Document:

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                           PARENT GUARANTEE AGREEMENT

                                 BY AND BETWEEN

                            R&G FINANCIAL CORPORATION

                                       AND

                         U.S. BANK NATIONAL ASSOCIATION

                           DATED AS OF AUGUST 8, 2003
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                                TABLE OF CONTENTS
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ARTICLE I         DEFINITIONS AND INTERPRETATION...................................     2

     Section 1.1      Definitions and Interpretation...............................     2

ARTICLE II        POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE...................     6

     Section 2.1      Powers and Duties of the Guarantee Trustee...................     6
     Section 2.2      Certain Rights of Guarantee Trustee..........................     7
     Section 2.3      Not Responsible for Recitals or Issuance of Guarantee........     9
     Section 2.4      Events of Default; Waiver....................................     9
     Section 2.5      Events of Default; Notice....................................    10

ARTICLE III       GUARANTEE TRUSTEE................................................    10

     Section 3.1      Guarantee Trustee; Eligibility...............................    10
     Section 3.2      Appointment, Removal and Resignation of Guarantee Trustee....    11

ARTICLE IV        GUARANTEE........................................................    12

     Section 4.1      Guarantee....................................................    12
     Section 4.2      Waiver of Notice and Demand..................................    12
     Section 4.3      Obligations Not Affected.....................................    12
     Section 4.4      Rights of Holders............................................    13
     Section 4.5      Guarantee of Payment.........................................    14
     Section 4.6      Subrogation..................................................    14
     Section 4.7      Independent Obligations......................................    14
     Section 4.8      Enforcement by a Beneficiary.................................    14

ARTICLE V         LIMITATION OF TRANSACTIONS; RANKING..............................    15

     Section 5.1      Limitation of Transactions...................................    15
     Section 5.2      Ranking......................................................    16

ARTICLE VI        TERMINATION......................................................    16

     Section 6.1      Termination..................................................    16

ARTICLE VII       INDEMNIFICATION..................................................    16

     Section 7.1      Exculpation..................................................    16
     Section 7.2      Indemnification..............................................    17
     Section 7.3      Compensation; Reimbursement of Expenses......................    18

ARTICLE VIII      MISCELLANEOUS....................................................    19
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     Section 8.1      Successors and Assigns.......................................    19
     Section 8.2      Company May Consolidate, etc., on Certain Terms..............    19
     Section 8.3      Amendments...................................................    19
     Section 8.4      Notices......................................................    20
     Section 8.5      Benefit......................................................    21
     Section 8.6      Governing Law................................................    21
     Section 8.7      Counterparts.................................................    21
     Section 8.8      Separability.................................................    21
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                         PARENT GUARANTEE AGREEMENT

      This PARENT GUARANTEE AGREEMENT (this "Guarantee"), dated as of August 8,
2003, is executed and delivered by R&G Financial Corporation, a Puerto Rico
corporation (the "Guarantor"), and U.S. Bank National Association, a national
banking association, organized under the laws of the United States of America,
(the "Guarantee Trustee"), for the benefit of the Holders (as defined herein)
from time to time of the Debentures (as defined herein) of R&G Acquisition
Holdings Corporation, a Florida corporation and a wholly owned subsidiary of the
Guarantor (the "Company"), and the Capital Securities (as defined herein) of R&G
Capital Trust IV, LLT, a Connecticut statutory trust (the "Issuer").

      WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of the date hereof among U.S. Bank National
Association, not in its individual capacity but solely as institutional trustee,
the administrators of the Issuer named therein, the Company, as sponsor of the
Issuer, and the holders from time to time of undivided beneficial interests in
the assets of the Issuer, the Issuer is issuing on the date hereof those
undivided beneficial interests, having an aggregate liquidation amount of
$15,000,000.00 (the "Capital Securities");

      WHEREAS, pursuant to a guarantee (the "Company Guarantee") dated the date
hereof executed and delivered by the Company and the guarantee trustee named
therein for the benefit of the holders from time to time of the Capital
Securities, the Company has agreed to make certain payments with respect to the
Capital Securities and to make certain other payments with respect to
obligations and liabilities of the Issuer;

      WHEREAS, pursuant to an indenture of trust (the "Indenture") dated as of
the date hereof between the Company and U.S. Bank National Association, not in
its individual capacity but solely as trustee, the Company is issuing on the
date hereof $15,464,000.00 aggregate principal amount of Floating Rate Junior
Subordinated Deferrable Interest Debentures (the "Debentures");

      WHEREAS, the Issuer desires to issue the Capital Securities and to use the
proceeds thereof to purchase the Debentures; and

      WHEREAS, as incentive for the Holders of the Debentures to purchase the
Debentures from the Company and for the Holders of the Capital Securities to
purchase the Capital Securities from the Issuer, the Guarantor desires
irrevocably and unconditionally to agree, to the extent set forth in this
Guarantee, to pay to the Holders of Capital Securities the Guarantee Payments
(as defined herein).

      NOW, THEREFORE, in consideration of the purchase of the Debentures by each
Debenture Holder and of the Capital Securities by each Holder of Capital
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee for the benefit of
the Holders.
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                                    ARTICLE I

                         DEFINITIONS AND INTERPRETATION

      SECTION 1.1.DEFINITIONS AND INTERPRETATION.

            In this Guarantee, unless the context otherwise requires:

      (a) capitalized terms used in this Guarantee but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;

      (b) a term defined anywhere in this Guarantee has the same meaning
throughout;

      (c) all references to "the Guarantee" or "this Guarantee" are to this
Guarantee as modified, supplemented or amended from time to time;

      (d) all references in this Guarantee to "Articles" or "Sections" are to
Articles or Sections of this Guarantee, unless otherwise specified;

      (e) terms defined in the Declaration as at the date of execution of this
Guarantee have the same meanings when used in this Guarantee, unless otherwise
defined in this Guarantee or unless the context otherwise requires; and

      (f) a reference to the singular includes the plural and vice versa.

            "Additional Amount" has the meaning set forth in Section 4.1(b).

            "Affiliate" has the same meaning as given to that term in Rule 405
of the Securities Act of 1933, as amended, or any successor rule thereunder.

            "Authorized Agent" has the meaning set forth in Section 8.6.

            "Beneficiaries" means any Person to whom the Company, under the
terms of this Guarantee, is obligated to pay any sum or hereafter becomes
indebted or liable.

            "Capital Securities" has the meaning set forth in the recitals to
this Guarantee.

            "Common Securities" means the common securities issued by the Issuer
to the Company pursuant to the Declaration.

            "Company" means R&G Acquisition Holdings Corporation and each of its
successors and assigns.

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            "Company Guarantee" means the guarantee dated the date hereof
executed and delivered by the Company and the guarantee trustee named therein
for the benefit of the holders from time to time of the Capital Securities.

