EXHIBIT 10.5
**EMPLOYMENT AGREEMENT**
     This Employment Agreement (this “Agreement”) is made and entered into as of July 22, 2004, byMetroCorp Bancshares, Inc. a national bank holding company (the “Employer”), and George M. Lee, anindividual resident in Houston, Harris County, Texas (the “Executive”).
**R E C I T A L S**
     The Employer desires the Executive’s employment with the Employer, and the Executive wishes toaccept such employment, upon the terms and conditions set forth in this Agreement.
**AGREEMENT**
     The parties, intending to be legally bound, agree as follows:
     1. DEFINITIONS
     For the purposes of this Agreement, the following terms have the meanings specified orreferred to in this Section 1.
     **“Agreement"**—this Employment Agreement.
     **“Basic Compensation"**—Salary and Benefits.
     **“Benefits"**—as defined in Section 3.1(b).
     **“Board of Directors"**—the board of directors of the Employer.
     **“Change of Control"**–as defined in Section 6.4.
     **“Confidential Information"**—any and all:
     (a) trade secrets concerning the business and affairs of the Employer,financial records, management systems, policies or procedures, including the contentof related forms and manuals, salary, bonuses and other personnel information, andany other information, however documented, that is a trade secret within the meaningof law of the State of Texas; and
     (b) information concerning the business and affairs of the Employer (whichincludes historical financial statements, financial projections and budgets,historical and projected income, capital spending budgets and plans, the names andbackgrounds of key personnel, personnel training and techniques and materials,however documented); and
     (c) notes, analysis, compilations, studies, summaries, and other materialprepared by or for the Employer containing or based, in whole or in part, on anyinformation included in the foregoing.
     **“Disability"**—as defined in Section 6.2.
     **“Effective Date"**–shall be July 22, 2004.
     **“Employment Period"**—the term of the Executive’s employment under thisAgreement.
     **“Fiscal Year"**—the Employer’s fiscal year, as it exists on the EffectiveDate or as changed from time to time.
     **“For Cause"**—as defined in Section 6.3.
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     **“Incentive Compensation"**—as defined in Section 3.2.
     **“Person"**—any individual, corporation (including any non-profitcorporation), general or limited partnership, limited liability company, jointventure, estate, trust, association, organization, or governmental body.
     **“Proprietary Items"**—as defined in Section 7.2(d).
     **“Salary"**—as defined in Section 3.1(a).
     2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
     The Employer hereby employs the Executive, and the Executive hereby accepts employment by theEmployer, upon the terms and conditions set forth in this Agreement.
2.2 TERM
     Subject to the provisions of Section 6, the term of the Executive’s employment under thisAgreement will be three (3) years, beginning on the Effective Date and ending on the thirdanniversary of the Effective Date. Prior to the second anniversary of this Agreement, both partieshereto may agree in writing to extend the term of this Agreement for an additional year. Followingthe initial extension of the term, both parties may agree in writing to extend the term for one (1)additional year period prior to the expiration thereof.
2.3 DUTIES
     The Executive will have such duties as are assigned or delegated to the Executive by the Boardof Directors, and will initially serve as Chief Executive Officer of MetroBank, N.A., a nationalbanking association (“Bank”) and as President of Employer. The Executive will devote his entirebusiness time, attention, skill, and energy exclusively to the business of the Employer, will usehis best efforts consistent with the industry standards to promote the success of the Employer’sbusiness, and will cooperate fully with the Board of Directors in the advancement of the bestinterests of the Employer. If the Executive is elected as a director or officer of any of itsaffiliates, the Executive will fulfill his duties as such director or officer without additionalcompensation.
     3. COMPENSATION 
3.1 BASIC COMPENSATION
     (a) Salary. The Executive will be paid an annual salary of $250,000, subject toadjustment as provided below (the “Salary”), which will be payable in equal periodicinstallments according to the Employer’s customary payroll practices, but no less frequentlythan monthly. The Salary will be reviewed by the Board of Directors not less frequentlythan annually, and may be adjusted upward in the sole discretion of the Board of Directors,but in no event will the Salary be less than $250,000 per year.
