Exhibit 10.3

STATE OF NORTH CAROLINA

COUNTY OF COLUMBUS

EMPLOYMENT AGREEMENT

THIS AGREEMENT entered into as of October 30, 2007 by and between WACCAMAW
BANKSHARES, INC. (hereinafter referred to as the “Company”), WACCAMAW BANK
(hereinafter referred to as the “Bank”) and James G. Graham (hereinafter
referred to as “Officer”).

WITNESSETH:

WHEREAS, the expertise and experience of Officer and his relationships and
reputation in the financial institutions industry are extremely valuable to the
Bank and to its sole shareholder, the Company; and

WHEREAS, it is in the best interests of the Company and its shareholders to
maintain an experienced and sound management team to manage the Company and the
Bank (the “Company” and the “Bank” sometimes referred to herein collectively as
the “Employer”) and to further the Company’s overall strategies to protect and
enhance the value of its shareholders’ investments; and

WHEREAS, the Employer and Officer desire to enter into this Agreement to
establish the scope, terms and conditions of Officer’s employment by the
Employer; and

WHEREAS, the Employer and Officer desire to enter into this Agreement also to
provide Officer with security in the event of a change in control in the Company
and to ensure the continued loyalty of Officer during any such change in control
in order to maximize shareholder value as well as the continued safe and sound
operation of the Company and the Bank.

NOW, THEREFORE, for and in consideration of the premises and mutual promises,
covenants and conditions hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged, the
Company, the Bank and Officer hereby agree as follows:

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1. Employment. The Employer hereby agrees to employ Officer, and Officer hereby
agrees to serve as an officer of the Company and as an officer of the Bank, all
upon the terms and conditions stated herein. As an officer of the Company and
the Bank, Officer will (i) serve as President and Chief Executive Officer of the
Company and the Bank; and (ii) have such other duties and responsibilities, and
render to the Employer such other management services, as are customary for
persons in Officer’s position with the Employer or as shall otherwise be
reasonably assigned to him from time to time by the Employer. Officer shall
faithfully and diligently discharge his duties and responsibilities under this
Agreement and shall use his best efforts to implement the policies established
by the Employer. Officer hereby agrees to devote such number of hours of his
working time and endeavors to the employment granted hereunder as Officer and
the Employer shall deem to be necessary to discharge his duties hereunder, and,
for so long as employment hereunder shall exist, Officer shall not engage in any
other occupation which requires a significant amount of Officer’s personal
attention during Employer’s regular business hours or which otherwise interferes
with Officer’s attention to or performance of his duties and responsibilities as
an officer of the Company or the Bank hereunder except with the prior written
consent of the Company or the Bank. However, nothing herein contained shall
restrict or prevent Officer from personally, and for Officer’s own account,
trading in stocks, bonds, securities, real estate or other forms of investment
for Officer’s own benefit so long as said activities do not interfere with
Officer’s attention to or performance of his duties and responsibilities as an
officer of the Company and the Bank.

During the term of this Agreement, Officer shall be allowed, in his sole
discretion, to maintain his primary work location in Whiteville, North Carolina.
Notwithstanding the foregoing, upon the mutual, prior written consent of the
Company, Bank and Officer, Officer’s primary work location may be moved to a
location outside of Whiteville, North Carolina.

2. Compensation. For all services rendered by Officer to the Employer under this
Agreement, the Employer shall pay Officer a minimum base salary at a rate of Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000) per annum. Salary paid
under this Agreement shall be payable in cash not less frequently than monthly.
All compensation hereunder shall be subject to customary withholding taxes and
such other employment taxes as are required by law. In the event of a Change in
Control (as defined in Paragraph 8), Officer’s

 

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base salary shall be increased not less than six percent (6%) annually during
the term of this Agreement.

In addition to the foregoing, Officer shall be entitled to receive cash bonuses
and stock option or other equity awards at such times and in such amounts as may
be determined by the Board of Directors of the Company or its Compensation
Committee.

