Document:

Exhibit 4.5

 

Cardinal State Bank

2000 Incentive Stock Option Plan

(as amended and restated May 26, 2005)

 

Cardinal State Bank, a North Carolina banking
corporation (hereinafter referred to as the “Bank”), does herein set forth the
terms of the Cardinal State Bank 2001 Incentive Stock Option Plan (hereinafter
referred to as this “Plan”) which was adopted by the Bank’s Board of Directors
(hereinafter referred to as the “Board”) subject to shareholder and regulatory
approval as provided in Paragraph 22 hereof.

 

1.             Purpose of the Plan.  The purpose of this Plan is to provide for
the grant of Incentive Stock Options (hereinafter referred to as “Option” or
“Options”) qualifying for the tax treatment afforded by Section 422 of the
Internal Revenue Code of 1986, as amended, to eligible officers and employees
of the Bank and its subsidiaries (hereinafter referred to as “Eligible
Employees”) who wish to invest in the Bank’s common stock (hereinafter referred
to as “Common Stock”).  The Bank believes
that participation in the ownership of the Bank by Eligible Employees will be
to the mutual benefit of the Bank and Eligible Employees.  The existence of this Plan will enhance the
Bank’s ability to attract capable individuals to employment in key employee
positions.

 

2.             Administration
of the Plan.

 

(a)           This
Plan shall be administered by the Compensation Committee of the Board
(hereinafter referred to as the “Committee”). 
The Committee shall consist of at least three (3) members of the Board
all of whom shall qualify as disinterested persons as provided in Section 16(b)
and the rules and regulations 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 subject to the
limitations set forth in Paragraph 11 of this Plan, the Option Price (as
hereinafter defined) for such shares and such additional terms and conditions
for such Options as the Committee deems appropriate.

 

(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
Board may designate any officers or employees of the Bank 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 deem fit.

 

3.             Shares
of Common Stock Subject to the Plan.  The maximum
number of shares of Common Stock that shall be available initially for Options
under this Plan is two hundred twenty six thousand one hundred twenty (226,120)
shares, subject to adjustment as provided in Paragraph 15 hereof.  Shares subject to Options which expire or
terminate prior to the issuance of the shares of Common Stock shall again be
available for future grants of Options under this Plan.

 

4.             Eligibility. 
Options under this Plan may be granted to any Eligible Employee as
determined by the Committee.  An
individual may hold more than one Option under this or other plans adopted by
the Bank.

 

5.             Grant
of Options.

 

(a)           The
Committee shall authorize that Options for shares of Common Stock shall be
granted to certain Eligible Employees of the Bank which Options shall be
granted based upon the past service and 

 

1

 

the continued participation of those individuals in the operations of
the Bank.  The allocation of said Options
shall be as determined by a majority vote of the Committee at one or more
meetings called for such purpose.

 

(b)           Upon
the forfeiture of an Option for whatever reason prior to the expiration of the
Option Period (as defined in Paragraph 10 hereof) 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 as provided in Subparagraph 2(b) hereof.

 

6.             Vesting
of Options.

 

(a)           Options
granted under this Plan shall vest and the right of an Optionee to exercise an
Option shall be nonforfeitable in accordance with the following schedule:

 

	
   

  	
   

  	
  Percentage of

  
	
  Date When Such Options Become Vested

  	
   

  	
  Such Options Vested

  
	
   

  	
   

  	
   

  
	
  Date
  of grant

  	
   

  	
  0%

  
	
  First
  Anniversary of the date of grant

  	
   

  	
  20%

  
	
  Second
  Anniversary of the date of grant

  	
   

  	
  20%

  
	
  Third
  Anniversary of the date of grant

  	
   

  	
  20%

  
	
  Fourth Anniversary of the date
  of grant

  	
   

  	
  20%

  
	
  Fifth Anniversary of the date
  of grant

  	
   

  	
  20%

  

 

(b)           In
determining the number of shares of Common Stock under each Option vested under
the above vesting schedule, an Optionee shall not be entitled to exercise an
Option to purchase a fractional number of shares of the Common Stock.  If the product resulting from multiplying the
vested percentage times the Option results in a fractional number of shares of
Common Stock, then an Optionee’s vested right shall be to the whole number of
shares of Common Stock disregarding any fractional shares of Common Stock.

 

(c)           In
the event that the employment of an Optionee at the Bank terminates for any
reason, other than the Optionee’s disability, death, retirement, or following a
“change in control” of the Bank, the Optionee’s Options under this Plan shall
be forfeited and shall be available again for grant to Eligible Employees as
may be determined by the Committee.  Such
forfeiture shall apply whether or not any such Options have been vested.

 

(d)           In the event that
the employment of an Optionee with the Bank should terminate because of such
Optionee’s disability, death, or retirement, or following a “change in control”
of the Bank prior to the date when all Options allocated to the Optionee would
be 100% vested in accordance with the applicable schedule in subparagraph 6(a)
above, then, notwithstanding the foregoing schedule in subparagraph 6(a) above,
all Options allocated to such Optionee shall immediately become fully vested
and nonforfeitable.  For purposes of this
Plan, the term disability shall be defined in the same manner as such term is
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended.  When used in this Plan, 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 Bank’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
Bank with one or more other entities in which the Bank is not the surviving
entity, or the transfer of all or substantially all of the assets or shares of
the Bank to another person or entity. Notwithstanding anything else herein, for
purposes of this Plan the term “change in control,” shall not include a
transaction approved by the Board which results in the Bank merging with,
transferring its assets to or becoming the subsidiary of a corporation newly
formed at the direction of the Board for the purpose of such transaction or
serving as a bank holding company for the Bank, and in connection with which
transaction the Bank’s shareholders (other than those who exercise statutory
rights of dissent and appraisal) become the holders of substantially all of the
voting stock of such corporation. 
Further, notwithstanding anything else herein, a transaction or event
shall not be 

 

2

 

considered a
change in control if, prior to the consummation or occurrence of such
transaction or event, the Optionee and the Bank agree in writing that the same
shall not be treated as a change in control for purposes of this Plan.

 

7.             Option
Price.

 

(a)           The
price per share of each Option granted under this Plan (hereinafter called the
“Option Price”) shall be determined by the Committee as of the effective date
of grant of such Option, but in no event shall the Option Price be less than
100% of the fair market value of Common Stock on the date of grant.  If an Optionee (as hereinafter defined) at
the time that an Option is granted owns stock possessing more than ten (10%)
percent of the total combined voting power of all classes of stock of the Bank,
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 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 (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 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, 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 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.