            "Corporate Trust Office" means the office of the Guarantee Trustee
at which the corporate trust business of the Guarantee Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Guarantee is located at 225 Asylum Street, Goodwin Square,
Hartford, Connecticut 06103.

            "Covered Person" means any Holder of Debentures or Capital
Securities.

            "Debentures" means the debt securities of the Company designated the
Floating Rate Junior Subordinated Deferrable Interest Debentures due 2033 held
by the Institutional Trustee (as defined in the Declaration) of the Issuer.

            "Declaration Event of Default" means an "Event of Default" as
defined in the Declaration.

            "Event of Default" has the meaning set forth in Section 2.4(a).

            "Foreign Jurisdiction" has the meaning set forth in Section 4.1(b).

            "Foreign Taxes" has the meaning set forth in Section 4.1(b).

            "Guarantee Payments" means the following payments or distributions,
without duplication, to the extent not paid or made by the Company: (i) with
respect to the Debentures, any payment that the Company is obligated to make
under the Debentures and/or the Indenture; and (ii) with respect to the Capital
Securities, any payments that the Company is obligated to make with respect to
the Company Guarantee.

            "Guarantee Trustee" means U.S. Bank National Association, until a
Successor Guarantee Trustee has been appointed and has accepted such appointment
pursuant to the terms of this Guarantee and thereafter means each such Successor
Guarantee Trustee.

            "Guarantor" means R&G Financial Corporation and each of its
successors and assigns.

            "Holder" means (i) any holder, as registered on the books and
records of the Indenture Trustee, of any Debenture or (ii) any holder, as
registered on the books and records of the Issuer, of any Capital Securities;
provided, however, that, in determining whether the Holders of the requisite
percentage of Debentures and Capital Securities have given any request, notice,
consent or waiver hereunder, "Holder" shall not include the Guarantor or any
Affiliate of the Guarantor.

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            "Indemnified Person" means the Guarantee Trustee, any Affiliate of
the Guarantee Trustee, or any officers, directors, shareholders, members,
partners, employees, representatives, nominees, custodians or agents of the
Guarantee Trustee.

            "Indenture" means the Indenture dated as of the date hereof between
the Company and U.S. Bank National Association, not in its individual capacity
but solely as trustee, and any indenture supplemental thereto pursuant to which
the Debentures are to be issued to the institutional trustee of the Issuer.

            "Indenture Trustee" means U.S. Bank National Association, in its
capacity as trustee under the Indenture, and its permitted successors and
assigns.

            "Issuer" has the meaning set forth in the opening paragraph to this
Guarantee.

            "Liquidation Distribution" has the meaning set forth in the
definition of "Guarantee Payments" herein.

            "Majority in liquidation amount of the Capital Securities" means
Holder(s) of outstanding Capital Securities, voting together as a class, but
separately from the holders of Common Securities, of more than 50% of the
aggregate liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all Capital
Securities then outstanding.

            "Majority of principal amount of the Debentures" means Holder(s) of
outstanding Debentures, voting together as a class, of more than 50% of the
aggregate principal amount of all Debentures then outstanding.

            "Majority of the Holders of Debentures and Capital Securities" means
Majority in liquidation amount of the Capital Securities and Majority of
principal amount of the Debentures.

            "Officer's Certificate" means, with respect to any Person, a
certificate signed by one Authorized Officer of such Person. Any Officer's
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Guarantee shall include:

            (a) a statement that the officer signing the Officer's Certificate
      has read the covenant or condition and the definitions relating thereto;

            (b) a brief statement of the nature and scope of the examination or
      investigation undertaken by the officer in rendering the Officer's
      Certificate;

            (c) a statement that the officer has made such examination or
      investigation as, in such officer's opinion, is necessary to enable such
      officer to

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      express an informed opinion as to whether or not such covenant or
      condition has been complied with; and

            (d) a statement as to whether, in the opinion of the officer, such
      condition or covenant has been complied with.

            "Redemption Price" has the meaning set forth in the Indenture.

            "Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.

            "Responsible Officer" means, with respect to the Guarantee Trustee,
any officer within the Corporate Trust Office of the Guarantee Trustee including
any Vice President, Assistant Vice President, Secretary, Assistant Secretary or
any other officer of the Guarantee Trustee customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of that officer's knowledge of and familiarity
with the particular subject.

            "Special Event" has the meaning set forth in the Indenture.

            "Special Redemption Price" has the meaning set forth in the
Indenture.

            "Subsidiary" means with respect to any Person, (i) any corporation
at least a majority of the outstanding voting stock of which is owned, directly
or indirectly, by such Person or by one or more of its Subsidiaries, or by such
Person and one or more of its Subsidiaries, (ii) any general partnership, joint
venture or similar entity, at least a majority of the outstanding partnership or
similar interests of which shall at the time be owned by such Person, or by one
or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries and (iii) any limited partnership of which such Person or any of
its Subsidiaries is a general partner. For the purposes of this definition,
"voting stock" means shares, interests, participations or other equivalents in
the equity interest (however designated) in such Person having ordinary voting
power for the election of a majority of the directors (or the equivalent) of
such Person, other than shares, interests, participations or other equivalents
having such power only by reason of the occurrence of a contingency.

            "Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 3.1.

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                                   ARTICLE II

                          POWERS, DUTIES AND RIGHTS OF
                                GUARANTEE TRUSTEE

      SECTION 2.1.POWERS AND DUTIES OF THE GUARANTEE TRUSTEE.

      (a) This Guarantee shall be held by the Guarantee Trustee for the benefit
of the Holders of the Debentures and the Holders of the Capital Securities, and
the Guarantee Trustee shall not transfer this Guarantee to any Person except a
Holder of Debentures or Capital Securities exercising his or her rights pursuant
to Section 4.4(b) or to a Successor Guarantee Trustee on acceptance by such
Successor Guarantee Trustee of its appointment to act as Successor Guarantee
Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee, and such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered pursuant to the appointment of such Successor
Guarantee Trustee.

      (b) If an Event of Default actually known to a Responsible Officer of the
Guarantee Trustee has occurred and is continuing, the Guarantee Trustee shall
enforce this Guarantee for the benefit of the Holders of the Debentures and/or
the Holders of the Capital Securities.

      (c) The Guarantee Trustee, before the occurrence of any Event of Default
and after curing all Events of Default that may have occurred, shall undertake
to perform only such duties as are specifically set forth in this Guarantee, and
no implied covenants shall be read into this Guarantee against the Guarantee
Trustee. In case an Event of Default has occurred (that has not been waived
pursuant to Section 2.4) and is actually known to a Responsible Officer of the
Guarantee Trustee, the Guarantee Trustee shall exercise such of the rights and
powers vested in it by this Guarantee, and use the same degree of care and skill
in its exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.