3. Participation in Retirement and Employee Benefit Plans; Fringe Benefits.
Subject to the terms and conditions of this Agreement, Officer shall be entitled
to participate in any and all employee benefit programs and compensation plans
from time to time maintained by Employer and available to all employees
including incentive and other stock options and grants, all in accordance with
the terms and conditions (including eligibility requirements) of such programs
and plans of Employer as applicable, resolutions of the Company’s or the Bank’s
Boards of Directors establishing such programs and plans, and Employer’s normal
practices and established policies regarding such programs and plans.

In addition to the other compensation and benefits described in this Agreement,
Employer shall:

(i) Provide Officer with four (4) weeks of paid vacation leave notwithstanding
the policy for all other employees and such sick leave as shall be established
under uniform policies for employees.

(ii) Pay the expenses of the Officer for membership and dues in one (1) country
club to be mutually agreed upon by Officer and Bank, provided that Officer shall
be responsible for all personal expenses for use of such club.

(iii) Pay the expenses of the Officer for membership in such civic clubs as
Officer may determine.

(iv) Provide Officer with a car allowance in the amount of Six Hundred Fifty and
00/100 Dollars ($650) per month. Officer shall be responsible for taxes,
insurance and maintenance and fuel expenses incurred with regard to the
automobile.

(v) Reimburse Officer for all out-of-pocket business expenses which are
reasonable and necessary, including travel, which the Officer may incur in
connection with the Officer’s services on behalf of the Employer.

 

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(vi) Pay the monthly premium for medical insurance for Officer and his immediate
family and, if and when offered to employees of the Company, dental and eyecare
insurance for Officer and his immediate family.

(vii) Allow Officer, and Officer shall be entitled, to participate in any plan
relating to deferred compensation, stock options, stock purchases, pension,
thrift, profit sharing, medical coverage, disability insurance, group life
insurance, education or other retirement or employee benefits that the Employer
has adopted, or may, from time to time adopt, for the benefit of its executive
officers or for employees generally, subject to eligibility rules of such plans.
Officer shall also be entitled to participate in any other fringe benefits which
are now, or may be or become, applicable to the Employer’s executive officers,
including the payment of reasonable expenses for attending annual and periodic
meetings of trade associations, and any other benefits which are commensurate
with the duties and responsibilities to be performed by Officer under this
Agreement.

4. Term. Unless sooner terminated as provided in this Agreement and subject to
the right of either Officer or the Employer to terminate Officer’s employment at
any time as provided herein, the term of this Agreement and Officer’s employment
hereunder shall be for a period commencing on the date first written above and
continuing for a period of three (3) years. On each anniversary of this
Agreement, the term shall automatically be extended for an additional one-year
period unless written notice from the Company or the Officer is given ninety
(90) days prior to such date notifying Officer or the Company, as the case may
be, that this Agreement shall not be further extended (the initial term and any
extension thereof, the “Term”). Notwithstanding the foregoing and any other
provision in this Agreement to the contrary, this Agreement shall cease and be
of no further effect on the date on which Officer attains age 65.

5. Confidentiality; Noncompetition. Officer hereby acknowledges and agrees that
(i) in the course of his service as an officer of the Company and the Bank, he
has gained and will continue to gain substantial knowledge of and familiarity
with the Bank’s customers and its dealings with them, and other information
concerning the business of the Company and the Bank, all of which constitutes
valuable assets and privileged information that is particularly sensitive due to
the fiduciary responsibilities inherent in the banking business; and, (ii) in
order to protect the Employer’s interest in and to assure it the benefit of its
business, it is

 

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reasonable and necessary to place certain restrictions on Officer’s ability to
compete against the Company and the Bank and on his disclosure of information
about the Company’s and the Bank’s business and customers. For that purpose, and
in consideration of the agreements of the Company and the Bank contained herein,
Officer covenants and agrees as provided below.

(a) Covenant Not to Compete. Officer will not “Compete” (as defined below),
directly or indirectly, with the Company or the Bank within the North Carolina
counties of Bladen, Columbus, New Hanover or Brunswick or within the South
Carolina Counties of Horry and Lancaster or within a twenty-five (25) mile
radius of any full service office of the Bank (the “Relevant Market”) as
follows:

(i) if this Agreement is terminated by the Employer without “cause” (as defined
in paragraph 6(d) hereof) Officer shall not “Compete” with the Company or the
Bank within the Relevant Market for the period of time Officer is receiving
compensation pursuant to the terms of this Agreement; or

(ii) if this Agreement is terminated by Officer for any reason, Officer shall
not “Compete” with the Company or the Bank within the Relevant Market for a
period of twelve (12) months from the date of termination of this Agreement by
Officer.

