Document:

Ex-4.2

 

Exhibit 4.2

SOUTHERN COMMUNITY FINANCIAL CORPORATION

2001 INCENTIVE STOCK OPTION PLAN

(former COMMUNITY BANK STOCK OPTION PLAN)

     Southern Community Financial Corporation, a North Carolina corporation
(the “Corporation”), does herein set forth the terms of its 2001 Incentive
Stock Option Plan (the “Plan”), which was assumed as a result of the
acquisition of The Community Bank.

     1.     PURPOSE. The purpose of this Plan is to provide for the grant of
Incentive Stock Options qualifying for the tax treatment afforded by Section
422 of the Internal Revenue Code of 1986, as amended, or Non-qualified Stock
Options (an “Option” or “Options”) to eligible officers and employees of the
Corporation (“Eligible Employees”) who wish to invest in the Corporation’s
common stock, no par value (the “Common Stock”). The existence of this Plan
will aid the Corporation in attracting and retaining capable employees and to
provide a long range incentive for employees of the Corporation to remain in
the employment of the Corporation 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. (a) The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Corporation (the “Board”). The
Committee shall consist of disinterested persons as provided in Section 16(b),
and the rules and regulations promulgated thereunder, of the Securities
Exchange Act of 1934, as amended. The members of the Committee shall be
appointed by the Board and shall serve at the pleasure of the Board, which may
remove members from, add members to, or fill vacancies in the Committee.

     (b)  The Committee shall decide to whom Options shall be granted under
this Plan, the number of shares as to which Options shall be granted, the
Option Price (as hereinafter defined) for such shares and such additional terms
and conditions for such Options as the Committee deems appropriate. Also, the
Committee shall determine when Limited Stock Appreciation rights (as
hereinafter described) shall be available in place of outstanding Options. The
Committee shall interpret the Plan and prescribe, amend and rescind any rules
and regulations regarding the Plan. All interpretations and constructions of
the Plan by the Committee shall be final and conclusive.

     (c)  A majority of the Committee shall constitute a quorum and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved unanimously in writing by the Committee, shall be considered
as valid actions by the Committee.

     (d)  The Committee may designate any officers or employees of the
Corporation 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 deem fit.

     3.     STOCK AVAILABLE FOR OPTIONS. The total number of shares of Common Stock
for which options may be granted under the Plan is Two Hundred Sixty Seven
Thousand Nine Hundred and Twenty Seven (267,927) shares. Such number of shares
is subject to any capital adjustments as provided in Section 14. In the event
that an option granted under the Plan is forfeited, 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 or termination date of an option is beyond the term of
existence of the Plan as described in Section 20, then any shares covered by
forfeited, unexercised 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.

     4.     ELIGIBILITY. Options under this Plan may be granted to any Eligible
Employee as determined by the Committee. For this purpose, an individual shall
be considered to be an “employee” only if there exists between the Corporation
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. An individual may hold more than one
Option under this or other plans adopted by the Corporation.

     5.     GRANTS. (a) Options shall be granted with the intention that they
will be nonqualified or incentive stock options as designated in the Option
Agreement (as defined in Section 8). 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.

     (b)  Upon the forfeiture of an Option for whatever reason prior to the
expiration of the Option Period (as defined in Section 9) the shares of Common
Stock covered by a forfeited Option shall be available for the granting of
additional Options to Eligible Employees during the remaining term of this Plan
upon such terms and conditions as may be determined by the Committee. The
number of additional Options to be granted to specific Eligible Employees
during the term of this Plan shall be determined by the Committee.

     6.     OPTION PRICE. (a) The option price of each option granted under the
Plan shall be not less than one hundred percent (100%) of the market value of
the stock on the date of grant of the option. If an Optionee (as hereinafter
defined) at the time that an Option is granted owns stock possessing more than
ten (10%) of the total combined voting power of all classes of stock of the
Corporation, then the Option Price per share of each Option granted under this
Plan shall be no less than 110% of the fair market value of the Common Stock on
the date of grant and such Option shall not be exercisable more than five (5)
years from the date of grant. An Option shall be considered as granted on the
date that the Committee acts to grant such Option or such later date as the
Committee shall specify in an Option Agreement.

     (b)  The fair market value of a share of Common Stock shall be determined
as follows:

          (i)  If on the date as of which such determination is being made, the
Common Stock is admitted to trading on a securities exchange or exchanges for
which actual sale prices are regularly reported, or actual sale prices are
otherwise regularly published, the fair market value of a share of Common Stock
shall be deemed to be equal to the mean of the closing sale price as reported
on each of the five (5) trading days immediately preceding the date as of which
such determination is made; provided, however, that, if a closing sale price is
not reported for each of the five (5) trading days immediately preceding the
date as of which such determination is made, then the fair market value shall
be equal to the mean of the closing sale prices on those trading days for which
such price is available.

