SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[ ] Preliminary Proxy Statement

[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

South Street Financial Corp.
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(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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SOUTH STREET FINANCIAL CORP.
============================

P. O. BOX 489
155 WEST SOUTH STREET
ALBEMARLE, NORTH CAROLINA 28001
(704) 982-9184

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 15, 1997.

NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the stockholders of South Street Financial Corp. (the "Company") will be held on
October 15, 1997 at 2:00 p.m., Eastern Time, at the office of the Company at 155
West South Street, Albemarle, North Carolina 28001.

The Special Meeting is for the purpose of considering and voting upon the
following matters:

1. To approve the South Street Financial Corp. Stock Option Plan;

2. To approve the Home Savings Bank of Albemarle, Inc., S.S.B. Management
Recognition Plan.

The Board of Directors has established August 29, 1997 as the record date
for the determination of stockholders entitled to notice of and to vote at the
Special Meeting and at any adjournments thereof. In the event there are not
sufficient shares present in person or by proxy to constitute a quorum at the
time of the Special Meeting, the Special Meeting may be adjourned in order to
permit further solicitation of proxies by the Company.

By Order of the Board of Directors

/s/ R. Ronald Swanner

R. Ronald Swanner
Secretary
Albemarle, North Carolina
September 11, 1997

A FORM OF PROXY IS ENCLOSED TO ENABLE YOU TO VOTE YOUR SHARES AT THE SPECIAL
MEETING. YOU ARE URGED, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, TO
COMPLETE, SIGN, DATE AND RETURN THE PROXY PROMPTLY. A RETURN ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR YOUR
CONVENIENCE.

SOUTH STREET FINANCIAL CORP.
============================
P. O. BOX 489
155 WEST SOUTH STREET
ALBEMARLE, NORTH CAROLINA 28001
(704) 982-9184

PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
OCTOBER 15, 1997

SOLICITATION AND VOTING OF PROXIES

This Proxy Statement is being furnished to stockholders of South Street
Financial Corp. (the "Company") in connection with the solicitation by the board
of directors of the Company (the "Board of Directors") of proxies to be used at
a special meeting of stockholders (the "Special Meeting") to be held on October
15, 1997 at 2:00 p.m., Eastern Time, at the office of the Company at 155 West
South Street, Albemarle, North Carolina, and at any adjournments thereof. This
Proxy Statement and the accompanying form of proxy were first mailed to
stockholders on or about September 12, 1997. The Company's office is located at
155 West South Street, Albemarle, North Carolina, 28001, and its telephone
number is (704) 982-9184.

REGARDLESS OF THE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK (THE
"COMMON STOCK") OWNED, IT IS IMPORTANT THAT STOCKHOLDERS BE PRESENT IN PERSON OR
REPRESENTED BY PROXY AT THE SPECIAL MEETING. STOCKHOLDERS ARE REQUESTED TO VOTE
BY COMPLETING, SIGNING, DATING AND RETURNING THE ENCLOSED PROXY IN THE PROVIDED
POSTAGE-PAID ENVELOPE. Any stockholder may vote for, against, or abstain with
respect to any matter to come before the Special Meeting. If the enclosed proxy
is properly completed, signed, dated, and returned, and not revoked, it will be
voted in accordance with the instructions therein. If the proxy is returned
with no instructions given, the proxy will be voted FOR approval of the South
---
Street Financial Corp. Stock Option Plan (the "Stock Option Plan") and the Home
Savings Bank of Albemarle, Inc., S.S.B. Management Recognition Plan (the
"Management Recognition Plan" or the "MRP"). If instructions are given with
respect to one but not both proposals, (i) such instructions as are given will
be followed and (ii) the proxy will be voted FOR the Stock Option Plan or the
---
MRP if no instructions on either such proposal are given.

Other than the matters listed on the attached Notice of Special Meeting of
Stockholders, the Board of Directors knows of no matters that will be presented
for consideration at the meeting. Execution of a proxy, however, confers on the
designated proxy holders discretionary authority to vote the shares represented
thereby in accordance with their best judgment on such other business, if any,
that may properly come before the Special Meeting or any adjournments thereof.

A proxy may be revoked at any time prior to its exercise by the filing of a
written notice of revocation with the Secretary of the Company, by delivering to
the Company a duly executed proxy bearing a later date, or by attending the
Special Meeting and voting in person. However, if you are a beneficial owner of
shares of the Company's outstanding Common Stock that are not registered in your
own name, you

will need appropriate documentation from the holder of record of your shares to
vote personally at the Special Meeting.

The Company will pay the cost of preparing, assembling and mailing this
Proxy Statement and other proxy solicitation expenses, if any. In addition to
the use of the mail, proxies may be solicited personally or by telephone by
directors, officers and regular employees of the Company and its wholly-owned
savings bank subsidiary, Home Savings Bank of Albemarle, Inc., S.S.B. (the
"Bank"), without additional compensation therefor. The Company has also
retained Regan & Associates, Inc. as independent proxy solicitors to assist in
the solicitation of proxies to be voted at the Special Meeting. The Company
will pay any cost associated with retaining independent proxy solicitors. Such
cost is not expected to exceed $6,000. The Company also will require brokerage
houses and nominees to forward these proxy materials to the beneficial owners of
shares held of record by such persons and, upon request, the Company will
reimburse such persons for their reasonable out-of-pocket expenses in doing so.

PURPOSES OF SPECIAL MEETING

The Special Meeting is for the purpose of considering and voting upon the
following matters:

1. To approve the Stock Option Plan; and

2. To approve the Management Recognition Plan.

VOTING SECURITIES

The close of business on August 29, 1997 has been fixed by the Board of
Directors as the record date ("Record Date") for the determination of those
stockholders of record entitled to notice of and to vote at the Special Meeting
and any adjournments thereof. As of the Record Date, the Company had
outstanding 4,496,500 shares of Common Stock. Each share of Common Stock
entitles its owner to one vote on each matter calling for a vote of stockholders
at the Special Meeting.

The presence, in person or by proxy, of the holders of at least a majority
of shares of Common Stock entitled to vote at the Special Meeting is necessary
to constitute a quorum at the Special Meeting. Since many of our stockholders
cannot attend the Special Meeting, it is necessary that a large number be
represented by proxy. Accordingly, the Board of Directors has designated
proxies to represent those stockholders who cannot be present in person and who
desire to be so represented. In the event there are not sufficient stockholders
present, in person or by proxy, to constitute a quorum or to approve or ratify
any proposal at the time of the Special Meeting, the Special Meeting may be
adjourned in order to permit the further solicitation of proxies.

The Stock Option Plan and the MRP will be approved if the votes cast in
favor of the Stock Option Plan and the MRP exceed the votes cast opposing such
plans.

Abstentions will be counted for purposes of determining whether a quorum is
present at the Special Meeting. Abstentions will not be counted in tabulating
the votes cast on either proposal submitted to the stockholders. Broker non-
votes will not be counted either for determining the existence of a quorum or
for tabulating votes cast on either proposal.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires that any person who acquires the beneficial ownership of more than 5%
of the Common Stock of the Company notify the Securities and Exchange Commission
(the "SEC") and the Company. The table below contains certain information, as
of the Record Date, regarding all persons or "groups", as defined in the
Exchange Act, who held of record or who are known to the Company to own
beneficially more than 5% of the Company's Common Stock.

AMOUNT AND
NATURE OF PERCENTAGE
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP/1/ CLASS/2/
- --------------------------- ------------ -----------

Caldwell A. Holbrook, Jr. 361,720/3/ 8.04%
1700 Bellamy Circle
Albemarle, NC 28001

Joel A. Huneycutt 374,720/4/ 8.33%
P. O. Box 167
Renee Ford Road
Locust, NC 28097

Douglas Dwight Stokes 380,777/5/ 8.47%
1009 Ridge Street
Albemarle, NC 28001
Greg E. Underwood 369,720/6/ 8.22%
32283-B Austin Road
New London, NC 28127

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/1/ Unless otherwise noted, all shares are owned directly or indirectly by the
named individuals, by their spouses and minor children, or by other entities
controlled by the named individuals.

/2/ Based upon a total of 4,496,500 shares of Common Stock outstanding at the
Record Date.

/3/ Mr. Holbrook serves as a trustee of the Home Savings Bank of Albemarle,
Inc., S.S.B. Employee Stock Ownership Plan (the "ESOP") which holds 359,720
shares of the Company's Common Stock. The trustees of such plan share certain
voting and investment power of such shares.

/4/ Mr. Huneycutt serves as a trustee of the ESOP which holds 359,720 shares of
the Company's Common Stock. The trustees of such plan share certain voting and
investment power of such shares. This number also includes 1,737 shares held by
Mr. Huneycutt's wife. Mr. Huneycutt disclaims beneficial ownership of such
shares.

/5/ Mr. Stokes serves as a trustee of the ESOP which holds 359,720 shares of the
Company's Common Stock. The trustees of such plan share certain voting and
investment power of such shares.

/6/ Mr. Underwood serves as a trustee of the ESOP which holds 359,720 shares of
the Company's Common Stock. The trustees of such plan share certain voting and
investment power of such shares.

Set forth below is certain information, as of the Record Date, regarding
those shares of Common Stock owned beneficially by each of the members of the
Board of Directors, each of the members of the board of directors of the Bank,
certain executive officers of the Company and the Bank, and the directors and
executive officers of the Company and the Bank as a group (all persons listed
are directors of the Company and the Bank).

AMOUNT AND
NATURE OF PERCENTAGE
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP/1,2/ CLASS/3/
- ---------------- -------------- -----------

Caldwell A. Holbrook, Jr. 361,720/4/ 8.04%
1700 Bellamy Circle
Albemarle, NC 28001

Joel A. Huneycutt 374,720/5/ 8.33%
P. O. Box 167
Renee Ford Road
Locust, NC 28097

Douglas Dwight Stokes 380,777/6/ 8.47%
1009 Ridge Street
Albemarle, NC 28001

Greg E. Underwood 369,720/7/ 8.22%
32283-B Austin Road
New London, NC 28127

Carl M. Hill, President and Chief 44,267/8/ 0.98%
Executive Officer of the Company and
the Bank
1415 Melchor Road
Albemarle, NC 28001

R. Ronald Swanner, Executive Vice 10,686/9/ 0.24%
President of the Company and the
Bank and Secretary of the Company
1415 North Ridge Drive
Albemarle, NC 28001

Directors and Executive Officers as a 460,977/10/ 10.25%
Group (6 Persons)

- ------------------------------------

/1/ Voting and investment power is not shared unless otherwise indicated.

/2/ Unless otherwise noted, all shares are owned directly or indirectly by the
named individuals, by their spouses and minor children, or other entities
controlled by the named individuals.

/3/ Based upon a total of 4,496,500 shares of Common Stock outstanding at the
Record Date.

/4/ Mr. Holbrook serves as a trustee of the ESOP which holds 359,720 shares of
the Company's Common Stock. The trustees of such plan share certain voting and
investment power of such shares.

/5/ Mr. Huneycutt serves as a trustee of the ESOP which holds 359,720 shares of
the Company's Common Stock. The trustees of such plan share certain voting and
investment power of such shares. This number also includes 1,737 shares held by
Mr. Huneycutt's wife. Mr. Huneycutt disclaims beneficial ownership of such
shares.

/6/ Mr. Stokes serves as a trustee of the ESOP which holds 359,720 shares of the
Company's Common Stock. The trustees of such plan share certain voting and
investment power of such shares.

/7/ Mr. Underwood serves as a trustee of the ESOP which holds 359,720 shares of
the Company's Common Stock. The trustees of such plan share certain voting and
investment power of such shares.

/8/ This number includes 1,067 shares allocated to Mr. Hill's ESOP account and
3,200 shares held by Mr. Hill's wife. Mr. Hills disclaims beneficial ownership
of his wife's shares.

/9/ This number includes 686 shares allocated to Mr. Swanner's ESOP account.

/10/ The 359,720 shares held by the ESOP for which the trustees, Messrs.
Holbrook, Huneycutt, Stokes and Underwood, share voting and investment power and
the shares allocated to Mr. Hill's and Mr. Swanner's ESOP accounts have been
included only once in the total number of shares owned beneficially by the
directors and executive officers as a group.

BOARD OF DIRECTORS OF THE BANK

The Bank also has a six-member board of directors which is composed of the
same persons who are currently directors of the Company.

DIRECTOR COMPENSATION

DIRECTORS' FEES. Members of the Board of Directors receive no fees or
compensation for their service. However, all members of the Board of Directors
are directors of the Bank and are compensated for that service. For their
service on the Bank's board of directors, members of the board, including Mr.
Hill and Mr. Swanner, receive a retainer of $2,500 per year and an additional
$600 per regular monthly board meeting attended. Mr. Stokes receives an
additional $300 per month for his service on the Loan Committee.

BANK DEFERRED COMPENSATION AGREEMENTS WITH DIRECTORS. 1985 Retirement
Payment Agreements. Mr. Hill and Mr. Swanner, as well as two nonemployee
directors and two retired directors of the Bank, participate in a deferred
compensation plan established in 1985 under which such directors, or their
designated beneficiaries, would be paid specified amounts over a ten-year period
beginning at age 65 (or in one case, age 70) in return for the deferral of
certain amounts of the director's fees over a five-year period. If a director
dies while serving as a director but before receiving all of his benefits under
the agreement, payments will be made to his designated beneficiary, or if none,
to his estate.

As a condition of the agreement, each director has agreed not to engage in
activities in competition with the Bank and to provide consulting services to
the Bank during the period the retirement benefits are payable.

1995 Retirement Payment Agreements. In 1995 the Bank entered into
additional deferred compensation arrangements with all of its directors. Under
the agreements, the Bank will pay each director a specified amount per month for
a period of ten years upon the director's attainment of age 65 (or in Mr. Hill's
case, beginning in 2000), in return for the deferral of certain amounts of the
director's fees over a five-year period.

