Exhibit 10.2

TEXAS REGIONAL BANCSHARES, INC.

 

NONSTATUTORY STOCK OPTION AGREEMENT

(Granted under the 2006 Incentive Plan)

 

This Nonstatutory Stock Option Agreement (the “Agreement”) is executed to be
effective                                   , 2006, by and between Texas
Regional Bancshares, Inc., a Texas corporation (the “Corporation”), and
                                        (the “Contractor/Advisor”).

 

The Corporation desires to provide the Contractor/Advisor an opportunity to
purchase shares of the Corporation’s Class A Voting Common Stock, $1.00 par
value per share (hereinafter referred to as “Common Stock” or “Stock”) pursuant
to the Texas Regional Bancshares, Inc. 2005 Nonstatutory Stock Option Plan (the
“Plan”). This Agreement represents an Award Statement or option agreement for
purposes of the Plan.

 

The grant made pursuant to this Agreement represents an award of a Nonstatutory
Stock Option for purposes of Section 4.3(d)(2) of the Plan and other applicable
provisions of the Plan. The Corporation intends that any stock option granted or
exercised under this Agreement not qualify as an “incentive stock option” under
Section 422 of the Internal Revenue Code of 1986, as amended from time to time
(the “Code”), and pertinent regulations.

 

Now, therefore, in consideration of the mutual covenants hereinafter set forth
and for other good and valuable consideration, the parties hereto agree as
follows.

 

1.             Grant of Option. The Corporation hereby irrevocably grants to the
Contractor/Advisor the right and option (the “Option”), to purchase all or any
part of an aggregate of                                   shares of Common Stock
(such number being subject to adjustment as provided in this Agreement) on the
terms and conditions herein set forth.

 

2.             Purchase Price. The purchase price of the Common Stock covered by
the Option shall be $                              per share (the “Exercise
Price”).

 

3.             Term of Option; Vesting Schedule. The Option herein granted may
be exercised  according to the following vesting schedule (subject to earlier
vesting as may otherwise be provided in this Agreement):  the Contractor/Advisor
may exercise the Option to purchase, beginning on each date set forth under the
heading Commencement Date below, the number of shares of Stock set forth under
the heading Number of Shares that corresponds to that commencement date (the
date upon which the option herein granted first becomes exercisable as to any
share is herein called the “Commencement Date”):

 

Number of Shares

 

Commencement Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The number of shares as set forth above is subject to adjustment for stock
splits, stock dividends and other changes as provided in this Agreement.

 

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In each case the Option must be exercised prior to ten (10) years from the date
of the execution of this Agreement (the “Expiration Date”), subject to earlier
termination as provided in this Agreement. The Option may be exercised within
the above limitations, at any time or from time to time, as to any part of or
all the shares covered hereby; provided, however, that the Option may not be
exercised as to less than 30 shares at any one time (or the remaining shares
then purchasable under the Option, if less than 30 shares) or with respect to
any fractional share.

 

The purchase price of the shares as to which the Option is exercised shall be
paid in full in cash or check at the time of exercise, or the Contractor/Advisor
may effect a cashless exercise as herein provided.

 

If the engagement of the Contractor/Advisor as a contractor or advisor to the
Corporation terminates by formal written termination agreement for any reason,
subject to the termination provisions below, the Contractor/Advisor may
thereafter exercise his option as provided herein, but only to the extent he was
entitled to exercise the option on the date when his engagement terminated. The
holder of the Option shall not have any of the rights of a shareholder with
respect to the shares covered by the Option except to the extent that one or
more certificates for such shares are delivered to him or her upon the due
exercise of the Option.

 

If registration is required by law, the Option may not be exercised unless at
the date of exercise an appropriate registration statement under the Securities
Act of 1933, as amended, relating to the shares covered by the Option shall be
in effect. If such registration is required by law, the Corporation will
endeavor to obtain prior to the time when the Option would otherwise be
exercisable the registration of the shares covered by the Option under the Act,
as amended, but the exercise period shall not extend to or beyond the Expiration
Date.

 

4.             Nontransferability. The Option shall not be transferable
otherwise than by will or by the laws of descent and distribution, and the
Option may be exercised, during the lifetime of the Contractor/Advisor, only by
him. More particularly (but without limiting the generality of the foregoing),
the Option may not be assigned, transferred (except as provided above), pledged,
or hypothecated in any way, shall not be assignable by operation of law, and
shall not be subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge, hypothecation, or other disposition of the Option
contrary to the provisions hereof, and the levy of any execution, attachment, or
similar process upon the Option, shall be null and void and without effect.