     (b) Benefits. The Executive will, during the Employment Period, be permitted toparticipate in such pension, profit sharing, bonus, life insurance, hospitalization, majormedical, and other employee benefit plans of the Employer that may be in effect from time totime, to the extent the Executive is eligible under the terms of those plans (collectively,the “Benefits”).
3.2 INCENTIVE COMPENSATION
     Beginning with the effective date, the Board of Directors of Employer will provide on, apro-rata basis, Executive with a formal Incentive Compensation Plan (“Incentive Compensation”) thatallows Executive to earn up
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to 100% of Base Salary as Incentive Compensation based on certain predetermined performancemeasures set forth in such Plan. Performance at expected or budgeted performance consistent withopportunities in the market place will result in Incentive Compensation of 50% of Base Salary,while maximum Incentive Compensation will be earned for superior performance results. Theperformance criteria may include, but not be limited to, EPS Growth, Asset Growth, OperatingEfficiency, Return on Equity, Loan Concentration, Asset Durability and Overall PerformanceEvaluation by the Board of Directors.
3.3 STOCK OPTIONS
     The Compensation Committee of the Board of Directors, will award Executive 100,000 incentivestock options on Employer’s common stock with an option price of $15.01 (the closing price on theeffective date of this Agreement of July 22, 2004). The options described hereunder will begranted by the Compensation Committee of the Board of Directors pursuant to the Employer’s 1998Stock Incentive Plan and the Stock Option Agreement containing such terms and in the form attachedhereto as Exhibit A. Additionally the Employer shall grant to Executive 10,000 to 20,000 stockoptions annually based on performance of Executive and Employer. In all events, Executive shallreceive not less than 10,000 stock options per year during the term hereof. Performance atexpected or budgeted performance consistent with opportunities in the market place will result inthe award of 20,000 stock options annually. The performance criteria may include, but not belimited to EPS growth, asset growth, operating efficiency, return on equity, loan concentration,asset durability and overall performance evaluation by the Board of Directors. In the event of anyconflict between the terms of this Agreement and any other oral or written representation regardingstock options, on the one hand, and the terms of the stock option agreement or the stock optionplan, the terms of the latter two documents shall govern. Moreover, at termination of Employee’semployment, Employer has the option but not the obligation to repurchase the stock granted underthe Stock Option Agreement.
3.4 ADDITIONAL COMPENSATION
The Executive will receive $50,000 as payment for any and all items and consideration related tothe acceptance of this Agreement.
     4. FACILITIES AND EXPENSES
4.1 GENERAL
     The Employer will furnish the Executive office space, equipment, supplies, and such otherfacilities and personnel, as the Employer deems necessary or appropriate for the performance of theExecutive’s duties under this Agreement. The Employer will pay the Executive’s dues in suchprofessional societies and organizations, as the Compensation Committee deems appropriate, and willpay on behalf of the Executive (or reimburse the Executive for) reasonable expenses incurred by theExecutive at the request of, or on behalf of, the Employer in the performance of the Executive’sduties pursuant to this Agreement, and in accordance with the Employer’s employment policies,including reasonable expenses incurred by the Executive in attending conventions, seminars, andother business meetings, in appropriate business entertainment activities, and for promotionalexpenses. The Executive must file expense reports with respect to such expenses in accordance withthe Employer’s policies.
4.2 AUTOMOBILE
     The Employer will provide the Executive a $500.00 per month automobile allowance. TheExecutive will own his own automobile, and maintain and insure it at his own expense, for hisbusiness use in connection with his employment under this Agreement. The Executive will at his ownexpense maintain liability insurance on any automobile used in connection with the Employer’sbusiness. Executive will furnish proof of insurance to the Employer as requested by the Employer.Applicable federal income tax withholding on such automobile allowance will be deducted.
