<PAGE>
 
                         CODDLE CREEK FINANCIAL CORP.
                               STOCK OPTION PLAN


     THIS IS THE STOCK OPTION PLAN ("Plan") of Coddle Creek Financial Corp. (the
"Corporation"), a North Carolina corporation, with its principal office in
Mooresville, Iredell County, North Carolina, adopted by the Board of Directors
of the Corporation and effective upon the approval of the Plan by the
shareholders of the Corporation, under which options may be granted from time to
time to eligible directors and employees of the Corporation, Mooresville Savings
Bank, Inc., SSB (the "Bank") and of any corporation or other entity of which
either the Corporation or the Bank owns, directly or indirectly, not less than
fifty percent (50%) of any class of equity securities (a "Subsidiary"), to
purchase shares of common stock of the Corporation ("Common Stock"), subject to
the provisions set forth below:

     1.   PURPOSE OF THE PLAN.  The purpose of the Plan is to aid the
          -------------------                                        
Corporation, the Bank and any Subsidiary in attracting and retaining capable
directors and employees and to provide a long range incentive for directors,
employees and others to remain in the management and service of the Corporation,
the Bank or any Subsidiary, to perform at increasing levels of effectiveness and
to acquire a permanent stake in the Corporation with the interest and outlook of
an owner.  These objectives will be promoted through the granting of options to
acquire shares of Common Stock pursuant to the terms of this Plan.

     2.   ADMINISTRATION.  The Plan shall be administered by a committee (the
          --------------                                                     
"Committee"), which shall consist of not less than two members of the Board of
Directors of the Corporation (the "Board") who are  "Non-Employee Directors" as
defined in Rule 16b-3(b)(3) of the Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").  Members of the Committee
shall serve at the pleasure of the Board.  In the absence at any time of a duly
appointed Committee, this Plan shall be administered by the Board. The Committee
may designate any officers or employees of the Corporation, the Bank or any
Subsidiary to assist in the administration of the Plan and to execute documents
on behalf of the Committee and perform such other ministerial duties as may be
delegated to them by the Committee.

     Subject to the provisions of the Plan, the determinations or the
interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive upon all persons affected thereby.  By way of
illustration and not of limitation, the Committee shall have the discretion (a)
to construe and interpret the Plan and all options granted hereunder and to
determine the terms and provisions (and amendments thereof) of the options
granted under the Plan (which need not be identical); (b) to define the terms
used in the Plan and in the options granted hereunder; (c) to prescribe, amend
and rescind the rules and regulations relating to the Plan; (d) to determine the
individuals to whom and the time or times at which such options shall be
granted, the number of shares to be subject to each option, the option price,
and the determination of leaves of absence which may be granted to participants
without constituting a termination of their employment for the purposes of the
Plan; and (e) to make all other determinations necessary or advisable for the
administration of the Plan.
<PAGE>
 
     It shall be in the discretion of the Committee to grant options which
qualify as "incentive stock options," as that term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended ("Incentive Stock Options") or
which do not qualify as Incentive Stock Options ("Nonqualified Stock Options")
(herein referred to collectively as "Options;" however, whenever reference is
specifically made only to "Incentive Stock Options" or "Nonqualified Stock
Options," such reference shall be deemed to be made to the exclusion of the
other).  Any options granted which fail to satisfy the requirements for
Incentive Stock Options shall become Nonqualified Stock Options.

     3.   STOCK AVAILABLE FOR OPTIONS.  In the discretion of the Committee, the
          ---------------------------                                          
stock to be subject to Options under the Plan shall be authorized but unissued
shares of Common Stock which are issued directly to optionees upon exercise of
options and/or shares of Common Stock which are acquired by the Plan or the
Corporation in the open market.  The total number of shares of Common Stock for
which Options may be granted under the Plan is 67,447 shares, which is ten
percent (10%) of the total number of shares of Common Stock issued by the
Corporation in connection with the conversion of the Bank from a state-chartered
mutual savings bank to a state-chartered stock savings bank on December 30, 1997
(the "Conversion").  Such number of shares is subject to any capital adjustments
as provided in Section 16.  In the event that an Option granted under the Plan
is forfeited, released, expires or is terminated unexercised as to any shares
covered thereby, such shares thereafter shall be available for the granting of
Options under the Plan; however, if the forfeiture, expiration, release or
termination date of an Option is beyond the term of existence of the Plan as
described in Section 21, then any shares covered by forfeited, unexercised,
released or terminated options shall not reactivate the existence of the Plan
and therefore may not be available for additional grants under the Plan. The
Corporation, during the term of the Plan, will reserve and keep available a
number of shares of Common Stock sufficient to satisfy the requirements of the
Plan.  In the discretion of the Committee, the shares of Common Stock necessary
to be delivered to satisfy exercised options may be from authorized and unissued
shares of Common Stock or may be purchased in the open market.

     4.   ELIGIBILITY.  Options shall be granted only to individuals who meet
          -----------                                                        
all of the following eligibility requirements:

          (a) Such individual must be an employee or a member of the Board of
     Directors of the Corporation, the Bank or a Subsidiary.  For this purpose,
     an individual shall be considered to be an "employee" only if there exists
     between the Corporation, the Bank or a Subsidiary and the individual the
     legal and bona fide relationship of employer and employee.  In determining
     whether such relationship exists, the regulations of the United States
     Treasury Department relating to the determination of such relationship for
     the purpose of collection of income tax at the source on wages shall be
     applied.

