<PAGE>
 
                                                               EXHIBIT 10(ii)(b)
 
                     
                     HILLSBOROUGH SAVINGS BANK, INC., SSB
                          MANAGEMENT RECOGNITION PLAN


     Hillsborough Savings Bank, Inc., SSB, a North Carolina chartered savings
bank (the "Bank"), does herein set forth the terms of the Management Recognition
Plan (the "Plan").

     1.  Purpose of this Plan.  The purpose of this Plan is to provide to the
         --------------------                                                
directors, officers and employees (the "Participants") of the Bank and of any
corporation or other entity of which the Bank owns, directly or indirectly, not
less than fifty percent (50%) of any class of the equity securities thereof (a
"Subsidiary"), an ownership interest in the Bank's parent holding company,
Piedmont Bancorp, Inc. (the "Corporation") by making awards (hereinafter
referred to as "Awards" or singularly, "Award") of shares of common stock of the
Corporation (the "Common Stock").  The Board of Directors of the Bank (the
"Board") and the Board of Directors of the Corporation believe that
participation in the ownership of the Corporation will induce Participants to
continue to serve the Bank or any Subsidiary as directors, officers and/or
employees and encourage them to contribute to the future growth and profits of
the Bank and the Corporation.  In addition, the existence of this Plan will make
it possible for the Bank and its Subsidiaries to attract capable individuals to
serve as directors or officers of the Bank and its Subsidiaries.  The Board
believes that the existence of this Plan will provide incentives to the
directors, officers and employees of the Bank and any Subsidiaries which will
contribute materially to the success of such companies.

     2.  Administration of this Plan.
         --------------------------- 

     (a) This Plan shall be administered by a committee of the Board (the
"Committee") which shall consist of not less than three non-employee members of
the Board who are "disinterested persons" as described in Rule 16b-3(c)(2)(i) of
the Rules and Regulations under the Securities Exchange Act of 1934 (the
"Exchange Act").  In the absence of a duly appointed Committee, the Plan shall
be administered by those members of the Board who are "disinterested persons,"
and by the Board if there are less than three "disinterested persons."  The
Committee shall have full power and authority to construe, interpret and
administer this Plan.  All actions, decisions, determinations, or
interpretations of the Committee shall be final, conclusive, and binding upon
all parties.  Members of the Committee shall serve at the pleasure of the Board.

     (b) The Committee shall decide (i) to whom Awards shall be made under this
Plan, except as provided in subparagraph 3(b) and paragraph 5 hereof, (ii) the
number of shares of Common Stock subject to each award except as provided in
subparagraph 3(b) and paragraph 5 hereof, (iii) the number of additional shares,
if any, to be purchased or allocated for the purposes of this Plan, (iv) the
determination of leaves of absence which may be granted to Participants without
constituting a termination of their employment for purposes of the Plan and (v)
such additional terms and conditions for Awards as the Committee shall deem
appropriate, including, without limitation, any determinations as to the
restrictions or conditions on transfer of shares of Common Stock that are
necessary or appropriate to satisfy all applicable securities laws, rules,
regulations, and listing requirements.
<PAGE>
 
     (c) The Committee may designate any officers or employees of the Bank or of
any Subsidiary to assist in the administration of this Plan.  The Committee may
authorize such individuals to execute documents on its behalf and may delegate
to them such other ministerial and limited discretionary duties as the Committee
may see fit.

     (d) Any unallocated, undistributed or forfeited shares of Common Stock held
under this Plan shall be held by Robert B. Nichols, Jr., Everett H. Kennedy and
William Larry Rogers (the "Trustees") and any successor or successors who from
time to time may be appointed by the Board.

     3.  Shares of Common Stock Available Under the Plan.
         ----------------------------------------------- 

     (a) The Plan shall acquire a number of shares of Common Stock of the
Corporation equal to four percent (4%) of the shares of Common Stock issued in
connection with the conversion of the Bank from a North Carolina chartered
mutual savings bank to a North Carolina chartered stock savings bank on December
7, 1995 (the "Conversion").  Such shares of Common Stock may be purchased by the
Plan in the open market, or, subject to approval of the Board of Directors of
the Corporation, may be acquired through the issuance by the Corporation to the
Plan of authorized but unissued shares of Common Stock on such terms as may be
approved by the Committee and the Board of Directors of the Corporation.  Such
shares (the "Plan Shares") shall be held or delivered by the Trustees or shall
be allocated and distributed pursuant to the terms of this Plan.

