Document:

Exhibit 10.1

 

TEXAS REGIONAL BANCSHARES, INC.

 

INCENTIVE STOCK OPTION AGREEMENT

(Granted
under the 2006 Incentive Plan)

 

This
Incentive 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 “Employee”).

 

The
Corporation desires to provide the Employee 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. 2006 Incentive 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 an Incentive Stock
Option for purposes of Section 4.3(d)(1) of the Plan and other
applicable provisions of the Plan. The Corporation intends that any stock
option granted or exercised under this Agreement qualify as an “incentive stock
option” which is given favorable income tax treatment under Section 422 of
the Internal Revenue Code of 1986, as amended from time to time (the “Code”),
and pertinent regulations. In the event that the Employee fails to comply with
any and all requirements of Section 422 of the Code and applicable
regulations relative to the option granted hereunder or any portion thereof or any
shares of Stock received upon exercise hereof, the Employee may not be
entitled to the favorable tax benefits granted under the Code, but the failure
to receive such tax benefits shall not affect the fact that this option will be
treated as an incentive stock option for purposes of the limitations in Section 4.3
of the Plan.

 

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 Employee 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 upon a Change in
Control or otherwise): the Employee 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.

 

In
each case the Option must be exercised prior to ten years from the date 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 Employee may effect
a cashless exercise as herein provided.

 

If
the employment of the Employee terminates for any reason, subject to the
termination provisions below, the Employee 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 employment 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 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 Employee, only by him
or her. 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.                                       Employment. In consideration of the granting of the Option and regardless of
whether or not the Option shall be exercised, the Employee will devote his or
her entire time, energy, and skill to the service of the Corporation or its
parent or one or more of the Corporation’s subsidiaries while he or she

 

2

 

remains
employed by such corporation, subject to vacations, sick leaves, and other
approved absences. The Employee’s employment, subject to the provisions of any
contract between the Corporation or any such parent or subsidiary and the
Employee, shall be at the pleasure of the Board of Directors of each employing
corporation and at such compensation as such employing 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.

 

7.                                       Termination of Employment. The following provisions will govern the
ability of an Employee to exercise any portion of the Option that is
outstanding following termination of employment:

 

(a)                                If the employment of
an Employee with the Corporation is terminated for reasons other than (i) death,
(ii) discharge for Cause, or (iii) retirement with the Corporation’s
consent having reached normal retirement age of at least age 65 and having at
least ten years of service to the Corporation, such Employee’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 employment of
an Employee with the Corporation is terminated for Cause, this Option (whether
or not then exercisable) shall expire and any rights hereunder shall terminate
immediately.

 

(c)                                Should the Employee
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 Employee’s death and the Options may be exercised by the Employee’s
Personal Representative at any time within one year after the Employee’s death.

 

(d)                               Should the Employee
retire with the Corporation’s consent provided that the Employee has reached
normal retirement age of at least age 65 and has at least ten years of service
to the Corporation, the option shall continue to be exercisable until the
Expiration Date, subject to earlier termination as provided in this Agreement. In
addition, in the event the Employee’s employment with the Corporation
terminates (except for a termination for Cause which is governed by Section 9.1(b))
prior to the vesting of this Option or any portion thereof, if the Employee has
not yet reached normal retirement age of at least age 65 as of the date of this
Agreement, but has reached normal retirement age of at least age 65 at the date
of termination of employment and such retirement is with the consent of the
Corporation and the Employee has at least ten years of service to the
Corporation, and if, following retirement from the Corporation, the Employee is
not thereafter employed by any employer offering banking and other financial
services, then any installment or installments not then exercisable shall
continue to vest in accordance with this Agreement as if the individual had
continued to be employed, and may then be exercised for the remaining term
as set forth in this Agreement; provided, however, that any exercise more than
three months following termination of employment may cause the Option and
the exercise and disposition thereof not to be afforded the favorable tax
treatment otherwise provided to incentive stock options under the Code.

 

3

 

(e)                                  “Cause”, with respect
to any Employee, means (i) the definition of Cause as set forth in any
individual employment agreement applicable to such Employee, or (ii) in
the case of an Employee who does not have an individual employment agreement
that defines Cause, then Cause means the termination of an Employee’s
employment 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 Employee’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 an Employee’s
employment was terminated for Cause shall be made by the Corporation in its
sole discretion.

 

(f)                                    For purposes of this agreement, the Employee’s
employment 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 employment of a subsidiary or to the
employment of the Corporation. So long as the Employee shall continue to be an
employee 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
duties or position. Nothing in this Option Agreement shall confer upon the
Employee any right to continue in the employ of 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 employment 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 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 Employee follows such

 

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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 Employee and if the Employee requests in the
notice exercising the Option, shall be registered in the name of the Employee
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 Employee, 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 Employee, 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 Employee may elect to exercise the Option and pay for Shares
in a cashless exercise. In order to effect a cashless exercise, the Employee
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
Employee shall deliver a number of shares equal to the value (as determined
below) of this Option (or the portion thereof being exercised). In such event
the Shares that the Corporation shall issue to the Employee 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 Employee

  
	
   

  	
   

  	
  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.

