Document:

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                                                                  EXHIBIT 10.55

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and effective as
of this 1st day of January, 2004 ("Effective Date"), between SED INTERNATIONAL,
INC., a Georgia corporation (the "Subsidiary") and wholly owned subsidiary of
SED INTERNATIONAL HOLDINGS, INC., a Georgia corporation (the "Company"), and
JONATHAN ELSTER, an individual resident of the State of Georgia (the
"Executive").

                                  BACKGROUND:

         Executive and the Subsidiary are parties to that certain Employment
Agreement, dated July 1, 2002 (as amended, the "Prior Agreement"), pursuant to
which Executive agreed to serve as Executive Vice President of the Subsidiary
and as a member of the Company's Board of Directors. The Subsidiary recognizes
Executive's past and potential contributions to the growth and success of the
Subsidiary. The Subsidiary desires to provide for the continued employment of
Executive and to make certain changes in the Prior Agreement which the
Subsidiary has determined will reinforce and encourage the continued dedication
of Executive to the Subsidiary and will promote the best interests of the
Subsidiary and its stockholders. Executive is willing to continue to serve the
Subsidiary on the terms and conditions herein provided, and to replace the
Prior Agreement with this Agreement.

         NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

         1. EMPLOYMENT OF EXECUTIVE; DUTIES OF EXECUTIVE. The Subsidiary hereby
employs Executive as its Executive Vice President, and Executive hereby accepts
employment with the Subsidiary in those capacities, subject to the terms and
conditions set forth in this Agreement. As Executive Vice President, Executive
shall faithfully perform for the Subsidiary the duties of said offices (as
described in the Bylaws of the Company) and shall perform such other duties of
an executive, managerial or administrative nature as are from time to time
assigned or delegated to the Executive by the Board of Directors of the
Company. Throughout his employment hereunder, Executive shall devote
substantially all of his time, energy and skill to perform the duties of his
employment (vacations as provided hereunder and reasonable absences because of
illness excepted), and shall use his best efforts to follow and implement all
management policies and decisions of the Company. Executive shall not become
involved in the management of any other company, partnership, proprietorship or
other entity, other than an affiliate of the Subsidiary (or the Company),
without the consent of the Board of Directors of the Subsidiary; provided,
however, that as long as it does not interfere with Executive's employment
hereunder, Executive may serve as a director in a company that does not compete
with the business of the Subsidiary or any affiliate of the Subsidiary, and may
serve as an officer or director or otherwise participate in educational,
welfare, social, religious or civic organizations. The Executive shall not be
required to relocate from the Atlanta, Georgia metropolitan area in connection
with the performance of his duties hereunder.

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         2. COMPENSATION, BENEFITS AND REIMBURSEMENT OF EXPENSES.

         (a) As compensation for his services hereunder, the Subsidiary shall
pay Executive an annual base salary of Two Hundred Sixty Thousand Dollars
($260,000.00). Such salary shall be paid in accordance with the normal payroll
practices of the Subsidiary and shall be subject to such deductions and
withholdings as are required by law or by the policies of the Subsidiary, from
time to time in effect.

         (b) Executive shall be entitled to receive an annual bonus ("Bonus")
with respect to each fiscal year of the Company ending during the Term of this
Agreement in an amount equal to three percent (3%) of the Company's Pretax
Adjusted Annual Income (as defined immediately hereafter). "Pretax Adjusted
Annual Income" shall mean, with respect to a given fiscal year, earnings before
taxes as reported on the Company's audited consolidated statement of operations
for such fiscal year, excluding extraordinary, nonoperational costs and
profits.

         (c) Executive shall be entitled to participate or to continue
participation in any present or future group life, health and hospitalization
or disability insurance plans, pension or retirement plans or similar death
benefits as are available to management executives of the Company and the
Subsidiary, on the same terms as such other executives, in each case to the
extent that Executive is eligible under the terms of such plans or programs.

         (d) Executive shall be entitled to at least four (4) weeks of paid
vacation per year.

         (e) Executive shall be reimbursed in accordance with the policies of
the Subsidiary, as adopted and amended from time to time, for all reasonable
and appropriate expenses incurred by him in connection with the performance of
his duties of employment hereunder; provided, however, Executive shall as a
condition of such reimbursement, submit verification of the nature and amount
of such expenses in accordance with the reimbursement policies from time to
time adopted by the Subsidiary.

         (f) As used herein, "Change of Control" shall mean the occurrence of
one of the following:

                  (i) any individual, corporation, partnership, group,
                  association or other person or entity, together with his, its
                  or their affiliates or associates (other than a trustee or
                  other fiduciary holding securities under an Executive benefit
                  plan of the Company or Subsidiary) hereafter becomes the
                  beneficial owner of securities of the Company representing
                  thirty percent (30%) or more of the combined voting power of
                  the Company's then outstanding securities entitled to vote
                  generally in the election of directors;

                  (ii) the directors of the Company who either were directors
                  as of the Effective Date of this Agreement or whose election
                  as directors subsequent to the Effective Date was approved by
                  a majority of the persons who were directors as of the
                  Effective Date (the "Continuing Directors") shall at any

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                  time fail to constitute a majority of the members of the
                  Board of Directors of the Company;

                  (iii) all or substantially all of the assets of the Company
                  are sold, conveyed, transferred or otherwise disposed of,
                  whether through one event or as a series of related events,
                  without being approved by a majority of the Continuing
                  Directors;

                  (iv) the Executive shall no longer be a member of the Board
                  of Directors of the Company, unless (1) Executive shall have
                  declared in writing his desire to resign such position or
                  that he no longer wishes to serve as a director of the
                  Company, (2) Executive shall have died or become disabled
                  during the Term of this Agreement, or (3) Executive's
                  employment hereunder shall have been terminated for Good
                  Cause (as defined in Section 3(c) below).

If a Change of Control occurs while the Executive is employed by the Subsidiary
during the Term of this Agreement, and Executive's employment is subsequently
terminated involuntarily, or voluntarily by Executive based on (1) material
changes in the nature or scope of the Executive's duties or employment, (2) a
reduction in compensation of the Executive made without the Executive's
consent, (3) a relocation of the Subsidiary's executive offices other than in
compliance with the provisions of Section 1 of this Agreement, or (4) a good
faith determination made by the Executive, upon consultation with the Board of
Directors of the Company, that it is necessary or appropriate for the Executive
to relocate from the Atlanta, Georgia metropolitan area to enable Executive to
perform his duties hereunder, Executive may, in his sole discretion, give
written notice within sixty (60) days after the date of termination of
employment to the Subsidiary that he is exercising his rights under this
Section 2(f) to request payment of the amounts provided for herein (said notice
shall be referred to as the "Notice of Exercise").

If Executive gives a Notice of Exercise to receive the payments provided for
hereunder, the Subsidiary shall pay to or for the benefit of Executive,
immediately upon the Subsidiary's receipt of the Notice of Exercise, a single
cash payment for damages suffered by the Executive by reason of the Change in
Control (the "Executive Payment") in an amount equal to Seven Million and
No/100ths Dollars ($7,000,000.00).

The Executive Payment shall be in addition to and shall not be offset or reduced
by (i) any other amounts that have been earned or accrued or that have otherwise
become payable or will become payable to the Executive or his beneficiaries, but
have not been paid by the Subsidiary at the time the Executive gives the Notice
of Exercise including, without limitation, salary, Bonus amounts, the Salary
Continuance, severance pay, consulting fees, disability benefits, termination
benefits, retirement benefits, life and health insurance benefits or any other
compensation or benefit payment that is part of any previous, current or future
contract, plan or agreement, written or oral, (ii) any reimbursement that may
become due to Executive pursuant to the provisions of Sections 2(h), 2(i) and
2(j) of this Agreement, and (iii) any indemnification payments that may have
accrued but not been paid or that may thereafter become payable to the Executive
pursuant to the provisions of the Company's and the Subsidiary's Articles of
Incorporation, Bylaws or similar policies,

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plans or agreements relating to indemnification of directors and officers of
the Company and the Subsidiary under certain circumstances. The Executive
Payment shall not be reduced by any present value calculations.

In the event the Executive dies within ninety (90) days after a Change of
Control occurs, the Executive's legal representative shall be entitled to
receive an amount equal to the Executive Payment provided that the Notice of
Exercise has been or is given either by the Executive or his legal
representative, as the case may be; provided, the period for the Notice of
Exercise by Executive's legal representative shall be sixty (60) days after the
Executive's death.

         (g) If the benefits provided to Executive under this Agreement or
under any other agreement with, or plan of, the Company or the Subsidiary (in
the aggregate, the "Total Payment") constitute a payment so that an excise tax
(the "Excise Tax") is due under Section 280G, Section 4999 or other provision
of the Internal Revenue Code of 1986 (as amended, the "Code"), then the
benefits provided under this Agreement shall be limited to the Reduced Amount
(as defined immediately hereafter). The "Reduced Amount" shall be the largest
amount that could be received by Executive under this Agreement such that no
part of the Total Payment provided to Executive shall be subject to the Excise
Tax. The Reduced Amount shall be calculated by a nationally recognized benefits
consulting firm or accounting firm, and such amount shall be presented to
Executive for review and approval. If the amount payable to Executive is
limited to the Reduced Amount, Executive shall have the right, in Executive's
sole discretion, to designate the portion of the Total Payment that should be
reduced or eliminated so as to avoid having the benefits provided to Executive
under this Agreement be subject to the Excise Tax.

         (h) If the Internal Revenue Service claims in writing that any benefit
received under this Agreement constitutes an "excess parachute payment" under
Section 280G of the Code, Executive shall notify the Subsidiary in writing of
such claim within ten (10) business days of the claim. Executive shall apprise
the Subsidiary of the nature of such claim and the date on which such claim is
requested to be paid. Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on which Executive
provides notice of the claim to the Subsidiary (or such shorter period ending
on the date that any payment of taxes with respect to the claim is due). If the
Subsidiary notifies Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall (i) give the Subsidiary
any information reasonably requested by the Subsidiary relating to such claim;
(ii) take such action in connection with contesting such claim as the
Subsidiary shall reasonably request in writing from time to time; (iii)
cooperate with the Subsidiary in good faith in order to effectively contest
such claim; and (iv) permit the Subsidiary to participate in any proceedings
relating to such claim; provided, however, that the Subsidiary shall bear and
pay directly all costs and expenses (including, but not limited to, additional
interest and penalties and related legal, consulting or similar fees) incurred
in connection with such contest and shall indemnify and hold Executive
harmless, on an after-tax basis, for any Excise Tax or other tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses.

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         (i) If, after the receipt by Executive of an amount advanced by the
Subsidiary in connection with the contest of the Excise Tax claim, Executive
becomes entitled to receive any refund with respect to such claim, Executive
shall promptly pay to the Subsidiary the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto);
provided, however, that if the amount of that refund exceeds the amount
advanced by the Subsidiary or it is otherwise determined for any reason that
additional amounts could be paid to Executive without incurring any Excise Tax,
any such amount will be promptly paid by the Subsidiary to Executive. If, after
the receipt of an amount advanced by the Subsidiary in connection with an
Excise Tax claim, a determination is made that Executive shall not be entitled
to any refund with respect to such claim and the Subsidiary does not notify
Executive in writing of its intent to contest the denial of such refund prior
to the expiration of thirty (30) days after such determination, such advance
shall be forgiven and shall not be required to be repaid and shall be deemed to
be in consideration for services rendered after date of the termination of
Executive's employment.