     (b) Upon the purchase of the Plan Shares as provided in subparagraph (a)
above, such Plan Shares shall be allocated as provided in paragraph 5 hereof.

     4.  Eligibility.  The Participants in this Plan to whom Awards may be made
         -----------                                                           
shall be the following:  members of the Board, members of the Board of Directors
of any Subsidiary, and such officers and employees of the Bank and/or of any
Subsidiary as may be designated by the Board. Notwithstanding the foregoing, no
member of the Committee is eligible to receive any grants or any awards of
shares under this Plan during the one-year period prior to serving on the
Committee or during such service, except for Awards of Plan Shares which are
distributed pursuant to the provisions of paragraph 5 hereof.

     5.  Award of Plan Shares.  Subject to the provisions of paragraph 7 hereof,
         --------------------                                                   
effective on the date this Plan is approved by a majority of the shareholders of
the Corporation, or as soon as practicable thereafter, the Plan Shares shall be
awarded to Participants listed in, and in the amounts set forth in, Exhibit A.

     6.  Vesting of Shares.
         ----------------- 

     (a) Shares granted under this Plan shall vest and the right of a
Participant to the Plan Shares shall be nonforfeitable in accordance with the
following schedule:

                                       2
<PAGE>
 
     Date When Plan Shares                            Percentage of Plan
          Become Vested                                  Shares Vested
       -------------------                            -------------------

     First Anniversary of Award of Plan Shares                  20%
     Second Anniversary of Award of Plan Shares                 20%
     Third Anniversary of Award of Plan Shares                  20%
     Fourth Anniversary of Award of Plan Shares                 20%
     Fifth Anniversary of Award of Plan Shares                  20%

     (b) In determining the number of shares vested under the above vesting
schedule, a Participant shall not receive fractional shares.  If the product
resulting from multiplying the vested percentage times the allocated shares
results in a fractional share, then a Participant's vested right shall be
rounded down to the nearest whole number of shares.

     (c) In the event any Participant shall no longer be either a director or an
employee of the Bank or any Subsidiary for any reason, other than as provided in
subparagraph 6(d)below, and such Participant does not have a 100% vested
interest in his or her shares under the Plan, then any shares which are not
vested, based upon the applicable schedule in subparagraph 6(a) above, shall be
forfeited and shall be available again for Awards to Participants as may be
determined by the Committee.

     (d) In the event that a Participant shall no longer be an employee or a
director of the Bank or any Subsidiary because of such Participant's disability
or death, prior to the date when all shares allocated to him or her would be
100% vested in accordance with the schedule in subparagraph 6(a) above, then,
notwithstanding the foregoing schedule in subparagraph 6(a) above, all shares
allocated to such Participant shall immediately become fully vested and
nonforfeitable.  For purposes of this Plan, the term "disability" shall be
defined in the same manner as such term is defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code").

     7.  Action Required of Participants.
         ------------------------------- 

     (a) If required by the Committee, each Participant receiving an Award of
shares under this Plan shall represent to and agree with the Corporation, the
Bank, the Committee and the Trustees (i) that he is acquiring such shares on his
own behalf as an investment and not with a present intention of distribution or
re-sale and (ii) that there shall be placed upon the certificates representing
such shares a legend setting forth these representations and agreements or a
reference thereto.  Such shares shall be transferable thereafter only if the
proposed transfer shall be permissible under this Plan and if, in the opinion of
counsel for the Corporation, such transfer shall at such time be in compliance
with all applicable federal and state securities laws and regulations.

     (b) Each Participant receiving an Award of Plan Shares under this Plan
shall deliver to the Bank a Stock Grant Agreement, substantially in the form
attached hereto as Exhibit B, as modified as the Committee deems necessary or
desirable (a "Stock Grant Agreement"), which shall be signed by such
Participant.