 

8.             Payment
of Option Price.  Payment for shares
subject to an Option may only be made in cash.

 

9.             Terms
and Conditions of Grant of Options.  Each Option
granted pursuant to this Plan shall be evidenced by a written Incentive Stock
Option Agreement (hereinafter referred to as “Option Agreement”) with each
Eligible Employee (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 Committee shall adopt a different form and, in each
case, may contain such other, different, or additional terms and conditions as
the Committee may determine. The Option shall terminate as provided in
paragraph 13 hereof.  In addition to any
further conditions provided herein and in the Option Agreement, the right of an
Optionee to exercise the Option to purchase the Option Shares, either in whole
or in part, shall be conditioned upon the completion by the Optionee of one (1)
full year of service in the employment of the Bank following the date of grant
of the Option.  Furthermore, Options
granted pursuant to this Plan shall be subject to the right of the North
Carolina Commissioner of Banks (the “Commissioner”) and the Federal Deposit
Insurance Corporation (“FDIC”) to direct the Bank to require an Optionee to
exercise or forfeit his or her stock rights if the Bank’s capital falls below
the minimum requirements, as determined by the Commissioner or FDIC.

 

3

 

10.          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.

 

11.          Limitation
on Grant of Incentive Stock Options.  No one
Optionee shall be granted more than 40% of the shares reserved for issuance
under this Plan pursuant to the provisions of Paragraph 3 hereof.  Moreover, notwithstanding any other provision
of this Plan, no person shall be granted an Option under this Plan which would
cause such person’s “annual vesting amount” to exceed $100,000.00.  With respect to any calendar year, a person’s
“annual vesting amount” is the aggregate fair market value of stock subject to
incentive stock options with respect to which such options are first
exercisable during such calendar year. 
For purposes of the foregoing, the aggregate fair market value of stock with
respect to which incentive stock options are first exercisable during any
calendar year shall be determined by taking into account all such options
granted to such person under all incentive stock option plans of the Bank.

 

12.          Exercise
of Incentive Stock Options.  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.  In the exercise of an Option, the aggregate
Option Price for the shares being purchased may only be paid in cash and must
be accompanied by a notice of exercise. 
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.  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
Bank for such shares.

 

13.          Effect of Termination of
Employment, Retirement, Disability or Death.

 

(a)           In
the event of the termination of employment of an Optionee either by reason of
(i) being discharged for cause or (ii) termination of employment for a reason
other than the Optionee’s death, retirement, disability, or following a “change
in control” of the Bank (as defined in Paragraph 6(d)), any Option or Options
granted to the Optionee under this Plan, to the extent not previously exercised
or expired, and regardless of any vesting pursuant to Paragraph 6 hereof, shall
immediately terminate.  The phrase
“discharged for cause” shall include termination at the sole discretion of the
Board because of such Optionee’s personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses), a final cease
and desist order, or material breach of any provision of any employment
agreement that such Optionee may have with the Bank.

 

(b)           In
the event of the termination of employment of an Optionee as a result of such
Optionee’s retirement, all Options granted such Optionee shall vest and such
Optionee shall have the right to exercise an Option granted under this Plan, to
the extent that it has not previously been exercised or expired, for a period
of three (3) months after the date of retirement, but in no event may any
Option be exercised later than the end of the Option Period provided in such
Option Agreement in accordance with Paragraph 10 hereof.  For purposes of this Plan, the term
“retirement” shall mean, subject to Board approval in each instance, (i)
termination of an Optionee’s employment under conditions which would constitute
retirement under any tax qualified retirement plan maintained by the Bank or
any of its subsidiaries or (ii) attaining age 65.

 

(c)           In
the event of the termination of employment of an Optionee by reason of such
Optionee’s disability, all Options granted such Optionee shall vest and such
Optionee shall have the right to exercise an Option granted under this Plan, to
the extent that it has not previously been exercised or expired, at any time
within twelve (12) months after the last date on which such Optionee provides
services as an officer or an employee 

 

4

 

of the Bank before being disabled, but in no event may any Option be
exercised later than the end of the Option Period provided in such Option
Agreement in accordance with Paragraph 10 hereof.  For purposes of this Plan, the term
“disability” shall be defined in the same manner as such term is defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.

 

(d)           Notwithstanding
anything else herein, in the event that an Optionee should die (i) while
employed by the Bank or any of its subsidiaries, (ii) within three (3) months
after retirement, (iii) within three (3) months after Optionee’s termination
following a change in control, or (iv) within twelve (12) months after
Optionee’s termination by reason of Optionee’s disability, any Option or
Options granted to the Optionee under this Plan and not previously exercised or
expired shall vest and shall be exercisable, according to their respective
terms, by the personal representative of such Optionee or by any person or
persons who acquired such Options by bequest or inheritance from such Optionee,
notwithstanding any limitations placed on the exercise of such Options by this
Plan or an Option Agreement, immediately in full and at any time within twelve
(12) months after the date of death of such Optionee, but in no event may any
Option be exercised later than the end of the Option Period provided in such
Option Agreement in accordance with Paragraph 10 hereof.  Any references herein to an Optionee shall be
deemed to include any person entitled to exercise an Option under the terms of
this Plan after the death of such Optionee under the terms of this Plan.

 

(e)           In
the event of the termination of employment of an Optionee following a “change
in control” of the Bank (as defined in Paragraph 6(d)), all Options granted
such Optionee shall vest and such Optionee shall have the right to exercise any
Option or Options granted to the Optionee under this Plan, to the extent they
have not previously been exercised or expired, for a period of three (3) months
after the date of termination, but in no event may any Option be exercised
later than the end of the Option period provided in such Option Agreement in
accordance with Paragraph 10 hereof.

 

14.          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 Bank or to a position
as an officer or an employee of the Bank, nor shall it limit the right of the
Bank to remove such Optionee from any position held by the Optionee or to
terminate the Optionee’s employment at any time.

 

15.          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 Committee 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 unexercised Options under this Plan.  The adjustments to be made shall be
determined by the Committee and shall be consistent with such change or changes
in the Bank’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 Bank or its shareholders to make or authorize any adjustment,
recapitalization, reorganization, or other change in the Bank’s capital
structure or its business, or any merger or consolidation of the Bank, 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 Bank, or any sale or transfer of all or any part of the Bank’s assets or
business.

 

(c)           Except
upon a “change in control” as defined in Paragraph 6(d) hereof, upon the
effective date of the dissolution or liquidation of the Bank, this Plan and any
Options granted hereunder, shall terminate.

