TEXAS REGIONAL BANCSHARES, INC. INCENTIVE STOCK OPTION AGREEMENT (Granted Under the 2006 Incentive Plan)

Exhibit 10.1

 

TEXAS REGIONAL BANCSHARES, INC.

 

INCENTIVE STOCK OPTION AGREEMENT

(Grantedunder the 2006 Incentive Plan)

 

ThisIncentive 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”).

 

TheCorporation desires to provide the Employee an opportunity to purchase sharesof the Corporation’s Class A Voting Common Stock, $1.00 par value pershare (hereinafter referred to as “Common Stock” or “Stock”) pursuant to theTexas Regional Bancshares, Inc. 2006 Incentive Plan (the “Plan”). ThisAgreement represents an Award Statement or option agreement for purposes of thePlan.

 

Thegrant made pursuant to this Agreement represents an award of an Incentive StockOption for purposes of Section 4.3(d)(1) of the Plan and otherapplicable provisions of the Plan. The Corporation intends that any stockoption granted or exercised under this Agreement qualify as an “incentive stockoption” which is given favorable income tax treatment under Section 422 ofthe 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 withany and all requirements of Section 422 of the Code and applicableregulations relative to the option granted hereunder or any portion thereof or anyshares of Stock received upon exercise hereof, the Employee may not beentitled to the favorable tax benefits granted under the Code, but the failureto receive such tax benefits shall not affect the fact that this option will betreated as an incentive stock option for purposes of the limitations in Section 4.3of the Plan.

 

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

 

1.                                       Grant of Option. The Corporation hereby irrevocably grantsto the Employee the right and option (the “Option”), to purchase all or any part ofan aggregate of                     sharesof Common Stock (such number being subject to adjustment as provided in thisAgreement) on the terms and conditions herein set forth.

 

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

 

3.                                       Term of Option; Vesting Schedule. The Option herein granted may beexercised according to the following vesting schedule (subject to earliervesting as may otherwise be provided in this Agreement upon a Change inControl or otherwise): the Employee may exercise the Option to purchase, beginningon each date set forth under the heading Commencement Datebelow, the number of shares of Stock set forth under the heading Number of Shares that corresponds to that commencement date (thedate upon which the option herein granted first becomes exercisable as to anyshare is herein called the “Commencement Date”):

 



 

Number of Shares

 

Commencement Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Ineach case the Option must be exercised prior to ten years from the date of thisAgreement (the “Expiration Date”), subject to earlier termination as providedin this Agreement. The Option may be exercised within the abovelimitations, at any time or from time to time, as to any part of or allthe shares covered hereby; provided, however, that the Option may not beexercised as to less than 30 shares at any one time (or the remaining sharesthen purchasable under the Option, if less than 30 shares) or with respect toany fractional share.

 

Thepurchase price of the shares as to which the Option is exercised shall be paidin full in cash or check at the time of exercise, or the Employee may effecta cashless exercise as herein provided.

 

Ifthe employment of the Employee terminates for any reason, subject to thetermination provisions below, the Employee may thereafter exercise hisoption as provided herein, but only to the extent he was entitled to exercisethe option on the date when his employment terminated. The holder of the Optionshall not have any of the rights of a shareholder with respect to the sharescovered by the Option except to the extent that one or more certificates forsuch shares are delivered to him or her upon the due exercise of the Option.

 

Ifregistration is required by law, the Option may not be exercised unless atthe date of exercise an appropriate registration statement under the SecuritiesAct of 1933, as amended, relating to the shares covered by the Option shall bein effect. If such registration is required by law, the Corporation willendeavor to obtain, prior to the time when the Option would otherwise beexercisable, the registration of the shares covered by the Option under theAct, as amended, but the exercise period shall not extend beyond the ExpirationDate.

