**Exhibit 10.6**

**AGREEMENT BETWEEN NORTHSTATE BANK****AND****JUDY STEPHENSON**

THIS AGREEMENT is made and entered into on this 1stday of June, 2000, by and between North State Bank (hereinafter referred to as “the Bank”) and Judy Stephenson (hereinafter referred to as “Executive”).

WITNESSETH THAT:

WHEREAS, as of the effective date of this Agreement, Judy Stephenson is employed by North State Bank asExecutive Vice President, and as of the date of execution of this Agreement is employed in such capacity;

WHEREAS, the Bank desires to retain the services ofJudy Stephenson; and

WHEREAS, the parties to this Agreement desire to establish mutually satisfactory arrangements in the event there is a termination ofservices of Judy Stephenson under circumstances provided for hereinafter;

NOW, THEREFORE, for and in consideration of the premises and the followingcovenants, the parties do hereby mutually agree:

1.        Capitalized termsused in this Agreement shall have the following definitions:

(a)       The term “Base Salary” means the annualized salary paid to Judy Stephenson by the Bank during the twelve-month period ending on the last day of the last full monthimmediately preceding the termination date. Such Base Salary shall be reviewed annually by the Compensation Committee or such other committee with the equivalent responsibilities.

(b)       The term “Bonuses” shall mean any and all incentive bonuses or discretionary bonuses granted by theCompensation Committee or the Board of Directors to Executive within the most current twelve month period during the term of this Agreement.

(c)       The term “Cause” means (i) the breach of or negligent inattention to duties as the Executive Vice President of the Bank; (ii) malfeasance of officeor disloyalty to the Bank; (iii) commission of a felony or an unlawful act involving fraud or moral turpitude; or (iv) removal of Executive by federal or state regulators following a takeover of the Bank by such regulators.

(d)       “Change in Control” means (A) the acquisition at any time by a“person” or “group” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”)) who or which are

 

the beneficial owners (as defined in Rule 13(d)-3 under the Exchange Act), directly or indirectly, of securities representing more than40% of the combined voting power in the election of directors of the then outstanding securities of the Bank or any successor of the Bank, unless the acquisition of securities resulting in such ownership by such person or group had been approved bythe Board of Directors of the Bank; (B) the termination of service of directors, for any reason other than death, disability or retirement from the Board of Directors, during any period of two consecutive years or less, of individuals who at thebeginning of such period constituted a majority of the Board of Directors, unless the election of or nomination for election of each new director during such period was approved by a vote of at least a majority of the directors still in office whowere directors at the beginning of the period; (C) approval by the shareholders of the Bank of any sale or disposition of substantially all of the assets or earning power of the Bank; or (D) approval by the shareholders of the Bank of any merger,consolidation, or statutory share exchange to which the Bank is a party as a result of which the persons who were stockholders immediately prior to the effective date of the merger, consolidation or share exchange shall have beneficial ownership ofless than 50% of the combined voting power in the election of directors of the surviving corporation. Each determination concerning whether an event constitutes a Change in Control shall be made in a consistent manner as to the particular event withrespect to all participants at the time of the event.

(e)       The term “Total Compensation” shall mean Base Salary plus any Bonuses.

2.        The Bank agrees to employ Executive as Executive Vice President of the Bank or such other position as may be assigned to her by the Board of Directors of the Bank during theterm of this Agreement. Executive agrees to carry out such duties to the best of her abilities, as may be assigned to her from time to time by the Board of the Bank and to devote her full working time and energies to the business of the Bank,provided such duties shall be consistent with her position as Executive Vice President of the Bank.

3.        The term of employment provided for in this Agreement shall commence on June 1, 2000, and shall remain in full force for a period of three years thereafter. Such term shallbe automatically extended for an additional year on each anniversary of the term commencement date and shall continue to renew as such, unless 30 days written notice of non-extension is provided by the Bank to Executive. Notwithstanding anything tothe contrary provided herein, nothing in this Agreement shall be read as obligating the Bank to make any payment other than accrued Base Salary through the date of termination to Executive in the event of a termination of Executive’s employmentfor any reason other than death, Total and Permanent Disability, Retirement, or Change in Control; provided, however, that in the event of suchtermination, Executive shall be entitled to payment of accrued Base Salary through the date of termination.