 

16.          Non-Transferability. 
Any Option granted under this Plan shall not be assignable or
transferable except, in the case 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, 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 

 

5

 

exercise any Option or portion thereof to the extent not previously
exercised by an Optionee or expired, in accordance with its terms and
Subparagraph 13(d) hereof.

 

17.          Tax
Withholding.  The employer of a person granted an Option
under this Plan 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 Option in order for the employer to obtain a tax deduction otherwise
available as a consequence of such grant, exercise or sale, as the case may be.

 

18.          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 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 Committee.

 

19.          Exculpation
and Indemnification.  In connection with this Plan,
no member of the Committee shall be personally liable for any act or omission
to act in such person’s capacity as a member of the Committee, 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 Bank shall indemnify and hold harmless
the members of the Committee, and each other officer or employee of the Bank or
of any subsidiary thereof 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.

 

20.          Amendment
and Modification of the 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 of Common Stock 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 two-thirds (2/3) of the issued and
outstanding shares of Common Stock and the amended Plan is approved by the
Commissioner.   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 transferee thereof in the event of the death of such
Optionee.

 

21.          Termination
and Expiration of the 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 22 hereof.

 

22.          Effective
Date; Shareholder Approval; Regulatory Approval. 
This Plan shall not be effective until approved by the holders of
two-thirds of the issued and outstanding shares of Common Stock present or
represented at an annual or special meeting (the “Effective Date”) and the Plan
is approved by the North Carolina Commissioner of Banks.

 

23.          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.

 

6

 

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

 

25.          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.

 

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

 

7

 

	
  STATE OF NORTH CAROLINA

  	
   

  	
  EXHIBIT A

  
	
  COUNTY OF DURHAM

  	
   

  	
   

  

 

INCENTIVE STOCK OPTION AGREEMENT

 

THIS INCENTIVE STOCK OPTION AGREEMENT (hereinafter
referred to as this “Agreement”) is made and entered into as of this      day of       ,    
, between CARDINAL STATE BANK, a North Carolina Bank (hereinafter
referred to as the “Bank”), and          
a resident of Durham County, North Carolina (hereinafter referred to as
the “Optionee”).

 

WHEREAS, the Board of Directors of the Bank
(hereinafter referred to as the “Board”) has adopted the Cardinal State Bank
2001 Incentive Stock Option Plan (hereinafter 
referred to as the “Plan”) subject to approval by the Bank’s
shareholders and the North Carolina Commissioner of Banks; and

 

WHEREAS, the shareholders of the Bank at an annual
meeting duly called and held on September 12, 2001, approved the Plan (the
“Effective Date”); and

 

WHEREAS, the Plan provides that the Compensation
Committee (hereinafter referred to as the “Committee”) of the Board will make
available to certain officers and employees of the Bank and its subsidiaries
(the “Employer”) the right to purchase shares of the Bank’s common stock
(hereinafter referred to as “Common Stock”); and

 

WHEREAS, the Committee has determined that the
Optionee should be granted an option to purchase shares of Common Stock under
the Plan;

 

NOW, THEREFORE, the Bank 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 Bank grants to the Optionee the right
(hereinafter referred to as the “Option”) to purchase from the Bank all or any
part of an aggregate of            
shares of Common Stock (hereinafter referred to as the “Option Shares”)
which shall be authorized but unissued shares.

 

3.             Vesting of Options.

 

(a)           Periodic
Vesting.  Subject to subparagraphs
3(b) and 3(c) below, the Option shall vest and become exercisable in accordance
with the following schedule:

 

	
  Date of grant

  	
   

  	
  0%

  
	
  First Anniversary of the date of grant

  	
   

  	
  20%

  
	
  Second Anniversary of the date of grant

  	
   

  	
  20%

  
	
  Third Anniversary of the date of grant

  	
   

  	
  20%

  
	
  Fourth Anniversary of the date of grant

  	
   

  	
  20%

  
	
  Fifth Anniversary of the date of grant

  	
   

  	
  20%

  

 

(b)  Fractional Option Shares.  In determining the number of Option Shares
vested under the above vesting schedule, an Optionee shall not be entitled to
exercise an Option for a fractional number of Option Shares.  If the product resulting from multiplying the
vested percentage times the allocated Option results in a fractional number of
Option Shares, then the Optionee’s vested right shall be to the whole number of
Option Shares, disregarding any fractional number.

 

8

 

(c)           Accelerated Vesting.  Notwithstanding paragraph 3(a) above, all
Options previously not vested and subject to forfeiture shall become 100%
vested and the right of the Optionee to exercise such Options shall become
nonforfeitable upon the death, disability or retirement of the Optionee, or
upon a “change in control” of the Bank. 
For purposes of this Agreement, the term “disability” shall be defined
in the same manner as such term is defined in Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended (the “Code”).

 

(d)           Other
Terminations of Employment.  In the
event any Optionee’s employment with the Bank terminates for any reason, other
than the Optionee’s death, disability, retirement, or following a change in
control of the Bank, then the Optionee’s Options, to the extent unexercised,
shall be forfeited and shall be available again for grant to other officers and
employees as may be determined by the Committee.  Such forfeiture shall apply whether or not
any such options have vested.

 

4.             Option
Price.  The price to
be paid for the Option Shares shall be          
per share (hereinafter referred to as the “Option Price”) which is the
fair market value of the Option Shares as determined by the Committee as of the
date of grant of this Option.

 

5.             When
and Extent to which Options may be Exercised.  Subject to any further restrictions in this
Agreement, the right of the Optionee to exercise the Option to purchase the
Option Shares, either in whole or in part, shall be conditioned upon the
completion by the Optionee of one (1) full year of service in the employment of
the Employer following the date of grant of the Option set forth in paragraph 1
hereof.  At such time as the Option shall
become exercisable in accordance with this Agreement, the Optionee, in his
discretion, may exercise all or any portion of the Option, subject to
paragraphs 3 and 7 hereof.  The Option
shall terminate as provided in paragraph 8 hereof.  Furthermore and notwithstanding anything else
herein, Options granted pursuant to this Plan shall be subject to the right of
the North Carolina Commissioner of Banks (the “Commissioner”) and the Federal
Deposit Insurance Corporation (the “FDIC”) to direct the Bank to require an
Optionee to exercise or forfeit his or her stock rights if the Bank’s capital falls
below the minimum requirements, as determined by the Commissioner or FDIC.

