreement” shall mean the Supplemental Tax Sharing Agreement Relating to Direct Tax and VAT in the United Kingdom, dated as of [•], 2007, between Distributing and Controlled.

“Underpayment Rate” shall mean the underpayment rate as set forth in Section 6621 of the Code.

(b) Any term used in this Agreement which is not defined in this Agreement shall, to the extent the context requires, have the meaning assigned to it in the Code or the applicable Treasury regulations thereunder (as interpreted in administrative pronouncements and judicial decisions), in comparable provisions of applicable law or in the Ruling Request.

2. Sole Tax Sharing Agreement. Any and all existing Tax sharing agreements or arrangements, written or unwritten, between any member of the Distributing Group and any member of the Controlled Group shall be or shall have been terminated upon consummation of the Distribution. Upon consummation of the Distribution, neither the members of the Controlled Group nor the members of the Distributing Group shall have any further rights or liabilities thereunder, and this Agreement and the U.K. Tax Sharing Agreement shall be the sole Tax sharing agreements between the members of the Controlled Group and the members of the Distributing Group. Distributing and Controlled shall act in good faith in the performance of this Agreement.

3. Federal Income Taxes.

(a) Return Filing.

(i) Distributing shall prepare and file, or cause to be prepared and filed, Consolidated Federal Returns for which the Consolidated Group is required or permitted to file a Consolidated Federal Return using, inter alia, information previously provided by Controlled. Controlled shall provide Distributing with all necessary information to file a Consolidated Federal Return not

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later than 45 days before such return is due. Each member of the Consolidated Group shall execute and file such consents, elections and other documents as may be required or appropriate for the filing of such Consolidated Federal Returns. All Tax elections shall be at the sole discretion of Distributing. All income tax computations performed on a consolidated basis will be performed or approved by Distributing. To the extent reasonably practicable, Distributing shall notify and discuss with Controlled prior to the filing of a Consolidated Federal Return any potential material differences in the information provided by Controlled to be used in the preparation of such Consolidated Federal Return and the position Distributing intends to take on such Consolidated Federal Return. Not later than 15 days after filing a Consolidated Federal Return, Distributing shall inform Controlled in writing of any position taken on such Consolidated Federal Return that is materially different from the information provided by Controlled to be used in the preparation of such Consolidated Federal Return.

(ii) Distributing shall pay, or cause to be paid, and, subject to the provisions of Section 3(b), shall be responsible for, any and all federal income taxes due or required to be paid with respect to, or required to be reported on, any such Consolidated Federal Return.

(iii) In the event a Consolidated Federal Return is not filed, each relevant member of the Distributing Group and Controlled Group shall be responsible for (i) filing its own Pre-Distribution Period Return in respect of federal income taxes as a separate entity, including requests for extension, as if this Agreement were not in effect and (ii) making Tax payments (including estimated Tax payments, if necessary). Each such member filing a Return as a separate entity shall be entitled to any Tax benefit and shall be liable for any Tax burden resulting from the filing of such separate Return.

(b) Allocated Tax Charge.

(i) Each Group included in the Consolidated Federal Return shall be responsible for calculating its Separate Group Taxable Income or Separate Group Taxable Loss as if such Group filed a federal income tax Return on a stand-alone basis, and shall bear its Federal Separate Group Tax Liability, if any. For purposes of such calculation, the deduction for state and local taxes to which each Group is entitled will be determined in a manner consistent with Section 4 of this Agreement.

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(ii) If the Controlled Group included in the Consolidated Federal Return incurs a Separate Group Taxable Loss, Distributing shall pay to the Controlled Group (A) the amount, if any, by which the federal income taxes payable with respect to the Consolidated Federal Return are actually reduced by reason of the Controlled Group’s Separate Group Taxable Loss and (B) any Refund of federal income taxes or other federal income tax benefit attributable to such Separate Group Taxable Loss that is Actually Realized, in each case as determined by Distributing in its sole discretion (including that any tax benefits of the Distributing Group shall be fully utilized before utilizing any tax benefits of the Controlled Group). To the extent the Controlled Group receives a payment or credit from Distributing in respect of a Separate Company Taxable Loss pursuant to this Section 3(b)(ii), such loss shall not be carried forward or carried back by the Controlled Group for purposes of determining Separate Group Taxable Income or Separate Group Taxable Loss in any other Taxable period (or portion thereof). To the extent the Controlled Group does not receive a payment or credit from Distributing in respect of a Separate Group Taxable Loss pursuant to this Section 3(b)(ii), such loss may be carried forward or carried back, subject to any applicable limitation with respect to carry forward or carry back losses, by the Controlled Group for purposes of determining Separate Group Taxable Income or Separate Group Taxable Loss in another Taxable period (or portion thereof).

(iii) If the Controlled Group included in the Consolidated Federal Return has a foreign Tax credit or other Tax credit that it is unable to use in its calculation of Federal Separate Group Tax Liability (other than an AMT credit), Distributing shall pay to the Controlled Group (A) the amount, if any, by which the federal income taxes payable with respect to the Consolidated Federal Return is actually reduced by reason of the Controlled Group’s Tax credit and (B) any Refund of federal income taxes or other federal income tax benefit attributable to such Tax credit that is Actually Realized, in each case as determined by Distributing in its sole discretion (including that any tax benefits of the Distributing Group shall be fully utilized before utilizing any tax benefits of the Controlled Group). To the extent the Controlled Group receives a payment or credit from Distributing in respect of a Tax credit pursuant to this Section 3(b)(iii), the Controlled Group’s Federal Separate Group Tax Liability will be adjusted to reflect the fact that the Controlled Group has

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previously received the benefit of such credit. To the extent the Controlled Group does not receive a payment or credit from Distributing in respect of a Tax credit pursuant to this Section 3(b)(iii), such Tax credit may be carried forward or carried back , subject to any applicable limitation with respect to carry forward or carry back of Tax credits, by the Controlled Group for purposes of calculating its Separate Group Tax Liability in another Taxable period (or portion thereof).

(iv) In the event a Consolidated Group incurs an AMT liability with respect to any Taxable period (or portion thereof), Distributing shall be solely responsible for such liability. Any Tax benefit arising from the utilization of a consolidated federal AMT credit shall be for the sole benefit of Distributing.

4. State and Local Income Taxes.

(a) Return Filing.

(i) Distributing shall prepare and file, or cause to be prepared and filed, Consolidated State Returns for which a Consolidated Group is required or permitted to file a Consolidated State Return using, inter alia, information previously provided by Controlled. Controlled shall provide Distributing with all necessary information to file a Consolidated State Return not later than 21 days before such return is due. Each member of the Consolidated Group shall execute and file such consents, elections and other documents as may be required or appropriate for the filing of such Consolidated State Returns. All Tax elections shall be made at the discretion of Distributing. All Tax computations performed on a combined, consolidated or unitary basis will be performed or approved by Distributing. To the extent reasonably practicable, Distributing shall notify and discuss with Controlled prior to the filing of a Consolidated State Return any potential material differences in the information provided by Controlled to be used in the preparation of such Consolidated State Return and the position Distributing intends to take on such Consolidated Federal Return. Not later than 15 days after filing a Consolidated State Return, Distributing shall inform Controlled in writing of any position taken on such Consolidated State Return that is materially different from the information provided by Controlled to be used in the preparation of such Consolidated State Return.

(ii) Distributing shall pay, or cause to be paid, and, subject to the provisions of Section 4(b), shall be responsible for, any and all income taxes due or required to be paid with respect to, or required to be reported on, any such Consolidated State Return.

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(iii) In the event a Consolidated State Return is not filed, each relevant member of the Distributing Group and Controlled Group shall be responsible for (A) filing its own Return as a separate entity, or its own Return in respect of state and local income Taxes relating to a group consisting solely of members of the Distributing Group or members of the Controlled Group, as the case may be, on behalf of the separate group, in each case including requests for extension, as if this Agreement were not in effect and (B) making Tax payments (including estimated Tax payments, if necessary). Each such member filing a Return as a separate entity shall be entitled to any Tax benefit and shall be liable for any Tax burden resulting from the filing of such separate Return.

(b) Allocated Tax Charge.

(i) Each Group included in a Consolidated State Return shall be responsible for calculating its Separate Group Taxable Income or Separate Group Taxable Loss and shall bear its State Separate Group Tax Liability, if any.

(ii) If the Controlled Group included in a Consolidated State Return incurs a Separate Group Taxable Loss, Distributing shall pay, or shall cause to be paid, to the Controlled Group (A) the amount, if any, by which the state or local income taxes reflected on such Return are actually reduced by reason of the Controlled Group’s Separate Group Taxable Loss and (B) any Refund of state or local income taxes or other state or local income tax benefit attributable to such Separate Group Taxable Loss that is Actually Realized, in each case as determined by Distributing in its sole discretion (including that any tax benefits of the Distributing Group shall be fully utilized before utilizing any tax benefits of the Controlled Group). To the extent the Controlled Group receives a payment or credit from Distributing in respect of a Separate Group Taxable Loss pursuant to this Section 4(b)(ii), such loss shall not be carried forward or carried back by the Controlled Group for purposes of determining Separate Group Taxable Income or Separate Group Taxable Loss in any other Taxable period (or portion thereof). To the extent the Controlled Group does not receive a payment or credit from Distributing in respect of a Separate Group Taxable Loss pursuant to this Section 4(b)(ii), such loss may be carried forward or

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carried back, subject to any applicable limitation with respect to carry forward or carry back losses, by the Controlled Group for purposes of determining Separate Group Taxable Income or Separate Group Taxable Loss in another Taxable period (or portion thereof).

(iii) If the Controlled Group included in a Consolidated State Return has a Tax credit that it is unable to use in its calculation of State Separate Group Tax Liability, Distributing shall pay to the Controlled Group (A) the amount, if any, by which the state or local income taxes reflected on such Return is actually reduced by reason of the Consolidated Group’s Tax credit and (B) any Refund of state or local income taxes or other state or local income tax benefit attributable to such Tax credit that is Actually Realized, in each case as determined by Distributing in its sole discretion (including that any tax benefits of the Distributing Group shall be fully utilized before utilizing any tax benefits of the Controlled Group). To the extent the Controlled Group receives a payment or credit from Distributing in respect of a Tax credit pursuant to this Section 4(b)(i)(C), the Controlled Group’s State Separate Group Tax Liability will be adjusted to reflect the fact that the Controlled Group has previously received the benefit of such credit. To the extent the Controlled Group does not receive a payment or credit from Distributing in respect of a Tax credit pursuant to this Section 4(b)(iii), such Tax credit may be carried forward or carried back, subject to any applicable limitation with respect to carry forward or carry back of Tax credits, by the Controlled Group for purposes of calculating its State Separate Group Tax Liability in another Taxable period (or portion thereof).

5. Foreign Income Tax. With respect to the calculation of each Group’s Tax liability for foreign taxes, other than U.K. taxes governed by the U.K. Tax Sharing Agreement, the principles set forth in Section 4 shall apply mutatis mutandis.

6. Estimated Tax Payments.

(a) If estimated Tax payments are required with respect to a Consolidated Group for a Pre-Distribution Period, Distributing shall pay, or cause to be paid, to the IRS, and/or to each relevant state and local Taxing Authority, on behalf of the members of such Consolidated Group, those estimated Tax payments that are due on the relevant dates prescribed by applicable law. On February 15 (or the proper due date under applicable law) of the year following the current tax year, Distributing

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shall pay to the IRS, and to each relevant state and local Taxing Authority, on behalf of the members of any Consolidated Group, the payment, if any, required to be made with a request for an extension of time in which to file a Consolidated Federal Return or a Consolidated State Return, as the case may be. Each Group’s share of such estimated Tax payments, and payments required to be made with a request for an extension of time in which to file a Consolidated Federal Return or a Consolidated State Return, shall be determined in a manner consistent with the methods set forth in Sections 3 and 4 of this Agreement. Reimbursement to Distributing of the Controlled Group’s share of any quarterly estimated tax payments or any payment made with a request for an extension of time in which to file a Consolidated Federal Return or a Consolidated State Return, shall be made within twenty business days after receiving notice of such liability from Distributing.

(b) Notwithstanding the provisions of Section 6(a), if Distributing requests in writing an advance reimbursement from the Controlled Group of the Controlled Group’s share of a quarterly estimated Tax payment or any payment required to be made with a request for an extension of time in which to file a Consolidated Federal Return or a Consolidated State Return, which request shall be not more than ten business days and not less than 5 business days prior to the due date of such payment, the Controlled Group shall reimburse Distributing not later than the due date of such estimated Tax payment.

(c) If the Controlled Group is a Loss Group and if such net operating loss would decrease overall consolidated, combined or unitary Taxable income in respect of the Consolidated Group, Distributing shall pay to the Controlled Group an amount equal to the difference between the Tax liability of the Distributing Group and the amounts paid to the respective Taxing Authorities 5 business days after all such payments are due to the Taxing Authorities.

7. Settlement Procedures; Certain Other Payments.

(a) Distributing shall calculate settlement of the final federal, state, local and foreign Tax liability for all Pre-Distribution Periods, and notify the Controlled Group of such settlement. Subject to Section 21 of this Agreement (relating to dispute resolution procedures), the Controlled Group shall pay to Distributing its share of such Tax liability, as determined under Sections 3, 4 and 5 of this Agreement, within twenty business days after receiving notice of such Tax liability from Distributing. Any amounts paid by any member of the Controlled Group pursuant to Section 6 and any amounts receivable by the Controlled Group in respect of a Separate Group Taxable Loss or Tax credit shall be included in

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determining the payments due from the Controlled Group. If the sum of any payments by the Controlled Group pursuant to Section 6, and any amounts receivable by the Controlled Group in respect of a Separate Group Taxable Loss or Tax credit exceed its Tax liability, such excess shall be refunded to the Controlled Group. Interest will be due on any underpayment or overpayment of Tax, computed from the date on which a final Return is filed, (i) if owed by the Controlled Group to Distributing on an underpayment, at the Underpayment Rate and (ii) if owed by Distributing to the Controlled Group on an overpayment, the Overpayment Rate.

(b) If a portion or all of an unused loss or Tax credit is allocated to a member of the Consolidated Group, pursuant to Treasury Regulations Section 1.1502-21(b) or Treasury Regulations Section 1.1502-79, and is carried back or forward to a Taxable year in which such member filed a separate Return or consolidated, combined or unitary Return with an affiliated group that is not a Consolidated Group, any Refund or reduction in Tax liability arising from such carry back or carryover shall be retained by such member, subject to future audit adjustments. Notwithstanding the foregoing, Distributing, in its sole discretion, shall determine whether an election shall be made to relinquish the entire carry back period with respect to part or all of a consolidated net operating loss for any Pre-Distribution Period in accordance with Treasury Regulations Section 1.1502-21(b)(3).

(c) Notwithstanding Section 7(b) above, no member of the Controlled Group shall make any election to carry back any Tax item from a Post-Distribution Period to a Pre-Distribution Period without Distributing’s consent. In the event that Distributing consents to the carry back of any Tax item by a member of the Controlled Group from a Post-Distribution Period to a Pre-Distribution Period or in the event that a member of the Controlled Group is required by applicable law to carry back a Tax item from a Post-Distribution Period to a Pre-Distribution Period, Distributing shall currently compensate the Controlled Group only for a Tax item that is carried back which does not result in the loss or deferral of any Tax attribute of any member of the Distributing Group. In the event that such item of a member of the Distributing Group is only deferred, Distributing shall make a payment to the Controlled Group in respect of such deferred item at the time the Distributing Group Actually Realizes the deferred Tax attribute. To the extent the Distributing Group suffers a permanent loss of such Tax attribute, no payment shall be made to the Controlled Group.

(d) Controlled and Distributing hereby acknowledge and agree that Sections 6 and 7(a) are applicable only with respect to Pre- Distribution Periods for which no final Return has been filed prior to the date hereof.

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(e) In accordance with the past practice of Controlled and Distributing, Controlled shall continue to make payments to Distributing in respect of the exercise of options on Distributing stock and the conversion of restricted Distributing stock units (i) prior to the Distribution, by employees of Controlled and the members of the Controlled Group, and (ii) after the Distribution, by former employees of Controlled and the members of the Controlled Group.

8. Other Taxes. All federal, state, local, foreign and other Taxes that are not otherwise expressly dealt with herein or in the U.K. Tax Sharing Agreement, and the filing of any Returns with respect to such Taxes, shall be the responsibility of the Person who is liable for such Taxes or is responsible for filing such Returns under applicable law.

9. Certain Representations and Covenants.

(a) Controlled Representations. Controlled and each member of the Controlled Group represents that as of the date hereof, and covenants that on the Distribution Date, there is no plan or intention:

(i) to liquidate Controlled or to merge or consolidate Controlled, or any member of the Controlled Group conducting an Active Business, with any other person subsequent to the Distribution,

(ii) to sell or otherwise dispose of any asset of Controlled or any member of the Controlled Group subsequent to the Distribution, in a manner that would result in any increased Tax liability or reduction of any Tax asset of the Distributing Group or any member thereof,

(iii) to take any action inconsistent with the written information and representations furnished to the IRS or the FTB in connection with the Ruling Request, or to counsel in connection with any opinion being delivered by counsel with respect to the Distribution or the Restructuring, regardless of whether such information and representations were included in the ruling issued by the IRS or FTB or in the opinion of counsel,

(iv) to repurchase stock of Controlled in a manner contrary to the requirements of IRS Revenue Procedure 96-30, as modified by IRS Revenue Procedure 2003-48, or in a manner contrary to the representations made in the Ruling Request,

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(v) to take any action that management of Controlled knows, or should have known, is reasonably likely to contravene any agreement with a Taxing Authority entered into prior to the Distribution Date to which any member of the Controlled Group or the Distributing Group is a party, or

(vi) to enter into any negotiations, agreements, or arrangements with respect to transactions or events (including stock issuances, pursuant to the exercise of options or otherwise, option grants, the adoption of, or authorization of shares under, a stock option plan, capital contributions, or acquisitions, but not including the Distribution) which may cause the Distribution to be treated as part of a plan pursuant to which one or more Persons acquire directly or indirectly Controlled stock representing a “50-percent or greater interest” within the meaning of Section 355(d)(4) of the Code.

(b) Controlled Covenants. Controlled covenants to Distributing that, without either (i) the prior written consent of Distributing, (ii) a supplemental private letter ruling issued by the IRS, or (iii) an unqualified written opinion of tax counsel selected by Distributing (in the case of (ii) and (iii), satisfactory to Distributing in its sole discretion):

(i) during the twelve-month period following the Distribution Date, neither Controlled, nor any member of the Controlled Group conducting an Active Business, will liquidate, merge or consolidate with any other Person,

(ii) during the two-year period following the Distribution Date, Controlled will not sell, exchange, distribute or otherwise dispose of its assets or those of any member of the Controlled Group in a manner that would result in any increased Tax liability or reduction of any Tax asset of the Distributing Group or any member thereof,

(iii) following the Distribution, Controlled will, for a minimum of twelve months, continue each Active Business,

(iv) Controlled will not, nor will it permit any member of the Controlled Group to, take any action inconsistent with the information and representations furnished to the IRS or the FTB

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in connection with the Ruling Request, or to counsel in connection with any opinion being delivered by counsel with respect to the Distribution or the Restructuring, regardless of whether such information and representations were included in the ruling issued by the IRS or FTB or in the opinion of counsel,

(v) Controlled will not take any action that management of Controlled knows, or should have known, is reasonably likely to contravene any agreement with a Taxing Authority entered into prior to the Distribution Date to which any member of the Controlled Group or the Distributing Group is a party,

(vi) during the two-year period following the Distribution Date, Controlled will not repurchase stock of Controlled in a manner contrary to the requirements of IRS Revenue Procedure 96-30, as modified by IRS Revenue Procedure 2003-48, or in a manner contrary to the representations made in the Ruling Request,

(vii) other than to the extent such action is required by the Separation Agreement, on or after the Distribution Date, Controlled will not, nor will it permit any member of the Controlled Group to, make or change any accounting method, amend any Return or take any Tax position on any Return, take any other action or enter into any transaction that results in any increased Tax liability or reduction of any Tax asset of the Distributing Group or any member thereof in respect of any Pre-Distribution Period, and

(viii) during the two-year period following the Distribution Date, Controlled will not enter into any transaction or make any change in its equity structure (including stock issuances, pursuant to the exercise of options or otherwise, options grants, the adoption of, or authorization of shares under, a stock option plan, capital contributions, or acquisitions, but not including, the Distribution) which may cause the Distribution to be treated as part of a plan pursuant to which one or more Persons acquire directly or indirectly Controlled stock representing a “50-percent or greater interest” within the meaning of Section 355(d)(4) of the Code.

Controlled agrees that, regardless of whether Distributing consents to, or receives a ruling or opinion with respect to, any action referred to in this Section 9(b), Distributing is to have no liability for any Tax resulting from

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any such action and Controlled agrees to indemnify and hold harmless the Distributing Group against any such Tax. Controlled shall also bear all costs incurred by Distributing in connection with obtaining any opinion of counsel, a supplemental private letter ruling or in connection with Distributing’s determination of whether or not to grant any written consent required under this Section 9(b).

10. Indemnities.

(a) Controlled Indemnity. Controlled and each member of the Controlled Group will jointly and severally indemnify Distributing and the members of the Distributing Group against, and hold them harmless from:

(i) any income tax liability of the Controlled Group as determined in accordance with this Agreement;

(ii) any liability or damage resulting from a breach by Controlled or any member of the Controlled Group of any representation or covenant made by Controlled herein;

(iii) any income tax liability (a) resulting from the Distribution or any portion of the Restructuring that is intended to qualify as tax free to Distributing or its shareholders under Sections 355 and/or 368(a)(1)(D) of the Code from failing to so qualify and (b) that is attributable to any action of Controlled or any member of the Controlled Group, other than any action required by the Separation Agreement or any Ancillary Agreement (including any exhibits or schedules thereto), without regard to whether Distributing has consented to such action;

(iv) any Taxes imposed on Distributing or any member of the Distributing Group in respect of the Special Dividend to the extent Controlled or any member of the Controlled Group has received a Refund with respect to such Taxes; and

(v) all liabilities, costs, expenses (including, without limitation, reasonable expenses of investigation and attorneys’ fees and expenses), losses, damages, assessments, settlements or judgments arising out of or incident to the imposition, assessment or assertion of any income tax liability or damage described in (i), (ii), (iii) or (iv), including those incurred in the contest in good faith in appropriate proceedings relating to the imposition, assessment or assertion of any such income tax, liability or damage.

