Document:

Exhibit 4.01

 

[FACE OF NOTE]

 

Unless this
certificate is presented by an authorized representative of The Depository
Trust Company (55 Water Street, New York, New York) to the issuer or its agent
for registration of transfer, exchange or payment, and any certificate issued
is registered in the name of Cede & Co. or such other name as requested by
an authorized representative of The Depository Trust Company and any payment is
made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof,
Cede & Co., has an interest herein.

 

 

	
  REGISTERED NO. 1

  	
  CUSIP: 22541LBG7

  

  

  PRINCIPAL AMOUNT: $7,242,000

  

 

CREDIT SUISSE FIRST
BOSTON (USA), INC.

Buffered Accelerated Return Equity
Securities (BARES)

due
January 30, 2009

Linked to the Value of a
Global Basket of Equity Indices

 

 

CREDIT SUISSE
FIRST BOSTON (USA), INC., a Delaware corporation (the “Company”, which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to Cede & Co., or registered
assigns, at the office or agency of the Company in New York, New York, the
Redemption Amount (as defined on the reverse hereof) on the Maturity Date (as
defined on the reverse hereof).

 

Reference is
hereby made to the further provisions of this Note set forth on the reverse
hereof, which further provisions shall for all purposes have the same effect as
if set forth at this place.

 

This Note shall
not be valid or become obligatory for any purpose until the certificate of
authentication hereon shall have been manually signed by the Trustee under the
Indenture referred to on the reverse hereof.

 

This Note will not pay
interest.

 

F-1

 

IN WITNESS WHEREOF, the
Company has caused this Note to be duly executed under its corporate seal.

 

	
   

  	
  CREDIT SUISSE FIRST BOSTON (USA), INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  [SEAL]

  	
  By:

  	
      /s/ John A. Ehinger

  	
   

  
	
   

  	
   

  	
  Name: John A. Ehinger

  
	
   

  	
   

  	
  Title: Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
      /s/ Peter Feeney

  	
   

  
	
   

  	
   

  	
  Name: Peter Feeney

  
	
   

  	
   

  	
  Title: Treasurer

  

 

 

CERTIFICATE OF
AUTHENTICATION

 

This is one of the
Securities of the series designated therein referred to in the within-mentioned
Indenture.

 

Dated:  July 29, 2005

 

	
   

  	
  JPMORGAN CHASE BANK,

  
	
   

  	
  as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  Tai B. Lee

  	
   

  
	
   

  	
   

  	
  Authorized Signatory

  

 

F-2

 

[REVERSE OF NOTE]

 

CREDIT SUISSE FIRST
BOSTON (USA), INC.

Buffered Accelerated Return Equity
Securities (BARES)

due January 30, 2009

Linked to the Value of a
Global Basket of Equity Indices

 

 

This Note is one of a duly authorized issue of
debentures, notes, bonds or other evidences of indebtedness of the Company (the
“Securities”) of the series hereinafter specified, all issued or to be issued under
and pursuant to a senior indenture, dated as of June 1, 2001 (the “Indenture”),
between the Company and JPMorgan Chase Bank, as trustee (the “Trustee”), to
which Indenture and all indentures supplemental thereto reference is hereby
made for a description of the rights, limitations of rights, obligations,
duties and immunities thereunder of the Trustee, the Company, and the Holders
of the Securities.  The Securities may be
issued in one or more series, which different series may be issued in various
aggregate principal amounts, may mature at different times, may bear interest
(if any) at different rates, may be subject to different redemption provisions
(if any), may be subject to different sinking, purchase or analogous funds (if
any) and may otherwise vary as provided in the Indenture.  This Note is one of a series designated as
the Buffered Accelerated Return Equity
Securities (BARES) due January 31, 2009 (the “Note”).

 

This Note will not
pay interest.

 

This Note is
payable in the manner, with the effect and subject to the conditions provided
in the Indenture.

 

If a payment date
is not a Business Day as defined in the Indenture at a place of payment,
payment may be made at that place on the next succeeding day that is a Business
Day, and no interest shall accrue for the intervening period.

