<PAGE>

                                 EXHIBIT 10(f)

                            CAROLINA FINCORP, INC.
                               STOCK OPTION PLAN


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

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

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

     Subject to the provisions of the Plan, the determinations or the
interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive upon all persons affected thereby.  By way of
illustration and not of limitation, the Committee shall have the discretion (a)
to construe and interpret the Plan and all options granted hereunder and to
determine the terms and provisions (and amendments thereof) of the options
granted under the Plan (which need not be identical); (b) to define the terms
used in the Plan and in the options granted hereunder; (c) to prescribe, amend
and rescind the rules and regulations relating to the Plan; (d) to determine the
individuals to whom and the time or times at which such options shall be
granted, the number of shares to be subject to each option, the option price,
and the determination of leaves of absence which may be granted to participants
without constituting a termination of their employment for the purposes of the
Plan; and (e) to make all other determinations necessary or advisable for the
administration of the Plan.
<PAGE>

     It shall be in the discretion of the Committee to grant options which
qualify as "incentive stock options," as that term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") ("Incentive Stock
Options") or which do not qualify as Incentive Stock Options ("Nonqualified
Stock Options") (herein referred to collectively as "Options;" however, whenever
reference is specifically made only to "Incentive Stock Options" or
"Nonqualified Stock Options," such reference shall be deemed to be made to the
exclusion of the other). Any options granted which fail to satisfy the
requirements for Incentive Stock Options shall become Nonqualified Stock
Options.

     3.        STOCK AVAILABLE FOR OPTIONS.  In the discretion of the
               ---------------------------
Committee, the stock to be subject to Options under the Plan shall be authorized
but unissued shares of Common Stock which are issued directly to optionees upon
exercise of options and/or shares of Common Stock which are acquired by the Plan
or the Corporation in the open market. The total number of shares of Common
Stock for which Options may be granted under the Plan is 185,150 shares, which
is 10% of the total number of shares of Common Stock issued by the Corporation
in connection with the conversion of the Bank from a North Carolina mutual
savings bank to a North Carolina chartered savings bank on November 22, 1996
(the "Conversion"). Such number of shares is subject to any capital adjustments
as provided in Section 16. In the event that an Option granted under the Plan is
forfeited, released, expires or is terminated unexercised as to any shares
covered thereby, such shares thereafter shall be available for the granting of
Options under the Plan; however, if the forfeiture, expiration, release or
termination date of an Option is beyond the term of existence of the Plan as
described in Section 21, then any shares covered by forfeited, unexercised,
released or terminated options shall not reactivate the existence of the Plan
and therefore may not be available for additional grants under the Plan. The
Corporation, during the term of the Plan, will reserve and keep available a
number of shares of Common Stock sufficient to satisfy the requirements of the
Plan. In the discretion of the Committee, the shares of Common Stock necessary
to be delivered to satisfy exercised options may be from authorized and unissued
shares of Common Stock or may be purchased in the open market.

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

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

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

                                       2
<PAGE>

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

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

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

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

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

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

                                       3
<PAGE>

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

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

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

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

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

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

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

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

          (e)  The recipient of an Option shall have no rights as a shareholder
     with respect to any shares covered by his Option until payment in full by
     him for the shares being purchased.  No adjustment shall be made for
     dividends (ordinary or extraordinary, whether in cash, securities or other
     property) or distributions or other rights for which the record date is
     prior to the date such stock is fully paid for, except as provided in
     Section 17.

                                       4
<PAGE>

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

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

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

          (a)  Options granted to an optionee by virtue of his position as a
     nonemployee director of the Corporation or the Bank (as stated in the
     Option Agreement) or to an employee by virtue of his position as an
     employee (as stated in the Option Agreement) shall become vested and
     exercisable at the times, at the rate and subject to such limitations as
     may be set forth in the Option Agreement executed in connection therewith;
     provided, however, that all outstanding and nonforfeited options shall be
     exercisable, if not sooner, on the day prior to the expiration date
     thereof.

          (b)  Unless the Committee shall specifically state otherwise at the
     time an Option is granted, all Options granted hereunder shall become
     vested and exercisable upon the optionee's disability, within the meaning
     of Section 22(e)(3) of the Code, as set forth in Section 11 of this Plan,
     in the event of the optionee's death as set forth in Section 12 of this
     Plan, in the event of the optionee's retirement as set forth in Section 13
     of this Plan, and in the event of a change in control as set forth in
     Section 14 of this Plan.

