Document:

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                                                                   EXHIBIT 10.25

                          UNITED STATES DISTRICT COURT
                         FOR THE DISTRICT OF PUERTO RICO

UNITED STATES OF AMERICA,

Plaintiff,                               No. C03-017(P6)
                                            ------------------------------------

v.
                                         DEFERRED PROSECUTION AGREEMENT
BANCO POPULAR DE PUERTO RICO,

Defendant.

                  Defendant BANCO POPULAR DE PUERTO RICO (hereinafter, "BANCO
POPULAR"), a subsidiary of Popular, Inc., a Puerto Rico Corporation, by its
undersigned attorney, pursuant to authority granted by its Board of Directors,
the United States Department of Justice, Criminal Division (hereinafter, "the
United States"), the Board of Governors of the Federal Reserve System
(hereinafter, "the Federal Reserve"), and the United States Department of the
Treasury's Financial Crimes Enforcement Network (hereinafter, "FinCEN") enter
into this Deferred Prosecution Agreement (the "Agreement").

         1.       BANCO POPULAR shall waive indictment and agree to the filing
of a ONE (1) count information in the United States District Court for the
District of Puerto Rico charging it with failing to file suspicious activity
reports (hereinafter, "SARs") in a timely and complete manner, in violation of
Title 31 United States Code, Sections 5318(g)(1) and 5322(b).

         2.       BANCO POPULAR accepts and acknowledges responsibility for its
behavior as set forth in the Factual Statement attached hereto and incorporated
by reference herein as Appendix A (hereinafter, "Factual Statement").

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         3.       BANCO POPULAR expressly agrees that it shall not, through its
attorneys, board of directors, agents, officers or employees, make any public
statement contradicting any statement of fact contained in the Factual
Statement. Any such contradictory public statement by BANCO POPULAR, its
attorneys, board of directors, agents, officers or employees, shall constitute a
breach of this Agreement as governed by Paragraph 12 of this Agreement, and
BANCO POPULAR would thereafter be subject to prosecution pursuant to the terms
of this Agreement. The decision of whether any statement by any such person
contradicting a fact contained in the Factual Statement will be imputed to BANCO
POPULAR for the purpose of determining whether BANCO POPULAR has breached this
Agreement shall be in the sole discretion of the United States. Upon the United
States' notifying BANCO POPULAR of a public statement by any such person that in
whole or in part contradicts a statement of fact contained in the Factual
Statement, BANCO POPULAR may avoid breach of this Agreement by publicly
repudiating such statement within 48 hours after notification by the United
States.

         4.       BANCO POPULAR agrees that it shall: (a) provide to the United
States, on request, any relevant document, electronic data, or other object
concerning a Bank Secrecy Act matter in BANCO POPULAR'S possession, custody
and/or control. Whenever such data is in electronic format, BANCO POPULAR shall
provide access to such data and assistance in operating computer and other
equipment as necessary to retrieve the data. If such documents, data or other
objects are in overseas locations, BANCO POPULAR will make reasonable efforts to
make the items available to the United States; and (b) completely, fully and
timely comply with all legal obligations, record keeping and reporting
requirements imposed upon it by the Bank Secrecy Act, 31 U.S.C. ss.ss. 5311
through 5330

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and all Bank Secrecy Act implementing regulations, including, but not limited to
12 C.F.R.ss.21.21, 31 C.F.R.ss.103.11, 31 C.F.R. 103.18, 31 C.F.R. 103.22 and 31
C.F.R.ss.103.28.

         5.       As a result of BANCO POPULAR's conduct with respect to the
Ferrario and Vallejo accounts as set forth in the Factual Statement, the United
States has determined that it could institute a civil forfeiture action against
certain funds laundered through those accounts. BANCO POPULAR further
acknowledges that $21,600,000.00 was involved in transactions in the Ferrario
and Vallejo accounts, and that Ferrario and Vallejo were convicted in violation
of Title 18 United States Code, Section 1956 and 1957 and, therefore certain of
the funds that were deposited in such accounts are forfeitable to the United
States pursuant to Title 18, United States Code, Section 981. BANCO POPULAR,
recognizing that the United States could institute a civil forfeiture action
against at least certain of those funds, hereby expressly agrees to settle and
does settle any and all civil claims at present held by the United States
against those funds for the sum of $21, 600,000.00.

         6.       Based on BANCO POPULAR's conduct as set forth in the Factual
Statement, FinCEN has determined that an assessment of a civil money penalty
under 31 U.S.C. 5321(a)(1) and 31 CFR 103.57(f) is appropriate against BANCO
POPULAR based on violations of the currency transaction reporting provisions and
the suspicious activity reporting provisions of the BSA contained in 31 U.S.C.
Section 5313, 5318 and 31 CFR 103.22 and 103.18.. Therefore, FinCEN assesses
against BANCO POPULAR a civil money penalty of $20,000,000, which penalty shall
be fully satisfied by the payments made by BANCO POPULAR pursuant to this
Agreement in light of BANCO POPULAR's settlement of any and all civil claims
presently held by the United States.

         7.       In light of BANCO POPULAR's remedial actions to date and its
willingness to: (i)

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acknowledge responsibility for its actions; (ii) continue its cooperation with
the United States; (iii) demonstrate its future good conduct and full compliance
with the Bank Secrecy Act and all of its implementing regulations; (iv) settle
any and all civil claims presently held by the United States against the funds
referred to in Paragraph 5 above for the sum of $21,600,000; and (v) consent to
the assessment of the civil money penalty as set forth in paragraph 6 above, the
United States shall recommend to the Court, pursuant to 18 U.S.C. ss.
3161(h)(2), that prosecution of BANCO POPULAR on the Information filed pursuant
to Paragraph 1 be deferred for a period of twelve (12) months. BANCO POPULAR
shall consent to a motion, the contents to be agreed by the parties, to be filed
by the United States with the Court promptly upon execution of this Agreement,
pursuant to 18 U.S.C. ss. 3161(h)(2), in which the United States will present
this Agreement to the Court and move for a continuance of all further criminal
proceedings, including trial, for a period of twelve (12) months, for speedy
trial exclusion of all time covered by such a continuance, and for approval by
the Court of this deferred prosecution. BANCO POPULAR further agrees to waive
and does hereby expressly waive any and all rights to a speedy trial pursuant to
the Sixth Amendment of the United States Constitution, Title 18, United States
Code, Section 3161, Federal Rule of Criminal Procedure 48(b), and any applicable
Local Rules of the United States District Court for the District of Puerto Rico
for the period that this Agreement is in effect.

         8.     BANCO POPULAR hereby further expressly agrees that any
violations of the federal money laundering laws and/or the Bank Secrecy Act
pursuant to 18 U.S.C.ss.1957 and 31 U.S.C.ss.ss.5313, 5318 and 5322, that were
not time-barred by the applicable statute of limitations on September 5, 2002,
may, in the sole discretion of the United States, be charged against BPPR within
six (6)

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months of any breach of this Agreement notwithstanding the expiration of any
applicable statute of limitations.

         9.       The United States agrees that if BANCO POPULAR is in full
compliance with all its obligations under this Agreement, the United States,
within thirty (30) days of the expiration of the time period set forth in
Paragraph 7 above, will seek dismissal with prejudice of the information filed
against BANCO POPULAR pursuant to Paragraph 1 and this Agreement shall expire.

         10.      BANCO POPULAR and the United States understand that the
Agreement to defer prosecution of BANCO POPULAR must be approved by the Court,
in accordance with 18 U.S.C. ss. 3161(h)(2). Should the Court decline to approve
a deferred prosecution for any reason, both the United States and BANCO POPULAR
are released from any obligation imposed upon them by this Agreement and this
Agreement shall be null and void.

         11.      Should the United States determine during the term of this
Agreement that BANCO POPULAR has committed any federal crime commenced
subsequent to the date of this Agreement, BANCO POPULAR shall, in the sole
discretion of the United States, thereafter be subject to prosecution for any
federal crimes of which the United States has knowledge. Except in the event of
a breach of this Agreement, it is the intention of the parties to this Agreement
that all criminal and regulatory investigations arising from the facts contained
in or involving the accounts described in the Factual Statement, that have been,
or could have been, conducted by the United States prior to the date of this
Agreement shall not be pursued further as to BANCO POPULAR.

         12.      Should the United States determine that BANCO POPULAR has
committed a willful and material breach of any provision of this Agreement, the
United States shall provide written notice to

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BANCO POPULAR of alleged breach and provide BANCO POPULAR with a two-week period
in which to make a presentation to the Assistant Attorney General in charge of
the Criminal Division to demonstrate that no breach has occurred or, to the
extent applicable, that the breach is not willful or material or has been cured.
The parties hereto expressly understand and agree that should BANCO POPULAR fail
to make a presentation to the Assistant Attorney General in charge of the
Criminal Division within the said two-week period, it shall be conclusively
presumed that BANCO POPULAR is in willful and material breach of this Agreement.
The parties further understand and agree that the Assistant Attorney General's
exercise of discretion under this paragraph is not subject to review in any
court or tribunal outside the Criminal Division of the Department of Justice. In
the event of a breach of this Agreement that results in a prosecution, such
prosecution may be premised upon any information provided by or on behalf of
BANCO POPULAR to the United States at any time, unless otherwise agreed when the
information was provided.

         13.      BANCO POPULAR agrees that, if it sells or merges all or
substantially all of its business operations as they exist as of the date of
this Agreement to a single purchaser or group of affiliated purchasers during
the term of this Agreement, it shall include in any contract for sale or merger
a provision binding the purchaser/successor to the obligations described in this
Agreement.

         14.      It is further understood that this Agreement is binding on
BANCO POPULAR, the United States, the Federal Reserve and FinCEN, but
specifically does not bind any other federal agencies, or any state or local
authorities, although the United States will bring the cooperation of BANCO
POPULAR and its compliance with its other obligations under this Agreement to
the attention of state or local prosecuting offices or regulatory agencies, if
requested by BANCO POPULAR or its

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attorneys.

         15.      It is further understood that this Agreement does not relate
to or cover any criminal conduct by BANCO POPULAR other than the conduct or the
accounts described in the Factual Statement.

