Exhibit 10.4

 

CONSULTING AND NONCOMPETE AGREEMENT

THIS CONSULTING AND NONCOMPETE AGREEMENT (this “Agreement”) dated as of February
29, 2016, is made by and among HCSB Financial Corporation, a South Carolina
corporation (the “Company”), Horry County State Bank, a South Carolina
state-chartered commercial bank, which is a wholly owned subsidiary of the
Company (the “Bank” and collectively, with the Company, “HCSB”), and James R.
Clarkson, an individual resident of South Carolina.

WHEREAS, Mr. Clarkson has served as President and Chief Executive Officer of the
Company and the Bank for the past 29 years;

WHEREAS, the Company is conducting an offering to raise at least $45 million in
new capital (the “Offering”), and upon the closing of the Offering, Mr. Clarkson
will retire as the President and Chief Executive Officer of the Company and the
Bank;

WHEREAS, Mr. Clarkson has significant and valuable institutional knowledge of
the Company, the Bank, and the Bank’s customers and employees and his continued
assistance and support will be very important to the success of HCSB following
the Offering, and therefore upon the closing of the Offering, HCSB desires to
retain Mr. Clarkson to provide consulting services to HCSB pursuant to the terms
and conditions set forth herein and to obtain his agreement to comply with
certain restrictive covenants also set forth herein; and

WHEREAS, subject to the closing of the Offering and the receipt of any necessary
regulatory approvals or non-objections, Mr. Clarkson desires to accept such
engagement on the terms and conditions provided herein.

NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, the parties hereto agree as follows:

1.                  Engagement; Consultant Relationship; Duties. Effective upon
the closing of the Offering and Mr. Clarkson’s retirement as the President and
Chief Executive Officer of the Company and the Bank, and subject to the receipt
of any necessary regulatory approvals or non-objections, HCSB hereby engages Mr.
Clarkson, and he hereby agrees to render, at the request of HCSB, consulting
services to HCSB in connection with the business of HCSB. In his role as a
consultant, Mr. Clarkson shall be available to answer questions and provide such
consulting services as may be requested by the executive officers or board of
directors of HCSB from time to time. The services shall include supporting the
Bank: (i) by assisting bankers in identifying, evaluating and bringing in new
business; (ii) by assisting in training of staff as needed; (iii) by assisting
with unresolved issues from HCSB’s past operations; and (iv) by evaluating
products, services and processes within the Bank.

2.                  Term and Termination. Subject to receipt of any necessary
regulatory approvals or non-objections, the term of this Agreement (the “Term”)
shall commence immediately upon the date that the Company shall have closed the
Offering and Mr. Clarkson shall have retired as the President and Chief
Executive Officer of the Company and the Bank and shall continue until the
earliest of: (i) the close of business on the last business day immediately
preceding the third anniversary of the effective date of this Agreement; (ii)
Mr. Clarkson’s death; (iii) upon the Disability (as defined below) of Mr.
Clarkson for a period of 90 consecutive days; (iv) Mr. Clarkson’s termination of
this Agreement prior to the first anniversary of the effective date of this
Agreement as a result of HCSB’s failure to make payments to him as provided
under Section 3 or Section 10 of this Agreement (including as a result of the
circumstances described in Section 16), which failure has not been cured within
30 days of the payment date and provided that HCSB has not previously given Mr.
Clarkson notice that he is in violation of the restrictive covenants of Sections
7, 8, or 10(a-c) of this Agreement; or (v) Mr. Clarkson’s termination of this
Agreement at any time following the first anniversary of the effective date of
this Agreement by providing two weeks’ prior written notice. Notwithstanding
anything in this Agreement to the contrary, HCSB’s obligations to make payments
to Mr. Clarkson hereunder shall terminate effective immediately upon Mr.
Clarkson’s violation of the restrictive covenants of Sections 7, 8, or 10(a-c)
of this Agreement, his indictment for a crime involving dishonesty, moral
turpitude or fraud or any felony, or HCSB’s receipt of formal written notice
that any regulatory agency having jurisdiction over the Company or the Bank
intends to institute any form of formal regulatory action against Mr. Clarkson.
Certain rights and obligations of the parties shall continue following the
termination of this Agreement as stated in Section 20 hereof.