          (ii)  If on the date as of which such determination is made, quotations for
the Common Stock are regularly listed on the National Association of Securities
Dealers Nasdaq system or another comparable system, the fair market value of a
share of Common Stock shall be deemed to be equal to the mean of the average of
the closing bid and asked prices for such Common Stock quoted on such system on
each of the five (5) trading days preceding the date as of which such
determination is made. If a closing bid and asked price is not available for
each of the five (5) trading days, then the fair market value shall be equal to
the mean of the average of

 

 

the closing bid and asked prices on those trading days during the five-day
period for which such prices are available.

          (iii)  If no such quotations are available, the fair market value of a
share of Common Stock shall be deemed to be the average of the closing bid and
asked prices furnished by a professional securities dealer making a market in
the Common Stock, as selected by the Committee, for the trading date first
preceding the date as of which such determination is made.

     If the Committee determines that the price as determined above does not
represent the fair market value of a share of Common Stock, the Committee may
then consider such other factors as it deems appropriate and then fix the fair
market value for the purposes of this Plan. The Committee shall maintain a
written record of its method of determining such value.

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

     8.     TERMS AND CONDITIONS OF OPTIONS. (a) Payment for shares subject to an
Option may be made either in cash or, with the approval of the Committee, in
other stock of the Corporation owned by the person to whom such Option was
granted or such other person as may be entitled to exercise such Option (the
“Optionee”). Any shares of the Corporation’s stock that are delivered in
payment of the aggregate Option Price shall be valued at their fair market
value, as determined by the Committee, on the date of the exercise of such
Option.

     (b)  Each Option granted pursuant to this Plan shall be evidenced by a
written stock option agreement (the “Option Agreement”) with each Eligible
Employee to whom an Option is granted. The Option Agreement shall be in such
form as the Committee shall adopt and may contain such terms and conditions as
the Committee may determine.

     (c)  During the Option Period, the recipient of an Option shall have no
rights or privileges as a shareholder with respect to any shares covered by the
Option until payment is made in full by him or her 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 14.

     (d)  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 or any Subsidiary, if applicable)
shall not exceed $100,000; provided, however, that such $100,000 limit of this
subsection (e) shall not apply to the grant of nonqualified stock options. The
Committee may grant options which are exercisable in excess of the foregoing
limitation, in which case options granted which are exercisable in excess of
such limitation shall be nonqualified stock options.

     (e)  The granting of an Option shall impose no obligation upon the Optionee
to exercise such Option.

 

 

     9.     EXERCISE OF OPTIONS. (a) Each Option Agreement shall set forth a
period during which such Option may be exercised (the “Option Period”);
provided, however, that the Option Period shall not exceed ten (10) years after
the date of grant of such Option.

     (b)  All options granted under the Plan shall be exercisable in accordance
with such vesting requirements that may be set forth in the Option Agreement.

     (c)  An Option shall be exercised by written notice to the Committee signed
by an Optionee or by such other person as may be entitled to exercise such
Option. The written notice shall state the number of shares with respect to
which an Option is being exercised and shall either be accompanied by the
payment of the aggregate Option Price for such shares or shall fix a date (not
more than ten (10) business days from the date of such notice) by which the
payment of the aggregate Option Price will be made. An Optionee shall not
exercise an Option to purchase less than 100 shares, unless the Committee
otherwise approves, or unless the partial exercise is for the remaining shares
available under such Option.

     (d)  A certificate or certificates for the shares of Common Stock purchased
by the exercise of an Option shall be issued in the regular course of business
subsequent to the exercise of such Option and the payment therefore.

     10.     TERMINATION OF EMPLOYMENT — EXCEPT BY DISABILITY,
RETIREMENT OR DEATH. If any optionee ceases to be an employee of at least one
of the Corporation and any Subsidiary for any reason other than death,
retirement (as defined in Section 11) or disability (as defined in Section 11),
any options or portions of options not exercised prior to the date the optionee
ceases to be employed shall terminate and be forfeited.

     11.     TERMINATION OF EMPLOYMENT — DISABILITY OR RETIREMENT. (a) If any
optionee ceases to be employed by at least one of the Corporation and any
Subsidiary due to his becoming disabled within the meaning of Section 22(e)(3)
of the Code, he or she may, (i) at any time within twelve (12) months after his
date of termination, but not later than the date of expiration of the option,
exercise any option designated in the Option Agreement as an incentive stock
option with respect to all shares subject thereto and (ii) at any time prior to
the date of expiration of the option, exercise any option designated in the
Option Agreement as a nonqualified stock option with respect to all shares
subject thereto. Any portions of options of disabled employees not so exercised
shall terminate.

     (b)  If any optionee ceases to be employed by at least one of the
Corporation and any Subsidiary due to such optionee’s normal retirement, such
optionee 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 with
respect to all shares subject thereto and (ii) at any time prior to the date of
expiration of the option, exercise any option designated in the Option
Agreement as a nonqualified stock option with respect to all shares subject
thereto. Any portions of options of retired employees not so exercised shall
terminate.