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(b) Distributing Indemnity. Distributing and each member of the Distributing Group will jointly and severally indemnify Controlled and the members of the Controlled Group against, and hold them harmless from:

(i) any income tax liability of the Consolidated Group, other than any such liabilities described in Section 10(a);

(ii) any Taxes imposed on Controlled or any member of the Controlled Group under Treasury Regulation 1.1502-6 (or similar provision of state, local or foreign law) solely as a result of Controlled or any such member being or having been a member of a Consolidated Group to the extent payment is first sought by a Taxing Authority from a member of the Controlled Group;

(iii) any liability or damage resulting from a breach by Distributing or any member of the Distributing Group of any representation or covenant made by Distributing herein; and

(iv) all liabilities, costs, expenses (including, without limitation, reasonable expenses of investigation and attorneys’ fees and expenses), losses, damages, assessments, settlements or judgments arising out of or incident to the imposition, assessment or assertion of any income tax liability or damage described in (i), (ii) or (iii) including those incurred in the contest in good faith in appropriate proceedings relating to the imposition, assessment or assertion of any such income tax, liability or damage.

If a member of the Distributing Group ceases to be an Affiliate of Distributing as a result of a sale of its stock to a third party (whether or not treated as a sale or exchange of stock for Tax purposes), such member of the Distributing Group shall be released from its obligations under this Agreement upon such sale and neither Distributing nor any member of the Distributing Group shall have any obligation to indemnify Controlled or any member of the Controlled Group under Section 10(b)(iii) for any liability or damage attributable to actions taken by such Affiliate after such sale.

(c) Discharge of Indemnity. Controlled, Distributing and the members of the Controlled Group and Distributing Group, respectively, shall discharge their obligations under Sections 10(a) and 10(b) hereof, respectively, by paying the relevant amount within 30 days of demand therefor. Any such demand shall include a statement showing the amount due under Section 10(a) or 10(b), as the case may be. Items described in Section 10(a)(i) and 10(b)(i) shall be calculated as set forth in Sections 3

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and 4. Notwithstanding the foregoing, if either Controlled, Distributing or any member of the Controlled Group or Distributing Group disputes in good faith the fact or the amount of its obligation under Section 10(a) or Section 10(b), then no payment of the amount in dispute shall be required until any such good faith dispute is resolved in accordance with Section 21 hereof; provided, however, that any amount not paid within 30 days of demand therefor shall bear interest as provided in Section 14.

(d) Tax Benefits. If an indemnification obligation of any member of the Distributing Group or any member of the Controlled Group, as the case may be, under this Section 10 with respect to a Consolidated Group arises in respect of an adjustment that makes allowable to a member of the Controlled Group or a member of the Distributing Group, respectively, any deduction, amortization, exclusion from income or other allowance (a “Tax Benefit”) which would not, but for such adjustment, be allowable, then any payment by any member of the Distributing Group or any member of the Controlled Group, respectively, pursuant to this Section 10 shall be an amount equal to (x) the amount otherwise due but for this subsection (d), minus (y) the present value of the product of the Tax Benefit multiplied (i) by the maximum applicable federal, foreign, state or local, as the case may be, corporate Tax rate in effect at the time such Tax Benefit becomes allowable to a member of the Controlled Group or a member of the Distributing Group (as the case may be) or (ii) in the case of a credit, by 100 percent. The present value of such product shall be determined by discounting such product from the time the Tax Benefit becomes allowable at a rate equal to the Prime Rate as published in the Wall Street Journal, Eastern Edition.

11. Guarantees. Distributing or Controlled, as the case may be, shall guarantee or otherwise perform the obligations of each member of the Distributing Group or the Controlled Group, respectively, under this Agreement

12. Communication and Cooperation.

(a) Consult and Cooperate. Controlled and Distributing shall consult and cooperate (and shall cause each member of the Controlled Group or the Distributing Group, respectively, to cooperate) fully at such time and to the extent reasonably requested by the other party in connection with all matters subject to this Agreement. Such cooperation shall include, without limitation,

(i) the retention, and provision on reasonable request, of any and all information including all books, records, documentation or other information pertaining to Tax matters relating to the Distributing Group and the Controlled Group, any

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necessary explanations of information, and access to personnel, until one year after the expiration of the applicable statute of limitation (giving effect to any extension, waiver, or mitigation thereof);

(ii) the execution of any document that may be necessary (including to give effect to Section 13) or helpful in connection with any required Return or in connection with any audit, proceeding, suit or action; and

(iii) the use of the parties’ best efforts to obtain any documentation from a governmental authority or a third party that may be necessary or helpful in connection with the foregoing.

(b) Provide Information. Distributing and Controlled shall keep each other fully informed with respect to any material development relating to the matters subject to this Agreement.

(c) Tax Attribute Matters. Distributing and Controlled shall promptly advise each other with respect to any proposed Tax adjustments relating to a Consolidated Group, which are the subject of an audit or investigation, or are the subject of any proceeding or litigation, and which may affect any Tax liability or any Tax attribute of Distributing, Controlled, the Distributing Group, the Controlled Group or any member of the Controlled Group or the Distributing Group (including, but not limited to, basis in an asset or the amount of earnings and profits).

(d) In the event that any Taxes are imposed or threatened to be imposed on Distributing or any member of the Distributing Group in respect of the Special Dividend, Controlled shall, at the written request of Distributing, use its reasonable best efforts to obtain a Refund of any Taxes paid by Controlled or a member of the Controlled Group with respect to amounts received by Controlled or a member of the Controlled Group that give rise to a payment of the Special Dividend.

13. Audits and Contest.

(a) Distributing or Controlled shall promptly notify the other in writing upon the receipt of any notice of Tax Proceeding from the relevant Taxing Authority that could reasonably result in an indemnity obligation of a party under this Agreement; provided, that a party’s right to indemnification under this Agreement shall not be limited in any way by a failure to so notify, except to the extent that the indemnifying party is materially prejudiced by such failure.

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(b) Notwithstanding anything in this Agreement to the contrary, Distributing shall have full control over all matters relating to any Return or any Tax Proceeding relating to any Tax matters of at least one member of the Distributing Group. Except as provided in Section 13(c), Distributing shall have absolute discretion with respect to any decisions to be made, or the nature of any action to be taken, with respect to any matter described in the preceding sentence. Distributing shall act in good faith in the performance of this Section 13(b). Controlled may, at its own expense, participate in any such Tax Proceeding.

(c)

(i) Upon request, during the course of any Tax Proceeding relating to a Tax liability or damage described in Section 10(a), Controlled shall from time to time furnish Distributing with evidence reasonably satisfactory to Distributing of Controlled’s ability to pay the amount for which it could reasonably be expected to be responsible pursuant to Section 10(a). If at any time during such Tax Proceeding Distributing determines that Controlled could not pay such amount, then Controlled shall be required to furnish a guarantee or performance bond satisfactory to Distributing in an amount equal to the amount for which Controlled could reasonably be expected to be responsible pursuant to Section 10(a).

(ii) Notwithstanding anything to the contrary in this Agreement, in the event a Tax Proceeding involves an issue that is common to both the Distributing Group and the Controlled Group, Distributing shall use its best efforts to settle such issues on behalf of the Distributing Group and the Controlled Group on a consistent basis.

(iii) Notwithstanding anything to the contrary in this Agreement, with respect to any Tax Proceeding involving issues relating solely to a Tax liability of one or more members of the Controlled Group (taking into account the parties’ obligations under Section 10), Controlled shall have control over such Tax Proceeding.

(d) The indemnified party agrees to give notice to the indemnitor of the assertion of any claim, or the commencement of any suit, action or proceeding in respect of which indemnity may be sought hereunder within 30 days of such assertion or commencement, or such earlier time that would allow the indemnitor to timely respond to such claim, suit action or proceeding.

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(e) With respect to Returns relating to Taxes solely attributable to one or more members of the Controlled Group (taking into account the parties’ obligations under Section 10), Controlled and the members of the Controlled Group shall have full control over all matters relating to any Tax Proceeding in connection therewith. Controlled and the members of the Controlled Group shall have absolute discretion with respect to any decisions to be made, or the nature of any action to be taken, with respect to any matter described in the preceding sentence.

(f) Controlled and Distributing shall jointly control the conduct of the Company Proceedings. Controlled shall not agree to any settlement in respect of the Company Proceedings without the consent of Distributing, which consent shall not be unreasonably withheld.

14. Payments.

(a) Mechanics. All payments to be made hereunder shall be made in immediately available funds. Except as otherwise provided, all payments required to be made pursuant to this Agreement will be due 30 days after the receipt of notice of such payment or, where no notice is required, 30 days after the fixing of liability or the resolution of a dispute. Payments shall be deemed made when received. Any payment that is not made by the Distributing Group when due shall bear interest at Overpayment Rate for each day until paid. Any payment that is not made by the Controlled Group when due shall bear interest at the Underpayment Rate for each day until paid. If, pursuant to a Final Determination, any amount paid by Distributing or the members of the Distributing Group or Controlled or the members of the Controlled Group, as the case may be, pursuant to this Agreement results in any increased Tax liability or reduction of any Tax asset of Controlled or any member of the Controlled Group or Distributing or any member of the Distributing Group, respectively, then Distributing or Controlled, as appropriate, shall indemnify the other party and hold it harmless from any interest or penalty attributable to such increased Tax liability or the reduction of such Tax asset and shall pay to the other party, in addition to amounts otherwise owed, the After-Tax Amount. With respect to any payment required to be made or received under this Agreement, Distributing has the right to designate, by written notice to Controlled, which member of the Distributing Group will make or receive such payment.

(b) Tax Treatment. The parties agree that payments made pursuant to this Agreement shall be treated for all Tax purposes as adjustments to the amount contributed by Distributing to Controlled in connection with the Restructuring immediately prior to the Distribution, or, if appropriate, as distributions from Controlled to MSDCI and, except as otherwise required by law, none of the parties shall take any position inconsistent with such treatment.

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15. Notices. Any notice, demand, claim, or other communication under this Agreement shall be in writing and shall be deemed to have been given upon the delivery or mailing, thereof, as the case may be, if delivered personally or sent by certified mail, return receipt requested, postage prepaid, to the parties at the following addresses (or at such other address as a party may specify by notice to the other):

If to Distributing or the Distributing Group, to:

[to come]

If to Controlled or the Controlled Group, to:

[to come]

16. Costs and Expenses.

(a) Except as expressly set forth in this Agreement, each party shall bear its own costs and expenses incurred pursuant to this Agreement. For purposes of this Agreement, costs and expenses shall include, but not be limited to, reasonable attorneys’ fees, accountant fees and other related professional fees and disbursements. Notwithstanding anything to the contrary in this Agreement, each of the Controlled Group and the Distributing Group will be responsible for its allocable portion, as determined by Distributing, of (i) all costs and expenses attributable to filing any Return that reflects the income, assets or operations of the Controlled Group or the Distributing Group, respectively, and any Return required to be filed in connection with the Restructuring, and (ii) all costs and expenses incurred by Distributing or Controlled, respectively, in complying with the provisions of Section 12 of this Agreement.

(b) With respect to all Tax Proceedings, including any pending litigation with any Taxing Authority, costs shall be allocated in good faith by Distributing. Each party hereto shall be liable for its allocable portion of such costs as provided in Section 10.

17. Effectiveness; Termination and Survival. This Agreement shall become effective upon the consummation of the Distribution. All rights and obligations arising hereunder shall survive until they are fully effectuated or performed and, provided, further, that notwithstanding anything in this Agreement to the contrary, this Agreement shall remain in effect and its provisions shall survive for one year after the full period of all applicable statutes of limitation

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(giving effect to any extension, waiver or mitigation thereof) and, with respect to any claim hereunder initiated prior to the end of such period, until such claim has been satisfied or otherwise resolved.

18. Section Headings. The headings contained in this Agreement are inserted for convenience only and shall not constitute a part hereof or in any way affect the meaning or interpretation of this Agreement.

19. Entire Agreement; Amendments and Waivers.

(a) Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein. No alteration, amendment, modification, or waiver of any of the terms of this Agreement shall be valid unless made by an instrument signed by an authorized officer of each of Distributing and Controlled, or in the case of a waiver, by the party against whom the waiver is to be effective.

(b) Amendments and Waivers. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver hereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege. This Agreement shall not be waived, amended or otherwise modified except in writing, duly executed by all of the parties hereto.

20. Governing Law and Interpretation. This Agreement shall be construed and enforced in accordance with the laws of the State of New York without giving, effect to laws and principles relating to conflicts of law.

21. Dispute Resolution. In the event of any dispute relating to this Agreement, including but not limited to whether a transaction is part of the Restructuring and whether a Tax liability is a liability of the Distributing Group or the Controlled Group, the parties shall work together in good faith to resolve such dispute within 30 days. If the parties are unable to resolve such dispute within 30 days, such dispute shall be resolved by an accounting firm whose selection shall be reasonably satisfactory to both parties and whose fees and costs shall be shared equally by Distributing and Controlled.

22. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.

23. Assignments; Third Party Beneficiaries. Except as provided below, this Agreement shall be binding upon and shall inure only to the benefit of the parties hereto and their respective successors and assigns, by merger,

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acquisition of assets or otherwise (including but not limited to any successor of a party hereto succeeding to the Tax attributes of such party under applicable law). This Agreement is not intended to benefit any person other than the parties hereto and such successors and assigns, and no such other person shall be a third party beneficiary hereof. If, during the period beginning on the Distribution Date and ending upon the expiration of the survival period set forth in Section 17, any Person becomes an Affiliate of Controlled, such Affiliate shall be bound by the terms of this Agreement and Controlled shall provide evidence to Distributing of such Affiliate’s agreement to be bound by the terms of this Agreement.

24. Authorization, etc. Each of the parties hereto hereby represents and warrants that it has the power and authority to execute, deliver and perform this Agreement, that this Agreement has been duly authorized by all necessary corporate action on the part of such party, that this Agreement constitutes a legal, valid and binding obligation of each such party, and that the execution, delivery and performance of this Agreement by such party does not contravene or conflict with any provision or law or of its charter or bylaws or any agreement, instrument or order binding on such party.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the day and year first written above.

Distributing on its own behalf and on behalf of the members of the Distributing Group.

By:

Name:

Title:

Controlled on its own behalf and on behalf of the members of the Controlled Group.

By:

Name:

Title:

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EX-10.2

Exhibit 10.2

U.S. EMPLOYEE MATTERS AGREEMENT

by and between

MORGAN STANLEY

and

DISCOVER FINANCIAL SERVICES

Dated as of [            ], 2007

TABLE OF CONTENTS

		PAGE
ARTICLE 1
SCOPE AND DEFINITIONS
Section 1.01.	Scope	1
Section 1.02.	Definitions	2
Section 1.03.	Interpretation	5
ARTICLE 2
ASSIGNMENT OF EMPLOYEES
Section 2.01.	Active Employees.	7
Section 2.02.	Former Employees.	8
Section 2.03.	Employment Law Obligations.	9
Section 2.04.	Employee Records.	10
ARTICLE 3
EQUITY COMPENSATION PLANS
Section 3.01.	Stock Options	11
Section 3.02.	Restricted Stock Units	12
Section 3.03.	Approval and Terms of Equity Awards	12
Section 3.04.	Responsibility for Tax Withholding, Reporting, and Social Insurance Contributions	13
Section 3.05.	No Change of Control	13
ARTICLE 4
EMPLOYEE STOCK PURCHASE PLAN
Section 4.01.	ESPP	13
ARTICLE 5
GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES
Section 5.01.	General Principle.	14
Section 5.02.	Establishment of Discover Plans.	15
Section 5.03.	Transfer of Assets and Liabilities	16
Section 5.04.	Exceptions	16
Section 5.05.	Cooperation.	16
Section 5.06.	Service Credit.	17
Section 5.07.	Plan Administration.	18

ARTICLE 6
U.S. PENSION PLAN SPIN-OFF
Section 6.01.	General Principle	18
Section 6.02.	Determination and Transfer of Initial Transfer Amount	19
Section 6.03.	Determination of the Final Pension Transfer Amount.	19
Section 6.04.	True-Up Adjustment	21
Section 6.05.	Form and Selection of Assets to be Transferred	21
Section 6.06.	Adjustment Payment for Data Errors	22
ARTICLE 7
U.S. 401(K) PLAN AND ESOP
Section 7.01.	General Principle	22
Section 7.02.	Transfer of Accounts	23
Section 7.03.	Funding of 2007 Matching Contribution	23
Section 7.04.	Continuing Obligations Regarding Proxy Statement, Tender Offers and Similar Rights and Restrictions	24
ARTICLE 8
U.S. WELFARE BENEFIT PLANS
Section 8.01.	General Principle and Exceptions.	24
Section 8.02.	Establishment of Discover Plans.	25
Section 8.03.	No Transfer of Assets	26
Section 8.04.	Insurance Contracts	26
Section 8.05.	Third Party Vendors	27
ARTICLE 9
FRINGE BENEFIT AND OTHER U.S. PLANS AND PROGRAMS
Section 9.01.	General Principle and Exceptions.	27
Section 9.02.	Transition of Coverage Under Plans and Programs.	27
ARTICLE 10
WORKERS COMPENSATION AND UNEMPLOYMENT COMPENSATION
Section 10.01.	Allocation of Workers Compensation and Unemployment Claims	29
ARTICLE 11
COMPENSATION MATTERS AND GENERAL BENEFIT AND EMPLOYEE MATTERS
Section 11.01.	Restrictive Covenants in Employment and Other Agreements	29
Section 11.02.	Non-Solicitation of Employees	30
Section 11.03.	Severance	30

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Section 11.04.	Accrued Vacation Days Off	31
Section 11.05.	Leaves of Absence	31
Section 11.06.	Morgan Stanley Assets	31
ARTICLE 12
GENERAL PROVISIONS
Section 12.01.	Preservation of Rights to Amend	31
Section 12.02.	Confidentiality	31
Section 12.03.	Administrative Complaints/Litigation	32
Section 12.04.	Reimbursement and Indemnification	32
Section 12.05.	Costs of Compliance with Agreement	32
ARTICLE 13
MISCELLANEOUS
Section 13.01.	Notices	33
Section 13.02.	Amendments; No Waivers	33
Section 13.03.	Successors and Assigns	33
Section 13.04.	Governing Law	34
Section 13.05.	Counterparts; Effectiveness; Third-Party Beneficiaries	34
Section 13.06.	Entire Agreement	34
Section 13.07.	Jurisdiction	34
Section 13.08.	WAIVER OF JURY TRIAL	35
Section 13.09.	Severability	35
Section 13.10.	Survival	35
Section 13.11.	Captions	35
Section 13.12.	Specific Performance	35
Section 13.13.	Limited Liability	36
Section 13.14.	Mutual Drafting	36
Section 13.15.	Dispute Resolution	36
Section 13.16.	Effect if Distribution Does Not Occur	36
Section 13.17.	Corporate Authorization	36

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U.S. EMPLOYEE MATTERS AGREEMENT

THIS U.S. EMPLOYEE MATTERS AGREEMENT dated as of [            ], 2007 between Morgan Stanley, a Delaware corporation (“Morgan Stanley”), and Discover Financial Services, a Delaware corporation (“Discover”) (collectively, the “Parties”).

RECITALS

WHEREAS, Morgan Stanley and Discover have entered into a Separation and Distribution Agreement of even date herewith (the “Distribution Agreement”) pursuant to which Morgan Stanley will distribute on a pro rata basis to the holders of Morgan Stanley’s Common Stock, par value $0.01 per share (“Morgan Stanley Common Stock”), without any consideration being paid by such holders, all of the outstanding shares of Common Stock, par value $0.01 per share of Discover (“Discover Common Stock”) then owned by Morgan Stanley (the “Distribution”).

WHEREAS, in connection with the Distribution, Morgan Stanley and Discover desire to enter into this U.S. Employee Matters Agreement as a complement to the Distribution Agreement.

NOW THEREFORE, in consideration of the mutual covenants contained herein and in the Distribution Agreement, the Parties hereto agree as follows:

ARTICLE 1

SCOPE AND DEFINITIONS

Section 1.01. Scope. Notwithstanding anything to the contrary contained herein (i) this Agreement shall not apply with respect to any Employee whose primary employer within the Morgan Stanley Group or Discover Group is or was an entity domiciled in the United Kingdom and (ii) the terms of this Agreement shall apply only to the extent relevant with respect to the appropriate treatment of any Employee whose primary employer within the Morgan Stanley Group or Discover Group is or was an entity domiciled in a country other than the United Kingdom or the U.S. or in Puerto Rico. For the avoidance of doubt, any relevant portions of this Agreement shall apply with respect to the Employees listed on Schedule 1.01(i) hereof (who are Employees who are or have been located outside the U.S., but are or have been covered under U.S. compensation and benefit plans and arrangements). However, this Agreement shall not apply with respect to the Employees listed on Schedule 1.01(ii) hereof (who are Employees who are, as of the date hereof, located within the U.S. but are employed by U.K. entities and covered under U.K. compensation arrangements and benefit plans and arrangements).

Section 1.02. Definitions. Unless otherwise defined herein, each capitalized term shall have the meaning specified for such term in the Distribution Agreement. As used in this Agreement:

“Agreement” means this U.S. Employee Matters Agreement together with those parts of the Distribution Agreement referenced herein, all Schedules hereto and all amendments, modifications and changes hereto and thereto.

“Business Day” means any day, other than a Saturday, a Sunday or a day on which banks in New York, New York are authorized or obligated by law to close.

“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as codified at Part 6 of Subtitle B of Title I of ERISA and at Section 4980B of the Code, as amended.

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“Conversion Ratio” means the closing price of Morgan Stanley common stock immediately prior to the Distribution divided by the opening price of Discover common stock immediately following the Distribution, in each case as reported on the New York Stock Exchange.

“Discover Business Employee” means any individual who is, immediately prior to the Distribution, employed by Morgan Stanley, Discover or any of their respective Subsidiaries and has employment duties primarily related to the Discover Business, as reasonably agreed by the Parties consistent with the foregoing description. A Discover Business Employee may not be a Morgan Stanley Business Employee.

“Discover Equity Plans” shall mean one or more plans adopted by Discover and approved by Morgan Stanley, as shareholder of Discover, under the authority of which the Discover equity awards described in Article 3 shall be issued.

“Discover Initial Price” shall mean the opening price of Discover common stock immediately following the Distribution as reported on the New York Stock Exchange.

“Discover Non-ERISA U.S. Benefit Arrangement” means any Non-ERISA U.S. Benefit Arrangement sponsored or maintained by Discover.