 

4.                                       Nontransferability. The Option shall not be transferableotherwise than by will or by the laws of descent and distribution, and theOption may be exercised, during the lifetime of the Employee, only by himor her. More particularly (but without limiting the generality of theforegoing), the Option may not be assigned, transferred (except asprovided above), pledged, or hypothecated in any way, shall not be assignableby operation of law, and shall not be subject to execution, attachment, orsimilar process. Any attempted assignment, transfer, pledge, hypothecation, orother disposition of the Option contrary to the provisions hereof, and the levyof any execution, attachment, or similar process upon the Option, shall be nulland void and without effect.

 

5.                                       Employment. In consideration of the granting of the Option and regardless ofwhether or not the Option shall be exercised, the Employee will devote his orher entire time, energy, and skill to the service of the Corporation or itsparent or one or more of the Corporation’s subsidiaries while he or she

 

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remainsemployed by such corporation, subject to vacations, sick leaves, and otherapproved absences. The Employee’s employment, subject to the provisions of anycontract between the Corporation or any such parent or subsidiary and theEmployee, shall be at the pleasure of the Board of Directors of each employingcorporation and at such compensation as such employing corporation orcorporations shall determine.

 

6.                                       Exercise Period. Any or all Common Stock purchasable under theOption will be purchasable at any time following the Commencement Date, andprior to the Expiration Date, subject to any other limitation provided in thisAgreement.

 

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

 

(a)                                If the employment ofan Employee with the Corporation is terminated for reasons other than (i) death,(ii) discharge for Cause, or (iii) retirement with the Corporation’sconsent having reached normal retirement age of at least age 65 and having atleast ten years of service to the Corporation, such Employee’s outstandingOptions may be exercised at any time within three months after suchtermination, to the extent of the number of shares which were exercisable atthe date of such termination; except that this Option shall not be exercisableon any date beyond the expiration date of the Option.

 

(b)                               If the employment ofan Employee with the Corporation is terminated for Cause, this Option (whetheror not then exercisable) shall expire and any rights hereunder shall terminateimmediately.

 

(c)                                Should the Employeedie prior to the vesting of this Option, any installment or installments notthen exercisable shall become fully exercisable and vested as of the date ofthe Employee’s death and the Options may be exercised by the Employee’sPersonal Representative at any time within one year after the Employee’s death.

 

(d)                               Should the Employeeretire with the Corporation’s consent provided that the Employee has reachednormal retirement age of at least age 65 and has at least ten years of serviceto the Corporation, the option shall continue to be exercisable until theExpiration Date, subject to earlier termination as provided in this Agreement. Inaddition, in the event the Employee’s employment with the Corporationterminates (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 hasnot yet reached normal retirement age of at least age 65 as of the date of thisAgreement, but has reached normal retirement age of at least age 65 at the dateof termination of employment and such retirement is with the consent of theCorporation and the Employee has at least ten years of service to theCorporation, and if, following retirement from the Corporation, the Employee isnot thereafter employed by any employer offering banking and other financialservices, then any installment or installments not then exercisable shallcontinue to vest in accordance with this Agreement as if the individual hadcontinued to be employed, and may then be exercised for the remaining termas set forth in this Agreement; provided, however, that any exercise more thanthree months following termination of employment may cause the Option andthe exercise and disposition thereof not to be afforded the favorable taxtreatment otherwise provided to incentive stock options under the Code.

 

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(e)                                  “Cause”, with respectto any Employee, means (i) the definition of Cause as set forth in anyindividual employment agreement applicable to such Employee, or (ii) inthe case of an Employee who does not have an individual employment agreementthat defines Cause, then Cause means the termination of an Employee’semployment by reason of his or her (1) engaging in gross misconduct thatis injurious to the Corporation, monetarily or otherwise, (2) misappropriationof funds, (3) willful misrepresentation to the directors or officers ofthe Corporation, (4) gross negligence in the performance of the Employee’sduties having an adverse effect on the business, operations, assets, propertiesor financial condition of the Corporation, (5) conviction of a crimeinvolving moral turpitude. The determination of whether an Employee’semployment was terminated for Cause shall be made by the Corporation in itssole discretion.

