Document:

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                                                                  Exhibit 10(ii)

                             UNITED FINANCIAL, INC.
                       1999 NONSTATUTORY STOCK OPTION PLAN

     United Financial, Inc., a North Carolina corporation (hereinafter referred
to as the "Corporation"), does herein set forth the terms of the United
Financial, Inc. 1999 Nonstatutory Stock Option Plan (hereinafter referred to as
this "Plan"), which was adopted by the Board of Directors (hereinafter referred
to as the "Board") of the Corporation.

     1. Purpose of this Plan. The purpose of this Plan is to provide for the
grant of Nonstatutory Stock Options (hereinafter referred to as "Options" or
singularly, "Option") to Eligible Directors (as hereinafter defined) of the
Corporation who wish to invest in the Corporation's common stock (hereinafter
referred to as "Common Stock"). The Board believes that participation in the
ownership of the Corporation by the Eligible Directors will be to the mutual
benefit of the Corporation and the Eligible Directors. In addition, the
existence of this Plan will make it possible for the Corporation to attract
capable individuals to serve on the Board. As used herein, the term "Eligible
Directors" or singularly, "Eligible Director," shall mean those members of the
Board or the board of any direct or indirect subsidiary of the Company who are
not employed by the Corporation and are ineligible to participate in the United
Financial, Inc. 1999 Incentive Stock Option Plan.

     2. Administration of this Plan.

        (a) This Plan shall be administered by the Board. The Board shall have
full power and authority to construe, interpret and administer this Plan. All
actions, decisions, determinations, or interpretations of the Board shall be
final, conclusive, and binding upon all parties.

        (b) The Board may designate any officers or employees of the Corporation
or of any of its subsidiaries to assist in the administration of this Plan. The
Board may authorize such individuals to execute documents on its behalf and may
delegate to them such other ministerial and limited discretionary duties as the
Board may see fit.

     3. Shares of Common Stock Subject to this Plan. The maximum number of
shares of Common Stock that shall be offered under this Plan is [SEVENTY-FIVE
THOUSAND (75,000)] shares, subject to adjustment as provided in paragraph 13.
Shares subject to Options which expire or terminate prior to the issuance of the
shares of Common Stock shall lapse and the shares of Common Stock originally
subject to such Options shall again be available for future grants of Options
under this Plan.

     4. Eligibility. Options under this plan may be granted to any Eligible
Director as determined by the Board.

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     5. Vesting of Options. Options granted under this Plan shall be fully
vested upon the date of grant.

     6. Option Price

        (a) The price per share of each Option granted under this Plan
(hereinafter called the "Option Price") shall be determined by the Board as of
the effective date of grant of such Option, but in no event shall such Option
Price be less than 100% of the fair market value of Common Stock on the date of
grant. An Option shall be considered as granted on the later of (i) the date
that the Board acts to grant such Option, or (ii) such later date as the Board
shall specify in an Option Agreement (as hereinafter defined).

        (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,
Common Stock being valued 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 for 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, or (ii) if on the date as of which such
determination is made, no such closing sale prices are reported, but quotations
for Common Stock being valued are regularly listed on the National Association
of Securities Dealers Automated Quotation 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, but 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, or (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 such shares, as selected by the Board, for the trading date
first preceding the date as of which such determination is made. If the Board
determines that the price as determined above does not represent the fair market
value of a share of Common Stock, the Board may then consider such other factors
as it deems appropriate and then fix the fair market value for the purposes of
this Plan.

     7. Payment of Option Price. Payment for shares subject to an Option may be
made either in cash, or with the approval of the Board, in other stock of the
Corporation owned by an Eligible Director or such other person as may be
entitled to exercise such Option. 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 Board, on the date of the exercise of such
Option.

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     8.  Terms and Conditions of Grant of Options. Each Option granted pursuant
to this Plan shall be evidenced by a written Nonstatutory Stock Option Agreement
(hereinafter referred to as "Option Agreement") with each Eligible Director
(hereinafter referred to as "Optionee") to whom an Option is granted; such
agreement shall be substantially in the form attached hereto as "Exhibit A,"
unless the Board shall adopt a different form and, in each case, may contain
such other, different, or additional terms and conditions as the Board may
determine.

     9.  Option Period. Each Option Agreement shall set forth a period during
which such Option may be exercised (hereinafter referred to as the "Option
Period"); provided, however, that the Option Period shall not exceed ten (10)
years after the date of grant of such Option as specified in an Option
Agreement.

     10. Exercise of Options. An Option shall be exercised by written notice to
the Board signed by an Optionee or by such other person as may be entitled to
exercise such Option. In the case of the exercise of an Option, the aggregate
Option Price for the shares being purchased may be paid either in cash or, with
the approval of the Board, in shares of the Corporation's stock (valued as
determined by the Board as of the date of exercise) or any combination thereof
and the notice of exercise shall specify how payment will be made. 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
after 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 Board otherwise approves or unless the partial
exercise is for the remaining shares available under such Option. 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 therefor. During the Option Period, no
person entitled to exercise any Option granted under this Plan shall have any of
the rights or privileges of a shareholder with respect to any shares of Common
Stock issuable upon exercise of such Option, until certificates representing
such shares shall have been issued and delivered and the individual's name
entered as a shareholder of record on the books of the Corporation for such
shares.