Notwithstanding the foregoing, Officer’s covenant not to Compete as set forth in
this Paragraph 5(a) shall be null and void upon a “Change in Control” (as
defined in Paragraph 8 hereof) that occurs while Officer is employed with the
Company or Bank.

For the purposes of this Paragraph 5, the following terms shall have the
meanings set forth below:

Compete. The term “Compete” means: (i) soliciting or securing deposits from any
Person residing in the Relevant Market for any Financial Institution;
(ii) soliciting any Person residing in the Relevant Market to become a borrower
from any Financial Institution, with which such Person has no prior
relationship, or assisting (other than through the performance of ministerial or
clerical duties) any Financial Institution with which such Person has no prior
relationship in making loans to any such Person; (iii) inducing or attempting to
induce any Person who was a Customer of the Bank on the date of termination of
Officer’s employment with the Employer, to change such Customer’s depository,
loan and/or other banking relationship from the Bank to another Financial
Institution with which Customer has no

 

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prior relationship; (iv) acting as a consultant, officer, director, independent
contractor, incorporator, organizer or employee of any Financial Institution, or
proposed Financial Institution in organization, that has its main or principal
office or proposed office in the Relevant Market, or, in acting in any such
capacity with any other Financial Institution, to maintain an office or be
employed at or assigned to or to have any direct involvement in the management,
business or operation of any office of such Financial Institution located in the
Relevant Market; or (v) communicating to any Financial Institution the names or
addresses or any financial information concerning any Person who was a Customer
of the Bank at the date of Officer’s termination of this Agreement.

Customer. The term “Customer” means any Person with whom, as of the effective
date of termination of this Agreement or during Officer’s employment with the
Employer, the Bank or the Company has or has had a depository, loan and/or other
banking relationship.

Financial Institution. The term “Financial Institution” means any federal or
state chartered bank, savings bank, savings and loan association or credit
union, any subsidiary thereof, or any holding company for or corporation that
owns or controls any such entity, or any other Person engaged in the business of
making loans of any type or receiving deposits, other than the Bank or its
affiliates.

Person. The term “Person” means any natural person or any corporation,
partnership, proprietorship, joint venture, limited liability company, trust,
estate, governmental agency or instrumentality, fiduciary, unincorporated
association or other entity.

(b) Confidentiality Covenant. Officer covenants and agrees that any and all
data, figures, projections, estimates, lists, files, records, documents, manuals
or other such materials or information (financial or otherwise) relating to the
Bank and its banking business, regulatory examinations, financial results and
condition, lending and deposit operations, customers (including lists of the
Bank’s customers and information regarding their accounts and business dealings
with the Bank), policies and procedures, computer systems and software,
shareholders and employees (herein referred to as “Confidential Information”)
are proprietary to the Bank and are valuable, special and unique assets of the
Bank’s business to which Officer will have access during his employment with the
Company and the Bank. Officer agrees that (i) all

 

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such Confidential Information shall be considered and kept as the confidential,
private and privileged records and information of the Company and the Bank, and
(ii) at all times during the term of his employment with the Company and the
Bank and following the termination of this Agreement or his employment for any
reason, and except as shall be required in the course of the performance by
Officer of his duties on behalf of the Bank or otherwise pursuant to the direct,
written authorization of the Company or the Bank, Officer will not: divulge any
such Confidential Information to any other Person or Financial Institution;
remove any such Confidential Information in written or other recorded form from
the Bank’s premises; or make any use of any Confidential Information for his own
purposes or for the benefit of any Person or Financial Institution other than
the Bank. However, following the termination of Officer’s employment, this
subparagraph (b) shall not apply to any Confidential Information which then is
in the public domain (provided that Officer was not responsible, directly or
indirectly, for permitting such Confidential Information to enter the public
domain without the Bank’s or the Company’s consent), or which is obtained by
Officer from a third party which or who is not obligated under an agreement of
confidentiality with respect to such information.