         16.      BANCO POPULAR and the United States agree that, upon
acceptance by the Court, this Agreement and an Order deferring prosecution shall
be publicly filed in the United States District Court for the District of Puerto
Rico.

         17.      Since the execution of the Written Agreement with the Federal
Reserve, Banco Popular has taken all of the corrective actions required by the
enforcement action and, as of this date, is in full compliance with all of the
provisions of the Written Agreement. Accordingly, upon the execution of this
Agreement, the Federal Reserve is terminating the Written Agreement. Given the
nature of the violations of the Bank Secrecy Act and the Bank Secrecy Act
compliance program requirements of Regulation H of the Board of Governors, 12
C.F.R. 208.63, the Federal Reserve would have used its authority under 12 U.S.C.
1818(i) to assess a substantial civil money penalty against the bank. However,
in light of the significant forfeiture embodied in this Agreement, the Federal
Reserve has determined that it will not exercise its authority to assess a fine
for the conduct described in this Agreement.

         18.     This Agreement sets forth all the terms of the Deferred
Prosecution Agreement between BANCO POPULAR and the United States. No promises,
agreements, or conditions have been entered into other than those expressly set
forth in this Agreement, and none shall be entered into and/or are binding upon
BANCO POPULAR or the United States unless expressly set forth in writing,

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signed by the United States, BANCO POPULAR's attorneys, and a duly authorized
representative of BANCO POPULAR and physically attached to this Agreement. This
Agreement supersedes any prior promises, agreements or conditions between BANCO
POPULAR and the United States.

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                                ACKNOWLEDGMENTS

         We, Richard L. Carrion, David H. Chafey, Jr., Brunilda Santos de
Alvarez, the duly authorized representatives of Banco Popular de Puerto Rico,
hereby expressly acknowledge the following: (1) that we have read this entire
Agreement; (2) that we have had an opportunity to discuss this Agreement fully
and freely with Banco Popular's attorneys; (3) that Banco Popular fully and
completely understands each and every one of its terms; (4) that Banco Popular
is fully satisfied with the advice and representation provided to it by its
attorneys; and (5) that Banco Popular has signed this Agreement voluntarily.

                                           BANCO POPULAR DE PUERTO RICO

January 16, 2003                           /s/ Richard L. Carrion
----------------                           -------------------------------------
DATE                                       /s/ David Chafey, Jr.
                                           -------------------------------------
                                           /s/ Brunilda Santos de Alvarez
                                           -------------------------------------

                            COUNSEL FOR BANCO POPULAR

         I, JOSE AGUAYO the attorney for Banco Popular de Puerto Rico, hereby
expressly acknowledge the following: (1) that I have discussed this Agreement
with my client; (2) that I have fully explained each one of its terms to my
client; (3) that I have fully answered each and every question put to me by my
client regarding the Agreement; and (4) I believe my client completely
understands all of the Agreement's terms.

Jan. 16, 2003                           /s/ Jose R. Aguayo Caussade
----------------                       -----------------------------------------
DATE                                   JOSE AGUAYO

                                       Attorney for Banco Popular de Puerto Rico

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                           ON BEHALF OF THE GOVERNMENT

                                   UNITED STATES DEPARTMENT OF JUSTICE

                                   MICHAEL CHERTOFF
                                   Assistant Attorney General, Criminal Division
                                   U. S. Department of Justice

                                   H.S. GARCIA
                                   United States Attorney
                                   District of Puerto Rico

January 14, 2003                   /s/ John Roth
----------------                   ---------------------------------------------
DATE                               By: JOHN ROTH, Chief
                                   Asset Forfeiture and Money Laundering Section
                                   U.S. Department of Justice, Criminal Division

January 14, 2003                   /s/ Stephen M. May
----------------                   ---------------------------------------------
DATE                               By: STEPHEN M. MAY
                                   USDC-PR No. 217901
                                   U.S. Department of Justice, Criminal Division
                                   Asset Forfeiture and Money Laundering Section
                                   1400 New York Avenue, N.W.
                                   Bond Building 10100
                                   Washington, DC 20005
                                   (202) 514-1263 (Phone)
                                   (202) 616-1344 (Fax)

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                                    BOARD OF GOVERNORS OF THE FEDERAL
                                    RESERVE SYSTEM

January 13, 2003                   /s/  Jennifer J. Johnson
------------------                  --------------------------------------------
DATE                                By: JENNIFER J. JOHNSON
                                        Secretary of the Board

                                    U.S. DEPARTMENT OF THE TREASURY
                                    FINANCIAL CRIMES ENFORCEMENT NETWORK

January 14, 2003                    /s/ James Sloan
-------------------                 --------------------------------------------
DATE                                By: JAMES F. SLOAN, Director

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                                   BACKGROUND

         1.       BANCO POPULAR DE PUERTO RICO ("BPPR") is a financial
institution organized, licensed and doing business under the laws of the United
States and the Commonwealth of Puerto Rico.

         2.       BPPR is a "financial institution" as defined in 31
U.S.C.ss.5312 and a bank ad defined in 31 C.F.R.ss.103.11(c); an "insured bank"
as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C.
ss.1813(h)); and a "State member bank" of the Federal Reserve System (12
U.S.C.ss.1813 (d)).

         3.       The Federal Reserve Bank of New York and the Commissioner of
Financial Institutions of Puerto Rico have supervisory regulatory oversight of
Popular, Inc., BPPR (its principal banking subsidiary), and related
subsidiaries.

         4.       The Bank Secrecy Act ("BSA"), 31 U.S.C.ss.5311 et. seq., and
its implementing regulations, which Congress enacted to address an increase in
money laundering criminal activity utilizing financial institutions, require
domestic banks, insured banks and other financial institutions to maintain
certain records and file reports that are especially useful in criminal, tax or
regulatory investigations or proceedings, and to detect and report suspicious
activity therein that might be indicative of money laundering, terrorist
financing and other financial crimes.

                          CURRENCY TRANSACTION REPORTS

         5.       BPPR was required pursuant to 31 U.S.C. ss. 5313(a) and 5322
and 31 C.F.R. ss. 103.22(b)(1) (previously designated at 31 C.F.R. ss.
103.22(a)(1)) and ss. 103.28 to file a Currency Transaction Report ("CTR") for
each deposit, withdrawal, exchange of currency or other payment or transfer by,
through, or to BPPR which involved a transaction in currency of more

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than $10,000. Title 31 C.F.R. ss. 103.27 (a)(1) required BPPR to file CTRs
within fifteen (15) days following the day on which the reportable transaction
occurred. CTRs filed on magnetic media are considered filed timely if received
by the Internal Revenue Service ("IRS") no more than twenty-five (25) days after
the date of the transaction. Internal Revenue Service, Specifications for
Magnetic Media Filing of Currency Transaction Reports 6 (Feb. 1999). Title 31
C.F.R. ss. 103.28 required BPPR to verify and record on a CTR the name and
address of the individual presenting the transaction, as well as the entity or
person on whose behalf the transaction was to be effected. Multiple cash
transactions that are divided into amounts under $10,000 to avoid the filing of
a CTR or other BSA reporting or recordkeeping requirement is commonly referred
to as "structuring" and is prohibited 31 U.S.C. ss. 5324. Structuring is also
required to be reported under the BSA's suspicious activity reporting provisions
in 31 U.S.C. ss.5318(g) and 31 C.F.R. 103.18 as discussed in paragraph 8 below.

         6.       In order to comply with the BSA and its implementing
regulations, BPPR was required to detect, monitor and accurately report large
currency transactions and suspicious activity occurring at the financial
institution.

                           SUSPICIOUS ACTIVITY REPORTS

         7.       BPPR was required pursuant to 31 U.S.C. ss. 5318(g), 31 C.F.R.
ss. 103.18 (previously designated at 31 C.F.R. ss. 103.21), and 12 C.F.R. ss.
208.62 (previously designated at 12 C.F.R. ss. 208.20) and ss. 208.63
(previously designated at 12 C.F.R. ss. 208.14) to file with the Department of
Treasury and in some cases appropriate Federal law enforcement agencies, in
accordance with the form's instructions, a Suspicious Activity Report ("SAR")
when it detected

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the type of activity described below in paragraph 8. This requirement became
effective on April 1, 1996. According to the form's instructions, BPPR was
required to file a SAR with the Department of Treasury's Financial Crimes
Enforcement Network ("FinCEN") no later than thirty (30) calendar days after the
date of initial detection of facts that might have constituted a basis for
filing a SAR.

         8.       BPPR is required pursuant to 31 C.F.R. ss. 103.18, which
became effective on April 1, 1996, to report any transaction conducted or
attempted by, at, or through the bank, if it involved or aggregated at least
$5,000 in funds or other assets, and the bank knew, suspected, or had reason to
suspect that:

                  (i)      The transaction involved funds derived from illegal
                  activities or was intended or conducted in order to hide or
                  disguise funds or assets derived from illegal activities
                  (including without limitation, the ownership, nature, source,
                  location, or control of such funds or assets) as part of a
                  plan to violate or evade any federal law or regulations or to
                  avoid any transaction reporting requirement under federal law
                  or regulation.

                  (ii)     The transaction was designed to evade any
                  requirements promulgated under the Bank Secrecy Act.

                  (iii)    The transaction had no business or apparent lawful
                  purpose or was not the sort in which the particular customer
                  would normally be expected to engage, and the bank knew of no
                  reasonable explanation for the transaction after examining the
                  available facts, including the background and possible purpose
                  of the transaction.

         9.       Suspicious Activity Report Instructions contained on the SAR
form (Federal Reserve Form 2230) state: "in situations involving violations
requiring immediate attention, such as when a reportable violation is ongoing,
the financial institution shall immediately notify, by telephone, appropriate
law enforcement and financial institution supervisory authorities in addition to
filing a timely suspicious activity report." Despite the facts set forth in
paragraphs 11

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to 36, BPPR failed to immediately notify by telephone appropriate law
enforcement and financial institution supervisory authorities in addition to
filing timely and accurate SARs.