     11. Effect of Leaving the Board or Death.

         (a) In the event that an Optionee leaves the service of the Corporation
for any reason other than retirement, disability, death, or after a "change in
control" of the Corporation (as defined in paragraph 11(e)) any Option granted
to the Optionee under this Plan, to the extent not previously exercised by the
Optionee or expired, shall immediately terminate.

         (b) In the event that an Optionee should leave the service of the
Corporation as a result of such Optionee's retirement, any Option granted such
Optionee under this Plan shall be exercisable to the extent that it has not
previously been exercised by the Optionee or expired, for such period of time as
may be determined by the Board and specified in an Option Agreement, but in no
event may any Option be exercised later than the end of the Option Period

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provided in the Option Agreement in accordance with paragraph 9 hereof. For
purposes of this Plan, the term "retirement" shall mean termination of an
Eligible Director's membership on the Board or the board of any subsidiary (i)
at any time after attaining age 65 with the approval of the Board; or (ii) at
the election of the Eligible Director, at any time after not less than five (5)
years service as a member of the Board or the board of any subsidiary, such
service shall be computed cumulatively for purposes of this clause (ii).

         (c) In the event that an Optionee should leave the service of the
Corporation by reason of such Optionee's disability, any Option granted such
Optionee under this Plan shall be exercisable to the extent that it has not
previously been exercised or expired, for such period of time as may be
determined by the Board and specified in an Option Agreement, but in no event
may any Option be exercised later than the end of the Option Period provided in
the Option Agreement in accordance with paragraph 9 hereof. For purposes of this
Plan, the term "disability" shall be defined as may be determined by the Board,
from time to time, or as determined at any time with respect to any individual
Optionee.

         (d) In the event that an Optionee should die while serving on the Board
or the board of any subsidiary or after leaving by reason of disability,
retirement, or after a change in control, during the Option Period provided in
an Option Agreement in accordance with paragraph 9 hereof, an Option granted
under this Plan, to the extent that it has not previously been exercised or
expired, shall be exercisable, in accordance with its terms, by the personal
representative of such Optionee, the executor or administrator of such
Optionee's estate, or by any person or persons who acquired such Option by
bequest or inheritance from such Optionee, notwithstanding any limitations
placed on the exercise of such Option by this Plan or an Option Agreement, at
any time within twelve (12) months after the date of death of such Optionee, but
in no event may an Option be exercised later than the end of the Option Period
provided in an Option Agreement in accordance with paragraph 9 hereof. Any
references herein to an Optionee shall be deemed to include any person entitled
to exercise an Option after the death of such Optionee under the terms of this
Plan.

         (e) In the event an Optionee shall leave the Board or the board of any
subsidiary as a result of a "change in control" of the Corporation, any Option
granted to the Optionee under this Plan shall be exercisable to the extent that
it has not previously been exercised by the Optionee or expired, for such period
of time as may be determined by the Board as specified in an Option Agreement,
but in no event may any Option be exercised later than the end of the Option
Period provided in the Option Agreement in accordance with paragraph 9 hereof.
For purposes of this Plan, the term "change in control" shall be defined as (i)
the acquisition by any person, group of persons or entity of the beneficial
ownership or power to vote more than twenty-five (25%) percent of the
Corporation's outstanding stock, (ii) during any period of two (2) consecutive
years, a change in the majority of the Board unless the election of each new
Director was approved by at least two-thirds of the Directors then still in
office who were Directors at the beginning of such two (2) year period, or (iii)
a reorganization, merger, or consolidation of the Corporation with one or more
other banks or corporations in which the Corporation is not the surviving
entity, or the transfer of all or substantially all of the assets or shares of
the Corporation to another person or entity.

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     12. Effect of Plan on Status as Member of a Board. The fact that an
Eligible Director has been granted an Option under this Plan shall not confer on
such Eligible Director any right to continued service on the Board or the board
of any subsidiary, nor shall it limit the right of the Corporation to remove
such Eligible Director from the Board of any subsidiary at any time.

     13. Adjustment Upon Changes in Capitalization; Dissolution or Liquidation.

         (a) In the event of a change in the number of shares of Common Stock
outstanding by reason of a stock dividend, stock split, recapitalization,
reorganization, merger, exchange of shares, or other similar capital adjustment
prior to the termination of an Optionee's rights under this Plan, equitable
proportionate adjustments shall be made by the Board in (i) the number and kind
of shares which remain available under this Plan, and (ii) the number, kind, and
the Option Price of shares subject to the unexercised portion of an Option under
this Plan. The adjustments to be made shall be determined by the Board and shall
be consistent with such change or changes in the Corporation's total number of
outstanding shares; provided, however, that no adjustment shall change the
aggregate Option Price for the exercise of Options granted under this Plan.

