Document:

<PAGE>

                                                                   EXHIBIT 10.10

                           SUPPLY AGREEMENT BETWEEN

            MANUFACTURERS' SERVICES SALT LAKE CITY OPERATIONS, INC.

                                      and

                             PALM COMPUTING, INC.

--------------------
[*] = information redacted pursuant to a confidential treatment request
throughout this exhibit
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                                TABLE CONTENTS

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1.   DEFINITIONS............................................................  1

2.   PRECEDENCE OF DOCUMENTS................................................  3

3.   PURCHASE AND SUPPLY COMMITMENT.........................................  3

4.   PURCHASE ORDERS, FLEXIBILITY, RESCHEDULES, CANCELLATIONS...............  4

5.   ROLLING FORECAST.......................................................  6

6.   PURCHASES BY BUYER'S AUTHORIZED AGENTS.................................  6

7.   EXCESS MATERIALS.......................................................  7

8.   OBSOLETE MATERIALS.....................................................  7

9.   TERM OF AGREEMENT......................................................  7

10.  PRODUCTION CAPACITY....................................................  7

11.  FLEXIBILITY CAPABILITY.................................................  8

12.  MATERIALS TRANSFER.....................................................  8

13.  PRICING................................................................  8

14.  DELIVERY...............................................................  9

15.  PACK-OUT, PACKING, MARKING, AND SHIPPING INSTRUCTIONS..................  9

16.  QUALITY STANDARDS AND CERTIFICATION....................................  9

17.  INSPECTION, TESTING, AND ACCEPTANCE.................................... 11

18.  RETURN OF PRODUCT...................................................... 12

19.  SUPPORT................................................................ 13

20.  WARRANTY............................................................... 13

21.  PAYMENT................................................................ 15
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                              TABLE OF CONTENTS
                                  (continued)

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22.  CHANGES................................................................ 15

23.  PROTOTYPING AND ENGINEERING SERVICES................................... 16

24.  INTELLECTUAL PROPERTY RIGHTS........................................... 17

25.  TERMINATION FOR CAUSE.................................................. 18

26.  TERMINATION FOR CONVENIENCE............................................ 18

27.  LIMITATION OF LIABILITY................................................ 19

28.  FORCE MAJEURE.......................................................... 19

29.  NONASSIGNABILITY....................................................... 20

30.  NOTICES................................................................ 20

31.  COMPLIANCE WITH LAWS................................................... 21

32.  PATENT, COPYRIGHT AND TRADEMARK INDEMNITY.............................. 21

33.  CAPACITY PLANNING...................................................... 23

34.  GRATUITIES............................................................. 23

35.  INSURANCE AND STATUTORY OBLIGATIONS.................................... 23

36.  INSURANCE COVERAGE..................................................... 23

37.  CONFIDENTIAL INFORMATION............................................... 24

38.  PUBLIC ANNOUNCEMENTS................................................... 25

39.  COUNTRY OF ORIGIN...................................................... 26

40.  PROPERTY FURNISHED BY BUYER............................................ 26

41.  GENERAL................................................................ 26
</TABLE>

     EXHIBITS:
     Exhibit A - Products and Pricing
     Exhibit B - Specifications

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                              TABLE OF CONTENTS
                                  (continued)

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     Exhibit C - Buyers' Pack-Out and Packaging Specifications
     Exhibit D - Flexibility Parameters
     Exhibit E - Buyer's Affiliates and Authorizing Agents
     Exhibit F - Performance Standards
     Exhibit G - Build Request Process Flow
     Exhibit H - Long Leadtime Authorization Form
     Exhibit I - Environmental Warranties
     Exhibit J - Statement of Work
</TABLE>
                                     -iii-
<PAGE>

                               SUPPLY AGREEMENT

     THIS SUPPLY AGREEMENT (hereinafter referred to as "the Agreement"), dated
and effective this 27th day of November 1999, ("Effective Date"), and the
schedules attached hereto between

     Manufacturers' Services Salt Lake City Operations, Inc., a company
organized and existing under the laws of Delaware and having its principal
place of business at 5742 West Harold Gatty Drive, Salt Lake City, Utah 84116
("Seller") on the one hand and

     Palm Computing, Inc., a company organized and existing under the laws of
California and having its principal place of business at 5400 Bayfront Plaza,
Santa Clara, California 95052 ("Buyer") on the other hand

     "Seller and Buyer" are hereinafter also collectively referred to as
"Parties" and individually as a "Party".

     WHEREAS, Seller agrees to manufacture and sell to Buyer the Products (as
hereinafter defined) and Buyer agrees to purchase from Seller such Products,
subject to the terms and conditions of this Agreement.

1.   DEFINITIONS

     A.   "Affiliate": with respect to any Party, any other party directly or
indirectly controlling, controlled by, or under common control with such Party.
For purposes of this definition, "control" when used with respect to any
party, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such party, whether
through the ownership of voting securities, by contract or otherwise; the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
Buyer's Affiliates are identified in Exhibit E, which may be changed by written
notice from Buyer to Seller from time to time.

     B.   "BOM":  Buyer's Bill of Materials.

     C.   Buyer's "Authorized Agent": any of Buyer's Affiliates, or any third
party suppliers, subcontractors or contract manufacturers who desire to purchase
Products or Materials and whose credit worthiness is reasonably acceptable to
Seller, who purchase on a letter of credit basis, or whose payment obligations
are guaranteed by Buyer. Buyer's Authorized Agents are identified in Exhibit E,
which may be changed from time to time by written agreement between Buyer and
Seller.

     D.   "Days":  calendar days unless otherwise specified.
<PAGE>

     E.   "Excess Materials": Unique Materials on hand and ordered consistent
with Buyer's forecast at agreed-upon leadtimes and for which the forecasted use
is in excess of thirteen (13) weeks resulting from Buyer's cancellations,
reschedules or other delays or changes caused by Buyer.

     F.   "Finished Goods Stockroom": the section of Seller's facility
designated as the area where the Product is delivered to Buyer.

     G.   "Materials":  component line items on the BOM, which are collectively
assembled to produce the Product.

     H.   "Manufacturing Lead Time": the total aggregate lead time of that
component of the Product having the longest lead time, plus the time necessary
for receiving and inspecting all components for such Product, manufacturing the
Product, and systems integration, test and distribution, all as mutually agreed
upon by the Seller and Buyer.

     I.   "MRP": Materials requirements planning.

     J.   "NRE": non-recurring engineering expenses.

     K.   "Obsolete Materials": Unique Materials on hand and ordered consistent
with Buyer's forecast at agreed-upon leadtimes which can no longer be used for
their designated Product and/or for which there is no forecast for the following
[*].

     L.   "Performance Standards": those performance standards set forth in
Exhibit F, as may be modified from time to time by mutual written agreement of
the Parties.

     M.   "Product(s)": the product(s) identified by Buyer's part number or
assembly identification name as more fully described in Buyer's Specifications.

     N.   "Pull" means a replenishment driven process triggered by customer
consumption whereby Product is manufactured and delivered by Seller based upon
Buyer's replenishment demand, which is generated by actual use, disposition or
consumption of Product by Buyer; the overall objective being to minimize Seller
and Buyer's inventories while enabling greater flexibility and faster response
in fulfilling Buyer's variable replenishment demand.

     O.   "Build Request" is a document Buyer provides to Seller on an as-needed
basis and serves as a replenishment request. The Build Request indicates, among
other things, the part number(s), quantity(s), delivery date(s), and
destination(s) of the Product(s) being requested.

     P.   "Pull Product" shall mean Products, which may be purchased by Buyer
under a Pull Purchase Order pursuant to this Agreement, and for which Seller and
Buyer have jointly agreed are to be designated as pull Products.

     Q.   "Blanket Purchase Order" is Buyer's blanket Purchase Order for a
Product. Blanket Purchase Orders shall reference this Agreement and include the
mutually agreed Price (as defined in

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Section 13A), but do not bind Buyer or Seller as to total quantities purchased,
delivery dates, or the total dollar commitment of such Blanket Purchase Order.

     R.   "Purchase Order": Buyer's written purchase order form or other format
mutually agreed upon by the Parties and any documents incorporated therein by
reference.

     S.   "RMA": return material authorization.

     T.   "Specifications": Buyer's specifications as shown on Exhibit B,
attached, which also hereby by reference include IPC-610B Class 2 workmanship
standards as modified from time to time and the then currently accepted
commercial manufacturing practices.

     U.   "Unique Materials": Custom (i.e. specifically designed for the
Products) Materials or noncancellable and nonreturnable industry standard
Materials (i.e., that are not available from multiple suppliers or from a single
supplier with multiple customers).

2.   PRECEDENCE OF DOCUMENTS

     The precedence of documents between Buyer and Seller shall be:

     A.   This Agreement, as it may be amended in writing by mutual agreement

     B.   A Purchase Order

     C.   Buyer's non-binding forecast.

3.   PURCHASE AND SUPPLY COMMITMENT

     A.   Buyer agrees that it and its Authorized Agents shall purchase, and
Seller agrees to supply, a minimum commitment of 450,000 units of Palm Viewer
Products per quarter during the Initial Term of this Agreement. Notwithstanding
the foregoing, if Seller fails to meet the Performance Standards set forth in
Exhibit F in all material respects, or otherwise fails to comply with material
obligations hereunder, or Seller fails to make the minimum commitment available
to Buyer in accordance with Buyer's orders in any quarter due to a Materials
shortage or otherwise (not directly caused by Buyer), Buyer will be under no
obligation to reach this minimum in any quarter of such material noncompliance
but will be under this obligation in subsequent periods if such noncompliance is
cured within the Initial Term. Notwithstanding the foregoing, any failure of
Seller to make minimum commitments available to Buyer in accordance with Buyer's
orders in any quarter shall only relieve Buyer of its obligation to reach its
minimum commitment to the extent of such shortfall provided that Seller makes
the remainder of such commitment available in such quarter in accordance with
Buyer's orders.

     B.   Any overage in purchase of Products of no more than 20% that occurs
during any quarter will be credited towards the subsequent quarterly period and
any deficit in purchase of Products of no more than 20% in any quarter may be
made up in the next quarter to the extent there is not a deficit in such
subsequent quarter. This minimum purchase commitment takes precedence over the

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Flexibility Parameters of Exhibit D. Failure to meet the commitment is subject
to a ninety (90) day notice and cure period.

4.   PURCHASE ORDERS, FLEXIBILITY, RESCHEDULES, CANCELLATIONS

     A.   Buyer will provide a minimum of [*] continuous, Blanket Purchase Order
coverage. Blanket Purchase Orders may be submitted in the form of hard copy, by
facsimile, or by electronic transfer if there is an electronic data interchange
("EDI") agreement in place between Buyer and Seller. Purchase Orders will
specify part numbers, quantity, prices, product revisions, requested delivery
dates and delivery locations all of which shall be consistent with the terms
hereof. Any terms or conditions contained in the Purchase Order or in Seller's
acknowledgement or other document which are inconsistent with or in conflict
with the terms and conditions contained in this Agreement or which increase or
impose additional obligations, liabilities, or risks upon the other Party are
hereby expressly rejected and shall have no effect. Blanket Purchase Orders will
be for one part number per purchase order and indicate: (1) agreed-upon purchase
Price; (2) method for shipping, receiving and billing of Product shipped per the
"Build Request Process Flow" method set out in Exhibit G or as otherwise
mutually agreed; and (3) payment terms as defined in this Agreement. Blanket
Purchase Orders quantities are not considered for liability purposes or for use
in Materials planning and forecast requirements. Materials liability is set
forth in Exhibit D. Buyer shall communicate demand for long range and weekly
increments consistent with the Build Request Process Flow set forth in Exhibit G
or as otherwise mutually agreed.

     B.   Alternatively, Buyer will provide a Blanket Purchase Order [*] at the
agreed-upon Price for the forecasted demand for [*]. Buyer will release Build
Requests for Products on a [*] basis for the quantities to be shipped the
following [*] based upon demand patterns and backlog status. On a periodic basis
at Buyer's discretion, Buyer may issue a Build Request document to Seller,
requesting delivery of Product pursuant to the Build Request Process Flow set
forth in Exhibit G. Such Build Requests shall be Buyer's only commitment to
purchase Products (subject to Section 3 above), and Seller's only authorization
to ship Product to Buyer. A Build Request may be in electronic or written
(including facsimile) form. Seller agrees to multiple Build Requests per Day.

     C.   When Buyer issues a Build Request, Products must be scheduled for
delivery [*] business Days after Seller's receipt of the Build Request. If Buyer
requests Seller to ship Products in fewer than [*] business Days after Seller's
receipt of the Build Request, Seller agrees to make commercially reasonable
efforts to accommodate Buyer's request.

     D.   Buyer and Seller agree to, on a monthly basis, reconcile their
respective data records with respect to open Purchase Order quantity and the
quantity of Product ordered, shipped and delivered pursuant to Buyer's Build
Requests during the previous one-month period.

     E.   Seller will use commercially reasonable efforts, and will allocate
excess capacity at the Salt Lake City facility pro-rata based on customer unit
order volume among Buyer and other customers (to the extent Seller does not have
enough capacity to meet Buyer's orders beyond forecast and minimum commitment)
to meet Buyer's requested increases in capacity beyond

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forecasted quantities within the Manufacturing Lead Time subject to Materials
availability, other scheduled manufacturing, and manufacturing capacity. If any
premium, expediting, or other increased charges over quoted costs are required
in order to meet Buyer's increased requirements, they must be approved in
advance by Buyer. Buyer agrees to pay for all such pre-approved costs that
represent out-of-pocket costs incurred by Seller. In addition, Seller commits at
no additional cost to Buyer to comply with the flexibility terms for Materials
and capacity availability as defined below provided that Seller is not obligated
to procure additional capital equipment to meet this obligation:

Materials and Capacity Availability Upside

     [*]           % Upside

     0-2            25%

     2-4            40%

     4-8            50%

     >8             100%

     F.   Exhibit D sets forth the allowable outward reschedules, cancellations
and upward flexibility.

     G.   Changes to Purchase Orders that are permissible under Exhibit D and
changes to its forecasts will be consolidated by Buyer who will take
commercially reasonable efforts to limit its requests to one request per week.

     H.   Purchase Orders shall not be considered as accepted until confirmed in
writing by an authorized representative of Seller. Seller shall make
commercially reasonable efforts to confirm Purchase Orders (except by written
mutual arrangement) within [*] business Days after receipt. Notwithstanding
the foregoing, if Seller fails to accept or reject within [*] Business
Days, Seller will be deemed to have accepted that Purchase Order. No additional
or different provisions proposed by either Party shall apply unless expressly
agreed to in writing by both Parties. Seller will accept Purchase Orders which
are consistent with the terms and conditions of this Agreement.

     I.   Seller will meet the delivery dates specified by Buyer if such dates
are consistent with the Performance Standards set forth in Exhibit F.

     J.   On a [*] basis Seller will provide Buyer with a list of all Materials
with leadtimes exceeding [*] for review and mutual approval. Upon mutual
approval, Seller will update the MRP with the mutually agreed current leadtimes.
Any Unique Materials that are required to be purchased beyond mutually agreed
leadtimes requires completion of the "Long Leadtime Authorization Form" set
forth in Exhibit H.

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     K.   Any Unique Materials item whose cost will change, with inventory or
liability still available, but less than a forecasted [*] production, will
result in a Price change, using a [*] method:

[*]

     L.   or such other method as mutually agreed.

5.   ROLLING FORECAST

     Buyer will provide Seller with at least a [*] rolling non-binding forecast,
updated [*]. Buyer authorizes Seller to procure long lead-time Materials
consistent with Section 4J above in accordance with Buyer's forecasts and
flexibility requirements. Buyer further authorizes Seller to purchase minimum
buy items and reel quantities to support economic order quantities and Materials
requirement planning which may exceed authorized forecasts or Purchase Orders.
Seller agrees to inform Buyer of such purchases and Buyer shall have the right
to pre-approve all purchases of Unique Materials ordered in excess of forecast.
Some of Seller's orders to vendors and/or some Materials may be designated by
vendors as non-cancelable or non-returnable. All of these actions may result in
Materials procurement in excess of that required by Buyer's Purchase Orders and
forecasts. Buyer hereby authorizes Seller to make such purchases as are
reasonably necessary to meet Buyer's forecasts. Buyer will be liable for, and
Buyer's liability with respect to the procurement of Materials will be limited
to Excess and Obsolete Materials as set forth in Section 7 and Section 8 below.
For the avoidance of doubt, Seller will be responsible for managing the
disposition and liability of all industry standard Materials at no expense or
liability to Buyer (i.e., all non-Unique Materials). In addition, Buyer may
limit its liability hereunder by specifying to Seller in writing a maximum
amount. If Buyer elects to specify a maximum amount Seller will purchase only to
that amount and will notify Buyer of the impact to Buyer's forecast/Purchase
Orders.

6.   PURCHASES BY BUYER'S AUTHORIZED AGENTS

     Seller agrees that all of the Buyer's Authorized Agents, wherever located,
shall be entitled to make purchases under this Agreement, and all such purchases
shall apply to the purchase commitments in Section 3, subject to their credit
worthiness being reasonably acceptable to Seller, unless they purchase on a
letter of credit basis or their payments are guaranteed by Buyer.  Any payment
timing and credit limitations placed on Buyer's Authorized Agents, other than
those presented in this Agreement, will be agreed upon in writing by both
Parties.  Seller agrees to notify Buyer of any credit limitations applicable to
Buyer's Authorized Agents.

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7.   EXCESS MATERIALS

     With respect to any Excess Materials on hand, Seller will notify Buyer of
the amount and the cost of such Excess Materials in a consolidated, monthly
report. Buyer shall either (i) pay carrying costs for Excess Materials at a rate
of [*] per month as it ages greater than [*] after receipt of such monthly
notice by Buyer; or (ii) buy all Excess Materials at Seller's cost (purchase
price paid by Seller) to be held in bonded stock for consumption based upon a
forecasted demand within the next [*]. Seller will use reasonable commercial
efforts to sell Excess Materials.