 

5.             Engagement. In consideration of the granting of the Option and
regardless of whether or not the Option shall be exercised, the
Contractor/Advisor will devote an appropriate amount of time, energy, and skill,
in such Contractor/Advisor’s professional judgment, to the service of the
Corporation or its parent or one or more of the Corporation’s subsidiaries while
he remains engaged as a contractor or advisor to the Corporation. The
Contractor/Advisor’s engagement as a contractor or advisor shall be subject to
the provisions of any contract between the Corporation or any such parent or
subsidiary and the Contractor/Advisor, but shall otherwise be at the pleasure of
the Board of Directors of the corporation which has engaged him, and for such
compensation or consideration as such engaging corporation or corporations shall
determine.

 

6.             Exercise Period. Any or all Common Stock purchasable under the
Option will be purchasable at any time following the Commencement Date, and
prior to the Expiration Date, subject to any other limitation provided in this
Agreement.

 

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7.             Termination of Engagement. The following provisions will govern
the ability of a Contractor/Advisor to exercise any portion of the Option that
is outstanding following termination of his engagement:

 

(a)           If the engagement of a Contractor/Advisor with the Corporation is
terminated for reasons other than (i) death, or (ii) discharge for Cause, such
Contractor/Advisor’s outstanding Options may be exercised at any time within
three months after such termination, to the extent of the number of shares which
were exercisable at the date of such termination; except that this Option shall
not be exercisable on any date beyond the expiration date of the Option.

 

(b)           If the engagement of a Contractor/Advisor with the Corporation is
terminated for Cause by prior written notice to the Contractor/Advisor, this
Option (whether or not then exercisable) shall expire and any rights hereunder
shall terminate immediately upon termination of the engagement.

 

(c)           Should the Contractor/Advisor die prior to the vesting of this
Option, any installment or installments not then exercisable shall become fully
exercisable and vested as of the date of the Contractor/Advisor’s death and the
Options may be exercised by the Contractor/Advisor’s Personal Representative at
any time within one year after the Contractor/Advisor’s death.

 

 (d)          “Cause”, with respect to any Contractor/Advisor, means (i) the
definition of Cause as set forth in any individual engagement agreement
applicable to such Contractor/Advisor, or (ii) in the case of a
Contractor/Advisor who does not have an individual engagement agreement that
defines Cause, then Cause means the termination of a Contractor/Advisor’s
engagement by reason of his or her (1) engaging in gross misconduct that is
injurious to the Corporation, monetarily or otherwise, (2) misappropriation of
funds, (3) willful misrepresentation to the directors or officers of the
Corporation, (4) gross negligence in the performance of the Contractor/Advisor’s
duties having an adverse effect on the business, operations, assets, properties
or financial condition of the Corporation, (5) conviction of a crime involving
moral turpitude. The determination of whether a Contractor/Advisor’s engagement
was terminated for Cause shall be made by the Corporation in its sole
discretion.

 

(e)           For purposes of this agreement, the Contractor/Advisor’s
engagement shall not be considered terminated in the case of sick leave or other
bona fide leave of absence approved by the Corporation or a subsidiary, or in
the case of the transfer to the engagement of a subsidiary or to the engagement
of the Corporation. So long as the Contractor/Advisor shall continue to be a
Contractor/Advisor of the Corporation or a parent corporation or one or more of
the Corporation’s subsidiaries, the Option shall not be affected by any change
of the nature or extent of the Contractor/Advisor’s engagement. Nothing in this
Option Agreement shall confer upon the Contractor/Advisor any right to continue
to be a contractor or advisor to the Corporation or of any of its subsidiaries
or interfere in any way with the right of the Corporation or any such subsidiary
to terminate his or her engagement at any time.