         10.      As described more fully below, voluminous unusual or
suspicious transactions were conducted in connection with the Ferrario, Vallejo
and Dominican Republic Money Service Business accounts (the "Subject Accounts").
Although BPPR filed SARs on these accounts, they were untimely. In some cases,
BPPR filed a single SAR in connection with the Subject Accounts years after the
commencement and continuation of the suspicious activity. In some cases, the
SARs filed by BPPR were inaccurate in important respects. These untimely
filings, absence of supplementary SARs and/or the inaccuracies in SARs which the
bank did file, had an effect upon federal law enforcement's ability to determine
whether the transactions involved funds derived from illegal activities or were
intended or conducted in order to hide or disguise funds or assets derived from
illegal activities (including without limitation, the ownership, nature, source,
location, or control of such funds or assets) as part of a plan to violate or
evade any federal law or regulations or to avoid any transaction reporting
requirement under federal law or regulation.

                              FERRARIO TRANSACTIONS

         11.      From June 16, 1995 to March 2, 1998, Roberto Ferrario Pozzi
("Ferrario") maintained Account # 011-254521 in the name of "Roberto Ferrario
Pozzi, DBA (doing business as) Gilligans" at the Old San Juan Branch of BPPR
(the "Ferrario Account"). Before the opening of the Ferrario account, Ferrario
was a customer of BPPR. In 1989 and 1990, Ferrario opened a credit card account
and personal account and obtained a personal loan from the bank.

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When BPPR opened the Ferrario Account, bank employees reviewed an unaudited,
unsigned financial statement provided by Ferrario, a credit report, which showed
a positive six-year credit history, and bank statements from an account at
another bank.

         12.      Ferrario maintained a business in the name of Phone Home. On
occasion, Ferrario represented to some bank employees that Phone Home sold phone
cards and offered long distance telephone, facsimile and money transmission
services (including wire transfer services). On one occasion (as more fully
described below), Ferrario represented to a bank employee that he managed a gas
station. Ferrario's account opening information stated that he was doing
business as "Gilligans," a cafe. The bank's customer information file identified
Ferrario's business as "Puerto Rico Net Yellow."

         13.      BPPR failed to conduct sufficient due diligence to confirm
whether Ferrario actually operated businesses as he had represented.

         14.      From June 16, 1995 through March 2, 1998, the date on which
BPPR filed a SAR on the Ferrario Account, Ferrario deposited approximately $20
million in cash into the Ferrario Account. Approximately $8 million in
additional cash was deposited into the Ferrario Account from March 3, 1998
through September 15, 1998, on which latter date a U.S. Customs agent requested
BPPR to keep the account open. Despite the suspicious nature of these deposits,
the bank did not investigate and /or file additional SARs reporting the
suspicious activity to FinCEN. On December 8, 1998, Ferrario was indicted for
money laundering in connection with certain of the deposits in the Ferrario
Account. Ferrario and employees of Phone Home regularly made large cash deposits
consisting of small denomination bills. On certain occasions, the cash was
carried into the branch in paper bags or gym bags. The amount of cash deposited
increased over

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time, significantly increasing in June 1997. During the six months the account
was open in 1995, the monthly deposits were $51,303 in July, $150,416 in August,
$34,276 in September, $126,742 in October, $456,640 in November and $243,045 in
December. In 1996, the monthly average of deposits was approximately $411,160.
From January through May 1997, the monthly average of deposits was approximately
$490,000. From June through December 1997, the monthly average of deposits was
approximately $1.4 million. From January through August 1998, the monthly
average of deposits was approximately $1.2 million. In response to inquiries
from the Old San Juan Branch employees about the reason for the increase,
Ferrario represented to bank employees that his deposits had increased because
he had consolidated deposits from two other banks at BPPR. BPPR failed to
confirm or investigate Ferrario's representations. From June 1997, until the
bank was instructed to keep the account open, a substantial number of the cash
deposits totaled hundreds of thousands of dollars in a single day. Subsequent
investigation would show that these cash transactions were inconsistent with
Ferrario's purported business. In June 1997, the operations of the Old San Juan
branch were disrupted as a result of the time it took to count Ferrario's cash.
At one point, employees of the bank told Ferrario to make his deposits to the
night deposit box in order to avoid tying up the teller lines. In the summer of
1997, BPPR scheduled and incurred the expense of significantly more armored car
pickups to transport the Ferrario cash away, a fact that the Old San Juan Branch
reported to the regional manager and regional operations officer to justify
their additional expenses.

         15.      As early as October 1995, the branch manager at the Old San
Juan Branch was informed by one of his branch employees that Ferrario's
transactions were significant and suspicious. The branch manager, however, took
no action. As early as May 1997, memoranda

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were sent from the Old San Juan Branch operations manager to the San Juan
Regional Operations Manager concerning the increased daily branch cash levels
caused by Ferrario's deposits.

         16.      From June 1995 to March 1998, Ferrario instructed the bank to
make hundreds of wire transfers to over 300 different companies or individuals
located in the United States and abroad. In 1997 and 1998, 83% and 78%,
respectively, of the money transmitted by Ferrario and 78% and 73%,
respectively, of the total number of wire transfers were sent to U.S. domestic
banks or U.S. offices of non-U.S. banks. Typically, deposits and subsequent wire
transfers were made in the same day or the next day. After June 1997, wire
transfers numbered between 40 to 80 a month and amounted to approximately 25% of
the branch's daily wire activity. BPPR did not investigate the nature of
Ferrario's business or determine whether the wire transfers or other account
activity was consistent with the purported business or consistent with money
laundering. Despite a number of branch employees being aware of the above
suspicious activity which occurred between July 1995 and March 1998, BPPR failed
to investigate the Ferrario Account for over two years from the date the account
was opened. Moreover, BPPR failed to investigate and/or report to FinCEN the
suspicious activity which occurred in the Ferrario Account from March 1998
through September 15, 1998, through a supplementary SAR.

         17.      Between July 1995 and March 1998, BPPR filed four hundred and
sixteen (416) CTRs reporting Ferrario's cash transactions. Three hundred and
eighty-four (384) of these CTRs stated that the funds were derived from a gas
station. In 1995, in connection with the preparation of a CTR, Ferrario told one
of the Old San Juan Branch employees that he operated a gas station. This
information was saved in a software program that the bank used to prepare CTRs
and

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automatically reappeared in nearly all the subsequent CTRs. BPPR failed to
review and monitor these CTR filings. In a single week in 1995, the same branch
employee filed three CTRs listing three different sources of funds -- overseas
calls, gas station, and money transfer -- as the source for the cash deposits.
Again, due to the lack of CTR review, these inconsistencies were not identified.

         18.      BPPR did not send two bulk data tapes -- created in May 1997
and June 1998, respectively -- containing CTRs for approximately a two-week
period to FinCEN, resulting in 4,761 CTRs not being filed for various customers,
including nine CTRs for Ferrario. These two tapes were regenerated and all CTRs
were untimely filed with the IRS.

         19.      Ferrario's business was located in a reputable area in Old San
Juan, directly across from the United States Courthouse, two blocks from the
largest U.S. Customs office in Puerto Rico and one block from the Old San Juan
branch. On their way to and from work, Old San Juan branch employees passed by
Ferrario's business but rarely saw customers at the business. Tellers at the Old
San Juan Branch commented that the money deposited by Ferrario was strange or
unusual. In addition, concerns about the large volume of cash deposits and the
disruption it caused at the branch were discussed at monthly branch meetings.

         20.      In August 1997, BPPR received a law enforcement subpoena
seeking information relating to the Ferrario Account. However, neither the Old
San Juan Branch nor BPPR's Compliance Division was notified of the subpoena
because BPPR imposed no formal written policy or practice upon its legal
requirements department to refer law enforcement subpoenas to the bank's
compliance division for investigation. In the Fall of 1999, BPPR changed its
policy to

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require the Compliance Division to be notified of subpoenas.

         21.      BPPR failed to conduct an investigation into Ferrario or his
business until December 1997, and therefore did not file an SAR on the Ferrario
Account activity until March 2, 1998. BPPR reported only $10,112,320 as the
dollar amount involved in the suspicious activity and a period of suspicious
activity limited to March 28, 1996 to January 26, 1998. The SAR did not identify
the number as representing wire transfers during this period and did not report
the amount of deposits. The SAR also did not include: 18 wire transfers in 1995
totaling $185,010; 22 wire transfers in 1996 totaling $170,898; 19 wire
transfers in 1997 totaling $232,548; and 10 additional wire transfers in January
1998 totaling $10,743. The SAR did not state the amount of cash deposited during
the time period of the suspicious activity, which was substantially higher than
the wire transfer amount. Moreover, the SAR did not describe the entire time
period of the suspicious activity. Additionally, the narrative of the SAR
reported daily cash deposit activity of between $12,000 and $258,509 (as a
result of a typographical error; the actual maximum number was $528,509) when in
fact there were numerous daily cash deposits in excess of the reported amount.
Lastly, the SAR incorrectly reported the name of the Ferrario Account as "Puerto
Rico Net Yellow," an additional account maintained by Ferrario at BPPR, but not
the account in which the cash deposits and wire transfers occurred. The
inaccuracies contained within the SAR had an effect upon federal law
enforcement's ability to determine whether a crime had been committed, was
continuing to be committed, and the extent of any criminal activity.

         22.      In April 1998, the Audit Committee of the Board of Directors
of BPPR was informed, in a routine quarterly report made by the Compliance
Division listing all SARs filed,

                                      -9-

<PAGE>

and their amounts, during the quarter, that the Ferrario SAR had been filed.
Although this was by far the largest SAR in dollar amount ever reported to the
Audit Committee, the Compliance Division failed to inform the Audit Committee or
senior management of the seriousness of the matter or identify any
vulnerabilities in BPPR's anti-money laundering program. BPPR did not focus on
vulnerabilities in its anti-money laundering program until September 1999.

                              VALLEJO TRANSACTIONS

         23.      From May 1998 through June 2000, Jairo de Jesus Vallejo
("Vallejo") maintained Account #013-254405 in the name of Durcaribe, Inc. (the
"Durcaribe Account") at the Carolina Highway Branch of BPPR. Vallejo maintained
this account for a business in the name of Durcaribe, Inc. that distributed
hydraulic equipment.