         (b) The grant of Options under this Plan shall not affect in any way
the right or power of the Corporation or its shareholders to make or authorize
any adjustment, recapitalization, reorganization, or other change in the
Corporation's capital structure or its business, or any merger or consolidation
of the Corporation, or to issue bonds, debentures, preferred or other preference
stock ahead of or affecting Common Stock or the rights thereof, or the
dissolution or liquidation of the Corporation, or any sale or transfer of all or
any part of the Corporation's assets or business.

         (c) Except upon a "change in control", upon the effective date of the
dissolution or liquidation of the Corporation, this Plan and any Options granted
hereunder, shall terminate.

     14. Non-Transferability. An Option granted under this Plan shall not be
assignable or transferable except, in the event of the death of an Optionee, by
will or by the laws of descent and distribution. In the event of the death of an
Optionee, his 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 Options, may exercise any Option or
portion thereof to the extent not previously exercised or surrendered by an
Optionee or expired, in accordance with its terms, prior to the expiration of
the exercise period as specified in paragraph 11(d) hereof.

     15. Tax Withholding. The Corporation or any of its subsidiaries shall have
the right to deduct or otherwise effect a withholding of any amount required by
federal or state laws to be withheld with respect to the grant, exercise or the
sale of stock acquired upon the exercise of an

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Option in order for the Corporation or any of its subsidiaries to obtain a tax
deduction otherwise available as a consequence of such grant, exercise or sale,
as the case may be.

     16. Listing and Registration of Option Shares. Any Option granted under
this Plan shall be subject to the requirement that if at any time the Board
shall determine, in its discretion, that the listing, registration, or
qualification of the shares 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, qualification, consent, or approval shall have
been effected or obtained free of any conditions not acceptable to the Board.

     17. Exculpation and Indemnification. In connection with this Plan, no
member of the Board shall be personally liable for any act or omission to act in
such person's capacity as a member of the Board, nor for any mistake in judgment
made in good faith, unless arising out of, or resulting from, such person's own
bad faith, gross negligence, willful misconduct, or criminal acts. To the extent
permitted by applicable law and regulation, the Corporation shall indemnify and
hold harmless the members of the Board, and each other officer or employee of
the Corporation or of any of its subsidiaries to whom any duty or power relating
to the administration or interpretation of this Plan may be assigned or
delegated, from and against any and all liabilities (including any amount paid
in settlement of a claim with the approval of the Board) and any costs or
expenses (including counsel fees) incurred by such persons arising out of or as
a result of, any act or omission to act in connection with the performance of
such person's duties, responsibilities, and obligations under this Plan, other
than such liabilities, costs, and expenses as may arise out of, or result from,
the bad faith, gross negligence, willful misconduct, or criminal acts of such
persons.

     18. Amendment and Modification of this Plan. The Board may at any time, and
from time to time, amend or modify this Plan (including the form of Option
Agreement) in any respect consistent with applicable regulations; 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
category 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 outstanding shares of Common
Stock present or represented at a shareholders' meeting at which a quorum is
present. Any amendment or modification of this Plan shall not materially reduce
the benefits under any Option therefore granted to an Optionee under this Plan
without the consent of such Optionee or the transferee in the event of the death
of such Optionee.

     19. Termination and Expiration of this Plan. 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. No Option shall be granted pursuant to
this Plan after ten (10) years from the effective date of this Plan as provided
in paragraph 20 hereof.

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     20. Effective Date. This Plan has been effective since April 20, 1999 (the
"Effective Date").

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

     22. Expenses of Administration of Plan. All costs and expenses incurred in
the operation and administration of this Plan shall be borne by the Corporation
or by one of its subsidiaries.

     23. 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.

     24. Inspection of Plan. A copy of this Plan, and any amendments thereto or
modifications thereof, shall be maintained by the Secretary of the Corporation
and shall be shown to any proper person making inquiry about it.

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STATE OF NORTH CAROLINA                                                EXHIBIT A
COUNTY OF ALAMANCE

                       NONSTATUTORY STOCK OPTION AGREEMENT

     THIS NONSTATUTORY STOCK OPTION AGREEMENT (hereinafter referred to as this
"Agreement") is made and entered into as of this ____ day of _______, ____,
between UNITED FINANCIAL, INC., a North Carolina corporation (hereinafter
referred to as the "Corporation"), and _________________________________, a
resident of _______________ County, North Carolina (hereinafter referred to as
the "Optionee").

     WHEREAS, the Board of Directors of the Corporation (hereinafter referred to
as the "Board") has adopted the United Financial, Inc. 1999 Nonstatutory Stock
Option Plan (hereinafter referred to as the "Plan"); and

     WHEREAS, the plan has been effective since April 20, 1999 (the "Effective
Date"); and

     WHEREAS, the Plan provides that the Board will make available to the
Directors (as defined in the Plan) of the Corporation, the right to purchase
shares of the Corporation's common stock (hereinafter referred to as "Common
Stock"); and

     WHEREAS, the Board has determined that the Optionee is entitled to purchase
shares of Common Stock under the Plan;

     NOW, THEREFORE, the Corporation and the Optionee agree as follows:

     1. Date of Grant of Option. The date of grant of the option granted under
this Agreement is the ______ day of ___________, _______.