         (j) All costs and expenses, including reasonable legal, accounting and
other advisory fees, incurred by the Executive to prepare responses to an
Internal Revenue Service audit of, and otherwise defend, his personal income
tax return for any year that is the subject of any such audit or an adverse
determination, administrative proceeding or civil litigation arising therefrom
that is occasioned by, or related to, an audit by the Internal Revenue Service
of the Subsidiary's consolidated income tax returns are, upon written demand by
the Executive explaining the basis for the request for such reimbursement or
advancement, to be promptly advanced or reimbursed to the Executive or paid
directly, on a current basis, by the Subsidiary or its successors.

         3. TERM AND TERMINATION.

         (a) The term ("Term") of this Agreement and of Executive's employment
hereunder shall commence as of the Effective Date and shall continue for a
period of five (5) years (the "Initial Term") unless earlier terminated as
provided in Section 3(b) of this Agreement. Executive shall have the right to
renegotiate an additional one (1) year to the Initial Term, at any time beyond
the first anniversary of this Agreement, so long as the Term shall not exceed
five (5) years.

         (b) Executive's employment under this Agreement shall terminate upon
Executive's death. Executive's employment hereunder may also be terminated (i)
upon mutual agreement of Executive and the Subsidiary; (ii) unilaterally by the
Subsidiary, upon written notice to Executive, for Good Cause (as defined in
Section 3(c) below); or (iii) upon written notice to Executive if Executive
shall at any time be unable to perform the essential functions of his job
hereunder, by reason of a physical or mental illness or condition, with or
without reasonable accommodation, for a continuous period of one hundred eighty
(180) consecutive days, as certified by a physician or physicians selected by
the Board of Directors of the Company.

         (c) As used in this Agreement, "Good Cause" means: (i) any act of fraud
or dishonesty; (ii) any act of theft or embezzlement; (iii) the breach of any
material provision

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of this Agreement by Executive (provided that such breach is not cured by
Executive within thirty (30) days of receiving written notice of such breach
from the Subsidiary); (iv) violation of the policies and procedures of the
Subsidiary; (v) failure to comply with the written directions of the Board of
Directors of the Company; (vi) engaging in any unlawful harassment or
discrimination; (vii) the conviction of Executive of any crime involving moral
turpitude (whether felony or misdemeanor) or involving any felony; (viii) any
act of moral turpitude by Executive that materially adversely affects the
Subsidiary or its business reputation; (ix) violation of state or federal
securities laws; or (x) any other matter constituting "good cause" under the
laws (including, inter alia, statutes, regulations or judicial case law) of the
State of Georgia.

         (d) Upon the termination of this Agreement and Executive's employment
hereunder as provided in Section 3(b), the Subsidiary shall have no further
obligation to Executive other than (i) for payment of salary, Bonus amounts,
expense reimbursement and other benefits earned or accrued and unpaid at the
effective date of such termination; (ii) for payment of any amounts that may
become due to Executive pursuant to the provisions of Sections 2(f), 2(g),
2(h), 2(i) and 2(j) of this Agreement; and (iii) any indemnification payments
that may become payable to Executive pursuant to the provisions of the
Company's and the Subsidiary's Articles of Incorporation, Bylaws, or similar
policies, plans or agreements relating to indemnification of directors and
officers of the Company and the Subsidiary under certain circumstances.

         (e) Subject to the provisions of Section 2(f) hereof, a breach of this
Agreement by the Subsidiary, including, without limitation, the occurrence of
any of the events described in Section 2(f), if not cured within thirty (30)
days after the giving of notice thereof by Executive to the Board of Directors
of the Company, shall entitle Executive to terminate voluntarily Executive's
employment under this Agreement and recover all damages for such breach by the
Subsidiary as permitted hereunder and by law.

         4. AGREEMENT NOT TO SOLICIT CUSTOMERS. As part of the consideration
for the compensation and benefits to be paid to Executive hereunder, in keeping
with Executive's duties as a fiduciary and in order to protect the Subsidiary's
interest in the business relationships developed by Executive with the
customers and potential customers of the Subsidiary, Executive agrees that
during the Term of Executive's employment under this Agreement and for a period
of one (1) year from the date of the termination of such employment (at any
time for any reason, with or without cause), Executive shall not, without the
prior written consent of the Subsidiary, directly or indirectly solicit or
attempt to solicit any Restricted Customer (as hereinafter defined) for the
purpose of or with a view to providing services or products to the Restricted
Customer which the Subsidiary has provided or provides to such Restricted
Customer. "Restricted Customer" means any person or entity to which (i) the
Subsidiary provided or actively sought to provide services or products and (ii)
with whom Executive had material contact during the two (2) year period
immediately preceding the termination of Executive's employment with the
Subsidiary. Executive understands that the foregoing restrictions may limit his
ability to engage in certain businesses anywhere in the world during the period
provided for above, but acknowledges that the Subsidiary has a legitimate
interest in restricting solicitation as provided in this Section without
reference to a specific territory and that Executive will

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receive sufficiently high remuneration and other benefits under this Agreement
to justify such restriction.

         5. OWNERSHIP AND PROTECTION OF PROPRIETARY INFORMATION.

         (a) As used herein, "Proprietary Information" means information
related to the Subsidiary or the Company that (i) derives economic value,
actual or potential, from not being generally known to other persons who can
obtain economic value from its disclosure or use; and (ii) is the subject of
efforts by the Subsidiary or the Company that are reasonable under the
circumstances to maintain its secrecy, including, without limitation, (1) with
respect to information which has been reduced to tangible form, marking such
information clearly and conspicuously with a legend identifying its
confidential or proprietary nature; (2) with respect to any oral presentation
or communication, denominating such information as confidential immediately
before, during or after such oral presentation or communication; or (3)
otherwise treating such information as confidential. Assuming these two
criteria are met, Proprietary Information includes, without limitation,
technical and nontechnical data related to the formulas, patterns, designs,
compilations, programs, inventions, methods, techniques, drawings, processes,
finances, actual or potential customers and suppliers, research, development,
existing and future products, and employees of the Subsidiary and the Company.
Proprietary Information includes information that has been disclosed to the
Subsidiary or the Company by a third party, which the Subsidiary or the Company
is obligated to treat as confidential, and information which is proprietary to
an affiliate of the Subsidiary or the Company.

         (b) Executive acknowledges that all Proprietary Information and all
physical embodiments thereof are confidential to and are and will remain the
sole and exclusive property of the Subsidiary. Executive must: (i) immediately
disclose to the Subsidiary all Proprietary Information developed in whole or in
part by Executive during the Term of his employment with the Subsidiary, (ii)
assign to the Subsidiary any right, title or interest Executive may have in
such Proprietary Information, and (iii) at the request and expense of the
Subsidiary, do all things and sign all documents or instruments reasonably
necessary in the opinion of the Subsidiary to eliminate any ambiguity as to the
ownership by and rights of the Subsidiary in such Proprietary Information
including, without limitation, providing to the Subsidiary Executive's full
cooperation in any litigation or other proceeding to establish or protect such
rights.

         (c) Except to the extent necessary to perform the services to be
provided hereunder, Executive will not reproduce, use, distribute, disclose or
otherwise disseminate the Proprietary Information or any physical embodiments
thereof and will in no event take any action causing, or fail to take the
action necessary in order to prevent, any Proprietary Information disclosed to
or developed by Executive to lose its character or cease to qualify as
Proprietary Information. Each reproduction of any of the Proprietary
Information must prominently contain a legend identifying its confidential or
proprietary nature.

         (d) Executive represents and warrants that any information disclosed
by Executive to the Subsidiary is not confidential or proprietary to Executive
or to any third party.

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Accordingly, no obligation of any kind is assumed by or to be implied against
the Subsidiary by virtue of any information received, in whatever form or
whenever received, from Executive relating to the subject matter hereof, and
the Subsidiary will be free to reproduce, use and disclose to others such
information without limitation.

         (e) Upon request by the Subsidiary, and in any event upon termination
of the employment of Executive with the Subsidiary for any reason, as a prior
condition to receiving any final compensation hereunder, Executive will
promptly deliver to the Subsidiary all property belonging to the Subsidiary,
including, without limitation, all Proprietary Information and all embodiments
thereof then in his custody, control or possession.

         (f) The covenants of confidentiality set forth in this Section 5 will
apply on and after the Effective Date to any Proprietary Information disclosed
by the Subsidiary to or developed by Executive prior to or after the Effective
Date and will continue and be maintained by Executive (i) with respect to all
Proprietary Information which falls within the definition of "trade secrets"
under applicable law, at all times following the termination of Executive's
employment hereunder for any reason whatsoever, and (ii) with respect to all
other Proprietary Information, during the Term of Executive's employment
hereunder and for a period of three (3) years after the termination of
Executive's employment hereunder for any reason whatsoever.

         6. INTELLECTUAL PROPERTY. The Subsidiary shall be the sole owner of
all the products and proceeds of Executive's services hereunder, including,
without limitation, all materials, ideas, concepts, formats suggestions,
developments, arrangements, packages, programs and other intellectual property
that Executive may acquire, obtain, develop or create in connection with, and
during the Term of, Executive's employment hereunder, free and clear of any
claims by Executive or anyone claiming under Executive of any kind or character
whatsoever, other than Executive's right to receive payments hereunder.
Executive shall, at the reasonable request of the Subsidiary, execute such
assignments, certificates or other instruments as the Subsidiary from time to
time shall deem necessary or desirable to evidence, establish, maintain,
perfect, protect, enforce, or defend its right, title or interest in or to any
such properties.

         7. REMEDY FOR BREACH. Executive agrees that the damage to the
Subsidiary resulting from any actual or threatened breach by Executive of any
of the covenants contained in Sections 4, 5 and 6 of this Agreement would be
immediate, irreparable and difficult to measure, and that money damages would
not be an adequate remedy. Therefore, Executive agrees that the Subsidiary
shall be entitled to specific performance of the covenants in any of such
sections or injunctive relief, by temporary or permanent injunction or other
appropriate judicial remedy, writ or order, or both, in addition to any damages
and legal expenses (including attorneys' fees) which the Subsidiary may be
legally entitled to recover.