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

          (d)  Any right to exercise Options in annual installments shall be
     cumulative and any vested installments may be exercised, in whole or in
     part, at the election of the optionee.

                                       5
<PAGE>

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

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

          (g)  Notwithstanding anything to the contrary herein, an optionee
     receiving the grant of an Option by virtue of his or her position as a
     director or as an employee of the Corporation, the Bank or a Subsidiary (as
     stated in the Option Agreement), shall be required to exercise his or her
     Options within the periods set forth in Sections 10, 11, 12, 13 and 14
     below.

     10.       TERMINATION OF EMPLOYMENT - EXCEPT BY DISABILITY, RETIREMENT OR
               ---------------------------------------------------------------
DEATH. If any optionee receiving the grant of an Option by virtue of his
-----
position as a director (as stated in the Option Agreement) ceases to be a
director of the Corporation, the Bank or any Subsidiary for any reason other
than death, disability (as defined in Section 11), or retirement (as defined in
Section 13) or if any optionee receiving the grant of an Option by virtue of his
position as an employee (as stated in the Option Agreement) ceases to be an
employee of the Corporation, the Bank or any Subsidiary for any reason other
than death, disability (as defined in Section 11), or retirement (as defined in
Section 13), he may, (i) at any time within three (3) months after his date of
termination, but not later than the date of expiration of the Option, exercise
any Option designated in the Option Agreement as an Incentive Stock Option and
(ii) at any time prior to the date of expiration of the Option, exercise any
option designated in the Option Agreement as a Nonqualified Stock Option.
However, in either such event the optionee may exercise any Option only to the
extent it was vested and he or she was entitled to exercise the Option on the
date of termination. Any Options or portions of Options of terminated optionees
not so exercised shall terminate and be forfeited.

     11.       TERMINATION OF EMPLOYMENT - DISABILITY.  If any optionee
               ---------------------------------------
receiving the grant of an Option by virtue of his position as a director (as
stated in the Option Agreement) ceases to be a director of the Corporation, the
Bank or any Subsidiary due to his becoming disabled within the meaning of
Section 22(e)(3) of the Code, or if any employee receiving the grant of an
Option by virtue of his position as an employee (as stated in the Option
Agreement) ceases to be employed by the Corporation, the Bank or any Subsidiary
due to his becoming disabled within the meaning of Section 22(e)(3) of the Code,
all unvested and forfeitable Options of such optionee shall immediately become
vested and nonforfeitable, and he may, (i) at any time within 12 months after
his date of termination, but not later than the date of expiration of the
Option, exercise any option designated in the Option Agreement as an Incentive
Stock Option with respect to all

                                       6
<PAGE>

shares subject thereto and (ii) at any time prior to the date of expiration of
the Option, exercise any Option designated in the Option Agreement as a
Nonqualified Stock Option with respect to all shares subject thereto. Any
portions of Options of optionees who are terminated because they become disabled
which are not so exercised shall terminate.

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

     13.       TERMINATION OF EMPLOYMENT - RETIREMENT.  If any optionee
               --------------------------------------
receiving the grant of an Option by virtue of his position as a director (as
stated in the Option Agreement) ceases to be a director of the Corporation, the
Bank or any Subsidiary due to his retirement, or if any employee receiving the
grant of an Option by virtue of his position as an employee (as stated in the
Option Agreement) ceases to be employed by the Corporation, the Bank or any
Subsidiary due to his retirement, all unvested and forfeitable Options of such
optionee shall immediately become vested and nonforfeitable, and he may at any
time prior to the date of expiration of the Option, exercise such Option,
provided, however, that if the Option is exercised more than three (3) months
after such retirement, the Option may be treated as a Nonqualified Stock Option.
Any portions of Options of retired directors or employees not so exercised shall
terminate.  For purposes of this Plan, the term "retirement," as it relates to
any optionee receiving a grant of an Option as a result of his or her position
as an employee of the Corporation, the Bank or any Subsidiary, shall mean (i)
the termination of the optionee'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 optionee
receiving a grant of an Option as a result of his or her position as a director,
shall mean the cessation of membership on such board of directors (i) with the
approval of such board of directors, at any time after such optionee reaches age
70, or (ii) at the election of the optionee at any time after not less than 25
years of service as a member of the such board of directors, as applicable.