8.   OBSOLETE MATERIALS

     On a monthly basis, Seller will send Buyer a report which states the
Materials that are determined to be Obsolete Materials. Buyer will purchase
Obsolete Materials at cost (purchase price paid by Seller) plus a [*] Materials
acquisition charge. Buyer will provide Seller a Purchase Order within [*] days
of confirmation of obsolescence. Seller will use reasonable commercial efforts
to sell Obsolete Materials.

9.   TERM OF AGREEMENT

     This Agreement shall become effective upon execution by authorized
representatives of both Parties.  This Agreement shall expire twenty-four (24)
months after the date of execution by both Parties ("Initial Term"), unless this
Agreement is terminated earlier pursuant to Section 25 or 26 and shall be
automatically extended for one or more additional successive [*] month
periods (each, a "Renewal Term"), unless one Party notifies the other Party in
writing at least [*] months prior to the beginning of such additional period
that it desires not to extend.  Minimum capacity and purchase obligations
pursuant to Section 3 shall terminate upon expiration of the Initial Term and
shall not be renewed in any Renewal Term.  The Initial Term, along with any
Renewal Terms, is referenced to herein as the "Term" of this Agreement.

10.  PRODUCTION CAPACITY

     All manufacturing will be conducted at Seller's Salt Lake City, Utah
facility unless otherwise agreed. Seller shall make available the necessary
capacity at such facility to meet Buyer's production requirements, as provided
by Buyer in Sections 4 and 5. Seller will notify Buyer on a [*] basis to confirm
that capacity is available for the forecasted period for the following [*] Days
and to advise Buyer of any capacity constraints for the remainder of the
forecast period. Buyer agrees to not unreasonably withhold approval of
additional production facilities in the event of extraordinary demand beyond
Buyer's forecasts. However, to the extent Seller does not have sufficient
capacity to meet Buyer's orders beyond forecast and minimum commitments, Seller
will allocate capacity at the Salt Lake City facility pro-rata among Buyer and
other customers, based on customer unit order volumes, and Buyer is under no
obligation to approve the manufacture of Products at any other of Seller's
locations if Buyer determines in its sole discretion that such location does not
meet Buyer's business needs.

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11.  FLEXIBILITY CAPABILITY

     Buyer may issue change requests for Product quantities and schedule dates,
and Seller shall maintain the necessary capacity to accommodate such changes, in
accordance with the Flexibility Parameters attached as Exhibit D (the
"Flexibility Parameters").  Changes made in accordance with the Flexibility
Parameters will not incur cost or liability for Buyer.

12.  MATERIALS TRANSFER

     Seller agrees to buy, from time to time, Buyer's on-hand Materials that are
in excess of Buyer's own production requirements and are needed for Seller's
production within the open Purchase order period.  Seller also agrees to sell
Materials in excess of Seller's production requirements to Buyer, to any of
Buyer's Authorized Agents or anyone else designated by Buyer whose credit
worthiness is reasonably acceptable to Seller, who purchases on a letter of
credit basis, or whose payment obligations are guaranteed by Buyer. Transfer
quantities and payment terms will be mutually agreed on a case-by-case basis.
Prices shall be at Buyer's or Seller's, as the case may be, actual purchase
price for the transferred Materials.

13.  PRICING

     A.   The prices for Products sold pursuant to this Agreement are set out in
Exhibit A to this Agreement (hereinafter referred to as "Prices"). Any change to
the Prices set forth in Exhibit A shall be identified by an amendment to Exhibit
A which must be approved by authorized representatives of both Parties. All
Prices shall be in US Dollars, unless otherwise negotiated and documented in
Exhibit A.

     B.   Delivery is at Seller's dock or the Seller's Finished Goods Stockroom,
whatever the case may be. Buyer shall pay all applicable out-bound freight
costs, out-bound export costs, including any pre-shipment inspection charges if
mandated by the authorities of the country of exportation, as well as all out-
bound export brokerage, documentation, processing, customs and any other export
fees and taxes for export out of the United States at Buyer's request. Buyer
also agrees to pay all sales and use taxes on Products or Materials sold to
Buyer to Seller's delivery point or furnish Seller with tax exemptions. Both
Parties agree that Prices shall include all costs of the Product manufacture,
including pack-out of finished goods, as well as charges such as packaging,
palletizing, packing, crating, and storage as needed.

     C.   All Materials shall be purchased from suppliers on Buyer's approved
vendor list (the "AVL") as revised from time to time. Buyer agrees to use
reasonably commercial efforts to have Buyer's suppliers extend to Seller (as
agreed to by the applicable supplier) any and all Buyer negotiated Materials
pricing solely for purchases for Products manufactured under this Agreement.
Buyer will consider requests by Seller to permit such pricing to be extended to
Seller for purchases for Seller's other customers (as agreed to by the
applicable supplier).

     D.   Any Materials inspection processes that are in place at the
manufacturing facility as of the Effective Date are included in the negotiated
Price. Materials cost reductions negotiated by

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Buyer with component suppliers will also be factored into Buyer's Materials
cost. Cost reductions negotiated by Seller for Buyer-controlled Materials from
alternate suppliers that are not on Buyer's approved vendor list, but which have
been approved by Buyer for inclusion on the AVL, will be shared equally for one
quarter following first production shipment of such components by the new
supplier to Seller, after which time the cost reduction will be factored fully
into Buyer's Materials cost.

14.  DELIVERY

     A.   Seller will deliver the Product no more than [*] Days before and [*]
Days after the agreed delivery date, but if deliveries are delayed by causes
beyond Seller's control, Seller will promptly notify Buyer and may make partial
deliveries. If Seller continues to be unable to meet the agreed delivery date
due to supply constraints, it will provide Buyer a report of such supply
constraints and proposed actions to minimize the impact of these constraints. If
delivery is more than [*] Days late due to causes entirely within Seller's
control, Seller will pay the incremental cost of expedited shipment. Delivery
terms are Ex-Works (as defined in the International Chamber of Commerce
"Incoterms" 1990 edition) from Seller's production facility. Title and risk of
loss to the Product passes to the Buyer at the point of delivery, i.e. Seller's
dock or Sellers' Finished Goods Stockroom.

     B.   Seller shall segregate and clearly designate the Products as belonging
to Buyer. Seller shall maintain insurance coverage in a form reasonably
acceptable to Buyer to cover risk of loss to the Products until delivery to the
common carrier.

15.  PACK-OUT, PACKING, MARKING, AND SHIPPING INSTRUCTIONS

     A.   All Product shall be finished, packed-out, prepared and packed for
shipment in a commercially reasonable manner with the intent to secure the
lowest transportation rates and meet carrier's requirements and those set forth
in Buyer's Pack-Out and Packaging Specifications which are attached hereto as
Exhibit C.

     B.   Each shipping container shall be marked to show Buyer's Purchase Order
number, part number, revision level, lot number, quantity contained therein, and
destination. A packing list showing the Purchase Order number shall be included
in each container. Marking on all parts shall be per the Buyer's shipping
specification. Marking shall include date of manufacture, place of manufacture,
Seller's part number and revision number.

16.  QUALITY STANDARDS AND CERTIFICATION

     A.   MANAGEMENT REVIEW PROCESS. The Parties intend to maintain active and
open communications at both the program level and at the strategic level, and
agree to engage in periodic reviews of all applicable activities encompassing
the relationship. Executive representatives from both Parties will meet no less
than quarterly to review all major elements of this Agreement and to jointly
agree upon updated performance metrics for this Agreement. Initially, the
Parties intend to rotate these meetings between Seller's locations and Buyer's
corporate facilities in Santa Clara,

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California. Special attention will be paid to Buyer programs specific to the
host site, although the Parties will also follow a standard agenda covering the
total business. This agenda will include reviewing Buyer future Product roadmaps
and schedules, organizational updates, future manufacturing and process
improvements by Seller's business reviews, and performance metrics reflecting
activities during the period since the last review.

     B.   PERFORMANCE METRICS. Performance Metrics as set forth in Exhibit F
will include, but are not limited to, the following: (i) total Buyer-Seller
business level; (ii) Seller product quality and yields; (iii) Seller on-time
delivery performance; (iv) Buyer forecast accuracy; (v) Seller inventory
summary; (vi) Buyer EC activity; (vii) lead time characterization; (viii) Seller
prototype on-time delivery and quality performance; and (ix) Seller
future/projected manufacturing/process and cost improvements. Seller agrees to
maintain quality standards, measurement practices, quality reports, and
inspection processes as they exist at the Salt Lake City facility as of the
Effective Date subject to any changes as may be mutually agreed. In addition,
Seller will work with Buyer to develop mutually-agreeable closed-loop quality
and corrective action processes on a going forward basis. Seller shall maintain
the quality plan in effect at the Salt Lake City facility as of the Effective
Date. The Parties shall cooperate to develop a mutually acceptable quality plan
incorporating such existing plan at a minimum on a going forward basis. Upon
request of either Party, the Parties will cooperate to document such plan in
writing. The Parties shall engage in quarterly reviews and weekly conference
calls to track performance and update such plan.

     C.   Seller agrees that all Products will conform in all material respects
to the Specifications for the part number stated on the BOM or Buyer's Purchase
Order, the Specifications for the manufacture and pack-out of the Products, and
to the workmanship specifications of IPC-610B Class 2 as modified from time to
time, which are set forth in Exhibits B and C, and to the then currently
accepted commercial manufacturing practices. For the avoidance of doubt, as
used in this Agreement "material" includes without limitation any non-conformity
that may cause a customer to return a Product.

     D.   Seller will supply qualification samples to Buyer upon request. Buyer
shall provide written notification to Seller of the results of qualification
testing of each Product. If the sample is approved by Buyer, then Buyer will be
deemed to have accepted the BOM for the qualification samples and the processes
performed by Seller will be deemed to meet the appropriate Specifications.

     E.   Buyer shall have the right to purchase spare Materials for the
Products in order to perform internal maintenance, support, and repair and for
lab stock and testing purposes. Such purchases shall be governed by the
applicable terms and conditions set forth in this Agreement.

     F.   Seller will conform to the requirements of ISO 9002 at all times in
manufacturing the Products hereunder. Seller agrees that it currently is or
will, within twelve (12) months of the Effective Date of this Agreement become
certified under ISO 9002, and during the term of this Agreement will remain ISO
9002 certified. If at any time hereafter certification under ISO 9002 is no
longer generally appropriate, Seller will ensure that it is certified under
another comparable or higher standard which is reasonably acceptable to Buyer.

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     G.  Seller agrees that it will perform final "out-of-box" testing of a
sample of the Products to verify that the Products conform to the Specifications
in all material respects prior to delivery to Buyer. If any Products in the
sample deviate from the Specifications, Seller shall rework all defective
Products in the lot being sampled to render them compliant with the
Specifications in all material respects. Test methods and test procedures shall
be as currently in place at the Salt Lake City facility or as otherwise agreed
to by both Parties.

     H.  If Buyer returns defective Products to Seller, Seller agrees to
implement on a prompt basis appropriate actions as necessary to minimize the
possibility that additional defective Products will be delivered to Buyer, and
further agrees as soon as reasonably possible to implement appropriate
corrective actions as necessary to prevent reoccurrence of the defect. Seller
further agrees to conduct a detailed failure analysis and to report the failure
analysis data to Buyer within thirty (30) Days of receipt of the defective
Product at Seller's location. Seller agrees to preserve and maintain all data
associated with Product failure analysis and corrective actions and to make that
data available to Buyer upon request at no charge provided that Seller shall not
be obligated to preserve and maintain such data beyond the period required by
its ISO 9002 certification or the warranty period for the Products, whichever is
greater. Seller agrees to participate in Buyer's closed-loop corrective action
process.

     I.  Seller agrees to advise Buyer in writing of any material changes to
manufacturing processes and any changes to Materials, sources of supply, or
process chemistries, test procedures, quality reporting or other major
processes, and to ensure that any such changes do not compromise specifications,
quality, or reliability of Products ordered pursuant to this Agreement . In the
case of changes to Materials or sources of supply, such notice shall be provided
no less than the Materials' leadtime plus thirty (30) Days prior to the
effectiveness of such change. Seller may not make any such changes without prior
written approval from Buyer. In the event a Seller-proposed change fails Buyer's
qualification, Seller is obligated to provide the existing qualified Product
until the proposed changed can be qualified.

17.  INSPECTION, TESTING, AND ACCEPTANCE

     A.  Products purchased pursuant to this Agreement shall be subject to
inspection, testing, and acceptance by Buyer, which shall occur within [*] of
delivery of Product.

    B.  All Products built by Seller for Buyer will have a specific set of
Product testing procedures and acceptance criteria as currently in place at the
Salt Lake City facility or as otherwise agreed to by both Parties.  Upon request
of either Party, the Parties will cooperate to document such procedures and
criteria in writing. Should Products or Seller's processes be found to be non-
conforming, Seller will withhold shipping Product until such non-conformance is
resolved to Buyer's reasonable satisfaction. Buyer will not be responsible for
Products that fail to meet agreed upon acceptance criteria.

     C.  All Products are subject to Buyer's inspection and test at Buyer's
facility before final acceptance. Buyer has a [*] acceptance period after
delivery. In the event of a non-conforming

                                       11
<PAGE>

order (i.e. failure to meet Purchase Order or failure to meet warranty), Buyer
has the right to reject the order in whole or in part within such [*] period.

     D.  Upon two (2) business Days' notice, Buyer shall have the right to
perform vendor qualifications and/or on-site inspections at Seller's
manufacturing facilities during Seller's normal business hours. If an inspection
or test is made on Seller's premises, Seller shall provide Buyer's inspectors
with reasonable facilities and assistance at no additional charge. In the event
that any on-site inspection of the Products indicates that the Products do not
conform to the requirements of this Agreement, Seller shall not ship such
Products to Buyer until such nonconformity has been corrected to Buyer's
reasonable satisfaction and Buyer has approved shipment of such Products in
writing. This does not preclude, prevent or limit Buyer's right to perform
acceptance testing at Buyer's facilities.

18.  RETURN OF PRODUCT

     A.  In the event Buyer detects non-conforming Products prior to acceptance,
a Non-Conforming Materials Report (NCMR) and/or a Corrective Action Request
(CAR) shall be provided to Seller and Seller shall submit an initial response to
such CAR within forty-eight (48) hours after receipt.  Seller must provide a
Return Materials Authorization (RMA) within forty-eight (48) hours after receipt
of request for an RMA from Buyer.

     B.  Buyer may reject and return any defective Product to Seller at Seller's
expense. Seller agrees to reimburse Buyer all reasonable and actual freight and
handling costs associated with return of any defective Product. Seller will
return conforming Products freight prepaid as per the following schedule to
Buyer or issue appropriate credit no later than [*] Days, or as mutually
agreed by both Parties, from the date Seller receives the defective Product:

             RMA Quantity                   Days
             ------------                   ----

                [*]                          [*]

                [*]                          [*]

                [*]                          [*]

Any Product returned to Seller, which, after inspection and testing by Seller,
is found to be free of defects shall be subject to a "No Defect Found Charge" as
specified in Exhibit A. However, Seller will waive any NDF Charges on Products
returned for repair, if returned Products result in an NDF rate not exceeding
[*] of the monthly unit volume. For an NDF rate greater than [*] but not more
than [*] the Parties will mutually agree upon allocation of the NDF Charge.

     C.  If pending the analysis of returned Products by Seller Buyer is in
urgent need of Product, Buyer may issue a Purchase Order to replace the Products
to which the CAR pertains.  Seller will expedite such Purchase Order at Buyer's
request and, if requested by Buyer, will ship the order by

                                       12
<PAGE>

premium transport as specified by Buyer. All costs of expedited handling of such
Purchase Order and any premium transport specified by Buyer shall be borne by
Buyer, unless there is a defect that is the fault of the Seller, in which case
it will be borne by Seller.

19.  SUPPORT

     Buyer may request reasonable on-site support from Seller, which Seller
shall provide, to solve problems with rejected shipment batches of Product as
well as to validate Buyer's inspection methodology. All costs will be borne by
the Party incurring them.

20.  WARRANTY

     A.  WARRANTY.  Subject to Section 20E below, Seller makes the following
warranties to Buyer:

               (i)    The Product will conform in all material respects to the
Specifications and the Materials will conform in all material respects to the
supplier's specifications for such Materials for a period of [*] from the date
of delivery to Buyer;

               (ii)   The Products will be free from defects in Seller's
workmanship and in Materials and meet the mutually-agreed testing criteria for a
period of [*] from the date of delivery to Buyer;

               (iii)  All Products and Materials delivered under this Agreement
shall comply with the environmental warranties set forth in Exhibit I;

               (iv)   All Products and Materials delivered under this Agreement
shall be free and clear of any liens or encumbrances, and at the time of
delivery Seller shall have all rights necessary to transfer title to such
Products and Materials to Buyer;

               (v)    The Materials are Year 2000 ready such that they are
capable of correctly processing, providing, receiving and displaying date data,
as well as capable of exchanging accurate date data with all Products with which
the Materials are used within and between the twentieth and twenty-first
centuries; and

               (vi)   The Products and all Materials provided to Buyer under
this Agreement (other than those purchased from Buyer) are new products and do
not contain anything used, refurbished or reconditioned.