If a director dies while serving as a director but before receiving all of
his benefits under the agreement, payments will be made to his designated
beneficiary, or if none, to his estate, unless the death

is by suicide within two years of the execution of the agreement (in which case
the deferred fees will be returned, with interest). If a director becomes
disabled while serving as a director, but prior to attaining age 65 (or October
1, 2000 for Mr. Hill), the Bank will pay the same benefits that would be payable
in the event of the director's death. If a director terminates his service to
the Bank for reasons other than death or disability, he or his beneficiary shall
be entitled to receive at age 65 (or October 1, 2000 for Mr. Hill) or his prior
death only the vested portion of the benefit due under the agreement. Vesting
occurs according to a schedule contained in the agreement. If any director's
termination of service shall occur after a change in control of the Bank, the
director shall be 100% vested in the retirement benefits.

BANK DIRECTORS RETIREMENT PLAN. In 1995 the Bank adopted a retirement plan
for directors after determining that such a plan would help it attract and
retain qualified directors. Under the plan all directors will be paid $1,000
per month over a ten-year period beginning after the director attains 70 years
of age (the "Normal Retirement Date"). If a director dies while serving as a
director but before receiving all of his benefits under the plan, payments will
be made to his designated beneficiary in lump sum or installments at the Bank's
option, unless the death is by suicide within two years of the execution of the
agreement. If a director becomes disabled while serving as a director, but
prior to his Normal Retirement Date, the Bank will pay the benefits due under
the plan, either in installments over the ten-year period or in a lump sum
payment. If a director terminates his service to the Bank before his Normal
Retirement Date for reasons other than death or disability, he or his
beneficiary shall be entitled at the Normal Retirement Date or his prior death
to receive only the vested portion of the benefits due under the plan. Vesting
occurs according to a schedule contained in the agreement. If any director's
termination of service shall occur after a change in control of the Bank, the
director shall be 100% vested in the retirement benefits.

The Bank has purchased life insurance on the lives of its directors to fund
its obligations under the deferred compensation and directors' retirement plan
agreements described above. Total expense related to the above-described
agreements was approximately $187,000 for the fiscal year ended September 30,
1996. The Bank's accrued liability for obligations under the plans amounted to
$647,000 at September 30, 1996.

MANAGEMENT COMPENSATION

SUMMARY COMPENSATION TABLE. The executive officers of the Company are not
paid any cash compensation by the Company. However, the executive officers of
the Company also are executive officers of the Bank and receive cash
compensation from the Bank.

The following table sets forth for the fiscal year ended September 30, 1996
certain information as to the cash compensation received by and the amounts
accrued for the benefit of (i) the President and (ii) the Executive Vice
President of the Bank. No other executive officer of the Bank had cash
compensation during the year ended September 30, 1996 that exceeded $100,000 for
services rendered in all capacities to the Bank.

OTHER ANNUAL
NAME AND COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS ($)/1/ COMPENSATION
- ------------------ ---- ------ ----- ------------ ------------

Carl M. Hill 1996 $155,090 $10,388 - - - $11,700/2/
President and CEO
1995 $138,411 $ 7,591 - - - $ 9,250/3/

R. Ronald Swanner 1996 $ 99,720 $ 6,678 - - - $11,000/4/
Executive Vice President
and Secretary
1995 $ 91,887 $ 5,694 - - - $ 9,250/5/

- -----------
/1/ Under the "Other Annual Compensation"category, perquisites for the fiscal
years ended September 30, 1996 and 1995 did not exceed the lesser of
$50,000 or 10% of salary and bonus as reported for either Mr. Hill or Mr.
Swanner.
/2/ Includes directors' fees of $9,700 received by Mr. Hill and $2,000
contributed to the Bank's 401(k) profit sharing plan for Mr. Hill for
fiscal year 1996. The Bank terminated the 401(k) profit sharing plan in
connection with the Conversion. This amount does not include $25,000 of
accrued expense under supplemental income agreements established for the
benefit of Mr. Hill. Mr. Hill has received no payments under the
supplemental income agreements. See "--Bank Supplemental Income
Agreements".
/3/ Directors' fees received by Mr. Hill. This amount does not include $223,000
of accrued expense under supplemental income agreements established for the
benefit of Mr. Hill. Mr. Hill has received no payments under the
supplemental income agreements. See "--Bank Supplemental Income
Agreements".
/4/ Includes directors' fees of $9,700 received by Mr. Swanner and $1,300
contributed to the 401(k) profit sharing plan for Mr. Swanner for fiscal
year 1996. The Bank terminated the 401(k) profit sharing plan in connection
with the Conversion. This amount does not include $10,000 of accrued
expense under supplemental income agreements established for the benefit of
Mr. Swanner. Mr. Swanner has received no payments under the supplemental
income agreements. See "--Bank Supplemental Income Agreements".
/5/ Directors fees received by Mr. Swanner. This amount does not include $8,000
of accrued expense under supplemental income agreements established for the
benefit of Mr. Swanner. Mr. Swanner has received no payments under the
supplemental income agreements. See "--Band Supplemental Income
Agreements".

BANK SUPPLEMENTAL INCOME AGREEMENTS. 1985 Agreements. The Bank entered
into Supplemental Income Agreements with Mr. Hill and Mr. Swanner on October 1,
1985. The agreements provide that the Bank will pay Mr. Hill $1,200 per month
for a continuous period of 216 months, and Mr. Swanner $861 per month for a
continuous period of 180 months. Mr. Hill's benefits will commence on the later
of his 62nd birthday or his actual retirement. Mr. Swanner's benefits will
commence on the first day of the month following his 65th birthday. If the
executive dies while employed by the Bank but before receiving any or all of the
payments due under the agreement, the remaining payments will be made to his
designated beneficiary, or, if none, to his estate. If the executive becomes
disabled prior to his retirement from the Bank, the Bank will pay him the
benefits due under the agreement. The plan also provides for an early
retirement benefit upon retirement with 30 years of service with the Bank.

As a condition of the agreements, Mr. Hill and Mr. Swanner must be
available to provide consulting services to the Bank during the period the
retirement payments are payable and must not engage in activities in Stanly
County, North Carolina in competition with the Bank.

1995 Agreements. In September 1995 the Bank entered into additional
Supplemental Income Agreements with Mr. Hill and Mr. Swanner. Under the
agreements, the Bank will pay Mr. Hill $25,000 annually and Mr. Swanner $15,000
annually for a period of fifteen years upon the executive's attainment of age 65
or actual retirement, if later.

If the executive dies while employed by the Bank but before receiving all
of his benefits under the agreement, payments will be made to his designated
beneficiary, or if none, to his estate, unless the death is by suicide within
two years of the execution of the agreement. If the executive becomes disabled
while employed by the Bank, but prior to attaining age 65, the Bank will pay the
same benefits that would be payable in the event of the executive's death,
either in installments over the fifteen-year period or in a lump sum payment.
If the executive terminates his service to the Bank for reasons other than death
or disability, he or his beneficiary shall be entitled to receive at age 65 or
his prior death only the vested portion of the benefits due under the agreement.
Vesting occurs according to a schedule contained in the agreement. If the
executive's termination of service shall occur after a change in control of the
Bank, the executive shall be 100% vested in the retirement benefits.

As a condition of the agreement, each executive has agreed not to engage in
activities in competition with the Bank in Albemarle, North Carolina, and to
provide consulting services to the Bank during the period that the retirement
benefits are payable.

The Bank has purchased life insurance on the lives of Mr. Hill and Mr.
Swanner to fund its obligations under the agreements described above. Total
expense related to those agreements was $35,000 for the fiscal year ended
September 30, 1996, and the Bank's accrued liability for plan obligations
amounted to $435,000 at September 30, 1996.

RETIREMENT PLAN. The Bank maintains a non-contributory defined benefit
pension plan (the "Pension Plan") for the benefit of all of its employees who
have completed one year of service and who are at least 21 years of age. Under
the Pension Plan, the Bank annually contributes an actuarially determined amount
to provide a benefit for each participant at retirement.

Participants are fully vested in amounts contributed to the Pension Plan on
their behalf by the Bank after completing five years of service. Benefits under
the plan are payable in the event of the participant's retirement, death,
disability or termination of employment.

Normal retirement age under the Pension Plan is the later of (a) age 65 or
(b) the fifth anniversary of the date an employee first becomes a participant in
the Pension Plan ("Normal Retirement Age"). Subject to certain restrictions on
maximum benefits required by federal law, upon reaching Normal Retirement Age,
each participant will receive a retirement benefit in the form of a straight
life annuity, determined pursuant to a formula which takes into consideration a
participant's "final average compensation," years of service with the Bank and
the participant's expected benefits from Social Security. In general, for
purposes of the Pension Plan, a participant's "Final Average Compensation" is
defined as his average annual compensation for those five consecutive years in
the last ten calendar years immediately preceding Normal Retirement Age that
produce the highest average. The plan also offers early retirement to
participants who have completed 15 years of service and who are at least 55
years of age.

The following table shows the retirement benefit payable for a range of
compensation and years of service for a person who retires at Normal Retirement
Age. These are hypothetical benefits based upon the plan's normal benefit
formula.

Earnings Credited for Years of Service at Normal Retirement
Retirement Benefits

15 20 25 30 35
-- -- -- -- --

$ 25,000 $ 4,688 $ 6,250 $ 7,813 $ 9,375 $10,938
$ 50,000 $11,566 $15,421 $19,277 $23,132 $26,987
$ 75,000 $18,691 $24,921 $31,152 $37,382 $43,612
$100,000 $25,816 $34,421 $43,027 $51,632 $60,237
$125,000 $32,941 $43,921 $54,902 $65,882 $76,862
$150,000 $40,066 $53,421 $66,777 $80,132 $93,487

The benefits listed above are annual amounts and are based on the assumption
that the participant is age 65. As of September 30, 1996, the Final Average
Compensation and years of service for Mr. Hill and Mr. Swanner would have been:
Mr. Hill -- $122,726 and 30 years; Mr. Swanner -- $85,680 and 22 years.

401(K) PROFIT SHARING PLAN. In January 1996, the Bank established a
contributory savings plan for its employees, which meets the requirements of
Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code").
All employees who have completed twelve months of service may elect to
contribute a percentage of their compensation to the plan each year, subject to
certain maximums imposed by federal law. The Bank will match 50% of each
participant's contribution, up to a maximum employer contribution of 3% of the
participant's compensation. For purposes of the 401(k) profit sharing plan,
compensation means a participant's compensation received from the employer as
reported on Form W-2.

Participants are fully vested in amounts that contribute to the plan.
Participants are fully vested in amounts contributed to the plan on their behalf
by the Bank as employer matching contributions after six years of service
according to the following schedule: 1 year, 0%; 2 years, 20%; 3 years, 40%; 4
years, 60%; 5 years, 80%; 6 or more years, 100%.

Benefits under the plan are payable in the event of the participant's
retirement, death, disability or termination of employment. Normal retirement
age under the plan is 65 years of age. The total amount contributed by the Bank
to the 401(k) profit sharing plan for the fiscal year ended September 30, 1996
was $13,000. The Bank terminated the 401(k) profit sharing plan in connection
with the Conversion.

EMPLOYEE STOCK OWNERSHIP PLAN. In connection with the Conversion, the Bank
established the ESOP for eligible employees of the Bank. Employees with 1,000
hours of employment in a plan year and who have attained age 21 are eligible to
participate. As part of the Conversion, the ESOP borrowed funds from the
Company and used the funds to purchase 359,720 of the shares of Common Stock
issued in the Conversion. Collateral for the loan is the Common Stock purchased
by the ESOP. The loan will be repaid principally from the Bank's discretionary
contribution to the ESOP over a period of 15 years or less.

Dividends, if any, paid on shares held by the ESOP may also be used to reduce
the loan. The loan has not been guaranteed by the Bank.

Shares purchased by the ESOP are held in a suspense account for allocation
among participants as the loan is repaid. Contributions to the ESOP and shares
released from the suspense account in an amount proportional to the repayment of
the ESOP loan are allocated among ESOP participants on the basis of relative
compensation in the year of allocation. Benefits vest in annual increments with
full vesting upon attaining five years of service (with credit given for years
of service prior to the Conversion). Prior to the completion of five years of
credited service, a participant who terminates employment for reasons other than
death, retirement (or early retirement), or disability will receive only vested
benefits under the ESOP. Forfeitures are reallocated among remaining
participating employees in the same proportion as contributions. Benefits
immediately vest and are payable upon death or disability. The Bank's
contributions to the ESOP are not fixed, so benefits payable under the ESOP
cannot be estimated.

The Bank has established a committee of the board of directors to
administer the ESOP. The Trustees for the ESOP are Caldwell A. Holbrook, Jr.,
Joel A. Huneycutt, Douglas Dwight Stokes and Greg E. Underwood. The ESOP
Committee may instruct the trustees regarding investment of funds contributed to
the ESOP. Participating employees may instruct the trustees as to the voting of
all shares allocated to their respective ESOP accounts. The unallocated shares
held in the suspense account, and all allocated shares for which voting
instructions are not received, will be voted by the trustees in their discretion
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended.