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     5. VACATIONS AND HOLIDAYS
     The Executive will be entitled to four (4) weeks’ paid vacation each Fiscal Year in accordancewith the vacation policies of the Employer in effect for its executive officers from time to time.The Executive must take vacation at such time or times as approved by the Chairman of the Board.The Executive will also be entitled to the paid holidays set forth in the Employer’s policies.Vacation days and holidays during any Fiscal Year that are not used by the Executive during suchFiscal Year may not be used in any subsequent Fiscal Year.
     6. TERMINATION
6.1 EVENTS OF TERMINATION
     The Employment Period, the Executive’s Basic Compensation and Incentive Compensation, and anyand all other rights of the Executive under this Agreement or otherwise as an employee of theEmployer will terminate (except as otherwise provided in this Section 6):
     (a) upon the death of the Executive;
     (b) upon the disability of the Executive (as defined in Section 6.2) immediately uponnotice from either party to the other;
     (c) for cause (as defined in Section 6.3), immediately upon notice from the Employer tothe Executive, or at such later time as such notice may specify; or
     (d) on Change of Control (as defined in Section 6.4).
6.2 DEFINITION OF DISABILITY
     For purposes of Section 6.1, the Executive will be deemed to have a “disability” if, forphysical or mental reasons, the Executive is unable to perform the essential functions of theExecutive’s duties under this Agreement for 120 consecutive days, or 180 days during any twelvemonth period, as determined in accordance with this Section 6.2. A medical doctor selected bywritten agreement of the Employer and the Executive upon the request of either party by notice tothe other will determine the disability of the Executive. If the Employer and the Executive cannotagree on the selection of a medical doctor, each of them will select a medical doctor and the twomedical doctors will select a third medical doctor who will determine whether the Executive has adisability. The determination of the medical doctor selected under this Section 6.2 will be bindingon both parties. The Executive must submit to a reasonable number of examinations by the medicaldoctor making the determination of disability under this Section 6.2, and the Executive herebyauthorizes the disclosure and release to the Employer of such determination and all supportingmedical records. If the Executive is not legally competent, the Executive’s legal guardian or dulyauthorized attorney-in-fact will act in the Executive’s stead, under this Section 6.2, for thepurposes of submitting the Executive to the examinations, and providing the authorization ofdisclosure, required under this Section 6.2.
6.3 DEFINITION OF “FOR CAUSE”
     For purposes of Section 6.1, the phrase “for cause” means: (a) the Executive’s material breachof this Agreement or failure to materially carry out the duties assigned by the Board of Directors(following ten (10) days notice of such failure and Executive’s failure to cure such breach); (b)the Executive’s failure to adhere to any written Employer policy if the Executive has been given areasonable opportunity to comply with such policy or cure his failure to comply (which reasonableopportunity must be granted during the ten-day period preceding termination of this Agreement); (c)the appropriation (or attempted appropriation) of a material business opportunity of the Employer,including attempting to secure or securing any personal profit in connection with any transactionentered into on behalf of the Employer; (d) the Executive’s acting in a grossly negligent manner,or has engaged in reckless or willful misconduct with respect to Employer which results or couldhave resulted in material harm to Employer and Bank’s standing among customers, suppliers,employees and other business relationships; (e) the misappropriation (or attemptedmisappropriation) of any of the Employer’s funds or property; or (f) the conviction
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of, the indictment for (or its procedural equivalent), or the entering of a guilty plea or plea ofno contest with respect to, a felony, the equivalent thereof.
6.4 DEFINITION OF “CHANGE OF CONTROL”
     For purposes of Section 6.1, the phrase “Change of Control” means the following: (a) theoccurrence of a transaction whereby the Bank or the Employer shall not be the surviving entity inany merger or consolidation (or survives only as a subsidiary of an entity other than a previouslywholly-owned subsidiary of Employer); (b) the Bank or the Employer sells, leases or exchanges oragrees to sell, lease or exchange all or substantially all of its assets to any other persons orentities (other than to a wholly-owned subsidiary of Employer); or (c) the total sale ordissolution of the Employer or Bank.