                                       3
<PAGE>
 
     8.  Restrictions.
         ------------ 

     (a) Plan Shares subject to an award made under this Plan shall forthwith,
after the Participant makes any representations required by paragraph 7 hereof,
be issued in a certificate or certificates for such shares which shall be
prepared in the name of such Participant or any transferee permitted by
paragraph 12(a) (a "Permitted Transferee").  Such Participant or transferee
shall thereupon be a shareholder with respect to all of the shares represented
by such certificate or certificates and shall have all of the rights of a
shareholder with respect to all of such shares, including the right to vote such
shares and to receive all dividends and other distributions with respect thereto
subject to possible forfeiture as set forth in paragraph 6 and subject to the
provisions of paragraph 10 hereof.

     (b) Certificates of stock representing shares subject to an Award made
under this Plan shall be imprinted with a legend to the effect that the shares
represented are subject to restrictions on transfer and potential forfeiture in
accordance with the terms of the Stock Grant Agreement and this Plan, and the
transfer agent for Common Stock shall be instructed to that effect with respect
to such shares.  In aid of such restrictions, the Participant or Permitted
Transferee shall, immediately upon receipt of the certificate or certificates,
deposit such certificate or certificates together with a stock power or other
instrument of transfer, appropriately endorsed in blank, with the Trustees or
with such other escrow agent as may be designated by the Trustees, with the
expenses of any such escrow arrangement to be borne by the Bank.

     (c) In addition, all Plan Shares which are awarded with respect to
Participants who are directors or executive officers of the Bank, without the
written consent of the Administrator of the Savings Institutions Division of the
North Carolina Department of Commerce, may not be sold during a period of one
year following the effective date of the Conversion, except upon death of the
director or executive officer.  Certificates of stock representing Plan Shares
awarded with respect to Participants who are directors and executive officers of
the Bank (including those transferred to Permitted Transferees) shall be
imprinted with a legend to that effect, and the transfer agent for such Plan
Shares shall be instructed to that effect with respect to such shares.

     (d) In the event that, as the result of a stock split or stock dividend or
combination of shares or any other change or exchange for other securities by
reclassification, reorganization, merger, consolidation, recapitalization, or
otherwise, a Participant or Permitted Transferee shall, as the owner of the
shares subject to an Award made under this Plan and subject to the restrictions
hereunder, be entitled to new or additional or different shares of Common Stock
or other securities, the certificate or certificates for, or other evidence of,
such new or additional or different shares or other securities, together with a
stock power or other instrument of transfer appropriately endorsed, shall also
be imprinted with one or more legends as provided in subparagraph 8(b) and 8(c)
above and deposited by such Participant or Permitted Transferee with the
Trustees, and all provisions of this Plan relating to vesting, restrictions and
lapse of restrictions herein set forth shall thereupon be applicable to such new
or additional or different shares or other securities to the extent applicable
to the shares with respect to which they were distributed; provided, however,
that if a Participant or Permitted Transferee should receive rights, warrants or
fractional interests in respect of any of such shares then being held under the
terms of this Plan, such rights or warrants may be held, exercised, sold or
otherwise disposed of, and

                                       4
<PAGE>
 
such fractional interests may be settled, by such Participant or Permitted
Transferee free and clear of the restrictions herein set forth.

     (e) The restriction to which shares subject to an Award made under this
Plan shall be subject is that if the directorship or employment of the
Participant with respect to whom an Award is made (whichever position resulted
in the Award) should be terminated for any reason during the "restricted period"
(as defined in subparagraph 12(b) hereof), except as otherwise specifically
provided in paragraph 6 hereof, the Participant's or Permitted Transferee's
interest in the shares issued under this Plan shall be forfeited as provided in
the applicable schedule in subparagraph 6(a) hereof.

     9.  Effect of Award on Status of Participant.  The fact that an Award is
         ----------------------------------------                            
made to a Participant under this Plan shall not confer on such Participant any
right to continued service on the Board or on the Board of Directors of any
Subsidiary, nor any right to continued employment with the Bank or any
Subsidiary; nor shall it limit the right of the Bank, the Corporation, or any
Subsidiary to remove such Participant from any such boards, or to terminate his
or her employment at any time.