          (b) Such individual must have such knowledge and experience in
     financial and business matters that he is capable of evaluating the merits
     and risks of the investment involved in the exercise of the Options.

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<PAGE>
 
          (c) Such individual, being otherwise eligible under this Section 4,
     shall have been selected by the Committee as a person to whom an Option
     shall be granted under the Plan.

     In determining the directors and employees to whom Options shall be granted
and the number of shares to be covered by each Option, the Committee shall take
into account the nature of the services rendered by respective directors and
employees, their present and potential contributions to the success of the
Corporation, the Bank and any Subsidiary and such other factors as the Committee
shall deem relevant.  A director or employee who has been granted an Option
under the Plan may be granted an additional Option or Options under the Plan if
the Committee shall so determine.

     If, pursuant to the terms of the Plan, it is necessary that the percentage
of stock ownership of any individual be determined, stock ownership in the
Corporation or of a related corporation which is owned (directly or indirectly)
by or for such individual's brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants or by or for any corporation,
partnership, estate or trust of which such employee is a shareholder, partner or
beneficiary shall be considered as owned by such director or employee.

     5.   OPTION AGREEMENT   Subject to the provisions of this Plan, Options
          ----------------                                                  
shall be awarded to the directors and employees in such amounts as are
determined by the Committee. The proper officers on behalf of the Corporation
and each Optionee shall execute a Stock Option Grant and Agreement (the "Option
Agreement") which shall set forth the total number of shares of Common Stock to
which it pertains, the exercise price, whether it is a Nonqualified Stock Option
or an Incentive Stock Option, and such other terms, conditions, restrictions and
privileges as the Committee in each instance shall deem appropriate, provided
they are not inconsistent with the terms, conditions and provisions of this
Plan.  Each Optionee shall receive a copy of his executed Option Agreement.  Any
Option granted with the intention that it will be an Incentive Stock Option but
which fails to satisfy a requirement for Incentive Stock Options shall continue
to be valid and shall be treated as a Nonqualified Stock Option.

     6.   OPTION PRICE.
          ------------ 

          (a) The option price of each Option granted under the Plan shall be
     not less than one hundred percent (100%) of the market value of the stock
     on the date of grant of the Option.  In the case of incentive stock options
     granted to a shareholder who owns stock possessing more than 10 percent
     (10%) of the total combined voting power of all classes of stock of the
     Corporation, the Bank or a Subsidiary (a "ten percent shareholder"), the
     option price of each Option granted under the Plan shall not be less than
     one hundred and ten percent (110%) of the market value of the stock on the
     date of grant of the Option.  If the Common Stock is listed on a national
     securities exchange (including for this purpose the Nasdaq Stock Market,
     Inc. National Market) on the date in question, then the market value per
     share shall be not less than the average of the highest and lowest selling
     price on such exchange on such date, or if there were no sales on such
     date, then the market price per share shall be equal to the average between
     the bid and asked price on such date.  If the Common Stock is traded
     otherwise than on a national securities exchange (including for this
     purpose the Nasdaq Stock Market, Inc. 

                                       3
<PAGE>
 
     National Market) on the date in question, then the market price per share
     shall be equal to the average between the bid and asked price on such date,
     or, if there is no bid and asked price on such date, then on the next prior
     business day on which there was a bid and asked price. If no such bid and
     asked price is available, then the market value per share shall be its fair
     market value as determined by the Committee, in its sole and absolute
     discretion. The Committee shall maintain a written record of its method of
     determining such value.

          (b) The option price shall be payable to the Corporation either (i) in
     cash or by check, bank draft or money order payable to the order of the
     Corporation, or (ii) at the discretion of the Committee, through the
     delivery of shares of the common stock of the Corporation owned by the
     optionee with a market value (determined in a manner consistent with (a)
     above) equal to the option price, or (iii) at the discretion of the
     Committee by a combination of (i) and (ii) above.  No shares shall be
     delivered until full payment has been made.

     7.   EXPIRATION OF OPTIONS.  The Committee shall determine the expiration
          ---------------------                                               
date or dates of each Option, but such expiration date shall be not later than
ten (10) years after the date such Option is granted.  In the event an Incentive
Stock Option is granted to a ten percent shareholder, the expiration date or
dates of each Option shall be not later than five (5) years after the date such
Option is granted.  The Committee, in its discretion, may extend the expiration
date or dates of an Option after such date was originally set; however, such
expiration date may not exceed the maximum expiration date described in this
Section 7.

     8.   TERMS AND CONDITIONS OF OPTIONS.
          ------------------------------- 

          (a) All Options must be granted within ten (10) years of the Effective
     Date of this Plan as defined in Section 20.

          (b) The Committee may grant Options which are intended to be Incentive
     Stock Options and Nonqualified Stock Options, either separately or jointly,
     to an eligible employee.

          (c) The grant of Options shall be evidenced by an Option Agreement
     containing terms and conditions established by the Committee consistent
     with the provisions of this Plan.