EMPLOYMENT AGREEMENTS. In connection with the Conversion, the Bank entered
into employment agreements with Carl M. Hill and R. Ronald Swanner in order to
establish their duties and compensation and to provide for their continued
employment with the Bank. The agreements provided for an initial annual base
salary and for an initial term of employment of three years for Mr. Hill and Mr.
Swanner. Commencing on the first anniversary date and continuing on each
anniversary date thereafter, following a performance evaluation of the employee,
each agreement may be extended for an additional year. Each agreement provides
that base salary shall be reviewed by the board of directors of the Bank not
less often than annually. In the fiscal year ended September 30, 1996, Mr.
Hill's base salary was $155,090 and Mr. Swanner's was $99,720. In addition, the
employment agreements provide for discretionary bonuses and participation in all
other pension, profit-sharing or retirement plans maintained by the Bank or by
the Company for employees of the Bank, as well as fringe benefits normally
associated with such employee's office, including the use of a company car. The
employment agreements provide that they may be terminated by the Bank for cause,
as defined in the agreement, and that they may otherwise be terminated by the
Bank (subject to vested rights) or by the employee. In the event of a change in
control (as defined below), the terms of each agreement shall be automatically
extended for three years from the date of the change of control, and the
employee's base salary will be increased at least 6% annually.

The employment agreements provide that the nature of the employee's
compensation, duties or benefits may not be diminished following a change in
control of the Bank or the Company. For purposes of the employment agreements,
a change in control generally will occur if (i) after the effective date of the
employment agreement, any "person" (as such term is defined in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act) directly or indirectly, acquires beneficial
ownership of voting stock, or acquires irrevocable proxies or any combination of
voting stock and irrevocable proxies, representing 25% or more of any class of
voting securities of either the Company or the Bank, or acquires in any manner
control of the election of a majority of the directors of either the Company or
the Bank, (ii) either the Company or the Bank consolidates or merges with or
into another corporation, association or entity, or is otherwise reorganized,
where neither the Company nor the Bank is the surviving corporation in such
transaction, or (iii) all or

substantially all of the assets of either the Company or the Bank are sold or
otherwise transferred to, or are acquired by, any other entity or group.

SEVERANCE PLAN. In connection with the Conversion, the Bank's board of
directors adopted a Severance Plan for the benefit of its employees. The
Severance Plan provides that in the event there is a "change in control" of the
Bank or the Company (as defined in the Severance Plan) and (i) the Bank or any
successor of the Bank terminates the employment of any full time employee of the
Bank in connection with, or within 24 months after the change in control, other
than for "cause" (as defined in the Severance Plan), or (ii) an employee
terminates his or her employment with the Bank or any successor following a
decrease in the level of such employee's annual base salary rate or a transfer
of such employee to a location outside of Stanly County, North Carolina, as
applicable, within 24 months after a change in control, all non-officer
employees shall be entitled to a severance benefit equal to the greater of (a)
an amount equal to two weeks' salary at the employee's existing salary rate
multiplied times the employee's number of complete years of service as a Bank
employee, subject to a maximum payment equal to the employee's annual salary
rate at the time of termination; or (b) the amount of one month's salary at the
employee's salary rate at the time of termination. The Severance Plan provides
that under the circumstances described above, officers of the Bank shall be
entitled to receive a severance benefit equal to the greater of (a) the amount
of one year's salary at the officer's annual salary rate at the time of
termination or (b) an amount equal to two weeks' salary at the officer's
existing salary rate multiplied times the officer's number of complete years of
service to the Bank. Officers and employees of the Bank who, at the time of a
"change in control," are parties to employment agreements are not covered by the
Severance Plan.

PROPOSAL 1

APPROVAL OF SOUTH STREET FINANCIAL CORP. STOCK OPTION PLAN

GENERAL

The Board of Directors has adopted the Stock Option Plan which is designed
to attract and retain qualified personnel in key positions, provide directors,
executive officers and employees with a proprietary interest in the Company as
an incentive to contribute to the success of the Company and reward executive
officers and employees for outstanding performance. The Stock Option Plan is
also designed to retain qualified directors for the Company. The Stock Option
Plan provides for the grant of incentive stock options intended to comply with
the requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and nonqualified or compensatory stock options. Executive officers
and employees of the Company, the Bank and any subsidiaries will be eligible to
receive incentive stock options; directors will be eligible to receive only
nonqualified stock options. If stockholder approval is obtained, options to
acquire up to 449,650 shares of Common Stock with an exercise price equal to the
fair market value of the Common Stock on the date of grant will be awarded to
executive officers and employees of the Company and the Bank and to directors of
the Company. No cash consideration will be paid for the award of the options.

DESCRIPTION OF THE STOCK OPTION PLAN

The Prospectus of the Company, dated August 12, 1996, (the "Prospectus")
delivered in connection with the Conversion and the Company's initial public
offering, contained a summary of a stock option plan and of options which could
be granted to directors, executive officers and employees of the Company and the
Bank. The stock option plan as described in the Prospectus contained certain
provisions required by the regulations of the Federal Deposit Insurance Company
(the "FDIC") in the event the stockholders had approved the plan less than 12
months following the Conversion. The Company has decided to seek

stockholder approval of the Stock Option Plan more than 12 months after the
Conversion. As a result, the FDIC regulations are no longer applicable to the
plan. Consequently, the Board decided to adopt a Stock Option Plan with several
provisions that differ from those presented in the Prospectus, including (i)
accelerated vesting of options upon retirement or a "change in control" of the
Company or the Bank; (ii) possible shorter vesting schedules for options; (iii)
the discretionary power to adjust the option exercise price to reflect the
effects of extraordinary dividends or returns of capital; (iv) the discretionary
power to make cash payments to holders of unexercised, vested and unvested
options equal to dividends which would have been paid on shares subject to such
options if such options had been exercised and (v) the discretionary power to
grant stock appreciation rights in tandem with stock options. The total number
of options to be issued under the Stock Option Plan (options to purchase 10% of
the number of shares issued in the Conversion) is as described in the
Prospectus. As described in the Prospectus, the Company anticipates issuing 20%
of the options under the Stock Option Plan to the existing nonemployee directors
of the Company and the Bank, 45% to the executive officers of the Company and
the Bank and 35% to the other employees of the Bank.

The following description of the Stock Option Plan is a summary of its
terms and is qualified in its entirety by reference to the Stock Option Plan, a
copy of which is attached hereto as Appendix A.

ADMINISTRATION. The Stock Option Plan will be administered and
interpreted by a committee of the Board of Directors (the "Committee") that is
composed solely of two or more "nonemployee directors" as that term is defined
by Exchange Act rules and regulations.

STOCK OPTIONS. Under the Stock Option Plan, the Board of Directors or the
Committee determines which directors, executive officers and employees will be
granted options, whether such options will be incentive or nonqualified options,
the number of shares subject to each option, whether such options may be
exercised by delivering other shares of Common Stock and when such options
become exercisable. The Stock Option Plan provides that all options will have
an option exercise price of not less than the fair market value of a share of
Common Stock on the date of grant. The fair market value will be equal to the
average high and low selling prices of the Common Stock on the Nasdaq National
Market ("Nasdaq"). Based upon the high and low selling prices on August 28,
1997, if options had been granted on that day, they would have an option price
of $18.125, the per share market value of the Common Stock underlying the
options on that date.

All options granted to participants under the Stock Option Plan shall
become vested and exercisable at the rate determined by the Committee when
making an award. Unvested options may not vest after a participant's employment
with the Company, the Bank or any subsidiary is terminated for any reason other
than the participant's death, disability or retirement. Unless the Committee
shall specifically state otherwise at the time an option is granted, all options
granted to participants shall become vested and exercisable in full on the date
an optionee terminates his employment with or service to the Company, the Bank
or any subsidiary because of his death, disability or retirement. In addition,
all stock options will become vested and exercisable in full in the event that
the optionee ceases to be an executive officer, employee or director of the Bank
or the Company for any reason following a change in control of the Company, as
defined in the Stock Option Plan. Options granted under the Stock Option Plan
will have a term of ten years. Stock options are non-transferable except by
will or the laws of descent and distribution.

Payment for shares purchased upon the exercise of options may be made
either in cash, by check, bank draft or money order or, if permitted by the
Committee, by delivering shares of Common Stock (including shares acquired
pursuant to the exercise of an option) with a fair market value equal to the
total option price, or a combination of the foregoing. To the extent an
optionee already owns shares of Common Stock prior to the exercise of his or her
option, such shares could be used (if permitted by the Committee)

as payment for the exercise price of the option. If the fair market value of a
share of Common Stock at the time of exercise is greater than the exercise price
per share, this feature would enable the optionee to acquire a number of shares
of Common Stock upon exercise of the option which is greater than the number of
shares delivered as payment for the exercise price. Because options may be
exercised in part from time to time, the ability to deliver Common Stock as
payment of the exercise price could enable the optionee to turn a relatively
small number of shares into a larger number of shares.

STOCK APPRECIATION RIGHTS. It is expected that options granted under the
Stock Option Plan will be granted in tandem with stock appreciation rights,
pursuant to which optionees will have the right to surrender exercisable options
in exchange for payment by the Company of an amount equal to the excess of the
market value of shares of Common Stock subject to the surrendered options over
the exercise price of the surrendered options. In the discretion of the
Committee, this payment may be made in cash or in shares of Common Stock or in
some combination of cash and Common Stock. Stock appreciation rights shall
terminate upon the exercise of the options to which they are attached. Stock
appreciation rights will be subject to the same vesting and termination
provisions as are applicable to the stock options to which they are attached.

DISCRETIONARY CASH PAYMENTS. The Stock Option Plan provides that the
Company's Board of Directors shall have the discretionary authority to authorize
cash payments to the holders of unexercised options, both vested and unvested,
equal to the amount of dividends which would have been paid on shares subject to
options if the options had been exercised. No such payment may be made in
connection with dividends or other distributions which result in a reduction in
the option exercise price as described below in "Number of Shares Covered by
Stock Option Plan". If an optionee receives such a cash payment with respect to
any unvested option, and if such option is later forfeited, the optionee must
repay any cash payment made with respect to the forfeited option.

NUMBER OF SHARES COVERED BY THE STOCK OPTION PLAN. A total of 449,650
shares of Common Stock has been reserved for issuance pursuant to the Stock
Option Plan, which is 10% of the Common Stock issued in connection with the
Conversion. In lieu of issuing reserved unissued shares upon the exercise of
options, the Company may elect to purchase shares in the open market to fund
exercises of options. To the extent that exercised options are funded by
authorized but unissued shares, the interests of existing stockholders will be
diluted. In the event of a stock split, reverse stock split or stock dividend,
the number of shares of Common Stock under the Stock Option Plan, the number of
shares to which any option relates and the exercise price per share under any
option shall be adjusted to reflect such increase or decrease in the total
number of shares of Common Stock outstanding. In addition, in the event the
Company declares a special cash dividend or return of capital, the per share
exercise price of all previously granted options which remain unexercised as of
the date of such declaration may be proportionately adjusted to give effect to
such special cash dividend or return of capital as of the date of payment of
such special cash dividend or return of capital, subject to certain limitations.

AMENDMENT AND TERMINATION OF THE STOCK OPTION PLAN. Unless sooner
terminated, the Stock Option Plan shall continue in effect for a period of ten
years from the date the Stock Option Plan was approved by stockholders and
became effective by its terms. The Board may at any time alter, suspend,
terminate or discontinue the Stock Option Plan, subject to any applicable
regulatory requirements and any required stockholder approval or any stockholder
approval which the Board may deem advisable for any reason, such as for the
purpose of obtaining or retaining any statutory or regulatory benefits under
tax, securities or other laws or satisfying applicable stock exchange or
quotation system listing requirements. The Board may not, without the consent
of the optionee, make any alteration which would deprive the optionee of his
rights with respect to any previously granted option. Termination of the Stock
Option Plan would not affect any previously granted options.

FEDERAL INCOME TAX CONSEQUENCES. Under current provisions of the Code, the
federal income tax treatment of incentive stock options and nonqualified stock
options is different. Options granted to employees under the Stock Option Plan
may be "incentive stock options" which are designed to result in beneficial tax
treatment to the employee but not a tax deduction to the Company or the Bank.

The holder of an incentive stock option generally is not taxed for federal
income tax purposes on either the grant or the exercise of the option. However,
the optionee must include in his or her federal alternative minimum tax income
any excess (the "Bargain Element") of the acquired Common Stock's fair market
value at the time of exercise over the exercise price paid by the optionee.
Furthermore, if the optionee sells, exchanges, gives or otherwise disposes of
such Common Stock (other than in certain types of transactions) either within
two years after the option was granted or within one year after the option was
exercised (an "Early Disposition"), the optionee generally must recognize the
Bargain Element as compensation income for regular federal income tax purposes.
Any gain realized on the disposition in excess of the Bargain Element is subject
to recognition under the usual rules applying to dispositions of property. If a
taxable sale or exchange is made after such holding periods are satisfied, the
difference between the exercise price and the amount realized upon the
disposition of the Common Stock generally will constitute a capital gain or loss
for tax purposes. If an optionee exercises an incentive stock option and
delivers shares of Common Stock as payment for part or all of the exercise price
of the stock purchased (the "Payment Stock"), no gain or loss generally will be
recognized with respect to the Payment Stock; provided, however, if the Payment
Stock was acquired pursuant to the exercise of an incentive stock option, the
optionee will be subject to recognizing as compensation income the Bargain
Element on the Payment Stock as an Early Disposition if the exchange for the new
shares occurs prior to the expiration of the holding periods for the Payment
Stock. The Company generally would not recognize gain or loss or be entitled to
a deduction upon either the grant of an incentive stock option or the optionee's
exercise of an incentive stock option. However, if there is an Early
Disposition, the Company generally would be entitled to deduct the Bargain
Element as compensation paid to the optionee.

Options granted to directors under the Stock Option Plan would be
"nonqualified stock options." In general, the holder of a nonqualified stock
option will recognize compensation income equal to the amount by which the fair
market value of the Common Stock received on the date of exercise exceeds the
sum of the exercise price and any amount paid for the nonqualified stock option.
If the optionee elects to pay the exercise price in whole or in part with Common
Stock, the optionee generally will not recognize any gain or loss on the Common
Stock surrendered in payment of the exercise price. The Company would not
recognize any income or be entitled to claim any deduction upon the grant of a
nonqualified stock option. At the time the optionee is required to recognize
compensation income upon the exercise of the nonqualified stock option, the
Company would recognize a compensation expense and be entitled to claim a
deduction in the amount equal to such compensation income.