     12.     TERMINATION OF EMPLOYMENT — DEATH. If an optionee dies while in the
employment of the Corporation or a Subsidiary, the person or persons to whom
the option is transferred by will or by the laws of descent and distribution
may, at any time within twelve (12) months after the optionee’s death but not
later than the date of expiration of the option, exercise the option with
respect to all shares subject thereto. Any options or portions of options of
deceased employees not so exercised shall terminate.

     13.     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. In the event of the

 

 

death of an Optionee, the personal representative, the executor or the
administrator of such Optionee’s estate, or the person or persons who acquired
by bequest or inheritance the rights to exercise such Option, may exercise or
surrender any Option or portion thereof to the extent not previously exercised
or surrendered by an Optionee or expired, in accordance with the terms of the
Option Agreement.

     14.     CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK. (a) If the outstanding
shares of Common Stock of the Corporation are increased, decreased, changed
into or exchanged for a different number or kind of shares or other securities
of the Corporation or another entity as a result of a recapitalization,
reclassification, stock dividend, stock split, amendment to the Corporation’s
charter, 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. In the event this
Plan is assumed by the surviving corporation in the event of a merger,
consolidation, acquisition or reorganization, Optionees shall, upon request of
the Committee, execute replacement Option Agreements reflecting such assumption
and adjustment.

     (b)  To the extent that the foregoing adjustments relate 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.

     (c)  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, consolidate, dissolve, or liquidate, sell or transfer
all or any part of its business or assets.

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

     (e)  Any adjustment made pursuant to this Section 14, shall be made 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.

     15.     CHANGE IN CONTROL. (a) 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 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 representing twenty percent (20%) or more of the combined
voting power of the outstanding Common Stock of the Corporation; (iii)
individuals who constitute the Board (the “Incumbent Board”) 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 two-thirds of the directors comprising the Incumbent
Board, or whose nomination for election by the Corporation’s shareholders was
approved by the Board or Nominating Committee, shall be considered as though he
were a member of the Incumbent Board; (iv) the Corporation consolidates or
merges with or into another corporation, association or entity or is otherwise
reorganized, where the Corporation is not the surviving corporation in such
transaction; or (v) all or substantially all of the assets of the Corporation
are sold or otherwise transferred to or are acquired by any other entity or
group.

     (b)  In the event of such a Change in Control, unexercised and unexpired
options granted pursuant to this Plan which would otherwise be exercisable but
for the provisions of any vesting schedule set forth in the Option Agreement,
shall become immediately vested and exercisable by the holder thereof,
notwithstanding the vesting schedule set forth in the Option Agreement.

 

 

     16.     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
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.

     17.     EFFECT OF PLAN ON EMPLOYMENT STATUS. The fact that the Committee has
granted an Option to an Optionee under this Plan shall not confer on such
Optionee any right to employment with the Corporation, or to a position as an
officer or an employee of the Corporation, nor shall it limit the right of the
Corporation to remove such Optionee from any position held by the Optionee or
to terminate the Optionee’s employment at any time.

     18.     LIMITED STOCK APPRECIATION RIGHTS. (a) In connection with the grant
of any Option under this Plan, the Committee may, in its discretion, by written
notice provide an Optionee with the right (herein sometimes referred to as
“Limited Stock Appreciation Rights”), following a “Change in Control” of the
Corporation (as defined in Section 15) and without regard to any restrictions
on exercise that would otherwise apply, to surrender any unexercised portion of
such Option as such Optionee then may have for a cash payment equal to the
amount by which the fair market value (as determined by the Committee) of the
number of shares of Common Stock then subject to such Option exceeds the
aggregate Option Price therefor.

     (b)  Limited Stock Appreciation Rights shall be exercised by written
notice to the Corporation as provided in Paragraph 11 hereof at any time prior
to the earlier of (i) the date which is thirty (30) days after the date of
notice of a change in control or (ii) the last day of the Option Period
provided in the Option Agreement, but in no event shall the expiration date be
more than ten (10) years after the date of grant of an Option as specified in
the Option Agreement.

     (c)  Limited Stock Appreciation Rights may be exercised only when the
aggregate market value of Common Stock subject to an Option exceeds the
aggregate Option Price.

     19.     TAX WITHHOLDING. The employer of a person granted an Option under
this Plan shall have the right to deduct or otherwise effect a withholding or
payment of any amount required by federal or state laws to be withheld or paid
with respect to the grant, exercise or surrender for cash of any Option or the
sale of stock acquired upon the exercise of an Option in order for the employer
to obtain a tax deduction otherwise available as a consequence of such grant,
exercise, surrender for cash, or sale, as the case may be. 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.