      (d) No provision of this Guarantee shall be construed to relieve the
Guarantee Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:

            (i) prior to the occurrence of any Event of Default and after the
      curing or waiving of all such Events of Default that may have occurred:

                  (A) the duties and obligations of the Guarantee Trustee shall
            be determined solely by the express provisions of this Guarantee,
            and the Guarantee Trustee shall not be liable except for the
            performance of such duties and obligations as are specifically set
            forth in this Guarantee, and no implied covenants or obligations
            shall be read into this Guarantee against the Guarantee Trustee; and

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                  (B) in the absence of bad faith on the part of the Guarantee
            Trustee, the Guarantee Trustee may conclusively rely, as to the
            truth of the statements and the correctness of the opinions
            expressed therein, upon any certificates or opinions furnished to
            the Guarantee Trustee and conforming to the requirements of this
            Guarantee; but in the case of any such certificates or opinions that
            by any provision hereof are specifically required to be furnished to
            the Guarantee Trustee, the Guarantee Trustee shall be under a duty
            to examine the same to determine whether or not they conform to the
            requirements of this Guarantee;

            (ii) the Guarantee Trustee shall not be liable for any error of
      judgment made in good faith by a Responsible Officer of the Guarantee
      Trustee, unless it shall be proved that such Responsible Officer of the
      Guarantee Trustee or the Guarantee Trustee was negligent in ascertaining
      the pertinent facts upon which such judgment was made;

            (iii) the Guarantee Trustee shall not be liable with respect to any
      action taken or omitted to be taken by it in good faith in accordance with
      the written direction of the Holders of not less than a Majority in
      liquidation amount of the Capital Securities relating to the time, method
      and place of conducting any proceeding for any remedy available to the
      Guarantee Trustee, or relating to the exercise of any trust or power
      conferred upon the Guarantee Trustee under this Guarantee; and

            (iv) no provision of this Guarantee shall require the Guarantee
      Trustee to expend or risk its own funds or otherwise incur personal
      financial liability in the performance of any of its duties or in the
      exercise of any of its rights or powers, if the Guarantee Trustee shall
      have reasonable grounds for believing that the repayment of such funds is
      not reasonably assured to it under the terms of this Guarantee or security
      and indemnity, reasonably satisfactory to the Guarantee Trustee, against
      such risk or liability is not reasonably assured to it.

      SECTION 2.2 CERTAIN RIGHTS OF GUARANTEE TRUSTEE.

      (a) Subject to the provisions of Section 2.1:

            (i) The Guarantee Trustee may conclusively rely, and shall be fully
      protected in acting or refraining from acting upon, any resolution,
      certificate, statement, instrument, opinion, report, notice, request,
      direction, consent, order, bond, debenture, note, other evidence of
      indebtedness or other paper or document believed by it to be genuine and
      to have been signed, sent or presented by the proper party or parties.

            (ii) Any direction or act of the Guarantor contemplated by this
      Guarantee shall be sufficiently evidenced by an Officer's Certificate.

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            (iii) Whenever, in the administration of this Guarantee, the
      Guarantee Trustee shall deem it desirable that a matter be proved or
      established before taking, suffering or omitting any action hereunder, the
      Guarantee Trustee (unless other evidence is herein specifically
      prescribed) may, in the absence of bad faith on its part, request and
      conclusively rely upon an Officer's Certificate of the Guarantor which,
      upon receipt of such request, shall be promptly delivered by the
      Guarantor.

            (iv) The Guarantee Trustee shall have no duty to see to any
      recording, filing or registration of any instrument (or any re-recording,
      refiling or re-registration thereof).

            (v) The Guarantee Trustee may consult with counsel of its selection,
      and the advice or opinion of such counsel with respect to legal matters
      shall be full and complete authorization and protection in respect of any
      action taken, suffered or omitted by it hereunder in good faith and in
      accordance with such advice or opinion. Such counsel may be counsel to the
      Guarantor or any of its Affiliates and may include any of its employees.
      The Guarantee Trustee shall have the right at any time to seek
      instructions concerning the administration of this Guarantee from any
      court of competent jurisdiction.

            (vi) The Guarantee Trustee shall be under no obligation to exercise
      any of the rights or powers vested in it by this Guarantee at the request
      or direction of any Holder, unless such Holder shall have provided to the
      Guarantee Trustee such security and indemnity, reasonably satisfactory to
      the Guarantee Trustee, against the costs, expenses (including attorneys'
      fees and expenses and the expenses of the Guarantee Trustee's agents,
      nominees or custodians) and liabilities that might be incurred by it in
      complying with such request or direction, including such reasonable
      advances as may be requested by the Guarantee Trustee; provided, however,
      that nothing contained in this Section 2.2(a)(vi) shall relieve the
      Guarantee Trustee, upon the occurrence of an Event of Default, of its
      obligation to exercise the rights and powers vested in it by this
      Guarantee.

            (vii) The Guarantee Trustee shall not be bound to make any
      investigation into the facts or matters stated in any resolution,
      certificate, statement, instrument, opinion, report, notice, request,
      direction, consent, order, bond, debenture, note, other evidence of
      indebtedness or other paper or document, but the Guarantee Trustee, in its
      discretion, may make such further inquiry or investigation into such facts
      or matters as it may see fit.

            (viii) The Guarantee Trustee may execute any of the trusts or powers
      hereunder or perform any duties hereunder either directly or by or through
      agents, nominees, custodians or attorneys, and the Guarantee Trustee shall
      not be responsible for any misconduct or negligence on the part of any
      agent or attorney appointed with due care by it hereunder.

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            (ix) Any action taken by the Guarantee Trustee or its agents
      hereunder shall bind the Holders of the Debentures and the Holders of the
      Capital Securities, and the signature of the Guarantee Trustee or its
      agents alone shall be sufficient and effective to perform any such action.
      No third party shall be required to inquire as to the authority of the
      Guarantee Trustee to so act or as to its compliance with any of the terms
      and provisions of this Guarantee, both of which shall be conclusively
      evidenced by the Guarantee Trustee's or its agent's taking such action.

            (x) Whenever in the administration of this Guarantee the Guarantee
      Trustee shall deem it desirable to receive instructions with respect to
      enforcing any remedy or right or taking any other action hereunder, the
      Guarantee Trustee (i) may request instructions from a Majority of the
      Holders of Debentures and Capital Securities, (ii) may refrain from
      enforcing such remedy or right or taking such other action until such
      instructions are received, and (iii) shall be protected in conclusively
      relying on or acting in accordance with such instructions.

            (xi) The Guarantee Trustee shall not be liable for any action taken,
      suffered, or omitted to be taken by it in good faith, without negligence,
      and reasonably believed by it to be authorized or within the discretion or
      rights or powers conferred upon it by this Guarantee.