 

8.             Changes in Capital Structure. If all or any portion of the Option
shall be exercised subsequent to any share dividend, split-up, recapitalization,
merger, consolidation, combination or exchange of shares, separation,
reorganization, or liquidation occurring after the date hereof, as a result of
which shares

 

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of any class shall be issued in respect of outstanding Common Shares or Common
Shares shall be changed into the same or a different number of shares of the
same or another class or classes, the following adjustment shall be made:  The
person or persons exercising the Option shall receive, for the aggregate price
calculated and paid upon such exercise as provided in Sections 2 and 3 above,
the aggregate number and class of shares which such person or persons would be
holding at the time of such exercise, as a result of such purchase and as a
result of all such share dividends, split-ups, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, separations,
reorganizations, or liquidations; provided, however, that no fractional share
shall be issued upon any such exercise, and the number of shares subject to the
Option and the aggregate price to be paid shall be appropriately reduced on
account of any fractional share not issued. The foregoing shall be determined as
if Common Shares (as authorized at the date hereof) had been purchased at the
date hereof for the same aggregate price (on the basis of the price per share
set forth in Section 2 applicable at the date hereof), and had not been disposed
of. No adjustment shall be made in the minimum number of shares which may be
purchased at any one time, as fixed by Section 3 hereof.

 

9.             Method of Exercising Option.

 

(a)           Exercise Procedure. Subject to the terms and conditions of this
Option Agreement, the Option may be exercised by written notice to the
Corporation, in care of the Chief Executive Officer, at 3900 North Tenth Street,
11th Floor, McAllen, Texas 78501. Such notice shall state the election to
exercise the Option and the number of shares in respect of which it is being
exercised, and shall be signed by the person or persons so exercising the
Option. At the option of the Corporation, the Corporation may make available
means of electronic transmission of notice of exercise and provided that the
Contractor/Advisor follows such instructions the Option will be deemed exercised
upon compliance with the electronic exercise procedures. Such notice shall
either: (i) be accompanied by payment of the full purchase price of such shares,
in which event the Corporation shall deliver a certificate or certificates
representing such shares as soon as practicable after the notice is received; or
(ii) fix a date (not less than five nor more than ten business days from the
date such notice is received by the Corporation) for the payment of the full
purchase price of such shares, against delivery of a certificate or certificates
representing such shares; or (iii) be accompanied by a notice of cashless
exercise as provided in subparagraph (b) below. Payment of the purchase price
shall, in either case, be made by check payable to the order of the Corporation
unless the exercise notice is accompanied by a cashless exercise notice as
provided in subparagraph (b) below. The certificate or certificates for the
share as to which the Option is exercised shall be registered in the name of the
person or persons exercising the Option (or, if the Option is exercised by the
Contractor/Advisor and if the Contractor/Advisor requests in the notice
exercising the Option, shall be registered in the name of the Contractor/Advisor
and another person jointly, with right of survivorship) and shall be delivered
as provided above to or upon the written order of the person or persons
exercising the Option. In the event the Option is exercised, pursuant to this
Agreement, by any person or persons other than the Contractor/Advisor, such
notice shall be accompanied by appropriate proof of the right of such person or
persons to exercise the Option. All shares purchased upon the exercise of the
Option as provided herein shall be fully paid and nonassessable.

 

(b)           Cashless Exercise. In the discretion of the Contractor/Advisor,
provided that the fair market value of the Shares exceeds the exercise price of
the Option, in lieu of exercising this Option by payment of the Exercise Price
by delivering cash or check, the Contractor/Advisor may elect to exercise the
Option and pay for Shares in a cashless exercise. In order to effect a cashless
exercise, the Contractor/Advisor shall indicate in the exercise notice or other
written communication acceptable to the Corporation that he or she intends to
make a cashless exercise, and the Contractor/Advisor shall deliver a number of
shares equal to the value (as determined below) of this Option (or the portion
thereof being

 

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exercised). In such event the Shares that the Corporation shall issue to the
Contractor/Advisor with respect to such exercise shall be computed using the
following formula:

 

X=

 

Y * (A - B)

 

 

A

 

 

where:

 

X = the number of Shares to be issued to the Contractor/Advisor

 

 

Y = the number of Shares being exercised under this Option, to the extent that
this Option is being exercised

 

 

A = the fair market value of one Share as of the date of exercise

 

 

B = the Exercise Price per Share

 

For purposes of this calculation, the fair market value shall mean, on any
specified date, an amount equal to the mean between the reported high and low
prices of the Corporation’s Stock as traded on or reported through the NASDAQ
Stock Market, Inc. (“NASDAQ”) National Market System on the specified date or,
if no shares of the Corporation’s Stock have been traded on any such dates, the
mean between the reported high and low prices of the Corporation’s Stock traded
on or reported through NASDAQ as reported on the first day prior thereto on
which shares of the Corporation’s Stock were so traded. If shares of the
Corporation’s Stock are no longer traded on or reported through NASDAQ, Fair
Market Value shall be determined in good faith by the Committee using other
reasonable means.