     20.     TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time within ten (10) years after this Plan was adopted by the Board on
January 18, 2001.

     21.     LISTING AND REGISTRATION OF OPTION SHARES. Any Option granted under
the Plan shall be subject to the requirement that if at any time the Committee
shall determine, in its sole discretion, that the listing, registration, or
qualification of the shares of Common Stock covered thereby upon any securities
exchange or under any state or federal law or the consent or approval of any
governmental regulatory body is necessary or desirable as a

 

 

condition of, or in connection with, the granting of such Option or the
issuance or purchase of shares thereunder, such Option may not be exercised in
whole or in part unless and until such listing, registration, or qualification
consent, or approval shall have been effected or obtained free of any
conditions not acceptable to the Committee.

     22.     AMENDMENT AND MODIFICATION OF THE PLAN. The Board may at any time and
from time to time amend or modify this Plan in any respect; provided, however,
that no amendment or modification shall be made that increases the total number
of shares covered by this Plan or effects any change in the categories of
persons who may receive Options under this Plan or materially increases the
benefits accruing to Optionees under this Plan unless such change is approved
by the holders of a majority of the shares of Common Stock. Any amendment or
modification of this Plan shall not materially reduce the benefits under any
Option theretofore granted to an Optionee under this Plan without the consent
of such Optionee or the permitted transferee thereof.

     23.     TERMINATION. This Plan may be abandoned, suspended, or terminated at
any time by the Board; provided, however, that abandonment, suspension, or
termination of this Plan shall not affect any Options then outstanding under
this Plan.

     24.     EXPENSES OF ADMINISTRATION OF PLAN. All costs and expenses incurred
in the operation and administration of this Plan shall be borne by the
Corporation.

     25.     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 of, and shall not serve as a
basis for interpretation or construction of, this Plan. As used herein, the
masculine gender shall include the feminine and neuter, and the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.

     26.     EXCULPATION AND INDEMNIFICATION. In connection with this Plan, no
member of the Board, no member of the Board of Directors of any Subsidiary, and
no member of the Committee shall be personally liable for any act or omission
to act, nor for any mistake in judgment made in good faith, unless arising out
of, or resulting from, such person’s own bad faith, willful misconduct or
criminal acts. To the extent permitted by applicable law and regulation, the
Corporation shall indemnify, defend and hold harmless the members of the Board,
the members of the Board of Directors of any Subsidiary, and members of the
Committee, and each other officer or employee of 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 reasonable 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.

     27.     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.

     28.     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.Ex-4.2

 

EXHIBIT 4.2

THE COMMUNITY BANK

AMENDED AND RESTATED STOCK OPTION PLAN FOR KEY EMPLOYEES

     THIS IS THE AMENDED AND RESTATED STOCK OPTION PLAN FOR KEY EMPLOYEES
(“Plan”) of The Community Bank (the “Bank”), a North Carolina chartered
commercial bank, with its principal office in Pilot Mountain, Surry County,
North Carolina, adopted by the Board of Directors of the Bank on December 14,
1995 and effective as set forth in paragraph 19 below, under which options may
be granted from time to time to eligible employees of the Bank or of any
corporation or other entity of which the Bank owns, directly or indirectly, not
less than eighty percent (80%) of any class of equity securities (a
“Subsidiary”), to purchase shares of the common stock, $2.50 par value, of the
Bank (“Common Stock”), subject to the provisions set forth below. This Plans
amends, supercedes and restates The Community Bank Stock Option Plan For Key
Employees adopted by the Board of Directors of the Bank on February 23, 1988
and subsequently approved by the Bank’s stockholders at the Bank’s 1989 Annual
Meeting of Stockholders (the “Original Plan”).

     1. PURPOSE. The purpose of this Plan is to aid the Bank and any Subsidiary
in attracting and retaining capable employees and to provide a long range
incentive for key employees of the Bank to remain in the management of the Bank
or any Subsidiary, to perform at increasing levels of effectiveness and to
acquire a permanent stake in the Bank 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 the committee (the
“Committee”), composed of at least two (2) members of the Board of Directors of
the Bank (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, as
amended (the “Exchange Act”). Members of the Committee shall serve at the
pleasure of the Board. In the absence at any time of a duly appointed
Committee, this Plan shall be administered by those members of the Board who
are “disinterested persons,” and by the Board if there are less than three (3)
“disinterested persons.” No member of the Committee may receive grants of
options under the Plan. The Committee may designate any officers or employees
of 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
administrative 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.

