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                                                                   EXHIBIT 10.37

                   COMPOUND DISCOVERY COLLABORATION AGREEMENT

            This Research Collaboration and License Agreement (this "AGREEMENT")
is entered into as of December 18, 2000 (the "EFFECTIVE DATE") by and between
ArQule, Inc. ("ARQULE"), a Delaware corporation, and ACADIA Pharmaceuticals,
Inc. ("ACADIA"), a Delaware corporation.

                                    RECITALS

            WHEREAS, ArQule and ACADIA previously entered into a Material
Transfer and Screening Agreement dated April 7, 1998 (the "MTA") pursuant to
which ArQule delivered certain of its Mapping Array(TM) compounds to ACADIA, and
ACADIA screened those compounds against certain of its targets;

            WHEREAS, ACADIA detected activity of certain ArQule compounds
against certain ACADIA targets; and

            WHEREAS, pursuant to the terms of the MTA, ArQule and ACADIA have
negotiated this Agreement to expand their joint research activities and to
pursue further development of the active compounds discovered by ACADIA.

            NOW, THEREFORE, ArQule and ACADIA hereby agree as follows:

1.    DEFINITIONS.

      1.1   "ACADIA TARGET" means each biological target nominated by ACADIA,
accepted by ArQule, and selected by the Research Committee for use in the
Collaboration, as further described in Subsection 3.3.1. below.

      1.2   "ACTIVE COMPOUND" means any ArQule Compound, Targeted Compound, or
Analog Compound which exhibits confirmed significant functional activity against
an ACADIA Target in a primary screen, as determined by the Research Committee.

      1.3   "AFFILIATE" means any legal entity (such as a corporation,
partnership, or limited liability company) that is controlled by a party. For
the purposes of this definition, the term "control" means (i) beneficial
ownership of at least fifty percent (50%) of the voting securities of a
corporation or other business organization with voting securities or (ii) a
fifty percent (50%) or greater interest in the net assets or profits of a
partnership or other business organization without voting securities.

      1.4   "ANALOG COMPOUND" means a chemical compound that (i) exhibits *****
to an identified Active Compound or Targeted Compound, (ii) was discovered or
developed using information obtained by screening one or more Active Compounds
or Targeted Compounds, or (iii) was ***** parent ArQule Compound or Targeted
Compound *****.

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      1.5   "ARQULE COMPOUND" means a small organic chemical molecule in a
Mapping Array Set, Compass Array Set, or Biased Array Set (as described in the
Collaboration Plan) and provided by ArQule to ACADIA as directed by the Research
Committee under this Agreement or previously provided to ACADIA under the MTA.

      1.6   "AVAILABLE COMPOUND" means an ArQule Compound or Analog Compound
that is neither: (i) licensed or otherwise committed by ArQule or ACADIA to a
third party in the Field nor (ii) committed to an internal ArQule or ACADIA
program in the Field. In addition, all Targeted Compounds are Available
Compounds. "AVAILABLE ACTIVE COMPOUND" means an Active Compound that is also an
Available Compound.

      1.7   "AVAILABLE TARGET" means an ACADIA Target that is neither: (i)
licensed or otherwise committed by ACADIA or ArQule to a third party in the
Field nor (ii) committed to an internal ACADIA or ArQule program in the Field.

      1.8   "COLLABORATION" means the activities of ACADIA and ArQule carried
out in performance of, and the relationship, rights and obligations of the
parties established by, Articles 2 and 3 of this Agreement.

      1.9   "COLLABORATION PLAN" means the overall plan for research and
development activities for typical projects in the Collaboration, as set forth
on EXHIBIT A. The Steering Committee may modify the Collaboration Plan as needed
to advance the goals of the Collaboration.

      1.10  "COLLABORATION PRODUCT" means any product containing as one of its
constituents any Committed Compound or any Analog Compound based on a Committed
Compound.

      1.11  "COLLABORATION WORK PRODUCT" means, individually or collectively,
(i) any Committed Target or Committed Target Set and its corresponding Committed
Compounds or Committed Compound Set(s), GLP Toxicology Candidate, or IND
Candidate, as well as all Technology pertaining to any of the foregoing or the
manufacture, use or sale thereof, and (ii) all libraries of Targeted Compounds.

      1.12  "COMMERCIALIZATION PLAN" means a plan developed and approved by the
Steering Committee for the sale, license, or other transfer of commercial rights
in Collaboration Work Product to a third party, as described in Section 3.7.

      1.13  "COMMITTED COMPOUND" means (i) any Available Active Compound
designated by the Research Committee as a Committed Compound pursuant to
Subsection 3.4.2. and (ii) any Analog Compound developed by the parties in the
course of an optimization program as described in Section 3.5., provided that
such Analog Compound is an Available Compound as required under Section 3.5.

      1.14  "COMMITTED COMPOUND SET" means a set of Committed Compounds that
***** as determined by the Research Committee.

      1.15  "COMMITTED TARGET" means any Available Target designated by the
Research Committee as a Committed Target pursuant to Subsection 3.4.2.

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      1.16  "COMMITTED TARGET SET" means a set of Committed Targets that are so
closely related that the Research Committee has decided to group those Committed
Targets into one optimization program under Section 3.5. or allocation under
Subsection 9.6.2.

      1.17  "CONFIDENTIAL INFORMATION" means any technical or business
information furnished by one party (the "DISCLOSING PARTY") to the other party
(the "RECEIVING PARTY") in connection with this Agreement. Such Confidential
Information may include, without limitation, the identity or use of a chemical
compound, the identity or use of a biological target, trade secrets, know-how,
inventions, technical data or specifications, testing methods, business or
financial information, research and development activities, Steering Committee
reports, Research Committee reports, royalty reports, product and marketing
plans, clinical development plans, and customer and supplier information.

      1.18  "FIELD" means applications in *****.

      1.19  "GLP TOXICOLOGY CANDIDATE" means a Committed Compound that meets or
exceeds the criteria established by the Research Committee for a compound that
is ready for submission to IND enabling toxicology studies, as documented in the
Research Plan.

      1.20  "GROSS REVENUES" means the aggregate amount of consideration
received from a third party by either party in connection with an agreement to
commercialize any Collaboration Work Product, including without limitation
license fees, milestone payments, royalties, and the premium portion of equity
payments at a premium to fair market value, but excluding funds specifically
allocated to and actually used for the research and development of Collaboration
Work Product. Gross Revenues shall be calculated without deduction of any costs,
fees, or expenses (e.g., legal fees or finders fees) paid by a party in
connection with the transaction. To the extent that any Gross Revenues are
transferred to a party in a form other than cash, the amount of such Gross
Revenues payable to the other party shall be based on the fair market value of
such non-monetary consideration on the date of transfer, as determined in good
faith by the parties.

      1.21  "IND" means an investigational new drug application filed with the
FDA prior to beginning clinical trials in humans or any comparable application
filed with the regulatory authorities of a country other than the United States,
prior to beginning clinical trials in humans in that country.

      1.22  "IND CANDIDATE" means a Committed Compound that meets or exceeds the
criteria established by the Research Committee for a compound that is ready for
human clinical trials, including data sufficient to support the filing of an
IND, as documented in the Research Plan.

      1.23  "PATENT RIGHTS" means any United States patent application and any
divisional, substitution, continuation, or continuation-in-part of such patent
application (to the extent the claims are directed to subject matter
specifically described therein) or inventor's certificate relating to such
patent application, as well as any patent issued thereon and any reissue,
reexamination, renewal, extension or term restoration of such patent, and any
foreign counterparts to such patents and patent applications. "ARQULE PATENT
RIGHTS" means Patent

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Rights that are either (i) assigned solely to ArQule, (ii) assigned jointly to
ArQule and a party other than ACADIA, or (iii) licensed to ArQule, in each case
to the extent that ArQule has the ability to license or sublicense the rights
required under this Agreement without payment to a third party. "ACADIA PATENT
RIGHTS" means Patent Rights that are either (i) assigned solely to ACADIA, (ii)
assigned jointly to ACADIA and a party other than ArQule, or (iii) licensed to
ACADIA, in each case to the extent that ACADIA has the ability to license or
sublicense the rights required under this Agreement without payment to a third
party. "JOINT PATENT RIGHTS" means Patent Rights (i) in Committed Compounds and
their use against Committed Targets; (ii) in Targeted Compounds and their uses;
or (iii) that are assigned to both ArQule and ACADIA as joint owners or are
otherwise jointly invented by one or more employees or consultants of ACADIA and
one or more employees or consultants of ArQule in connection with the
Collaboration.

      1.24  "RESEARCH COMMITTEE" means the Research Committee described in
Section 2.1. The Research Committee manages and directs the research and
development activities in the Collaboration.

      1.25  "RESEARCH MATERIALS" means any tangible research materials, whether
biological, chemical, physical, or otherwise. "PROPRIETARY RESEARCH MATERIALS"
means any Research Materials that a party designates as proprietary or
confidential, including without limitation (a) all ArQule Compounds, and (b) all
expressed proteins for ACADIA Targets provided by ACADIA in the Collaboration.

      1.26  "RESEARCH PLAN" means the specific, detailed plan for research and
development activities in the Collaboration that is developed by the Research
Committee and approved by the Steering Committee. The parties anticipate that
they will update the Research Plan on at least a quarterly basis.

      1.27  "RESERVED COMPOUND" means an Available Compound that has been
reserved by the parties for the Collaboration as described in Subsection 3.4.1.

      1.28  "RESERVED COMPOUND SET" means a set of Reserved Compounds that share
substantial chemical or structure homology, and which exhibit significant
functional activity for the same Reserved Target, or which share other common
characteristics such that the Research Committee has decided, in its discretion,
to group those Reserved Compounds for evaluation under Section 3.4. or for
allocation under Subsection 9.6.2.

      1.29  "RESERVED TARGET" means an Available Target that has been reserved
by the parties for the Collaboration as described in Subsection 3.4.1.

      1.30  "RESERVED TARGET SET" means a set of Reserved Targets that are so
closely related that the Research Committee has decided, in its discretion, to
group those Reserved Targets for evaluation under Section 3.4. or allocation
under Subsection 9.6.2.

      1.31  "STEERING COMMITTEE" means the Steering Committee described in
Section 2.2. of this Agreement. The Steering Committee has overall authority
within the Collaboration, and specifically has approval authority over financial
decisions.

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      1.32  "TARGETED COMPOUND" means a compound in a library focused on a
target class, which library is developed jointly by the parties within the
Collaboration, as more particularly described in the Collaboration Plan and
Research Plan.

      1.33  "TECHNOLOGY" means any proprietary development, idea, design,
concept, technique, process, invention, Research Material, discovery, or
improvement, whether or not patentable or copyrightable. "ARQULE TECHNOLOGY"
means Technology that is either (i) assigned solely to ArQule, (ii) assigned
jointly to ArQule and a party other than ACADIA, or (iii) licensed to ArQule, in
each case to the extent that ArQule has the ability to license or sublicense the
rights required under this Agreement without payment to a third party. "ACADIA
TECHNOLOGY" means Technology that is either (i) assigned solely to ACADIA, (ii)
assigned jointly to ACADIA and a party other than ArQule, or (iii) licensed to
ACADIA, in each case to the extent that ACADIA has the ability to license or
sublicense the rights required under this Agreement without payment to a third
party. "COLLABORATION TECHNOLOGY" means (i) all Committed Compounds and their
use against Committed Targets, (ii) all Targeted Compounds and their uses, and
(iii) any Technology that is developed, invented, or discovered jointly by one
or more employees or consultants of ACADIA and one or more employees or
consultants of ArQule in connection with the Collaboration.

2.    MANAGEMENT OF COLLABORATION.

      2.1   RESEARCH COMMITTEE.

            2.1.1 CREATION OF RESEARCH COMMITTEE. The parties hereby create a
Research Committee with at least four (4) members, with equal representation
from each party. The members initially designated by ACADIA are ***** and *****,
and the members initially designated by ArQule are ***** and *****. Either party
may change its representatives on the Research Committee at any time upon
written notice to the other party. The chairperson of the Research Committee
shall be designated annually on an alternating basis between the parties. The
chairperson shall initially be *****. The party not designating the chairperson
shall designate one of its representatives as secretary to the Research
Committee for such *****.

            2.1.2 MEETINGS OF THE RESEARCH COMMITTEE. Regular meetings of the
Research Committee shall be held within ***** of the end of each calendar
quarter, or at such other times as the parties may deem appropriate, at such
times and places as the members of the Research Committee shall from time to
time agree. Special meetings of the Research Committee may be called by either
party on ***** written notice to the other party unless notice is waived by the
parties. All meetings shall alternate between the offices of the parties unless
the parties otherwise agree. The chairperson shall be responsible for sending
notice of meetings to all members. In the event a Research Committee member is
unable to attend a meeting of the Research Committee, such Research Committee
member may designate an alternate member who will serve solely for that Research
Committee meeting.

            2.1.3 DECISIONS OF RESEARCH COMMITTEE. A quorum of the Research
Committee shall be present at any meeting of the Research Committee if at least
one representative of each party is present at such meeting in person or by
telephone. If a quorum

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exists at any meeting, the unanimous consent of all members of the Research
Committee present at such meeting is required to take any action on behalf of
the Research Committee.

            2.1.4 RESPONSIBILITIES OF RESEARCH COMMITTEE. The Research Committee
shall be responsible for the day-to-day conduct and progress of the
Collaboration, including without limitation:

                  (i)   preparing, approving, and updating the Research Plan and
the annual budget;

                  (ii)  managing all technical aspects of the Collaboration,
including all research and development activities;

                  (iii) providing a forum for the exchange of scientific
information among the scientists participating in the Collaboration;

                  (iv)  resolving matters involving scientific questions;

                  (v)   determining the criteria of significant functional
activity necessary for an ArQule Compound, Targeted Compound, or Analog Compound
to qualify as an Active Compound and confirming that an ArQule Compound,
Targeted Compound, or Analog Compound qualifies as an Active Compound;

                  (vi)  maintaining records of Reserved Compounds and Reserved
Targets and establishing Reserved Compound Sets and Reserved Target Sets;

                  (vii) designating Available Active Compounds as Committed
Compounds, establishing Committed Compound Sets, and adding and removing
compounds from Committed Compound Sets; and

                  (viii) designating Available Targets as Committed Targets,
establishing Committed Target Sets, and adding and removing targets from
Committed Target Sets.

            2.1.5 RESEARCH COMMITTEE REPORTS. Within ***** following each
meeting of the Research Committee held pursuant to Subsection 2.1.2., the
secretary of the Research Committee shall prepare and send to each party a
written report of actions taken at the meeting in such form and containing such
detail as shall be determined by the Research Committee.

            2.1.6 DEADLOCK. In the event that the Research Committee cannot
reach agreement with respect to any matter that is subject to its
decision-making authority, then the matter shall be referred to the Steering
Committee for resolution.

      2.2   STEERING COMMITTEE.

            2.2.1 CREATION OF STEERING COMMITTEE. The parties hereby also create
a Steering Committee with at least six 6) members, with equal representation
from each party. The members initially designated by ACADIA are *****. The
members initially designated by ArQule are *****. Either party may change its
representatives on the Steering Committee at any

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time upon written notice to the other party. The chairperson of the Steering
Committee shall be designated annually on an alternating basis between the
parties. The initial chairperson of the Steering Committee shall be *****. The
party not designating the chairperson shall designate one of its representatives
as secretary of the Steering Committee for such *****.

            2.2.2 MEETINGS OF THE STEERING COMMITTEE. Regular meetings of the
Steering Committee shall be held within ***** of the end of each calendar year,
or at such other times as the parties may deem appropriate, at such times and
places as the members of the Steering Committee shall from time to time agree.
Special meetings of the Steering Committee may be called by either party on
***** written notice to the other party unless notice is waived by the parties.
All meetings shall alternate between the offices of the parties unless the
parties otherwise agree. In the event a Steering Committee member is unable to
attend a meeting of the Steering Committee, such Steering Committee member may
designate an alternate member who will serve solely for that Steering Committee
meeting.

            2.2.3 DECISIONS OF THE STEERING COMMITTEE. Unless otherwise
specifically designated as a responsibility of the Research Committee pursuant
to Subsection 2.1.4., all decisions regarding the contractual and financial
relationship created by this Agreement shall be made by the Steering Committee
acting in accordance with this Agreement or by agents duly authorized in writing
by the Steering Committee. A quorum of the Steering Committee shall be present
at any meeting of the Steering Committee if at least one representative of each
party is present at such meeting in person or by telephone. If a quorum exists
at any meeting, the unanimous consent of all members of the Steering Committee
present at such meeting is required to take any action on behalf of the Steering
Committee.

            2.2.4 RESPONSIBILITY OF STEERING COMMITTEE. The Steering Committee
shall be responsible for approving long-term objectives for, and evaluating the
progress of, the Collaboration, including without limitation:

                  (i)   approving all updates to the Research Plan and any
changes to the Collaboration Plan;

                  (ii)  approving the annual budget for the Collaboration;

                  (iii) reviewing and approving involvement of third parties in
the Collaboration;

                  (iv)  developing Commercialization Plans and managing
commercialization of Collaboration Work Product;

                  (v)   resolving deadlocks of the Research Committee; and

                  (vi)  determining the number of members for both the Research
Committee and Steering Committee, beyond the minimum of four members.

            2.2.5 STEERING COMMITTEE REPORTS. Within ten (10) days following
each meeting of the Steering Committee held pursuant to Subsection 2.2.2., the
secretary of the Steering Committee shall prepare and send to the members of the
Steering Committee a detailed

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written report of actions taken at the meeting in such form and containing such
detail as shall be determined by the Steering Committee.

            2.2.6 DEADLOCK. In the event that the Steering Committee declares a
deadlock with respect to, or fails to reach agreement within sixty (60) days as
to, any matter relating only to specific activities under the Collaboration
(such as designation of Active Available Compounds as Committed Compounds;
designation of ACADIA Targets as Committed Targets; the initiation or conduct of
lead optimization or preclinical development activities; approval of the annual
budget or changes to the Research Plan; or approval of a Commercialization Plan)
the matter shall not be subject to dispute resolution under Article 10, but
shall be referred to the Chief Executive Officers of each party for resolution
within sixty (60) days after the date the deadlock is reached, subject to
extension by mutual agreement. If the Chief Executive Officers fail to resolve
the matter within the sixty-day period, or such other period that the parties
mutually establish, the Agreement will terminate pursuant to Section 9.3. Any
other unresolved disagreements within the Steering Committee and relating to
this Agreement shall be referred to dispute resolution in accordance with the
procedures set forth in Article 10.

3.    CONDUCT OF COLLABORATION

      3.1   SCOPE OF COLLABORATION. During the Collaboration, the parties will
(i) perform lead generation activities using ArQule Compounds and multiple
ACADIA Targets to identify Active Compounds, (ii) perform lead qualification
activities on Reserved Compounds and Reserved Targets to select Committed
Compounds and Committed Targets for lead optimization efforts, (iii) perform
lead optimization activities on Committed Compound Sets to develop one or more
GLP Toxicology Candidates, and (iv) if appropriate, conduct work on one or more
GLP Toxicology Candidates to develop IND Candidates, in each case as further
described below. The parties may also develop libraries of Targeted Compounds
that are focused on a particular target class, and then use the Targeted
Compounds for lead generation, as described below. The overall objective of the
Collaboration is to discover and develop compounds that demonstrate potential as
human therapeutic products, and to sell, license, or otherwise transfer
commercial rights to those compounds to third parties.

      3.2   GENERAL RESPONSIBILITIES OF EACH PARTY. In general, the parties
intend that ACADIA will be responsible for biology-related tasks relating to the
ACADIA Targets and ArQule will be responsible for chemistry-related tasks
relating to the ArQule Compounds, but only until identification of a GLP
Toxicology Candidate. If the parties decide to develop a GLP Toxicology
Candidate into an IND Candidate, they will share responsibility for the
necessary preclinical activities through the Research Committee and Steering
Committee. This allocation of responsibilities reflects the expected
contributions from each party. However, the Research Committee has discretion to
allocate specific research and development tasks on a case-by-case basis to the
party that has the best current capability and capacity to complete the task and
advance the project. The actual responsibilities of each party will be
determined by the Research Committee and Steering Committee and described in the
Collaboration Plan or Research Plan.

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      3.3   LEAD GENERATION.

            3.3.1 TARGET SELECTION. The Research Committee will select which
ACADIA Targets to screen in the Collaboration from among those nominated by
ACADIA and accepted by ArQule. ACADIA will only nominate Available Targets for
ACADIA. ArQule will decline to accept any ACADIA Targets that are not Available
Targets for ArQule. The initial ACADIA Targets selected by the Research
Committee are set forth in the initial Research Plan. After the Research
Committee selects an ACADIA Target, ACADIA and ArQule agree to notify the
Research Committee as soon as possible before taking any actions which could
remove the status of that ACADIA Target as an Available Target. In such event,
the Research Committee will immediately remove that ACADIA Target from the
Collaboration.

            3.3.2 COMPOUND SELECTION. The Research Committee will decide which
libraries of ArQule Compounds to screen in the Collaboration (e.g., Compass
Array Sets, Biased Array Sets, or Mapping Array Sets, as described in the
Collaboration Plan). The Research Committee may also decide to screen Targeted
Compounds in focused libraries developed by the parties for a target class, if
any, as described in the Collaboration Plan. The Research Committee may also
decide to screen Analog Compounds developed by the parties for a different
ACADIA Target.

            3.3.3 PROCEDURES FOR ARQULE COMPOUNDS. The parties will screen
ArQule Compounds against ACADIA Targets as directed by the Research Committee
and described in the Collaboration Plan and Research Plan. Initially, ArQule
will not disclose structures of individual ArQule Compounds. ArQule will
disclose to ACADIA the structures of Active Compounds that are Available
Compounds for ArQule. ACADIA will then determine whether those Active Compounds
are Available Compounds for ACADIA. If an Active Compound is an Available
Compound for both parties, each party will preserve the availability of the
Active Compound and the corresponding ACADIA Target and proceed to confirm
activity as described in Section 3.4. and in the Collaboration Plan. In
contrast, if a party determines that an Active Compound is not an Available
Compound for such party, the parties shall immediately cease all information
disclosure and activities under this Agreement with respect to that Active
Compound; however, the parties shall use reasonable efforts to monitor whether
that Active Compound later becomes an Available Compound and, in such event,
shall notify the other party and then proceed in accordance with Section 3.4.
Any information regarding the activity of these Active Compounds that are not
Available Compounds for the ACADIA Targets shall remain subject to the
restrictions on Confidential Information set forth in Article 7.

            3.3.4 PROCEDURES FOR TARGETED COMPOUNDS. If the parties develop or
one or more focused compound libraries of Targeted Compounds for a target class,
as described in the Collaboration Plan, the parties will screen those Targeted
Compounds against ACADIA Targets as directed by the Research Committee and
described in the Collaboration Plan and Research Plan. Both parties shall have
access to the structures of all Targeted Compounds and shall maintain Targeted
Compounds as Available Compounds during the Collaboration. Therefore, unlike the
procedures for ArQule Compounds, a determination of availability is unnecessary.

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      3.4   LEAD QUALIFICATION.

            3.4.1 SELECTION OF RESERVED COMPOUNDS AND RESERVED TARGETS. The
parties expect to discover multiple series of Available Active Compounds with
activity for multiple ACADIA Targets in the course of screening under the
Research Plan. The Research Committee will group the various ACADIA Targets in
multiple batches for screening. After each batch of ACADIA Targets is screened,
the Research Committee will review the various combinations of Available Active
Compounds and ACADIA Targets for which activity was detected and decide which
Available Active Compounds and ACADIA Targets from that batch of screening, if
any, should progress to further qualification in secondary screens and ADMET
assays as described in the Collaboration Plan and Research Plan. For those
Available Active Compounds and ACADIA Targets that the Research Committee
decides to pursue, the parties will designate the Available Active Compounds as
Reserved Compounds and the ACADIA Targets as Reserved Targets under this
Agreement and reserve those compounds and targets exclusively for the
Collaboration for a period of *****, subject to extension by the Research
Committee, while secondary screens and ADMET assays are conducted. The Research
Committee may also group Reserved Compounds as a Reserved Compound Set and
Reserved Targets as a Reserved Target Set. All remaining Available Active
Compounds and ACADIA Targets that the Research Committee has declined to advance
to secondary screening shall automatically be released from their reserved
status; however, any information regarding the activity of these Available
Compounds for the ACADIA Targets shall remain subject to the restrictions on
Confidential Information set forth in Article 7.

            3.4.2 SELECTION OF COMMITTED COMPOUNDS AND COMMITTED TARGETS. The
parties expect that the Research Committee will further qualify and prioritize
the various opportunities presented by the combinations of Reserved Compounds
and Reserved Targets as described in the Collaboration Plan and Research Plan.
In order to facilitate this process, ArQule shall disclose to ACADIA the
structures, but not the locations, of inactive ArQule Compounds from each
Mapping Array Set from which Reserved Compounds are selected. ArQule shall also
produce and deliver to ACADIA resynthesized samples of selected Reserved
Compounds, as directed by the Research Committee. ACADIA shall test the
resynthesis samples of Reserved Compounds in various assays as directed by the
Research Committee and in accordance with the Research Plan. The Research
Committee shall then review the data and, after consideration, designate *****
Reserved Targets and their corresponding Reserved Compounds as Committed Targets
and Committed Compounds under this Agreement. The Research Committee has
discretion to replace ***** Committed Targets and their corresponding Committed
Compounds at any time as new batches of ACADIA Targets and ArQule Compounds and
Targeted Compounds are screened and new Reserved Targets and Reserved Compounds
are identified. The Research Committee may increase the number of Committed
Targets and their Committed Compounds at any time, with approval of the Steering
Committee. Any Reserved Targets and their corresponding Reserved Compounds, if
any, that have met the predefined criteria for consideration as Committed
Targets and Committed Compounds but which were not selected by the Research
Committee shall be allocated between the parties as provided in Section 9.6. All
other Reserved Targets and Reserved Compounds, if any, shall automatically be
released from their reserved status; however, any information regarding the
activity of these Reserved Compounds for the Reserved Targets shall remain
subject to the restrictions on Confidential Information set forth in Article 7.

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      3.5   LEAD OPTIMIZATION. The Research Committee will update the Research
Plan to provide for the accelerated lead optimization of the selected Committed
Compound Sets with Committed Targets in the Collaboration, subject to Steering
Committee approval. The Research Plan will set project priorities and define
success criteria for a GLP Toxicology Candidate. As described in the
Collaboration Plan, in a typical project the parties will iteratively develop
and test Analog Compounds based on Committed Compounds. The parties will
determine whether a proposed Analog Compound is an Available Compound before
synthesis, and only Available Compounds will proceed to synthesis and testing in
the Collaboration. The Analog Compounds developed by the parties shall
automatically become Committed Compounds under this Agreement and, therefore,
the Committed Compound Set for the Committed Target will likely expand as a
result of the lead optimization efforts. At the discretion of the Research
Committee, the parties may also use such Analog Compounds in primary screens
against other ACADIA Targets. The parties anticipate that lead optimization of
Committed Compounds will occur in two stages:

      (i)   In the first stage, the parties will develop Analog Compounds as
            combinatorial libraries to explore the promise of the Committed
            Compound Set for the Committed Target. The parties will test these
            Analog Compounds for various properties determined by the Research
            Committee to predict whether the Committed Compound Set may
            eventually meet the defined success criteria for a GLP Toxicology
            Candidate. The parties will decide whether to proceed to stage two
            for a given Committed Compound Set within *****.

      (ii)  In the second stage, the parties intend to concentrate their efforts
            on developing ***** and ***** corresponding Committed Compound
            Set(s) to identify a GLP Toxicology Candidate, with ***** from the
            first stage. The parties shall maintain a level of effort determined
            by the Research Committee for the *****. The Research Committee may
            release Committed Targets and the corresponding Committed Compound
            Set(s) that are no longer of interest to the Collaboration or which
            are no longer the subject of the active efforts by the parties, as
            determined by the Research Committee and subject to Steering
            Committee approval, in which case the allocation provisions of
            Section 9.6. shall apply. Lead optimization activities will continue
            with respect to a Committed Target until the Research Committee and
            Steering Committee decide to stop further efforts. The parties
            anticipate that lead optimization activities will continue with
            respect to a Committed Target until the parties (i) develop an
            acceptable GLP Toxicology Candidate, (ii) determine that they are
            unlikely to develop an acceptable GLP Toxicology Candidate, or (iii)
            decide to seek commercialization of the Committed Compound Set(s)
            and Committed Target as described below.

      3.6   PRECLINICAL DEVELOPMENT. At the discretion of the Steering
Committee, the parties may decide to conduct the necessary preclinical
development activities to advance one or more GLP Toxicology Candidates to
become IND Candidates, as described in the Collaboration Plan. In such event,
the Research Committee will update the Research Plan to provide for such
activities, subject to approval of the Steering Committee. These preclinical
development activities will continue with respect to a GLP Toxicology Candidate
until the Research Committee and Steering Committee decide to stop further
efforts. The parties anticipate that

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these preclinical development activities will continue with respect to a GLP
Toxicology Candidate until the parties (i) develop an acceptable IND Candidate,
(ii) determine that they are unlikely to develop an acceptable IND Candidate, or
(iii) decide to seek commercialization of the GLP Toxicology Candidate and the
corresponding Committed Target as described below.

      3.7   COMMERCIALIZATION. At any time during the Collaboration, the
Steering Committee may decide to sell, license, or otherwise transfer commercial
rights in Collaboration Work Product to a third party. In such event, the
Steering Committee will develop and approve a Commercialization Plan for such
Collaboration Work Product. Unless otherwise determined by the Steering
Committee, the Commercialization Plan will (i) describe the expectations of the
parties regarding the commercial value of the Collaboration Work Product and
potential Collaboration Products, (ii) set forth a marketing plan for the
Collaboration Work Product (e.g., best potential customers), and (iii) state the
respective responsibilities of each party for commercialization of the
Collaboration Work Product (e.g., lead negotiator). The Steering Committee will
manage the commercialization process. Alternatively, one party may purchase the
interest of the other party in particular Collaboration Work Product on
negotiated terms in a voluntary transaction. In such event, the separately
negotiated agreement shall supersede the terms of this Agreement with respect to
that Collaboration Work Product. The Steering Committee may also decide to sell,
license, or otherwise transfer commercial rights in one or more focused
libraries of Targeted Compounds developed by the parties during the
Collaboration. In such event, the Steering Committee will develop and approve a
Commercialization Plan for this Collaboration Work Product.

      3.8   REPORTS AND RECORDS. Each party agrees to promptly and regularly
communicate to the other party all research results from the Collaboration,
including quarterly reports to the Research Committee detailing all tests
conducted and results obtained by such party in connection with the
Collaboration. Each party shall prepare and maintain adequate records, including
bound laboratory notebooks maintained in accordance with standard scientific
procedures, containing all appropriate data reflecting all research results from
the Collaboration. In addition, each party shall retain under appropriate
conditions any necessary or desirable samples of research materials that are
developed or used in the Collaboration.

4.    ALLOCATION OF EXPENSES AND REVENUES.

      4.1   EXPENSES. The Research Committee shall establish an annual budget
for all activities in the Collaboration, subject to Steering Committee approval.
Each party shall bear the expenses of its respective activities under the
Research Plan in accordance with the annual budget, except that the parties will
share equally any expenses payable (i) to third party service providers or (ii)
incurred in connection with preclinical development activities under Section
3.6. above, provided such expenses are approved in advance by the Steering
Committee and included in the annual budget. The Research Committee and Steering
Committee shall use their best efforts to ensure that the resource and value
contributions of each party are approximately equal on an annual basis. Any
significant deviations from the annual budget must receive Steering Committee
approval. Each party shall also pay fifty percent (50%) of all direct expenses
(e.g., legal fees, travel) incurred by either party in connection with
commercialization activities approved by the Steering Committee pursuant to
Section 3.7. The Steering Committee has the right to refuse payment of expenses
that are not properly documented or are unreasonably

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<PAGE>   13
excessive. Each party shall promptly make payments to third parties, or
reimburse the other party, for expenses owed by such party as set forth in this
Section.

      4.2   REVENUES. Each party shall receive fifty percent (50%) of all Gross
Revenues received in connection with Collaboration Work Product sold, licensed
or transferred to a third party under Section 3.7, provided that each party has
contributed approximately equal resources and value to the Collaboration in
accordance with the Research Plan and the annual budget. In the event that one
party expends greater resources or contributes greater value than the other
party in the Collaboration, as formally recognized by the Steering Committee and
documented in the Research Plan or annual budget, the Steering Committee will
compensate the party with the greater resource expenditure or value contribution
in a manner reasonably acceptable to both parties.

      4.3   RECORDS. Each party shall establish separate and distinct accounting
records (but not necessarily separate general ledgers) such that the
expenditures for the Collaboration are direct and transparent. As a guideline,
each party should have separate project records supported by time records and
records of direct expenses attributable to the Collaboration. Each party shall
maintain these records for a period of at least ***** after the conclusion of
the applicable calendar year. Each party shall have the right, at its own
expense, to cause an independent certified public accountant reasonably
acceptable to the other party to inspect such records during normal business
hours for the sole purpose of verifying the expenditures reported under this
Agreement. The accountant shall conduct the audit at a date and time reasonably
acceptable to the audited party but not later than ***** after the audited party
is notified of the audit. Such accountant shall not disclose to the requesting
party any information other than information relating to the accuracy of
expenditures reported under this Agreement and shall provide the audited party
with a copy of any report given to the requesting party. In the event of any
discrepancy, the parties shall promptly reconcile the discrepancy to achieve the
results set forth in Sections 4.1. and 4.2. Each party may exercise its audit
right not more than *****.

5.    INTELLECTUAL PROPERTY RIGHTS.

      5.1   LICENSE GRANTS.

            5.1.1 CROSS-LICENSES AND CROSS-ASSIGNMENT.

                  (i)   ArQule hereby grants ACADIA a worldwide, royalty-free,
non-exclusive license under the ArQule Patent Rights, Joint Patent Rights, and
other rights in ArQule Technology and Collaboration Technology to *****.

                  (ii)  ACADIA hereby grants ArQule a worldwide, royalty-free,
non-exclusive license under the ACADIA Patent Rights, Joint Patent Rights, and
other rights in ACADIA Technology and Collaboration Technology to *****.

                  (iii) To the extent that any Patent Rights in any Committed
Compound or its use against any Committed Target or in any Targeted Compound or
its use are not assigned to, or controlled by, both ArQule and ACADIA as joint
owners or are not otherwise jointly invented by one or more employees or
consultants of ACADIA and one or more employees or consultants of ArQule in
connection with the Collaboration, *****.

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            5.1.2 COMMERCIALIZATION LICENSES. In the event that the parties
sell, license, or otherwise transfer commercialization rights in Collaboration
Work Product to a third party pursuant to Section 3.7. above, each party hereby
covenants and agrees to grant to such third party any rights and licenses under
such party's Patent Rights and Technology as are reasonably necessary for such
third party to exploit such Collaboration Work Product in accordance with the
terms of a written agreement between the parties and such third party that is
consistent with the Commercialization Plan applicable to such Collaboration Work
Product, and to provide reasonable warranties of title, further assurances, and
similar customary provisions in connection with such grant of rights or
licenses.

      5.2   INTELLECTUAL PROPERTY DEVELOPED OUTSIDE OF THE COLLABORATION. Except
as expressly set forth in this Agreement, neither party shall have any rights in
Patent Rights and Technology that are developed or discovered by the other party
prior to the Effective Date or outside of the Collaboration. Therefore, ArQule
shall have no rights in ACADIA Targets other than as provided in the Agreement,
and ACADIA shall have no rights in ArQule Compounds other than as provided in
the Agreement. Each party shall have sole responsibility for and control over
Patent Rights claiming any of its Technology that was developed or discovered
prior to the Effective Date or outside of the Collaboration. Neither party shall
have any right to review or comment on such Patent Rights of the other party.

      5.3   INTELLECTUAL PROPERTY ARISING FROM THE COLLABORATION.

            5.3.1 COMMITTED COMPOUNDS AND COMMITTED TARGETS. Committed Compounds
and Committed Targets are exclusive to the Collaboration, which means that
except as otherwise expressly provided in this Agreement:

                  (i)   ArQule shall not engage in any research and development
activities on Committed Compounds outside of the Collaboration;

                  (ii)  ArQule shall not knowingly engage in any research and
development activities on Committed Targets outside of the Collaboration except
to the extent that a third party requires ArQule to perform such activities
under a binding contract (which ArQule will disclose in advance to ACADIA);

                  (iii) ACADIA shall not engage in any research and development
activities on Committed Targets outside of the Collaboration; and

                  (iv)  ACADIA shall not knowingly engage in any research and
development activities on Committed Compounds outside of the Collaboration
except to the extent that a third party requires Acadia to perform such
activities under a binding contract (which ACADIA will disclose in advance to
ArQule).

In the event that a party engages in research and development activities with a
third party with respect to Committed Compounds or Committed Targets under the
limited circumstances permitted under this Subsection, such party shall
establish and observe strict procedures to ensure that no information crosses
from one project to the other project. The other party shall have the right to
audit such procedures upon reasonable prior written notice. All Committed
Compounds and Committed Targets shall remain exclusive to the Collaboration
until the

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<PAGE>   15
Collaboration terminates or the Steering Committee releases a particular
Committed Compound, Committed Compound Set, Committed Target, or Committed
Target Set.

            5.3.2 RIGHT TO USE. Except as provided in Section 5.1. above or
otherwise expressly provided in this Agreement, each party shall have the
following rights and restrictions for the use of Patent Rights and Technology
arising from the Collaboration:

                  (i)   ArQule shall not have any right or license under ACADIA
Patent Rights or other rights in ACADIA Technology arising from the
Collaboration.

                  (ii)  ACADIA shall not have any right or license under ArQule
Patent Rights or other rights in ArQule Technology arising from the
Collaboration.

                  (iii) During the Collaboration, neither party may use Targeted
Compounds outside of the Collaboration without the prior written consent of the
other party. After the expiration or termination of this Agreement, the parties
shall have co-exclusive rights to Targeted Compounds (other than Targeted
Compounds that are subject to the provisions of Section 9.6.2) as follows.
*****.

                  (iv)  Except as otherwise provided in this Agreement, each
party shall have the right to use Joint Patent Rights and Collaboration
Technology consistent with the provisions of Article 7 without accounting to the
other party.

            5.3.3 OWNERSHIP. Ownership of Patent Rights and Technology arising
from the Collaboration shall be allocated in the following manner:

                  (i)   ArQule shall have sole ownership of all right, title,
and interest in ArQule Patent Rights and ArQule Technology;

                  (ii)  ACADIA shall have sole ownership of all right, title,
and interest in ACADIA Patent Rights and ACADIA Technology; and

                  (iii) ArQule and ACADIA shall have joint ownership of all
right, title, and interest in Joint Patent Rights and Collaboration Technology.

Each party shall ensure that its employees, consultants, agents, and
representatives are contractually required to disclose and to assign to such
party all Patent Rights and other rights in Technology arising from the
Collaboration.

            5.3.4 NOTICE. Each party shall provide prompt written notice to the
Research Committee of the internal disclosure of any significant Technology
developed by its personnel in connection with the Collaboration.

            5.3.5 RESPONSIBILITY FOR PATENT RIGHTS. ArQule shall be responsible
for and shall control, at its expense, the preparation, filing, prosecution,
grant, and maintenance of any Patent Rights claiming only ArQule Technology
arising from the Collaboration and shall consult with ACADIA on, and give ACADIA
a reasonable opportunity to review, all such filings to the extent they directly
relate to the Collaboration. ACADIA shall be responsible for and shall

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<PAGE>   16
control, at its expense, the preparation, filing, prosecution, grant, and
maintenance of all Patent Rights claiming only ACADIA Technology arising from
the Collaboration and shall consult with ArQule on, and give ArQule a reasonable
opportunity to review, all such filings to the extent they relate directly to
the Collaboration. In the case of Collaboration Technology, the Research
Committee will decide whether to seek Joint Patent Rights claiming that
Technology or to maintain that Technology as a trade secret, subject to approval
of the Steering Committee. The Research Committee will also decide whether to
seek Patent Rights claiming both ArQule Technology and ACADIA Technology in one
filing (which also constitutes a Joint Patent Right), subject to approval of the
Steering Committee. If the parties decide to seek any Joint Patent Rights, the
parties shall jointly prepare, file, prosecute, and maintain such Patent Rights,
and all related expenses shall be borne equally by the parties. Notwithstanding
the foregoing, neither party shall file any Joint Patent Rights claiming the
composition or use of any Active Compound until the Research Committee has
properly designated that Active Compound as a Committed Compound in accordance
with Subsection 3.4.2.

            5.3.6 ASSUMPTION OF RIGHTS BY OTHER PARTY. In the event that a party
desires to decline responsibility for obtaining or maintaining Patent Rights in
a country for any of its Technology that arises from the Collaboration, such
party will notify the other party before taking such action and, upon request,
will allow the other party to assume responsibility for, and all expenses
relating to, the relevant Patent Rights in those countries; provided, however,
that neither party shall have the right to seek patent protection for any
Technology that a party has decided, in its discretion, to maintain as a trade
secret. In the event that a party desires to cease further payment of
patent-related expenses for a Joint Patent Right in any country, such party may
assign to the other party all rights in that Joint Patent Right in such country
and thereafter have no further obligation to pay such expenses.

            5.3.7 COOPERATION. Each party agrees to cooperate fully in the
preparation, filing, prosecution, and maintenance of all Patent Rights claiming
Technology arising from the Collaboration. Such cooperation includes, without
limitation, (i) promptly executing all papers and instruments, or requiring its
employees, consultants, and agents to execute such papers and instruments, as
reasonable and appropriate so as to enable one or both parties to file,
prosecute, and maintain such Patent Rights in any country; (ii) promptly
informing the other party of matters that may affect the preparation, filing,
prosecution, or maintenance of any such Patent Rights; and (iii) undertaking no
actions that are potentially deleterious to the preparation, filing, or
prosecution of any such Patent Rights.

6.    RESEARCH MATERIALS.

      6.1   OWNERSHIP OF RESEARCH MATERIALS. In the course of this
Collaboration, one party (the "PROVIDER") may transfer to the other party (the
"RECIPIENT") certain of its Research Materials. The Recipient acknowledges and
agrees that such Research Materials are and shall be owned by the Provider. The
Recipient agrees to execute and deliver any documents of assignment or
conveyance to effectuate the ownership rights of the Provider in such Research
Materials. Specifically, ACADIA acknowledges and agrees that all ArQule
Compounds provided to ACADIA in the Collaboration and, previously, under the MTA
are proprietary to and owned by ArQule and are or may be covered by claims of
ArQule Patent Rights, and ArQule acknowledges and agrees that all expressed
proteins for ACADIA Targets provided by ACADIA

                                       16
<PAGE>   17
in the Collaboration are proprietary to and owned by ACADIA and are or may be
covered by claims of ACADIA Patent Rights.

      6.2   USE AND TRANSFER OF RESEARCH MATERIALS. Except as otherwise agreed
by the Research Committee, the Recipient agrees to use Research Materials
provided by the Provider solely for purposes set forth in this Agreement and
shall not distribute such Research Materials to any third party other than its
employees and consultants who are working on the Collaboration; provided that
the parties may provide Research Materials specific to Collaboration Work
Product to a third party for the purposes described in Section 3.7 and may
provide Research Materials specific to Targeted Compounds to a sublicensee of
such party's rights to such Targeted Compounds under Section 5.3.2(iii).

      6.3   ADDITIONAL RESTRICTIONS FOR PROPRIETARY RESEARCH MATERIALS. In the
case of Proprietary Research Materials furnished by a Provider, Recipient agrees
(i) not to transfer such Proprietary Research Materials to any third party
without the prior written consent of the Provider, (ii) to permit access to the
Proprietary Research Materials only to its employees and consultants requiring
such access, (iii) to inform such employees and consultants of the proprietary
nature of the Proprietary Research Materials, and (iv) to take reasonable
precautions, at least as stringent as those observed by Recipient to protect its
own proprietary materials, to ensure that such employees and consultants observe
the obligations of Recipient under this Section.

      6.4   DISPOSITION OF UNUSED RESEARCH MATERIALS. At the request of
Provider, Recipient will return or destroy any unused Research Materials
furnished by Provider.

      6.5   COMPLIANCE WITH LAW. Recipient agrees to comply with all federal,
state, and local laws and regulations applicable to the use, storage, disposal,
and transfer of Research Materials furnished by Provider, including without
limitation the Toxic Substances Control Act (15 USC 2601 et seq.) and
implementing regulations (in particular, 40 CFR 720.36 [Research and Development
Exemption]), the Food, Drug, and Cosmetic Act (21 USC 301 et seq.) and
implementing regulations, and all Export Administration Regulations of the
Department of Commerce. Recipient assumes sole responsibility for any violation
of such laws or regulations by Recipient or any of its Affiliates or
sublicensees.

      6.6   LIMITATION OF LIABILITY. Any Research Materials delivered pursuant
to this Agreement are understood to be experimental in nature and may have
hazardous properties. Recipient should assume that the compounds are dangerous
and should use appropriate precautions. PROVIDER MAKES NO REPRESENTATIONS, AND
EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO
THE RESEARCH MATERIALS FURNISHED TO RECIPIENT. THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE
USE OF THE RESEARCH MATERIALS WILL NOT INFRINGE ANY PATENT OR OTHER INTELLECTUAL
PROPERTY RIGHTS OF A THIRD PARTY.

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<PAGE>   18
7.    CONFIDENTIAL INFORMATION.

      7.1   DESIGNATION OF CONFIDENTIAL INFORMATION. Confidential Information
that is disclosed in writing or electronically shall be marked with a legend
indicating its confidential status. Confidential Information that is disclosed
orally or visually shall be documented in a written notice prepared by the
Disclosing Party and delivered to the Receiving Party within ***** of the date
of disclosure; such notice shall summarize the Confidential Information
disclosed to the Receiving Party and reference the time and place of disclosure.