     2. Grant of Option. Pursuant to the Plan, the Corporation grants to the
Optionee the right (hereinafter referred to as the "Option") to purchase from
the Corporation all or a portion of an aggregate number of __________________
(______) shares of Common Stock (hereinafter referred to as the "Option Shares")
which shall be authorized but unissued shares.

     3. Vesting of Options. Options granted hereunder shall be fully vested upon
the date of grant.

     4. Option Price. The price to be paid for the Option Shares shall be
_______________ Dollars ($_____) per share (hereinafter referred to as the
"Option Price") which is the fair market value of the Option Shares as
determined by the Board as of the date of grant of this Option.

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     5. Period within which Option may be Exercised. Subject to any further
restrictions in this Agreement, at such time as the Option shall become
exercisable in accordance with this Agreement, the Optionee, in his or her
discretion, may exercise all or any portion of the Option, subject to paragraph
7 hereof. The Option shall terminate as provided in paragraph 8 hereof.

     6. Change in Control. When used herein, the phrase "change in control"
refers to (i) the acquisition by any person, group of persons or entity of the
beneficial ownership or power to vote more than twenty-five (25%) percent of the
Corporation's outstanding stock, (ii) during any period of two (2) consecutive
years, a change in the majority of the Board unless the election of each new
Director was approved by at least two-thirds of the Directors then still in
office who were Directors at the beginning of such two (2) year period, or (iii)
a reorganization, merger, or consolidation of the Corporation with one or more
other banks or corporations in which the Corporation is not the surviving
entity, or the transfer of all or substantially all of the assets or shares of
the Corporation to another person or entity.

     7. Method of Exercise. The Option shall be exercised by written notice to
the Board signed by the Optionee or by such other person as may be entitled to
exercise the Option. In the exercise of the Option, the aggregate Option Price
for the shares being purchased may be paid either in cash or, with the approval
of the Board, in shares of the Corporation's stock (valued as determined by the
Board as of the date of exercise) or any combination thereof and the notice of
exercise shall specify how payment will be made. The written notice shall state
the number of shares with respect to which the 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 example of such form of written notice is attached hereto as Exhibit A.
The Optionee shall not exercise the Option to purchase less than one hundred
(100) shares, unless the Board otherwise approves or unless the partial exercise
is for the remaining shares available under the Option. A certificate or
certificates for the shares of Common Stock purchased by the exercise of the
Option shall be issued in the regular course of business subsequent to the
exercise of the Option and the payment therefor. During the Option Period, no
person entitled to exercise the Option granted under this Agreement shall have
any of the rights or privileges of a shareholder with respect to any shares of
Common Stock issuable upon exercise of the Option, until certificates
representing such shares shall have been issued and delivered and the
individual's name entered as a shareholder of record on the books of the
Corporation for such shares.

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     8. Termination of Option. The Option shall terminate on the earlier of:

        (a) Except as provided in subparagraphs (b), (c), (d) and (e) below, the
Option, to the extent that it has not been exercised or expired, shall terminate
on the earlier of (i) the date the Optionee leaves the Board or the board of any
subsidiary for any reason other than the Optionee's retirement, disability,
death, or after a change in control of the Corporation or (ii) the date which is
ten (10) years after the date of grant of the Option as set forth in paragraph 1
hereof.

        (b) In the event the Optionee retires prior to the date which is ten
(10) years after the date of grant of the Option as set forth in paragraph 1
hereof, the Optionee shall have the right to exercise all Options, to the extent
not exercised or expired, for the remainder of such ten (10) year period. For
purposes of the plan, the term "retirement" shall mean any termination of an
Optionee's membership on the Board or the board of any subsidiary (i) at any
time after attaining age 65 with the approval of the Board, or (ii) at the
election of the Optionee, at any time after not less than five years service as
a member of the Board or the board of any subsidiary, computed on a cumulative
basis.

        (c) In the event the Optionee leaves the Board or the board of any
subsidiary by reason of such Optionee's disability prior to the date which is
ten (10) years after the date of grant of the Option as set forth in paragraph 1
hereof, the Optionee shall have the right to exercise all Options, to the extent
not exercised or expired, for the remainder of such ten (10) year period. For
purposes of the Plan, the term "disability" shall be defined as may be
determined by the Board, from time to time, or as determined at any time with
respect to any individual Optionee.

        (d) In the event the Optionee dies while on the Board or the board of
any subsidiary or after Optionee's leaving the Board or the board of any
subsidiary by reason of Optionee' s retirement, or disability, or after a change
in control, but prior to the date which is ten (10) years after the date of
grant of the Option as set forth in paragraph 1 hereof, any Option, to the
extent not exercised by the Optionee or expired, shall be exercisable, according
to its terms, by the personal representative, the executor or the administrator
of the Optionee's estate, or the person or persons who acquired the Option by
bequest or inheritance from the Optionee, at any time within twelve (12) months
after the date of death of the Optionee, but in no event may the Option be
exercised later than ten (10) years after the date of grant of the Option as set
forth in paragraph 1 hereof.