         24.      Prior to November 1998, the Durcaribe Account had an average
monthly balance of $3,000. From November 1998 through September 1999, the
Durcaribe Account average monthly balance increased 4000% to approximately
$120,000. The nature of the deposits changed from checks to cash. Cash deposits
were inconsistent with the nature of Durcaribe's declared business.

         25.      In January l999, Vallejo opened a second account, in the name
of Valjur Corporation, Account #314-000657 (the "Valjur Account") at the
Carolina Food Court Branch of BPPR. The purported business purpose of Valjur
Corporation was the import and export of beer and leather goods.

         26.      From November 1998 through June 2000, Vallejo deposited at
multiple branches

                                      -10-

<PAGE>

into the Durcaribe and Valjur Accounts cash proceeds, divided into amounts less
than $10,000 and made up of small denomination bills. As many as six deposits a
day were made at various branches. Vallejo also sent 67 wire transfers from his
accounts. Fifty-two percent of the total number of wire transfers, which
represented 54% of the money transmitted by Vallejo, was sent to U.S. domestic
banks or U.S. offices of non-U.S. banks. A majority of the international wire
transfers went to Panama, the Cayman Islands, and the Bahamas. This activity was
inconsistent with the purported business. This activity was consistent with
money laundering.

         27.      Despite Vallejo's efforts to avoid filing CTRs, the bank's
Large Cash Reporting System, which was and is used to aggregate cash deposits
for the purpose of complying with the CTR-reporting requirements, identified
many of Vallejo's structured transactions. As a result, numerous CTRs were filed
for Vallejo's accounts. However, the Compliance Division opened an investigation
on the Valjur Account only after a branch teller who happened to work at two
different branches on successive days and saw Vallejo deposit cash into his
account at two different BPPR branches in amounts less than $10,000. In August
1999, a notation was made in the Compliance Division's Valjur investigative file
that structuring was apparent in the account. Nevertheless, the investigative
file was closed in September 1999. The investigative file contains notations to
the effect that the client "desisted" from his deposit practice and "improved"
the use of the account. No SAR was filed, despite the structuring. Bank records
indicate that Vallejo continued to structure cash into both the Valjur and the
Durcaribe Accounts. During the course of the SAR investigation on the Valjur
Account, the Compliance Division never detected that Vallejo also maintained the
Durcaribe Account. In addition, although BPPR had received law enforcement
subpoenas before deciding to close the SAR investigation, the

                                      -11-

<PAGE>

Compliance Division was not notified of the subpoenas, due to BPPR's failure to
have in place a formal written policy or practice upon its legal requirements
department to refer law enforcement subpoenas to the bank's compliance division
for investigation.

         28.      BPPR did not file SARs on the Valjur and Durcaribe accounts
until November 1999. As part of BPPR's efforts to improve its BSA compliance
program in the Fall of 1999, BPPR reviewed a list of all customers that had
performed cash transactions that met certain broad parameters. As a result of
this review, BPPR's Rio Piedras region sent a memorandum to the Compliance
Division on November 2, 1999, identifying, among other accounts, the Valjur and
Durcaribe accounts. The Compliance Division commenced an investigation and, on
November 18, 1999, filed SARs on these accounts. At the time of the filing of
the SARs, over $1 million had passed through the accounts, which BPPR
subsequently learned were narcotics proceeds. The Durcaribe SAR only covered
1999 (even though the account was opened in 1998), reporting cash transactions
in the account during the year of $377,790 and wire transfers in the amount of
$929,577. The Valjur SAR covered only October 1999 (even though the account was
opened in 1998), reporting cash transactions in the account in the month of
$91,880 and wire transfers in the amount of $111,802. As a result, the SARs did
not state the full amount of cash transactions or wire transfers in the
accounts. The SARs noted that the Compliance Division's investigation concerning
the Valjur and Durcaribe accounts was continuing.

         29.      As part of BPPR's continuing investigation concerning the
Valjur and Durcaribe accounts, it conducted a "know your client" visit to
Vallejo's purported place of business. Following this visit, supplemental SARs
were filed on December 17, 1999, noting that the account activity reported on
the SARs filed in November was inconsistent with the nature of

                                      -12-

<PAGE>

Vallejo's purported business. Vallejo continued to structure deposits into both
accounts.

         30.      In December 1999, BPPR contemplated closing the accounts,
following its receipt of a fourth law enforcement subpoena related to the
accounts. At that time, as part of BPPR's efforts to improve its BSA and
anti-money laundering efforts, the bank was in the process of revising its
account closing policy to correct some uncertainty concerning the criteria that
should be applied to account closings. BPPR did not immediately close the Valjur
and Durcaribe accounts because it had concerns about potential lawsuits from the
client and hindering law enforcement efforts. In February 2000, BPPR's
Anti-Money Laundering committee (the "AML Committee"), which was established by
the bank's senior management in the Fall of 1999, acceded to the request of a
Special Agent of the Internal Revenue Service to keep the account open. The
failure of the SARs to cover the entire period during which the accounts were
open had an effect upon federal law enforcement's ability to determine whether a
crime had been committed, was continuing to be committed, and the extent of any
criminal activity. According to both a letter, dated March 22, 2000, from the
IRS Special Agent and the affidavit filed by the IRS Special Agent in support of
the criminal complaint against Vallejo, the government relied on information
supplied by BPPR in prosecuting Vallejo.

                                      -13-

<PAGE>

         DOMINICAN REPUBLIC MONEY SERVICE BUSINESS ACCOUNTS TRANSACTIONS

         31.      From at least as early as 1997 through approximately June
2000, BPPR provided correspondent services to foreign money service businesses
located in the Dominican Republic. During this period of time, the Dominican
Republic was known to be a high-risk area for narcotics-related money
laundering.

         32.      Although BPPR knew the general purpose of the businesses in
question (i.e., money services business), the bank failed to document adequately
the basis for this knowledge. For example, BPPR failed to document whether any
customer visits were made to these businesses prior to 1999, and the customer
files relating to these accounts contained inadequate documentation as to the
nature of the client's business. Although BPPR conducted KYC visits in 1999, the
visitation documentation contains no information about the expected volume and
type of account activity for the purported business.

         33.      From at least as early as 1997, BPPR received these
businesses' checks and other items in bulk for purposes of processing, and
processed the items without reviewing them. There was activity through certain
of these accounts which was indicative of money laundering by the businesses or
their customers yet no SARs were filed.

         34.      In one case, BPPR failed to investigate and allowed
transactions to continue even after being put on notice by law enforcement that
the account might have involved criminal activity. Specifically, BPPR was served
with a Drug Enforcement Administration seizure warrant relating to an account
opened at BPPR that had received $275,000 from Comercial Importadora SMA, a
Dominican Republic business that had also opened an account at the bank.

                                      -14-

<PAGE>

Although the branch manager informed the account holder of Comercial Importadora
that his account had to be closed, after consultation with the account holder
and his lawyer, the branch manager allowed the account holder's brother to open
an account on the same day the seizure warrant was received and the account
opening documentation noted that the account was a substitute for the Comercial
Importadora SMA account.

         35.      As discussed above, in the Fall of 1999, BPPR applied broad
parameters against all accounts at the bank to identify suspicious activity.
These procedures led BPPR to focus on the money transmitters based in the
Dominican Republic. By the second quarter of 2000, SARs had been filed for most
of these accounts. By the time the SARs were filed, subpoenas had been received
by BPPR on most of the accounts. These accounts were all closed at the end of
the second quarter of 2000.

                                 REMEDIAL ACTION

         36.      During the period of 1995 through 1998, the Federal Reserve
conducted four examinations of BPPR. Bank examiners are required by federal law
(12 U.S.C. ss. 1818(s)) to identify any problems relating to a bank's BSA
compliance. These examinations did not contain any criticism of BPPR's BSA
compliance policies or procedures. The duty to determine whether its compliance
program was effective belonged to BPPR, not banking regulators. Beginning in
October 1999, the Federal Reserve conducted an examination of BPPR. In March
2000 the Bank entered into a Written Agreement with the Federal Reserve.

         37.      Beginning in September 1999, BPPR's senior management focused
on enhancing its BSA compliance program. These included the formation of a Task
Force, which first met on

                                      -15-

<PAGE>

October 13, 1999, comprised of senior bank executives and other key bank
employees to formalize the process of making improvements to the bank's BSA and
AML program. The Task Force was given a broad mandate to revise and improve all
procedures and processes related to the BSA. During October 1999, the Task Force
met on numerous occasions to review and to make recommendations to improve the
Bank's BSA and AML program.

         38.      In November 1999, BPPR created a permanent AML Committee to
oversee and implement the bank's AML efforts. In October 1999, BPPR's Senior
Management Council ("SMC"), which included the chief executive officer, all the
executive vice presidents and the General Counsel, began to meet on a weekly
basis to oversee the Task Force's and subsequently the AML Committee's progress
in implementing its plan and to submit monthly progress reports to the Federal
Reserve.

         39.      As a result of these efforts, there were numerous innovations
in BPPR's BSA compliance program, including the following:

         -        A new BSA and AML Department was created and divided into
                  three areas: detection and investigation, training and BSA
                  audit, and compliance. Thirteen employees were assigned to
                  this new department, seven of whom were hired by December
                  1999.

         -        The Legal Requirements unit -- the group that reviews and
                  processes subpoenas -- was elevated to department level and a
                  new unit head was appointed.

         -        BPPR's KYC policies were significantly revised in December
                  1999 and approved by BPPR's board in early 2000.

         -        Training materials were revised, and a test was created to
                  measure whether employees understand the training. In
                  addition, the frequency of BSA and AML training was increased.
                  From December 1999 through December 2000, BPPR provided BSA
                  and AML training to substantially all of its employees.

         -        BPPR hired KPMG to provide the bank with "best practices" for
                  a BSA and AML

                                      -16-

<PAGE>

                  compliance program. KPMG provided, among other things,
                  advanced training to the AML Committee and certain employees
                  of the Corporate Compliance Division and other departments
                  involved in BSA functions, advice as to the most advanced
                  suspicious activity software program and guidance on the
                  implementation of a new written BSA compliance program.

         -        BPPR purchased a new state-of-the-art suspicious activity
                  detection software program called ASSIST. BPPR established
                  broad parameters to identify suspicious activity and applies
                  those parameters against all accounts at BPPR.