          (d) Not less than 100 shares may be purchased at any one time unless
     the number purchased is the total number at that time purchasable under the
     Plan.

          (e) The recipient of an Option shall have no rights as a shareholder
     with respect to any shares covered by his Option until payment in full by
     him for the shares being purchased.  No adjustment shall be made for
     dividends (ordinary or extraordinary, whether in cash, securities or other
     property) or distributions or other rights for which the record date is
     prior to the date such stock is fully paid for, except as provided in
     Section 16.

                                       4
<PAGE>
 
          (f) The aggregate fair market value of the stock (determined as of the
     time the Option is granted) with respect to which Incentive Stock Options
     are exercisable for the first time by any participant during any calendar
     year (under all benefit plans of the Corporation, the Bank or any
     Subsidiary, if applicable) shall not exceed $100,000; provided, however,
     that such $100,000 limit of this subsection (f) shall not apply to the
     grant of Nonqualified Stock Options.  The Committee may grant Options which
     are exercisable in excess of the foregoing limitations, in which case
     Options granted which are exercisable in excess of such limitation shall be
     Nonqualified Stock Options.

          (g) All stock obtained pursuant to an option which qualifies as an
     Incentive Stock Option shall be held in escrow for a period which ends on
     the later of (i) two (2) years from the date of the granting of the Option
     or (ii) one (1) year after the transfer of the stock pursuant to the
     exercise of the Option.  The stock shall be held by the Corporation or its
     designee.  The employee who has exercised the Option shall during such
     holding period have all rights of a shareholder, including but not limited
     to the rights to vote, receive dividends and sell the stock.  The sole
     purpose of the escrow is to inform the Corporation of a disqualifying
     disposition of the stock within the meaning of Section 422 of the Internal
     Revenue Code of 1986, as amended, and it shall be administered solely for
     that purpose.

     9.   EXERCISE OF OPTIONS.
          ------------------- 

          (a) Unless otherwise set forth in the Option Agreement, all Options
     granted to an optionee under the Plan shall be fully vested, exercisable
     and nonforfeitable immediately at the time of the grant.

          (b) In no event shall an Option be deemed granted by the Corporation
     or exercisable by a recipient prior to the mutual execution by the
     Corporation and the 6 recipient of an Option Agreement which comports with
     the requirements of Section 5 and Section 8(c). The exercise of any Option
     must be evidenced by written notice to the Corporation that the optionee
     intends to exercise his Option.

          (c) The inability of the Corporation or Bank to obtain approval from
     any regulatory body or authority deemed by counsel to be necessary to the
     lawful issuance and sale of any shares of Common Stock hereunder shall
     relieve the Corporation and the Bank of any liability in respect of the
     non-issuance or sale of such shares.  As a condition to the exercise of an
     option, the Corporation may require the person exercising the Option to
     make such representations and warranties as may be necessary to assure the
     availability of an exemption from the registration requirements of federal
     or state securities laws.

          (d) The Committee shall have the discretionary authority to impose in
     the Option Agreements such restrictions on shares of Common Stock as it may
     deem appropriate or desirable, including but not limited to the authority
     to impose a right of first refusal or to establish repurchase rights or
     both of these restrictions.

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<PAGE>
 
          (e) Notwithstanding anything to the contrary herein, an optionee
     receiving the grant of an Option by virtue of his position as a director or
     as an employee of the Corporation, the Bank or a Subsidiary (as stated in
     the Option Agreement), shall be required to exercise his Options within the
     periods set forth in Sections 10, 11 and 12 below.

     10.  TERMINATION OF EMPLOYMENT - EXCEPT BY DISABILITY OR DEATH.  If any
          ---------------------------------------------------------         
optionee receiving the grant of an Option by virtue of his position as a
director (as stated in the Option Agreement) ceases to be a director of at least
one of the Corporation, the Bank or any Subsidiary for any reason other than
death or disability (as defined in Section 11) or if any optionee receiving the
grant of an Option by virtue of his position as an employee (as stated in the
Option Agreement) ceases to be an employee of at least one of the Corporation,
the Bank and any Subsidiary for any reason other than death or disability (as
defined in Section 11), he may, (i) at any time within three (3) months after
his date of termination, but not later than the date of expiration of the
Option, exercise any Option designated in the Option Agreement as an Incentive
Stock Option and (ii) at any time prior to the date of expiration of the Option,
exercise any option designated in the Option Agreement as a Nonqualified Stock
Option.  However, in either such event the optionee may exercise any Option only
to the extent he was entitled to exercise the Option on the date of termination.
Any Options or portions of Options of terminated optionees not so exercised
shall terminate and be forfeited.

     11.  TERMINATION OF EMPLOYMENT - DISABILITY.  If any optionee receiving the
          --------------------------------------                                
grant of an Option by virtue of his position as a director (as stated in the
Option Agreement) ceases to be a director of at least one of the Corporation,
the Bank or any Subsidiary due to his becoming disabled within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, or if any
employee receiving the grant of an Option by virtue of his position as an
employee (as stated in the Option Agreement) ceases to be employed by at least
one of the Corporation, the Bank and any Subsidiary due to his becoming disabled
within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended, such optionee may, (i) at any time within twelve (12) months after his
date of termination, but not later than the date of expiration of the Option,
exercise any option designated in the Option Agreement as an Incentive Stock
Option with respect to all shares subject thereto and (ii) at any time prior to
the date of expiration of the Option, exercise any Option designated in the
Option Agreement as a Nonqualified Stock Option with respect to all shares
subject thereto.  Any portions of Options of optionees who are terminated
because they become disabled which are not so exercised shall terminate and be
forfeited.