      (b) No provision of this Guarantee shall be deemed to impose any duty or
obligation on the Guarantee Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal or in which the Guarantee Trustee shall be
unqualified or incompetent in accordance with applicable law to perform any such
act or acts or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Guarantee Trustee shall be
construed to be a duty.

      SECTION 2.3 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.

            The recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Guarantee Trustee does not assume any
responsibility for their correctness. The Guarantee Trustee makes no
representation as to the validity or sufficiency of this Guarantee.

      SECTION 2.4 EVENTS OF DEFAULT; WAIVER.

      (a) An Event of Default under this Guarantee will occur upon the failure
of the Guarantor to perform any of its payment or other obligations hereunder.

      (b) A Majority of the Holders of Debentures and Capital Securities may,
voting or consenting as a class, on behalf of the Holders of all of the
Debentures and the Capital Securities, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to exist,
and shall be deemed to have been cured, for

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every purpose of this Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.

      SECTION 2.5 EVENTS OF DEFAULT; NOTICE.

      (a) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default, transmit by mail, first class postage prepaid, to the Holders
of the Debentures and the Capital Securities and the Guarantor, notices of all
Events of Default actually known to a Responsible Officer of the Guarantee
Trustee, unless such defaults have been cured before the giving of such notice,
provided, however, that the Guarantee Trustee shall be protected in withholding
such notice if and so long as a Responsible Officer of the Guarantee Trustee in
good faith determines that the withholding of such notice is in the interests of
the Holders of the Debentures and the Holders of the Capital Securities.

      (b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written notice
from the Guarantor or a Holder of the Capital Securities (except in the case of
a payment default), or a Responsible Officer of the Guarantee Trustee charged
with the administration of this Guarantee shall have obtained actual knowledge
thereof.

                                  ARTICLE III

                                GUARANTEE TRUSTEE

      SECTION 3.1 GUARANTEE TRUSTEE; ELIGIBILITY.

      (a) There shall at all times be a Guarantee Trustee which shall:

            (i) not be an Affiliate of the Guarantor, and

            (ii) be a corporation organized and doing business under the laws of
      the United States of America or any State or Territory thereof or of the
      District of Columbia, or Person authorized under such laws to exercise
      corporate trust powers, having a combined capital and surplus of at least
      50 million U.S. dollars ($50,000,000), and subject to supervision or
      examination by Federal, State, Territorial or District of Columbia
      authority. If such corporation publishes reports of condition at least
      annually, pursuant to law or to the requirements of the supervising or
      examining authority referred to above, then, for the purposes of this
      Section 3.1(a)(ii), the combined capital and surplus of such corporation
      shall be deemed to be its combined capital and surplus as set forth in its
      most recent report of condition so published.

      (b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 3.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 3.2(c).

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      (c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee shall either eliminate such interest or resign to the extent
and in the manner provided by, and subject to this Guarantee.

      SECTION 3.2 APPOINTMENT, REMOVAL AND RESIGNATION OF GUARANTEE TRUSTEE.

      (a) Subject to Section 3.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the Guarantor except during an Event of
Default.

      (b) The Guarantee Trustee shall not be removed in accordance with Section
3.2(a) until a Successor Guarantee Trustee has been appointed and has accepted
such appointment by written instrument executed by such Successor Guarantee
Trustee and delivered to the Guarantor.

      (c) The Guarantee Trustee appointed to office shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by an instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.

      (d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 3.2 within 60 days after
delivery of an instrument of removal or resignation, the Guarantee Trustee
resigning or being removed may petition any court of competent jurisdiction for
appointment of a Successor Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Guarantee Trustee.

      (e) No Guarantee Trustee shall be liable for the acts or omissions to act
of any Successor Guarantee Trustee.

      (f) Upon termination of this Guarantee or removal or resignation of the
Guarantee Trustee pursuant to this Section 3.2, the Guarantor shall pay to the
Guarantee Trustee all amounts owing to the Guarantee Trustee under Sections 7.2
and 7.3 accrued to the date of such termination, removal or resignation.

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                                   ARTICLE IV

                                    GUARANTEE

      SECTION 4.1 GUARANTEE.

            The Guarantor irrevocably and unconditionally agrees to pay in full
to the Holders of the Debentures or the Capital Securities, as the case may be,
the Guarantee Payments (without duplication of amounts theretofore paid by the
Company), as and when due, regardless of any defense (except the defense of
payment by the Company), right of set-off or counterclaim that the Company may
have or assert. The Guarantor's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Guarantor to the
Holders of the Debentures or the Capital Securities, as the case may be, or by
causing the Company to pay such amounts to the Holders of the Debentures or the
Capital Securities, as the case may be.

      SECTION 4.2 WAIVER OF NOTICE AND DEMAND.

            The Guarantor hereby waives notice of acceptance of this Guarantee
and of any liability to which it applies or may apply, presentment, demand for
payment, any right to require a proceeding first against the Company or any
other Person before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other notices and
demands.

      SECTION 4.3 OBLIGATIONS NOT AFFECTED.

            The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:

      (a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Company of any express or implied agreement,
covenant, term or condition relating to the Debentures or the Capital Securities
to be performed or observed by the Company;

      (b) the extension of time for the payment by the Company of all or any
portion of the interest (or Additional Interest (as defined in the Indenture)),
principal (or premium), Redemption Price, Special Redemption Price or any other
sums payable under the terms of the Debentures or the extension of time for the
performance of any other obligation under, arising out of or in connection with,
the Debentures (other than an extension of time for payment of interest (or
Additional Interest), principal (or premium), Redemption Price, Special
Redemption Price or other sum payable that results from the extension of any
interest payment period on the Debentures or any extension of the maturity date
of the Debentures permitted by the Indenture);

                                       12
<PAGE>
      (c) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, Redemption Price, Special Redemption Price,
Liquidation Distribution or any other sums payable under the terms of the
Capital Securities or the extension of time for the performance of any other
obligation under, arising out of or in connection with, the Capital Securities
(other than an extension of time for payment of Distributions, Redemption Price,
Special Redemption Price, Liquidation Distribution or other sum payable that
results from the extension of any interest payment period on the Debentures or
any extension of the maturity date of the Debentures permitted by the
Indenture);

      (d) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Debentures or the Capital
Securities, or any action on the part of the Company or Issuer granting
indulgence or extension of any kind;

      (e) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Company or the Issuer or any of the
assets of the Company or the Issuer;

      (f) any invalidity of, or defect or deficiency in, the Debentures or the
Capital Securities;

      (g) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or

      (h) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 4.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.

            There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.

      SECTION 4.4 RIGHTS OF HOLDERS.