The above description of tax consequences under federal law is necessarily
general in nature and does not purport to be complete. Moreover, statutory
provisions are subject to change, as are their interpretations, and their
application may vary in individual circumstances. Finally, the consequences
under applicable state and local income tax laws may not be the same as under
the federal income tax laws.

ACCOUNTING TREATMENT. Neither the grant nor the exercise of an incentive
stock option or a nonqualified stock option under the Stock Option Plan
currently requires any charge against earnings under generally accepted
accounting principles. In October 1995, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," which is effective for
transactions entered into after December 15, 1995. SFAS No. 123 (i) establishes
financial accounting and reporting standards for stock-based employee
compensation plans, (ii) defines a fair value method of accounting for an
employee stock option or similar equity

instrument, and (iii) encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
Under the intrinsic value method, compensation cost is the excess, if any, of
the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. The Company
anticipates that it will use the intrinsic value method, in which event pro
forma disclosure will be included in the footnotes to the Company's financial
statements to show what net income and earnings per share would have been if the
fair value method had been utilized. If the Company elects to utilize the fair
value method, its net income and earnings per share may be adversely affected.

STOCKHOLDER APPROVAL. No options will be granted under the Stock Option
Plan unless the Stock Option Plan is approved by the stockholders.

OPTIONS TO BE GRANTED. The Committee intends to grant options to
directors, executive officers and employees of the Company and the Bank promptly
after the date of stockholder approval of the Stock Option Plan. Only forfeited
options will be subject to allocation later, unless the Stock Option Plan is
amended. At this time, approximately 42 persons would be eligible to participate
under the Stock Option Plan. No options will be granted to any associates of
any of the directors or executive officers of the Company or the Bank. The
table on page 18 sets forth in column two information with respect to the number
of options that the Company anticipates would be granted to directors, executive
officers and other employees as a group upon stockholder approval of the Stock
Option Plan.

It is currently anticipated that 25% of the aggregate number of options
granted to executive officers and employees of the Company and the Bank will be
vested and exercisable on the date of grant and 25% of the aggregate number of
such options granted will vest and become exercisable on each of the next three
annual anniversary dates thereafter. It is expected that nonqualified stock
options granted to the nonemployee directors of the Company and the Bank will be
immediately vested and nonforfeitable.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE SOUTH STREET
---
FINANCIAL CORP. STOCK OPTION PLAN.

PROPOSAL 2

APPROVAL OF THE HOME SAVINGS BANK OF ALBEMARLE, INC., S.S.B.
MANAGEMENT RECOGNITION PLAN

GENERAL

The Boards of Directors of the Company and the Bank have adopted and desire
to establish the Management Recognition Plan, the objective of which is to
encourage the continued service of directors, officers and employees of the
Bank. The MRP will provide directors, officers and employees with an ownership
interest in the Company in a manner designed to serve as an incentive to
contribute to the success of the Bank and the Company and to reward employees
for outstanding performance. All directors, officers and employees of the Bank
are eligible for participation in the MRP.

DESCRIPTION OF THE MRP

As with the Stock Option Plan and as discussed under Proposal 1, the
management recognition plan as described in the Prospectus contained certain
provisions that were required by the FDIC if stockholder approval of the plan
was obtained less than 12 months after the Conversion. Several provisions of
the proposed MRP described below differ from those disclosed in the Prospectus,
including a possible shorter vesting period and accelerated vesting upon
retirement or a "change in control" of the Company or the Bank. As described in
the Prospectus, the Company and the Bank anticipate that 20% of the restricted
shares under the MRP will be awarded to nonemployee directors, 45% to executive
officers and 35% to all other employees. The Bank anticipates awarding its
directors and executive officers the same percentage of total restricted shares
under the MRP as was disclosed in the Prospectus. The following description of
the MRP is a summary of its terms and is qualified in its entirety by reference
to the MRP, a copy of which is attached hereto as Appendix B.

ADMINISTRATION. The MRP will be administered and interpreted by a
committee of the board of directors of the Bank (the "MRP Committee") that is
composed solely of two or more "nonemployee directors", as defined by Exchange
Act. The board of directors of the Bank will appoint the trustees of the trust
established pursuant to the MRP (the "Trust"). The trustees will have the
responsibility to invest all funds contributed by the Bank to the Trust.

AWARDS OF RESTRICTED STOCK. Upon stockholder approval, the MRP will
acquire 179,860 shares of Common Stock, which is equal to 4% of the Common Stock
issued in the Conversion. It is anticipated that these shares either will be
purchased on the open market or issued from authorized but unissued shares of
Common Stock. To the extent that the MRP acquires authorized but unissued
shares, the interests of existing stockholders will be diluted.

Shares of Common Stock granted pursuant to the MRP will be in the form of
restricted stock which will vest over a period of time determined by the MRP
Committee. Shares issued under the MRP will be issued at no cost to recipients.
A recipient will be entitled to all voting and other stockholder rights with
respect to shares which have been awarded under the MRP. However, until such
shares have vested, they will be held in the MRP Trust. Such unvested shares
may not be sold, pledged or otherwise disposed of. In addition, any cash
dividends or stock dividends declared with respect to unvested share awards will
be

held by the MRP Trust for the benefit of the recipients and such dividends,
including any interest thereon, will be paid out proportionately by the MRP
Trust to the recipients thereof as soon as practicable after the share awards
become vested. The MRP provides that cash held by the Trust pursuant to receipt
of dividends, including a special dividend or return of capital, on the Common
Stock held by the Trust and unallocated to participants may be used to purchase
additional shares of Common Stock.

If a recipient terminates employment for reasons other than death,
disability or retirement, the recipient will forfeit all rights to the allocated
shares which have not yet vested. All shares subject to an award held by a
recipient whose employment with or service to the Company, the Bank or any
subsidiary terminates due to death, disability or retirement, as defined in the
MRP, shall be vested as of the recipient's last day of employment with or
service to the Company, the Bank or any subsidiary and shall be distributed as
soon as practicable thereafter. All shares subject to an award held by a
recipient also shall be fully vested in the event the recipient ceases to be an
employee or director of the Bank or the Company for any reason following a
change in control of the Company or the Bank, as defined in the MRP.

AMENDMENT AND MODIFICATION OF THE MRP. The board of directors of the Bank
may at any time amend or modify the MRP in any respect, subject to applicable
regulatory requirements and required stockholder approvals. However, any
amendment or modification of the MRP shall not in any manner affect any award of
shares made previously to a recipient under the Plan without the consent of such
recipient.

FEDERAL INCOME TAX CONSEQUENCES. Pursuant to Section 83 of the Code,
recipients of MRP awards will recognize ordinary income in an amount equal to
the fair market value of the shares of Common Stock granted to them at the time
that the shares vest and become transferable. The Company will be entitled to
deduct as a compensation expense for tax purposes the same amounts recognized as
income by recipients of MRP awards in the year in which such amounts are
included in income.

ACCOUNTING TREATMENT. For a discussion of SFAS No. 123, see "Proposal 1
Approval of South Street Financial Corp. Stock Option Plan - Accounting
Treatment." Under the intrinsic value method, the Company will also recognize a
compensation expense as shares of Common Stock granted pursuant to the MRP vest.
The amount of compensation expense recognized for accounting purposes is based
upon the fair market value of the Common Stock at the date of grant to
recipients, rather than the fair market value at the time of vesting for tax
purposes.

STOCKHOLDER APPROVAL. No shares will be granted under the MRP unless it is
approved by the stockholders.

SHARES TO BE GRANTED. The MRP Committee intends to grant awards of
restricted stock to directors, executive officers and all other employees of the
Bank promptly after the date of stockholder approval of the MRP. At this time
approximately 42 persons would be eligible to participate under the MRP. The
following table sets forth certain information with respect to awards the
Company and the Bank anticipate would be made upon stockholder approval of the
Stock Option Plan and the MRP. Column two lists the options that the Company
anticipates would be granted to directors, executive officers and other officers
as a group under the Stock Option Plan; column three lists the number of shares
of Common Stock the Bank anticipates would be awarded to directors, executive
officers and other employees as a group under the MRP. Column four sets forth
the dollar value of the stock awards assuming a value per share of Common Stock
equal to $18.125, which was the closing market price of the Common Stock on
Nasdaq on August 28, 1997.

This valuation is without regard to the restrictions on the shares of Common
Stock awarded under the Management Recognition Plan.

NAME AND POSITION/1/ STOCK OPTION PLAN MANAGEMENT RECOGNITION PLAN
- -------------------- ----------------- ---------------------------

NUMBER OF SHARES
----------------
SUBJECT TO STOCK NUMBER OF
---------------- ---------
NONEMPLOYEE DIRECTORS OPTIONS SHARES DOLLAR VALUE
- --------------------- ------- ------ ------------

Caldwell A. Holbrook, Jr. 22,482 8,993 $ 162,998.12

Joel A. Huneycutt 22,482 8,993 $ 162,998.12

Douglas Dwight Stokes 22,482 8,993 $ 162,998.12

Greg E. Underwood 22,482 8,993 $ 162,998.12
------- ------ -------------
Total (4 persons) 89,928 35,972 $ 651,992.48
======= ====== =============
EXECUTIVE OFFICERS
------------------

Carl M. Hill, President, CEO and Director 112,413 44,965 $ 814,990.62

R. Ronald Swanner, Executive Vice 89,931 35,972 $ 651,992.50
President, Secretary and Director ------- ------ -------------

Total (2 persons) 202,344 80,937 $1,466,983.12
======= ====== =============
Non-Executive Officer Employees Group
(36 persons) 157,378 62,951 $1,140,986.88

Associates of Executive Officers and 0 0 0
Directors

- ------------------------
/1/ Position with Company, unless otherwise indicated.

It is currently anticipated that 25% of the aggregate number of shares
granted to directors, executive officers and employees will be vested on the
date of grant promptly after stockholder approval of the MRP and that 25% of the
aggregate number of shares granted will vest on each of the next three annual
anniversary dates thereafter. The MRP Committee, in its sole and absolute
discretion, may provide for an accelerated vesting schedule for directors,
executive officers and employees who are eligible for retirement before the
expiration of the anticipated three-year vesting schedule.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE HOME SAVINGS
---
BANK OF ALBEMARLE, INC., S.S.B. MANAGEMENT RECOGNITION PLAN.

INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

Stockholders are being asked to approve the Stock Option Plan and MRP. As
set forth above, the Stock Option Plan and MRP will not be effective without the
required stockholder approval. Members of the management and the Boards of
Directors of the Company and the Bank, most of whom are stockholders and who, as
a group, have voting control over 460,977 shares (10.25%) of the Common Stock,
will be participants of these plans. See "PROPOSAL 1 - APPROVAL OF SOUTH STREET
FINANCIAL CORP. STOCK OPTION PLAN" and "PROPOSAL 2 - APPROVAL OF THE HOME
SAVINGS BANK OF ALBEMARLE, INC. S.S.B. MANAGEMENT RECOGNITION PLAN."

DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS

It is presently anticipated that the 1998 Annual Meeting of Stockholders
will be held in February of 1998. In order for stockholder proposals to be
included in the proxy material for that meeting, such proposals must be received
by the Secretary of the Company at the Company's principal executive office not
later than October 21, 1997, and meet all other applicable requirements for
inclusion therein.

The Company's Bylaws provide that, in order to be eligible for
consideration at an annual meeting of stockholders, all nominations of
directors, other than those made by the Company's Board of Directors, must be
made in writing and must be delivered to the Secretary of the Company not less
than 50 days nor more than 90 days prior to the meeting at which such
nominations will be made; provided, however, if less than 21 days notice of the
meeting is given to stockholders, such nominations must be delivered to the
Secretary of the Company not later than the close of business on the seventh day
following the day on which the notice of meeting was mailed.

By Order of the Board of Directors

/s/ R. Ronald Swanner

R. Ronald Swanner
Secretary

Albemarle, North Carolina
September 11, 1997

APPENDIX A

SOUTH STREET FINANCIAL CORP.
STOCK OPTION PLAN

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

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

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

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

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

3. STOCK AVAILABLE FOR OPTIONS. In the discretion of the Committee, the
---------------------------
stock to be subject to Options under the Plan shall be authorized but unissued
shares of Common Stock which are issued directly to optionees upon exercise of
options and/or shares of Common Stock which are acquired by the Plan or the
Corporation in the open market. The total number of shares of Common Stock for
which Options may be granted under the Plan is 449,650 shares, which is ten
percent (10%) of the total number of shares of Common Stock issued by the
Corporation in connection with the conversion of the Bank from a North Carolina
mutual savings bank to a North Carolina stock savings bank on October 2, 1996
(the "Conversion"). Such number of shares is subject to any capital adjustments
as provided in Section 16. In the event that an Option granted under the Plan
is forfeited, released, expires or is terminated unexercised as to any shares
covered thereby, such shares thereafter shall be available for the granting of
Options under the Plan; however, if the forfeiture, expiration, release or
termination date of an Option is beyond the term of existence of the Plan as
described in Section 21, then any shares covered by forfeited, unexercised,
released or terminated options shall not reactivate the existence of the Plan
and therefore may not be available for additional grants under the Plan. The
Corporation, during the term of the Plan, will reserve and keep available a
number of shares of Common Stock sufficient to satisfy the requirements of the
Plan. In the discretion of the Committee, the shares of Common Stock necessary
to be delivered to satisfy exercised options may be from authorized and unissued
shares of Common Stock or may be purchased in the open market.