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“Discover Pension and Welfare Benefit Plan” means any Pension Plan or Welfare Plan sponsored or maintained by Discover or a Discover Subsidiary.

“Discover RSU” shall mean a right, issued in accordance with Section 3.02, representing the contractual entitlement to receive one share of Discover Common Stock in accordance with the terms and conditions of the award and the Discover Equity Plans under which the Discover RSU is granted.

“Discover Stock Option” shall mean a right, issued in accordance with Section 3.01, representing the contractual entitlement to purchase one share of Discover Common Stock in accordance with the terms and conditions of the award and the Discover Equity Plans under which the Discover Stock Option is granted.

“Discover Subsidiary” means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are expected to be directly or indirectly owned by Discover immediately after the Distribution.

“Employee” means any Morgan Stanley Business Employee or Former Morgan Stanley Employee or Discover Business Employee or Former Discover Employee.

“ERISA” means the U.S. Employee Retirement Income Security Act of 1974, as amended.

“FMLA” means the U.S. Family Medical Leave Act, as amended.

“Former Discover Employees” has the meaning set forth in Section 2.02(c).

“Former Morgan Stanley Employees” has the meaning set forth in Section 2.02(b).

“HIPAA” means the U.S. Health Insurance Portability and Accountability Act, as amended.

“IRS” means the U.S. Internal Revenue Service.

“Morgan Stanley Business Employee” means any individual who is, immediately prior to the Distribution, employed by Morgan Stanley or any of its Subsidiaries or Affiliates and is not a Discover Business Employee.

“Morgan Stanley CMDS Committee” shall mean the Compensation, Management Development and Succession Committee of the Board of Directors of Morgan Stanley.

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“Morgan Stanley Equity Plans” shall mean any plan or arrangement under the authority of which Morgan Stanley has granted compensatory stock options, restricted stock units or any other compensatory awards based on Morgan Stanley Common Stock, which awards are outstanding on the Distribution Date.

“Morgan Stanley ESPP” means the Morgan Stanley Employee Stock Purchase Plan.

“Morgan Stanley Final Price” shall mean the closing price of Morgan Stanley common stock immediately prior to the Distribution as reported on the New York Stock Exchange.

“Morgan Stanley Non-ERISA U.S. Benefit Arrangement” means any Non-ERISA U.S. Benefit Arrangement sponsored or maintained by Morgan Stanley.

“Morgan Stanley Pension and Welfare Benefit Plan” means any Pension Plan or Welfare Plan sponsored or maintained by Morgan Stanley or a Morgan Stanley Subsidiary.

“Morgan Stanley RSU” shall mean a right representing a contractual entitlement to one share of Morgan Stanley Common Stock, in accordance with the terms of the relevant award and the Morgan Stanley Equity Plans under which the Morgan Stanley RSU is granted.

“Morgan Stanley Subsidiary” means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are expected to be directly or indirectly owned by Morgan Stanley immediately after the Distribution.

“Morgan Stanley Stock Option” shall mean a right representing the contractual entitlement to purchase one share of Morgan Stanley Common Stock in accordance with the terms of the relevant award and the Morgan Stanley Equity Plans.

“MS 401(k) Plan” means the Morgan Stanley 401(k) Plan (f/k/a the Morgan Stanley DSP/START Plan).

“MS ESOP” means the Morgan Stanley Employee Stock Ownership Plan.

“MS Excess Plan” means the Morgan Stanley & Co. Incorporated Excess Benefit Plan.

“MS Pension Plan” means the Morgan Stanley Employees Retirement Plan.

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“MS Retiree Medical Plan” means that portion of the Morgan Stanley Health and Welfare Benefits Plan that provides post-employment medical benefits beyond those required to be provided pursuant to COBRA.

“MS SERP” means the Morgan Stanley Supplemental Executive Retirement Plan.

“Non-ERISA U.S. Benefit Arrangement” means any contract, agreement, policy, practice, program, plan, trust or arrangement, other than a Pension Plan or Welfare Plan, providing for benefits, perquisites or compensation of any nature to any Employee, or to any family member, dependent or beneficiary of any such Employee, including, without limitation, disability, severance, health, dental, life, accidental death and dismemberment, travel and accident, tuition reimbursement, supplemental unemployment, vacation, sick, personal or bereavement days, holidays, retirement, deferred compensation, profit sharing, bonus, stock-based compensation or other forms of incentive compensation.

“Pension Plan” means any pension plan as defined in Section 3(2) of ERISA, without regard to Section 4(b)(4) or 4(b)(5) of ERISA.

“Welfare Plan” means any employee welfare plan as defined in Section 3(1) of ERISA, without regard to Section 4(b)(4) of ERISA.

“WARN” means the U.S. Workers Adjustment Retraining and Notification Act, as amended.

Section 1.03. Interpretation. In this Agreement, unless the context clearly indicates otherwise:

(a) words used in the singular include the plural and words used in the plural include the singular;

(b) references to any Person include such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and a reference to such Person’s “Affiliates” shall be deemed to mean such Person’s Affiliates following the Distribution;

(c) references to any gender include the other gender;

(d) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”;

(e) references to any Article, Section or Schedules mean such Article or Section of, or such Schedule to, this Agreement, as the case may be, and references in any Section or definition to any clause mean such clause of such Section or definition;

5

(f) the words “herein,” “hereunder,” “hereof,” “hereto” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof;

(g) references to any agreement, instrument or other document mean such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement;

(h) references to any law (including statutes and ordinances) mean such law (including all rules and regulations promulgated thereunder) as amended, modified, codified or reenacted, in whole or in part, and in effect at the time of determining compliance or applicability;

(i) relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding” and “through” means “through and including”;

(j) accounting terms used herein shall have the meanings historically ascribed to them by Morgan Stanley and its Subsidiaries, including Discover, in its and their internal accounting and financial policies and procedures in effect prior to the date of this Agreement;

(k) if there is any conflict between the provisions of the Distribution Agreement and this Agreement, the provisions of this Agreement shall control with respect to the subject matter hereof; if there is any conflict between the provisions of the body of this Agreement and the Schedules hereto, the provisions of the body of this Agreement shall control unless explicitly stated otherwise in such Schedule;

(l) the titles to Articles and headings of Sections contained in this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of or to affect the meaning or interpretation of this Agreement;

(m) any portion of this Agreement obligating a Party to take any action or refrain from taking any action, as the case may be, shall mean that such Party shall also be obligated to cause its relevant Affiliates to take such action or refrain from taking such action, as the case may be; and

(n) unless otherwise specified in this Agreement, all references to dollar amounts herein shall be in respect of lawful currency of the United States.

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ARTICLE 2

ASSIGNMENT OF EMPLOYEES

Section 2.01. Active Employees.

(a) Discover Business Employees. Except as otherwise set forth in this Agreement, effective not later than the Distribution Date, the employment of each Discover Business Employee who is employed by Morgan Stanley or a Morgan Stanley Subsidiary shall be assigned and transferred to Discover or a Discover Subsidiary. As of the Distribution Date, Discover shall and shall cause each Discover Subsidiary to continue the employment of each Discover Business Employee who is employed by Discover or a Discover Subsidiary. Discover shall, or shall cause the appropriate Discover Subsidiary to, honor any legal right of any Discover Business Employee or Former Discover Employee in a leave or other non-working status to return to work by providing such employee employment on terms that comply with such right.

(b) Morgan Stanley Business Employees. Effective not later than the Distribution Date, the employment of each Morgan Stanley Business Employee who is employed by Discover or a Discover Subsidiary shall be assigned and transferred to Morgan Stanley or a Morgan Stanley Subsidiary. As of the Distribution Date, Morgan Stanley shall and shall cause each Morgan Stanley Subsidiary to continue the employment of each Morgan Stanley Business Employee who is employed by Morgan Stanley or a Morgan Stanley Subsidiary. Morgan Stanley shall, or shall cause the appropriate Morgan Stanley Subsidiary to, honor any legal right of any Morgan Stanley Business Employee or Former Morgan Stanley Employee in a leave or other non-working status to return to work by providing such employee employment on terms that comply with such right.

(c) At-Will Status. Notwithstanding the above or any other provision of this Agreement, nothing in this Agreement shall create any obligation on the part of Morgan Stanley, Discover or any of their respective Affiliates to continue the employment of any employee for any definite period following the Distribution Date or to change the employment status of any employee from “at will.”

(d) Employee Secondment. Concurrently with the execution of this Agreement, the parties are entering into one or more Transition Services Agreements pursuant to which Morgan Stanley has agreed to provide certain services relating to the subject matter of this Agreement. In addition, and notwithstanding the foregoing, if and only to the extent necessary to preserve payroll, benefits, or other legal entitlements with respect to any employees (whether inside or outside the United States), a Discover Subsidiary and a Morgan Stanley Subsidiary may enter into one or more agreements whereby one such subsidiary may lease employees from another for a period of not more than three

7

calendar months following the Distribution Date. Any such agreement(s) shall require the company benefiting from the services of such employee(s) to fully reimburse the leasing company for the full cost of the employee(s) remuneration and shall contain other terms and conditions consistent with an arm’s length commercial relationship between the leasing entity and the service recipient.

(e) Severance. The Distribution and the assignment, transfer or continuation of the employment of employees in connection therewith shall not be deemed a severance of employment of any employee for purposes of any plan, policy, practice or arrangement of Morgan Stanley, Discover or any of their respective Subsidiaries, except as otherwise provided herein.

Section 2.02. Former Employees.

(a) General Principal. Except as otherwise provided in this Agreement, each former employee of Morgan Stanley or any Morgan Stanley Subsidiary or Discover or any Discover Subsidiary as of the Distribution Date will be considered a former employee of the business as to which his or her duties were primarily related immediately prior to his or her termination of employment with all of Morgan Stanley, Discover and their respective Affiliates.

(b) Former Morgan Stanley Employees. For these purposes, former employees of Morgan Stanley and the Morgan Stanley Subsidiaries shall be deemed to include (i) all employees who, as of their last day of employment with all of Morgan Stanley, Discover and their respective Affiliates, had employment duties primarily related to the Morgan Stanley Business and (ii) without limiting the foregoing, all employees who, as of their last day of employment with all of Morgan Stanley, Discover and their respective Affiliates were employed by Morgan Stanley entities providing institutional or asset management services, including, without limitation, Van Kampen Funds Inc., Miller Anderson & Sherrard, LLP, Discover Brokerage Direct, Barra, Inc. and any other former Affiliate of the Dean Witter or Morgan Stanley Asset Management or Morgan Stanley Institutional Securities group (collectively, the “Former Morgan Stanley Employees”).

(c) Former Discover Employees. Former employees of Discover and the Discover Subsidiaries shall be deemed to include (i) all employees who, as of their last day of employment with all of Morgan Stanley, Discover and their respective Affiliates, had employment duties primarily related to the Discover Business and (ii) without limiting the foregoing, all employees who, as of their last day of employment with all of Morgan Stanley, Discover and their respective Affiliates were employed by Sears Roebuck and Co./Sears Holdings Corporation, The Allstate Corporation, Coldwell Banker Real Estate Corporation, Sears Mortgage Corporation/Sears Mortgage Banking Group, Sears Savings Bank, any other former Sears Affiliate (other than an entity in the Dean Witter or Morgan

8

Stanley Asset Management or Morgan Stanley Institutional Securities lines of business), former employees of SPS Payment Systems, Inc. and former employees of PULSE EFT Association LP (collectively, the “Former Discover Employees”).

Section 2.03. Employment Law Obligations.

(a) WARN Act. Morgan Stanley and the Morgan Stanley Subsidiaries shall be responsible for providing any necessary WARN notice (and meeting any similar state law notice requirements) with respect to any termination of any Morgan Stanley Business Employee. Discover and the Discover Subsidiaries shall be responsible for providing any necessary WARN notice (and meeting any similar state law notice requirements) with respect to any termination of any Discover Business Employee; provided, however, that Morgan Stanley and the Morgan Stanley Subsidiaries shall be responsible for providing any necessary WARN notice (and any similar state law notice requirements) to any Discover Business Employee or any governmental authority in connection with any transfer of the employment of any Discover Business Employee from a Morgan Stanley Group entity to a Discover Group entity in contemplation of the Distribution.

(b) Compliance With Employment Laws. On and after the Distribution Date (i) Morgan Stanley and the Morgan Stanley Subsidiaries shall be responsible for adopting and maintaining any policies or practices, and for all other actions and inactions, necessary to comply with employment-related laws and requirements relating to the employment of the Morgan Stanley Business Employees and the treatment of the Former Morgan Stanley Employees in respect of their former employment with Morgan Stanley and its Affiliates and (ii) Discover and the Discover Subsidiaries shall be responsible for adopting and maintaining any policies or practices, and for all other actions and inactions, necessary to comply with employment-related laws and requirements relating to the employment of the Discover Business Employees and the treatment of the Former Discover Employees in respect of their former employment with Morgan Stanley, Discover and their respective Affiliates. Without limiting the generality of the foregoing (i) Morgan Stanley and the Morgan Stanley Subsidiaries shall be responsible for administering compliance with the Morgan Stanley Group employee leave policies and the FMLA (and any similar applicable state law) as relates to Morgan Stanley Business Employees following the Distribution Date and (ii) Discover and the Discover Subsidiaries shall be responsible for administering compliance with the Discover Group employee leave policies and the FMLA (and any similar applicable state law) as relates to Discover Business Employees following the Distribution Date.

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Section 2.04. Employee Records.

(a) Records Relating to Morgan Stanley Business Employees and Former Morgan Stanley Employees. All records and data in any form relating to Morgan Stanley Business Employees and Former Morgan Stanley Employees shall be the property of Morgan Stanley, except that data pertaining to such an employee and relating to any period that such employee was employed by Discover or a Discover Subsidiary shall be jointly owned by Morgan Stanley and Discover.

(b) Records Relating to Discover Business Employees and Former Discover Employees. All records and data in any form relating to Discover Business Employees and Former Discover Employees shall be the property of Discover, except that data pertaining to such an employee and relating to any period that such employee was employed by Morgan Stanley, Discover or any of their respective Subsidiaries prior to the Distribution shall be jointly owned by Morgan Stanley and Discover.

(c) Sharing of Records. The Parties shall provide each other such records and information only as necessary or appropriate to carry out their obligations under law, this Agreement or any other Distribution Document, or for the purposes of administering their respective employee benefit plans and policies. Records and data described in Section 2.04(b) available to Morgan Stanley, which are reasonably requested by Discover shall be provided to Discover as soon as reasonably practicable upon such request; provided Morgan Stanley shall use its reasonable best efforts to provide to Discover before the Distribution Date the records and data available to Morgan Stanley and listed on Schedule 2.04(c) hereof; and provided further that Discover shall reimburse Morgan Stanley for the reasonable costs and expenses associated with the provision of such records and data (including a reasonable allocable share of any compensation and overhead expense of personnel deployed to assist in the provision of such records and data, except to the extent that such cost is insignificant). Subject to applicable law, all information and records regarding employment and personnel matters of Discover Business Employees and Former Discover Employees shall be accessed, retained, held, used, copied and transmitted after the Distribution Date by Discover in accordance with all laws and policies relating to the collection, storage, retention, use, transmittal, disclosure and destruction of such records.

(d) Access to Records. To the extent consistent with this Agreement, access to such records after the Distribution Date will be provided to Morgan Stanley and Discover in accordance with the Distribution Agreement. In addition, notwithstanding anything to the contrary, Morgan Stanley shall retain reasonable access to those records necessary for Morgan Stanley’s continued administration of any plans or programs on behalf of Employees after the Distribution Date, provided that such access shall be limited to individuals who have a job-related need to access such records. Morgan Stanley shall also retain copies of all confidentiality and non-compete agreements with any Discover Business Employee or Former Discover Employee in which Morgan Stanley has a valid business interest.

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(e) Maintenance of Records. With respect to retaining, destroying, transferring, sharing, copying and permitting access to all such information, Morgan Stanley and Discover shall each comply with all applicable laws, regulations and internal policies, and each Party shall indemnify and hold harmless the other Party from and against any and all liability, claims, actions, and damages that arise from a failure (by the indemnifying party or its agents) to so comply with all applicable laws, regulations and internal policies applicable to such information.

(f) No Access to Computer Systems or Files. Except as set forth in the Distribution Agreement or any Transition Services Agreement(s), no provision of this Agreement shall give either Party direct access to the computer systems or other files, records or databases of the other Party, unless specifically permitted by the owner of such systems, files, records or databases.

(g) Relation to Distribution Agreement. The provisions of this Section 2.04 shall be in addition to, and not in derogation of, the provisions of the Distribution Agreement governing Confidential Information and access to and use of employees, information and records, including Sections 5.01 and 5.05 of the Distribution Agreement.

ARTICLE 3

EQUITY COMPENSATION PLANS

Section 3.01. Stock Options. Morgan Stanley and Discover shall take any and all action as shall be necessary or appropriate, so that each award of Morgan Stanley Stock Options issued and currently outstanding under any Morgan Stanley Equity Plan held at the close of business on the Distribution Date by a Discover Business Employee shall be adjusted, pursuant to the terms of the Morgan Stanley Equity Plans and the Morgan Stanley Stock Options, by converting such options into Discover Stock Options. Such adjustment shall be effected by replacing such Morgan Stanley Stock Options with substitute Discover Stock Options in a manner such that immediately following the Distribution, (i) each such holder of a Morgan Stanley Stock Option will receive a number of substitute Discover Stock Options equal to the Conversion Ratio multiplied by the number of Morgan Stanley Stock Options held by such holder, and (ii) the per share option exercise price of each such Discover Stock Option will be determined by dividing the exercise price of the original Morgan Stanley Stock Option by the Conversion Ratio, and such adjustment shall be effected in a manner intended to satisfy requirements of Section 424 of the Code and avoid treatment of the Discover Stock Options as non-qualified deferred compensation

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subject to Section 409A of the Code. Such substituted Discover Stock Options will in the sole and absolute judgment of the Morgan Stanley CMDS Committee preserve the aggregate intrinsic value of the original Morgan Stanley Stock Options for which they are substituted and the ratio in the original option of the exercise price to the fair market value of the stock by adjusting the number of shares purchasable and the exercise price, based on a comparison of the Morgan Stanley Final Price and the Discover Initial Price. Fractional shares shall be adjusted or compensated by Morgan Stanley as appropriate in the sole discretion of the Morgan Stanley CMDS Committee. Such substitute Discover Stock Options will take into account all employment with both Morgan Stanley and Discover, and their respective Subsidiaries and Affiliates, for purposes of determining when the Discover Stock Options will become exercisable and/or vest.

Section 3.02. Restricted Stock Units. Morgan Stanley and Discover shall take any and all action as shall be necessary or appropriate so that Discover Business Employees who hold Morgan Stanley RSUs will have each of their awards of Morgan Stanley RSUs adjusted pursuant to the terms of the Morgan Stanley Equity Plans and Morgan Stanley RSUs, by converting such Morgan Stanley RSUs into Discover RSUs. Such adjustment shall be effected by replacing such Morgan Stanley RSUs with substitute Discover RSUs in a manner such that immediately following the Distribution each such holder of a Morgan Stanley RSU will receive a number of substituted Discover RSUs equal to the Conversion Ratio multiplied by the number of Morgan Stanley RSUs held by such holder. Such substituted Discover RSUs will take into account all employment with both Morgan Stanley and Discover, and their respective Subsidiaries and Affiliates, for purposes of determining when the Discover RSUs will vest and/or be paid. Such adjustment and replacement shall be conducted in a manner intended not to modify the treatment of the Discover RSUs under Section 409A of the Code from the treatment that would otherwise apply with respect to the corresponding Morgan Stanley RSU award. Fractional shares shall be adjusted or compensated by Morgan Stanley as appropriate in the sole discretion of the Morgan Stanley CMDS Committee.

Section 3.03. Approval and Terms of Equity Awards. Morgan Stanley, acting as the sponsor of the Morgan Stanley Equity Plans and as sole shareholder of Discover shall, and shall cause Discover to, take such actions and give or obtain such approvals as are necessary or desirable to ensure that the issuance of the Discover awards provided for in this Article 3 shall comply with all applicable tax, securities law and stock exchange requirements. The parties intend that each Discover Stock Option and Discover RSU (each, a “Discover Adjustment Award”) shall be (i) granted pursuant to governing plan terms of a Discover Equity Plan which are substantially similar to the plan terms of the relevant Morgan Stanley Equity Plan under which the relevant predecessor award was granted and (ii) subject to the terms of the applicable award agreement under

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which the relevant predecessor award was granted (as such plan and award documents may have been duly amended from time to time), except to the extent that the terms of such Discover Adjustment Award shall be varied pursuant to the terms of this Agreement or by any action of Discover.

Section 3.04. Responsibility for Tax Withholding, Reporting, and Social Insurance Contributions. Morgan Stanley and Discover agree that, unless prohibited by applicable law, Discover shall be responsible for all tax withholding and reporting obligations and shall pay the employer’s share of any social insurance tax obligations that arise in connection with the grant, vesting, exercise, transfer or other settlement of the adjusted replacement awards held by Discover Business Employees. Morgan Stanley and Discover further agree that, unless prohibited by applicable law, Morgan Stanley shall be responsible for all tax withholding and reporting obligations and shall pay the employer’s share of any social insurance tax obligations that arise in connection with the grant, vesting, exercise, transfer or other settlement of the equity awards held by Morgan Stanley Business Employees, Former Morgan Stanley Business Employees and Former Discover Business Employees. Morgan Stanley and Discover agree to enter into any necessary agreements regarding the subject matter of this Section 3.04 to enable them to fulfill their respective obligations hereunder, including but not limited to compliance with all applicable laws and regulations regarding the reporting, withholding or remitting of income and social insurance taxes.

Section 3.05. No Change of Control. For the avoidance of doubt, the Distribution will not constitute a “change of ownership” or a “change in control” or a termination of the employment of any employee for purposes of Morgan Stanley equity awards which are outstanding as of the Distribution Date.

ARTICLE 4

EMPLOYEE STOCK PURCHASE PLAN

Section 4.01. ESPP. Discover Business Employees and Former Discover Employees shall be treated for purposes of the Morgan Stanley ESPP as terminated Morgan Stanley employees as of and after the Distribution Date and shall be entitled to receive benefits in accordance with the provisions of the ESPP; provided, however, that Morgan Stanley may take such actions as it deems appropriate with respect to the shares of Discover Common Stock received by participant accounts under the Morgan Stanley ESPP as a result of the Distribution, including, without limitation, modification of the plan and notification to plan participants to facilitate (i) the retention of such shares within the participant’s accounts under the plan in lieu of an automatic distribution of such shares to participants and/or (ii) an election by participants to receive distribution of such shares or direct the sale of such shares and the distribution of the proceeds of such sale to the participant; provided, further that Discover

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Business Employees shall not, as a result of any such changes, be treated any less favorably under the ESPP than similarly situated Morgan Stanley Business Employees. Discover Business Employees shall not contribute to the Morgan Stanley ESPP after the Distribution Date, unless they shall become employed by Morgan Stanley following the Distribution Date.