 

 

3.                  Compensation. During the Restricted Period, as compensation
for all services rendered by Mr. Clarkson under this Agreement, HCSB shall pay
him the sum of $9,121.50 per month, or for the first and last months of the
Term, a pro rata portion for any partial month. The payment under this Section 3
shall be separate and in addition to the payments described in Section 10 below.
Payments will be made approximately every two weeks in arrears at the same time
as HCSB processes its periodic payroll disbursements. All such compensation
shall be payable without deduction for federal income, social security, or state
income taxes or any other amounts. Mr. Clarkson acknowledges and agrees that he
shall be solely responsible for making all such filings and payments and shall
indemnify and hold harmless HCSB for any liability, claim, expense, or other
cost incurred by HCSB arising out of or related to his obligations pursuant to
this Section. In addition, the Company and the Bank shall apportion any payments
or benefits paid to Mr. Clarkson pursuant to this Agreement among themselves as
they may agree from time to time in proportion to services actually rendered by
him for such entity; provided, however, that they must satisfy in full all such
obligations in a timely manner as set forth in this Agreement regardless of any
agreed-upon apportionment. Mr. Clarkson’s receipt of satisfaction in full of any
such obligation from the Company or the Bank shall extinguish the obligations of
the other with respect to such obligation.

4.                  Expenses. During the Term of this Agreement, Mr. Clarkson
shall be reimbursed by HCSB for all reasonable business expenses incurred in
connection with the performance of his duties hereunder, and all such
reimbursements shall be paid in accordance with the reimbursement policies of
HCSB in effect from time to time.

5.                  Independent Contractor. Mr. Clarkson is an independent
contractor providing services to HCSB. HCSB will report all payments to be made
hereunder on IRS Forms 1099 as payments to Mr. Clarkson for independent
contracting services.

6.                  Ownership of Work Product. HCSB shall own all Work Product
arising during the period Mr. Clarkson is providing services to HCSB. For
purposes hereof, “Work Product” shall mean all intellectual property rights,
including all Trade Secrets, U.S. and international copyrights, patentable
inventions, and other intellectual property rights in any programming,
documentation, technology or other work product that relates to HCSB or any
Affiliates (as defined below), their business, or customers and that Mr.
Clarkson conceives, develops, or delivers to HCSB at any time during the period
he is providing services to HCSB, during or outside normal working hours, in or
away from the facilities of HCSB, and whether or not requested by HCSB.

7.                  Protection of Trade Secrets. Mr. Clarkson agrees to maintain
in strict confidence and, except as necessary to perform his duties for HCSB, he
agrees not to use or disclose any Trade Secrets of HCSB or any Affiliates during
or after the period he is providing services to HCSB. “Trade Secret” means
information, including a formula, pattern, compilation, program, device, method,
technique, process, drawing, cost data, or customer list, that (i) derives
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by other persons who can obtain
economic value from its disclosure or use; and (ii) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy.

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8.                  Protection of Other Confidential Business Information. In
addition, Mr. Clarkson agrees to maintain in strict confidence and, except as
necessary to perform his duties for HCSB, not to use or disclose any
Confidential Business Information of HCSB during Mr. Clarkson’s engagement
pursuant to this Agreement and for a period of 24 months thereafter.
“Confidential Business Information” shall mean any internal, non-public
information (other than Trade Secrets already addressed above) concerning HCSB’s
financial position and results of operations (including revenues, assets, net
income, etc.); annual and long-range business plans, product or service plans;
marketing plans and methods; training, education and administrative manuals;
customer and supplier information and purchase histories; and employee lists.
The provisions of Sections 7 and 8 shall also apply to protect Trade Secrets and
Confidential Business Information of third parties provided to HCSB under an
obligation of secrecy.

9.                  Return of Materials. Mr. Clarkson shall surrender to HCSB,
promptly upon its request and in any event upon cessation of his services to
HCSB, all media, documents, notebooks, computer programs, handbooks, data files,
models, samples, price lists, drawings, customer lists, prospect data, or other
material of any nature whatsoever (in tangible or electronic form) in his
possession or control, including all copies thereof, relating to the HCSB, its
business, or customers. Upon the request of HCSB, Mr. Clarkson shall certify in
writing compliance with the foregoing requirement. Mr. Clarkson may retain a
copy of this Agreement after the expiration of the Term or any earlier
termination of this Agreement.