     B.  REPAIR OR REPLACEMENT.  In the event that any Product fails to comply
with the warranties set forth in Section 20A above, Seller shall, at its
expense, correct any such defect by repairing or replacing such defective
Product in Seller's discretion subject to Buyer's reasonable approval. Buyer
shall return to Seller such defective Products and Materials to Seller's
designated facility pursuant to the RMA procedure set forth in Section 18 above.
The repaired or replaced item will be shipped to Buyer no later than ten (10)
business Days from receipt of the defective Product at

                                       13
<PAGE>

Seller's facility subject to Materials availability. If repair or replacement is
not possible due to unavailability of needed Materials within the time required
by Buyer, at Buyer's option Seller will issue a refund in the form of a credit
to Buyer in an amount equal to the purchase Price of the defective Products that
Seller is unable to repair or replace. Replacement and/or repaired Products
shall be warranted for the [*].

     C.  EPIDEMIC DEFECT RATE.  In addition to Section 20A above, Seller agrees
to repair or replace, at no charge to Buyer, any Epidemic Defects found to exist
in any of the Products at any time prior to [*] after the date of delivery to
Buyer of the affected Products. As used herein, "Epidemic Defects" shall mean a
product field failure or defect for which Seller is responsible pursuant to the
warranty in Section 20A at a rate of [*] or more occurring with the same or
related Products with the same cause as measured during the warranty period. In
the case of any Epidemic Defects, Seller and Buyer shall jointly agree regarding
which of the following options to pursue, at Seller's expense; (i) [*] that no
such corrective action is sufficient.

     D.  INDEMNIFICATION.  If Seller discovers a material breach of any of the
representations and warranties in Section 20A, Seller shall promptly notify
Buyer of such breach in writing. In addition to repairing or replacing such
Products or Materials pursuant to Section 20B above, Seller shall defend,
indemnify and hold harmless Buyer and its officers, directors, employees,
agents, representatives, successors and assigns from any third-party claims,
liabilities, losses, demands or judgments arising from the breach of any of
Seller's representations and warranties set forth in Section 20A(iii) or (iv).

     E.  WARRANTY EXCLUSIONS.

     Buyer will have no claim against Seller under the Product warranties set
forth in Section 20A, and Seller shall have no liability under Section 20A to
the extent that such claims are made for a Product defect:

                         (a)  resulting from defective Buyer-supplied Materials;

                         (b)  resulting from specific instructions provided by
Buyer in writing or electronically, covering design or test data,
Specifications, quality requirements, diagnostics, manufacturing processes or
other processes or Product descriptions; or

                         (c)  that is caused by Buyer or anyone other than
Seller or its agents through misuse, excessive shock, accident, fire, or
improper maintenance procedures, improper storage, or modification by Buyer or
anyone other than Seller.

                                       14
<PAGE>

     Notwithstanding Section 20A above, Seller's sole liability under this
Section 20 with respect to Materials shall be to use reasonable commercial
efforts to obtain such warranties for Materials from its suppliers of Materials.
All warranties obtained by Seller on the Materials shall, if possible, be
assigned to Buyer at no additional cost.  To the extent such warranties are not
assignable to Buyer at no additional cost to Seller, Seller shall at Buyer's
written request use reasonable commercial efforts to enforce such warranty
against the supplier, and Seller shall provide the benefits of such enforcement
to Buyer (subject to reimbursement of attorney's fees as provided below).  In
the event that after using reasonable commercial efforts, Seller's initial
efforts to enforce such warranty against the Materials vendor are unsuccessful,
Buyer will reimburse Seller for the reasonable costs of pre-approved (by Buyer)
outside legal counsel to enforce such warranties.  If Seller is successful in
such enforcement,  Seller will repair the affected Products with the non-
defective, replacement Materials, if applicable, at no cost to Buyer to the
extent that such labor costs are included in the warranty.  To the extent that
labor costs are not included in such warranty, upon request from Buyer, Seller
will repair the affected Products with the non-defective replacement Materials
at Seller's standard costs.

     F.  WARRANTY DISCLAIMER.  THE FOREGOING EXPRESS WARRANTIES AND REMEDIES ARE
EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, EITHER IN
FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY
DISCLAIMED.

21.  PAYMENT

     A.  Payment shall be made by Buyer [*] Days from the receipt of invoice or
the date of delivery of Product, whichever is later. All payments shall be made
without any discount whatsoever. Seller shall submit the invoices to the address
indicated by Buyer.

     B.  Unless otherwise specified in Exhibit A or agreed to in writing by the
Seller and the Buyer, payment shall be in U. S. Dollars.

22.  CHANGES

     A.  The Parties recognize that from time to time Seller will request or
will be requested by Buyer to implement Engineering Change Orders (hereinafter
referred to as "ECOs").  The following outlines the proper procedure for such:

                    (i)  Seller Requested Changes. Seller is to notify Buyer in
                         ------------------------
writing of proposed ECOs no less than lead time of the Materials plus [*] and
will, if so requested, provide Buyer with samples. The notification shall
include the proposed Product changes, anticipated price changes and
implementation date. Notification shall also include the appropriate
documentation to support Buyer's investigation of the impact of this proposal.
Buyer will review the feasibility of the implementation of the proposed ECO. If
lead-time or new costs are required for the ECO, lead time and new Prices will
be reviewed. Buyer is to advise Seller of its decision with respect to the
proposed ECO within [*] after receipt of Seller's written notifica-

                                       15
<PAGE>

tion, Buyer will not be liable for any Excess or Obsolete Materials arising as a
direct result of such Seller ECO.

               (ii)   Buyer Requested Changes.  Buyer agrees to notify Seller
                      -----------------------
in writing of all proposed ECOs. This notification will include the appropriate
documentation to support Seller's investigation of the impact of this proposal.
Seller is to report to Buyer within five (5) business Days of Buyer's request
the feasibility of the implementation of the ECO and if reasonably feasible, the
estimated charges that would be incurred for obsolete work-in-process Materials,
raw Materials, and on-order Materials. Buyer will review the labor and Materials
costs and impact for the implementation of the ECO. If new Materials are
required for the ECO, lead-time and new Product Price will be reviewed and
mutually agreed upon.

               (iii)  Buyer is to notify Seller in writing within ten (10)
business Days after receipt of Seller's cost report of its decision as to the
proposed ECO, associated costs, and the implementation dates. Seller will
execute an agreed ECO per a mutually agreed upon phase-in plan, and will use
reasonable commercial efforts to meet Buyer's requested dates.

     B.  No ECO's shall be made by Seller without Buyer's prior written
approval, which may be withheld in Buyer's sole discretion.

23.  PROTOTYPING AND ENGINEERING SERVICES

     A.  PROTOTYPE SERVICES.  Buyer may engage Seller to render prototyping
services in connection with Products to be manufactured hereunder. In the event
that Buyer desires to engage Seller to render such services, the Parties shall
execute a Statement of Work which shall be in the form attached hereto as
Exhibit J or as otherwise mutually agreed, which shall include a description of
the services to be rendered, any milestones or delivery dates or other terms
relevant to such engagement.

     B.  OTHER ENGINEERING SERVICES.  The Parties acknowledge that Buyer may
desire to engage Seller for other engineering services relating to the Products.
If Seller agrees to such engagement, the Parties shall execute a Statement of
Work in the form attached hereto as Exhibit J or as otherwise mutually agreed
and which shall include a description of the services to be rendered and any
milestones or delivery dates or other terms relevant to such engagement.

     C.  PERFORMANCE METRICS FOR SERVICES.  Specific performance metrics for
Seller for a specific service may be set forth in the corresponding Exhibit J or
as otherwise mutually agreed. Where none is set forth, Seller shall use
reasonable efforts to provide services in accordance with the policies,
procedures and practices in effect before the date hereof and shall exercise the
same care and skill as it exercises in performing similar services for itself.

     D.  PAYMENT TERMS.  Prices for services shall be set forth in the
applicable Exhibit J. Seller shall invoice Buyer on a monthly basis for all
charges for services rendered pursuant to this Agreement. Such invoices shall be
accompanied by reasonable documentation or other reasonable

                                       16
<PAGE>

explanation supporting such charges. Buyer shall pay Seller for all services
provided hereunder within thirty (30) Days after receipt of an invoice therefor.

24.  INTELLECTUAL PROPERTY RIGHTS

     A.  BUYER OWNERSHIP.  Except as set forth in Section 24B below, Buyer shall
exclusively own all right, title and interest in all results and proceeds of the
services rendered by Seller hereunder (the "Services"), including without
limitation, in any work of authorship, mask work, idea, design, concept,
technique, invention or discovery, whether or not patentable or registerable
("Assigned Inventions"), and Seller hereby irrevocably transfers and assigns to
Buyer all right, title and interest, including without limitation all IP Rights,
in the Assigned Inventions. As used herein, "IP Rights" shall mean all
copyrights, maskwork rights, patents and other intellectual property or
proprietary rights. In addition, the Parties expressly agree to consider as
works made for hire those works ordered or commissioned by Buyer which qualify
as such in accordance with the copyright laws. For all of the Assigned
Inventions, Seller agrees to provide documentation satisfactory to Buyer to
assure the conveyance of the Assigned Inventions to Buyer. The Assigned
Inventions shall be kept in confidence by Seller and shall be used only in
performing this Agreement and may not be used for other purposes except upon
such terms as may be agreed upon between the Parties in writing. Seller also
agrees to acquire from its employees, agents and contractors, rights and
covenants as to assure that Buyer shall receive the rights provided for in this
Section 24A.

     B.  SELLER OWNERSHIP.  Seller shall exclusively own all IP Rights in all
know-how, technology, processes, procedures, ideas and concepts developed by
Seller or its employees, agents, affiliates or contractors in the course of
manufacturing the Products, any modifications, enhancements, improvements to the
manufacturing processes for the Products, and any other idea, design, concept,
technique, invention or discovery related to the manufacture of the Products
during the Term of this Agreement ("Manufacturing Standards"). For the avoidance
of doubt, (i) Buyer shall retain all IP Rights to all manufacturing processes,
know-how and other information and materials provided by Buyer to Seller after
the Effective Date of this Agreement to manufacture the Products or perform the
Services ("Buyer IP"), and (ii) Seller shall retain all IP Rights to all
manufacturing processes, know-how, and other information owned by Seller or
developed by Seller other than in connection with the performance of this
Agreement.

     C.  LICENSE GRANTS.  In consideration of Seller's obligations under this
Agreement, Buyer hereby grants Seller a non-exclusive, non-transferable,
royalty-free fully-paid license for the Term of this Agreement to use the Buyer
IP, but solely for the purpose of manufacturing and servicing the Products for
Buyer and any of Buyer's Authorized Agents who purchase under this Agreement,
unless otherwise notified in writing by Buyer. Seller hereby grants to Buyer a
nonexclusive, royalty-free, fully-paid license to use the Manufacturing
Standards in connection with the manufacture of Products by or for Buyer and to
make, have made and distribute the Products manufactured using the Manufacturing
Standards. Upon request from Buyer, Seller shall provide Buyer with such
documents reasonably necessary for Buyer to document and duplicate the
Manufacturing Standards for the Products.

                                       17
<PAGE>

     D.  BUYER TRADEMARKS.  Buyer authorizes Seller to affix and apply the Buyer
Trademarks to the Products as directed by Buyer for the sole purpose of
manufacturing the Products pursuant to this Agreement. Seller shall not use
Buyer Trademarks for any other purpose and only in such manner as to preserve
all rights of Buyer. Seller acquires no right to Buyer Trademarks by its use and
all uses by Seller of the Buyer Trademarks will inure to Buyer's sole benefit.
As used herein, "Buyer Trademarks" means those trademarks, trade names, service
marks, slogans, designs, distinctive advertising, labels, logos, and other
trade-identifying symbols as are or have been developed and used by Buyer or any
of its subsidiaries or affiliate companies and which Buyer owns or has the right
to use.

     E.  Nothing herein shall be deemed to modify the ownership, license or
other terms of the Intellectual Property License Agreement of even date herewith
between 3Com Corporation and Manufacturers' Services Limited ("MSL") or the
Asset Purchase Agreement dated as of November 19, 1999, between 3Com
Corporation, on the one hand, and Seller and MSL, on the other hand (the "Asset
Purchase Agreement").

25.  TERMINATION FOR CAUSE

     This Agreement or any Purchase Order may be terminated immediately for
cause by either Party upon notice to the other Party for the following:

               (i)   the other Party makes a general assignment for the benefit
of creditors, or a receiver or similar officer is appointed to take charge of
any of the other Party's assets;

               (ii)  the other Party enters into any composition with creditors
or is subject to an order made or resolution passed for it to be wound up or for
the appointment of a judicial manager;

               (iii) the other Party ceases to carry on its business or
operations;

               (iv)  a bankruptcy or similar petition is filed by or against the
other Party, and in the case of an involuntary petition, the proceeding is not
dismissed within sixty (60) Days; or

               (v)   the other Party fails to meet the Performance Standards set
forth in Exhibit F; or

               (vi)  the other Party fails to perform any material obligation
under this Agreement, and such failure is not cured within thirty (30) Days of
notice thereof.

26.  TERMINATION FOR CONVENIENCE

     Either Party may terminate this Agreement or any Purchase Order after
expiration of the Initial Term without cause by giving at least [*] written
notice to the other Party. Upon expiration or termination of this Agreement
for any reason, Seller will take commercially reasonable steps to reduce its
liability to vendors. Seller and Buyer may propose specific actions to be
taken in
                                       18
<PAGE>

this regard, and if they are unable to reach agreement after a reasonable time,
Buyer will pay Seller an amount equal to the liability for cancelled orders as
set forth in Exhibit D. If the Parties agree to have Seller seek to re-stock or
re-market any Unique Materials, Buyer will compensate Seller for its reasonable
costs, which shall include but not be limited to, cancellation or restocking
charges, costs of preparation and packaging of assemblies or Materials for
shipment to Buyer or any third party authorized by Buyer, and costs of
terminating any open Purchase Orders or contracts which had been authorized by
Buyer. Buyer will have no liability with respect to the payment for non-Unique
Materials.

27.  LIMITATION OF LIABILITY

     EXCEPT WITH RESPECT TO DAMAGES TO THIRD PARTIES UNDER INDEMNIFICATION
OBLIGATIONS OR WITH RESPECT TO BREACH OF CONFIDENTIALITY OBLIGATIONS, NEITHER
PARTY SHALL BE LIABLE TO THE OTHER UNDER ANY CONTRACT, STRICT LIABILITY,
NEGLIGENCE OR OTHER THEORY FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
INCLUDING WITHOUT LIMITATION LOST PROFITS IN CONNECTION WITH THE SUBJECT MATTER
OF THIS AGREEMENT OR ANY PURCHASE ORDER IRRESPECTIVE OF WHETHER SUCH PARTY HAD
ADVANCE NOTICE OR KNOWLEDGE OF THE POSSIBILITY OF SUCH DAMAGES.
NOTWITHSTANDING THE FOREGOING, THIS SECTION SHALL NOT LIMIT EITHER PARTY'S
LIABILITY FOR INJURY TO A PERSON OR RELIEVE BUYER'S LIABILITY TO PAY SELLER WHEN
DUE THE PRICE FOR PRODUCTS DELIVERED.

28.  FORCE MAJEURE

     Neither Party shall be liable hereunder by reason of any failure or delay
in the performance of its obligations hereunder (except for the payment of
money) on account of strikes, shortages, riots, insurrection, fires, flood,
storm, explosions, earthquakes, telecommunications outages, acts of God, war,
governmental action, or any other cause which is beyond the reasonable control
of such Party and could not have been avoided by the exercise of reasonable
prudence.  In the event of the occurrence of any force majeure event, the
affected Party shall notify the other Party immediately in writing of its
invocation of this Section 28, and each Party's obligations hereunder (except
for the payment of money) to the other shall be suspended for the duration of
such force majeure event; provided, however, that the affected Party shall be
obligated to use its commercially reasonable efforts to restore performance
hereunder as soon as reasonably practicable, and provided, further, that if such
event continues for more than thirty (30) Days in the aggregate in any six (6)
month period, the non-affected Party shall have the right to terminate this
Agreement at any time upon written notice to the other Party.  Seller's
performance under this Agreement in meeting delivery commitments shall be
excused until such time as Seller commences building and delivering Products or
initial SAP implementation is accepted by Seller, such acceptance not to be
unreasonably withheld, provided that, for the avoidance of doubt, such excuse
does not constitute a force majeure event.

                                       19
<PAGE>

29.  NONASSIGNABILITY

     Neither Party may, directly or indirectly, in whole or in part, whether by
operation of law or otherwise, assign or transfer this Agreement, or any rights
or obligations hereunder, without the other Party's prior written consent, and
any attempted assignment, transfer or delegation without such prior written
consent shall be voidable at the sole option of such other Party.
Notwithstanding the foregoing, each Party (or its permitted successive assignees
or transferees hereunder) may assign or transfer this Agreement as a whole
without consent to an entity that succeeds to all or substantially all of the
business or assets of such Party. Without limiting the foregoing, this Agreement
will be binding upon and inure to the benefit of the Parties and their permitted
successors and assigns.

     Notwithstanding the foregoing, Seller shall have the right upon written
notice to Buyer to assign this Agreement to a wholly-owned (direct or indirect)
subsidiary of Seller's ultimate parent, such arrangement not to affect the
guarantee by Manufacturers' Services Limited of this Agreement.

     Nothing herein shall prohibit Seller from granting in favor of its lenders
a security interest in any accounts receivable by Seller from Buyer under this
Agreement.

30.  NOTICES

     A.  All notices, reports, requests, acceptances, and other communications
required or permitted under this Agreement shall be in writing and shall
reference this Agreement.  They will be deemed delivered:

               (i)    When delivered in person, or

               (ii)   When sent by confirmed telex or acknowledged facsimile or
acknowledged e-mail except that the communications referred to in Sections 20E,
25, 26, 28, 29, or 32 may not be sent by e-mail, or

               (iii)  One Day after having been sent by commercial overnight
courier with written verification of receipt or,

               (iv)   Five Days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or upon actual
receipt thereof, whichever occurs first.  An acknowledged e-mail communication
or fax shall be deemed to be a communication in writing. All communication will
be sent to the receiving Party as follows or to such address that the receiving
Party may designate pursuant to this Section.