         -        BPPR developed a "hot list" procedure to determine whether
                  individuals identified in the news as having engaged in
                  illegal activities had accounts at BPPR.

         -        BPPR hired two new individuals with investigative and
                  financial backgrounds to investigate suspicious activity. BPPR
                  also began to file SARs on a weekly basis.

         -        BPPR made extensive efforts to improve its CTR review and
                  filing function. The responsibility for the preparation and
                  review of CTRs was transferred to an operations unit in retail
                  banking to improve supervision over this process. The number
                  of employees reviewing CTRs was doubled.

                                      -17-EXHIBIT 4.1

                             EBIZ ENTERPRISES, INC.

                             2002 STOCK OPTION PLAN

1.   PURPOSES OF THE PLAN.  The  purposes of this Ebiz  Enterprises,  Inc.  2002
Stock Option Plan are:

     *    to attract and retain the best  available  personnel  for positions of
          substantial responsibility,

     *    to  provide   additional   incentive  to   Employees,   Directors  and
          Consultants, and to promote the success of the Company's business.

     *    To set forth the terms and  conditions  for Options  granted under the
          Plan  which may be  Incentive  Stock  Options  or  Nonstatutory  Stock
          Options, as determined by the Administrator at the time of grant.

The  Plan  provides  for the  grant  of  Stock  Options  as a form of  incentive
compensation and it is not intended to be a plan that is subject to the Employee
Retirement  Income Security Act of 1974, as amended  (ERISA).  The Plan shall be
interpreted,  construed and  administered  consistent  with its status as a plan
that is not subject to ERISA.

Subject to any  required  approval  by the  Company's  stockholders  pursuant to
SECTION 18, the Plan,  shall be effective as of October 18, 2002 (the "Effective
Date").  The Plan shall  remain in effect,  subject to the right of the Board to
amend or terminate  the Plan at any time  pursuant to SECTION 14, until the date
that is ten (10) years after the Effective Date.

2.   DEFINITIONS. As used herein, the following definitions shall apply:

     (a)  "ADMINISTRATOR"  means the Board or any of its  Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.

     (b) "APPLICABLE LAWS" means the requirements relating to the administration
of stock option plans under U. S. state corporate  laws, U.S.  federal and state
securities  laws, the Code, any stock exchange or quotation  system on which the
Common Stock is listed or quoted and the applicable  laws of any foreign country
or jurisdiction where Options are, or will be, granted under the Plan.

     (c) "BOARD" means the Board of Directors of the Company.

     (d)  "CHANGE  IN  CONTROL"  means the  occurrence  of any of the  following
events:

          (i) Any "person" (as such term is used in Sections  13(d) and 14(d) of
the Exchange  Act) becomes the  "beneficial  owner" (as defined in Rule 13d-3 of
the  Exchange  Act),  directly  or  indirectly,  of  securities  of the  Company
representing  fifty percent (50%) or more of the total voting power  represented
by the Company's then outstanding voting securities;
<PAGE>
          (ii) The consummation of the sale or disposition by the Company of all
or substantially all of the Company's assets;

          (iii) A change  in the  composition  of the Board  occurring  within a
two-year period, as a result of which fewer than a majority of the directors are
Incumbent  Directors.  "Incumbent  Directors" means directors who either (A) are
Directors as of the effective date of the Plan, or (B) are elected, or nominated
for election,  to the Board with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but will not
include an individual  whose  election or  nomination  is in connection  with an
actual or threatened  proxy contest relating to the election of directors to the
Company); or

          (iv) The consummation of a merger or consolidation of the Company with
any other corporation,  other than a merger or consolidation  which would result
in the voting  securities of the Company  outstanding  immediately prior thereto
continuing to represent  (either by remaining  outstanding or by being converted
into voting  securities  of the  surviving  entity or its parent) at least fifty
percent (50%) of the total voting power  represented by the voting securities of
the Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation.

     (e) "CODE" means the Internal Revenue Code of 1986, as amended.

     (f)  "COMMITTEE"  means a committee of Directors  appointed by the Board in
accordance with Section 4 of the Plan.

     (g) "COMMON STOCK" means the common stock of the Company.

     (h) "COMPANY" means Ebiz Enterprises, Inc., a Nevada corporation.

     (i) "CONSULTANT" means any natural person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.

     (j) "DIRECTOR" means a member of the Board.

     (k) "DISABILITY" means total and permanent disability as defined in Section
22(e)(3) of the Code.

     (l) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Parent or  Subsidiary of the Company.  A Service  Provider
shall  not  cease  to be an  Employee  in the case of (i) any  leave of  absence
approved by the Company or (ii)  transfers  between  locations of the Company or
between the Company, its Parent, any Subsidiary,  or any successor. For purposes
of  Incentive  Stock  Options,  no such leave may  exceed  ninety  days,  unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so  guaranteed,  then three (3) months  following the 91st day of such leave
any Incentive  Stock Option held by the Optionee shall cease to be treated as an
Incentive  Stock Option and shall be treated for tax purposes as a  Nonstatutory
Stock Option.  Neither  service as a Director nor payment of a director's fee by
the Company shall be sufficient to constitute "employment" by the Company.

                                       2
<PAGE>
     (m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

     (n) "FAIR MARKET  VALUE" means,  as of any date,  the value of Common Stock
determined as follows:

          (i) If the Common Stock is listed on any established stock exchange or
a national  market system,  including  without  limitation  the Nasdaq  National
Market or The Nasdaq  SmallCap Market of The Nasdaq Stock Market or the Over The
Counter  Bulletin Board,  its Fair Market Value shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system on the day of  determination,  as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;

          (ii)  If  the  Common  Stock  is  regularly  quoted  by  a  recognized
securities dealer but selling prices are not reported,  the Fair Market Value of
a Share of Common  Stock  shall be the mean  between  the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or

          (iii) In the absence of an  established  market for the Common  Stock,
the Fair Market Value shall be determined in good faith by the Administrator.

     (o)  "INCENTIVE  STOCK  OPTION"  means an Option  intended to qualify as an
incentive  stock  option  within the  meaning of Section 422 of the Code and the
regulations promulgated thereunder.

     (p) "NONSTATUTORY  STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.

     (q)  "NOTICE OF GRANT"  means a written  or  electronic  notice  evidencing
certain terms and conditions of an individual  Option grant. The Notice of Grant
is part of the Option Agreement.

     (r)  "OFFICER"  means a person who is an officer of the Company  within the
meaning  of  Section  16 of the  Exchange  Act and  the  rules  and  regulations
promulgated thereunder.

     (s) "OPTION" means a stock option granted pursuant to the Plan.

     (t)  "OPTION  AGREEMENT"  means an  agreement  between  the  Company and an
Optionee  evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

     (u) "OPTION EXCHANGE PROGRAM" means a program whereby  outstanding  Options
are surrendered in exchange for Options with a lower exercise price.

     (v) "OPTIONED STOCK" means the Common Stock subject to an Option.

     (w) "OPTIONEE" means the holder of an outstanding  Option granted under the
Plan.

                                       3
<PAGE>
     (x)  "PARENT"  means  a  "parent  corporation,"  whether  now or  hereafter
existing, as defined in Section 424(e) of the Code.

     (y) "PLAN" means this 2002 Stock Option Plan.

     (z) "RULE 16B-3"  means Rule 16b-3 of the Exchange Act or any  successor to
Rule 16b-3,  as in effect when discretion is being exercised with respect to the
Plan.

     (aa) "SECTION 16(B)" means Section 16(b) of the Exchange Act.

     (bb) "SERVICE PROVIDER" means an Employee, Director or Consultant.

     (cc) "SHARE" means a share of the Common  Stock,  as adjusted in accordance
with Section 12 of the Plan.

     (dd)  "SUBSIDIARY"  means  a  "subsidiary  corporation",   whether  now  or
hereafter existing, as defined in Section 424(f) of the Code.

3.   STOCK SUBJECT TO THE PLAN.  Subject to the  provisions of Section 12 of the
Plan, the maximum aggregate number of Shares that may be optioned and sold under
the Plan is the total of  775,000  Shares.  The Shares  may be  authorized,  but
unissued, or reacquired Common Stock.

     If an Option expires or becomes unexercisable without having been exercised
in  full,  or  is  surrendered  pursuant  to an  Option  Exchange  Program,  the
unpurchased  Shares which were subject thereto shall become available for future
grant or sale  under  the Plan  (unless  the  Plan  has  terminated);  PROVIDED,
HOWEVER,  that Shares that have actually been issued under the Plan shall not be
returned  to the Plan and shall not become  available  for  future  distribution
under the Plan, except that if unvested Shares are repurchased by the Company at
their original  purchase  price,  such Shares shall become  available for future
grant under the Plan.

4.   ADMINISTRATION OF THE PLAN.

     (a) PROCEDURE.

          (i) MULTIPLE ADMINISTRATIVE BODIES.  Different Committees with respect
to different groups of Service Providers may administer the Plan.

          (ii) SECTION 162(M). To the extent that the  Administrator  determines
it to be desirable to qualify  Options granted  hereunder as  "performance-based
compensation"  within the meaning of Section  162(m) of the Code, the Plan shall
be  administered  by a Committee of two or more "outside  directors"  within the
meaning of Section 162(m) of the Code.

          (iii) RULE  16B-3.  To the extent  desirable  to qualify  transactions
hereunder as exempt under Rule 16b-3,  the transactions  contemplated  hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.

                                       4
<PAGE>
          (iv) OTHER  ADMINISTRATION.  Other than as  provided  above,  the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.