 

The Indenture
provides that, without prior notice to any Holders, the Company and the Trustee
may amend the Indenture and the Securities of any series with the written
consent of the Holders of a majority in principal amount of the outstanding
Securities of all series affected by such amendment (all such series voting as
one class), and the Holders of a majority in principal amount of the
outstanding Securities of all series affected thereby (all such series voting as
one class) may waive future compliance by the Company with any provision of the
Indenture or the Securities of such series by written notice to the Trustee;
provided that, without the consent of each Holder of the Securities of each
series affected thereby, an amendment or waiver, including a waiver of past
defaults, may not: (i) extend the stated maturity of the Principal of, or any
sinking fund obligation or any installment of interest on, such Holder’s
Security, or reduce the principal amount thereof or the rate of interest
thereon (including any amount in respect of original issue discount), or any
premium payable with respect thereto, or adversely affect the rights of such
Holder under any mandatory redemption or repurchase provision or any right of redemption
or repurchase at the option of such Holder, or reduce the amount of the
Principal of an Original Issue Discount Security that would be due and payable

 

R-1

 

upon an acceleration of the maturity thereof or the amount thereof
provable in bankruptcy, or change any place of payment where, or the currency
in which, any Security of such series or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the due date therefor; (ii) reduce the percentage in
principal amount of outstanding Securities of the relevant series the consent
of whose Holders is required for any such supplemental indenture, for any
waiver of compliance with certain provisions of the Indenture or certain
Defaults and their consequences provided for in the Indenture; (iii) waive a
Default in the payment of Principal of or interest on any Security of such
Holder; or (iv) modify any of the provisions of the Indenture governing
supplemental indentures with the consent of Securityholders except to increase
any such percentage or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the Holder of
each outstanding Security affected thereby.

 

The Indenture
provides that, subject to certain conditions, the Holders of at least a
majority in principal amount (or, if any Securities are Original Issue Discount
Securities, such portion of the Principal as is then accelerable) of the
outstanding Securities of all series affected (voting as a single class), by
notice to the Trustee, may waive an existing Default or Event of Default with
respect to the Securities of such series and its consequences, except a Default
in the payment of Principal of or interest on any Security or in respect of a
covenant or provision of the Indenture which cannot be modified or amended
without the consent of the Holder of each outstanding Security affected.  Upon any such waiver, such Default shall
cease to exist, and any Event of Default with respect to the Securities of such
series arising therefrom shall be deemed to have been cured, for every purpose
of the Indenture; but no such waiver shall extend to any subsequent or other
Default or Event of Default or impair any right consequent thereto.

 

The Indenture
provides that a series of Securities may include one or more tranches (each a
“tranche”) of Securities, including Securities issued in a Periodic
Offering.  The Securities of different tranches
may have one or more different terms, including authentication dates and public
offering prices, but all the Securities within each such tranche shall have
identical terms, including authentication date and public offering price.  Notwithstanding any other provision of the
Indenture, subject to certain exceptions, with respect to sections of the
Indenture concerning the execution, authentication and terms of the Securities,
redemption of the Securities, Events of Default of the Securities, defeasance
of the Securities and amendment of the Indenture, if any series of Securities
includes more than one tranche, all provisions of such sections applicable to
any series of Securities shall be deemed equally applicable to each tranche of
any series of Securities in the same manner as though originally designated a
series unless otherwise provided with respect to such series or tranche
pursuant to a board resolution or a supplemental indenture establishing such
series or tranche.

 

No reference
herein to the Indenture and no provision of this Note or of the Indenture shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the Redemption Amount of this Note in the manner, at the
place, at the time and in the coin or currency herein prescribed.

 

The Securities are
issuable initially only in registered form without coupons in denominations of
$10,000 or any integral multiples of $1,000 in excess of that amount at the

 

R-2

 

office or agency of the Company in the Borough of Manhattan, The City
of New York, and in the manner and subject to the limitations provided in the
Indenture.

 

The Securities
will not be redeemable at the option of the Company prior to maturity.

 

The Company will
not be required to pay any Additional Amounts on the Securities.

 

Maturity Date

 

The Maturity Date
of the Securities is January 20, 2009
(the “Maturity Date”); however, if a Market Disruption Event exists on the
final valuation date, as determined by the Calculation Agent, the Maturity Date
will be the later of January 30, 2009
and the fifth Business Day following the date on which the final basket level
is calculated.

 

Redemption Amount

 

The
Company will redeem the Securities at maturity for a redemption amount in cash
that will equal the principal amount of the Securities multiplied by the sum of
1 plus the basket return (the “redemption amount”).  The basket return is based on the difference
between the final basket level and the initial basket level, expressed as a
percentage.  How the basket return will
be calculated depends on whether the final basket level is greater than, less
than, or equal to the initial basket level:

 

•                  If
the final basket level is greater than the initial basket level, then the
basket return will equal:

 

	
   

  	
   

  	
   

  	
  final basket level –
  initial basket level

  
	
   

  	
  150% *

  	
   

  	
  initial basket level

  

 

Thus, if the final basket level is
greater than the initial basket level, the basket return will be a positive
number and you will receive more than the principal amount of your securities
at redemption.

 

•                  If
the final basket level is less than or equal to the initial basket level, but
is greater than or equal to 80% of the initial basket level, then the basket
return will equal zero and the redemption amount will equal the principal
amount of the securities.