     If to Seller:    Manufacturers' Services Salt Lake City Operations, Inc.
                      5742 West Harold Gatty Drive
                      Salt Lake City, Utah 84116
                      Attention:  Vice President

                                       20
<PAGE>

     with a copy to:  Manufacturers' Services Limited
                      300 Baker Avenue
                      Concord, Massachusetts 01742
                      Attention:  General Counsel
                      and to Rod Michael, VP of Corporate Accounts
                      rod.michael@manserve.com

     If to Buyer:     PALM COMPUTING, INC.
                      5400 Bayfront Plaza
                      Santa Clara, California 95052
                      Attention:  Patrick McGivern, Senior Director, Supply
                                  Chain Operations
                      Patrick_McGivern@palm.com

     With a copy to:  PALM COMPUTING, INC.
                      5400 Bayfront Plaza,
                      Santa Clara, California 95052
                      Attention: General Counsel
                      Fax. No. (408) 326-6434

31.  COMPLIANCE WITH LAWS

     Seller agrees that its performance under this Agreement shall comply with
all applicable laws including without limitation laws governing its relationship
with its employees, agents or subcontractors.  Buyer agrees that its performance
under this Agreement shall comply with all applicable laws including without
limitation laws governing its relationship with its employees, agents or
subcontractors.

32.  PATENT, COPYRIGHT AND TRADEMARK INDEMNITY

     A.   Indemnity by Seller.  Seller will, at its expense, defend, indemnify
          -------------------
and hold Buyer, its Affiliates, officers and directors harmless from any costs,
expenses (including reasonable attorney's fees), losses, damages, court
judgments or awards or liabilities (collectively, "Damages") incurred as a
result of any claim that any Service or Product provided by Seller to Buyer
pursuant to this Agreement infringes or is alleged to infringe any patent,
copyright, trade secret, trademark, mask work right or other proprietary
right(s) of a third party, but solely to the extent such infringement or alleged
infringement arises out of or relates to a Seller Responsibility; provided that
Seller is promptly notified by Buyer, rendered reasonable assistance by Buyer
(at Seller's expense) and permitted to control the defense or settlement of such
claim. As used herein, "Seller Responsibility" means [*]. For the avoidance of
doubt, a Seller Responsibility occurs with respect to [*]. Without

                                       21
<PAGE>

limiting the foregoing, such indemnification shall not apply to infringing
combinations to the extent arising from the combination of the Product with
other items in which the combination was not performed by Seller or its agents
or from claims for infringement to the extent arising from changes to the
Products not made by Seller or its agents.

     B.  Indemnity by Buyer.  Buyer will, at its expense, defend, indemnify and
         ------------------
hold Seller and its Affiliates, officers and directors harmless from Damages
incurred as a result of any claim that any Product or Service provided by Seller
to Buyer hereunder infringes or is alleged to infringe any patent, copyright,
trade secret, trademark, mask work right or other proprietary right(s) of a
third party, except to the extent that such infringement or alleged infringement
arises out of or relates to a Seller Responsibility, and except to the extent
Seller has indemnification coverage from the applicable supplier with respect to
any Buyer-Specified Materials Infringement Claim; provided that Buyer is
promptly notified by Seller, rendered reasonable assistance by Seller (at
Buyer's expense) and permitted to control the defense or settlement of such
claim. Such indemnification shall not apply to infringing combinations arising
from the combination of Buyer's requirements with other items that are not
Buyer's requirements.

     C.  Buyer-Specified Materials Infringement Claim.  Seller will use
         --------------------------------------------
reasonable commercial efforts to obtain indemnification protection covering
Seller (and Buyer if possible) from its suppliers of Buyer-Specified Materials
for any claim that the Buyer-Specified Materials provided by suppliers infringes
or is alleged to infringe any patent, copyright, trade secret, trademark, mask
work, or other proprietary right(s) of a third party (a "Buyer-Specified
Materials Infringement Claim"), and Seller will use reasonable commercial
efforts to pass through to Buyer any indemnification protection that is so
obtained. As used herein, "Buyer-Specified Materials" means any Materials that
are specifically required in writing by Buyer and with respect to which there is
no non-infringing alternative available to implement such requirement. Where
Seller has obtained indemnification protection from a supplier of Buyer-
Specified Materials and is unable to pass through such indemnification
protection to the Buyer and a Buyer-Specified Materials Infringement Claim is
made against Buyer, Seller agrees that it will indemnify Buyer for Buyer's
Damages incurred as a result of such Buyer-Specified Materials Infringement
Claim, but such indemnification by Seller shall be provided only to the extent
Seller is able to obtain indemnification from such supplier using reasonable
commercial efforts and after application of such indemnification amount against
Damages incurred by Seller in connection with such Buyer-Specified Materials
Infringement Claim. All reasonable costs of outside counsel pre-approved by
Buyer to enforce such indemnification protection from such supplier of
Materials, to the extent incurred in respect of Seller's indemnification of
Buyer under this Section 32C, shall be reimbursed by Buyer.

     D.  Additional Obligations.  Should the use of any Product by Buyer or
         ----------------------
its customers be enjoined because of a Seller Responsibility, Seller shall (or
in the event Seller wishes to minimize its potential liability hereunder arising
from an infringement claim based on a Seller Responsibility, Seller may) either
(i) substitute a fully equivalent non-infringing unit of the Product for each
affected unit of the Product sold to Buyer; (ii) modify the infringing Product
so that it no longer infringes but remains functionally equivalent; (iii) obtain
for Buyer, at Seller's expense, the right to

                                       22
<PAGE>

continue to make, use and sell the Product; or if none of the foregoing is
feasible (iv) refund to Buyer the purchase price paid therefor and accept return
of the infringing Products.

33.  CAPACITY PLANNING

     A.   Seller agrees to review forecasts provided by Buyer and advise Buyer
if Seller anticipates that it will be unable to achieve the requested volumes.
Buyer's volume forecasts will be provided to Seller according to Section 5.
Seller may from time to time request Buyer to review Buyer's forecast and advise
of any changes and Buyer will do so. Seller agrees to provide Buyer with either
1) confirmation of feasibility of the forecast received, or 2) notice of
specific feasibility issues with the forecast received within five (5) Days of
receiving said forecast.

     B.   If Buyer's rolling forecast exceeds Seller's available maximum
capacity for Buyer, Seller shall advise Buyer of the limitations in the capacity
and provide a response in writing as described in the Purchase Order and rolling
forecast articles.

34.  GRATUITIES

     Each Party represents and warrants that it has not offered or given and
will not offer or give any employee, agent, or representative of the other Party
any gratuity with a view toward securing any business from the other Party or
influencing such person with respect to the business between the Parties.

35.  INSURANCE AND STATUTORY OBLIGATIONS

     If either Party's work under this Agreement requires access to any of the
other Party's premises or the premises of the other Party's buyers, suppliers,
or locations where the other Party conducts business, or with material or
equipment furnished by the other Party, both Parties shall take all necessary
precautions to prevent the occurrence of any injury to persons or property
during the progress of such work and, except to the extent that such injury is
due to the other Party's negligence or willful misconduct, each Party shall
indemnify the other Party against all loss which may result in any way from any
negligence or willful misconduct of the Party, its employees, servants, agents,
or subcontractors, and each Party shall maintain such insurance as shall protect
the other Party from such risks and from any statutory liabilities arising
therefrom and shall provide evidence of such insurance to the other Party upon
request.

36.  INSURANCE COVERAGE

     A.   Seller will provide evidence of product liability insurance in a form
reasonably acceptable to Buyer in the amounts of [*] per occurrence and [*]
aggregate per year, will maintain in effect such insurance for a period of [*]
after termination of such Agreement, and will provide Buyer with a certificate
of insurance.

     B.   Buyer will provide evidence of product liability insurance in a form
reasonably acceptable to Seller in the amounts of [*] per occurrence and [*]
aggregate per year,

                                       23
<PAGE>

and will maintain in effect such insurance for a period of [*] after
termination of such Agreement and will provide Seller with a certificate of
insurance.

37.  CONFIDENTIAL INFORMATION

     A.   "Confidential Information" means any information: (i) disclosed by one
           ------------------------
Party (the "Disclosing Party") to the other (the "Receiving Party"), which, if
in written, graphic, machine-readable or other tangible form is marked as
"Confidential" or "Proprietary," or which, if disclosed orally or by
demonstration, is identified at the time of initial disclosure as confidential
and is summarized in writing and similarly marked and delivered to the Receiving
Party within thirty (30) Days of initial disclosure; (ii) which at the time it
is disclosed is or should reasonably be known by the Receiving Party to be
proprietary or confidential information of the Disclosing Party, or (iii) which
is otherwise deemed to be "Confidential Information" by the terms of this
Agreement.  Notwithstanding the foregoing, Buyer's Confidential Information
shall include without limitation all Specifications of the Product. As used in
this Section 37A, the terms "Receiving Party" and "Disclosing Party" may be
understood to include, as appropriate under the circumstances, 3Com or its
subsidiaries or Palm or its subsidiaries, as applicable, and MSL or the MSL
Affiliates.

     B.   Confidential Information Exclusions. Confidential Information will
          -----------------------------------
exclude information that the Receiving Party can demonstrate is: (i) now or
hereafter, through no unauthorized act or failure to act on Receiving Party's
part, in the public domain; (ii) known to the Receiving Party from a source
other than the Disclosing Party (including former employees of the Disclosing
Party) without an obligation of confidentiality at the time Receiving Party
receives the same from the Disclosing Party, as evidenced by written records;
(iii) hereafter furnished to the Receiving Party by a third party as a matter of
right and without restriction on disclosure; (iv) furnished to others by the
Disclosing Party without restriction on disclosure; or (v) independently
developed by the Receiving Party without use of the Disclosing Party's
Confidential Information. Nothing in this Agreement shall prevent the Receiving
Party from disclosing Confidential Information to the extent the Receiving Party
is legally compelled to do so by any governmental investigative or judicial
agency pursuant to proceedings over which such agency has jurisdiction;
provided, however, that prior to any such disclosure, the Receiving Party shall
(a) assert the confidential nature of the Confidential Information to the
agency; (b) immediately notify the Disclosing Party in writing of the agency's
order or request to disclose; and (c) cooperate fully with the Disclosing Party
in protecting against any such disclosure and/or obtaining a protective order
narrowing the scope of the compelled disclosure and protecting its
confidentiality.

     C.   Confidentiality Obligation.  The Receiving Party shall treat as
          --------------------------
confidential all of the Disclosing Party's Confidential Information and shall
not use such Confidential Information except as expressly permitted under this
Agreement. Without limiting the foregoing, the Receiving Party shall use the
same degree of care and means that it utilizes to protect its own information of
a similar nature, but in any event not less than reasonable care and means, to
prevent the unauthorized use or the disclosure of such Confidential Information
to third parties. The Confidential Information may be disclosed only to
employees or contractors of the Receiving Party with a "need to know" who are
instructed and agree not to disclose the Confidential Information and not to use
the Confidential

                                       24
<PAGE>

Information for any purpose, except as set forth herein; provided, however, in
the case of Buyer, the term "employees or contractors of a Receiving Party"
shall include employees and contractors of Buyer and its Authorized Agents (but
with respect to Authorized Agents who are not Affiliates disclosure shall be
limited to the extent necessary to enable such Authorized Agents to purchase
under this Agreement). The Receiving Party shall have appropriate written
agreements with any such employees or contractors sufficient to comply with the
provisions of this Agreement. A Receiving Party may not alter, decompile,
disassemble, reverse engineer, or otherwise modify any Confidential Information
received hereunder and the mingling of the Confidential Information with
information of the Receiving Party shall not affect the confidential nature or
ownership of the same as stated hereunder.

     D.   Confidentiality of Agreement.  Each Party agrees that the terms and
          ----------------------------
conditions, but not the existence, of this Agreement will be treated as the
other Party's Confidential Information and that no reference to the terms and
conditions of this Agreement or to activities pertaining thereto may be made in
any form of press release or public statement without first consulting with the
other Party; provided, however, that each Party may disclose the terms and
             --------  -------
conditions of this Agreement: (i) as may be required by law; (ii) to legal
counsel of the Parties; (iii) in connection with the requirements of an initial
public offering or securities filing; (iv) in confidence, to accountants, banks,
and financing sources and their advisors; (v) in confidence, in connection with
the enforcement of this Agreement or rights under this Agreement; or (vii) in
confidence, in connection with a merger or acquisition or proposed merger or
acquisition, or the like.

     E.   No Confidential Information of Other Parties.  Each Party represents
          --------------------------------------------
and warrants to the other that it has not used and shall not use in the course
of its performance hereunder, and shall not disclose to the other, any
confidential information of any third party, unless it is expressly authorized
in writing by such third party to do so.

     F.   Required Disclosure.  In the event the Receiving Party is required to
          -------------------
disclose the Disclosing Party's Confidential Information pursuant to the order
or requirement of a court, administrative agency, or other governmental body,
the Receiving Party shall provide prompt notice thereof to the Disclosing Party
and shall use its reasonable efforts to obtain a protective order or otherwise
prevent public disclosure of such information.

38.  PUBLIC ANNOUNCEMENTS.

     Seller and Buyer agree to consult with each other before issuing any press
release or making any public statement with respect to this Agreement prior to
the Closing Date (as such term is defined in the Asset Purchase Agreement) and,
except as may be required by applicable law will not issue any such press
release or make any such public statement prior to such consultation.  Seller
and Buyer agree that the initial press release to be jointly issued by the
Parties with respect to the transactions contemplated by this Agreement shall be
in the form heretofore agreed.

                                       25
<PAGE>

39.  COUNTRY OF ORIGIN

     For each Product purchased under this Agreement, Seller shall furnish Buyer
with country of origin (manufacture), by quantity and part number (Buyer's and
Seller's).

40.  PROPERTY FURNISHED BY BUYER

     Any tools, drawings, specifications, or other Materials furnished by Buyer
for use by Seller in its performance under this Agreement or any Purchase Order
issued hereunder shall be identified and shall remain the property of Buyer and
shall be used by Seller only in its performance hereunder and Seller shall, at
Buyer's expense, take such action as Buyer may reasonably request to give full
legal effect to Buyer's rights therein.  Such property shall be returned to
Buyer at Buyer's cost, upon request, to destination specified by Buyer in good
condition, except for normal wear and tear.  Buyer shall maintain, or pay to
maintain, any Buyer-owned property in use by Seller.

41.  GENERAL

     A.  Any obligations and duties which, by their nature, extend beyond the
expiration or earlier termination of this Agreement, including Sections 18, 20,
24, 26, 27, 30, 32, 36, 37, 40, and 41 (collectively, the "Surviving
Obligations") shall survive any such expiration or termination and remain in
effect.  Termination shall not relieve any Party from its liability for breach.

     B.  If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable, such provision shall be enforced to the
fullest extent permitted by applicable law and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.  Any waiver of any kind by a Party of a breach of this
Agreement must be in writing, shall be effective only to the extent set forth in
such writing and shall not operate or be construed as a waiver of any subsequent
breach. Any delay or omission in exercising any right, power or remedy pursuant
to a breach or default by a Party shall not impair any right, power or remedy
which either Party may have with respect to a future breach or default.

     C.  To the extent the laws of the United States are applicable, Seller
hereby gives assurance to Buyer that it shall not export, re-export or otherwise
disclose, directly or indirectly, technical data received from Buyer or the
direct product of such technical data to any person or destination when such
export, re-export or disclosure is prohibited by the laws of the United States
or regulations of a Department of the United States . This Agreement is
considered to be Buyer and Seller Confidential Information.

     D.  The entire agreement between the Parties is incorporated in this
Agreement and Exhibits, and it supersedes all prior discussions and agreements,
both oral and written, between the Parties relating to the subject matter
hereof. This Agreement can be modified only by a written amendment duly signed
by persons authorized to sign agreements on behalf of both Parties, and shall
not be supplemented or modified by any course of dealing or trade usage.
Variance from or addition to the terms and conditions of this Agreement in any
Purchase Order, or other written notification from Seller will be of no effect.
This Agreement may be signed in any number of counterparts, each of

                                       26
<PAGE>

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.

     E.  Exhibits specified in this Agreement shall be attached hereto and by
this reference are made a part hereof. The following is a list of exhibits so
incorporated:

               Exhibit A:  Products and Pricing and No Defect Found Charge
               Exhibit B:  Specifications and IPC 610B Class 2
               Exhibit C:  Buyer's Pack-Out and Packaging Specifications
               Exhibit D:  Flexibility Parameters
               Exhibit E:  Buyer's Affiliates and Authorized Agents
               Exhibit F:  Performance Standards
               Exhibit G:  Build Request Process Flow
               Exhibit H:  Long Leadtime Authorization Form
               Exhibit I:  Environmental Warranties
               Exhibit J:  Statement of Work

     F.  The construction, validity, and performance of this Agreement and any
Purchase Order issued under it shall be governed by the laws of the State of New
York. The United Nations Convention on Contracts for the International Sale of
Goods is hereby expressly excluded from application to this Agreement.

