**EXHIBIT 10.5**
**INCENTIVE STOCK OPTION AGREEMENT**
     AGREEMENT made as of the           DAY OF                                        200         , between SOUTHWESTBANCORPORATION OF TEXAS, INC., a Texas corporation (the “Company”) and                                        (“Employee”).
     To carry out the purposes of the SOUTHWEST BANCORPORATION OF TEXAS, INC.1996 STOCK OPTION PLAN (the “Plan”), by affording Employee the opportunity topurchase shares of common stock of the Company (“Stock”), and in considerationof the mutual agreements and other matters set forth herein and in the Plan,theCompany and Employee hereby agree as follows:
     1. GRANT OF OPTION. The Company hereby irrevocably grants to Employee theright and option (“Option”) to purchase all or any part of an aggregate of          shares of Stock, on the terms and conditions set forth herein and inthe Plan, which Plan is incorporated herein by reference as a part of theAgreement. This Option is intended to be treated as an incentive stock optionwithin the meaning of section 422 (b) of the Internal Revenue Code of 1986, asamended (the “Code”).
     2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to theexercise of this Option shall be $          per share.
     3. EXERCISE OF OPTION. Subject to the earlier expiration of this Option asherein provided, this Option may be exercised, by written notice to the Companyat its principal executive office addressed to the attention of its ChiefOperating Officer or Controller, at any time and from time to time after thedate of grant hereof, but, except as otherwise provided below, this Optionshallnot be exercisable for more than a percentage of the aggregate number of sharesoffered by this Option determined by the number of full years from the date ofgrant hereof to the date of such exercise, in accordance with the followingschedule:       **PERCENTAGE OF SHARES****NUMBER OF FULL YEARS** **THAT MAY BE PURCHASED**Less than 2 years  0 2 years  40%3 years  60%4 years  80%5 years or more  100%
     This option may be exercised only while Employee remains an employee oftheCompany and will terminate and cease to be exercisable upon Employee’stermination of employment with the Company, except that:
     a) Death. If Employee dies while in the employ of the Company, theOption shall become fully vested and the Employee’s estate, or the personwho acquires this Option by will or the laws of descent and distributionorotherwise by reason of the death of Employee, may exercise this Option infull at any time during the period of one year following the date ofEmployee’s death.
     b) Voluntary Termination. If Employee’s employment with the Companyterminates for any reason other than death, disability, retirement,termination for cause, or involuntary termination (other than for cause),this Option may be exercised by Employee at any time during the period of30 days following the last day for which Employee receives any earningsfrom the Company that are reportable on Employee’s Form W-2, or byEmployee’s estate (or the person who acquires this Option by will or thelaws of descent and distribution or otherwise by reason of the death ofEmployee) during a period of three months following Employee’s death ifEmployee dies during such 30-day period, but in each case only as to thenumber of shares Employee was
 

 