      (a) The Majority of the Holders of Debentures and Capital Securities have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee in respect of this Guarantee or to
direct the exercise of any trust or power conferred upon the Guarantee Trustee
under this Guarantee; provided, however, that (subject to Section 2.1) the
Guarantee Trustee shall have the right to decline to follow any such direction
if the Guarantee Trustee being advised by counsel determines that the action or
proceeding so directed may not lawfully be taken or if the Guarantee Trustee in
good faith by its board of directors or trustees, executive committees or a
trust

                                       13
<PAGE>
committee of directors or trustees and/or Responsible Officers shall determine
that the action or proceedings so directed would involve the Guarantee Trustee
in personal liability.

      (b) Any Holder of Debentures or Capital Securities may institute a legal
proceeding directly against the Guarantor to enforce the Guarantee Trustee's
rights under this Guarantee, without first instituting a legal proceeding
against the Company, the Issuer, the Guarantee Trustee or any other Person. The
Guarantor waives any right or remedy to require that any such action be brought
first against the Company or the Issuer, the Guarantee Trustee or any other
Person before so proceeding directly against the Guarantor.

      SECTION 4.5 GUARANTEE OF PAYMENT.

            This Guarantee creates a guarantee of payment and not of collection.

      SECTION 4.6 SUBROGATION.

            The Guarantor shall be subrogated to all (if any) rights of the
Holders of the Debentures and the Capital Securities against the Company in
respect of any amounts paid to such Holders by the Guarantor under this
Guarantee; provided, however, that the Guarantor shall not (except to the extent
required by mandatory provisions of law) be entitled to enforce or exercise any
right that it may acquire by way of subrogation or any indemnity, reimbursement
or other agreement, in all cases as a result of payment under this Guarantee,
if, after giving effect to any such payment, any amounts are due and unpaid
under this Guarantee. If any amount shall be paid to the Guarantor in violation
of the preceding sentence, the Guarantor agrees to hold such amount in trust for
the Holders and to pay over such amount to the Holders.

      SECTION 4.7 INDEPENDENT OBLIGATIONS.

            The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Company with respect to the Debentures and
of the obligations of the Issuer with respect to the Capital Securities and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Guarantee notwithstanding the
occurrence of any event referred to in subsections (a) through (g), inclusive,
of Section 4.3 hereof.

      SECTION 4.8 ENFORCEMENT BY A BENEFICIARY.

            A Beneficiary may enforce the obligations of the Guarantor contained
in Section 4.1 directly against the Guarantor and the Guarantor waives any right
or remedy to require that any action be brought against the Issuer or any other
Person or entity before proceeding against the Guarantor. The Guarantor shall be
subrogated to all rights (if any) of any Beneficiary against the Issuer in
respect of any amounts paid to the Beneficiaries by the Guarantor under this
Guarantee; provided, however, that the Guarantor shall not (except to the extent
required by mandatory provisions of law) be entitled to enforce or exercise any
rights that it may acquire by way of subrogation or any indemnity,

                                       14
<PAGE>
reimbursement or other agreement, in all cases as a result of payment under this
Guarantee, if at the time of any such payment, and after giving effect to such
payment, any amounts are due and unpaid under this Guarantee.

                                   ARTICLE V

                       LIMITATION OF TRANSACTIONS; RANKING

      SECTION 5.1 LIMITATION OF TRANSACTIONS.

            So long as any Debentures or Capital Securities remain outstanding,
if (a) there shall have occurred and be continuing an Event of Default or a
Declaration Event of Default or (b) the Company shall have selected an Extension
Period as provided in the Declaration and such period, or any extension thereof,
shall have commenced and be continuing, then the Guarantor shall not and shall
not permit any Subsidiary of the Guarantor to (x) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Guarantor's or such Subsidiary's capital stock
(other than payments of dividends or distributions to the Company or the
Guarantor or any Subsidiary thereof) or make any guarantee payments with respect
to the foregoing; or (y) make any payment of principal of or interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company or the Guarantor or any Subsidiary thereof that rank pari passu in all
respects with or junior in interest to the Debentures (other than, with respect
to clauses (x) and (y) above, (i) repurchases, redemptions or other acquisitions
of shares of capital stock of the Company or the Guarantor or any Subsidiary
thereof in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company or the Guarantor, or of such Subsidiary, as the case may be
(or securities convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to the occurrence
of the Event of Default, Declaration Event of Default or selection of an
Extension Period by the Company, as applicable, (ii) as a result of any exchange
or conversion of any class or series of the Company's or the Guarantor's capital
stock (or any capital stock of a Subsidiary of the Company or the Guarantor) for
any class or series of the Company's or the Guarantor's capital stock, as the
case may be (or in the case of a Subsidiary of the Company or Guarantor, any
class or series of such Subsidiary's capital stock), or of any class or series
of the Company's or the Guarantor's indebtedness for any class or series of the
Company or the Guarantor's capital stock, as the case may be (or in the case of
indebtedness of a Subsidiary of the Company or Guarantor, of any class or series
of such Subsidiary's indebtedness for any class or series of such Subsidiary's
capital stock), (iii) the purchase of fractional interests in shares of the
Company's or the Guarantor's capital stock (or the capital stock of a Subsidiary
of the Company or Guarantor) pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, (iv) any
declaration of a dividend in connection with any stockholders' rights plan, or
the issuance of rights, stock or other

                                       15
<PAGE>
property under any stockholders' rights plan, or the redemption or repurchase of
rights pursuant thereto, (v) any dividend in the form of stock, warrants,
options or other rights where the dividend stock or the stock issuable upon
exercise of such warrants, options or other rights is the same stock as that on
which the dividend is being paid or ranks pari passu with or junior to such
stock and any cash payments in lieu of fractional shares issued in connection
therewith, or (vi) payments under this Guarantee).

      SECTION 5.2 RANKING.

            The right of the Guarantor to participate in any distribution of
assets of any of its Subsidiaries upon any such Subsidiary's liquidation or
reorganization or otherwise is subject to the prior claims of creditors of that
Subsidiary, except to the extent the Guarantor may itself be recognized as a
creditor of that Subsidiary. Accordingly, the Guarantor's obligations under this
Guarantee will be effectively subordinated to all existing and future
liabilities of the Guarantor's Subsidiaries, and claimants should look only to
the assets of the Guarantor for payments hereunder. This Guarantee does not
limit the incurrence or issuance of other secured or unsecured debt of the
Guarantor under any indenture or other instrument that the Guarantor may enter
into in the future or otherwise.

                                   ARTICLE VI

                                   TERMINATION

      SECTION 6.1 TERMINATION.