     10.  Voting Rights; Dividends; Other Distributions.  After an Award of Plan
          ---------------------------------------------                         
Shares to a Participant or Permitted Transferee, the Participant or Permitted
Transferee shall have the full power to vote all of the Plan Shares held by the
Trustees in his name from time to time and shall be entitled to receive all cash
dividends declared upon any such Plan Shares held by the Trustees in his name
from time to time.  All shares of Common Stock or other securities, including
but not limited to stock dividends, issued in respect of such Plan Shares or in
substitution thereof, whether by the Corporation or by another issuer, shall be
held by the Trustees and shall be subject to all terms and conditions of this
Plan and shall be redelivered to a Participant or Permitted Transferee or
delivered as instructed by the Committee under the same circumstances as the
shares with respect to, or in substitution for, which they were issued;
provided, however, that if a Participant or Permitted Transferee should receive
rights, warrants or fractional interests in respect of any of the shares held by
the Trustees in his name, such rights or warrants may be held, exercised, sold
or otherwise disposed of, and such fractional interests may be settled, by such
Participants or Permitted Transferees free and clear of the restrictions herein
set forth.

     Notwithstanding the foregoing, if a Participant or Permitted Transferee
hereunder forfeits any Plan Shares pursuant to the terms of this Plan, the
Participant or Permitted Transferee, as applicable, shall, within 30 days after
the effective date of such forfeiture, pay the Corporation an amount equal to
the dividends received by such Participant or Permitted Transferee with respect
to such forfeited Plan Shares.

     11.  Adjustment Upon Changes in Capitalization; Dissolution or Liquidation.
          --------------------------------------------------------------------- 
In the event of a change in the number or type of shares of Common Stock
outstanding, or in the event shares of Common Stock are decreased, changed into
or exchanged for securities of a different entity, by reason of a
reclassification, recapitalization, reorganization, or other similar capital
adjustment; merger or consolidation of the Corporation; or the sale by the
Corporation of all or a substantial portion of its assets, or the occurrence of
any other event which could affect the implementation of this Plan and the
realization of its objectives, the number or kind of shares subject to Awards
which have occurred, or could occur, under this Plan shall be proportionately
and equitably adjusted by the Committee.

                                       5
<PAGE>
 
     12.  Non-Transferability.
          ------------------- 

     (a) Any shares subject to an Award made under this Plan shall not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of during
the "restricted period." Nothing herein shall preclude a Participant from making
a gift of any such shares to a spouse, child, stepchild, grandchild, parent or
sibling, or legal dependent of such Participant, to a trust of which the
beneficiary or beneficiaries of the trust shall be either a person designated
herein or such Participant, or to a civic or charitable organization designated
by the Participant; provided, however, that any such shares so given by a
Participant shall remain subject to the restrictions, obligations and conditions
set forth in this Plan, including, but not limited to, the escrow provisions set
forth in paragraph 8(b).  In addition, such shares may be tendered in response
to a tender offer for or a request or invitation to tenders of greater than
fifty percent (50%) of the outstanding Common Stock and may be surrendered in a
merger, consolidation or share exchange involving the Corporation; provided,
however, in each case, that except as otherwise provided herein, the securities
or other consideration received in exchange therefor shall thereafter be subject
to the restrictions and conditions set forth in this Plan, including, but not
limited to, the escrow provisions set forth in paragraph 8(b).

     (b) The term "restricted period" with respect to shares subject to an Award
made under this Plan shall be the period commencing on the date of making such
Award of such shares to a Participant and ending on the date on which such
shares are no longer subject to forfeiture as provided in paragraph 6 hereof.
The date of making an Award shall be the date of execution by a Participant of a
Stock Grant Agreement in the form referred to in subparagraph 7(b) hereof.

     13.  Impact of Award on Other Benefits of Participant.  The value of any
          ------------------------------------------------                   
Award, either on the date of the Award or at the time such shares become vested,
shall not be includable as compensation or earnings for purposes of any other
benefit plan offered by the Bank, the Corporation or any Subsidiary.

     14.  Corporate Action.  The making of an Award under this Plan shall not
          ----------------                                                   
affect in any way the right or power of the Corporation or its shareholders or
the Bank or its shareholders or any Subsidiary or its shareholders to make or
authorize any adjustment, recapitalization, reorganization, or other change in
the Corporation's, the Bank's or any Subsidiary's capital structure or its
business, or any merger or consolidation of the Corporation, the Bank or any
Subsidiary, or the issuance of any bonds, debentures, preferred or other capital
stock or rights with respect thereto, or the dissolution or liquidation of the
Corporation, the Bank or any Subsidiary, or any sale or transfer of all or any
part of the Corporation's, the Bank's or any Subsidiary's assets or business.