(c) Remedies for Breach. Officer understands and agrees that a breach or
violation by him of the covenants contained in Paragraph 5(a) and 5(b) of this
Agreement will be deemed a material breach of this Agreement and will cause
irreparable injury to the Company and the Bank, and that it would be difficult
to ascertain the amount of monetary damages that would result from any such
violation. In the event of Officer’s actual or threatened breach or violation of
the covenants contained in Paragraph 5(a) or 5(b), the Company and/or the Bank
shall be entitled to bring a civil action seeking an injunction restraining
Officer from violating or continuing to violate those covenants or from any
threatened violation thereof, or for any other legal or equitable relief
relating to the breach or violation of such covenant. Officer agrees that, if
the Company or the Bank institutes any action or proceeding against Officer
seeking to enforce any of such covenants or to recover other relief relating to
an actual or threatened breach or violation of any of such covenants, Officer
shall be deemed to have waived the claim or defense that the Company or the Bank
has an adequate remedy at law and shall not urge in any such action or
proceeding the claim or defense that such a remedy at law exists. However, the
exercise by the Company or the Bank of any such right, remedy, power or
privilege

 

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shall not preclude the Company or the Bank or their successors or assigns from
pursuing any other remedy or exercising any other right, power or privilege
available to it for any such breach or violation, whether at law or in equity,
including the recovery of damages, all of which shall be cumulative and in
addition to all other rights, remedies, powers or privileges of the Company and
the Bank.

Notwithstanding anything contained herein to the contrary, Officer agrees that
the provisions of Paragraph 5(a) and 5(b) above and the remedies provided in
this Paragraph 5(c) for a breach by Officer shall be in addition to, and shall
not be deemed to supersede or to otherwise restrict, limit or impair the rights
of the Company or the Bank under the Trade Secrets Protection Act contained in
Article 24, Chapter 66 of the North Carolina General Statutes, or any other
state or federal law or regulation dealing with or providing a remedy for the
wrongful disclosure, misuse or misappropriation of trade secrets or other
proprietary or confidential information.

(d) Survival of Covenants. Officer’s covenants and agreements and the rights and
remedies of the Company and the Bank provided for in this Paragraph 5 shall
survive any termination of this Agreement or Officer’s employment with the
Employer.

6. Termination and Termination Pay.

(a) Officer’s employment under this Agreement may be terminated at any time by
Officer upon ninety (90) days written notice to the Employer. Upon such
termination, Officer shall be entitled to receive compensation through the
effective date of such termination; provided, however, that the Employer, in its
sole discretion, may elect for Officer not to serve out part or all of said
notice period.

(b) Officer’s employment under this Agreement shall be terminated upon the death
of Officer during the term of this Agreement. Upon any such termination,
Officer’s estate shall be entitled to receive any compensation due to Officer
computed through the last day of the calendar month in which his death shall
have occurred but which remains unpaid.

(c) In the event Officer becomes disabled during the term of his employment
hereunder and it is determined by the Employer that Officer is permanently
unable to perform his duties under this Agreement, the Employer (i) shall
continue to compensate

 

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Officer at the minimum base salary level described in Paragraph 2 above then in
effect as increased from time to time for the twelve months following the
termination of Officer’s employment pursuant to this Paragraph 6(c), and
(ii) shall continue to provide Officer each of the other benefits set forth or
described in this Agreement including, without limitation, a pro rata portion of
the bonus accrued for Officer as of the date Officer’s employment is terminated
pursuant to this Paragraph 6(c) in such calendar year of termination hereunder
(collectively, the “Disability Benefits”). The Disability Benefits shall be
reduced by any other payments provided under any disability income plan of the
Employer which is applicable to Officer. In the event of any disagreement
between Officer and the Employer as to whether Officer is physically or mentally
incapacitated such as will result in the termination of Officer’s employment
pursuant to this Paragraph 6(c), the question of such incapacity shall be
submitted to an impartial and reputable physician for determination, selected by
mutual agreement of Officer and the Employer or, failing such agreement, by two
(2) physicians (one (1) of whom shall be selected by the Employer and the other
by Officer), and such determination of the question of such incapacity by such
physician or physicians shall be final and binding on Officer and the Employer.
The Employer shall pay the reasonable fees and expenses of such physician or
physicians in making any determination required under this Paragraph 6(c).