     G.  Each of the Parties agrees that all actions, suits or proceedings
arising out of or based upon this Agreement or the subject matter hereof shall
be brought and maintained exclusively in the state or federal courts located in
the State of New York . Each of the parties by execution hereof (i) hereby
irrevocably submits to the jurisdiction of the state and federal courts located
in the Borough of Manhattan, City of New York, State of New York for the purpose
of any action, suit or proceeding arising out of or based upon this Agreement or
the subject matter hereof and (ii) hereby waives to the extent not prohibited by
applicable law, and agrees not to assert, by way of motion, as a defense or
otherwise, in any such action, suit or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named court, that it is
immune from extraterritorial injunctive relief, that his or its property is
exempt or immune from attachment or execution, that any such action, suit or
proceeding may not be brought or maintained in the above-named court should be
dismissed on the grounds of forum non conveniens, should be transferred to any
court other than the above-named court, should be stayed by virtue of the
pendency of any other action, suit or proceeding in any court other than the
above-named court, or that this Agreement or the subject matter hereof may not
be enforced in or by the above-named court. Each of the parties hereto hereby
consents to service of process in any such suit, action or proceeding in any
manner permitted by the laws of the State of New York, agrees that service of
process by registered or certified mail, return receipt requested, at the
address specified in or pursuant to Section 30 hereof is reasonably calculated
to give actual notice and waives and agrees not to assert by way of motion, as a
defense or otherwise, in any such action, suit or proceeding any claim that
service of process made in accordance with Section 30 hereof does not constitute
good and sufficient service of process. The

                                       27
<PAGE>

provisions of this Section 41G shall not restrict the ability of any party to
enforce in any court any judgment obtained in the state or federal courts
located in the State of New York. [*]

     H.  Buyer and Seller agree to conduct joint quarterly business reviews with
Senior Management of both Parties for the purpose of reviewing the ongoing
operational performance of Buyer and Seller as it relates to this Agreement,
discuss anticipated business conditions, corrective and preventive action plans
as necessary and appropriate respective strategic business decisions.

                                       28
<PAGE>

IN WITNESS, the authorized representatives of the Parties have executed this
Agreement.

For the Buyer:                          For the Seller:

                                        /s/ Manufacturers' Services
/s/ Palm Computing, Inc.                 Salt Lake City Operations, Inc.
---------------------------------       --------------------------------------
Signature                               Signature

Name:____________________________       Name:________________________________

Title:___________________________       Title:_______________________________

        11/27/99                                11/27/99
---------------------------------       --------------------------------------
Date                                    Date:

     MSL hereby joins this Agreement for the purposes set forth in this
paragraph.  MSL hereby guarantees to Buyer the performance by Seller of the
obligations of Seller under this Agreement, and, in the event of default by the
Seller of any such obligations, MSL agrees to perform all such obligations as if
MSL were Seller under this Agreement (subject to any limitations which would
apply if MSL were Seller under this Agreement), and to indemnify and hold
harmless Buyer from any loss, costs or damages arising out of any failure of the
Seller to perform any such obligations (subject to any limitations which would
apply if MSL were Seller under this Agreement).

     MSL hereby expressly waives (a) diligence, presentment, demand for payment,
acceptance or protest under this Agreement; (b) discharge due to the disability
of Seller with respect to its obligations under this Agreement; (c) any
requirement that Buyer exhaust any right, power or remedy or proceed against
Seller or any other person that may be liable for any obligations of Seller
hereunder and (d) notice of acceptance of its obligations under this Agreement
and notice of non-performance by Seller.  MSL specifically agrees that it shall
not be necessary or required, and MSL shall not be entitled to require, that
Buyer (i) file suit or proceed to assert any claim for personal judgement
against Seller in respect of any obligations hereunder; (ii) make any effort at
collection, enforcement or recovery of all or any part of any obligations
hereunder from Seller; or (iii) exercise or assert any other right or remedy to
which Buyer is or may be entitled in connection with any such obligations
hereunder.  Following the Effective Date, Seller and Buyer may amend or modify
this Agreement, or settle or comprise any claim hereunder or thereunder, without
consent of or notice to MSL.  MSL assumes all responsibility for keeping
apprised of the financial condition of Seller and its performance under this
Agreement.  To the extent any of the following are deemed applicable, MSL
expressly waives, to the extent permitted by law, the benefit of California
Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899 and
1432.  MSL further agrees to be bound by Section 41G in connection with disputes
arising under this Agreement.  MSL hereby represents and warrants to Buyer that
it has all requisite power and authority to join this Agreement for the limited
purposes stated in this paragraph and perform its obligations pursuant to this
Agreement.  MSL's

                                       29
<PAGE>

obligations hereunder shall survive any termination of this Agreement with
respect to the Surviving Obligations and any liability of Seller arising out of
the terminated Agreement.

For MSL:

            /s/ MSL
----------------------------------
Signature

Name:_____________________________

Title:____________________________

           11/27/99
----------------------------------
Date

                                       30
<PAGE>

                                   EXHIBIT A
                                   ---------

                PRODUCTS AND PRICING AND NO DEFECT FOUND CHARGE

PRICING

Prior to the end of each [*], or as mutually agreed by both parties, the Parties
will conduct a review of the unit price of the Bill of Material (BOM) for each
Product manufactured hereunder. Any price reductions in the unit price of the
Product's BOM that Buyer controls that is in excess of what Buyer would have
otherwise attained that results from Seller's negotiations of Materials cost or
design or other improvements originated by Seller shall be shared [*] with Buyer
[*] and then pass fully to Buyer. [*] associated with [*] will be [*] prior to
the calculation of the percentage savings split [*] between the Parties. Any
price reductions in the Product's BOM that Buyer controls that are a result of
normal takedown rates in the market or are initiated by Buyer shall pass fully
to Buyer. During such meetings the Parties will, in addition to reviewing the
previous [*] takedowns, also review projections for the next [*].

     Pricing will be done at a SKU or Product level.

     Prices for Products will be set at the end of each [*] for the subsequent
[*] and will be established based on the following approach:

     Buyer Controlled Materials - Prices for Buyer Controlled Materials will be
provided by Buyer, and should be based on [*] over the [*]. If it is expected
that [*] will [*] then a [*] will be used. In any event, any [*] on Buyer
Controlled Materials [*] will be [*] subject to [*] at a Materials level.

     Seller Controlled Materials - Prices for Seller Controlled Materials will
be established by applying the [*] in Table A-2 to the [*] for these Materials.
The [*] for these Materials are the [*] for such Materials.

     Value Add - Prices for the [*] following the Closing ("[*]") are shown in
Table A-1. Prices for the [*] through the [*] will be established by applying
the [*] in Table A-1 to the [*] prices.

     [*] in Table A-1 are [*].

     Pack-Out - Pack-out prices for those Products manufactured elsewhere (i.e.,
not by Seller) and packed-out by Seller under this Agreement are shown
separately in Table A-3.

                                      A-1
<PAGE>

     SKU Price = [*].

     For Products not produced in [*] but produced in a [*], the
pricing on Seller Controlled Materials and Value Add will be computed as
though the Product were produced and priced in each [*] schedule in Table A-1.
[*] on the Seller Controlled Materials may be [*] prior to the start of the
[*].

     Pricing on new Products:

     Prices on new Products will be established as follows:

     Buyer Controlled Materials - provided by [*].

     Seller Controlled Materials - to be priced [*]. [*] to be negotiated.

     Value Add - [*].

     The required [*] shown in Table A-1 will then [*].

     From time to time, [*] may be put in to [*]. The Value Add price per unit
[*].

     If the Product is deemed by both Parties to be unlike any other in the SLC
factory then the pricing will be determined on [*] compared to the [*] in the
factory (such times to be mutually agreed), unless otherwise mutually agreed
by both parties.

     Example,

     Product A produced in SLC facility
     -- [*]
             -- Value Add per unit [*]

             New Product
     -- [*]
     -- Value Add per unit = [*]

                                      A-2
<PAGE>

     This approach applies if the Product is [*].

     SKU Price = [*].

[*]

     Required [*] for the Initial Term of the Agreement are set forth in Table
A-1 (provided that such required [*] shall be subject to [*]. For the
avoidance of doubt, it shall not be [*].

                                      A-3
<PAGE>

[*]

                                    A-4

<PAGE>

[*]

                                      A-5
<PAGE>

Definitions: . "Buyer Controlled" Materials under this Exhibit A shall mean
               those Materials in the BOM [*].

             .  "Seller Controlled" Materials under this Exhibit A shall mean
                those Materials in the BOM [*].

             . Value Add - Encompasses [*].

             . Packout Price - [*] in accordance with this Agreement.

             . Materials Prices are driven off [*].

     [*] Threshold Level
     -------------------

     Within any given [*] if Buyer's [*] set forth below, then [*]. The
exception to this [*] is if the [*] were due to [*].

[*]

     PALM VIEWER PRODUCTS MANUFACTURING AND PACK-OUT
     -----------------------------------------------

     Product
     -------
          Palm V         [*]

                                      A-6
<PAGE>

     ---------------------------------------------------------------------------
          Palm Vx                         [*]
     ---------------------------------------------------------------------------
          Palm IIIx                       [*]
     ---------------------------------------------------------------------------
          Palm IIIc                       [*]
     ---------------------------------------------------------------------------

          Co-Pilot Modem

     ______________________

     PALM PRODUCTS - PACK-OUT ONLY
     -----------------------------

     Product
     -------
     ---------------------------------------------------------------------------

     Palm IIIe                            [*]
     __________

     Blade Modem
     -----------

                                      A-7
<PAGE>

                                   EXHIBIT B
                                   ---------

                       SPECIFICATION AND IPC610B CLASS 2

     Specifications shall be the existing specifications for the Products in use
at the Salt Lake City facility, or as otherwise mutually agreed.  Upon request
from either Party, the Parties will mutually agree on additional documentation
of such Specification.

                                      B-1
<PAGE>

                                   EXHIBIT C
                                   ---------

                 BUYER'S PACK-OUT AND PACKAGING SPECIFICATIONS

     Specifications shall be the existing specifications for the Products in use
at the Salt Lake City facility, or as otherwise mutually agreed.  Upon request
from either Party, the Parties will mutually agree on additional documentation
of such Specification.

                                      C-1
<PAGE>

                                   EXHIBIT D
                                   ---------

                            FLEXIBILITY PARAMETERS

Cancellation and Change Schedule:
---------------------------------
A.   Cancellations:

     Buyer may cancel Purchase orders at any time with the following liability:
[*].

     Excess and Obsolete Materials are subject to the charges as described in
Sections 7 and 8.

B.   Outward Reschedules:

<TABLE>
<CAPTION>
        Days before scheduled Delivery Date                Allowable percentage of Reschedules
      --------------------------------------             ---------------------------------------
      <S>                                                <C>
              [*]                                                   [*]
</TABLE>

     Flexibility Reschedules:  Buyer and Seller will mutually determine the
amount of Materials to be held in inventory to provide flexibility. Seller will
drive initiatives to create Product and component flexibility through innovative
Demand Pull signals that trigger demand to build product based upon Seller sales
order activity.  This demand signal will be used as a pull signal throughout the
Seller's manufacturing process.  The SMT line should be triggered to build upon
demand and trigger pulling raw components into the factory from a VMI model.

<TABLE>
<CAPTION>
    Days before
scheduled delivery
       date                                          Committed flexibility
----------------------      -----------------------------------------------------------------------
<S>                         <C>
Zero (0) to seven (7)       [*], Seller will [*].

Greater than seven (7)      [*] of the available Materials stock.
</TABLE>

     Buyer and Seller will review all options available and any premiums
required to provide Buyer both expedited replenishment and maximum upward
flexibility.

                                      D-1
<PAGE>

                                   EXHIBIT E
                                   ---------

                   BUYER'S AFFILIATES AND AUTHORIZED AGENTS

Affiliates:  None
----------

Authorized Agents:  None
------------------

                                      E-1
<PAGE>

                                   EXHIBIT F

                             PERFORMANCE STANDARDS

     Performance Standards for the [*] following the Effective Date shall be the
existing performance standards for the Products in use at the Salt Lake City
facility, or as otherwise mutually agreed. Upon request from either Party, the
Parties will mutually agree on additional documentation of such Performance
Standards. Performance Standards for [*] shall be mutually agreed by the Parties
prior to the commencement of the [*] following the Effective Date and shall
include such existing performance standards at a minimum, which standards shall
be developed to phase-in the performance expectations of Buyer's internal or
external manufacturing facilities, if applicable to the manufacturing of the
Products.

                                      F-1
<PAGE>

                                   EXHIBIT G
                                   ---------

                        BUILD REQUEST PROCESS FLOWCHART

Build Request Process Flow

[*]

                                      G-1
<PAGE>

                                   EXHIBIT H
                                   ---------

                       LONG LEADTIME AUTHORIZATION FORM

     The following is a sample of the long leadtime authorization form to be
completed by Seller and submitted to Buyer for approval in accordance with
Section 4J.  The parties may amend this form upon mutual agreement.

     In accordance with Section 4J of the Supply Agreement dated as of November
27, 1999,  between Seller and Buyer, Seller requests authorization from Buyer to
order Materials beyond the quoted leadtime plus 10 day period based on unique
circumstances for the following devices.

     Affected Buyer division:
     Buyer Part Number:
     Description of material:
     Affected assemblies:
     Name of supplier(s) of material:
     Reason/justification for requested authorization:
     New order leadtime period requested:
     Duration of this long leadtime authorization:

     Seller

     By:_____________________________

     Print Name:_____________________

     Title:__________________________

     Date:___________________________

     Approved:

     ________________________________
     Buyer

     By:_____________________________

     Print Name:_____________________

     Title:__________________________

     Date:___________________________

                                      H-1
<PAGE>

                                   EXHIBIT I
                                   ---------

                           ENVIRONMENTAL WARRANTIES

          To the extent the Products manufactured at the Salt Lake City facility
are compliant with the following as of the Effective Date and with respect to
any changes made by Seller after the Effective Date, Seller represents and
warrants to Buyer that upon and after the Effective Date of this Agreement:

          (i)   Seller will not provide any Product to Buyer which has come into
physical contact with: (i) a Class I substance, as defined in Article 611 of the
Federal Clean Air Act (the "Act"), during any portion of the manufacturing
process; or (ii) a Class II substance, as defined in the Act and Title 40, Code
of Federal Regulations, Article 82 (the "Code"), during any portion of the
manufacturing process, where there has been a determination by the U.S.
Environmental Protection Agency that there is a substitute product or
manufacturing process for such product which does not rely on the use of such
Class II substance, that reduces overall risk to human health and the
environment, and that is currently or potentially available, in accordance with
the Code.

          (ii)  Buyer shall not be subjected to any warning or labeling
requirements regarding a Class I substance or a Class II substance pursuant to
the Act or any regulation promulgated under the Act, as a result of any Product
provided by Seller to Buyer under this Agreement. Seller shall comply with
applicable environmental regulations involving recyclable packaging to the
extent such packaging is not specified by Buyer.

          (iii) The Products will not contain or be manufactured using ozone
depleting substances including without limitation chloroflourocarbons, halons,
methylchloroforms and carbon tetrachlorides.

          In the event that the Salt Lake City facility is not compliant with
any of the foregoing as of the Effective Date, the Parties will work to develop
and implement a plan to achieve compliance on a going-forward basis.

                                      I-1
<PAGE>

                                   EXHIBIT J
                                   ---------

                               STATEMENT OF WORK

PROTOTYPING SERVICES:

Qty: [*] notice, [*]

Qty: [*] notice, [*]

Qty: [*] notice, [*]

Qty: [*] notice, [*]

Qty: [*] notice, [*]

       Pricing is exclusive of Materials and tooling.

Buyer expects some ongoing small runs of builds (typically [*] units) for
component qualification purposes (using production boards). Buyer expects to
give [*] notice, have turnaround time of [*] and pay [*] premium on top of
normal information cost. [*] turn requests for the same purposes will be paid at
[*] premium on top of normal information cost.

                                      J-1WILSHIRE REAL ESTATE INVESTMENT TRUST INC.

                             1998 STOCK OPTION PLAN

<PAGE>

                                TABLE OF CONTENTS
                                -----------------

ARTICLE I.     PURPOSE.........................................................1

ARTICLE II.    DEFINITIONS.....................................................1

ARTICLE III.   ADMINISTRATION..................................................4

ARTICLE IV.    SHARES AND OTHER LIMITATIONS....................................7

ARTICLE V.     ELIGIBILITY.....................................................9

ARTICLE VI.    STOCK OPTIONS...................................................9

ARTICLE VII.   STOCK APPRECIATION RIGHTS......................................11

ARTICLE VIII.  RESTRICTED STOCK...............................................13

ARTICLE IX.    INDEPENDENT DIRECTOR AND NONEMPLOYEE DIRECTOR
               STOCK OPTIONS..................................................15

ARTICLE X.     NONTRANSFERABILITY.............................................17

ARTICLE XI.    TERMINATION PROVISIONS.........................................17

ARTICLE XII.   CHANGE IN CONTROL..............................................18

ARTICLE XIII.  TERMINATION OR AMENDMENT OF PLAN...............................20

ARTICLE XIV.   UNFUNDED PLAN..................................................21

ARTICLE XV.    GENERAL PROVISIONS.............................................21

ARTICLE XVI.   EFFECTIVE DATE OF PLAN.........................................24

ARTICLE XVII.  TERM OF PLAN...................................................24

ARTICLE XVIII. NAME OF PLAN...................................................24

<PAGE>

                   Wilshire Real Estate Investment Trust Inc.
                             1998 Stock Option Plan

                                   ARTICLE I.

                                     PURPOSE

     The purpose of the Wilshire Real Estate Investment Trust Inc. 1998 Stock
Option Plan (the "Plan") is to enhance the profitability and value of Wilshire
Real Estate Investment Trust Inc. (the "Company") for the benefit of its
stockholders by enabling the Company: (i) to offer stock based incentives and
other equity interests to Independent Directors, Non-Employee Directors and/or
Managers of the Company thereby attracting, retaining and rewarding such
Independent Directors, Non-Employee Directors and Managers and strengthening the
mutuality of interests between such individuals and the Company's stockholders
and (ii) to make automatic grants of Stock Options to Independent Directors and
Non-Employee Directors, thereby attracting, retaining and rewarding such
individuals and strengthening the mutuality of interests between such
individuals and the Company's stockholders.

