<PAGE>
 
                   HOME SAVINGS BANK OF ALBEMARLE, INC., SSB
                MANAGEMENT RECOGNITION PLAN AND TRUST AGREEMENT
                                        

  Home Savings Bank of Albemarle, Inc., SSB, a North Carolina chartered savings
bank (the "Bank"), does herein set forth the terms of its Management Recognition
Plan (the "Plan") and Trust (the "Trust") and the Trustees hereby accept this
Trust and agree to hold the Trust assets existing on the date of the Agreement
and all additions and accretions thereto upon the terms and conditions
hereinafter stated.

  Section 1.  Purpose of this Plan.  The purpose of this Plan is to provide to
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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,
South Street Financial Corp. (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.

  Section 2.  Administration of this Plan.
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       (a) This Plan shall be administered by a committee  of the Board (the
"Committee") which shall consist of not less than two members of the Board who
are "Non-Employee Directors" as defined in Rule 16 b-3(b)(3) 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 the
Board.  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, (ii) the number of shares of Common Stock subject to each award,
(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.
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       (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 shares of Common Stock held under this Plan, including without
limitation unallocated, undistributed and forfeited shares, shall be held by the
Trust.

       (e) The Trustees shall be appointed by the Board.

  Section 3.  Contributions to Trust.
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       (a) The Board shall determine the amount (or the method of computing the
amount) and timing of any contributions by the Bank and any Subsidiaries to the
Trust established under this Plan.  Such amounts may be paid in cash or in
shares of Common Stock and shall be paid to the Trust at the designated time of
contribution.  No contributions by Participants shall be permitted.

       (b) Subject to Section 9 hereof, the Trustees shall invest all of the
Trust's assets primarily in Common Stock.  The Trust shall acquire, in the
aggregate, 179,860 shares of Common Stock, which is 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 October 2, 1996 (the "Conversion"). Such shares
of Common Stock may be purchased by the Trust 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 Trust 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
by the Trust until they have been awarded and distributed pursuant to the terms
of this Plan.  In the event that the Trust receives cash pursuant to receipt of
dividends on Common Stock held by the Trust which has not been awarded to
participants, including the receipt of a special cash dividend or return of
capital with respect to such shares, then such funds may be used by the Trustees
to purchase additional shares of Common Stock available for future award under
this Plan or the Trustees may distribute such cash received by the Trust along
with the Common Stock upon which it was earned upon the award of such previously
unallocated shares.

       (c) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Bank and shall be used exclusively
for the uses and purposes of Participants and general creditors as herein set
forth.  Participants and their beneficiaries shall have no preferred claim on,
or any beneficial ownership interest in, any assets of the Trust.  Any rights
created under the Plan and the Trust shall be mere unsecured contractual rights
of Participants and their beneficiaries against the Bank.  Any assets held by
the Trust will be subject to the claims of the Bank's general creditors under
federal and state law in the event of insolvency or bankruptcy, as defined in
Section 9(e) herein.

  Section 4.  Eligibility and Award of Plan Shares.
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       (a) 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
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such officers and employees of the Bank and/or of any Subsidiary as may be
designated by the Committee.

       (b) As promptly as practicable after a determination is made that an
Award of Plan Shares is to be made, the Committee shall notify the Participant
in writing of the grant of the Award, the number of Plan Shares covered by the
Award, and the terms upon which the Plan Shares subject to the Award shall vest
and be distributed to the Participant.  Awards of Plan Shares under this Plan
shall be effective upon execution and delivery of the Stock Grant Agreement
which sets forth the terms and conditions of the Award of Plan Shares (the
"Stock Grant Agreement").

       (c) Notwithstanding anything to the contrary contained in Sections 4(a)
and 4(b) above, no Participant shall have any right or entitlement to receive a
Plan Share Award hereunder, such awards being at the total discretion of the
Committee.

  Section 5.  Vesting and Distribution of Plan Shares.
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       (a) Shares granted under this Plan shall vest and the right of a
Participant to the Plan Shares shall be nonforfeitable as determined by the
Committee and as set forth in the Stock Grant Agreement.