6.5 TERMINATION PAY
     Effective upon the termination of this Agreement for the reasons set forth in this Agreement,the Employer will be obligated to pay the Executive (or, in the event of his death, his designatedbeneficiary as defined below) only such compensation as is provided in this Section 6.5, and inlieu of all other amounts and in settlement and complete release of all claims the Executive mayhave against the Employer for termination pursuant to Section 6 hereof. For purposes of thisSection 6.5, the Executive’s designated beneficiary will be such individual beneficiary or trust,located at such address, as the Executive may designate by notice to the Employer from time to timeor, if the Executive fails to give notice to the Employer of such a beneficiary, the Executive’sestate. Notwithstanding the preceding sentence, the Employer will have no duty, in anycircumstances, to attempt to open an estate on behalf of the Executive, to determine whether anybeneficiary designated by the Executive is alive or to ascertain the address of any suchbeneficiary, to determine the existence of any trust, to determine whether any person or entitypurporting to act as the Executive’s personal representative (or the trustee of a trust establishedby the Executive) is duly authorized to act in that capacity, or to locate or attempt to locate anybeneficiary, personal representative, or trustee.
     (a) Termination by Change of Control. Upon the happening of a “Change ofControl,” after the date of signing this Agreement, the Employer will pay the Executive (i)the Executive’s Salary for the remainder, if any, of the calendar month in which suchtermination is effective and for twenty-four (24) consecutive calendar months thereafter,and (ii) an amount equal to the Executive’s Incentive Compensation for the previous FiscalYear times two (2). In addition, Employer will pay for medical and life insurance for one(1) year following termination hereunder.
     (b) Termination by the Employer for Cause or Voluntary Resignation byExecutive. If the Employer terminates this Agreement for cause or the Executivevoluntarily resigns, the Executive will be entitled to receive his Salary only through thedate such termination is effective, and will not be entitled to any Incentive Compensationfor the Fiscal Year during which such termination occurs or any subsequent Fiscal Year.
     (c) Termination upon Disability. If this Agreement is terminated by eitherparty as a result of the Executive’s disability, as determined under Section 6.2, theEmployer will pay the Executive his Salary through the remainder of the calendar monthduring which such termination is effective and for the lesser of (i) three (3) consecutivemonths thereafter, or (ii) the period until disability insurance benefits commence under thedisability insurance coverage furnished by the Employer to the Executive.
     (d) Termination upon Death. If this Agreement is terminated because of theExecutive’s death, the Executive will be entitled to receive his Salary through the end ofthe calendar month in which his death occurs, and that part of the Executive’s IncentiveCompensation, if any, for the Fiscal Year during which his death occurs, prorated throughthe end of the calendar month during which his death occurs.
     (e) Benefits. The Executive’s accrual of, or participation in plans providingfor, the Benefits will cease at the effective date of the termination of this Agreement, andthe Executive will be entitled to accrued Benefits pursuant to such plans only as providedin such plans. The Executive will not receive, as part of his termination pay pursuant tothis Section 6, any payment or other compensation for any vacation,holiday, sick leave, or other leave unused on the date the notice of termination isgiven under this Agreement.
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     7.  NON-DISCLOSURE COVENANT
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
     The Executive acknowledges that (a) during the Employment Period and as a part of hisemployment, the Executive will be afforded access to Confidential Information; (b) publicdisclosure of such Confidential Information could have an adverse effect on the Employer and itsbusiness; and (c) the provisions of this Section 7 are reasonable and necessary to prevent theimproper use or disclosure of Confidential Information.
7.2 AGREEMENTS OF THE EXECUTIVE
     In consideration of the compensation and benefits to be paid or provided to the Executive bythe Employer under this Agreement, the Executive covenants as follows:
     Confidentiality.
     (a) During and following the Employment Period, the Executive will hold in confidencethe Confidential Information and will not disclose it to any person except with the specificprior written consent of the Employer or except as otherwise expressly permitted by theterms of this Agreement.
     (b) Any trade secrets of the Employer will be entitled to all of the protections andbenefits under the trade secret laws of the State of Texas and any other applicable law. Ifany information that the Employer deems to be a trade secret is found by a court ofcompetent jurisdiction not to be a trade secret for purposes of this Agreement, suchinformation will, nevertheless, be considered Confidential Information for purposes of thisAgreement. The Executive hereby waives any requirement that the Employer submits proof ofthe economic value of any trade secret or post a bond or other security.