        (e) In the event the Optionee leaves the Board or the board of any
subsidiary as a result of a change in control of the Corporation, prior to the
date which is ten (10) years after the date of grant of Options as set forth in
paragraph 1 hereof, the Optionee shall have the right to exercise any Option, to
the extent that it has not been exercised by him or her or expired, for the
remainder of such ten (10) year period.

     9. Effect of Agreement on Status of Optionee. The fact that the Optionee
has been granted the Option under the Plan shall not confer on the Optionee any
right to

                                       -10-

<PAGE>

continued service on the Board, nor shall it limit the right of the Corporation
to remove the Optionee from the Board at any time.

     10. Listing and Registration of Option Shares. The Corporation's obligation
to issue shares of Common Stock upon exercise of the Option is expressly
conditioned upon the completion by the Corporation of any registration or other
qualification of such shares under any state or federal law or regulations or
rulings of any governmental regulatory body or the making of such investment
representations or other representations and agreements by the Optionee or any
person entitled to exercise the Option in order to comply with the requirements
of any exemption from any such registration or other qualification of the Option
Shares which the Board shall, in its discretion, deem necessary or advisable.
Notwithstanding the foregoing, the Corporation shall be under no obligation to
register or qualify the Option Shares under any state or federal law. The
required representations and agreements referenced above may include
representations and agreements that the Optionee, or any other person entitled
to exercise the Option, (i) is purchasing such shares on his or her own behalf
as an investment and not with a present intention of distribution or re-sale and
(ii) agrees to have placed upon any certificates representing the Option Shares
a legend setting forth any representations and agreements which have been given
to the Board or a reference thereto and stating that such shares may not be
transferred except in accordance with all applicable state and federal
securities laws and regulations, and further representing that, prior to making
any sale or other disposition of the Option Shares, the Optionee, or any other
person entitled to exercise the Option, will give the Corporation notice of the
intention to sell or dispose of such shares not less than five (5) days prior to
such sale or disposition.

     11. Adjustment Upon Changes in Capitalization; Dissolution or Liquidation.

         (a) In the event of a change in the number of shares of Common Stock
outstanding by reason of a stock dividend, stock split, recapitalization,
reorganization, merger, exchange of shares, or other similar capital adjustment,
prior to the termination of the Optionee's rights under this Agreement,
equitable proportionate adjustments shall be made by the Board in the number,
kind, and the Option Price of shares subject to the unexercised portion of the
Option. The adjustments to be made shall be determined by the Board and shall be
consistent with such changes in the Corporation's total number of outstanding
shares; provided, however, that no adjustment shall change the aggregate Option
Price for the exercise of the Option granted.

         (b) The grant of the Option under this Agreement shall not affect in
any way the right or power of the Corporation or its shareholders to make or
authorize any adjustment, recapitalization, reorganization, or other change in
the Corporation's capital structure or its business, or any merger or
consolidation of the Corporation, or to issue bonds, debentures, preferred or
other preference stock ahead of or affecting Common Stock or the rights thereof,
or the dissolution or liquidation of the Corporation, or any sale or transfer of
all or any part of the Corporation's assets or business.

                                       -11-

<PAGE>

         (c) Except upon a change in control as set forth in paragraph 6 hereof,
upon the effective date of the dissolution or liquidation of the Corporation,
the Option granted under this Agreement shall terminate.

     12. Non-Transferability. The Option granted under this Agreement shall not
be assignable or transferable except, in the event of the death of the Optionee,
by will or by the laws of descent and distribution. In the event of the death of
the Optionee, the personal representative, the executor or the administrator of
the Optionee's estate, or the person or persons who acquired by bequest or
inheritance the right to exercise the Option may exercise the unexercised Option
or portion thereof, in accordance with the terms of paragraph 8(d) herein.

     13. Tax Withholding. The grant of the Option and Option Shares delivered
pursuant to this Agreement, and any amounts distributed with respect thereto,
may be subject to applicable federal, state and local withholding for taxes. The
Optionee expressly acknowledges and agrees to such withholding, where
applicable, without regard to whether the Option Shares may then be sold or
otherwise transferred by the Optionee.

     14. Notices. Any notices or other communications required or permitted to
be given under this Agreement shall be in writing and shall be deemed to have
been sufficiently given if delivered personally or when deposited in the United
States mail as Certified Mail, return receipt requested, properly addressed and
postage prepaid, if to the Corporation, at its principal office at 1128 South
Main Street, Graham, North Carolina 27253, and, if to the Optionee, at his or
her last address appearing on the books of the Corporation. The Corporation and
the Optionee may change their address or addresses by giving written notice of
such change as provided herein. Any notice or other communication hereunder
shall be deemed to have been given on the date actually delivered or as of the
third (3rd) business day following the date mailed, as the case may be.

     15. Construction Controlled by Plan. This Agreement shall be construed so
as to be consistent with the Plan; and the provisions of the Plan shall be
deemed to be controlling in the event that any provision hereof should appear to
be inconsistent therewith. The Optionee hereby acknowledges receipt of a copy of
the Plan from the Corporation.

     16. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such 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.

     17. 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. No waiver hereunder shall constitute a waiver with respect to any
subsequent occurrence or other transaction hereunder or of any other provision
hereof.