     14.       CHANGE IN CONTROL.  In the event that an optionee ceases to
               -----------------
be an employee or a director of the Corporation, the Bank or a Subsidiary (which
position resulted in his or her receipt of an option pursuant to this Plan) 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, nonforfeitable and
exercisable in accordance with  Sections 9 and 10 above, then, notwithstanding
Sections 9 and 10 above, all Options granted to such optionee shall immediately
become fully vested and nonforfeitable.  For purposes of this Plan, a "change in
control" shall mean (i) a change in control

                                       7
<PAGE>

of a nature that would be required to be reported by the Corporation in response
to Item 1 of the Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Exchange Act; (ii) such time as any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation or Bank
representing 25% or more of the combined voting power of the outstanding Common
Stock of the Corporation or outstanding common stock of the Bank, as applicable;
or (iii) individuals who constitute the Board or the board of directors of the
Bank 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.

     As set forth in Section 10, in the event of such a termination after a
change in control, the Optionee must exercise any Incentive Stock Options within
three (3) months after his date of termination, but in no event later than the
date of expiration of the Option and may exercise any Nonqualified Stock Options
at any time prior to the date of expiration of the Option.

     15.       OPTIONAL CASH PAYMENT.   Upon the exercise of an Option, at the
               ---------------------
written request of the optionee, the Committee, in its sole and absolute
discretion, may make a cash payment to the optionee, in whole or in part, in
lieu of the delivery of shares of Common Stock. Such cash payment to be paid in
lieu of delivery of Common Stock shall be equal to the difference between the
market value per share (determined as set forth in Section 6 above) of Common
Stock on the date of the Option exercise and the exercise price per share of the
Option. Such cash payment shall be in exchange for the cancellation of such
Option. Notwithstanding the above, such cash payment shall not be made in the
event that such transaction would result in liability to the optionee and the
Company under Section 16(b) of the Exchange Act, and the regulations promulgated
thereunder.

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

     17.       ADJUSTMENTS AFFECTING COMMON STOCK.
               ----------------------------------

          (a)  If the outstanding shares of Common Stock of the Corporation are
     increased, decreased, changed into or exchanged for a different number or
     kind of shares or other securities of the Corporation or another entity as
     a result of a recapitalization, reclassification, stock dividend, stock
     split, amendment to the Corporation's Certificate of

                                       8
<PAGE>

     Incorporation, reverse stock split, merger or consolidation, an appropriate
     adjustment shall be made in the number and/or kind of securities allocated
     to the Options previously and subsequently granted under the Plan, without
     change in the aggregate purchase price applicable to the unexercised
     portion of the outstanding Options but with a corresponding adjustment in
     the price for each share or other unit of any security covered by the
     Options.

          (b)  In the event that the Corporation shall declare and pay any
     dividend with respect to the Common Stock (other than a dividend payable in
     shares of the Corporation's  Common Stock or a regular quarterly cash
     dividend), including a dividend which results in a nontaxable return of
     capital to the holders of shares of Common Stock for federal income tax
     purposes, or otherwise than by dividend makes distribution of property to
     the holders of its shares of Common Stock, the Committee, in its discretion
     applied uniformly to all outstanding Options, may adjust the exercise price
     per share of outstanding Options in such a manner as the Committee may
     determine to be necessary to reflect the effect of the dividend or other
     distribution on the fair market value of a share of Common Stock.  In
     adjusting the exercise price per share of outstanding Options, the
     Committee may, in its discretion, (i) require all holders of outstanding
     Options to return such Options and reissue new Options with a new exercise
     price or (ii) adjust the Option Price without any such return and
     reissuance.

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

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

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

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

     18.       INVESTMENT PURPOSE.  At the discretion of the Committee, any
               ------------------
Option Agreement may provide that the optionee shall, by accepting the
Option, represent and agree, for himself and his transferees by will or the laws
of descent and distribution, that all shares of stock purchased upon the
exercise of the Option will be acquired for investment and not for resale or
distribution, and that upon each exercise of any portion of an Option, the
person entitled to exercise the same shall furnish evidence of such facts which
is satisfactory to the Corporation.  Certificates for shares of stock acquired
under the Plan may be issued bearing such restrictive legends as the

                                       9
<PAGE>

Corporation and its counsel may deem necessary to ensure that the optionee is
not an "underwriter" within the meaning of the regulations of the Securities
Exchange Commission.

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

     20.       NO OBLIGATION TO EXERCISE.  The granting of an Option shall
               -------------------------
impose no obligation upon the optionee to exercise such Option.