(d) The Employer may terminate Officer’s employment at any time for any reason
with or without “Cause” (as defined below), but any termination by the Employer
other than termination for “Cause,” (as defined below) shall not prejudice
Officer’s right to compensation or other benefits under this Agreement for a
period of time equal to the balance of the term of this Agreement. Following any
termination of Officer’s employment for “Cause,” Officer shall have no further
rights under this Agreement (including any right to receive compensation or
other benefits for any period after such termination).

For purposes of this Paragraph 6(d), the Employer shall have “Cause” to
terminate Officer’s employment upon:

(i) A determination by the Employer, in good faith, that Officer (A) has
breached in any material respect any of the terms or conditions of this
Agreement, or (B) is engaging or has engaged in willful misconduct or conduct
which is detrimental to the business prospects of the Company or to the Bank or
which has had or likely

 

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will have a material adverse effect on the business or reputation of the Company
or the Bank. Prior to any termination of Officer’s employment for a breach,
failure to perform or conduct described in this subparagraph (i), the Employer
shall give Officer written notice which describes such breach, failure to
perform or conduct and if during a period of five (5) business days following
such notice Officer cures or corrects the same to the reasonable satisfaction of
the Employer, then this Agreement shall remain in full force and effect.
However, notwithstanding the above, if the Employer has given written notice to
Officer on a previous occasion of the same or a substantially similar breach,
failure to perform or conduct, or of a breach, failure to perform or conduct
which the Employer determines in good faith to be of substantially similar
import, or if the Employer determines in good faith that the then current
breach, failure to perform or conduct is not reasonably curable, then
termination under this subparagraph (i) shall be effective immediately and
Officer shall have no right to cure such breach, failure to perform or conduct.

(ii) The violation by Officer of any applicable federal or state law, or any
applicable rule, regulation, order or statement of policy promulgated by any
governmental agency or authority having jurisdiction over the Company or the
Bank or any of their affiliates or subsidiaries (a “Regulatory Authority”,
including without limitation the Federal Deposit Insurance Corporation, the
North Carolina Commissioner of Banks, the Board of Governors of the Federal
Reserve or any other banking regulator having legal jurisdiction over the
Company or the Banks), which results from Officer’s gross negligence, willful
misconduct or intentional disregard of such law, rule, regulation, order or
policy statement and results in any substantial damage, monetary or otherwise,
to the Company or any of its affiliates or subsidiaries or to the reputation of
the Company or the Bank;

(iii) The commission in the course of Officer’s employment with the Employer of
an act of fraud, embezzlement, theft or proven personal dishonesty (whether or
not resulting in criminal prosecution or conviction);

(iv) The conviction of Officer of any felony or misdemeanor involving dishonesty
or breach of trust, or the occurrence of any event described in Section 19 of
the Federal Deposit Insurance Act or any other event or circumstance which
disqualifies Officer from serving as an employee or officer of, or a party
affiliated with, the Company or the Bank or any of their affiliates or
subsidiaries;

 

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(v) Officer becomes unacceptable to, or is removed, suspended or prohibited from
participating in the conduct of the affairs of the Company or the Bank (or if
proceedings for that purpose are commenced) by any Regulatory Authority; and,

(vi) The occurrence of any event believed by the Company, in good faith, to have
resulted in Officer being excluded from coverage, or having coverage limited as
to Officer as compared to other covered officers or employees, under the
Employer’s then current “blanket bond” or other fidelity bond or insurance
policy covering its directors, officers or employees.

7. Additional Regulatory Requirements. Notwithstanding anything contained in
this Agreement to the contrary, it is understood and agreed that the Employer
(or its successors in interest) shall not be required to make any payment or
take any action under this Agreement if (a) the Employer is declared by any
Regulatory Authority to be insolvent, in default or operating in an unsafe or
unsound manner, or if (b) in the opinion of counsel to the Employer such payment
or action (i) would be prohibited by or would violate any provision of state or
federal law applicable to the Employer, including without limitation the Federal
Deposit Insurance Act and Chapter 53 of the North Carolina General Statutes as
now in effect or hereafter amended, (ii) would be prohibited by or would violate
any applicable rules, regulations, orders or statements of policy, whether now
existing or hereafter promulgated, of any Regulatory Authority, or
(iii) otherwise would be prohibited by any Regulatory Authority.