      7.2   OBLIGATIONS OF RECEIVING PARTY. The Receiving Party agrees that it
shall:

            (i)   maintain all Confidential Information in strict confidence,
                  except that the Receiving Party may disclose or permit the
                  disclosure of any Confidential Information to (A) its
                  Affiliates, directors, officers, employees, consultants, and
                  advisors, (B) solely with respect to Confidential Information
                  specific to Collaboration Work Product, a third party for the
                  purposes described in Section 3.7 and (C) solely with respect
                  to Confidential Information specific to Targeted Compounds, a
                  sublicensee of such party's rights to such Targeted Compounds
                  under Section 5.3.2(iii), in each case which recipients are
                  obligated to maintain the confidential nature of such
                  Confidential Information and need to know such Confidential
                  Information for the purposes set forth in this Agreement;

            (ii)  use all Confidential Information solely for the purposes of
                  this Agreement and the permitted uses set forth in Section
                  7.6.; and

            (iii) allow permitted recipients under Section 7.2(i) to reproduce
                  the Confidential Information only to the extent necessary to
                  effect the purposes set forth in this Agreement, with all such
                  reproductions being considered Confidential Information.

      7.3   EXCEPTIONS. The obligations of the Receiving Party under Section
7.2. above shall not apply to the extent that the Receiving Party can
demonstrate that certain Confidential Information:

            (i)   was in the public domain prior to the time of its disclosure
                  under this Agreement;

            (ii)  entered the public domain after the time of its disclosure
                  under this Agreement through means other than an unauthorized
                  disclosure resulting from an act or omission by the Receiving
                  Party;

            (iii) was independently developed or discovered by the Receiving
                  Party without use of any Confidential Information of the
                  Disclosing Party; or

            (iv)  is or was disclosed to the Receiving Party at any time,
                  whether prior to or after the time of its disclosure under
                  this Agreement, by a third party having no fiduciary
                  relationship with the Disclosing Party and having no
                  obligation of

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<PAGE>   19
                  confidentiality or non-use to the Disclosing Party with
                  respect to such Confidential Information.

      7.4   PERMITTED DISCLOSURE. Notwithstanding any other provision of this
Agreement, disclosure of Confidential Information shall not be precluded if such
disclosure is required to comply with applicable laws or regulations (such as
disclosure to the FDA or the United States Patent and Trademark Office or to
their foreign equivalents), or to comply with a court or administrative order,
provided that the Disclosing Party receives prior written notice of such
disclosure and that the Receiving Party takes all reasonable and lawful actions
to obtain confidential treatment for such disclosure and, if possible, to
minimize the extent of such disclosure.

      7.5   RETURN OF CONFIDENTIAL INFORMATION. Upon the termination of this
Agreement, or earlier at the request of the Disclosing Party, the Receiving
Party shall return to the Disclosing Party all originals, copies, and summaries
of documents, materials, and other tangible manifestations of Confidential
Information in the possession or control of the Receiving Party, except that the
Receiving Party may retain one copy of the Confidential Information in the
possession of its legal counsel solely for the purpose of monitoring its
obligations under this Agreement.

      7.6   PERMITTED USE OF INFORMATION. ACADIA and ArQule *****. Under no
circumstances may either party use any information from lead optimization
activities or preclinical development activities for any purpose other than the
Collaboration.

      7.7   SURVIVAL OF OBLIGATIONS. The obligations set forth in this Article
shall remain in effect for an item of Confidential Information for a period of
***** after the date upon which a Receiving Party first received that
Confidential Information, except that the obligation of the Receiving Party to
return Confidential Information to the Disclosing Party shall survive until
fulfilled.

8.    INDEMNIFICATION AND INSURANCE.

      8.1   GENERAL INDEMNIFICATION. Each party (the "INDEMNIFYING PARTY") shall
indemnify and hold harmless the other party, its Affiliates, and their
respective directors, officers, employees and agents (collectively, the
"INDEMNITEES") from and against all claims, expenses or liability of whatever
nature arising from any default, act, omission, or negligence of the
Indemnifying Party, its agents or employees, or others exercising rights by,
through, or under the Indemnifying Party, or the failure of the Indemnifying
Party or such persons to comply with any applicable laws, rules, regulations,
codes, ordinances or directives of governmental authorities, in each case to the
extent the same are related, directly or indirectly, to the Collaboration
described herein; provided, however, that in no event shall the Indemnifying
Party be obligated under this section to indemnify the Indemnitees to the extent
that such claim, expense or liability results from any omission, fault,
negligence, or other misconduct of any of the Indemnitees.

      8.2   PRODUCT LIABILITY INDEMNIFICATION. Each Indemnifying Party further
agrees to defend, indemnify, and hold the Indemnitees harmless from all costs,
judgments, liabilities, and

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<PAGE>   20
damages assessed by a court of competent jurisdiction arising from claims
asserted by a third party against the Indemnitees as a result of (i) actual or
asserted violations of any applicable law or regulation by the Indemnifying
Party, its Affiliates, sublicensees, or third party manufacturers by virtue of
which the Collaboration Products, or any product containing as one of its
constituents any Targeted Compound, manufactured, distributed, or sold shall be
alleged or determined to be adulterated, misbranded, mislabeled, or otherwise
not in compliance with such applicable law or regulation; (ii) claims for bodily
injury, death, or property damage attributable to the manufacture, distribution,
sale, or use of the Collaboration Products, or any product containing as one of
its constituents any Targeted Compound, by the Indemnifying Party, or by its
Affiliates, sublicensees, or third party manufacturers; or (iii) a recall
ordered by a governmental agency, or required by a confirmed failure, as
reasonably determined by the parties, of Collaboration Products, or any product
containing as one of its constituents any Targeted Compound, manufactured,
distributed, or sold by the Indemnifying Party, or by its Affiliates,
sublicensees or third party manufacturers; provided, however, that in no event
shall the Indemnifying Party be obligated under this section to indemnify the
Indemnitees to the extent that such claim, expense or liability results from any
omission, fault, negligence, or other misconduct of any of the Indemnitees.

      8.3   PROCEDURE. The Indemnitees agree to provide the Indemnifying Party
with prompt written notice of any claim, suit, action, demand, or judgment for
which indemnification is sought under this Agreement. If an Indemnitee fails to
provide such notice within a reasonable time, and if such failure prejudicially
affects the ability of the Indemnifying Party to defend such action, the
Indemnifying Party shall be relieved of its liability to such Indemnitee under
this Article 8. The Indemnifying Party agrees, at its own expense, to provide
attorneys reasonably acceptable to the Indemnitees to defend against any such
claim. The Indemnitees shall cooperate fully with the Indemnifying Party in such
defense and will permit the Indemnifying Party to conduct and control such
defense and the disposition of such claim, suit, or action (including all
decisions relative to litigation, appeal, and settlement); provided, however,
that any Indemnitee shall have the right to retain its own counsel, at the
expense of the Indemnifying Party, if representation of such Indemnitee by the
counsel retained by the Indemnifying Party would be inappropriate because of
actual or potential differences in the interests of such Indemnitee and any
other party represented by such counsel. The Indemnifying Party agrees to keep
the other party informed of the progress in the defense and disposition of such
claim and to consult with such party with regard to any proposed settlement.
Neither party may settle a claim or action for which indemnification is sought
under this Agreement without the consent of the other party if such settlement
would impose any monetary obligation on the other party or require the other
party to submit to an injunction or otherwise limit the other party, its
Affiliates or their respective directors, officers, employees or agents.

      8.4   INSURANCE. Each party shall maintain, and shall require its
Affiliates and sublicensees to maintain, adequate product liability insurance or
self insurance with respect to development, manufacture, and sale of
Collaboration Products, or any product containing as one of its constituents any
Targeted Compound, by such party in such amount as that party customarily
maintains with respect to sales of its other products, and in no event less than
a reasonable amount. Each party shall maintain, and shall require its Affiliates
and sublicensees to maintain, such insurance for so long as that party continues
to manufacture or sell the

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Collaboration Products, and thereafter for so long as that party maintains
insurance for itself covering such manufacture or sale.

9.    TERM AND TERMINATION.

      9.1   TERM. This Agreement shall commence on the Effective Date and shall
continue for a period of five (5) years unless earlier terminated pursuant to
this Article 9.

      9.2   TERMINATION BY PARTY. Either party may terminate this Agreement for
any reason upon ninety (90) days written notice to the other party. In addition,
the Steering Committee may terminate this Agreement at any time by mutual
agreement of the parties.

      9.3   DEADLOCK. As described in Subsection 2.2.6., this Agreement shall
automatically terminate sixty (60) days (or such longer period as the parties
mutually agree) after the Steering Committee deadlocks on any matter relating
only to specific activities under the Collaboration, unless the matter is
resolved by the Chief Executive Officers of each party during such time period.

      9.4   TERMINATION FOR DEFAULT. In the event that either party commits a
material breach of its obligations under this Agreement and fails to cure that
breach within ***** after receiving written notice thereof, the other party may
terminate this Agreement immediately upon written notice to the party in breach.

      9.5   FORCE MAJEURE. Neither party will be responsible for delays
resulting from acts beyond the control of such party, provided that the
nonperforming party uses commercially reasonable efforts to avoid or remove such
causes of nonperformance and continues performance hereunder with reasonable
dispatch whenever such causes are removed.

      9.6   DISPOSITION OF COLLABORATION WORK PRODUCT. Except as otherwise
agreed by the parties, the following provisions shall apply under the
circumstances specified in this Agreement or upon the expiration or termination
of this Agreement.

            9.6.1 COMMERCIAL PRODUCTS. If any Collaboration Work Product has
been successfully commercialized pursuant to Section 3.7., the parties shall
share Gross Revenues attributable to that Collaboration Work Product as set
forth in Section 4.2.

            9.6.2 RESIDUAL VALUE IN TARGETS AND COMPOUNDS. Except for
Collaboration Work Product that has been commercialized pursuant to Section
3.7., the parties will apportion rights in Reserved Targets, Reserved Compounds,
Committed Targets, and Committed Compounds as follows.

                  (i)   The Research Committee will establish Reserved Target
Sets, Committed Target Sets, Reserved Compound Sets, and Committed Compound Sets
as necessary or desirable to prevent significant overlap between the rights
granted to each party under this Subsection. For example, if two ACADIA Targets
are receptor subtypes and if the Available Active Compounds for those two ACADIA
Targets are similar enough to form a single Reserved Compound Set or Committed
Compound Set, the Research Committee may group the ACADIA Targets into a single
Reserved Target Set or Committed Target Set to minimize the risk of

                                       21
<PAGE>   22
conflicting Patent Rights filed by each party. As another example, if two
dissimilar ACADIA Targets are found to have activity with respect to Available
Active Compounds that are within a single chemotype and have substantial
homology, the Research Committee has discretion to establish two Reserved
Compound Sets or Committed Compound Sets (i.e., one for each ACADIA Target)
based on different structure-activity profiles that are identified for each
ACADIA Target.

                  (ii)  For Reserved Targets and the corresponding Reserved
Compounds that have met the requisite criteria for consideration as Committed
Targets and Committed Compounds but which the Research Committee has declined to
designate as Committed Targets and Committed Compounds, as described in
Subsection 3.4.2., *****.

                  (iii) For Committed Targets and the corresponding Committed
Compound Set(s) that the Research Committee has removed from the Collaboration
as described in Subsection 3.4.2. or Section 3.5. or which have not been
commercialized pursuant to Section 3.7. when the Agreement expires or
terminates, *****.

                  (iv)  Each party hereby agrees to assign, transfer, and convey
to the other party, or to grant such other party *****. Finally, each party
agrees to provide reasonable warranties of title, further assurances, and
similar customary provisions in connection with the grant of rights or licenses
under this Subsection.

                  (v)   The parties shall enter into a Compound License
Agreement in substantially the form of the Compound License Agreement dated May
10, 2000 between ACADIA and ArQule for each (a) Reserved Target or Reserved
Target Set and its corresponding Reserved Compounds or Reserved Compound Set and
(b) Committed Target or Committed Target Set and its corresponding Committed
Compounds or Committed Compound Set, for which such party obtains rights under
this Subsection. Each party acknowledges and agrees that the Compound License
Agreement provides for, among other things, an annual license maintenance fee in
the amount of ***** and a royalty of either *****.

            9.6.3 RIGHTS IN TARGETED COMPOUNDS. Except for Collaboration Work
Product that has been commercialized pursuant to Section 3.7., the rights of
each party to use Targeted Compounds continues after the Collaboration ends as
provided in Subsection 5.3.2., clause (iii), subject to the other provisions of
this Section 9.6.

      9.7   SURVIVAL. The following provisions shall survive the expiration or
termination of this Agreement: Articles 4, 6, 7, 8, and 10; Sections 5.1.2.,
5.3. (except 5.3.1), 9.6., 9.7., 11.7., and 11.9.

10.   DISPUTE RESOLUTION.

      10.1  PROCEDURES MANDATORY. Except as otherwise provided in Subsection
2.2.6., the parties agree that any dispute arising out of or relating to this
Agreement shall be resolved solely by means of the procedures set forth in this
Article, and that such procedures constitute legally binding obligations that
are an essential provision of this Agreement; provided, however, that all
procedures and deadlines specified in this Article may be modified by written
agreement of the parties. If either party fails to observe the procedures of
this Article, as modified by their written

    ***** Confidential Treatment has been requested for the marked portion.

                                       22
<PAGE>   23
agreement, the other party may bring an action for specific performance in any
court of competent jurisdiction.

      10.2  DISPUTE RESOLUTION PROCEDURES.

            10.2.1 NEGOTIATION. Except as otherwise provided in Subsection
2.2.6., in the event of any dispute arising out of or relating to this
Agreement, the affected party shall notify the other party, and the Steering
Committee shall attempt in good faith to resolve the matter within ***** after
the date such notice is received by the other party (the "NOTICE DATE"). Any
disputes not resolved by good faith discussions within the Steering Committee
shall be referred to senior executives of each party, who shall meet at a
mutually acceptable time and location within thirty ***** after the Notice Date
and attempt to negotiate a settlement.

            10.2.2 MEDIATION. If the matter remains unresolved within ***** days
after the Notice Date, or if the senior executives fail to meet within *****
after the Notice Date, either party may initiate mediation upon written notice
to the other party, whereupon both parties shall be obligated to engage in a
mediation proceeding under the then current Center for Public Resources ("CPR")
Model Procedure for Mediation of Business Disputes, except that specific
provisions of this Section shall override inconsistent provisions of the CPR
Model Procedure. The mediator will be selected from the CPR Panels of Neutrals.
If the parties cannot agree upon the selection of a mediator within ***** after
the Notice Date, then upon the request of either party, the CPR shall appoint
the mediator. The parties shall attempt to resolve the dispute through mediation
until one of the following occurs: (i) the parties reach a written settlement;
(ii) the mediator notifies the parties in writing that they have reached an
impasse; (iii) the parties agree in writing that they have reached an impasse;
or (iv) the parties have not reached a settlement within ***** after the Notice
Date.

            10.2.3 TRIAL WITHOUT JURY. If the parties fail to resolve the
dispute through mediation, or if neither party elects to initiate mediation,
each party shall have the right to pursue any other remedies legally available
to resolve the dispute; provided, however, that the parties expressly waive any
right to a jury trial in any legal proceeding under this Section.

      10.3  PRESERVATION OF RIGHTS PENDING RESOLUTION.

            10.3.1 PERFORMANCE TO CONTINUE. Each party shall continue to perform
its obligations under this Agreement pending final resolution of any dispute
arising out of or relating to this Agreement; provided, however, that a party
may suspend performance of its obligations during any period in which the other
party fails or refuses to perform its obligations.

            10.3.2 PROVISIONAL REMEDIES. Although the procedures specified in
this Article are the sole and exclusive procedures for the resolution of
disputes arising out of or relating to this Agreement, either party may seek a
preliminary injunction or other provisional equitable relief if, in its
reasonable judgment, such action is necessary to avoid irreparable harm to
itself or to preserve its rights under this Agreement.

            10.3.3 STATUTE OF LIMITATIONS. The parties agree that all applicable
statutes of limitation and time-based defenses (such as estoppel and laches)
shall be tolled while the

    ***** Confidential Treatment has been requested for the marked portion.

                                       23
<PAGE>   24
procedures set forth in Subsections 10.2.1. and 10.2.2. are pending. The parties
shall take any actions necessary to effectuate this result.

11.   MISCELLANEOUS.

      11.1  PUBLICITY. No press release, advertising, promotional sales
literature, or other promotional oral or written statements to the public in
connection with or alluding to work performed under this Agreement or the
relationship between the parties created by it, having or containing any
reference to ArQule or ACADIA, shall be made by either party without the prior
written approval of the other party, except for restatements of
previously-approved statements and disclosures required by applicable law or
regulation.

      11.2  RELATIONSHIP OF PARTIES. For the purposes of this Agreement, each
party is an independent contractor and not an agent or employee of the other
party. Neither party shall have authority to make any statements,
representations, or commitments of any kind, or to take any action which shall
be binding on the other party, except as may be explicitly provided for herein
or authorized in writing. In particular, (i) neither party shall represent to
creditors or vendors that such party has any authority to obligate or bind the
other party, and shall affirmatively correct any misconception to that effect
and (ii) neither party shall use the name of the other party in connection with
such transactions without the prior written consent of the other party, which
consent may be withheld in its sole discretion.

      11.3  COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.

      11.4  HEADINGS. All headings in this Agreement are for convenience only
and shall not affect the meaning of any provision hereof.

      11.5  BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective lawful successors and assigns.

      11.6  ASSIGNMENT. This Agreement may not be assigned by either party
without the prior written consent of the other party, except that either of the
parties may assign this Agreement to a successor in connection with the merger,
consolidation, or sale of all or substantially all of its assets or that portion
of its business pertaining to the subject matter of this Agreement; provided,
however, that in the event of such a transaction, no intellectual property
rights of any Affiliate or third party that is an acquiring party shall be
included in the technology subject to this Agreement.

      11.7  NOTICES. All notices, requests, demands and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given upon the date of receipt if
delivered by hand, recognized national overnight courier, confirmed facsimile
transmission, or registered or certified mail, return receipt requested, postage
prepaid, to the following addresses or facsimile numbers:

    ***** Confidential Treatment has been requested for the marked portion.

                                       24
<PAGE>   25
If to ACADIA:

                  ACADIA Pharmaceuticals
                  3911 Sorrento Valley Blvd.
                  San Diego, CA 92121-1402
                  Attn: Chief Executive Officer
                  Tel: (858) 320-8614
                  Fax: (858) 455-1751

            with a copy (which shall not constitute notice) to:

                  Pillsbury Madison & Sutro LLP
                  101 West Broadway, Suite 1800
                  San Diego, CA  92101-8219
                  Attn:  John M. Dunn
                  Tel: (858) 509-4015
                  Fax: (858) 236-1995

            If to ArQule:

                  ArQule, Inc.
                  19 Presidential Way
                  Woburn, MA  01801
                  Attn:  President
                  Tel: (781) 994-0300
                  Fax: (781) 503-0009

            with a copy (which shall not constitute notice) to:

                  ArQule, Inc.
                  19 Presidential Way
                  Woburn, MA  01801
                  Attn:  Legal Department
                  Tel: (781) 994-0300
                  Fax: (781) 994-0676

Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section.

      11.8  AMENDMENT AND WAIVER. This Agreement may be amended, supplemented,
or otherwise modified at any time, but only by means of a written instrument
signed by both parties. Any waiver of any rights or failure to act in a specific
instance shall relate only to such instance and shall not be construed as an
agreement to waive any rights or fail to act in any other instance, whether or
not similar.

      11.9  GOVERNING LAW. This Agreement and the legal relations among the
parties shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts irrespective of any conflict of laws principles.

                                       25
<PAGE>   26
      11.10 SEVERABILITY. In the event that any provision of this Agreement
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed as if such invalid or unenforceable
provision had not been included herein.

      11.11 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
and all prior or contemporaneous oral and prior written agreements and
understandings including, without limitation, the MTA.

      IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as a sealed instrument effective as of the date first above written.

                                    ACADIA PHARMACEUTICALS, INC.

                                    By:  /s/ Uli Hacksell, Ph.D.
                                       ----------------------------------------
                                          Uli Hacksell, Ph.D.
                                          Chief Executive Officer

                                    ARQULE, INC.
                                    By:  /s/ Stephen A. Hill, M.D.
                                       ----------------------------------------
                                          Stephen A. Hill , M.D.
                                          President and Chief Executive Officer

                                       26
<PAGE>   27
                                    EXHIBIT A

*****

    ***** Confidential Treatment has been requested for the marked portion.<PAGE>   1

                                                                   EXHIBIT 10.1

BANK OF GRANITE EMPLOYEE'S PROFIT SHARING RETIREMENT PLAN AND TRUST

<TABLE>
<CAPTION>
                                                                  Begins
                                                                 on Page
                                                                 -------
<S>                                                              <C>
Wachovia Defined Contribution Plan and Trust (master plan)          52

Adoption Agreement                                                 145
</TABLE>

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 51
<PAGE>   2

                                                                    EXHIBIT 10.1

                                    WACHOVIA

                                    DEFINED
                                  CONTRIBUTION
                                 PLAN AND TRUST

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 52
<PAGE>   3

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                             Page
                                                                             ----
<S>     <C>                                                                  <C>
ARTICLE I:   DEFINITIONS                                                       6

ARTICLE II:  TOP HEAVY PROVISIONS AND ADMINISTRATION

        2.1        TOP HEAVY PLAN REQUIREMENTS                                17
        2.2        DETERMINATION OF TOP HEAVY STATUS                          18
        2.3        POWERS AND RESPONSIBILITIES OF THE EMPLOYER                21
        2.4        DESIGNATION OF ADMINISTRATIVE AUTHORITY                    21
        2.5        ALLOCATION AND DELEGATION OF RESPONSIBILITIES              21
        2.6        POWERS AND DUTIES OF THE ADMINISTRATOR                     22
        2.7        RECORDS AND REPORTS                                        23
        2.9        INFORMATION FROM EMPLOYER                                  23
        2.10       PAYMENT OF EXPENSES                                        23
        2.11       MAJORITY ACTIONS                                           23
        2.12       CLAIMS PROCEDURE                                           23
        2.13       CLAIMS REVIEW PROCEDURE                                    24

ARTICLE III:  ELIGIBILITY

        3.1        CONDITIONS OF ELIGIBILITY                                  24
        3.2        EFFECTIVE DATE OF PARTICIPATION                            24
        3.3        DETERMINATION OF ELIGIBILITY                               25
        3.4        TERMINATION OF ELIGIBILITY                                 25
        3.5        OMISSION OF ELIGIBLE EMPLOYEE                              25
        3.6        INCLUSION OF INELIGIBLE EMPLOYEE                           25
        3.7        CONTROL OF ENTITIES BY OWNER-EMPLOYEE                      25

ARTICLE IV:  CONTRIBUTION AND ALLOCATION

        4.1        FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION            26
        4.2        TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION                 27
        4.3        ALLOCATION OF CONTRIBUTION, FORFEITURES AND
                   EARNINGS                                                   27
        4.4        MAXIMUM ANNUAL ADDITIONS                                   32
        4.5        ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS                  38
        4.6        TRANSFERS FROM QUALIFIED PLANS                             38
</TABLE>

                                                                          Page 2

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 53
<PAGE>   4

<TABLE>
<S>     <C>                                                                  <C>
        4.7        VOLUNTARY CONTRIBUTIONS                                    39
        4.8        DIRECTED INVESTMENT ACCOUNT                                40
        4.9        QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS                 40
        4.10       ACTUAL CONTRIBUTION PERCENTAGE TESTS                       41
        4.11       INTEGRATION IN MORE THAN ONE PLAN                          41

ARTICLE V:  VALUATIONS

        5.1        VALUATION OF THE TRUST FUND                                41
        5.2        METHOD OF VALUATION                                        41

ARTICLE VI:  DETERMINATION AND DISTRIBUTION OF BENEFITS

        6.1        DETERMINATION OF BENEFITS UPON RETIREMENT                  42
        6.2        DETERMINATION OF BENEFITS UPON DEATH                       42
        6.3        DETERMINATION OF BENEFITS IN EVENT OF DISABILITY           43
        6.4        DETERMINATION OF BENEFITS UPON TERMINATION                 43
        6.5        DISTRIBUTION OF BENEFITS                                   46
        6.6        DISTRIBUTION OF BENEFITS UPON DEATH                        50
        6.7        TIME OF SEGREGATION OR DISTRIBUTION                        53
        6.8        DISTRIBUTION FOR MINOR BENEFICIARY                         54
        6.9        LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN             54
        6.10       PRE-RETIREMENT DISTRIBUTION                                54
        6.11       ADVANCE DISTRIBUTION FOR HARDSHIP                          54
        6.12       LIMITATIONS ON BENEFITS AND DISTRIBUTIONS                  55
        6.13       SPECIAL RULE FOR NON-ANNUITY PLANS                         55

ARTICLE VII:  TRUSTEE

        7.1        BASIC RESPONSIBILITIES OF THE TRUSTEE                      56
        7.2        INVESTMENT POWERS AND DUTIES OF THE TRUSTEE                57
        7.3        OTHER POWERS OF THE TRUSTEE                                58
        7.4        LOANS TO PARTICIPANTS                                      61
        7.5        DUTIES OF THE TRUSTEE REGARDING PAYMENTS                   62
        7.6        TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES              62
        7.7        ANNUAL REPORT OF THE TRUSTEE                               63
        7.8        AUDIT                                                      63
        7.9        RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE             64
        7.10       TRANSFER OF INTEREST                                       64
</TABLE>

                                                                          Page 3

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 54
<PAGE>   5

<TABLE>
<S>    <C>                                                                    <C>
        7.11       TRUSTEE INDEMNIFICATION                                    65
        7.12       EMPLOYER SECURITIES AND REAL PROPERTY                      65
        7.13       POWERS AND DUTIES OF THE CUSTODIAN                         65
        7.14       DIRECT ROLLOVER                                            65

ARTICLE VIII:  AMENDMENT, TERMINATION, AND MERGERS

        8.1        AMENDMENT                                                  66
        8.2        TERMINATION                                                67
        8.3        MERGER OR CONSOLIDATION                                    67

ARTICLE IX:  MISCELLANEOUS

        9.1        EMPLOYER ADOPTIONS                                         67
        9.2        PARTICIPANT'S RIGHTS                                       68
        9.3        ALIENATION                                                 68
        9.4        CONSTRUCTION OF PLAN                                       68
        9.5        GENDER AND NUMBER                                          68
        9.6        LEGAL ACTION                                               69
        9.7        PROHIBITION AGAINST DIVERSION OF FUNDS                     69
        9.8        BONDING                                                    69
        9.9        EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE                 69
        9.10       INSURER'S PROTECTIVE CLAUSE                                70
        9.11       RECEIPT AND RELEASE FOR PAYMENTS                           70
        9.12       ACTION BY THE EMPLOYER                                     70
        9.13       NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY         70
        9.14       HEADINGS                                                   70
        9.15       APPROVAL BY INTERNAL REVENUE SERVICE                       71
        9.16       UNIFORMITY                                                 71
        9.17       PAYMENT OF BENEFITS                                        71

ARTICLE X:  PARTICIPATING EMPLOYERS

       10.1        ELECTION TO BECOME A PARTICIPATING EMPLOYER                72
       10.2        REQUIREMENTS OF PARTICIPATING EMPLOYERS                    72
       10.3        DESIGNATION OF AGENT                                       72
       10.4        EMPLOYEE TRANSFERS                                         72
       10.5        PARTICIPATING EMPLOYER'S CONTRIBUTION AND
                   FORFEITURES                                                73
</TABLE>

                                                                          Page 4

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 55
<PAGE>   6

<TABLE>
<S>    <C>                                                                    <C>
       10.6        AMENDMENT                                                  73
       10.7        DISCONTINUANCE OF PARTICIPATION                            73
       10.8        ADMINISTRATOR'S AUTHORITY                                  73
       10.9        PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE          73

ARTICLE XI:  CASH OR DEFERRED PROVISIONS

       11.1        FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION            74
       11.2        PARTICIPANT'S SALARY REDUCTION ELECTION                    74
       11.3        ALLOCATION OF CONTRIBUTION, FORFEITURES AND
                   EARNINGS                                                   78
       11.4        ACTUAL DEFERRAL PERCENTAGE TESTS                           80
       11.5        ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS             81
       11.6        ACTUAL CONTRIBUTION PERCENTAGE TESTS                       84
       11.7        ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS         86
       11.8        ADVANCE DISTRIBUTION FOR HARDSHIP                          89

AMENDMENTS FOLLOW PAGE 90

ADOPTION AGREEMENT FOLLOWS PAGE 93
</TABLE>

                                                                          Page 5

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 56
<PAGE>   7

                                    ARTICLE I
                                   DEFINITIONS

As used in this Plan, the following words and phrases shall have the meanings
set forth herein unless a different meaning is clearly required by the context:

1.1      "Act" means the Employee Retirement Income Security Act of 1974, as it
         may be amended from time to time.

1.2      "Administrator" means the person(s) or entity designated by the
         Employer pursuant to Section 2.4 to administer the Plan on behalf of
         the Employer.

1.3      "Adoption Agreement" means the separate Agreement which is executed by
         the Employer and accepted by the Trustee which sets forth the elective
         provisions of this Plan and Trust as specified by the Employer.

1.4      "Affiliated Employer" means the Employer and any corporation which is a
         member of a controlled group of corporations (as defined in Code
         Section 414(b)) which includes the Employer; any trade or business
         (whether or not incorporated) which is under common control (as defined
         in Code Section 414(c)) with the Employer; any organization (whether or
         not incorporated) which is a member of an affiliated service group (as
         defined in Code Section 414(m)) which includes the Employer; and any
         other entity required to be aggregated with the Employer pursuant to
         Regulations under Code Section 414(o).

1.5      "Aggregate Account" means with respect to each Participant, the value
         of all accounts maintained on behalf of a Participant, whether
         attributable to Employer or Employee contributions, subject to the
         provisions of Section 2.2.

1.6      "Anniversary Date" means the anniversary date specified in C3 of the
         Adoption Agreement.

1.7      "Beneficiary" means the person to whom a share of a deceased
         Participant's interest in the Plan is payable, subject to the
         restrictions of Sections 6.2 and 6.6.

1.8      "Code" means the Internal Revenue Code of 1986, as amended or replaced
         from time to time.

1.9      "Compensation" with respect to any Participant means one of the
         following:

         (a)      Compensation on Form W-2. Compensation is defined as wages, as
                  defined in Code Section 3401(a), and all other payments of
                  Compensation to an Employee by the Employer (in the course of
                  the Employer's trade or business) for which the Employer is
                  required to furnish the Employee a written statement under
                  Code Sections 6041(d) and 6051(a)(3). Compensation must be
                  determined without regard to any rules under Code Section
                  3401(a) that limit the remuneration included in wages based on
                  the nature or location of the employment or the services
                  performed (such as the exception for agricultural labor in
                  Section 3401(a)(2)). Compensation for any Self-Employed
                  Individual shall be equal to his Earned Income.

         (b)      Code Section 3401(a) Wages. Compensation is defined as wages
                  within the meaning of Code Section 3401(a) for the purposes of
                  income tax withholding at the source but determined without
                  regard to any rules that limit the remuneration included in
                  wages based on the nature or location of the employment or the
                  services performed (such as the exception for agricultural
                  labor in Code Section 3401(a)(2)).

                                                                          Page 6

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 57
<PAGE>   8

         (c)      415 Safe-Harbor Compensation. Compensation is defined as
                  wages, salaries, and fees for professional services and other
                  amounts received (without regard to whether or not an amount
                  is paid in cash) for personal services actually rendered in
                  the course of employment with the Employer maintaining the
                  Plan to the extent that the amounts are includible in gross
                  income (including, but not limited to, commissions paid
                  salesmen, compensation for services on the basis of a
                  percentage of profits, commissions on insurance premiums,
                  tips, bonuses, fringe benefits, and reimbursements, or other
                  expense allowances under a nonaccountable plan (as described
                  in Regulation Section 1.62-2(c)), and excluding the following:

                  (1)      Employer contributions to a plan of Deferred
                           Compensation which are not includible in the
                           Employee's gross income for the taxable year in which
                           contributed, or Employer contributions under a
                           simplified employee pension plan to the extent such
                           contributions are deductible by the Employee, or any
                           distributions from a plan of Deferred Compensation;

                  (2)      Amounts realized from the exercise of a nonqualified
                           stock option, or when restricted stock (or property)
                           held by the Employee either becomes freely
                           transferable or is no longer subject to a substantial
                           risk of forfeiture;

                  (3)      Amounts realized from the sale, exchange or other
                           disposition of stock acquired under a qualified stock
                           option; and

                  (4)      Other amounts which received special tax benefits or
                           contributions made by the Employer (whether or not
                           under a salary reduction agreement) towards the
                           purchase of an annuity contract described in Code
                           Section 403(b) (whether or not the contributions are
                           actually excludable from the gross income of the
                           Employee).

                           In addition, if specified in the Adoption Agreement,
                           Compensation for all Plan purposes shall also include
                           compensation which is not currently includible in the
                           Participant's gross income by reason of the
                           application of Code Section 125, 402(e)(3),
                           402(h)(1)(B), or 403(b).

                           Compensation in excess of $200,000 shall be
                           disregarded. Such amount shall be adjusted at the
                           same time and in such manner as permitted under Code
                           Section 415(d). In applying this limitation, the
                           family group of a Highly Compensated Participant who
                           is subject to the Family Member aggregation rules of
                           Code Section 414(q)(6) because such Participant is
                           either a "five percent owner" of the Employer or one
                           of the ten (10) Highly Compensated Employees paid the
                           greatest "415 Compensation" during the year, shall be
                           treated as a single Participant, except that for this
                           purpose Family Members shall include only the
                           affected Participant's spouse and any lineal
                           descendants who have not attained age nineteen (19)
                           before the close of the year. If, as a result of the
                           application of such rules, the adjusted $200,000
                           limitation is exceeded, then (except for purposes of
                           determining the portion of Compensation up to the
                           integration level if this plan is integrated), the
                           limitation shall be prorated among the affected
                           individuals in proportion to each such individuals
                           Compensation as determined under this Section prior
                           to the application of this limitation.

                                                                          Page 7

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 58
<PAGE>   9

                           For Plan Years beginning prior to January 1, 1989,
                           the $200,000 limit (without regard to Family Member
                           aggregation) shall apply only for Top Heavy Plan
                           Years and shall not be adjusted.

1.10     "Contract" or "Policy" means any life insurance policy, retirement
         income policy, or annuity contract (group or individual) issued by the
         Insurer. In the event of any conflict between the terms of this Plan
         and the terms of any insurance contract purchased hereunder, the Plan
         provisions shall control.

1.11     "Deferred Compensation" means, with respect to any Participant, that
         portion of the Participant's total Compensation which has been
         contributed to the Plan in accordance with the Participant's deferral
         election pursuant to Section 11.2.

1.12     "Early Retirement Date" means the date specified in the Adoption
         Agreement on which a Participant or Former Participant has satisfied
         the age and service requirements specified in the Adoption Agreement
         (Early Retirement Age). A Participant shall become fully Vested upon
         satisfying this requirement if still employed at his Early Retirement
         Age.

         A Former Participant who terminates employment after satisfying the
         service requirement for Early Retirement and who thereafter reaches the
         age requirement contained herein shall be entitled to receive his
         benefits under this Plan.

1.13     "Earned Income" means with respect to a Self-Employed Individual, the
         net earnings from self-employment in the trade or business with respect
         to which the Plan is established, for which the personal services of
         the individual are a material income-producing factor. Net earnings
         will be determined without regard to items not included in gross income
         and the deductions allocable to such items. Net earnings are reduced by
         contributions by the Employer to a qualified Plan to the extent
         deductible under Code Section 404. In addition, for Plan Years
         beginning after December 31, 1989, net earnings shall be determined
         with regard to the deduction allowed to the Employer by Code Section
         164(f).

1.14     "Elective Contribution" means the Employer's contributions to the Plan
         that are made pursuant to the Participant's deferral election pursuant
         to Section 11.2. In addition, if selected in E3 of the Adoption
         Agreement, the Employer's matching contribution made pursuant to
         Section 11.1(b) shall be considered an Elective Contribution for
         purposes of the Plan. Elective Contributions shall be subject to the
         requirements of Sections 11.2(b) and 11.2(c) and shall further be
         required to satisfy the discrimination requirements of Regulation
         1.401(k)-l(b)(3), the provisions of which are specifically incorporated
         herein by reference.

1.15     "Eligible Employee" means any Employee specified in Dl of the Adoption
         Agreement.

1.16     "Employee" means any person who is employed by the Employer, but
         excludes any person who is employed as an independent contractor. The
         term Employee shall also include Leased Employees as provided in Code
         Section 414(n) or (o).

         Except as provided in the Non-Standardized Adoption Agreement, all
         Employees of all entities which are an Affiliated Employer will be
         treated as employed by a single employer.

1.17     "Employer" means the entity specified in the Adoption Agreement, any
         Participating Employer (as defined in Section 10.1) which shall adopt
         this Plan, any successor which shall maintain this Plan and any
         predecessor which has maintained this Plan.

                                                                          Page 8

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 59
<PAGE>   10

1.18     "Excess Compensation" means, with respect to a Plan that is integrated
         with Social Security, a Participant's Compensation which is in excess
         of the amount set forth in the Adoption Agreement.

1.19     "Excess Contributions" means, with respect to a Plan Year, the excess
         of Elective Contributions and Qualified Non-Elective Contributions made
         on behalf of Highly Compensated Participants for the Plan Year over the
         maximum amount of such contributions permitted under Section 11.4(a).

1.20     "Excess Deferred Compensation" means, with respect to any taxable year
         of a Participant, the excess of the aggregate amount of such
         Participant's Deferred Compensation and the elective deferrals pursuant
         to Section 11.2(f) actually made on behalf of such Participant for such
         taxable year, over the dollar limitation provided for in Code Section
         402(g), which is incorporated herein by reference.

1.21     "Family Member" means, with respect to an affected Participant, such
         Participant's spouse, and such Participant's lineal descendants and
         ascendants and their spouses, all as described in Code Section
         414(q)(6)(B).

1.22     "Fiduciary" means any person who (a) exercises any discretionary
         authority or discretionary control respecting management of the Plan or
         exercises any authority or control respecting management or disposition
         of its assets, (b) renders investment advice for a fee or other
         compensation, direct or indirect, with respect to any monies or other
         property of the Plan or has any authority or responsibility to do so,
         or (c) has any discretionary authority or discretionary responsibility
         in the administration of the Plan, including, but not limited to, the
         Trustee, the Employer and its representative body, and the
         Administrator.

1.23     "Fiscal Year" means the Employer's accounting year as specified in the
         Adoption Agreement.

1.24     "Forfeiture" means that portion of a Participant's Account that is not
         vested, and occurs on the earlier of:

         (a)      the distribution of the entire Vested portion of a
                  Participant's Account, or

         (b)      the last day of the Plan Year in which the Participant incurs
                  five (5) consecutive 1-Year Breaks in Service.

         Furthermore, for purposes of paragraph (a) above, in the case of a
         Terminated Participant whose Vested benefit is zero, such Terminated
         Participant shall be deemed to have received a distribution of his
         Vested benefit upon his termination of employment. In addition, the
         term Forfeiture shall also include amounts deemed to be Forfeitures
         pursuant to any other provision of this Plan.

1.25     "Former Participant" means a person who has been a Participant, but who
         has ceased to be a Participant for any reason.

1.26     "414(s) Compensation" with respect to any Employee means his
         Compensation as defined in Section 1.9.

         In addition, if specified in the Adoption Agreement, "414(s)
         Compensation" shall also include compensation which is not currently
         includible in the Participant's gross income by reason of the
         application of Code Section 125, 402(e)(3), 402(h)(1)(B), or 403(b),
         plus Elective Contributions attributable to Deferred Compensation
         recharacterized as voluntary Employee contributions pursuant to Section
         11.5(a).

1.27     "415 Compensation" means compensation as defined in Section 4.4(f)(2).

                                                                          Page 9

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 60
<PAGE>   11

1.28     "Highly Compensated Employee" means an Employee described in Code
         Section 414(q) and the Regulations thereunder and generally means an
         Employee who performed services for the Employer during the
         "determination year" and is in one or more of the following groups:

         (a)      Employees who at any time during the "determination year" or
                  "look-back year" were "five percent owners" as defined in
                  Section 1.35(c).

         (b)      Employees who received "415 Compensation" during the
                  "look-back year" from the Employer in excess of $75,000.

         (c)      Employees who received "415 Compensation" during the
                  "look-back year" from the Employer in excess of $50,000 and
                  were in the Top Paid Group of Employees for the Plan Year.

         (d)      Employees who during the "look-back year" were officers of the
                  Employer (as that term is defined within the meaning of the
                  Regulations under Code Section 416) and received "415
                  Compensation" during the "look-back year" from the Employer
                  greater than fifty percent (50%) of the limit in effect under
                  Code Section 415(b)(1)(A) for any such Plan Year. The number
                  of officers shall be limited to the lesser of (i) fifty (50)
                  employees; or (ii) the greater of three (3) employees or ten
                  percent (10%) of all employees. If the Employer does not have
                  at least one officer whose annual "415 Compensation" is in
                  excess of fifty percent (50%) of the Code Section 415(b)(1)(A)
                  limit, then the highest paid officer of the Employer will be
                  treated as a Highly Compensated Employee.

         (e)      Employees who are in the group consisting of the 100 Employees
                  paid the greatest "415 Compensation" during the "determination
                  year" and are also described in (b), (c) or (d) above when
                  these paragraphs are modified to substitute "determination
                  year" for "look-back year."

         The "determination year" shall be the Plan Year for which testing is
         being performed, and the "look-back year" shall be the immediately
         preceding twelve-month period. However, if the Plan Year is a calendar
         year, or if another Plan of the Employer so provides, then the
         "look-back year" shall be the calendar year ending with or within the
         Plan Year for which testing is being performed, and the "determination
         year" (if applicable) shall be the period of time, if any, which
         extends beyond the "look-back year" and ends on the last day of the
         Plan Year for which testing is being performed (the "lag period"). With
         respect to this election, it shall be applied on a uniform and
         consistent basis to all plans, entities, and arrangements of the
         Employer.

         For purposes of this Section, the determination of "415 Compensation"
         shall be made by including amounts that would otherwise be excluded
         from a Participant's gross income by reason of the application of Code
         Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer
         contributions made pursuant to a salary reduction agreement, Code
         Section 403(b). Additionally, the dollar threshold amounts specified in
         (b) and (c) above shall be adjusted at such time and in such manner as
         is provided in Regulations. In the case of such an adjustment, the
         dollar limits which shall be applied are those for the calendar year in
         which the "determination year" or "look back year" begins.

         In determining who is a Highly Compensated Employee, Employees who are
         non-resident aliens and who received no earned income (within the
         meaning of Code Section 911(d)) from the Employer constituting United
         States source income within the meaning of Code Section 861(a)(3) shall
         not be treated as Employees. Additionally, all Affiliated Employers
         shall be taken into account as a single employer and Leased Employees
         within the meaning of Code

                                                                         Page 10
Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 61
<PAGE>   12

         Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless
         such Leased Employees are covered by a plan described in Code Section
         414(n)(5) and are not covered in any qualified plan maintained by the
         Employer. The exclusion of Leased Employees for this purpose shall be
         applied on a uniform and consistent basis for all of the Employer's
         retirement plans. In addition, Highly Compensated Former Employees
         shall be treated as Highly Compensated Employees without regard to
         whether they performed services during the "determination year."

1.29     "Highly Compensated Former Employee" means a former Employee who had a
         separation year prior to the "determination year" and was a Highly
         Compensated Employee in the year of separation from service or in any
         "determination year" after attaining age fifty-five (55).
         Notwithstanding the foregoing, an Employee who separated from service
         prior to 1987 will be treated as a Highly Compensated Former Employee
         only if during the separation year (or year preceding the separation
         year) or any year after the Employee attains age fifty-five (55) (or
         the last year ending before the Employee's 55th birthday), the Employee
         either received "415 Compensation" in excess of $50,000 or was a "five
         percent owner." For purposes of this Section, "determination year,"
         "415 Compensation" and "five percent owner" shall be determined in
         accordance with this Section 1.29. Highly Compensated Former Employees
         shall be treated as Highly Compensated Employees. The method set forth
         in this Section for determining who is a "Highly Compensated Former
         Employee" shall be applied on a uniform and consistent basis for all
         purposes for which the Code Section 414(q) definition is applicable.

1.30     "Highly Compensated Participant" means any Highly Compensated Employee
         who is eligible to participate in the Plan.

1.31     "Hour of Service" means (1) each hour for which an Employee is directly
         or indirectly compensated or entitled to compensation by the Employer
         for the performance of duties during the applicable computation period;
         (2) each hour for which an Employee is directly or indirectly
         compensated or entitled to compensation by the Employer (irrespective
         of whether the employment relationship has terminated) for reasons
         other than performance of duties (such as vacation, holidays, sickness,
         jury duty, disability, lay-off, military duty or leave of absence)
         during the applicable computation period; (3) each hour for which back
         pay is awarded or agreed to by the Employer without regard to
         mitigation of damages. The same Hours of Service shall not be credited
         both under (1) or (2), as the case may be, and under (3).

         Notwithstanding the above, (i) no more than 501 Hours of Service are
         required to be credited to an Employee on account of any single
         continuous period during which the Employee performs no duties (whether
         or not such period occurs in a single computation period); (ii) an hour
         for which an Employee is directly or indirectly paid, or entitled to
         payment, on account of a period during which no duties are performed is
         not required to be credited to the Employee if such payment is made or
         due under a plan maintained solely for the purpose of complying with
         applicable worker's compensation, or unemployment compensation or
         disability insurance laws; and (iii) Hours of Service are not required
         to be credited for a payment which solely reimburses an Employee for
         medical or medically related expenses incurred by the Employee.