     (b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan, and
in the case of a  Committee,  subject to the  specific  duties  delegated by the
Board to such  Committee,  the  Administrator  shall have the authority,  in its
discretion:

          (i) to determine the Fair Market Value;

          (ii) to select the Service  Providers  to whom  Options may be granted
hereunder;

          (iii) to determine  the number of shares of Common Stock to be covered
by each Option granted hereunder;

          (iv) to approve forms of agreement for use under the Plan;

          (v) to determine the terms and conditions,  not inconsistent  with the
terms of the Plan, of any Option  granted  hereunder.  Such terms and conditions
include,  but are not limited  to, the  exercise  price,  the time or times when
Options  may be  exercised  (which may be based on  performance  criteria),  any
vesting acceleration or waiver of forfeiture  restrictions,  and any restriction
or  limitation  regarding  any  Option or the  shares of Common  Stock  relating
thereto,  based in each case on such factors as the  Administrator,  in its sole
discretion, shall determine;

          (vi) to reduce the  exercise  price of any Option to the then  current
Fair Market Value if the Fair Market  Value of the Common Stock  covered by such
Option shall have declined since the date the Option was granted;

          (vii) to institute an Option Exchange Program;

          (viii) to  construe  and  interpret  the terms of the Plan and  awards
granted pursuant to the Plan;

          (ix) to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans  established for
the purpose of satisfying applicable foreign laws;

          (x) to modify or amend each Option  (subject  to Section  14(c) of the
Plan),  including  the  discretionary  authority to extend the  post-termination
exercisability  period of Options  longer than is otherwise  provided for in the
Plan;

          (xi) to allow  Optionees to satisfy  withholding  tax  obligations  by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option  that  number of Shares  having a Fair  Market  Value  equal to the
minimum amount  required to be withheld.  The Fair Market Value of the Shares to
be  withheld  shall be  determined  on the date  that  the  amount  of tax to be
withheld  is to be  determined.  All  elections  by an  Optionee  to have Shares
withheld for this purpose  shall be made in such form and under such  conditions
as the Administrator may deem necessary or advisable;

                                       5
<PAGE>
          (xii) to authorize  any person to execute on behalf of the Company any
instrument  required to effect the grant of an Option previously  granted by the
Administrator; and

          (xiii) to make all other determinations  deemed necessary or advisable
for administering the Plan.

     (c) EFFECT OF  ADMINISTRATOR'S  DECISION.  The  Administrator's  decisions,
determinations and  interpretations  shall be final and binding on all Optionees
and any other holders of Options.

5.   ELIGIBILITY.   Nonstatutory   Stock  Options  may  be  granted  to  Service
Providers. Incentive Stock Options may be granted only to Employees.

6.   LIMITATIONS.

     (a) Each Option shall be  designated  in the Option  Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However,  notwithstanding
such  designation,  to the extent that the  aggregate  Fair Market  Value of the
Shares with respect to which  Incentive  Stock Options are  exercisable  for the
first time by the Optionee  during any single  calendar year (under all plans of
the Company and any Parent or Subsidiary)  exceeds $100,000,  such Options shall
be treated as Nonstatutory Stock Options to the extent in excess of the $100,000
limit,  and not Incentive  Stock Options,  but all other terms and provisions of
such  Options  shall  remain  unchanged  . For  purposes of this  Section  6(a),
Incentive  Stock  Options shall be taken into account in the order in which they
were granted.  The Fair Market Value of the Shares of an Incentive  Stock Option
shall be  determined  as of the time the Option  with  respect to such Shares is
granted.

     (b) Neither the Plan nor any Option shall confer upon an Optionee any right
with respect to continuing the  Optionee's  relationship  as a Service  Provider
with the Company,  nor shall they interfere in any way with the Optionee's right
or the  Company's  right to terminate  such  relationship  at any time,  with or
without cause.

     (c) The following limitations shall apply to grants of Options:

          (i) No Service  Provider  shall be granted,  in any fiscal year of the
Company, Options to purchase more than 1,000,000 Shares.

          (ii) In connection with his or her initial service, a Service Provider
may be granted Options to purchase up to an additional  1,000,000 Shares,  which
shall not count against the limit set forth in subsection (i) above.

          (iii) The foregoing  limitations shall be adjusted  proportionately in
connection  with any change in the  Company's  capitalization  as  described  in
Section 12.

                                       6
<PAGE>
          (iv) If an Option is  cancelled in the same fiscal year of the Company
in which it was granted (other than in connection  with a transaction  described
in Section  12),  the  cancelled  Option will be counted  against the limits set
forth in subsections (i) and (ii) above. For this purpose, if the exercise price
of an Option is reduced,  the  transaction  will be treated as a cancellation of
the Option and the grant of a new Option.

7.   TERM OF PLAN.  Subject  to Section  18 of the Plan,  the Plan shall  become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 14 of the Plan.

8.   TERM OF  OPTION.  The term of each  Option  shall be stated  in the  Option
Agreement and shall be fixed by the  Administrator  which shall not be more than
ten (10)  years from the date of the grant.  In the case of an  Incentive  Stock
Option, the term shall be not more than ten (10) years from the date of grant or
such  shorter term as may be provided in the Option  Agreement.  Notwithstanding
the foregoing,  in the case of an Incentive  Stock Option granted to an Optionee
who, at the time the Incentive Stock Option is granted,  owns stock representing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the  Company or any  Parent or  Subsidiary,  the term of the  Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.

9.   OPTION EXERCISE PRICE AND CONSIDERATION.

     (a)  EXERCISE  PRICE.  The per share  exercise  price for the  Shares to be
issued   pursuant  to  exercise  of  an  Option  shall  be   determined  by  the
Administrator, subject to the following:

          (i) In the case of an Incentive Stock Option

               (A) granted to an Employee who, at the time the  Incentive  Stock
Option is granted,  owns stock  representing  more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of grant.

               (B) granted to any Employee  other than an Employee  described in
paragraph (A) immediately  above,  the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.

          (ii) In the  case  of a  Nonstatutory  Stock  Option,  the  per  Share
exercise  price  shall  be  determined  by the  Administrator.  In the case of a
Nonstatutory   Stock   Option   intended   to  qualify   as   "performance-based
compensation"  within the meaning of Section  162(m) of the Code,  the per Share
exercise  price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

          (iii) Notwithstanding the foregoing, Options may be granted with a per
Share exercise price of less than 100% of the Fair Market Value per Share on the
date of grant pursuant to a merger or other corporate transaction.

     (b) WAITING  PERIOD AND EXERCISE  DATES.  At the time an Option is granted,
the Administrator  shall fix the period within which the Option may be exercised
subject to the provisions of Section 8 above and shall  determine any conditions
that must be satisfied before the Option may be exercised.

                                       7
<PAGE>
     (c) FORM OF CONSIDERATION. The Administrator shall determine the acceptable
form of consideration for exercising an Option, including the method of payment.
In the case of an Incentive Stock Option, the Administrator  shall determine the
acceptable form of consideration at the time of grant.  Such  consideration  may
consist entirely of:

          (i) cash;

          (ii) check;

          (iii) promissory note;

          (iv) other Shares which,  in the case of Shares  acquired  directly or
indirectly  from the Company,  (A) have been owned by the Optionee for more than
six (6) months on the date of surrender, and (B) have a Fair Market Value on the
date of  surrender  equal to the  aggregate  exercise  price of the Shares as to
which said Option shall be exercised;

          (v)  consideration  received by the Company under a cashless  exercise
program implemented by the Company in connection with the Plan;

          (vi)  a  reduction  in the  amount  of any  Company  liability  to the
Optionee,  including any liability attributable to the Optionee's  participation
in any Company-sponsored deferred compensation program or arrangement;

          (vii) any combination of the foregoing methods of payment; or

          (viii) such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.

10.  EXERCISE OF OPTION.

     (a) PROCEDURE FOR EXERCISE;  RIGHTS AS A  STOCKHOLDER.  Any Option  granted
hereunder  shall be  exercisable  according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be suspended during any unpaid leave of absence.
An Option may not be exercised for a fraction of a Share.

     An Option shall be deemed exercised when the Company receives:  (i) written
or electronic  notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised  including the amount necessary to
satisfy all federal,  state and local withholding tax requirements  prior to the
delivery of any  certificates  for the Shares.  Full  payment may consist of any
consideration  and  method  of  payment  authorized  by  the  Administrator  and
permitted by the Option  Agreement and the Plan.  Shares issued upon exercise of
an Option  shall be issued in the name of the  Optionee  or, if requested by the
Optionee,  in the name of the Optionee  and his or her spouse.  Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company or

                                       8
<PAGE>
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a  stockholder  shall exist with respect to the
Optioned Stock,  notwithstanding  the exercise of the Option.  The Company shall
issue (or cause to be issued) such Shares promptly after the Option is exercised
subject  to the  receipt  by the  Company  of the  amount  necessary  to satisfy
withholding tax  requirements as set forth above. No adjustment will be made for
a dividend  or other  right for which the  record  date is prior to the date the
Shares are issued, except as provided in Section 12 of the Plan.

     Exercising  an Option in any  manner  shall  decrease  the number of Shares
thereafter  available,  both for  purposes  of the Plan and for sale  under  the
Option, by the number of Shares as to which the Option is exercised.

     (b)  TERMINATION  OF  RELATIONSHIP  AS A SERVICE  PROVIDER.  If an Optionee
ceases  to be a  Service  Provider,  other  than  upon the  Optionee's  death or
Disability,  the Optionee  may exercise his or her Option  within such period of
time as is  specified  in the Option  Agreement to the extent that the Option is
vested on the date of termination  (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option  Agreement,  the Option shall remain  exercisable
for three (3) months  following the Optionee's  termination.  If, on the date of
termination,  the  Optionee  is not vested as to his or her entire  Option,  the
Shares  covered by the unvested  portion of the Option shall revert to the Plan.
If, after  termination,  the Optionee does not exercise his or her Option within
the time specified by the  Administrator,  the Option shall  terminate,  and the
Shares covered by such Option shall revert to the Plan.