     15.  Tax Withholding.  The Bank, the Corporation or any Subsidiary shall
          ---------------                                                    
have the right to deduct or otherwise effect a withholding of any amount
required by federal or state laws to be withheld with respect to the making of
an Award or the sale of shares acquired under this Plan in order for the Bank,
the Corporation or any Subsidiary to obtain a tax deduction otherwise available
as a consequence of such Award or sale, as the case may be.

                                       6
<PAGE>
 
     16.  Exculpation and Indemnification.  In connection with this Plan, no
          -------------------------------                                   
member of the Board, no member of the Board of Directors of the Corporation, no
member of the Committee and no Trustee shall be personally liable for any act or
omission to act in his capacity as a member of the Board, the Board of Directors
of the Corporation or the Committee or as a Trustee, 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 Bank shall indemnify, defend and
hold harmless the members of the Board, the members of the Board of Directors of
the Corporation and the Committee and each Trustee and each other officer or
employee of the Bank, the Corporation or of any Subsidiary to whom any duty or
power 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 such liabilities, costs, and expenses as may arise out of,
or result from, the bad faith, willful misconduct, or criminal acts of such
persons.

     17.  Amendment and Modification of this Plan.  The Board may at any time,
          ---------------------------------------                             
and from time to time, amend or modify this Plan (including the form of Stock
Grant Agreement) in any respect; provided, however, any amendment or
modification of this Plan shall not in any manner affect any Award of shares
theretofore made to a Participant under this Plan without the consent of such
Participant or any permitted transferee of such Participant and further provided
that no amendment shall be made to paragraph 5 of the Plan more than once every
six months other than to comport with changes in the Code, Employee Retirement
Income Security Act or the rules thereunder.

     18.  Termination and Expiration of this Plan.  This Plan may be abandoned,
          ---------------------------------------                              
suspended, or terminated, in whole or in part, at any time by the Board;
provided, however, that abandonment, suspension, or termination of this Plan
shall not affect any Award theretofore made under this Plan; and provided
further, that in no event shall this Plan be terminated at the time of or
following any merger or consolidation of the Corporation or the Bank, unless and
until the surviving entity shall have made provision for an equivalent benefit
for all the then current participants in the Plan.  Unless sooner terminated,
this Plan shall terminate at the close of business on the day that is the tenth
(10th) anniversary of the date of approval of the Plan by a majority of the
shareholders of the Corporation; and no Award of shares may be made under this
Plan thereafter.  Such termination shall not effect any Award of shares
theretofore made.  In the event that the Board terminates this Plan in whole,
any shares held by the Trustees pursuant to paragraph 2(d) which have not been
allocated to eligible Participants, together with any other trust assets, shall
revert to the Bank.

     19.  Effective Date.  This Plan has been adopted by the Board to be
          --------------                                                
effective as of the date of approval of the Plan by a majority of the
shareholders of the Corporation as required by the regulations of the Federal
Deposit Insurance Corporation.

     20.  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 hereof, and shall not serve as a
basis for interpretation or construction of this Plan.  As used

                                       7
<PAGE>
 
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.

     21.  Expenses of Administration of Plan.  All costs and expenses incurred
          ----------------------------------                                  
in the operation and administration of this Plan shall be borne by the Bank or
by a Subsidiary.

     22.  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.

     23.  Inspection of Plan.  A copy of this Plan, and any amendments thereto,
          ------------------                                                   
shall be maintained by the Secretary of the Bank and shall be shown to any
proper person making inquiry about it.