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

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

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

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

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

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

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

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

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

and asked price. If no such bid and asked price is available, then the
market value per share shall be its fair market value as determined by the
Committee, in its sole and absolute discretion. The Committee shall
maintain a written record of its method of determining such value.

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

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

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

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

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

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

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

(e) The recipient of an Option shall have no rights as a
shareholder with respect to any shares covered by his Option until payment
in full by him for the shares being purchased. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date
is prior to the date such stock is fully paid for, except as provided in
Section 16.

(f) The aggregate fair market value of the stock (determined as of
the time the Option is granted) with respect to which Incentive Stock
Options are exercisable for the first

time by any participant during any calendar year (under all benefit plans
of the Corporation, the Bank or any Subsidiary, if applicable) shall not
exceed $100,000; provided, however, that such $100,000 limit of this
subsection (f) shall not apply to the grant of Nonqualified Stock Options.
The Committee may grant Options which are exercisable in excess of the
foregoing limitations, in which case Options granted which are exercisable
in excess of such limitation shall be Nonqualified Stock Options.

(g) All stock obtained pursuant to an option which qualifies as an
Incentive Stock Option shall be held in escrow for a period which
ends on the later of (i) two (2) years from the date of the granting
of the Option or (ii) one (1) year after the transfer of the stock
pursuant to the exercise of the Option. The stock shall be held by
the Corporation or its designee. The employee who has exercised the
Option shall during such holding period have all rights of a
shareholder, including but not limited to the rights to vote, receive
dividends and sell the stock. The sole purpose of the escrow is to
inform the Corporation of a disqualifying disposition of the stock
within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and it shall be administered solely for that
purpose.

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

(a) Unless otherwise set forth in the Option Agreement, all Options
granted to an optionee by virtue of his position as a nonemployee director
of the Corporation or the Bank (as stated in the Option Agreement) shall be
fully vested, exercisable and nonforfeitable immediately at the time of the
grant.

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

(c) Notwithstanding the foregoing, Options shall become exercisable
with respect to all of the shares subject thereto upon the optionee's
death, retirement or disability within the meaning of Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended, and in the event of a change
in control as set forth in Section 13 of this Plan.

(d) Any right to exercise Options in annual installments shall be
cumulative and any vested installments may be exercised, in whole or in
part, at the election of the optionee. The exercise of any Option must be
evidenced by written notice to the Corporation that the optionee intends to
exercise his Option.

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

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

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

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

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

11. TERMINATION OF EMPLOYMENT - DISABILITY OR RETIREMENT. If any optionee
----------------------------------------------------
receiving the grant of an Option by virtue of his position as a director (as
stated in the Option Agreement) ceases to be a director of at least one of the
Corporation, the Bank or any Subsidiary due to his becoming disabled within the
meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, or
if any employee receiving the grant of an Option by virtue of his position as an
employee (as stated in the Option Agreement) ceases to be employed by at least
one of the Corporation, the Bank and any Subsidiary due to his becoming disabled
within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended, all unvested and forfeitable Options of such optionee shall immediately
become vested and nonforfeitable and he may, (i) at any time within 12 months
after his date of termination, but not later than the date of expiration of the
Option, exercise any option designated in the Option Agreement as an Incentive
Stock Option

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

If any optionee receiving the grant of an Option by virtue of his position
as a director (as stated in the Option Agreement) ceases to be a director of at
least one of the Corporation, the Bank or any Subsidiary due to his retirement,
or if any employee receiving the grant of an Option by virtue of his position as
an employee (as stated in the Option Agreement) ceases to be employed by at
least one of the Corporation, the Bank and any Subsidiary due to his retirement,
all unvested and forfeitable Options of such optionee shall immediately become
vested and nonforfeitable and he may, at any time prior to the date of
expiration of the Option, exercise such Option; provided, however, that if the
Option is exercised more than three months after such retirement, the Option may
be treated as a Nonqualified Stock Option. Any portions of Options of retired
directors or employees not so exercised shall terminate. For purposes of this
Plan, the term "retirement," as it relates to any optionee receiving a grant of
an Option as a result of his or her position as an employee of the Corporation,
the Bank or any Subsidiary, shall mean (i) the termination of the optionee's
employment under conditions which would constitute retirement under any tax
qualified retirement plan maintained by the Corporation, the Bank or a
Subsidiary, or (ii) termination of employment after attaining age 65. The term
"retirement," as it relates to any optionee receiving a grant of an Option as a
result of his or her position as a director shall mean the cessation of
membership on such board of directors (i) with the approval of such board of
directors, at any time after such optionee reaches age 70, or (ii) at the
election of the optionee at any time after not less than 25 years of service as
a member of the such board of directors, as applicable.

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

13. CHANGE IN CONTROL. In the event that an optionee ceases to be an
-----------------
employee, a director of the Corporation, the Bank or a Subsidiary (which
position resulted in his or her receipt of an option pursuant to this Plan) for
any reason after the occurrence of a "change in control" and prior to the time
that all shares allocated to him or her would be 100% vested, nonforfeitable and
exercisable in accordance with Sections 9 and 10 above, then, notwithstanding
Sections 9 and 10 above, all Options granted to such optionee shall immediately
become fully vested and nonforfeitable. For purposes of this Plan, a "change in
control" shall mean (i) a change in control of a nature that would be required
to be reported by the Corporation in response to Item 1 of the

Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Exchange Act; (ii) such time as any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation or Bank representing 25 percent
or more of the combined voting power of the outstanding Common Stock of the
Corporation or outstanding common stock of the Bank, as applicable; or (iii)
individuals who constitute the Board or the board of directors of the Bank on
the date hereof (the "Incumbent Board" and "Incumbent Bank Board," respectively)
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board or Incumbent Bank Board, as applicable, or whose nomination for
election by the Corporation's or Bank's shareholders was approved by the
Corporation's or Bank's Board of Directors or Nominating Committee, shall be
considered as though he or she were a member of the Incumbent Board or Incumbent
Bank Board, as applicable; or (iv) either the Corporation or the Bank
consolidates or merges with or into another corporation, association or entity
or is otherwise reorganized, where neither the Corporation nor the Bank,
respectively, is the surviving corporation in such transaction; or (v) all or
substantially all of the assets of either the Corporation or the Bank are sold
or otherwise transferred to or are acquired by any other entity or group.

As set forth in Section 10, in the event of such a termination after a
change in control, the Optionee must exercise any Incentive Stock Options within
three (3) months after his date of termination and may exercise any Nonqualified
Stock Options at any time prior to the date of expiration of the Option.

14. STOCK APPRECIATION RIGHTS.
-------------------------

(a) GENERAL TERMS AND CONDITIONS. The Committee may, but shall not
be obligated to, grant rights to optionees to surrender an exercisable
Option, or any portion thereof, in consideration for the payment by the
Corporation of an amount equal to the excess of the market value
(determined as set forth in Section 6 above) of the shares of Common Stock
subject to the Option, or portion thereof, surrendered over the exercise
price of the Option with respect to such shares (any such authorized
surrender and payment being hereinafter referred to as a "Stock
Appreciation Right"). Such payment, at the discretion of the Committee, may
be made in shares of Common Stock valued at the then market value thereof
(determined as set forth in Section 6 above), or in cash, or partly in cash
and partly in shares of Common Stock.

The terms and conditions set with respect to a Stock Appreciation
Right may include (without limitation), subject to other provisions of this
Section 14 and this Plan, the period during which, date by which or event
upon which the Stock Appreciation Right may be exercised (which shall be on
the same terms as the Option to which is related); the method for valuing
shares of Common Stock for purposes of this Section 14; a ceiling on the
amount of consideration which the Corporation may pay in connection with
exercise of the Stock Appreciation Right;

and arrangements for income tax withholding. The Committee shall have
complete discretion to determine whether, when and to whom Stock
Appreciation Rights may be granted.

(b) TIME LIMITATIONS. A Stock Appreciation Right may be exercised
only within the period, if any, within which the Option to which it relates
may be exercised. Notwithstanding the foregoing, any election by an
optionee to exercise Stock Appreciation Rights shall be made during the
period beginning on the third business day following the release for
publication of quarterly or annual financial information required to be
prepared and disseminated by the Corporation pursuant to the requirements
of the Exchange Act and ending on the twelfth business day following such
date. The required release of information shall be deemed to have been
satisfied when the specified financial data appears on or in a wire
service, financial news service or newspaper of general circulation or is
otherwise first made publicly available.

(c) EFFECTS OF EXERCISE OF STOCK APPRECIATION RIGHTS OR OPTIONS.
Upon the exercise of a Stock Appreciation Right, the number of shares of
Common Stock available under the Option to which it relates shall decrease
by a number equal to the number of shares for which the Stock Appreciation
Right was exercised. Upon the exercise of an Option, any related Stock
Appreciation Right shall terminate as to any number of shares of Common
Stock subject to the Stock Appreciation Right that exceeds the total number
of shares for which the Option remains unexercised.

(d) TIME OF GRANT. A Stock Appreciation Right granted in connection
with an Incentive Stock Option must be granted concurrently with the Option
to which is relates, while a Stock Appreciation Right granted in connection
with a Nonqualified Stock Option may be granted concurrently with the
Option to which it relates or at any time thereafter prior to the exercise
or expiration of such Option. No optionee shall have any Stock Appreciation
Rights unless (i) in the case of Incentive Stock Options and Nonqualified
Stock Options, the Stock Option Agreement shall so state or (ii) in the
case of Nonqualified Stock Options, the Committee shall have executed an
amendment to the Stock Option Agreement so stating.

(e) NON-TRANSFERABLE. A Stock Appreciation Right may not be
transferred or assigned except in connection with a transfer of the Option
to which it relates.

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

16. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK.
------------------------------------------

(a) If the outstanding shares of Common Stock of the Corporation
are increased, decreased, changed into or exchanged for a different number
or kind of shares or other securities of the Corporation or another entity
as a result of a recapitalization, reclassification, stock dividend, stock
split, amendment to the Corporation's Certificate of Incorporation, reverse
stock split, merger or consolidation, an appropriate adjustment shall be
made in the number and/or kind of securities allocated to the Options and
Stock Appreciation Rights previously and subsequently granted under the
Plan, without change in the aggregate purchase price applicable to the
unexercised portion of the outstanding Options but with a corresponding
adjustment in the price for each share or other unit of any security
covered by the Options.

(b) In the event that the Corporation shall declare and pay any
dividend with respect to the Common Stock (other than a dividend payable in
shares of the Corporation's Common Stock or a regular quarterly cash
dividend), including a dividend which results in a nontaxable return of
capital to the holders of shares of Common Stock for federal income tax
purposes, or otherwise than by dividend makes distribution of property to
the holders of its shares of Common Stock, the Committee, in its discretion
applied uniformly to all outstanding Options, may adjust the exercise price
per share of outstanding Options in such a manner as the Committee may
determine to be necessary to reflect the effect of the dividend or other
distribution on the fair market value of a share of Common Stock.

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

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

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

(f) Any adjustment made pursuant to this Section 16, shall be made,
to the extent practicable, in such manner as not to constitute a
modification of any outstanding Incentive Stock Options within the meaning
of Section 424(h) of the Internal Revenue Code of 1986, as amended.

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

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

19. NO OBLIGATION TO EXERCISE. The granting of an Option or Stock
-------------------------
Appreciation Right shall impose no obligation upon the optionee to exercise such
Option or Stock Appreciation Right.

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

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

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

23. CASH PAYMENTS. At the time of the payment of any dividend or other
-------------
distribution with respect to the Common Stock, in the absolute discretion of,
and upon direction of the Board, the Corporation shall cause to be paid to
existing directors and employees of the Corporation, the Bank or any Subsidiary
who hold nonforfeited, unexercised Options under this Plan, regardless of
whether or not such Options are vested and nonforfeitable, a cash amount equal
to the number of shares of Common Stock subject to nonforfeited, unexercised
options held by such optionee multiplied by the amount of any dividends or other
distributions paid per share of Common Stock outstanding. The Board shall have
the discretion to approve cash payments at the time of some dividends or
distributions but not others. Notwithstanding the foregoing, no amounts shall
be paid to optionees pursuant to this Section 23 with respect to any dividend or
distribution if at the time of such dividend or distribution, the exercise price
of the Options shall have been reduced pursuant to Section 16(b) above.

If any director or employee of the Corporation, the Board or any Subsidiary
shall receive any cash payment from the Company, the Board or any Subsidiary
pursuant to this Section 23 with respect to an Option which is not vested and
exercisable, and if such Option shall be forfeited, then within 30 days after
the effective date of such forfeiture, the optionee shall pay to the
Corporation, the Bank or the Subsidiary (as applicable) an amount equal to the
cash payment received by such optionee with respect to such forfeited Option.
In the alternative, at the option of the Corporation, the Bank or the Subsidiary
(as applicable) the amount to be repaid may be withheld from the final
compensation payable to the optionee.

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

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

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

27. COST OF PLAN; EXCULPATION AND INDEMNIFICATION. All costs and expenses
---------------------------------------------
incurred in the operation and administration of the Plan shall be borne by the
Corporation, the Bank and the Subsidiaries. In connection with this Plan, no
member of the Board, no member of the Board of Directors of the Bank, and no
member of the Board of Directors of any Subsidiary, and no member of the
Committee shall be personally liable for any act or omission to act, nor for any
mistake in judgment made in good faith, unless arising out of, or resulting
from, such person's own bad faith, willful misconduct or criminal acts. To the
extent permitted by applicable law and regulation, the Corporation shall
indemnify, defend and hold harmless the members of the Board, the members of the
Board of Directors of the Bank and the members of the Board of Directors of any
Subsidiary, and members of the Committee, and each other officer or employee of
the Bank, the Corporation or of any Subsidiary to whom any power or duty
relating to the administration or

interpretation of this Plan may be assigned or delegated, from and against any
and all liabilities (including any amount paid in settlement of a claim with the
approval of the Board), and any costs or expenses (including counsel fees)
incurred by such persons arising out of or as a result of, any act or omission
to act, in connection with the performance of such person's duties,
responsibilities and obligations under this Plan, other than such liabilities,
costs, and expenses as may arise out of, or result from the bad faith, willful
misconduct or criminal acts of such persons.