       (b) In determining the number of shares vested under any applicable
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 (whichever position
resulted in the award, as set forth in the Stock Grant Agreement), other than as
provided in Sections 5(d) and 5(e) 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 set forth in the Stock Grant
Agreement shall be forfeited and, provided this Plan has not terminated pursuant
to Section 16 below, 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 (whichever position resulted in the
award, as set forth in the Stock Grant Agreement), because of such Participant's
disability, death or retirement, prior to the date when all shares allocated to
him or her would be 100% vested in accordance with the schedule set forth in the
Stock Grant Agreement, then, notwithstanding such vesting schedule, all shares
allocated to such Participant shall immediately become fully vested and
nonforfeitable. For purposes of this Plan, the term "retirement" 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"). For purposes of this
Plan, the term "retirement", as it relates to any Participant receiving an award
as a result of his or her position as an employee of the Bank or any Subsidiary,
shall mean (i) the termination of the Participant's employment under conditions
which would constitute retirement under any tax qualified retirement plan
maintained by the Corporation, the Bank or a Subsidiary, or (ii) termination of
employment after attaining age 65.  The term "retirement," as it relates to any
Participant receiving an award as a result of his or her position as a member of
the
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Board or the board of directors of any Subsidiary, shall mean the cessation of
membership on the Board or such board of directors (i) with the approval of the
Board or other board of directors, as applicable, at any time after such
Participant reaches age 65, or (ii) at the election of the Participant at any
time after not less than twenty-five (25) years of service as a member of the
Board or such other board of directors, as applicable.

       (e) In the event that a Participant ceases to be an employee or a
director of the Bank or a Subsidiary (whichever position resulted in the award,
as set forth in the Stock Grant Agreement), for any reason after the occurrence
of a "change in control" and prior to the time that all shares allocated to him
or her would be 100% vested in accordance with the schedule set forth in the
Stock Grant Agreement, then, notwithstanding such vesting schedule, all shares
allocated to such Participant shall immediately become fully vested and
nonforfeitable. 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) other than the Corporation 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% 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 of directors of the Corporation or the 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 or she 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.

       (f) Plan Shares which have vested shall be distributed to the Participant
or any transferee permitted by Section 11 (a "Permitted Transferee"), as the
case may be, as soon as practicable after such Plan Shares have vested in
accordance with the schedule contained in the Stock Grant Agreement.

       (g) The Trustees, the Corporation, the Bank and any Subsidiary shall have
the right to require any Participant or Permitted Transferee to remit to the
Corporation, the Bank or any  Subsidiary an amount sufficient to satisfy any
federal, state and/or local withholding tax requirements prior to the delivery
or release of any certificate or certificates for Plan Shares or delivery of any
cash or other assets with respect to Plan Shares or otherwise pursuant to this
Plan.  Alternatively, the Trustees, Corporation, Bank and any Subsidiary may
deliver or release Shares or make other distributions of cash or other assets
net of the number of shares or cash 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.
<PAGE>
 
       (h) Each Participant receiving an Award of Plan Shares under this Plan
shall deliver to the Bank a Stock Grant Agreement, which shall be signed by such
Participant.

  Section 6.  Restrictions on Selling of Plan Shares.  Plan Share Awards may not
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be sold, assigned, pledged or otherwise disposed of prior to the time that they
are vested and distributed pursuant to the terms of this Plan.  The Board of
Directors or the Committee may require the Participant or his Permitted
Transferee, as the case may be, to agree not to sell or otherwise dispose of his
distributed Plan Shares except in accordance with all then applicable federal
and state securities laws, and the Board of Directors or the Committee may cause
a legend to be placed on the stock certificate(s) representing the distributed
Plan Shares in order to restrict the transfer of the distributed Plan Shares for
such period of time or under such circumstances as the Board of Directors or the
Committee, upon the advice of counsel, may deem appropriate.

  Section 7.  Effect of Award on Status of Participant.  The fact that an Award
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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.

  Section 8.  Voting Rights; Dividends; Other Distributions. After an Award of
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Plan Shares has been made, the Participant or Permitted Transferee shall be
entitled to direct the Trustees as to the voting of the Plan Shares which are
covered by the Award and which are not yet vested and distributed to him,
subject to rules and procedures adopted by the Committee for this purpose.  All
shares of Common Stock held by the Trust which have not been awarded under an
Award of Plan Shares and shares which have been awarded as to which Participants
or Permitted Transferees have not directed the voting shall be voted by the
Trustees in the same proportion as the trustees of the Bank's Employee Stock
Ownership Plan votes Common Stock held in trust associated therewith, and in the
absence of any such voting, shall be voted in the manner directed by the Board
of Directors.