 

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 Bank’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 Bank with one or more other entities in which the Bank is
not the surviving entity, or the transfer of all or substantially all of the
assets or shares of the Bank to another person or entity. Notwithstanding
anything else herein, for purposes of this Agreement the term “change in
control,” shall not include a transaction approved by the Board which results
in the Bank merging with, transferring its assets to or becoming the subsidiary
of a corporation newly formed at the direction of the Board for the purpose of
such transaction or serving as a bank holding company for the Bank, and in
connection with which transaction the Bank’s shareholders (other than those who
exercise statutory rights of dissent and appraisal) become the holders of
substantially all of the voting stock of such corporation.  Further, notwithstanding anything else
herein, a transaction or event shall not be considered a change in control if,
prior to the consummation or occurrence of such transaction or event, the
Optionee and the Bank agree in writing that the same shall not be treated as a
change in control for purposes of this Agreement.

 

7.             Method
of Exercise.  The
Option shall be exercised by written notice to the Committee 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 only be paid in
cash and must be accompanied by a notice of exercise.  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.  The Optionee shall not exercise the Option to
purchase less than one hundred (100) shares, unless the Committee 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

 

9

 

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 Bank for such shares.

 

8.             Termination of Option.  The Option shall terminate as
follows:

 

(a)           Except as provided in subparagraphs (b), (c), (d) and (e) below,
the Option granted under this Agreement, to the extent that it has not been
exercised or expired, and regardless of any vesting pursuant to paragraph 3
hereof, shall terminate on the earlier of (i) the date that the Optionee
is discharged for cause, (ii) the date the Optionee gives notice that the Optionee
terminates his or her employment with the Employer for a reason other than
retirement or disability or following a “change in control” of the Bank or (iii) the
date which is ten (10) years from the date of grant of the Option set
forth in paragraph 1 hereof.  Options
which terminate within ten (10) years from the date of grant set forth in
paragraph 1 shall be available again for grant to certain officers and
employees as may be determined by the Committee.  The phrase “discharged for cause” shall include
termination at the sole discretion of the Board of Directors of the Employer of
the Optionee because of the Optionee’s personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or a final cease
and desist order, or material breach of any provision of any employment
agreement that the Optionee may have with the Employer.

 

(b)           In the event the Optionee retires prior to the date which is ten (10) years
after the date of grant of the Option, the Optionee shall have the right to
exercise the Option, to the extent that it has not been exercised by the
Optionee or expired, immediately in full and at any time within three (3) months
after the date of retirement, but in no event may the Option be exercised later
than ten (10) years after the date of grant of the Option set forth in
paragraph 1 hereof.  For purposes of
this Agreement, the term “retirement” shall mean, subject to Board approval in
each instance, (i) termination of the Optionee’s employment under
conditions which would constitute retirement under any tax qualified retirement
plan maintained by the Employer or (ii) attaining age 65.

 

(c)           In the event the Optionee becomes disabled prior to the date which is ten
(10) years after the date of grant of the Option, the Optionee shall have
the right to exercise the Option, to the extent that it has not been exercised
by the Optionee or expired, notwithstanding any limitation placed on the
exercise of the Option by the Plan or by this Agreement, immediately in full
and at any time within twelve (12) months after the last date on which the
Optionee provided services as an officer or an employee of the Employer before
being disabled, but in no event may the Option be exercised later than ten (10) years
after the date of grant of the Option set forth in paragraph 1
hereof.  For purposes of this Agreement,
the term “disability” shall be defined in the same manner as such term is
defined in Section 22(e)(3) of the Code.

 

(d)           Notwithstanding anything else herein, in the event that an Optionee
should die (i) while employed by the Bank or any of its subsidiaries, (ii) within
three (3) months after retirement, (iii) within three (3) months
after Optionee’s termination following a change in control, or (iv) within
twelve (12) months after Optionee’s termination by reason of Optionee’s
disability, the Option, to the extent it has not been exercised by the Optionee
or expired, shall be exercisable, according to its terms, by the personal
representative, the executor or administrator of the Optionee’s estate, or any
person or persons who acquired the Option by bequest or inheritance from the
Optionee, notwithstanding any limitation placed on the exercise of the Option
by the Plan or by this Agreement, immediately in full and 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 from the
date of grant of the Option as set forth in paragraph 1 hereof.

 

(e)           In the event the Optionee’s employment with the Employer is terminated
following a “change in control” of the Bank, the Optionee shall have the right
to exercise the Option, to the extent that it has not been exercised by the
Optionee or expired, immediately in full and at any time within three (3) months
after the date of termination, but in no event may the Option be exercised
later than ten (10) years after the date of grant of the Options set forth
in paragraph 1 hereof.

 

9.             Effect of Agreement on Employment
Status of Optionee.  The fact
that the Committee has granted the Option to the Optionee under this Agreement
shall not confer on the Optionee any right to employment with the Employer or
to a position as an officer or an employee of the Employer, nor shall it limit
the

 

10

 

right of the Employer to remove the Optionee from any position held by
the Optionee or to terminate his or her employment at any time.

 

10.          Listing and Registration of
Option Shares.

 

(a)           The Bank’s obligation to issue shares of Common Stock upon exercise of
the Option is expressly conditioned upon (i) the completion by the Bank of
any registration or other qualification of such shares under any state or
federal law or regulations or rulings of any government regulatory body or (ii) 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 Committee
shall, in its sole discretion, deem necessary or advisable.  Notwithstanding the foregoing, the Bank 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 Committee
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 Bank 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 Change 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 Committee
in the number, kind, and the Option Price of shares subject to the unexercised
portion of the Option granted under this Agreement.  The adjustments to be made shall be
determined by the Committee and shall be consistent with such change or changes
in the Bank’s total number of outstanding shares; provided, however,
that no adjustment shall change the aggregate Option Price for the exercise of
the Option granted under this Agreement.

 

(b)           The grant of the Option under this Agreement shall not affect in any way
the right or power of the Bank or its shareholders to make or authorize any
adjustment, recapitalization, reorganization, or other change in the Bank’s
capital structure or its business, or any merger or consolidation of the Bank,
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 Bank, or any sale or transfer of all or any part of the Bank’s assets or
business.

 

(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 Bank, the Option
granted under this Agreement shall terminate.

 

12.          Nontransferability.  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 a portion
thereof, in accordance with the terms of this Agreement, prior to the date
which is ten (10) years after the date of grant of Option as set forth in
paragraph 1 hereof.

 

13.          Notices.  Any notice 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 when delivered personally or
when deposited in the United States mail as Certified Mail, return receipt
requested, properly addressed with postage prepaid, if to the Bank at its
principal office at 3710 University Drive, Suite 100, Durham, North
Carolina 27707; and, if to the Optionee to his or her last address
appearing on the books of the Employer. 
The Employer and the Optionee may change their address or addresses by
giving written notice of such change as provided herein.  Any

 

11

 

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.