8. Change in Control

(a) In the event of a “Change in Control” (as defined in Subparagraph
(c) below), of the Company, Officer shall be entitled to the “Change in Control
Benefit” (as defined in Subparagraph (b) below). Any such Change in Control (and
the Company’s obligation to pay the Change in Control Benefit) shall be deemed
to have occurred only upon delivery to the Company or any successor thereto by
Officer, of written notice which describes the Change in Control. If Officer
does not so notify the Company within two (2) months of its occurrence, Officer
shall thereafter have no further rights hereunder with respect to that Change in
Control, but shall retain rights, if any, hereunder with respect to any other
Change in Control.

 

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(b) The Change in Control Benefit shall be an amount equal to two hundred
ninety-nine percent (299%) of Officer’s “base amount” as defined in
Section 28OG(b)(3)(A) of the Internal Revenue Code of 1986, as amended (the
“Code”).

(c) For the purposes of this Agreement, the term “Change in Control” shall mean
any of the following events:

(i) After the effective date of this Agreement, any “person” (as such term is
defined in Section 7 (j) (8) (A) of the Change in Bank Control Act of 1978),
directly or indirectly, acquires beneficial ownership of voting stock, or
acquires irrevocable proxies or any combination of voting stock and irrevocable
proxies, representing twenty-five percent (25%) or more of any class of voting
securities of the Company, or acquires control of in any manner the election of
a majority of the directors of the Company;

(ii) The Company consolidates or merges with or into another corporation,
association, or entity, or is otherwise reorganized, where the Company is not
the surviving corporation in such transaction;

(iii) All or substantially all of the assets of the Company are sold or
otherwise transferred to or are acquired by any other corporation, association,
or other person, entity, or group; or

(iv) During any period of two (2) consecutive years, individuals who constitute
the Company’s board of directors at the beginning of the two-year period cease
for any reason to constitute at least a majority thereof; provided, however,
that - for purposes of this clause (iv) - each director who is first appointed
by the board (or first nominated by the board for election by the shareholders
of the Company) by a vote of at least two-thirds (2/3) of the directors who were
directors at the beginning of the period shall be deemed to have been a director
at the beginning of the two-year period.

Notwithstanding the other provisions of this Paragraph 8, a transaction or event
shall not be considered a Change in Control if, prior to the consummation or
occurrence of such transaction or event, Officer and the Company agree in
writing that the same shall not be treated as a Change in Control for purposes
of this Agreement.

(d) If Officer receives the lump sum payment under Paragraph 8(b) of this
Agreement and acceleration of benefits under any other benefit, compensation, or
incentive

 

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plan or arrangement with Employer (collectively, the “Total Benefits”), and if
any part of the Total Benefits is subject to the Excise Tax under section 280G
and section 4999 of the Internal Revenue Code (the “Excise Tax”), Employer shall
pay to the Officer the following additional amounts, consisting of (1) a payment
equal to the Excise Tax payable by the Officer under section 4999 on the Total
Benefits (the “Excise Tax Payment”) and (2) a payment equal to the amount
necessary to provide the Excise Tax Payment net of all income, payroll, and
excise taxes. Together, the additional amounts described in clauses (1) and
(2) are referred to in this Agreement as the “Gross-Up Payment Amount.” Payment
of the Gross-Up Payment Amount shall be made in addition to the amount set forth
in Paragraph 8(b).

For purposes of determining whether any of the Total Benefits will be subject to
the Excise Tax and for purposes of determining the amount of the Excise Tax:

(i) Determination of “Parachute Payments” Subject to the Excise Tax. Any other
payments or benefits received or to be received by Officer in connection with a
Change in Control or Officer’s termination of employment (whether under the
terms of this Employment Agreement or any other agreement or any other benefit
plan or arrangement with Employer, any person whose actions result in a Change
in Control, or any person affiliated with Employer or such person) shall be
treated as “parachute payments” within the meaning of Section 280G(b)(2) of the
Code, and all “excess parachute payments” within the meaning of
Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax,
unless in the opinion of the certified public accounting firm that is retained
by Employer as of the date immediately before the Change in Control (the
“Accounting Firm”) such other payments or benefits do not constitute (in whole
or in part) parachute payments, or such excess parachute payments represent (in
whole or in part) reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess (as defined in section
280G(b)(3) of the Code), or are otherwise not subject to the Excise Tax.