  Any cash dividends or other cash or noncash distributions (including special
large and nonrecurring dividends and including one that has the effect of a
return of capital to the Corporation's stockholders) or stock dividends declared
in respect of each unvested Plan Share will be held by the Trustees for the
benefit of the Participant or Permitted Transferee on whose behalf such Award is
then held by the Trust and such dividends, including any interest thereon, will
be paid out proportionately by the Trust to the Participant or Permitted
Transferee thereof as soon as practicable after the Plan Shares become vested in
accordance with the Stock Grant Agreement, or otherwise.  Any cash dividends,
cash or noncash distributions or stock dividends declared in respect of each
vested Plan Share held by the Trust will be paid by the Trust, as soon as
practicable after the Trust's receipt thereof, to the Participant or Permitted
Transferee on whose behalf such Plan Share is then held by the Trust.  In the
event that the Trust receives cash pursuant to receipt of dividends or other
distributions on Common Stock held by the Trust and unallocated to participants
(including the receipt of a special cash dividend or return of capital) then
such funds may be used by the Trust to purchase additional shares of Common
Stock available for future award under this Plan, or the Committee or Board may
distribute such cash
<PAGE>
 
received by the Trust along with the Common Stock upon which it was earned upon
the award of such previously unallocated shares.

  Section 9.  Trust.
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       (a) The Trustees shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of this Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Board of Directors or the Committee
pursuant to the Plan.

       (b) It is the intent of this Plan and Trust that the Trustees shall have
complete authority and discretion with respect to the arrangement, control and
investment of the Trust, and that the Trustees shall invest all assets of the
Trust in Common Stock to the fullest extent practicable, except to the extent
that the Trustees determine that the holding of monies in cash or cash
equivalents is necessary to meet the obligations of the Trust.  In performing
their duties, the Trustees shall have the power to do all things and execute
such instruments as may be deemed necessary or proper, including the following
powers;

          (i)   To invest up to one hundred percent (100%) of all Trust assets
in Common Stock without regard to any law now or hereafter in force limiting
investments for trustees or other fiduciaries. The investment authorized herein
may constitute the only investment of the Trust, and in making such investment,
the Trustees are authorized to purchase Common Stock from the Corporation or
from any other source, and such Common Stock so purchased may be outstanding,
newly issued, or treasury shares.

          (ii)  To invest any Trust assets not otherwise invested in accordance
with (a) above, in deposit accounts and certificates of deposit at the Bank or
in obligations of the United States Government or its agencies or such other
investments as shall be considered the equivalent of cash.

          (iii) To sell, exchange or otherwise dispose of any property at any
time held or acquired by the Trust.

          (iv)  To cause stocks, bonds or other securities to be registered in
the name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be maintained
showing that such security is an assets of the Trust).

          (v)   To hold cash without interest in such amounts as may in the
opinion of the Trustees be reasonable for the proper operation of the Plan and
Trust.

          (vi)  To employ brokers, agents, custodians, consultants and
accountants.

          (vii) To hire counsel to render advice with respect to their rights,
duties and obligations hereunder, and such other legal services or
representation as the Trustees deem desirable.
<PAGE>
 
           (viii)  To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a dispute as
to the disposition thereof, whether in a segregated account or held in common
with other assets of the Trust.

  Notwithstanding anything herein contained to the contrary, the Trustees shall
not be required to make any inventory, appraisal or settlement or report to any
court, or to secure any order of court for the exercise of any power herein
contained, or give bond.

       (c) The Trustees shall maintain accurate and detailed records and
accounts of all transactions of the Trust, which shall be available at all
reasonable times for inspection by any legally entitled person or entity to the
extent required by applicable law, or by any other person determined by the
Board of Directors or the Committee.

       (d) Notwithstanding anything to the contrary in this Plan or Trust, the
assets of the Plan and Trust are subject to the payment of the claims of
creditors of the Bank in the event of its insolvency or bankruptcy.  The Bank is
insolvent or bankrupt if it is the subject of a proceeding under the Bankruptcy
Code, 11 U.S.C. Section 101 et seq. or is unable to pay its debts.  The Board of
Directors or the chief executive officer of the Bank must give written notice to
the Trustees of the Corporation's bankruptcy or insolvency as soon as
practicable following the occurrence of such event.  Upon receipt of such notice
or other written allegations of the Bank's bankruptcy or insolvency, or in the
case of the Trustees' actual knowledge of or determination of the Bank's
bankruptcy or insolvency, the Trustees shall discontinue delivery of Trust
assets to the Participants or the Bank and shall hold the assets of the Trust
for the benefit of the Bank's general creditors and, upon a determination that
the Bank is bankrupt or insolvent, shall distribute such assets to or for the
benefit of the general creditors.  The Trustees shall resume delivery of Trust
assets to the Participants or the Bank only after it is determined that the Bank
is no longer bankrupt or insolvent.  Determination of the bankruptcy or
insolvency shall be determined by a court of competent jurisdiction or by an
arbitrator selected by and pursuant to rules of the American Arbitration
Association upon petition by an interested party.