         8. MISCELLANEOUS. Any notice required hereunder shall be deemed
delivered to the Subsidiary when transmitted to the Secretary of the Subsidiary
by certified mail,

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postage prepaid, addressed to such person at the corporate headquarters of the
Subsidiary at 4916 North Royal Atlanta Drive, Tucker, Georgia 30084 (or the
principal place of business of the Subsidiary if hereafter it is moved), and
shall be deemed delivered to Executive when delivered by certified mail, postage
prepaid, addressed to Executive at 240 Westminster Place, Atlanta, Georgia
30350. No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. This Agreement is made under,
and shall be governed by and construed in accordance with, the laws of the State
of Georgia without giving effect to the conflict of law provisions thereof. The
headings of the sections of this Agreement are included solely for convenience
of reference and shall not control the meaning or interpretation of any of the
provisions of this Agreement. This Agreement contains the entire agreement of
the parties relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings with respect to such subject
matter. No amendment or modification of this Agreement shall be deemed effective
unless made in a writing signed by the parties hereto. This Agreement is solely
for the benefit of the Subsidiary (and its affiliates) and Executive, and there
shall be no third party beneficiaries to this Agreement. This Agreement may not
be assigned by Executive. This Agreement shall inure to the benefit of the
Subsidiary, its subsidiaries and affiliates, and their respective successors and
assigns. To the extent any provision or any portion of any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of this Agreement shall be unaffected. The
obligations and covenants contained in Sections 2(f), 2(g), 2(h), 2(i), 2(j),
3(d) and 4 through 8 (inclusive) of this Agreement shall survive any termination
of Executive's employment hereunder at any time for any reason whatsoever.

IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement
as of the Effective Date.

"SUBSIDIARY":                                   "EXECUTIVE":

SED INTERNATIONAL, INC.,
a Georgia corporation                           /s/ JONATHAN ELSTER
                                                --------------------------------
                                                Jonathan Elster
By: /s/ MARK DIVITO
   --------------------------------
Name and Title: Mark Divito VP OPS.
                -------------------

                                       9<PAGE>

2004 OMNIBUS INCENTIVE PLAN                                         EXHIBIT 4.4

ARTICLE I
PURPOSE

         The Corporation has previously adopted the Popular, Inc., 2001 Stock
Option Plan (the "Stock Option Plan"), which was intended to provide
equity-based compensation incentives through the grant of stock options.
Effective upon the adoption of the "Popular, Inc. 2004 Omnibus Incentive Plan"
(the "Plan") by shareholders of Popular, Inc. (the "Corporation",) the Plan will
replace and supersede the Stock Option Plan. All outstanding award grants under
the Stock Option Plan shall continue in full force and effect, subject to their
original terms, after the Plan replaces and supersedes the Stock Option Plan
under the terms and conditions noted above.

         The purpose of the Plan is to provide flexibility to the Corporation
and its Affiliates (as herein below defined) to attract, retain and motivate
their officers, executives and other key employees through the grant of awards
and to adjust its compensation practices to the best compensations practices and
corporate governance trends as they develop from time to time. The Plan is
further intended to help retain and align the interests of the non-employee
members of the Board of Directors of the Corporation and its Affiliates with the
Corporation's shareholders.

ARTICLE II
DEFINITIONS

         2.1

Definitions. Whenever used herein, the following terms shall have the respective
meanings set forth below:

                  Adjusted Net Income. "Adjusted Net Income" means the
         Corporation's consolidated net income applicable to common stockholders
         as it appears on an income statement of the Company prepared in
         accordance with generally accepted accounting principles, excluding the
         effects of Extraordinary Items.

                  Adjustment Event. "Adjustment Event" means any stock dividend,
         stock split or share combination of, or extraordinary cash dividend on,
         the Common Stock or recapitalization, reorganization, merger,
         consolidation, split-up, spin-off, combination, dissolution,
         liquidation, exchange of shares, warrants or rights offering to
         purchase Common Stock at a price substantially below Fair Market Value,
         or other similar event affecting the Common Stock of the Corporation.

                  Affiliate. "Affiliate" means any corporation or other form of
         entity of which the Corporation owns, from time to time, directly or
         indirectly, 50% or more of the total combined voting power of all
         classes of stock or other equity interests.

                  Alternative Awards. "Alternative Awards" shall have the
         meaning set forth in Section 10.3.

                  Annual Incentive Awards. "Annual Incentive Awards" means an
         Award made pursuant to Article IX of the Plan with a Performance Cycle
         of one year or less.

                  Approved Retirement. "Approved Retirement" means, in the case
         of a Participant who is a common law employee of the Corporation or an
         Affiliate, termination of a Participant's employment (i) on or after
         the normal retirement date or any early retirement date established
         under any defined benefit pension plan maintained by the Corporation or
         an Affiliate and in which the Participant participates or (ii) on or
         after attaining age 55 and completing such period of service as the
         Committee shall determine from time to time, to the extent the
         Participant does not participate in any such defined benefit pension
         plan maintained by the Corporation or an Affiliate. Notwithstanding the
         foregoing, the term "Approved Retirement" shall not apply to any
         Participant whose employment with the Corporation or an Affiliate has
         been terminated for Cause, whether or not such individual is deemed to
         be retirement

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eligible or is receiving retirement benefits under any defined benefit pension
plan maintained by the Corporation or an Affiliate and in which the Participant
participates or would otherwise satisfy the criteria set forth by the Committee
as noted in the preceding sentence.

         Award. An "Award" means the award of an Annual Incentive Award, a
Long-Term Performance Unit Award, an Option, a SAR, Restricted Stock, Restricted
Unit or Performance Share, including any associated Dividend Equivalents, under
the Plan.

         Beneficial Owner. "Beneficial Owner" means any "person," as such term
is used in Section 13(d) of the Act, who, directly or indirectly, has or shares
the right to vote, dispose of, or otherwise has "beneficial ownership" of such
securities (within the meaning of Rule 13d-3 and Rule 13d-5 under the Act),
including pursuant to any agreement, arrangement or understanding (whether or
not in writing).

         Board. "Board" means the Board of Directors of the Corporation.

         Cause. "Cause" means, with respect to a Participant, any of the
following (as determined by the Committee in its sole discretion): (i)
dishonesty, fraud or misrepresentation; (ii) inability to obtain or retain
appropriate licenses; (iii) violation of any rule or regulation of any
regulatory agency or self-regulatory agency; (iv) violation of any policy or
rule of the Corporation or any Affiliate; (v) commission of a crime; (vi) breach
by a Participant of any written covenant or agreement with the Corporation or
any Affiliate not to disclose or misuse any information pertaining to, or misuse
any property of, the Corporation or any Affiliate, or (vii) any act or omission
detrimental to the conduct of the business of the Corporation or any Affiliate
in any way.

         Change of Control. A "Change of Control" shall be deemed to have
occurred if:

                  (i)  any Person acquires direct or indirect ownership of 50%
         or more of the combined voting power of the then outstanding securities
         of the Corporation as a result of a tender or exchange offer, open
         market purchases, privately negotiated purchases or otherwise; or

                  (ii) the shareholders of the Corporation approve (A) any
         consolidation or merger of the Corporation in which the Corporation is
         not the surviving corporation (other than a merger of the Corporation
         in which the holders of Common Stock immediately prior to the merger
         have the same or substantially the same proportionate ownership of the
         surviving corporation immediately after the merger), or (B) any sale,
         lease, exchange or other transfer (in one transaction or a series of
         related transactions) of all, or substantially all, of the assets of
         the Corporation to an entity which is not a wholly-owned subsidiary of
         the Corporation.

         Change of Control Price. "Change of Control Price" means the highest
price per share of Common Stock paid in conjunction with any transaction
resulting in a Change of Control (as determined in good faith by the Committee
if any part of the offered price is payable other than in cash).

         Committee. "Committee" means the Compensation Committee of the Board or
such other committee of the Board as the Board shall designate from time to
time, which committee shall consist of two or more members, each of whom shall
be a "Non Employee Director" within the meaning of Rule 16b-3, as promulgated
under the Exchange Act, an "outside director" within the meaning of section
162(m) of the U.S. Code, and an "independent director" under the rules of
NASDAQ, or any successors thereto.

<PAGE>

         Common Stock. "Common Stock" means the common stock of the Corporation,
par value $6.00 per share.

         Corporate Event. "Corporate Event" means a merger, consolidation,
recapitalization or reorganization, share exchange, division, sale, plan of
complete liquidation or dissolution, or other disposition of all or
substantially all of the assets of the Corporation, which has been approved by
the shareholders of the Corporation.

         Corporation. "Corporation" means Popular, Inc., a Puerto Rico
Corporation, and any successor thereto.

         Covered Employees. "Covered Employees" are any Executive Officers or
other Eligible Individuals who are "covered employees" within the meaning of
U.S. Code section 162(m).

         Disability. "Disability" means with respect to any Participant,
long-term disability as defined under the welfare benefit plan maintained by
either the Corporation or an Affiliate and in which the Participant participates
and from which the Participant is receiving a long-term disability benefit.

         Dividends. "Dividends" means the regular cash dividends paid by the
Corporation upon one share of Common Stock from time to time.

         Dividend Equivalents. "Dividend Equivalents" means an amount equal to
the regular cash dividends paid by the Corporation upon one share of Common
Stock in connection with the grant of Restricted Units, Performance Shares,
Options, and/or SARs awarded to a Participant in accordance with Article VIII of
the Plan.

         Effective Date. "Effective Date" generally means the first date upon
which the Plan shall become effective, which will be the date the Plan has been
both (a) approved by the Board on February 24. 2004 and (b) approved by a
majority of the votes cast at a duly held stockholders' meeting (currently
scheduled for April 30, 2004) at which the requisite quorum, as set forth in the
Corporation's Certificate of Incorporation, of outstanding voting stock of the
Corporation is, either in person or by proxy, present and voting on the Plan.
However, for purposes of any Option grant that is an ISO, the term "Effective
Date" shall mean solely the adoption of the Plan by the Board.

         Eligible Individual. For purposes of this Plan only, "Eligible
Individual" means (i) any individual who is a common law employee (including
each officer or employee who is a member of the Board) of the Corporation or any
such Affiliate, and (ii) any Non- employee Director.

         Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.

         Executive Officer. "Executive Officer" means each person who is an
officer of the Corporation or any Affiliate and who is subject to the reporting
requirements under Section 16(a) of the Exchange Act.

         Extraordinary Items. "Extraordinary Items" means (i) extraordinary,
unusual and/or non-recurring items of gain or loss, including but not limited
to, restructuring or restructuring-related charges, (ii) gains or losses on the
disposition of a business, (iii) changes in tax or accounting regulations or
laws, (iv) the effect of a merger or acquisition, all of which are identified in
the Corporation's audited financial statements or the Corporation's annual
report to stockholders, or (v) those other items determined by the Committee.

         Fair Market Value. "Fair Market Value" means, on any date, the price of
the last trade, in the Common Stock on such date on the NASDAQ National Market
System or, if at the relevant time, the Common Stock is not listed to trade on
the NASDAQ National Market System, on such other recognized quotation system on
which the trading prices of the Common Stock are then quoted (the "Applicable
Exchange"). In the event that (i) there are no Common Stock transactions on the
Applicable Exchange on any relevant date, Fair Market Value for such date shall
mean the closing price on the immediately preceding date on which Common Stock
transactions were so reported and (ii) the Applicable Exchange adopts a trading
policy permitting trades after 5 P.M. Eastern Standard Time ("EST"), Fair Market
Value shall mean the last trade, regular way, reported on or before 5 P.M. EST
(or such earlier or later time as the Committee may establish from time to
time).

<PAGE>

         ISO. "ISO" means an Option that is an "incentive stock option" within
the meaning of U.S. Code section 422.

         Long-Term Performance Unit Award. A "Long-Term Performance Unit Award"
means an Award made pursuant to Article IX of the Plan, which are units valued
by reference to Common Stock, the number or value of such units which may be
adjusted over a Performance Cycle based on the satisfaction of Performance
Goals.