 

•                  If
the final basket level is less than 80% of the initial basket level, then the
return will equal:

 

	
  final basket level –
  (80% * initial basket level)

  
	
  initial basket level

  

 

R-3

 

Thus,
if the final basket level is less than 80% of the initial basket level, the
basket return will be a negative number, and you will receive less than the
principal amount of your securities at redemption.

 

For
purposes of calculating the basket return, the basket level on any valuation
date will be equal to the sum of:

 

(i)                                     the
product of (x) .3333, the weighting of the Nikkei 225 Index in the basket, and
(y) the closing level of the Nikkei 225 Index on that valuation date divided by
11,762.65, the closing level of the Nikkei 225 Index on the index business day
immediately following the date the securities are priced for initial sale to
the public;

 

(ii)                                  the
product of (x) .3333, the weighting of the Hang Seng Index in the basket, and
(y) the closing level of the Hang Seng Index on that valuation date divided by
14,794.03, the closing level of the Hang Seng Index on the index business day
immediately following the date the securities are priced for initial sale to
the public; and

 

(iii)                             the
product of (x) .3333, the weighting of the MSCI Taiwan Index in the basket, and
(y) the closing level of the MSCI Taiwan Index on that valuation date divided
by 268.92, the closing level of the MSCI Taiwan Index on the index business day
immediately following the date the securities are priced for initial sale to
the public.

 

The “initial basket level” equals 1.0.

 

The “final level” for each
reference index will equal the closing level of such reference index on a
valuation date.

 

The “final basket level” will equal the arithmetic
average of the basket levels on the valuation dates.

 

The “valuation dates” are the 23rd day of
each month from and including August 23, 2008 through and including January 23,
2009, which will be the final valuation date, subject to a postponement if a
market disruption event occurs on a valuation date.

 

The
“initial level” for each reference index will equal the closing level of such
reference index on the index business day immediately following the date the
securities are priced for initial sale.

 

The “closing level” for any reference index will be,
on any relevant index business day, the level of that reference index
determined by the calculation agent at the “valuation time” for that reference
index, which is the time at which the index sponsor for that reference index
calculates the closing level of that reference index on such index business
day, as such level is calculated and published by such index sponsor, subject
to an adjustment to the calculation of a reference index, described below.

 

R-4

 

A “business day” is any day, other than a Saturday,
Sunday or a day on which banking institutions in New York, New York are
generally authorized or obligated by law or executive order to close.

 

An “index business day” is any day that is (or, but
for the occurrence of a market disruption event, would have been) a day on
which trading is generally conducted on the exchanges and related exchanges
(each as defined below), other than a day on which one or more of the exchanges
or related exchanges is scheduled to close prior to its regular weekday closing
time.  “Exchange” means the principal
exchange on which any stock underlying any reference index is traded.  “Related exchange” means any exchange on
which futures or options contracts relating to the reference indices are
traded.

 

A “market disruption event” is, in respect of any
reference index, the occurrence or existence on any index business day during
the one-half hour period that ends at the relevant valuation time, of any
suspension of or limitation imposed on trading (by reason of movements in price
exceeding limits permitted by the relevant exchange or otherwise) on:

 

(a) the exchanges in securities that comprise 20% or
more of the level of the relevant reference index based on a comparison of (1)
the portion of the level of the reference index attributable to each security
in which trading is, in the determination of the calculation agent, materially
suspended or materially limited relative to (2) the overall level of the
reference index, in the case of (1) or (2) immediately before that suspension
or limitation;

 

(b) a related exchange in options contracts on the
relevant reference index; or

 

(c) a related exchange in futures contracts on the
relevant reference index;

 

in the case of (a), (b) or (c) if, in the determination of the
calculation agent, such suspension or limitation is material.

 

Market Disruption Events

 

If the calculation agent
determines that a market disruption event exists in respect of a reference
index on a valuation date, then the valuation date for such reference index
will be postponed to the first succeeding index business day on which the
calculation agent determines that no market disruption event exists in respect
of such reference index, unless in respect of the final valuation date the
calculation agent determines that a market disruption event exists in respect
of such reference index on each of the five index business days immediately following
the scheduled final valuation date.  In
that case, (a) the fifth succeeding index business day following the scheduled
final valuation date will be deemed to be the final valuation date for such
reference index, notwithstanding the market disruption event in respect of such
reference index, and (b) the calculation agent will determine the index level
for that reference index on that deemed final valuation date in accordance with
the formula for and method of calculating that reference index last in effect
prior to the commencement of the market disruption event in respect of such
reference index using exchange traded prices on the relevant exchanges (as
determined by the calculation agent in its sole and absolute discretion) or, if
trading in any security or securities comprising such reference index has been
materially suspended or

 

R-5

 

materially limited, its good faith estimate of the prices that would
have prevailed on the exchanges (as determined by the calculation agent in its
sole and absolute discretion) but for the suspension or limitation, as of the
valuation time on that deemed final valuation date, of each such security
comprising such reference index (subject to the provisions described below).  The valuation date for each reference index
not affected by a market disruption event shall be the scheduled valuation
date.