10.         Restrictive Covenants. During the Term of this Agreement, in
consideration of the covenants and agreements of Mr. Clarkson contained in this
Section 10, HCSB shall pay Mr. Clarkson the sum of $9,121.50 per month, or for
the first and last months of the Term, a pro rata portion for any partial month;
provided further that HCSB’s obligations to make such payments shall terminate
immediately upon his violation of any of the restrictive covenants of Section
10(a-c) of this Agreement without negating Mr. Clarkson’s obligation to comply
with these restrictions. The payment under this Section 10 shall be separate and
in addition to the payments described in Section 3 above.

 

(a)      No Solicitation of Customers. During the Restricted Period, Mr.
Clarkson shall not (except on behalf of or with the prior written consent of
HCSB), either directly or indirectly, on his own behalf or in the service or on
behalf of others, (i) solicit, divert, or appropriate to or for a Competing
Business (as defined below), or (ii) attempt to solicit, divert, or appropriate
to or for a Competing Business any person or entity that is or was a customer of
the Bank on the date of termination and with whom he has had material contact.

 

(b)      No Recruitment of Personnel. During the Restricted Period, Mr. Clarkson
shall not, either directly or indirectly, on his own behalf or in the service or
on behalf of others, (i) solicit, divert or hire away; or (ii) attempt to
solicit, divert, or hire away to any Competing Business, any employee of or
consultant to the Company or the Bank engaged or experienced in the Business (as
defined below), regardless of whether the employee or consultant is full-time or
temporary, the employment or engagement is pursuant to written agreement, or the
employment is for a determined period or is at will.

 

(c)      Non-Competition Agreement. During the Restricted Period, Mr. Clarkson
shall not (without the prior written consent of HCSB) compete with the Company
or the Bank by, directly or indirectly, forming, serving as an organizer,
director or officer of, or consultant to, or acquiring or maintaining more than
a 5% passive investment in, a depository financial institution or its holding
company if such depository institution or holding company has one or more
offices or branches located in the Territory (as defined below).

 

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(d)      Geographic Scope. The restrictions on competition set forth in this
Section 10 shall apply to Mr. Clarkson’s activities within the Territory.
However, the restrictions are intended to apply only with respect to his
personal activities within the Territory and shall not deemed to apply if he is
employed by an entity that has branch offices within the Territory but he does
not personally work in or have any business contacts with persons in the
Territory.

 

(e)      Enforceability of Covenants. Mr. Clarkson acknowledges that the term,
geographic area, and scope of the covenants set forth in this Agreement are
reasonable, and agrees that he will not, in any action, suit or other
proceeding, deny the reasonableness of, or assert the unreasonableness of, the
premises, consideration or scope of the covenants set forth herein. Mr. Clarkson
agrees that his former role of President and Chief Executive Officer of HCSB
involved duties and authority relating to all aspects of the Business and all of
the Territory. He further acknowledges that complying with the provisions
contained in this Agreement will not preclude him from engaging in a lawful
profession, trade, or business, or from becoming gainfully employed. Mr.
Clarkson and HCSB agree that his obligations under the above covenants are
separate and distinct under this Agreement, and the failure or alleged failure
of HCSB to perform its obligations under any other provisions of this Agreement
(other than HCSB’s failure to make payments to Mr. Clarkson pursuant to the
terms of this Agreement) shall not constitute a defense to the enforceability of
this covenant. It is the intention of the parties that, if any court construes
any provision or clause of this Agreement, or any portion thereof, to be
illegal, void, or unenforceable because of the duration of such provision or the
area or matter covered thereby, such court shall reduce the duration, area, or
matter of such provision, and, in its reduced form, such provision shall then be
enforceable and shall be enforced. Mr. Clarkson acknowledges and agrees that any
breach or threatened breach of this covenant will result in irreparable damage
and injury to HCSB and that HCSB will be entitled to exercise all rights
including, without limitation, obtaining one or more temporary restraining
orders, injunctive relief and other equitable relief, including specific
performance in the event of any breach or threatened breach of this Agreement,
in any federal or state court of competent jurisdiction in South Carolina
without the necessity of posting any bond or security (all of which are waived
by Mr. Clarkson), and to exercise all other rights or remedies, at law or in
equity, including, without limitation, the rights to damages. Mr. Clarkson and
HCSB hereby agree that they will negotiate in good faith to amend this Agreement
from time to time to modify the terms of Sections 10(a), 10(b), and 10(c) and
the definition of the term “Business,” to reflect changes in HCSB’s business
affairs so that the scope of the limitations placed on his activities by Section
10 accomplishes the parties’ intent in relation to the then current facts and
circumstances. Any such amendment shall be effective only when completed in
writing and signed by Mr. Clarkson and HCSB.