(ii) Calculation of Benefits Subject to Excise Tax. The amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal to
the lesser of (a) the total amount of the Total Benefits reduced by the amount
of such Total Benefits that in the opinion of the Accounting Firm are not
parachute payments, or (b) the amount of excess

 

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parachute payments within the meaning of Section 280G(b)(1) of the Code (after
applying clause (i), above).

(iii) Value of Noncash Benefits and Deferred Payments. The value of any noncash
benefits or any deferred payment or benefit shall be determined by the
Accounting Firm in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code.

Assumed Marginal Income Tax Rate. For purposes of determining the Gross-Up
Payment Amount, Officer shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar years in which
the Gross-Up Payment Amount is to be made and state and local income taxes at
the highest marginal rate of taxation in the state and locality of Officer’s
residence on the date of termination of employment, net of the reduction in
federal income taxes that can be obtained from deduction of such state and local
taxes (calculated by assuming that any reduction under Section 68 of the Code in
the amount of itemized deductions allowable to Officer applies first to reduce
the amount of such state and local income taxes that would otherwise be
deductible by Officer, and applicable federal FICA and Medicare withholding
taxes).

Return of Reduced Excise Tax Payment or Payment of Additional Excise Tax. If the
Excise Tax is later determined to be less than the amount taken into account
hereunder when Officer’s employment is terminated, Officer shall repay to
Employer when the amount of the reduction in Excise Tax is finally determined
the portion of the Gross-Up Payment Amount attributable to the reduction (plus
that portion of the Gross-Up Payment Amount attributable to the Excise Tax,
federal, state and local income taxes and FICA and Medicare withholding taxes
imposed on the Gross-Up Payment Amount being repaid by the Officer to the extent
that the repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or a federal, state or local income tax deduction).

If the Excise Tax is later determined to be more than the amount taken into
account hereunder when the Officer’s employment terminated (due, for example, to
a payment whose existence or amount cannot be determined at the time of the
Gross-Up Payment Amount), Employer shall make an additional payment to Officer
for that excess (plus any interest, penalties or additions payable by Officer
for the excess) when the amount of the excess is finally determined.

 

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(e) Responsibilities of the Accounting Firm and Employer.

Determinations Shall Be Made by the Accounting Firm. Subject to the provisions
of Section 8(d), all determinations required to be made under this Section 8(e)
including whether and when a Gross-Up Payment Amount is required, the amount of
the Gross-Up Payment Amount and the assumptions to be used to arrive at the
determination (collectively, the “Determination”) shall be made by the
Accounting Firm, which shall provide detailed supporting calculations both to
the Employer and Officer within 15 business days after receipt of notice from
Employer or Officer that there has been a Gross-Up Payment Amount, or such
earlier time as is requested by Employer.

Fees and Expenses of the Accounting Firm and Agreement with the Accounting Firm.
All fees and expenses of the Accounting Firm shall be borne solely by Employer.
Employer shall enter into any reasonable agreement requested by the Accounting
Firm in connection with the performance of its services hereunder.

Accounting Firm’s Opinion. If the Accounting Firm determines that no Excise Tax
is payable by Officer, the Accounting Firm shall furnish Officer with a written
opinion to that effect, and to the effect that failure to report Excise Tax, if
any, on Officer’s applicable federal income tax return will not result in the
imposition of a negligence or similar penalty.