      This Guarantee shall terminate as to the Capital Securities and the
Debentures (i) upon full payment of (A) the Redemption Price or Special
Redemption Price of all Debentures then outstanding and (B) the Redemption Price
or Special Redemption Price of all Capital Securities then outstanding (ii) (A)
upon full payment of the amounts payable in accordance with the Declaration upon
dissolution of the Issuer and (B) upon discharge of the Indenture pursuant to
Article XII thereof, or (iii) upon assignment of the Indenture pursuant to
Section 9.1(h) thereof. This Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder of the Debentures or
the Capital Securities must restore payment of any sums paid under the
Debentures or the Capital Securities or under this Guarantee.

                                  ARTICLE VII

                                 INDEMNIFICATION

      SECTION 7.1 EXCULPATION.

      (a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Guarantor or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified

                                       16
<PAGE>
Person in good faith in accordance with this Guarantee and in a manner that such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Guarantee or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's negligence or willful misconduct with
respect to such acts or omissions.

      (b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Company, the Issuer or the Guarantor and upon such
information, opinions, reports or statements presented to the Company, the
Issuer or the Guarantor by any Person as to matters the Indemnified Person
reasonably believes are within such other Person's professional or expert
competence and who, if selected by such Indemnified Person, has been selected
with reasonable care by such Indemnified Person, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence and
amount of assets from which payments to Holders of Debentures or Distributions
to Holders of Capital Securities might properly be paid.

      SECTION 7.2 INDEMNIFICATION.

      (a) The Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against, any and all loss, liability,
damage, claim or expense incurred without negligence or willful misconduct on
the part of the Indemnified Person, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including, but
not limited to, the costs and expenses (including reasonable legal fees and
expenses) of the Indemnified Person defending itself against, or investigating,
any claim or liability in connection with the exercise or performance of any of
the Indemnified Person's powers or duties hereunder. The obligation to indemnify
as set forth in this Section 7.2 shall survive the resignation or removal of the
Guarantee Trustee and the termination of this Guarantee.

      (b) Promptly after receipt by an Indemnified Person under this Section 7.2
of notice of the commencement of any action, such Indemnified Person will, if a
claim in respect thereof is to be made against the Guarantor under this Section
7.2, notify the Guarantor in writing of the commencement thereof; but the
failure so to notify the Guarantor (i) will not relieve the Guarantor from
liability under paragraph (a) above unless and to the extent that the Guarantor
did not otherwise learn of such action and such failure results in the
forfeiture by the Guarantor of substantial rights and defenses and (ii) will
not, in any event, relieve the Guarantor from any obligations to any Indemnified
Person other than the indemnification obligation provided in paragraph (a)
above. The Guarantor shall be entitled to appoint counsel of the Guarantor's
choice at the Guarantor's expense to represent the Indemnified Person in any
action for which indemnification is sought (in which case the Guarantor shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the Indemnified Person or Persons except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the

                                       17
<PAGE>
Indemnified Person. Notwithstanding the Guarantor's election to appoint counsel
to represent the Guarantor in an action, the Indemnified Person shall have the
right to employ separate counsel (including local counsel), and the Guarantor
shall bear the reasonable fees, costs and expenses of such separate counsel if
(i) the use of counsel chosen by the Guarantor to represent the Indemnified
Person would present such counsel with a conflict of interest, (ii) the actual
or potential defendants in, or targets of, any such action include both the
Indemnified Person and the Guarantor and the Indemnified Person shall have
reasonably concluded that there may be legal defenses available to it and/or
other Indemnified Person(s) which are different from or additional to those
available to the Guarantor, (iii) the Guarantor shall not have employed counsel
satisfactory to the Indemnified Person to represent the Indemnified Person
within a reasonable time after notice of the institution of such action or (iv)
the Guarantor shall authorize the Indemnified Person to employ separate counsel
at the expense of the Guarantor. The Guarantor will not, without the prior
written consent of the Indemnified Persons, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the Indemnified Persons are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each Indemnified Person from all
liability arising out of such claim, action, suit or proceeding.

      SECTION 7.3 COMPENSATION; REIMBURSEMENT OF EXPENSES.

            The Guarantor agrees:

      (a) to pay to the Guarantee Trustee from time to time such compensation
for all services rendered by it hereunder as the parties shall agree to from
time to time (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust); and

      (b) except as otherwise expressly provided herein, to reimburse the
Guarantee Trustee upon request for all reasonable expenses, disbursements and
advances incurred or made by it in accordance with any provision of this
Guarantee (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or willful misconduct.

            The provisions of this Section 7.3 shall survive the resignation or
removal of the Guarantee Trustee and the termination of this Guarantee.

                                       18
<PAGE>
                                  ARTICLE VIII

                                  MISCELLANEOUS

      SECTION 8.1 SUCCESSORS AND ASSIGNS.

      All guarantees and agreements contained in this Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Guarantor
and shall inure to the benefit of the Holders of the Debentures and the Capital
Securities then outstanding. Except in connection with any merger or
consolidation of the Guarantor with or into another entity or any sale, transfer
or lease of the Guarantor's assets to another entity, in each case, to the
extent permitted under Section 8.2, the Guarantor may not assign its rights or
delegate its obligations under this Guarantee without the prior approval of the
Majority of the Holders of Debentures and Capital Securities.

      SECTION 8.2 COMPANY MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.

      Nothing contained in this Guarantee shall prevent any consolidation or
merger of the Guarantor with or into any other Person (whether or not affiliated
with the Guarantor) or successive consolidations or mergers in which the
Guarantor or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance, transfer or other disposition of the property or
capital stock of the Guarantor or its successor or successors as an entirety, or
substantially as an entirety, to any other Person (whether or not affiliated
with the Guarantor, or its successor or successors) authorized to acquire and
operate the same; provided, however, that the Guarantor hereby covenants and
agrees that, upon any such consolidation, merger (where the Guarantor is not the
surviving corporation), sale, conveyance, transfer or other disposition, the due
and punctual payment of the any and all obligations of the Guarantor under this
Guarantee and the performance and observance of all the covenants and conditions
of this Guarantee to be kept or performed by the Guarantor, shall be expressly
assumed in a guarantee satisfactory in form to the Guarantee Trustee executed
and delivered to the Guarantee Trustee by the entity formed by such
consolidation, or into which the Guarantor shall have been merged, or by the
entity which shall have acquired such property or capital stock.

      SECTION 8.3 AMENDMENTS.

      Except with respect to any changes that do not adversely affect the rights
of Holders of the Debentures or the Capital Securities in any material respect
(in which case no consent of Holders will be required), this Guarantee may be
amended only with the prior approval of the Majority of the Holders of
Debentures and Capital Securities and the Guarantor. The provisions of the
Declaration with respect to amendments thereof apply to the giving of such
approval.

                                       19
<PAGE>
      SECTION 8.4 NOTICES.