  Section 10.     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, other similar capital
adjustment; by reason of a merger or consolidation of the Corporation;  by
reason of the sale by the Corporation of all or a substantial portion of its
assets; or by reason of  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.

  Section 11.     Non-Transferability.
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  Prior to the time Plan Share Awards become vested and are distributed by the
Trustees, Plan Share Awards may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent and distribution.  Notwithstanding the foregoing, or any other provision
of this Plan, a Participant who holds Plan Share Awards may transfer such awards
to his or her spouse, lineal ascendants, lineal descendants, or to a duly
established trust for the benefit of one or more of these individuals.  Plan
Share Awards so transferred may thereafter be transferred only to the
Participant who originally received the grant
<PAGE>
 
or to an individual or trust to whom the Participant could have initially
transferred the awards pursuant to this Section 11.  Plan Share Awards which are
transferred pursuant to this Section 11 shall be subject to the same terms and
conditions as applied to the Participant.  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.

  Section 12.     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 other
than any qualified employee benefit plan which provides that such value shall be
included as compensation or earnings for purposes of such plan.

  Section 13.     Corporate Action.  The making of an Award under this Plan
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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.

  Section 14.     Exculpation and Indemnification.  In connection with this
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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 Trustees, 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, the members of the Board of Directors of
any Subsidiary, 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.

  Section 15.     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, 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
<PAGE>
 
under tax, securities or other laws or satisfying applicable stock exchange or
quotation system listing requirements.  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.

  Section 16.     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.  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  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 Trust which have not been allocated to eligible
Participants, together with any other assets held by the Trust, shall revert to
the Bank.

  17.  Tax Status of Trust.  It is intended that the trust established hereby be
       -------------------                                                      
treated as a Grantor Trust of the Corporation under the provisions of Section
671 et seq. of the Code, as the same may be amended from time to time.
    -- ---                                                            

  18.  Miscellaneous.
       ------------- 

       (a) This Plan has been adopted by the Board to be effective as of the
date of approval of the Plan by the shareholders of the Corporation.

       (b) 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 or Trust.  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.

       (c) All costs and expenses incurred in the operation and administration
of this Plan shall be borne by the Bank or by a Subsidiary, or in the discretion
of the Bank, the Trust.

       (d) 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 and Trust.

       (e) 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.
<PAGE>
 
STATE OF NORTH CAROLINA
COUNTY OF STANLY                                        STOCK GRANT AGREEMENT


  THIS STOCK GRANT AGREEMENT (the "Agreement") is made and entered into as of
the ____ of ___________________, _______ (the "Effective Date"), by and among
Home Savings Bank of Albemarle, Inc., SSB (the "Bank"), a North Carolina
corporation, _______________________ (the "Participant") and
______________________, ___________________ and ____________________ (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 the shareholders of  South Street Financial Corp., the holding company of the
Bank (the "Corporation") on ________________, 1997.

  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
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_____ 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.   Award of Plan Shares. The Participant is awarded, in the aggregate,
       --------------------                                               
___________________________ (__________) shares of Common Stock (the "Plan
Shares"), which shares become vested and nonforfeitable pursuant to paragraph 5
of 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 Plan
Shares to make appropriate reference to such representation, as necessary.

       (b) Securities Law and Regulations.  The Participant agrees that the Plan
           -------------------------------                                      
Shares 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
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 Plan Shares to make appropriate reference to such
restrictions.
<PAGE>
 
       (c) Other Transfer Restrictions.   (Intentionally omitted.)
           ---------------------------                            

  4.   Receipt by the Trustees.  The Trustees acknowledge and agree that the
       -----------------------                                              
Plan Shares 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 Plan Shares by the Trustees.
       --------------------------------------------------- 

       (a) Periodic Vesting.  Plan Shares shall vest and become nonforfeitable
           ----------------                                                   
in accordance with the following schedule:

               _________ shares on ___________________, 19___
               _________ shares on ___________________, 19___
               _________ shares on ___________________, 19___
               _________ shares on ___________________, 20___
               _________ shares on ___________________, 20___

In addition, Plan Shares shall become vested and nonforfeitable upon disability,
death, retirement and a change in control as set forth in the Plan.