                                       -12-

<PAGE>

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

     19. 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. The parties hereto agree that any suit or action relating to this
Agreement shall be instituted and prosecuted in the courts of Alamance County in
the State of North Carolina, and each party hereby does waive any right or
defense relating to such jurisdiction and venue.

     20. Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the Corporation, its successors and assigns, and shall be binding
upon and inure to the benefit of the Optionee, his heirs, legatees, personal
representatives, executors, and administrators.

     21. Entire Agreement. This Agreement constitutes and embodies 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.

     22. 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 but one and the same
instrument.

                                       -13-

<PAGE>

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

                                    UNITED FINANCIAL, INC.

                                    By: ________________________________
                                        William M. Griffith, Jr.

Attest:

________________________________________
________________, Corporate Secretary

[CORPORATE SEAL]

                                         _______________________________(SEAL)
                                         _____________________, Optionee

                                       -14-

<PAGE>

                                    EXHIBIT A

NOTICE OF EXERCISE OF
NONSTATUTORY STOCK OPTION

To:  The Board of Directors of United Financial, Inc.

     The undersigned hereby elects to purchase ________ whole shares of Common
Stock of United Financial, Inc. (the "Corporation") pursuant to the Nonstatutory
Stock Option granted to the undersigned in that certain Nonstatutory Stock
Option Agreement between the Corporation and the undersigned dated the ____ day
of _________, ____. The aggregate purchase price for such shares is
$_______________, which amount is (i) being tendered herewith, (ii) will be
tendered on or before _______________, _____, (cross out provision which does
not apply) in cash and/or stock of the Corporation owned by me, and I request
that a value as of the date of exercise of the Option be placed on any stock
being tendered in payment of the purchase price. The effective date of this
election shall be ____________________, ______, or the date of receipt of this
Notice by the Corporation if later.

     Executed this ___ day of ___________________, _____.

                                        ____________________________________
                                        By:  _______________________________

                                        ____________________________________
                                        (Social Security Number)

                                       -15-<PAGE>

                                  EXHIBIT 10.5

       Employment Agreement dated September 27, 2002 - Jeffrey A. Paolucci

<PAGE>

                                                                    EXHIBIT 10.5

                              EMPLOYMENT AGREEMENT

     This Agreement is made this 15th day of September, 2002, by and between
First Reliance Bank (hereinafter referred to as "Employer" or "Company") and
Jeffrey A. Paolucci (hereinafter referred to as "Employee").

                               W I T N E S S E T H

     WHEREAS, the parties hereto desire to provide for the Employee's employment
by the Employer.

     NOW THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:

     1. Employment. The Employer agrees to employ the Employee and the Employee
agrees to enter into the employ of the Employer on the terms and conditions
hereinafter set forth.

     2. Capacity and Duties. The Employee is being hired as a full-time employee
of the Employer primarily to perform those duties set forth in the job
description of Senior Vice President, Chief Financial Officer, Bank Executive,
which is incorporated herein as if fully set forth verbatim in this Agreement,
and such duties as assigned by the CEO. However, the Employer and Employee
affirm that the Employee's position and duties may change as dictated by the
needs of the Employer.

     3. Term. The term of the Employee's employment hereunder shall be for a
three year period commencing on the date set forth above, unless such term is
terminated earlier by and/or modified pursuant to Paragraph 8 herein. Upon the
conclusion of the three-year period, the parties may, but are not required to,
extend the Agreement in writing.

     4. Location. The Employee's central office shall be located at 2170 West
Palmetto Street, Florence, South Carolina 29501. However, the employee may be
required to perform tasks for the Employer at other physical locations as deemed
necessary by the Employer.

     5. Compensation. For services rendered by the Employee under this Agreement
during the first year, the Employer shall pay the Employee $95,000 per year
(hereinafter referred to as "Base Salary"). The Employee shall additionally be
entitled to the following benefits:

               .    Moving expenses incurred in relocating once from Chapin,
                    South Carolina to Florence, South Carolina up to $2,500.00
                    upon presentation of proper receipts.

               .    A signing bonus in the amount of $9,500.00.

                                  Page 1 of 7

<PAGE>

               .    Reimbursement for Employee's monthly dues at the Florence
                    Country club.

               .    Benefits including health insurance, dental insurance, life
                    insurance and disability insurance as set forth in the Plan
                    documents outlining the Employee Benefit Plan.* . An annual
                    bonus in an amount to be determined by the Employer.

*Any questions concerning coverage may be directed to the manger of human
resources.

     6. Deductions. Employee agrees and acknowledges that the Base Salary
provided for herein is subject to withholding and other taxes.

     7. Vacation and Sick Leave. After an initial 90 days of employment, the
Employee shall be entitled to three weeks of paid vacation for the first year.
The Employee shall be entitled to three weeks paid vacation in each year
thereafter. The Employee shall additionally be entitled paid holidays in
accordance with the Employer's Policies and Procedures as outlined in the
Employers' Employee Handbook. The Employee shall be entitled to sick days in
accordance with the Employer's Policies and Procedures as outlined in the
Employer's handbook.