                                   ARTICLE II.

                                   DEFINITIONS

     For purposes of the Plan, the following terms shall have the following
meanings:

          2.1.     "Affiliate" shall mean: (i) any person directly or indirectly
     owning, controlling, or holding, with power to vote ten percent (10%) or
     more of the outstanding voting securities of such other person, (ii) any
     person ten percent (10%) or more of whose outstanding voting securities are
     directly or indirectly owned, controlled, or held, with power to vote, by
     such other person, (iii) any person directly or indirectly controlling,
     controlled by, or under common control with such other person, (iv) any
     executive officer, director, trustee or general partner of such other
     person, and (v) any legal entity for which such person acts as an executive
     officer, director, trustee or general partner. For purposes of this
     definition, the term "person" means and includes any natural person,
     corporation, partnership, association, limited liability company or any
     other legal entity. For purposes of this definition, an indirect
     relationship shall include circumstances in which a person's spouse,
     children, parents, siblings or mothers-, fathers-, sisters- or
     brothers-in-law is or has been associated with a person.

          2.2.     "Award" shall mean any award under the Plan of any Stock
     Option, Restricted Stock or Stock Appreciation Right. All Awards shall be
     confirmed by, and subject to the terms of, a written agreement executed by
     the Company and the Participant.

                                       -1-

<PAGE>

          2.3.     "Board" shall mean the Board of Directors of the Company or
     an authorized committee thereof.

          2.4.     "Cause" shall mean, with respect to a Participant's
     Termination of Directorship, an act or failure to act that constitutes
     "cause" for removal of a director under applicable Maryland law.

          2.5.     "Change in Control" shall have the meaning set forth in
     Article XII.

          2.6.     "Code" shall mean the Internal Revenue Code of 1986, as
     amended. Any reference to any section of the Code shall also be a reference
     to any successor provision.

          2.7.     "Common Stock" shall mean the common stock, par value $0.0001
     per share, of the Company.

          2.8.     "Company" shall mean Wilshire Real Estate Investment Trust
     Inc., a Maryland corporation, and its successors and assigns.

          2.9.     "Disability" shall mean a total and permanent disability, as
     defined in Section 22(e)(3) of the Code.

          2.10.    "Effective Date" shall mean the effective date of the Plan
     as defined in Article XV.

          2.11.    "Exchange Act" shall mean the Securities Exchange Act of
     1934, as amended.

          2.12.    "Fair Market Value" for purposes of the Plan, unless
     otherwise required by any applicable provision of the Code or any
     regulations issued thereunder, shall mean, as of any date, the last sales
     price reported for the Common Stock on the applicable date: (i) as reported
     on the principal national securities exchange on which it is then traded or
     the Nasdaq Stock Market, Inc., or (ii) if not traded on any such national
     securities exchange or the Nasdaq Stock Market, Inc., as quoted on an
     automated quotation system sponsored by the National Association of
     Securities Dealers. If the Common Stock is not readily tradable on a
     national securities exchange, the Nasdaq Stock Market, Inc., or any
     automated quotation system sponsored by the National Association of
     Securities Dealers, its Fair Market Value shall be set in good faith by the
     Board. For purposes of the grant of any Stock Option, the applicable date
     shall be the date on which the Option is granted or, if the sale of the
     Common Stock shall not have been reported or quoted on such date, on the
     first day prior thereto on which the sale of the Common Stock was reported
     or quoted. For purposes of the exercise of any Stock Appreciation Right the
     applicable date shall be the date a notice of exercise is received by the
     Board or, if not a day on which the applicable market is open, the next day
     that it is open.

                                       -2-

<PAGE>

          2.13.    "Independent Director" shall mean a director who within the
     last two years, has not (i) been employed by WFSG or any of its Affiliates,
     (ii) been an officer or director of WFSG or any of its Affiliates, (iii) or
     whose business or employer within the last two years has not performed
     services for WFSG or any of its Affiliates that annually exceeded the
     lesser of (a) the dollar amount provided in Item 404(a) of Regulation S-K
     or (b) 10% of the gross revenue of the entity that provided such services,
     or (iv) had any material business or professional relationship with WFSG or
     any of its Affiliates.

          2.14.    "Manager" shall mean WRSC, or any other person or entity
     that the Board determines, in its sole discretion, to be a manager of the
     Company.

          2.15.    "Non-Employee Director" shall mean any director of the
     Company who is neither an employee of the Company nor an Independent
     Director.

          2.16.    "Non-Tandem Stock Appreciation Right" shall mean a Stock
     Appreciation Right entitling the holder to receive an amount in cash or
     stock equal to the excess of: (i) the Fair Market Value of a share of
     Common Stock as of the date such right is exercised, over (ii) the
     aggregate exercise price of such right, otherwise than on surrender of a
     Stock Option.

          2.17.    "Participant" shall mean any Independent Director,
     Non-Employee Director or Manager to whom an Award has been made under the
     Plan.

          2.18.    "Reference Stock Option" shall have the meaning set forth in
     Section 7.2.

          2.19.    "Restricted Stock" shall mean an award of shares of Common
     Stock under the Plan that is subject to restrictions under Article VIII.

          2.20.    "Restriction Period" shall have the meaning set forth in
     Subsection 8.3(a) with respect to Restricted Stock.

          2.21.    "Rule 16b-3" shall mean Rule 16b-3 under Section 16(b) of
     the Exchange Act as then in effect or any successor provisions.

          2.22.    "Stock Appreciation Right" shall mean the right pursuant to
     an Award granted under Article VII.

          2.23.    "Stock Option" or "Option" shall mean any Option to
     purchase shares of Common Stock granted to any Independent Director,
     Non-Employee Director or Manager pursuant to Article VI or to any
     Independent Director or Non-Employee Director pursuant to Article IX.

          2.24.    "Tandem Stock Appreciation Right" shall mean a Stock
     Appreciation Right entitling the holder to surrender to the Company all (or
     a portion) of a Stock Option in exchange for an amount in cash or stock
     equal to the excess of: (i) the Fair Market

                                       -3-

<PAGE>

     Value, on the date such Stock Option (or such portion thereof) is
     surrendered, of the Common Stock covered by such Stock Option (or such
     portion thereof), over (ii) the aggregate exercise price of such Stock
     Option (or such portion thereof).

          2.25.    "Termination of Directorship" shall mean, with respect to
     an Independent Director or Non-Employee Director, that the Independent
     Director or Non-Employee Director has ceased to be a director of the
     Company.

          2.26.    "Termination as a Manager" shall mean, with respect to a
     Manager, that the Manager has ceased to be a Manager of the Company.

          2.27.    "Transfer" or "Transferred" shall mean anticipate,
     alienate, attach, sell, assign, pledge, encumber, charge or otherwise
     transfer.

          2.28.    "WFSG" shall mean the Wilshire Financial Services Group
     Inc.

          2.29.    "WRSC" shall mean the Wilshire Realty Services Corporation.

                                  ARTICLE III.

                                 ADMINISTRATION

     3.1.   The Board. The Plan shall be administered and interpreted by the
Board.

     3.2.   Awards. The Board shall have full authority to grant, pursuant to
the terms of the Plan (including Article V hereof), Stock Options, Restricted
Stock and Stock Appreciation Rights to any Independent Director, Non-Employee
Director or Manager and to otherwise administer the Plan. In particular, the
Board shall, except with regard to awards of Stock Options to Independent
Directors and Non-Employee Directors pursuant to Article IX, have the authority:

            (a)  to select the Independent Directors, Non-Employee Directors and
     Managers to whom Stock Options, Restricted Stock and Stock Appreciation
     Rights may from time to time be granted hereunder;

            (b)  to determine whether and to what extent Stock Options,
     Restricted Stock and Stock Appreciation Rights are to be granted hereunder
     to one or more Independent Directors, Non-Employee Directors and Managers;

            (c)  to determine, in accordance with the terms of the Plan, the
     number of shares of Common Stock to be covered by each such Award granted
     to an Independent Director, Non-Employee Director or Manager;

            (d)  to determine the terms and conditions, not inconsistent with
     the terms of the Plan, of any Award granted hereunder to an Independent
     Director, Non-Employee

                                       -4-

<PAGE>

     Director or Manager (including, but not limited to, the exercise or
     purchase price (if any), any restriction or limitation, any vesting
     schedule or acceleration thereof, or any forfeiture restrictions or waiver
     thereof, regarding any Award, and the shares of Common Stock relating
     thereto, based on such factors, if any, as the Board shall determine, in
     its sole discretion);

            (e)  to determine whether and under what circumstances a Stock
     Option may be settled in cash and/or Common Stock under Section
     6.3(d)(iii);

            (f)  to determine whether, to what extent and under what
     circumstances to provide loans (which may be on a recourse basis and shall
     bear interest at the rate the Board shall provide) to Independent
     Directors, Non-Employee Directors and Managers in order to purchase shares
     of Common Stock under the Plan;

            (g)  to determine whether a Stock Appreciation Right shall be a
     Tandem Stock Appreciation Right or a Non-Tandem Stock Appreciation Right;

            (h)  to modify, extend or renew an Award, subject to Article XIII
     hereof, provided, however, that if an Award is modified, extended or
     renewed and thereby deemed to be the issuance of a new Award under the Code
     or the applicable accounting rules, the exercise price of such Award may
     continue to be the original exercise price even if less than the Fair
     Market Value of the Common Stock at the time of such modification,
     extension or renewal; and

            (i)  to offer to buy out an Award previously granted, based on such
     terms and conditions as the Board shall establish and communicate to the
     Participant at the time such offer is made.

     3.3.   Guidelines. Subject to Article XIII hereof, the Board shall have
the authority to adopt, alter and repeal such administrative rules, guidelines
and practices governing the Plan and perform all acts, including the delegation
of its administrative responsibilities, as it shall, from time to time, deem
advisable; to construe and interpret the terms and provisions of the Plan and
any Award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan. The Board may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or in any
agreement relating thereto in the manner and to the extent it shall deem
necessary to carry the Plan into effect, but only to the extent any such action
would be permitted under the applicable provisions of Rule 16b-3. The Board may
adopt special guidelines and provisions for persons who are residing in, or
subject to, the taxes of, countries other than the United States to comply with
applicable tax and securities laws. To the extent applicable, the Plan is
intended to comply with the applicable requirements of Rule 16b-3 and shall be
limited, construed and interpreted in a manner so as to comply therewith.

     3.4.   Decisions Final. Any decision, interpretation or other action made
or taken in good faith by or at the direction of the Company or the Board (or
any of its members) arising out of or in connection with the Plan shall be
within the absolute discretion of the Company or the

                                      -5-

<PAGE>

Board, as the case may be, and shall be final, binding and conclusive on the
Company and all employees and Participants and their respective heirs,
executors, administrators, successors and assigns.

     3.5.   Reliance on Counsel. The Company or the Board may consult with
legal counsel, who may be counsel for the Company or other counsel, with respect
to its obligations or duties hereunder, or with respect to any action or
proceeding or any question of law, and shall not be liable with respect to any
action taken or omitted by it in good faith pursuant to the advice of such
counsel.

     3.6.   Designation of Consultants/Liability.
            ------------------------------------

            (a)  The Board may designate employees of the Company and
     professional advisors to assist the Board in the administration of the Plan
     and may grant authority to employees to execute agreements or other
     documents on behalf of the Board.

            (b)  The Board may employ such legal counsel, consultants and
     agents as it may deem desirable for the administration of the Plan and may
     rely upon any opinion received from any such counsel or consultant and any
     computation received from any such consultant or agent. Expenses incurred
     by the Board in the engagement of any such counsel, consultant or agent
     shall be paid by the Company. The Board, its members and any person
     designated pursuant to paragraph (a) above shall not be liable for any
     action or determination made in good faith with respect to the Plan. To the
     maximum extent permitted by applicable law, no officer of the Company or
     member or former member of the Board shall be liable for any action or
     determination made in good faith with respect to the Plan or any Awards
     granted under it. To the maximum extent permitted by applicable law and the
     Certificate of Incorporation and By-Laws of the Company and to the extent
     not covered by insurance, each officer and member or former member of the
     Board shall be indemnified and held harmless by the Company against any
     cost or expense (including reasonable fees of counsel reasonably acceptable
     to the Company) or liability (including any sum paid in settlement of a
     claim with the approval of the Company), and advanced amounts necessary to
     pay the foregoing at the earliest time and to the fullest extent permitted,
     arising out of any act or omission to act in connection with the Plan,
     except to the extent arising out of such officer's, member's or former
     member's own fraud or bad faith. Such indemnification shall be in addition
     to any rights of indemnification the officers, directors or members or
     former officers, directors or members may have under applicable law or
     under the Certificate of Incorporation or ByLaws of the Company.
     Notwithstanding anything else herein, this indemnification will not apply
     to the actions or determinations made by an individual with regard to
     Awards granted to him under the Plan.

                                       -6-

<PAGE>

                                   ARTICLE IV.

                          SHARES AND OTHER LIMITATIONS

     4.1.   Shares.
            ------
            (a)  The aggregate number of shares of Common Stock which may be
     issued or used for preference purposes under the Plan shall not exceed
     3,500,000 shares, of which 500,000 shares are reserved for Independent
     Directors and Non-Employee Directors (subject to any increase or decrease
     pursuant to Section 4.2), which may be either authorized and unissued
     Common Stock or Common Stock held in or acquired for the treasury of the
     Company or both. If any Stock Option or Stock Appreciation Right granted
     under the Plan expires, terminates or is cancelled for any reason without
     having been exercised in full, the number of shares of Common Stock
     underlying the unexercised Stock Option or Stock Appreciation Right shall
     again be available for the purposes of Awards under the Plan. If any shares
     of Restricted Stock awarded under the Plan to a Participant are forfeited
     or repurchased by the Company for any reason, the number of forfeited or
     repurchased shares of Restricted Stock shall again be available for the
     purposes of Awards under the Plan. If a Tandem Stock Appreciation Right
     granted in tandem with an Option is granted under the Plan, such grant
     shall only apply once against the maximum number of shares of Common Stock
     which may be issued under the Plan. In determining the number of shares of
     Common Stock available for Awards, if Common Stock has been exchanged by a
     Participant as full or partial payment to the Company, or for withholding,
     in connection with the exercise of an Award or the number shares of Common
     Stock otherwise deliverable has been reduced for withholding, the number of
     shares of Common Stock exchanged as payment in connection with the exercise
     or for withholding or reduced shall again be available under the Plan. Any
     shares of Common Stock that are issued by the Company for, and any awards
     that are granted through the assumption of or in substitution for,
     outstanding awards previously granted by an acquired entity shall not be
     counted against the shares of Common Stock available for issuance under the
     Plan.

     4.2.   Changes.
            -------

            (a)  The existence of the Plan and the Awards granted hereunder
     shall not affect in any way the right or power of the Board or the
     stockholders of the Company to make or authorize any adjustment,
     recapitalization, reorganization or other change in the Company's capital
     structure or its business, any merger or consolidation of the Company, any
     issue of bonds, debentures, preferred or prior preference stock ahead of or
     affecting Common Stock, the authorization or issuance of additional shares
     of Common Stock, the dissolution or liquidation of the Company, any sale or
     transfer of all or part of its assets or business or any other corporate
     act or proceeding.

            (b)  In the event of any change in the capital structure or
     business of the Company by reason of any stock dividend or extraordinary
     dividend, stock split or reverse

                                       -7-

<PAGE>

     stock split, recapitalization, reorganization, merger, consolidation,
     split-up, combination or exchange of shares, non-cash distributions with
     respect to its outstanding Common Stock or capital stock other than Common
     Stock, reclassification of its capital stock, any sale or transfer of all
     or part of the Company's assets or business, or any similar change
     affecting the Company's capital structure or business and the Board
     determines in good faith that an adjustment is necessary or appropriate
     under the Plan to prevent substantial dilution or enlargement of the rights
     granted to, or available for, Participants under the Plan or as otherwise
     necessary to reflect the change, then the aggregate number and kind of
     shares which thereafter may be issued under the Plan, the number and kind
     of shares or other property (including cash) to be issued upon exercise of
     an outstanding Option or other Award granted under the Plan and the
     purchase or exercise price thereof shall be appropriately adjusted
     consistent with such change in such manner as the Board may deem equitable
     to prevent substantial dilution or enlargement of the rights granted to, or
     available for, Participants under the Plan or as otherwise necessary to
     reflect the change, and any such adjustment determined by the Board in good
     faith shall be binding and conclusive on the Company and all Participants
     and employees and their respective heirs, executors, administrators,
     successors and assigns.

            (c)  Fractional shares of Common Stock resulting from any
     adjustment in an Award pursuant to Section 4.2(a) or (b) shall be
     aggregated until, and eliminated at, the time of exercise. No fractional
     shares of Common Stock shall be issued under the Plan. The Board may, in
     its sole discretion, pay cash in lieu of any fractional shares of Common
     Stock in settlement of awards under the Plan. Notice of any adjustment
     shall be given by the Board to each Participant whose Award has been
     adjusted and such adjustment (whether or not such notice is given) shall be
     effective and binding for all purposes of the Plan.