         For purposes of this Section, a payment shall be deemed to be made by
         or due from the Employer regardless of whether such payment is made by
         or due from the Employer directly, or indirectly through, among others,
         a trust fund, or insurer, to which the Employer contributes or pays
         premiums and regardless of whether contributions made or due to the
         trust fund, insurer, or other entity are for the benefit of particular
         Employees or are on behalf of a group of Employees in the aggregate.

         An Hour of Service must be counted for the purpose of determining a
         Year of Service, a year of participation for purposes of accrued
         benefits, a 1-Year Break in Service, and employment

                                                                         Page 11

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 62
<PAGE>   13

         commencement date (or reemployment commencement date). The provisions
         of Department of Labor Regulations Sections 2530.200b-2(b) and (c) are
         incorporated herein by reference.

         Hours of Service will be credited for employment with all Affiliated
         Employers and for any individual considered to be a Leased Employee
         pursuant to Code Sections 414(n) or 414(o) and the Regulations
         thereunder.

         Hours of Service will be determined on the basis of the method selected
         in the Adoption Agreement.

1.32     "Insurer" means any legal reserve insurance company which shall issue
         one or more policies under the Plan.

1.33     "Investment Manager" means an entity that (a) has the power to manage,
         acquire, or dispose of Plan assets and (b) acknowledges fiduciary
         responsibility to the Plan in writing. Such entity must be a person,
         firm, or corporation registered as an investment adviser under the
         Investment Advisers Act of 1940, a bank, or an insurance company.

1.34     "Joint and Survivor Annuity" means an annuity for the life of a
         Participant with a survivor annuity for the life of the Participant's
         spouse which is not less than one-half, nor greater than the amount of
         the annuity payable during the joint lives of the Participant and the
         Participant's spouse. The Joint and Survivor Annuity will be the amount
         of benefit which can be purchased with the Participant's Vested
         interest in the Plan.

1.35     "Key Employee" means an Employee as defined in Code Section 416(i) and
         the Regulations thereunder. Generally, any Employee or former Employee
         (as well as each of his Beneficiaries) is considered a Key Employee if
         he, at any time during the Plan Year that contains the "Determination
         Date" or any of the preceding four (4) Plan Years, has been included in
         one of the following categories:

         (a)      an officer of the Employer (as that term is defined within the
                  meaning of the Regulations under Code Section 416) having
                  annual "415 Compensation" greater than fifty (50) percent of
                  the amount in effect under Code Section 415(b)(1)(A) for any
                  such Plan Year.

         (b)      one of the ten (10) employees having annual "415 Compensation"
                  from the Employer for a Plan Year greater than the dollar
                  limitation in effect under Code Section 415(c)(1)(A) for the
                  calendar year in which such Plan Year ends and owning (or
                  considered as owning within the meaning of Code Section 318)
                  both more than one-half percent interest and the largest
                  interests in the Employer.

         (c)      a "five percent owner" of the Employer. "Five percent owner"
                  means any person who owns (or is considered as owning within
                  the meaning of Code Section 318) more than five percent (5%)
                  of the outstanding stock of the Employer or stock possessing
                  more than five percent (5%) of the total combined voting power
                  of all stock of the Employer or, in the case of an
                  unincorporated business, any person who owns more than five
                  percent (5%) of the capital or profits interest in the
                  Employer. In determining percentage ownership hereunder,
                  employers that would otherwise be aggregated under Code
                  Sections 414(b), (c), (m) and (o) shall be treated as separate
                  employers.

         (d)      a "one percent owner" of the Employer having an annual "415
                  Compensation" from the Employer of more than $150,000. "One
                  percent owner" means any person who owns (or is considered as
                  owning within the meaning of Code Section 318) more than one
                  percent (1%) of the outstanding stock of the Employer or stock
                  possessing more than one percent (1%) of the total combined

                                                                         Page 12

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 63
<PAGE>   14

                  voting power of all stock of the Employer or, in the case of
                  an unincorporated business, any person who owns more than one
                  percent (1%) of the capital or profits interest in the
                  Employer. In determining percentage ownership hereunder,
                  employers that would otherwise be aggregated under Code
                  Sections 414(b), (c), (m) and (o) shall be treated as separate
                  employers. However, in determining whether an individual has
                  "415 Compensation" of more than $150,000, "415 Compensation"
                  from each employer required to be aggregated under Code
                  Sections 414(b), (c), (m) and (o) shall be taken into account.

         For purposes of this Section, the determination of "415 Compensation"
         shall be made by including amounts that would otherwise be excluded
         from a Participant's gross income by reason of the application of Code
         Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer
         contributions made pursuant to a salary reduction agreement, Code
         Section 403(b).

1.36     "Late Retirement Date" means the date of, or the first day of the month
         or the Anniversary Date coinciding with or next following, whichever
         corresponds to the election made for the Normal Retirement Date, a
         Participant's actual retirement after having reached his Normal
         Retirement Date.

1.37     "Leased Employee" means any person (other than an Employee of the
         recipient) who pursuant to an agreement between the recipient and any
         other person ("leasing organization") has performed services for the
         recipient (or for the recipient and related persons determined in
         accordance with Code Section 414(n)(6)) on a substantially full time
         basis for a period of at least one year, and such services are of a
         type historically performed by employees in the business field of the
         recipient employer. Contributions or benefits provided a leased
         employee by the leasing organization which are attributable to services
         performed for the recipient employer shall be treated as provided by
         the recipient employer.

         A leased employee shall not be considered an Employee of the recipient
         if: (i) such employee is covered by a money purchase pension plan
         providing: (1) a nonintegrated employer contribution rate of at least
         ten (10) percent (10%) of compensation, as defined in Code Section
         415(c)(3), but including amounts contributed pursuant to a salary
         reduction agreement which are excludable from the employee's gross
         income under Code Section 125, 402(e)(3), 402(h), or 403(b), (2)
         immediate participation, and (3) full and immediate vesting; and (ii)
         leased employees do not constitute more than twenty percent (20%) of
         the recipient's nonhighly compensated workforce.

1.38     "Net Profit" means with respect to any Fiscal Year the Employer's net
         income or profit for such Fiscal Year determined upon the basis of the
         Employer's books of account in accordance with generally accepted
         accounting principles, without any reduction for taxes based upon
         income, or for contributions made by the Employer to this Plan and any
         other qualified plan.

1.39     "Non-Elective Contribution" means the Employer's contributions to the
         Plan other than those made pursuant to the Participant's deferral
         election made pursuant to Section 11.2 and any Qualified Non-Elective
         Contribution. In addition, if selected in E3 of the Adoption Agreement,
         the Employer's matching Contribution made pursuant to Section 4.3(b)
         shall be considered a Non-Elective Contribution for purposes of the
         Plan.

1.40     "Non-Highly Compensated Participant" means any Participant who is
         neither a Highly Compensated Employee nor a Family member.

1.41     "Non-Key Employee" means any Employee or former Employee (and his
         Beneficiaries) who is not a Key Employee.

                                                                         Page 13

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 64
<PAGE>   15

1.42     "Normal Retirement Age" means the age specified in the Adoption
         Agreement at which time a Participant shall become fully vested in his
         Participant's Account.

1.43     "Normal Retirement Date" means the date specified in the Adoption
         Agreement on which a Participant shall become eligible to have his
         benefits distributed to him.

1.44     "1-Year Break in Service" means the applicable computation period
         during which an Employee has not completed more than 500 Hours of
         Service with the Employer. Further, solely for the purpose of
         determining whether a Participant has incurred a 1-Year Break in
         Service, Hours of Service shall be recognized for "authorized leaves of
         absence" and "maternity and paternity leaves of absence."

         "Authorized leave of absence" means an unpaid, temporary cessation from
         active employment with the Employer pursuant to an established
         nondiscriminatory policy, whether occasioned by illness, military
         service, or any other reason.

         A "maternity or paternity leave of absence" means, for Plan Years
         beginning after December 31, 1984, an absence from work for any period
         by reason of the Employee's pregnancy, birth of the Employee's child,
         placement of a child with the Employee in connection with the adoption
         of such child, or any absence for the purpose of caring for such child
         for a period immediately following such birth or placement. For this
         purpose, Hours of Service shall be credited for the computation period
         in which the absence from work begins, only if credit therefore is
         necessary to prevent the Employee from incurring a 1-Year Break in
         service, or, in any other case, in the immediately following
         computation period. The Hours of Service credited for a "maternity or
         paternity leave of absence" shall be those which would normally have
         been credited but for such absence, or, in any case in which the
         Administrator is unable to determine such hours normally credited,
         eight (8) Hours of Service per day. The total Hours of Service required
         to be credited for a "maternity or paternity leave of absence" shall
         not exceed 501.

1.45     "Owner-Employee" means a sole proprietor who owns the entire interest
         in the Employer or a partner who owns more than 10% of either the
         capital interest or the profits interest in the Employer and who
         receives income for personal services from the Employer.

1.46     "Participant" means any Eligible Employee who participates in the Plan
         as provided in Section 3.2 and has not for any reason become ineligible
         to participate further in the Plan.

1.47     "Participant's Account" means the account established and maintained by
         the Administrator for each Participant with respect to his total
         interest under the Plan resulting from (a) the Employer's contributions
         in the case of a Profit Sharing Plan or Money Purchase Plan, and (b)
         the Employer's Non-Elective Contributions in the case of a 401(k)
         Profit Sharing Plan.

1.48     "Participant's Combined Account" means the account established and
         maintained by the Administrator for each Participant with respect to
         his total interest under the Plan resulting from the Employer's
         contributions.

1.49     "Participant's Elective Account" means the account established and
         maintained by the Administrator for each Participant with respect to
         his total interest in the Plan and Trust resulting from the Employer's
         Elective Contributions and Qualified Non-Elective Contributions. A
         separate accounting shall be maintained with respect to that portion of
         the Participant's Elective Account attributable to Elective
         Contributions made pursuant to Section 11.2, Employer matching
         contributions if they are deemed to be Elective Contributions, and any
         Qualified Non-Elective Contributions.

                                                                         Page 14

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 65
<PAGE>   16

1.50     "Participant's Rollover Account" means the account established and
         maintained by the Administrator for each Participant with respect to
         his total interest in the Plan resulting from amounts transferred from
         another qualified plan or "conduit" Individual Retirement Account in
         accordance with Section 4.6.

1.51     "Plan" means this instrument (hereinafter referred to as Wachovia Bank
         of North Carolina, N.A. Defined Contribution Plan and Trust Basic Plan
         Document #01) including all amendments thereto, and the Adoption
         Agreement as adopted by the Employer.

1.52     "Plan Year" means the Plan's accounting year as specified in C2 of the
         Adoption Agreement.

1.53     "Pre-Retirement Survivor Annuity" means an immediate annuity for the
         life of the Participant's spouse, the payments under which must be
         equal to the actuarial equivalent of fifty percent (50%) of the
         Participant's Vested interest in the Plan as of the date of death.

1.54     "Qualified Non-Elective Account" means the account established
         hereunder to which Qualified Non-Elective Contributions are allocated.

1.55     "Qualified Non-Elective Contribution" means the Employer's
         contributions to the Plan that are made pursuant to E5 of the Adoption
         Agreement and Section 11.1(d) which are used to satisfy the "Actual
         Deferral Percentage" tests. Qualified Non-Elective Contributions are
         nonforfeitable when made and are distributable only as specified in
         Sections 11.2(c) and 11.8. In addition, the Employer's contributions to
         the Plan that are made pursuant to Section 11.7(h) and which are used
         to satisfy the "Actual Contribution Percentage" tests shall be
         considered Qualified Non-Elective Contributions.

1.56     "Qualified Voluntary Employee Contribution Account" means the account
         established and maintained by the Administrator for each Participant
         with respect to his total interest under the Plan resulting from the
         Participant's tax deductible qualified voluntary employee contributions
         made pursuant to Section 4.9.

1.57     "Regulation" means the Income Tax Regulations as promulgated by the
         Secretary of the Treasury or his delegate, and as amended from time to
         time.

1.58     "Retired Participant" means a person who has been a Participant, but
         who has become entitled to retirement benefits under the Plan.

1.59     "Retirement Date" means the date as of which a Participant retires for
         reasons other than Total and Permanent Disability, whether such
         retirement occurs on a Participant's Normal Retirement Date, Early or
         Late Retirement Date (see Section 6.1).

1.60     "Self-Employed Individual" means an individual who has earned income
         for the taxable year from the trade or business for which the Plan is
         established, and, also, an individual who would have had earned income
         but for the fact that the trade or business had no net profits for the
         taxable year. A Self-Employed Individual shall be treated as an
         Employee.

1.61     "Shareholder-Employee" means a Participant who owns more than five
         percent (5%) of the Employer's outstanding capital stock during any
         year in which the Employer elected to be taxed as a Small Business
         Corporation under the applicable Code Section.

1.62     "Short Plan Year" means, if specified in the Adoption Agreement, that
         the Plan Year shall be less than a twelve (12) month period. If chosen,
         the following rules shall apply in the administration of this Plan. In
         determining whether an Employee has completed a Year of Service for
         benefit accrual purposes in the

                                                                         Page 15

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 66
<PAGE>   17

         Short Plan Year, the number of the Hours of Service required shall be
         proportionately reduced based on the number of days in the Short Plan
         Year. The determination of whether an Employee has completed a Year of
         Service for vesting and eligibility purposes shall be made in
         accordance with Department of Labor Regulation 2530.203-2(c). In
         addition, if this Plan is integrated with Social Security, the
         integration level shall also be proportionately reduced based on the
         number of days in the Short Plan Year.

1.63     "Super Top Heavy Plan" means a plan described in Section 2.2 (b).

1.64     "Taxable Wage Base" means, with respect to any year, the maximum amount
         of earnings which may be considered wages for such year under Code
         Section 3121(a)(1).

1.65     "Terminated Participant" means a person who has been a Participant, but
         whose employment has been terminated other than by death, Total and
         Permanent Disability or retirement.

1.66     "Top Heavy Plan" means a plan described in Section 2.2(a).

1.67     "Top Heavy Plan Year" means a Plan Year commencing after December 31,
         1983 during which the Plan is a Top Heavy Plan.

1.68     "Top Paid Group" shall be determined pursuant to Code Section 414(q)
         and the Regulations thereunder and generally means the top twenty
         percent (20%) of Employees who performed services for the Employer
         during the applicable year, ranked according to the amount of "415
         Compensation" (as determined pursuant to Section 1.27) received from
         the Employer during such year. All Affiliated Employers shall be taken
         into account as a single employer, and Leased Employees shall be
         treated as Employees pursuant to Code Section 414(n) or (o). Employees
         who are non-resident aliens who received no earned income (within the
         meaning of Code Section 911(d)(2)) from the Employer constituting
         United States source income within the meaning of Code Section
         861(a)(3) shall not be treated as Employees. Additionally, for the
         purpose of determining the number of active Employees in any year, the
         following additional Employees shall also be excluded; however, such
         Employees shall still be considered for the purpose of identifying the
         particular Employees in the Top Paid Group:

         (a)      Employees with less than six (6) months of service;

         (b)      Employees who normally work less than 17 1/2 hours per week;

         (c)      Employees who normally work less than six (6) months during a
                  year; and

         (d)      Employees who have not yet attained age twenty-one (21).

         In addition, if ninety percent (90%) or more of the Employees of the
         Employer are covered under agreements the Secretary of Labor finds to
         be collective bargaining agreements between Employee representatives
         and the Employer, and the Plan covers only Employees who are not
         covered under such agreements, then Employees covered by such
         agreements shall be excluded from both the total number of active
         Employees as well as from the identification of particular Employees in
         the Top Paid Group.

         The foregoing exclusions set forth in this Section shall be applied on
         a uniform and consistent basis for all purposes for which the Code
         Section 414(q) definition is applicable.

1.69     "Total and Permanent Disability" means the inability to engage in any
         substantial gainful activity by reason of any medically determinable
         physical or mental impairment that can be expected to result in

                                                                         Page 16

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<PAGE>   18

         death or which has lasted or can be expected to last for a continuous
         period of not less than twelve (12) months. The disability of a
         Participant shall be determined by a licensed physician chosen by the
         Administrator. However, if the condition constitutes total disability
         under the federal Social Security Acts, the Administrator may rely upon
         such determination that the Participant is Totally and Permanently
         Disabled for the purposes of this Plan. The determination shall be
         applied uniformly to all Participants.

1.70     "Trustee" means the person or entity named in B6 of the Adoption
         Agreement and any successors in interest. The Trustee shall have
         fiduciary responsibility for those assets described in B6 of the
         Adoption Agreement.

1.71     "Trust Fund" means the assets of the Plan and Trust, as the same shall
         exist from time to time.

1.72     "Vested" means the nonforfeitable portion of any account maintained on
         behalf of a Participant.

1.73     "Voluntary Contribution Account" means the account established and
         maintained by the Administrator for each Participant with respect to
         his total interest in the Plan resulting from the Participant's
         nondeductible voluntary contributions made pursuant to Section 4.7.

1.74     "Year of Service" means the computation period of twelve (12)
         consecutive months, herein set forth, and during which an Employee has
         completed at least 1000 Hours of Service.

         For purposes of eligibility for participation, the initial computation
         period shall begin with the date on which the Employee first performs
         an Hour of Service (employment commencement date). The computation
         period beginning after a 1-Year Break in Service shall be measured from
         the date on which an Employee again performs an Hour of Service. The
         succeeding computation periods shall begin with the first anniversary
         of the Employee's employment commencement date. However, if one (1)
         Year of Service or less is required as a condition of eligibility, then
         after the initial eligibility computation period, the eligibility
         computation period shall shift to the current Plan Year which includes
         the anniversary of the date on which the Employee first performed an
         Hour of Service. An Employee who is credited with 1,000 Hours of
         Service in both the initial eligibility computation period and the
         first Plan Year which commences prior to the first anniversary of the
         Employee's initial eligibility computation period will be credited with
         two (2) Years of Service for purposes of eligibility to participate.

         For vesting purposes, and all other purposes not specifically addressed
         in this Section, the computation period shall be the Plan Year,
         including periods prior to the Effective Date of the Plan unless
         specifically excluded pursuant to the Adoption Agreement.

         Years of Service and breaks in service will be measured on the same
         computation period.

         Years of Service with any predecessor Employer which maintained this
         Plan shall be recognized. Years of Service with any other predecessor
         Employer shall be recognized as specified in the Adoption Agreement.

         Years of Service with any Affiliated Employer shall be recognized.

                                   ARTICLE II
                     TOP HEAVY PROVISIONS AND ADMINISTRATION

2.1      TOP HEAVY PLAN REQUIREMENTS

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<PAGE>   19

         For any Top Heavy Plan Year, the Plan shall provide the special vesting
         requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan
         and the special minimum allocation requirements of Code Section 416(c)
         pursuant to Section 4.3(i) of the Plan.

2.2      DETERMINATION OF TOP HEAVY STATUS

         (a)      This Plan shall be a Top Heavy Plan for any Plan Year
                  beginning after December 31, 1983, in which, as of the
                  Determination Date, (1) the Present Value of Accrued Benefits
                  of Key Employees and (2) the sum of the Aggregate Accounts of
                  Key Employees under this Plan and all plans of an Aggregation
                  Group, exceeds sixty percent (60%) of the Present Value of
                  Accrued Benefits and the Aggregate Accounts of all Key and
                  Non-Key Employees under this Plan and all plans of an
                  Aggregation Group.

                  If any Participant is a Non-Key Employee for any Plan Year,
                  but such Participant was a Key Employee for any prior Plan
                  Year, such Participant's Present Value of Accrued Benefit
                  and/or Aggregate Account balance shall not be taken into
                  account for purposes of determining whether this Plan is a Top
                  Heavy or Super Top Heavy Plan (or whether any Aggregation
                  Group which includes this Plan is a Top Heavy Group). In
                  addition, if a Participant or Former Participant has not
                  performed any services for any Employer maintaining the Plan
                  at any time during the five (5) year period ending on the
                  Determination Date, any accrued benefit for such Participant
                  or Former Participant shall not be taken into account for the
                  purposes of determining whether this Plan is a Top Heavy or
                  Super Top Heavy Plan.

         (b)      This Plan shall be a Super Top Heavy Plan for any Plan Year
                  beginning after December 31, 1983, in which, as of the
                  Determination Date, (1) the Present Value of Accrued Benefits
                  of Key Employees and (2) the sum of the Aggregate Accounts of
                  Key Employees under this Plan and all plans of an Aggregation
                  Group, exceeds ninety percent (90%) of the Present Value of
                  Accrued Benefits and the Aggregate Accounts of all Key and
                  Non-Key Employees under this Plan and all plans of an
                  Aggregation Group.

         (c)      Aggregate Account: A Participant's Aggregate Account as of the
                  Determination Date is the sum of:

                  (1)      his Participant's Combined Account balance as of the
                           most recent valuation occurring within a twelve (12)
                           month period ending on the Determination Date;

                  (2)      for a Profit Sharing Plan, an adjustment for any
                           contributions due as of the Determination Date. Such
                           adjustment shall be the amount of any contributions
                           actually made after the valuation date but before the
                           Determination Date, except for the first Plan Year
                           when such adjustment shall also reflect the amount of
                           any contributions made after the Determination Date
                           that are allocated as of a date in that first Plan
                           Year; and

                  (3)      for a Money Purchase Plan, contributions that would
                           be allocated as of a date not later than the
                           Determination Date, even though those amounts are not
                           yet made or required to be made.

                  (4)      any Plan distributions made within the Plan Year that
                           includes the Determination Date or within the four
                           (4) preceding Plan Years. However, in the case of
                           distributions made after the valuation date and prior
                           to the Determination Date, such distributions are not
                           included as distributions for top heavy purposes to
                           the extent that such distributions are

                                                                         Page 18

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<PAGE>   20

                           already included in the Participant's Aggregate
                           Account balance as of the valuation date. In the case
                           of a distribution of an annuity Contract, the amount
                           of such distribution is deemed to be the current
                           actuarial value of the Contract, determined on the
                           date of the distribution. Notwithstanding anything
                           herein to the contrary, all distributions, including
                           distributions made prior to January 1, 1984, and
                           distributions under a terminated plan which if it had
                           not been terminated would have been required to be
                           included in an Aggregation Group, will be counted.
                           Further, distributions from the Plan (including the
                           cash value of life insurance policies) of a
                           Participant's account balance because of death shall
                           be treated as a distribution for the purpose of this
                           paragraph.

                  (5)      any Employee contributions, whether voluntary or
                           mandatory. However, amounts attributable to tax
                           deductible qualified voluntary employee contributions
                           shall not be considered to be a part of the
                           Participant's Aggregate Account balance.

                  (6)      with respect to unrelated rollovers and plan-to-plan
                           transfers (ones which are both initiated by the
                           Employee and made from a plan maintained by one
                           employer to a plan maintained by another employer),
                           if this Plan provides the rollovers or plan-to-plan
                           transfers, it shall always consider such rollovers or
                           plan-to-plan transfers as a distribution for the
                           purposes of this Section. If this Plan is the plan
                           accepting such rollovers or plan-to-plan transfers,
                           it shall not consider such rollovers or plan-to-plan
                           transfers accepted after December 31, 1983 as part of
                           the Participant's Aggregate Account balance. However,
                           rollovers or plan-to-plan transfers accepted prior to
                           January 1, 1984 shall be considered as part of the
                           Participant's Aggregate Account balance.

                  (7)      with respect to related rollovers and plan-to-plan
                           transfers (ones either not initiated by the Employee
                           or made to a plan maintained by the same employer),
                           if this Plan provides the rollover or plan-to-plan
                           transfer, it shall not be counted as a distribution
                           for purposes of this Section. If this Plan is the
                           plan accepting such rollover or plan-to-plan
                           transfer, it shall consider such rollover or
                           plan-to-plan transfer as part of the Participant's
                           Aggregate Account balance, irrespective of the date
                           on which such rollover or plan-to-plan transfer is
                           accepted.

                  (8)      For the purposes of determining whether two employers
                           are to be treated as the same employer in 2.2(c)(6)
                           and 2.2(c)(7) above, all employers aggregated under
                           Code Section 414(b), (c), (m) and (o) are treated as
                           the same employer.

         (d)      "Aggregation Group" means either a Required Aggregation Group
                  or a Permissive Aggregation Group as hereinafter determined.

                  (1)      Required Aggregation Group: In determining a Required
                           Aggregation Group hereunder, each qualified plan of
                           the Employer, including any Simplified Employee
                           Pension Plan, in which a Key Employee is a
                           participant in the Plan Year containing the
                           Determination Date or any of the four preceding Plan
                           Years, and each other qualified plan of the Employer
                           which enables any qualified plan in which a Key
                           Employee participates to meet the requirements of
                           Code Sections 401(a)(4) or 410, will be required to
                           be aggregated. Such group shall be known as a
                           Required Aggregation Group.

                           In the case of a Required Aggregation Group, each
                           plan in the group will be considered a Top Heavy Plan
                           if the Required Aggregation Group is a Top Heavy
                           Group. No plan in

                                                                         Page 19

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<PAGE>   21

                           the Required Aggregation Group will be considered a
                           Top Heavy Plan if the Required Aggregation Group is
                           not a Top Heavy Group.

                  (2)      Permissive Aggregation Group: The Employer may also
                           include any other plan of the Employer, including any
                           Simplified Employee Pension Plan, not required to be
                           included in the Required Aggregation Group, provided
                           the resulting group, taken as a whole, would continue
                           to satisfy the provisions of Code Sections 401(a)(4)
                           and 410. Such group shall be known as a Permissive
                           Aggregation Group.

                           In the case of a Permissive Aggregation Group, only a
                           plan that is part of the required Aggregation Group
                           will be considered a Top Heavy Plan if the Permissive
                           Aggregation Group is a Top Heavy Group. No plan in
                           the Permissive Aggregation Group will be considered a
                           Top Heavy Plan if the Permissive Aggregation Group is
                           not a Top Heavy Group.

                  (3)      Only those plans of the Employer in which the
                           Determination Dates fall within the same calendar
                           year shall be aggregated in order to determine
                           whether such plans are Top Heavy Plans.

                  (4)      An Aggregation Group shall include any terminated
                           plan of the Employer if it was maintained within the
                           last five (5) years ending on the Determination Date.

         (e)      "Determination Date" means (a) the last day of the preceding
                  Plan Year, or (b) in the case of the first Plan Year, the last
                  day of such Plan Year.

         (f)      Present Value of Accrued Benefit: In the case of a defined
                  benefit plan, the Present Value of Accrued Benefit for a
                  Participant other than a Key Employee shall be as determined
                  using the single accrual method used for all plans of the
                  Employer and Affiliated Employers, or if no such single method
                  exists, using a method which results in benefits accruing not
                  more rapidly than the slowest accrual rate permitted under
                  Code Section 411(b)(1)(C). The determination of the Present
                  Value of Accrued Benefit shall be determined as of the most
                  recent valuation date that falls within or ends with the
                  12-month period ending on the Determination Date, except as
                  provided in Code Section 416 and the Regulations thereunder
                  for the first and second plan years of a defined benefit plan.

                  However, any such determination must include present value of
                  accrued benefit attributable to any Plan distributions
                  referred to in Section 2.2(c)(4) above, any Employee
                  contributions referred to in Section 2.2(c)(5) above or any
                  related or unrelated rollovers referred to in Sections
                  2.2(c)(6) and 2.2 (c) (7) above.

         (g)      "Top Heavy Group" means an Aggregation Group in which, as of
                  the Determination Date, the sum of:

                  (1)      the Present Value of Accrued Benefits of Key
                           Employees under all defined benefit plans included in
                           the group, and

                  (2)      the Aggregate Accounts of Key Employees under all
                           defined contribution plans included in the group,
                           exceeds sixty percent (60%) of a similar sum
                           determined for all Participants.

                                                                         Page 20

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 71
<PAGE>   22

         (h)      The Administrator shall determine whether this Plan is a Top
                  Heavy Plan on the Anniversary Date specified in the Adoption
                  Agreement. Such determination of the top-heavy ratio shall be
                  in accordance with Code Section 416 and the Regulations
                  thereunder.

2.3      POWERS AND RESPONSIBILITIES OF THE EMPLOYER

         (a)      The Employer shall be empowered to appoint and remove the
                  Trustee and the Administrator from time to time as it deems
                  necessary for the proper administration of the Plan to assure
                  that the Plan is being operated for the exclusive benefit of
                  the Participants and their Beneficiaries in accordance with
                  the terms of the Plan, the Code, and the Act.

         (b)      The Employer shall establish a "funding policy and method,"
                  i.e., it shall determine whether the Plan has a short run need
                  for liquidity (i.e., to pay benefits) or whether liquidity is
                  a long run goal and investment growth (and stability of same)
                  is a more current need, or shall appoint a qualified person to
                  do so. The Employer or its delegate shall communicate such
                  needs and goals to the Trustee, who shall coordinate such Plan
                  needs with its investment policy. The communication of such a
                  "funding policy and method" shall not, however, constitute a
                  directive to the Trustee as to investment of the Trust Funds.
                  Such "funding policy and method" shall be consistent with the
                  objectives of this Plan and with the requirements of Title I
                  of the Act.

         (c)      The Employer may, in its discretion, appoint an Investment
                  Manager to manage all or a designated portion of the assets of
                  the Plan. In such event, the Trustee shall follow the
                  directive of the Investment manager in investing the assets of
                  the Plan managed by the Investment Manager.

         (d)      The Employer shall periodically review the performance of any
                  Fiduciary or other person to whom duties have been delegated
                  or allocated by it under the provisions of this Plan or
                  pursuant to procedures established hereunder. This requirement
                  may be satisfied by formal periodic review by the Employer or
                  by a qualified person specifically designated by the Employer,
                  through day-to-day conduct and evaluation, or through other
                  appropriate ways.

2.4      DESIGNATION OF ADMINISTRATIVE AUTHORITY

         The Employer shall appoint one or more Administrators. Any person,
         including, but not limited to, the Employees of the Employer, shall be
         eligible to serve as an Administrator. Any person so appointed shall
         signify his acceptance by filing written acceptance with the Employer.
         An Administrator may resign by delivering his written resignation to
         the Employer or be removed by the Employer by delivery of written
         notice of removal, to take effect at a date specified therein, or upon
         delivery to the Administrator if no date is specified.

         The Employer, upon the resignation or removal of an Administrator,
         shall promptly designate in writing a successor to this position. If
         the Employer does not appoint an Administrator, the Employer will
         function as the Administrator.

2.5      ALLOCATION AND DELEGATION OF RESPONSIBILITIES

         If more than one person is appointed as Administrator, the
         responsibilities of each Administrator may be specified by the Employer
         and accepted in writing by each Administrator. In the event that no
         such delegation is made by the Employer, the Administrators may
         allocate the responsibilities among

                                                                         Page 21

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<PAGE>   23

         themselves, in which event the Administrators shall notify the Employer
         and the Trustee in writing of such action and specify the
         responsibilities of each Administrator. The Trustee thereafter shall
         accept and rely upon any documents executed by the appropriate
         Administrator until such time as the Employer or the Administrators
         file with the Trustee a written revocation of such designation.

2.6      POWERS AND DUTIES OF THE ADMINISTRATOR

         The primary responsibility of the Administrator is to administer the
         Plan for the exclusive benefit of the Participants and their
         Beneficiaries, subject to the specific terms of the Plan. The
         Administrator shall administer the Plan in accordance with its terms
         and shall have the power and discretion to construe the terms of the
         Plan and determine all questions arising in connection with the
         administration, interpretation, and application of the Plan. Any such
         determination by the Administrator shall be conclusive and binding upon
         all persons. The Administrator may establish procedures, correct any
         defect, supply any information, or reconcile any inconsistency in such
         manner and to such extent as shall be deemed necessary or advisable to
         carry out the purpose of the Plan; provided, however, that any
         procedure, discretionary act, interpretation or construction shall be
         done in a nondiscriminatory manner based upon uniform principles
         consistently applied and shall be consistent with the intent that the
         Plan shall continue to be deemed a qualified plan under the terms of
         Code Section 401(a), and shall comply with the terms of the Act and all
         regulations issued pursuant thereto. The Administrator shall have all
         powers necessary or appropriate to accomplish his duties under this
         Plan.

         The Administrator shall be charged with the duties of the general
         administration of the Plan, including, but not limited to, the
         following:

         (a)      the discretion to determine all questions relating to the
                  eligibility of Employees to participate or remain a
                  Participant hereunder and to receive benefits under the Plan;

         (b)      to compute, certify, and direct the Trustee with respect to
                  the amount and the kind of benefits to which any Participant
                  shall be entitled hereunder;

         (c)      to authorize and direct the Trustee with respect to all
                  nondiscretionary or otherwise directed disbursements from the
                  Trust Fund;

         (d)      to maintain all necessary records for the administration of
                  the Plan;

         (e)      to interpret the provisions of the Plan and to make and
                  publish such rules for regulation of the Plan as are
                  consistent with the terms hereof;

         (f)      to determine the size and type of any Contract to be purchased
                  from any Insurer, and to designate the Insurer from which such
                  Contract shall be purchased;

         (g)      to compute and certify to the Employer and to the Trustee from
                  time to time the sums of money necessary or desirable to be
                  contributed to the Trust Fund;

         (h)      to consult with the Employer and the Trustee regarding the
                  short and long-term liquidity needs of the Plan in order that
                  the Trustee can exercise any investment discretion in a manner
                  designed to accomplish specific objectives;

         (i)      if the Employer has delegated investment responsibility to the
                  Administrator, to direct the Trustee as to the investment of
                  the trust assets;

                                                                         Page 22

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 73
<PAGE>   24

         (j)      to prepare and distribute to Employees a procedure for
                  notifying Participants and Beneficiaries of their rights to
                  elect Joint and Survivor Annuities and Pre-Retirement Survivor
                  Annuities if required by the Code and Regulations thereunder;
                  and

         (k)      to assist any Participant regarding his rights, benefits, or
                  elections available under the Plan.

2.7      RECORDS AND REPORTS

         The Administrator shall keep a record of all actions taken and shall
         keep all other books of account, records, and other data that may be
         necessary for proper administration of the Plan and shall be
         responsible for supplying all information and reports to the Internal
         Revenue Service, Department of Labor, Participants, Beneficiaries and
         others as required by law.

2.8      APPOINTMENT OF ADVISERS

         The Administrator, or the Trustee with the consent of the
         Administrator, may appoint counsel, specialists, advisers, and other
         persons as the Administrator or the Trustee deems necessary or
         desirable in connection with the administration of this Plan. The
         Trustee shall not be liable for acting or omitting to act upon advice
         of any counsel appointed pursuant to the terms of this Section.

2.9      INFORMATION FROM EMPLOYER

         To enable the Administrator to perform his functions, the Employer
         shall supply full and timely information to the Administrator on all
         matters relating to the Compensation of all Participants, their Hours
         of Service, their Years of Service, their retirement, death,
         disability, or termination of employment, and such other pertinent
         facts as the Administrator may require; and the Administrator shall
         advise the Trustee of such of the foregoing facts as may be pertinent
         to the Trustee's duties under the Plan. The Administrator may rely upon
         such information as is supplied by the Employer and shall have no duty
         or responsibility to verify such information.

2.10     PAYMENT OF EXPENSES

         All expenses of administration may be paid out of the Trust Fund unless
         paid by the Employer. Such expenses shall include any expenses incident
         to the functioning of the Administrator, including, but not limited to
         Trustee fees and expenses, fees of accountants, counsel, and other
         specialists and their agents, and other costs of administering the
         Plan. Until paid, the expenses shall constitute a liability of the
         Trust Fund. However, the Employer may reimburse the Trust Fund for any
         administration expense incurred.

2.11     MAJORITY ACTIONS

         Except where there has been an allocation and delegation of
         administrative authority pursuant to Section 2.5, if there shall be
         more than one Administrator, they shall act by a majority of their
         number, but may authorize one or more of them to sign all papers on
         their behalf.

2.12     CLAIMS PROCEDURE

         Claims for benefits under the Plan may be filed in writing with the
         Administrator. Written notice of the disposition of a claim shall be
         furnished to the claimant within 90 days after the application is
         filed. In the event the claim is denied, the reasons for the denial
         shall be specifically set forth in the notice in language

                                                                         Page 23

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 74
<PAGE>   25

         calculated to be understood by the claimant, pertinent provisions of
         the Plan shall be cited, and, where appropriate, an explanation as to
         how the claimant can perfect the claim will be provided. In addition,
         the claimant shall be furnished with an explanation of the Plan's
         claims review procedure.

2.13     CLAIMS REVIEW PROCEDURE

         Any Employee, former Employee, or Beneficiary of either, who has been
         denied a benefit by a decision of the Administrator pursuant to Section
         2.12 shall be entitled to request the Administrator to give further
         consideration to his claim by filing with the Administrator a written
         request for a hearing. Such request, together with a written statement
         of the reasons why the claimant believes his claim should be allowed,
         shall be filed with the Administrator no later than sixty (60) days
         after receipt of the written notification provided for in Section 2.12.
         The Administrator shall then conduct a hearing within the next sixty
         (60) days, at which the claimant may be represented by an attorney or
         any other representative of his choosing and expense and at which the
         claimant shall have an opportunity to submit written and oral evidence
         and arguments in support of his claim. At the hearing (or prior five
         (5) business days written notice to the Administrator) the claimant or
         his representative shall have an opportunity to review all documents in
         the possession of the Administrator which are pertinent to the claim at
         issue and its disallowance. Either the claimant or the Administrator
         may cause a court reporter to attend the hearing and record the
         proceedings. In such event, a complete written transcript of the
         proceedings shall be furnished to both parties by the court reporter.
         The full expense of any such court reporter and such transcripts shall
         be borne by the party causing the court reporter to attend the hearing.
         A final decision as to the allowance of the claim shall be made by the
         Administrator within sixty (60) days of receipt of the appeal (unless
         there has been an extension of sixty (60) days due to special
         circumstances, provided the delay and the special circumstances
         occasioning it are communicated to the claimant within the sixty (60)
         day period). Such communication shall be written in a manner calculated
         to be understood by the claimant and shall include specific reasons for
         the decision and specific references to the pertinent Plan provisions
         on which the decision is based.

                                   ARTICLE III
                                   ELIGIBILITY

3.1      CONDITIONS OF ELIGIBILITY

         Any Eligible Employee shall be eligible to participate hereunder on the
         date he has satisfied the requirements specified in the Adoption
         Agreement.

3.2      EFFECTIVE DATE OF PARTICIPATION

         An Eligible Employee who has become eligible to be a Participant shall
         become a Participant effective as of the day specified in the Adoption
         Agreement.

         In the event an Employee who has satisfied the Plan's eligibility
         requirements and would otherwise have become a Participant shall go
         from a classification of a noneligible Employee to an Eligible
         Employee, such Employee shall become a Participant as of the date he
         becomes an Eligible Employee.

         In the event an Employee who has satisfied the Plan's eligibility
         requirements and would otherwise become a Participant shall go from a
         classification of an Eligible Employee to a noneligible Employee and
         becomes ineligible to participate and has not incurred a 1-Year Break
         in Service, such Employee shall participate in the Plan as of the date
         he returns to an eligible class of Employees. If such Employee does

                                                                         Page 24

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<PAGE>   26

         incur a 1-Year Break in Service, eligibility will be determined under
         the Break in Service rules of the Plan.

3.3      DETERMINATION OF ELIGIBILITY

         The Administrator shall determine the eligibility of each Employee for
         participation in the Plan based upon information furnished by the
         Employer. Such determination shall be conclusive and binding upon all
         persons, as long as the same is made pursuant to the Plan and the Act.
         Such determination shall be subject to review per Section 2.13.

3.4      TERMINATION OF ELIGIBILITY

         In the event a Participant shall go from a classification of an
         Eligible Employee to an ineligible Employee, such Former Participant
         shall continue to vest in his interest in the Plan for each Year of
         Service completed while a noneligible Employee, until such time as his
         Participant's Account shall be forfeited or distributed pursuant to the
         terms of the Plan. Additionally, his interest in the Plan shall
         continue to share in the earnings of the Trust Fund.

3.5      OMISSION OF ELIGIBLE EMPLOYEE

         If, in any Plan Year, any Employee who should be included as a
         Participant in the Plan is erroneously omitted and discovery of such
         omission is not made until after a contribution by his Employer for the
         year has been made, the Employer shall make a subsequent contribution,
         if necessary after the application of section 4.3(e), so that the
         omitted Employee receives a total amount which the said Employee would
         have received had he not been omitted. Such contribution shall be made
         regardless of whether or not it is deductible in whole or in part in
         any taxable year under applicable provisions of the Code.

3.6      INCLUSION OF INELIGIBLE EMPLOYEE

         If, in any Plan Year, any person who should not have been included as a
         Participant in the Plan is erroneously included and discovery of such
         incorrect inclusion is not made until after a contribution for the year
         has been made, the Employer shall not be entitled to recover the
         contribution made with respect to the ineligible person regardless of
         whether or not a deduction is allowable with respect to such
         contribution. In such event, the amount contributed with respect to the
         ineligible person shall constitute a Forfeiture for the Plan Year in
         which the discovery is made.

3.7      CONTROL OF ENTITIES BY OWNER-EMPLOYEE

         (a)      If this Plan provides contributions or benefits for one or
                  more Owner-Employees who control both the business for which
                  this Plan is established and one or more other entities, this
                  Plan and the plan established for other trades or businesses
                  must, when looked at as a single Plan, satisfy Code Sections
                  401(a) and (d) for the Employees of this and all other
                  entities.

         (b)      If the Plan provides contributions or benefits for one or more
                  Owner-Employees who control one or more other trades or
                  businesses, the employees of the other trades or businesses
                  must be included in a plan which satisfies Code Sections
                  401(a) and (d) and which provides contributions and benefits
                  not less favorable than provided for owner-Employees under
                  this Plan.

         (c)      If an individual is covered as an Owner-Employee under the
                  plans of two (2) or more trades or businesses which are not
                  controlled and the individual controls a trade or business,
                  then the

                                                                         Page 25

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 76
<PAGE>   27

                  benefits or contributions of the employees under the plan of
                  the trades or businesses which are controlled must be as
                  favorable as those provided for him under the most favorable
                  plan of the trade or business which is not controlled.

         (d)      For purposes of the preceding paragraphs, an Owner-Employee,
                  or two (2) or more Owner-Employees, will be considered to
                  control an entity if the owner-Employee, or two (2) or more
                  Owner-Employees together:

                  (1)      own the entire interest in an unincorporated entity,
                           or

                  (2)      in the case of a partnership, own more than fifty
                           percent (50%) of either the capital interest or the
                           profits interest in the partnership.

         (e)      For purposes of the preceding sentence, an Owner-Employee, or
                  two (2) or more Owner-Employees shall be treated as owning any
                  interest in a partnership which is owned, directly or
                  indirectly, by a partnership which such owner-Employee, or
                  such two (2) or more Owner-Employees, are considered to
                  control within the meaning of the preceding sentence.

                                   ARTICLE IV
                           CONTRIBUTION AND ALLOCATION

4.1      FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION

         (a)      For a Money Purchase Plan -

                  (1)      The Employer shall make contributions over such
                           period of years as the Employer may determine on the
                           following basis. on behalf of each Participant
                           eligible to share in allocations, for each year of
                           his participation in this Plan, the Employer shall
                           contribute the amount specified in the Adoption
                           Agreement. All contributions by the Employer shall be
                           made in cash or in such property as is acceptable to
                           the Trustee. The Employer shall be required to obtain
                           a waiver from the Internal Revenue Service for any
                           Plan Year in which it is unable to make the full
                           required contribution to the Plan. In the event a
                           waiver is obtained, this Plan shall be deemed to be
                           an individually designed plan.

                  (2)      For any Plan Year beginning prior to January 1, 1990,
                           and if elected in the non-standardized Adoption
                           Agreement for any Plan Year beginning on or after
                           January 1, 1990, the Employer shall not contribute on
                           behalf of a Participant who performs less than a Year
                           of Service during any Plan Year, unless there is a
                           Short Plan Year or a contribution is required
                           pursuant to 4.3(h).

                  (3)      Notwithstanding the foregoing, the Employer's
                           contribution for any Fiscal Year shall not exceed the
                           maximum amount allowable as a deduction to the
                           Employer under the provisions of Code Section 404.
                           However, to the extent necessary to provide the top
                           heavy minimum allocations, the Employer shall make a
                           contribution even if it exceeds the amount which is
                           deductible under Code Section 404.

         (b)      For a Profit Sharing Plan -

                  (1)      For each Plan Year, the Employer shall contribute to
                           the Plan such amount as specified by the Employer in
                           the Adoption Agreement. Notwithstanding the
                           foregoing, however,

                                                                         Page 26

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<PAGE>   28

                           the Employer's contribution for any Fiscal Year shall
                           not exceed the maximum amount allowable as a
                           deduction to the Employer under the provisions of
                           Code Section 404. All contributions by the Employer
                           shall be made in cash or in such property as is
                           acceptable to the Trustee.

                  (2)      Except, however, to the extent necessary to provide
                           the top heavy minimum allocations, the Employer shall
                           make a contribution even if it exceeds current or
                           accumulated Net Profit or the amount which is
                           deductible under Code Section 404.

4.2      TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION

         The Employer shall generally pay to the Trustee its contribution to the
         Plan for each Plan Year within the time prescribed by law, including
         extensions of time, for the filing of the Employer's federal income tax
         return for the Fiscal Year.

4.3      ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS

         (a)      The Administrator shall establish and maintain an account in
                  the name of each Participant to which the Administrator shall
                  credit as of each Anniversary Date, or other valuation date,
                  all amounts allocated to each such Participant as set forth
                  herein.