     12.  TERMINATION OF EMPLOYMENT - DEATH.  If an optionee receiving the grant
          ---------------------------------                                     
of an option by virtue of his position as a director (as stated in the Option
Agreement) dies while a director of the Corporation, the Bank or any Subsidiary
or if any employee receiving the grant of an option by virtue of his position as
an employee (as stated in the Option Agreement) dies while in the employment of
the Corporation, the Bank or a Subsidiary, the person or persons to whom the
Option is transferred by will or by the laws of descent and distribution may
exercise the Option at any time until the term of the Option has expired, with
respect to all shares subject thereto, to the same extent and upon the same
terms and conditions the optionee would have been entitled to do so had he
lived.  Any Options or portions of options of deceased directors or employees
not so exercised shall terminate and be forfeited.

                                       6
<PAGE>
 
     13.  CHANGE IN CONTROL.  In the event that an optionee ceases to be an
          -----------------                                                
employee or a director of the Corporation, the Bank or a Subsidiary (which
position resulted in his receipt of an option pursuant to this Plan) for any
reason after the occurrence of a "change in control" the optionee must exercise
any Incentive Stock Options within three (3) months after his date of
termination and may exercise any Nonqualified Stock Options at any time prior to
the date of expiration of the Option.  For purposes of this Plan, a "change in
control" shall mean (i) a change in control of a nature that would be required
to be reported by the Corporation in response to Item 1 of the Current Report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Exchange Act; (ii) such time as any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation or Bank representing 25 percent or
more of the combined voting power of the outstanding Common Stock of the
Corporation or outstanding common stock of the Bank, as applicable; or (iii)
individuals who constitute the Board or the Bank's Board on the date hereof (the
"Incumbent Board" and "Incumbent Bank Board," respectively) cease for any reason
to constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board or
Incumbent Bank Board, as applicable, or whose nomination for election by the
Corporation's or Bank's shareholders was approved by the Corporation's or Bank's
Board of Directors or Nominating Committee, shall be considered as though he
were a member of the Incumbent Board or Incumbent Bank Board, as applicable; or
(iv) either the Corporation or the Bank consolidates or merges with or into
another corporation, association or entity or is otherwise reorganized, where
neither the Corporation nor the Bank, respectively, is the surviving corporation
in such transaction; or (v) all or substantially all of the assets of either the
Corporation or the Bank are sold or otherwise transferred to or are acquired by
any other entity or group.

     In the event of such a termination after a change in control, the Optionee
must exercise any Incentive Stock Options within three (3) months after his date
of termination, or such Incentive Stock Options are terminated and forfeited,
and may exercise any Nonqualified Stock Options at any time prior to the date of
expiration of the Option.

     14.  STOCK APPRECIATION RIGHTS.
          ------------------------- 

          (a) General Terms and Conditions.  The Committee may, but shall not be
     obligated to, grant rights to optionees to surrender an exercisable Option,
     or any portion thereof, in consideration for the payment by the Corporation
     of an amount equal to the excess of the market value (determined as set
     forth in Section 6 above) of the shares of Common Stock subject to the
     Option, or portion thereof, surrendered over the exercise price of the
     Option with respect to such shares (any such authorized surrender and
     payment being hereinafter referred to as a "Stock Appreciation Right").
     Such payment, at the discretion of the Committee, may be made in shares of
     Common Stock  valued at the then market value thereof (determined as set
     forth in Section 6 above), or in cash, or partly in cash and partly in
     shares of Common Stock.

          The terms and conditions set with respect to a Stock Appreciation
     Right may include (without limitation), subject to other provisions of this
     Section 14 and this Plan, 

                                       7
<PAGE>
 
     the period during which, date by which or event upon which the Stock
     Appreciation Right may be exercised (which shall be on the same terms as
     the Option to which is related); the method for valuing shares of Common
     Stock for purposes of this Section 14; a ceiling on the amount of
     consideration which the Corporation may pay in connection with exercise of
     the Stock Appreciation Right; and arrangements for income tax withholding.
     The Committee shall have complete discretion to determine whether, when and
     to whom Stock Appreciation Rights may be granted.

          (b) Time Limitations.  A Stock Appreciation Right may be exercised
     only within the period, if any, within which the Option to which it relates
     may be exercised. Notwithstanding the foregoing, any election by an
     optionee to exercise Stock Appreciation Rights shall be made during the
     period beginning on the third business day following the release for
     publication of quarterly or annual financial information required to be
     prepared and disseminated by the Corporation pursuant to the requirements
     of the Exchange Act and ending on the twelfth business day following such
     date.  The required release of information shall be deemed to have been
     satisfied when the specified financial data appears on or in a wire
     service, financial news service or newspaper of general circulation or is
     otherwise first made publicly available.