            (d)  In the event of a merger or consolidation in which the
     Company is not the surviving entity or in the event of any transaction that
     results in the acquisition of all or substantially all of the Company's
     outstanding Common Stock by a single person or entity or by a group of
     persons and/or entities acting in concert, or in the event of the sale or
     transfer of all or substantially all of the Company's assets (all of the
     foregoing being referred to as "Acquisition Events"), then the Board may,
     in its sole discretion, terminate all outstanding Options and Stock
     Appreciation Rights of Independent Directors, Non- Employee Directors and
     Managers, effective as of the date of the Acquisition Event, by delivering
     notice of termination to each such Participant at least twenty (20) days
     prior to the date of consummation of the Acquisition Event; provided, that
     during the period from the date on which such notice of termination is
     delivered to the consummation of the Acquisition Event, each such
     Participant shall have the right to exercise in full all of his Options and
     Stock Appreciation Rights that are then outstanding (whether vested or not
     vested and without regard to any limitations on exercisability otherwise
     contained in the Option) but contingent on the occurrence of the
     Acquisition Event, and, provided that, if the Acquisition Event does not
     take place within a specified period after giving such notice for any
     reason whatsoever, the notice and exercise shall be null and void. If an
     Acquisition Event occurs, to the extent the Board does not terminate the
     outstanding

                                       -8-

<PAGE>

     Options and Stock Appreciation Rights pursuant to this Section 4.2(d), then
     the provisions of Section 4.2(b) shall apply.

     4.3.   Purchase Price. Notwithstanding any provision of the Plan to the
contrary, if authorized but previously unissued shares of Common Stock are
issued under the Plan, such shares shall not be issued for a consideration which
is less than as permitted under applicable law.

                                   ARTICLE V.

                                   ELIGIBILITY

     5.1.   Discretionary Awards. Independent Directors, Non-Employee
Directors and Managers of the Company are eligible to be granted Stock Options,
Restricted Stock and Stock Appreciation Rights under the Plan. Eligibility under
the Plan will be determined by the Board in its sole discretion.

     5.2.   Automatic Awards. Independent Directors and Non-Employee Directors
will automatically be granted Stock Options in accordance with Article IX of the
Plan.

                                   ARTICLE VI.

                                  STOCK OPTIONS

     6.1.   Options. Stock Options granted hereunder shall be non-qualified
stock options.

     6.2.   Grants. The Board shall have the authority to grant any
Independent Director, Non-Employee Director or Manager one or more Stock Options
under the Plan (with or without Stock Appreciation Rights).

     6.3.   Terms of Options. Options granted under the Plan shall be
subject to the following terms and conditions, and shall be in such form and
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Board shall deem desirable:

            (a)  Exercise Price. The exercise price per share of Common
     Stock subject to a Stock Option shall be determined by the Board at the
     time of grant, but shall not be less than 100% of the Fair Market Value of
     a share of Common Stock at the time of grant.

            (b)  Option Term. The term of each Stock Option shall be fixed
     by the Board, but no Stock Option shall be exercisable more than ten (10)
     years after the date the Option is granted.

                                       -9-

<PAGE>

            (c)  Exercisability. Stock Options shall be exercisable at such
     time or times and subject to such terms and conditions as shall be
     determined by the Board at grant. If the Board provides, in its discretion,
     that any Stock Option is exercisable subject to certain limitations
     (including, without limitation, that it is exercisable only in installments
     or within certain time periods), the Board may waive such limitations on
     the exercisability at any time at or after grant in whole or in part
     (including, without limitation, that the Board may waive the installment
     exercise provisions or accelerate the time at which Options may be
     exercised), based on such factors, if any, as the Board shall determine, in
     its sole discretion.

            (d)  Method of Exercise. Subject to whatever installment
     exercise and waiting period provisions apply under subsection (c) above,
     Stock Options may be exercised in whole or in part at any time during the
     Option term, by giving written notice of exercise to the Company specifying
     the number of shares to be purchased, accompanied by payment in full of the
     exercise price. Common Stock purchased pursuant to the exercise of a Stock
     Option shall be paid for at the time of exercise as follows: (i) in cash or
     by check, bank draft or money order payable to the order of Company; (ii)
     if the Common Stock is traded on a national securities exchange, the Nasdaq
     Stock Market, Inc., or quoted on a national quotation system sponsored by
     the National Association of Securities Dealers, through the delivery of
     irrevocable instructions to a broker to deliver promptly to the Company an
     amount equal to the purchase price; or (iii) on such other terms and
     conditions as may be acceptable to the Board (which may include payment in
     full or part in the form of Common Stock owned by the Participant for a
     period of at least six (6) months (and for which the Participant has good
     title free and clear of any liens and encumbrances) based on the Fair
     Market Value of the Common Stock on the payment date as determined by the
     Board or the surrender of vested Options owned by the Participant). No
     shares of Common Stock shall be issued until payment therefor, as provided
     herein, has been made or provided for.

            (e)  Form, Modification, Extension and Renewal of Options.
     Subject to the terms and conditions and within the limitations of the Plan,
     an Option shall be evidenced by such form of Stock Option agreement as is
     approved by the Board, and the Board may modify, extend or renew
     outstanding Options granted under the Plan, or accept the surrender of
     outstanding Options (up to the extent not theretofore exercised) and
     authorize the granting of new Options in substitution therefor (to the
     extent not theretofore exercised).

            (f)  Other Terms and Conditions. Options may contain such other
     provisions, which shall not be inconsistent with any of the foregoing terms
     of the Plan, as the Board shall deem appropriate.

                                      -10-

<PAGE>

                                  ARTICLE VII.

                            STOCK APPRECIATION RIGHTS

     7.1.   Stock Appreciation Rights. The Board may, in its sole
discretion, grant Stock Appreciation Rights to any Independent Director,
Non-Employee Director or Manager.

     7.2.   Tandem Stock Appreciation Rights. A Tandem Stock Appreciation
Right may be granted in conjunction with all or part of any Stock Option (a
"Reference Stock Option") granted under Article VI of the Plan either at or
after the time of the grant of such Reference Stock Option.

     7.3.   Terms and Conditions of Tandem Stock Appreciation Rights. Tandem
Stock Appreciation Rights shall be subject to such terms and conditions, not
inconsistent with the provisions of the Plan, as shall be determined from time
to time by the Board, including Article X and Article XI and the following:

            (a)  Term. A Tandem Stock Appreciation Right or applicable
     portion thereof granted with respect to a Reference Stock Option shall
     terminate and no longer be exercisable upon the termination or exercise of
     the Reference Stock Option, except that, unless otherwise determined by the
     Board, in its sole discretion, at the time of grant, a Tandem Stock
     Appreciation Right granted with respect to less than the full number of
     shares covered by the Reference Stock Option shall not be reduced until and
     then only to the extent the exercise or termination of the Reference Stock
     Option causes the number of shares covered by the Tandem Stock Appreciation
     Right to exceed the number of shares remaining available and unexercised
     under the Reference Stock Option.

            (b)  Exercisability. Tandem Stock Appreciation Rights shall be
     exercisable only at such time or times and to the extent that the Reference
     Stock Options to which they relate shall be exercisable in accordance with
     the provisions of Article VI and this Article VII.

            (c)  Method of Exercise. A Tandem Stock Appreciation Right may
     be exercised by an optionee by surrendering the applicable portion of the
     Reference Stock Option. Upon such exercise and surrender, the Participant
     shall be entitled to receive an amount determined in the manner prescribed
     in this Section 7.3 and the Reference Stock Option or part thereof to which
     such Stock Appreciation Right is related shall be deemed to have been
     exercised for the purpose of the limitation set forth in Article IV of the
     Plan on the number of shares of Common Stock to be issued under the Plan.
     The Stock Options which have been so surrendered, in whole or in part,
     shall no longer be exercisable to the extent the related Tandem Stock
     Appreciation Rights have been exercised.

            (d)  Payment. Upon the exercise of a Tandem Stock Appreciation
     Right a Participant shall be entitled to receive an amount in cash and/or
     Common Stock (as

                                      -11-

<PAGE>

     chosen by the Board in its sole discretion) equal in value to the excess of
     the Fair Market Value of one share of Common Stock over the exercise price
     per share specified in the Reference Stock Option multiplied by the number
     of shares in respect of which the Tandem Stock Appreciation Right shall
     have been exercised, with the Board having the right to determine the form
     of payment.

     7.4.   Non-Tandem Stock Appreciation Rights. Non-Tandem Stock
Appreciation Rights may also be granted without reference to any Stock Options
granted under Article VI of the Plan.

     7.5.   Terms and Conditions of Non-Tandem Stock Appreciation
Rights. Non-Tandem Stock Appreciation Rights shall be subject to such terms and
conditions, not inconsistent with the provisions of the Plan, as shall be
determined from time to time by the Board, including Article X and Article XI
and the following:

            (a)  Term. The term of each Non-Tandem Stock Appreciation Right
     shall be fixed by the Board, but shall not be greater than ten (10) years
     after the date the right is granted.

            (b)  Exercisability. Non-Tandem Stock Appreciation Rights shall
     be exercisable at such time or times and subject to such terms and
     conditions as shall be determined by the Board at grant. If the Board
     provides, in its discretion, that any such right is exercisable subject to
     certain limitations (including, without limitation, that it is exercisable
     only in installments or within certain time periods), the Board may waive
     such limitation on the exercisability at any time at or after grant in
     whole or in part (including, without limitation, that the Board may waive
     the installment exercise provisions or accelerate the time at which rights
     may be exercised), based on such factors, if any, as the Board shall
     determine, in its sole discretion.

            (c)  Method of Exercise. Subject to whatever installment
     exercise and waiting period provisions apply under subsection (b) above,
     Non-Tandem Stock Appreciation Rights may be exercised in whole or in part
     at any time during its term, by giving written notice of exercise to the
     Company specifying the number of Non-Tandem Stock Appreciation Rights to be
     exercised.

            (d)  Payment. Upon the exercise of a Non-Tandem Stock
     Appreciation Right a Participant shall be entitled to receive, for each
     right exercised, an amount in cash and/or Common Stock (as chosen by the
     Board in its sole discretion) equal in value to the excess of the Fair
     Market Value of one share of Common Stock on the date the right is
     exercised over the Fair Market Value of one share of Common Stock on the
     date the right was awarded to the Participant.

                                      -12-

<PAGE>

                                  ARTICLE VIII.

                                RESTRICTED STOCK

     8.1.   Awards of Restricted Stock. The Board shall have the authority
to grant shares of Restricted Stock to any Independent Director, Non-Employee
Director or Manager which may be issued either alone or in addition to other
Awards granted under the Plan. The Board shall, subject to the provisions of
Article V and Section 8.4 below, determine the eligible Independent Directors,
Non-Employee Directors and Managers to whom, and the time or times at which,
grants of Restricted Stock will be made, the number of shares to be awarded, the
price (if any) to be paid by the recipient (subject to Section 8.2), the time or
times within which such Awards may be subject to forfeiture, the vesting
schedule and rights to acceleration thereof, and all other terms and conditions
of the Awards. The Board may condition the grant of Restricted Stock upon the
attainment of specified performance goals or such other factors as the Board may
determine, in its sole discretion.

     8.2.   Awards and Certificates. The prospective Participant
selected to receive a Restricted Stock Award shall not have any rights with
respect to such Award, unless and until such Participant has delivered a fully
executed copy of the agreement evidencing the Award to the Company and has
otherwise complied with the applicable terms and conditions of such Award.
Further, such Award shall be subject to the following conditions:

            (a)  Purchase Price. The purchase price of Restricted Stock
     shall be fixed by the Board. Subject to Section 4.3, the purchase price for
     shares of Restricted Stock may be zero to the extent permitted by
     applicable law, and, to the extent not so permitted, such purchase price
     may not be less than par value.

            (b)  Acceptance. Awards of Restricted Stock must be accepted
     within a period of sixty (60) days (or such shorter period as the Board may
     specify at grant) after the Award date, by executing a Restricted Stock
     Award agreement and by paying whatever price (if any) the Board has
     designated thereunder.

            (c)  Legend. Each Participant receiving a Restricted Stock Award
     shall be issued a stock certificate in respect of such shares of Restricted
     Stock. Such certificate shall be registered in the name of such
     Participant, and shall bear an appropriate legend referring to the terms,
     conditions, and restrictions applicable to such Award, substantially in the
     following form:

          "The anticipation, alienation, attachment, sale, transfer, assignment,
     pledge, encumbrance or charge of the shares of stock represented hereby are
     subject to the terms and conditions (including forfeiture) of the Wilshire
     Real Estate Investment Trust Inc. 1998 Stock Option Plan and an Agreement
     entered into between the registered owner and the Company dated
     ___________________________. Copies of such Plan and Agreement are on file
     at the principal office of the Company."

                                      -13-

<PAGE>

            (d)  Custody. The Board shall require that the stock
     certificates evidencing such shares be held in custody by the Company until
     the restrictions thereon shall have lapsed, and that, as a condition of any
     Restricted Stock Award, the Participant shall have delivered a duly signed
     stock power, endorsed in blank, relating to the Common Stock covered by
     such Award.

     8.3.   Restrictions and Conditions on Restricted Stock Awards. The
shares of Restricted Stock awarded pursuant to the Plan shall be subject to
Article XII and the following restrictions and conditions:

            (a)  Restriction Period; Vesting and Acceleration of Vesting.
     The Participant shall not be permitted to Transfer shares of Restricted
     Stock awarded under the Plan during a period set by the Board commencing
     with the date of such Award (the "Restriction Period"), as set forth in the
     Award agreement and such Award agreement shall set forth a vesting schedule
     and any events which would accelerate vesting of the shares of Restricted
     Stock. Within these limits, based on service, performance and/or such other
     factors or criteria as the Board may determine in its sole discretion, the
     Board may provide for the lapse of such restrictions in installments in
     whole or in part, or may accelerate the vesting of all or any part of any
     Restricted Stock Award and/or waive the deferral limitations for all or any
     part of such Award.

            (b)  Rights as Stockholder. Except as provided in this
     subsection (b) and subsection (a) above, the Participant shall have, with
     respect to the shares of Restricted Stock, all of the rights of a holder of
     shares of Common Stock of the Company including, without limitation, the
     right to receive any dividends and the right to vote or tender such shares.
     The Board, in its sole discretion, as determined at the time of Award, may
     permit or require the payment of dividends to be deferred.

            (c)  Lapse of Restrictions. If and when the Restriction Period
     expires without a prior forfeiture of the Restricted Stock subject to such
     Restriction Period, the certificates for such shares shall be delivered to
     the Participant. All legends shall be removed from said certificates at the
     time of delivery to the Participant.

     8.4.   Termination of Directorship or Termination as a Manager. Subject
to the applicable provisions of the Award agreement and the Plan, upon a
Participant's Termination of Directorship or Termination as a Manger, as
applicable, for any reason during the relevant Restriction Period, all
Restricted Stock still subject to restriction will vest or be forfeited in
accordance with the terms and conditions established by the Board at grant or
thereafter.

                                      -14-

<PAGE>

                                   ARTICLE IX.

          INDEPENDENT DIRECTOR AND NON-EMPLOYEE DIRECTOR STOCK OPTIONS

     9.1.   Options. This Article IX shall apply only to Stock Options
granted to Independent Directors and Non-Employee Directors pursuant to this
Article IX.

     9.2.   Non-Qualified Stock Options. Stock Options granted hereunder shall
be non- qualified stock options.

     9.3.   Awards. Without further action by the Board or the stockholders of
the Company, each Independent Director or Non-Employee Director shall, subject
to the terms of the Plan, be granted:

            (a)  Stock Options to purchase 1,500 shares of Common Stock on
     the last trading date of each calendar quarter of the Company.

            (b)  Stock Options to purchase 5,000 shares of Common Stock on:
     (i) the date on which the offering price in connection with the initial
     public offering of the Common Stock is established (the "IPO Price"); or
     (ii) if later, the date on which the Independent Director or Non-Employee
     Director commences service as an Independent Director or Non- Employee
     Director.

     9.4.   Terms of Options. Options granted under this Article shall be
subject to the following terms and conditions and shall be in such form and
contain such additional terms and conditions, not inconsistent with terms of the
Plan, as the Board shall deem desirable:

            (a)  Exercise Price. The exercise price per share of Common
     Stock subject to an Option granted pursuant to Section 9.3(a) shall be
     equal to one hundred ten percent (110%) of the Fair Market Value of the
     Common Stock at the time of grant. The exercise price per share of Common
     Stock subject to an Option granted pursuant to Section 9.3(b)(i) shall be
     equal to the IPO Price. The exercise price per share of Common Stock
     subject to an Option granted pursuant to Section 9.3(b)(ii) shall be equal
     to the Fair Market Value at the time of grant.

            (b)  Exercisability. Except as otherwise provided herein,
     one-third (1/3) of the Stock Options granted pursuant to Section 9.3(a)
     shall vest and become exercisable on each anniversary of the date of grant,
     provided that the Participant has not incurred a Termination of
     Directorship prior to the applicable dates. Stock Options granted pursuant
     to Section 9.3(b) shall be fully vested and exercisable at the time of
     grant. Notwithstanding the foregoing, Options granted pursuant to this
     Article IX shall fully vest and become exercisable upon the occurrence of a
     Change in Control.

            (c)  Method of Exercise. Subject to whatever installment
     exercise and waiting period provisions apply under Article IX, Stock
     Options may be exercised in whole or in

                                      -15-

<PAGE>

     part at any time during the Option term, by giving written notice of
     exercise to the Company specifying the number of shares to be purchased,
     accompanied by payment in full of the exercise price. Common Stock
     purchased pursuant to the exercise of a Stock Option shall be paid for at
     the time of exercise in cash or by check, bank draft or money order payable
     to the order of Company or by delivery of Common Stock owned by the
     Participant for a period of at least six (6) months (and for which the
     Participant has good title free and clear of any liens and encumbrances) or
     by such other method approved by the Board. No shares of Common Stock shall
     be issued until payment therefor, as provided herein, has been made or
     provided for.

            (d)  Term. Except as otherwise provided herein, if not
     previously exercised each Option shall expire upon the tenth anniversary of
     the date of the grant thereof.