ARTICLE 5

GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES

Section 5.01. General Principle.

(a) Cessation of Participation in Morgan Stanley Pension and Welfare Benefit Plans and Non-ERISA U.S. Benefit Arrangements. Morgan Stanley and Discover shall take any and all action as shall be necessary or appropriate so that participation in Morgan Stanley Pension and Welfare Benefit Plans and Morgan Stanley Non-ERISA U.S. Benefit Arrangements by all Discover Business Employees and Former Discover Employees shall terminate in connection with the Distribution as and when provided under this Agreement (or if not specifically provided under this Agreement, as of as of the close of business on the Distribution Date) and Discover and each Discover Subsidiary shall cease to be a participating employer under the terms of such Morgan Stanley Pension and Welfare Benefit Plans and Morgan Stanley Non-ERISA U.S. Benefit Arrangements as of such time.

Except as otherwise agreed below, Discover shall have all liabilities and all assets relating to employee benefits for Discover Business Employees and Former Discover Employees and Morgan Stanley shall have all liabilities and all assets relating to employee benefits for Morgan Stanley Business Employees and Former Morgan Stanley Employees.

(b) Assumption of Certain Obligations by Discover Group. Except as otherwise provided in this Agreement, effective as of the close of business on the Distribution Date, Discover shall assume or continue the sponsorship of, and none of Morgan Stanley or any Morgan Stanley Subsidiary shall have any further liability for or under, the following agreements, obligations and liabilities, and Discover shall indemnify Morgan Stanley and the Morgan Stanley Subsidiaries, and the officers, directors, and employees of each, and hold them harmless with respect to such agreements, obligations or liabilities:

(i) Agreements entered into between Morgan Stanley, its Subsidiaries or Affiliates and Discover Business Employees and Former Discover Employees;

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(ii) Agreements entered into between Morgan Stanley, its Subsidiaries or Affiliates and independent contractors providing services primarily to the Discover Business;

(iii) All collective bargaining agreements, collective agreements, trade union, or works council agreements entered into between Morgan Stanley, its Subsidiaries or Affiliates and any union, works council, or other body representing only Discover Business Employees and Former Discover Employees;

(iv) All wages, salary, incentive compensation, commissions, bonuses and results share payable to Discover Business Employees and Former Discover Employees on or after the Distribution Date, without regard to when such wages, salary, incentive compensation, commissions, bonuses and results share are or may have been earned;

(v) All moving expenses and obligations related to relocation, repatriation, transfers, or similar items incurred by or owed to Discover Business Employees and Former Discover Employees;

(vi) All immigration-related, visa, work application, or similar rights, obligations and liabilities related to Discover Business Employees and Former Discover Employees; and

(vii) All liabilities and obligations whatsoever of the Discover Business with respect to claims made by or with respect to Discover Business Employees and Former Discover Employees or any other persons who at any time prior to the Distribution Date had employment duties primarily related to the Discover Business relating to any employee benefit plan, program or policy not otherwise retained or assumed by Morgan Stanley pursuant to this Agreement, including such liabilities relating to actions or omissions of or by Discover or any officer, director, employee or agent thereof prior to the Distribution Date.

Section 5.02. Establishment of Discover Plans. Except as otherwise provided in this Agreement, sponsorship of Morgan Stanley benefit plans that cover solely Discover Business Employees and Former Discover Employees shall be transferred to Discover immediately prior to the Distribution Date. Morgan Stanley benefit plans that cover Discover Business Employees and Former Discover Employees and that also cover Morgan Stanley Business Employees and/or Former Morgan Stanley Employees shall be split into two separate plans, one covering Discover Business Employees and Former Discover Employees and one covering Morgan Stanley Business Employees and/or Former Morgan Stanley Employees, and sponsorship of the plans covering Discover Business Employees and Former Discover Employees shall be transferred to Discover immediately prior to the Distribution Date.

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Section 5.03. Transfer of Assets and Liabilities. To the extent necessary to effectuate the foregoing, Discover and Morgan Stanley shall, in compliance with applicable law, transfer assets (if any) and liabilities of any such benefit plans to each other, including under the following plans:

(i) the MS Pension Plan;

(ii) the MS 401(k) Plan;

(iii) the MS ESOP;

(iv) MS Excess Plan; and

(v) MS SERP.

Section 5.04. Exceptions. Notwithstanding Section 5.02, Section 5.03, or any other provision of this Agreement to the contrary, the following plans in which both Morgan Stanley and Discover participate shall not be split:

(i) health, welfare and wellness plans described below in Section 8.01;

(ii) the MS ESPP; and

(iii) fringe benefit plans.

In addition, no transfer of assets or liabilities shall be made with respect to such plans.

Section 5.05. Cooperation. Discover and Morgan Stanley and their respective Affiliates shall cooperate to share data necessary for each other to administer their respective benefit plans. Except as provided under any Transition Services Agreement(s) or in any secondment agreement that may be entered into in accordance with Section 2.01(d), neither Discover nor Morgan Stanley shall charge the other any fee for such cooperation. Except as set forth in the Distribution Agreement or any Transition Services Agreement(s), this provision shall not require Discover or Morgan Stanley to provide the other with direct access to such company’s databases or records. This provision shall continue in effect as long as necessary.

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Section 5.06. Service Credit.

(a) Service for Eligibility and Vesting. Except as otherwise provided in any other provision of this Agreement (i) for purposes of participation eligibility and vesting under the Discover Pension and Welfare Benefit Plans, Discover shall, and shall cause the Discover Subsidiaries to, give to each Discover Business Employee and Former Discover Employee service credit for any employment with Morgan Stanley or any Morgan Stanley Affiliate prior to the Distribution Date to the extent that such service is taken into account pursuant to the terms of the comparable Morgan Stanley plan and (ii) for purposes of participation eligibility and vesting under the Morgan Stanley Pension and Welfare Benefit Plans, Morgan Stanley shall, and shall cause the Morgan Stanley Subsidiaries to, give to each Morgan Stanley Business Employee and Former Morgan Stanley Employee service credit for any employment with Discover or any Discover Affiliate prior to the Distribution Date, except under the MS SERP and MS Excess Plan; and provided, further, that the foregoing vesting service credit under any plan subject to Section 401(a) of the Code will be limited to the minimum amount of service credit required to fully vest the employee under the relevant plan.

(b) Service for Benefit Purposes. Except as otherwise provided in any other provision of this Agreement (i) for purposes of benefit levels and accruals, post-retirement welfare benefit contribution rates and benefit commencement entitlements under the Discover Pension and Welfare Benefit Plans, Discover shall, and shall cause the Discover Subsidiaries to, give to each Discover Business Employee and Former Discover Employee service credit for any employment with Morgan Stanley or any Morgan Stanley Affiliate prior to the Distribution Date to the extent that such service is taken into account pursuant to the terms of the comparable Morgan Stanley plan and (ii) for purposes of benefit levels and accruals, post-retirement welfare benefit contribution rates and benefit commencement entitlements under the Morgan Stanley Pension and Welfare Benefit Plans, Morgan Stanley shall, and shall cause the Morgan Stanley Subsidiaries to, give to each Morgan Stanley Business Employee and Former Morgan Stanley Employee service credit for any employment with Discover or any Discover Affiliate prior to the Distribution Date (including under the MS Retiree Medical Plan and for determining the level of retirement credits under the post-July 1, 2007 retirement design under the MS Pension Plan).

(c) Evidence of Prior Service. Notwithstanding anything to the contrary, but subject to applicable law, upon reasonable request by one Party to the other Party, the first Party will provide to the other copies of any records available to the first Party to document such service, plan participation and membership and cooperate with the first Party to resolve any discrepancies or obtain any missing data for purposes of determining benefit eligibility, participation, vesting and calculation of benefits with respect to such Discover Business Employees and Former Discover Employees.

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Section 5.07. Plan Administration.

(a) Transition Services. Morgan Stanley will administer Discover’s benefit programs for a transitional period under the terms of the applicable Transition Services Agreement, which will include appropriate provisions relating to HIPAA.

(b) Administration. Discover shall, and shall cause the Discover Subsidiaries to, administer its benefit plans in a manner that does not jeopardize the tax favored status of the tax favored benefit plans maintained by Morgan Stanley and the Morgan Stanley Subsidiaries. Morgan Stanley shall, and shall cause the Morgan Stanley Subsidiaries to, administer its benefit plans in a manner that does not jeopardize the tax favored status of the tax favored benefit plans maintained by Discover and the Discover Subsidiaries.

(c) Participant Elections and Beneficiary Designations. All participant elections and beneficiary designations made under any Morgan Stanley plan prior to the date as of which assets or liabilities relating to that plan are transferred to Discover shall continue in effect under any plan maintained by Discover or any Discover Subsidiary to which liabilities are transferred pursuant to this Agreement until such time as the participant changes his or her elections or beneficiary designations in accordance with the procedures of the relevant plan, as the case may be.

ARTICLE 6

U.S. PENSION PLAN SPIN-OFF

Section 6.01. General Principle. Effective on or before the Distribution Date, Discover shall establish and adopt a defined benefit pension benefit plan and trust (the “Discover Pension Plan”) intended to be qualified under Code Section 401(a) and containing provisions that will provide to each Discover Business Employee and Former Discover Employee (and each alternate payee or beneficiary of such person) (the “Discover Pension Beneficiaries”) benefits identical to those accrued with respect to such person under the MS Pension Plan as of December 31, 2006 (the “Pension Measurement Date”). On or before the Distribution Date, Morgan Stanley shall (i) determine the Initial Transfer Amount (as defined below) and (ii) cause assets equal to the Initial Transfer Amount (adjusted as provided below) to be transferred to the trust under the Discover Pension Plan in the form described below (the “Initial Transfer”). As of the date of such transfer of the Initial Transfer Amount (the “Initial Transfer Date”), Discover shall commence making the required benefit payments under the terms of the Discover Pension Plan and shall assume all liabilities with respect to the payment of benefits previously accrued by the Discover Pension Beneficiaries under the MS Pension Plan. A Discover Business Employee shall not accrue

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benefits under the MS Pension Plan after the date on which such employee becomes eligible to participate under the Discover Pension Plan, unless such Discover Pension Beneficiary shall become employed by Morgan Stanley or a Morgan Stanley Subsidiary after such date. A Morgan Stanley Business Employee shall not accrue benefits under the Discover Pension Plan, unless such Morgan Stanley Business Employee shall become employed by Discover or a Discover Subsidiary. For purposes of the provisions in the MS Pension Plan bridging service for breaks in service of less than 12 months, a break in the service of an employee which includes a period of service as a Discover Business Employee or Former Discover Employee following the Distribution shall not be counted as a bridgeable break in service. Following the Initial Transfer Date (i) an enrolled actuary appointed by Morgan Stanley (the “MS Actuary”) shall determine the Final Pension Transfer Amount (as defined below) and (ii) a True-Up Adjustment shall be made with respect to the MS Pension Plan and the Discover Pension Plan, as provided below. The Parties shall use reasonable best efforts to cause the determination of the Final Pension Transfer Amount and the True-Up Adjustment to be completed as reasonably promptly as practicable, subject to the time frames established under Section 6.03, but in no event later than December 31, 2007. Before or promptly after the date hereof, Morgan Stanley and Discover shall file requests with the IRS for qualification determination letters under Code Section 401(a) with respect to the MS Pension Plan and the Discover Pension Plan and shall take any and all reasonable action, including the adoption of any amendments requested by the IRS, as shall be necessary to obtain such determination letters. The transfers hereunder shall occur prior to, but subject to the subsequent receipt of, favorable determination letters issued by the IRS with respect to the MS Pension Plan and Discover Pension Plan, copies of which shall be shared among Morgan Stanley and Discover promptly upon issuance.

Section 6.02. Determination and Transfer of Initial Transfer Amount. On or before the Distribution Date, with the assistance of the MS Actuary, Morgan Stanley shall establish and communicate to Discover the amount equal to 95% of the amount carried on Morgan Stanley pension plan books as attributable to benefits accrued by Discover Pension Beneficiaries under the MS Pension Plan as of the Pension Measurement Date, adjusted for contributions, distributions, trust gains and losses, payments and other appropriate items as of the Initial Transfer Date, all as estimated in good faith by Morgan Stanley (the “Initial Transfer Amount”). Following the determination of the Initial Transfer Amount by Morgan Stanley, Morgan Stanley shall cause to be transferred from the trust under the MS Pension Plan to the trust under the Discover Pension Plan assets having an aggregate Value (as defined below) equal to the Initial Transfer Amount. Such assets shall be in the form of cash, securities and other property, determined in accordance with the provisions below.

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Section 6.03. Determination of the Final Pension Transfer Amount.

(a) Calculation of the MS Actuary. Following the Distribution Date, the MS Actuary shall determine the Final Pension Transfer Amount, which shall be equal to the amount required to be transferred from the MS Pension Plan to the Discover Pension Plan in respect of the assumption by the Discover Pension Plan of the benefit obligations of the MS Pension Plan of benefits accrued by the Discover Pension Beneficiaries as of the Pension Measurement Date, as determined in accordance with Section 414(l) of the Code and the regulations thereunder and the actuarial assumptions and methods set forth in Schedule 6.03 hereof, as appropriately adjusted to reflect the following amounts arising after the Pension Measurement Date and before the True-Up Adjustment: (A) any distributions and contributions made in respect of the Discover Pension Beneficiaries, (B) administrative expenses of the MS Pension Plan reasonably allocable to the Discover Pension Beneficiaries, (C) earnings realized by the MS Pension Plan, (D) the net gain or loss (realized and unrealized) of the MS Pension Plan and (E) other appropriate items. Morgan Stanley and Discover shall each cause the appropriate amount of assets to be contributed to the MS Pension Plan prior to the Distribution Date so that the MS Pension Plan is deemed to be fully funded as of December 31, 2006 and no ERISA Section 4044 allocation is required. Promptly upon determination of the Final Pension Transfer Amount, Morgan Stanley shall cause the MS Actuary to provide to Discover a written statement of the Final Pension Transfer Amount, a summary of the calculation of such amount (the “Pension Statement”) and a written statement that the sum of the Initial Transfer Amount and the Final Transfer Amount satisfies the requirements of Section 414(l) of the Code.

(b) Resolution of Differences. Morgan Stanley shall provide Discover with all information reasonably necessary to review the calculation of the Final Pension Transfer Amount in all material respects and to verify that such calculations have been performed in a manner consistent with the terms of this Agreement. The determination of the Final Pension Transfer Amount by the MS Actuary shall be final, conclusive and binding for all purposes under this Agreement, unless Discover provides to Morgan Stanley, within thirty (30) days after receipt of the Pension Statement, a written objection prepared by an enrolled actuary retained by Discover setting forth in detail a reasonable basis for the conclusion that the Final Pension Transfer Amount set forth in the Pension Statement is understated by an amount in excess of 5%. Upon receipt of such objection, Morgan Stanley and Discover shall make a good faith attempt to resolve their dispute as to the Final Pension Transfer Amount. Should such dispute remain unresolved for more than thirty (30) days, Morgan Stanley and Discover shall promptly select and appoint a third enrolled actuary who is mutually satisfactory to both Parties. The third actuary shall recalculate the Final Pension Transfer Amount and if such recalculated amount exceeds the Final Pension Transfer Amount set forth in the Pension Statement by more than 5%, then such recalculated amount shall serve as the Final Pension Transfer Amount for all purposes under this Agreement. If such recalculated amount does not

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exceed the Final Pension Transfer Amount set forth in the Pension Statement by more than 5%, then for all purposes under this Agreement the Final Pension Transfer Amount shall be the Final Pension Transfer Amount as set forth in the Pension Statement. The recalculation of such third party actuary shall be completed within thirty (30) days of the retention of such third party actuary and shall be conclusive as to any dispute with respect to the Final Pension Transfer Amount, except as set forth in Section 6.06 below. The cost of such third party actuary shall be divided equally between Morgan Stanley and Discover. Each Party shall be responsible for the cost of its own actuary.

Section 6.04. True-Up Adjustment. The following transfer shall be made promptly after the date that the Final Pension Transfer Amount is determined as set forth above: (A) if the Final Pension Transfer Amount exceeds the Initial Transfer Amount, Morgan Stanley shall promptly cause to be transferred from the MS Pension Plan trust to the Discover Pension Plan trust assets having a Value equal to such excess and (B) if the Initial Transfer Amount exceeds the Final Pension Transfer Amount, Discover shall promptly cause to be transferred from the Discover Pension Plan trust to the MS Pension Plan trust assets having a Value equal to such excess.

Section 6.05. Form and Selection of Assets to be Transferred. The assets to be transferred in the Initial Transfer and the True-Up Adjustment Assets will be transferred in-kind or in cash pro rata from each investment manager under the transferring plan in a manner that represents, as closely as commercially practical, a pro rata portion of each asset and position held by the manager as of the date of such transfer, except that reasonable adjustments shall be made where Morgan Stanley determines such transfers cannot reasonably be made by the MS Pension Plan due to investment manager account minimums or where other considerations prevent such pro rata transfers or render such pro rata transfers impractical. Notwithstanding the foregoing, with respect to long duration fixed income investments to be transferred from the MS Pension Plan to the Discover Pension Plan (i) assets will be transferred from no more than two of the four current long duration fixed income managers under the MS Pension Plan, to be determined by Morgan Stanley and reasonably acceptable to Discover and (ii) long duration fixed income investments to be transferred shall be selected so as to be reasonably representative based on the relative demographics of the Morgan Stanley Business Employees and Former Morgan Stanley Employees and the Discover Pension Beneficiaries, as determined by Morgan Stanley. For purposes of the Agreement, the “Value” of all pension assets shall be the value of such assets as determined in good faith by Morgan Stanley based on all relevant information known to Morgan Stanley at the time of such determination, including the most recent account statements or schedules of asset values provided to Morgan Stanley by any service providers maintaining or overseeing any such assets or any investment vehicles which represent or hold the relevant plan assets. Morgan Stanley shall select the assets to be transferred and provide a schedule of such assets to

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Discover 14 days prior to the transfer of such assets. Discover shall communicate to Morgan Stanley any objection to the schedule of the assets to be transferred promptly, and upon receipt by Morgan Stanley of such objection, Morgan Stanley and Discover shall make a good faith attempt to resolve their dispute as to the assets to be transferred within the period remaining prior to the transfer of the assets. Should such dispute remain unresolved upon the asset transfer date, the assets shall be transferred in accordance with the schedule provided by Morgan Stanley. Any assets that are liquidated prior to transfer shall be reduced by the asset liquidation expenses actually incurred.

Section 6.06. Adjustment Payment for Data Errors. If, after the completion of the True-Up Adjustment, critical data used in the determination of the Final Pension Transfer Amount, the True-Up Adjustment or the Value of assets for purposes of the transfers under this Article 6 are determined to have been erroneous, the Final Pension Transfer Amount and True-Up Adjustment shall be recalculated using corrected data (but otherwise applying the same methodologies used to determine the Final Pension Transfer Amount) and upon completion of the recalculation Discover shall pay to Morgan Stanley, or Morgan Stanley shall pay to Discover, as the case may be, an amount necessary to reflect the corrected data; provided that no such correction payment shall be made unless the aggregate of all such correction adjustments is greater than 1% of the Final Pension Transfer Amount used for purposes of the original True-Up Adjustment. Any payment under this Section 6.06 shall be made by wire transfer in readily available funds. Notwithstanding the foregoing provisions of this Section 6.06, no payment or corrective adjustment shall be made by either Party with respect to an error unless the Party seeking such payment or adjustment has provided written notice identifying the specific error to the other Party prior to June 30, 2008.

ARTICLE 7

U.S. 401(K) PLAN AND ESOP

Section 7.01. General Principle. Effective on or before the Distribution Date, Discover shall establish and adopt a qualified employee cash or deferred arrangement under Code Section 401(k) (the “Discover 401(k) Plan”) containing a Discover common stock fund intended to be an employee stock ownership plan and a Morgan Stanley common stock fund, and intended to be qualified under Code Section 401(a) and containing provisions that will provide benefits for each Discover Business Employee and Former Discover Employee (and each beneficiary and alternate payee of such person) (the “Discover DC Plan Beneficiaries”) identical to those in effect for the Discover DC Plan Beneficiaries as of the date of transfer of assets and liabilities with respect to such plan (as described below). Before or as soon as practicable after the Distribution Date, the assets and liabilities relating to the Discover DC Plan Beneficiaries under the MS 401(k) Plan and the MS ESOP shall be transferred to the Discover 401(k)

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Plan. Discover Business Employees shall not make or receive additional contributions under the MS 401(k) Plan and the MS ESOP after the effective date of the Discover 401(k) Plan, unless such Discover Business Employee shall become employed by Morgan Stanley or a Morgan Stanley Subsidiary after such date. A Morgan Stanley Business Employee shall not participate in the Discover 401(k) Plan after the effective date of the Discover 401(k) Plan, unless such Morgan Stanley Business Employee shall become employed by Discover or a Discover Subsidiary after such date.

Section 7.02. Transfer of Accounts. Effective before or as soon as practical following the Distribution Date, but in no event later than six months following the Distribution Date, Morgan Stanley shall cause to be transferred from trusts under the MS 401(k) Plan and the MS ESOP to the trust under the Discover 401(k) Plan the aggregate amount that is credited to the accounts of the Discover DC Plan Beneficiaries (disregarding any participant loans from the plans) as of the date of transfer, but not less than or more than permitted by law, as determined by Morgan Stanley. The transfer shall be an in-kind transfer, subject to the reasonable consent of the trustee of the Discover 401(k) Plan and shall include the transfer of the aggregate assets held in the accounts relating to each Discover DC Plan Beneficiary under the MS 401(k) Plan and MS ESOP and any participant loan notes held under such plans. Any assets that are liquidated prior to transfer shall be reduced by the asset liquidation expenses, such as commissions or early withdrawal penalties, actually incurred. Morgan Stanley shall cause the Discover 401(k) Plan to allocate the portion of any forfeiture account under the MS 401(k) Plan that relates to forfeiture by Former Discover Employees consistent with Morgan Stanley’s past practice regarding allocation of forfeitures under the MS 401(k) Plan. Before or promptly after the date hereof, Morgan Stanley and Discover shall file requests with the IRS for qualification determination letters under Code Section 401(a) and 401(k) (as applicable) with respect to the MS 401(k) Plan, MS ESOP and Discover 401(k) Plan and shall take any and all reasonable actions, including the adoption of amendments requested by the IRS, as shall be necessary to obtain such determination letters. The transfers under this Section 7.02 shall occur prior to, but subject to the subsequent receipt of favorable determination letters issued by the IRS with respect to the MS 401(k) Plan, MS ESOP, Discover 401(k) Plan, copies of which shall be shared among Morgan Stanley and Discover promptly upon issuance.