 

(f)                                    For purposes of this agreement, the Employee’semployment shall not be considered terminated in the case of sick leave orother 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 theemployment of the Corporation. So long as the Employee shall continue to be anemployee of the Corporation or a parent corporation or one or more of theCorporation’s subsidiaries, the Option shall not be affected by any change ofduties or position. Nothing in this Option Agreement shall confer upon theEmployee any right to continue in the employ of the Corporation or of any ofits subsidiaries or interfere in any way with the right of the Corporation orany such subsidiary to terminate his or her employment at any time.

 

8.                                       Changes in Capital Structure. If all or any portion of the Option shallbe 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 ofwhich shares of any class shall be issued in respect of outstanding CommonShares or Common Shares shall be changed into the same or a different number ofshares of the same or another class or classes, the following adjustmentshall be made:  The person or personsexercising the Option shall receive, for the aggregate price calculated andpaid upon such exercise as provided in Sections 2 and 3 above, the aggregatenumber and class of shares which such person or persons would be holdingat the time of such exercise, as a result of such purchase and as a result ofall such share dividends, split-ups, recapitalizations, mergers,consolidations, combinations or exchanges of shares, separations,reorganizations, or liquidations; provided, however, that no fractional shareshall be issued upon any such exercise, and the number of shares subject to theOption and the aggregate price to be paid shall be appropriately reduced onaccount of any fractional share not issued. The foregoing shall be determinedas if Common Shares (as authorized at the date hereof) had been purchased atthe date hereof for the same aggregate price (on the basis of the price pershare set forth in Section 2 applicable at the date hereof), and had notbeen disposed of. No adjustment shall be made in the minimum number of shareswhich 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 thisOption Agreement, the Option may be exercised by written notice to theCorporation, in care of the Chief Executive Officer, at 3900 North TenthStreet, 11th Floor, McAllen, Texas 78501. Such notice shall statethe election to exercise the Option and the number of shares in respect ofwhich it is being exercised, and shall be signed by the person or persons soexercising the Option. At the option of the Corporation, the Corporation may makeavailable means of electronic transmission of notice of exercise and providedthat the Employee follows such

 

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instructionsthe Option will be deemed exercised upon compliance with the electronicexercise procedures. Such notice shall either: (i) be accompanied bypayment of the full purchase price of such shares, in which event theCorporation shall deliver a certificate or certificates representing suchshares as soon as practicable after the notice is received; or (ii) fix adate (not less than five nor more than ten business days from the date suchnotice is received by the Corporation) for the payment of the full purchaseprice of such shares, against delivery of a certificate or certificatesrepresenting such shares; or (iii) be accompanied by a notice of cashlessexercise as provided in subparagraph (b) below. Payment of the purchaseprice shall, in either case, be made by check payable to the order of theCorporation unless the exercise notice is accompanied by a cashless exercisenotice as provided in subparagraph (b) below. The certificate orcertificates for the share as to which the Option is exercised shall beregistered in the name of the person or persons exercising the Option (or, ifthe Option is exercised by the Employee and if the Employee requests in thenotice exercising the Option, shall be registered in the name of the Employeeand another person jointly, with right of survivorship) and shall be deliveredas provided above to or upon the written order of the person or personsexercising the Option. In the event the Option is exercised, pursuant to thisAgreement, by any person or persons other than the Employee, such notice shallbe accompanied by appropriate proof of the right of such person or persons toexercise the Option. All shares purchased upon the exercise of the Option asprovided herein shall be fully paid and nonassessable.