                                       8
<PAGE>
 
                                   EXHIBIT A
<TABLE> 
<CAPTION> 
                                                                   MRP
                                                            PERCENTAGE OF TOTAL
NAME                                                           PLAN SHARES/1/
----                                                        -------------------
<S>                                                             <C> 
M. Marion Clark                                                   4.285%
Robert B. Nichols, Jr.                                            4.285%
Alfred L. Carr                                                    4.285%
Everett H. Kennedy                                                4.285%
Donald W. Pope                                                    4.285%
James P. Ray                                                      4.285%
William Larry Rogers                                              4.285%
D. Tyson Clayton                                                 11.76%
Peggy S. Walker                                                  10.44%
Robert L. Pearson                                                 6.66%
Gina B. Riggins                                                   6.13%
Dathene Hawkins                                                   2.70%
Judy Reneau                                                       2.33%
Coleen Shambley                                                   2.03%
Amy Latta                                                         2.13%
Glenda Riggs                                                      1.68%
Teresa Cecil                                                      1.88%
Lola Miller                                                       1.66%
Robert Ward                                                       2.22%
Diane Cecil                                                       1.30%
Linda Frazier                                                     1.37%
Elvira Simmons                                                    1.12%
Kendell Sturdivant                                                1.71%
Brenda Sykes                                                      1.31%
Cynthia Dunn                                                      1.37%
Christy Clayton                                                   1.01%
Corrina Ashley                                                    0.75%
Toni Champion                                                     1.00%
Nancy Freeman                                                     0.96%
Bette Walker                                                      0.91%
Jessica Robinson                                                  0.82%
Jill Stephens                                                     0.89%
Sue Kinsey                                                        0.68%
Susan Dean                                                        0.45%
Jennifer Overman                                                  0.76%
Carolyn Compton                                                   0.53%
Linward Toran                                                     0.76%
Julie Thompson                                                    0.67% 
___________________
</TABLE> 
     /1/Total Plan Shares shall be equal to four percent (4%) of the number of
shares of Common Stock issued by the Corporation in connection with the
Conversion.
<PAGE>
 
                                   EXHIBIT B

STATE OF NORTH CAROLINA
COUNTY OF ORANGE
                                                           STOCK GRANT AGREEMENT

          THIS STOCK GRANT AGREEMENT (the "Agreement") is made and entered into
as of the ____ of ___________________, _______ (the "Effective Date"), by and
among Hillsborough Savings Bank, Inc., SSB (the "Bank"), a North Carolina
corporation, _______________________ (the "Participant") and Robert B. Nichols,
Jr., Everett H. Kennedy and William Larry Rogers (the "Trustees").

          WHEREAS, a Management Recognition Plan (the "Plan") was adopted by the
Board of Directors of the Bank (the "Bank") and approved by the Board of
Directors and by a majority of the shareholders of Piedmont Bancorp, Inc., the
holding company of the Bank (the "Corporation").

          WHEREAS, it has been determined that it is desirable and in the best
interest of the Bank to make an award (the "Award") of certain shares of the
Common Stock of the Corporation, under the Plan, to the Participant, subject to
certain restrictions as specified below; and

          WHEREAS, capitalized terms not otherwise defined herein shall have the
same meaning given to such terms in the Plan.

          NOW, THEREFORE, the Parties agree as follows:

          1.  Date of Award.  The date of making the Award under this Agreement
              -------------                                                    
is the _____ day of _________________, ______.  This Award has been made in
recognition of the Participant's status and service as a ____________________ of
_____________________________________________. The Participant is ____ or _____
is not a director or executive officer of the Bank.

          2.  Receipt by Participant.  The Participant acknowledges receipt of
              ----------------------                                          
________________________________ (__________) shares of Common Stock (the
"Restricted Stock"), and agrees to the execution of stock powers or such other
transfer authorizations as the Committee shall request, in blank, covering the
Restricted Stock to be held by the Trustees until the Restricted Stock becomes
vested and nonforfeitable pursuant to the Plan and this Agreement.

          3.  Investment Representation and Transfer Restrictions.
              --------------------------------------------------- 

          (a) Investment Representation.  Participant makes and agrees to the
              -------------------------                                      
investment representation, if any, attached hereto as Annex A, and the Committee
may cause a legend to be placed on any certificate representing any of the
shares of Restricted Stock to make appropriate reference to such representation.

          (b) Securities Law and Regulations.  The Participant agrees that the
              -------------------------------                                 
Restricted Stock shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any stock
exchange or interdealer quotation system upon which the Common Stock is then
listed and any
<PAGE>
 
other applicable federal or state securities laws, rules or regulations, and the
Committee may cause a legend or legends to be placed on any certificate
representing any of the shares of Restricted Stock to make appropriate reference
to such restrictions.