Accounting Firm’s Determination Is Binding; Underpayment and Overpayment. The
Determination by the Accounting Firm shall be binding on Employer and the
Officer. Because of the uncertainty in determining whether any of the Total
Benefits will be subject to the Excise Tax at the time of the Determination, it
is possible that a Gross-Up Payment Amount that should have been made will not
have been made by Employer (an “Underpayment”), or that a Gross-Up Payment
Amount will be made that should not have been made by Employer (an
“Overpayment”). If, after a Determination by the Accounting Firm, Officer is
required to make a payment of additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred. The Underpayment
(together with interest at the rate provided in Section 1274(d)(2)(B) of the
Code) shall be paid promptly by Employer to or for the benefit of Officer. If
the Gross-Up Payment Amount exceeds the amount necessary to reimburse Officer
for his Excise Tax according to Section 8(d), the Accounting Firm shall
determine the amount of the Overpayment that has been made. The Overpayment
(together with interest at the rate

 

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provided in Section 1274(d)(2)(B) of the Code) shall be paid promptly by Officer
to or for the benefit of Employer. Provided that his expenses are reimbursed by
Employer, Officer shall cooperate with any reasonable requests by Employer in
any contests or disputes with the Internal Revenue Service relating to the
Excise Tax.

Accounting Firm Conflict of Interest. If the Accounting Firm is serving as
accountant or auditor for the individual, entity, or group effecting the Change
in Control, Officer may appoint another regionally recognized public accounting
firm to make the Determinations required hereunder (in which case the term
“Accounting Firm” as used in this Agreement shall be deemed to refer to the
accounting firm appointed by Officer under this paragraph).

(f) Officer shall be entitled to the payments called for by this Paragraph 8
within forty-five (45) days of receipt of the written notice from Officer . The
entire amount of the payments called for by this Paragraph 8 shall be paid to
the Officer in a single lump sum. Company and Officer intend that their exercise
of authority or discretion under this Agreement shall comply with Section 409A
of the Code. In that regard, if any provision of this Agreement is ambiguous as
to its satisfaction of the requirements of Section 409A, such provision shall
nevertheless be applied in a manner consistent with those requirements. Company
shall maintain to the maximum extent practicable the original intent of the
applicable provision without subjecting the Employee to additional tax or
interest, and Company shall not be required to incur additional compensation
expense as a result of the reformed provision. References in this Agreement to
Section 409A of the Code include rules, regulations and guidance of general
application issued by the Department of Treasury under Section 409A of the Code.

(g) In the event any dispute shall arise between Officer and the Company as to
the terms or interpretation of this Agreement, including this Paragraph 8,
whether instituted by formal legal proceedings or otherwise, including any
action taken by Officer to enforce the terms of this Paragraph 8 or in defending
against any action taken by the Company, the Company shall reimburse Officer for
all costs and expenses, proceedings or actions in an aggregate amount not to
exceed $500,000.

9. Successors and Assigns.

 

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(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Company or the Bank which shall acquire,
directly or indirectly, by conversion, merger, share exchange, purchase or
otherwise, all or substantially all of the assets of the Company or the Bank, as
applicable.

(b) The Employer is contracting for the unique and personal skills of Officer.
Therefore, Officer shall be precluded from assigning or delegating his rights or
duties hereunder without first obtaining the written consent of the Company.

10. Modification; Waiver; Amendments. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the parties hereto. No waiver by any party
hereto, at any time, of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No amendments or additions to
this Agreement shall be binding unless in writing and signed by all parties,
except as herein otherwise provided.

11. Applicable Law. This Agreement shall be governed in all respects whether as
to validity, construction, capacity, performance or otherwise, by the laws of
the State of North Carolina, except to the extent that federal law shall be
deemed to apply.

12. Severability. The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.

13. Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to the transactions described herein and supersedes any and
all other oral or written agreements heretofore made, and there are no
representations or inducements by or to, or any agreements between, any of the
parties hereto other than those contained herein in writing.

[signature page follows]

This Agreement has been executed in duplicate with one original being retained
by Waccamaw Bankshares, Inc. and Waccamaw Bank and one original retained by
James G. Graham.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement under seal and in
such form as to be binding as of the day and year first hereinabove written.

 

WACCAMAW BANKSHARES, INC. By:  

/s/ Alan W. Thompson

  Alan W. Thompson   Chairman of the Board

 

ATTEST

/s/ James E. Hill, Jr.

Secretary Waccamaw Bankshares, Inc.

 

WACCAMAW BANK By:  

/s/ Alan W. Thompson

  Alan W. Thompson   Chairman of the Board

 

ATTEST

/s/ James E. Hill, Jr.

Secretary Waccamaw Bank

 

OFFICER

/s/ James G. Graham

James G. Graham

 

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