 

In the event that a
market disruption event exists in respect of a reference index on the final
valuation date, the maturity date of the securities will be postponed to the
fifth business day following the day as of which the closing level on the final
valuation date for each reference index has been calculated.  No interest or other payment will be payable
because of any such postponement of the maturity date.

 

Adjustments to the calculation of the reference
indices

 

If any of the reference
indices is (a) not calculated and announced by its sponsor but is calculated
and announced by a successor acceptable to the calculation agent or (b)
replaced by a successor index using, in the determination of the calculation
agent, the same or a substantially similar formula for and method of
calculation as used in such reference index, then such reference index will be
deemed to be the index so calculated and announced by that successor sponsor or
that successor index, as the case may be.

 

Upon any selection by the
calculation agent of a successor index, the calculation agent will cause notice
to be furnished to us and the trustee, which will provide notice of the
selection of the successor index to the registered holders of the securities in
the manner set forth below.

 

If (x) on or prior to a
valuation date any index sponsor makes, in the determination of the calculation
agent, a material change in the formula for or the method of calculating a
reference index or in any other way materially modifies a reference index
(other than a modification prescribed in that formula or method to maintain
such reference index in the event of changes in constituent stocks and
capitalization and other routine events) or (y) on any valuation date an index
sponsor (or a successor sponsor) fails to calculate and announce a reference
index, then the calculation agent will calculate the redemption amount using, in
lieu of a published level for such reference index, the level for such
reference index as at the valuation time on the valuation date as determined by
the calculation agent in accordance with the formula for and method of
calculating such reference index last in effect prior to that change or
failure, but using only those securities that comprised such reference index
immediately prior to that change or failure. 
Notice of adjustment of such reference index will be provided by the
trustee in the manner set forth below.

 

All determinations made by the calculation agent will be at the sole
discretion of the calculation agent and will be conclusive for all purposes and
binding on us and the beneficial owners of the securities, absent manifest
error.

 

Events of Default and
Acceleration

 

In case an Event
of Default (as defined in the Indenture) with respect to the Securities shall
have occurred and be continuing, the amount declared due and payable upon any

 

R-6

 

acceleration of the Securities (in accordance with the acceleration
provisions set forth in the Indenture) will be determined by the Calculation
Agent and will equal, for each Note, the arithmetic average, as determined by
the Calculation Agent, of the fair value of the Securities as determined by at
least three but not more than five broker-dealers (which may include Credit
Suisse First Boston LLC or any of the Company’s other subsidiaries or
affiliates) as will make such fair value determination available to the
Calculation Agent.

 

The Company, the
Trustee and any agent of the Company or the Trustee may deem and treat the
registered Holder hereof as the absolute owner of this Note (whether or not
this Note shall be overdue and notwithstanding any notation of ownership or
other writing hereon) for the purpose of receiving payment of, or on account
of, the Redemption Amount hereof, and for all other purposes, and neither the
Company nor the Trustee nor any agent of the Company or the Trustee shall be
affected by any notice to the contrary.

 

No recourse under
or upon any obligation, covenant or agreement contained in the Indenture or any
indenture supplemental thereto or in any Note, or because of any indebtedness
evidenced thereby, shall be had against any incorporator as such, or against
any past, present or future stockholder, officer, director or employee, as
such, of the Company or of any successor, either directly or through the
Company or any successor, under any rule of law, statute or constitutional provision
or by the enforcement of any assessment or by any legal or equitable proceeding
or otherwise, all such liability being expressly waived and released by the
acceptance hereof and as part of the consideration for the issue hereof.

 

The calculation
agent for the Securities (the “Calculation Agent”) is Credit Suisse First
Boston International.  The calculations
and determinations of the Calculation Agent will be final and binding upon all
parties (except in the case of manifest error). 
The Calculation Agent will have no responsibility for good faith errors
or omissions in its calculations and determinations, whether caused by
negligence or otherwise.

 

Terms used herein
that are defined in the Indenture and not otherwise defined herein shall have
the respective meanings assigned thereto in the Indenture.

 

The laws of the
State of New York (without regard to conflicts of laws principles thereof)
shall govern this Note.

 

R-7

 

FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto

 

[PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE]

 

	
   

  
	
   

  
	
   

  
	
  [PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING
  ZIP CODE, OF ASSIGNEE]

  
	
   

  
	
   

  
	
  the within Note and all rights thereunder, hereby irrevocably
  constituting and appointing

  
	
   

  
	
   

  	
  Attorney to

  
	
  transfer such Note on the books of the Issuer, with
  full power of substitution in the premises.