          (c) Effects of Exercise of Stock Appreciation Rights or Options.  Upon
     the exercise of a Stock Appreciation Right, the number of shares of Common
     Stock available under the Option to which it relates shall decrease by a
     number equal to the number of shares for which the Stock Appreciation Right
     was exercised.  Upon the exercise of an Option, any related Stock
     Appreciation Right shall terminate as to any number of shares of Common
     Stock subject to the Stock Appreciation Right that exceeds the total number
     of shares for which the Option remains unexercised.

          (d) Time of Grant.  A Stock Appreciation Right granted in connection
     with an Incentive Stock Option must be granted concurrently with the Option
     to which is relates, while a Stock Appreciation Right granted in connection
     with a Nonqualified Stock Option may be granted concurrently with the
     Option to which it relates or at any time thereafter prior to the exercise
     or expiration of such Option.  No optionee shall have any Stock
     Appreciation Rights unless (i) in the case of Incentive Stock Options and
     Nonqualified Stock Options, the Stock Option Agreement shall so state or
     (ii) in the case of Nonqualified Stock Options, the Committee shall have
     executed an amendment to the Stock Option Agreement so stating.

          (e) Non-Transferable.  A Stock Appreciation Right may not be
     transferred or assigned except in connection with a transfer of the Option
     to which it relates.

     15.  RESTRICTIONS ON TRANSFER.  An Option granted under this Plan may not
          ------------------------                                            
be transferred except by will or the laws of descent and distribution and,
during the lifetime of the optionee to whom it was granted, may be exercised
only by such optionee.

                                       8
<PAGE>
 
     16.  CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK.
          ------------------------------------------ 

          (a) If the outstanding shares of Common Stock of the Corporation are
     increased, decreased, changed into or exchanged for a different number or
     kind of shares or other securities of the Corporation or another entity as
     a result of a recapitalization, reclassification, stock dividend, stock
     split, amendment to the Corporation's Certificate of Incorporation, reverse
     stock split, merger or consolidation, an appropriate adjustment shall be
     made in the number and/or kind of securities allocated to the Options and
     Stock Appreciation Rights previously and subsequently granted under the
     Plan, without change in the aggregate purchase price applicable to the
     unexercised portion of the outstanding Options but with a corresponding
     adjustment in the price for each share or other unit of any security
     covered by the Options.

          (b) In the event that the Corporation shall declare and pay any
     dividend with respect to the Common Stock (other than a dividend payable in
     shares of the Corporation's Common Stock or a regular cash dividend),
     including a dividend which results in a nontaxable return of capital to the
     holders of shares of Common Stock for federal income tax purposes, or
     otherwise than by dividend makes distribution of property to the holders of
     its shares of Common Stock, the Committee, in its discretion applied
     uniformly to all outstanding Options, may adjust the exercise price per
     share of outstanding Options in such a manner as the Committee may
     determine to be necessary to reflect the effect of the dividend or other
     distribution on the fair market value of a share of Common Stock.

          (c) To the extent that the foregoing adjustments described in Sections
     16(a) and (b) above relate to particular Options or to particular stock or
     securities of the Corporation subject to Option under this Plan, such
     adjustments shall be made by the Committee, whose determination in that
     respect shall be final and conclusive.

          (d) The grant of an Option or Stock Appreciation Right  pursuant to
     this Plan shall not affect in any way the right or power of the Corporation
     to make adjustments, reclassifications, reorganizations or changes of its
     capital or business structure or to merge or to consolidate or to dissolve,
     liquidate or sell, or transfer all or any part of its business or assets.

          (e) No fractional shares of stock shall be issued under the Plan for
     any such adjustment.

          (f) Any adjustment made pursuant to this Section 16, shall be made, to
     the extent practicable,  in such manner as not to constitute a modification
     of any outstanding Incentive Stock Options within the meaning of Section
     424(h) of the Internal Revenue Code of 1986, as amended.

     17.  INVESTMENT PURPOSE.  At the discretion of the Committee, any Option
          ------------------                                                 
Agreement may provide that the optionee shall, by accepting the Option,
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all shares of stock purchased upon the exercise
of the Option will be acquired for investment and not for resale or

                                       9
<PAGE>
 
distribution, and that upon each exercise of any portion of an Option, the
person entitled to exercise the same shall furnish evidence of such facts which
is satisfactory to the Corporation. Certificates for shares of stock acquired
under the Plan may be issued bearing such restrictive legends as the Corporation
and its counsel may deem necessary to ensure that the optionee is not an
"underwriter" within the meaning of the regulations of the Securities and
Exchange Commission.

     18.  APPLICATION OF FUNDS.  The proceeds received by the Corporation from
          --------------------                                                
the sale of Common Stock pursuant to Options will be used for general corporate
purposes.

     19.  NO OBLIGATION TO EXERCISE.  The granting of an Option or Stock
          -------------------------                                     
Appreciation Right shall impose no obligation upon the optionee to exercise such
Option or Stock Appreciation Right.

     20.  EFFECTIVE DATE OF PLAN.  The Plan will become effective upon the
          ----------------------                                          
approval of the Plan by the shareholders of the Corporation and receipt of any
necessary regulatory approvals.