         (b)      The Employer shall provide the Administrator with all
                  information required by the Administrator to make a proper
                  allocation of the Employer's contributions for each Plan Year.
                  Within a reasonable period of time after the date of receipt
                  by the Administrator of such information, the Administrator
                  shall allocate such contribution as follows:

                  (1)      For a Money Purchase Plan:

                           (i)      The Employer's Contribution shall be
                                    allocated to each Participant's Combined
                                    Account in the manner set forth in Section
                                    4.1 herein and as specified in Section E2 of
                                    the Adoption Agreement.

                  (2)      For an Integrated Profit Sharing Plan:

                           (i)      The Employer's contribution shall be
                                    allocated to each Participant's Account,
                                    except as provided in Section 4.3(f), in a
                                    dollar amount equal to 5.7% of the sum of
                                    each Participant's total Compensation plus
                                    Excess Compensation. If the Employer does
                                    not contribute such amount for all
                                    Participants, each Participant will be
                                    allocated a share of the contribution in the
                                    same proportion that his total Compensation
                                    plus his total Excess Compensation for the
                                    Plan Year bears to the total Compensation
                                    plus the total Excess Compensation of all
                                    Participants for that year.

                                    Regardless of the preceding, 4.3% shall be
                                    substituted for 5.7% above if Excess
                                    Compensation is based on more than twenty
                                    percent (20%) and less than or equal to
                                    eighty percent (80%) of the Taxable Wage
                                    Base. If Excess Compensation is based on
                                    less than one-hundred percent (100%) and
                                    more than eighty percent (80%) of the
                                    Taxable Wage Base, then 5.4% shall be
                                    substituted for 5.7% above.

                                                                         Page 27

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 78
<PAGE>   29

                           (ii)     The balance of the Employer's contribution
                                    over the amount allocated above, if any,
                                    shall be allocated to each Participant's
                                    Combined Account in the same proportion that
                                    his total Compensation for the Year bears to
                                    the total Compensation of all Participants
                                    for such year.

                           (iii)    Except, however, for any Plan Year beginning
                                    prior to January 1, 1990, and if elected in
                                    the non-standardized Adoption Agreement for
                                    any Plan Year beginning on or after January
                                    1, 1990, a Participant who performs less
                                    than a Year of Service during any Plan Year
                                    shall not share in the Employer's
                                    contribution for that year, unless there is
                                    a Short Plan Year or a contribution is
                                    required pursuant to Section 4.3(h).

                  (3)      For a Non-Integrated Profit Sharing Plan:

                           (i)      The Employer's contribution shall be
                                    allocated to each Participant's Account in
                                    the same proportion that each such
                                    Participant's Compensation for the year
                                    bears to the total Compensation of all
                                    Participants for such year.

                           (ii)     Except, however, for any Plan Year beginning
                                    prior to January 1, 1990, and if elected in
                                    the non-standardized Adoption Agreement for
                                    any Plan Year beginning on or after January
                                    1, 1990, a Participant who performs less
                                    than a Year of Service during any Plan Year
                                    shall not share in the Employer's
                                    contribution for that year, unless there is
                                    a Short Plan Year or a contribution is
                                    required pursuant to Section 4.3(h).

         (c)      As of each Anniversary Date or other valuation date, before
                  allocation of Employer contributions and Forfeitures, any
                  earnings or losses (net appreciation or net depreciation) of
                  the Trust Fund shall be allocated in the same proportion that
                  each Participant's and Former Participant's nonsegregated
                  accounts bear to the total of all Participants, and Former
                  Participants' nonsegregated accounts as of such date. If any
                  nonsegregated account of a Participant has been distributed
                  prior to the Anniversary Date or other valuation date
                  subsequent to a Participant's termination of employment, no
                  earnings or losses shall be credited to such account.

                  Notwithstanding the above, with respect to contributions made
                  to a 401(k) Plan after the previous Anniversary Date or
                  allocation date, the method specified in the Adoption
                  Agreement shall be used.

         (d)      Participants' Accounts shall be debited for any insurance or
                  annuity premiums paid, if any, and credited with any dividends
                  or interest received on insurance contracts.

         (e)      As of each Anniversary Date any amounts which became
                  Forfeitures since the last Anniversary Date shall first be
                  made available to reinstate previously forfeited account
                  balances of Former Participants, if any, in accordance with
                  Section 6.4(g)(2) or be used to satisfy any contribution that
                  may be required pursuant to Section 3.5 and/or Section 6.9.
                  The remaining Forfeitures, if any, shall be treated in
                  accordance with the Adoption Agreement. Provided, however,
                  that in the event the allocation of Forfeitures provided
                  herein shall cause the "annual addition" (as defined in
                  Section 4.4) to any Participant's Account to exceed the amount
                  allowable by the Code, the excess shall be reallocated in
                  accordance with Section 4.5. Except, however, for any Plan
                  Year beginning prior to January 1, 1990, and if elected in the
                  non-standardized Adoption Agreement for any Plan

                                                                         Page 28

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<PAGE>   30

                  Year beginning on or after January 1, 1990, a Participant who
                  performs less than a Year of Service during any Plan Year
                  shall not share in the Plan Forfeitures for that year, unless
                  there is a Short Plan Year or a contribution required pursuant
                  to Section 4.3(h).

         (f)      Minimum Allocations Required for Top Heavy Plan Years:
                  Notwithstanding the foregoing, for any Top Heavy Plan Year,
                  the sum of the Employer's contributions and Forfeitures
                  allocated to the Participant's Combined Account of each
                  Non-Key Employee shall be equal to at least three percent (3%)
                  of such Non-Key Employee's "415 Compensation" (reduced by
                  contributions and forfeitures, if any, allocated to each
                  Non-Key Employee in any defined contribution plan included
                  with this plan in a Required Aggregation Group). However, if
                  (i) the sum of the Employer's contributions and Forfeitures
                  allocated to the Participant's Combined Account of each Key
                  Employee for such Top Heavy Plan Year is less than three
                  percent (3%) of each Key Employee's "415 Compensation" and
                  (ii) this Plan is not required to be included in an
                  Aggregation Group to enable a defined benefit plan to meet the
                  requirements of Code Section 401(a)(4) or 410, the sum of the
                  Employer's contributions and Forfeitures allocated to the
                  Participant's Combined Account of each Non-Key Employee shall
                  be equal to the largest percentage allocated to the
                  Participant's Combined Account of any Key Employee.

                  However, for each Non-Key Employee who is a Participant in a
                  paired Profit Sharing Plan or 401(k) Profit Sharing Plan and a
                  paired Money Purchase Plan, the minimum three percent (3%)
                  allocation specified above shall be provided in the Money
                  Purchase Plan.

                  If this is an integrated Plan, then for any Top Heavy Plan
                  Year the Employer's contribution shall be allocated as
                  follows:

                  (1)      An amount equal to three percent (3%) multiplied by
                           each Participant's Compensation for the Plan Year
                           shall be allocated to each Participant's Account. If
                           the Employer does not contribute such amount for all
                           Participants, the amount shall be allocated to each
                           Participant's Account in the same proportion that his
                           total Compensation for the Plan Year bears to the
                           total Compensation of all Participants for such year.

                  (2)      The balance of the Employer's contribution over the
                           amount allocated under subparagraph (1) hereof shall
                           be allocated to each Participant's Account in a
                           dollar amount equal to three percent (3%) multiplied
                           by a Participant's Excess Compensation. If the
                           Employer does not contribute such amount for all
                           Participants, each Participant will be allocated a
                           share of the contribution in the same proportion that
                           his Excess Compensation bears to the total Excess
                           Compensation of all Participants for that year.

                  (3)      The balance of the Employer's contribution over the
                           amount allocated under subparagraph (2) hereof shall
                           be allocated to each Participant's Account in a
                           dollar amount equal to 2.7% multiplied by the sum of
                           each Participant's total Compensation plus Excess
                           Compensation. If the Employer does not contribute
                           such amount for all Participants, each Participant
                           will be allocated a share of the contribution in the
                           same proportion that his total Compensation plus his
                           total Excess Compensation for the Plan Year bears to
                           the total Compensation plus the total Excess
                           Compensation of all Participants for that year.

                           Regardless of the preceding, 1.3% shall be
                           substituted for 2.7% above if Excess Compensation is
                           based on more than twenty percent (20%) and less than
                           or equal to eighty percent (80%) of the Taxable Wage
                           Base. If Excess Compensation is based on

                                                                         Page 29

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 80
<PAGE>   31

                           less than one-hundred percent (100%) and more than
                           eighty percent (80%) of the Taxable Wage Base, then
                           2.4% shall be substituted for 2.7% above.

                  (4)      The balance of the Employer's contributions over the
                           amount allocated above, if any, shall be allocated to
                           each Participant's Account in the same proportion
                           that his total Compensation for the Plan Year bears
                           to the total Compensation of all Participants for
                           such year.

                           For each Non-Key Employee who is a Participant in
                           this Plan and another non-paired defined contribution
                           plan maintained by the Employer, the minimum three
                           percent (3%) allocation specified above shall be
                           provided as specified in F3 of the Adoption
                           Agreement.

         (g)      For purposes of the minimum allocations set forth above, the
                  percentage allocated to the Participant's Combined Account of
                  any Key Employee shall be equal to the ratio of the sum of the
                  Employer's contributions and Forfeitures allocated on behalf
                  of such Key Employee divided by the "415 Compensation" for
                  such Key Employee.

         (h)      For any Top Heavy Plan Year, the minimum allocations set forth
                  in this Section shall be allocated to the Participant's
                  Combined Account of all Non-Key Employees who are Participants
                  and who are employed by the Employer on the last day of the
                  Plan Year, including Non-Key Employees who have (1) failed to
                  complete a Year of Service; or (2) declined to make mandatory
                  contributions (if required) or, in the case of a cash or
                  deferred arrangement, elective contributions to the Plan.

         (i)      Notwithstanding anything herein to the contrary, in any Plan
                  Year in which the Employer maintains both this Plan and a
                  defined benefit pension plan included in a Required
                  Aggregation Group which is top heavy, the Employer shall not
                  be required to provide a Non-Key Employee with both the full
                  separate minimum defined benefit plan benefit and the full
                  separate defined contribution plan allocations. Therefore, if
                  the Employer maintains both a Defined Benefit and a Defined
                  Contribution Plan that are a Top Heavy Group, the top heavy
                  minimum benefits shall be provided as follows:

                  (1)      Applies if F1b of the Adoption Agreement is Selected-

                           (i)      The requirements of Section 2.1 shall apply
                                    except that each Non-Key Employee who is a
                                    Participant in the Profit Sharing Plan or
                                    Money Purchase Plan and who is also a
                                    Participant in the Defined Benefit Plan
                                    shall receive a minimum allocation of five
                                    percent (5%) of such Participant's "415
                                    Compensation" from the applicable Defined
                                    Contribution Plan(s).

                           (ii)     For each Non-Key Employee who is a
                                    Participant only in the Defined Benefit Plan
                                    the Employer will provide a minimum
                                    non-integrated benefit equal to two percent
                                    (2%) of his highest five (5) consecutive
                                    year average "415 Compensation" for each
                                    Year of Service while a Participant in the
                                    Plan, in which the Plan is top heavy, not to
                                    exceed ten (10).

                           (iii)    For each Non-Key Employee who is a
                                    Participant only in this Defined
                                    Contribution Plan, the Employer shall
                                    provide a contribution equal to three
                                    percent (3%) of his "415 Compensation."

                                                                         Page 30

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 81
<PAGE>   32

                  (2)      Applies if F1c of the Adoption Agreement is Selected-

                           (i)      The minimum allocation specified in Section
                                    4.3(i)(1)(i) shall be 7 1/2% if the Employer
                                    elects in the Adoption Agreement for years
                                    in which the Plan is Top Heavy, but not
                                    Super Top Heavy.

                           (ii)     The minimum benefit specified in Section
                                    4.3(i)(1)(ii) shall be three percent (3%) if
                                    the Employer elects in the Adoption
                                    Agreement for years in which the Plan is Top
                                    Heavy, but not Super Top Heavy.

                           (iii)    The minimum allocation specified in Section
                                    4.3(i)(1)(iii) shall be four percent (4%) if
                                    the Employer elects in the Adoption
                                    Agreement for years in which the Plan is Top
                                    Heavy, but not Super Top Heavy.

         (j)      For the purposes of this Section, "415 Compensation" shall be
                  limited to $200,000 (unless adjusted in such manner as
                  permitted under Code Section 415(d)). However, for Plan Years
                  beginning prior to January 1, 1989, the $200,000 limit shall
                  apply only for Top Heavy Plan Years and shall not be adjusted.

         (k)      Notwithstanding anything herein to the contrary, any
                  Participant who terminated employment during the Plan Year for
                  reasons other than death, Total and Permanent Disability, or
                  retirement shall or shall not share in the allocations of the
                  Employer's Contributions and Forfeitures as provided in the
                  Adoption Agreement. Notwithstanding the foregoing, for Plan
                  Years beginning after 1993, if this is a standardized Plan,
                  any such terminated Participant shall share in the allocations
                  as provided in this Section provided such Participant
                  completed more than 500 Hours of Service.

         (l)      Notwithstanding anything herein to the contrary, Participants
                  terminating for reasons of death, Total and Permanent
                  Disability, or retirement shall share in the allocations as
                  provided in this Section regardless of whether they completed
                  a Year of Service during the Plan Year.

         (m)      If a Former Participant is reemployed after five (5)
                  consecutive 1-Year Breaks in Service, then separate accounts
                  shall be maintained as follows:

                  (1)      one account for nonforfeitable benefits attributable
                           to pre-break service; and

                  (2)      one account representing his employer derived account
                           balance in the Plan attributable to post-break
                           service.

         (n)      Notwithstanding any election in the Adoption Agreement to the
                  contrary, if this is a non-standardized Plan that would
                  otherwise fail to meet the requirements of Code Section
                  401(a)(26), 410(b)(1), or 410(b)(2)(A)(i) and the Regulations
                  thereunder because Employer Contributions have not been
                  allocated to a sufficient number or percentage of Participants
                  for a Plan Year, then the following rules shall apply:

                  (1)      The group of Participants eligible to share in the
                           Employer's contribution and Forfeitures for the Plan
                           Year shall be expanded to include the minimum number
                           of Participants who would not otherwise be eligible
                           as are necessary to satisfy the applicable test
                           specified above. The specific participants who shall
                           become eligible under the terms of this

                                                                         Page 31

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 82
<PAGE>   33

                           paragraph shall be those who are actively employed on
                           the last day of the Plan Year and, when compared to
                           similarly situated Participants, have completed the
                           greatest number of Hours of Service in the Plan Year.

                  (2)      If after application of paragraph (1) above, the
                           applicable test is still not satisfied, then the
                           group of Participants eligible to share in the
                           Employer's contribution and Forfeitures for the Plan
                           Year shall be further expanded to include the minimum
                           number of Participants who are not actively employed
                           on the last day of the Plan Year as are necessary to
                           satisfy the applicable test. The specific
                           Participants who shall become eligible to share shall
                           be those Participants, when compared to similarly
                           situated Participants, who have completed the
                           greatest number of Hours of Service in the Plan Year
                           before terminating employment.

                           Nothing in this section shall permit the reduction of
                           a Participant's accrued benefit. Therefore any
                           amounts that have previously been allocated to
                           Participants may not be reallocated to satisfy these
                           requirements. in such event, the Employer shall make
                           an additional contribution equal to the amount such
                           affected Participants would have received had they
                           been included in the allocations, even if it exceeds
                           the amount which would be deductible under Code
                           Section 404. Any adjustment to the allocations
                           pursuant to this paragraph shall be considered a
                           retroactive amendment adopted by the last day of the
                           Plan Year.

4.4      MAXIMUM ANNUAL ADDITIONS

         (a)      (1)      If the Participant does not participate in, and has
                           never participated in another qualified plan
                           maintained by the Employer, or a welfare benefit fund
                           (as defined in Code Section 419(e)), maintained by
                           the Employer, or an individual medical account (as
                           defined in Code Section 415(l)(2)) maintained by the
                           Employer, which provides Annual Additions, the amount
                           of Annual Additions which may be credited to the
                           Participant's accounts for any Limitation Year shall
                           not exceed the lesser of the Maximum Permissible
                           Amount or any other limitation contained in this
                           Plan. If the Employer contribution that would
                           otherwise be contributed or allocated to the
                           Participant's accounts would cause the Annual
                           Additions for the Limitation Year to exceed the
                           maximum Permissible Amount, the amount contributed or
                           allocated will be reduced so that the Annual
                           Additions for the Limitation Year will equal the
                           maximum Permissible Amount.

                  (2)      Prior to determining the Participant's actual
                           Compensation for the Limitation Year, the Employer
                           may determine the Maximum Permissible Amount for a
                           Participant on the basis of a reasonable estimation
                           of the Participant's Compensation for the Limitation
                           Year, uniformly determined for all Participants
                           similarly situated.

                  (3)      As soon as is administratively feasible after the end
                           of the Limitation Year, the Maximum Permissible
                           Amount for such Limitation Year shall be determined
                           on the basis of the Participant's actual compensation
                           for such Limitation Year.

                  (4)      If pursuant to Section 4.4(a)(2) or Section 4.5,
                           there is an Excess Amount, the excess will be
                           disposed of in one of the following manners, as
                           uniformly determined by the Administrator for all
                           Participants similarly situated:

                                                                         Page 32

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 83
<PAGE>   34

                           (i)      Any Deferred Compensation or nondeductible
                                    Voluntary Employee Contributions, to the
                                    extent they would reduce the Excess Amount,
                                    will be distributed to the Participant;

                           (ii)     If, after the application of subparagraph
                                    (i), an Excess Amount still exists, and the
                                    Participant is covered by the Plan at the
                                    end of the Limitation Year, the Excess
                                    Amount in the Participant's account will be
                                    used to reduce Employer contributions
                                    (including any allocation of Forfeitures)
                                    for such Participant in the next Limitation
                                    Year, and each succeeding Limitation Year if
                                    necessary;

                           (iii)    If, after the application of subparagraph
                                    (i), an Excess Amount still exists, and the
                                    Participant is not covered by the Plan at
                                    the end of a Limitation Year, the Excess
                                    Amount will be held unallocated in a
                                    suspense account. The suspense account will
                                    be applied to reduce future Employer
                                    contributions (including allocation of any
                                    Forfeitures) for all remaining Participants
                                    in the next Limitation Year, and each
                                    succeeding Limitation Year if necessary; or

                           (iv)     If a suspense account is in existence at any
                                    time during a Limitation Year pursuant to
                                    this Section, it will not participate in the
                                    allocation of investment gains and losses.
                                    If a suspense account is in existence at any
                                    time during a particular limitation year,
                                    all amounts in the suspense account must be
                                    allocated and reallocated to participants'
                                    accounts before any employer contributions
                                    or any employee contributions may be made to
                                    the plan for that limitation year. Excess
                                    amounts may not be distributed to
                                    participants or former participants.

         (b)      (1)      This subsection applies if, in addition to this Plan,
                           the Participant is covered under another qualified
                           Prototype defined contribution plan maintained by the
                           Employer, or a welfare benefit fund (as defined in
                           Code Section 419(e)) maintained by the Employer, or
                           an individual medical account (as defined in Code
                           Section 415(l)(2)) maintained by the Employer, which
                           provides Annual Additions, during any Limitation
                           Year. The Annual Additions which may be credited to a
                           Participant's accounts under this Plan for any such
                           Limitation Year shall not exceed the maximum
                           Permissible Amount reduced by the Annual Additions
                           credited to a Participant's accounts under the other
                           plans and welfare benefit funds for the same
                           Limitation Year. If the Annual Additions with respect
                           to the Participant under other defined contribution
                           plans and welfare benefit funds maintained by the
                           Employer are less than the Maximum Permissible Amount
                           and the Employer contribution that would otherwise be
                           contributed or allocated to the Participant's
                           accounts under this Plan would cause the Annual
                           Additions for the Limitation Year to exceed this
                           limitation, the amount contributed or allocated will
                           be reduced so that the Annual Additions under all
                           such plans and welfare benefit funds for the
                           Limitation Year will equal the maximum Permissible
                           Amount. If the Annual Additions with respect to the
                           Participant under such other defined contribution
                           plans and welfare benefit funds in the aggregate are
                           equal to or greater than the Maximum Permissible
                           Amount, no amount will be contributed or allocated to
                           the Participant's account under this Plan for the
                           Limitation Year.

                  (2)      Prior to determining the Participant's actual
                           Compensation for the Limitation Year, the Employer
                           may determine the maximum Permissible Amount for a
                           Participant in the manner described in Section
                           4.4(a)(2).

                                                                         Page 33

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 84
<PAGE>   35

                  (3)      As soon as is administratively feasible after the end
                           of the Limitation Year, the maximum Permissible
                           Amount for the Limitation Year will be determined on
                           the basis of the Participant's actual Compensation
                           for the Limitation Year.

                  (4)      If, pursuant to Section 4.4(b)(2) or Section 4.5,
                           Participant's Annual Additions under this Plan and
                           such other plans would result in an Excess Amount for
                           a Limitation Year, the Excess Amount will be deemed
                           to consist of the Annual Additions last allocated,
                           except that Annual Additions attributable to a
                           welfare benefit fund or individual medical account
                           will be deemed to have been allocated first
                           regardless of the actual allocation date.

                  (5)      If an Excess Amount was allocated to a Participant on
                           an allocation date of this Plan which coincides with
                           an allocation date of another plan, the Excess Amount
                           attributed to this Plan will be the product of:

                           (i)      the total Excess Amount allocated as of such
                                    date, times

                           (ii)     the ratio of (1) the Annual Additions
                                    allocated to the Participant for the
                                    Limitation Year as of such date under this
                                    Plan to (2) the total Annual Additions
                                    allocated to the Participant for the
                                    Limitation Year as of such date under this
                                    and all the other qualified defined
                                    contribution plans.

                  (6)      Any Excess Amount attributed to this Plan will be
                           disposed in the manner described in Section
                           4.4(a)(4).

         (c)      If the Participant is covered under another qualified defined
                  contribution plan maintained by the Employer which is not a
                  Prototype Plan, Annual Additions which may be credited to the
                  Participant's account under this Plan for any Limitation Year
                  will be limited in accordance with Section 4.4(b), unless the
                  Employer provides other limitations in the Adoption Agreement.

         (d)      If the Employer maintains, or at any time maintained, a
                  qualified defined benefit plan covering any Participant in
                  this Plan the sum of the Participant's Defined Benefit Plan
                  Fraction and Defined Contribution Plan Fraction will not
                  exceed 1.0 in any Limitation Year. The Annual Additions which
                  may be credited to the Participant's account under this Plan
                  for any Limitation Year will be limited in accordance with the
                  Limitation on Allocations Section of the Adoption Agreement.

                  Except, however, if the Plans are standardized paired plans,
                  the rate of accrual in the defined benefit plan will be
                  reduced to the extent necessary so that the sum of the Defined
                  Contribution Fraction and Defined Benefit Fraction will equal
                  1.0.

         (e)      For purposes of applying the limitations of Code Section 415,
                  the transfer of funds from one qualified plan to another is
                  not an "annual addition." In addition, the following are not
                  Employee contributions for the purposes of Sections 4.4(f)(1)
                  and (2): (1) rollover contributions (as defined in Code
                  Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2)
                  repayments of loans made to a Participant from the Plan; (3)
                  repayments of distributions received by an Employee pursuant
                  to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of
                  distributions received by an Employee pursuant to Code Section
                  411(a)(3)(D) (mandatory contributions); and (5) Employee
                  contributions to a simplified employee pension excludable from
                  gross income under Code Section 408(k)(6).

                                                                         Page 34

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<PAGE>   36

         (f)      For purposes of this Section, the following terms shall be
                  defined as follows:

                  (1)      Annual Additions means the sum credited to a
                           Participant's accounts for any Limitation Year of (1)
                           Employer contributions, (2) effective with respect to
                           "limitation years" beginning after December 31, 1986,
                           Employee contributions, (3) forfeitures, (4) amounts
                           allocated, after March 31, 1984, to an individual
                           medical account, as defined in Code Section
                           415(l)(2), which is part of a pension or annuity plan
                           maintained by the Employer and (5) amounts derived
                           from contributions paid or accrued after December 31,
                           1985, in taxable years ending after such date, which
                           are attributable to post-retirement medical benefits
                           allocated to the separate account of a key employee
                           (as defined in Code Section 419A(d)(3)) under a
                           welfare benefit fund (as defined in Code Section
                           419(e)) maintained by the Employer. Except, however,
                           the "415 Compensation" percentage limitation referred
                           to in paragraph (a)(2) above shall not apply to: (1)
                           any contribution for medical benefits (within the
                           meaning of Code Section 419A(f)(2)) after separation
                           from service which is otherwise treated as an "annual
                           addition," or (2) any amount otherwise treated as an
                           "annual addition" under Code Section 415(l)(1).
                           Notwithstanding the foregoing, for "limitation years"
                           beginning prior to January 1, 1987, only that portion
                           of Employee contributions equal to the lesser of
                           Employee contributions in excess of six percent (6%)
                           of "415 Compensation" or one-half of Employee
                           contributions shall be considered an "annual
                           addition."

                           For this purpose, any Excess Amount applied under
                           Sections 4.4(a)(4) and 4.4(b)(6) in the Limitation
                           Year to reduce Employer contributions shall be
                           considered Annual Additions for such Limitation Year.

                  (2)      Compensation means a Participant's Compensation as
                           defined in Section El of the Adoption Agreement.

                           For purposes of applying the limitations of this
                           Section 4.4, Compensation for any Limitation Year is
                           the Compensation actually paid or includible in gross
                           income during such year. Notwithstanding the
                           preceding sentence, Compensation for a Participant in
                           a profit-sharing plan who is permanently and totally
                           disabled (as defined in Code Section 22(e)(3)) is the
                           Compensation such Participant would have received for
                           the Limitation Year if the Participant had been paid
                           at the rate of Compensation paid immediately before
                           becoming permanently and totally disabled; such
                           imputed Compensation for the disabled Participant may
                           be taken into account only if the Participant is not
                           a Highly Compensated Employee and contributions made
                           on behalf of such Participant are nonforfeitable when
                           made.

                  (3)      Defined Benefit Fraction means a fraction, the
                           numerator of which is the sum of the Participant's
                           Projected Annual Benefits under all the defined
                           benefit plans (whether or not terminated) maintained
                           by the Employer, and the denominator of which is the
                           lesser of 125 percent of the dollar limitation
                           determined for the Limitation Year under Code
                           Sections 415(b) and (d) or 140 percent of his Highest
                           Average Compensation including any adjustments under
                           Code Section 415(b).

                           Notwithstanding the above, if the Participant was a
                           Participant as of the first day of the first
                           Limitation Year beginning after December 31, 1986, in
                           one or more defined benefit plans maintained by the
                           Employer which were in existence on May 6, 1986, the
                           denominator of this fraction will not be less than
                           125 percent of the sum of the annual

                                                                         Page 35

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<PAGE>   37

                           benefits under such plans which the Participant had
                           accrued as of the end of the close of the last
                           Limitation Year beginning before January 1, 1987,
                           disregarding any changes in the terms and conditions
                           of the plan after May 5, 1986. The preceding sentence
                           applies only if the defined benefit plans
                           individually and in the aggregate satisfied the
                           requirements of Code Section 415 for all Limitation
                           Years beginning before January 1, 1987.

                           Notwithstanding the foregoing, for any Top Heavy Plan
                           Year, 100 shall be substituted for 125 unless the
                           extra minimum allocation is being made pursuant to
                           the Employer's election in Fl of the Adoption
                           Agreement. However, for any Plan Year in which this
                           Plan is a Super Top Heavy Plan, 100 shall be
                           substituted for 125 in any event.

                  (4)      Defined Contribution Dollar Limitation means $30,000,
                           or, if greater, one-fourth of the defined benefit
                           dollar limitation set forth in Code Section 415(b)(1)
                           as in effect for the Limitation Year.

                  (5)      Defined Contribution Fraction means a fraction, the
                           numerator of which is the sum of the Annual Additions
                           to the Participant's account under all the defined
                           contribution plans (whether or not terminated)
                           maintained by the Employer for the current and all
                           prior Limitation Years, (including the Annual
                           Additions attributable to the Participant's
                           nondeductible voluntary employee contributions to any
                           defined benefit plans, whether or not terminated,
                           maintained by the Employer and the annual additions
                           attributable to all welfare benefit funds, as defined
                           in Code Section 419(e), and individual medical
                           accounts, as defined in Code Section 415(l)(2),
                           maintained by the Employer), and the denominator of
                           which is the sum of the maximum aggregate amounts for
                           the current and all prior Limitation Years of Service
                           with the Employer (regardless of whether a defined
                           contribution plan was maintained by the Employer).
                           The maximum aggregate amount in any Limitation Year
                           is the lesser of 125 percent of the Defined
                           Contribution Dollar Limitation or thirty-five percent
                           (35%) of the Participant's Compensation for such
                           year. For Limitation Years beginning prior to January
                           1, 1987, the "annual addition" shall not be
                           recomputed to treat all Employee contributions as an
                           Annual Addition.

                           If the Employee was a Participant as of the end of
                           the first day of the first Limitation Year beginning
                           after December 31, 1986, in one or more defined
                           contribution plans maintained by the Employer which
                           were in existence on May 5, 1986, the numerator of
                           this fraction will be adjusted if the sum of this
                           fraction and the Defined Benefit Fraction would
                           otherwise exceed 1.0 under the terms of this Plan.
                           Under the adjustment, an amount equal to the product
                           of (1) the excess of the sum of the fractions over
                           1.0 times (2) the denominator of this fraction, will
                           be permanently subtracted from the numerator of this
                           fraction. The adjustment is calculated using the
                           fractions as they would be computed as of the end of
                           the last Limitation Year beginning before January 1,
                           1987, and disregarding any changes in the terms and
                           conditions of the plan made after May 5, 1986, but
                           using the Code Section 415 limitation applicable to
                           the first Limitation Year beginning on or after
                           January 1, 1987.

                           Notwithstanding the foregoing, for any Top Heavy Plan
                           Year, 100 shall be substituted for 125 unless the
                           extra minimum allocation is being made pursuant to
                           the Employer's election in Fl of the Adoption
                           Agreement. However, for any Plan Year in which this
                           Plan is a Super Top Heavy Plan, 100 shall be
                           substituted for 125 in any event.

                                                                         Page 36

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 87
<PAGE>   38

                  (6)      Employer means the Employer that adopts this Plan and
                           all Affiliated Employers, except that for purposes of
                           this Section, Affiliated Employers shall be
                           determined pursuant to the modification made by Code
                           Section 415(h).

                  (7)      Excess Amount means the excess of the Participant's
                           Annual Additions for the Limitation Year over the
                           Maximum Permissible Amount.

                  (8)      Highest Average Compensation means the average
                           Compensation for the three consecutive Years of
                           Service with the Employer that produces the highest
                           average. A Year of Service with the Employer is the
                           twelve (12) consecutive month period defined in
                           Section El of the Adoption Agreement which is used to
                           determine Compensation under the Plan.

                  (9)      Limitation Year means the Compensation Year (a twelve
                           (12) consecutive month period) as elected by the
                           Employer in the Adoption Agreement. All qualified
                           plans maintained by the Employer must use the same
                           Limitation Year. If the Limitation Year is amended to
                           a different twelve (12) consecutive month period, the
                           new Limitation Year must begin on a date within the
                           Limitation Year in which the amendment is made.

                  (10)     Master or Prototype Plan means a plan the form of
                           which is the subject of a favorable opinion letter
                           from the Internal Revenue Service.

                  (11)     Maximum Permissible Amount means the maximum Annual
                           Addition that may be contributed or allocated to a
                           Participant's account under the plan for any
                           Limitation Year, which shall not exceed the lesser
                           of:

                           (i)      the Defined Contribution Dollar Limitation,
                                    or

                           (ii)     twenty-five percent (25%) of the
                                    Participant's Compensation for the
                                    Limitation Year.

                           The Compensation Limitation referred to in (ii) shall
                           not apply to any contribution for medical benefits
                           (within the meaning of Code Sections 401(h) or
                           419A(f)(2)) which is otherwise treated as an annual
                           addition under Code Sections 415(l)(1) or 419A(d)(2).

                           If a short Limitation Year is created because of an
                           amendment changing the Limitation Year to a different
                           twelve (12) consecutive month period, the maximum
                           Permissible Amount will not exceed the Defined
                           Contribution Dollar contribution multiplied by the
                           following fraction:

                              number of months in the short Limitation Year
                           ---------------------------------------------------
                                                    12

                  (12)     Projected Annual Benefit means the annual retirement
                           benefit (adjusted to an actuarially equivalent
                           straight life annuity if such benefit is expressed in
                           a form other than a straight life annuity or
                           qualified Joint and Survivor Annuity) to which the
                           Participant would be entitled under the terms of the
                           plan assuming:

                           (i)      the Participant will continue employment
                                    until Normal Retirement Age (or current age,
                                    if later), and

                                                                         Page 37

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 88
<PAGE>   39

                           (ii)     the Participant's Compensation for the
                                    current Limitation Year and all other
                                    relevant factors used to determine benefits
                                    under the Plan will remain constant for all
                                    future Limitation Years.

         (g)      Notwithstanding anything contained in this Section to the
                  contrary, the limitations, adjustments and other requirements
                  prescribed in this Section shall at all times comply with the
                  provisions of Code Section 415 and the Regulations thereunder,
                  the terms of which are specifically incorporated herein by
                  reference.

4.5      ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS

         (a)      If as a result of the allocation of Forfeitures, a reasonable
                  error in estimating a Participant's annual Compensation, a
                  reasonable error in determining the amount of elective
                  deferrals (within the meaning of Code Section 402(g)(3), that
                  may be made with respect to a Participant, or other facts and
                  circumstances to which Regulation 1.415-6(b)(6) shall be
                  applicable, the "annual additions" under this Plan would cause
                  the maximum provided in Section 4.4 to be exceeded, the
                  Administrator shall treat the excess in accordance with
                  Section 4.4(a)(4).

4.6      TRANSFERS FROM QUALIFIED PLANS

         (a)      If specified in the Adoption Agreement and with the consent of
                  the Administrator, amounts may be transferred from other
                  qualified plans, provided that the trust from which such funds
                  are transferred permits the transfer to be made and the
                  transfer will not jeopardize the tax exempt status of the Plan
                  or create adverse tax consequences for the Employer. The
                  amounts transferred shall be set up in a separate account
                  herein referred to as a "Participant's Rollover Account." Such
                  account shall be fully Vested at all times and shall not be
                  subject to forfeiture for any reason.

         (b)      Amounts in a Participant's Rollover Account shall be held by
                  the Trustee pursuant to the provisions of this Plan and may
                  not be withdrawn by, or distributed to the Participant, in
                  whole or in part, except as provided in Paragraphs (c) and (d)
                  of this Section.

         (c)      Amounts attributable to elective contributions (as defined in
                  Regulation 1.401(k)-l(g)(3)), including amounts treated as
                  elective contributions, which are transferred from another
                  qualified plan in a plan-to-plan transfer shall be subject to
                  the distribution limitations provided for in Regulation
                  1.401(k)-l(d).

         (d)      At Normal Retirement Date, or such other date when the
                  Participant or his Beneficiary shall be entitled to receive
                  benefits, the fair market value of the Participant's Rollover
                  Account shall be used to provide additional benefits to the
                  Participant or his Beneficiary. Any distributions of amounts
                  held in a Participant's Rollover Account shall be made in a
                  manner which is consistent with and satisfies the provisions
                  of Section 6.5, including, but not limited to, all notice and
                  consent requirements of Code Sections 411(a)(11) and 417 and
                  the Regulations thereunder. Furthermore, such amounts shall be
                  considered as part of a Participant's benefit in determining
                  whether an involuntary cash-out of benefits without
                  Participant consent may be made.

         (e)      The Administrator may direct that employee transfers made
                  after a valuation date be segregated into a separate account
                  for each Participant until such time as the allocations
                  pursuant to this Plan have been made, at which time they may
                  remain segregated or be invested as part of the general Trust
                  Fund, to be determined by the Administrator.

                                                                         Page 38

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<PAGE>   40

         (f)      For purposes of this Section, the term "qualified plan" shall
                  mean any tax qualified plan under Code Section 401(a). The
                  term "amounts transferred from other qualified plans" shall
                  mean: (i) amounts transferred to this Plan directly from
                  another qualified plan; (ii) distributions received by an
                  Employee from another qualified plan which are eligible for
                  tax free rollover to a qualified plan and which are either
                  transferred by the Employee to this Plan within sixty (60)
                  days following his receipt thereof or are transferred pursuant
                  to a direct rollover; (iii) amounts transferred to this Plan
                  from a conduit individual retirement account provided that the
                  conduit individual retirement account has no assets other than
                  assets which (A) were previously distributed to the Employee
                  by another qualified plan as a distribution (B) were eligible
                  for tax-free rollover to a qualified plan and (C) were
                  deposited in such conduit individual retirement account within
                  sixty (60) days of receipt thereof and other than earnings on
                  said assets; and (iv) amounts distributed to the Employee from
                  a conduit individual retirement account meeting the
                  requirements of clause (iii) above, and transferred by the
                  Employee to this Plan within sixty (60) days of his receipt
                  thereof from such conduit individual retirement account.

         (g)      Prior to accepting any transfers to which this Section
                  applies, the Administrator may require the Employee to
                  establish that the amounts to be transferred to this Plan meet
                  the requirements of this Section and may also require the
                  Employee to provide an opinion of counsel satisfactory to the
                  Employer that the amounts to be transferred meet the
                  requirements of this Section.

         (h)      Notwithstanding anything herein to the contrary, a transfer
                  directly to this Plan from another qualified plan (or a
                  transaction having the effect of such a transfer) shall only
                  be permitted if it will not result in the elimination or
                  reduction of any "Section 411(d)(6) protected benefit" as
                  described in Section 8.1.

4.7      VOLUNTARY CONTRIBUTIONS

         (a)      If this is an amendment to a Plan that had previously allowed
                  voluntary Employee contributions, then, except as provided in
                  4.7(b) below, this Plan will not accept voluntary Employee
                  contributions for Plan Years beginning after the Plan Year in
                  which this Plan is adopted by the Employer.

         (b)      For 401(k) Plans, if elected in the Adoption Agreement, each
                  Participant may, at the discretion of the Administrator in a
                  nondiscriminatory manner, elect to voluntarily contribute a
                  portion of his compensation earned while a Participant under
                  this Plan. Such contributions shall be paid to the Trustee
                  within a reasonable period of time but in no event later than
                  ninety (90) days after the receipt of the contribution.

         (c)      The balance in each Participant's Voluntary Contribution
                  Account shall be fully Vested at all times and shall not be
                  subject to Forfeiture for any reason.

         (d)      A Participant may elect to withdraw his voluntary
                  contributions from his Voluntary Contribution Account and the
                  actual earnings thereon in a manner which is consistent with
                  and satisfies the provisions of Section 6.5, including, but
                  not limited to, all notice and consent requirements of Code
                  Sections 411(a)(11) and 417 and the Regulations thereunder. If
                  the Administrator maintains sub-accounts with respect to
                  voluntary contributions (and earnings thereon) which were made
                  on or before a specified date, a Participant shall be
                  permitted to designate which sub-account shall be the source
                  for his withdrawal. No Forfeitures shall occur solely as a
                  result of an Employee's withdrawal of Employee contributions.

                                                                         Page 39

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 90
<PAGE>   41

                  In the event a Participant has received a hardship
                  distribution pursuant to Regulation 1.401(k)-l(d)(2)(iii)(B)
                  from any plan maintained by the Employer, then such
                  Participant shall be barred from making any voluntary
                  contributions for a period of twelve (12) months after receipt
                  of the distribution.

         (e)      At Normal Retirement Date, or such other date when the
                  Participant or his Beneficiary shall be entitled to receive
                  benefits, the fair market value of the Voluntary Contribution
                  Account shall be used to provide additional benefits to the
                  Participant or his Beneficiary.

         (f)      The Administrator may direct that voluntary contributions made
                  after a valuation date be segregated into a separate account
                  until such time as the allocations pursuant to this Plan have
                  been made, at which time they may remain segregated or be
                  invested as part of the general Trust Fund, to be determined
                  by the Administrator.

4.8      DIRECTED INVESTMENT ACCOUNT

         (a)      If elected in the Adoption Agreement, all Participants shall
                  direct the Trustee as to the investment of all of their
                  individual account balances. Participants shall direct the
                  Trustee in writing to invest their account in specific assets
                  as permitted by the Administrator provided such investments
                  are in accordance with the Department of Labor regulations and
                  are permitted by the Plan. That portion of the account of any
                  Participant so directing will thereupon be considered a
                  Directed Investment Account.

         (b)      A separate Directed Investment Account shall be established
                  for each Participant who has directed an investment. Transfers
                  between the Participant's regular account and their Directed
                  Investment Account shall be charged and credited as the case
                  may be to each account. The Directed Investment Account shall
                  not share in Trust Fund Earnings, but it shall be charged or
                  credited as appropriate with the net earnings, gains, losses
                  and expenses as well as any appreciation or depreciation in
                  market value during each Plan Year attributable to such
                  account.

         (c)      The Administrator shall establish a procedure, to be applied
                  in a uniform and nondiscriminatory manner, setting forth the
                  permissible investment options under this Section, how often
                  changes between investments may be made, and any other
                  limitations that the Administrator shall impose on a
                  Participant's right to direct investments.

4.9      QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS

         (a)      If this is an amendment to a Plan that previously permitted
                  deductible voluntary contributions, then each Participant who
                  made a "Qualified Voluntary Employee Contribution" within the
                  meaning of Code Section 219(e)(2) as it existed prior to the
                  enactment of the Tax Reform Act of 1986, shall have his
                  contribution held in a separate Qualified Voluntary Employee
                  Contribution Account which shall be fully Vested at all times.
                  Such contributions, however, shall not be permitted if they
                  are attributable to taxable years beginning after December 31,
                  1986.

         (b)      A Participant may, upon written request delivered to the
                  Administrator, make withdrawals from his Qualified Voluntary
                  Employee Contribution Account. Any distribution shall be made
                  in a manner which is consistent with and satisfies the
                  provisions of Section 6.5, including, but not limited to, all
                  notice and consent requirements of Code Sections 411(a)(11)
                  and 417 and the Regulations thereunder.

                                                                         Page 40

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 91
<PAGE>   42

         (c)      At Normal Retirement Date, or such other date when the
                  Participant or his Beneficiary shall be entitled to receive
                  benefits, the fair market value of the Qualified Voluntary
                  Employee Contribution Account shall be used to provide
                  additional benefits to the Participant or his Beneficiary.

         (d)      Unless the Administrator directs Qualified Voluntary Employee
                  Contributions made pursuant to this Section be segregated into
                  a separate account for each Participant, they shall be
                  invested as part of the general Trust Fund and share in
                  earnings and losses.

4.10     ACTUAL CONTRIBUTION PERCENTAGE TESTS

         In the event this Plan previously provided for voluntary or mandatory
         Employee contributions, then, with respect to Plan Years beginning
         after December 31, 1986, such contributions must satisfy the provisions
         of Code Section 401(m) and the Regulations thereunder.

4.11     INTEGRATION IN MORE THAN ONE PLAN

         If the Employer and/or an Affiliated Employer maintain qualified
         retirement plans integrated with Social Security such that any
         Participant in this Plan is covered under more than one of such plans,
         then such plans will be considered to be one plan and will be
         considered to be integrated if the extent of the integration of all
         such plans does not exceed one-hundred percent (100%). For purposes of
         the preceding sentence, the extent of integration of a plan is the
         ratio, expressed as a percentage, which the actual benefits, benefit
         rate, offset rate, or employer contribution rate, whatever is
         applicable under the Plan bears to the limitation applicable to such
         Plan. If the Employer maintains two or more standardized paired plans,
         only one plan may be integrated with Social Security.

                                    ARTICLE V
                                   VALUATIONS

5.1      VALUATION OF THE TRUST FUND

         The Administrator shall direct the Trustee, as of each Anniversary
         Date, and at such other date or dates deemed necessary by the
         Administrator, herein called "valuation date," to determine the net
         worth of the assets comprising the Trust Fund as it exists on the
         "valuation date." In determining such net worth, the Trustee shall
         value the assets comprising the Trust Fund at their fair market value
         as of the "valuation date" and shall deduct all expenses for which the
         Trustee has not yet obtained reimbursement from the Employer or the
         Trust Fund.

5.2      METHOD OF VALUATION

         In determining the fair market value of securities held in the trust
         fund which are listed on a registered stock exchange, the Administrator
         shall direct the Trustee to value the same at the prices they were last
         traded on such exchange preceding the close of business on the
         "valuation date." If such securities were not traded on the "valuation
         date," or if the exchange on which they are traded was not open for
         business on the "valuation date," then the securities shall be valued
         at the prices at which they were last traded prior to the "valuation
         date." Any unlisted security held in the Trust Fund shall be valued at
         its bid price next preceding the close of business on the "valuation
         date," which bid price shall be obtained from a registered broker or an
         investment banker. In determining the fair market value of assets other
         than securities for which trading or bid prices can be obtained, the
         Trustee may appraise such assets itself, or in

                                                                         Page 41

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 92
<PAGE>   43

         its discretion, employ one or more appraisers for that purpose and rely
         on the values established b such appraiser or appraisers.

                                   ARTICLE VI
                   DETERMINATION AND DISTRIBUTION OF BENEFITS

6.1      DETERMINATION OF BENEFITS UPON RETIREMENT

         Every Participant may terminate his employment with the Employer and
         retire for the purposes hereof on or after his Normal Retirement Date
         or Early Retirement Date. Upon such Normal Retirement Date or Early
         Retirement Date, all amounts credited to such Participant's Combined
         Account shall become distributable. However, a Participant may postpone
         the termination of his employment with the Employer to a later date, in
         which event the participation of such Participant in the Plan,
         including the right to receive allocations pursuant to Section 4.3,
         shall continue until his Late Retirement Date. Upon a Participant's
         Retirement Date, or as soon thereafter as is practicable, the
         Administrator shall direct the distribution of all amounts credited to
         such Participant's Combined Account in accordance with Section 6.5.