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

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

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

EXHIBIT A
---------

STOCK OPTION GRANT AND AGREEMENT

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

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

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

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

The Optionee [_] shall [_] shall not have Stock Appreciation Rights
in connection with the Options granted hereby, in accordance with
Section 14 of the Plan.

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

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

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

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

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

---------------------------------------------------------------------
---------------------------------------------------------------------

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

__________________ shares beginning on ______________, 19__

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

__________________ shares beginning on ______________, 19__

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

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

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

(1) State the election to exercise the Option or the election
to surrender an exercisable Option and exercise Stock
Appreciation Rights, the number of shares in respect of which
the Option or Stock

Appreciation Right is being exercised, the person in whose name
any stock certificate or certificates for such shares of Common
Stock is to be registered or to whom any cash is to be paid,
his or her address, and social security number;

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

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

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

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

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

4. NON-TRANSFERABILITY. Neither any Option nor any Stock Appreciation
-------------------
Rights may be transferred in any manner otherwise than by will or the
laws of descent and distribution and such Option and any Stock
Appreciation Rights may be exercised during the life of the Optionee
only by him or her.

5. INVESTMENT PURPOSE. This Option and any Stock Appreciation Rights
------------------
may not be exercised if the issuance of shares or payment of cash
upon such

exercise would constitute a violation of any applicable federal or
state securities law or other law or valid regulation.

6. EXPIRATION. This Option and any corresponding Stock Appreciation
----------
Rights shall expire on _____________, _________.

7. ESCROW. All stock purchased pursuant to an Incentive Stock Option
------
shall be held in escrow for a period which ends on the later of (i)
two (2) years from the date of the granting of the option or (ii) one
(1) year after the transfer of the stock pursuant to the exercise of
the Option. The stock shall be held by the Corporation or its
designee. The Optionee who has exercised the Option shall have all
rights of a stockholder, including, but not limited to, the rights to
vote, receive dividends and sell the stock. The sole purpose of the
escrow is to inform the Corporation of a disqualifying disposition of
the stock within the meaning of Section 422 of the Code, and it shall
be administered solely for this purpose.

8. REPAYMENT OF CASH PAYMENTS. If the Optionee hereunder forfeits any
--------------------------
Options pursuant to the Plan, the Optionee shall, within 30 days
after the effective date of such forfeiture, pay the Corporation, the
Bank or a Subsidiary (as applicable) an amount equal to the cash
payments received by the Optionee from the Corporation, the Bank or
any Subsidiary with respect to such forfeited Options pursuant to
Section 23 of the Plan. In the alternative, at the option of the
Corporation, the Bank or a Subsidiary, the amount to be repaid may be
withheld by the Corporation, the Bank or a Subsidiary from the final
compensation or fees payable to the Optionee. Each acceptance by an
Optionee of cash payments pursuant to such Section 23 with respect to
Options still subject to forfeiture shall constitute a reaffirmation
of the agreements set forth in this paragraph 8.

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

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

11. CONSTRUCTION CONTROLLED BY PLAN. The Options and any corresponding
-------------------------------
Stock Appreciation Rights evidenced hereby shall be subject to all of
the

requirements, conditions and provisions of the Plan. This Agreement
shall be construed so as to be consistent with the Plan; and the
provisions of the Plan shall be deemed to be controlling in the event
that any provision should appear to be inconsistent therewith.

12. SEVERABILITY. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be valid and enforceable
under applicable law, but if any provision of this Agreement is
determined to be unenforceable, invalid or illegal, the validity of
any other provision or part thereof shall not be affected thereby and
this Agreement shall continue to be binding on the parties hereto as
if such unenforceable, invalid or illegal provision or part thereof
had not been included herein.

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

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

15. GOVERNING LAW; VENUE AND JURISDICTION. Without regard to the
-------------------------------------
principles of conflicts of laws, the laws of the State of North
Carolina shall govern and control the validity, interpretation,
performance, and enforcement of this Agreement.

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

17. ENTIRE AGREEMENT. This Agreement and the Plan constitute and embody
----------------
the entire understanding and agreement of the parties hereto and,
except as otherwise provided hereunder, there are no other agreements
or understandings, written or oral, in effect between the parties
hereto relating to the matters addressed herein.

18. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be
deemed an original, but all of which taken together shall constitute
one and the same instrument.

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

ATTEST: SOUTH STREET FINANCIAL CORP.

By:
- ------------------------------ ---------------------------------
(Corporate Seal) President
---------------

OPTIONEE:

------------------------------------
(SEAL)

APPENDIX B

HOME SAVINGS BANK OF ALBEMARLE, INC., SSB
MANAGEMENT RECOGNITION PLAN AND TRUST AGREEMENT

Home Savings Bank of Albemarle, Inc., SSB, a North Carolina chartered
savings bank (the "Bank"), does herein set forth the terms of its Management
Recognition Plan (the "Plan") and Trust (the "Trust") and the Trustees hereby
accept this Trust and agree to hold the Trust assets existing on the date of the
Agreement and all additions and accretions thereto upon the terms and conditions
hereinafter stated.

Section 1. Purpose of this Plan. The purpose of this Plan is to provide
---------- --------------------
to the directors, officers and employees (the "Participants") of the Bank and of
any corporation or other entity of which the Bank owns, directly or indirectly,
not less than fifty percent (50%) of any class of the equity securities thereof
(a "Subsidiary"), an ownership interest in the Bank's parent holding company,
South Street Financial Corp. (the "Corporation") by making awards (hereinafter
referred to as "Awards" or singularly, "Award") of shares of common stock of the
Corporation (the "Common Stock"). The Board of Directors of the Bank (the
"Board") and the Board of Directors of the Corporation believe that
participation in the ownership of the Corporation will induce Participants to
continue to serve the Bank or any Subsidiary as directors, officers and/or
employees and encourage them to contribute to the future growth and profits of
the Bank and the Corporation. In addition, the existence of this Plan will make
it possible for the Bank and its Subsidiaries to attract capable individuals to
serve as directors or officers of the Bank and its Subsidiaries. The Board
believes that the existence of this Plan will provide incentives to the
directors, officers and employees of the Bank and any Subsidiaries which will
contribute materially to the success of such companies.

Section 2. Administration of this Plan.
---------- ---------------------------

(a) This Plan shall be administered by a committee of the Board
(the "Committee") which shall consist of not less than two members of the Board
who are "Non-Employee Directors" as defined in Rule 16 b-3(b)(3) of the Rules
and Regulations under the Securities Exchange Act of 1934 (the "Exchange Act").
In the absence of a duly appointed Committee, the Plan shall be administered by
the Board. The Committee shall have full power and authority to construe,
interpret and administer this Plan. All actions, decisions, determinations, or
interpretations of the Committee shall be final, conclusive, and binding upon
all parties. Members of the Committee shall serve at the pleasure of the Board.

(b) The Committee shall decide (i) to whom Awards shall be made
under this Plan, (ii) the number of shares of Common Stock subject to each
award, (iii) the number of additional shares, if any, to be purchased or
allocated for the purposes of this Plan, (iv) the determination of leaves of
absence which may be granted to Participants without constituting a termination
of their employment for purposes of the Plan and (v) such additional terms and
conditions for Awards as the Committee shall deem appropriate, including,
without limitation, any determinations as to the restrictions or conditions on
transfer of shares of Common Stock that are necessary or appropriate to satisfy
all applicable securities laws, rules, regulations, and listing requirements.

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

(d) Any shares of Common Stock held under this Plan, including without
limitation unallocated, undistributed and forfeited shares, shall be held by the
Trust.

(e) The Trustees shall be appointed by the Board.

Section 3. Contributions to Trust.
---------- ----------------------

(a) The Board shall determine the amount (or the method of computing
the amount) and timing of any contributions by the Bank and any Subsidiaries to
the Trust established under this Plan. Such amounts may be paid in cash or in
shares of Common Stock and shall be paid to the Trust at the designated time of
contribution. No contributions by Participants shall be permitted.

(b) Subject to Section 9 hereof, the Trustees shall invest all of the
Trust's assets primarily in Common Stock. The Trust shall acquire, in the
aggregate, 179,860 shares of Common Stock, which is equal to four percent (4%)
of the shares of Common Stock issued in connection with the conversion of the
Bank from a North Carolina chartered mutual savings bank to a North Carolina
chartered stock savings bank on October 2, 1996 (the "Conversion"). Such shares
of Common Stock may be purchased by the Trust in the open market, or, subject to
approval of the Board of Directors of the Corporation, may be acquired through
the issuance by the Corporation to the Trust of authorized but unissued shares
of Common Stock on such terms as may be approved by the Committee and the Board
of Directors of the Corporation. Such shares (the "Plan Shares") shall be held
by the Trust until they have been awarded and distributed pursuant to the terms
of this Plan. In the event that the Trust receives cash pursuant to receipt of
dividends on Common Stock held by the Trust which has not been awarded to
participants, including the receipt of a special cash dividend or return of
capital with respect to such shares, then such funds may be used by the Trustees
to purchase additional shares of Common Stock available for future award under
this Plan or the Trustees may distribute such cash received by the Trust along
with the Common Stock upon which it was earned upon the award of such previously
unallocated shares.

(c) The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds of the Bank and shall be used
exclusively for the uses and purposes of Participants and general creditors as
herein set forth. Participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust. Any
rights created under the Plan and the Trust shall be mere unsecured contractual
rights of Participants and their beneficiaries against the Bank. Any assets
held by the Trust will be subject to the claims of the Bank's general creditors
under federal and state law in the event of insolvency or bankruptcy, as defined
in Section 9(e) herein.

Section 4. Eligibility and Award of Plan Shares.
---------- ------------------------------------

(a) The Participants in this Plan to whom Awards may be made shall be
the following: members of the Board, members of the Board of Directors of any
Subsidiary, and such officers and employees of the Bank and/or of any Subsidiary
as may be designated by the Committee.

(b) As promptly as practicable after a determination is made that an
Award of Plan Shares is to be made, the Committee shall notify the Participant
in writing of the grant of the Award, the number of Plan Shares covered by the
Award, and the terms upon which the Plan Shares subject to the Award shall vest
and be distributed to the Participant. Awards of Plan Shares under this Plan
shall be effective upon execution and delivery of the Stock Grant Agreement
which sets forth the terms and conditions of the Award of Plan Shares (the
"Stock Grant Agreement").

(c) Notwithstanding anything to the contrary contained in Sections
4(a) and 4(b) above, no Participant shall have any right or entitlement to
receive a Plan Share Award hereunder, such awards being at the total discretion
of the Committee.

Section 5. Vesting and Distribution of Plan Shares.
---------- ---------------------------------------

(a) Shares granted under this Plan shall vest and the right of a
Participant to the Plan Shares shall be nonforfeitable as determined by the
Committee and as set forth in the Stock Grant Agreement.

(b) In determining the number of shares vested under any applicable
vesting schedule, a Participant shall not receive fractional shares. If the
product resulting from multiplying the vested percentage times the allocated
shares results in a fractional share, then a Participant's vested right shall be
rounded down to the nearest whole number of shares.

(c) In the event any Participant shall no longer be either a director
or an employee of the Bank or any Subsidiary for any reason (whichever position
resulted in the award, as set forth in the Stock Grant Agreement), other than as
provided in Sections 5(d) and 5(e) below, and such Participant does not have a
100% vested interest in his or her shares under the Plan, then any shares which
are not vested based upon the applicable schedule set forth in the Stock Grant
Agreement shall be forfeited and, provided this Plan has not terminated pursuant
to Section 16 below, shall be available again for Awards to Participants as may
be determined by the Committee.

(d) In the event that a Participant shall no longer be an employee or
a director of the Bank or any Subsidiary (whichever position resulted in the
award, as set forth in the Stock Grant Agreement), because of such Participant's
disability, death or retirement, prior to the date when all shares allocated to
him or her would be 100% vested in accordance with the schedule set forth in the
Stock Grant Agreement, then, notwithstanding such vesting schedule, all shares
allocated to such Participant shall immediately become fully vested and
nonforfeitable. For purposes of this Plan, the term "retirement" shall be
defined in the same manner as such term is defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"). For purposes of this
Plan, the term "retirement", as it relates to any Participant receiving an award
as a result of his or her position as an

employee of the Bank or any Subsidiary, shall mean (i) the termination of the
Participant's employment under conditions which would constitute retirement
under any tax qualified retirement plan maintained by the Corporation, the Bank
or a Subsidiary, or (ii) termination of employment after attaining age 65. The
term "retirement," as it relates to any Participant receiving an award as a
result of his or her position as a member of the Board or the board of directors
of any Subsidiary, shall mean the cessation of membership on the Board or such
board of directors (i) with the approval of the Board or other board of
directors, as applicable, at any time after such Participant reaches age 70, or
(ii) at the election of the Participant at any time after not less than twenty-
five (25) years of service as a member of the Board or such other board of
directors, as applicable.