     (c) DISABILITY OF OPTIONEE.  If an Optionee ceases to be a Service Provider
as a result of the Optionee's  Disability,  the Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement to the
extent the Option is vested on the date of  termination  (but in no event  later
than  the  expiration  of the term of such  Option  as set  forth in the  Option
Agreement).  In the absence of a  specified  time in the Option  Agreement,  the
Option shall remain  exercisable for twelve (12) months following the Optionee's
termination.  If, on the date of  termination,  the Optionee is not vested as to
his or her entire  Option,  the Shares  covered by the  unvested  portion of the
Option shall revert to the Plan.  If, after  termination,  the Optionee does not
exercise his or her Option within the time  specified  herein,  the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

     (d) DEATH OF OPTIONEE.  If an Optionee dies while a Service  Provider,  the
Option may be exercised  following  the  Optionee's  death within such period of
time as is  specified  in the Option  Agreement to the extent that the Option is
vested on the date of death (but in no event may the option be  exercised  later
than  the  expiration  of the term of such  Option  as set  forth in the  Option
Agreement), by the Optionee's designated beneficiary,  provided such beneficiary
has been  designated  prior to  Optionee's  death  in a form  acceptable  to the
Administrator.  If no such beneficiary has been designated by the Optionee, then
such Option may be exercised by the personal  representative  of the  Optionee's
estate or by the  person(s)  to whom the Option is  transferred  pursuant to the
Optionee's will or in accordance with the laws of descent and  distribution.  In
the absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following  Optionee's  death. If, at the time
of death,  Optionee  is not  vested as to his or her entire  Option,  the Shares
covered by the unvested  portion of the Option shall  immediately  revert to the

                                       9
<PAGE>
Plan. If the Option is not so exercised  within the time specified  herein,  the
Option shall  terminate,  and the Shares  covered by such Option shall revert to
the Plan.

11.  TRANSFERABILITY   OF   OPTIONS.   Unless   determined   otherwise   by  the
Administrator,  an  Option  may not be sold,  pledged,  assigned,  hypothecated,
transferred,  or disposed of in any manner  other than by will or by the laws of
descent  or  distribution  and may be  exercised,  during  the  lifetime  of the
Optionee,   only  by  the  Optionee.   If  the  Administrator  makes  an  Option
transferable,  such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.

12.  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CHANGE IN CONTROL.

     (a)  CHANGES  IN  CAPITALIZATION.  Subject  to any  required  action by the
stockholders of the Company, the number of shares of Common Stock that have been
authorized  for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon  cancellation or expiration
of an  Option,  the  number of  Shares  that may be added  annually  to the Plan
pursuant to Section 3(i) and the number of shares of Common Stock as well as the
price per share of Common Stock covered by each such outstanding  Option,  shall
be proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split,  reverse stock split, stock
dividend,  combination  or  reclassification  of the Common Stock,  or any other
increase  or decrease in the number of issued  shares of Common  Stock  effected
without  receipt  of  consideration  by the  Company;  PROVIDED,  HOWEVER,  that
conversion of any  convertible  securities of the Company shall not be deemed to
have been "effected without receipt of consideration."  Such adjustment shall be
made by the Board, whose  determination in that respect shall be final,  binding
and conclusive.  Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities  convertible into shares of stock
of any class,  shall affect,  and no adjustment by reason  thereof shall be made
with  respect  to, the number or price of shares of Common  Stock  subject to an
Option.

     (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Optionee as soon
as  practicable  prior to the effective date of such proposed  transaction.  The
Administrator in its discretion may provide for an Optionee to have the right to
exercise his or her Option until ten (10) days prior to such  transaction  as to
all of the Optioned  Stock  covered  thereby,  including  Shares as to which the
Option would not otherwise be exercisable.  In addition,  the  Administrator may
provide that any Company  repurchase  option  applicable to any Shares purchased
upon  exercise of an Option  shall  lapse as to all such  Shares,  provided  the
proposed  dissolution or  liquidation  takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option will
terminate immediately prior to the consummation of such proposed action.

     (c) MERGER OR CHANGE IN  CONTROL.  In the event of a merger of the  Company
with or into  another  corporation,  or a Change in  Control,  each  outstanding
Option shall be assumed or an  equivalent  option  substituted  by the successor
corporation or a Parent or Subsidiary of the successor corporation.

                                       10
<PAGE>
     In the event that the successor corporation refuses to assume or substitute
for the Option,  the Optionee shall fully vest in and have the right to exercise
the  Option as to all of the  Optioned  Stock  that at the time of the Change In
Control is vested and exercisable  plus an additional 25% of the total amount of
Optioned Stock originally granted in the Option and which would not otherwise be
vested or exercisable. If Optioned Stock becomes fully vested and exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets as
set forth  above,  the  Administrator  shall  notify the  Optionee in writing or
electronically  that such Optioned  Stock shall be fully vested and  exercisable
for a period of fifteen (15) days from the date of such  notice,  and the Option
shall terminate upon the expiration of such period.

     For the purposes of this  subsection  (c),  the Option shall be  considered
assumed if,  following the merger or Change in Control,  the option  confers the
right to purchase or receive,  for each Share of Optioned  Stock  subject to the
Option  immediately prior to the merger or Change in Control,  the consideration
(whether stock, cash, or other securities or property) received in the merger or
Change in  Control  by  holders  of  Common  Stock  for each  Share  held on the
effective  date of the  transaction  (and if  holders  were  offered a choice of
consideration,  the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided,  however, that if such consideration received
in the merger or Change in Control is not solely  common stock of the  successor
corporation  or its  Parent,  the  Administrator  may,  with the  consent of the
successor  corporation,  provide for the  consideration  to be received upon the
exercise of the Option,  for each Share of Optioned Stock subject to the Option,
to be solely  common stock of the successor  corporation  or its Parent equal in
fair market value to the per share  consideration  received by holders of Common
Stock in the merger or Change in Control.

13.  DATE OF GRANT.  The date of grant of an Option shall be, for all  purposes,
the date on which  the  Administrator  makes  the  determination  granting  such
Option, or such other later date as is determined by the  Administrator.  Notice
of the determination shall be provided to each Optionee within a reasonable time
after the date of such grant.

14.  AMENDMENT AND TERMINATION OF THE PLAN.

     (a)  AMENDMENT  AND  TERMINATION.  The Board may at any time amend,  alter,
suspend or terminate the Plan.

     (b)  EFFECT  OF  AMENDMENT  OR  TERMINATION.   No  amendment,   alteration,
suspension or  termination  of the Plan shall impair the rights of any Optionee,
unless mutually  agreed  otherwise  between the Optionee and the  Administrator,
which  agreement  must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers  granted to it hereunder  with respect to Options  granted  under the
Plan prior to the date of such termination.

15.  CONDITIONS UPON ISSUANCE OF SHARES.

     (a) LEGAL  COMPLIANCE.  Shares shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance and delivery of
such Shares shall comply with  Applicable  Laws and shall be further  subject to
the approval of counsel for the Company with respect to such compliance.

                                       11
<PAGE>
     (b)  INVESTMENT  REPRESENTATIONS.  As a  condition  to the  exercise  of an
Option,  the Company may require the person  exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company,  such a representation  is
required.

16.  INABILITY  TO OBTAIN  AUTHORITY.  The  inability  of the  Company to obtain
authority  from any  regulatory  body having  jurisdiction,  which  authority is
deemed by the Company's  counsel to be necessary to the lawful issuance and sale
of any Shares  hereunder,  shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

17.  RESERVATION OF SHARES.  The Company,  during the term of this Plan, will at
all  times  reserve  and  keep  available  such  number  of  Shares  as shall be
sufficient to satisfy the requirements of the Plan.

18.  STOCKHOLDER  APPROVAL.  The  Plan  shall  be  subject  to  approval  by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted  only in the manner  and to the  degree  required  by  Applicable  Laws.
Options  may be  granted  under  the  Plan  at any  time  prior  to  receipt  of
stockholder approval;  PROVIDED,  HOWEVER, if the requisite stockholder approval
is not  obtained,  then any  Incentive  Stock Options  granted  hereunder  shall
automatically  become  null and void and of no force or effect.  The  failure to
obtain the requisite  stockholder  approval  shall not otherwise  alter,  amend,
suspend or limit the Plan, and the Plan shall remain in effect.

19.  NO  RIGHT  TO  CONTINUED  EMPLOYMENT.  Nothing  in the  Plan or any  Option
Agreement  shall  confer upon any Service  Provider the right to continue in the
employment  of the Company or any  subsidiary  thereof or affect any right which
the Company or any of its  subsidiaries  may have to terminate the employment of
such Service Provider.

20.  APPLICATION OF FUNDS. The proceeds  received from the Company from the sale
of Shares pursuant to Incentive Stock Options will be used for general corporate
purposes.

21.  LEGAL AND OTHER  REQUIREMENTS.  The  obligation  of the Company to sell and
deliver  Shares  under  the  Plan  shall  be  subject  to all  applicable  laws,
Regulations,  rules and approvals,  including but not by way of limitation,  the
effectiveness  of a registration  statement under the Securities Act of 1933, as
amended,  if deemed  necessary or appropriate by the Company.  Certificates  for
Shares issued hereunder may be legended as the Board deems appropriate.

                                       12
<PAGE>
                             EBIZ ENTERPRISES, INC.

                                 2002 STOCK PLAN

                             STOCK OPTION AGREEMENT

     Unless  otherwise  defined herein,  each capitalized term set forth in this
Stock Option Agreement shall have the meaning set forth in the Ebiz Enterprises,
Inc. 2002 Stock Option Plan a copy of which has been provided to Optionee.

1.   NOTICE OF STOCK OPTION GRANT

     [OPTIONEE'S NAME AND ADDRESS]

     You have been  granted an option to purchase  Common  Stock of the Company,
subject to the terms and  conditions of the Plan and this Option  Agreement,  as
follows:

     Grant Number                                 ____________________
     Date of Grant                                ____________________
     Vesting Commencement Date                    ____________________
     Exercise Price per Share                    $____________________
     Total Number of Shares Granted               ____________________
     Total Exercise Price                        $____________________
     Type of Option:                              ____________________
       Incentive Stock Option                     ____________________
       Nonstatutory Stock Option                  ____________________
     Term/Expiration Date:                        ____________________

2.   VESTING SCHEDULE

     This Option shall be  exercisable,  in whole or in part, in accordance with
the following schedule:

                                       13
<PAGE>
     ___% OF THE SHARES SUBJECT TO THE OPTION SHALL VEST TWELVE MONTHS AFTER THE
VESTING  COMMENCEMENT DATE, AND ______ OF THE SHARES SUBJECT TO THE OPTION SHALL
VEST EACH MONTH THEREAFTER,  SUBJECT TO THE OPTIONEE  CONTINUING TO BE A SERVICE
PROVIDER ON SUCH DATES.  The vesting schedule set forth herein is subject to the
provisions of Section 12(c) of the Plan  regarding a merger or Change in Control
of the Company.