         Nonemployee Director. "Nonemployee Director" means a member of the
Board of Directors of the Corporation or an Affiliate who is not a common law
employee of the Corporation or any Affiliate.

         Nonstatutory Stock Option. "Nonstatutory Stock Option" means an Option
that is not an ISO or a QSO.

         Option (including ISOs, QSOs and Nonstatutory Stock Options). "Option"
means the right to purchase Common Stock at a stated price for a specified
period of time. For purposes of the Plan, an Option may be either (i) an ISO,
(ii) a QSO or (iii) a Nonstatutory Stock Option.

         P.R. Code. "P.R. Code" means the Puerto Rico Internal Revenue Code of
1994, as amended, including, for these purposes, any regulations promulgated by
the Puerto Rico Department of the Treasury with respect to the provisions of the
P.R Code, and any successor thereto.

         Participant. "Participant" shall have the meaning set forth in Article
III of the Plan.

         Performance Cycle. "Performance Cycle" means the period selected by the
Committee during which the performance of the Corporation or any Affiliate or
unit thereof or any individual is measured for the purpose of determining the
extent to which an Award subject to Performance Goals has been earned.

         Performance Goals. "Performance Goals" means the objectives for the
Corporation, any Affiliate or business unit thereof, or an Eligible Individual
that may be established by the Committee for a Performance Cycle with respect to
any performance based Awards contingently granted under the Plan.

         Performance Shares. "Performance Shares" means an Award made pursuant
to Article IX of the Plan, which are units denominated in Common Stock, the
number of such units which may be adjusted over a Performance Cycle based upon
the satisfaction of Performance Goals.

         Person. "Person" means any person (within the meaning of Section
3(a)(9) of the Exchange Act), including any group (within the meaning of Rule
13d-5(b) under the Exchange Act), but excluding the Corporation, any Affiliate
or any employee benefit plan sponsored or maintained by the Corporation or any
Affiliate.

         Plan Year. "Plan Year" means a period of twelve months commencing on
January 1st and ending on the next December 31st.

         QSO. "QSO" means an Option that is a "qualified stock option" within
the meaning of P.R. Code section 1046.

         Restricted Period. "Restricted Period" means the period of time during
which Restricted Units or shares of Restricted Stock are subject to forfeiture
or restrictions on transfer (if applicable) pursuant to Article VIII of the
Plan.

         Restricted Stock. "Restricted Stock" means Common Stock awarded to a
Participant pursuant to the Plan that is subject to forfeiture and restrictions
on transferability in accordance with Article VIII of the Plan.

         Restricted Unit. "Restricted Unit" means a Participant's right to
receive, pursuant to this Plan, one share of Common Stock at the end of a
specified period of time, which right is subject to forfeiture in accordance
with Article VIII of the Plan.

<PAGE>

                  SAR. "SAR" means a stock appreciation right granted under
         Article VII in respect of one or more shares of Common Stock that
         entitles the holder thereof to receive, in cash or Common Stock, at the
         discretion of the Committee (which discretion may be exercised at or
         after grant, including after exercise of the SAR), an amount per share
         of Common Stock equal to the excess, if any, of the Fair Market Value
         on the date the SAR is exercised over the Fair Market Value on the date
         the SAR is granted.

                  U.S. Code. "U.S. Code" means the U.S. Internal Revenue Code of
         1986, as amended, including, for these purposes, any regulations
         promulgated by the Internal Revenue Service with respect to the
         provisions of the U.S. Code ("Treasury Regulations"), and any successor
         thereto.

         2.2

Gender and Number. Except when otherwise indicated by the context, words in the
masculine gender used in the Plan shall include the feminine gender, the
singular shall include the plural, and the plural shall include the singular.

ARTICLE III
ELIGIBILITY AND PARTICIPATION

         3.1

Participants. Participants in the Plan shall be those Eligible Individuals
designated by the affirmative action of the Committee (or its delegate) to
participate in the Plan.

         3.2

Types of Awards. The Committee (or its delegate) may grant any or all of the
Awards specified herein to any particular Participant (subject to the applicable
limitations set forth in the Plan). Any Award may be made for one (1) year or
multiple years without regard to whether any other type of Award is made for the
same year or years.

ARTICLE IV
POWERS OF THE COMMITTEE

         4.1

Power to Grant. The Committee shall have the authority, subject to the terms of
the Plan, to determine those Eligible Individuals to whom Awards shall be
granted and the terms and conditions of any and all Awards including, but not
limited to:

         (a)      the number of shares of Common Stock to be covered by each
                  Award;

         (b)      the time or times at which Awards shall be granted;

         (c)      the terms and provisions of the instruments by which Options
                  may be evidenced, including the designation of Options as
                  ISOs, QSOs or Nonstatutory Stock Options;

         (d)      the determination of the period of time during which
                  restrictions on Restricted Stock or Restricted Units shall
                  remain in effect;

         (e)      the establishment and administration of any Performance Goals
                  applicable to Awards granted under the Plan;

         (f)      the determination of Participants' Long Term Performance Unit
                  Awards or Performance Share Awards, including any Performance
                  Goals and Performance Cycles;

         (g)      the development and implementation of specific stock-based
                  programs for the Corporation and its Affiliates that are
                  consistent with the intent and specific terms of the framework
                  created by this Plan; and

         (h)      the right of a Participant to defer receipt of payment of an
                  Award, including the establishment of a trust to hold the
                  amounts payable pursuant to an Award, including, but not
                  limited to shares of Common Stock.

<PAGE>

Appropriate officers of the Corporation or any Affiliate may suggest to the
Committee the Eligible Individuals who should receive Awards, which the
Committee may accept or reject in its sole discretion. The Committee shall
determine the terms and conditions of each Award at the time of grant. The
Committee may establish different terms and conditions for different
Participants and for the same Participant for each Award such Participant may
receive, whether or not granted at different times.

         4.2      Administration.

                  (a) Rules, Interpretations and Determinations. The Committee
         shall administer the Plan. Any Award granted by the Committee under the
         Plan may be subject to such conditions, not inconsistent with the terms
         of the Plan, as the Committee shall determine. The Committee shall have
         full authority to interpret and administer the Plan, to establish,
         amend, and rescind rules and regulations relating to the Plan, to
         provide for conditions deemed necessary or advisable to protect the
         interests of the Corporation, to construe the respective Award
         agreements and to make all other determinations necessary or advisable
         for the administration and interpretation of the Plan in order to carry
         out its provisions and purposes. Determinations, interpretations, or
         other actions made or taken by the Committee shall be final, binding,
         and conclusive for all purposes and upon all persons.

                  The Committee's determinations under the Plan (including the
         determination of the Eligible Individuals to receive Awards, the form,
         amount and timing of such Awards, the terms and provisions of such
         Awards and the agreements hereunder) may vary, and need not be uniform,
         whether or not any such Eligible Individuals could be deemed to be
         similarly situated.

                  (b)      Agents and Expenses. The Committee may appoint agents
         (who may be officers or employees of the Corporation) to assist in the
         administration of the Plan and may grant authority to such persons to
         execute agreements or other documents on its behalf. All expenses
         incurred in the administration of the Plan, including, without
         limitation, for the engagement of any counsel, consultant or agent,
         shall be paid by the Corporation. Any proceeds received by the
         Corporation in connection with any Award will be used for general
         corporate purposes.

                  (c)      Delegation of Authority. Notwithstanding anything
         else contained in the Plan to the contrary herein, the Committee may
         delegate, subject to such terms or conditions or guidelines as it shall
         determine, to any employee of the Corporation or any group of employees
         of the Corporation or its affiliates any portion of its authority and
         powers under the Plan with respect to Participants who are not
         Executive Officers. Only the Committee may select, grant, administer,
         or exercise any other discretionary authority under the Plan in respect
         of Awards granted to such Participants who are Executive Officers.

         4.3      Newly Eligible Participants. The Committee shall be entitled
to make such rules, determinations and adjustments, as it deems appropriate with
respect to any Participant who becomes eligible to receive a performance-based
Award after the commencement of a Performance Cycle.

         4.4      Restrictive Covenants and Other Conditions. Without limiting
the generality of the foregoing, the Committee may condition the grant of any
Award under the Plan upon the Participant to whom such Award would be granted
agreeing in writing to certain conditions in addition to the provisions
regarding exercisability of the Award (such as restrictions on the ability to
transfer the underlying shares of Common Stock) or covenants in favor of the
Corporation and/or one or more Affiliates (including, without limitation,
covenants not to compete, not to solicit employees and customers and not to
disclose confidential information) that may have effect during or following the
termination of the Participant's employment with the Corporation and its
Affiliates and before or after the Award has been exercised, including, without
limitation, the requirement that the Participant disgorge any profit, gain or
other benefit received in respect of the exercise of the Award prior to any
breach of any such covenant by the Participant.

         4.5      Performance Based Compensation Interpretations; Limitations on
Discretion. Notwithstanding anything

<PAGE>

contained in the Plan to the contrary, to the extent the Committee has required
upon grant that any Annual Incentive Award, Long-Term Performance Unit Award,
Performance Share, Restricted Unit or Restricted Stock must qualify as "other
performance based compensation" within the meaning of Section 162(m)(4)(C) of
the U.S. Code, the Committee shall (a) specify and approve the specific terms of
any Performance Goals with respect to such Awards in writing no later than
ninety (90) days from the commencement of the Performance Cycle to which the
Performance Goal or Goals relate, and (b) not be entitled to exercise any
subsequent discretion otherwise authorized under the Plan (such as the right to
authorize payout at a level above that dictated by the achievement of the
relevant Performance Goals) with respect to such Award if the ability to
exercise discretion (as opposed to the exercise of such discretion) would cause
such Award to fail to qualify as other performance based compensation.

         4.6      Indemnification. No member of the Committee, nor any officer
or employee of the Corporation acting on behalf of the Committee, shall be
personally liable for any action, determination or interpretation taken or made
in good faith with respect to the Plan and all members of the Committee and each
and any officer or employee of the Corporation acting on their behalf, to the
extent permitted by law, shall be entitled to full indemnification,
reimbursement and protection by the Corporation in respect of any such action,
determination or interpretation. In the performance of its functions under the
Plan, the Committee and any officer or employee of the Corporation acting on
their behalf, shall be entitled to rely upon information and advice furnished
to them by the Corporation's officers, accountants, counsel and any other party
they deem necessary, and no member of the Committee, nor any officer or employee
of the Corporation acting on behalf of the Committee, shall be liable for any
action taken or not taken in reliance upon any such advice.

ARTICLE V
COMMON STOCK SUBJECT TO PLAN; OTHER LIMITATIONS

         5.1      Plan Limits. (a) Shares Available for Awards: Subject to the
provisions of Section 5.4, the number of shares of Common Stock issuable under
the Plan for Awards shall be 5,000,000.

                  (b)      The shares to be delivered under the Plan may
         consist, in whole or in part, of Common Stock purchased by the
         Corporation for such purpose, treasury Common Stock or authorized but
         unissued Common Stock, not reserved for any other purpose.