            (e)  Termination of Directorship. The following rules apply with
     regard to Stock Options granted under this Article IX upon the Termination
     of Directorship of a Participant:

                 (i)   Termination by Reason of Death or Disability. If a
            Participant's Termination of Directorship is by reason or death or
            Disability, any Stock Option held by such Participant may be
            exercised, to the extent exercisable at the Participant's
            Termination of Directorship, by the Participant or the legal
            representative of the estate at any time within a period of two (2)
            years from the date of such Termination of Directorship, but in no
            event beyond the expiration of the stated term of such Stock Option.

                 (ii)  Otherwise Ceasing to be an Independent Director or
            Non- Employee Director other than for Cause. Upon the Termination of
            Directorship, on account of resignation, failure to stand for
            reelection or failure to be reelected or otherwise other than as set
            forth in (i) above or (iii) below, all outstanding Stock Options
            then exercisable and not exercised by the Participant prior to
            such Termination of Directorship shall remain exercisable, to the
            extent exercisable at the Termination of Directorship, at any time
            within a period of one (1) year from the date of such Termination of
            Directorship, at any time within a period of one (1) year from the
            date of such Termination of Directorship, but in no event beyond the
            expiration of the stated term of such Stock Option.

                 (iii) Cause. Upon removal, failure to stand for reelection
            or failure to be renominated for Cause, or if the Company obtains or
            discovers information after Termination of Directorship that such
            Participant had engaged in conduct that would have justified a
            removal for Cause during such directorship, all outstanding Stock
            Options of such Participant shall immediately terminate and shall be
            null and void.

                 (iv)  Cancellation of Stock Options. No Stock Options that
            were not exercisable during the period such person serves as an
            Independent Director or

                                      -16-

<PAGE>

            Non-Employee Director shall thereafter become exercisable upon a
            Termination of Directorship for any reason or no reason whatsoever,
            and such Stock Options shall terminate and become null and void upon
            a Termination of Directorship.

                                   ARTICLE X.

                               NON-TRANSFERABILITY

     10.1.  Non-Transferability. Except as provided in the last sentence of
this Section 10.1, no Award shall be Transferred by the Participant otherwise
than by will or by the laws of descent and distribution. All Stock Options and
Stock Appreciation Rights shall be exercisable, during the Participant's
lifetime, only by the Participant. Shares of Restricted Stock under Article VIII
may not be Transferred prior to the date on which such shares are issued, or, if
later, the date on which any applicable restriction, performance or deferral
period lapses. No Award shall, except as otherwise specifically provided by law
or herein, be Transferred in any manner, and any attempt to Transfer any such
Award shall be void, and no such Award shall in any manner be used for the
payment of, subject to, or otherwise encumbered by or hypothecated for the
debts, contracts, liabilities, engagements or torts of any person who shall be
entitled to such Award, nor shall it be subject to attachment or legal process
for or against such person. Notwithstanding the foregoing, the Board may
determine at the time of grant or thereafter, that a Stock Option (other than a
Stock Option granted pursuant to Article IX) that is otherwise not transferable
pursuant to this Article X is transferable in whole or part and in such
circumstances, and under such conditions, as specified by the Board.

                                   ARTICLE XI.

                             TERMINATION PROVISIONS

     11.1.  Termination of Directorship. The following rules apply with
regard to Stock Options granted under Article VI and Article IX and Stock
Appreciation Rights granted under Article VII upon the Termination of
Directorship of a Participant:

            (a)  Termination by Reason of Death or Disability. If a
     Participant's Termination of Directorship is by reason of death or
     Disability, any Stock Option or Stock Appreciation Right held by such
     Participant, unless otherwise determined by the Board at grant, or if no
     rights of the Participant or his estate are reduced, thereafter, may be
     exercised, to the extent exercisable at the Participant's Termination of
     Directorship, by the Participant or the legal representative of the estate
     at any time within a period of two (2) years from the date of such
     Termination of Directorship, but in no event beyond the expiration of the
     stated term of such Stock Option or Stock Appreciation Right.

            (b)  Otherwise Ceasing to be an Independent Director or
     Non-Employee Director other than for Cause. Upon the Termination of
     Directorship, on account of

                                      -17-

<PAGE>

     resignation, failure to stand for reelection or failure to be reelected or
     otherwise other than as set forth in (a) above or (c) below, all
     outstanding Stock Options and Stock Appreciation Rights then exercisable
     and not exercised by the Participant prior to such Termination of
     Directorship, unless otherwise determined by the Board at grant, or if no
     rights of the Participant or his estate are reduced, thereafter, shall
     remain exercisable, to the extent exercisable at the Termination of
     Directorship, at any time within a period of one (1) year from the date of
     such Termination of Directorship, but in no event beyond the expiration of
     the stated term of such Stock Option or Stock Appreciation Right.

            (c)  Cause. Upon removal, failure to stand for reelection or
     failure to be renominated for Cause, or if the Company obtains or discovers
     information after Termination of Directorship that such Participant had
     engaged in conduct that would have justified a removal for Cause during
     such directorship, all outstanding Stock Options and Stock Appreciation
     Rights of such Participant, unless otherwise determined by the Board at
     grant, or if no rights of the Participant are reduced, thereafter, shall
     immediately terminate and shall be null and void.

            (d)  Cancellation of Stock Options. No Stock Options or Stock
     Appreciation Rights that were not exercisable during the period such person
     serves as an Independent Director or Non-Employee Director, unless
     otherwise determined by the Board at grant, or if no rights of the
     Participant are reduced, thereafter, shall become exercisable upon a
     Termination of Directorship for any reason or no reason whatsoever, and
     such Stock Options and Stock Appreciation Rights shall terminate and become
     null and void upon a Termination of Directorship.

     11.2.  Termination as a Manager. Subject to the applicable provisions
of the Award agreement and the Plan, upon a Participant's Termination as a
Manager, for any reason, all Stock Options and Stock Appreciation Rights will
vest or be forfeited in accordance with the terms and conditions established by
the Board at grant or thereafter.

                                  ARTICLE XII.

                                CHANGE IN CONTROL

     12.1.  Benefits. In the event of a Change in Control of the Company (as
defined below), except as otherwise provided by the Board upon the grant of an
Award (other than an Award granted pursuant to Article IX hereof), or, if no
rights of the Participant are reduced, thereafter, the Participant shall be
entitled to the following benefits:

            (a)  Subject to paragraph (c) below with regard to Options
     granted pursuant to Article VI, all outstanding Stock Options and Stock
     Appreciation Rights granted prior to the Change in Control shall be fully
     vested and immediately exercisable in their entirety. The Board, in its
     sole discretion, may provide for the purchase of any such Stock Options and
     Stock Appreciation Rights by the Company for an amount of cash equal to the
     excess

                                      -18-

<PAGE>

     of the Change in Control Price (as defined below) of the shares of Common
     Stock covered by such Stock Options and Stock Appreciation Rights, over the
     aggregate exercise price of such Stock Options and Stock Appreciation
     Rights. For purposes of this Section 12.1, Change in Control Price shall
     mean the higher of (i) the highest price per share of Common Stock paid in
     any transaction related to a Change in Control of the Company, or (ii) the
     highest Fair Market Value per share of Common Stock at any time during the
     sixty (60) day period preceding a Change in Control.

            (b)  The restrictions to which any shares of Restricted Stock of
     such Participant granted prior to the Change in Control are subject shall
     lapse as if the applicable Restriction Period had ended upon such Change in
     Control.

     12.2.  Change in Control. For purposes of the Plan, a "Change in
Control" shall be deemed to have occurred:

            (a)  upon any person (as defined in Section 3(a)(9) of the
     Exchange Act and as used in Sections 13(d) and 14(d) thereof) excluding the
     Company or any employee benefit plan sponsored or maintained by the Company
     (including any trustee of any such plan acting in his capacity as trustee),
     becoming the beneficial owner (as defined in Rule 13(d)-3 under the
     Exchange Act), directly or indirectly, of securities of the Company having
     at least twenty-five percent (25%) of the total number of votes that may be
     cast for the election of directors of the Company;

            (b)  during any period of two (2) consecutive years, individuals
     who at the beginning of such period constitute the Board, and any new
     director (other than a director designated by a person who has entered into
     an agreement with the Company to effect a transaction described in
     paragraph (a), (c), or (d) of this section) or a director whose initial
     assumption of office occurs as a result of either an actual or threatened
     election contest (as such terms are used in Rule 14a-11 of Regulation 14A
     promulgated under the Exchange Act) or other actual or threatened
     solicitation of proxies or consents by or on behalf of a person other than
     the Board whose election by the Board or nomination for election by the
     Company's stockholders was approved by a vote of at least two-thirds (2/3)
     of the directors then still in office who either were directors at the
     beginning of the two (2) year period or whose election or nomination for
     election was previously so approved, cease for any reason to constitute at
     least a majority of the Board;

            (c)  upon the merger or consolidation of the Company with any
     other corporation, other than a merger or consolidation which would result
     in the voting securities of the Company outstanding immediately prior
     thereto continuing to represent (either by remaining outstanding or by
     being converted into voting securities of the surviving entity) more than
     fifty percent (50%) of the combined voting power of the voting securities
     of the Company or such surviving entity outstanding immediately after such
     merger or consolidation, provided, however, that a merger or consolidation
     effected to implement a recapitalization of the Company (or similar
     transaction) in which no person acquires more than fifty percent (50%) of
     the combined voting power of the

                                      -19-

<PAGE>

     Company's then outstanding securities shall not constitute a Change in
     Control of the Company; or

            (d)  upon the stockholder's of the Company approval of a plan of
     complete liquidation of the Company or an agreement for the sale or
     disposition by the Company of all or substantially all of the Company's
     assets other than the sale of all or substantially all of the assets of the
     Company to a person or persons who beneficially own, directly or
     indirectly, at least fifty percent (50%) or more of the combined voting
     power of the outstanding voting securities of the Company at the time of
     the sale.

Notwithstanding anything herein to the contrary, the initial public offering of
the Common Stock will not constitute a Change in Control.

                                  ARTICLE XIII.

                        TERMINATION OR AMENDMENT OF PLAN

     13.1.  Termination or Amendment. Notwithstanding any other provision of the
Plan, the Board may at any time, and from time to time, amend, in whole or in
part, any or all of the provisions of the Plan (including any amendment deemed
necessary to ensure that the Company may comply with any regulatory requirement
referred to in this Article XIII), or suspend or terminate it entirely,
retroactively or otherwise; provided, however, that, unless otherwise required
by law or specifically provided herein, the rights of a Participant with respect
to Awards granted prior to such amendment, suspension or termination, may not be
impaired without the consent of such Participant and, provided further, that the
Plan may not be amended without the approval of the stockholders of the Company
in accordance with the laws of the State of Maryland and the applicable
provisions of Rule 16b-3, to: (i) increase the aggregate number of shares of
Common Stock that may be issued under the Plan (subject to Section 4.2); (ii)
decrease the minimum Option price of any Award; (iii) change the class of
persons eligible to receive Awards under the Plan; (iv) modify the period within
which Awards may be granted; (v) modify the period within which Awards may be
exercised; (vi) modify the terms upon which Awards may be exercised; (vii)
increase the material benefits accruing to the Participants under the Plan; or
(viii) make any other amendment that would require stockholder approval under
the rules of any exchange or system on which the Company's securities are then
listed or traded.

     Except with regard to Awards under Article IX, the Board may amend the
terms of any Awards theretofore granted, prospectively or retroactively, but,
subject to Article IV above or as otherwise specifically provided herein, no
such amendment or other action by the Board shall impair the rights of any
Option holder without the Option holder's consent.

                                      -20-

<PAGE>

                                  ARTICLE XIV.

                                  UNFUNDED PLAN

     14.1.  Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments as to which a Participant has a fixed and vested interest but which are
not yet made to a Participant by the Company, nothing contained herein shall
give any such Participant any rights that are greater than those of a general
creditor of the Company.

                                   ARTICLE XV.

                               GENERAL PROVISIONS

     15.1.  Legend. The Board may require each person receiving shares of
Common Stock pursuant to the exercise of an Award under the Plan to represent to
and agree with the Company in writing that the Participant is acquiring the
shares of Common Stock without a view to distribution thereof. In addition to
any legend required by the Plan, the certificates for such shares of Common
Stock may include any legend which the Board deems appropriate to reflect any
restrictions on Transfer.

     All certificates for shares of Common Stock delivered under the Plan shall
be subject to such stock transfer orders and other restrictions as the Board may
deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed or any national securities association system upon whose
system the Common Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law, and the Board may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

     15.2.  Other Plans. Nothing contained in the Plan shall prevent the
Board from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.

     15.3.  No Right to Serve as an Independent Director, Non-Employee
Director or Manager. Neither the Plan nor the grant or exercise of any Awards
hereunder shall impose any obligations on the Company to retain any Participant
as an Independent Director, Non-Employee Director or as a Manager nor shall it
impose on the part of any Participant any obligation to continue to serve as an
Independent Director, Non-Employee Director or as a Manager of the Company.

     15.4.  Withholding of Taxes. The Company shall have the right to deduct
from any payment to be made to a Participant, or to otherwise require, prior to
the issuance or delivery of

                                      -21-

<PAGE>

any shares of Common Stock or the payment of any cash hereunder, payment by the
Participant of, any Federal, state or local taxes required by law to be
withheld.

     The Board may permit any such withholding obligation with regard to any
Participant to be satisfied by reducing the number of shares of Common Stock
otherwise deliverable or by delivering shares of Common Stock already owned. Any
fraction of a share of Common Stock required to satisfy such tax obligations
shall be disregarded and the amount due shall be paid instead in cash by the
Participant.

     15.5.  Listing and Other Conditions.

            (a)  Unless otherwise determined by the Board, as long as the
     Common Stock is listed on a national securities exchange or system
     sponsored by a national securities association, the issue of any shares of
     Common Stock pursuant to the exercise of an Award shall be conditioned upon
     such shares being listed on such exchange or system. Notwithstanding the
     foregoing, the grant of an Award hereunder is not intended to be
     conditional and the Company shall have no obligation to issue such shares
     unless and until such shares are so listed; provided, however, that any
     delay in the issuance of such shares shall be based solely on a reasonable
     business decision and the right to exercise any Award with respect to such
     shares shall be suspended until such listing has been effected.

            (b)  If at any time counsel to the Company shall be of the
     opinion that any sale or delivery of shares of Common Stock pursuant to the
     exercise of an Award is or may in the circumstances be unlawful or result
     in the imposition of excise taxes on the Company under the statutes, rules
     or regulations of any applicable jurisdiction, the Company shall have no
     obligation to make such sale or delivery, or to make any application or to
     effect or to maintain any qualification or registration under the
     Securities Act of 1933, as amended, or otherwise with respect to shares of
     Common Stock or Awards, and the right to exercise any Option shall be
     suspended until, in the opinion of said counsel, such sale or delivery
     shall be lawful or will not result in the imposition of excise taxes on the
     Company.

            (c)  Upon termination of any period of suspension under this
     Section 15.5, any Award affected by such suspension which shall not then
     have expired or terminated shall be reinstated as to all shares available
     before such suspension and as to shares which would otherwise have become
     available during the period of such suspension, but no such suspension
     shall extend the term of any Awards.

            (d)  A Participant shall be required to supply the
         Company with any certificates, representations and information that the
         Company requests and otherwise cooperate with the Company in obtaining
         any listing, registration, qualification, exemption, consent or
         approval the Company deems necessary or appropriate.

                                      -22-

<PAGE>

            (e)  If any sale or delivery of shares of Common Stock pursuant
     to an Award is or may cause the Company to not qualify as a real estate
     investment trust within the meaning of Sections 856 through 860 of the
     Code, the Company shall have no obligation to make such sale or delivery
     until such sale or delivery will no longer cause such disqualification.

     15.6.  Governing Law. The Plan shall be governed and construed in
accordance with the laws of the State of Maryland (regardless of the law that
might otherwise govern under applicable Maryland principles of conflict of
laws).

     15.7.  Construction. Wherever any words are used in the Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.

     To the extent applicable, the Plan shall be limited, construed and
interpreted in a manner so as to comply with the applicable requirements of Rule
16b-3; however, noncompliance with Rule 16b-3 shall have no impact on the
effectiveness of an Award under the Plan.

     15.8.  Other Benefits. No Award granted or exercised under the Plan
shall be deemed compensation for purposes of computing benefits under any
retirement plan of the Company nor affect any benefits under any other benefit
plan now or subsequently in effect under which the availability or amount of
benefits is related to the level of compensation.

     15.9.  Costs. The Company shall bear all expenses included in
administering the Plan, including expenses of issuing Common Stock pursuant to
the exercise of any Awards hereunder.

     15.10. No Right to Same Benefits. The provisions and terms of Awards need
not be the same with respect to each Participant, and the Awards granted to
individual Participants need not be the same in subsequent years.

     15.11. Death/Disability. The Board may in its discretion require the
transferee of a Participant's Awards to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will (in
the case of the Participant's death) or such other evidence as the Board deems
necessary to establish the validity of the Transfer of an Award. The Board may
also require the agreement of the transferee to be bound by all of the terms and
conditions of the Plan.

     15.12. Severability of Provisions. If any provision of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provisions had not been included.

                                      -23-

<PAGE>

     15.13. Headings and Captions. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.

                                  ARTICLE XVI.

                             EFFECTIVE DATE OF PLAN

     The Plan has been adopted by the Board effective as of ____________,
subject to and conditioned upon the approval of the Plan by the stockholders of
the Company in accordance with the laws of the State of Maryland and the
requirements of any applicable national securities exchange or automated
quotation system.

                                  ARTICLE XVII.

                                  TERM OF PLAN

     No Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the earlier of the Effective Date or the date of stockholder
approval, but such Awards granted prior to such date may extend beyond that
date.

                                 ARTICLE XVIII.

                                  NAME OF PLAN

     The Plan shall be known as the "Wilshire Real Estate Investment Trust Inc.
1998 Stock Option Plan."

                                      -24-

<PAGE>

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