     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 “) or which do not qualify as incentive stock options
and which will be given tax treatment as “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. The stock to be subject to options under
the Plan shall be authorized but unissued share of Common Stock. Subject to
the provisions of Section 20 hereof, the total number of shares of Common Stock
for which options may be granted under the Plan is 83,400 shares. Prior to the
effective date of this Plan, options to purchase 57,400 shares of Common Stock
have previously been issued under the Original Plan. Therefore, subject to the
provisions of Section 20 hereof, options to purchase 26,000 shares of Common
Stock may be issued pursuant to this Plan after the effective date hereof as
set forth in Section 19. Such number of shares is subject to any capital
adjustments as provided in Section 14. In the event that an option granted
under the Plan is forfeited, 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 or
termination date of an option is beyond the term of existence of the Plan as
described in Section 20, then any shares covered by forfeited, unexercised or
terminated options shall not reactivate the existence of the Plan and therefore
may not be available for additional grants under the Plan. The Bank, 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 and the Board, the shares of Common Stock necessary to be
delivered to satisfy exercised options may be from authorized and unissued
shares of Common Stock or, upon receipt of all necessary regulatory approvals,
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 of the Bank or a Subsidiary. For
this purpose, an individual shall be considered to be an “employee” only if
there exists between 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 falls within the classification of key employees of
the Bank or a Subsidiary. For this purpose, “key employees” shall be considered
to be those employees who, in the judgment of the Committee, are in a position
to affect materially the operations and profitability of the Bank or any
Subsidiary by reason of the nature and extent of their duties and
responsibilities.

     (c) 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.

     (d) 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 employees to whom options shall be granted and the
number of shares

2

 

to be covered by each option, the Committee shall take into account the
nature of the services rendered by respective employees, their present and
potential contributions to the success of the Bank and any Subsidiary and such
other factors as the Committee shall deem relevant. An 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. No employee may be issued
options to purchase more than forty percent (40%) of the shares of Common Stock
reserved for issuance pursuant to this Plan.

     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 Bank
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 individual.

     5. GRANTS. Options shall be deemed granted only after the effective date
of the Plan and only after due execution by the Bank and optionee of a Stock
Option Grant and Agreement (the “Option Agreement”) in the form attached hereto
as Exhibit A, as modified by the Committee to the extent it deems such
modification to be necessary or desirable. Such options shall be granted with
the intention that they will be nonqualified or incentive stock options as
designated in the Option Agreement. Any option granted with the intention that
it will be an incentive stock option but which fails to satisfy a requirement
for incentive stock options shall continue to be valid and shall be treated as
a nonqualified stock option.

     6. OPTION PRICE.

     (a) The option price of each option granted under the Plan shall be not
less than one hundred percent (100%) of the market value of the stock on the
date of grant of the option. In the case of incentive stock options granted to
a shareholder who owns stock possessing more than 10 percent (10%) of the total
combined voting power of all classes of stock of the Bank or a Subsidiary (a
“ten percent shareholder”), the option price of each option granted under the
Plan shall not be less than one hundred and ten percent (110%) of the market
value of the stock on the date of grant of the option. If the Common Stock is
listed on a national securities exchange (including the NASDAQ interdealer
quotation system) 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 on the date in question, then the market price per share
shall be equal to the average between the bid and asked price on such date, or,
if there is no bid and asked price on such date, then on the next prior
business day on which there was a bid and asked price. If no such bid and asked
price is available, then the market value per share shall be its fair market
value as determined by the Committee, in its sole and absolute discretion. The
Committee shall maintain a written record of its method of determining such
value.

     (b) The option price shall be payable to the Bank in cash or by check,
bank draft or money order payable to the order of the Bank. No shares shall be
delivered until full payment has been made. The Committee may not approve a
reduction of such purchase price in any such option, or the cancellation of any
such options and the regranting thereof to the same optionee at a lower
purchase price, at a time when the market value of the shares is lower than it
was when such option was granted.

3

 

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

     8. TERMS AND CONDITIONS OF OPTIONS.

     (a) The Committee may grant options which are intended to be incentive
stock options and nonqualified stock options, either separately or jointly, to
an eligible employee.

     (b) 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.

     (c) Not less than 50 shares may be purchased at any one time unless the
number purchased is the total number at that time purchasable under the Plan.

     (d) The recipient of an option shall have no rights as a shareholder with
respect to any shares covered by his option until payment is made 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 14.

     (e) 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 Bank or any Subsidiary, if applicable) shall
not exceed $100,000; provided, however, that such $100,000 limit of this
subsection (e) shall not apply to the grant of nonqualified stock options. The
Committee may grant options which are exercisable in excess of the foregoing
limitation, in which case options granted which are exercisable in excess of
such limitation shall be nonqualified stock options.

     (f) 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 Bank or its designee. The employee who
has exercised the option shall during such holding period have all rights of a
shareholder, including but not limited to the rights to vote, receive dividends
and sell the stock. The sole purpose of the escrow is to inform the Bank of a
disqualifying disposition of the stock within the meaning of Section 422 of the
Code and it shall be administered solely for that purpose.