     8. Termination. Notwithstanding Section 3 hereof, the term of the
Employee's employment hereunder shall terminate on the earlier of the
termination date provided for under Section 3 or under any of the paragraphs of
this Section 8 hereof.

       (a)    Death. In the event of the Employee's death, the Employee's
              employment shall terminate automatically, effective as of the date
              of death, and the Employer shall pay to the Employee's estate the
              Base Salary which would otherwise be paid to the Employee pursuant
              to the salary provisions of this Agreement up to the end of the
              month in which his death occurs.

       (b)    Disability. If the Employee, due to physical or mental illness,
              shall be unable to perform substantially all of his duties for a
              continuous period of three (3) months, either the Employee or the
              Employer may by notice terminate the Employee's employment under
              this Agreement effective as of a date thirty (30) days after the
              date such notice is given.

       (c)    Change in Control. In the event that a merger, consolidation,
              exchange, acquisition, any change in control as defined by the
              Banking Control Act, or change in beneficial ownership as
              evidenced by an individual or entity holding 50% or more of the
              combined voting power, occurs within three years from the
              effective date of the Agreement and the Employee's employment with
              the Employer has not been terminated pursuant to Paragraphs
              8(a)(b)(d)or (e):

                                   Page 2 of 7

<PAGE>

                     (i) the Agreement shall be renewed by the Employer's
                     successor for an additional three year period effective on
                     the date of the change in control, subject to the terms and
                     provisions set forth herein effective, or

                     (ii) the Employer may terminate the Employee, effective on
                     the date of the change in control, and pay the Employee his
                     most recent Base Salary along with the Benefits and Bonus
                     to which the Employee would otherwise be entitled for a
                     three year period beginning on the date of the change in
                     control.

       (d)    By The Employer For Cause. The Employee's employment may be
              terminated effective immediately by the Employer for "cause" by
              notice of termination to the Employee. "Cause" for such
              termination shall include, but not be limited to, the following:

              i)     Commission by the Employee of any fraud, misappropriation,
                     embezzlement or other dishonest act that may reasonably be
                     expected to have injurious effect on the Employer;

              ii)    The failure and/or refusal of the Employee to perform any
                     duties reasonably required of him, which is intended to
                     injure and/or injures the reputation, business or business
                     relationships of the Employer after written notification by
                     the Employer of such failure or refusal and the failure of
                     the Employee within thirty (30) business days of such
                     notification to correct such failure or refusal (other than
                     failure by reason of incapacity due to physical or mental
                     illness);

              iii)   Conviction of a crime involving dishonest or fraudulent
                     conduct; or

              iv)    Willful breach by the Employee of any of the covenants
                     contained in this Agreement.

       (e)    By the Employee or the Employer. During the term of this
              Agreement, either the Employee or the Employer may terminate the
              Agreement, for any or no reason, upon two weeks written notice to
              the other party. Employee shall be paid his Base Salary during the
              designated notice period, whether or not the Employer requires the
              Employee to work during the entire period and without regard to
              which party terminated the Agreement. Both the Employee and
              Employer agree that payment of this salary shall constitute an

                                   Page 3 of 7

<PAGE>

              agreed-upon termination and severance payment and that, based on
              the nature of Employee's duties, the notice period is reasonable
              and will provide for a proper and orderly transition of Employee's
              management responsibilities.

       (f).   Compensation Upon Termination. Except as provided in paragraphs
              8(a) and 8(c) hereof, all compensation shall cease immediately on
              termination of the Employee's employment hereunder.

       (g).   Reimbursement Upon Termination. Both the Employee and Employer
              agree that if the employment relationship is terminated pursuant
              to paragraphs 8(a)(b) or (d) prior to the conclusion of the three
              year term set forth in paragraph 3, the Employee shall be required
              to reimburse the Employer for the signing bonus set forth in
              paragraph 5 as follows:

                     (i)    if the employment relationship is terminated by
                            either party within the first year, the Employee
                            shall be required to reimburse the Employer in the
                            amount of $6,333.33.

                     (ii)   if the employment relationship is terminated by
                            either party during the second year, the Employee
                            shall be required to reimburse the Employer in the
                            amount of $3,166.66.

                     (iii)  if the employment relationship is terminated between
                            the second and third years, the Employee will be
                            required to reimburse the Employer for a pro-rata
                            share of the remaining $3,166.66.

     9. Assignment. This Agreement is personal and shall in no way be subject to
assignment by the Employee. It shall be binding upon and shall inure to the
benefit of the Employer and its successors and assigns, and its economic rights
and benefits shall inure to the benefit of the Employee or his heirs or duly
constituted legal representatives subject to Paragraph 17.

     10. Solicitations/Non-raid. Employee agrees for a period of one (1) year
after the termination or cessation of employment for any reason, he shall not
directly or indirectly as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, consultant, lender, or in any other
capacity whatsoever engage in the following activity or activities:

       (a)    Solicit Employees. The Employee shall not recruit, solicit or
              induce, or attempt to induce, any employee or employees of the
              Company to terminate their employment with, or otherwise cease
              their relationship with, the Company. The restrictions set forth
              in this section shall apply to any geographic area, market, or
              territory

                                   Page 4 to 7

<PAGE>

              covered by the Employee where the Company is actively conducting
              business or attempting to conduct business by engaging in
              activities such as contacting, serving, soliciting, selling, or
              marketing to customers, suppliers, or creditors.