entitled to purchase hereunder upon exercise of this Option as of the dateEmployee’s employment so terminates. The Committee appointed by the Boardof Directors of the Company to administer the Plan (the “Committee”) may,in its sole discretion, advise Employee in writing, prior to a voluntarytermination of Employee’s employment, that such termination will betreatedfor purposes of this Section as an involuntary termination for a reasonother than cause. As used in this Section, the term “cause” shall meanEmployee’s gross negligence or willful misconduct in performance of theduties of Employee’s employment, Employee’s loss of bond coverage,Employee’s final conviction of a felony, or of a misdemeanor involvingmoral turpitude.
     c) Involuntary Termination (other than for cause). If Employee’semployment with the Company terminates for any reason other than death,disability, retirement, voluntary termination, or termination for cause,this Option may be exercised by Employee at any time during the period ofthree months following the last day for which Employee receives anyearnings from the Company that are reportable on Employee’s Form W-2, orbyEmployee’s estate (or the person who acquires this Option by will or thelaws of descent and distribution or otherwise by reason of the death ofEmployee) during a period of three months following Employee’s death ifEmployee dies during such three-month period, but in each case only as tothe number of shares Employee was entitled to purchase hereunder uponexercise of this Option as of the date Employee’s employment soterminates.
     d) Termination for cause. If Employee’s employment with the Companyterminates for cause, this Option will be immediately forfeited as of thedate of the event that resulted with the Employee being terminated forcause.
     e) Disability. If Employee’s employment with the Company terminatesdue to a disability, the Option shall become fully vested and the Optionmay be exercised by Employee in full at any time during the period of oneyear following the Employee’s termination due to disability, or, ifEmployee dies during such one-year period, by Employee’s estate (or theperson who acquires this Option by will or the laws of descent anddistribution or otherwise by reason of the death of Employee) during thegreater of the following periods: (1) the remainder of such one-yearperiodor (2) a period of three months following the Employee’s death. As used inthis Section, the term “disability” shall mean any physical or mentalimpairment which is determined to make the individual eligible to receiveadisability benefit in accordance with the provisions of the Company’sinsured long term disability plan, if applicable to such Employee, by theinsurance carrier underwriting such plan.
     f) Retirement. Except as provided below, if Employee’s employment withthe Company terminates due to Employee’s retirement (as defined below),theOption may be exercised by Employee at any time during the period of oneyear following Employee’s date of retirement, or, if Employee dies duringsuch one-year period, by Employee’s estate (or the person who acquiresthisOption by will or the laws of descent and distribution or otherwise byreason of the death of Employee) during the greater of the followingperiods: (1) the remainder of such one-year period or (2) a period ofthreemonths following the Employee’s death. If Employee has completed fiveyearsof vesting service under the Southwest Bank of Texas 401(k) Savings Plan(the “401(k) Plan”) on the date of the Employee’s retirement, the Optionshall become fully vested and be exercisable in full. If Employee has notcompleted five years of vesting service under the 401(k) Plan on the dateof Employee’s retirement, the Option shall continue to vest for a periodofthree years following Employee’s retirement, at the end of which time anyremaining unvested portion of the Option shall become fully vested. Anyportion of the Option that becomes vested pursuant to the precedingsentence, shall be treated as a nonqualified stock option and must beexercised by Employee during the period of one year following the date theOption became vested, or, if Employee dies during such one-year period, byEmployee’s estate (or the person who acquires this Option by will or thelaws of descent and distribution or otherwise by reason of the death ofEmployee) during the greater of the following periods: (1) the remainderofsuch one-year period or (2) a period of three months following Employee’sdeath. As used in this Section, the term “retirement” shall mean anytermination of Employee’s employment relationship with
 

 