Section 7.03. Funding of 2007 Matching Contribution. Discover shall fund and allocate the full amount of any 2007 matching contribution accrued under the terms of the MS 401(k) Plan and MS ESOP to eligible Discover DC Plan Beneficiaries under the Discover 401(k) Plan within the time permitted by law (determined based on the terms of the MS 401(k) Plan and MS ESOP immediately prior to the transfer to the Discover 401(k) Plan as if the transfer to the Discover 401(k) Plan did not occur, but paid and contributed by Discover to the Discover 401(k) Plan).

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Section 7.04. Continuing Obligations Regarding Proxy Statement, Tender Offers and Similar Rights and Restrictions. Discover shall provide all proxy materials to the trustee of the MS 401(k) Plan and MS ESOP to the extent necessary to pass through the voting rights on any Discover shares held in the MS 401(k) Plan and MS ESOP. Morgan Stanley shall provide all proxy materials to participants in the Discover 401(k) Plan to the extent necessary to pass through the voting rights on any Morgan Stanley shares held in the Discover 401(k) Plan.

ARTICLE 8

U.S. WELFARE BENEFIT PLANS

Section 8.01. General Principle and Exceptions.

(a) General Principle. Except as provided below, on or about May 31, 2007, liabilities relating to Discover Business Employees and Former Discover Employees shall be transferred to newly established Discover welfare benefit plans that shall contain the same benefit provisions as in effect for Discover Business Employees and Former Discover Employees immediately prior to such date, and Discover Business Employees and Former Discover Employees shall cease to participate in the Morgan Stanley welfare benefit plans. No assets shall be transferred on account of any such plans. Welfare benefit plans include health, welfare, and wellness benefits plans (including, medical, dental, prescription drug and vision benefits, life insurance, accidental death and disability insurance, business travel accident insurance, disability (STD and LTD), long term care, flexible spending accounts, severance, Employee Assistance Plan, wellness and similar types of plans). Discover Business Employees and Former Discover Employees shall not participate in Morgan Stanley welfare benefit plans following the effective date of the Discover plans described in this section, unless they shall become employed by Morgan Stanley after such date. Morgan Stanley Business Employees and Former Morgan Stanley Employees shall not participate in any Discover welfare benefit plans following the effective date of such plans, unless they shall become employed by Discover after such date.

(b) Exceptions. The following provisions shall supersede the provisions of Section 8.01(a) to the extent that the provisions of Section 8.01(a) are inconsistent with the following provisions:

(i) Discover Business Employees and Former Discover Employees shall continue to be covered under the Mayo Clinic and Medical Decision Support wellness plans (except Harris Health Trends, which coverage shall terminate on or about May 31, 2007);

(ii) Discover Business Employees and Former Discover Employees who participate in the Winged Keel portion of the Morgan Stanley LTD plan as of May 31, 2007 shall be permitted to port those policies and maintain them on an individual basis;

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(iii) Discover Business Employees and Former Discover Employees shall cease to be covered under the Morgan Stanley executive disability and life insurance plans on or about May 31, 2007, except that employees already contributing to an executive disability or life insurance policy shall be permitted to continue such policy on an individual basis;

(iv) Discover Business Employees and Former Discover Employees shall cease to be covered under the Morgan Stanley severance plan as of the Distribution Date;

(v) Morgan Stanley Business Employees and Former Morgan Stanley Employees shall cease to be covered under the Morgan Stanley SelectHealth Medical Option no later than the Distribution Date, the CMO contract for which shall be transferred to Discover effective no later than the Distribution Date;

(vi) Discover Business Employees and Former Discover Employees shall cease to be covered under the Morgan Stanley Kaiser Medical Options as of the Distribution Date; and

(vii) Discover Business Employees and Former Discover Employees shall cease to be covered under the Morgan Stanley VEBA as of the Distribution Date.

Section 8.02. Establishment of Discover Plans.

(a) General Rule. Discover Business Employees and Former Discover Employees shall cease to participate in the Morgan Stanley welfare benefit plans on or about May 31, 2007. Discover shall indemnify Morgan Stanley for any liability relating to Discover Business Employees or Former Discover Employees on account of any such plan.

(b) Treatment of Claims Incurred. Morgan Stanley shall retain the liability for payment of all covered claims (including medical, dental, life insurance and long-term disability) and expenses incurred by any Discover Business Employee and beneficiaries thereof under the Morgan Stanley Welfare Plans and Morgan Stanley Non-ERISA U.S. Benefit Arrangements, and Discover shall not assume nor shall it be responsible for any liability with respect to any such claims or expenses. Discover shall have the liability only for covered claims incurred under the terms of the Discover Welfare Plans and Discover Non-ERISA U.S. Benefit Arrangements.

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(c) Credit for Deductibles and Other Limits. With respect to each Discover Business Employee and Former Discover Employee, and each covered dependent, beneficiary, or other related party of such individual (the “Discover Welfare Plan Participants”), the Discover welfare benefit plans will give credit in the year of the Distribution Date for any amount paid under the comparable type Morgan Stanley plan by such Discover Welfare Plan Participant in the year of the Distribution Date toward deductibles, out-of-pocket maximum, or other, similar limitations to the extent such amounts are taken into account under the comparable type Morgan Stanley plan. For purposes of any life-time maximum out-of-pocket limit on expenses paid by a covered participant, the Discover welfare plans will recognize any expenses incurred by a Discover Welfare Plan Participant prior to the Distribution to the same extent such expenses would be recognized in respect of an active plan participant under the comparable type Morgan Stanley plan.

(d) COBRA. Effective as of the date of cessation of participation in the Morgan Stanley welfare benefit plans by the Discover Business Employees and Former Discover Employees (as provided above), Discover shall assume and satisfy all requirements under COBRA with respect to all Discover Business Employees and Former Discover Employees and their qualified beneficiaries, including for individuals who are already receiving benefits as of such date under COBRA.

(e) Disabled Persons. The Parties intend that any Employee who has, prior to the Distribution Date, become eligible to receive any long-term disability benefits pursuant to any third-party insurance policy applicable under any welfare benefit plan shall continue to be eligible to receive such benefits in accordance with the terms of such plan and policy.

Section 8.03. No Transfer of Assets. No assets held in the Morgan Stanley VEBA, the Morgan Stanley short term disability trust or any other trust, account or other funding vehicle shall be transferred between or on account of the Discover and Morgan Stanley welfare benefit plans, unless any such trust, account or funding vehicle shall have material net assets as of the Distribution Date, in which case the Parties shall negotiate in good faith to determine an equitable allocation of such assets.

Section 8.04. Insurance Contracts. To the extent any Morgan Stanley welfare benefit plan is funded through the purchase of an insurance contract, Morgan Stanley and Discover will cooperate and use their reasonable best efforts to “clone” such insurance contracts for Discover and to maintain any pricing discounts or other preferential terms for both Morgan Stanley and Discover through the end of the term of the applicable Transition Services Agreement. Morgan Stanley shall not be liable for failure to obtain such pricing discounts or other preferential terms for Discover. The cost of “cloning”, including any

26

increases in premiums, charges or administrative fees relating to Discover Business Employees and Former Discover Employees shall be the obligation of Discover.

Section 8.05. Third Party Vendors. Except as provided below, to the extent any Morgan Stanley welfare benefit plan is administered by a third-party vendor, Morgan Stanley and Discover will cooperate and use their best efforts to “clone” any contract with such third-party vendor for Discover and to maintain any pricing discounts or other preferential terms for both Morgan Stanley and Discover. Morgan Stanley shall not be liable for failure to obtain such pricing discounts or other preferential terms for Discover. The cost of “cloning”, including any increases in premiums, charges or administrative fees relating to Discover Business Employees and Former Discover Employees shall be the obligation of Discover. Notwithstanding the foregoing, the record keeping and administration contract between Morgan Stanley and ACS and the consulting agreements between Morgan Stanley and Mercer HR Consulting shall not be cloned.

ARTICLE 9

FRINGE BENEFIT AND OTHER U.S. PLANS AND PROGRAMS

Section 9.01. General Principle and Exceptions.

(a) General Principle. Except as otherwise provided under this Agreement, effective on or about May 31, 2007, Discover Business Employees and Former Discover Employees shall not be eligible to participate in any of the following Morgan Stanley fringe benefit plans:

(i) the Morgan Stanley baby spoon program;

(ii) the Morgan Stanley service award program;

(iii) the Morgan Stanley adoption assistance program;

(iv) the Morgan Stanley commuter benefits plan;

(v) the Morgan Stanley legal assistance plan; and

(vi) any other plan, policy or arrangement of Morgan Stanley or a Morgan Stanley Subsidiary providing fringe benefits to employees or former employees.

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Section 9.02. Transition of Coverage Under Plans and Programs.

(a) Commuter Benefit Plan. Effective as of June 1, 2007, Discover shall adopt a commuter benefits plan for Discover Business Employees with substantially the same terms as in effect as of May 31, 2007 under the Morgan Stanley commuter benefits plan. No commuter benefits will paid to Discover Business Employees in respect of commutation occurring after the Distribution Date.

(b) Legal Assistance Plan. Legal assistance benefits will not be provided to Discover Business Employees under the Morgan Stanley legal assistance program in respect of legal services after the Distribution Date; provided, however, that if a Discover Business Employee has begun a representation under the Morgan Stanley legal assistance program on or prior to May 31, 2007, such representation shall be covered under the Morgan Stanley legal assistance program through December 31, 2007 in accordance with the terms of that program.

(c) Service Award Program. Discover Business Employees who have reached their milestone anniversary on or prior to the date of the Distribution Date shall be entitled to receive a gift under the Morgan Stanley Service Award Program. Discover shall reimburse Morgan Stanley for the cost of providing such benefit in an amount determined consistently with the cost allocation method in effect prior to the Distribution Date. Discover Business Employees who reach their milestone anniversary after the Distribution Date shall not be eligible to receive a gift under the Morgan Stanley Service Award Program.

(d) Adoption Assistance Program. Discover Business Employees who have completed an adoption that is eligible under the Morgan Stanley Adoption Assistance Program on or prior to the Distribution Date shall be entitled to benefits under that program. Discover shall reimburse Morgan Stanley for the cost of providing such benefits in an amount determined consistently with the cost allocation method in effect prior to the Distribution Date. Discover Business Employees who complete an adoption after the Distribution Date shall not be eligible to receive benefits under the Morgan Stanley adoption assistance program.

(e) Baby Spoon Program. Discover Business Employees who are employed as of Distribution Date and have given birth to a baby or completed an eligible adoption prior to the Distribution Date shall be entitled to receive a baby spoon under the Morgan Stanley baby spoon program. Discover shall reimburse Morgan Stanley for the cost of providing such benefit in an amount determined consistently with the cost allocation method in effect prior to the Distribution Date. Discover Business Employees who give birth or complete adoption of a child after the Distribution Date shall not be eligible to receive a baby spoon under the Morgan Stanley baby spoon program.

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ARTICLE 10

WORKERS COMPENSATION AND UNEMPLOYMENT COMPENSATION

Section 10.01. Allocation of Workers Compensation and Unemployment Claims. Discover shall have and assume the obligations for all claims and liabilities relating to workers compensation and unemployment compensation benefits for all Discover Business Employees and Former Discover Employees. Morgan Stanley shall have and assume the obligations for all claims and liabilities relating to workers compensation and unemployment compensation benefits for all Morgan Stanley Business Employees and Former Morgan Stanley Employees. Discover and Morgan Stanley shall make reasonable efforts to provide that workers compensation and unemployment insurance costs are not adversely affected for either of them by reason of the Distribution.

ARTICLE 11

COMPENSATION MATTERS AND GENERAL BENEFIT AND EMPLOYEE MATTERS

Section 11.01. Restrictive Covenants in Employment and Other Agreements. To the fullest extent permitted by the agreements and applicable law, Morgan Stanley shall assign, or cause its Affiliates to assign, to Discover or one of its Affiliates as designated by Discover all agreements containing restrictive covenants (including but not limited to confidentiality and non-competition provisions) between Morgan Stanley (or a Morgan Stanley Affiliate) and a Discover Business Employee, with such assignment to be effective no later than the Distribution Date. To the extent that assignment of such agreements is not permitted, following the Distribution, Discover and its Subsidiaries and Affiliates shall be considered to be successors to Morgan Stanley and its Subsidiaries and Affiliates for purposes of, and third-party beneficiaries with respect to, all agreements containing restrictive covenants (including but not limited to confidentiality and non-competition provisions) between Morgan Stanley (or a Morgan Stanley Subsidiary or Affiliate) and Discover Business Employees and between Morgan Stanley (or a Morgan Stanley Subsidiary or Affiliate) and Morgan Stanley Employees whom Discover reasonably determines have substantial knowledge of the Discover Business, such that each of Morgan Stanley, Discover and their respective Subsidiaries and Affiliates shall all enjoy the rights and benefits under such agreements (including, without limitation, rights and benefits as a third-party beneficiary), with respect to such Party’s and its respective Subsidiaries’ and Affiliates’ business operations; provided, however, that (a) in no event shall Morgan Stanley be permitted to enforce the restrictive covenant agreements against Discover Business Employees for action taken in

29

their capacity as employees of Discover or its Subsidiaries, and (b) in no event shall Discover be permitted to enforce the restrictive covenants agreements of Morgan Stanley Business Employees for action taken in their capacity as employees of Morgan Stanley or its Subsidiaries.

Section 11.02. Non-Solicitation of Employees. For a period of eighteen months following the Distribution (i) neither Discover nor any Discover Subsidiary shall employ or knowingly solicit for employment any individual who is, or was within the six-month period prior to the solicitation, an employee of Morgan Stanley or any Morgan Stanley Affiliate, without the written consent of Morgan Stanley and (ii) neither Morgan Stanley nor any Morgan Stanley Subsidiary shall employ or knowingly solicit for employment any individual who is, or was within the six-month period prior to the solicitation, an employee of Discover or any Discover Affiliate, without the written consent of Discover. The foregoing shall not apply (a) to any individual whose employment was involuntarily terminated by the relevant former employer or (b) with respect to general solicitations made through print, media or internet advertisements that are not directed or focused on such individuals.

Section 11.03. Severance. (a) Effective as of the Distribution Date, Discover may establish one or more severance plans and policies with respect to Discover Business Employees as Discover deems appropriate in its discretion. Morgan Stanley shall have no liability or obligation under any Morgan Stanley severance plan or policy with respect to Discover Business Employees who remain employed or whose employment terminates on or after the Distribution Date.

(b) Following the Distribution Date, Morgan Stanley shall continue to be responsible for administering all payments and benefits under the applicable Morgan Stanley severance policies or any termination agreements with Former Discover Employees whose employment has terminated prior to the Distribution Date for an eligible reason under such policies or in accordance with such agreements; provided that Discover shall reimburse, and shall indemnify Morgan Stanley, and its Subsidiaries and Affiliates, for any amounts payable to Former Discover Employees under such policies, and Discover shall be charged for the continuation of welfare plan benefits to such Former Discover Employees and their dependents on and after the Distribution Date on terms consistent with the methodology specified in the appropriate costs and reimbursement provisions of the applicable Transition Services Agreement.

(c) Morgan Stanley agrees to indemnify Discover against any loss or liability resulting from Morgan Stanley’s gross negligence, willful misconduct or bad faith in the administration of its severance policies or any termination agreement with a Discover Business Employee.

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(d) It is not intended that any Discover Business Employee will be eligible for termination or severance payments or benefits from Morgan Stanley or its Subsidiaries or Affiliates as a result of the transfer or change of employment from Morgan Stanley to Discover or their respective Subsidiaries or Affiliates. Notwithstanding the preceding sentence, in the event that any such termination or severance payments or benefits become payable on account of such transfer, change or the refusal of a Discover Business Employee to accept employment with Discover, Discover shall indemnify Morgan Stanley, and its Subsidiaries and Affiliates, for the amount of such termination or severance payments or benefits.

Section 11.04. Accrued Vacation Days Off. Discover shall recognize and assume all liability for all vacation, holiday, sick leave, flex days, personal days and Paid-Time Off, including banked time, accrued by Discover Business Employees as of the Distribution Date and Discover shall credit each Discover Business Employee with such accrual.

Section 11.05. Leaves of Absence. Discover will continue to apply the leave of absence policies maintained by Morgan Stanley to inactive Discover Business Employees who are on an approved leave of absence as of the Distribution Date. Leaves of absence taken by Discover Business Employees prior to the Distribution Date shall be deemed to have been taken as employees of Discover.

Section 11.06. Morgan Stanley Assets. Except as otherwise set forth herein, Morgan Stanley shall retain all reserves, bank accounts, trust funds or other balances maintained with respect to Morgan Stanley Non-ERISA U.S. Benefit Arrangements.

ARTICLE 12

GENERAL PROVISIONS

Section 12.01. Preservation of Rights to Amend. The rights of Morgan Stanley or Discover to amend or terminate any plan, program, or policy referred to herein shall not be limited in any way by this Agreement.

Section 12.02. Confidentiality. Each Party agrees that the specific terms and conditions of this Agreement and any information conveyed or otherwise received by or on behalf of a Party in conjunction herewith are confidential and are subject to the terms of the confidentiality provisions set forth in the Distribution Agreement.

Section 12.03. Administrative Complaints/Litigation. Except as otherwise provided in this Agreement, as of and after the Distribution Date, Discover shall assume, and be solely liable for, the handling, administration, investigation and

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defense of actions, including, without limitation, ERISA, occupational safety and health, employment standards, union grievances, wrongful dismissal, discrimination or human rights and unemployment compensation claims, asserted at any time against Morgan Stanley, or Discover or their respective Affiliates by any Discover Business Employee or Former Discover Employee (including any dependent or beneficiary of any such Employee) or any other person, to the extent such actions or claims arise out of or relate to employment or the provision of services (whether as an employee, contractor, consultant, or otherwise) to or with the Discover Business. To the extent that any legal action relates to a putative or certified class of plaintiffs, which includes both Morgan Stanley Business Employees (or Former Morgan Stanley Employees) and Discover Business Employees (or Former Discover Employees) and such action involves employment or benefit plan related claims, reasonable costs and expenses incurred by the Parties in responding to such legal action shall be allocated among the Parties equitably in proportion to a reasonable assessment of the relative proportion of Morgan Stanley Business Employees (or Former Morgan Stanley Employees) and Discover Business Employees (or Former Discover Employees) included in or represented by the putative or certified plaintiff class. The procedures contained in the indemnification and related litigation cooperation provisions of the Distribution Agreement shall apply with respect to each Party’s indemnification obligations under this Section 12.03.

Section 12.04. Reimbursement and Indemnification. The Parties hereto agree to reimburse each other, within 30 days of receipt from the other Party of reasonable verification, for all costs and expenses which each may incur on behalf of the other as a result of any of the Welfare Plans, Pension Plans and Non-ERISA U.S. Benefit Arrangements and, as contemplated by Section 11.03, any termination or severance payments or benefits. All liabilities retained, assumed or indemnified against by Discover pursuant to this Agreement, and all liabilities retained, assumed or indemnified against by Morgan Stanley pursuant to this Agreement, shall in each case be subject to the indemnification provisions of the Distribution Agreement. Notwithstanding anything to the contrary, no provision of this Agreement shall require Discover or any Discover Subsidiary to pay or reimburse to Morgan Stanley or any Morgan Stanley Affiliate any benefit-related cost item that Discover or any Discover Subsidiary has previously paid or reimbursed to Morgan Stanley or any Morgan Stanley Affiliate.

Section 12.05. Costs of Compliance with Agreement. Except as otherwise provided in this Agreement or any other Distribution Document, each Party shall pay its own expenses in fulfilling its obligations under this Agreement.

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ARTICLE 13

MISCELLANEOUS

Section 13.01. Notices. Any notice, instruction, direction or demand under the terms of this Agreement required to be in writing shall be duly given upon delivery, if delivered by hand, facsimile transmission, or mail, to the following addresses:

If to Morgan Stanley to:

Morgan Stanley

[    ]

If to Discover to:

Discover

[    ]

or to such other addresses or telecopy numbers as may be specified by like notice to the other Party. All such notices, requests and other communications shall be deemed given, (a) when delivered in person or by courier or a courier services, (b) if sent by facsimile transmission (receipt confirmed) on a Business Day prior to 5 p.m. in the place of receipt, on the date of transmission (or, if sent after 5 p.m., on the following Business Day) or (c) if mailed by certified mail (return receipt requested), on the date specified on the return receipt.

Section 13.02. Amendments; No Waivers. From and after the Distribution, any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Morgan Stanley and Discover, or in the case of a waiver, by the Party against whom the waiver is to be effective.

(a) No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 13.03. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns; provided that neither Party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other Party hereto. If any Party or any of its successors or permitted assigns (i) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its

33

properties and assets to any Person, then, and in each such case, proper provisions shall be made so that the successors and assigns of such Party shall assume all of the obligations of such Party under the Distribution Documents.

Section 13.04. Governing Law. This Agreement shall be construed in accordance with and governed by the law of the State of New York, without regard to the conflicts of laws rules thereof.

Section 13.05. Counterparts; Effectiveness; Third-Party Beneficiaries. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. Until and unless each party has received a counterpart hereof signed by the other party hereto, this Agreement shall have no effect and no party shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication). Neither this Agreement nor any provision hereof is intended to confer any rights, benefits, remedies, obligations, or liabilities hereunder upon any Person other than the parties hereto and their respective successors and permitted assigns. No Employee or other current or former employee of Morgan Stanley or Discover or any Subsidiary or Affiliate of either (or his/her spouse, dependent or beneficiary), or any other person not a party to this Agreement, shall be entitled to assert any claim hereunder. Without limiting the foregoing, the provisions of this Agreement are not intended to, nor shall they confer upon any Person other than the Parties hereto any right or expectation as to the adoption, amendment, maintenance, continuation, operation or funding of any employee benefit plan, policy or arrangement.