  

 

	
   

  	
  Signature:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  NOTICE:The signature to this assignment must
  correspond with the name as written upon the face of the within Note in every
  particular without alteration or enlargement or any change whatsoever.

  

 

R-8Exhibit 4.11

 

TEXAS
REGIONAL BANCSHARES, INC.

 

2005
INCENTIVE STOCK OPTION PLAN

 

Texas Regional Bancshares, Inc.,
a Texas corporation (hereinafter called the “Corporation”) believes that
allowing certain key employees to obtain shares of the Class A Voting
Common Stock of the Corporation through the use of stock options hereinafter
provided for will be beneficial to the initial and continued success of the
Corporation.  In furtherance of the
foregoing, the Corporation hereby establishes the Texas Regional Bancshares, Inc.
2005 Incentive Stock Option Plan (the “Plan”).

 

1.                                       Purpose.  The purpose of the Plan is to secure for the
Corporation and its stockholders the benefits which flow from providing key
employees of the Corporation and its subsidiaries with the incentive inherent
in common stock ownership.   It is
generally recognized that stock option plans aid in retaining competent
employees and furnish a device to attract employees of exceptional ability to
the Corporation because of the opportunity offered to acquire a proprietary
interest in the business.  For purposes
of the Plan, a subsidiary is any corporation in which the Corporation owns,
directly or indirectly, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock or over which the
Corporation has effective operating control. 
The Corporation intends that any stock option granted or exercised under
this Plan 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, and pertinent regulations.

 

2.                                       Amount
of Stock.

 

(a)                                  The
total number of shares of Class A Voting Common Stock to be subject to
options granted pursuant to the Plan shall not exceed Three Hundred Thousand
(300,000) shares of the Corporation’s Class A Voting Common Stock
(hereinafter referred to as the “Common Stock” or the “Stock”) each having a
par value of $1.00.

 

(b)                                 In
the event of (i) stock dividends, stock splits, or subdivisions,
combinations or reclassifications of the Stock, or (ii) the merger or
consolidation of the Corporation with any other business entity, the sale of
all or substantially all of the Corporation’s assets, the liquidation or
dissolution the Corporation, or any other form of corporate reorganization or
other similar capital change, the number and kind of shares of stock of the
Corporation described in the Plan or to be granted under the Plan, the number
and kind of shares of stock of the Corporation subject to options then
outstanding under the Plan, the maximum number of shares for which options may
be issued under the Plan, the option price and other relevant provisions shall
be appropriately adjusted.  The
determination of the Board of Directors, or the Committee appointed by the
Board as herein provided, as to any dispute related to adjustments shall be
binding on all persons.

 

(c)                                  In
the event that options granted under this Plan shall expire, terminate
unexercised or otherwise lapse without being exercised in whole or in part, the
shares covered by the unexercised portion of the expired, terminated or lapsed
options shall be available for future grants under the Plan, within the limits
herein described.

 

(d)                                 The
stock to be issued under the Plan may constitute an original issue of
authorized stock or may consist of previously issued stock acquired by the
Corporation, as shall be determined by the Board or the Committee.

 

3.                                       Stock
Option Committee.  The Board of
Directors of the Corporation (the “Board”) shall from time to

 

 

time appoint a Stock
Option Committee (the “Committee”) to serve under this Plan.  The Committee shall consist of three or more
directors, each of whom is (i) an independent director as that term is
defined in Rule 4200(a)(15) of the Marketplace Rules applicable to
companies the shares of which are traded on The NASDAQ Stock Market, Inc.’s
National Market System; (ii) a “Non-Employee Director” for purposes of Rule 16b-3(d)(1) as
promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended; and (iii) an outside director
as that term is defined for purposes of section 162(m) of the Internal
Revenue Code of 1986, as amended.

 

The Committee shall have
authority, consistent with the Plan:

 

(a)                                  to
determine which of the key employees of the Corporation and its subsidiaries
shall be granted options;

 

(b)                                 to
determine the time or times when options shall be granted and the number of
shares of Common Stock to be subject to each option;

 

(c)                                  to
determine the option price of the shares subject to each option and the method
of payment of such price;

 

(d)                                 to
determine the time or times when each option becomes exercisable and the
duration of the exercise period, subject to the limitations contained in
Paragraph 6(b);

 

(e)                                  to
prescribe the form or forms of the instruments evidencing any options granted
under the Plan and of any other instruments required under the Plan and to
change such forms from time to time;

 

(f)                                    to
adopt, amend and rescind rules and regulations for the administration of
the Plan and the options and for its own acts and proceedings;

 

(g)                                 to
decide all questions and settle all controversies and disputes which may arise
in connection with the Plan; and

 

(h)                                 to
take other actions permitted of the Committee by this Plan, authority hereafter
granted by the Board or as permitted by law.