     21.  TERM OF PLAN.  Options and Stock Appreciation Rights may be granted
          ------------                                                       
pursuant to this Plan from time to time within ten (10) years from the effective
date of the Plan.

     22.  TIME OF GRANTING OF OPTIONS.  Nothing contained in the Plan or in any
          ---------------------------                                          
resolution adopted or to be adopted by the Committee or the shareholders of the
Corporation and no action taken by the Committee shall constitute the granting
of any Option or Stock Appreciation Right hereunder.  The granting of an Option
and Stock Appreciation Right pursuant to the Plan shall take place only when an
Option Agreement shall have been duly executed and delivered by and on behalf of
the Corporation at the direction of the Committee.

     23.  CASH PAYMENTS.  At the time of the payment of any dividend or other
          -------------                                                      
distribution with respect to the Common Stock, in the absolute discretion of,
and upon direction of the Board, the Corporation shall cause to be paid to
existing directors and employees of the Corporation, the Bank or any Subsidiary
who hold nonforfeited, unexercised Options under this Plan, a cash amount equal
to the number of shares of Common Stock subject to nonforfeited, unexercised
options held by such optionee multiplied by the amount of any dividends or other
distributions paid per share of Common Stock outstanding.  The Board shall have
the discretion to approve cash payments at the time of some dividends or
distributions but not others. Notwithstanding the foregoing, no amounts shall be
paid to optionees pursuant to this Section 23 with respect to any dividend or
distribution if at the time of such dividend or distribution, the exercise price
of the Options shall have been reduced pursuant to Section 16(b) above.

     If any director or employee of the Corporation, the Board or any Subsidiary
shall receive any cash payment from the Company, the Board or any Subsidiary
pursuant to this Section 23 with respect to an Option, and if such Option shall
be forfeited, then within 30 days after the effective date of such forfeiture,
the optionee shall pay to the Corporation, the Bank or the Subsidiary (as
applicable) an amount equal to the cash payment received by such optionee with
respect to such forfeited Option.  In the alternative, at the option of the
Corporation, the Bank or 

                                       10
<PAGE>
 
the Subsidiary (as applicable) the amount to be repaid may be withheld from the
final compensation payable to the optionee.

     24.  WITHHOLDING TAXES.  Whenever the Corporation proposes or is required
          -----------------                                                   
to cause to be issued or transferred shares of stock, cash or other assets
pursuant to this Plan, the Corporation shall have the right to require the
optionee to remit to the Corporation an amount sufficient to satisfy any
federal, state and/or local withholding tax requirements prior to the issuance
of any certificate or certificates for such shares or delivery of  such cash or
other assets. Alternatively, the Corporation may issue or transfer such shares
of stock or make other distributions of cash or other assets net of the number
of shares or other amounts sufficient to satisfy the withholding tax
requirements.  For withholding tax purposes, the shares of stock, cash and other
assets to be distributed shall be valued on the date the withholding obligation
is incurred.

     25.  TERMINATION AND AMENDMENT.  The Board may at any time alter, suspend,
          -------------------------                                            
terminate or discontinue the Plan, subject to any applicable regulatory
requirements and any required stockholder approval or any stockholder approval
which the Board may deem advisable for any reason, such as for the purpose of
obtaining or retaining any statutory or regulatory benefits under tax,
securities or other laws or satisfying applicable stock exchange or quotation
system listing requirements.  The Board may not, without the consent of the
holder of an Option or Stock Appreciation Right previously granted, make any
alteration which would deprive the optionee of his rights with respect thereto.

     26.  CAPTIONS AND HEADINGS; GENDER AND NUMBER.  Captions and paragraph
          ----------------------------------------                         
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part, and shall not serve as a basis
for interpretation or construction of, this Plan.  As used herein, the masculine
gender shall include the feminine and neuter, and the singular number shall
include the plural, and vice versa, whenever such meanings are appropriate.

     27.  COST OF PLAN; EXCULPATION AND INDEMNIFICATION.  All costs and expenses
          ---------------------------------------------                         
incurred in the operation and administration of the Plan shall be borne by the
Corporation, the Bank and the Subsidiaries.  In connection with this Plan, no
member of the Board, no member of the Bank's Board, no member of the Board of
Directors of any Subsidiary, and no member of the Committee shall be personally
liable for any act or omission to act, nor for any mistake in judgment made in
good faith, unless arising out of, or resulting from, such person's own bad
faith, willful misconduct or criminal acts.  To the extent permitted by
applicable law and regulation, the Corporation shall indemnify, defend and hold
harmless the members of the Board, the members of the Board of Directors of the
Bank and the members of the Board of Directors of any Subsidiary, and members of
the Committee, and each other officer or employee of the Bank, the Corporation
or of any Subsidiary to whom any power or duty relating to the administration or
interpretation of this Plan may be assigned or delegated, from and against any
and all liabilities (including any amount paid in settlement of a claim with the
approval of the Board), and any costs or expenses (including counsel fees)
incurred by such persons arising out of or as a result of, any act or omission
to act, in connection with the performance of such person's duties,
responsibilities and obligations under this Plan, other than 

                                       11
<PAGE>
 
such liabilities, costs, and expenses as may arise out of, or result from the
bad faith, willful misconduct or criminal acts of such persons.