Section 13.06. Entire Agreement. This Agreement and the other Distribution Documents constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter hereof and thereof. No representation, inducement, promise, understanding, condition or warranty not set forth herein or in the other Distribution Documents has been made or relied upon by any party hereto. Regardless of anything else contained herein, the parties do not intend for this Agreement to amend any employee benefit plans or arrangements.

Section 13.07. Jurisdiction. Any Action seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in the United States District Court for the Southern District of New York or any other New York State court sitting in New York County, and each of the Parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent

34

permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any Party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each Party agrees that service of process on such Party as provided in Section 13.01 shall be deemed effective service of process on such Party.

Section 13.08. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 13.09. Severability. If any one or more of the provisions contained in this Agreement should be declared invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained in this Agreement shall not in any way be affected or impaired thereby so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such a declaration, the Parties shall modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner so that the transactions contemplated hereby are consummated as originally contemplated to the fullest extent possible.

Section 13.10. Survival. All covenants and agreements of the Parties contained in this Agreement shall survive the Distribution Date indefinitely, unless a specific survival or other applicable period is expressly set forth herein.

Section 13.11. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

Section 13.12. Specific Performance. Each Party to this Agreement acknowledges and agrees that damages for a breach or threatened breach of any of the provisions of this Agreement would be inadequate and irreparable harm would occur. In recognition of this fact, each Party agrees that, if there is a breach or threatened breach, in addition to any damages, the other nonbreaching Party to this Agreement, without posting any bond, shall be entitled to seek and obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction, attachment, or any other equitable remedy which may then be available to obligate the breaching Party (i) to perform its obligations under this Agreement or (ii) if the breaching Party is unable, for whatever reason, to perform those obligations, to take any other actions as are necessary, advisable or appropriate to give the other Party to this Agreement the

35

economic effect which comes as close as possible to the performance of those obligations (including, but not limited to, transferring, or granting liens on, the assets of the breaching Party to secure the performance by the breaching Party of those obligations).

Section 13.13. Limited Liability. Notwithstanding any other provision of this Agreement, no individual who is a stockholder, director, employee, officer, agent or representative of Discover or Morgan Stanley, nor any individual employed or previously employed by Discover or Morgan Stanley or their respective Affiliates and serving or previously serving as a fiduciary of any benefit plan of Discover or Morgan Stanley or their respective Affiliates (or any body consisting of such individuals), in his, her or its capacity as such, shall have any liability in respect of or relating to the covenants or obligations of Discover or Morgan Stanley under this Agreement and, to the fullest extent legally permissible, each of Discover and Morgan Stanley, for itself and its respective stockholders, directors, employees, officers and Affiliates, waives and agrees not to seek to assert or enforce any such liability that any such Person otherwise might have pursuant to applicable law.

Section 13.14. Mutual Drafting. This Agreement shall be deemed to be the joint work product of Morgan Stanley and Discover and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable.

Section 13.15. Operating Committee. (a) The parties shall use an operating committee (the “Operating Committee”) to implement the terms of this Agreement. Each of Morgan Stanley and Discover shall appoint three employees to the Operating Committee and designate one of such employees to be such party’s lead representative (each, a “Lead Representative”) for the purpose of fielding queries from representatives of the relevant Group concerning the implementation and ongoing operation of this Agreement. In addition, the Lead Representatives shall have such other functions and responsibilities as may be determined by the Operating Committee from time to time. The Operating Committee will oversee the implementation and ongoing operation of this Agreement and shall attempt in good faith to resolve disputes between the parties. Each of the parties shall have the right to (i) replace one or more of its Operating Committee members at any time with employees or officers with comparable knowledge, expertise and decision-making authority and (ii) designate an alternative Lead Representative.

(b) The Operating Committee shall act by a majority vote of its members. If the Operating Committee fails to make a decision, resolve a dispute or agree upon any necessary action, the unresolved matter shall be referred to [Name] of Morgan Stanley and [Name] of Discover, who shall attempt in good faith within a period of 14 days to conclusively resolve any such matter.

(c) During the term of this Agreement, the full Operating Committee shall meet at such times as may be required by either Lead Representative. Meetings of the Operating Committee may be in person or via teleconference and shall be convened and held in accordance with such procedures as the Operating Committee may determine from time to time.

Section 13.16. Effect if Distribution Does Not Occur. Notwithstanding anything in this Agreement to the contrary, if the Distribution Agreement is terminated prior to the Distribution Date, this Agreement shall be of no further force and effect.

Section 13.17. Corporate Authorization. The officers of Morgan Stanley and Discover are hereby authorized, empowered and directed, in the name and on behalf of each of Morgan Stanley and Discover, respectively, to take or cause to be taken all such further action, to execute and deliver or cause to be executed and delivered all such further agreements, certificates, instruments and documents, to make or cause to be made all such filings with governmental or regulatory authorities, and to pay or cause to be paid all such fees and expenses, in each case which shall in such officers’ judgment be deemed necessary, proper or advisable to effect and carry out the intent of this Agreement, such determination to be evidenced conclusively by such officers’ execution and delivery thereof or taking of action in respect thereto.

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names by a duly authorized officer as of the date first written above.

MORGAN STANLEY

By:

Name:

Title:

DISCOVER FINANCIAL SERVICES

By:

Name:

Title:

37

Schedule 1.01(i)

Employees Employed Outside the U.S. but Covered

Under U.S. Compensation and Benefit Plans

[Reserved]

1

Schedule 1.01(ii)

Employees Located Within the U.S.

but Employed by U.K. Entities

[Reserved]

1

Schedule 2.04(c)

Employee Data

[Reserved]

1

Schedule 6.03

Assumptions and Methods to be

Used for the Calculation of the Final Pension Transfer Amount

[Reserved]

1

EX-10.3

Exhibit 10.3

TRANSITION SERVICES AGREEMENT

by and between

MORGAN STANLEY

and

DISCOVER FINANCIAL SERVICES

Dated as of [                    ], 2007

TABLE OF CONTENTS

	PAGE
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions	1
ARTICLE 2
PURCHASE AND SALE OF SERVICES
Section 2.01. Purchase and Sale of Services	6
Section 2.02. Subsidiaries	6
Section 2.03. No Additional Services	6
Section 2.04. Services Provided by Recipient	6
Section 2.05. Third Party Licenses and Consents	7
ARTICLE 3
SERVICE COSTS; OTHER CHARGES
Section 3.01. Service Costs Generally	7
Section 3.02. Taxes	7
Section 3.03. Invoicing and Settlement of Costs	8
ARTICLE 4
THE SERVICES
Section 4.01. Standards of Service	8
Section 4.02. Changes to the Services	9
Section 4.03. Management of Services By Provider	9
Section 4.04. Operating Committee	9
Section 4.05. Disaster Recovery and BCP	10
ARTICLE 5
DISCLAIMER, LIABILITY AND INDEMNIFICATION
Section 5.01. EXCLUSION OF WARRANTIES	10
Section 5.02. Limitation of Liability	10
Section 5.03. Indemnification of Provider by Recipient	11
Section 5.04. Indemnification of Recipient by Provider	12
Section 5.05. Taxes	12
Section 5.06. Indemnification as Exclusive Remedy	12
Section 5.07. Conduct of Proceedings	12
Section 5.08. Notice of Certain Matters	12

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ARTICLE 6
TERM AND TERMINATION
Section 6.01. Term	13
Section 6.02. Termination	13
Section 6.03. Effect of Termination	14
ARTICLE 7
ADDITIONAL AGREEMENTS
Section 7.01. Confidential Information	15
Section 7.02. Ownership of Assets	16
Section 7.03. Security	17
Section 7.04. Access To Information	17
Section 7.05. Labor Matters	18
ARTICLE 8
MISCELLANEOUS
Section 8.01. Prior Agreements	18
Section 8.02. Other Agreements	18
Section 8.03. No Agency; Independent Contractor Status	18
Section 8.04. Subcontractors	19
Section 8.05. Force Majeure	19
Section 8.06. Entire Agreement	20
Section 8.07. Information	20
Section 8.08. Notices	20
Section 8.09. Governing Law	20
Section 8.10. Jurisdiction	20
Section 8.11. WAIVER OF JURY TRIAL	21
Section 8.12. Severability	21
Section 8.13. Amendments and Waivers	21
Section 8.14. Successors and Assigns	21
Section 8.15. Counterparts	22

Exhibit A	Service Costs
Exhibit B	Compliance with Gramm-Leach-Bliley Act and Data Protection Laws
Schedules

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TRANSITION SERVICES AGREEMENT

This Transition Services Agreement (this “Agreement”) is entered into as of [            ], 2007 by and between Morgan Stanley, a Delaware corporation (“Morgan Stanley”), and Discover Financial Services, a Delaware corporation (“Discover”).

RECITALS

WHEREAS, Morgan Stanley owns 100% of the outstanding common stock of Discover prior to the consummation of the Distribution (as defined below);

WHEREAS, Morgan Stanley will no longer own any of the outstanding common stock of Discover after the consummation of the Distribution;

WHEREAS, Morgan Stanley has heretofore directly or indirectly provided certain services to members of the Discover Group (as defined below); and

WHEREAS, Discover has heretofore directly or indirectly provided certain services to the Morgan Stanley Group (as defined below).

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Morgan Stanley and Discover, for themselves, their successors and permitted assigns, hereby agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Definitions. (a) As used in this Agreement, the following terms shall have the following meanings, applicable both to the singular and the plural forms of the terms described:

“Actions” has the meaning set forth in Section 5.03.

“Affiliate” has the meaning set forth in the Separation and Distribution Agreement; provided that the Affiliates of each party for purposes of this Agreement shall be determined after giving effect to the consummation of the Distribution.

“Agreement” has the meaning set forth in the preamble hereto.

“Applicable Law” means, with respect to any Person, any federal, state, local or foreign law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree,

ruling, directive, guidance, instruction, direction, permission, waiver, notice, condition, limitation, restriction or prohibition or other similar requirement enacted, adopted, promulgated, imposed, issued or applied by a Governmental Authority that is binding upon or applicable to such Person, its properties or assets or its business or operations, as amended unless expressly specified otherwise.

“Baseline Period” has the meaning set forth in Section 2.04.

“Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.

“Change of Control” means, with respect to Morgan Stanley or Discover, (i) the direct or indirect acquisition (by merger, consolidation, business combination or otherwise) by any Person or group of Persons of beneficial ownership (as defined in Rule 13d-1 and Rule 13d-5 under the Securities Exchange Act of 1934) of 50% or more of the Total Voting Power of Morgan Stanley or Discover, as applicable, (ii) any merger, consolidation or other business combination of Morgan Stanley or Discover, as applicable, or a Subsidiary of Morgan Stanley or Discover, as applicable, with any Person after giving effect to which (x) the shareholders of Morgan Stanley or Discover, as applicable, immediately prior to such transaction do not own at least 50% of the Total Voting Power of the ultimate parent entity of the parties to such transaction or (y) individuals who were directors of Morgan Stanley or Discover, as applicable, immediately prior to such transaction (or their designees) do not constitute a majority of the board of directors of such ultimate parent entity, and (iii) the direct or indirect acquisition by any Person or group of Persons of all or substantially all of the assets of Morgan Stanley or Discover, as applicable.

“Confidential Information” has the meaning set forth in Section 7.01.

“Data Protection Laws” means the European Commission Data Protection Directive (95/46/EC) or Data Protection Act 1998 or any implementing or related legislation of any member state in the European Economic Area.

“Delaware Commissioner” means the Office of the Delaware State Bank Commissioner or any successor thereto.

“Discover” has the meaning set forth in the preamble hereto.

“Discover Entity” means any member of the Discover Group.

“Discover Group” means Discover and its Subsidiaries as of and after the Distribution Date.

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“Discover Systems” means any computer software program or routine or part thereof owned, licensed or provided by or for any Discover Entity which is used by any Morgan Stanley Entity or its suppliers on any Discover Entity’s behalf pursuant to this Agreement, each as modified, maintained or enhanced from time to time by any Discover Entity, any Morgan Stanley Entity or any third party.

“Distribution” has the meaning set forth in the Separation and Distribution Agreement.

“Distribution Date” has the meaning set forth in the Separation and Distribution Agreement.

“FDIC” means the Federal Deposit Insurance Corporation or any successor thereto.

“force majeure” has the meaning set forth in Section 8.05.

“FSA” means the United Kingdom Financial Services Authority or any successor thereto.

“Governmental Authority” means any multinational, foreign, federal, state, local or other governmental, statutory or administrative authority, regulatory body or commission or any court, tribunal or judicial or arbitral authority which has any jurisdiction or control over either party (or their Affiliates), including without limitation the FSA, FDIC and the Delaware Commissioner.

“Gramm-Leach-Bliley Act” means the Gramm-Leach-Bliley Act of 1999, or any successor federal statute thereto, and the rules and regulations thereunder, as may be amended or supplemented from time to time.

“Group” means the Discover Group or Morgan Stanley Group as applicable.

“Insolvency Event” means with respect to either party, as applicable, (i) the making by such party of any assignment for the benefit of creditors of all or substantially all of its assets or the admission by such party in writing of its inability to pay all or substantially all of its debts as they become due; (ii) the adjudication of such party as bankrupt or insolvent or the filing by such party of a petition or application to any tribunal for the appointment of a trustee or receiver for such party or any substantial part of the assets of such party; or (iii) the commencement of any voluntary or involuntary bankruptcy proceedings (and, with respect to involuntary bankruptcy proceedings, the failure to be discharged within sixty (60) days), reorganization proceedings or similar proceeding with respect to such party or the entry of an order appointing a trustee or receiver or approving a petition in any such proceeding.

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“Morgan Stanley” has the meaning set forth in the preamble hereto.

“Morgan Stanley Entity” means any member of the Morgan Stanley Group.

“Morgan Stanley Group” means Morgan Stanley and its Subsidiaries (other than any Subsidiary or member of, or other entity in, the Discover Group) as of and after the Distribution Date.

“Morgan Stanley Systems” means any computer software program or routine or part thereof owned, licensed or provided by or for any Morgan Stanley Entity which is used by any Discover Entity or its suppliers on any Morgan Stanley Entity’s behalf pursuant to this Agreement, each as modified, maintained or enhanced from time to time by any Morgan Stanley Entity, any Discover Entity or any third party.

“Non-Compliance Notice” has the meaning set forth in Section 5.08.

“Payer” has the meaning set forth in Section 3.02(c).

“Payee” has the meaning set forth in Section 3.02(c).

“Payment Date” has the meaning set forth in Section 3.03(b).

“Person” means individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a governmental or political subdivision or an agency or instrumentality thereof.

“Personal Information” means personally identifiable information as defined under applicable Data Protection Laws of either party which the other party receives or to which the other party otherwise has access.

“Prior Agreements” has the meaning set forth in Section 8.01.

“Provider” has the meaning set forth in Section 2.01.

“Provider Entity” means any member of the Provider Group.

“Provider Group” means, as the context requires, the Discover Group or the Morgan Stanley Group.

“Provider Indemnified Person” has the meaning set forth in Section 5.02.

“Recipient” has the meaning set forth in Section 2.01.

“Recipient Entity” means any member of the Recipient Group.

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“Recipient Group” means, as the context requires, the Discover Group or the Morgan Stanley Group.

“Recipient Indemnified Person” has the meaning set forth in Section 5.04.

“Schedule” means a Schedule attached hereto forming part of this Agreement and “Schedules” shall have a corresponding meaning.

“Separation and Distribution Agreement” means the Separation and Distribution Agreement dated as of [            ], 2007, by and between Morgan Stanley and Discover.

“Service Costs” has the meaning set forth in Section 3.01.

“Services” has the meaning set forth in Section 2.01.

“Subsidiary” means, with respect to any Person, any other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; provided that for the purposes of Sections 2.02, 2.03 and 4.01, shall be limited to those Subsidiaries of a Person as at the Distribution Date only and any Subsidiaries formed in connection with any internal reorganization of such Person.

“Supplier” has the meaning set forth in Section 3.02(b).

“Supply Recipient” has the meaning set forth in Section 3.02(b).

“Systems” means the Morgan Stanley Systems or the Discover Systems, individually, or the Morgan Stanley Systems and the Discover Systems, collectively, as the context may indicate or require.

“Tax” means any tax, levy, impost, duty or other similar charge (including any penalty or interest payable in connection with any failure to pay or delay in paying the same).

“Total Voting Power” means, with respect to any Person, the total combined voting power of all securities of such Person entitled to vote generally in the election of directors of such Person.

“VAT” means value added tax implemented by member states of the European Union pursuant to Directive 2006/112/EC and legislation supplemental thereto, and any tax of a similar nature imposed under the laws of any jurisdiction which is not a member state of the European Union.

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ARTICLE 2

PURCHASE AND SALE OF SERVICES

Section 2.01. Purchase and Sale of Services. On the terms and subject to the conditions of this Agreement and in consideration of the Service Costs described below, each of Morgan Stanley and Discover (each in its capacity as provider of Services, “Provider”) agrees to provide to the other party (in its capacity as recipient of Services, “Recipient”), or procure the provision to Recipient of, and Recipient agrees to purchase from Provider, the transition services (the “Services”) as set forth on the Schedules.

Section 2.02. Subsidiaries. It is understood that (i) the Services to be provided to Recipient under this Agreement shall, at Recipient’s request, be provided to any Person that is a Subsidiary of Recipient and (ii) Provider may satisfy its obligation to provide or procure Services hereunder by causing one or more of its Subsidiaries to provide or procure such Services. With respect to Services provided to, or procured on behalf of, any Subsidiary of Recipient, Recipient agrees to pay on behalf of such Subsidiary all amounts payable by or in respect of such Services pursuant to this Agreement.

Section 2.03. No Additional Services. Except for the Services expressly contemplated to be provided in accordance with Section 2.01, Provider shall have no obligation under this Agreement to provide any services to the Recipient Group. Provider agrees to consider in good faith (but shall have no obligation to accept) any requests by Recipient for the provision of any continued or additional services that Recipient considers are reasonably necessary (x) to accommodate normal growth in Recipient’s business or (y) to transfer responsibility for the provision of any Services from Provider to Recipient or any third party as Recipient may designate during the term of this Agreement, and upon termination or expiration of any Service or of this Agreement. Any such continued or additional services will be on such terms and conditions (including pricing) as the parties shall mutually agree.

Section 2.04. Services Provided by Recipient. If it is necessary for Recipient to provide any services or resources to Provider or any third party regarding any aspect of the Recipient Group business or Services (the “Recipient Services”) so that Provider, any Subsidiary of Provider or third party provider may provide or have provided the Services hereunder, Recipient shall provide such services or resources (i) in a timely and effective manner; (ii) without cost to Provider, any Subsidiary of Provider or any third party and (iii) in a manner that ensures that the nature, quality and standard of care of the Recipient Services provided shall be substantially the same as have been provided by the Recipient Group’s business during the twelve months prior to the date hereof (such twelve-month period, the “Baseline Period”).

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Section 2.05. Third Party Licenses and Consents. Provider and Recipient shall use commercially reasonable efforts to obtain all governmental or third party licenses and consents required for the provision of any Service by Provider in accordance with the terms of this Agreement; provided that the costs relating to obtaining any such licenses or consents shall be borne by Recipient; provided further that Provider shall not be required to provide such Service (x) unless and until the required licenses and/or consents have been obtained or (y) in the event the required licenses and/or consents are terminated or revoked.

ARTICLE 3

SERVICE COSTS; OTHER CHARGES

Section 3.01. Service Costs Generally. Unless any Schedule hereto indicates otherwise or the parties shall agree in writing to a different arrangement, for each period in which Recipient receives a Service hereunder, Recipient shall pay Provider such fees and costs as set forth in Exhibit A hereto (“Service Costs”) which costs shall be adjusted appropriately in the event of the termination of any Service or as otherwise contemplated by this Agreement.

Section 3.02. Taxes. (a) Recipient shall pay all applicable sales or use taxes incurred with respect to provision of the Services. These taxes shall be incremental to other payments or charges identified in this Agreement.

(b) All amounts to be paid under this Agreement shall be exclusive of VAT, if any. Where, under this Agreement, any person (the “Supplier”) makes or is deemed to make a supply to another person (the “Supply Recipient”) for VAT purposes and VAT is or becomes chargeable in respect of such supply, the Supply Recipient shall pay to the Supplier an amount equal to such VAT: (i) where the consideration for such supply consists wholly of money, at the same time as paying such consideration; or (ii) where the consideration does not consist wholly of money, on or before the later of the date which is 30 days after the date on which such VAT is demanded in writing or when the supply is made; provided that the Supply Recipient shall first have received an invoice in respect of such supply.

(c) Where this Agreement requires any party (the “Payer”) to reimburse another party (the “Payee”) for any costs or expenses, the Payer shall also at the same time pay and indemnify the Payee against all VAT incurred by the Payee in respect of the costs or expenses to the extent that the Payee determines that neither it, nor any other member of any group of which it is a member for VAT purposes, is entitled to credit or repayment from the relevant tax authority in respect of VAT.

(d) All sums payable under this Agreement shall be paid free and clear of all deductions or withholdings unless the deduction or withholding is required by law, in which event the amount of the payment due from the party required to

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make such payment (other than amounts of interest) shall be increased to an amount which after any withholding or deduction leaves an amount equal to the payment which would have been due if no such deduction or withholding had been required.

Section 3.03. Invoicing and Settlement of Costs. (a) Unless any Schedule hereto indicates otherwise or the parties shall agree in writing to a different arrangement, Provider shall invoice or notify in writing the [title of officer] of Recipient on a monthly basis (not later than the [            ] day of each month).

(b) Recipient agrees to pay on or before 45 days after the date on which Provider invoices Recipient for the Service Costs (or the next Business Day, if such day is not a Business Day) (each, a “Payment Date”) by wire transfer of immediately available funds payable to the order of Provider all amounts invoiced by Provider pursuant to Section 3.03(a) during the preceding calendar month. If Recipient fails to pay any monthly payment within 45 days of the relevant Payment Date, Recipient shall be obligated to pay, in addition to the amount due on such Payment Date, to the extent permitted by Applicable Law, interest on such amount at the [            ] rate compounded monthly from the relevant Payment Date through the date of payment.

ARTICLE 4

THE SERVICES

Section 4.01. Standards of Service. (a) The level or volume of any specific Service required to be provided to Recipient hereunder shall not exceed the level or volume of such Service as historically utilized by the Recipient Group during the Baseline Period. In providing any Service, Provider shall have no obligation to allocate human, equipment or other resources in excess of the level of resources historically allocated to the provision to the Recipient Group of such Service by Provider during the Baseline Period.