 

14.          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 Bank.

 

15.          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
provisions 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.

 

16.          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 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.

 

17.          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 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.

 

18.          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 the County of Durham, State of
North Carolina, and each party hereby does waive any right or defense relating
to such jurisdiction and venue.

 

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

 

20.          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.

 

21.          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.

 

12

 

IN WITNESS WHEREOF, the Bank, has caused this instrument to be
executed in its corporate name by its Chairman and attested by its Secretary,
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.

 

	
   

  	
  CARDINAL STATE BANK

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Dan Hill, III Chairman

  
	
   

  	
   

  	
   

  
	
  ATTEST:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  W. Harold Parker, Jr., Secretary

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  [CORPORATE SEAL]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OPTIONEE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  (SEAL)

  

 

13

 

EXHIBIT A

 

NOTICE OF EXERCISE OF

INCENTIVE STOCK OPTION

 

To:          The Compensation Committee of the Board of Directors of Cardinal State
Bank

 

The undersigned hereby elects to purchase                  whole shares of Common Stock
of Cardinal State Bank (the “Bank”) pursuant to the Incentive Stock Option
granted to the undersigned in that certain Incentive Stock Option Agreement
between the Bank and the undersigned dated the                                day of                   , 20    . 
The aggregate purchase price for such Shares is $                        , which amount is (i)
being tendered herewith, (ii) will be tendered on or before                                   , 20     (cross out provision which does not apply)
in cash.  The effective date of this
election shall be                                         ,
20    , or the date of receipt of this
Notice by the Bank if later.

 

Executed this
                    
day of
                                  ,
20    , at
                                          .

 

 

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Social Security Number)

  

 

14

 

AMENDMENT TO

CARDINAL STATE BANK

2001 INCENTIVE STOCK OPTION PLAN

(As Amended and Restated May 26, 2005)

 

WHEREAS, Cardinal State Bank (the “Bank”) is the sponsor of the
Cardinal State Bank 2001 Incentive Stock Option Plan (As Amended and Restated
May 26, 2005) (the “Plan”); and

 

WHEREAS, the Bank desires to amend the Plan, effective as of January 1,
2005, to comply with the American Jobs Creation Act of 2004, Internal Revenue
Code §409A, including regulations and guidance issued thereunder.

 

NOW THEREFORE, the Plan is amended as follows:

 

WITNESSETH

 

1.                                       For purposes of the Plan, the phrase “Section 409A”
shall mean Internal Revenue Code Section 409A, as amended, including
regulations and guidance issued thereunder (“Section 409A”).

 

2.                                       Section 1 is amended by deleting the first
sentence thereof and replacing it with the following replacement sentence:

 

“The purpose of this Plan is to provide for the grant of Incentive
Stock Options (hereinafter referred to as “Option” or “Options”) qualifying for
the tax treatment afforded by Section of the Internal Revenue Code of 1986, as
amended, to eligible officers and employees of the Bank, or a parent
corporation or subsidiary corporation (as such terms are defined in Code
Sections 424(e) and(f)) (hereinafter referred to as “Eligible Employees”) who
wish to invest in the Bank’s common stock (hereinafter referred to as “Common
Stock”).

 

3.                                       Section 7(b) is amended by deleting Section 7(b) in
its entirety and replacing it with the following replacement Section 7(b) as
follows:

 

“(b) The fair market value of a share of Common Stock
means the value of a share of Common Stock determined consistent with the
requirements of Section 422 of the Code at the time of the valuation.  As of the date of the adoption of this
Amendment to the Plan, Section 422 provides the following definitions
(through regulations issued under Section 422 that incorporate by
reference Treasury Regulation §20.2031-2), as applicable:  (i) if, on the applicable date, there is
a market for the Common Stock on a stock exchange, in an over-the-counter
market, or otherwise, the value of a share of Common Stock shall be deemed to
be equal to the mean between the highest and lowest quoted selling prices on
the valuation date; (ii) if, on the applicable date, there were no sales
of Common Stock but there were sales on dates within a reasonable period both
before and after the valuation date, the fair market value shall be determined
by taking a weighted average of the means between the highest and lowest sales
on the nearest date before and the nearest date after the valuation date, with
the average weighted inversely by the respective number of trading days between
the selling dates and the valuation date; (iii) if actual sales are not
available during a reasonable period beginning before and ending after the
valuation date, the fair market value shall be determined by taking the mean
between the bona fide bid and asked prices on the valuation date, or if none,
by taking a weighted average of the means between the bona fide bid and asked
prices on the nearest trading date before and the nearest trading date after
the valuation date, if both such nearest dates are within a reasonable period,
with the average weighted as provided in Section 7(b)(ii) above; (iv) if
no actual sales prices or bona fide bid and asked prices are available on a
date within a reasonable period before the valuation date, but such prices are
available on a date within a reasonable period after the valuation date (or
vice versa), then the mean between the highest and lowest available sales price
or bid and asked prices may be taken as the value; (v) if it is
established that the value of Common Stock determined as provided in Sections
7(b)(i) through 7(b)(iv) does not reflect the fair market value of
the Common Stock, then some 

 

15

 

reasonable modification
of that basis or other relevant facts and elements of value shall be considered
in determining the fair market value; (vi) if Sections 7(b) (i) through
7(b)(iv) are not applicable, then the fair market value shall be determined by
taking into account the Company’s net worth, prospective earning power and
dividend-paying capacity, and other relevant factors, including the goodwill of
the business, the economic outlook in the particular industry, the Company’s
position in the industry and its management, the degree of control of the
business represented by the block of Common Stock to be valued, the values of
securities of corporations engaged in the same or similar lines of business
which are listed on a stock exchange or the over-the-counter market, and
various nonoperating assets as provided for in Treasury Regulation
§20.2031-2(f).”

 

4.                                       Section 10 is amended, by deleting the
period at the end of Section 10 and adding the following phrase as the
last phrase of the sentence:

 

“, and subject to the provisions of Section 7(a) regarding
ten percent shareholders.”

 

5.                                       Section 20 is amended by adding the
following sentence as the last sentence of Section 20 as follows:  “Provided, however, that, to the extent Section 409A
applies to the Plan, any amendment or modification shall not be effective
unless it complies with Section 409A.”

 

6.                                       Section 21 is amended by adding the
following sentence as the last sentence of Section 21 as follows:  “Further provided, that, to the extent Section 409A
applies to the Plan, any termination or modification of this Agreement shall
not be adopted unless it complies with Section 409A.”