       (b)    Solicit Customers. The Employee shall not solicit, divert or take
              away, or attempt to divert or to take away, the business or
              patronage of any of the Company's clients, customers or accounts
              which the Company conducted business with and the Employee
              personally dealt with during his employment with the Company. The
              restrictions set forth in this section shall apply to any
              geographic area, market, or territory covered by the Employee
              where the Company is actively conducting business or attempting to
              conduct business by engaging in activities such as contacting,
              serving, soliciting, selling, or marketing to customers,
              suppliers, or creditors.

       (c)    Solicit Potential Customers. The Employee shall not solicit,
              divert or take away, or attempt to divert or to take away, the
              business or patronage of any of the Company's prospective clients,
              customers or accounts, which the Employee personally had dealt
              with, contacted, solicited, or served, for the purpose of
              obtaining business for the Company, while he was employed with the
              Company. The restrictions set forth in this section shall apply to
              any geographic area, market, or territory covered by the Employee
              where the Company is actively conducting business or attempting to
              conduct business by engaging in activities such as contacting,
              serving, soliciting, selling, or marketing to customers,
              suppliers, or creditors.

     11. Disclosure of Financial Information. Employer recognizes Employee's
need for access to financial data and other related financial information.
Employer will provide any necessary financial, statistical, or other related
information to the Employee within a reasonable period of time. Employee will
treat financial and other information related to Employer as confidential.

     12. Severability. The parties agree that the Company can choose to enforce
the foregoing provisions (just as with all the provisions, sections, paragraphs,
and sentences of this Agreement) while enforcing or not enforcing any other
provision, section, paragraph, or sentence of this Agreement. Similarly, a court
can interpret or reform the foregoing provision (just as with all the
provisions, sections, paragraphs, and sentences of the Agreement) to make it
legally enforceable. Alternatively, a court can enforce or refuse to enforce the
foregoing provision (just as with all the provisions, sections, paragraphs, and
sentences of this Agreement) without affecting the legality or validity of the
remainder of the Agreement.

     13. Enforceability. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a duly authorized court of
competent

                                   Page 5 to 7

<PAGE>

jurisdiction, then the remainder of this Agreement, or the application
of such portion or provision in circumstances other than those as to which it is
so declared illegal or unenforceable, shall not be affected thereby and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.

     14. Notices. All notices and communications required or permitted to be
given hereunder shall be given by delivering the same in hand or by mailing the
same by certified or registered mail, return receipt requested, postage prepaid.
Notice shall be sent to the Employee at an address which is to be provided by
him to the Director of Human Resources, and which initially shall be:

         Jeffrey A. Paolucci
         612 Harborview Point
         Chapin, South Carolina 29036

         If to the Employer:

         F.R (Rick) Saunders, Jr.
         First Reliance Bank
         2710 West Palmetto Street
         Florence, South Carolina 29501

or such other address as either party shall have furnished to the other by like
notice. Notices shall be effective as of the date of such delivery or mailing.

     15. Entire Agreement. This Agreement constitutes the entire Agreement and
understanding between the parties in relation to the subject matter hereof.
There are no promises, representations, conditions, provisions, or terms related
thereto other than those set forth herein. This Agreement supersedes all
previous understandings, agreements, and representations between the Employer
and the Employee regarding the Employee's employment by the Employer, written or
oral. The Employer and the Employee further agree that any modification to the
Agreement must be in writing and signed by the Employer.

     16. Governing Law. This contract shall be construed under and be governed
in all respects by the laws of the State of South Carolina.

     17. Enforcement. In the event that a dispute arises between the Employer
and the Employee, the parties agree that each party shall be responsible for any
attorney's fees incurred in enforcing this Agreement. In the event there is a
change in control pursuant to paragraph 8(c), and a dispute arises between the
Employee and the Employer's successor, the losing party shall be responsible for
any attorney's fees incurred in enforcing the Agreement.

                                  Page 6 to 7

<PAGE>

     18. Drafting. Employer and Employee affirm that this Agreement is a result
of negotiations between the Employer and the Employee and neither party shall be
construed as the drafter.

     19. Waiver; Amendment. No waiver in any instance by any party of any
provision of this Agreement shall be deemed a waiver by such party of such
provision in any other instance or a waiver of any other provision hereunder in
any instance. This Agreement cannot be modified except in writing signed by the
party to be charged.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date forth above written.

                                              FIRST RELIANCE BANK

                                       By:    /s/ F. R. Saunders, Jr.
                                              ----------------------------------
                                       Title: President and CEO

                                              JEFFREY A. PAOLUCCI, EMPLOYEE

                                              /s/ Jeffrey A. Paolucci
                                              ----------------------------------
                                              Social Security Number:
                                                                      ----------

                                  Page 7 to 7

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