          (c) Other Transfer Restrictions.  If paragraph 1 above states that
              ---------------------------                                   
Participant is a director or an executive officer of the Bank and if less than
one year has passed since the consummation of the Conversion (defined below),
the Participant agrees with the Bank that each certificate representing any of
the Restricted Stock may bear a legend, substantially in the form attached as
Annex B hereto, to the effect that, during the one year period following the
effective date of the conversion of the Bank from a North Carolina chartered
mutual savings bank to a North Carolina chartered stock savings bank (the
"Conversion"), the Restricted Stock represented thereby may not be sold without
the written consent of the Administrator of the Savings Institutions Division,
North Carolina Department of Commerce, except upon the death of the Participant.

          4.  Receipt by the Trustees.  The Trustees acknowledge receipt from
              -----------------------                                        
the Participant of the Restricted Stock, registered in the name of the
Participant, and acknowledge receipt of stock powers executed in blank by the
Participant covering all of the Restricted Stock.  The Restricted Stock shall be
held by the Trustees and distributed or transferred in accordance with the Plan
and as set forth herein.

          5.  Vesting and Delivery of Restricted Stock by the Trustees.
              --------------------------------------------------------

              (a) Periodic Vesting.  Restricted Stock shall vest and become
                  ----------------                         
 nonforfeitable in accordance with the Plan.

              (b) Delivery of Restricted Stock to the Participant.  After (i)
                  -----------------------------------------------             
the date on which shares of Restricted Stock have become vested as provided in
the Plan, the Committee shall instruct the Trustees to deliver to the
Participant, the Participant's designee, such other person as shall have been
designated as Participant's beneficiary in accordance with this Agreement, or
any other permitted recipient pursuant to the Plan, as applicable, certificates
representing the shares of Restricted Stock which have become vested and
nonforfeitable, as the Committee shall determine, free from any restrictions
imposed by this Agreement other than such restrictions and conditions as may be
deemed necessary by the Committee pursuant to paragraph 3 above.

            (c) Delivery of Forfeited Restricted Stock.  If the Restricted 
                --------------------------------------                       
Shares, or any of them, are forfeited pursuant to the Plan, the Board shall
instruct the Trustees concerning the disposition of such forfeited shares.
Thereafter such forfeited shares shall cease to be subject to this Agreement.

          6.  Repayment of Dividends.  If the Participant hereunder forfeits any
              ----------------------                                            
shares of Restricted Stock pursuant to the Plan, the Participant shall, within
30 days after the effective date of such forfeiture, pay the Corporation an
amount equal to the dividends received by the Participant with respect to
forfeited shares of Restricted Stock as set forth in the Plan.

                                       2
<PAGE>
 
          7.  Designation of Beneficiary.  The Participant hereby designates the
              --------------------------                                        
person(s) described on Annex C as the beneficiary or beneficiaries who shall be
entitled to receive the Restricted Stock, if any, distributable to the
Participant upon his death.  The Participant may, from time to time, revoke or
change his beneficiary designation without the consent of any prior beneficiary,
if any, by filing a new designation with the Committee.  The last such
designation received by the Committee shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Committee prior to the Participant's death, and in no event
shall it be effective as of a date prior to such receipt.

          If no such beneficiary designation is in effect at the time of the
Participant's death, or if no designated beneficiary survives the Participant,
or if such designation conflicts with law, the Participant's estate shall be
deemed to have been designated his beneficiary and shall receive the Restricted
Stock, if any, distributable to the Participant upon his death.  If the
Committee is in doubt as to the right of any person to receive such
distribution, the Committee may direct the Trustees to retain the Restricted
Stock, without liability for any interest in respect thereof, until the rights
thereto are determined, or the Committee may direct the transfer of such
Restricted Stock into any court of appropriate jurisdiction and such transfer
shall be deemed a complete discharge of the obligations of the Bank, the
Corporation, the Committee and Trustees hereunder.