 

7.                                       A new Section 27 is added as follows:

 

“27.        Compliance
with Section 409A.  It is intended that this Plan meet the requirements of the Section 409A
exemption for option plans such that Section 409A does not apply to the
Plan.  However, to the extent that the
Board determines that any Option granted under this Plan is subject to Section 409A,
the Option Agreement evidencing such Option shall incorporate the terms and
conditions required by Section 409A. 
To the extent applicable, the Plan and Option Agreements shall be
interpreted in accordance with Section 409A.  Notwithstanding any provision of the Plan to
the contrary, in the event that, following the effective date, the Board
determines that any Option may be subject to Section 409A, the Board may
adopt such amendments to the Plan and the applicable Option Agreement or adopt
other policies and procedures (including amendments, policies and procedures
with retroactive effect), or take any other actions, that the Board determines
are necessary or appropriate to (1) exempt the Option from Section 409A
and/or preserve the intended tax treatment of the benefits provided with
respect to the Option, or (2) comply with the requirements of Section 409A.”

 

In all other respects, the Plan shall remain unchanged and in full force
and effect.

 

IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date indicated below.

 

	
   

  	
  CARDINAL STATE BANK,

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Its:

  	
   

  
	
   

  	
  Date:
                              ,
  2007

  
	
   

  	
   

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
             Secretary

  	
   

  

 

16Exhibit 4.6

 

CARDINAL
STATE BANK

2001 NONSTATUTORY STOCK OPTION PLAN

(As Amended and Restated May 26, 2005)

 

Cardinal State Bank, a North Carolina banking
corporation (hereinafter referred to as the “Bank”), does herein set forth the
terms of the Cardinal State Bank 2001 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 Bank subject to
shareholder and regulatory approval as provided in paragraph 21 hereof.

 

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 Bank who wish to invest in the Bank’s
common stock (hereinafter referred to as “Common Stock”).  The Board believes that participation in the
ownership of the Bank by the Eligible Directors will be to the mutual benefit
of the Bank and the Eligible Directors. 
In addition, the existence of this Plan will make it possible for the
Bank to attract capable individuals to serve on the Board.  As used herein, the term “Eligible Directors”
or singularly, “Eligible Director,” shall mean members of the Board of
Directors of the Bank serving at the time of adoption of this Plan or who may
serve thereon from time to time.

 

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 Bank 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 two hundred twenty six thousand one hundred twenty (226,120) shares, subject
to adjustment as provided in paragraph 14. 
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; Grant of Options.  Each Eligible
Director serving on the Board shall receive an Option to purchase shares of
Common Stock in the amount as shall be determined by the Board of Directors by
a majority vote.  Any Options not granted
hereby may be reserved for future issuance by a majority vote of the entire
Board.

 

5.             Vesting of Options.  Options
granted under this Plan shall become vested as follows:

 

i.              Fifty percent (50%) upon date of grant;

ii.             Twenty-five percent (25%) upon first anniversary
of date of grant; and

iii.            Twenty-five percent (25%) upon second anniversary
of 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).

 

1

 

(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 only be made in cash.

 

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. The Option shall terminate as
provided in paragraph 12 hereof. 
Furthermore, Options granted pursuant to this Plan shall be subject to
the right of the North Carolina Commissioner of Banks (the “Commissioner”) and
the Federal Deposit Insurance Corporation (“FDIC”) to direct the Bank to
require an Optionee to exercise or forfeit his or her stock rights if the Bank’s
capital falls below the minimum requirements, as determined by the Commissioner
or FDIC.

 

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.          Limitation on Grant of Stock
Options.   No one individual shall be granted Options under this Plan in excess of
40% of the shares reserved for issuance pursuant to Paragraph 3 hereof.

 

11.          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 only be paid in cash
and must be accompanied by a notice of exercise.  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 Bank for such shares.

 

2

 

12.          Effect of Leaving the Board.

 

(a)           In the event that an Optionee leaves the Board for any reason other than
retirement, disability, death, or following a “change in control” of the Bank
(as defined in paragraph 12(e)) any Option granted to the Optionee under this
Plan, to the extent not previously exercised by the Optionee or expired, and
notwithstanding that any Options have vested hereunder, shall immediately
terminate and shall be available again for the granting of additional options
to Eligible Directors during the remaining term of this Plan upon such terms
and conditions as may be determined by the Board.

 

(b)           In the event that an Optionee should leave the Board as a result of such
Optionee’s retirement, all Options granted such Optionee shall vest and such
Optionee shall have the right to exercise any Options granted under this Plan,
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 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 (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, such service shall be computed cumulatively
for purposes of this clause (ii).

 

(c)           In the event that an Optionee should leave the Board by reason of such
Optionee’s disability, all Options granted such Optionee shall vest and such
Optionee shall have the right to exercise any Options granted under this Plan,
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
after leaving by reason of disability or retirement or following 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 vest and 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 as
a result of a “change in control” of the Bank, all Options granted such
Optionee shall vest and the Optionee shall have the right to exercise any
Options granted under this Plan, to the extent that they have 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 Options 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 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
percent (25%) of the Bank’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 Bank
with one or more other entities in which the Bank is not the surviving entity,
or the transfer of all or substantially all of the assets or shares of the Bank
to another person or entity. Notwithstanding anything else herein, for purposes
of this Plan the term “change in control” shall not include a transaction
approved by the Board which results in the Bank merging with, transferring its
assets to or becoming the subsidiary of a corporation newly formed at the
direction of the Board for the purpose of such transaction or serving as a bank
holding company for the Bank, and in connection with which transaction the Bank’s
shareholders (other than those who exercise statutory rights of dissent and
appraisal) become the holders of substantially all of the voting stock of

 

3

 

such
corporation.  Further, notwithstanding
anything else herein, a transaction or event shall not be considered a change
in control if, prior to the consummation or occurrence of such transaction or
event, the Optionee and the Bank agree in writing that the same shall not be
treated as a change in control for purposes of this Plan.

 

13.          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,
nor shall it limit the right of the Bank to remove such Eligible Director from
the Board at any time.

 

14.          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 Bank’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 Bank or its shareholders to make or authorize any
adjustment, recapitalization, reorganization, or other change in the Bank’s
capital structure or its business, or any merger or consolidation of the Bank,
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 Bank, or any sale or transfer of all or any part of the Bank’s assets or
business.

 

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

 

15.          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 exercisable or surrendered by an
Optionee or expired, in accordance with its terms, prior to the expiration of
the exercise period as specified in subparagraph 12(d) hereof.

 

16.          Tax Withholding.  The Bank
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 Option in order for the Bank 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.

 

17.          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.