(e) In the event that a Participant ceases to be an employee or a
director of the Bank or a Subsidiary (whichever position resulted in the award,
as set forth in the Stock Grant Agreement), for any reason after the occurrence
of a "change in control" and prior to the time that all shares allocated to him
or her would be 100% vested in accordance with the schedule set forth in the
Stock Grant Agreement, then, notwithstanding such vesting schedule, all shares
allocated to such Participant shall immediately become fully vested and
nonforfeitable. For purposes of this Plan, a "change in control" shall mean (i)
a change in control of a nature that would be required to be reported by the
Corporation in response to Item 1 of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) such time as any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) other than the Corporation is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation or Bank representing 25% or more of
the combined voting power of the outstanding Common Stock of the Corporation or
outstanding common stock of the Bank, as applicable; or (iii) individuals who
constitute the board of directors of the Corporation or the Board on the date
hereof (the "Incumbent Board" and "Incumbent Bank Board," respectively) cease
for any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board or Incumbent Bank Board, as applicable, or whose nomination for
election by the Corporation's or Bank's shareholders was approved by the
Corporation's or Bank's Board of Directors or Nominating Committee, shall be
considered as though he or she were a member of the Incumbent Board or Incumbent
Bank Board, as applicable; or (iv) either the Corporation or the Bank
consolidates or merges with or into another corporation, association or entity
or is otherwise reorganized, where neither the Corporation nor the Bank,
respectively, is the surviving corporation in such transaction; or (v) all or
substantially all of the assets of either the Corporation or the Bank are sold
or otherwise transferred to or are acquired by any other entity or group.

(f) Plan Shares which have vested shall be distributed to the
Participant or any transferee permitted by Section 11 (a "Permitted
Transferee"), as the case may be, as soon as practicable after such Plan Shares
have vested in accordance with the schedule contained in the Stock Grant
Agreement.

(g) The Trustees, the Corporation, the Bank and any Subsidiary shall
have the right to require any Participant or Permitted Transferee to remit to
the Corporation, the Bank or any Subsidiary an amount sufficient to satisfy any
federal, state and/or local withholding tax requirements prior to the delivery
or release of any certificate or certificates for Plan Shares or delivery of any
cash

or other assets with respect to Plan Shares or otherwise pursuant to this Plan.
Alternatively, the Trustees, Corporation, Bank and any Subsidiary may deliver or
release Shares or make other distributions of cash or other assets net of the
number of shares or cash sufficient to satisfy the withholding tax requirements.
For withholding tax purposes, the shares of stock, cash and other assets to be
distributed shall be valued on the date the withholding obligation is incurred.

(h) Each Participant receiving an Award of Plan Shares under this Plan
shall deliver to the Bank a Stock Grant Agreement, which shall be signed by such
Participant.

Section 6. Restrictions on Selling of Plan Shares. Plan Share Awards may
---------- --------------------------------------
not be sold, assigned, pledged or otherwise disposed of prior to the time that
they are vested and distributed pursuant to the terms of this Plan. The Board
of Directors or the Committee may require the Participant or his Permitted
Transferee, as the case may be, to agree not to sell or otherwise dispose of his
distributed Plan Shares except in accordance with all then applicable federal
and state securities laws, and the Board of Directors or the Committee may cause
a legend to be placed on the stock certificate(s) representing the distributed
Plan Shares in order to restrict the transfer of the distributed Plan Shares for
such period of time or under such circumstances as the Board of Directors or the
Committee, upon the advice of counsel, may deem appropriate.

Section 7. Effect of Award on Status of Participant. The fact that an
---------- ----------------------------------------
Award is made to a Participant under this Plan shall not confer on such
Participant any right to continued service on the Board or on the Board of
Directors of any Subsidiary, nor any right to continued employment with the Bank
or any Subsidiary; nor shall it limit the right of the Bank, the Corporation, or
any Subsidiary to remove such Participant from any such boards, or to terminate
his or her employment at any time.

Section 8. Voting Rights; Dividends; Other Distributions. After an Award
---------- ---------------------------------------------
of Plan Shares has been made, the Participant or Permitted Transferee shall be
entitled to direct the Trustees as to the voting of the Plan Shares which are
covered by the Award and which are not yet vested and distributed to him,
subject to rules and procedures adopted by the Committee for this purpose. All
shares of Common Stock held by the Trust which have not been awarded under an
Award of Plan Shares and shares which have been awarded as to which Participants
or Permitted Transferees have not directed the voting shall be voted by the
Trustees in the same proportion as the trustees of the Bank's Employee Stock
Ownership Plan votes Common Stock held in trust associated therewith, and in the
absence of any such voting, shall be voted in the manner directed by the Board
of Directors.

Any cash dividends or other cash or noncash distributions (including
special large and nonrecurring dividends and including one that has the effect
of a return of capital to the Corporation's stockholders) or stock dividends
declared in respect of each unvested Plan Share will be held by the Trustees for
the benefit of the Participant or Permitted Transferee on whose behalf such
Award is then held by the Trust and such dividends, including any interest
thereon, will be paid out proportionately by the Trust to the Participant or
Permitted Transferee thereof as soon as practicable after the Plan Shares become
vested in accordance with the Stock Grant Agreement, or otherwise. Any cash
dividends, cash or noncash distributions or stock dividends declared in respect
of each vested Plan Share held by the Trust will be paid by the Trust, as soon
as practicable after the Trust's receipt thereof, to the Participant or
Permitted Transferee on whose behalf such Plan Share is then held by the Trust.
In the

event that the Trust receives cash pursuant to receipt of dividends or other
distributions on Common Stock held by the Trust and unallocated to participants
(including the receipt of a special cash dividend or return of capital) then
such funds may be used by the Trust to purchase additional shares of Common
Stock available for future award under this Plan, or the Committee or Board may
distribute such cash received by the Trust along with the Common Stock upon
which it was earned upon the award of such previously unallocated shares.

Section 9. Trust.
---------- -----

(a) The Trustees shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of this Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Board of Directors or the Committee
pursuant to the Plan.

(b) It is the intent of this Plan and Trust that the Trustees shall
have complete authority and discretion with respect to the arrangement, control
and investment of the Trust, and that the Trustees shall invest all assets of
the Trust in Common Stock to the fullest extent practicable, except to the
extent that the Trustees determine that the holding of monies in cash or cash
equivalents is necessary to meet the obligations of the Trust. In performing
their duties, the Trustees shall have the power to do all things and execute
such instruments as may be deemed necessary or proper, including the following
powers;

(i) To invest up to one hundred percent (100%) of all Trust
assets in Common Stock without regard to any law now or hereafter in force
limiting investments for trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust, and in
making such investment, the Trustees are authorized to purchase Common
Stock from the Corporation or from any other source, and such Common Stock
so purchased may be outstanding, newly issued, or treasury shares.

(ii) To invest any Trust assets not otherwise invested in
accordance with (a) above, in deposit accounts and certificates of deposit
at the Bank or in obligations of the United States Government or its
agencies or such other investments as shall be considered the equivalent of
cash.

(iii) To sell, exchange or otherwise dispose of any property at
any time held or acquired by the Trust.

(iv) To cause stocks, bonds or other securities to be
registered in the name of a nominee, without the addition of words
indicating that such security is an asset of the Trust (but accurate
records shall be maintained showing that such security is an assets of the
Trust).

(v) To hold cash without interest in such amounts as may in
the opinion of the Trustees be reasonable for the proper operation of the
Plan and Trust.

(vi) To employ brokers, agents, custodians, consultants and
accountants.

(vii) To hire counsel to render advice with respect to their
rights, duties and obligations hereunder, and such other legal services or
representation as the Trustees deem desirable.

(viii) To hold funds and securities representing the amounts to
be distributed to a Recipient or his Beneficiary as a consequence of a
dispute as to the disposition thereof, whether in a segregated account or
held in common with other assets of the Trust.

Notwithstanding anything herein contained to the contrary, the Trustees
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.

(c) The Trustees shall maintain accurate and detailed records and
accounts of all transactions of the Trust, which shall be available at all
reasonable times for inspection by any legally entitled person or entity to the
extent required by applicable law, or by any other person determined by the
Board of Directors or the Committee.

(d) Notwithstanding anything to the contrary in this Plan or Trust,
the assets of the Plan and Trust are subject to the payment of the claims of
creditors of the Bank in the event of its insolvency or bankruptcy. The Bank is
insolvent or bankrupt if it is the subject of a proceeding under the Bankruptcy
Code, 11 U.S.C. Section 101 et seq. or is unable to pay its debts. The Board of
Directors or the chief executive officer of the Bank must give written notice to
the Trustees of the Corporation's bankruptcy or insolvency as soon as
practicable following the occurrence of such event. Upon receipt of such notice
or other written allegations of the Bank's bankruptcy or insolvency, or in the
case of the Trustees' actual knowledge of or determination of the Bank's
bankruptcy or insolvency, the Trustees shall discontinue delivery of Trust
assets to the Participants or the Bank and shall hold the assets of the Trust
for the benefit of the Bank's general creditors and, upon a determination that
the Bank is bankrupt or insolvent, shall distribute such assets to or for the
benefit of the general creditors. The Trustees shall resume delivery of Trust
assets to the Participants or the Bank only after it is determined that the Bank
is no longer bankrupt or insolvent. Determination of the bankruptcy or
insolvency shall be determined by a court of competent jurisdiction or by an
arbitrator selected by and pursuant to rules of the American Arbitration
Association upon petition by an interested party.

Section 10. Adjustment Upon Changes in Capitalization; Dissolution or
----------- ---------------------------------------------------------
Liquidation. In the event of a change in the number or type of shares of Common
- -----------
Stock outstanding, or in the event shares of Common Stock are decreased, changed
into or exchanged for securities of a different entity, by reason of a
reclassification, recapitalization, reorganization, other similar capital
adjustment; by reason of a merger or consolidation of the Corporation; by
reason of the sale by the Corporation of all or a substantial portion of its
assets; or by reason of the occurrence of any other event which could affect
the implementation of this Plan and the realization of its objectives, the
number or kind of shares subject to Awards which have occurred, or could occur,
under this Plan shall be proportionately and equitably adjusted by the
Committee.

Section 11. Non-Transferability.
----------- -------------------

Prior to the time Plan Share Awards become vested and are distributed
by the Trustees, Plan Share Awards may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent and distribution. Notwithstanding the foregoing, or any
other provision of this Plan, a Participant who holds Plan Share Awards may
transfer such awards to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of one or more of
these individuals. Plan Share Awards so transferred may thereafter be
transferred only to the Participant who originally received the grant or to an
individual or trust to whom the Participant could have initially transferred the
awards pursuant to this Section 11. Plan Share Awards which are transferred
pursuant to this Section 11 shall be subject to the same terms and conditions as
applied to the Participant. In addition, such shares may be tendered in
response to a tender offer for or a request or invitation to tenders of greater
than fifty percent (50%) of the outstanding Common Stock and may be surrendered
in a merger, consolidation or share exchange involving the Corporation;
provided, however, in each case, that except as otherwise provided herein, the
securities or other consideration received in exchange therefor shall thereafter
be subject to the restrictions and conditions set forth in this Plan.

Section 12. Impact of Award on Other Benefits of Participant. The value
----------- ------------------------------------------------
of any Award, either on the date of the Award or at the time such shares become
vested, shall not be includable as compensation or earnings for purposes of any
other benefit plan offered by the Bank, the Corporation or any Subsidiary other
than any qualified employee benefit plan which provides that such value shall be
included as compensation or earnings for purposes of such plan.

Section 13. Corporate Action. The making of an Award under this Plan
----------- ----------------
shall not affect in any way the right or power of the Corporation or its
shareholders or the Bank or its shareholders or any Subsidiary or its
shareholders to make or authorize any adjustment, recapitalization,
reorganization, or other change in the Corporation's, the Bank's or any
Subsidiary's capital structure or its business, or any merger or consolidation
of the Corporation, the Bank or any Subsidiary, or the issuance of any bonds,
debentures, preferred or other capital stock or rights with respect thereto, or
the dissolution or liquidation of the Corporation, the Bank or any Subsidiary,
or any sale or transfer of all or any part of the Corporation's, the Bank's or
any Subsidiary's assets or business.

Section 14. Exculpation and Indemnification. In connection with this
----------- -------------------------------
Plan, no member of the Board, no member of the Board of Directors of the
Corporation, no member of the Committee and no Trustee shall be personally
liable for any act or omission to act in his capacity as a member of the Board,
the Board of Directors of the Corporation or the Committee or as Trustees, nor
for any mistake in judgment made in good faith, unless arising out of, or
resulting from, such person's own bad faith, willful misconduct, or criminal
acts. To the extent permitted by applicable law and regulation, the Bank shall
indemnify, defend and hold harmless the members of the Board, the members of the
Board of Directors of the Corporation, the members of the Board of Directors of
any Subsidiary, the Committee and each Trustee and each other officer or
employee of the Bank, the Corporation or of any Subsidiary to whom any duty or
power relating to the administration or interpretation of this Plan may be
assigned or delegated, from and against any and all liabilities (including any
amount paid in settlement of a claim with the approval of the Board) and any
costs or expenses (including counsel fees) incurred by such

persons arising out of, or as a result of, any act or omission to act in
connection with the performance of such person's duties, responsibilities, and
obligations under this Plan, other than such liabilities, costs, and expenses as
may arise out of, or result from, the bad faith, willful misconduct, or criminal
acts of such persons.

Section 15. Amendment and Modification of this Plan. The Board may at
----------- ---------------------------------------
any time, and from time to time, amend or modify this Plan (including the form
of Stock Grant Agreement) in any respect, subject to any applicable regulatory
requirements and any required stockholder approval or any stockholder approval
which the Board may deem advisable for any reason, such as for the purpose of
obtaining or retaining any statutory or regulatory benefits under tax,
securities or other laws or satisfying applicable stock exchange or quotation
system listing requirements. However, any amendment or modification of this
Plan shall not in any manner affect any Award of shares theretofore made to a
Participant under this Plan without the consent of such Participant or any
Permitted Transferee of such Participant.