 

All decisions,
determinations and interpretations of the Committee shall be final and binding
on all parties concerned.

 

4.                                       Eligibility
and Participation.  Options may be
granted pursuant to the Plan to employees of the Corporation and any parent or
subsidiary of the Corporation (hereinafter sometimes called “employee” or “employees”);
provided that no option may be granted under the Plan to an employee who,
immediately before or at the time such option is granted, owns stock possessing
more than ten percent (10%) of the total combined voting power or value of all
classes of stock of the employer corporation or of any parent or subsidiary
corporation.  For the purposes of the
preceding sentence: (a) the employee shall be considered as owning the
stock owned directly or indirectly by or for himself, the stock which the
employee may purchase under outstanding options, and the stock owned, directly
or indirectly, by or for his or her brothers and sisters (whether of the whole
or half blood), spouse, ancestors, and lineal descendants; and (b) stock
owned, directly or indirectly, by or for a corporation, partnership, estate, or
trust shall be considered as being owned proportionately by or for its
shareholders, partners, or beneficiaries.

 

From time to time the
Committee shall select the employees to whom options may be granted by the
Board and shall determine the number of shares to be covered by each option so
granted.  Future as well as present
employees (including employees who are directors) shall be eligible to
participate in the Plan.  If the entire
Board constitutes the Committee, then members of the Committee that are
otherwise eligible to participate in the Plan shall be allowed to participate
in the Plan, provided that such eligible members constitute a minority of the
Board, and provided further, that any individual member of the Committee
allowed to participate will be prohibited from voting upon or in any way
influencing the other members of the Committee in designating such individual
member as a recipient of option grants or

 

 

in exercising any other
discretion granted to the Committee regarding the option grants to such
individual member.  If the Committee is
appointed under the terms of subparagraph (i) of Section 3 hereof,
then members of the Committee (including those who are key employees of the
Corporation or a subsidiary corporation of the Corporation) shall not be
eligible to participate in the Plan.

 

The adoption of the Plan
does not confer upon any employee of the Corporation or a subsidiary any right
to continue employment with the Corporation or a subsidiary, as the case may
be, nor does it interfere in any way with the right of the Corporation or a
subsidiary to terminate the employment of any of its employees at any time.

 

The maximum number of
shares which respect to which options may be granted under this Plan during any
calendar year to any person is all shares for which options may be granted
under this Plan.

 

5.                                       Option
Agreement.  The terms and provisions
of options granted pursuant to the Plan shall be set forth in agreements (which
need not be identical) in such form and containing such provisions as are
consistent with this Plan as the Board or the Committee may from time to time
approve (individually an “Option Agreement” and collectively the “Option
Agreements”).  An Option Agreement may
incorporate all or any of the terms hereof by reference and shall comply with
and be subject to the terms and conditions herein provided.

 

6.                                       Price.  The purchase price per share of Common Stock
purchasable under options granted pursuant to the Plan shall be an amount equal
to one hundred percent (100%) of the fair market value of the stock, as determined
by the Board or the Committee, at the time the options are granted.  The full purchase price of shares purchased
shall be paid upon exercise of the option in the manner and by the means set
forth in the employee’s Option Agreement. 
The consideration shall be paid either in cash, by check, or for such
other consideration as the Board or Committee may approve.  Under certain circumstances the purchase
price per share shall be subject to adjustment as referred to in Section 11
or 13 of this Plan and as described in the Option Agreement executed pursuant
to a grant under this Plan; however, the price per share of Common Stock
purchasable under options granted pursuant to the Plan shall not be subject to
adjustment after the date of grant in the absence of the occurrence of an event
described in Section 11 or 13.

 

7.                                       Exercise
Period.  The right to purchase any
Common Stock pursuant to the exercise of an option granted under this Plan may
be either cumulative or non-cumulative, as determined by the Board or the
Committee.  Any Common Stock purchasable
pursuant to the exercise of an option granted under this Plan will be
purchasable in accordance with the schedule set forth in the Option
Agreement between the Corporation and the employee receiving the option, subject
to any other limitation provided in this Plan or in the employee’s Option
Agreement.  A person electing to exercise
an option shall give notice as described in his or her Option Agreement, such
notice to be accompanied by such instruments or documents as may be required by
the Option Agreement and the Committee, and unless otherwise directed by the
Committee, the employee shall at the time of exercise tender the purchase price
of the shares he or she has elected to purchase.  Unless otherwise provided in the particular
Option Agreement, in the event the portion of Common Stock purchasable under
the Option Agreement involves a fraction of a share, the amount purchasable at
that time shall be rounded upward to the next complete share to allow the purchase
of a complete share of Common Stock.