6.2      DETERMINATION OF BENEFITS UPON DEATH

         (a)      Upon the death of a Participant before his Retirement Date or
                  other termination of his employment, all amounts credited to
                  such Participant's Combined Account shall become fully Vested.
                  The Administrator shall direct, in accordance with the
                  provisions of Sections 6.6 and 6.7, the distribution of any
                  remaining amounts credited to the accounts of such deceased
                  Former Participant to such Former Participant's Beneficiary.

         (b)      Upon the death of a Former Participant, the Administrator
                  shall direct, in accordance with the provisions of Sections
                  6.6 and 6.7, the distribution of any remaining amounts
                  credited to the accounts of such deceased Former Participant
                  to such Former Participant's Beneficiary.

         (c)      The Administrator may require such proper proof of death and
                  such evidence of the right of any person to receive payment of
                  the value of the account of a deceased Participant or Former
                  Participant as the Administrator may deem desirable. The
                  Administrator's determination of death and of the right of any
                  person to receive payment shall be conclusive.

         (d)      Unless otherwise elected in the manner prescribed in Section
                  6.6, the Beneficiary of the Pre-Retirement Survivor Annuity
                  shall be the Participant's spouse. Except, however, the
                  Participant may designate a Beneficiary other than his spouse
                  for the Pre-Retirement Survivor Annuity if:

                  (1)      the Participant and his spouse have validly waived
                           the Pre-Retirement Survivor Annuity in the manner
                           prescribed in Section 6.6, and the spouse has waived
                           his or her right to be the Participant's Beneficiary,
                           or

                  (2)      the Participant is legally separated or has been
                           abandoned (within the meaning of local law) and the
                           Participant has a court order to such effect (and
                           there is no "qualified domestic relations order" as
                           defined in Code Section 414(p) which provides
                           otherwise), or

                  (3)      the Participant has no spouse, or

                  (4)      the spouse cannot be located.

                                                                         Page 42

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 93
<PAGE>   44

                  In such event, the designation of a Beneficiary shall be made
                  on a form satisfactory to the Administrator. A Participant may
                  at any time revoke his designation of a Beneficiary or change
                  his Beneficiary by filing written notice of such revocation or
                  change with the Administrator. However, the Participant's
                  spouse must again consent in writing to any change in
                  Beneficiary unless the original consent acknowledged that the
                  spouse had the right to limit consent only to a specific
                  Beneficiary and that the spouse voluntarily elected to
                  relinquish such right. The Participant may, at any time,
                  designate a Beneficiary for death benefits payable under the
                  Plan that are in excess of the Pre-Retirement Survivor
                  Annuity. In the event no valid designation of Beneficiary
                  exists at the time of the Participant's death, the death
                  benefit shall be payable to his estate.

         (e)      If the Plan provides an insured death benefit and a
                  Participant dies before any insurance coverage to which he is
                  entitled under the Plan is effected, his death benefit from
                  such insurance coverage shall be limited to the standard rated
                  premium which was or should have been used for such purpose.

         (f)      In the event of any conflict between the terms of this Plan
                  and the terms of any Contract issued hereunder, the Plan
                  provisions shall control.

6.3      DETERMINATION OF BENEFITS IN EVENT OF DISABILITY

         In the event of a Participant's Total and Permanent Disability prior to
         his Retirement Date or other termination of his employment, all amounts
         credited to such Participant's Combined Account shall become fully
         Vested. In the event of a Participant's Total and Permanent Disability,
         the Administrator, in accordance with the provisions of Sections 6.5
         and 6.7, shall direct the distribution to such Participant of all
         amounts credited to such Participant's Combined Account as though he
         had retired.

6.4      DETERMINATION OF BENEFITS UPON TERMINATION

         (a)      On or before the Anniversary Date, or other valuation date,
                  coinciding with or subsequent to the termination of a
                  Participant's employment for any reason other than retirement,
                  death, or Total and Permanent Disability, the Administrator
                  may direct that the amount of the Vested portion of such
                  Terminated Participant's Combined Account be segregated and
                  invested separately. In the event the Vested portion of a
                  Participant's Combined Account is not segregated, the amount
                  shall remain in a separate account for the Terminated
                  Participant and share in allocations pursuant to Section 4.3
                  until such time as a distribution is made to the Terminated
                  Participant. The amount of the portion of the Participant's
                  Combined Account which is not Vested may be credited to a
                  separate account (which will always share in gains and losses
                  of the Trust Fund) and at such time as the amount becomes a
                  Forfeiture shall be treated in accordance with the provisions
                  of the Plan regarding Forfeitures.

                  Regardless of whether distributions in kind are permitted, in
                  the event that the amount of the Vested portion of the
                  Terminated Participant's Combined Account equals or exceeds
                  the fair market value of any insurance Contracts, the Trustee,
                  when so directed by the Administrator and agreed to by the
                  Terminated Participant, shall assign, transfer, and set over
                  to such Terminated Participant all Contracts on his life in
                  such form or with such endorsements, so that the settlement
                  options and forms of payment are consistent with the
                  provisions of Section 6.5. In the event that the Terminated
                  Participant's Vested portion does not at least equal the fair
                  market value of the Contracts, if any, the Terminated
                  Participant may pay over to the Trustee the sum needed to make

                                                                         Page 43

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<PAGE>   45

                  the distribution equal to the value of the Contracts being
                  assigned or transferred, or the Trustee, pursuant to the
                  Participant's election, may borrow the cash value of the
                  Contracts from the Insurer so that the value of the Contracts
                  is equal to the Vested portion of the Terminated Participant's
                  Combined Account and then assign the Contracts to the
                  Terminated Participant.

                  Distribution of the funds due to a Terminated Participant
                  shall be made on the occurrence of an event which would result
                  in the distribution had the Terminated Participant remained in
                  the employ of the Employer (upon the Participant's death,
                  Total and Permanent Disability, Early or Normal Retirement).
                  However, at the election of the Participant, the Administrator
                  shall direct that the entire Vested portion of the Terminated
                  Participant's Combined Account to be payable to such
                  Terminated Participant provided the conditions, if any, set
                  forth in the Adoption Agreement have been satisfied. Any
                  distribution under this paragraph shall be made in a manner
                  which is consistent with and satisfies the provisions of
                  Section 6.5, including but not limited to, all notice and
                  consent requirements of Code Sections 411(a)(11) and 417 and
                  the Regulations thereunder.

                  Notwithstanding the above, if the value of a Terminated
                  Participant's vested benefit derived from Employer and
                  Employee contributions does not exceed, and at the time of any
                  prior distribution, has never exceeded $3,500, the
                  Administrator shall direct that the entire Vested benefit be
                  paid to such Participant in a single lump-sum without regard
                  to the consent of the Participant or the Participant's spouse.
                  A Participant's Vested benefit shall not include Qualified
                  Voluntary Employee Contributions within the meaning of Code
                  Section 72(o)(5)(B) for Plan Years beginning prior to January
                  1, 1989.

         (b)      The Vested portion of any Participant's Account shall be a
                  percentage of such Participant's Account determined on the
                  basis of the Participant's number of Years of Service
                  according to the vesting schedule specified in the Adoption
                  Agreement.

         (c)      For any Top Heavy Plan Year, one of the minimum top heavy
                  vesting schedules as elected by the Employer in the Adoption
                  Agreement will automatically apply to the Plan. The minimum
                  top heavy vesting schedule applies to all benefits within the
                  meaning of Code Section 411(a)(7) except those attributable to
                  Employee contributions, including benefits accrued before the
                  effective date of Code Section 416 and benefits accrued before
                  the Plan became top heavy. Further, no decrease in a
                  Participant's Vested percentage may occur in the event the
                  Plan's status as top heavy changes for any Plan Year. However,
                  this Section does not apply to the account balances of any
                  Employee who does not have an Hour of Service after the Plan
                  has initially become top heavy and the Vested percentage of
                  such Employee's Participant's Account shall be determined
                  without regard to this Section 6.4(c).

                  If in any subsequent Plan Year, the Plan ceases to be a Top
                  Heavy Plan, the Administrator shall continue to use the
                  vesting schedule in effect while the Plan was a Top Heavy Plan
                  for each Employee who had an Hour of Service during a Plan
                  Year when the Plan was Top Heavy.

         (d)      Notwithstanding the vesting schedule above, upon the complete
                  discontinuance of the Employer's contributions to the Plan or
                  upon any full or partial termination of the Plan, all amounts
                  credited to the account of any affected Participant shall
                  become one-hundred percent (100%) Vested and shall not
                  thereafter be subject to Forfeiture.

                                                                         Page 44

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<PAGE>   46

         (e)      If this is an amended or restated Plan, then notwithstanding
                  the vesting schedule specified in the Adoption Agreement, the
                  Vested percentage of a Participant's Account shall not be less
                  than the Vested percentage attained as of the later of the
                  effective date or adoption date of this amendment and
                  restatement. The computation of a Participant's nonforfeitable
                  percentage of his interest in the Plan shall not be reduced as
                  the result of any direct or indirect amendment to this
                  Article, or due to changes in the Plan's status as a Top Heavy
                  Plan.

         (f)      If the Plan's vesting schedule is amended, or if the Plan is
                  amended in any way that directly or indirectly affects the
                  computation of the Participant's nonforfeitable percentage or
                  if the Plan is deemed amended by an automatic change to a top
                  heavy vesting schedule, then each Participant with at least
                  three (3) Years of Service as of the expiration date of the
                  election period may elect to have his nonforfeitable
                  percentage computed under the Plan without regard to such
                  amendment or change. Notwithstanding the foregoing, for Plan
                  Years beginning before January 1, 1989, or with respect to
                  Employees who fail to complete at least one (1) Hour of
                  Service in a Plan Year beginning after December 31, 1988, five
                  (5) shall be substituted for three (3) in the preceding
                  sentence. If a Participant fails to make such election, then
                  such Participant shall be subject to the new vesting schedule.
                  The Participant's election period shall commence on the
                  adoption date of the amendment and shall end sixty (60) days
                  after the latest of:

                  (1)      the adoption date of the amendment,

                  (2)      the effective date of the amendment, or

                  (3)      the date the Participant receives written notice of
                           the amendment from the Employer or Administrator.

         (g)      (1)      If any Former Participant shall be reemployed by the
                           Employer before a 1-Year Break in Service occurs, he
                           shall continue to participate in the Plan in the same
                           manner as if such termination had not occurred.

                  (2)      If any Former Participant shall be reemployed by the
                           Employer before five (5) consecutive 1-Year Breaks in
                           Service, and such Former Participant had received a
                           distribution of his entire Vested interest prior to
                           his reemployment, his forfeited account shall be
                           reinstated only if he repays the full amount
                           distributed to him before the earlier of five (5)
                           years after the first date on which the Participant
                           is subsequently reemployed by the Employer or the
                           close of the first period of five (5) consecutive
                           1-Year Breaks in Service commencing after the
                           distribution. If a distribution occurs for any reason
                           other than a separation from service, the time for
                           repayment may not end earlier than five (5) years
                           after the date of separation. In the event the Former
                           Participant does repay the full amount distributed to
                           him, the undistributed portion of the Participant's
                           Account must be restored in full, unadjusted by any
                           gains or losses occurring subsequent to the
                           Anniversary Date or other valuation date preceding
                           his termination. If an employee receives a
                           distribution pursuant to this section and the
                           employee resumes employment covered under this plan,
                           the employee's employer-derived account balance will
                           be restored to the amount on the date of distribution
                           if the employee repays to the plan the full amount of
                           the distribution attributable to employer
                           contributions before the earlier of five (5) years
                           after the first date on which the participant is
                           subsequently re-employed by the employer, or the date
                           the participant incurs five (5) consecutive 1-Year
                           Breaks in Service following the date of the
                           distribution. If a non-Vested Former Participant was
                           deemed to have received a distribution and such
                           Former Participant is reemployed by the

                                                                         Page 45

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 96
<PAGE>   47

                           Employer before five (5) consecutive 1-Year Breaks in
                           Service, then such Participant will be deemed to have
                           repaid the deemed distribution as of the date of
                           reemployment.

                  (3)      If any Former Participant is reemployed after a
                           1-Year Break in Service has occurred, Years of
                           Service shall include Years of Service prior to his
                           1-Year Break in Service subject to the following
                           rules:

                           (i)      Any Former Participant who under the Plan
                                    does not have a nonforfeitable right to any
                                    interest in the Plan resulting from Employer
                                    contributions shall lose credits if his
                                    consecutive 1-Year Breaks in Service equal
                                    or exceed the greater of (A) five (5) or (B)
                                    the aggregate number of his pre-break Years
                                    of Service;

                           (ii)     After five (5) consecutive 1-Year Breaks in
                                    service, a Former Participant's Vested
                                    Account balance attributable to pre-break
                                    service shall not be increased as a result
                                    of post-break service;

                           (iii)    A Former Participant who is reemployed and
                                    who has not had his Years of Service before
                                    a 1-Year Break in Service disregarded
                                    pursuant to (i) above, shall participate in
                                    the Plan as of his date of reemployment;

                           (iv)     If a Former Participant completes a Year of
                                    Service (a 1-Year Break in Service
                                    previously occurred, but employment had not
                                    terminated), he shall participate in the
                                    Plan retroactively from the first day of the
                                    Plan Year during which he completes one (1)
                                    Year of Service.

         (h)      In determining Years of Service for purposes of vesting under
                  the Plan, Years of Service shall be excluded as specified in
                  the Adoption Agreement.

6.5      DISTRIBUTION OF BENEFITS

         (a)      (1)      Unless otherwise elected as provided below, a
                           Participant who is married on the "annuity starting
                           date" and who does not die before the "annuity
                           starting date" shall receive the value of all of his
                           benefits in the form of a Joint and Survivor Annuity.
                           The Joint and Survivor Annuity is an annuity that
                           commences immediately and shall be equal in value to
                           a single life annuity. Such joint and survivor
                           benefits following the Participant's death shall
                           continue to the spouse during the spouse's lifetime
                           at a rate equal to fifty percent (50%) of the rate at
                           which such benefits were payable to the Participant.
                           This Joint and Survivor Annuity shall be considered
                           the designated qualified Joint and Survivor Annuity
                           and automatic form of payment for the purposes of
                           this Plan. However, the Participant may elect to
                           receive a smaller annuity benefit with continuation
                           of payments to the spouse at a rate of seventy-five
                           percent (75%) or one hundred percent (100%) of the
                           rate payable to a Participant during his lifetime
                           which alternative Joint and Survivor Annuity shall be
                           equal in value to the automatic Joint and 50%
                           Survivor Annuity. An unmarried Participant shall
                           receive the value of his benefit in the form of a
                           life annuity. Such unmarried Participant, however,
                           may elect in writing to waive the life annuity. The
                           election must comply with the provisions of this
                           Section as if it were an election to waive the Joint
                           and Survivor Annuity by a married Participant, but
                           without the spousal consent requirement. The
                           Participant may elect to have any annuity provided
                           for in this Section distributed upon the attainment
                           of the "earliest retirement age" under the Plan. The

                                                                         Page 46

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 97
<PAGE>   48

                           "earliest retirement age" is the earliest date on
                           which, under the Plan, the Participant could elect to
                           receive retirement benefits.

                  (2)      Any election to waive the Joint and Survivor Annuity
                           must be made by the Participant in writing during the
                           election period and be consented to by the
                           Participant's spouse. If the spouse is legally
                           incompetent to give consent, the spouse's legal
                           guardian, even if such guardian is the Participant,
                           may give consent. Such election shall designate a
                           Beneficiary (or a form of benefits) that may not be
                           changed without spousal consent (unless the consent
                           of the spouse expressly permits designations by the
                           Participant without the requirement of further
                           consent by the spouse). Such spouse's consent shall
                           be irrevocable and must acknowledge the effect of
                           such election and be witnessed by a Plan
                           representative or a notary public. Such consent shall
                           not be required if it is established to the
                           satisfaction of the Administrator that the required
                           consent cannot be obtained because there is no
                           spouse, the spouse cannot be located, or other
                           circumstances that may be prescribed by Regulations.
                           The election made by the Participant and consented to
                           by his spouse may be revoked by the Participant in
                           writing without the consent of the spouse at any time
                           during the election period. The number of revocations
                           shall not be limited. Any new election must comply
                           with the requirements of this paragraph. A former
                           spouse's waiver shall not be binding on a new spouse.

                  (3)      The election period to waive the Joint and Survivor
                           Annuity shall be the ninety (90) day period ending on
                           the "annuity starting date."

                  (4)      For purposes of this Section and Section 6.6, the
                           "annuity starting date" means the first day of the
                           first period for which an amount is paid as an
                           annuity, or, in the case of a benefit not payable in
                           the form of an annuity, the first day on which all
                           events have occurred which entitles the Participant
                           to such benefit.

                  (5)      With regard to the election, the Administrator shall
                           provide to the Participant no less than thirty (30)
                           days and no more than ninety (90) days before the
                           "annuity starting date" a written explanation of:

                           (i)      the terms and conditions of the Joint and
                                    Survivor Annuity, and

                           (ii)     the Participant's right to make and the
                                    effect of an election to waive the Joint and
                                    Survivor Annuity, and

                           (iii)    the right of the Participant's spouse to
                                    consent to any election to waive the Joint
                                    and Survivor Annuity, and

                           (iv)     the right of the Participant to revoke such
                                    election, and the effect of such revocation.

         (b)      In the event a married Participant duly elects pursuant to
                  paragraph (a)(2) above not to receive his benefit in the form
                  of a Joint and Survivor Annuity, or if such Participant is not
                  married, in the form of a life annuity, the Administrator,
                  pursuant to the election of the Participant, shall direct the
                  distribution to a Participant or his Beneficiary any amount to
                  which he is entitled under the Plan in one or more of the
                  following methods which are permitted pursuant to the Adoption
                  Agreement:

                                                                         Page 47

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 98
<PAGE>   49
                  (1)      One lump-sum payment in cash or in property;

                  (2)      Payments over a period certain in monthly, quarterly,
                           semiannual, or annual cash installments. In order to
                           provide such installment payments, the Administrator
                           may direct that the Participant's interest in the
                           Plan be segregated and invested separately, and that
                           the funds in the segregated account be used for the
                           payment of the installments. The period over which
                           such payment is to be made shall not extend beyond
                           the Participant's life expectancy (or the life
                           expectancy of the Participant and his designated
                           Beneficiary);

                  (3)      Purchase of or providing an annuity. However, such
                           annuity may not be in any form that will provide for
                           payments over a period extending beyond either the
                           life of the Participant (or the lives of the
                           Participant and his designated Beneficiary) or the
                           life expectancy of the Participant (or the life
                           expectancy of the Participant and his designated
                           Beneficiary).

         (c)      The present value of a Participant's Joint and Survivor
                  Annuity derived from Employer and Employee contributions may
                  not be paid without his written consent if the value exceeds,
                  or has ever exceeded at the time of any prior distribution,
                  $3,500. Further, the spouse of a Participant must consent in
                  writing to any immediate distribution. If the value of the
                  Participant's benefit derived from Employer and Employee
                  contributions does not exceed $3,500 and has never exceeded
                  $3,500 at the time of any prior distribution, the
                  Administrator may immediately distribute such benefit without
                  such Participant's consent. No distribution may be made under
                  the preceding sentence after the "annuity starting date"
                  unless the Participant and his spouse consent in writing to
                  such distribution. Any written consent required under this
                  paragraph must be obtained not more than ninety (90) days
                  before commencement of the distribution and shall be made in a
                  manner consistent with Section 6.5(a)(2).

         (d)      Any distribution to a Participant who has a benefit which
                  exceeds, or has ever exceeded at the time of any prior
                  distribution, $3,500 shall require such Participant's consent
                  if such distribution commences prior to the later of his
                  Normal Retirement Age or age sixty-two (62). With regard to
                  this required consent:

                  (1)      No consent shall be valid unless the Participant has
                           received a general description of the material
                           features and an explanation of the relative values of
                           the optional forms of benefit available under the
                           Plan that would satisfy the notice requirements of
                           Code Section 417.

                  (2)      The Participant must be informed of his right to
                           defer receipt of the distribution. If a Participant
                           fails to consent, it shall be deemed an election to
                           defer the commencement of payment of any benefit.
                           However, any election to defer the receipt of
                           benefits shall not apply with respect to
                           distributions which are required under Section
                           6.5(e).

                  (3)      Notice of the rights specified under this paragraph
                           shall be provided no less than thirty (30) days and
                           no more than ninety (90) days before the "annuity
                           starting date."

                  (4)      Written consent of the Participant to the
                           distribution must not be made before the Participant
                           receives the notice and must not be made more than
                           ninety (90) days before the "annuity starting date."

                  (5)      No consent shall be valid if a significant detriment
                           is imposed under the Plan on any Participant who does
                           not consent to the distribution.

                                                                         Page 48

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 99

<PAGE>   50

         (e)      Notwithstanding any provision in the Plan to the contrary, the
                  distribution of a Participant's benefits, made on or after
                  January 1, 1985, whether under the Plan or through the
                  purchase of an annuity Contract, shall be made in accordance
                  with the following requirements and shall otherwise comply
                  with Code Section 401(a)(9) and the Regulations thereunder
                  (including Regulation Section 1.401(a)(9)-2), the provisions
                  of which are incorporated herein by reference:

                  (1)      A Participant's benefits shall be distributed to him
                           not later than April 1st of the calendar year
                           following the later of (i) the calendar year in which
                           the Participant attains age 70 1/2 or (ii) the
                           calendar year in which the Participant retires,
                           provided, however, that this clause (ii) shall not
                           apply in the case of a Participant who is a "five (5)
                           percent owner" at any time during the five (5) Plan
                           Year period ending in the calendar year in which he
                           attains age 70 1/2 or, in the case of a Participant
                           who becomes a "five (5) percent owner" during any
                           subsequent Plan Year, clause (ii) shall no longer
                           apply and the required beginning date shall be the
                           April 1st of the calendar year following the calendar
                           year in which such subsequent Plan Year ends.
                           Alternatively, distributions to a Participant must
                           begin no later than the applicable April 1st as
                           determined under the preceding sentence and must be
                           made over the life of the Participant (or the lives
                           of the Participant and the Participant's designated
                           Beneficiary) or, if benefits are paid in the form of
                           a Joint and Survivor Annuity, the life expectancy of
                           the Participant (or the life expectancies of the
                           Participant and his designated Beneficiary) in
                           accordance with Regulations. For Plan Years beginning
                           after December 31, 1988, clause (ii) above shall not
                           apply to any Participant unless the Participant had
                           attained age 70 1/2 before January 1, 1988 and was
                           not a "five (5) percent owner" at any time during the
                           Plan Year ending with or within the calendar year in
                           which the Participant attained age 66 1/2 or any
                           subsequent Plan Year.

                  (2)      Distributions to a Participant and his Beneficiaries
                           shall only be made in accordance with the incidental
                           death benefit requirements of Code Section
                           401(a)(9)(G) and the Regulations thereunder.

                           Additionally, for calendar years beginning before
                           1989, distributions may also be made under an
                           alternative method which provides that the then
                           present value of the payments to be made over the
                           period of the Participant's life expectancy exceeds
                           fifty percent (50%) of the then present value of the
                           total payments to be made to the Participant and his
                           Beneficiaries.

         (f)      For purposes of this Section, the life expectancy of a
                  Participant and a Participant's spouse (other than in the case
                  of a life annuity) shall be redetermined annually in
                  accordance with Regulations if permitted pursuant to the
                  Adoption Agreement. If the Participant or the Participant's
                  spouse may elect whether recalculations will be made, then the
                  election, once made, shall be irrevocable. If no election is
                  made by the time distributions must commence, then the life
                  expectancy of the Participant and the Participant's spouse
                  shall not be subject to recalculation. Life expectancy and
                  joint and last survivor expectancy shall be computed using the
                  return multiples in Tables V and VI of Regulation 1.72-9.

         (g)      All annuity Contracts under this Plan shall be
                  non-transferable when distributed. Furthermore, the terms of
                  any annuity Contract purchased and distributed to a
                  Participant or spouse shall comply with all of the
                  requirements of this Plan.

         (h)      Subject to the spouse's right of consent afforded under the
                  Plan, the restrictions imposed by this Section shall not apply
                  if a Participant has, prior to January 1, 1984, made a written
                  designation to

                                                                         Page 49

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 100
<PAGE>   51

                  have his retirement benefit paid in an alternative method
                  acceptable under Code Section 401(a) as in effect prior to the
                  enactment of the Tax Equity and Fiscal Responsibility Act of
                  1982.

         (i)      If a distribution is made at a time when a Participant who has
                  not terminated employment is not fully Vested in his
                  Participant's Account and the Participant may increase the
                  Vested percentage in such account:

                  (1)      A separate account shall be established for the
                           Participant's interest in the Plan as of the time of
                           the distribution, and

                  (2)      At any relevant time the Participant's Vested portion
                           of the separate account shall be equal to an amount
                           ("X") determined by the formula:

                                 X equals P(AB plus [RxD]) - (R x D)

                  For purposes of applying the formula: P is the Vested
                  percentage at the relevant time, AB is the account balance at
                  the relevant time, D is the amount of distribution, and R is
                  the ratio of the account balance at the relevant time to the
                  account balance after distribution.

6.6      DISTRIBUTION OF BENEFITS UPON DEATH

         (a)      Unless otherwise elected as provided below, a Vested
                  Participant who dies before the annuity starting date and who
                  has a surviving spouse shall have the Pre-Retirement Survivor
                  Annuity paid to his surviving spouse. The Participant's spouse
                  may direct that payment of the Pre-Retirement Survivor Annuity
                  commence within a reasonable period after the Participant's
                  death. If the spouse does not so direct, payment of such
                  benefit will commence at the time the Participant would have
                  attained the later of his Normal Retirement Age or age
                  sixty-two (62). However, the spouse may elect a later
                  commencement date. Any distribution to the Participant's
                  spouse shall be subject to the rules specified in Section
                  6.6(h).

         (b)      Any election to waive the Pre-Retirement Survivor Annuity
                  before the Participant's death must be made by the Participant
                  in writing during the election period and shall require the
                  spouse's irrevocable consent in the same manner provided for
                  in Section 6.5(a)(2). Further, the spouse's consent must
                  acknowledge the specific nonspouse Beneficiary.
                  Notwithstanding the foregoing, the nonspouse Beneficiary need
                  not be acknowledged, provided the consent of the spouse
                  acknowledges that the spouse has the right to limit consent
                  only to a specific Beneficiary and that the spouse voluntarily
                  elects to relinquish such right.

         (c)      The election period to waive the Pre-Retirement Survivor
                  Annuity shall begin on the first day of the Plan Year in which
                  the Participant attains age thirty-five (35) and end on the
                  date of the Participant's death. An earlier waiver (with
                  spousal consent) may be made provided a written explanation of
                  the Pre-Retirement Survivor Annuity is given to the
                  Participant and such waiver becomes invalid at the beginning
                  of the Plan Year in which the Participant turns age
                  thirty-five (35). In the event a Vested Participant separates
                  from service prior to the beginning of the election period,
                  the election period shall begin on the date of such separation
                  from service.

         (d)      With regard to the election, the Administrator shall provide
                  each Participant within the applicable period, with respect to
                  such Participant (and consistent with Regulations), a written
                  explanation of the Pre-Retirement Survivor Annuity containing
                  comparable information to that required pursuant

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                  to Section 6.5(a)(4). For the purposes of this paragraph, the
                  term "applicable period" means, with respect to a Participant,
                  whichever of the following periods ends last:

                  (1)      The period beginning with the first day of the Plan
                           Year in which the Participant attains age thirty-two
                           (32) and ending with the close of the Plan Year
                           preceding the Plan Year in which the Participant
                           attains age thirty-five (35);

                  (2)      A reasonable period after the individual becomes a
                           Participant. For this purpose, in the case of an
                           individual who becomes a Participant after age
                           thirty-two (32), the explanation must be provided by
                           the end of the three-year period beginning with the
                           first day of the first Plan Year for which the
                           individual is a Participant;

                  (3)      A reasonable period ending after the Plan no longer
                           fully subsidizes the cost of the Pre-Retirement
                           Survivor Annuity with respect to the Participant;

                  (4)      A reasonable period ending after Code Section
                           401(a)(11) applies to the Participant; or

                  (5)      A reasonable period after separation from service in
                           the case of a Participant who separates before
                           attaining age thirty-five (35). For this purpose, the
                           Administrator must provide the explanation beginning
                           one year before the separation from service and
                           ending one year after separation.

         (e)      The Pre-Retirement Survivor Annuity provided for in this
                  Section shall apply only to Participants who are credited with
                  an Hour of Service on or after August 23, 1984. Former
                  Participants who are not credited with an Hour of Service on
                  or after August 23, 1984 shall be provided with rights to the
                  Pre-Retirement Survivor Annuity in accordance with Section
                  303(e)(2) of the Retirement Equity Act of 1984.

         (f)      If the value of the Pre-Retirement Survivor Annuity derived
                  from Employer and Employee contributions does not exceed
                  $3,500 and has never exceeded $3,500 at the time of any prior
                  distribution, the Administrator shall direct the immediate
                  distribution of such amount to the Participant's spouse. No
                  distribution may be made under the preceding sentence after
                  the annuity starting date unless the spouse consents in
                  writing. If the value exceeds, or has ever exceeded at the
                  time of any prior distribution, $3,500, an immediate
                  distribution of the entire amount may be made to the surviving
                  spouse, provided such surviving spouse consents in writing to
                  such distribution. Any written consent required under this
                  paragraph must be obtained not more than ninety (90) days
                  before commencement of the distribution and shall be made in a
                  manner consistent with Section 6.5(a)(2).

         (g)      (1)      In the event there is an election to waive the
                           Pre-Retirement Survivor Annuity, and for death
                           benefits in excess of the Pre-Retirement Survivor
                           Annuity, such death benefits shall be paid to the
                           Participant's Beneficiary by either of the following
                           methods, as elected by the Participant (or if no
                           election has been made prior to the Participant's
                           death, by his Beneficiary) subject to the rules
                           specified in Section 6.6(h) and the selections made
                           in the Adoption Agreement:

                           (i)      One lump-sum payment in cash or in property;

                           (ii)     Payment in monthly, quarterly, semi-annual,
                                    or annual cash installments over a period to
                                    be determined by the Participant or his
                                    Beneficiary. After periodic

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                                    installments commence, the Beneficiary shall
                                    have the right to reduce the period over
                                    which such periodic installments shall be
                                    made, and the cash amount of such periodic
                                    installments shall be adjusted accordingly;
                                    or

                           (iii)    If death benefits in excess of the
                                    Pre-Retirement Survivor Annuity are to be
                                    paid to the surviving spouse, such benefits
                                    may be paid pursuant to (i) or (ii) above,
                                    or used to purchase an annuity so as to
                                    increase the payments made pursuant to the
                                    Pre-Retirement Survivor Annuity.

                  (2)      In the event the death benefit payable pursuant to
                           Section 6.2 is payable in installments, then, upon
                           the death of the Participant, the Administrator may
                           direct that the death benefit be segregated and
                           invested separately, and that the funds accumulated
                           in the segregated account be used for the payment of
                           the installments.

         (h)      Notwithstanding any provision in the Plan to the contrary,
                  distributions upon the death of a Participant made on or after
                  January 1, 1985, shall be made in accordance with the
                  following requirements and shall otherwise comply with Code
                  Section 401(a)(9) and the Regulations thereunder.

                  (1)      If it is determined, pursuant to Regulations, that
                           the distribution of a Participant's interest has
                           begun and the Participant dies before his entire
                           interest has been distributed to him, the remaining
                           portion of such interest shall be distributed at
                           least as rapidly as under the method of distribution
                           selected pursuant to Section 6.5 as of his date of
                           death.

                  (2)      If a Participant dies before he has begun to receive
                           any distributions of his interest in the Plan or
                           before distributions are deemed to have begun
                           pursuant to Regulations, then his death benefit shall
                           be distributed to his Beneficiaries in accordance
                           with the following rules subject to the selections
                           made in the Adoption Agreement and Subsections
                           6.6(h)(3) and 6.6(i) below:

                           (i)      The entire death benefit shall be
                                    distributed to the Participant's
                                    Beneficiaries by December 31st of the
                                    calendar year in which the fifth anniversary
                                    of the Participant's death occurs;

                           (ii)     The 5-year distribution requirement of (i)
                                    above shall not apply to any portion of the
                                    deceased Participant's interest which is
                                    payable to or for the benefit of a
                                    designated Beneficiary. In such event, such
                                    portion shall be distributed over the life
                                    of such designated Beneficiary (or over a
                                    period not extending beyond the life
                                    expectancy of such designated Beneficiary)
                                    provided such distribution begins not later
                                    than December 31st of the calendar year
                                    immediately following the calendar year in
                                    which the Participant died;

                           (iii)    However, in the event the Participant's
                                    spouse (determined as of the date of the
                                    Participant's death) is his designated
                                    Beneficiary, the provisions of (ii) above
                                    shall apply except that the requirement that
                                    distributions commence within one year of
                                    the Participant's death shall not apply. In
                                    lieu thereof, distributions must commence on
                                    or before the later of: (1) December 31st of
                                    the calendar year immediately following the
                                    calendar year in which the Participant died;
                                    or (2) December 31st of the calendar year in
                                    which the Participant would have attained
                                    age 70 1/2. If the surviving spouse dies
                                    before distributions to such spouse begin,

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                                    then the 5-year distribution requirement of
                                    this Section shall apply as if the spouse
                                    was the Participant.

                  (3)      Notwithstanding subparagraph (2) above, or any
                           selections made in the Adoption Agreement, if a
                           Participant's death benefits are to be paid in the
                           form of a Pre-Retirement Survivor Annuity, then
                           distributions to the Participant's surviving spouse
                           must commence on or before the later of: (1) December
                           31st of the calendar year immediately following the
                           calendar year in which the Participant died; or (2)
                           December 31st of the calendar year in which the
                           Participant would have attained age 70 1/2.

         (i)      For purposes of Section 6.6(h)(2), the election by a
                  designated Beneficiary to be excepted from the 5-year
                  distribution requirement (if permitted in the Adoption
                  Agreement) must be made no later than December 31st of the
                  calendar year following the calendar year of the Participant's
                  death. Except, however, with respect to a designated
                  Beneficiary who is the Participant's surviving spouse, the
                  election must be made by the earlier of: (1) December 31st of
                  the calendar year immediately following the calendar year in
                  which the Participant died or, if later, the calendar year in
                  which the Participant would have attained age 70 1/2; or (2)
                  December 31st of the calendar year which contains the fifth
                  anniversary of the date of the Participant's death. An
                  election by a designated Beneficiary must be in writing and
                  shall be irrevocable as of the last day of the election period
                  stated herein. In the absence of an election by the
                  Participant or a designated Beneficiary, the 5-year
                  distribution requirement shall apply.

         (j)      For purposes of this Section, the life expectancy of a
                  Participant and a Participant's spouse (other than in the case
                  of a life annuity) shall or shall not be redetermined annually
                  as provided in the Adoption Agreement and in accordance with
                  Regulations. If the Participant or the Participant's spouse
                  may elect, pursuant to the Adoption Agreement, to have life
                  expectancies recalculated, then the election, once made shall
                  be irrevocable. If no election is made by the time
                  distributions must commence, then the life expectancy of the
                  Participant and the Participant's spouse shall not be subject
                  to recalculation. Life expectancy and joint and last survivor
                  expectancy shall be computed using the return multiples in
                  Tables V and VI of Regulation Section 1.72-9.

         (k)      In the event that less than one-hundred percent (100%) of a
                  Participant's interest in the Plan is distributed to such
                  Participant's spouse, the portion of the distribution
                  attributable to the Participant's Voluntary Contribution
                  Account shall be in the same proportion that the Participant's
                  Voluntary Contribution Account bears to the Participant's
                  total interest in the Plan.

         (l)      Subject to the spouse's right of consent afforded under the
                  Plan, the restrictions imposed by this Section shall not apply
                  if a Participant has, prior to January 1, 1984, made a written
                  designation to have his death benefits paid in an alternative
                  method acceptable under Code Section 401(a) as in effect prior
                  to the enactment of the Tax Equity and Fiscal Responsibility
                  Act Of 1982.

6.7      TIME OF SEGREGATION OR DISTRIBUTION

         Except as limited by Sections 6.5 and 6.6, whenever a distribution is
         to be made, or a series of payments are to commence, on or as of an
         Anniversary Date, the distribution or series of payments may be made or
         begun on such date or as soon thereafter as is practicable, but in no
         event later than 180 days after the Anniversary Date. However, unless a
         Former Participant elects in writing to defer the receipt of benefits
         (such election may not result in a death benefit that is more than
         incidental), the payment of benefits shall begin not later than the
         sixtieth day after the close of the Plan Year in which the latest of
         the following events occurs: (a) the date on which the Participant
         attains the earlier of age sixty-five (65) or the Normal

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<PAGE>   55

         Retirement Age specified herein; (b) the tenth anniversary of the year
         in which the Participant commenced participation in the Plan; or (c)
         the date the Participant terminates his service with the Employer.

         Notwithstanding the foregoing, the failure of a Participant and, if
         applicable, the Participant's spouse, to consent to a distribution
         pursuant to Section 6.5(d), shall be deemed to be an election to defer
         the commencement of payment of any benefit sufficient to satisfy this
         Section.

6.8      DISTRIBUTION FOR MINOR BENEFICIARY

         In the event a distribution is to be made to a minor, then the
         Administrator may direct that such distribution be paid to the legal
         guardian, or if none, to a parent of such Beneficiary or a responsible
         adult with whom the Beneficiary maintains his residence, or to the
         custodian for such Beneficiary under the Uniform Gift to Minors Act or
         Gift to Minors Act, if such is permitted by the laws of the state in
         which said Beneficiary resides. Such a payment to the legal guardian,
         custodian or parent of a minor Beneficiary shall fully discharge the
         Trustee, Employer, and Plan from further liability on account thereof.

6.9      LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN

         In the event that all, or any portion, of the distribution payable to a
         Participant or his Beneficiary hereunder shall, at the later of the
         Participant's attainment of age sixty-two (62) or his Normal Retirement
         Age, remain unpaid solely by reason of the inability of the
         Administrator, after sending a registered letter, return receipt
         requested, to the last known address, and after further diligent
         effort, to ascertain the whereabouts of such Participant or his
         Beneficiary, the amount so distributable shall be treated as a
         Forfeiture pursuant to the Plan. In the event a Participant or
         Beneficiary is located subsequent to his benefit being reallocated,
         such benefit shall be restored, first from Forfeitures, if any, and
         then from an additional Employer contribution if necessary.

6.10     PRE-RETIREMENT DISTRIBUTION

         For Profit Sharing Plans and 401(k) Profit Sharing Plans, if elected in
         the Adoption Agreement, at such time as a Participant shall have
         attained the age specified in the Adoption Agreement, the
         Administrator, at the election of the Participant, shall direct the
         distribution of up to the entire amount then credited to the accounts
         maintained on behalf of the Participant. However, no such distribution
         from the Participant's Account shall occur prior to one-hundred percent
         (100%) Vesting and the minimum amount that may be distributed is
         $500.00. In the event that the Administrator makes such a distribution,
         the Participant shall continue to be eligible to participate in the
         Plan on the same basis as any other Employee. Any distribution made
         pursuant to this Section shall be made in a manner consistent with
         Section 6.5, including, but not limited to, all notice and consent
         requirements of Code Sections 411(a)(11) and 417 and the Regulations
         thereunder.

6.11     ADVANCE DISTRIBUTION FOR HARDSHIP

         (a)      For Profit Sharing Plans, if elected in the Adoption
                  Agreement, the Administrator, at the election of the
                  Participant, shall direct the distribution to any Participant
                  in any one Plan Year up to the lesser of one-hundred percent
                  (100%) of his Participant's Combined Account valued as of the
                  last Anniversary Date or other valuation date or the amount
                  necessary to satisfy the immediate and heavy financial need of
                  the Participant. However, no hardship distribution may be made
                  for an amount less than $500.00. Any distribution made
                  pursuant to this Section shall be deemed to be made as of the
                  first day of the Plan Year or, if later, the valuation date
                  immediately preceding the date of distribution, and the
                  account from which the distribution is made shall be reduced

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<PAGE>   56

                  accordingly. Withdrawal under this Section shall be authorized
                  only if the distribution is on account of:

                  (1)      Expenses for medical care described in Code Section
                           213(d) previously incurred by the Participant, his
                           spouse, or any of his dependents (as defined in Code
                           Section 152) or necessary for those persons to obtain
                           medical care;

                  (2)      The purchase (excluding mortgage payments) of a
                           principal residence for the Participant;

                  (3)      Funeral expenses for a member of the Participant's
                           family;

                  (4)      Payment of tuition and related educational fees for
                           the next twelve (12) months of post-secondary
                           education for the Participant, his spouse, children,
                           or dependents; or

                  (5)      The need to prevent the eviction of the Participant
                           from his principal residence or foreclosure on the
                           mortgage of the Participant's principal residence.

         (b)      No such distribution shall be made from the Participant's
                  Account until such Account has become fully Vested.

         (c)      Any distribution made pursuant to this Section shall be made
                  in a manner which is consistent with and satisfies the
                  provisions of Section 6.5, including, but not limited to, all
                  notice and consent requirements of Code Sections 411(a)(11)
                  and 417 and the Regulations thereunder.

6.12     LIMITATIONS ON BENEFITS AND DISTRIBUTIONS

         All rights and benefits, including elections, provided to a Participant
         in this Plan shall be subject to the rights afforded to any "alternate
         payee" under a "qualified domestic relations order." Furthermore, a
         distribution to an "alternate payee" shall be permitted if such
         distribution is authorized by a "qualified domestic relations order,"
         even if the affected Participant has not reached the "earliest
         retirement age" under the Plan. For the purposes of this Section,
         "alternate payee," "qualified domestic relations order" and "earliest
         retirement age" shall have the meaning set forth under Code Section
         414(p).

6.13     SPECIAL RULE FOR NON-ANNUITY PLANS

         If elected in the Adoption Agreement, the following shall apply to a
         Participant in a Profit Sharing Plan or 401(k) Profit Sharing Plan and
         to any distribution, made on or after the first day of the first plan
         year beginning after December 31, 1988, from or under a separate
         account attributable solely to accumulated deductible employee
         contributions, as defined in Code Section 72(o)(5)(B), and maintained
         on behalf of a participant in a money purchase pension plan, (including
         a target benefit plan):

         (a)      The Participant shall be prohibited from electing benefits in
                  the form of a life annuity;

         (b)      Upon the death of the Participant, the Participant's entire
                  Vested account balances will be paid to his or her surviving
                  spouse, or, if there is no surviving spouse or the surviving
                  spouse has already consented to waive his or her benefit, in
                  accordance with Section 6.6, to his designated Beneficiary;
                  and

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<PAGE>   57

         (c)      Except to the extent otherwise provided in this Section and
                  Section 6.5(h), the other provisions of Sections 6.2, 6.5 and
                  6.6 regarding spousal consent and the forms of distributions
                  shall be inoperative with respect to this Plan.

                  This Section shall not apply to any Participant if it is
                  determined that this Plan is a direct or indirect transferee
                  of a defined benefit plan or money purchase plan, or a target
                  benefit plan, stock bonus or profit sharing plan which would
                  otherwise provide for a life annuity form of payment to the
                  Participant.

                                   ARTICLE VII
                                     TRUSTEE

7.1      BASIC RESPONSIBILITIES OF THE TRUSTEE

         (a)      The Trustee shall have the following categories of
                  responsibilities:

                  (1)      Consistent with the "funding policy and method"
                           determined by the Employer to invest, manage, and
                           control the Plan assets subject, however, to Section
                           7.1(b) below.

                  (2)      At the direction of the Administrator, to pay
                           benefits required under the Plan to be paid to
                           Participants, or, in the event of their death, to
                           their Beneficiaries;

                  (3)      To maintain records of receipts and disbursements and
                           furnish to the Employer and/or Administrator for each
                           Plan Year a written annual report per Section 7.7;
                           and

                  (4)      If there shall be more than one Trustee, they shall
                           act by a majority of their number, but may authorize
                           one or more of them to sign papers on their behalf.

         (b)      The Employer may at any time direct the Trustee to segregate
                  all or a specified portion of the trust assets into a separate
                  fund (the "directed fund") and invest it in accordance with
                  the directions of one or more Investment Managers appointed by
                  the Employer, subject to the following provisions:

                  (1)      Any Investment Manager so appointed shall (i) be
                           registered as an investment advisor under the
                           Investment Advisers Act of 1940; (ii) be a bank, as
                           defined in the Investment Advisers Act of 1940; or
                           (iii) be an insurance company qualified under the
                           laws of more than one state to manage, acquire and
                           dispose of assets of the trust under the Plan.

                  (2)      The Employer shall deliver to the Trustee a copy of a
                           written acknowledgment by the Investment Manager that
                           it meets the requirements of paragraph (1), that it
                           is a fiduciary with respect to the plan, and that it
                           has accepted appointment as an Investment Manager.
                           The Trustee shall be protected in assuming that the
                           appointment of an Investment Manager remains in
                           effect until the Trustee shall be notified in writing
                           by the Employer that such Investment Manager has been
                           removed or has resigned.

                  (3)      The Trustee shall invest and reinvest the directed
                           funds only to the extent and in the manner directed
                           by the Investment Manager. If the Trustee has not
                           received instructions from an Investment Manager with
                           respect to the investment of all or a part of the
                           directed fund, the Trustee shall invest such amounts
                           in interest bearing obligations having

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<PAGE>   58

                           maturities of ninety (90) days or less, or in a
                           common fund comprised substantially of such
                           obligations, until directed otherwise by the
                           Investment Manager.