(b) The manner, nature, quality and standard of care applicable to the delivery by Provider of the Services hereunder shall be substantially the same as that of similar services which Provider provides from time to time throughout its business.

(c) Provider agrees that all Services it provides or causes to be provided will be provided in compliance with Applicable Law.

(d) Upon a sale or other disposition of any portion of the Recipient Group’s business, assets or properties, Provider’s obligation to provide any Service in respect of the business, assets or properties so disposed shall terminate, and the aggregate level or volume or such Service required to be provided to the Recipient

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Group and (if applicable) the Service Costs payable by Recipient in respect thereof shall be reduced appropriately. If any member of the Recipient Group shall purchase, lease or otherwise acquire any business, assets or properties or rights in respect thereof, Provider shall have no obligation to provide any Services hereunder in respect of such acquired business, assets or properties.

Section 4.02. Changes to the Services. It is understood and agreed that Provider may from time to time modify, change or enhance the manner, nature, quality and/or standard of care of any Service provided to Recipient to the extent Provider is making a similar change in the performance of such services for the Provider Group and provided that any such modification, change or enhancement will not reasonably be expected to have a material adverse effect on such Service. Provider shall furnish to Recipient substantially the same notice (in content and timing), if any, as Provider furnishes to its own organization with respect to such modifications, changes or enhancements. Any incremental expense incurred by Provider in making any such modification, change or enhancement to the Services performed hereunder or in providing such Services on an ongoing basis shall be taken into account in the calculation of Service Costs as contemplated by Section 2.01.

Section 4.03. Management of Services By Provider. Except as may otherwise be expressly provided in this Agreement, the management of and control over the provision of the Services by Provider shall reside solely with Provider and notwithstanding anything to the contrary Provider shall be permitted to choose the methodology, systems and applications it utilizes in the provision of such Services. The provision, use of and access to the Services shall be subject to (i) any technical and operational changes that may be required to manage any restrictions imposed by Provider in respect of data access; (ii) Providers’ business, operational and technical environment, standards, policies and procedures as may be modified from time to time; (iii) any Recipient Services and/or other third party services, resources or dependencies; (iv) any Applicable Law; and (v) the terms of this Agreement.

Section 4.04. Operating Committee. (a) The parties shall use an operating committee (the “Operating Committee”) to implement the terms of this Agreement. Each of Morgan Stanley and Discover shall appoint three employees to the Operating Committee and designate one of such employees to be such party’s lead representative (each, a “Lead Representative”) for the purpose of fielding queries from representatives of the relevant Group concerning the implementation and ongoing operation of this Agreement. In addition, the Lead Representatives shall have such other functions and responsibilities as may be determined by the Operating Committee from time to time. The Operating Committee will oversee the implementation and ongoing operation of this Agreement and shall attempt in good faith to resolve disputes between the parties. Each of the parties shall have the right to (i) replace one or more of its Operating

9

Committee members at any time with employees or officers with comparable knowledge, expertise and decision-making authority and (ii) designate an alternative Lead Representative.

(b) The Operating Committee shall act by a majority vote of its members. If the Operating Committee fails to make a decision, resolve a dispute or agree upon any necessary action, the unresolved matter shall be referred to [Name] of Morgan Stanley and [Name] of Discover, who shall attempt in good faith within a period of 14 days to conclusively resolve any such matter.

(c) During the term of this Agreement, the full Operating Committee shall meet at such times as may be required by either Lead Representative. Meetings of the Operating Committee may be in person or via teleconference and shall be convened and held in accordance with such procedures as the Operating Committee may determine from time to time.

Section 4.05. Disaster Recovery and BCP. Each party will maintain and operate and shall use reasonable efforts to ensure that all material subcontractors shall maintain and operate contingency, business continuity and disaster recovery facilities and procedures for the purposes of performing its obligations under this Agreement consistent with the facilities and procedures maintained and operated by such party in respect of its business generally.

ARTICLE 5

DISCLAIMER, LIABILITY AND INDEMNIFICATION

SECTION 5.01. EXCLUSION OF WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE SERVICES ARE PROVIDED “AS-IS” WITH NO WARRANTIES, AND PROVIDER EXPRESSLY EXCLUDES AND DISCLAIMS ANY WARRANTIES UNDER OR ARISING AS A RESULT OF THIS AGREEMENT, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, NON-INFRINGEMENT OR ANY OTHER WARRANTY WHATSOEVER.

Section 5.02. Limitation of Liability. (a) Recipient agrees that none of the members of the Provider Group and their respective directors, officers, agents, and employees (each, a “Provider Indemnified Person”) shall have any liability, whether direct or indirect, in contract or tort or otherwise, to any Recipient Entity or any other Person for or in connection with the Services rendered or to be rendered by or on behalf of any Provider Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any actions or inactions by or on behalf of Provider Indemnified Person in connection with any such Services or

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transactions, except to the extent any damages have been finally determined by a court of competent jurisdiction to have resulted from such Provider Indemnified Person’s gross negligence or willful misconduct in connection with any such Services, actions or inactions.

(b) Notwithstanding the provisions of Section 5.02(a), none of the members of the Provider Group shall be liable for any special, indirect, incidental, consequential or punitive damages of any kind whatsoever in any way due to, resulting from or arising in connection with any of the Services or the performance of or failure to perform Provider’s obligations under this Agreement. This disclaimer applies without limitation (i) to claims arising from the provision of the Services or any failure or delay in connection therewith, (ii) to claims for lost profits, (iii) regardless of the form of action, whether in contract, tort (including negligence), strict liability, or otherwise, and (iv) regardless of whether such damages are foreseeable or whether any member of the Provider Group has been advised of the possibility of such damages.

(c) None of the members of the Provider Group shall have any liability to any Recipient Entity or any other Person for failure to perform Provider’s obligations under this Agreement or otherwise, where such failure to perform is not caused by the gross negligence or willful misconduct of the Provider Entity providing such Services and such failure to perform similarly affects the Provider Group receiving such Services and does not have a disproportionately adverse effect on the Recipient Group, taken as a whole.

(d) In addition to the foregoing, Recipient agrees that it shall, in all circumstances, use commercially reasonable efforts to mitigate and otherwise minimize its damages and those of the other Recipient Entities, whether direct or indirect, due to, resulting from or arising in connection with any failure by Provider to comply fully with its obligations under this Agreement.

Section 5.03. Indemnification of Provider by Recipient. Recipient agrees to indemnify and hold harmless each Provider Indemnified Person from and against any damages, and to reimburse each Provider Indemnified Person for all reasonable expenses as they are incurred in investigating, preparing, pursuing, or defending any claim, action, proceeding, or investigation, whether or not in connection with pending or threatened litigation and whether or not any Provider Indemnified Person is a party (collectively, “Actions”), arising out of or in connection with Services rendered or to be rendered by or on behalf of any Provider Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any actions or inactions by or on behalf of any Provider Indemnified Person in connection with any such Services or transactions; provided that Recipient shall not be responsible for any damages of any Provider Indemnified Person to the extent such damages have been finally determined by a court of competent jurisdiction to have resulted from such Provider Indemnified

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Person’s gross negligence or willful misconduct in connection with any of the advice, actions, inactions, or Services referred to above (it being understood and agreed that the provision by any Provider Entity of any of the Services without obtaining the consent of any party to any contract or agreement to which any Provider Entity is a party as of the date hereof shall not constitute gross negligence or willful misconduct by any Provider Entity; provided that the relevant Provider Entity has used commercially reasonable efforts to obtain the relevant consent).

Section 5.04. Indemnification of Recipient by Provider. Provider agrees to indemnify and hold harmless each member of the Recipient Group and their respective directors, officers, agents, and employees (each, a “Recipient Indemnified Person”) from and against any damages, and shall reimburse each Recipient Indemnified Person for all reasonable expenses as they are incurred in investigating, preparing, or defending any Action, to the extent such damages have been finally determined by a court of competent jurisdiction to have arisen out of the gross negligence or willful misconduct of any Provider Indemnified Person in connection with the Services rendered or to be rendered pursuant to this Agreement.

Section 5.05. Taxes. If a party is required to make any payment under Section 5.03 or 5.04, it shall upon demand pay to the Person receiving such payment an amount equal to any loss, liability or cost which the receiving Person determines will or has been (directly or indirectly) suffered or incurred on account of Tax by the receiving Person in respect of such payment, net of any Tax benefit arising in respect of the damages giving rise to such payment.

Section 5.06. Indemnification as Exclusive Remedy. Except for the termination rights provided under Sections 6.02(b) and 6.02(c), the indemnification provisions of this Article 5 shall be the exclusive remedy for breach of the Agreement.

Section 5.07. Conduct of Proceedings. Any proceedings relating to indemnification under Section 5.03 or 5.04 or Clause (b) of Exhibit B shall be conducted in accordance with the procedures set forth in Section 7.03 of the Separation and Distribution Agreement.

Section 5.08. Notice of Certain Matters. If Recipient at any time believes that Provider is not in full compliance with its obligations under Sections 4.01(a), 4.01(b) or 4.01(c), Recipient shall so notify Provider in writing promptly (but not later than 15 days) after becoming aware of such possible non-compliance by Provider. Such notice (a “Non-Compliance Notice”) shall set forth in reasonable detail the basis for Recipient’s belief as well as Recipient’s view as to the steps to be taken by Provider to address the possible non-compliance. For the 30 days after receipt of such a notice, appropriate representatives of Provider and Recipient shall work in good faith to develop a plan to resolve the matters referred to in the Non-Compliance

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Notice. In the event such matters are not resolved through such discussions, Recipient may elect to terminate Provider’s obligation to provide or procure, and its obligation to purchase, the Service or Services referred to in its Non-Compliance Notice in accordance with Section 6.02. In the event such matters are resolved through such discussions and Recipient does not elect to terminate such Service or Services within 15 days of the end of the 30-day period referred to in the third sentence of this Section 5.07, Recipient shall not be entitled to deliver another Non-Compliance Notice or pursue other remedies with respect to same or any substantially similar matter so long as Provider complies in all material respects with the terms of such resolution. In no event shall any termination of this Agreement pursuant to this Section 5.07 limit or affect Recipient’s right to seek remedies in respect of any breach by Provider of any of its obligations under this Agreement prior to such termination.

ARTICLE 6

TERM AND TERMINATION

Section 6.01. Term. Except as otherwise provided in this Article 6, in Section 8.05, or in any Schedule or as otherwise agreed in writing by the parties, the term of this Agreement with respect to each Service shall commence as of the Distribution Date or, if later, the date on which such Service is added as a Schedule, and shall cease as of the applicable date set forth in the applicable Schedule or such earlier date as determined in accordance with Section 6.02. This Agreement shall terminate in its entirety upon the expiration of the terms (as determined pursuant to the preceding sentence) of all Services; provided that the provisions of Articles 4 (other than Section 4.04), 5, 6, 7 and 8 shall survive any such termination indefinitely.

Section 6.02. Termination. (a) Except as otherwise provided in any Schedule hereto, Recipient may from time to time terminate this Agreement with respect to one or more of the Services it receives, in whole or in part, upon giving at least 60 days’ prior notice to Provider.

(b) Provider may terminate any Service or any part thereof it provides at any time if (i) a related Service or a third party service pursuant to which Provider provides such Service to Recipient has been terminated or (ii) Recipient shall have failed to perform any of its material obligations under this Agreement relating to any such Service, Provider has notified Recipient in writing of such failure and such failure shall have continued for a period of 60 days after receipt by Recipient of written notice of such failure. For the avoidance of doubt, the failure by Recipient to pay the full amount of any invoice when due shall be considered a breach of Recipient’s material obligation under this Agreement. With respect to clause (i) of this Section 6.02(b), if Provider receives written notice from any third party service provider that such Person intends to terminate such service, Provider

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and Recipient shall use commercially reasonable efforts to secure the continued provision of that service from such third party or an alternative service provider; provided that any costs incurred in doing so shall be borne by Recipient.

(c) Recipient may terminate any Service it receives as provided in the applicable Schedule or at any time if Provider shall have failed to perform any of its material obligations under this Agreement relating to any such Service, Recipient has notified Provider in writing of such failure, and such failure shall have continued for a period of 30 days after receipt by Provider of written notice of such failure.

(d) At any time following announcement of a transaction involving a Change of Control of Recipient, Provider may elect, by delivery of notice in writing to Recipient, to terminate any or all Services hereunder, such termination to take effect, subject to Section 6.02(a), on the date or dates specified by Provider in such notice; provided that without the written consent of Recipient, no such termination of Service shall occur prior to the closing of such Change of Control transaction.

(e) Either party may terminate this Agreement at any time with immediate effect upon serving written notice upon the other party if the other party suffers an Insolvency Event.

Section 6.03. Effect of Termination. (a) Other than as required by law, upon termination of any Service pursuant to Section 6.02, Provider shall have no further obligation to provide the terminated Service and Recipient shall have no obligation to pay any fees relating to such Services or make any other payments hereunder; provided that notwithstanding such termination, (i) Recipient shall remain liable to Provider for fees owed and payable in respect of Services provided prior to the effective date of the termination, and (ii) Provider shall continue to charge Recipient for administrative and program costs relating to benefits paid after but incurred prior to the termination of any Service and other services required to be provided after the termination of such Service and Recipient shall be obligated to pay such expenses in accordance with the terms of this Agreement.

(b) Termination of this Agreement as provided for herein shall not prejudice or affect any rights or remedies which shall have accrued or shall thereafter accrue to either party.

(c) Following notice of termination of any Service, Provider and Recipient agree to cooperate in providing for an orderly transition of such Service to Recipient or a successor service provider. Provider agrees to (i) provide promptly, and in any event no later than [            ] days following termination of such Service, copies in a usable format then in existence designated by Provider, of all records relating directly or indirectly to benefit determinations of Recipient

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employees, including but not limited to compensation and service records (to the extent relevant to such Service), correspondence, plan interpretative policies, plan procedures, administrative guidelines, minutes, or any data or records required to be maintained by law and (ii) cooperate reasonably with Recipient in developing a transition schedule. Recipient shall promptly reimburse Provider, upon request, for any and all reasonable costs and expenses incurred by Provider or any of its Subsidiaries arising out of or in connection with the performance of its obligations under this Section 6.03(c). For the avoidance of doubt, this Section 6.03(c) is subject to the provisions of Section 2.03.

ARTICLE 7

ADDITIONAL AGREEMENTS

Section 7.01. Confidential Information. The parties hereby covenant and agree to maintain confidential all Confidential Information relating to the other party or any of such other party’s Subsidiaries. Without limiting the generality of the foregoing, each party shall cause its employees and agents to exercise the same level of care with respect to Confidential Information relating to the other party or any of its Subsidiaries as it would with respect to proprietary information, materials and processes relating to itself or any of its Subsidiaries. “Confidential Information” shall mean all information, materials and processes relating to a party or any Subsidiary of such party obtained by the other party or any Subsidiary of such other party at any time (whether prior to or after the date hereof) in any format whatsoever (whether orally, visually, in writing, electronically or in any other form) relating to, arising out of or in connection with the Services rendered or to be rendered hereunder and shall include, but not be limited to, economic and business information or data, business plans, computer software and information relating to employees, vendors, customers, products, financial performance and projections, processes, strategies and systems but shall not include (i) information which becomes generally available to the public other than by release in violation of the provisions of this Section 7.01, (ii) information which becomes available on a non-confidential basis to a party from a source other than the other party to this Agreement, provided the party in question reasonably believes that such source is not or was not bound to hold such information confidential and (iii) information acquired or developed independently by a party without violating this Section 7.01 or any other confidentiality agreement with the other party. Except with the prior written consent of the other party, each party will use the other party’s Confidential Information only in connection with the performance of its obligations hereunder and each party shall use commercially reasonable efforts to restrict access to the other party’s Confidential Information to those employees of such party requiring access for the purpose of providing Services hereunder. Notwithstanding any provision of this Section 7.01 to the contrary, a party may disclose such portion of the Confidential Information relating to the other party to

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the extent, but only to the extent, the disclosing party reasonably believes that such disclosure is required under law or the rules of a Governmental Authority; provided that the disclosing party first notifies the other party hereto of such requirement and allows such party a reasonable opportunity to seek a protective order or other appropriate remedy to prevent such disclosure. The parties acknowledge that money damages would not be a sufficient remedy for any breach of the provisions of this Section 7.01 and that the non-breaching party shall be entitled to equitable relief in a court of law in the event of, or to prevent, a breach or threatened breach of this Section 7.01.

Section 7.02. Ownership of Assets. (a) Morgan Stanley Systems and any and all enhancements thereof or improvements thereto are and shall remain the sole exclusive property of the Morgan Stanley Entities and their suppliers. From and after the creation of any and all such Morgan Stanley Systems or enhancements thereof or improvements thereto by Discover or by any contractor, Affiliate or other third party on Discover’s behalf, in each case, pursuant to this Agreement, Discover agrees to assign and hereby assigns to Morgan Stanley or the applicable Morgan Stanley Entity, any and all right, title and interest that Discover or such contractor, Affiliate or third party may have in such Morgan Stanley Systems or enhancements thereof or improvements thereto.

(b) Discover Systems and any and all enhancements thereof or improvements thereto are and shall remain the sole exclusive property of the Discover Entities and their suppliers. From and after the creation of any and all such Discover Systems or enhancements thereof or improvements thereto by Morgan Stanley or by any contractor, Affiliate or third party on Morgan Stanley’s behalf, in each case, pursuant to this Agreement, Morgan Stanley agrees to assign and hereby assigns to Discover or the applicable Discover Entity, any and all right, title and interest that Morgan Stanley or such contractor, Affiliate or third party may have in such Discover Systems or enhancements thereof or improvements thereto.

(c) From the date hereof until the termination of this Agreement, each party grants to the other and its suppliers a non-exclusive, royalty-free right and license to use the Morgan Stanley Systems or the Discover Systems, as applicable, solely to provide the Services contemplated hereunder. Notwithstanding anything to the contrary hereunder, each party agrees to cooperate with the other (and shall cause its suppliers to so cooperate) to cause the orderly return of the other party’s Systems and property upon the termination of this Agreement or upon written request, whichever is earlier.

(d) With respect to any Systems that a Morgan Stanley Entity or a Discover Entity, as applicable, is required to maintain or enhance hereunder, as between Morgan Stanley and Discover, all right, title and interest in and to such enhancements and any related documentation, whether created by the party that

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provides the Service or any contractor, Affiliate or supplier on such party’s behalf, shall be owned exclusively by and vested exclusively in the party by or for whom the applicable System is owned, licensed or provided.

(e) As between any Morgan Stanley Entity, on the one hand, and any Discover Entity, on the other hand, all right, title and interest in and to all data processed hereunder shall be owned exclusively by the Morgan Stanley Entity or Discover Entity that originally supplied it to the other. Morgan Stanley and Discover hereby assign to the other, and shall cause any of its or their contractors, Affiliates or suppliers to assign to the other, as applicable, all right, title and interest that Morgan Stanley or Discover, as applicable, may have in the other’s data.

(f) Each party shall have written agreements with its employees consistent with past practices, and shall cause any contractor, Affiliate or third party performing Services on its behalf pursuant to this Agreement to also have written agreements with its employees that are consistent with its obligations hereunder, including the obligations to disclose and assign all right, title and interest in intellectual property rights as contemplated in Sections 7.01 and 7.02. Each party agrees not to voluntarily terminate or to amend or modify such agreements with respect to the provisions described above without providing at least 30 days prior written notice thereof and further agrees that any such amendments or modifications to such agreements shall be prospective only.

Section 7.03. Security. (a) Each member of the Recipient Group and its employees, authorized agents and subcontractors shall only use or access Services and/or any of Provider’s Systems, premises or data such Person is authorized by Provider to use or access. In no event shall any member of the Recipient Group and its employees, authorized agents and subcontractors access any Services and/or any of Provider’s Systems, premises or data without Provider’s prior written consent. Each member of the Recipient Group and its employees, authorized agents and subcontractors shall comply with Provider’s policies and procedures in relation to the use and access of the Services and Provider’s Systems.

(b) In connection with the provision of Services hereunder, to the extent either party has access to or acquires Personal Information such party will, and will cause the relevant member of its Group to, comply with, as applicable, Title V of Gramm-Leach-Bliley Act, the Data Protection Laws and any other laws concerning Personal Information. Without limiting the generality of the foregoing, both parties agree to comply with the covenants set forth in Exhibit B.

Section 7.04. Access To Information. (a) The provisions of Section 5.01 of the Separation and Distribution Agreement shall apply to matters arising in connection with, or otherwise relating to, the provision of Services hereunder.

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(b) For the avoidance of doubt, if requested by Recipient, Provider will permit Recipient such access to Provider’s books, records, accountants, accountants’ work papers, personnel and facilities with respect to the Services as is reasonably necessary to enable the management of Recipient to demonstrate compliance with the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations of the Securities Exchange Commission promulgated thereunder. In connection with the foregoing, if at any time Recipient shall identify any material deficiencies in the processes utilized by Provider in the provision of Services hereunder, Provider and Recipient will cooperate in good faith to develop and implement commercially reasonable action plans and timetables to remedy such deficiencies and/or implement adequate compensating controls.

Section 7.05. Labor Matters. All labor matters relating to employees of Provider and its Subsidiaries (including, without limitation, employees involved in the provision of Services to any Recipient Entity) shall be within the exclusive control of Provider, and Recipient shall not take any action affecting such matters. Nothing in this Agreement is intended to transfer the employment of employees engaged in the provision of any Service from one party to the other, whether pursuant to the European Union Acquired Rights Directive or otherwise. All employees and representatives of a party and any of its Affiliates will be deemed for all compensation, employee benefits, tax and social security contribution purposes to be employees or representatives of such party or its Affiliates (or their subcontractors) and not employees or representatives of the other party or any of its Affiliates (or their subcontractors). In providing the Services, such employees and representatives will be under the direction, control and supervision of Provider or its Affiliates (or their subcontractors) and not of Recipient.

ARTICLE 8

MISCELLANEOUS

Section 8.01. Prior Agreements. In the event there is any conflict between the provisions of this Agreement, on the one hand, and provisions of prior services agreements among any Provider Entity and any Recipient Entity (the “Prior Agreements”), on the other hand, the provisions of this Agreement shall govern.

Section 8.02. Other Agreements. In the event there is any inconsistency between the provisions of this Agreement, on the one hand, and the provisions of the Separation and Distribution Agreement, on the other hand, the provisions of the Separation and Distribution Agreement shall govern.