4

 

     9. EXERCISE OF OPTIONS.

     (a) An optionee must at all times be employed by the Bank or a Subsidiary
from the date of the grant until the exercise of the options granted except as
provided in Sections 11 and 12. All options granted under the Plan shall be
exercisable in accordance with such vesting requirements which are set forth in
the Option Agreement.

     Notwithstanding any vesting requirements set forth in the Option
Agreement, options shall become exercisable with respect to all of the shares
subject thereto upon the optionee’s retirement, death, disability within the
meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.

     In the event the Option Agreement states that the right to exercise
options shall vest in installments, in the Committee’s discretion (i) the right
to exercise options in installments shall be cumulative and any vested
installments may be exercised, in whole or in part, at the election of the
optionee or (ii) the right to exercise options shall be non-cumulative, as set
forth in the Option Agreement. The exercise of any option must be evidenced by
written notice to the Bank that the optionee intends to exercise his option.

     In no event shall an option be deemed granted by the Bank or exercisable
by a recipient prior to the mutual execution by the Bank and the recipient of
an Option Agreement which comports with the requirements of Section 5 and
Section 8(b).

     (b) The inability of the 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 Bank of any liability
in respect of the nonissuance or sale of such shares. As a condition to the
exercise of an option, the Bank 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.

     (c) 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
vesting requirements, rights of first refusal or repurchase rights.

     10. TERMINATION OF EMPLOYMENT — EXCEPT BY DISABILITY,
RETIREMENT OR DEATH. If any optionee ceases to be an employee of at least one
of the Bank and any Subsidiary for any reason other than death, retirement (as
defined in Section 11) or disability (as defined in Section 11), any options or
portions of options not exercised prior to the date the optionee ceases to be
employed shall terminate and be forfeited.

     11. TERMINATION OF EMPLOYMENT — DISABILITY OR RETIREMENT. If any optionee
ceases to be employed by at least one of the Bank and any Subsidiary due to his
becoming disabled within the meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended, he or she may, (i) at any time within twelve
(12) months after his or her date of termination, but not later than the date
of expiration of the option, exercise any option designated in the Option
Agreement as an incentive stock option with respect to all shares subject
thereto and (ii) at any time prior to the date of expiration of the option,
exercise any option designated in the Option Agreement as a nonqualified stock
option with respect to all shares subject thereto. Any portions of options of
disabled employees not so exercised shall terminate.

5

 

     If any optionee ceases to be employed by at least one of the Bank and any
Subsidiary due to such optionee’s normal retirement, such optionee 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 with respect to all shares
subject thereto and (ii) at any time prior to the date of expiration of the
option, exercise any option designated in the Option Agreement as a
nonqualified stock option with respect to all shares subject thereto. Any
portions of options of retired employees not so exercised shall terminate.

     12. TERMINATION OF EMPLOYMENT — DEATH. If an optionee dies while in the
employment of the Bank or a Subsidiary, the person or persons to whom the
option is transferred by will or by the laws of descent and distribution may,
at any time within twelve (12) months after the optionee’s death but not later
than the date of expiration of the option, exercise the option with respect to
all shares subject thereto. Any options or portions of options of deceased
employees not so exercised shall terminate.

     13. 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.

     14. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK.

     (a) If the outstanding shares of Common Stock of the Bank are increased,
decreased, changed into or exchanged for a different number or kind of shares
or other securities of the Bank or another entity as a result of a
recapitalization, reclassification, stock dividend, stock split, amendment to
the Bank’s charter, 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. In
the event this Plan is assumed by the surviving corporation in the event of a
merger, consolidation, acquisition or reorganization optionees shall, upon
request of the Committee, execute replacement Option Agreements reflecting such
assumption and adjustment.

     (b) To the extent that the foregoing adjustments relate to particular
stock or securities of the Bank subject to option under this Plan, such
adjustments shall be made by the Committee, whose determination in that respect
shall be final and conclusive.

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

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

     (e) Any adjustment made pursuant to this Section 14, shall be made in such
manner as not to constitute a modification of any outstanding incentive stock
options within the meaning of Section 424(h) of the Internal Revenue Code of
1986, as amended.

6

 

     15. CHANGE IN CONTROL.

     (a) 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 in response
to Item 1 of the Current Report on FDIC 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 Bank representing
50 percent (50%) or more of the combined voting power of the outstanding Common
Stock of the Bank; (iii) individuals who constitute the Board (the “Incumbent
Board”) 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 whose nomination for election by
the Bank’s shareholders was approved by the Board or Nominating Committee,
shall be considered as though he were a member of the Incumbent Board; (iv) the
Bank consolidates or merges with or into another corporation, association or
entity or is otherwise reorganized, where the Bank is not the surviving
corporation in such transaction; or (v) all or substantially all of the assets
of the Bank are sold or otherwise transferred to or are acquired by any other
entity or group; provided, however, that a share exchange transaction whereby
the Bank is acquired by a holding company and existing shareholders of the Bank
are offered ownership interests in the holding company at no cost which are
substantially equal in type and amount to the ownership interests that they
have in the Bank, shall not constitute a “Change in Control.”