 

(b)                                 Cashless Exercise. In the discretion of the Employee, providedthat the fair market value of the Shares exceeds the exercise price of theOption, in lieu of exercising this Option by payment of the Exercise Price by deliveringcash or check, the Employee may elect to exercise the Option and pay for Sharesin a cashless exercise. In order to effect a cashless exercise, the Employeeshall indicate in the exercise notice or other written communication acceptableto the Corporation that he or she intends to make a cashless exercise, and theEmployee shall deliver a number of shares equal to the value (as determinedbelow) of this Option (or the portion thereof being exercised). In such eventthe Shares that the Corporation shall issue to the Employee with respect tosuch 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

 

Forpurposes of this calculation, the fair market value shall mean, on anyspecified date, an amount equal to the mean between the reported high and low pricesof the Corporation’s Stock as traded on or reported through the NASDAQ StockMarket, 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, themean between the reported high and low prices of the Corporation’s Stock tradedon or reported through NASDAQ as reported on the first day prior thereto onwhich shares of the Corporation’s Stock were so traded. If shares of theCorporation’s Stock are no longer traded on or reported through NASDAQ, FairMarket Value shall be determined in good faith by the Committee using otherreasonable means.

 

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10.                                 Change of Control and other Reorganizations. In the event of a Change of Control, asthat term is defined in the Plan, the provisions of Article X of the Planshall control, provided that, notwithstanding any provisions in the Plan to thecontrary (which provisions may be varied by this Agreement as set forth inthe Plan), upon a Change of Control, whether or not the Corporation is thesurviving corporation in such Change in Control and whether or not thesurviving corporation proposes to assume this Option, the Option shalleffective prior to the Change in Control (or such number of days prior theretoas the Board of Directors may fix and determine) immediately vest and befully exercisable as to all shares of stock for which this Option has beengranted, without regard to the vesting schedule set forth in section 3above. In such event, the Commencement Date for any portion of the Optionvested as a result of the Change in Control shall be either immediately priorto the Change in Control or such earlier vesting acceleration date set by theBoard of Directors. The existence of this Option shall not in any way preventany change of control or other transaction described in Article X of thePlan, and the Employee shall not have the right to prevent any suchtransaction.

 

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 thecontrary (and in addition to any limitations on transferability as otherwisecontained herein, including any such limitations as are contained in Section 4hereof), a derivative security, as that term is defined for purposes of Rule 16b-3promulgated by the Securities and Exchange Commission pursuant to theSecurities Exchange Act of 1934, as amended, issued under the Plan, includingany issued pursuant to this Agreement, is not transferable by the Employeeother than by will or the laws of descent and distribution or pursuant to aqualified domestic relations order as defined by the Internal Revenue Code of1986, 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 Optionreserve and keep available such number of shares of Common Stock as will besufficient to satisfy the requirements of this Option Agreement, shall pay alloriginal issue and transfer taxes with respect to the issue and transfer ofshares pursuant hereto and all other fees and expenses necessarily incurred bythe Corporation in connection therewith, and will from time to time use itsbest efforts to comply with all laws and regulations which, in the opinion ofcounsel 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 “parentcorporation” or a “subsidiary corporation” of the Corporation, as those termsare defined in Section 424 of the Internal Revenue Code of 1986.

 

15.                                 Conditions of Plan. This Agreement is executed pursuant to thePlan, which is defined above as the Texas Regional Bancshares, Inc. 2006Incentive Plan. The Plan may contain other conditions not contained inthis Agreement, and the Employee enters into this Agreement subject to anyconditions and limitations contained in the Plan. In the event of any inconsistencybetween any provision of this Agreement and mandatory terms and conditions ofthe Plan, the terms and conditions of the Plan shall control. To the extentthat the Plan does not address an issue or allows the option agreement to varyfrom the terms and

 

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conditionsof the Plan, the terms and conditions of this Agreement shall control. Definedterms used in this Agreement and not otherwise defined herein shall have themeanings assigned to them in the Plan.

 

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INWITNESS WHEREOF, the Corporation and the Employee enter into this Agreement tobe 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:

 

 

 

 

 

 

 

 

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