     28.  GOVERNING LAW.  Without regard to the principles of conflicts of laws,
          -------------                                                         
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.

     29.  INSPECTION OF PLAN.  A copy of this Plan, and any amendments thereto,
          ------------------                                                   
shall be maintained by the Secretary of the Corporation and shall be shown to
any proper person making inquiry about it.

          30.  OTHER PROVISIONS.  The Option Agreements authorized under this
               ----------------                                              
Plan shall contain such other provisions not inconsistent with the foregoing,
including, without limitation, increased restrictions upon the exercise of
options, as the Committee may deem advisable.

                                       12
<PAGE>
 
                                   EXHIBIT A
                                   ---------


                       STOCK OPTION GRANT AND AGREEMENT

     THIS STOCK OPTION GRANT AND AGREEMENT (this "Agreement"), being made
according to and subject to the terms and conditions of the CODDLE CREEK
FINANCIAL CORP. STOCK OPTION PLAN (the "Plan"), a copy of which is attached to
this Agreement as Annex A and is  incorporated by reference into and made a part
of this Agreement, is executed and effective the _______ day of _______________,
_____, between Coddle Creek Financial Corp. (the "Corporation") and
____________________ (the "Optionee"):

     1. Grant.  As of the above date, the Corporation hereby grants to the
        -----                                                             
        Optionee (applicable provisions are marked):

        [_] an Incentive Stock Option [as that term is defined in Section 422 of
        the Internal Revenue Code of 1986, as amended (the "Code")] to purchase
        ________ shares of Common Stock of the Corporation at the price stated
        in this Agreement;

        [_] a Nonqualified Stock Option to purchase __________ shares of Common
        Stock of the Corporation at the price stated in this Agreement.

        The Optionee [_] shall [_] shall not have Stock Appreciation Rights in
        connection with the Options granted hereby, in accordance with Section
        14 of the Plan.

        The Option(s) and any Stock Appreciation Rights granted under this
        section and as described in this Agreement is (are) in all respects
        subject to and conditioned by the terms, definitions, and provisions of
        this Agreement and of the Plan. Capitalized terms in this Agreement
        which are not otherwise defined but which are defined in the Plan shall
        have the same meaning given to those terms in the Plan.

        The Optionee has been granted Options under the Plan as a result of the
        Optionee's position as a [_] director [_] employee of the Corporation,
        the Bank or a Subsidiary.

     2. Price.  The Option price is $_____________ for each share.
        -----                                                     

     3. Exercise of Option.  The Option(s) granted under this Agreement shall be
        ------------------                                                      
        exercisable pursuant to the terms and conditions of the Plan and as set
        forth below:

                                       1
<PAGE>
 
        (a) Right to Exercise:  In addition to the terms and conditions imposed 
            -----------------                                          
        on the Optionee's right to exercise his Options and any Stock
        Appreciation Rights imposed in the Plan, the following terms and
        conditions are applicable:

--------------------------------------------------------------------------------
        (b) Immediate Vesting:  Subject to the terms and conditions of the 
            -----------------                                             
        Plan, all of the Options are vested and exercisable.

        (c) Method of Exercise:  The Options and any Stock Appreciation Rights
            ------------------                                                
        granted under this Agreement shall be exercisable by a written notice
        to the Secretary of the Corporation which shall:

            (1) State the election to exercise the Option or the election to
            surrender an exercisable Option and exercise Stock Appreciation
            Rights, the number of shares in respect of which the Option or Stock
            Appreciation Right is being exercised, the person in whose name any
            stock certificate or certificates for such shares of Common Stock is
            to be registered or to whom any cash is to be paid, his address, and
            social security number;

            (2) Contain any such representation and agreements as to Optionee's
            investment intent with respect to shares of Common Stock as may be
            required by the Committee;

            (3) Be signed by the person entitled to exercise the Option and, if
            the Option is being exercised by any person or persons other than
            the Optionee, be accompanied by proof, satisfactory to the
            Corporation, of the right of such person or persons to exercise the
            Option or Stock Appreciation Rights in accordance with the Plan; and

            (4) Be accompanied by payment of the purchase price of any shares
            with respect to which the Option is being exercised which payment
            shall be in form acceptable to the Committee pursuant to Section
            6(b) of the Plan.

     (d)    Representations and Warranties:  In order to exercise an Option or
            ------------------------------                                    
            Stock Appreciation Right, the person exercising the Option or Stock
            Appreciation Right must make the representations and warranties to
            the Corporation as may be required by any applicable law or
            regulation, or as may otherwise be required pursuant to the Plan.

     (e)    Approvals.  In order for an Option or Stock Appreciation Right to
            ---------                                                        
            be exercised, all filings and approvals required by applicable law
            and regulations or pursuant to the Plan must have been made and
            obtained.

                                       2
<PAGE>
 
     4.     Non-transferability.  Neither any Option nor any Stock Appreciation
            -------------------                                                
Rights may  be transferred in any manner otherwise than by will or the laws of
descent and distribution and such Option and any Stock Appreciation Rights may
be exercised during the life of the Optionee only by him.