     (b) Within twenty (20) days after the Bank receives notice of a Change in
Control described in Sections 15(a)(i), (ii) or (iii) and at least thirty (30)
days in advance of the effective date of a Change in Control described in
Sections 15(a)(iv) or (v), the Committee, in its absolute discretion, may
provide to all or any of the optionees a notice of such Change in Control or
pending Change in Control, as applicable, which notice shall state that all
unexercised and unexpired options granted pursuant to this Plan which would
otherwise be exercisable but for the provisions of any vesting schedule set
forth in the Option Agreement, shall become immediately vested and exercisable
by the holder thereof, notwithstanding the vesting schedule set forth in the
Option Agreement. Upon giving of such notice to any optionee, the unexercised
and unexpired options held by such optionee shall become vested and exercisable
in full as set forth in such notice.

     In the event the Bank elects not to send the notice described in this
Section 15(b) above, then the adjustment provisions of Section 14 shall be
applicable but there shall be no change in the vesting requirements, if any, of
the options of any optionee.

     16. 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 Bank. Certificates for shares of stock acquired under
the Plan may be issued bearing such restrictive legends as the Bank 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.

     17. APPLICATION OF FUNDS. The proceeds received by the Bank from the sale
of Common Stock pursuant to options will be used for general corporate
purposes.

7

 

     18. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
impose no obligation upon the optionee to exercise such option.

     19. EFFECTIVE DATE OF PLAN. The Plan will become effective upon the
approval of the Plan by the shareholders of the Bank as required by applicable
North Carolina banking law; provided, however, that the effectiveness of the
Plan shall also be contingent upon its approval by the North Carolina
Commissioner of Banks. Until such effective date, the Original Plan shall
remain in full force and effect.

     20. TERM OF PLAN. Options to purchase 57,400 shares of Common Stock were
authorized for issuance under the Original Plan. Under the Original Plan,
options to purchase 57,400 shares have previously been issued prior to the
adoption of this Plan by the Board. As a result, options to purchase 200
shares which were not issued under the Original Plan could still be issued;
provided such options are issued on or before February 22, 1998. To the extent
that options to purchase 200 shares of Common Stock are not issued on or before
February 22, 1998, the right to issue such options shall lapse and terminate.
For example, if options to purchase only 50 of the 200 shares of Common Stock
are issued between the effective date hereof and February 22, 1998, the number
of options which may be issued under this Plan shall be reduced by 150 from
83,400 to 83,250. Subject to the foregoing, options may be granted pursuant to
this Plan from time to time within ten (10) years after this Plan was adopted
by the Board on December 14, 1995.

     21. 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
Bank 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 Bank at the direction of the Committee.

     22. WITHHOLDING TAXES. Whenever the Bank issues or transfers shares of
stock or satisfies Limited Stock Appreciation Rights under the Plan, the Bank
shall have the right to require the optionee to remit to the Bank 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 prior to the satisfaction of such Limited Stock Appreciation Rights.
Alternatively, the Bank may issue or transfer such shares of stock net of the
number of shares sufficient to satisfy the withholding tax requirements or
satisfy such Limited Stock Appreciation Rights net of the 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.

     23. TERMINATION AND AMENDMENT. The Board may at any time alter, suspend,
terminate or discontinue the Plan, but 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; provided, however, that
shareholder approval of certain amendments mat be necessary if it is desirable
for the Plan to continue to satisfy the requirements of Rule 16b-3 of the
Securities Exchange Commission; and provided further, that in no event shall
this Plan be terminated at the time of or following any merger or consolidation
of the Bank, unless and until the surviving entity shall have made provision
for an equivalent benefit for all the then current option holders. The Board
may not amend any provisions of this Plan described in Rule 16b-3(c)(2)(ii)(A)
of the regulations promulgated pursuant to the Exchange Act more than once
every six months, other than to comport with changes in the Internal Revenue
Code, the Employee

8

 

Retirement Income Security Act, or the rules thereunder. Notwithstanding
anything herein to the contrary, unless approved by a majority of the votes
cast by the stockholders of the Bank at a meeting of stockholders on which
action is validly taken on such matter, this Plan may not be amended to:

     (a) increase the number of shares of Common Stock for which options may be
granted under this Plan;

     (b) change the option exercise price;

     (c) extend the period within which options may be granted or exercised; or

     (d) permit persons other than key employees to receive grants of options
hereunder.

     24. PREVIOUSLY ISSUED OPTIONS. Notwithstanding anything herein to the
contrary, options previously issued and unexercised under the Original Plan
shall be subject to the Original Plan and not this Plan, and, as to such
options, the rights and obligations of the optionees holding such options shall
be as set forth in the Original Plan and not this Plan.