 

5

 

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 Employee shall not have the right to prevent any such
transaction.

 

11.                                 Notice of Disposition. The Employee shall immediately notify the Corporation in writing of any disposition of the stock acquired pursuant to the Option that would disqualify the Option from the incentive option tax treatment afforded by Section 422 of the Internal Revenue Code. 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 Employee
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. (“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 Employee 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 

 

6

 

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.]

 

7

 

IN
WITNESS WHEREOF, the Corporation and the Employee 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

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EMPLOYEE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  

 

8Exhibit 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 “Employee”).

 

The
Corporation desires to provide the Employee 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 Employee 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
Employee 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.

 

 

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 Employee may effect
a cashless exercise as herein provided.

 

If
the employment of the Employee terminates for any reason, subject to the
termination provisions below, the Employee 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 employment 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 Employee, 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.                                       Employment. In consideration of the granting of the Option and regardless of
whether or not the Option shall be exercised, the Employee will devote his
entire time, energy, and skill to the service of the Corporation or its parent
or one or more of the Corporation’s subsidiaries while he remains employed by
such corporation, subject to vacations, sick leaves, and other approved
absences. The Employee’s employment, subject to the provisions of any contract
between the Corporation or any such parent or subsidiary and the Employee,
shall be at the pleasure of the Board of Directors of each employing
corporation and at such compensation as such employing 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.

 

7.                                       Termination of Employment. The following provisions will govern the
ability of an Employee to exercise any portion of the Option that is
outstanding following termination of employment:

 

2

 

(a)                                If the employment of
an Employee with the Corporation is terminated for reasons other than (i) death,
(ii) discharge for Cause, or (iii) retirement with the Corporation’s
consent having reached normal retirement age of at least age 65 and having at
least ten years of service to the Corporation, such Employee’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 employment of
an Employee with the Corporation is terminated for Cause, this Option (whether
or not then exercisable) shall expire and any rights hereunder shall terminate
immediately.

 

(c)                                Should the Employee
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 Employee’s death and the Options may be exercised by the Employee’s
Personal Representative at any time within one year after the Employee’s death.

 

(d)                               Should the Employee
retire with the Corporation’s consent provided that the Employee has reached
normal retirement age of at least age 65 and has at least ten years of service
to the Corporation, the option shall continue to be exercisable until the
Expiration Date, subject to earlier termination as provided in this Agreement. In
addition, in the event the Employee’s employment with the Corporation
terminates (except for a termination for Cause which is governed by Section 9.1(b))
prior to the vesting of this Option or any portion thereof, if the Employee has
not yet reached normal retirement age of at least age 65 as of the date of this
Agreement, but has reached normal retirement age of at least age 65 at the date
of termination of employment and such retirement is with the consent of the
Corporation and the Employee has at least ten years of service to the
Corporation, and if, following retirement from the Corporation, the Employee is
not thereafter employed by any employer offering banking and other financial
services, then any installment or installments not then exercisable shall
continue to vest in accordance with this Agreement as if the individual had
continued to be employed, and may then be exercised for the remaining term
as set forth in this Agreement.

 

(e)                                  “Cause”, with respect
to any Employee, means (i) the definition of Cause as set forth in any
individual employment agreement applicable to such Employee, or (ii) in
the case of an Employee who does not have an individual employment agreement
that defines Cause, then Cause means the termination of an Employee’s
employment 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 Employee’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 an Employee’s
employment was terminated for Cause shall be made by the Corporation in its
sole discretion.

 

(f)                                    For purposes of this agreement, the Employee’s
employment 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 employment of a subsidiary or to the
employment

 

3

 

of
the Corporation. So long as the Employee shall continue to be an employee 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 duties or
position. Nothing in this Option Agreement shall confer upon the Employee any
right to continue in the employ of 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 employment 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 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 Employee 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 Employee and if the Employee requests in
the notice exercising the Option, shall be registered in the name of the Employee
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 Employee, such notice shall
be accompanied by appropriate proof of the right of such

 

4

 

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 Employee, 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 Employee may elect to exercise the Option
and pay for Shares in a cashless exercise. In order to effect a cashless
exercise, the Employee 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 Employee shall deliver a number of shares equal to
the value (as determined below) of this Option (or the portion thereof being
exercised). In such event the Shares that the Corporation shall issue to the
Employee 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 Employee

  
	
   

  	
   

  	
  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 Employee shall not have the right to prevent any such transaction.

 

11.                                 Notice of Disposition. The Employee 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

 

5

 

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 Employee
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. (“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 Employee 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.]

 

6

 

IN
WITNESS WHEREOF, the Corporation and the Employee 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

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EMPLOYEE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  

 

7

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