         5.2      Individual Performance-Based Limitations: Subject to the
provisions of Section 5.4, to the extent that any Annual Incentive, Long-Term
Performance Unit, Restricted Stock, Restricted Unit and Performance Share Awards
to a Participant are intended to satisfy the requirements of U.S. Code section
162(m)(4)(C) as "other performance based compensation," the maximum aggregate
amount of such Award(s) paid or otherwise made available to such Participant
shall not exceed one-half of one percent (0.5%) of Adjusted Net Income for the
most recently reported year ending December 31st prior to the year such Award or
Awards is or are paid or otherwise made available.

         5.3      Cancelled, Terminated, or Forfeited Awards. Should an Award
under this Plan for any reason expire without having been exercised, be
cancelled, repurchased by the Corporation, terminated or forfeited or otherwise
settled without the issuance of any Common Stock (including, but not limited to,
shares tendered to exercise outstanding Options, shares tendered or withheld for
taxes on Awards or shares issued in connection with a Restricted Stock Award
that is subsequently forfeited), any such shares of Common Stock subject to such
Award shall again be available for grants of Awards under the Plan.

         5.4      Adjustment in Capitalization. In the event of any Adjustment
Event, (a) the aggregate number of shares of Common Stock available for Awards
under Section 5.1, (b) the aggregate limitations on the number of shares that
may be awarded as a particular type of Award or that may be awarded to any
particular Participant in any particular period under Section 5.2 and (c) the
aggregate number of shares subject to outstanding Awards and the respective
exercise prices or base prices applicable to outstanding Awards shall be
appropriately adjusted by the Committee, in its discretion, with respect to such
Adjustment Event, and the Committee's determination shall be conclusive. To the
extent deemed equitable and appropriate by the Committee and subject to any
required action by shareholders of the Corporation, in any Adjustment Event that
is a merger, consolidation, reorganization, liquidation, dissolution or similar
transaction, any Award granted under the Plan shall be deemed to pertain to the
securities and other property, including cash, to which a holder of the number
of shares of Common Stock covered by the Award would have been entitled to
receive in connection with such Adjustment Event.

<PAGE>

Any shares of stock (whether Common Stock, shares of stock into which shares of
Common Stock are converted or for which shares of Common Stock are exchanged or
shares of stock distributed with respect to Common Stock) or cash or other
property received with respect to any award of Restricted Stock or Restricted
Units granted under the Plan as a result of any Adjustment Event or any
distribution of property shall, except as provided in Article X or as otherwise
provided by the Committee, be subject to the same terms and conditions,
including restrictions on transfer, as are applicable to such shares of
Restricted Stock or Restricted Units and any stock certificate(s) representing
or evidencing any shares of stock so received shall be legended in such manner
as the Corporation deems appropriate.

ARTICLE VI
STOCK OPTIONS

         6.1      Grant of Options. Subject to the provisions of Section 5.1,
Options may be granted to Participants at such time or times as shall be
determined by the Committee. Options granted under the Plan may be of three
types: (i) ISOs, (ii) QSOs and (iii) Nonstatutory Stock Options. Except as
otherwise provided herein, the Committee shall have complete discretion in
determining the Number of Options, if any, to be granted to a Participant,
except that ISOs and QSOs may only be granted to Eligible Individuals who
satisfy the requirements for eligibility set forth under U.S. Code section 424
and P.R. Code section 1046, respectively. The date of grant of an Option under
the Plan will be the date on which the Option is awarded by the Committee or, if
so determined by the Committee, the date on which occurs any event (including,
but not limited to, the completion of an individual or corporate Performance
Goal) the occurrence of which is an express condition precedent to the grant of
the Option. Subject to Section 5.4, the Committee shall determine the number of
Options, if any, to be granted to the Participant. Each Option grant shall be
evidenced by an Option agreement (in electronic or written form) that shall
specify the type of Option granted, the exercise price, the duration of the
Option, the number of shares of Common Stock to which the Option pertains, and
such other terms and conditions as the Committee shall determine which are not
inconsistent with the provisions of the Plan. Options may be granted in tandem
with SARs (as described in more detail in Article VII), and/or with associated
Dividend Equivalents (as described in more detail in Article VIII).

         6.2      Exercise Price; No Repricing or Substitution of Options.
Nonstatutory Stock Options and QSOs and ISOs granted pursuant to the Plan shall
have an exercise price no less than the Fair Market Value of a share of Common
Stock on the date the Option is granted. Except as a result of any Adjustment
Event, the Committee shall not have the power or authority to reduce, whether
through amendment or otherwise, the exercise price of any outstanding Option nor
to grant any new Options or other Awards in substitution for or upon the
cancellation of Options previously granted which shall have the effect of
reducing the exercise price of any outstanding Option.

         6.3      Exercise of Options. Each Option granted pursuant to the Plan
shall become exercisable as determined by the committee at the time of grant;
provided that the Committee may establish performance-based criteria for
exercisability of any Option. Subject to the provisions of this Article VI, once
any portion of any Option has become exercisable it shall remain exercisable for
its remaining term. Once exercisable, an Option may be exercised from time to
time, in whole or in part, up to the total number of shares of Common Stock with
respect to which it is then exercisable. The Committee shall determine the term
of each Option granted, but, except as expressly provided below, in no event
shall any such Option be exercisable for more than 10 years after the date on
which it is granted.

         6.4      Payment. The Committee shall establish procedures governing
the exercise of Options. No shares shall be delivered pursuant to any exercise
of an Option unless arrangements satisfactory to the Committee have been made to
assure full payment of the exercise price therefore. Without limiting the
generality of the foregoing, payment of the exercise price may be made: (a) in
cash or its equivalent; (b) by exchanging shares of Common Stock (which are not
the subject of any pledge or other security interest) owned by the person
exercising the Option (through actual tender or by attestation); (c) with the
approval of the Board or the Committee, by authorizing the Corporation, Popular
Securities, Inc. or a broker-dealer

<PAGE>

approved by the Corporation, to sell, on behalf of the Participant, the
appropriate number of shares of Common Stock otherwise issuable to the
Participant upon exercise of an Option; (d) with the approval of the Board or
the Committee and at the election of the Participant, by withholding from those
shares of Common Stock that would otherwise be obtained upon exercise of the
Option a number of shares having a Fair Market Value equal to the exercise
price; (e) by any combination of the foregoing; or (f) by other means that the
Board or the Committee deems appropriate; provided that the combined value of
all cash and cash equivalents paid and the Fair Market Value of any such shares
of Common Stock so tendered to the Corporation, valued as of the date of such
tender, is at least equal to such exercise price. The Corporation may not make a
loan to a Participant to facilitate such Participant's exercise of any of his or
her Options or payment of taxes.

         6.5      ISOs and QSOs. Notwithstanding anything in the Plan to the
contrary, no Option that is intended to be an ISO or a QSO may be granted after
the tenth anniversary of the Effective Date of the Plan. Except as may otherwise
be provided for under the provisions of Article X of the Plan, no term of this
Plan relating to ISOs or QSOs shall be interpreted, amended or altered, nor
shall any discretion or authority granted under the Plan be so exercised, so as
to disqualify the ISO, QSO or the Plan under Section 422 of the U.S. Code, or
P.R. Code section 1046, respectively, or without the consent of any Participant
affected thereby, to disqualify any ISO or QSO under such section 422 or section
1046.

         6.6      Termination of Employment or Service as a Nonemployee
Director. Unless otherwise determined by the Committee at or following the time
of grant, the following provisions of the Plan shall apply in the event of the
Participant's termination of employment or service as a Nonemployee Director:

                  (a)      Due to Death. In the event a Participant's employment
         terminates by reason of death, any Options granted to such Participant
         shall become immediately exercisable in full and may be exercised by
         the Participant's estate or as may otherwise be provided for in
         accordance with the requirements of Section 12.2, at any time prior to
         the earlier to occur of the (i) expiration of the term of the Options
         or (ii) such date as the Committee shall determine at the time of
         grant; provided, however, that Nonstatutory Stock Options shall be
         deemed to be amended to provide that they are exercisable for not less
         than one (1) year after a Participant's death even if such period
         exceeds the expiration of the term of the original grant of such
         Nonstatutory Stock Options.

                  (b)      Due to Disability. In the event a Participant's
         employment is terminated by his or her employer by reason of
         Disability, any Options granted to such Participant shall become
         immediately exercisable in full and may be exercised by the Participant
         (or, in the event of the Participant's death after termination of
         employment when the Option is exercisable pursuant to its terms, by the
         Participant's designated beneficiary, and if none is named, by the
         person determined in accordance with the requirements of Section 12.2),
         at any time prior to the expiration date of the term of the Options or
         within such period as the Committee shall determine at the time of
         grant following the Participant's termination of employment, whichever
         period is shorter.

                  (c)      Due to Approved Retirement. In the event a
         Participant's employment terminates by reason of Approved Retirement,
         any Options granted to such Participant which are then outstanding
         shall become immediately exercisable in full and may be exercised by
         the Participant (or, in the event of the Participant's death after
         termination of employment when the Option is exercisable pursuant to
         its terms, by the Participant's estate or as otherwise may be provided
         for in accordance with Section 12.2), at any time prior to the
         expiration date of the term of the Options or within five (5) years (or
         such shorter period as the Committee shall determine at the time of
         grant) following the Participant's Approved Retirement, whichever
         period is shorter.

                  (d)      Due to Cause. In the event a Participant's employment
         is terminated by the Corporation or any Affiliate for Cause, any
         Options granted to such Participant that are then not yet exercised
         shall be forfeited at the time of such termination and shall not be
         exercisable thereafter and the Committee may, consistent with Section
         4.5 of the Plan, require that such Participant disgorge any profit,
         gain or other benefit received in respect of the exercise of any such
         Award for a period of up to twelve (12) months prior to the
         Participant's termination of employment for Cause. For purposes of this
         Section 6.6, in the event a Participant's employment is terminated by
         the Corporation or any Affiliate for Cause, the provisions of this
         Section 6.6(d) will apply notwithstanding any assertion (by the
         Participant or otherwise) of a termination of employment for any other
         reason enumerated under this Section.

<PAGE>

                  (e)      Due to Resignation. Unless otherwise determined by
         the Committee, in the event a Participant's employment ends as a result
         of such Participant's resignation from the Corporation or any
         Affiliate, any Options granted to such Participant that are then not
         yet exercised shall be forfeited at the time of such termination and
         shall not be exercisable thereafter.

                  (f)      Due to Any Other Reason. In the event the employment
         of the Participant shall terminate for any reason other than one
         described in Section 6.6 (a) through (e), any Options granted to such
         Participant which are exercisable at the date of the Participant's
         termination of employment may be exercised by the Participant (or, in
         the event of the Participant's death after termination of employment
         when the Option is exercisable pursuant to its terms, by the
         Participant's estate or as may otherwise be provided for in accordance
         with the requirements of Section 12.2) at any time prior to the
         expiration of the term of the Options or the ninetieth (90th) day
         following the Participant's termination of employment, whichever period
         is shorter, and any Options that are not exercisable at the time of
         termination of employment shall be forfeited at the time of such
         termination and not be exercisable thereafter.

                  (g)      Termination of Service as a Nonemployee Director. If
         a Nonemployee Director shall terminate his service as a director for
         reasons other than removal for cause, any Options granted to such
         Participant shall become immediately exercisable in full and may be
         exercised by the Participant (or the Participant's estate, as the case
         may be) at any time before the expiration of the term of the Option.