                  (4)      Any Investment Manager may from time to time issue
                           orders for the purchase or sale of securities
                           directly to a broker or dealer, and the Trustee, upon
                           direction from the Investment Manager, shall execute
                           and deliver appropriate trading authorization.
                           written notice of the issuance of each order and of
                           execution of each order shall be authority to the
                           Trustee to receive securities purchased against
                           payment therefor and to deliver securities sold
                           against receipt of the proceeds therefrom, as the
                           case may be.

                  (5)      Upon removal or resignation of an Investment Manager,
                           and pending appointment of a substitute Investment
                           Manager, the Trustee shall invest any uninvested cash
                           in the manner described in paragraph (3), and shall
                           not sell or liquidate any investments of the directed
                           fund.

                  (6)      No plan fiduciary other than an Investment Manager
                           shall be liable for any act or omission of such
                           Investment Manager unless such fiduciary participates
                           knowingly in, or knowingly undertakes to conceal,
                           such act or omission which such fiduciary knows to be
                           a breach of the fiduciary responsibility of the
                           Investment Manager with respect to the Plan. Further,
                           no plan fiduciary other than an Investment Manager
                           shall be under any obligation to invest or otherwise
                           manage the assets of the Plan that are subject to the
                           management of the Investment Manager and, to the
                           maximum extent permitted by the Act, the Plan
                           fiduciaries other than the Investment Manager shall
                           have no liability or responsibility for acts or
                           failures to act as directed by the Investment
                           Manager, or, subject to paragraph (3), failing to act
                           in the absence of any such direction.

7.2      INVESTMENT POWERS AND DUTIES OF THE TRUSTEE

         (a)      The Trustee shall invest and reinvest the Trust Fund to keep
                  the Trust Fund invested without distinction between principal
                  and income and in such securities or property, real or
                  personal, wherever situated, as the Trustee shall deem
                  advisable, including, but not limited to, mutual funds,
                  stocks, common or preferred, bonds and other evidences of
                  indebtedness or ownership, and real estate or any interest
                  therein. The Trustee shall at all times in making investments
                  of the Trust Fund consider, among other factors, the short and
                  long-term financial needs of the Plan on the basis of
                  information furnished by the Employer. In making such
                  investments, the Trustee shall not be restricted to securities
                  or other property of the character expressly authorized by the
                  applicable law for trust investments; however, the Trustee
                  shall give due regard to any limitations imposed by the Code
                  or the Act so that at all times this Plan may qualify as a
                  qualified Plan and Trust.

         (b)      The Trustee may employ a bank or trust company pursuant to the
                  terms of its usual and customary bank agency agreement, under
                  which the duties of such bank or trust company shall be of a
                  custodial, clerical and record-keeping nature.

         (c)      Notwithstanding Section 7.2(a), the Employer, in writing to
                  the Trustee, may delegate investment responsibility to the
                  Administrator. If the Administrator has been delegated such
                  authority, the Trustee shall invest trust assets in accordance
                  with the Administrator's direction, unless the Trustee
                  determines, in the exercise of its responsibility under ERISA
                  as a co-fiduciary of the Plan, that such investments are not
                  permitted under the terms of the Plan, Trust, or the Act. The
                  Trustee

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                  shall not be liable or responsible for losses or unfavorable
                  results arising from the Trustee's compliance with directions
                  received from the Administrator.

         (d)      The Trustee may from time to time transfer to a common,
                  collective, or pooled trust fund maintained by any corporate
                  Trustee or Investment Manager hereunder pursuant to Revenue
                  Ruling 81-100, all or such part of the Trust Fund as the
                  Trustee may deem advisable, and such part or all of the Trust
                  Fund so transferred shall be subject to all the terms and
                  provisions of the common, collective, or pooled trust fund
                  which contemplate the commingling for investment purposes of
                  such trust assets with trust assets of other trusts. The
                  Trustee may withdraw from such common, collective, or pooled
                  trust fund all or such part of the Trust Fund as the Trustee
                  may deem advisable.

         (e)      The Trustee, at the direction of the Administrator and
                  pursuant to instructions from the individual designated in the
                  Adoption Agreement for such purpose and subject to the
                  conditions set forth in the Adoption Agreement, shall ratably
                  apply for, own, and pay all premiums on Contracts on the lives
                  of the Participants. Any initial or additional Contract
                  purchased on behalf of a participant shall have a face amount
                  of not less than $1,000, the amount set forth in the Adoption
                  Agreement, or the limitation of the Insurer, whichever is
                  greater. If a life insurance Contract is to be purchased for a
                  Participant, the aggregate premium for ordinary life insurance
                  for each Participant must be less than fifty percent (50%) of
                  the aggregate contributions and Forfeitures allocated to a
                  Participant's Combined Account. For purposes of this
                  limitation, ordinary life insurance Contracts are Contracts
                  with both non-decreasing death benefits and non-increasing
                  premiums. If term insurance or universal life insurance is
                  purchased with such contributions, the aggregate premium must
                  be twenty-five percent (25%) or less of the aggregate
                  contributions and Forfeitures allocated to a Participant's
                  Combined Account. If both term insurance and ordinary life
                  insurance are purchased with such contributions, the amount
                  expended for term insurance plus one-half of the premium for
                  ordinary life insurance may not in the aggregate exceed
                  twenty-five percent (25%) of the aggregate Employer
                  contributions and Forfeitures allocated to a Participant's
                  Combined Account. The Trustee must distribute the Contracts to
                  the Participant or convert the entire value of the Contracts
                  at or before retirement into cash or provide for a periodic
                  income so that no portion of such value may be used to
                  continue life insurance protection beyond retirement.
                  Notwithstanding the above, the limitations imposed herein with
                  respect to the purchase of life insurance shall not apply, in
                  the case of a Profit Sharing Plan, to the portion of a
                  Participant's Account that has accumulated for at least two
                  (2) Plan Years.

                  Notwithstanding anything herein above to the contrary, amounts
                  credited to a Participant's Qualified Voluntary Employee
                  Contribution Account pursuant to Section 4.9, shall not be
                  applied to the purchase of life insurance contracts.

         (f)      The Trustee will be the owner of any life insurance Contract
                  purchased under the terms of this Plan. The Contract must
                  provide that the proceeds will be payable to the Trustee;
                  however, the Trustee shall be required to pay over all
                  proceeds of the Contract to the Participant's designated
                  Beneficiary in accordance with the distribution provisions of
                  Article VI. A Participant's spouse will be the designated
                  Beneficiary pursuant to Section 6.2, unless a qualified
                  election has been made in accordance with Sections 6.5 and 6.6
                  of the Plan, if applicable. Under no circumstances shall the
                  Trust retain any part of the proceeds. However, the Trustee
                  shall not pay the proceeds in a method that would violate the
                  requirements of the Retirement Equity Act, as stated in
                  Article VI of the Plan, or Code Section 401(a)(9) and the
                  Regulations thereunder.

7.3      OTHER POWERS OF THE TRUSTEE

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         The Trustee, in addition to all powers and authorities under common
         law, statutory authority, including the Act, and other provisions of
         this Plan, shall have the following powers and authorities to be
         exercised in the Trustee's sole discretion;

         (a)      To purchase, or subscribe for, any securities or other
                  property and to retain the same. In conjunction with the
                  purchase of securities, margin accounts may be opened and
                  maintained;

         (b)      To sell, exchange, convey, transfer, grant options to
                  purchase, or otherwise dispose of any securities or other
                  property held by the Trustee, by private contract or at public
                  auction. No person dealing with the Trustee shall be bound to
                  see to the application of the purchase money or to inquire
                  into the validity, expediency, or propriety of any such sale
                  or other disposition, with or without advertisement;

         (c)      To vote upon any stocks, bonds, or other securities; to give
                  general or special proxies or powers of attorney with or
                  without power of substitution; to exercise any conversion
                  privileges, subscription rights or other options, and to make
                  any payments incidental thereto; to oppose, or to consent to,
                  or otherwise participate in, corporate reorganizations or
                  other changes affecting corporate securities and to delegate
                  discretionary powers, and to pay any assessments or charges in
                  connection therewith; and generally to exercise any of the
                  powers of an owner with respect to stocks, bonds, securities,
                  or other property. However, the Trustee shall not vote proxies
                  relating to securities for which it has not been assigned full
                  investment management responsibilities. In those cases where
                  another party has such investment authority or discretion, be
                  it the Administrator or an outside Investment Manager, the
                  Trustee will deliver all proxies to said party who will then
                  have full responsibility for voting those proxies;

         (d)      To cause any securities or other property to be registered in
                  the Trustee's own name or in the name of one or more of the
                  Trustee's nominees, and to hold any investments in bearer
                  form, but the books and records of the Trustee shall at all
                  times show that all such investments are part of the Trust
                  Fund;

         (e)      To borrow or raise money for the purposes of the Plan in such
                  amount, and upon such terms and conditions, as the Trustee
                  shall deem advisable; and for any sum so borrowed, to issue a
                  promissory note as Trustee, and to secure the repayment
                  thereof by pledging all, or any part, of the Trust Fund; and
                  no person lending money to the Trustee shall be bound to see
                  to the application of the money lent or to inquire into the
                  validity, expediency, or propriety of any borrowing;

         (f)      To keep such portion of the Trust Fund in cash or cash
                  balances as the Trustee may, from time to time, deem to be in
                  the best interests of the Plan, without liability for interest
                  thereon;

         (g)      To accept and retain for such time as it may deem advisable
                  any securities or other property received or acquired by it as
                  Trustee hereunder, whether or not such securities or other
                  property would normally be purchased as investments hereunder;

         (h)      To make, execute, acknowledge, and deliver any and all
                  documents of transfer and conveyance and any and all other
                  instruments that may be necessary or appropriate to carry out
                  the powers herein granted;

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         (i)      To settle, compromise, or submit to arbitration any claims,
                  debts, or damages due or owing to or from the Plan, to
                  commence or defend suits or legal or administrative
                  proceedings, and to represent the Plan in all suits and legal
                  and administrative proceedings;

         (j)      To employ suitable agents and counsel and to pay their
                  reasonable expenses and compensation, and such agent or
                  counsel may or may not be agent or counsel for the Employer;

         (k)      To apply for and procure from the Insurer as an investment of
                  the Trust Fund such annuity, or other Contracts (on the life
                  of any Participant) as the Administrator shall deem proper; to
                  exercise, at any time or from time to time, whatever rights
                  and privileges may be granted under such annuity, or other
                  Contracts; to collect, receive, and settle for the proceeds of
                  all such annuity, or other Contracts as and when entitled to
                  do so under the provisions thereof;

         (1)      To invest funds of the Trust in time deposits or savings
                  accounts bearing a reasonable rate of interest in the
                  Trustee's bank (or an affiliated bank);

         (m)      To invest in Treasury Bills and other forms of United States
                  government obligations;

         (n)      To sell, purchase and acquire put or call options if the
                  options are traded on and purchased through a national
                  securities exchange registered under the Securities Exchange
                  Act of 1934, as amended, or, if the options are not traded on
                  a national securities exchange, are guaranteed by a member
                  firm of the New York Stock Exchange;

         (o)      To deposit monies in federally insured savings accounts or
                  certificates of deposit in banks or savings and loan
                  associations (including the Trustee's bank or an affiliated
                  bank);

         (p)      To pool all or any of the Trust Fund, from time to time, with
                  assets belonging to any other qualified employee pension
                  benefit trust created by the Employer or any Affiliated
                  Employer, and to commingle such assets and make joint or
                  common investments and carry joint accounts on behalf of this
                  Plan and such other trust or trusts, allocating undivided
                  shares or interests in such investments or accounts or any
                  pooled assets of the two or more trusts in accordance with
                  their respective interests;

         (q)      To do all such acts and exercise all such rights and
                  privileges, although not specifically mentioned herein, as the
                  Trustee may deem necessary to carry out the purposes of the
                  Plan.

         (r)      Directed Investment Account. The powers granted to the Trustee
                  shall be exercised in the sole fiduciary discretion of the
                  Trustee. However, if elected in the Adoption Agreement, each
                  Participant shall direct the Trustee to separate and keep
                  separate all or a portion of his interest in the Plan; and
                  further each Participant is authorized and empowered, in his
                  sole and absolute discretion, to give directions to the
                  Trustee in such form as the Trustee may require concerning the
                  investment of the Participant's Directed Investment Account,
                  which directions must be followed by the Trustee subject,
                  however, to restrictions on payment of life insurance
                  premiums. Neither the Trustee nor any other persons including
                  the Administrator or otherwise shall be under any duty to
                  question any such direction of the Participant or to review
                  any securities or other property, real or personal, or to make
                  any suggestions to the Participant in connection therewith,
                  and the Trustee shall comply as promptly as practicable with
                  directions given by the Participant hereunder. Any such
                  direction may be of a continuing nature or otherwise and may
                  be revoked by the Participant at any time in such form as the
                  Trustee may require. The Trustee may refuse to comply with any
                  direction from the Participant in the event the Trustee, in
                  its sole and absolute

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                  discretion, deems such directions improper by virtue of
                  applicable law, and in such event, the Trustee shall not be
                  responsible or liable for any loss or expense which may
                  result. Any costs and expenses related to compliance with the
                  Participant's directions shall be borne by the Participant's
                  Directed Investment Account.

7.4      LOANS TO PARTICIPANTS

         (a)      If specified in the Adoption Agreement, the Trustee (or, if
                  loans are treated as Directed Investment pursuant to the
                  Adoption Agreement, the Administrator) may, in the Trustee's
                  (or, if applicable, the Administrator's) sole discretion, make
                  loans to Participants or Beneficiaries under the following
                  circumstances: (1) loans shall be made available to all
                  Participants and Beneficiaries on a reasonably equivalent
                  basis; (2) loans shall not be made available to Highly
                  Compensated Employees in an amount greater than the amount
                  made available to other Participants; (3) loans shall bear a
                  reasonable rate of interest; (4) loans shall be adequately
                  secured; and (5) shall provide for periodic repayment over a
                  reasonable period of time.

         (b)      Loans shall not be made to any Shareholder-Employee or
                  Owner-Employee unless an exemption for such loan is obtained
                  pursuant to Act Section 408 and further provided that such
                  loan would not be subject to tax pursuant to Code Section
                  4975.

         (c)      Loans shall not be granted to any Participant that provide for
                  a repayment period extending beyond such Participant's Normal
                  Retirement Date.

         (d)      Loans made pursuant to this Section (when added to the
                  outstanding balance of all other loans made by the Plan to the
                  Participant) shall be limited to the lesser of:

                  (1)      $50,000 reduced by the excess (if any) of the highest
                           outstanding balance of loans from the Plan to the
                           Participant during the one year period ending on the
                           day before the date on which such loan is made, over
                           the outstanding balance of loans from the Plan to the
                           Participant on the date on which such loan was made,
                           or

                  (2)      one-half (1/2) of the present value of the
                           non-forfeitable accrued benefit of the Employee under
                           the Plan.

                  For purposes of this limit, all plans of the Employer shall be
                  considered one plan. Additionally, with respect to any loan
                  made prior to January 1, 1987, the $50,000 limit specified in
                  (1) above shall be unreduced.

         (e)      No Participant loan shall take into account the present value
                  of such Participant's Qualified Voluntary Employee
                  Contribution Account.

         (f)      Loans shall provide for level amortization with payments to be
                  made not less frequently than quarterly over a period not to
                  exceed five (5) years. However, loans used to acquire any
                  dwelling unit which, within a reasonable time, is to be used
                  (determined at the time the loan is made) as a principal
                  residence of the Participant shall provide for periodic
                  repayment over a reasonable period of time that may exceed
                  five (5) years. Notwithstanding the foregoing, loans made
                  prior to January 1, 1987 which are used to acquire, construct,
                  reconstruct or substantially rehabilitate any dwelling unit
                  which, within a reasonable period of time is to be used
                  (determined at the time the loan is made) as a principal
                  residence of the Participant or a member of his family (within
                  the meaning of Code Section 267(c)(4)) may provide for
                  periodic repayment over a reasonable period

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                  of time that may exceed five (5) years. Additionally, loans
                  made prior to January 1, 1987, may provide for periodic
                  payments which are made less frequently than quarterly and
                  which do not necessarily result in level amortization.

         (g)      An assignment or pledge of any portion of a Participant's
                  interest in the Plan and a loan, pledge, or assignment with
                  respect to any insurance Contract purchased under the Plan,
                  shall be treated as a loan under this Section.

         (h)      Any loan made pursuant to this Section after August 18, 1985
                  where the Vested interest of the Participant is used to secure
                  such loan shall require the written consent of the
                  Participant's spouse in a manner consistent with Section
                  6.5(a) provided the spousal consent requirements of such
                  Section apply to the Plan. Such written consent must be
                  obtained within the 90-day period prior to the date the loan
                  is made. Any security interest held by the Plan by reason of
                  an outstanding loan to the Participant shall be taken into
                  account in determining the amount of the death benefit or
                  Pre-Retirement Survivor Annuity. However, no spousal consent
                  shall be required under this paragraph if the total accrued
                  benefit subject to the security is not in excess of $3,500.

         (i)      With regard to any loans granted or renewed on or after the
                  last day of the first Plan Year beginning after December 31,
                  1988, a Participant loan program shall be established which
                  must include, but need not be limited to, the following:

                  (1)      the identity of the person or positions authorized to
                           administer the Participant loan program;

                  (2)      a procedure for applying for loans;

                  (3)      the basis on which loans will be approved or denied;

                  (4)      limitations, if any, on the types and amounts of
                           loans offered, including what constitutes a hardship
                           or financial need if selected in the Adoption
                           Agreement;

                  (5)      the procedure under the program for determining a
                           reasonable rate of interest;

                  (6)      the types of collateral which may secure a
                           Participant loan; and

                  (7)      the events constituting default and the steps that
                           will be taken to preserve plan assets.

                  Such Participant loan program shall be contained in a separate
                  written document which, when properly executed, is hereby
                  incorporated by reference and made a part of this plan.
                  Furthermore, such Participant loan program may be modified or
                  amended in writing from time to time without the necessity of
                  amending this Section of the Plan.

7.5      DUTIES OF THE TRUSTEE REGARDING PAYMENTS

         At the direction of the Administrator, the Trustee shall, from time to
         time, in accordance with the terms of the Plan, make payments out of
         the Trust Fund. The Trustee shall not be responsible in any way for the
         application of such payments or for acting upon the direction of the
         Administrator.

7.6      TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES

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         The Trustee shall be paid such reasonable compensation as set forth in
         the Trustee's fee schedule (if the Trustee has such a schedule) or as
         agreed upon in writing by the Employer and the Trustee. An individual
         serving as Trustee who already receives full-time pay from the Employer
         shall not receive compensation from this Plan. In addition, the Trustee
         shall be reimbursed for any reasonable expenses, including reasonable
         counsel fees incurred by it as Trustee. Such compensation and expenses
         shall be paid from the Trust Fund unless paid or advanced by the
         Employer. All taxes of any kind and all kinds whatsoever that may be
         levied or assessed under existing or future laws upon, or in respect
         of, the Trust Fund or the income thereof, shall be paid from the Trust
         Fund.

7.7      ANNUAL REPORT OF THE TRUSTEE

         Within a reasonable period of time after the later of the Anniversary
         Date or receipt of the Employer's contribution for each Plan Year, the
         Trustee, or its agent, shall furnish to the Employer and Administrator
         a written statement of account with respect to the Plan Year for which
         such contribution was made setting forth:

         (a)      the net income, or loss, of the Trust Fund;

         (b)      the gains, or losses, realized by the Trust Fund upon sales or
                  other disposition of the assets;

         (c)      the increase, or decrease, in the value of the Trust Fund;

         (d)      all payments and distributions made from the Trust Fund; and

         (e)      such further information as the Trustee and/or Administrator
                  deems appropriate. The Employer, forthwith upon its receipt of
                  each such statement of account, shall acknowledge receipt
                  thereof in writing and advise the Trustee and/or Administrator
                  of its approval or disapproval thereof. Failure by the
                  Employer to disapprove any such statement of account within
                  thirty (30) days after its receipt thereof shall be deemed an
                  approval thereof. The approval by the Employer of any
                  statement of account shall be binding as to all matters
                  embraced therein as between the Employer and the Trustee to
                  the same extent as if the account of the Trustee had been
                  settled by judgment or decree in an action for a judicial
                  settlement of its account in a court of competent jurisdiction
                  in which the Trustee, the Employer and all persons having or
                  claiming an interest in the Plan were parties; provided,
                  however, that nothing herein contained shall deprive the
                  Trustee of its right to have its accounts judicially settled
                  if the Trustee so desires.

7.8      AUDIT

         (a)      If an audit of the Plan's records shall be required by the Act
                  and the regulations thereunder for any Plan Year, the
                  Administrator shall direct the Trustee to engage on behalf of
                  ail Participants an independent qualified public accountant
                  for that purpose. Such accountant shall, after an audit of the
                  books and records of the Plan in accordance with generally
                  accepted auditing standards, within a reasonable period after
                  the close of the Plan Year, furnish to the Administrator and
                  the Trustee a report of his audit setting forth his opinion as
                  to whether any statements, schedules or lists, that are
                  required by Act Section 103 or the Secretary of Labor to be
                  filed with the Plan's annual report, are presented fairly in
                  conformity with generally accepted accounting principles
                  applied consistently.

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         (b)      All auditing and accounting fees shall be an expense of and
                  may, at the election of the Administrator, be paid from the
                  Trust Fund.

         (c)      If some or all of the information necessary to enable the
                  Administrator to comply with Act Section 103 is maintained by
                  a bank, insurance company, or similar institution, regulated
                  and supervised and subject to periodic examination by a state
                  or federal agency, it shall transmit and certify the accuracy
                  of that information to the Administrator as provided in Act
                  Section 103(b) within one hundred twenty (120) days after the
                  end of the Plan Year or such other date as may be prescribed
                  under regulations of the Secretary of Labor.

7.9      RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE

         (a)      The Trustee may resign at any time by delivering to the
                  Employer, at least thirty (30) days before its effective date,
                  a written notice of his resignation.

         (b)      The Employer may remove the Trustee by mailing by registered
                  or certified mail, addressed to such Trustee at his last known
                  address, at least thirty (30) days before its effective date,
                  a written notice of his removal.

         (c)      Upon the death, resignation, incapacity, or removal of any
                  Trustee, a successor may be appointed by the Employer; and
                  such successor, upon accepting such appointment in writing and
                  delivering same to the Employer, shall, without further act,
                  become vested with all the estate, rights, powers,
                  discretions, and duties of his predecessor with like respect
                  as if he were originally named as a Trustee herein. Until such
                  a successor is appointed, the remaining Trustee or Trustees
                  shall have full authority to act under the terms of the Plan.

         (d)      The Employer may designate one or more successors prior to the
                  death, resignation, incapacity, or removal of a Trustee. In
                  the event a successor is so designated by the Employer and
                  accepts such designation, the successor shall, without further
                  act, become vested with all the estate, rights, powers,
                  discretions, and duties of his predecessor with the like
                  effect as if he were originally named as Trustee herein
                  immediately upon the death, resignation, incapacity, or
                  removal of his predecessor.

         (e)      Whenever any Trustee hereunder ceases to serve as such, he
                  shall furnish to the Employer and Administrator a written
                  statement of account with respect to the portion of the Plan
                  Year during which he served as Trustee. This statement shall
                  be either (i) included as part of the annual statement of
                  account for the Plan Year required under Section 7.7 or (ii)
                  set forth in a special statement. Any such special statement
                  of account should be rendered to the Employer no later than
                  the due date of the annual statement of account for the Plan
                  Year. The procedures set forth in Section 7.7 for the approval
                  by the Employer of annual statements of account shall apply to
                  any special statement of account rendered hereunder and
                  approval by the Employer of any such special statement in the
                  manner provided in Section 7.7 shall have the same effect upon
                  the statement as the Employer's approval of an annual
                  statement of account. No successor to the Trustee shall have
                  any duty or responsibility to investigate the acts or
                  transactions of any predecessor who has rendered all
                  statements of account required by Section 7.7 and this
                  subparagraph.

7.10     TRANSFER OF INTEREST

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         Notwithstanding any other provision contained in this Plan, the Trustee
         at the direction of the Administrator shall transfer the Vested
         interest, if any, of such Participant in his account to another trust
         forming part of a pension, profit sharing, or stock bonus plan
         maintained by such Participant's new employer and represented by said
         employer in writing as meeting the requirements of Code Section 401(a),
         provided that the trust to which such transfers are made permits the
         transfer to be made.

7.11     TRUSTEE INDEMNIFICATION

         The Trustee hereby agrees to hold in Trust and administer the fund
         hereunder, subject to all of the terms and conditions of the Plan, and
         to render an annual accounting as provided in Section 7.7. The Trustee
         shall act in accordance with written instructions or directions of the
         Administrator made in conformity with the Act and the terms of the
         Plan, and signed by an authorized representative of the Administrator.
         In carrying out such instructions or directions, the Trustee shall not
         be obligated to inquire into the purpose or purposes for such
         instructions or directions or whether such instructions or directions
         are consistent with the Plan or are otherwise proper. The Employer
         agrees to indemnify and save harmless the Trustee against any and all
         claims, losses, damages, expenses and liabilities the Trustee may incur
         in the exercise and performance of the Trustee's powers and duties
         hereunder, unless the same are determined to be due to gross negligence
         or willful misconduct.

7.12     EMPLOYER SECURITIES AND REAL PROPERTY

         The Trustee shall be empowered to acquire and hold "qualifying Employer
         securities" and "qualifying Employer real property," as those terms are
         defined in the Act. However, no more than one-hundred percent (100%),
         in the case of a Profit Sharing Plan or 401(k) Plan or ten percent
         (10%), in the case of a Money Purchase Plan of the fair market value of
         all the assets in the Trust Fund may be invested in "qualifying
         Employer securities" and "qualifying Employer real property."

7.13     POWERS AND DUTIES OF THE CUSTODIAN

         The Custodian herein named shall have no duties other than those of an
         administrative or custodial nature, and shall keep records of its
         activities, to be furnished from time to time to the Trustee and/or
         Administrator. The Custodian shall have possession of the assets of the
         Trust Fund and shall invest them and distribute them only in accordance
         with directions received from the Trustee and/or Administrator. The
         Custodian shall have no responsibility with respect to any assets of
         the Trust Fund not delivered to the Custodian. The Custodian shall be
         entitled to be paid fees in accordance with its published fee schedule
         and reimbursement for its expenses, to be paid from the assets of the
         Trust.

7.14     DIRECT ROLLOVER

         (a)      This Section applies to distributions made on or after January
                  1, 1993. Notwithstanding any provision of the Plan to the
                  contrary that would otherwise limit a distributee's election
                  under this Section, a distributes may elect, at the time and
                  in the manner prescribed by the Plan Administrator, to have
                  any portion of an eligible rollover distribution paid directly
                  to an eligible retirement plan specified by the distributes in
                  a direct rollover.

         (b)      An eligible rollover distribution is any distribution of all
                  or any portion of the balance to the credit of the
                  distributes, except that an eligible rollover distribution
                  does not include: any distribution that is one of a series of
                  substantially equal periodic payments (not less frequently
                  than annually) made for the life (or life expectancy) of the
                  distributes or the joint lives (or joint life expectancies) of
                  the distributes and the distributee's designated beneficiary,
                  or for a specified period of ten years

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                  or more; any distribution to the extent such distribution is
                  required under Code Section 401(a)(9); and the portion of any
                  distribution that is not includible in gross income
                  (determined without regard to the exclusion for net unrealized
                  appreciation with respect to employer securities).

         (c)      An eligible retirement plan is an individual retirement
                  account described in Section 408(a) of the Code, an individual
                  retirement annuity described in Code Section 408(b), an
                  annuity plan described in Code Section 403(a), or the
                  qualified trust described in Code Section 401(a), that accepts
                  the distributee's eligible rollover distribution. However, in
                  the case of an eligible rollover distribution to the surviving
                  spouse, an eligible retirement plan is an individual
                  retirement account or an individual retirement annuity.

         (d)      A distributee includes an Employee or former Employee. in
                  addition, the Employee's or former Employee's surviving spouse
                  and the Employee's or former Employee's spouse or former
                  spouse who is the alternate payee under a qualified domestic
                  relations order, as defined in Code Section 414(p), are
                  distributees with regard to the interest of the spouse or
                  former spouse.

         (e)      A direct rollover is a payment by the Plan to the eligible
                  retirement plan specified by the distributes.

                                  ARTICLE VIII
                       AMENDMENT, TERMINATION, AND MERGERS

8.1      AMENDMENT

         (a)      The Employer shall have the right at any time to amend this
                  Plan subject to the limitations of this Section. However, any
                  amendment which affects the rights, duties or responsibilities
                  of the Trustee and Administrator may only be made with the
                  Trustee's and Administrator's written consent. Any such
                  amendment shall become effective as provided therein upon its
                  execution. The Trustee shall not be required to execute any
                  such amendment unless the amendment affects the duties of the
                  Trustee hereunder.

         (b)      The Employer may (1) change the choice of options in the
                  Adoption Agreement, (2) add overriding language in the
                  Adoption Agreement when such language is necessary to satisfy
                  Code Section 415 or 416 because of the required aggregation of
                  multiple plans, and (3) add certain model amendments published
                  by the Internal Revenue Service which specifically provide
                  that their adoption will not cause the Plan to be treated as
                  an individually designed plan. An Employer that amends the
                  Plan for any other reason, including a waiver of the minimum
                  funding requirement under Code Section 412(d), will no longer
                  participate in this Prototype Plan and will be considered to
                  have an individually designed plan.

         (c)      The Employer expressly delegates authority to the sponsoring
                  organization of this Plan, the right to amend this Plan by
                  submitting a copy of the amendment to each Employer who has
                  adopted this Plan after first having received a ruling or
                  favorable determination from the Internal Revenue Service that
                  the Plan as amended qualifies under Code Section 401(a) and
                  the Act. For purposes of this Section, the mass submitter
                  shall be recognized as the agent of the sponsoring
                  organization. If the sponsoring organization does not adopt
                  the amendments made by the mass submitter, it will no longer
                  be identical to or a minor modifier of the mass submitter
                  plan.

         (d)      No amendment to the Plan shall be effective if it authorizes
                  or permits any part of the Trust Fund (other than such part as
                  is required to pay taxes and administration expenses) to be
                  used for or

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                  diverted to any purpose other than for the exclusive benefit
                  of the Participants or their Beneficiaries or estates; or
                  causes any reduction in the amount credited to the account of
                  any Participant; or causes or permits any portion of the Trust
                  Fund to revert to or become property of the Employer.

         (e)      Except as permitted by Regulations (including Regulation
                  1.411(d)-4), no Plan amendment or transaction having the
                  effect of a Plan amendment (such as a merger, plan transfer or
                  similar transaction) shall be effective if it eliminates or
                  reduces any "Section 411(d)(6) protected benefit" or adds or
                  modifies conditions relating to "Section 411(d)(6) protected
                  benefits" the result of which is a further restriction on such
                  benefit unless such protected benefits are preserved with
                  respect to benefits accrued as of the later of the adoption
                  date or effective date of the amendment. "Section 411(d)(6)
                  protected benefits" are benefits described in Code Section
                  411(d)(6)(A), early retirement benefits and retirement-type
                  subsidies, and optional forms of benefit.

8.2      TERMINATION

         (a)      The Employer shall have the right at any time to terminate the
                  Plan by delivering to the Trustee and Administrator written
                  notice of such termination. Upon any full or partial
                  termination all amounts credited to the affected Participants'
                  Combined Accounts shall become one-hundred percent (100%)
                  vested and shall not thereafter be subject to forfeiture, and
                  all unallocated amounts shall be allocated to the accounts of
                  all Participants in accordance with the provisions hereof.

         (b)      Upon the full termination of the Plan, the Employer shall
                  direct the distribution of the assets to Participants in a
                  manner which is consistent with and satisfies the provisions
                  of Section 6.5. Distributions to a Participant shall be made
                  in cash (or in property if permitted in the Adoption
                  Agreement) or through the purchase of irrevocable
                  nontransferable deferred commitments from the Insurer. Except
                  as permitted by Regulations, the termination of the Plan shall
                  not result in the reduction of "Section 411(d)(6) protected
                  benefits" as described in section 8.1.

8.3      MERGER OR CONSOLIDATION

         This Plan may be merged or consolidated with, or its assets and/or
         liabilities may be transferred to any other plan only if the benefits
         which would be received by a Participant of this Plan, in the event of
         a termination of the plan immediately after such transfer, merger or
         consolidation, are at least equal to the benefits the Participant would
         have received if the Plan had terminated immediately before the
         transfer, merger or consolidation and such merger or consolidation does
         not otherwise result in the elimination or reduction of any "Section
         411(d)(6) protected benefits" as described in Section 8.1(e).

                                   ARTICLE IX
                                  MISCELLANEOUS

9.1      EMPLOYER ADOPTIONS

         (a)      Any organization may become the Employer hereunder by
                  executing the Adoption Agreement in form satisfactory to the
                  Trustee, and it shall provide such additional information as
                  the Trustee may require. The consent of the Trustee to act as
                  such shall be signified by its execution of the Adoption
                  Agreement.

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         (b)      Except as otherwise provided in this Plan, the affiliation of
                  the Employer and the participation of its Participants shall
                  be separate and apart from that of any other employer and its
                  participants hereunder.

9.2      PARTICIPANT'S RIGHTS

         This Plan shall not be deemed to constitute a contract between the
         Employer and any Participant or to be a consideration or an inducement
         for the employment of any Participant or Employee. Nothing contained in
         this Plan shall be deemed to give any Participant or Employee the right
         to be retained in the service of the Employer or to interfere with the
         right of the Employer to discharge any Participant or Employee at any
         time regardless of the effect which such discharge shall have upon him
         as a Participant of this Plan.

9.3      ALIENATION

         (a)      Subject to the exceptions provided below, no benefit which
                  shall be payable to any person (including a Participant or his
                  Beneficiary) shall be subject in any manner to anticipation,
                  alienation, sale, transfer, assignment, pledge, encumbrance,
                  or charge, and any attempt to anticipate, alienate, sell,
                  transfer, assign, pledge, encumber, or charge the same shall
                  be void; and no such benefit shall in any manner be liable
                  for, or subject to, the debts, contracts, liabilities,
                  engagements, or torts of any such person, nor shall it be
                  subject to attachment or legal process for or against such
                  person, and the same shall not be recognized except to such
                  extent as may be required by law.

         (b)      This provision shall not apply to the extent a Participant or
                  Beneficiary is indebted to the Plan, for any reason, under any
                  provision of this Plan. At the time a distribution is to be
                  made to or for a Participant's or Beneficiary's benefit, such
                  proportion of the amount to be distributed as shall equal such
                  indebtedness shall be paid to the Plan, to apply against or
                  discharge such indebtedness. Prior to making a payment,
                  however, the Participant or Beneficiary must be given written
                  notice by the Administrator that such indebtedness is to be so
                  paid in whole or part from his Participant's Combined Account.
                  If the Participant or Beneficiary does not agree that the
                  indebtedness is a valid claim against his vested Participant's
                  Combined Account, he shall be entitled to a review of the
                  validity of the claim in accordance with procedures provided
                  in Sections 2.12 and 2.13.

         (c)      This provision shall not apply to a "qualified domestic
                  relations order" defined in Code Section 414(p), and those
                  other domestic relations orders permitted to be so treated by
                  the Administrator under the provisions of the Retirement
                  Equity Act of 1984. The Administrator shall establish a
                  written procedure to determine the qualified status of
                  domestic relations orders and to administer distributions
                  under such qualified orders. Further, to the extent provided
                  under a "qualified domestic relations order," a former spouse
                  of a Participant shall be treated as the spouse or surviving
                  spouse for all purposes under the Plan.

9.4      CONSTRUCTION OF PLAN

         This Plan and Trust shall be construed and enforced according to the
         Act and the laws of the State or Commonwealth in which the Employer's
         principal office is located, other than its laws respecting choice of
         law, to the extent not preempted by the Act.

9.5      GENDER AND NUMBER

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<PAGE>   70

         Wherever any words are used herein in the masculine, feminine or neuter
         gender, they shall be construed as though they were also used in
         another gender in all cases where they would so apply, and whenever any
         words are used herein in the singular or plural form, they shall be
         construed as though they were also used in the other form in all cases
         where they would so apply.

9.6      LEGAL ACTION

         In the event any claim, suit, or proceeding is brought regarding the
         Trust and/or Plan established hereunder to which the Trustee or the
         Administrator may be a party, and such claim, suit, or proceeding is
         resolved in favor of the Trustee or Administrator, they shall be
         entitled to be reimbursed from the Trust Fund for any and all costs,
         attorney's fees, and other expenses pertaining thereto incurred by them
         for which they shall have become liable.

9.7      PROHIBITION AGAINST DIVERSION OF FUNDS

         (a)      Except as provided below and otherwise specifically permitted
                  by law, it shall be impossible by operation of the Plan or of
                  the Trust, by termination of either, by power of revocation or
                  amendment, by the happening of any contingency, by collateral
                  arrangement or by any other means, for any part of the corpus
                  or income of any Trust Fund maintained pursuant to the Plan or
                  any funds contributed thereto to be used for, or diverted to,
                  purposes other than the exclusive benefit of Participants,
                  Retired Participants, or their Beneficiaries.

         (b)      In the event the Employer shall make a contribution under a
                  mistake of fact pursuant to Section 403(c)(2)(A) of the Act,
                  the Employer may demand repayment of such contribution at any
                  time within one (1) year following the time of payment and the
                  Trustees shall return such amount to the Employer within the
                  one (1) year period. Earnings of the Plan attributable to the
                  contributions may not be returned to the Employer but any
                  losses attributable thereto must reduce the amount so
                  returned.

9.8      BONDING

         Every Fiduciary, except a bank or an insurance company, unless exempted
         by the Act and regulations thereunder, shall be bonded in an amount not
         less than ten percent (10%) of the amount of the funds such Fiduciary
         handles; provided, however, that the minimum bond shall be $1,000 and
         the maximum bond, $500,000. The amount of funds handled shall be
         determined at the beginning of each Plan Year by the amount of funds
         handled by such person, group, or class to be covered and their
         predecessors, if any, during the preceding Plan Year, or if there is no
         preceding Plan Year, then by the amount of the funds to be handled
         during the then current year. The bond shall provide protection to the
         Plan against any loss by reason of acts of fraud or dishonesty by the
         Fiduciary alone or in connivance with others. The surety shall be a
         corporate surety company (as such term is used in Act Section
         412(a)(2)), and the bond shall be in a form approved by the Secretary
         of Labor. Notwithstanding anything in the Plan to the contrary, the
         cost of such bonds shall be an expense of and may, at the election of
         the Administrator, be paid from the Trust Fund or by the Employer.

9.9      EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE

         Neither the Employer nor the Trustee, nor their successors, shall be
         responsible for the validity of any Contract issued hereunder or for
         the failure on the part of the Insurer to make payments provided by any
         such Contract, or for the action of any person which may delay payment
         or render a Contract null and void or unenforceable in whole or in
         part.

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9.10     INSURER'S PROTECTIVE CLAUSE

         The Insurer who shall issue Contracts hereunder shall not have any
         responsibility for the validity of this Plan or for the tax or legal
         aspects of this Plan. The Insurer shall be protected and held harmless
         in acting in accordance with any written direction of the Trustee, and
         shall have no duty to see to the application of any funds paid to the
         Trustee, nor be required to question any actions directed by the
         Trustee. Regardless of any provision of this Plan, the Insurer shall
         not be required to take or permit any action or allow any benefit or
         privilege contrary to the terms of any Contract which it issues
         hereunder, or the rules of the Insurer.

9.11     RECEIPT AND RELEASE FOR PAYMENTS

         Any payment to any Participant, his legal representative, Beneficiary,
         or to any guardian or committee appointed for such Participant or
         Beneficiary in accordance with the provisions of this Plan, shall, to
         the extent thereof, be in full satisfaction of all claims hereunder
         against the Trustee and the Employer.

9.12     ACTION BY THE EMPLOYER

         Whenever the Employer under the terms of the Plan is permitted or
         required to do or perform any act or matter or thing, it shall be done
         and performed by a person duly authorized by its legally constituted
         authority.

9.13     NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY

         The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
         Administrator, (3) the Trustee, and (4) any Investment Manager
         appointed hereunder. The named Fiduciaries shall have only those
         specific powers, duties, responsibilities, and obligations as are
         specifically given them under the Plan. In general, the Employer shall
         have the sole responsibility for making the contributions provided for
         under Section 4.1; and shall have the sole authority to appoint and
         remove the Trustee and the Administrator; to formulate the Plan's
         "funding policy and method"; and to amend the elective provisions of
         the Adoption Agreement or terminate, in whole or in part, the Plan. The
         Administrator shall have the sole responsibility for the administration
         of the Plan, which responsibility is specifically described in the
         Plan. The Trustee shall have the sole responsibility of management of
         the assets held under the Trust, except those assets, the management of
         which has been assigned to an Investment Manager or Administrator, who
         shall be solely responsible for the management of the assets assigned
         to it, all as specifically provided in the Plan. Each named Fiduciary
         warrants that any directions given, information furnished, or action
         taken by it shall be in accordance with the provisions of the Plan,
         authorizing or providing for such direction, information or action.
         Furthermore, each named Fiduciary may rely upon any such direction,
         information or action of another named Fiduciary as being proper under
         the Plan, and is not required under the Plan to inquire into the
         propriety of any such direction, information or action. it is intended
         under the Plan that each named Fiduciary shall be responsible for the
         proper exercise of its own powers, duties, responsibilities and
         obligations under the Plan. No named Fiduciary shall guarantee the
         Trust Fund in any manner against investment loss or depreciation in
         asset value. Any person or group may serve in more than one Fiduciary
         capacity.

9.14     HEADINGS

         The headings and subheadings of this Plan have been inserted for
         convenience of reference and are to be ignored in any construction of
         the provisions hereof.

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9.15     APPROVAL BY INTERNAL REVENUE SERVICE

         (a)      Notwithstanding anything herein to the contrary, if, pursuant
                  to a timely application filed by or in behalf of the Plan, the
                  Commissioner of Internal Revenue Service or his delegate
                  should determine that the Plan does not initially qualify as a
                  tax-exempt plan under Code Sections 401 and 501, and such
                  determination is not contested, or if contested, is finally
                  upheld, then if the Plan is a new plan, it shall be void ab
                  initio and all amounts contributed to the Plan, by the
                  Employer, less expenses paid, shall be returned within one
                  year and the Plan shall terminate, and the Trustee shall be
                  discharged from all further obligations. If the
                  disqualification relates to an amended plan, then the Plan
                  shall operate as if it had not been amended and restated.

         (b)      Except as specifically stated in the Plan, any contribution by
                  the Employer to the Trust Fund is conditioned upon the
                  deductibility of the contribution by the Employer under the
                  Code and, to the extent any such deduction is disallowed, the
                  Employer may within one (1) year following a final
                  determination of the disallowance, whether by agreement with
                  the Internal Revenue Service or by final decision of a court
                  of competent jurisdiction, demand repayment of such disallowed
                  contribution and the Trustee shall return such contribution
                  within one (1) year following the disallowance. Earnings of
                  the Plan attributable to the excess contribution may not be
                  returned to the Employer, but any losses attributable thereto
                  must reduce the amount so returned.

9.16     UNIFORMITY

         All provisions of this Plan shall be interpreted and applied in a
         uniform, nondiscriminatory manner.

9.17     PAYMENT OF BENEFITS

         Benefits under this Plan shall be paid, subject to Section 6.10 and
         Section 6.11 only upon death, Total and Permanent Disability, normal or
         early retirement, termination of employment, or upon Plan Termination.

                                                                         Page 71

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<PAGE>   73

                                    ARTICLE X
                             PARTICIPATING EMPLOYERS

10.1     ELECTION TO BECOME A PARTICIPATING EMPLOYER

         Notwithstanding anything herein to the contrary, with the consent of
         the Employer and Trustee, any Affiliated Employer may adopt this Plan
         and all of the provisions hereof, and participate herein and be known
         as a Participating Employer, by a properly executed document evidencing
         said intent and will of such Participating Employer.

10.2     REQUIREMENTS OF PARTICIPATING EMPLOYERS

         (a)      Each Participating Employer shall be required to select the
                  same Adoption Agreement provisions as those selected by the
                  Employer other than the Plan Year, the Fiscal Year, and such
                  other items that must, by necessity, vary among employers.

         (b)      Each such Participating Employer shall be required to use the
                  same Trustee as provided in this Plan.

         (c)      The Trustee may, but shall not be required to, commingle, hold
                  and invest as one Trust Fund all contributions made by
                  Participating Employers, as well as all increments thereof.

         (d)      The transfer of any Participant from or to an Employer
                  participating in this Plan, whether he be an Employee of the
                  Employer or a Participating Employer, shall not affect such
                  Participant's rights under the Plan, and all amounts credited
                  to such Participant's Combined Account as well as his
                  accumulated service time with the transferor or predecessor,
                  and his length of participation in the Plan, shall continue to
                  his credit.

         (e)      Any expenses of the Plan which are to be paid by the Employer
                  or borne by the Trust Fund shall be paid by each Participating
                  Employer in the same proportion that the total amount standing
                  to the credit of all Participants employed by such Employer
                  bears to the total standing to the credit of all Participants.

10.3     DESIGNATION OF AGENT

         Each Participating Employer shall be deemed to be a part of this Plan;
         provided, however, that with respect to all of its relations with the
         Trustee and Administrator for the purpose of this Plan, each
         Participating Employer shall be deemed to have designated irrevocably
         the Employer as its agent. Unless the context of the Plan clearly
         indicates the contrary, the word "Employer" shall be deemed to include
         each Participating Employer as related to its adoption of the Plan.

10.4     EMPLOYEE TRANSFERS

         It is anticipated that an Employee may be transferred between
         Participating Employers, and in the event of any such transfer, the
         Employee involved shall carry with him his accumulated service and
         eligibility. No such transfer shall effect a termination of employment
         hereunder, and the Participating Employer to which the Employee is
         transferred shall thereupon become obligated hereunder with respect to
         such Employee in the same manner as was the Participating Employer from
         whom the Employee was transferred.