Company, other than termination for cause, that occurs on or after theEmployee attains age 65. The Committee shall determine, in its solediscretion, whether an Employee’s termination of employment with theCompany is due to retirement.
THE EMPLOYEE IS HEREBY NOTIFIED THAT THE OPTION MAY BE TAXED AS IF ITWERE A NONQUALIFIED STOCK OPTION RATHER THAN AN INCENTIVE STOCK OPTIONTO THE EXTENT THAT HE EXERCISES THE OPTION ON OR AFTER THREE MONTHSAFTER HIS TERMINATION OF EMPLOYMENT WITH THE COMPANY AND ALLAFFILIATES FOR ANY REASON OTHER THAN DEATH OR DISABILITY. THE EMPLOYEEIS ADVISED TO CONSULT WITH HIS TAX CONSULTANTS IF HE WISHES TOEXERCISE HIS OPTION LATER THAN THIS DATE.
     This Option shall not be exercisable in any event after the expiration often years from the date of grant hereof. The purchase price of shares as towhich this Option is exercised shall be paid in full at the time of exercise(a)in cash (including check, bank draft or money order payable to the order of theCompany), (b) by delivering to the Company mature shares of Stock having a fairmarket value equal to the purchase price, or (c) any combination of cash orStock. No fraction of a share of stock shall be issued by the Company uponexercise of an Option or accepted by the Company in payment of the purchaseprice thereof; rather, Employee shall provide a cash payment for such amount asis necessary to effect the issuance and acceptance of only whole shares ofStock. Unless and until a certificate or certificates representing such sharesshall have been issued by the Company to Employee, Employee (or the personpermitted to exercise this Option in the event of Employee’s death) shall notbeor have any of the rights or privileges of a shareholder of the Company withrespect to shares acquirable upon an exercise of the Option. For purposes ofthis paragraph, the phrase “mature shares” shall mean shares of Company Stockfor which the holder has good title, free and clear of all liens andencumbrances and which the holder either (i) has held for at least six monthsor(ii) has purchased on the open market.
     4. WITHHOLDING OF TAX. To the extent that the exercise of this Option orthe disposition of shares of Stock acquired by exercise of the Option resultsincompensation income to Employee for federal or state income tax purposes,Employee shall deliver to the Company at the time of such exercise ordisposition such amount of money or shares of Stock as the Company may requireto meet its obligation under applicable tax laws or regulations, and, ifEmployee fails to do so, the Company is authorized to withhold from any cash orStock remuneration then or thereafter payable to Employee any tax required tobewithheld by reason of such resulting compensation income. Upon an exercise ofthe Option, the Company is further authorized in its discretion to satisfy anysuch withholding requirement out of any cash or shares of Stock distributabletoEmployee upon such exercise.
     5. STATUS OF STOCK. The Company intends to register for issuance under theSecurities Act of 1933, as amended (the “Act”) the shares of Stock acquirableupon exercise of the Option, and to keep such registration effective throughoutthe period this Option is exercisable. In the absence of such effectiveregistration or an available exemption from registration under the Act,issuanceof shares of Stock acquirable upon exercise of this Option will be delayeduntilregistration of such shares is effective or an exemption from registrationunderthe Act is available. The Company intends to use its best efforts to ensurethatno such delay will occur. In the event exemption from registration under theActis available upon an exercise of the Option, Employee (or the person permittedto exercise this Option in the event of Employee’s death or incapacity), ifrequested by the Company to do so, will execute and deliver to the Company inwriting an agreement containing such provisions as the Company may require toassure compliance with applicable securities laws.
     Employee agrees that the shares of Stock which Employee may acquire byexercising this Option will not be sold or otherwise disposed of in any mannerwhich would constitute a violation of any applicable securities laws, whetherfederal or state. Employee also agrees (i) that the certificates representingthe shares of Stock purchased under this Option may bear such legend or legendsas the Committee deems appropriate in order to assure compliance withapplicablesecurities laws, (ii) that the Company may refuse to register the transfer ofthe shares of Stock purchased under this Option on the
 

 

stock transfer records of the Company if such proposed transfer would in theopinion of counsel satisfactory to the Company constitute a violation of anyapplicable securities law and (iii) that the Company may give relatedinstructions to its transfer agent, if any, to stop registration of thetransferof the shares of Stock purchased under this Option.
THE EMPLOYEE IS ALSO HEREBY NOTIFIED THAT IF HE DISPOSES OF STOCKTRANSFERRED TO HIM UPON HIS EXERCISE OF THIS OPTION WITHIN TWO YEARSAFTER THE DATE OF THE GRANTING OF THE OPTION OR WITHIN ONE YEAR AFTERTHE TRANSFER OF THE STOCK TO HIM, ALL OR A PORTION OF HIS OPTION WILLBE TAXED AS IF IT WERE A NONQUALIFIED STOCK OPTION RATHER THAN ANINCENTIVE STOCK OPTION.
     6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee shallbe considered to be in the employment of the Company as long as Employeeremainsan employee of either the Company, a parent or subsidiary corporation (asdefined in section 424 of the Code) of the Company, or a corporation or aparentor subsidiary of such corporation assuming or substituting a new option forthisOption. Any question as to whether and when there has been a termination ofsuchemployment, and the cause of such termination, shall be determined by theCommittee, and its determination shall be final.
     7. BINDING EFFECT. This Agreement shall be binding upon and inure to thebenefit of any successors to the Company and all persons lawfully claimingunderEmployee.
     8. GOVERNING LAW. This Agreement shall be governed by, and construed inaccordance with, the laws of the State of Texas.
     IN WITNESS WHEREOF, the Company has caused this Agreement to be dulyexecuted by its officer thereunto duly authorized, and Employee has executedthis Agreement, all as of the day and year first above written.                        SOUTHWEST BANCORPORATION OF TEXAS, INC.