 

(f)      Restricted Period. “Restricted Period” shall mean the time period of
Mr. Clarkson’s engagement pursuant to this Agreement, except that the Restricted
Period shall be automatically extended by any length of time during which Mr.
Clarkson is in breach of this Section 10, and the restrictions of this Section
10 shall continue in full force and effect throughout the Restricted Period as
so extended.

 

(g)      Remedies. Mr. Clarkson acknowledges and agrees that great loss and
irreparable damage would be suffered by HCSB if he should breach or violate any
of the terms or provisions of the covenants and agreements set forth in Section
10 of this Agreement. Mr. Clarkson further acknowledges and agrees that each of
these covenants and agreements is reasonably necessary to protect and preserve
the interests of HCSB and agrees that money damages for any breach of such
provisions by Mr. Clarkson are impossible to measure and that Mr. Clarkson or
any of his affiliates, as the case may be, will, to the extent permitted by law,
waive in any proceeding initiated to enforce such sections any claim or defense
that an adequate remedy at law exists. The existence of any claim, demand,
action, or cause of action against HCSB, whether predicated upon this Agreement
or otherwise, shall not constitute a defense to the enforcement by HCSB of any
of the covenants or agreements in this Agreement; provided, however, that
nothing in this Agreement shall be deemed to deny Mr. Clarkson the right to
defend against this enforcement on the basis that HCSB has no right to its
enforcement under the terms of this Agreement. The remedies of a party provided
in this Agreement are cumulative and shall not exclude any other remedies to
which any party may be lawfully entitled under this Agreement or applicable law,
and the exercise of a remedy shall not be deemed an election excluding any other
remedy (any such claim by the other party being hereby waived).

 

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11.      Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other; provided however that all
notices to HCSB shall be directed to the attention of the Chief Executive
Officer of the Company. All notices and communications shall be deemed to have
been received on the date of delivery thereof.

 

12.      Governing Law. This Agreement and all rights hereunder shall be
governed by the laws of the State of South Carolina, except to the extent
governed by the laws of the United States of America in which case federal laws
shall govern. The parties agree that any appropriate state court located in
South Carolina or federal court for the District of South Carolina shall have
exclusive jurisdiction of any case or controversy arising under or in connection
with this Agreement shall be a proper forum in which to adjudicate such case or
controversy. The parties consent and waive any objection to the jurisdiction or
venue of such courts.

 

13.      Non-Waiver. Failure of HCSB to enforce any of the provisions of this
Agreement or any rights with respect thereto shall in no way be considered to be
a waiver of such provisions or rights, or in any way affect the validity of this
Agreement.

 

14.      Saving Clause. 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. If any
provision or clause of this Agreement, or portion thereof, shall be held by any
court or other tribunal of competent jurisdiction to be illegal, void, or
unenforceable in such jurisdiction, the remainder of such provision shall not be
thereby affected and shall be given full effect, without regard to the invalid
portion. It is the intention of the parties that, if any court construes any
provision or clause of this Agreement, or any portion thereof, to be illegal,
void, or unenforceable because of the duration of such provision or the area or
matter covered thereby, such court shall reduce the duration, area, or matter of
such provision, and, in its reduced form, such provision shall then be
enforceable and shall be enforced.

 

15.      Successors; Binding Agreement. The rights and obligations of this
Agreement shall bind and inure to the benefit of the surviving entity in any
merger or consolidation in which the Company or the Bank is a party, or any
assignee of all or substantially all of the Company’s or the Bank’s business and
properties. Mr. Clarkson’s rights and obligations under this Agreement may not
be assigned by him, except that his right to receive accrued but unpaid
compensation, unreimbursed expenses, and other rights, if any, provided under
this Agreement, which survive termination of this Agreement shall pass after
death to the personal representatives of his estate.