ARTICLE VII
STOCK APPRECIATION RIGHTS (SARs)

         7.1      Grant of SARs. SARs may be granted to any Participants, all
Participants or any class of Participants at such time or times as shall be
determined by the Committee. SARs may be granted in tandem with an Option, on a
freestanding basis, not related to any other Award, and/or with associated
Dividend Equivalents. A grant of a SAR shall be evidenced in writing, whether as
part of the agreement governing the terms of the Option, if any, to which such
SARs relate or pursuant to a separate written agreement with respect to
freestanding SARs, in each case containing such provisions not inconsistent with
the Plan as the Committee shall approve.

         7.2      Terms and Conditions of SARs. Notwithstanding the provisions
of Section 7.1, unless the Committee shall otherwise determine the terms and
conditions (including, without limitation, the exercise period of the SAR, the
vesting schedule applicable thereto and the impact of any termination of service
on the Participant's rights with respect to the SAR) applicable with respect to
(i) SARs granted in tandem with an Option shall be substantially identical (to
the extent possible taking into account the differences related to the character
of the SAR) to the terms and conditions applicable to the tandem Options and
(ii) freestanding SARs shall be substantially identical (to the extent possible
taking into account the differences related to the character of the SAR) to the
terms and conditions that would have been applicable under Section 6 were the
grant of the SARs a grant of an Option (including, but not limited to, the
application of Section 6.6).

         7.3      Exercise of Tandem SARs. SARs that are granted in tandem with
an Option may only be exercised upon the surrender of the right to exercise such
Option for an equivalent number of shares and may be exercised only with respect
to the shares of Stock for which the related Award is then exercisable.

         7.4      Payment of SAR Amount. Upon exercise of a SAR, the holder
shall be entitled to receive payment, in cash, in shares of Common Stock or in a
combination thereof, as determined by the Committee, of an amount determined by
multiplying:

                  (a)      the excess, if any, of the Fair Market Value of a
         share of Stock at the date of exercise over the Fair Market Value of a
         share of Common Stock on the date of grant, by

<PAGE>

                  (b)      the number of shares of Common Stock with respect to
which the SARs are then being exercised; provided, however, that at the time of
grant with respect to any SAR payable in cash, the Committee may establish, in
its sole discretion, a maximum amount per share which will be payable upon the
exercise of such SAR.

ARTICLE VIII
RESTRICTED STOCK, RESTRICTED UNITS AND DIVIDEND EQUIVALENTS

         8.1      Grant of Restricted Stock and Restricted Units. The Committee,
in its sole discretion, may make Awards to Participants of Restricted Stock or
Restricted Units. Any Award made hereunder of Restricted Stock or Restricted
Units shall be subject to the terms and conditions of the Plan and to any other
terms and conditions not inconsistent with the Plan (including, but not limited
to, requiring the Participant to pay the Corporation an amount equal to the par
value per share for each share of Restricted Stock awarded) as shall be
prescribed by the Committee in its sole discretion, either at the time of grant
or thereafter. As determined by the Committee, with respect to an Award of
Restricted Stock, the Corporation shall either (i) transfer or issue to each
Participant to whom an award of Restricted Stock has been made the number of
shares of Restricted Stock specified by the Committee or (ii) hold such shares
of Restricted Stock for the benefit of the Participant for the Restricted
Period. In the case of an Award of Restricted Units, no shares of Common Stock
shall be issued at the time an Award is made, and the Company shall not be
required to set aside a fund for the payment of such Award. Dividends or
Dividends Equivalents (if connected with the grant of Restricted Units) may be
subject to the same terms and conditions as the underlying Award of Restricted
Stock or Restricted Units.

         8.2      Grant, Terms and Conditions of Dividend Equivalents. The
Committee, in its sole discretion, may make Awards to Participants of Dividend
Equivalents in connection with the grant of Restricted Units, Options, SARs
and/or Performance Shares. Unless the Committee shall otherwise determine, the
terms and conditions (including, without limitation, the vesting schedule
applicable thereto and the impact of any termination of service on the
Participant's rights with respect to the Dividend Equivalent) shall be
substantially identical (to the extent possible taking into account the
differences related to the character of the Dividend Equivalent) to the terms
and conditions applicable to the associated Award.

         8.3      Restrictions On Transferability. Shares of Restricted Stock
may not be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered by the Participant during the Restricted Period, except as
hereinafter provided. Notwithstanding the foregoing, the Committee may permit
(on such terms and conditions as it shall establish) shares of Restricted Stock
and Restricted Units to be transferred during the Restricted Periods pursuant to
Section 12.1, provided that any shares of Restricted Stock or Restricted Units
so transferred shall remain subject to the provisions of this Article VIII.

         8.4      Rights as a Shareholder. Except for the restrictions set forth
herein and unless otherwise determined by the Committee, the Participant shall
have all the rights of a shareholder with respect to such shares of Restricted
Stock, including but not limited to, the right to vote and the
right to receive dividends. A Participant shall not have any right, in respect
of Restricted Units or Dividend Equivalents awarded pursuant to the Plan, to
vote on any matter submitted to the Corporation's stockholders until such time
as the shares of Common Stock attributable to such Restricted Units (and, if
applicable, Dividend Equivalents) have been issued.

         8.5      Restricted Period. The Restricted Period shall commence upon
the date of grant by the Committee and shall lapse with respect to the shares of
Restricted Stock or Restricted Units on such date as determined by the Committee
at the date an Award of Restricted Stock or Restricted Units (including any
Dividend Equivalents issued) is made to the Participant by the Committee, unless
sooner terminated as otherwise provided herein.

         8.6      Legending or Equivalent. To the extent that certificates are
issued to a Participant in respect of shares of Restricted Stock awarded under
the Plan (or in the event that such Restricted Stock are held electronically),
such shares shall be registered in the name of the Participant and shall have
such legends (or account restrictions) reflecting the restrictions of such
Awards in such manner as the Committee may deem appropriate.

         8.7      Termination of Employment or Service as a Nonemployee
Director. Unless the Committee shall otherwise

<PAGE>

determine at or subsequent to the date of grant:

                  (a)      Due to Death. In the event a Participant's employment
         terminates by reason of death, the Restricted Period will lapse as to
         the entire portion of the shares of Restricted Stock and/or Restricted
         Units (including any associated Dividend Equivalents) transferred or
         issued to such Participant under the Plan.

                  (b)      Due to Disability. In the event a Participant's
         employment terminates by reason of Disability, the Restricted Period
         will lapse as to the entire portion of the shares of Restricted Stock
         and/or Restricted Units (including any associated Dividend Equivalents)
         transferred or issued to such Participant under the Plan.

                  (c)      Due to Approved Retirement. In the event a
         Participant's employment terminates by reason of Approved Retirement,
         the Restricted Period will lapse as to the entire portion of the shares
         of Restricted Stock and/or Restricted Units transferred or issued to
         such Participant under the Plan (including any associated Dividend
         Equivalents).

                  (d)      Due to Cause. In the event a Participant's employment
         is terminated by the Corporation or any Affiliate for Cause, any
         Restricted Stock or Restricted Units (including any associated Dividend
         Equivalents) granted to such Participant shall be forfeited at the time
         of such termination, and the Committee may, consistent with Section 4.5
         of the Plan, require that such Participant disgorge any profit, gain or
         other benefit received in respect of the lapse of restrictions on any
         prior grant of Restricted Stock or Restricted Units (including any
         Dividend Equivalents) for a period of up to twelve (12) months prior to
         the Participant's termination of employment for Cause. For purposes of
         this Section 8.7, in the event a Participant's employment is terminated
         by the Corporation or any Affiliate for Cause, the provisions of this
         Section 8.7(d) will apply notwithstanding any assertion (by the
         Participant or otherwise) of a termination of employment for any other
         reason enumerated under this Section.

                  (e)      Due to Resignation. Unless otherwise determined by
         the Committee, in the event a Participant's employment ends as a result
         of such Participant's resignation from the Corporation or any
         Affiliate, any Restricted Stock granted to such Participant and all
         Restricted Units (including any associated Dividend Equivalents)
         credited to such Participant shall be forfeited upon the Participant's
         termination of employment.

                  (f)      Due to Any Other Reason. In the event a Participant's
         employment is terminated by the Corporation or any Affiliate for any
         other reason during the applicable vesting period, the Participant (or
         the Participant's estate or beneficiaries, if the participant
         subsequently dies) shall receive a payment calculated in the following
         manner: (i) the number of shares of Restricted Stock or Restricted
         Units granted will be reduced by multiplying the grant by a fraction,
         the numerator of which is the number of full months in the applicable
         vesting period during which the Participant was an active employee and
         the denominator of which is the number of months in the applicable
         vesting period (with a partial month worked shall be counted as a full
         month if the Participant is an active employee for 15 days or more in
         that month); and (ii) the resulting reduced number of Restricted Stock
         or Restricted Units shall be considered vested and payment of such
         pro-rated Awards is to be made to the Participant (or beneficiaries or
         estate, if the Participant subsequently dies) as soon as practicable
         after the Participant's termination of employment.

                  (g)      Termination of Service as a Nonemployee Director. In
         the event a Participant's service as a Nonemployee Director shall
         terminate for reasons other than removal for cause, the Restriction
         Period will lapse as to the entire portion of the shares of Restricted
         Stock and/or Restricted Units (including any associated Dividend
         Equivalents) transferred or issued to such Participant under the Plan.

         8.8      Issuance of New Certificate or Equivalent: Settlement of
Restricted Units and Dividend Equivalents. Upon the lapse of the Restricted
Period with respect to any shares of Restricted Stock, such shares shall no
longer be subject to the restrictions imposed under Section 8.3 and the
Corporation shall issue or have issued new share certificates (or remove any
such restrictions that may have been established electronically) without the
legend or equivalent described in Section 8.6 in exchange for those previously
issued. Upon the lapse of the Restricted Period with respect to any Restricted
Units, the Corporation shall deliver to the Participant, or the Participant's
beneficiary or estate, as provided in Section 12.2, one share

<PAGE>

of Common Stock for each Restricted Unit as to which restrictions have lapsed
and any Dividend Equivalents credited with respect to any Restricted Units, and
any interest thereon. The Committee may, in its sole discretion, elect to pay
cash or part cash and part Common Stock in lieu of delivering only Common Stock
and/or Dividend Equivalents. If a cash payment is made in lieu of delivering
Common Stock for the Restricted Units, the amount of such cash payment for each
share of Common Stock to which a Participant is entitled shall be equal to the
Fair Market Value of the Common Stock on the date on which the Restricted Period
lapsed with respect to the related Restricted Unit.

ARTICLE IX
ANNUAL INCENTIVE AWARDS,
LONG-TERM PERFORMANCE UNIT AWARDS
AND PERFORMANCE SHARE AWARDS

         9.1      Annual Incentive Awards.

                  (a)      General Description. At the direction of the
         Committee, Annual Incentive Awards may be made to Participants and,
         unless determined otherwise by the Committee at or after the date of
         grant, shall be paid in cash.