 

8.                                       Option
Period.  No option granted pursuant
to the Plan shall be exercisable after the expiration of ten (10) years
from the date the option is first granted. 
The expiration date for any option or portion thereof, which may be any
period not in excess of ten (10) years following the date of grant of the
option, shall be stated in the Option Agreement and is hereinafter called the “Expiration
Date”.

 

Notwithstanding any other
provision of this Plan, no option shall be granted under this Plan more than
ten (10) years after the date this Plan is adopted by the Board, or the
date this Plan is approved by the Common Stock stockholders, whichever is
earlier.

 

9.                                       Termination
of Employment.  The Option Agreement
may provide that:

 

(a)                                  If,
prior to the Expiration Date for any option granted hereunder, the employee
shall for any reason whatever, other than (1) his or her permanent and
total disability as defined in (c) below, or (2) his or her death,
cease to be employed by the Corporation, or a parent or subsidiary

 

 

corporation of the
Corporation, then any unexercised portion of such option shall automatically
terminate upon the date of such termination of employment.

 

(b)                                 If,
prior to the Expiration Date for any option granted hereunder, the employee
shall die at a time when he or she had been employed by the Corporation, or a
parent or subsidiary corporation of the Corporation, from the date of granting
of such option until the date of his or her death, then the legal representatives
of his or her estate or a legatee or legatees of the option shall have the
right, for a period of three (3) months after his or her death, to
purchase all or any part of the Stock subject to the option outstanding and
unexpired as of his or her date of death.

 

(c)                                  If,
prior to the Expiration Date for any option granted hereunder, the employee
shall cease to be employed by the Corporation, or a parent or subsidiary
corporation of the Corporation, because he or she becomes permanently and
totally disabled, as hereafter defined, and prior to such termination of
employment by reason of disability the employee had been employed by the
Corporation, or a parent or subsidiary of the Corporation, at all times since
the date of the granting of such option, then such employee or his or her legal
representative shall have the right, for a period of one (1) year from the
date of such termination of employment by reason of disability, to exercise any
right to purchase Stock pursuant to the option.

 

An employee is “permanently
and totally disabled” if he or she is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than twelve (12)
months.  Such determination of permanent
and total disability shall be made as allowable under Section 22, and
applicable regulations, of the Internal Revenue Code of 1986, as amended, or
any other applicable method necessary for the continued qualification of this
Plan under Section 422 of the Internal Revenue Code.  In the absence of any specific requirements
for this determination, the decision of the Board or the Committee, as aided by
any physicians they designate, shall be conclusive.

 

Nothing in (a), (b), or (c) shall extend the time for exercising any option granted pursuant to the Plan beyond the Expiration Date for the option. Any Option Agreement may contain or otherwise provide for conditions giving rise to the forfeiture of Stock or a repurchase right with respect to Stock acquired pursuant to an Option Agreement executed pursuant to this Plan, and may also provide for such restrictions on the transferability of shares of Stock acquired pursuant to an Option Agreement executed pursuant to this Plan, that the Board or the Committee in its sole and absolute discretion may deem proper or advisable.  The conditions giving rise to forfeiture or right of repurchase may include, but need not be limited to, the requirement that the optionee render substantial services to the Corporation or any subsidiary of the Corporation for a specified period of time.  The restrictions on transferability may include, but need not be limited to, options and rights of first refusal in favor of the Corporation.
 
10.                                 Assignability.  The Option Agreement shall provide that the option granted thereby shall not be transferable or assignable by the employee otherwise than by will or by the laws of descent and distribution, and during the lifetime of the employee shall be exercisable only by him or her.
 

11.                                 Adjustments
and Modifications.  The Option
Agreement may contain such provisions as the Board or the Committee may approve
concerning the effect upon the option granted thereby and upon the per share or
per unit option price, of (i) stock dividends, stock splits, or
subdivisions, combinations or reclassifications of the Stock, or (ii) the
merger or consolidation of the Corporation with any other business entity, the
sale of all or substantially all of the Corporation’s assets, the liquidation
or dissolution the Corporation, or any other form of corporate reorganization
or other similar capital change. Subject to the terms and conditions and within
the limitations of this Plan, the Board or Committee may modify, extend, or
renew outstanding rights granted under this Plan, or accept the surrender of
outstanding rights (to the extent not theretofore exercised); however, the
price per share of Common Stock purchasable under options granted pursuant to
the Plan shall not be subject to adjustment after the date of grant in the
absence of the occurrence of an event described in the preceding sentence of
this Section 11 or in Section 13. 
Notwithstanding the foregoing, no modification of an option shall,
without the consent of the optionee, alter or impair any rights of the optionee
under the option.