 

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16.      Compliance with Regulatory Restrictions. Notwithstanding anything to
the contrary herein, and in addition to any restrictions stated above, any
compensation or other benefits paid to Mr. Clarkson shall be limited to the
extent required by any federal or state regulatory agency having authority over
the Company or the Bank. Mr. Clarkson agrees that compliance by the Company or
the Bank with such regulatory restrictions (including any restrictions
applicable due to the Company’s participation in the Treasury’s Troubled Asset
Relief Program - Capital Purchase Program), even to the extent that compensation
or other benefits paid to him are limited, shall not be a breach of this
Agreement by the Company or the Bank. HCSB and Mr. Clarkson agree, however, that
if any of the compensation or other benefits to be paid to Mr. Clarkson
hereunder are prohibited by any federal or state regulatory agency having
authority over the Company or the Bank, Mr. Clarkson shall have the right to
terminate this Agreement effective immediately, even if such termination would
occur prior to the first anniversary of the effective date of this Agreement.

 

17.      Compliance with Internal Revenue Code Section 409A. All payments that
may be made and benefits that may be provided pursuant to this Agreement are
intended to qualify for an exclusion from Section 409A of the Code and any
related regulations or other pronouncements thereunder and, to the extent not
excluded, to meet the requirements of Section 409A of the Code. Any payments
made under Sections 3 and 10 of this Agreement which are paid on or before the
last day of the applicable period for the short-term deferral exclusion under
Treasury Regulation § 1.409A-1(b)(4) are intended to be excluded under such
short-term deferral exclusion. Each payment made under Sections 3 and 10 shall
be treated as a “separate payment”, as defined in Treasury Regulation §
1.409A-2(b)(2), for purposes of Code Section 409A. None of the payments under
this Agreement are intended to result in the inclusion in Mr. Clarkson’s federal
gross income on account of a failure under Section 409A(a)(1) of the Code. The
parties intend to administer and interpret this Agreement to carry out such
intentions. However, HCSB does not represent, warrant, or guarantee that any
payments that may be made pursuant to this Agreement will not result in
inclusion in Mr. Clarkson’s gross income, or any penalty, pursuant to Section
409A(a)(1) of the Code or any similar state statute or regulation. In addition,
HCSB shall pay all reimbursements hereunder as soon as administratively
practicable, but in no event shall any such reimbursements be paid after the
last day of the taxable year following the year in which the expense was
incurred.

 

18.      Certain Definitions.

 

(a)      “Affiliate” shall mean any business entity controlled by, controlling
or under common control with the Company, including, but not limited to, the
Bank.

 

(b)      “Business” shall mean the operation of a depository financial
institution, including, without limitation, the solicitation and acceptance of
deposits of money and commercial paper, the solicitation and funding of loans
and the provision of other banking services, and any other related business
engaged in by the Bank or any of its Affiliates as of the date of termination.

 

(c)      “Code” shall mean the Internal Revenue Code of 1986.

 

(d)      “Competing Business” shall mean any business that, in whole or in part,
is the same or substantially the same as the Business.

 

(e)      “Disability” or “Disabled” shall mean as defined by Treasury Regulation
§ 1.409A-3(i)(4).

 

(f)      “Territory” shall mean a radius of 30 miles from (i) the main office of
the Bank or (ii) any branch or loan production office of the Bank in operation
as of the effective date of this Agreement.

 

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19.      Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.

 

20.      Survival. The obligations of the parties pursuant to Sections 6 through
9 and 12, as applicable, shall survive the termination of this Agreement
hereunder for the period designated under each of those respective sections.

 

21.       Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Company and the Bank each have caused this Agreement to
be executed and its seal to be affixed hereunto by its respective officers
thereunto duly authorized and Mr. Clarkson has signed and sealed this Agreement,
effective as of the date described above.

 

  HCSB FINANCIAL CORPORATION    

 

ATTEST:

 

By:  /s/ J. Alex Gordon   By: /s/ Michael S. Addy Name:    J. Alex Gordon  
Name:   Michael S. Addy       Title: Chairman

 

 

  HORRY COUNTY STATE BANK    

 

ATTEST:

 

By: /s/ J. Alex Gordon   By:  /s/ Michael S. Addy Name:    J. Alex Gordon  
Name:   Michael S. Addy       Title: Chairman                           /s/
James R. Clarkson       James R. Clarkson

 

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