     25. 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 of, and shall not serve as a
basis for interpretation or construction of, this Plan. As used herein, the
masculine gender shall include the feminine and neuter, and the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.

     26. EXCULPATION AND INDEMNIFICATION. In connection with this Plan, no
member of the Board, no member of the Board of Directors of any Subsidiary, and
no member of the Committee shall be personally liable for any act or omission
to act, nor for any mistake in judgment made in good faith, unless arising out
of, or resulting from, such person’s own bad faith, willful misconduct or
criminal acts. To the extent permitted by applicable law and regulation, the
Bank shall indemnify, defend and hold harmless the members of the Board, the
members of the Board of Directors of any Subsidiary, and members of the
Committee, and each other officer or employee of the Bank 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.

     27. 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.

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

     29. OTHER PROVISIONS. The Option Agreements authorized under this Plan
shall

9

 

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.

10

 

EXHIBIT A

THE COMMUNITY BANK

AMENDED AND RESTATED STOCK OPTION PLAN FOR KEY EMPLOYEES

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 COMMUNITY BANK AMENDED AND
RESTATED STOCK OPTION PLAN FOR KEY EMPLOYEES (“Plan”), which is hereby
incorporated by reference and made a part of this Agreement, is herein executed
and effective the ___day of ___, ___, between The Community
Bank (the “Bank”) and ___
(“Optionee”):

     1. Grant. As of the above date, the Bank hereby grants: (i) 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 Bank to the Optionee at the price stated in this Agreement; and/or (ii) a
nonqualified stock option to purchase ___shares of Common Stock of the
Bank to the Optionee at the price stated in this Agreement. The grant of
options above shall include the Limited Stock Appreciation Rights which, upon
approval of the Committee, may be exercised in lieu of the exercise of options
subject to the provisions and requirements of the Plan.

     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.

     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:

     (a) Right to Exercise (Applicable provisions are checked):

     (i) Incentive Stock Options

	 	 	 	 	 
	

	 	o
	 	Immediate Vesting: Subject to
the terms and conditions of the Plan, all of the
incentive stock options are immediately vested and are
exercisable in full or in part. The options expire and
must be exercised on or before ___,
___.
	 
	 	 	 	 
	

	 	o
	 	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 ___, ___and ending on

___, ___

___shares beginning on ___, ___and ending on

___, ___

___shares beginning on ___, ___and ending on

___, ___

___shares beginning on ___, ___and ending on

___, ___

___shares beginning on ___, ___and ending on

___, ___

 

 

     (ii) Nonqualified Options

	 	 	 
	o

	 	Subject to the terms and
conditions of the Plan, all of the incentive stock
options are immediately vested and are exercisable in
full or in part. The options expire and must be
exercised on or before ___, ___.
	o

	 	he nonqualified options can be

exercised in annual installments as follows:

___shares beginning on ___, ___and ending on

___, ___

___shares beginning on ___, ___and ending on

___, ___

___shares beginning on ___, ___and ending on

___, ___

___shares beginning on ___, ___and ending on

___, ___

___shares beginning on ___, ___and ending on

___, ___

     (b) Other Conditions: Except as set forth in (a) above, there are no other
terms and conditions imposed on the Optionee’s right to exercise his or her
options other than those imposed in the Plan, except as stated below:

     In addition, the option(s) shall be exercisable upon disability, death,
retirement and upon the occurrence of a Change in Control as set forth in the
Plan.

     (c) Method of Exercising Stock Options: The options under this Agreement
shall be exercisable by a written notice to the Secretary of the Bank which
shall include the following:

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

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

     (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 Bank, 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.

     In addition, the party exercising the options shall provide such other
information as the Committee shall request.

     (d) Representations and Warranties: In order to exercise an option, the
person exercising the option must make the representations and warranties to
the Bank as may be required by any

 

 

applicable law or regulation, or as may otherwise be required pursuant to
the Plan.

     (e) Approvals. In order for an option to be exercised, all filings and
approvals required by applicable law and regulation 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 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. Escrow. All stock purchased pursuant to an incentive stock option shall
be held in escrow for a period which ends on the later of (i) two (2) years
from the date of the granting of the option or (ii) one (1) year after the
transfer of the stock pursuant to the exercise of the option. The stock shall
be held by the Bank or its designee. The optionee who has exercised the option
shall have all rights of a stockholder, including, but not limited to, the
rights to vote, receive dividends and sell the stock. The sole purpose of the
escrow is to inform the Bank 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.

     7. 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 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.

     8. 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.

     9. 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.

     10. 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.

     11. 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.

 

     12. 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.

     13. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the Bank, 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.

     14. 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.

     15. 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: THE COMMUNITY BANK

 	 
	 	By:  	__________________________             _____________________________
 	 
	 	 	  	 
	 	 	(Corporate Seal)                       ____________________, President

OPTIONEE:

__________________________(SEAL)

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