      All notices provided for in this Guarantee shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by first class mail, as follows:

      (a) If given to the Guarantee Trustee, at the Guarantee Trustee's mailing
address set forth below (or such other address as the Guarantee Trustee may give
notice of to the Holders of Debentures and the Holders of the Capital Securities
and the Guarantor):

            U.S. Bank National Association
            225 Asylum Street, Goodwin Square
            Hartford, Connecticut 06103
            Attention: Corporate Trust Department
            Telecopy: 860-244-1889

            With a copy to:

            U.S. Bank National Association
            1 Federal Street
            Boston, Massachusetts 02110
            Attention: Paul D. Allen, Corporate Trust Department
            Telecopy: 617-662-1462

      (b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Debentures and the Capital Securities and to the Guarantee
Trustee):

            R&G Financial Corporation
            280 Jesus T. Pinero Avenue
            San Juan, Puerto Rico 00918
            Attention: Joseph R. Sandoval
            Telecopy: 787-766-8175

      (c) If given to any Holder of the Debentures and the Capital Securities,
at the address set forth on the books and records of the Indenture Trustee and
Issuer, respectively.

      All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.

                                       20
<PAGE>
      SECTION 8.5 BENEFIT.

      This Guarantee is solely for the benefit of the Beneficiaries and, subject
to Section 2.1(a), is not separately transferable from the Debentures and the
Capital Securities.

      SECTION 8.6 GOVERNING LAW.

      THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW).

      SECTION 8.7 COUNTERPARTS.

      This Guarantee may be executed in one or more counterparts, each of which
shall be an original, but all of which taken together shall constitute one and
the same instrument.

      SECTION 8.8 SEPARABILITY.

      In case one or more of the provisions contained in this Guarantee shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Guarantee, but this Guarantee shall be construed as if such
invalid or illegal or unenforceable provision had never been contained herein.

                     Signatures appear on the following page

                                       21
<PAGE>
      THIS GUARANTEE is executed as of the day and year first above written.

                                    R&G FINANCIAL CORPORATION, AS GUARANTOR

                                    By:   /s/ Joseph R. Sandoval
                                          ------------------------------------
                                          Name: Joseph R. Sandoval
                                          Title: Executive VP and CFO

                                    U.S. BANK NATIONAL ASSOCIATION, AS
                                    GUARANTEE TRUSTEE

                                    By:   /s/ Paul D. Allen
                                          ------------------------------------
                                          Name: Paul D. Allen
                                          Title: Vice President

                                       22<PAGE>

                                                                    EXHIBIT 10.1

                            SECOND AMENDMENT OF LEASE

         THIS SECOND AMENDMENT OF LEASE ("Second Amendment") is made this 3rd
day of October, 2003, by and between PLAZA IV ASSOCIATES, LTD., ("Landlord"),
and LIQUIDMETAL TECHNOLOGIES, INC., ("Tenant"), and amends the Lease Agreement
("Lease Agreement") dated October 4, 2001, likewise by and between them, as that
Lease Agreement was earlier amended by the Amendment of Lease ("First
Amendment") dated May 7, 2002, likewise by and between them, said Lease
Agreement and First Amendment being collectively referred to in this Second
Amendment as "the Lease." For good and valuable considerations, the receipt and
adequacy of which are hereby mutually and respectively acknowledged by them,
Landlord and Tenant hereby covenant, contract, acknowledge and agree as follows:

                  1.       Unless otherwise provided in this Second Amendment,
the capitalized terms used in this Second Amendment shall have the same meanings
as those ascribed to them in the Lease.

                  The Lease, as amended by this Second Amendment, shall be known
in this Second Amendment as "the Second Amended Lease."

                  Landlord's notice address is now:

                  Plaza IV Associates, Ltd.
                  A Florida Limited Partnership

                  Suite 2135
                  100 North Tampa Street
                  Tampa, FL 33602

                  Landlord's payment address is now:

                  Plaza IV Associates, Ltd.
                  PO Box 550357
                  Tampa, FL 33655-0357

                  This Second Amendment has been thoroughly negotiated by the
parties and each has been instrumental in its preparation. Therefore, its terms
and provisions shall be construed neither in favor of, nor against, either party
under the rule of construction against the draftsperson. The laws of the State
of Florida shall govern the enforcement and interpretation of this Second
Amendment.

                  As required by F.S. 404.056(8), Landlord hereby notifies
Tenant as follows: "RADON GAS: Radon is a naturally occurring radioactive gas
that, when it has accumulated in a building in sufficient quantities, may
present health risks to persons who are exposed to it over time. Levels of radon
gas that exceed federal and state guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from your county public health unit."

                  Tenant hereby agrees that it will not divulge or disclose to
third parties (other than its own attorneys, accountants, auditors and like
professionals having in each instance a bona fide "need to know") the terms,
provisions and conditions of the Second Amended Lease (as may be hereafter
amended or modified). Tenant's breach of said agreement shall constitute a
Default under Item 20 of the Lease Agreement, no curative notice to Tenant from
Landlord being required.

                  This Second Amendment is expressly contingent upon Landlord
and AmSouth Bank ("AmSouth"; another tenant in the Building) executing by
October 31, 2003, a third amendment of lease ("the AmSouth Third Amendment")
whereby AmSouth will lease from Landlord the Surrendered Premises (as
hereinafter defined and known in

<PAGE>

the AmSouth Third Amendment as "Suite 3100"). If (for any or no reason
whatsoever) this contingency does not duly, timely and fully occur, then this
Second Amendment shall be and become completely and absolutely null and void and
of no force or effect whatsoever and the Lease shall continue in full force and
effect, just as if, and to the extent that, the parties had never contemplated
this Second Amendment or executed it.

         2.       The parties hereby agree and confirm that Tenant currently
leases from Landlord, and Landlord currently leases to Tenant, that certain area
(collectively, "the Total Premises") comprised of

                  (a) the Premises [see Item 1 (c) of the Lease Agreement]
composed of

                    (i)      Suite 3150

                    (ii)     Suite 3160 and

                    (iii)    Suite 3170

                             and

                  (b) the Expansion Space [see Item 45 of the Lease Agreement
and the contents of the First Amendment].

                  One of the general purposes of this Second Amendment is, as
described elsewhere in this Second Amendment, to reduce [and possibly (see
paragraph 5. of this Second Amendment) eliminate] the area of the space leased
by Tenant from Landlord, and by Landlord to Tenant, in the Building under the
Second Amended Lease.