2

4.        In the event of termination of Executive’semployment by reason due to death, Total and Permanent Disability or Retirement, Executive (or Executive’s Estate in the event of her death), shall be entitled to receive:

(a)       payment of any previously unpaid Base Salary through the date of termination;

(b)       payment of any life insurance, disability or other benefits, if any, forwhich Executive is then eligible under the terms of the Bank’s employee retirement, benefit and welfare plans; and, in the case of death or Total and Permanent Disability, a right to immediately vest in 100% of all options to purchase CommonStock of the Bank that have been granted to Executive by the Bank, to be exercised in accordance with the terms of any grant documents.

For purposes of thisSection 4, “Total and Permanent Disability” shall have occurred if Executive (i) has established to the satisfaction of the Board of Directors that he is unable to engage in any substantial gainful activity by reason of any medicallydeterminable physical or mental impairment which can be expected to last for a continuous period of not less than 6 months and (ii) has satisfied any requirement imposed by the Board of Directors in regard to evidence of such disability. Forpurposes of this section, “Retirement” shall mean the date Executive reaches 65 or the date Executive retires in accordance with the Bank’s retirement arrangements established for Executive.

5.        In the event of termination of Executive’s employment for Cause, Executive shall receive only thepayment of any previously unpaid Base Salary through the date of termination.

6.        In the event, but only in the event, that Executive’s employment is terminated at any time within three years following a Change in Control under circumstances stated insection (a) or (b) below of this Section 6, and only in such circumstances, Executive shall be entitled to receive those payments and benefits from the Bank as set forth in Section 7 herein. The circumstances to which this Section 6 appliesare:

(a)       Termination by the Board of Directors of theBank for reasons other than (1) for Cause, or (2) as a consequence of Executive’s death, or attainment of normal Retirement as provided under any Bank retirement plan as in effect immediately preceding such date or the attainment of Retirementas defined above; or

(b)       Termination voluntarily byExecutive following the occurrence of any of the following events:

(i)       the reduction of Executive’s annual salary (including any deferred portions thereof) or level of benefits or supplemental compensation; or

3

(ii)      the transfer of Executive to alocation requiring a change in her residence or a material increase in the amount of travel normally required of Executive in connection with her employment.

7.        In the event of termination of Executive’s employment under the circumstances set forth in Section 6 above, the Bank agrees to provide or to causeto be provided to Executive the following rights and benefits:

(a)       Executive shall be entitled to receive payment from the Bank, in the Bank’s sole discretion, in cash, either (i) an amount equal to three years of Total Compensation within 30days after such termination or (ii) an amount equal to three years of Total Compensation, payable monthly, over such three year period. In the event of Executive’s death prior to the time that such payments are made under this Section 7(a), allsuch sums shall be distributed to such beneficiary as Executive may from time to time designate in writing to the Bank, and if no such beneficiary is named, such sums shall be paid to Executive’s estate.

(b)       Unless prohibited by law, in the event that Executive is entitled to receive any sums orawards pursuant to compensation plans presently in place or which shall hereinafter be approved by the Board of Directors of the Bank, any and all vesting or maturity schedules or other rights conditioned upon the passage of time set forth in suchcompensation plans shall immediately lapse or be deemed to have a vesting schedule of three years, andExecutive shall be entitled to receive all benefits previously granted to him thereunder. In the event any such immediate lapse or three-yearvesting schedule would cause any such compensation plan that is then a “qualified” plan under the Internal Revenue Code to become non-qualified or would cause any materially adverse consequences to the Bank or its other employees, thensuch immediate lapse or three-year vesting shall not occur, but, instead, the Bank shall make such payments or otherwise provide such additional or substantially equivalent benefits or payments as may be, in the opinion of a mutually acceptablequalified third party, necessary to make the payments or benefits to Executive substantially equal to those to which he would have been entitled if such immediate lapse or three-year vesting had occurred.

(c)       In the event termination should occur prior to the grant of options and awards designated toExecutive, the Bank shall provide such substantially equivalent payments or benefits as may be, in the opinion of a mutually acceptable qualified third party, necessary to make the payments or benefits to Executive substantially equal to those towhich she would have been entitled if such options and awards had been adopted by the Board

4

and approved by the shareholders, and if such options and awards had been granted as of the effective date of this Agreement.

(d)       In the event there are payments of whatever nature arising fromthis Agreement due on or after the date of termination from the Bank or any parent or subsidiary of the Bank to Executive, the receipt of which has been deferred by means of an instrument in writing signed by Executive, such payment shall be paidwithin 30 days of termination in a lump sum to Executive. In the event there are obligations (whether or not arising from this Agreement) of the Bank or any parent or subsidiary of the Bank to Executive outstanding on or after the date oftermination, all such obligations shall immediately be accelerated to maturity and become due and payable in full as of the date of termination.