          8.  Effect of Award on Status of Participant.  The fact that an Award
              ----------------------------------------                         
has been made to the Participant under this Plan shall not confer on the
Participant any right to continued service on the Board or on the board of
directors of any Subsidiary, nor to continued employment with the Bank or any
Subsidiary; nor shall it limit the right of the Bank, the Corporation or of any
Subsidiary to remove the Participant from any such boards, or to terminate his
employment at any time without prior notice.

          9.  Impact of Award on Other Benefits of Participant.  The value of
              ------------------------------------------------               
the Restricted Stock on the date of the Award or at the time the Restricted
Stock becomes vested, shall not be includable as compensation or earnings for
purposes of any other benefit plan offered by the Bank, the Corporation or any
Subsidiary.

         10.  Tax Withholding.  All Restricted Stock distributed pursuant to
              ---------------                                               
this Agreement shall be subject to applicable federal, state and local
withholding for taxes.  The Participant expressly acknowledges and agrees to
such withholding without regard to whether the Restricted Stock may then be sold
or otherwise transferred by the Participant.

         11.  Notices.  Any notices or other communications required or
              -------                                                  
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been sufficiently given if delivered personally or three business
days after deposit in the United States mail as Certified Mail, return receipt
requested, properly addressed and postage prepaid, if to the Bank, the Committee
or the Trustees at the Bank's principal office address at 260 South Churton
Street, Hillsborough, North Carolina 27278; and, if to the Participant, at his
last address appearing on the books of the Bank.  The Bank and the Participant
may change their address or addresses by giving written notice of such change as
provided herein.  Any notice or other communication hereunder shall be deemed to
have been given on the date actually delivered or as of the third (3rd) business
day following the date mailed as set forth above, as the case may be.

                                       3
<PAGE>
 
          12.  Construction Controlled by Plan.  The Plan, a copy of which is
               -------------------------------                               
attached hereto as Annex D, is incorporated herein by reference.  The Award of
Restricted Shares shall be subject to the terms and conditions of the Plan, and
the Participant hereby assumes and agrees to comply with all of the obligations
imposed upon the Participant in the Plan.  This Agreement shall be construed so
as to be consistent with the Plan; and the provisions of the Plan shall be
deemed to be controlling in the event that any provision hereof should appear to
be inconsistent therewith.

          13.  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.

          14.  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 Agreement.

          15.  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 or their successors in interest.  No waiver hereunder shall
constitute a waiver with respect to any subsequent occurrence or other
transaction hereunder or of any other provision hereof.

          16.  Binding Effect.  This Agreement shall be binding upon and shall
               --------------                                                 
inure to the benefit of the parties hereto, and their respective heirs,
legatees, personal representatives, executors, and administrators, successors
and 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.

          19.  Substitution of Trustee.  In the event any new trustee is
               -----------------------                                  
substituted for any Trustee pursuant to the Plan, such substitute trustee shall
also be substituted as a Trustee hereunder.

                                       4
<PAGE>
 
          IN WITNESS WHEREOF, the Bank has caused this instrument to be executed
in its corporate name by its President, or one of its Vice Presidents, and
attested by its Secretary or one of its Assistant Secretaries, and its corporate
seal to be hereto affixed, all by, authority of its Board of Directors first
duly given; and each individual party hereto has hereunto set his hand and
adopted as his seal the typewritten word "SEAL" appearing beside his name, all
done this the day and year first above written.


                                 HILLSBOROUGH SAVINGS BANK, INC., SSB


                                 By:____________________________________________

                                    __________________ President

ATTEST:

_____________________________

________________ Secretary

[Corporate Seal]


                                 PARTICIPANT


                                 _________________________________________(SEAL)


                                 _________________________________________(SEAL)
                                 TRUSTEE

                                 _________________________________________(SEAL)
                                 TRUSTEE

                                 _________________________________________(SEAL)
                                 TRUSTEE


                                       5
<PAGE>
 
                                    ANNEX A

                           INVESTMENT REPRESENTATION
                           -------------------------
<PAGE>
 
                                    ANNEX B

                                FORM OF LEGEND
                                --------------

          The shares represented by this certificate are subject to restrictions
on transfer and, for a period ending December 7, 1996, may not be sold without
the written permission of the Administrator of the Savings Institutions
Division, North Carolina Department of Commerce, except in the event of the
death of the holder thereof.