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

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

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

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

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

     26.       CAPTIONS AND HEADINGS; GENDER AND NUMBER.  Captions and paragraph
               ----------------------------------------
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part, and shall not serve as a basis
for interpretation or construction of, this

                                       10
<PAGE>

Plan. As used herein, the masculine gender shall include the feminine and
neuter, and the singular number shall include the plural, and vice versa,
whenever such meanings are appropriate.

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

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

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

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

                                       11
<PAGE>

                                   EXHIBIT A

                       STOCK OPTION GRANT AND AGREEMENT

     THIS STOCK OPTION GRANT AND AGREEMENT ("Agreement"), being made according
to and subject to the terms and conditions of the STOCK OPTION PLAN of Carolina
Fincorp, Inc. ("Plan"), a copy of which is attached hereto as Annex A and is
hereby incorporated by reference and made a part of this Agreement, is herein
executed and effective the ____ day of _______________, _____, between Carolina
Fincorp, Inc. (the "Corporation") and ____________________ ("Optionee"):


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

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

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

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

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


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


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

                               1
<PAGE>

     (a)  Right to Exercise: In addition to the terms and
          -----------------
     conditions imposed on the Optionee's right to exercise his
     Options imposed in the Plan, the following terms and
     conditions are applicable:

     (b) [_] (Marked if applicable) Annual Installments: Subject
                                    -------------------
     to the terms and conditions of the Plan, the Incentive Stock
     Options can be exercised in annual installments as follows:

     __________shares beginning on ______________, _____
     __________shares beginning on ______________, _____
     __________shares beginning on ______________, _____
     __________shares beginning on ______________, _____

     Subject to the terms and conditions of the Plan, the
     Nonqualified Options can be exercised in annual installments
     as follows:

     __________shares beginning on ______________, _____
     __________shares beginning on ______________, _____
     __________shares beginning on ______________, _____
     __________shares beginning on ______________, _____

     The right to exercise the Option(s) in annual installments
     shall be cumulative. In addition, the option(s) shall be
     exercisable upon disability, death, retirement and a change
     in control as set forth in the Plan.

     (c)  [_] (Marked if applicable) Immediate Vesting: Subject to
                                     -----------------
     the terms and conditions of the Plan, all of the Options are
     vested, nonforfeitable and exercisable.

     (d)  Method of Exercise: The Options granted under this
          ------------------
     Agreement shall be exercisable by a written notice to the
     Secretary of the Corporation which shall:

          (1) State the election to exercise the Option, the
          number of shares in respect of which the Option is
          being exercised, the person in whose name any
          stock certificate or certificates for such shares
          of Common Stock is to be registered, his or her
          address, and social security number;

                                       2
<PAGE>

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

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

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

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

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

4.   Non-transferability. This Option may not be transferred in
     -------------------
     any manner otherwise than by will or the laws of descent and
     distribution and such Option may be exercised during the
     life of the Optionee only by him or her.

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

6.   Expiration. This Option shall expire on _____________,
     _________.

7.   Escrow. All stock purchased pursuant to an Incentive Stock
     ------
     Option shall be held in escrow for a period which ends on
     the later of (i) two (2) years from the date of the granting
     of the Option or (ii) one (1) year after the transfer of the
     stock pursuant to the exercise of the

                               3
<PAGE>

     Option. The stock shall be held by the Corporation or its
     designee. During such period, the Optionee who has exercised
     the Option shall have all rights of a stockholder,
     including, but not limited to, the rights to vote, receive
     dividends and sell the stock. The sole purpose of the escrow
     is to inform the Corporation of a disqualifying disposition
     of the stock within the meaning of Section 422 of the Code,
     and it shall be administered solely for this purpose.

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

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

10.  Construction Controlled by Plan. The Options evidenced
     -------------------------------
     hereby shall be subject to all of the requirements,
     conditions and provisions of the Plan. This Agreement shall
     be construed so as to be consistent with the Plan; and the
     provisions of the Plan shall be deemed to be controlling in
     the event that any provision should appear to be
     inconsistent therewith.

11.  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.

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

                               4
<PAGE>

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

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

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

     16.  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.

     17.  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.

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

ATTEST:                                 CAROLINA FINCORP, INC.


__________________________________      By:_____________________________________
Karen M. Rickett, Secretary                R. Larry Campbell, President

[Corporate Seal]


                                        OPTIONEE:

                                        __________________________________(SEAL)

                                       5