       (b) Delivery of Vested Plan Shares to the Participant.  After the date on
           -------------------------------------------------                    
which the Plan Shares have become vested as provided in this Agreement and 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 Plan Shares 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 Plan Shares.  If the Plan Shares, or any of
           ---------------------------------                                
them, are forfeited pursuant to the Plan, the Committee shall instruct the
Trustees concerning the disposition of such forfeited shares.  Thereafter such
forfeited shares shall cease to be subject to this Agreement.

  6.   Payment of Dividends. As soon as practicable after the Plan Shares have
       --------------------                                                   
become vested and delivered, the Trustees shall pay to the Participant, the
Participant's designee, such other person as shall have been designated as
Participant's beneficiary in accordance with the Agreement or any other
permitted recipient pursuant to the Plan, the proportional amount of any cash or
stock dividend, or other cash or noncash distributions, including any interest
earned thereon, declared in respect of such vested Plan Shares, which had been
held in the Trust for the benefit of the above-named person(s).

  7.   Designation of Beneficiary.  The Participant hereby designates the
       --------------------------                                        
person(s) described on Annex B as the beneficiary or beneficiaries who shall be
entitled to receive the Plan Shares and other assets, 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
<PAGE>
 
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 Plan Shares
and other assets, 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 Plan Shares
and other assets, without liability for any interest in respect thereof, until
the rights thereto are determined, or the Committee may direct the transfer of
such Plan Shares 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, on the board of directors of the
Corporation or on the board of directors of any Subsidiary, nor to continued
employment with the Bank, the Corporation 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 Plan
       ------------------------------------------------                        
Shares on the date of the Award or at the time the Plan Shares 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 other than
any qualified employee benefit plan which provides that such value shall be
included as compensation or earnings for purposes of such plans.

  10.  Tax Withholding.  All Plan Shares 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 Plan Shares may then be sold or otherwise transferred by
the Participant.  The Participant acknowledges and agrees to the tax withholding
provisions which are set forth in the Plan.

  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 by 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 155 West South Street, Albemarle, North
Carolina 28002; 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.

  12.  Construction Controlled by Plan.  The Plan, a copy of which is attached
       -------------------------------                                        
hereto as Annex C, is incorporated herein by reference.  The Award of Restricted
Shares shall be
<PAGE>
 
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 Trustees.  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.
<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.


                              HOME SAVINGS BANK OF ALBEMARLE,
                              INC., SSB


                              By:
                                 -----------------------------------------------
                                                    President
                                 ------------------          

ATTEST:

-----------------------------
                    Secretary
-------------------

[Corporate Seal]


                              PARTICIPANT


                              
                              --------------------(SEAL) 


                              --------------------(SEAL) 
                              TRUSTEE

                              --------------------(SEAL) 
                              TRUSTEE

                              --------------------(SEAL) 
                              TRUSTEE
<PAGE>
 
                                    ANNEX A

                           Investment Representation
                           -------------------------
<PAGE>
 
                                    ANNEX B

                          Management Recognition Plan
                          ---------------------------
                          Beneficiary Designation Form
                          ----------------------------


  As Beneficiary to receive any shares of stock distributable on my behalf
pursuant to the Home Savings Bank of Albemarle, Inc., SSB Management Recognition
Plan, I hereby designate the following:

                     Name               Address          Relationship

Primary Beneficiary:
                    ------------------------------------------------------------

                    ------------------------------------------------------------

                    ------------------------------------------------------------

Contingent Beneficiary:
(if any)
                    ------------------------------------------------------------

                    ------------------------------------------------------------

                    ------------------------------------------------------------


If more than one primary beneficiary is named, shares will be paid in equal
shares to surviving primary beneficiaries.  Should the contingent beneficiaries
be eligible to receive the benefits (i.e., all primary beneficiaries are
deceased), such benefits will be paid in equal shares to such surviving
contingent beneficiaries.

Name of Spouse if not given above:
                                  ----------------------------------------------


---------------------------------           ------------------------------------
Witness                                     Participant

                                            ------------------------------------
                                            Date
<PAGE>
 
                                    ANNEX C

                          Management Recognition Plan
                          ---------------------------