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<PAGE>   74

10.5     PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES

         Any contribution or Forfeiture subject to allocation during each Plan
         Year shall be allocated among all Participants of all Participating
         Employers in accordance with the provisions of this Plan. On the basis
         of the information furnished by the Administrator, the Trustee shall
         keep separate books and records concerning the affairs of each
         Participating Employer hereunder and as to the accounts and credits of
         the Employees of each Participating Employer. The Trustee may, but need
         not, register Contracts so as to evidence that a particular
         Participating Employer is the interested Employer hereunder, but in the
         event of an Employee transfer from one Participating Employer to
         another, the employing Employer shall immediately notify the Trustee
         thereof.

10.6     AMENDMENT

         Amendment of this Plan by the Employer at any time when there shall be
         a Participating Employer hereunder shall only be by the written action
         of each and every Participating Employer and with the consent of the
         Trustee where such consent is necessary in accordance with the terms of
         this Plan.

10.7     DISCONTINUANCE OF PARTICIPATION

         Except in the case of a Standardized Plan, any Participating Employer
         shall be permitted to discontinue or revoke its participation in the
         Plan at any time. At the time of any such discontinuance or revocation,
         satisfactory evidence thereof and of any applicable conditions imposed
         shall be delivered to the Trustee. The Trustee shall thereafter
         transfer, deliver and assign Contracts and other Trust Fund assets
         allocable to the Participants of such Participating Employer to such
         new Trustee as shall have been designated by such Participating
         Employer, in the event that it has established a separate pension plan
         for its Employees provided, however, that no such transfer shall be
         made if the result is the elimination or reduction of any "Section
         411(d)(6) protected benefits" in accordance with Section 8.1(e). If no
         successor is designated, the Trustee shall retain such assets for the
         Employees of said Participating Employer pursuant to the provisions of
         Article VII hereof. In no such event shall any part of the corpus or
         income of the Trust Fund as it relates to such Participating Employer
         be used for or diverted for purposes other than for the exclusive
         benefit of the Employees of such Participating Employer.

10.8     ADMINISTRATOR'S AUTHORITY

         The Administrator shall have authority to make any and all necessary
         rules or regulations, binding upon all Participating Employers and all
         Participants, to effectuate the purpose of this Article.

10.9     PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE

         If any Participating Employer is prevented in whole or in part from
         making a contribution which it would otherwise have made under the Plan
         by reason of having no current or accumulated earnings or profits, or
         because such earnings or profits are less than the contribution which
         it would otherwise have made, then, pursuant to Code Section
         404(a)(3)(B), so much of the contribution which such Participating
         Employer was so prevented from making may be made, for the benefit of
         the participating employees of such Participating Employer, by other
         Participating Employers who are members of the same affiliated group
         within the meaning of Code Section 1504 to the extent of their current
         or accumulated earnings or profits, except that such contribution by
         each such other Participating Employer shall be limited to the
         proportion of its total current and accumulated earnings or profits
         remaining after adjustment for its contribution to the Plan made
         without regard to this paragraph which the total prevented contribution
         bears to the total

                                                                         Page 73

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<PAGE>   75

         current and accumulated earnings or profits of all the Participating
         Employers remaining after adjustment for all contributions made to the
         Plan without regard to this paragraph.

         A Participating Employer on behalf of whose employees a contribution is
         made under this paragraph shall not be required to reimburse the
         contributing Participating Employers.

                                   ARTICLE XI
                           CASH OR DEFERRED PROVISIONS

Notwithstanding any provisions in the Plan to the contrary, the provisions of
this Article shall apply with respect to any 401(k) Profit Sharing Plan.

11.1     FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION

         For each Plan Year, the Employer shall contribute to the Plan:

         (a)      The amount of the total salary reduction elections of all
                  Participants made pursuant to Section 11.2(a), which amount
                  shall be deemed an Employer's Elective Contribution, plus

         (b)      If specified in E3 of the Adoption Agreement, a matching
                  contribution equal to the percentage specified in the Adoption
                  Agreement of the Deferred Compensation of each Participant
                  eligible to share in the allocations of the matching
                  contribution, which amount shall be deemed an Employer's
                  Non-Elective or Elective Contribution as selected in the
                  Adoption Agreement, plus

         (c)      If specified in E4 of the Adoption Agreement, a discretionary
                  amount, if any, which shall be deemed an Employer's
                  Non-Elective Contribution, plus

         (d)      If specified in E5 of the Adoption Agreement, a Qualified
                  Non-Elective Contribution.

         (e)      Notwithstanding the foregoing, however, the Employer's
                  contributions for any Fiscal Year shall not exceed the maximum
                  amount allowable as a deduction to the Employer under the
                  provisions of Code Section 404. All contributions by the
                  Employer shall be made in cash or in such property as is
                  acceptable to the Trustee.

         (f)      Except, however, to the extent necessary to provide the top
                  heavy minimum allocations, the Employer shall make a
                  contribution even if it exceeds current or accumulated Net
                  Profit or the amount which is deductible under Code Section
                  404.

         (f)      Employer Elective Contributions accumulated through payroll
                  deductions shall be paid to the Trustee as of the earliest
                  date on which such contributions can reasonably be segregated
                  from the Employer's general assets, but in any event within
                  ninety (90) days from the date on which such amounts would
                  otherwise have been payable to the Participant in cash. The
                  provisions of Department of Labor Regulations 2510.3-102 are
                  incorporated herein by reference. Furthermore, any additional
                  Employer contributions which are allocable to the
                  Participant's Elective Account for a Plan Year shall be paid
                  to the Plan no later than the twelve-month period immediately
                  following the close of such Plan Year.

11.2     PARTICIPANT'S SALARY REDUCTION ELECTION

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<PAGE>   76
         (a)      If selected in the Adoption Agreement, each Participant may
                  elect to defer his Compensation which would have been received
                  in the Plan Year, but for the deferral election, subject to
                  the limitations of this Section and the Adoption Agreement. A
                  deferral election (or modification of an earlier election) may
                  not be made with respect to Compensation which is currently
                  available on or before the date the Participant executed such
                  election, or if later, the latest of the date the Employer
                  adopts this cash or deferred arrangement, or the date such
                  arrangement first became effective. Any elections made
                  pursuant to this Section shall become effective as soon as is
                  administratively feasible.

                  Additionally, if elected in the Adoption Agreement, each
                  Participant may elect to defer and have allocated for a Plan
                  Year all or a portion of any cash bonus attributable to
                  services performed by the Participant for the Employer during
                  such Plan Year and which would have been received by the
                  Participant on or before two and one-half months following the
                  end of the Plan Year but for the deferral. A deferral election
                  may not be made with respect to cash bonuses which are
                  currently available on or before the date the Participant
                  executed such election. Notwithstanding the foregoing, cash
                  bonuses attributable to services performed by the Participant
                  during a Plan Year but which are to be paid to the Participant
                  later than two and one-half months after the close of such
                  Plan Year will be subjected to whatever deferral election is
                  in effect at the time such cash bonus would have otherwise
                  been received.

                  The amount by which Compensation and/or cash bonuses are
                  reduced shall be that Participant's Deferred Compensation and
                  be treated as an Employer Elective Contribution and allocated
                  to that Participant's Elective Account.

                  Once made, a Participant's election to reduce Compensation
                  shall remain in effect until modified or terminated.
                  Modifications may be made as specified in the Adoption
                  Agreement, and terminations may be made at any time. Any
                  modification or termination of an election will become
                  effective as soon as is administratively feasible.

         (b)      The balance in each Participant's Elective Account shall be
                  fully Vested at all times and shall not be subject to
                  Forfeiture for any reason.

         (c)      Amounts held in the Participant's Elective Account and
                  Qualified Non-Elective Account may be distributable as
                  permitted under the Plan, but in no event prior to the earlier
                  of:

                  (1)      a Participant's termination of employment, Total and
                           Permanent Disability, or death;

                  (2)      a Participant's attainment of age 59 1/2;

                  (3)      the proven financial hardship of a Participant,
                           subject to the limitations of Section 11.8;

                  (4)      the termination of the Plan without the existence at
                           the time of Plan termination of another defined
                           contribution plan (other than an employee stock
                           ownership plan as defined in Code Section 4975(e)(7))
                           or the establishment of a successor defined
                           contribution plan (other than an employee stock
                           ownership plan as defined in Code Section 4975(e)(7))
                           by the Employer or an Affiliated Employer within the
                           period ending twelve months after distribution of all
                           assets from the Plan maintained by the Employer;

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<PAGE>   77

                  (5)      the date of the sale by the Employer to an entity
                           that is not an Affiliated Employer of substantially
                           all of the assets (within the meaning of Code Section
                           409(d)(2)) with respect to a Participant who
                           continues employment with the corporation acquiring
                           such assets; or

                  (6)      the date of the sale by the Employer or an Affiliated
                           Employer of its interest in a subsidiary (within the
                           meaning of Code Section 409(d)(3)) to an entity that
                           is not an Affiliated Employer with respect to a
                           Participant who continues employment with such
                           subsidiary.

         (d)      In any Plan Year beginning after December 31, 1987, a
                  Participant's Deferred Compensation made under this Plan and
                  all other plans, contracts or arrangements of the Employer
                  maintaining this Plan shall not exceed the limitation imposed
                  by Code Section 402(g), as in effect for the calendar year in
                  which such Plan Year began. If such dollar limitation is
                  exceeded solely from elective deferrals under this Plan or any
                  other Plan maintained by the Employer, a Participant will be
                  deemed to have notified the Administrator of such excess
                  amount which shall be distributed in a manner consistent with
                  Section 11.2(f). This dollar limitation shall be adjusted
                  annually pursuant to the method provided in Code Section
                  415(d) in accordance with Regulations.

         (e)      In the event a Participant has received a hardship
                  distribution pursuant to Regulation 1.401(k)-1(d)(2)(iii)(B)
                  from any other plan maintained by the Employer or from his
                  Participant's Elective Account pursuant to Section 11.8, then
                  such Participant shall not be permitted to elect to have
                  Deferred Compensation contributed to the Plan on his behalf
                  for a period of twelve (12) months following the receipt of
                  the distribution. Furthermore, the dollar limitation under
                  Code Section 402(g) shall be reduced with respect to the
                  Participant's taxable year following the taxable year in which
                  the hardship distribution was made, by the amount of such
                  Participant's Deferred Compensation, if any, made pursuant to
                  this Plan (and any other plan maintained by the Employer) for
                  the taxable year of the hardship distribution.

         (f)      If a Participant's Deferred Compensation under this Plan
                  together with any elective deferrals (as defined in Regulation
                  1.402(g)-1(b)) under another qualified cash or deferred
                  arrangement (as defined in Code Section 401(k)), a simplified
                  employee pension (as defined in Code Section 408(k)), a salary
                  reduction arrangement (within the meaning of Code Section
                  3121(a)(5)(D)), a deferred compensation plan under Code
                  Section 457, or a trust described in Code Section 501(c)(18)
                  cumulatively exceed the limitation imposed by Code Section
                  402(g) (as adjusted annually in accordance with the method
                  provided in Code Section 415(d) pursuant to Regulations) for
                  such Participant's taxable year, the Participant may, not
                  later than March 1st following the close of his taxable year,
                  notify the Administrator in writing of such excess and request
                  that his Deferred Compensation under this Plan be reduced by
                  an amount specified by the Participant. In such event, the
                  Administrator shall direct the Trustee to distribute such
                  excess amount (and any Income allocable to such excess amount)
                  to the Participant not later than the first April 15th
                  following the close of the Participant's taxable year.
                  Distributions in accordance with this paragraph may be made
                  for any taxable year of the Participant which begins after
                  December 31, 1986. Any distribution of less than the entire
                  amount of Excess Deferred Compensation and Income shall be
                  treated as a pro rata distribution of Excess Deferred
                  Compensation and Income. The amount distributed shall not
                  exceed the Participant's Deferred Compensation under the Plan
                  for the taxable year. Any distribution on or before the last
                  day of the Participant's taxable year must satisfy each of the
                  following conditions:

                  (1)      the Participant shall designate the distribution as
                           Excess Deferred Compensation;

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<PAGE>   78

                  (2)      the distribution must be made after the date on which
                           the Plan received the Excess Deferred Compensation;

                  (3)      the Plan must designate the distribution as a
                           distribution of Excess Deferred Compensation; and

                  (4)      any distribution made pursuant to this Section shall
                           be made first from unmatched Deferred Compensation
                           and, thereafter, simultaneously from Deferred
                           Compensation which is matched and matching
                           contributions which relate to such Deferred
                           Compensation. However, any such matching
                           contributions which are not Vested shall be forfeited
                           in lieu of being distributed.

                  Any distribution under this Section shall be made first from
                  unmatched Deferred Compensation and, thereafter,
                  simultaneously from Deferred Compensation which is matched and
                  matching contributions which relate to such Deferred
                  Compensation. However, any such matching contributions which
                  are not Vested shall be forfeited in lieu of being
                  distributed.

                  For the purpose of this Section, "Income" means the amount of
                  income or loss allocable to a Participant's Excess Deferred
                  Compensation and shall be equal to the sum of the allocable
                  gain or loss for the taxable year of the Participant and the
                  allocable gain or loss for the period between the end of the
                  taxable year of the Participant and the date of distribution
                  ("gap period"). The income or loss allocable to each such
                  period is calculated separately and is determined by
                  multiplying the income or loss allocable to the Participant's
                  Deferred Compensation for the respective period by a fraction.
                  The numerator of the fraction is the Participant's Excess
                  Deferred Compensation for the taxable year of the Participant.
                  The denominator is the balance, as of the last day of the
                  respective period, of the Participant's Elective Account that
                  is attributable to the Participant's Deferred Compensation
                  reduced by the gain allocable to such total amount for the
                  respective period and increased by the loss allocable to such
                  total amount for the respective period.

                  In lieu of the "fractional method" described above, a "safe
                  harbor method" may be used to calculate the allocable income
                  or loss for the "gap period." Under such "safe harbor method,"
                  allocable income or loss for the "gap period" shall be deemed
                  to equal ten percent (10%) of the income or loss allocable to
                  a Participant's Excess Deferred Compensation for the taxable
                  year of the Participant multiplied by the number of calendar
                  months in the "gap period." For purposes of determining the
                  number of calendar months in the "gap period," a distribution
                  occurring on or before the fifteenth day of the month shall be
                  treated as having been made on the last day of the preceding
                  month and a distribution occurring after such fifteenth day
                  shall be treated as having been made on the first day of the
                  next subsequent month.

                  Income or loss allocable to any distribution of Excess
                  Deferred Compensation on or before the last day of the taxable
                  year of the Participant shall be calculated from the first day
                  of the taxable year of the Participant to the date on which
                  the distribution is made pursuant to either the "fractional
                  method" or the "safe harbor method."

                  Notwithstanding the above, for the 1987 calendar year, and for
                  Plan Years beginning on or after the date this Plan is
                  adopted, Income during the "gap period" shall not be taken
                  into account.

         (g)      Notwithstanding the above, a Participant's Excess Deferred
                  Compensation shall be reduced, but not below zero, by any
                  distribution and/or recharacterization of Excess Contributions
                  pursuant to Section 11.5(a) for the Plan Year beginning with
                  or within the taxable year of the Participant.

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<PAGE>   79

         (h)      At Normal Retirement Date, or such other date when the
                  Participant shall be entitled to receive benefits, the fair
                  market value of the Participant's Elective Account shall be
                  used to provide benefits to the Participant or his
                  Beneficiary.

         (i)      Employer Elective Contributions made pursuant to this Section
                  may be segregated into a separate account for each Participant
                  in a federally insured savings account, certificate of deposit
                  in a bank or savings and loan association, money market
                  certificate, or other short-term debt security acceptable to
                  the Trustee until such time as the allocations pursuant to
                  Section 11.3 have been made.

         (j)      The Employer and the Administrator shall adopt a procedure
                  necessary to implement the salary reduction elections provided
                  for herein.

11.3     ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS

         (a)      The Administrator shall establish and maintain an account in
                  the name of each Participant to which the Administrator shall
                  credit as of each Anniversary Date, or other valuation date,
                  all amounts allocated to each such Participant as set forth
                  herein.

         (b)      The Employer shall provide the Administrator with all
                  information required by the Administrator to make a proper
                  allocation of the Employer's contributions for each Plan Year.
                  Within a reasonable period of time after the date of receipt
                  by the Administrator of such information, the Administrator
                  shall allocate such contribution as follows:

                  (1)      With respect to the Employer's Elective Contribution
                           made pursuant to Section 11.1(a), to each
                           Participant's Elective Account in an amount equal to
                           each such Participant's Deferred Compensation for the
                           year.

                  (2)      With respect to the Employer's Matching Contribution
                           made pursuant to Section 11.1(b), to each
                           Participant's Account, or Participant's Elective
                           Account as selected in E3 of the Adoption Agreement,
                           in accordance with Section 11.1(b).

                           Except, however, a Participant who is not credited
                           with a Year of Service during any Plan Year shall or
                           shall not share in the Employer's Matching
                           Contribution for that year as provided in E3 of the
                           Adoption Agreement. However, for Plan Years beginning
                           after 1993, if this is a standardized Plan, a
                           Participant shall share in the Employer's Matching
                           Contribution regardless of Hours of Service.

                  (3)      With respect to the Employer's Non-Elective
                           Contribution made pursuant to Section 11.1(c), to
                           each Participant's Account in accordance with the
                           provisions of Sections 4.3(b)(2) or 4.3(b)(3),
                           whichever is applicable, 4.3(k) and 4.3(l).

                  (4)      With respect to the Employer's Qualified Non-Elective
                           Contribution made pursuant to Section 11.1(d), to
                           each Participant's Qualified Non-Elective
                           Contribution Account in the same proportion that each
                           such Participant's Compensation for the year bears to
                           the total Compensation of all Participants for such
                           year. However, for any Plan Year beginning prior to
                           January 1, 1994, and if elected in the
                           non-standardized Adoption Agreement for any Plan Year
                           beginning on or after January 1, 1994, a Participant
                           who is not credited with a Year of Service during any
                           Plan Year shall not share in the Employer's Qualified

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<PAGE>   80

                           Non-Elective Contribution for that year, unless
                           required pursuant to Section 4.3(h). In addition, the
                           provisions of Sections 4.3(k) and 4.3(l) shall apply
                           with respect to the allocation of the Employer's
                           Qualified Non-Elective contribution.

         (c)      Notwithstanding anything in the Plan to the contrary, for Plan
                  Years beginning after December 31, 1988, in determining
                  whether a Non-Key Employee has received the required minimum
                  allocation pursuant to Section 4.3(f) such Non-Key Employee's
                  Deferred Compensation and matching contributions used to
                  satisfy the "Actual Deferral Percentage" test pursuant to
                  Section 11.4(a) or the "Actual Contribution Percentage" test
                  of Section 11.6(a) shall not be taken into account.

         (d)      Notwithstanding anything herein to the contrary, participants
                  who terminated employment during the Plan Year shall share in
                  the salary reduction contributions made by the Employer for
                  the year of termination without regard to the Hours of Service
                  credited.

         (e)      Notwithstanding anything herein to the contrary (other than
                  Sections 11.3(d) and 11.3(g)), any Participant who terminated
                  employment during the Plan Year for reasons other than death,
                  Total and Permanent Disability, or retirement shall or shall
                  not share in the allocations of the Employer's Matching
                  Contribution made pursuant to Section 11.1(b), the Employer's
                  Non-Elective Contributions made pursuant to Section 11.1(c),
                  the Employer's Qualified Non-Elective Contribution made
                  pursuant to Section 11.1(d), and Forfeitures as provided in
                  the Adoption Agreement. Notwithstanding the foregoing, for
                  Plan Years beginning after 1989, if this is a standardized
                  Plan, any such terminated Participant shall share in such
                  allocations provided the terminated Participant completed more
                  than 500 Hours of Service.

         (f)      Notwithstanding anything herein to the contrary, Participants
                  terminating for reasons of death, Total and Permanent
                  Disability, or retirement shall share in the allocation of the
                  Employer's Matching Contribution made pursuant to Section
                  11.1(b), the Employer's Non-Elective Contributions made
                  pursuant to Section 11.1(c), the Employer's Qualified
                  Non-Elective Contribution made pursuant to Section 11.1(d),
                  and Forfeitures as provided in this Section regardless of
                  whether they completed a Year of Service during the Plan Year.

         (g)      Notwithstanding any election in the Adoption Agreement to the
                  contrary, if this is a non-standardized Plan that would
                  otherwise fail to meet the requirements of Code Section
                  401(a)(26), 410(b)(1), or 410(b)(2)(A)(i) and the Regulations
                  thereunder because Employer matching Contributions made
                  pursuant to Section 11.1(b), Employer Non-Elective
                  Contributions made pursuant to Section 11.1(c) or Employer
                  Qualified Non-Elective Contributions made pursuant to Section
                  11.1(d) have not been allocated to a sufficient number or
                  percentage of Participants for a Plan Year, then the following
                  rules shall apply:

                  (1)      The group of Participants eligible to share in the
                           respective contributions for the Plan Year shall be
                           expanded to include the minimum number of
                           Participants who would not otherwise be eligible as
                           are necessary to satisfy the applicable test
                           specified above. The specific participants who shall
                           become eligible under the terms of this paragraph
                           shall be those who are actively employed on the last
                           day of the Plan Year and, when compared to similarly
                           situated Participants, have completed the greatest
                           number of Hours of Service in the Plan Year.

                  (2)      If after application of paragraph (1) above, the
                           applicable test is still not satisfied, then the
                           group of Participants eligible to share for the Plan
                           Year shall be further expanded to

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<PAGE>   81

                           include the minimum number of Participants who are
                           not actively employed on the last day of the Plan
                           Year as are necessary to satisfy the applicable test.
                           The specific Participants who shall become eligible
                           to share shall be those Participants, when compared
                           to similarly situated Participants, who have
                           completed the greatest number of Hours of Service in
                           the Plan Year before terminating employment.

11.4    ACTUAL DEFERRAL PERCENTAGE TESTS

         (a)      Maximum Annual Allocation: For each Plan Year beginning after
                  December 31, 1986, the annual allocation derived from Employer
                  Elective Contributions and Qualified Non-Elective
                  Contributions to a Participant's Elective Account and
                  Qualified Non-Elective Account shall satisfy one of the
                  following tests:

                  (1)      The "Actual Deferral Percentage" for the Highly
                           Compensated Participant group shall not be more than
                           the "Actual Deferral Percentage" of the Non-Highly
                           Compensated Participant group multiplied by 1.25, or

                  (2)      The excess of the "Actual Deferral Percentage" for
                           the Highly Compensated Participant group over the
                           "Actual Deferral Percentage" for the Non-Highly
                           Compensated Participant group shall not be more than
                           two (2) percentage points. Additionally, the "Actual
                           Deferral Percentage" for the Highly Compensated
                           Participant group shall not exceed the "Actual
                           Deferral Percentage" for the Non-Highly Compensated
                           Participant group multiplied by two (2). The
                           provisions of Code Section 401(k)(3) and Regulation
                           1.401(k)-l(b) are incorporated herein by reference.

                  However, for Plan Years beginning after December 31, 1988, to
                  prevent the multiple use of the alternative method described
                  in (2) above and Code Section 401(m)(9)(A), any Highly
                  Compensated Participant eligible to make elective deferrals
                  pursuant to Section 11.2 and to make Employee contributions or
                  to receive matching contributions under this Plan or under any
                  other plan maintained by the Employer or an Affiliated
                  Employer shall have his actual contribution ratio reduced
                  pursuant to Regulation 1.401(m)-2, the provisions of which are
                  incorporated herein by reference.

         (b)      For the purposes of this Section "Actual Deferral Percentage"
                  means, with respect to the Highly Compensated Participant
                  group and Non-Highly Compensated Participant group for a Plan
                  Year, the average of the ratios, calculated separately for
                  each Participant in such group, of the amount of Employer
                  Elective Contributions and Qualified Non-Elective
                  Contributions allocated to each Participant's Elective Account
                  and Qualified Non-Elective Account for such Plan Year, to such
                  Participant's "414(s) Compensation" for such Plan Year. The
                  actual deferral ratio for each Participant and the "Actual
                  Deferral Percentage" for each group, for Plan Years beginning
                  after December 31, 1988, shall be calculated to the nearest
                  one-hundredth of one percent of the Participant's "414(s)
                  Compensation." Employer Elective Contributions allocated to
                  each Non-Highly Compensated Participant's Elective Account
                  shall be reduced by Excess Deferred Compensation to the extent
                  such excess amounts are made under this Plan or any other plan
                  maintained by the Employer.

         (c)      For the purpose of determining the actual deferral ratio of a
                  Highly Compensated Participant who is subject to the Family
                  Member aggregation rules of Code Section 414(q)(6) because
                  such Participant is either a "five percent owner" of the
                  Employer or one of the ten (10) Highly

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<PAGE>   82

                  Compensated Employees paid the greatest "415 Compensation"
                  during the year, the following shall apply:

                  (1)      The combined actual deferral ratio for the family
                           group (which shall be determined by aggregating
                           Employer Elective Contributions and "414(s)
                           Compensation" of all eligible Family members
                           (including Highly Compensated Participants). However,
                           in applying the $200,000 limit to "414(s)
                           Compensation" for Plan Years beginning after December
                           31, 1988, Family Members shall include only the
                           affected Employee's spouse and any lineal descendants
                           who have not attained age nineteen (19) before the
                           close of the Plan Year.

                  (2)      The Employer Elective Contributions and "414(s)
                           Compensation" of all Family Members shall be
                           disregarded for purposes of determining the "Actual
                           Deferral Percentage", of the Non-Highly Compensated
                           Participant group except to the extent taken into
                           account in paragraph (1) above.

                  (3)      If a Participant is required to be aggregated as a
                           member of more than one family group in a plan, all
                           Participants who are members of those family groups
                           that include the Participant are aggregated as one
                           family group in accordance with paragraphs (1) and
                           (2) above.

         (d)      For the purposes of this Section and Code Sections 401(a)(4),
                  410(b) and 401(k), if two (2) or more plans which include cash
                  or deferred arrangements are considered one plan for the
                  purposes of Code Section 401(a)(4) or 410(b) (other than Code
                  Section 401(b)(2)(A)(ii) as in effect for Plan Years beginning
                  after December 31, 1988), the cash or deferred arrangements
                  included in such plans shall be treated as one arrangement. In
                  addition, two (2) or more cash or deferred arrangements may be
                  considered as a single arrangement for purposes of determining
                  whether or not such arrangements satisfy Code Sections
                  401(a)(4), 410(b) and 401(k). In such a case, the cash or
                  deferred arrangements included in such plans and the plans
                  including such arrangements shall be treated as one
                  arrangement and as one plan for purposes of this Section and
                  Code Sections 401(a)(4), 410(b) and 401(k). For plan years
                  beginning after December 31, 1989, plans may be aggregated
                  under this paragraph (e) only if they have the same plan year.

                  Notwithstanding the above, for Plan Years beginning after
                  December 31, 1988, an employee stock ownership plan described
                  in Code Section 4975(e)(7) may not be combined with this Plan
                  for purposes of determining whether the employee stock
                  ownership plan or this Plan satisfies this Section and Code
                  Sections 401(a) (4), 410(b) and 401(k) .

         (e)      For the purposes of this Section, if a Highly Compensated
                  Participant is a Participant under two (2) or more cash or
                  deferred arrangements (other than a cash or deferred
                  arrangement which is part of an employee stock ownership plan
                  as defined in Code Section 4975(e)(7) for Plan Years beginning
                  after December 31, 1988) of the Employer or an Affiliated
                  Employer, all such cash or deferred arrangements shall be
                  treated as one cash or deferred arrangement for the purpose of
                  determining the actual deferral ratio with respect to such
                  Highly Compensated Participant. However, for Plan Years
                  beginning after December 31, 1988, if the cash or deferred
                  arrangements have different Plan Years, this paragraph shall
                  be applied by treating all cash or deferred arrangements
                  ending with or within the same calendar year as a single
                  arrangement.

11.5     ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS

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<PAGE>   83

         In the event that the initial allocations of the Employer's Elective
         Contributions and Qualified Non-Elective Contributions do not satisfy
         one of the tests set forth in Section 11.4, for Plan Years beginning
         after December 31, 1986, the Administrator shall adjust Excess
         Contributions pursuant to the options set forth below:

         (a)      On or before the fifteenth day of the third month following
                  the end of each Plan Year, the Highly Compensated Participant
                  having the highest actual deferral ratio shall have his
                  portion of Excess Contributions distributed to him and/or at
                  his election recharacterized as a voluntary Employee
                  contribution pursuant to Section 4.7 until one of the tests
                  set forth in Section 11.4 is satisfied, or until his actual
                  deferral ratio equals the actual deferral ratio of the Highly
                  Compensated Participant having the second highest actual
                  deferral ratio. This process shall continue until one of the
                  tests set forth in Section 11.4 is satisfied. For each Highly
                  Compensated Participant, the amount of Excess Contributions is
                  equal to the Elective Contributions and Qualified Non-Elective
                  Contributions made on behalf of such Highly compensated
                  Participant (determined prior to the application of this
                  paragraph) minus the amount determined by multiplying the
                  Highly Compensated Participant's actual deferral ratio
                  (determined after application of this paragraph) by his
                  "414(s) Compensation." However, in determining the amount of
                  Excess Contributions to be distributed and/or recharacterized
                  with respect to an affected Highly Compensated Participant as
                  determined herein, such amount shall be reduced by any Excess
                  Deferred Compensation previously distributed to such affected
                  Highly Compensated Participant for his taxable year ending
                  with or within such Plan Year. Any distribution and/or
                  recharacterization of Excess Contributions shall be made in
                  accordance with the following:

                  (1)      with respect to the distribution of Excess
                           Contributions pursuant to (a) above, such
                           distribution:

                           (i)      may be postponed but not later than the
                                    close of the Plan Year following the Plan
                                    Year to which they are allocable;

                           (ii)     shall be made first from unmatched Deferred
                                    Compensation and, thereafter, from Deferred
                                    Compensation which is matched. Any matching
                                    contributions which relate to such Deferred
                                    Compensation shall be forfeited in lieu of
                                    being distributed;

                           (iii)    shall be made from Qualified Non-Elective
                                    Contributions only to the extent that Excess
                                    Contributions exceed the balance in the
                                    Participant's Elective Account attributable
                                    to Deferred Compensation and Employer
                                    matching contributions;

                           (iv)     shall be adjusted for Income; and

                           (v)      shall be designated by the Employer as a
                                    distribution of Excess Contributions (and
                                    Income).

                  (2)      with respect to the recharacterization of Excess
                           Contributions pursuant to (a) above, such
                           recharacterized amounts:

                           (i)      shall be deemed to have occurred on the date
                                    on which the last of those Highly
                                    Compensated Participants with Excess
                                    Contributions to be recharacterized is
                                    notified of the recharacterization and the
                                    tax consequences of such recharacterization;

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<PAGE>   84

                           (ii)     for Plan Years ending on or before August 8,
                                    1988, may be postponed but not later than
                                    October 24, 1988;

                           (iii)    shall not exceed the amount of Deferred
                                    Compensation on behalf of any Highly
                                    Compensated Participant for any Plan Year;

                           (iv)     shall be treated as voluntary Employee
                                    contributions for purposes of Code Section
                                    401(a)(4) and Regulation 1.401(k)-I(b).
                                    However, for purposes of Sections 2.2 and
                                    4.3(f), recharacterized Excess Contributions
                                    continue to be treated as Employer
                                    contributions that are Deferred
                                    Compensation. For Plan Years beginning after
                                    December 31, 1988, Excess Contributions
                                    recharacterized as voluntary Employee
                                    contributions shall continue to be
                                    nonforfeitable and subject to the same
                                    distribution rules provided for in Section
                                    11.2(c);

                           (v)      which relate to Plan Years ending on or
                                    before October 24, 1988, may be treated as
                                    either Employer contributions or voluntary
                                    Employee contributions and therefore shall
                                    not be subject to the restrictions of
                                    Section 11.2(c);

                           (vi)     are not permitted if the amount
                                    recharacterized plus voluntary Employee
                                    contributions actually made by such Highly
                                    Compensated Participant, exceed the maximum
                                    amount of voluntary Employee contributions
                                    (determined prior to application of Section
                                    11.6) that such Highly Compensated
                                    Participant is permitted to make under the
                                    Plan in the absence of recharacterization;
                                    and

                           (vii)    shall be adjusted for Income.

                  (3)      Any distribution and/or recharacterization of less
                           than the entire amount of Excess Contributions shall
                           be treated as a pro rata distribution and/or
                           recharacterization of Excess Contributions and
                           Income.

                  (4)      The determination and correction of Excess
                           Contributions of a Highly Compensated Participant
                           whose actual deferral ratio is determined under the
                           family aggregation rules shall be accomplished by
                           reducing the actual deferral ratio as required herein
                           and the Excess Contributions for the family unit
                           shall be allocated among the Family members in
                           proportion to the Elective Contributions of each
                           Family member that were combined to determine the
                           group actual deferral ratio.

         (b)      Within twelve (12) months after the end of the Plan Year, the
                  Employer shall make a special Qualified Non-Elective
                  Contribution on behalf of Non-Highly Compensated Participants
                  in an amount sufficient to satisfy one of the tests set forth
                  in Section 11.4(a). Such contribution shall be allocated to
                  the Participant's Qualified Non-Elective Account of each
                  Non-Highly Compensated Participant in the same proportion that
                  each Non-Highly Compensated Participant's Compensation for the
                  year bears to the total Compensation of all Non-Highly
                  Compensated Participants.

         (c)      For purposes of this Section, "Income" means the income or
                  loss allocable to Excess Contributions which shall equal the
                  sum of the allocable gain or loss for the Plan Year and the
                  allocable gain or loss for the period between the end of the
                  Plan Year and the date of distribution ("gap period"). The
                  income or loss allocable to Excess Contributions for the Plan
                  Year and the

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<PAGE>   85

                  "gap period" is calculated separately and is determined by
                  multiplying the income or loss for the Plan Year or the "gap
                  period" by a fraction. The numerator of the fraction is the
                  Excess Contributions for the Plan Year. The denominator of the
                  fraction is the total of the Participant's Elective Account
                  attributable to Elective Contributions and the Participant's
                  Qualified Non-Elective Account as of the end of the Plan Year
                  or the "gap period," reduced by the gain allocable to such
                  total amount for the Plan Year or the "gap period" and
                  increased by the loss allocable to such total amount for the
                  Plan Year or the "gap period."

                  In lieu of the "fractional method" described above, a "safe
                  harbor method" may be used to calculate the allocable Income
                  for the "gap period." Under such "safe harbor method,"
                  allocable Income for the "gap period" shall be deemed to equal
                  ten percent (10%) of the Income allocable to Excess
                  Contributions for the Plan Year of the Participant multiplied
                  by the number of calendar months in the "gap period." For
                  purposes of determining the number of calendar months in the
                  "gap period," a distribution occurring on or before the
                  fifteenth day of the month shall be treated as having been
                  made on the last day of the preceding month and a distribution
                  occurring after such fifteenth day shall be treated as having
                  been made on the first day of the next subsequent month.

                  Notwithstanding the above, for Plan Years which began in 1987,
                  and for Plan Years beginning on or after the date this Plan is
                  adopted, Income during the "gap period" shall not be taken
                  into account.

         (d)      Any amounts not distributed or recharacterized within 2 1/2
                  months after the end of the Plan Year shall be subject to the
                  ten percent (10%) Employer excise tax imposed by Code Section
                  4979.

11.6     ACTUAL CONTRIBUTION PERCENTAGE TESTS

         (a)      The "Actual Contribution Percentage," for Plan Years beginning
                  after the later of the Effective Date of this Plan or December
                  31, 1986, for the Highly Compensated Participant group shall
                  not exceed the greater of:

                  (1)      125 percent of such percentage for the Non-Highly
                           Compensated Participant group; or

                  (2)      the lesser of 200 percent of such percentage for the
                           Non-Highly Compensated Participant group, or such
                           percentage for the Non-Highly Compensated Participant
                           group plus two (2) percentage points. However, for
                           Plan Years beginning after December 31, 1988, to
                           prevent the multiple use of the alternative method
                           described in this paragraph and Code Section
                           401(m)(9)(A), any Highly Compensated Participant
                           eligible to make elective deferrals pursuant to
                           Section 11.2 or any other cash or deferred
                           arrangement maintained by the Employer or an
                           Affiliated Employer and to make Employee
                           contributions or to receive matching contributions
                           under any plan maintained by the Employer or an
                           Affiliated Employer shall have his actual
                           contribution ratio reduced pursuant to Regulation
                           1.401(m)-2. The provisions of Code Section 401(m) and
                           Regulations 1.401(m)-l(b) and 1.401(m)-2 are
                           incorporated herein by reference.

         (b)      For the purposes of this Section and Section 11.7, "Actual
                  Contribution Percentage" for a Plan Year means, with respect
                  to the Highly Compensated Participant group and Non-Highly
                  Compensated Participant group, the average of the ratios
                  (calculated separately for each Participant in each group) of:

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<PAGE>   86

                  (1)      the sum of Employer matching contributions made
                           pursuant to Section 11.1(b) (to the extent such
                           matching contributions are not used to satisfy the
                           tests set forth in Section 11.4), voluntary Employee
                           contributions made pursuant to Section 4.7 and Excess
                           Contributions recharacterized as voluntary Employee
                           contributions pursuant to Section 11.5 on behalf of
                           each such Participant for such Plan Year; to

                  (2)      the Participant's "414(s) Compensation" for such Plan
                           Year.

         (c)      For purposes of determining the "Actual Contribution
                  Percentage" and the amount of Excess Aggregate Contributions
                  pursuant to Section 11.7(d), only Employer matching
                  contributions contributed to the Plan prior to the end of the
                  succeeding Plan Year shall be considered. In addition, the
                  Administrator may elect to take into account, with respect to
                  Employees eligible to have Employer matching contributions
                  made pursuant to Section 11.1(b) or voluntary Employee
                  contributions made pursuant to Section 4.7 allocated to their
                  accounts, elective deferrals (as defined in Regulation
                  1.402(g)-l(b)) and qualified non-elective contributions (as
                  defined in Code Section 401(m)(4)(C)) contributed to any plan
                  maintained by the Employer. Such elective deferrals and
                  qualified non-elective contributions shall be treated as
                  Employer matching contributions subject to Regulation
                  1.401(m)-l(b)(2) which is incorporated herein by reference.
                  However, for Plan Years beginning after December 31, 1988, the
                  Plan Year must be the same as the plan year of the plan to
                  which the elective deferrals and the qualified non-elective
                  contributions are made.

         (d)      For the purpose of determining the actual contribution ratio
                  of a Highly Compensated Employee who is subject to the Family
                  member aggregation rules of Code Section 414(q)(6) because
                  such Employee is either a "five percent owner" of the Employer
                  or one of the ten (10) Highly Compensated Employees paid the
                  greatest "415 Compensation" during the year, the following
                  shall apply:

                  (1)      The combined actual contribution ratio for the family
                           group (which shall be treated as one Highly
                           Compensated Participant) shall be determined by
                           aggregating Employer matching contributions made
                           pursuant to Section 11.1(b) (to the extent such
                           matching contributions are not used to satisfy the
                           tests set forth in Section 11.4), voluntary Employee
                           contributions made pursuant to Section 4.7, Excess
                           Contributions recharacterized as voluntary Employee
                           contributions pursuant to section 11.5 and "414(s)
                           Compensation" of all eligible Family Members
                           (including Highly Compensated Participants). However,
                           in applying the $200,000 limit to "414(s)
                           Compensation" for Plan Years beginning after December
                           31, 1988, Family Members shall include only the
                           affected Employee's spouse and any lineal descendants
                           who have not attained age nineteen (19) before the
                           close of the Plan Year.

                  (2)      The Employer matching contributions made pursuant to
                           Section 11.1(b) (to the extent such matching
                           contributions are not used to satisfy the tests set
                           forth in Section 11.4), voluntary Employee
                           contributions made pursuant to Section 4.7, Excess
                           Contributions recharacterized as voluntary Employee
                           contributions pursuant to Section 11.5 and "414(s)
                           Compensation" of all Family members shall be
                           disregarded for purposes of determining the "Actual
                           Contribution Percentage" of the Non-Highly
                           Compensated Participant group except to the extent
                           taken into account in paragraph (1) above.

                  (3)      If a Participant is required to be aggregated as a
                           member of more than one family group in a plan, all
                           Participants who are members of those family groups
                           that include the

                                                                         Page 85

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 136
<PAGE>   87

                           Participant are aggregated as one family group in
                           accordance with paragraphs (1) and (2) above.

         (e)      For purposes of this Section and Code Sections 401(a)(4),
                  410(b) and 401(m), if two (2) or more plans of the Employer to
                  which matching contributions, Employee contributions, or both,
                  are made are treated as one plan for purposes of Code Sections
                  401(a)(4) or 410(b) (other than the average benefits test
                  under Code Section 410(b)(2)(A)(ii) as in effect for Plan
                  Years beginning after December 31, 1988), such plans shall be
                  treated as one plan. In addition, two (2) or more plans of the
                  Employer to which matching contributions, Employee
                  contributions, or both, are made may be considered as a single
                  plan for purposes of determining whether or not such plans
                  satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such a
                  case, the aggregated plans must satisfy this Section and Code
                  Sections 401(a)(4), 410(b) and 401(m) as though such
                  aggregated plans were a single plan. For plan years beginning
                  after December 31, 1989, plans may be aggregated under this
                  paragraph only if they have the same plan year.

                  Notwithstanding the above, for Plan Years beginning after
                  December 31, 1988, an employee stock ownership plan described
                  in Code Section 4975(e)(7) may not be aggregated with this
                  Plan for purposes of determining whether the employee stock
                  ownership plan or this Plan satisfies this Section and Code
                  Sections 401(a)(4), 410(b) and 401(m).

         (f)      If a Highly Compensated Participant is a Participant under two
                  (2) or more plans (other than an employee stock ownership plan
                  as defined in Code Section 4975(e)(7) for Plan Years beginning
                  after December 31, 1988) which are maintained by the Employer
                  or an Affiliated Employer to which matching contributions,
                  Employee contributions, or both, are made, all such
                  contributions on behalf of such Highly Compensated Participant
                  shall be aggregated for purposes of determining such Highly
                  Compensated Participant's actual contribution ratio. However,
                  for Plan Years beginning after December 31, 1988, if the plans
                  have different plan years, this paragraph shall be applied by
                  treating all plans ending with or within the same calendar
                  year as a single plan.

         (g)      For purposes of Section 11.6(a) and 11.7, a Highly Compensated
                  Participant and a Non-Highly Compensated Participant shall
                  include any Employee eligible to have matching contributions
                  made pursuant to Section 11.1(b) (whether or not a deferred
                  election was made or suspended pursuant to Section 11.2(e))
                  allocated to his account for the Plan Year or to make salary
                  deferrals pursuant to Section 11.2 (if the Employer uses
                  salary deferrals to satisfy the provisions of this Section) or
                  voluntary Employee contributions pursuant to Section 4.7
                  (whether or not voluntary Employee contributions are made)
                  allocated to his account for the Plan Year.

         (h)      For purposes of this Section, "Matching Contribution" shall
                  mean an Employer contribution made to the Plan, or to a
                  contract described in Code Section 403(b), on behalf of a
                  Participant on account of an Employee contribution made by
                  such Participant, or on account of a participant's deferred
                  compensation, under a plan maintained by the Employer.

11.7     ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS

         (a)      In the event that for Plan Years beginning after December 31,
                  1986, the "Actual Contribution Percentage" for the Highly
                  Compensated Participant group exceeds the "Actual Contribution
                  Percentage" for the Non-Highly Compensated Participant group
                  pursuant to Section 11.6(a), the Administrator (on or before
                  the fifteenth day of the third month following the end of the
                  Plan

                                                                         Page 86

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 137
<PAGE>   88

                  Year, but in no event later than the close of the following
                  Plan Year) shall direct the Trustee to distribute to the
                  Highly Compensated Participant having the highest actual
                  contribution ratio, his portion of Excess Aggregate
                  Contributions (and Income allocable to such contributions) or,
                  if forfeitable, forfeit such non-Vested Excess Aggregate
                  Contributions attributable to Employer matching contributions
                  (and Income allocable to such Forfeitures) until either one of
                  the tests set forth in Section 11.6(a) is satisfied, or until
                  his actual contribution ratio equals the actual contribution
                  ratio of the Highly Compensated Participant having the second
                  highest actual contribution ratio. This process shall continue
                  until one of the tests set forth in Section 11.6(a) is
                  satisfied. The distribution and/or Forfeiture of Excess
                  Aggregate Contributions shall be made in the following order:

                  (1)      Employer matching contributions distributed and/or
                           forfeited pursuant to Section 11.5(a)(1);

                  (2)      Voluntary Employee contributions including Excess
                           Contributions recharacterized as voluntary Employee
                           contributions pursuant to Section 11.5(a)(2);

                  (3)      Remaining Employer matching contributions.

         (b)      Any distribution or Forfeiture of less than the entire amount
                  of Excess Aggregate Contributions (and Income) shall be
                  treated as a pro rata distribution of Excess Aggregate
                  Contributions and Income. Distribution of Excess Aggregate
                  Contributions shall be designated by the Employer as a
                  distribution of Excess Aggregate Contributions (and Income).
                  Forfeitures of Excess Aggregate Contributions shall be treated
                  in accordance with Section 4.3. However, no such Forfeiture
                  may be allocated to a Highly Compensated Participant whose
                  contributions are reduced pursuant to this Section.

         (c)      Excess Aggregate Contributions attributable to amounts other
                  than voluntary Employee contributions, including forfeited
                  matching contributions, shall be treated as Employer
                  contributions for purposes of Code Sections 404 and 415 even
                  if distributed from the Plan.