                  (b)      Requirements for Covered Employees. For any Covered
         Employees and to the extent the Committee intends to comply with the
         requirements for performance-based Awards described generally under
         U.S. Code section 162(m), the Committee must certify, prior to payment
         of any such amounts, that any applicable Performance Goals and/or other
         requirements have been satisfied, and that such amounts are consistent
         with the limits provided under Section 5.2(b).

                  (c)      Payment of Annual Incentive Awards. Unless the
         Committee determines otherwise either at grant or thereafter, in the
         event a Participant terminates employment before the end of an annual
         Performance Cycle due to death, Disability, or Approved Retirement,
         such Participant, or his or her estate, shall be eligible to receive a
         prorated Annual Incentive Award based on (a) in the case of death or
         Disability, full achievement of the Participant's Performance Goals for
         such Performance Cycle, and (b) in the case of Approved Retirement, the
         actual achievement of the Performance Goals for such Performance Cycle,
         in each case prorated for the portion of the Performance Cycle
         completed before the Participant's termination of employment. If a
         Participant terminates employment before payment of an Annual Incentive
         Award is authorized by the Committee for any reason other than death,
         Disability or Approved Retirement, the Participant shall forfeit all
         rights to such Annual Incentive Award unless otherwise determined by
         the Committee.

         9.2      Long-Term Performance Unit Awards.

                  (a)      General Description. At the discretion of the
         Committee, grants of Long-Term Performance Unit Awards may be made to
         Participants.

                  (b)      Requirements for Covered Employees. For any Covered
         Employees and to the extent the Committee intends to comply with the
         requirements for performance-based Awards described generally under
         U.S. Code section 162(m), the Committee must certify, prior to payment
         of any such amounts, that any applicable Performance Goals and/or other
         requirements have been satisfied, and that such amounts paid are
         consistent with the limits provided under Section 5.2(b).

                  (c)      Payment of Long-Term Performance Unit Awards.
         Long-Term Performance Unit Awards shall be payable in cash, Common
         Stock, or a combination of cash and Common Stock at the discretion of
         the Committee. Unless the Committee shall otherwise determine at or
         subsequent to the date of grant:

                           (i)      Due to Death. In the event a Participant's
                  employment terminates by reason of death during the applicable
                  Performance Cycle, the Participant's estate or beneficiaries
                  will receive a lump sum payment as soon as practicable of such
                  Long-Term Performance Unit Award, calculated as if the target
                  value or equivalent value for each Unit had, in fact, been
                  achieved.

<PAGE>

                           (ii)     Due to Disability. In the event a
                  Participant's employment terminates by reason of Disability
                  during the applicable Performance Cycle, the Participant (or
                  the Participant's estate or beneficiaries, if the Participant
                  subsequently dies) will receive a lump sum payment as soon as
                  practicable of such Long-Term Performance Unit Award,
                  calculated as if the target value or equivalent value for each
                  Unit had, in fact, been achieved.

                           (iii)    Due to Approved Retirement. In the event a
                  Participant's employment terminates by reason of Approved
                  Retirement during the applicable Performance Cycle, the
                  Participant (or the Participant's estate or beneficiaries, if
                  the Participant subsequently dies) shall receive a payment
                  calculated in the following manner: (i) the number of
                  Long-Term Performance Units granted will be reduced by
                  multiplying the grant by a fraction, the numerator of which is
                  the number of full months in the Performance Cycle during
                  which the Participant was an active employee and the
                  denominator of which is the number of months in the
                  Performance Cycle (with a partial month worked shall be
                  counted as a full month if the Participant is an active
                  employee for 15 days or more in that month); and (ii) the
                  resulting reduced number of Long-Term Performance Units shall
                  be considered vested and payment made to the Participant in a
                  lump sum as soon as practicable after the completion of the
                  respective Performance Cycle and the final valuation of such
                  Units is determined.

                  (iv)     Due to Cause. In the event a Participant's employment
         is terminated by the Corporation or any Affiliate for Cause, any
         outstanding Long-Term Performance Unit Awards shall be cancelled and
         the Committee may, consistent with Section 4.5 of the Plan, require
         that such Participant disgorge any profit, gain or other benefit
         received in respect of the payment of any prior Long-Term Performance
         Unit Awards received within a period of twelve (12) months prior to the
         Participant's termination of employment for Cause. For purposes of this
         Section 9.2(c)(iv), in the event a Participant's employment is
         terminated by the Corporation or any Affiliate for Cause, the
         provisions of this Section 9.2(c)(iv) will apply notwithstanding any
         assertion (by the Participant or otherwise) of a termination of
         employment for any other reason enumerated under this Section.

                  (v)      Due to Resignation. Unless otherwise determined by
         the Committee, in the event a Participant's employment ends as a result
         of such Participant's resignation from the Corporation or any
         Affiliate, any Long-Term Performance Units credited to such Participant
         shall be forfeited upon the Participant's termination of employment.

                  (vi)     Due to Any Other Reason. In the event a Participant's
         employment is terminated by the Corporation or any Affiliate for any
         other reason during the applicable Performance Cycle, the Participant
         (or the Participant's estate Participant (or the Participant's estate
         or beneficiaries, if the Participant subsequently dies) shall receive a
         payment calculated in the following manner: (i) the number of Long-Term
         Performance Units granted will be reduced by multiplying the grant by a
         fraction, the numerator of which is the number of full months in the
         Performance Cycle during which the Participant was an active employee
         and the denominator of which is the number of months in the Performance
         Cycle (with a partial month worked shall be counted as a full month if
         the Participant is an active employee for 15 days or more in that
         month); and (ii) the resulting reduced number of Long-Term Performance
         Units shall be considered vested and payment made to the Participant of
         a lump sum payment as soon as practicable of such pro-rated Long-Term
         Performance Unit Award, calculated as if the target value or equivalent
         value for each Unit had, in fact, been achieved.

         9.3      Performance Shares.

                  (a)      General Description. At the discretion of the
         Committee, grants of Performance Share Awards may be made to
         Participants.

                  (b)      Requirements for Covered Employees. For any Covered
         Employees and to the extent the Committee intends to comply with the
         requirements for performance-based Awards described generally under
         U.S. Code section 162(m), the Committee must certify, prior to payment
         of any such amounts, that any applicable Performance Goals and/or other
         requirements have been satisfied, and that such amounts paid are
         consistent with the limits provided under Section 5.2(b).

<PAGE>

                  (c)      Payment of Performance Share Awards. Performance
         Share Awards shall be payable in Common Stock. Unless the Committee
         shall otherwise determine at or subsequent to the date of grant:

                           (i)      Due to Death. In the event a Participant's
                  employment terminates by reason of death during the applicable
                  Performance Cycle, the Participant's estate or beneficiaries
                  will receive a lump sum payment as soon as practicable of such
                  Performance Share Award, calculated as if the target number of
                  Performance Shares had, in fact, been earned.

                           (ii)     Due to Disability. In the event a
                  Participant's employment terminates by reason of Disability
                  during the applicable Performance Cycle, the Participant (or
                  the Participant's estate or beneficiaries, if the Participant
                  subsequently dies) will receive a lump sum payment as soon as
                  practicable of such Performance Share Award, calculated as if
                  the target number of Performance Shares had, in fact, been
                  earned.

                           (iii)    Due to Approved Retirement. In the event a
                  Participant's employment terminates by reason of Approved
                  Retirement during the applicable Performance Cycle, the
                  Participant (or the Participant's estate or beneficiaries, if
                  the Participant subsequently dies) shall receive a payment
                  calculated in the following manner: (i) the number of
                  Performance Shares granted will be reduced by multiplying the
                  grant by a fraction, the numerator of which is the number of
                  full months in the Performance Cycle during which the
                  Participant was an active employee and the denominator of
                  which is the number of months in the Performance Cycle (with a
                  partial month worked shall be counted as a full month if the
                  Participant is an active employee for 15 days or more in that
                  month); and (ii) the resulting reduced number of Performance
                  Shares shall be considered vested and payment made to the
                  Participant in a lump sum as soon as practicable after the
                  completion of the respective Performance Cycle and the final
                  number of Performance Shares has been determined.

                           (iv)     Due to Cause. In the event a Participant's
                  employment is terminated by the Corporation or any Affiliate
                  for Cause, any outstanding Performance Share Awards shall be
                  cancelled and the Committee may, consistent with Section 4.5
                  of the Plan, require that such Participant disgorge any
                  profit, gain or other benefit received in respect of the
                  payment of any prior Performance Share Awards received within
                  a period of twelve (12) months prior to the Participant's
                  termination of employment for Cause. For purposes of this
                  Section 9.3(c)(iv), in the event a Participant's employment is
                  terminated by the Corporation or any Affiliate for Cause, the
                  provisions of this Section 9.3(c)(iv) will apply
                  notwithstanding any assertion (by the Participant or
                  otherwise) of a termination of employment for any other reason
                  enumerated under this Section.

                           (v)      Due to Resignation. Unless otherwise
                  determined by the Committee, in the event a Participant's
                  employment ends as a result of such Participant's resignation
                  from the Corporation or any Affiliate, any Performance Share
                  Awards credited to such Participant shall be forfeited upon
                  the Participant's termination of employment.

                           (vi)     Due to Any Other Reason. In the event a
                  Participant's employment is terminated by the Corporation or
                  an Affiliate for any other reason during the applicable
                  Performance Cycle, the Participant (or the Participant's
                  estate or beneficiaries, if the Participant subsequently dies)
                  shall receive a payment calculated in the following manner:
                  (i) the number of Performance Shares granted will be reduced
                  by multiplying the grant by a fraction, the numerator of which
                  is the number of full months in the Performance Cycle during
                  which the Participant was an active employee and the
                  denominator of which is the number of months in the
                  Performance Cycle (with a partial month worked shall be
                  counted as a full month if the Participant is an active
                  employee for 15 days or more in that month); and (ii) the
                  resulting reduced number of Performance Shares shall be
                  considered vested and payment made to the Participant of a
                  lump sum payment as soon as practicable of such pro-rated
                  Performance Share Award, calculated as if the target number of
                  Performance Shares had, in fact, been earned.

<PAGE>

ARTICLE X
CHANGE OF CONTROL

         10.1     Accelerated Vesting and Payment of Awards. Subject to the
provisions of Section 10.3, in the event of a Change of Control each Option and
SAR then outstanding shall be fully exercisable regardless of the exercise
schedule otherwise applicable to such Option and/or SAR, and the Restricted
Period shall lapse as to each share of Restricted Stock and each Restricted Unit
then outstanding. In connection with such a Change of Control, the Committee
may, in its discretion, provide that each Option, SAR, Restricted Stock and/or
Restricted Unit shall, upon the occurrence of such Change of Control, be
cancelled in exchange for a payment per share/unit (the "Settlement Payment") in
an amount based on the Change of Control Price. Such Settlement Payment shall be
in the form of cash.