     TERMINATION PERIOD:

     This Option may be exercised for three months after Optionee ceases to be a
Service Provider.  Upon the death or Disability of the Optionee, this Option may
be exercised for twelve months after Optionee  ceases to be a Service  Provider.
In no event shall this Option be exercised later than the  Term/Expiration  Date
as provided above.

3.   AGREEMENT

     (a) GRANT OF OPTION.

     The  Administrator  hereby  grants to the  Optionee  named in the Notice of
Stock Option Grant set forth in Section 1 above ("Notice of Grant") an Option to
purchase  the  number of  Shares,  as set forth in the  Notice of Grant,  at the
exercise  price  per  share set  forth in the  Notice  of Grant  (the  "Exercise
Price"),  subject to the terms and conditions of the Plan, which is incorporated
herein by  reference.  Subject to Section  14(c) of the Plan,  in the event of a
conflict  between  the  terms  and  conditions  of the  Plan and the  terms  and
conditions of this Option Agreement,  the terms and conditions of the Plan shall
prevail.

     If designated in the Notice of Grant as an Incentive  Stock Option ("ISO"),
this Option is intended to qualify as an Incentive  Stock  Option under  Section
422 of the Code.  However,  if this Option is intended to be an Incentive  Stock
Option,  to the extent that it exceeds the $100,000 annual limit of Code Section
422(d) it shall be treated as a Nonstatutory  Stock Option ("NSO") to the extent
in excess of the $100,000  annual limit,  but all other terms and  provisions of
such Option shall remain unchanged.

     (b) EXERCISE OF OPTION.

               (A) RIGHT TO EXERCISE. This Option is exercisable during its term
in accordance  with the Vesting  Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.

               (B) METHOD OF EXERCISE. This Option is exercisable by delivery of
an exercise notice,  in the form attached as EXHIBIT A (the "Exercise  Notice"),
which shall state the election to exercise  the Option,  the number of Shares in
respect of which the Option is being  exercised (the  "Exercised  Shares"),  and
such other  representations  and  agreements  as may be  required by the Company
pursuant to the provisions of the Plan.  The Exercise  Notice shall be completed
by the Optionee and delivered to Secretary of the Company.  The Exercise  Notice
shall be  accompanied  by  payment  of the  aggregate  Exercise  Price as to all
Exercised  Shares.  This Option shall be deemed to be exercised  upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.

                                       14
<PAGE>
     No Shares shall be issued  pursuant to the  exercise of this Option  unless
such  issuance  and  exercise  complies  with  Applicable  Laws.  Assuming  such
compliance,  for income tax purposes the  Exercised  Shares shall be  considered
transferred  to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.

     (c) METHOD OF PAYMENT.

     Payment of the aggregate  Exercise  Price shall be by any of the following,
or a combination thereof, at the election of the Optionee:

          (i) cash; or

          (ii) check; or

          (iii)  consideration  received by the Company under a formal  cashless
exercise program implemented by the Company in connection with the Plan; or

          (iv)  surrender  of  other  Shares  which  (i) in the  case of  Shares
acquired either directly or indirectly from the Company,  have been owned by the
Optionee for more than six (6) months on the date of surrender,  and (ii) have a
Fair Market Value on the date of surrender equal to the aggregate Exercise Price
of the Exercised Shares; or

          (v) a  reduction  in  the  amount  of  any  Company  liability  to the
Optionee,  including any liability attributable to the Optionee's  participation
in any Company-sponsored deferred compensation program or arrangement.

     (d) NON-TRANSFERABILITY OF OPTION.

     This Option may not be transferred in any manner  otherwise than by will or
by the laws of descent or distribution  and may be exercised during the lifetime
of  Optionee  only by the  Optionee.  The  terms of the  Plan  and  this  Option
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.

     (e) TERM OF OPTION.

     This Option may be exercised  only within the term set out in the Notice of
Grant,  and may be exercised  during such term only in accordance  with the Plan
and the terms of this Option Agreement.

     (f) TAX OBLIGATIONS.

               (A)  WITHHOLDING  TAXES.  Optionee  agrees  to  make  appropriate
arrangements  with  the  Company  (or the  Parent  or  Subsidiary  employing  or
retaining  Optionee)  for the  satisfaction  of all  Federal,  state,  local and
foreign  income and employment tax  withholding  requirements  applicable to the
Option exercise. Optionee acknowledges and agrees that the Company may refuse to
honor the exercise and refuse to deliver Shares if such withholding  amounts are
not delivered at the time of exercise.

                                       15
<PAGE>
     NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option granted to
Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of
the Shares  acquired  pursuant to the ISO on or before the later of (1) the date
two years  after the Date of Grant,  or (2) the date one year  after the date of
the Option  exercise,  the  Optionee  shall  immediately  notify the  Company in
writing of such disposition.  Optionee acknowledges that Optionee may be subject
to income tax withholding by the Company on the compensation  income  recognized
by the Optionee.

     (g) ENTIRE AGREEMENT; GOVERNING LAW.

     The Plan is  incorporated  herein by  reference.  The Plan and this  Option
Agreement  constitute  the entire  agreement  of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements  of the  Company and  Optionee  with  respect to the  subject  matter
hereof, and may not be modified  adversely to the Optionee's  interest except by
means of a  writing  signed by the  Company  and  Optionee.  This  agreement  is
governed by the internal  substantive  laws, but not the choice of law rules, of
Texas.

     (h) NO GUARANTEE OF CONTINUED SERVICE.

     OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
VESTING  SCHEDULE  HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE  PROVIDER AT
THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED,  BEING  GRANTED
AN OPTION OR PURCHASING  SHARES  HEREUNDER).  OPTIONEE FURTHER  ACKNOWLEDGES AND
AGREES THAT THIS  AGREEMENT,  THE  TRANSACTIONS  CONTEMPLATED  HEREUNDER AND THE
VESTING  SCHEDULE  SET FORTH  HEREIN DO NOT  CONSTITUTE  AN  EXPRESS  OR IMPLIED
PROMISE OF CONTINUED  ENGAGEMENT AS A SERVICE  PROVIDER FOR THE VESTING  PERIOD,
FOR ANY PERIOD,  OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE  OPTIONEE'S  RELATIONSHIP AS A SERVICE  PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.

     By your signature and the signature of the Company's  representative below,
you and the Company  agree that this Option is granted under and governed by the
terms  and  conditions  of the Plan  and this  Option  Agreement.  Optionee  has
reviewed  the Plan and  this  Option  Agreement  in their  entirety,  has had an
opportunity  to obtain the  advice of counsel  prior to  executing  this  Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding,  conclusive and final all decisions
or  interpretations of the Administrator upon any questions relating to the Plan
and Option  Agreement.  Optionee  further  agrees to notify the Company upon any
change in the residence address indicated below.

                                       16
<PAGE>
Submitted By:_________________________     Accepted By: ________________________

Optionee: ____________________________     Ebiz Enterprises, Inc.

Signature: ___________________________     Signature: __________________________

Print Name: __________________________     Print Name: _________________________

ADDRESS:                                   Title: ______________________________

______________________________________

______________________________________

Date Received: _______________________

                                       17
<PAGE>
                                    EXHIBIT A

                             EBIZ ENTERPRISES, INC.

                                 2002 STOCK PLAN

                                 EXERCISE NOTICE

Ebiz Enterprises, Inc.
13715 Murphy Road, Suite D
Stafford, Texas 77477

Attention: Secretary

     1. EXERCISE OF OPTION. Effective as of today, ________________,  _____, the
undersigned  ("Purchaser") hereby elects to purchase  ______________ shares (the
"Shares")  of the Common  Stock of  ________,  Inc.  (the  "Company")  under and
pursuant  to the 2002 Stock Plan (the  "Plan")  and the Stock  Option  Agreement
dated, _____ (the "Option Agreement").  Subject to adjustment in accordance with
Section 12 of the Plan,  the purchase  price for the Shares shall be $_____,  as
required by the Option Agreement.

     2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the full
purchase price for the Shares.

     3. REPRESENTATIONS OF PURCHASER.  Purchaser acknowledges that Purchaser has
received,  read and understood  the Plan and the Option  Agreement and agrees to
abide by and be bound by their terms and conditions.

     4.  RIGHTS  AS  STOCKHOLDER.  Until  the  issuance  (as  evidenced  by  the
appropriate  entry on the books of the Company or of a duly authorized  transfer
agent of the  Company) of the Shares,  no right to vote or receive  dividends or
any other  rights as a  stockholder  shall  exist with  respect to the  Optioned
Stock,  notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as  practicable  after exercise of the Option.
No  adjustment  will be made for a dividend  or other right for which the record
date is prior to the date of  issuance,  except as provided in Section 12 of the
Plan.

     5. TAX  CONSULTATION.  Purchaser  understands  that Purchaser may incur tax
consequences  as a result of Purchaser's  purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted with such tax consultants that
Purchaser  deems advisable in connection with the purchase or disposition of the
Shares and that  Purchaser  is not relying on the Company in any way for any tax
advice.

     6. ENTIRE  AGREEMENT;  GOVERNING  LAW.  The Plan and Option  Agreement  are
incorporated  herein  by  reference.  This  Agreement,  the Plan and the  Option
Agreement  constitute  the entire  agreement  of the parties with respect to the

                                       18
<PAGE>
subject matter hereof and supersede in their entirety all prior undertakings and
agreements  of the  Company and  Purchaser  with  respect to the subject  matter
hereof, and may not be modified adversely to the Purchaser's  interest except by
means of a writing  signed by the  Company  and  Purchaser.  This  Agreement  is
governed by the internal  substantive  laws, but not the choice of law rules, of
Texas.

Submitted By:_________________________     Accepted By: ________________________

Optionee: ____________________________     Ebiz Enterprises, Inc.

Signature: ___________________________     Signature: __________________________

Print Name: __________________________     Print Name: _________________________

ADDRESS:                                   Title: ______________________________

______________________________________

______________________________________

Date Submitted: ______________________     Date Received: ______________________

                                       19

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