     5.     Investment Purpose.  This Option and any Stock Appreciation Rights
            ------------------                                                 
may not be exercised if the issuance of shares or payment of cash upon such
exercise would constitute a violation of any applicable federal or state
securities law or other law or valid regulation.

     6.     Expiration.  This Option and any corresponding Stock Appreciation
            ----------                                                       
Rights shall expire on _____________, 2009.

     7.     Escrow.  All stock purchased pursuant to an Incentive Stock Option
            ------                                                            
shall be held in escrow for a period which ends on the later of (i) two (2)
years from the date of the granting of the option or (ii) one (1) year after the
transfer of the stock pursuant to the exercise of the Option.  The stock shall
be held by the Corporation or its designee.  The Optionee who has exercised the
Option shall have all rights of a stockholder, including, but not limited to,
the rights to vote, receive dividends and sell the stock.  The sole purpose of
the escrow is to inform the Corporation of a disqualifying disposition of the
stock within the meaning of Section 422 of the Code, and it shall be
administered solely for this purpose.

     8.     Repayment of Cash Payments.  If the Optionee hereunder forfeits any
            --------------------------                                         
Options pursuant to the Plan, the Optionee shall, within 30 days after the
effective date of such forfeiture, pay the Corporation, the Bank or a Subsidiary
(as applicable) an amount equal to the cash payments received by the Optionee
from the Corporation, the Bank or any Subsidiary with respect to such forfeited
Options pursuant to Section 23 of the Plan.  In the alternative, at the option
of the Corporation, the Bank or a Subsidiary, the amount to be repaid may be
withheld by the Corporation, the Bank or a Subsidiary from the final
compensation or fees payable to the Optionee.  Each acceptance by  an Optionee
of cash payments pursuant to such Section 23 with respect to Options still
subject to forfeiture shall constitute a reaffirmation of the agreements set
forth in this paragraph 8.

     9.     Tax Withholding.  All stock, cash and other assets distributed
            ---------------                                               
pursuant to this Agreement shall be subject to applicable federal, state and
local withholding for taxes.  The Optionee expressly acknowledges and agrees to
such withholding.  The Optionee acknowledges and agrees to the tax withholding
provisions which are set forth in the Plan.

     10.    Resolution of Disputes.  Any dispute or disagreement which should
            ----------------------                                           
arise under, or as a result of, or in any way relate to, the interpretation,
construction, or application of this Agreement or the Plan will be determined by
the Committee designated in Section 2 of the Plan. Any determination made by
such Committee shall be final, binding, and conclusive for all purposes.

     11.  Construction Controlled by Plan.  The Options and any corresponding
          -------------------------------                                    
Stock Appreciation Rights evidenced hereby shall be subject to all of the
requirements, conditions and provisions of the Plan.  This Agreement shall be
construed so as to be consistent with the Plan; 

                                       3
<PAGE>
 
and the provisions of the Plan shall be deemed to be controlling in the event
that any provision should appear to be inconsistent therewith.

     12.    Severability.  Whenever possible, each provision of this Agreement
            ------------                                                      
shall be interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or part
thereof shall not be affected thereby and this Agreement shall continue to be
binding on the parties hereto as if such unenforceable, invalid or illegal
provision or part thereof had not been included herein.

     13.    Modification of Agreement; Waiver.  This Agreement may be modified,
            ---------------------------------                                  
amended, suspended or terminated, and any terms, representations or conditions
may be waived, but only by a written instrument signed by each of the parties
hereto and only subject to the limitations set forth in the Plan.  No waiver
hereunder shall constitute a waiver with respect to any subsequent occurrence or
other transaction hereunder or of any other provision.

     14.    Captions and Headings; Gender and Number.  Captions and paragraph
            ----------------------------------------                         
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part, and shall not serve as a basis
for interpretation or construction, of this Agreement.  As used herein, the
masculine gender shall include the feminine and neuter, and the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.

     15.    Governing Law; Venue and Jurisdiction.  Without regard to the
            -------------------------------------                        
principles of conflicts of laws, the laws of the State of North Carolina shall
govern and control the validity, interpretation, performance, and enforcement of
this Agreement.

     16.    Binding Effect.  This Agreement shall be binding upon and shall 
            --------------       
inure to the benefit of the Corporation, and its successors and assigns, and
shall be binding upon and inure to the benefit of the Optionee, and his heirs,
legatees, personal representative, executor, administrator and permitted
assigns.

     17.    Entire Agreement.  This Agreement and the Plan constitute and embody
            ----------------                                                    
the entire understanding and agreement of the parties hereto and, except as
otherwise provided hereunder, there are no other agreements or understandings,
written or oral, in effect between the parties hereto relating to the matters
addressed herein.

     18.    Counterparts.  This Agreement may be executed in any number of
            ------------                                                  
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.

                                       4
<PAGE>
 
     IN WITNESS WHEREOF, the parties have set their hands and seals the day and
year first above written.

                                    CODDLE CREEK FINANCIAL CORP.

ATTEST:

______________________________      By:_________________________________
(Corporate Seal)                       ________________ President



                                    OPTIONEE:

                                    ____________________________________
                                    (SEAL)


                                       5