 

18.          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 Bank shall indemnify and
hold harmless the members of the Board, and each other officer or employee of
the Bank 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

 

4

 

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.

 

19.          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 two
thirds (2/3) of the issued and outstanding shares of Common Stock and the
amended Plan is approved by the Commissioner. 
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 transferee in the event of the
death of such Optionee.

 

20.          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 21 hereof.

 

21.          Effective Date; Shareholder
Approval; Regulatory Approval.  This Plan shall not be effective until
approved by the holders of two-thirds of the issued and outstanding shares of Common
Stock present or represented at an annual or special shareholders’ meeting (the
“Effective Date”) and approved by the North Carolina Commissioner of Banks.

 

22.          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.

 

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

 

24.          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.

 

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

 

5

 

	
  STATE OF NORTH CAROLINA

  	
   

  	
  EXHIBIT A

  

COUNTY OF DURHAM

 

NONSTATUTORY
STOCK OPTION AGREEMENT

 

THIS NONSTATUTORY STOCK OPTION AGREEMENT
(hereinafter referred to as this “Agreement”) is made and entered into as of
this       ,
between CARDINAL STATE BANK, a North Carolina Bank (hereinafter referred to as
the “Bank”), and         ,
a resident of Orange County, North Carolina (hereinafter referred to as the
“Optionee”).

 

WHEREAS, the Board of Directors of the Bank
(hereinafter referred to as the “Board”) has adopted the Cardinal State Bank
2001 Nonstatutory Stock Option Plan (hereinafter referred to as the “Plan”)
subject to approval by the Bank’s shareholders as provided in the Plan; and

 

WHEREAS, the shareholders of the Bank at an
annual meeting duly called and held on September 12, 2001, approved the
Plan (the “Effective Date”) and the North Carolina Commissioner of Banks has
approved the Plan; and

 

WHEREAS, the Plan provides that the Board
will make available to the Directors (as defined in the Plan) of the Bank, the
right to purchase shares of the Bank’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 Bank 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     th day of
)      ,       .

 

2.             Grant of Option.  Pursuant to the Plan, the Bank grants to the
Optionee the right (hereinafter referred to as the “Option”) to purchase from
the Bank 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.  The Option shall fully vest as follows:

 

i               Fifty
percent (50%) upon date of grant;

ii              Twenty-five percent
(25%) upon first anniversary of date of grant; and

iii             Twenty-five percent
(25%) upon second anniversary of date of grant.

 

4.             Option Price.  The price to be paid for the Option Shares
shall be               
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.

 

5.             When and Extent to
Which Options may be Exercised . 
At such time as the Option shall become exercisable in accordance with
this Agreement, the Optionee, in his 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.  Furthermore, Options
granted pursuant to this Plan shall be subject to the right of the North
Carolina Commissioner of Banks (the “Commissioner”) and the Federal Deposit
Insurance Corporation (the “FDIC”) to direct the Bank to require an Optionee to
exercise or forfeit his or her stock rights if the Bank’s capital falls below
the minimum requirements, as determined by the Commissioner or the FDIC.

 

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 Bank’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 Bank with one or more other Banks in which the Bank is not
the surviving Bank, or the transfer of all or substantially all of

 

6

 

the assets or shares of the Bank to another person or entity.
Notwithstanding anything else herein, for purposes of this Plan the term
“change in control” shall not include a transaction approved by the Board which
results in the Bank merging with, transferring its assets to or becoming the
subsidiary of a corporation newly formed at the direction of the Board for the
purpose of such transaction or serving as a bank holding company for the Bank,
and in connection with which transaction the Bank’s shareholders (other than
those who exercise statutory rights of dissent and appraisal) become the
holders of substantially all of the voting stock of such corporation.  Further, notwithstanding anything else
herein, a transaction or event shall not be considered a change in control if,
prior to the consummation or occurrence of such transaction or event, the
Optionee and the Bank agree in writing that the same shall not be treated as a
change in control for purposes of this Plan.

 

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 only be paid in cash and must be accompanied by a notice of
exercise.  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
after the date of such notice) by which the payment of the aggregate Option
Price will be made.  The Optionee shall
not exercise the Option to purchase less than 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.  Neither the Optionee, nor any other person
who may be entitled to exercise the Option, 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 Bank for such shares.

 

8.             Termination of
Option.  The Option shall
terminate, and shall thereupon be available again for grant to Eligible Directors
as may be determined by the Board, as follows:

 

(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, and regardless of any vesting
pursuant to paragraph 3 hereof, shall terminate on the earlier of (i) the
date the Optionee leaves the Board for any reason other than the Optionee’s
retirement, disability, death, or following a change in control of the Bank 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 (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,
computed on a cumulative basis.

 

(c)           In the event the Optionee leaves the Board
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 by him 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 serving
on the Board or after his or her retirement or after his or her leaving by
reason of disability or following a change in control and prior to the date
which is ten (10) years after the date of grant of the Option as set
forth in paragraph 1 hereof, all Options, 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
following a change in control of the Bank, 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 

 

7

 

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

 

10.          Listing and
Registration of Option Shares. 
The Bank’s obligation to issue shares of Common Stock upon exercise of
the Option is expressly conditioned upon the completion by the Bank 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 Bank 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 Bank 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 or changes in the Bank’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 Bank or its shareholders
to make or authorize any adjustment, recapitalization, reorganization, or other
change in the Bank’s capital structure or its business, or any merger or
consolidation of the Bank, 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 Bank, or any sale or transfer of all or
any part of the Bank’s assets or business.

 

(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 Bank, 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 its terms and paragraph 8(d) hereof,
prior to the date which is ten (10) years after the date of grant of the
Option as set forth in paragraph 1 hereof.

 

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

 

8

 

deposited in the United States mail as Certified Mail, return receipt
requested, properly addressed and postage prepaid, if to the Bank, at its
principal office at 3710 University Drive, Suite 100, Durham, North
Carolina 27707; and, if to the Optionee, at his or her last address appearing
on the books of the Bank.  The Bank 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 Bank.

 

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.

 

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 the County of Durham, 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 Bank, 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.

 

9

 

IN WITNESS WHEREOF,
the Bank has caused this instrument to be executed in its corporate name by its
Chairman or Vice Chairman 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.