(e)       Until Executive reaches Retirement (as defined in Section 4), Executive shall continue to be covered by such life insurance, medical insurance, and accidentand disability insurance plans of the Bank or any successor plans or programs in effect at or after termination for employees in the same class or category as was Executive prior to her termination, subject to Executive making payments thereunderrequired of employees in the same class or category as Executive was prior to her termination. In the event Executive is ineligible for continuation of such coverage under the terms of such benefit plan or in the event Executive is eligible but thebenefits applicable to Executive under such plans or programs after termination are not substantially equivalent to the benefits applicable to Executive immediately prior to termination, then, until Executive’s normal retirement date, the Bankshall provide such substantially equivalent benefits or such additional benefits as may be, in the opinion of a mutually acceptable qualified third party, necessary to make the benefits applicable to Executive substantially equal to those in effectbefore termination, provided, however, that if during such period Executive shall enter into the employ of another company or firm which provides substantially similar benefit coverage, Executive’s participation in the comparable benefitprovided by the Bank either directly or through other sources shall cease.

(f)       The specific arrangements referred to in this Section 7 are not intended to exclude Executive’s participation in other benefit plans in which Executive currently participatesor which may become available to Executive, nor to preclude other compensation or benefits which may be authorized by the Board of Directors from time to time.

(g)       Notwithstanding the provisions of law or any provisions hereunder, Executive’s entitlement to benefits hereunder shall not begoverned by a duty to mitigate those damages by seeking further employment nor offset by any compensation he may receive from future employment.

5

8.        The Bank has and shall have no responsibilityor obligation for any income tax or other tax costs or liabilities incurred by Executive as a result of or in connection with any payments or payment obligations by the Bank to Executive under this Agreement, and all such payments and paymentobligations shall be computed without regard to any tax effects to Executive.

9.        The Bank’s promise to pay or cause to be paid to Executive pursuant to the provisions of Section 7 are absolute and unconditional, and shall not be affected by anycircumstances, including, without limitation, any rights of off-set, counterclaim, recoupment, defense, or other rights which the Bank may have against him or others. All such amounts payable or to be payable by the Bank hereunder shall be paidwithout notice or demand, and each and every such payment made by the Bank shall be final, and the Bank shall not have any reason whatsoever to seek to recover any payment from Executive or whomever shall be entitled thereto.

10.      Bank and Executive recognize that there may be significant legal issues or restrictions arising underbanking, securities, corporate or other laws that may affect the Bank’s and Executive’s ability to effectuate their mutual intent as expressed in this Agreement, particularly with respect to the stock option and restricted stock awardplans, but that have not been determined at the time this Agreement is executed, and thus certain modified or additional undertakings may later be determined necessary. Further, it is the desire of the Bank and Executive that the provisions of thisAgreement be effectuated in a fashion that will not adversely affect the interests of the Bank’s other employees and its shareholders, but that this Agreement be carried out in such a manner as will benefit those constituencies. Accordingly,the Bank and Executive agree that the undertakings of such actions and execution and delivery of such agreements, instruments or other documents as they may mutually deem necessary or appropriate to accomplish all such purposes, shall not be deemedto be in derogation of or inconsistent with this Agreement, but in fulfillment thereof.

11.      This Agreement constitutes the entire Agreement between the parties and supersedes all memoranda, discussion, correspondence and agreements prior to the date of execution of thisAgreement. This Agreement shall be binding on the heirs, executors, administrators, successors and assigns of the parties. This Agreement is to be governed by the laws of the state of North Carolina. In the event that any part of this Agreementshall be held invalid or unenforceable, it shall not affect the validity of this Agreement as a whole or other remaining parts thereof. This Agreement may not be changed orally, but only by an instrument in writing signed by the party against whomenforcement of any waiver, change, modification, extension or discharge is sought.

[Signatures appear on the following page]

6

IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.

 

 

 

NORTH STATE BANK

 

BY:

/s/ LARRY D. BARBOUR

 

 

 

 

 

 

**Larry D. Barbour****President and Chief Executive Officer**

 

 

 

 

 

 

/s/ JUDY M. STEPHENSON

 

 

 

 

 

 

**Judy M. Stephenson**

7