Section 16. Termination and Expiration of this Plan. This Plan may be
----------- ---------------------------------------
abandoned, suspended, or terminated, in whole or in part, at any time by the
Board; provided, however, that abandonment, suspension, or termination of this
Plan shall not affect any Award theretofore made under this Plan. Unless sooner
terminated, this Plan shall terminate at the close of business on the day that
is the tenth (10th) anniversary of the date of approval of the Plan by the
shareholders of the Corporation; and no Award of shares may be made under this
Plan thereafter. Such termination shall not effect any Award of shares
theretofore made. In the event that the Board terminates this Plan in whole,
any shares held by the Trust which have not been allocated to eligible
Participants, together with any other assets held by the Trust, shall revert to
the Bank.

17. Tax Status of Trust. It is intended that the trust established hereby
-------------------
be treated as a Grantor Trust of the Corporation under the provisions of Section
671 et seq. of the Code, as the same may be amended from time to time.
-- ---

18. Miscellaneous.
-------------

(a) This Plan has been adopted by the Board to be effective as of the date
of approval of the Plan by the shareholders of the Corporation.

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

(c) All costs and expenses incurred in the operation and administration of
this Plan shall be borne by the Bank or by a Subsidiary, or in the discretion of
the Bank, the Trust.

(d) Without regard to the principles of conflicts of laws, the laws of the
State of North Carolina shall govern and control the validity, interpretation,
performance, and enforcement of this Plan and Trust.

(e) A copy of this Plan, and any amendments thereto, shall be maintained
by the Secretary of the Bank and shall be shown to any proper person making
inquiry about it.

STATE OF NORTH CAROLINA
COUNTY OF STANLY
STOCK GRANT AGREEMENT

THIS STOCK GRANT AGREEMENT (the "Agreement") is made and entered into as of
the ____ of ___________________, _______ (the "Effective Date"), by and among
Home Savings Bank of Albemarle, Inc., SSB (the "Bank"), a North Carolina
corporation, _______________________ (the "Participant") and
______________________, ___________________ and ____________________ (the
"Trustees").

WHEREAS, a Management Recognition Plan (the "Plan") was adopted by the
Board of Directors of the Bank (the "Bank") and approved by the Board of
Directors and by the shareholders of South Street Financial Corp., the holding
company of the Bank (the "Corporation") on ________________, 1997.

WHEREAS, it has been determined that it is desirable and in the best
interest of the Bank to make an award (the "Award") of certain shares of the
Common Stock of the Corporation, under the Plan, to the Participant, subject to
certain restrictions as specified below; and

WHEREAS, capitalized terms not otherwise defined herein shall have the same
meaning given to such terms in the Plan.

NOW, THEREFORE, the Parties agree as follows:

1. Date of Award. The date of making the Award under this Agreement is
-------------
the _____ day of _________________, ______. This Award has been made in
recognition of the Participant's status and service as a ____________________ of
_____________________________________________. The Participant is ____ or _____
is not a director or executive officer of the Bank.

2. Award of Plan Shares. The Participant is awarded, in the aggregate,
--------------------
___________________________ (__________) shares of Common Stock (the "Plan
Shares"), which shares become vested and nonforfeitable pursuant to paragraph 5
of this Agreement.

3. Investment Representation and Transfer Restrictions.
---------------------------------------------------

(a) Investment Representation. Participant makes and agrees to the
-------------------------
investment representation, if any, attached hereto as Annex A, and the Committee
may cause a legend to be placed on any certificate representing any of the Plan
Shares to make appropriate reference to such representation, as necessary.

(b) Securities Law and Regulations. The Participant agrees that the
-------------------------------
Plan Shares shall be subject to such stop-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock

exchange or interdealer quotation system upon which the Common Stock is then
listed and any other applicable federal or state securities laws, rules or
regulations, and the Committee may cause a legend or legends to be placed on any
certificate representing any of the Plan Shares to make appropriate reference to
such restrictions.

4. Receipt by the Trustees. The Trustees acknowledge and agree that the
-----------------------
Plan Shares shall be held by the Trustees and distributed or transferred in
accordance with the Plan and as set forth herein.

5. Vesting and Delivery of Plan Shares by the Trustees.
---------------------------------------------------

(a) Periodic Vesting. Plan Shares shall vest and become
----------------
nonforfeitable in accordance with the following schedule:

_________ shares on ___________________, 19___
_________ shares on ___________________, 19___
_________ shares on ___________________, 19___
_________ shares on ___________________, 20___
_________ shares on ___________________, 20___

In addition, Plan Shares shall become vested and nonforfeitable upon disability,
death, retirement and a change in control as set forth in the Plan.

(b) Delivery of Vested Plan Shares to the Participant. After the date
-------------------------------------------------
on which the Plan Shares have become vested as provided in this Agreement and in
the Plan, the Committee shall instruct the Trustees to deliver to the
Participant, the Participant's designee, such other person as shall have been
designated as Participant's beneficiary in accordance with this Agreement, or
any other permitted recipient pursuant to the Plan, as applicable, certificates
representing the Plan Shares which have become vested and nonforfeitable, as the
Committee shall determine, free from any restrictions imposed by this Agreement
other than such restrictions and conditions as may be deemed necessary by the
Committee pursuant to paragraph 3 above.

(c) Delivery of Forfeited Plan Shares. If the Plan Shares, or any of
---------------------------------
them, are forfeited pursuant to the Plan, the Committee shall instruct the
Trustees concerning the disposition of such forfeited shares. Thereafter such
forfeited shares shall cease to be subject to this Agreement.

6. Payment of Dividends. As soon as practicable after the Plan Shares
--------------------
have become vested and delivered, the Trustees shall pay to the Participant, the
Participant's designee, such other person as shall have been designated as
Participant's beneficiary in accordance with the Agreement or any other
permitted recipient pursuant to the Plan, the proportional amount of any cash or
stock dividend, or other cash or noncash distributions, including any interest
earned thereon, declared in respect of such vested Plan Shares, which had been
held in the Trust for the benefit of the above-named person(s).

7. Designation of Beneficiary. The Participant hereby designates the
--------------------------
person(s) described on Annex B as the beneficiary or beneficiaries who shall be
entitled to receive the Plan Shares and other assets, if any, distributable to
the Participant upon his death. The Participant may, from time to time, revoke
or change his beneficiary designation without the consent of any prior
beneficiary, if any, by filing a new designation with the Committee. The last
such designation received by the Committee shall be controlling; provided,
however, that no designation, or change or revocation thereof, shall be
effective unless received by the Committee prior to the Participant's death, and
in no event shall it be effective as of a date prior to such receipt.

If no such beneficiary designation is in effect at the time of the
Participant's death, or if no designated beneficiary survives the Participant,
or if such designation conflicts with law, the Participant's estate shall be
deemed to have been designated his beneficiary and shall receive the Plan Shares
and other assets, if any, distributable to the Participant upon his death. If
the Committee is in doubt as to the right of any person to receive such
distribution, the Committee may direct the Trustees to retain the Plan Shares
and other assets, without liability for any interest in respect thereof, until
the rights thereto are determined, or the Committee may direct the transfer of
such Plan Shares into any court of appropriate jurisdiction and such transfer
shall be deemed a complete discharge of the obligations of the Bank, the
Corporation, the Committee and Trustees hereunder.

8. Effect of Award on Status of Participant. The fact that an Award has
----------------------------------------
been made to the Participant under this Plan shall not confer on the Participant
any right to continued service on the Board, on the board of directors of the
Corporation or on the board of directors of any Subsidiary, nor to continued
employment with the Bank, the Corporation or any Subsidiary; nor shall it limit
the right of the Bank, the Corporation or of any Subsidiary to remove the
Participant from any such boards, or to terminate his employment at any time
without prior notice.

9. Impact of Award on Other Benefits of Participant. The value of the
------------------------------------------------
Plan Shares on the date of the Award or at the time the Plan Shares becomes
vested, shall not be includable as compensation or earnings for purposes of any
other benefit plan offered by the Bank, the Corporation or any Subsidiary other
than any qualified employee benefit plan which provides that such value shall be
included as compensation or earnings for purposes of such plans.

10. Tax Withholding. All Plan Shares distributed pursuant to this
---------------
Agreement shall be subject to applicable federal, state and local withholding
for taxes. The Participant expressly acknowledges and agrees to such
withholding without regard to whether the Plan Shares may then be sold or
otherwise transferred by the Participant. The Participant acknowledges and
agrees to the tax withholding provisions which are set forth in the Plan.

11. Notices. Any notices or other communications required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed to have
been sufficiently given if delivered personally or three business days after
deposit in the United States mail by Certified Mail, return receipt requested,
properly addressed and postage prepaid, if to the Bank, the Committee or the
Trustees at the Bank's principal office address at 155 West South Street,
Albemarle, North Carolina 28002; and, if to the Participant, at his last address
appearing on the books of the Bank. The Bank and the Participant may change
their address or addresses by giving written notice of such change as provided
herein. Any

notice or other communication hereunder shall be deemed to have been given on
the date actually delivered or as of the third (3rd) business day following the
date mailed as set forth above, as the case may be.

12. Construction Controlled by Plan. The Plan, a copy of which is
-------------------------------
attached hereto as Annex C, is incorporated herein by reference. The Award of
Restricted Shares shall be subject to the terms and conditions of the Plan, and
the Participant hereby assumes and agrees to comply with all of the obligations
imposed upon the Participant in the Plan. This Agreement shall be construed so
as to be consistent with the Plan; and the provisions of the Plan shall be
deemed to be controlling in the event that any provision hereof should appear to
be inconsistent therewith.

13. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or part
thereof shall not be affected thereby and this Agreement shall continue to be
binding on the parties hereto as if such unenforceable, invalid or illegal
provision or part thereof had not been included herein.

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

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

16. Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the parties hereto, and their respective heirs, legatees,
personal representatives, executors, and administrators, successors and assigns.

17. Entire Agreement. This Agreement and the Plan constitute and embody
----------------
the entire understanding and agreement of the parties hereto and, except as
otherwise provided hereunder, there are no other agreements or understandings,
written or oral, in effect between the parties hereto relating to the matters
addressed herein.

18. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.

19. Substitution of Trustees. In the event any new trustee is substituted
------------------------
for any Trustee pursuant to the Plan, such substitute trustee shall also be
substituted as a Trustee hereunder.

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

HOME SAVINGS BANK OF ALBEMARLE,
INC., SSB

By:
------------------------------------------
President
-----------------------

ATTEST:

- ----------------------------------

Secretary
- ----------------

[Corporate Seal]

PARTICIPANT

(SEAL)
-------------------------------

(SEAL)
-------------------------------
TRUSTEE

ANNEX A

INVESTMENT REPRESENTATION
-------------------------

ANNEX B

MANAGEMENT RECOGNITION PLAN
---------------------------
BENEFICIARY DESIGNATION FORM
----------------------------

As Beneficiary to receive any shares of stock distributable on my behalf
pursuant to the Home Savings Bank of Albemarle, Inc., SSB Management Recognition
Plan, I hereby designate the following:

Name Address Relationship

Primary Beneficiary:
-----------------------------------------------------------

-----------------------------------------------------------

Contingent Beneficiary:
(if any)
-----------------------------------------------------------

-----------------------------------------------------------

If more than one primary beneficiary is named, shares will be paid in equal
shares to surviving primary beneficiaries. Should the contingent beneficiaries
be eligible to receive the benefits (i.e., all primary beneficiaries are
deceased), such benefits will be paid in equal shares to such surviving
contingent beneficiaries.

Name of Spouse if not given above:
----------------------------------------------

- --------------------------- ---------------------------------------------------
Witness Participant

---------------------------------------------------
Date

ANNEX C

MANAGEMENT RECOGNITION PLAN
---------------------------

++++++
+
+
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE SOUTH STREET FINANCIAL CORP.

SPECIAL MEETING OF STOCKHOLDERS
OCTOBER 15, 1997
2:00 P.M.
The undersigned hereby appoints the official proxy committee of South Street
Financial Corp. (the "Company") comprised of Douglas D. Stokes, Joel A.
Huneycutt and Greg E. Underwood, each with full power of substitution, to act
as attorneys and proxies for the undersigned, and to vote all shares of Common
Stock of the Company which the undersigned is entitled to vote only at the
Special Meeting of Stockholders, to be held at the offices of the Company, 155
West South Street, Albemarle, North Carolina, on October 15, 1997, at 2:00 p.m.
and at any and all adjournments thereof, as follows:

FOR AGAINST ABSTAIN

1. The approval of the South Street [_] [_] [_]
Financial Corp. Stock Option Plan.

2. The approval of the Home Savings [_] [_] [_]
Bank of Albemarle Inc., SSB Management
Recognition Plan.

\
PLEASE CHECK BOX IF YOU PLAN TO ATTEND THE SPECIAL MEETING: ------------ [_]
/

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.

If a proxy is returned and no instructions are given, the proxy will be voted
FOR the South Street Financial Corp. Stock Option Plan and the Home Savings
Bank of Albemarle Inc., SSB Management Recognition Plan. If instructions are
given with respect to one but not both proposals, (i) such instructions as are
given will be followed and, (ii) the proxy will be voted FOR the South Street
Financial Corp. Stock Option Plan and the Home Savings Bank of Albemarle, Inc.,
SSB Management Recognition Plan if no instructions on either proposal are given.
If any other business that falls within the purposes set forth in the Notice of
Special Meeting is presented at the Special Meeting, this proxy shall be voted
in accordance with the proxy committee's best judgment.

---------------------------------------------
Please be sure to sign and date Date
this Proxy in the box below.
- --------------------------------------------------------------------------------

- -- Stockholder sign above ---------- Co-Holder (if any) sign above -------------
+ +
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

/\ DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED. /\
SOUTH STREET FINANCIAL CORP.
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The above signed acknowledges receipt from the Company, prior to the election of
this Proxy, of a Notice of Special Meeting and a Proxy Statement dated September
11, 1997.
Please sign exactly as your name appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder may sign, but only one signature is
required.

PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
- --------------------------------------------------------------------------------