 

	
   

  	
  CARDINAL STATE BANK

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Dan Hill, III Chairman

  	
   

  
	
   

  	
   

  	
   

  
	
  ATTEST:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  W. Harold Parker, Jr., Secretary

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  [CORPORATE SEAL]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  , Optionee

  	
   

  

 

10

 

EXHIBIT A

 

NOTICE OF EXERCISE OF

NONSTATUTORY STOCK OPTION

 

To:          The
Board of Directors of Cardinal State Bank

 

The undersigned hereby elects to purchase
                
whole shares of Common Stock of Cardinal State Bank (the “Bank”) pursuant to
the Nonstatutory Stock Option granted to the undersigned in that certain
Nonstatutory Stock Option Agreement between the Bank and the undersigned dated
the          day of
                  ,
20  .  The aggregate purchase
price for such shares is
$                              ,
which amount is (i) being tendered herewith, (ii) will be tendered on
or before
                              ,
20    , (cross out provision which does not apply) in cash.
The effective date of this election shall be
                                        ,
20    , or the date of receipt of this Notice by the Bank
if later.

 

Executed this        day of
                                      ,
20    , at                                       .

 

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Social Security Number)

  	
   

  

 

11

 

AMENDMENT TO

CARDINAL STATE BANK

2001 NONSTATUTORY STOCK OPTION PLAN

(As Amended and Restated May 26, 2005)

 

WHEREAS, Cardinal State Bank (the “Bank”) is the sponsor of the
Cardinal State Bank 2001 Nonstatutory Stock Option Plan (As Amended and
Restated May 26, 2005) (the “Plan”); and

 

WHEREAS, the Bank desires to amend the Plan, effective as of January 1,
2005, to comply with the American Jobs Creation Act of 2004, Internal Revenue
Code §409A, including regulations and guidance issued thereunder.

 

NOW THEREFORE, the Plan is amended as follows:

 

WITNESSETH

 

3.             For purposes of the
Plan, the phrase “Section 409A” shall mean Internal Revenue Code Section 409A,
as amended, including regulations and guidance issued thereunder (“Section 409A”).

 

5.             Section 6(b) is
amended by deleting Section 6(b) in its entirety and replacing it
with the following replacement Section 6(b) as follows:

 

“(b) The
fair market value of a share of Common Stock means the fair market value of
Common Stock determined consistent with the requirements of Section 409A.  At the time of the adoption of this Amendment
to the Plan, Section 409A provides the following definitions, as
applicable: (i) if, on the applicable date, the Common Stock is readily
tradable on an established securities market, the fair market value of the
Common Stock may be determined based upon the last sale before or the first
sale after the grant, the closing price on the trading day before or the
trading day of the grant, or any other reasonable basis using actual
transactions in such Common Stock as reported by such market and consistently
applied (so long as it is reasonable under Section 409A); (ii) if, on
the applicable date, the Common Stock is not readily tradable on an established
securities market, the fair market value of the Common Stock means a value
determined by the reasonable application of a reasonable valuation method,
which method shall consider all available information material to the value of
the Company and considers the following factors, as applicable:  (1) the value of tangible and intangible
assets of the Company, (2) the present value of future cash-flows of the
Company; (3) the market value of stock or equity interests in similar
corporations and other entities engaged in trades or businesses substantially
similar to those engaged in by the Company, the value of which can be readily
determined through objective means (such as through trading prices on an
established securities market or an amount paid in an arm’s length private
transaction), (4) control premiums, (5) discounts for lack of
marketability, and (6) whether the valuation method is used for other
purposes that have a material economic effect on the Company, its stockholders
or its creditors.”

 

3.     Section 8 is amended by
deleting Section 8 in its entirety and replacing it with the following
replacement Section 8 as follows:

 

“8.          Terms and Conditions
of Grant of Options.  Each Option
granted pursuant to this Plan shall issued subject to the following terms and
conditions:

 

(a)   Each Option 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.

 

(b)   The Option shall terminate as
provided in paragraph 12 hereof.

 

12

 

(c) Options
granted pursuant to this Plan shall be subject to the right of the North
Carolina Commissioner of Banks (the “Commissioner”) and the Federal Deposit
Insurance Corporation (“FDIC”) to direct the Bank to require an Optionee to
exercise or forfeit his or her stock rights if the Bank’s capital falls below
the minimum requirements, as determined by the Commissioner or FDIC.

 

(d)   All Options shall be issued at
no less than 100% of Fair Market Value as provided for in Section 6(a).  The number of shares subject to each Option
will be fixed in the applicable Option Agreement.  When the Options are transferred or
exercised, the transfer or exercise shall be subject to taxation under Internal
Revenue Code Section 83 and Treasury Regulation §1.83-7.  No Option awarded hereunder shall contain any
feature for the deferral of compensation other than the deferral of recognition
of income until the later of exercise or disposition of the option under
Treasury Regulation §1.83-7 or the time the stock acquired pursuant to the
exercise of the option first becomes substantially vested as defined in
Treasury Regulation §1.83-3(b).  Further,
each Option will comply with any other Section 409A requirement in order
to maintain the status of the Option as exempt from the requirements of Section 409A.

 

4.     Section 19 is amended by
adding the following sentence as the last sentence of Section 19 as
follows:  “Provided, however, that, to
the extent Section 409A applies to the Plan, any amendment or modification
shall not be effective unless it complies with Section 409A.”

 

5.     Section 20 is amended by
adding the following sentence as the last sentence of Section 20 as
follows:  “Further provided, that, to the
extent Section 409A applies to the Plan, any termination or modification
of this Agreement shall not be adopted unless it complies with Section 409A.”

 

6.     A new Section 26 is
added as follows:

 

“26.        Compliance with Section 409A.  It is intended that this Plan meet the
requirements of the Section 409A exemption for option plans such that Section 409A
does not apply to the Plan.  However, to
the extent that the Board determines that any Option granted under this Plan is
subject to Section 409A, the Option Agreement evidencing such Option shall
incorporate the terms and conditions required by Section 409A.  To the extent applicable, the Plan and Option
Agreements shall be interpreted in accordance with Section 409A.  Notwithstanding any provision of the Plan to
the contrary, in the event that, following the effective date, the Board
determines that any Option may be subject to Section 409A, the Board may
adopt such amendments to the Plan and the applicable Option Agreement or adopt
other policies and procedures (including amendments, policies and procedures
with retroactive effect), or take any other actions, that the Board determines
are necessary or appropriate to (1) exempt the Option from Section 409A
and/or preserve the intended tax treatment of the benefits provided with
respect to the Option, or (2) comply with the requirements of Section 409A.”

 

In all other respects, the Plan shall remain unchanged and in full
force and effect.

 

IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date indicated below.

 

	
   

  	
  CARDINAL STATE BANK,

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
  , 2007

  
	
   

  	
   

  	
   

  
	
  ATTEST:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Secretary

  	
   

  	
   

  
									

 

13

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