         (d)      For the purposes of this Section and Section 11.6, "Excess
                  Aggregate Contributions" means, with respect to any Plan Year,
                  the excess of:

                  (1)      the aggregate amount of Employer matching
                           contributions made pursuant to Section 11.1(b) (to
                           the extent such contributions are taken into account
                           pursuant to Section 11.6(a)), voluntary Employee
                           contributions made pursuant to Section 4.7, Excess
                           Contributions recharacterized as voluntary Employee
                           contributions pursuant to Section 11.5 and any
                           Qualified Non-Elective Contributions or elective
                           deferrals taken into account pursuant to Section
                           11.6(c) actually made on behalf of the Highly
                           Compensated Participant group for such Plan Year,
                           over

                  (2)      the maximum amount of such contributions permitted
                           under the limitations of Section 11.6(a).

         (e)      For each Highly Compensated Participant, the amount of Excess
                  Aggregate Contributions is equal to the total Employer
                  matching contributions made pursuant to Section 11.1(b) (to
                  the extent taken into account pursuant to Section 11.6(a)),
                  voluntary Employee contributions made pursuant to Section 4.7,
                  Excess Contributions recharacterized as voluntary Employee
                  contributions pursuant to Section 11.5 and any Qualified
                  Non-Elective Contributions or elective deferrals taken

                                                                         Page 87

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 138
<PAGE>   89

                  into account pursuant to Section 11.6(c) on behalf of the
                  Highly Compensated Participant (determined prior to the
                  application of this paragraph) minus the amount determined by
                  multiplying the Highly Compensated Participant's actual
                  contribution ratio (determined after application of this
                  paragraph) by his "414(s) Compensation." The actual
                  contribution ratio must be rounded to the nearest
                  one-hundredth of one percent for Plan Years beginning after
                  December 31, 1988. In no case shall the amount of Excess
                  Aggregate Contribution with respect to any Highly Compensated
                  Participant exceed the amount of Employer matching
                  contributions made pursuant to Section 11.1(b) (to the extent
                  taken into account pursuant to Section 11.6(a)), voluntary
                  Employee contributions made pursuant to Section 4.7, Excess
                  Contributions recharacterized as voluntary Employee
                  contributions pursuant to Section 11.5 and any Qualified
                  Non-Elective Contributions or elective deferrals taken into
                  account pursuant to Section 11.6(c) on behalf of such Highly
                  Compensated Participant for such Plan Year.

         (f)      The determination of the amount of Excess Aggregate
                  Contributions with respect to any Plan Year shall be made
                  after first determining the Excess Contributions, if any, to
                  be treated as voluntary Employee contributions due to
                  recharacterization for the plan year of any other qualified
                  cash or deferred arrangement (as defined in Code Section
                  401(k)) maintained by the Employer that ends with or within
                  the Plan Year or which are treated as voluntary Employee
                  contributions due to recharacterization pursuant to Section
                  11.5.

         (g)      The determination and correction of Excess Aggregate
                  Contributions of a Highly Compensated Participant whose actual
                  contribution ratio is determined under the family aggregation
                  rules shall be accomplished by reducing the actual
                  contribution percentage ratio as required herein and the
                  Excess Aggregate Contributions for the family unit shall be
                  allocated among the Family Members in proportion to the sum of
                  Employer matching contributions made pursuant to Section
                  11.1(b) (to the extent taken into account pursuant to Section
                  11.6(a)), voluntary Employee contributions made pursuant to
                  Section 4.7, Excess Contributions recharacterized as voluntary
                  Employee contributions pursuant to Section 11.5 and any
                  Qualified Non-Elective Contributions or elective deferrals
                  taken into account pursuant to Section 11.6(c) of each Family
                  Member that were combined to determine the group actual
                  contribution ratio.

         (h)      Notwithstanding the above, within twelve (12) months after the
                  end of the Plan Year, the Employer may make a special
                  Qualified Non-Elective Contribution on behalf of Non-Highly
                  Compensated Participants in an amount sufficient to satisfy
                  one of the tests set forth in Section 11.6. Such contribution
                  shall be allocated to the Participant's Qualified Non-Elective
                  Account of each Non-Highly Compensated Participant in the same
                  proportion that each Non-Highly Compensated Participant's
                  Compensation for the year bears to the total Compensation of
                  all Non-Highly Compensated Participants. A separate accounting
                  shall be maintained for the purpose of excluding such
                  contributions from the "Actual Deferral Percentage" tests
                  pursuant to Section 11.4.

         (i)      For purposes of this Section, "Income" means the income or
                  loss allocable to Excess Aggregate Contributions which shall
                  equal the sum of the allocable gain or loss for the Plan Year
                  and the allocable gain or loss for the period between the end
                  of the Plan Year and the date of distribution ("gap period").
                  The income or loss allocable to Excess Aggregate Contributions
                  for the Plan Year and the "gap period" is calculated
                  separately and is determined by multiplying the income or loss
                  for the Plan Year or the "gap period" by a fraction. The
                  numerator of the fraction is the Excess Aggregate
                  Contributions for the Plan Year. The denominator of the
                  fraction is the total Participant's Account and Voluntary
                  Contribution Account attributable to Employer matching
                  contributions subject to Section 11.6, voluntary Employee
                  contributions made pursuant to Section

                                                                         Page 88

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 139
<PAGE>   90

                  4.7, and any Qualified Non-Elective Contributions and elective
                  deferrals taken into account pursuant to Section 11.6(c) as of
                  the end of the Plan Year or the "gap period," reduced by the
                  gain allocable to such total amount for the Plan Year or the
                  "gap period" and increased by the loss allocable to such total
                  amount for the Plan Year or the "gap period."

                  In lieu of the "fractional method" described above, a "safe
                  harbor method" may be used to calculate the allocable Income
                  for the "gap period." Under such "safe harbor method,"
                  allocable Income for the "gap period" shall be deemed to equal
                  ten percent (10%) of the Income allocable to Excess Aggregate
                  Contributions for the Plan Year of the Participant multiplied
                  by the number of calendar months in the "gap period." For
                  purposes of determining the number of calendar months in the
                  "gap period," a distribution occurring on or before the
                  fifteenth day of the month shall be treated as having been
                  made on the last day of the preceding month and a distribution
                  occurring after such fifteenth day shall be treated as having
                  been made on the first day of the next subsequent month.

                  The Income allocable to Excess Aggregate Contributions
                  resulting from recharacterization of Elective Contributions
                  shall be determined and distributed as if such recharacterized
                  Elective Contributions had been distributed as Excess
                  Contributions.

                  Notwithstanding the above, for Plan Years which began in 1987,
                  and for Plan Years beginning on or after the date this Plan is
                  adopted, Income during the "gap period" shall not be taken
                  into account.

11.8     ADVANCE DISTRIBUTION FOR HARDSHIP

         (a)      The Administrator, at the election of the Participant, shall
                  direct the Trustee to distribute to any Participant in any one
                  Plan Year up to the lesser of (1) one-hundred percent (100%)
                  of his accounts as specified in the Adoption Agreement valued
                  as of the last Anniversary Date or other valuation date or (2)
                  the amount necessary to satisfy the immediate and heavy
                  financial need of the Participant. However, no hardship
                  distribution may be made for an amount less than $500.00. Any
                  distribution made pursuant to this Section shall be deemed to
                  be made as of the first day of the Plan Year or, if later, the
                  valuation date immediately preceding the date of distribution,
                  and the account from which the distribution is made shall be
                  reduced accordingly. Withdrawal under this Section shall be
                  authorized only if the distribution is on account of one of
                  the following or any other items permitted by the Internal
                  Revenue Service:

                  (1)      Expenses for medical care described in Code Section
                           213(d) previously incurred by the Participant, his
                           spouse, or any of his dependents (as defined in Code
                           Section 152) or necessary for those persons to obtain
                           medical care;

                  (2)      The purchase (excluding mortgage payments) of a
                           principal residence for the Participant;

                  (3)      Payment of tuition and related educational fees for
                           the next twelve (12) months of post-secondary
                           education for the Participant, his spouse, children,
                           or dependents; or

                  (4)      The need to prevent the eviction of the Participant
                           from his principal residence or foreclosure on the
                           mortgage of the Participant's principal residence.

         (b)      No such distribution shall be made from the Participant's
                  Account until such Account has become fully Vested.

                                                                         Page 89

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 140
<PAGE>   91

         (c)      No distribution shall be made pursuant to this Section unless
                  the Administrator, based upon Participant's representation and
                  such other facts as are known to the Administrator, determines
                  that all of the following conditions are satisfied:

                  (1)      The distribution is not in excess of the amount of
                           the immediate and heavy financial need of the
                           Participant (including any amounts necessary to pay
                           any federal, state, or local taxes or penalties
                           reasonably anticipated to result from the
                           distribution);

                  (2)      The Participant has obtained all distributions, other
                           than hardship distributions, and all nontaxable loans
                           currently available under all plans maintained by the
                           Employer but the Participant need not take a
                           nontaxable loan available to the Participant if
                           taking the loan would only serve to increase the
                           hardship;

                  (3)      The Plan, and all other plans maintained by the
                           Employer, provide that the Participant's elective
                           deferrals and voluntary Employee contributions will
                           be suspended for at least twelve (12) months after
                           receipt of the hardship distribution; and

                  (4)      The Plan, and all other plans maintained by the
                           Employer, provide that the Participant may not make
                           elective deferrals for the Participant's taxable year
                           immediately following the taxable year of the
                           hardship distribution in excess of the applicable
                           limit under Code Section 402(g) for such next taxable
                           year less the amount of such Participant's elective
                           deferrals for the taxable year of the hardship
                           distribution.

         (d)      Notwithstanding the above, distributions from the
                  Participant's Elective Account and Qualified Non-Elective
                  Account pursuant to this Section shall be limited solely to
                  the Participant's Deferred Compensation and any income
                  attributable thereto credited to the Participant's Elective
                  Account as of December 31, 1988.

         (e)      Any distribution made pursuant to this Section shall be made
                  in a manner which is consistent with and satisfies the
                  provisions of Section 6.5, including, but not limited to, all
                  notice and consent requirements of Code Sections 411(a)(11)
                  and 417 and the Regulations thereunder.

                                                                         Page 90

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 141
<PAGE>   92

                        AMENDMENT TO WACHOVIA BANK, N.A.

                       DEFINED CONTRIBUTION PLAN AND TRUST

1.       Article VI of the Plan is amended by the addition of the new subsection
         6.14, effective as of the following date:

         a.       For Plans not entitled to extended reliance as described in
                  Revenue Ruling 94-76, the first day of the first Plan Year
                  beginning on or after December 31, 1994, or if later, 90 days
                  after December 31, 1994; or

         b.       For Plans entitled to extended reliance as described in
                  Revenue Ruling 94-76, as of the first day of the first plan
                  year beginning in 1999. However, in the event of a transfer of
                  assets to the Plan from a money purchase plan that occurs
                  after the date of the most recent determination letter, the
                  effective date of the amendment shall be the date immediately
                  preceding the date of such transfer of assets.

6.14     TRANSFER OF ASSETS FROM A MONEY PURCHASE PLAN

Notwithstanding any provision of this plan to the contrary, to the extent that
any optional form of benefit under this plan permits a distribution prior to the
employee's retirement, death, disability, or severance from employment, and
prior to plan termination, the optional form of benefit is not available with
respect to benefits attributable to assets (including the post-transfer earnings
thereon) and liabilities that are transferred, within the meaning of Section
414(1) of the Internal Revenue Code, to this plan from a money purchase pension
plan qualified under Section 401(a) of the Internal Revenue Code (other than any
portion of those assets and liabilities attributable to voluntary employee
contributions).

2.       Article VI is amended by the addition of the following new subsection
         6.15, effective as of December 12, 1994:

6.15     UNIFORMED SERVICES

Notwithstanding any provision of this plan to the contrary, contributions,
benefit and service credit with respect to qualified military service will be
provided in accordance with Section 414(u) of the Internal Revenue Code.

Loan repayments will be suspended under this plan as permitted under Code
Section 414(u)(4).

Pursuant to the terms of the Plan regarding amendments, Wachovia Bank, N.A., as
the sponsor of the prototype, hereby adopts this amendment as of the date set
forth below.

WACHOVIA BANK, N.A.

By:
   ---------------------------
Title:
      ------------------------
Date:
     -------------------------

                                                                         Page 91

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 142
<PAGE>   93
                                  AMENDMENT TO
                     WACHOVIA BANK OF NORTH CAROLINA, N.A.
                      DEFINED CONTRIBUTION PLAN AND TRUST

1.       Section 1.9 is amended by the addition of the following:

         In addition to other applicable limitations set forth in the plan, and
         notwithstanding any other provision of the plan to the contrary, for
         plan years beginning on or after January 1, 1994, the annual
         compensation of each employee taken into account under the plan shall
         not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual
         compensation limit is $150,000, as adjusted by the Commissioner for
         increases in the cost of living in accordance with Section
         401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
         adjustment in effect for a calendar year applies to any period, not
         exceeding 12 months, over which compensation is determined
         (determination period) beginning in such calendar year. If a
         determination period consists of fewer than 12 months, the OBRA '93
         annual compensation limit will be multiplied by a fraction, the
         numerator of which is the number of months in the determination period,
         and the, denominator of which is 12.

         For plan years beginning on or after January 1, 1994, any reference in
         this plan to the limitation under Section 401(a)(17) of the Code shall
         mean the OBRA '93 annual compensation limit set forth in this
         provision.

         If compensation for any prior determination period is taken into
         account in determining an employee's benefits accruing in the current
         plan year, the compensation for that prior determination period is
         subject to the OBRA '93 annual compensation limit in effect for that
         prior determination period. For this purpose, for determination periods
         beginning before the first day of the plan year beginning on or after
         January 1, 1994, the OBRA '93 annual compensation limit is $150,000.

2.       Section 6.13 is amended by the addition of the following:

         If a distribution is one to which Sections 401 (a)(11) and 417 of the
         Internal Revenue Code, do. not apply, such distribution may commence
         less than 30 days after the notice required under Section 1.411(a)-
         II(c) of the Income Tax Regulations is given, provided that:

         (1)      the plan administrator clearly informs the participant that
                  the participant has a right to a period of at least 30 days
                  after receiving the notice to consider the decision of whether
                  or not to elect a distribution (and, if applicable, a
                  particular distribution option), and

                  (2)      the participant, after receiving the notice,
                           affirmatively elects a distribution.

IN WITNESS WHEREOF, this Declaration of Amendment has been executed in behalf of
all employers adopting the plan by the Bank as of the day and Year first above
stated.

                                                                         Page 92

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 143
<PAGE>   94

WACHOVIA BANK OF NORTH CAROLINA N.A.

By:   /s/
      -----------------------------------
      Senior Vice President

ATTEST:

By:   /s/
      -----------------------------------
      Assistant Secretary

[CORPORATE SEAL]

                                                                         Page 93

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 144
<PAGE>   95

                             ADOPTION AGREEMENT FOR

                               WACHOVIA BANK, N.A.
                         NON-STANDARDIZED PROFIT SHARING
                                 PLAN AND TRUST

         The undersigned Employer adopts Wachovia Bank, N.A. Non-Standardized
Profit Sharing Plan and Trust for those Employees who shall qualify as
Participants hereunder, to be known as the

A1   Bank of Granite Employee's Profit Sharing Retirement Plan and Trust

                                (Enter Plan Name)

It shall be effective as of the date specified below. The Employer hereby
selects the following Plan specifications:

CAUTION: The failure to properly fill out this Adoption Agreement may result in
         disqualification of the Plan.

EMPLOYER INFORMATION

B1   Name of Employer  Bank of Granite
B2   Address       56 North Main Street
                   Granite Falls,            NC                28630
                   -------------------------------------------------
                      City                 State                Zip
     Telephone     828 496-2070

B3   Employer Identification number     56-0132080

B4   Date Business Commenced       October 8, 1906

B5   TYPE OF ENTITY
     a.   ( )  S Corporation
     b.   ( )  Professional Service Corporation
     c.   (X)  Corporation
     d.   ( )  Sole Proprietorship
     e.   ( )  Partnership
     f.   ( )  Other

     AND, is the Employer a member of...
     g.   a controlled group? ( )Yes         (X) No
     h.   an affiliated service group?       ( )         (X)No

     If g. or h. is yes, specify the names of the other members.
--------------------------------------------------------------------------------

Copyright 1994-N Wachovia Bank of North Carolina, N.A.

                                       1

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 145
<PAGE>   96

B6   NAME (S) OF TRUSTEE (s) AND ASSETS FOR WHICH TRUSTEE HAS FIDUCIARY
     AUTHORITY

     Name and  Address:                      Assets:
     a.   Wachovia Bank, N.A.            (X)   all plan assets
          301 N. Main Street                   ( )   all plan assets
          Winston Salem, NC  27150                   except those listed
                                               beside the Trustee
                                               below line (b)

     b.   ____________________________  _____________________

          ____________________________  _____________________

          ____________________________  _____________________

B7   CUSTODIAN'S NAME AND ADDRESS AND ASSETS FOR WHICH
     CUSTODIAN IS RESPONSIBLE:

     Name and Address:                         Description of Assets:
     Wachovia Bank, N.A.                       all plan assets
     301 North Main Street
     Winston-Salem, NC  27150

B8   LOCATION OF EMPLOYER'S PRINCIPAL OFFICE:

     a.   (X) State     b. ( ) Commonwealth of    c.  North Carolina
          and this Plan and Trust shall be governed under the same.

B9   EMPLOYER FISCAL YEAR means the 12 consecutive month period:

     Commencing on a.  January 1st   (e.g., January 1st) and
                       -----------
                       month   day

     Ending on b.  December 31st.
                   -------------
                   month    day

                                       2

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 146
<PAGE>   97

PLAN INFORMATION

C1   EFFECTIVE DATE

     This Adoption Agreement of Wachovia Bank, N.A.
     Non-Standardized Profit Sharing Plan and Trust shall:

     a.   ( )   establish a new Plan effective as of ____

     b.   (X)   constitute an amendment and restatement in its entirety
                of a previously established qualified Plan of the Employer
                which was effective August 1, 1955 (hereinafter called the
                "Effective Date"), Except as specifically provided in the
                Plan, the effective date of this amendment and restatement
                is November 10, 1997 (For TRA '86 amendments, enter the first
                day of the first Plan year beginning in 1989).

C2   PLAN YEAR means the 12 consecutive month period:

     Commencing on a. January 1st       (e.g., January 1st)

     and ending on    b. December 31st.

     IS THERE A SHORT PLAN YEAR?

     c.   (X)   No
     d.   ( )   Yes, beginning ________________________________
                and ending ___________________________________

C3   ANNIVERSARY DATE of Plan (Annual Valuation Date)

     a.  December 31st.
         -------------
         month    day

C4   PLAN NUMBER assigned by the Employer (select one)
     a. (X)   001      b. ( ) 002       c. ( ) 003        d. ( ) Other ______

                                       3

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 147
<PAGE>   98

C5   NAME OF PLAN ADMINISTRATOR (Document provides for the
     Employer to appoint an Administrator. If none is named, the Employer
     will become the Administrator.)

     a.   (X)   Employer         (Use Employer Address)

     b.   ( )   Name _____________________________________

                Address  ( )     Use Employer Address

                __________________________________________

                __________________, _______________  _____
                      City                State       Zip

                Telephone ________________________________

                Administrator's I. D. Number __________________

C6   PLAN'S AGENT FOR SERVICE OF LEGAL PROCESS

     a.   (X)   Employer (Use Employer Address)

     b.   ( )   Name  ________________________________________

                Address  _____________________________________

                                       4

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 148
<PAGE>   99

ELIGIBILITY, VESTING AND RETIREMENT AGE

D1   ELIGIBLE EMPLOYEES (Plan Section 1.16) shall mean:

     a.   (X) all Employees who have satisfied the eligibility requirements
     b.   ( ) all Employees who have satisfied the eligibility requirements
              except those checked below:
          1.    ( )  Employees paid by commissions only.
          2.    ( )  Employees hourly paid.
          3.    ( )  Employees paid by salary.
          4.    ( )  Employees whose employment is governed by a collective
                     bargaining agreement between the Employer and "employee
                     representatives" under which retirement benefits were the
                     subject of good faith bargaining. For this purpose, the
                     term "employee representatives" does not include any
                     organization more than half of whose members are employees
                     who are owners, officers, or executives of the Employer.
          5.    ( )  Highly Compensated Employees
          6.    ( )  Employees who are non-resident aliens who received no
                     earned income (within the meaning of Code Section 911 (d)
                     (2)) from the Employer which Constitutes income from
                     sources within the United States (within the meaning of
                     Code Section 861 (a)(3)).
          7.    ( )  Other. ________

         NOTE:  For purposes of this section, the term Employee shall include
                all Employees of this Employer and any leased Employees deemed
                to be Employees under Code Section 414 (n) or 414 (o).

D2   EMPLOYEES OF AFFILIATED EMPLOYERS (Plan Section 1.17)

Employees of Affiliated Employer:

     a.   (X)   will not or N/A
     b.   ( )   will

     be treated as Employees of the Employer adopting the Plan.

NOTE:    If D2b is elected, each Affiliated Employer should Execute this
         Adoption Agreement as a Participating Employer.

                                       5

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 149
<PAGE>   100

D3   HOURS OF SERVICE (Plan Section 1.32) will be determined on the basis of
     the method selected below. Only one method may be selected. The method
     selected will be applied to all employees covered under the Plan.

     a.   (X)   On the basis of actual hours for which an Employee is paid or
                entitled to payment.
     b.   ( )   On the basis of days worked. An Employee will be credited with
                ten (10) Hours of Service if under the Plan such Employee would
                be credited with at least One (1) Hour of Service during the
                day.
     c.   ( )   On the basis of weeks worked. An Employee will be credited with
                forty-five (45) Hours of Service if under the Plan such Employee
                would be credited with at least one (1) Hour of Service during
                the week.
     d.   ( )   On the basis of semi-monthly payroll periods. An Employee will
                be credited with ninety-five (95) Hours of Service if under the
                Plan such Employee would be credited with at least one (1) Hour
                of Service during the semi-monthly payroll period.
     e.   ( )   On the basis of months worked. An Employee will be credited with
                one hundred ninety (190) Hours of service if under the Plan such
                Employee would be credited with at least one (1) Hour of Service
                during the month.

                                       6

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 150
<PAGE>   101

D4   CONDITIONS OF ELIGIBILITY (Plan Section 3.1)
     (Check either a OR b and c, and if applicable, d)

     Any Eligible Employee will be eligible to participate in the Plan if such
     Eligible Employee has satisfied the service and age requirements, if any,
     specified below:

     a.    ( )  NO AGE OR SERVICE REQUIRED

     b.    (X)  SERVICE REQUIREMENT (may not exceed 2 years; if more than one
                Year of Service is required, 100% immediate vesting is
                mandatory).

           1.   (X)   None
           2.   ( )   1/2 Year of Service
           3.   ( )   1 Year of Service
           4.   ( )   1 1/2 Years of Service
           5.   ( )   2 Years of Service
           6.   ( )   Other __________

NOTE:    If the Year(s) of Service selected is or includes a fractional year, an
         Employee will not be required to complete any specified number of Hours
         of Service to receive credit for such fractional year. If expressed in
         Months of Service, an Employee will not be required to complete any
         specified number of Hours of service in a particular month.

     c.    (X)  AGE REQUIREMENT (may not exceed 21)

           1.   ( ) N/A - No Age Requirement.
           2.   ( ) 20 1/2
           3.   ( ) 21
           4.   (X) Other 18

     d.    ( )  FOR NEW PLAN ONLY - Regardless of any of the above age or
                service requirements, any Eligible Employee who was employed
                on the Effective Date of the Plan shall be eligible to
                participate hereunder and shall enter the Plan as of such
                date. (This option may not be selected if more than one (1)
                Year of Service is required above.)

                                       7

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 151
<PAGE>   102

D5   EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2)
An Eligible Employee shall become a Participant as of:

     a.    (X)  the first day of the Plan Year in which he met the requirements.
     b.    ( )  the first day of the Plan year in which he met the requirements,
                if he met the requirements in the first 6 months of the Plan
                Year, or as of the first day of the next succeeding Plan year
                if he met the requirements in the last 6 months of the Plan
                Year.
     c.    ( )  the earlier of the first day of the seventh month or the first
                day of the Plan Year coinciding with or next following the
                date on which he met the requirements.
     d.    ( )  the first day of the Plan year next following the date on which
                he met the requirements. (Eligibility must be 1/2 Year of
                service or less or 1 1/2 Years of Service or less if 100%
                immediate vesting is selected and age 20 1/2 or less.)
     e.    ( )  the first day of the month coinciding with or next following the
                date on which he met the requirements.
     f.    ( )  Other:   ___________________________, provided that an Employee
                who has satisfied the maximum age and service requirements
                that are permissible in Section D4 above and who is otherwise
                entitled to participate, shall commence participation no later
                than the earlier of (a) 6 months after such requirements are
                satisfied, or (b) the first day of the first Plan Year after
                such requirements are satisfied, unless the Employee separates
                from service before such participation date.

                                       8

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 152
<PAGE>   103

D6   VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b))

     The vesting schedule, based on number of Years of Service, shall be as
     follows:

     a.    ( )  100% upon entering Plan.  (Required if eligibility requirement
                is greater than one (1) Year of Service.)

     b.    ( )  0-2 years     0%          c.    ( )  0-4 years     0%
                  3 years   100%                       5 years   100%

     d.    ( )  0-1 year      0%          e.    ( )    1 year     25%
                  2 years    20%                       2 years    50%
                  3 years    40%                       3 years    75%
                  4 years    60%                       4 years   100%
                  5 years    80%
                  6 years   100%

     f.    ( )    1 year     20%           g.   (X)  0-2 years     0%
                  2 years    40%                       3 years    20%
                  3 years    60%                       4 years    40%
                  4 years    80%                       5 years    60%
                  5 years   100%                       6 years    80%
                                                       7 years   100%

     h.    ( )  Other - Must be at least as liberal as either c or g above.

                Years of Service          Percentage

                ________________          __________

                ________________          __________

                ________________          __________

                ________________          __________

                ________________          __________

                ________________          __________

                                       9

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 153
<PAGE>   104

D7   FOR AMENDED PLANS (Plan Section 6.4(f))  If the vesting schedule has been
     amended to a less favorable schedule, enter the pre-amended schedule
     below:

     a.    (X)  Vesting schedule has not been amended or amended schedule is
                more favorable in all years.

     b.    ( )  Years of Service          Percentage

                ________________          __________

                ________________          __________

                ________________          __________

                ________________          __________

                ________________          __________

                ________________          __________

D8   TOP HEAVY VESTING (Plan Section 6.4 (c)) If this Plan becomes a Top Heavy
     Plan, the following vesting schedule, based on number of Years of Service,
     for such Plan Year and each succeeding Plan Year, whether or not the Plan
     is a Top Heavy Plan, shall apply and shall be treated as a Plan amendment
     pursuant to this Plan. Once effective, this schedule shall also apply to
     any contributions made prior to the effective date of Code Section 416
     and/or before the Plan became a Top Heavy Plan.

     a.    ( )  N/A (D6a, b, d, e or f was selected)

     b.    (X)  0-1 years    0%          c.    ( )   0-2 years     0%
                  2 years   20%                        3 years   100%
                  3 years   40%
                  4 years   60%
                  5 years   80%
                  6 years  100%

     NOTE:   This section does NOT apply to the Account balances of any
             Participant who does not have an Hour of Service after the Plan
             has initially become top heavy. Such Participant's Account
             balance attributable to Employer contributions and Forfeitures
             will be determined without regard to this section.

                                       10

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 154
<PAGE>   105

D9   VESTING (Plan Section 6.4 (h)) In determining Years of Service for vesting
     purposes, years of Service attributable to the following shall be EXCLUDED:

     a.    ( )  Service prior to the Effective Date of the Plan or a
                predecessor plan.         b.    (X)    N/A
     c.    (X)  Service prior to the time an Employee attained
                age 18                    d.    ( )    N/A

D10  PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER

     a.    (X)  No.
     b.    ( )  Yes: Years of Service with ____ shall be recognized for the
                purpose of this plan.
     NOTE:      If the predecessor Employer maintained this qualified Plan, then
                Years of Service with such predecessor Employer shall be
                recognized pursuant to Section 1.75, and b. must be marked.

D11  NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.43) means:

     a.    (X)  the date a participant attains his  65th birthday.
                (not to exceed 65th)
     b.    ( )  the later of the date a Participant attains his ___ birthday
                (not to exceed 65th) or the c. __ (not to exceed 65th)
                anniversary of the first day of the Plan Year in which
                participation in the Plan commenced.

D12  NORMAL RETIREMENT DATE (Plan Section 1.44) shall commence:

     a.    (X)  as of the Participant's "NRA."

     OR    (must select b. or c. AND 1. or 2.)

     b.    ( )  as of the first day o the month...
     c.    ( )  as of the Anniversary Date...
           1.   ( )   coinciding with or next following the Participant's "NRA".
           2.   ( )   nearest the Participant's "NRA".

D13  EARLY RETIREMENT DATE (Plan Section 1.13) means the:

     a.    ( )  No early Retirement provision provided
     b.    (X)  Date on which a Participant...
     c.    ( )  First day of the month coinciding with or next following the
                date on which a Participant
     d.    ( )  Anniversary Date coinciding with or next following the date on
                which a Participant...
     AND, if b, c or d was selected....
           1.   (X)   attains his 50th birthday and has
           2.   (X)   completed at least 7 years of Service.

                                       11

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 155
<PAGE>   106

CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS

E1   a.    COMPENSATION (Plan Section 1.9) with respect to any Participant
           means:

           1.   (X)   Wages, tips and other Compensation on Form W2

           2.   ( )   Code Section 3401 (a) wages

           3.   ( )   415 Safe-Harbor compensation

     b.    COMPENSATION shall be

           1.   (X)   actually paid (must be selected if Plan is integrated)
           2.   ( )   accrued

     c.    HOWEVER, for non-integrated plans, Compensation shall exclude
           (selected all that apply):

           1.   (X)   N/A.  No exclusions.
           2.   ( )   overtime
           3.   ( )   bonuses
           4.   ( )   commissions
           5.   ( )   other

     d.    FOR PURPOSES OF THIS SECTION E1, Compensation shall be based on :

           1.   (X)   the Plan Year
           2.   ( )   the Fiscal year coinciding with or ending within Plan Year
           3.   ( )   the Calendar Year coinciding with or ending within the
                      Plan year
     NOTE:      The Limitation Year shall be the same as the year on which
                Compensation is based.

     e.    HOWEVER, for an Employee's first year of participation, Compensation
           shall be recognized as of:

           1.   ( )   the first day of the Plan Year
           2.   (X)   the date the Participant entered the Plan.

     f.    IN ADDITION, COMPENSATION

           1.   (X) shall 2. ( ) shall not include compensation which is not
           currently includible in the Participant's gross income by reason
           of the application of Code Sections 125, 402(a)(8), 402 (h) (1)
           (B) or 403 (b).

                                       12

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 156
<PAGE>   107

E2   FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
         (Plan Section 4.1)

     a.    (X)  Discretionary, out of current or accumulated Net Profits, to be
                determined by the Employer.
     b.    ( )  Discretionary, not limited to Net Profits, to be determined by
                the Employer.

E3   CONTRIBUTION ALLOCATIONS (Plan Section 4.3)

     a.    (X)  FOR A NON-INTEGRATED PLAN

     The Employer contribution for the Plan Year shall be allocated to all
     participants eligible to share in the allocations in the same proportion
     that each participant's Compensation bears to the total Compensation of all
     participants for such year.

     b.    ( )  FOR AN INTEGRATED PLAN

     The total Employer Contribution for the Plan Year shall be allocated in
     Accordance with Plan Section 4.3(b)(2) based on a Participant's
     Compensation in excess of:

     c.    ( )  The Taxable Wage Base.
     d.    ( )  The greater of $10,000 or 20% of the Taxable Wage Base.
     e.    ( )  ____% of the Taxable Wage Base.  (see Note Below)
     f.    ( )  $______. (see Note below)

     NOTE:      The integration percentage of 5.7% shall be reduced to:

           1. 4.3% if e. or f. above is more than 20% and less than or equal to
              80% of Taxable Wage Base.
           2. 5.4% if e. or f. above is less than 100% and more than 80% of
              Taxable Wage Base.

E4   FORFEITURES (Plan Section 4.3 (e)

     a.    ( )  Forfeitures shall be added to the Employer's contribution under
                the Plan

     b.    (X)  Forfeitures shall be allocated to all Participants eligible to
                share in the allocations in the same proportion that each
                Participant's Compensation for the year bears to the
                Compensation of all Participants for such year.

                                       13

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 157
<PAGE>   108

E5   ALLOCATIONS TO ACTIVE PARTICIPANTS (Plan Section 4.3)
     For Plan years beginning after 1989, a Participant . . .

     a.    (X)  shall (Plan could become discriminatory)
     b.    ( )  shall not

     be required to complete a Year of Service in order to share in any
     Contributions or Forfeitures (if reallocated). For plan years beginning
     before 1990, the Plan provides that a Participant must complete a Year of
     Service to share in the allocations.

E6   ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.3(k)) Any
Participant who terminated employment during the Plan Year for reasons other
than death, total and permanent disability or retirement:

     a.    For Plan Years beginning after 1989 . . .

           1.   ( )   shall share in the allocations of Contribution and
                      Forfeitures provided such Participant completed more than
                      500 Hours of Service.
           2.   ( )   shall share in the allocations of Contributions and
                      Forfeitures provided such participant completed a Year of
                      Service
           3.   (X)   shall not share in the allocations of Contributions and
                      Forfeitures regardless of Hours of Service.

     b.    For Plan Years beginning prior to 1990 . . .

           1.   (X)   N/A, new Plan, or same as for Plan Years beginning after
                      1989.
           2.   ( )   shall share in the allocations of Contributions and
                      Forfeitures provided such Participant completed a Year of
                      Service.
           3.   ( )   shall not share in the allocations of Contributions and
                      Forfeitures regardless of Hours of Service.

     NOTE:      If a.2 or a.3 is chosen, the plan could violate minimum
                Participation and coverage requirements under Code Sections
                401(a)(26) and 410.

                                       14

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 158
<PAGE>   109

E7   LIMITATIONS ON ALLOCATIONS (Plan Section 4.4)

     a.   If any Participant is or was covered under another qualified defined
          contribution plan maintained by the Employer, other than a Master or
          Prototype Plan, or if the Employer maintains a welfare benefit fund,
          as defined in Code Section 419(e), or an individual medical account,
          in Code Section 415 (1)(2), under which amounts are treated as Annual
          Additions with respect to any Participant in this Plan:

          1.    (X)   N/A.

          2.    ( )   The provisions of Section 4.4(b) of the Plan will apply as
                      if the other plan were a Master or Prototype Plan.

          3.    ( )   Provides the method under which the Plans will limit total
                      Annual Additions to the Maximum Permissible Amount, and
                      will properly reduce any Excess Amounts, in a manner that
                      precludes Employer discretion.

     _________________________________________________

     _________________________________________________

     b.   If any Participant is or ever has been a Participant in a defined
          benefit plan maintained by the Employer:

          1.    (X)   N/A

          2.    ( )   In any Limitation Year, the Annual Additions credited to
                      the Participant under this Plan may not cause the sum of
                      the Defined Contribution Fraction to exceed 1.0. If the
                      Employer's contribution that would otherwise be made on
                      the Participant's behalf during the limitation year would
                      cause the 1.0 limitation to be exceeded, the rate of
                      contribution under the Defined Benefit Plan will be
                      reduced so that the sum of the fractions equals 1.0. If
                      the 1.0 limitation is exceeded because of an Excess
                      Amount, such Excess Amount will be reduced in accordance
                      with Section 4.4 (a)(4) of the Plan.

          3.    ( )   Provide the method under which the Plans involved will
                      satisfy the 1.0 limitation in a manner that precludes
                      Employer discretion.

     _________________________________________________

     _________________________________________________

                                       15

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 159

<PAGE>   110

E8   DISTRIBUTIONS UPON DEATH (Plan Section 6.6 (h)) Distributions upon the
     death of a Participant prior to receiving any benefits shall . . .

     a.   (X) be made pursuant to the election of the Participant or beneficiary
     b.   ( ) begin within 1 year of death for a designed beneficiary and be
              payable over the life (or over a period not exceeding the life
              expectancy) of such beneficiary, except that if the beneficiary is
              the Participant's spouse, begin within the time the Participant
              would have attained age 70 1/2.
     c.   ( ) be made within 5 years of death for all beneficiaries
     d.   ( ) other _______

E9   LIFE EXPECTANCIES (Plan Section 6.5 (f)) for minimum distributions required
     pursuant to Code Section 401(a)(9) shall . . .

     a.   ( ) be recalculated at the Participant's election.
     b.   (X) be recalculated.
     c.   ( ) not be recalculated

E10  CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION
     Distributions upon termination of employment pursuant to Section 6.4(a) of
     the Plan shall note be made unless the following conditions have been
     satisfied:

     a.   (X) N/A. Immediate distributions may be made at the Participant's
              election
     b.   ( ) The Participant has incurred ___ 1-Year Break(s) in Service.
     c.   ( ) The Participant has reached her or her Early or Normal Retirement
              Age.
     d.   ( ) Distributions may be made at the participant's election on or
              after the Anniversary Date following termination of employment
     e.   ( ) Other ____

                                       16

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 160
<PAGE>   111

E11  FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6) Distributions under the
     Plan may be made . . .

     a.   1.   ( ) in lump sums
          2.   (X) in lump sums or installments

     b.   AND, pursuant to Plan section 6.13,

          1.   (X) no annuities are allowed (avoids Joint and Survivor rules).
          2.   ( ) annuities are allowed (Plan Section 6.13 shall not apply.

     NOTE: b.1. above may not be elected if this is an amendment to a plan which
           permitted annuities as a form of distributions or if this Plan has
           accepted a plan to plan transfer (but not a direct rollover) of
           assets from a plan which permitted annuities as a form of
           distribution.

     c.   AND may be made in . . .

          1.   (X) cash only (except for insurance or annuity contracts).
          2.   ( ) cash or property

                                       17

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 161
<PAGE>   112

TOP HEAVY REQUIREMENTS

F1   TOP HEAVE DUPLICATIONS ( Plan Section 4.3(i)): When a Non-Key Employee is a
     Participant in this Plan and a Defined Benefit Plan maintained by the
     Employer, indicate which method shall be utilized to avoid duplication of
     top heavy minimum benefits.

     a.   (X) The Employer does not maintain a Defined Benefit Plan
     b.   ( ) A minimum, non-integrated contribution of 5% of each Non-Key
              Employee's total Compensation shall be provided in this Plan, as
              specified in Section 4.3(i). (The Defined Benefit and Defined
              Contribution Fractions will be computed using 100% if this choice
              is selected.)
     c.   ( ) A minimum, non-integrated contribution of 7 1/2% of each Non-Key
              Employee's total Compensation shall be provided in this Plan, as
              specified in Section 4.3(i). (If this choice is selected, the
              Defined Benefit and Defined Contribution Fractions will be
              computed using 125% for all Plan Years in which the Plan is Top
              Heavy, but not Super Top Heavy.)
     d.   ( ) Specify the method under which the Plans will provide top heavy
              minimum benefits for Non-Key Employees that will preclude
              Employer discretion and avoid inadvertent omissions, including
              any adjustments required under Code Section 415(e).

     ________________________________________________________

     ________________________________________________________

     ________________________________________________________

                                       18

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 162
<PAGE>   113

F-2  PRESENT VALUE OF ACCRUED BENEFIT (Plan Section 2.2) for Top Heavy purposes
     where the Employer maintains a Defined Benefit Plan in addition to the
     Plan, shall be based on...

     a.   (X) N/A. The employer does not maintain a defined benefit plan

     b.   ( ) Interest Rate: ______

              Mortality Rate:  ______

F3   TOP HEAVY DUPLICATIONS: Employer maintaining two (2) or more Defined
     Contribution Plans.

     a.   (X) N/A.

     b.   ( ) A minimum, non-integrated contribution of 3% of each Non-Key
              Employee's total Compensation shall be provided in the Money
              Purchase Plan (or other plan subject to Code Section 412), where
              the Employer maintains two (2) or more non-paired Defined
              Contribution Plans.

     c.   ( ) Specify the method under which the Plans will provide top heavy
              minimum benefits for Non-Key Employees that will preclude
              Employer discretion and avoid inadvertent omissions, including
              any adjustments required under Code Section 415 (e).

     ________________________________________________________

     ________________________________________________________

     ________________________________________________________

                                       19

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 163
<PAGE>   114

MISCELLANEOUS

G1   LOANS TO PARTICIPANTS (Plan Section 7.4)

     a.   ( ) Yes, loans may be made up to $50,000 or 1/2 vested interest.
     b.   (X) No, loans may not be made.

     If   YES, (check all that apply)

     c.   ( ) loans shall be treated as a Directed Investment.
     d.   ( ) loans shall only be made for hardship or financial necessity.
     e.   ( ) the minimum loan shall be $1,000
     f.   ( ) $10,000 de minimis loans may be made regardless of Vested
              interest. (If selected, Plan may need security in addition to
              Vested interest.)

     NOTE: Department of Labor Regulations require the adoption of a separate
           written loan program setting forth the requirements outlined in Plan
           Section 7.4

G2   DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.8) are permitted for the
interest in any one or more accounts.

     a.   (X) Yes, regardless of the Participant's Vested interest in the Plan.
     b.   ( ) Yes, but only with respect to the Participant's Vested interest in
              the Plan.
     c.   ( ) Yes, but only with respect to those accounts which are 100%
              vested.
     d.   ( ) No directed investments are permitted.

G3   TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.6)

     a.   ( ) Yes, transfers from qualified plans (and rollovers) will be
              allowed.
     b.   (X) No, transfers from qualified plans (and rollovers) will not be
              allowed.

     AND, transfers shall be permitted . . .

     c.   ( ) from any Employee, even if not a Participant
     d.   ( ) from Participants only.

                                       20

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 164
<PAGE>   115

G4   HARDSHIP DISTRIBUTIONS (Plan Section 6.11)

     a.   (X) Yes, hardship distributions may be made from any accounts which
              are 100% vested.
     b.   ( ) No hardship distributions are permitted.

G5   PRE-RETIREMENT DISTRIBUTION (Plan Section 6.10)

     a.   ( ) If a Participant has reached the age of ____, distributions may be
              made, at the Participant's election, from any accounts which are
              100% Vested without requiring the Participant to terminate
              employment.
     b.   (X) No pre-retirement distribution may be made.

G6   LIFE INSURANCE (Plan Section 7.2 (e)) may be purchased with Plan
     Contributions.

     a.   (X) No life insurance may be purchased.
     b.   ( ) Yes, at the option of the Administrator
     c.   ( ) Yes, at the option of the Participant.

     AND, the purchase of initial or additional life insurance shall be subject
     to the following limitations: (select all that apply):

     d.   ( ) N/A, no limitations.
     e.   ( ) each initial Contract shall have a minimum face amount of $______.
     f.   ( ) each additional Contract shall have a minimum face amount of
              $______.
     g.   ( ) the Participant has completed _____ Years of Service
     h.   ( ) the Participant has completed _____ Years of Service while a
              Participant in the Plan.
     i.   ( ) the participant is under age _____ on the Contract issue date.
     j.   ( ) the maximum amount of all Contracts on behalf of a Participant
              shall not exceed $______.
     k.   ( ) the maximum face amount of life insurance shall be $______.

                                       21

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 165
<PAGE>   116

The adopting Employer may not relay on an opinion letter issued by the National
Office of the Internal Revenue Service as evidence that the plan is qualified
under Code Section 401. In order to obtain reliance with respect to plan
qualification, the Employer must apply to the appropriate Key District Office
for a determination letter.

This Adoption Agreement may be used only in conjunction with basic Plan document
#01. This Adoption Agreement and the basic Plan document shall together be known
as the Wachovia Bank, N.A. Non-Standardized Profit Sharing Plan and Trust
#01-001.

The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisers.

Wachovia Bank, N. A. will notify the Employer of any amendments made to the Plan
or of the discontinuance or abandonment of the Plan provided this Plan has been
acknowledged by Wachovia Bank, N.A. or its authorized representative.
Furthermore, in order to be eligible to receive such notification, we agree to
notify Wachovia Bank, N.A. of any change in address.

                                       22

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 166
<PAGE>   117

IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be
executed on the 31st day of December, 1996. Furthermore, this Plan may not be
used unless acknowledged by Wachovia Bank, N.A. or its authorized
representative.

EMPLOYER:                                   TRUSTEE:

BANK OF GRANITE                             WACHOVIA BANK, N.A.

By:  /s/ John A. Forlines, Jr.              By:  /s/
     -------------------------                   -------------------------------

PARTICIPATING EMPLOYER:

       Bank of Granite
------------------------------
        (enter name)

By:  /s/ John A. Forlines, Jr.
     -------------------------

This Plan may not be used, and shall not be deemed to be a Prototype Plan,
unless an authorized representative of Wachovia Bank, N.A. has acknowledged the
use of the Plan. Such acknowledgement is for administerial purposes only. It
acknowledges that the Employer is using the Plan but does not represent that
this Plan, including the choices selected on the Adoption Agreement, has been
reviewed by a representative of the sponsor or constitutes a qualified
retirement plan.

WACHOVIA BANK, N.A.

By:  /s/
     -------------------------

With regard to any questions regarding the provisions of the Plan, adoption of
the Plan, or the effect of an opinion letter from the IRS, call or write (this
information must be completed by the sponsor of this Plan or its designated
representative):

Name      _____________________________________________________

Address   _____________________________________________________

Telephone (   )________________________________________________

                                       23

Bank of Granite Corporation, Form 10-K, December 31, 2000, Page 167

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