Section 8.03. No Agency; Independent Contractor Status. Nothing in this Agreement shall constitute or be deemed to constitute a partnership or joint venture between the parties hereto or constitute or be deemed to constitute any

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party the agent or employee of the other party for any purpose whatsoever and neither party shall have authority or power to bind the other or to contract in the name of, or create a liability against, the other in any way or for any purpose. The parties hereto acknowledge and agree that Provider is an independent contractor in the performance of each and every part of this Agreement and nothing herein shall be construed to be inconsistent with this status. Provider shall have the authority to select the means, methods and manner by which any Service is performed.

Section 8.04. Subcontractors. (a) Provider may hire or engage one or more subcontractors to perform all or any of its obligations under this Agreement; provided that, subject to Section 5.02, Provider shall in all cases remain primarily responsible for ensuring that obligations with respect to the standards of services set forth in this Agreement are satisfied with respect to any Service provided by a subcontractor hired or engaged by Provider.

(b) If Recipient terminates any Service prior to its scheduled expiration and as a result of such termination any Provider Indemnified Person suffers or incurs any liability or damages arising out of or in connection with any third party contract pursuant to which Recipient had received the relevant Service, such Provider Indemnified Person shall be entitled to indemnification in accordance with Section 5.03.

Section 8.05. Force Majeure. (a) For purposes of this Section 8.05, “force majeure” means an event beyond the reasonable control of either party, which by its nature could not have been foreseen by such party, or, if it could have been foreseen, was unavoidable, and includes without limitation, acts of God, storms, floods, riots, fires, sabotage, civil commotion or civil unrest, interference by civil or military authorities, threat, declaration, continuation, escalation or acts of war (declared or undeclared) or acts of terrorism, failure or shortage of energy sources, raw materials or components, strike, walkout, lockout or other labor trouble or shortage, delays by unaffiliated suppliers or carriers, and acts, omissions or delays in acting by any Governmental Authority or the other party.

(b) Without limiting the generality of Section 5.02(a), neither party shall be under any liability for failure to fulfill any obligation under this Agreement, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered, or delayed as a consequence of circumstances of force majeure; provided that such party shall have used commercially reasonable efforts to minimize to the extent practicable the effect of force majeure on its obligations hereunder; provided further that nothing in this Section 8.05 shall be construed to require the settlement of any strike, walkout, lockout or other labor dispute on terms which, in the reasonable judgment of the affected party, are contrary to its interests. It is understood that the settlement of a strike, walkout, lockout or other labor dispute will be entirely within the discretion of the affected party. The party affected by the Force Majeure event shall notify the other party of that fact as soon as practicable.

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Section 8.06. Entire Agreement. This Agreement (including the Schedules constituting a part of this Agreement) and any other writing signed by the parties that specifically references this Agreement constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter hereof. This Agreement is not intended to confer upon any Person other than the parties hereto, their Affiliates and their respective successors and permitted assigns any rights or remedies hereunder.

Section 8.07. Information. Subject to Applicable Law and privileges, each party hereto covenants and agrees to provide the other party with all information regarding itself and transactions under this Agreement that the other party reasonably believes are required to comply with all applicable federal, state, county and local laws, ordinances, regulations and codes, including, but not limited to, securities laws and regulations.

Section 8.08. Notices. Any notice, instruction, direction or demand under the terms of this Agreement required to be in writing shall be duly given upon delivery, if delivered by hand, facsimile transmission, or mail, to the following addresses:

(a) If to Morgan Stanley to:

  [            ]

(b) If to Discover to:

  [            ]

or to such other addresses or telecopy numbers as may be specified by like notice to the other parties. All such notices, requests and other communications shall be deemed given, (a) when delivered in person or by courier or a courier services, (b) if sent by facsimile transmission (receipt confirmed) on a Business Day prior to 5 p.m. in the place of receipt, on the date of transmission (or, if sent at or after 5 p.m. at the place of receipt, on the following Business Day) or (c) if mailed by certified mail (return receipt requested), on the date specified on the return receipt.

Section 8.09. Governing Law. This Agreement shall be construed in accordance with and governed by the law of the State of New York, without regard to the conflicts of laws rules thereof.

Section 8.10. Jurisdiction. Any Action seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or

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the transactions contemplated hereby shall be brought in the United States District Court for the Southern District of New York or any other New York State court sitting in New York County, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 8.08 shall be deemed effective service of process on such party.

Section 8.11. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 8.12. Severability. If any provision of this Agreement or any part thereof shall be invalid or unenforceable, such invalidity or unenforceability shall not render the entire Agreement invalid. Rather, the Agreement shall be construed as if not containing the particular invalid or unenforceable provision, and the rights and obligations of each party shall be construed and enforced accordingly.

Section 8.13. Amendments and Waivers. (a) Any provision of this Agreement (including the Schedules hereto) may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective.

(b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 8.14. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the written consent of the other party hereto.

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Section 8.15. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one agreement.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.

MORGAN STANLEY

By:

Name:

Title:

DISCOVER FINANCIAL SERVICES

By:

Name:

Title:

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Exhibit A

Service Costs

Exhibit B

Compliance with Gramm-Leach-Bliley Act and Data Protection Laws

(a) Each party agrees that it will, and will cause the relevant member of its Group to:

(i) process, use, maintain and disclose Personal Information only as necessary for the specific purpose for which the information was disclosed to it and only in accordance with the Agreement;

(ii) not disclose any Personal Information to any third party (including to the subject of such information) who does not have a need to know such Personal Information;

(iii) implement and maintain an appropriate security program, the terms of which shall meet or exceed the requirements for financial institutions under 17 CFR 248.30 and Data Protection Laws to (a) ensure the security and confidentiality of all information provided to it by any member of the other Group, including Personal Information (collectively, the “information”), (b) protect against any threats or hazards to the security or integrity of information, including unlawful destruction or accidental loss, alteration and any other form of unlawful processing, and (c) prevent unauthorized access to, use or disclosure of the information;

(iv) immediately notify the other party in writing if it becomes aware of (a) any disclosure or use of any information by such entity in breach of this Exhibit B, (b) any disclosure of any information to such entity where the purpose of such disclosure is not known, (c) any request for disclosure or inquiry regarding the information from a third party, and (d) any change in Applicable Law that is likely to have a substantial adverse effect on its ability to comply with this Exhibit B;

(v) cooperate with each other and the relevant supervisory authority in the event of litigation or a regulatory inquiry concerning the information and abide by the advice of the other party and the relevant supervisory authority with regard to the processing of such information;

(vi) enter into further agreements as requested by the other party to comply with law from time to time;

(vii) at the other party’s direction at any time, and in any event upon any termination or expiration of the Agreement, immediately return to the relevant member of such party’s Group any or all information or destroy all records of such information;

B-1

(viii) cause its subcontractors to act in accordance with this Exhibit B; and

(ix) upon the termination of any Service, return to the relevant member of the other party’s Group any or all applicable information which is not necessary for the performance of another Service under the Agreement or destroy all records of such information.

(b) Each party warrants, represents and undertakes for itself and for and on behalf of the other members of its Group that to the extent that it allows access to, discloses, or transfers Personal Information to the other party that:

(i) the other party (including the other members of its Group and their employees, approved agents and subcontractors) shall have the right for the term of the relevant Service to use the Personal Information for the purposes of performing its rights and obligations under this Agreement;

(ii) the Personal Information which it supplies or discloses to the other party pursuant to this Agreement has been obtained fairly and lawfully and will be up to date, complete and accurate in all material respects;

(iii) it shall take all reasonable steps to ensure that the Personal Information can be lawfully used by the other party (including the other members of its Group and their employees, approved agents and subcontractors) for the purposes envisaged by this Agreement;

(iv) it has complied and will comply with all Applicable Law and regulations relating to Personal Information, including, but not limited to, the Data Protection Laws and with all relevant guidelines and guidance notes issued from time to time by the appropriate regulatory authorities; and

(v) it will indemnify and keep indemnified against all claims, proceedings, liabilities, damages, costs, expenses (including legal expenses on an indemnity basis), compensation, court or tribunal awards (including sums paid in settlement of any such claims) suffered or incurred by the other party (including the other members of its Group and their employees, approved agents and subcontractors) arising out of the use of the Personal Information during the course of this Agreement due to the breach of any warranty contained in this clause (b).

(c) Each party represents and warrants to the other party that it has no reason to believe that any Applicable Law will prevent it or the relevant member of its Group from fulfilling the obligations under this Exhibit B.

(d) To the extent that the Personal Information is subject to the Data Protection Laws, data subjects may enforce the provisions of this Exhibit B as a

B-2

third-party beneficiary against the relevant party with respect to their Personal Information but only in cases where the relevant Group member has factually disappeared or has ceased to exist in law. Neither party objects to the data subjects being represented by an association or other body if they so wish and if permitted by national law.

(e) Each party may review the other party’s policies and procedures used to maintain the security and confidentiality of information, including auditing the relevant Group member concerning such policies and procedures. The provisions of this Exhibit B supplement, are in addition to, and will not be construed to limit any other confidentiality obligations under the Agreement. Any exclusion from the definition of Confidential Information contained in the Agreement shall not apply to Personal Information.

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Schedules

EX-14.1

Exhibit 14.1

DISCOVER FINANCIAL SERVICES

CODE OF ETHICS AND BUSINESS CONDUCT

This Code of Ethics and Business Conduct sets forth principles that you must follow in your activities as a director, officer, or employee of Discover Financial Services. It also covers your obligations to Discover Financial Services should you leave the Company. It should be read together with other applicable Company policies and procedures, including the officer and employee Code of Conduct.

The Code of Ethics does not cover every legal or ethical issue that you may face at the Company. Indeed, no code can attempt to anticipate the myriad issues that arise in any business. However, by following this Code and other Company policies and procedures, by adhering to the letter and the spirit of all applicable laws and regulations, and above all by applying sound judgment to your activities, you can demonstrate your commitment to the Company’s values.

PRINCIPLES OF THE CODE

FOLLOW BOTH THE LETTER AND THE SPIRIT OF THE LAW AND

DISCOVER FINANCIAL SERVICES POLICIES

Discover Financial Services is subject to numerous laws and regulations in a variety of domestic and international jurisdictions. It is your responsibility to understand the laws applicable to your responsibilities and to comply with both the letter and the spirit of these laws. This requires that you avoid not only actual misconduct but also the appearance of impropriety. Assume that any action you take ultimately could be publicized, and consider how you and the Company would be perceived. When in doubt, stop and reflect. Ask questions. If you are unclear about the application of the law to your responsibilities, or if you are unsure about the legality or integrity of a particular course of action, you must seek the advice of your supervisor or Law and Compliance. You will be held personally responsible for any improper or illegal acts you commit during your employment at or service to the Company.

ACT IN THE BEST INTERESTS OF CUSTOMERS, THE COMPANY, AND THE PUBLIC

The Company seeks to outperform its competition fairly and honestly through superior performance. Every director, officer, and employee must protect the Company’s reputation by dealing fairly with customers, the public, competitors, suppliers, and one another. No one should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, or misrepresentation of facts.

Identifying, Managing, and Reporting Conflicts

Potential Business Conflicts

Conflicts of interest may arise as a consequence of the Company’s interests and its relationships with multiple customers, counterparties, and suppliers. Conflicts, for example, can occur between different customers and between customers and the Company itself.

Officers and employees are responsible for:

• identifying and managing conflicts in accordance with regulatory requirements and Company policies; and

• escalating any conflicts or potential conflicts to their supervisor or other designated person, as appropriate.

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Managers who identify conflicts of interest in the business or to whom conflicts are raised by employees should manage those conflicts in accordance with Company policies and the normal procedures of their business unit or department, whenever possible. There may be occasions, however, when a conflict is not addressed by existing Company policies or is potentially significant with respect to not only the manager’s individual business area, but also the Company as a whole. In those situations, the conflict should be referred to the senior management of the business unit or in accordance with the escalation procedures set forth in the Code of Conduct.

Personal Conflicts

Your day-to-day responsibilities may expose you to situations that potentially raise personal conflicts of interest. A conflict of interest may arise, for example, if you or a family or household member has an economic or personal interest that differs from (or that appears to differ from) the Company, its customers, or its shareholders.

Avoid any investment, activity, interest, or relationship outside the Company that could impair your judgment or interfere with (or give the appearance of interfering with) your responsibilities on behalf of the Company, its customers, or its shareholders. Business opportunities that arise because of your position with the Company or by using corporate property or information belong to the Company.

While it is not possible to describe every situation in which a potential conflict of interest may arise, the following are examples of situations that may raise a conflict of interest:

• Accepting special favors as a result of your position with the Company from any person or organization with which the Company has a current or potential business relationship.

• Competing with the Company for the purchase or sale of property, services, or other interests.

• Acquiring an interest in a transaction involving the Company, a client, counterparty, or supplier (not including routine investments in publicly traded companies or mutual funds).

• Receiving a personal loan or guarantee of an obligation as a result of your position with the Company, or granting personal loans or giving gifts to other directors, officers, or employees that could make or might be perceived as making the recipient beholden to you (over and above repayment of the loan).

• Working for a competitor, customer, or supplier or otherwise competing with the Company while a director, officer or employee of the Company.

• Directing business to a supplier owned or managed by, or that employs, a relative or friend.

Officers and employees must promptly report to their supervisor or Law and Compliance any investment, activity, interest, or relationship (including those involving family and household members) that reasonably could be expected to give rise to a conflict of interest. Involvement in certain outside activities also may require the prior approval of the Company. Officers and employees should consult Law and Compliance for specific reporting and approval procedures.

Members of the Board of Directors should also disclose any actual or potential conflicts of interest to the Chairman of the Board and the Chief Legal Officer, who shall determine the appropriate resolution. All directors must recuse themselves from any Board discussion or decision affecting their personal, business, or professional interests.

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Gifts and Entertainment

Gifts and entertainment may create an inappropriate obligation or expectation on the part of the recipient or provider. The Company’s Code of Conduct and related policies set forth the conditions under which officers, employees, and their family or household members may accept or give gifts or entertainment.

Giving gifts to or entertaining employees of government and public international organizations may be limited or restricted. Many countries have adopted anti-bribery statutes that prohibit giving anything of value to government officials, government-controlled enterprises, public international organizations, and political parties and candidates, as well as their agents and employees (collectively, “government officials”), in order to secure an improper business advantage. In addition, many government agencies have their own rules governing the acceptance of gifts, travel, and entertainment. Officers and employees must seek review by Law and Compliance prior to giving gifts or anything else of value to government officials, unless already permitted under written guidance issued by Law and Compliance.

Political Contributions

Generally, the Company does not make corporate contributions to political parties or candidates for public office or other political entities organized under 26 U.S.C. Section 527. The Company’s Code of Conduct and related policies set forth the conditions under which political contributions may be made.

ADVANCE AND PROTECT THE COMPANY’S INTERESTS

Confidential Information

Confidential information generated and gathered in the course of our business is a valuable asset. Protecting this information is critical to the Company’s reputation for integrity and its relationship with its clients, and ensures compliance with regulations governing the financial services industry. All confidential information, regardless of its form or format, must be protected from the time of its creation or receipt until its authorized disposal.

Confidential information is information (including proprietary information) that you learn, create, or develop in the course of your employment with, or service as a director of, the Company. It includes information that is not generally known to the public about the Company, its affiliates, its employees, its customers, or other parties with whom the Company and its affiliates have a relationship and who have an expectation of confidentiality.

You must comply with the Company’s policies on confidential information. Unauthorized access, use, or distribution of confidential information violates Company policy and could be illegal. Your obligation to protect the confidential information continues even after you leave the Company, and you must return all such information in your possession or control upon your departure.

Company Systems and Assets

Company policies regulate use of the Company’s systems, including telephones, computer networks, e-mail, instant messaging, and remote access capabilities. Generally, you should only use the Company’s systems and property for Company business. Do not access systems or locations that are not reasonably related to your responsibilities with the Company, and report any suspected misuse or theft of Company assets. Under no circumstances should you use the Company’s systems to send or store unlawful, discriminatory, harassing, defamatory, or other inappropriate materials.

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PREVENT THE MISUSE OF INSIDE INFORMATION

You may never, under any circumstances, trade, encourage others to trade, or recommend securities or other financial instruments based on (and in some circumstances, while in the possession of) inside information.

Inside information is all non-public information about the Company or its customers or counterparties that may have a significant impact on the price of a security or other financial instrument, or that a reasonable investor would be likely to consider important in making an investment decision. The determination of whether non-public information is “inside information” in some circumstances may be complex. Consult with Law and Compliance if you are uncertain whether particular information is inside information.

The misuse of inside information may result in disciplinary action by the Company, up to and including termination of your employment or service, and civil and criminal penalties.

In order to prevent the misuse of inside information and to avoid both real and perceived conflicts of interest, the Company has established policies and procedures governing personal trading of Discover Financial Services securities by directors, officers, and employees, which may differ depending upon your position at Discover Financial Services. You are required to familiarize yourself and comply with these policies and procedures, as they exist today and any future amendments thereto. If you have any questions about your ability to buy or sell securities, you should contact Law and Compliance.

BE HONEST AND FAIR IN YOUR COMMUNICATIONS WITH THE PUBLIC

The Company has a responsibility under the law to provide accurate and complete disclosure to the investing public, and to the extent that you are involved in the preparation of materials for dissemination to the public, you must ensure that the information is accurate and complete in all material respects. In particular, the Company’s senior financial officers, executive officers and directors must endeavor to promote accurate, complete, fair, timely and understandable disclosure in the Company’s public communications, including documents that the Company files with or submits to the United States Securities and Exchange Commission and other regulators.

Officers and employees must consult their business unit or department for standards that apply to oral and written communications with the public, as well as the circumstances under which communications must be reviewed by supervisors and others. If you become aware of a materially inaccurate or misleading statement in a public communication, you must promptly report it in accordance with the procedures outlined in the Reporting Misconduct section of this Code.

MAINTAIN ACCURATE BOOKS AND RECORDS

The Company is required to maintain accurate and complete books and records. Every business transaction undertaken by the Company must be recorded on its books accurately and in a timely manner. You must be candid and accurate when providing information for these documents and never make false or misleading entries. In particular, senior financial officers must endeavor to ensure that financial information included in the Company’s books and records is correct and complete in all material respects.

TREAT OTHERS WITH DIGNITY AND RESPECT

The Company is committed to a work environment in which all individuals are treated with dignity and respect. It is the policy of the Company to ensure equal employment opportunity without discrimination or harassment on the basis of race, color, religion, age, gender, sexual orientation, national origin, citizenship, disability, marital and civil partnership status, pregnancy (including unlawful discrimination on the basis of a legally protected pregnancy/maternity leave), veteran status, or any other characteristic protected by law. The Company expects that all relationships among persons in the workplace will be business-like and free of bias, harassment, or violence.

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Misconduct, including discrimination, harassment, retaliation or other forms of unprofessional behavior will not be tolerated. Such behavior, even if not unlawful, will subject you to disciplinary action by the Company, up to and including termination of your employment or service. In addition, conduct that is unlawful may subject you to civil and criminal penalties.

Officers and employees are required to comply with all applicable Human Resource policies, as they exist today and any future amendments thereto, and all procedures regarding the reporting of discrimination or harassment.

PROMOTE A SAFE AND HEALTHY WORKING ENVIRONMENT

The Company is committed to conducting its business in compliance with all applicable environmental and workplace health and safety laws and regulations. The Company strives to provide a safe and healthy work environment for employees and to avoid adverse impact and injury to the environment and communities in which it conducts its business. Achieving this goal is the responsibility of all directors, officers, and employees.

ENFORCEMENT AND ADMINISTRATION OF THE CODE OF ETHICS

Reporting Misconduct

The Company’s reputation for integrity depends upon you. You are the Company’s first line of defense against civil or criminal liability and unethical business practices. If you believe you may have violated the law or Company policies, you must promptly notify your supervisor or Law and Compliance. In addition, if you observe or become aware of any illegal, unethical, or otherwise improper conduct relating to the Company, or conduct that could have an impact on the Company’s reputation—whether by an employee, supervisor, customer, consultant, supplier, or other third party—you must promptly discuss your concerns with your supervisor or Law and Compliance.

If the discussion does not resolve the concern or if you would prefer to report the concern through other channels, you should follow the procedures set forth in the Discover Financial Services Code of Conduct. In particular, you may call the Integrity Hotline telephone number to report concerns about matters, including accounting issues, that do not involve your employment relationship with the Company or discrimination or harassment (for those issues, please refer to the applicable Human Resource policy.) Concerns may be reported confidentially and anonymously.

If your concerns relate to the conduct of the Chief Executive Officer, any other senior executive or financial officer, or a member of the Board of Directors, you also may report your concerns to the Chief Legal Officer or the Director of Internal Audit. As appropriate, they will notify the Board of Directors of the allegations. Concerns involving the Chief Legal Officer or the Director of Internal Audit should be reported to the Board of Directors.

If you are a supervisor, you have an additional responsibility to take appropriate steps, in consultation with Law and Compliance, to stop any misconduct that you are aware of and to prevent its recurrence. Supervisors who do not take appropriate action may be held responsible for failure to supervise properly.

Non-Retaliation Commitment

Discover Financial Services prohibits retaliation for reports or complaints regarding the misconduct of others that were made in good faith. Open communication of issues and concerns by all without fear of retribution is vital to the continued success of the Company.

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Consequences of Violating the Code of Ethics

If you are an officer or employee, this Code, including any future amendments, forms part of the terms and conditions of your employment at the Company. The Code of Ethics is not a contract guaranteeing you employment for a specific duration or entitling you to any special privileges or benefits.

Directors, officers, and employees are expected to cooperate in internal investigations of allegations of violations of the Code of Ethics and other Company policies. Actual violations may subject you to the full range of disciplinary sanctions available to the Company. The Company also may report activities to its regulators, which could give rise to regulatory or criminal investigations. The penalties for regulatory and criminal violations may include significant fines and imprisonment.

Waivers and Amendments

Any waivers of the provisions of this Code of Ethics for directors or executive officers may be granted only in exceptional circumstances by the Board of Directors, or an authorized committee thereof, and will be promptly disclosed to the Company’s shareholders.

Amendments to this Code also must be approved by the Board of Directors. It is your responsibility to be familiar with the Code of Ethics as it may be revised from time to time.

YOUR PERSONAL COMMITMENT

A truly great, visionary company continuously lives and defends its values. Only by doing so can the Company realize the potential of its constituent parts and the talents of its people.

To reaffirm their commitment, Discover Financial Services requires that directors acknowledge this Code of Ethics and Business Conduct, and that officers and employees acknowledge the Company’s Code of Conduct, which is summarized in this Code of Ethics.

May 2007

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