     (c) None of the foregoing obligations and restrictions applies to any part of theConfidential Information that the Executive demonstrates was or became generally availableto the public other than as a result of a disclosure by the Executive, any ConfidentialInformation known to Executive prior to his employment hereunder or any ConfidentialInformation required to be disclosed by legal process.
     (d) The Executive will not remove from the Employer’s premises (except to the extentsuch removal is for purposes of the performance of the Executive’s duties at home or whiletraveling, or except as otherwise specifically authorized by the Employer) any document,record, notebook, plan, model, component, device, or computer software or code, whetherembodied in a disk or in any other form (collectively, the “Proprietary Items”). TheExecutive recognizes that, as between the Employer and the Executive, all of the ProprietaryItems, whether or not developed by the Executive, are the exclusive property of theEmployer. Upon termination of this Agreement by either party, or upon the request of theEmployer during the Employment Period, the Executive will return to the Employer all of theProprietary Items in the Executive’s possession or subject to the Executive’s control, andthe Executive shall not retain any copies, abstracts, sketches, or other physical embodimentof any of the Proprietary Items.
7.3 DISPUTES OR CONTROVERSIES
     The Executive recognizes that should a dispute or controversy arising from or relating to thisAgreement be submitted for adjudication to any court, arbitration panel, or other third party, thepreservation of the secrecy of Confidential Information may be jeopardized. All pleadings,documents, testimony, and records relating to any such adjudication during the pendency of suchproceeding will be maintained in secrecy and will be available for inspection by the Employer, theExecutive, and their respective attorneys and experts, who will agree, in advance and in writing,to receive and maintain all such information in secrecy, except as may be limited by them inwriting.
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     8. GENERAL PROVISIONS
8.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
     The Executive acknowledges that the injury that would be suffered by the Employer as a resultof a breach of the provisions of this Agreement (including any provision of Section 7) would beirreparable and that an award of monetary damages to the Employer for such a breach would be aninadequate remedy. Consequently, the Employer will have the right, in addition to any other rightsit may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwiseto specifically enforce any provision of this Agreement, and the Employer will not be obligated topost bond or other security in seeking such relief.
8.2 COVENANTS OF SECTION 7 ARE ESSENTIAL AND INDEPENDENT COVENANTS
     The covenants by the Executive in Section 7 are essential elements of this Agreement, andwithout the Executive’s agreement to comply with such covenants, the Employer would not haveentered into this Agreement. The Employer and the Executive have independently consulted theirrespective counsel and have been advised in all respects concerning the reasonableness andpropriety of such covenants, with specific regard to the nature of the business conducted by theEmployer.
     The Executive’s covenants in Section 7 are independent covenants and the existence of anyclaim by the Executive against the Employer under this Agreement or otherwise, will not excuse theExecutive’s breach of any covenant in Section 7.
     If the Executive’s employment hereunder expires or is terminated, this Agreement will continuein full force and effect as is necessary or appropriate to enforce the covenants and agreements ofthe Executive in Section 7.
8.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
     The Executive represents and warrants to the Employer that the execution and delivery by theExecutive of this Agreement do not, and the performance by the Executive of the Executive’sobligations hereunder will not, with or without the giving of notice or the passage of time, orboth: (a) violate any judgment, writ, injunction, or order of any court, arbitrator, orgovernmental agency applicable to the Executive; or (b) conflict with, result in the breach of anyprovisions of or the termination of, or constitute a default under, any agreement to which theExecutive is a party or by which the Executive is or may be bound.
8.4 OBLIGATIONS CONTINGENT ON PERFORMANCE
     The obligations of the Employer hereunder, including its obligation to pay the compensationprovided for herein, are contingent upon the Executive’s performance of the Executive’s obligationshereunder.