 

 

12.                                 Issuance
Requirements.  The Corporation shall
not be obligated to issue any shares unless and until, in the opinion of the
Corporation’s counsel, (i) all applicable laws and regulations have been
complied with, (ii) in the event the Corporation’s Common Stock is at the
time listed upon any stock exchange or approved for trading on the Nasdaq Stock
Market, the shares to be issued have been listed or trading shall otherwise be
authorized upon official notice of issuance, and (iii) all other legal
matters in connection with the issuance and delivery of shares shall have been
approved by the Corporation’s counsel. 
The participant shall take any action reasonably requested by the
Corporation in connection therewith. 
Without limiting the generality of the foregoing, the Corporation may
require from the participant such investment representation or such agreement,
if any, as counsel for the Corporation may consider necessary in order to
comply with the Securities Act of 1933 as then in effect, and may require that
the participant agree that any sale of the shares will be made only in such
manner permitted by law.  A legend to
this effect may be affixed to the certificates evidencing such shares.  A participant shall have the rights of a
stockholder only as to shares actually acquired by him under the Plan.

 

13.                                 Corporate
Merger, Consolidation, Reorganization, etc.

 

(a)                                  In
the event of a dissolution or liquidation of the Corporation or a merger or
consolidation in which the Corporation is not the surviving corporation, any
outstanding options hereunder may be terminated by the Corporation as of the
effective date of such dissolution, liquidation, merger or consolidation by
giving notice to each holder thereof or his or her personal representative of
its intention to do so and by permitting the exercise during a period of not
more than a specified number of days determined by the Board next preceding
such effective date, or the Expiration Date, whichever is earlier, of all of
such outstanding options in whole or in part without regard to the provisions
of Section 7 hereof.  Subject to the
preceding sentence, if the Corporation is reorganized or merged or consolidated
with another corporation, while unexercised options are outstanding under the
Plan, and the Corporation is not the surviving corporation, there shall be
substituted for the Common Stock subject to the unexercised and outstanding
options an appropriate number of shares of each class of stock or other
securities of the reorganized or merged or consolidated corporation which were
distributed to shareholders of the Corporation in respect of the Common Stock.  Such substitution may be accomplished by the
assumption of such options by the surviving corporation or the substitution for
the old options of new options by the surviving corporation.

 

(b)                                 The
existence of the Plan and any options granted hereunder shall not affect in any
way the right or power of the Board or the stockholders of the Company to make
or authorize any adjustment, recapitalization, reorganization, reclassification
or other change in the Company’s capital structure or its business, any merger,
consolidation or separation of the Company, any issue of bonds, debentures,
preferred or prior preference stocks ahead of or affecting Common Stock or the
rights thereof, the dissolution or liquidation of the Company or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding.

 

14.                                 Amendment
of the Plan.  The Board of Directors
of the Corporation may from time to time alter, amend, suspend or discontinue
the Plan and make rules for its administration, except that the Board shall
not amend the Plan in any manner which would have the effect of preventing
options issued under the Plan from being “incentive stock options” as defined
in Section 422 of the Internal Revenue Code of 1986 (as amended).

 

15.                                 Options
Discretionary.  The granting of
options under the Plan shall be entirely discretionary and nothing in the Plan
shall be deemed to give any key employee any right to participate in the Plan
or to receive options.

 

16.                                 Stockholder
Approval.  The Plan will be submitted
to the Common Stock stockholders of the Corporation within twelve (12) months
of the date of the adoption of the Plan by the Board.

 

17.                                 Termination
of Plan.  This Plan shall terminate
ten (10) years after its approval by the Common Stock stockholders or
adoption by the Board, whichever is earlier. 
Any option outstanding under this Plan at the time of its termination
shall remain in effect until the option shall have been exercised or the
Expiration Date, whichever is earlier.

 

18.                                 Replacement Options. 
The Corporation may grant options under the Plan on terms differing from

 

 

those provided for in
this Plan where such options are granted in substitution for options held by
employees of other corporations who have become employees of the Corporation or
a subsidiary as the result of a merger, consolidation or other reorganization
of the employing corporation with the Corporation or subsidiary, or the
acquisition by the Corporation or a subsidiary of the business, property or
stock of the employing corporation.  The
Committee may direct that the substitute options be granted on such terms and
conditions as the Committee considers appropriate in the circumstances.

 

19.                                 Adoption
of Plan by Board.  The undersigned
hereby certifies that this Plan is the true and correct 2005 Texas Regional
Bancshares, Inc., Incentive Stock Option Plan of the Corporation voted
upon and adopted at a meeting of the Board of Directors duly held on the 8th
day of February, 2005.

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