         10.2     Long Term Performance Unit Awards and Performance Share
Awards. Subject to the provisions of Section 10.3, in the event of a Change of
Control, (a) any outstanding Long Term Performance Unit Awards or Performance
Share Awards relating to Performance Cycles ending prior to the Change of
Control which have been earned but not paid shall become immediately payable,
(b) all then-in-progress Performance Cycles for Long Term Performance Unit
Awards or Performance Share Awards that are outstanding shall end, and all
Participants shall be deemed to have earned an award equal to the Participant's
target award opportunity for the Performance Cycle in question, and (c) the
Corporation shall pay all such Long Term Performance Unit Awards and Performance
Share Awards as a Settlement Payment within thirty (30) days of such Change of
Control, based on the Change of Control Price. Such Settlement Payment shall be
in cash.

         10.3     Alternative Awards. Notwithstanding Section 10.1 or 10.2, no
cancellation, acceleration of exercisability, vesting, cash settlement or other
payment shall occur with respect to any Option, SAR, Restricted Stock,
Restricted Unit, Long-Term Performance Unit and/or Performance Share if the
Committee reasonably determines in good faith prior to the occurrence of a
Change of Control that such Option, SAR, Restricted Stock, Restricted Unit,
Long-Term Performance Unit and/or Performance Share shall be honored or assumed,
or new rights substituted therefore (such honored, assumed or substituted award
hereinafter called an "Alternative Award"), by a Participant's employer (or the
parent or an affiliate of such employer) immediately following the Change of
Control; provided that any such Alternative Award must:

                  (a)      be based on stock that is traded on an established
         securities market;

                  (b)      provide such Participant with rights and entitlements
         substantially equivalent to or better than the rights, terms and
         conditions applicable under such Option, SAR, Restricted Stock,
         Restricted Unit, Long-Term Performance Unit and/or Performance Share,
         including, but not limited to, an identical or better exercise or
         vesting schedules;

                  (c)      have substantially equivalent value to such Option,
         SAR, Restricted Stock, Restricted Unit, Long-Term Performance Unit
         and/or Performance Share (determined at the time of the Change in
         Control); and

                  (d)      have terms and conditions which provide that in the
         event that the Participant's employment is involuntarily terminated for
         any reason other than for Cause, all of such Participant's Options,
         SARs, Restricted Stock, Long-Term Performance Units and/or Performance
         Shares shall be deemed immediately and fully exercisable and/or all
         restrictions shall lapse, and shall be settled for a payment per each
         share of stock subject to the Alternative Award in cash, in immediately
         transferable, publicly traded securities, or in a combination thereof,
         in an amount equal to (i) the Fair Market Value of such stock on the
         date of the Participant's termination (with respect to any Restricted
         Stock and/or Restricted Units, (ii) the excess of the Fair Market Value
         of such stock on the date of the Participant's termination over the
         corresponding exercise or base price per share, if any (with respect to
         any Option and/or SARs), or (iii) the Participant's target award
         opportunity for the Performance Cycle in question (with respect to any
         Long-Term Performance Units or Performance Shares).

<PAGE>

ARTICLE XI
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN

         11.1     General. The Board may, at any time and from time to time
amend, modify, suspend, or terminate this Plan, in whole or in part, without
notice to or the consent of any participant or employee; provided, however, that
any amendment which would (i) increase the number of shares available for
issuance under the Plan, (ii) lower the minimum exercise price at which an
Option (or the base price at which a SAR) may be granted or (iii) change the
individual Award limits or (iv) require shareholder approval under NASDAQ rules
or the rules of any other exchange where the Common Stock may then be traded,
shall be subject to the approval of the Corporation's shareholders. No
amendment, modification or termination of the Plan shall in any manner adversely
affect any Award theretofore granted under the Plan, without the consent of the
Participant, provided, however, that

         (a)      any change pursuant to, and in accordance with the
requirements of, Article X;

         (b)      any acceleration of payments of amounts accrued under the Plan
by action of the Committee or by operation of the Plan's terms; or (c) any
decision by the Committee to limit participation (or other features of the Plan)
prospectively under the Plan shall not be deemed to violate this provision.

ARTICLE XII
MISCELLANEOUS PROVISIONS

         12.1     Transferability of Awards. No Awards granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution. No
transfer of an Award by will or by the laws of descent and distribution shall be
effective to bind the Corporation unless the Corporation shall have been
furnished with written notice thereof and a copy of the will and/or such other
evidence as the Board of Directors or the Committee may determine necessary to
establish the validity of the transfer.

         12.2     Treatment of Any Outstanding Rights or Features Upon
Participant's Death. Any Awards, rights or features remaining unexercised or
unpaid at the Participant's death shall be paid to, or exercised by, the
Participant's estate except where otherwise provided by law, or when done in
accordance with other methods (including a beneficiary designation process) put
in place by the Committee or a duly appointed designee from time to time. Except
as otherwise provided herein, nothing in this Plan is intended or may be
construed to give any person other than Participants any options, rights or
remedies under this Plan.

         12.3     Deferral of Payment. The Committee may, in the Award agreement
or otherwise, permit a Participant to elect, upon such terms and conditions as
the Committee may establish, to defer receipt of shares of Common Stock that
would otherwise be issued upon exercise or vesting of an Award. Notwithstanding
anything else contained herein to the contrary, deferrals shall not be permitted
hereunder in a way that will result in the Corporation or any Affiliate being
required to recognize a financial accounting charge due to such deferral that is
substantially greater than the charge, if any, that was associated with the
underlying Award.

         12.4     Awards In Substitution for Awards Granted By Other Companies.
Awards may be granted under the Plan from time to time as replacements for
awards (including, but not limited to, options, common stock, restricted stock,
performance shares or performance units) held by employees of other companies
who become Employees of the Corporation or of any Affiliate as a result of a
merger or consolidation of the employing Corporation with the Corporation, or
such Affiliate, or the acquisition by the Corporation or an Affiliate of all or
a portion of the assets of the employing Corporation. Shares issued in
connection with such substitute Awards shall not reduce the number of shares of
Common Stock issuable under Section 5.1 of the Plan.

         12.5     No Guarantee of Employment or Participation. The existence of
the Plan shall not be deemed to constitute a contract of employment between the
Corporation or any affiliate and any Eligible Individual or Participant, nor
shall it constitute a right to remain in the employ of the Corporation or any
affiliate. The terms or existence of this Plan, as in effect at any time or from
time to time, or any Award granted under the Plan, shall not interfere with or
limit in any way the right of the Corporation or any Affiliate to terminate any
Participant's employment at any time, nor confer upon any Participant any right
to continue in the employ of the Corporation or any Affiliate of the
Corporation. Each employee of the Corporation or

<PAGE>

any Affiliate remains at will. Except to the extent expressly selected by the
Committee to be a Participant, no person (whether or not an Eligible Individual
or a Participant) shall at any time have a right to be selected for (or
additional) participation in the Plan, despite having previously participated in
an incentive or bonus plan of the Corporation or an Affiliate.

         12.6     Tax Withholding. The Corporation or an Affiliate shall have
the right and power to deduct from all payments or distributions hereunder, or
require a Participant to remit to the Corporation promptly upon notification of
the amount due, an amount (which may include shares of Common Stock) to satisfy
any Puerto Rico, federal, state, local or foreign taxes or other obligations
required by law to be withheld with respect thereto with respect to any Award.
The Corporation may defer payments of cash or issuance or delivery of Common
Stock until such withholding requirements are satisfied. The Committee may, in
its discretion, permit a Participant to elect, subject to such conditions as the
Committee shall impose, (a) to have shares of Common Stock otherwise issuable
under the Plan withheld by the Corporation or (b) to deliver to the Corporation
previously acquired shares of Common Stock (through actual tender or
attestation), in either case for the greatest number of whole shares having a
Fair Market Value on the date immediately preceding the date of exercise not in
excess of the amount required to satisfy the withholding tax obligations.

         12.7     Tax Offset Payments. The Committee shall have the authority at
the time of any award under this Plan or anytime thereafter to make Tax Offset
Payments to assist Participants in paying income taxes incurred as a result of
their participation in this Plan. The Tax Offset Payments shall be determined by
multiplying a percentage established by the Committee by all or a portion (as
the Board or the Committee shall determine) of the taxable income recognized by
a Participant upon (i) the exercise of a Nonstatutory Stock Option, or (ii) the
disposition of shares received upon exercise of a QSO or an ISO. The percentage
shall be established, from time to time, by the Committee at that rate which the
Committee, in its sole discretion, determines to be appropriate and in the best
interests of the Corporation to assist Participants in paying income taxes
incurred as a result of the events described in the preceding sentence. Tax
Offset Payments shall be subject to the restrictions on transferability
applicable to Options set forth in Section 12.1.

         12.8     No Limitation on Compensation; Scope of Liabilities. Nothing
in the Plan shall be construed to limit the right of the Corporation to
establish other plans if and to the extent permitted by applicable law. The
liability of the Corporation, or any Affiliate under this Plan is limited to the
obligations expressly set forth in the Plan, and no term or provision of this
Plan may be construed to impose any further or additional duties, obligations,
or costs on the Corporation or any affiliate thereof or the Committee not
expressly set forth in the Plan.

         12.9     Requirements of Law. The granting of Awards and the issuance
of shares of Common Stock shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.

         12.10    Term of Plan. The Plan shall be effective upon the Effective
Date. The Plan shall terminate on the earlier of (a) the termination of the Plan
pursuant to Article XI, or (b) when no more shares are available for issuance of
Awards under the Plan.

         12.11    Governing Law. The Plan, and all agreements hereunder, shall
be construed in accordance with and governed by the laws of the Commonwealth of
Puerto Rico without regard to principles of conflict of laws.

         12.12    Securities Law Compliance. Instruments evidencing Awards may
contain such other provisions, not inconsistent with the Plan, as the Committee
deems advisable, including a requirement that the Participant represent to the
Corporation in writing, when an Award is granted or when he receives shares with
respect to such Award (or at such other time as the Committee deems appropriate)
that he is accepting such Award, or receiving or acquiring such shares (unless
they are then covered by a Securities Act of 1933 registration statement), for
his own account for investment only and with no present intention to transfer,
sell or otherwise dispose of such shares except such disposition by a legal
representative as shall be required by will or the laws of any jurisdiction in
winding up the estate of the Participant. Such shares shall be transferable, or
may be sold or otherwise disposed of only if the proposed transfer, sale or
other disposition shall be permissible pursuant to the Plan and if, in the
opinion of counsel satisfactory to the Corporation, such transfer, sale or other
disposition at such time will be in compliance with applicable securities laws.

<PAGE>

         12.13    No Impact On Benefits. Except as may otherwise be specifically
provided for under any employee benefit plan, policy or program provision to the
contrary, Awards shall not be treated as compensation for purposes of
calculating an Eligible Individual's right under any such plan, policy or
program.

         12.14    No Constraint on Corporate Action. Except as provided in
Article XI, nothing contained in this Plan shall be construed to prevent the
Corporation, or any affiliate, from taking any corporate action (including, but
not limited to, the Corporation's right or power to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer
all or any part of its business or assets) which is deemed by it to be
appropriate, or in its best interest, whether or not such action would have an
adverse effect on this Plan, or any Awards made under this Plan. No employee,
beneficiary, or other person, shall have any claim against the Corporation or
any of its Affiliates, as a result of any such action.

         12.15    Captions. The headings and captions appearing herein are
inserted only as a matter of convenience. They do not define, limit, construe,
or describe the scope or intent of the provisions of the Plan.

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