 

10.           Change of Control and other Reorganizations. In the event of a
Change of Control, as that term is defined in the Plan, the provisions of
Article X of the Plan shall control, provided that, notwithstanding any
provisions in the Plan to the contrary (which provisions may be varied by this
Agreement as set forth in the Plan), upon a Change of Control, whether or not
the Corporation is the surviving corporation in such Change in Control and
whether or not the surviving corporation proposes to assume this Option, the
Option shall effective prior to the Change in Control (or such number of days
prior thereto as the Board of Directors may fix and determine) immediately vest
and be fully exercisable as to all shares of stock for which this Option has
been granted, without regard to the vesting schedule set forth in section 3
above. In such event, the Commencement Date for any portion of the Option vested
as a result of the Change in Control shall be either immediately prior to the
Change in Control or such earlier vesting acceleration date set by the Board of
Directors. The existence of this Option shall not in any way prevent any change
of control or other transaction described in Article X of the Plan, and the
Contractor/Advisor shall not have the right to prevent any such transaction.

 

11.           Notice of Disposition. The Contractor/Advisor shall immediately
notify the Corporation in writing of any disposition of the stock acquired
pursuant to the Option. The notice shall state the number of shares disposed of,
the dates of acquisition and disposition of the shares, and the consideration
received upon that disposition.

 

12.           Derivative Securities. Notwithstanding anything herein to the
contrary (and in addition to any limitations on transferability as otherwise
contained herein, including any such limitations as are contained in Section 4
hereof), a derivative security, as that term is defined for purposes of Rule
16b-3 promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended, issued under the Plan, including
any issued pursuant to this Agreement, is not transferable by the
Contractor/Advisor other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code of 1986, as amended, 26 U.S.C. § 1 et seq.

 

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(“Internal Revenue Code”) or Title I of the Employee Retirement Income Security
Act, or the rules thereunder.

 

13.           General. The Corporation shall at all times during the term of the
Option reserve and keep available such number of shares of Common Stock as will
be sufficient to satisfy the requirements of this Option Agreement, shall pay
all original issue and transfer taxes with respect to the issue and transfer of
shares pursuant hereto and all other fees and expenses necessarily incurred by
the Corporation in connection therewith, and will from time to time use its best
efforts to comply with all laws and regulations which, in the opinion of counsel
for the Corporation, shall be applicable thereto.

 

14.           Parent and Subsidiary. As used herein, the terms “parent” and
“subsidiary” shall mean any present or future corporation which would be a
“parent corporation” or a “subsidiary corporation” of the Corporation, as those
terms are defined in Section 424 of the Internal Revenue Code of 1986.

 

15.           Conditions of Plan. This Agreement is executed pursuant to the
Plan, which is defined above as the Texas Regional Bancshares, Inc. 2006
Incentive Plan. The Plan may contain other conditions not contained in this
Agreement, and the Contractor/Advisor enters into this Agreement subject to any
conditions and limitations contained in the Plan. In the event of any
inconsistency between any provision of this Agreement and mandatory terms and
conditions of the Plan, the terms and conditions of the Plan shall control. To
the extent that the Plan does not address an issue or allows the option
agreement to vary from the terms and conditions of the Plan, the terms and
conditions of this Agreement shall control. Defined terms used in this Agreement
and not otherwise defined herein shall have the meanings assigned to them in the
Plan.

 

[Remainder of page left blank intentionally;

signature lines follow.]

 

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IN WITNESS WHEREOF, the Corporation and the Contractor/Advisor enter into this
Agreement to be effective as of the day and year first above written.

 

 

TEXAS REGIONAL BANCSHARES, INC.

 

 

 

 

 

By:

 

 

 

 

Glen E. Roney, Chairman of the Board

 

 

 

and Chief Executive Officer

 

 

 

 

 

 

CONTRACTOR/ADVISOR:

 

 

 

 

 

 

 

 

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