         3.       Effective (and not later than) December 15, 2003, ("the
Effective Date") Tenant shall absolutely and completely vacate (a) the Expansion
Space (approximately 6,040 square feet of net rentable area), (b) Suite 3160
(approximately 2,385 square feet of net rentable area), and (c) Suite 3170
(approximately 3,307 square feet of net rentable area), the total area of the
spaces the subject of (a) - (c) inclusive above being hereinafter referred to as
"the Surrendered Premises." The parties hereby conclusively and irrevocably
agree that there are 11,732 square feet of net rentable within the Surrendered
Premises, despite the fact that said figure may not be actually correct.
Accordingly, and during the period beginning with the Effective Date and ending
at midnight on January 31, 2007, the Premises, subject to the other contents
(e.g., the next immediately following paragraph of this paragraph 3.), shall
consist of only Suite 3150. The parties hereby conclusively and irrevocably
agree that there are 8,136 square feet of net rentable area within Suite 3150,
despite the fact that said figure may not be actually correct.

                  Despite the contents of the next-to-last sentence of the first
paragraph of this paragraph 3., Tenant, in order that Landlord will not have a
lapse in the Rent and Additional Rent it is entitled to receive under the Lease,
shall continue to pay Landlord base Rent and Additional Rent on the Total
Premises for a period of time ("the AmSouth Suite 3100 Construction Period")
beginning with the Effective Date and ending with the date that is the day
immediately before the earlier of (a) the date that is exactly sixty (60) days
immediately following the Effective Date or (b) the date AmSouth and/or its
contractor fully completes the build-out and construction ("the Work") of the
Surrendered Premises for AmSouth's use and occupancy thereof, the earlier of (a)
or (b) above being hereinafter referred to as "the Suite 3100 Commencement Date"
(as likewise so defined in the proposed AmSouth Third Amendment).

                  During the period ("the Suite 3150 Term") beginning with the
Suite 3100 Commencement Date and ending at midnight on January 31, 2007, Tenant
shall, as regards Suite 3150, pay to Landlord base Rent in accordance with the
following schedule:

                                        2
<PAGE>

<TABLE>
<CAPTION>
           Period                       Monthly Base Rent
           ------                       -----------------
<S>                                     <C>
Suite 3100 Commencement                    $19,579.58
Date through October 31, 2004

November 1, 2004, through                  $20,332.50
October 31, 2005

November 1, 2005, through                  $21,085.42
January 31, 2007
</TABLE>

Said base Rent, plus applicable tax(es), shall be (a) in addition to the
Additional Rent as described in the Second Amended Lease, plus applicable
tax(es) on said Additional Rent and (b) paid by Tenant to Landlord in equal
monthly installments for each of the above-described periods, each monthly
payment, plus applicable tax(es), to be made in advance and on or before the
first day of the applicable month.

                  During the Suite 3150 Term Tenant shall, as regard the
Surrendered Premises, likewise (and in addition to the other monies payable by
Tenant to Landlord under the Second Amended Lease) pay (in general accordance
with Items 4 and 5 of the Lease Agreement) to Landlord (as Additional Rent) a
monetary amount equal to the difference between (a) the Operating Expense and
Utility Base and the Real Estate Taxes Base the subject of Items Item (i) and
(j) of the Lease Agreement (which Bases the parties hereby agree total $9.35 per
net rentable square foot per annum) and (b) a base equal to the Operating
Expenses, Utility Costs and Real Estate Taxes actually incurred (on a per net
rentable square foot per annum basis) for the operation of the Building and its
appurtenances for the calendar year 2004 for the Surrendered Premises.

                  During the 3150 Term Tenant's Proportionate share shall be
1.474 percent (8,136 divided by 552,080).

         4.       Effective the date of this Second Amendment, each, every, any
and all of Tenant's rights under Items 45 and 46 of the Lease Agreement are
hereby cancelled and nullified, to include, but not be limited to, any monetary
allowance(s) the subject of said Item 45.

         5.       Landlord and Tenant hereby acknowledge that AmSouth has an
option (which option AmSouth may or may not exercise) under the AmSouth Third
Amendment to lease Suite 3150. Accordingly, upon not less than nine (9) months'
prior written notice from Landlord to Tenant so requiring and/or requesting,
Tenant shall within said nine (9) months absolutely and completely vacate Suite
3150. Despite such vacating by Tenant of Suite 3150, Tenant shall continue to
pay Landlord, as regards said Suite 3150, the Rent and Additional Rent (and
taxes) the subject of the Second Amended Lease through and including the date
that is the earliest of (a) the date that is exactly sixty (60) days immediately
following the date Tenant so vacates Suite 3150, (b) the date the build-out and
construction of Suite 3150 is fully completed by AmSouth and/or its contractor
for the use and occupancy thereof by AmSouth in accordance with said option or
(c) the date that is exactly sixty (60) days following the expiration of the
aforesaid nine (9) month period. After the date that is the earliest of (a) -
(c) inclusive above, the term of the Second Amended Lease shall end, but Tenant
shall remain obligated to Landlord for any obligations, duties, etc., that
remain unfulfilled under the Second Amended Lease, as of such ending date.

         6.       In partial consideration of this Second Amendment,

                  (A) Tenant not later than November 6, 2003, shall pay Harbert
Realty Services, a licensed Florida real estate broker, a commission equal to
Twenty-six Thousand Seven Hundred Ninety-seven and 02/00 Dollars. ($26,797.02),

                                        3
<PAGE>

                  (B) Tenant not later than November 6, 2003, shall pay CB
Richard Ellis a commission equal to Six Thousand Six Hundred Ninety-nine and
25/100 Dollars ($6,699.25) and

                  (C) effective the Effective Date, Tenant surrenders and
relinquishes to Landlord twelve (12) parking spaces (3 reserved and 9
unreserved) in the Building's parking garage.

                  With the exception of the brokers the subject of (A) and (B)
above, Tenant warrants that there are no claims for broker's commissions or
finder's fees in connection with its execution of this Second Amendment and
agrees to indemnify and save Landlord completely harmless from any liability or
lien that may arise from any such claim(s), including reasonable attorney's
fees.

         7.       Except as expressly stated in this Second Amendment, the Lease
shall remain in full force and effect and the parties hereby ratify and confirm
same, as thus amended.

         IN WITNESS WHEREOF, the parties, by and through their undersigned,
duly-authorized representatives, have executed this Second Amendment for the
purposes therein described.

WITNESSES:                                  TENANT:
                                            LIQUIDMETAL TECHNOLOGIES, INC.

_______________________(Sign)               By: /s/ David Binnie
                                                --------------------------------

_______________________(Print)              Name:David Binnie

_______________________(Sign)               Title Senior Vice President

_______________________(Print)              Date: ______________________________

                                            LANDLORD:
                                            PLAZA IV ASSOCIATES, LTD.,
                                            A Florida Limited Partnership

                                            By: Tampa Plaza IV Company, Ltd.,
                                                a Florida Limited Partnership,
                                                Manager

_______________________(Sign)               By: /s/ Richard A. Beard, III
                                                --------------------------------

_______________________(Print)              Name: Richard A. Beard, III

_______________________(Sign)               Title: General Partner

_______________________(Print)              Date: ______________________________

                                        4

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