8.5 WAIVER
     The rights and remedies of the parties to this Agreement are cumulative and not alternative.Neither the failure nor any delay by either party in exercising any right, power, or privilegeunder this Agreement will operate as a waiver of such right, power, or privilege, and no single orpartial exercise of any such right, power, or privilege will preclude any other or further exerciseof such right, power, or privilege or the exercise of any other right, power, or privilege. To themaximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement canbe discharged by one party, in whole or in part, by a waiver or renunciation of the claim or rightunless in writing signed by the other party; (b) no waiver that may be given by a party will beapplicable except in the specific instance for which it is given; and (c) no notice to or demand onone party will be deemed to be a waiver of any obligation of such party or of the right of theparty giving such notice or demand to take further action without notice or demand as provided inthis Agreement.
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8.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
     This Agreement shall inure to the benefit of, and shall be binding upon, the parties heretoand their respective successors, assigns, heirs, and legal representatives, including any entitywith which the Employer may merge or consolidate or to which all or substantially all of its assetsmay be transferred. The duties and covenants of the Executive under this Agreement, being personal,may not be delegated.
8.7 NOTICES
     All notices, consents, waivers, and other communications under this Agreement must be inwriting and will be deemed to have been duly given when (a) delivered by hand (with writtenconfirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), providedthat a copy is mailed by registered mail, return receipt requested, or (c) when received by theaddressee, if sent by a nationally recognized overnight delivery service (receipt requested), ineach case to the appropriate addresses and facsimile numbers set forth below (or to such otheraddresses and facsimile numbers as a party may designate by notice to the other parties):        If to Employer: MetroCorp Bancshares, Inc. 9600 Bellaire Blvd., Suite 252 Houston, Texas 77036 Attention: May P. Chu        If to Executive: George M. Lee MetroCorp Bancshares, Inc. 9600 Bellaire Blvd., Suite 252 Houston, Texas 77036
8.8 ENTIRE AGREEMENT; AMENDMENTS
     This Agreement contains the entire agreement between the parties with respect to the subjectmatter hereof and supersedes all prior agreements and understandings, oral or written, between theparties hereto with respect to the subject matter hereof. This Agreement may not be amended orally,but only by an agreement in writing signed by the parties hereto.
8.9 GOVERNING LAW
     This Agreement will be governed by the laws of the State of Texas without regard to conflictsof laws principles.
8.10 JURISDICTION
     Any action or proceeding seeking to enforce any provision of, or based on any right arisingout of, this Agreement may be brought against either of the parties in the courts of the State ofTexas, County of Harris, or, if it has or can acquire jurisdiction, in the United States DistrictCourt for the Southern District of Texas, and each of the parties consents to the jurisdiction ofsuch courts (and of the appropriate appellate courts) in any such action or proceeding and waivesany objection to venue laid therein. Process in any action or proceeding referred to in thepreceding sentence may be served on either party anywhere in the world.
8.11 SECTION HEADINGS, CONSTRUCTION
     The headings of Sections in this Agreement are provided for convenience only and will notaffect its construction or interpretation. All references to “Section” or “Sections” refer to thecorresponding Section or Sections of this Agreement unless otherwise specified. All words used inthis Agreement will be construed to be of such gender or number, as the circumstances require.Unless otherwise expressly provided, the word “including” does not limit the preceding words orterms.
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8.12 SEVERABILITY
     If any provision of this Agreement is held invalid or unenforceable by any court of competentjurisdiction, the other provisions of this Agreement will remain in full force and effect. Anyprovision of this Agreement held invalid or unenforceable only in part or degree will remain infull force and effect to the extent not held invalid or unenforceable.
8.13 COUNTERPARTS
     This Agreement may be executed in one or more counterparts, each of which will be deemed to bean original copy of this Agreement and all of which, when taken together, will be deemed toconstitute one and the same agreement.
     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the dateabove first written above.           **EMPLOYER:**    **METROCORP BANCSHARES, INC.**       **DATE:** September 3, 2004 By: /s/ Don J. Wang            Don J. Wang      Chairman of the Board        **EXECUTIVE:**     **DATE:** September 2, 2004 /s/ George M. Lee       George M. Lee   Executive Vice Chairman
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