UWHARRIE CAPITAL CORP 2006 INCENTIVE STOCK OPTION PLAN

Exhibit 10.1

UWHARRIE CAPITAL CORP

2006 INCENTIVE STOCK OPTION PLAN

Uwharrie Capital Corp (the “Company”) hereby adopts this 2006 INCENTIVE STOCK OPTION PLAN (the “Plan”) as further described herein.

ARTICLE I

PURPOSE AND SCOPE OF PLAN

The purpose of the Plan is to encourage the continued service of key employees of the Company or any company which is a direct or indirect subsidiary of the Company (a “Subsidiary”), and to provide an additional incentive for such employees to expand and improve the profits and prosperity of the Company and its Subsidiaries, by granting them options to purchase shares of the Company’s common stock. The Plan also will assist the Company and its subsidiaries in recruiting and retaining key employees to serve as employees of the Company and its Subsidiaries.

Pursuant to and in accordance with the terms of the Plan, options (“Options”) may be granted from time to time to purchase shares of the Company’s common stock, $1.25 par value per share (“Common Stock”).

The aggregate number of shares of Common Stock which may be sold upon the exercise of Options granted under the Plan is 153,132 shares, which maximum number is subject to adjustment as provided in Paragraph 6.1 hereof. Shares of Common Stock sold by the Company upon the exercise of Options granted hereunder, at the sole discretion of the Company, may be issued from the Company’s authorized but unissued shares, or be issued and outstanding shares purchased by the Company on the open market or in private transactions. In the event an Option granted under the Plan shall expire or terminate for any reason without having been exercised in full, then, to the extent the Plan shall remain in effect, the shares of Option Stock covered by the unexercised portion of such Option shall again be available for purposes of this Plan.

The Plan shall be subject to approval by a vote of the holders of a majority of the shares of the Company’s Common Stock present or represented, in person or by proxy, and entitled to vote at a meeting of the Company’s shareholders held in accordance with North Carolina law. Subject to such approval, the Plan shall become effective as of May 16, 2006 (the “Effective Date,” which is the date of adoption of the Plan by the Company’s Board of Directors) and, unless sooner terminated as provided herein, shall terminate at 5:00 P.M. on May 16, 2016 (the “Termination Date”). Following the Termination Date, no further Options may be granted under the Plan, but such termination shall not effect any Option granted prior to the Termination Date.

ARTICLE II

DEFINITIONS

2.1 Board . “Board” refers to the Company’s Board of Directors.

2.2 Committee . The “Committee” shall refer to the committee of and appointed or designated by the Board to administer the Plan as described in Article III below.

2.3 Common Stock . “Common Stock” is the common stock of the Company, par value $1.25 per share.

2.4 Date of Grant . The “Date of Grant” of an Option refers to the effective date of action by the Committee granting such Option.

2.5 Employee . An “Employee” includes any person who is a full-time employee of the Company or of any of its Subsidiaries.

2.6 Exercise Price . The “Exercise Price” is the price per share to be paid by an Optionee for the purchase of Option Stock upon the exercise of an Option.

2.7 Expiration Date . “Expiration Date” refers to the date set by the Committee at which time any unexercised portion of such Option automatically will terminate and be of no further force or effect.

2.8 Modification, Extension or Renewal . “Modification” refers to any change in an Option which alters or modifies the original terms, conditions or benefits of the Option granted to the Optionee. “Extension” refers to the granting to the Optionee of an additional period of time within which to exercise the Option beyond the Expiration Date originally prescribed in the Option Agreement. “Renewal” refers to the granting of an Option to the Optionee with the same rights and privileges and on the same terms and conditions as contained in an original Option after expiration or termination of the original Option.

2.9 Option. An “Option” is a right granted by the Company pursuant to the Plan to an Employee to purchase shares of Common Stock at the Exercise Price set by the Committee for such Option and on the terms and conditions set forth herein and in the Option Agreement relating to such Option.

2.10 Option Agreement . An “Option Agreement” is a formal written agreement executed between the Company and an Optionee setting forth the terms and conditions of an Option.

2.11 Option Stock . “Option Stock” refers to the shares of Common Stock covered by an Option and which may be purchased by the Optionee upon the exercise, in whole or in part, of such Option.

2.12 Optionee . An “Optionee” is an Employee to whom an Option is granted.

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ARTICLE III

PLAN ADMINISTRATION

The Plan shall be administered by the Committee which shall be composed of not less than three members of the Board of Directors who (i)  are not employees of the Company and who are not, during the one year prior to service as members of the Committee, granted or awarded any equity securities of the Company pursuant to the Plan or any other plan of the Company or any of its affiliates, and who (ii)  otherwise qualify as “disinterested administrators’ as defined in Rule 16b-3 (c) (2) (i) under the Securities Exchange Act of 1934. Members of the Committee shall serve at the pleasure of the Board, and the Board of Directors, from time to time and at its discretion, may remove members from (with or without cause) or add members to the Committee or fill any vacancies on the Committee, however created.

In its administration of the Plan, the Committee shall have the following authority, powers and duties:

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The Committee shall select one of its members as Chairman and shall hold meetings at such times and places as it shall deem necessary or desirable. A majority of the members of the Committee shall constitute a quorum for all matters with respect to administration of the Plan, and acts of a majority of the members of the Committee present at meetings at which a quorum is present, or acts reduced to and approved in writing by all of the members of the Committee without a meeting, shall be valid acts of the Committee.

The Committee shall have the discretion to cause any Option granted pursuant to this Plan to be granted with the intent that it qualify for treatment as an “Incentive Stock Option” (an “ISO”) as defined in § 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or with the intent that it be treated as a “Nonqualified Stock Option” (a “NSO”) (ISOs and NSOs shall collectively be referred to herein as “Options” unless reference is specifically made only to one or the other, and, in the case of any such reference only to one, such reference shall be deemed to be made to the exclusion of the other.)

All actions, decisions and determinations of the Committee in connection with the administration of the Plan, and in connection with the interpretation and construction of, or questions or other matters concerning, the Plan or any Option granted, shall (i)  be made consistent and in accordance with the terms of the Plan and, with respect to an ISO, shall be designed to cause the Plan and each such ISO to continue to comply with applicable provisions of the Code, and (ii)  shall be final, conclusive and binding on all persons, including the Company, its shareholders, Optionees and any other person claiming any interest in any Option; provided, however, that any action, decision, interpretation or determination, other than those respecting the actual grant of Options, shall be subject to review by the Board of Directors either on its own initiative, at the request of the Committee or on application of any aggrieved party. In such a case, the determination of the Board of Directors on such review shall be final and binding on all affected parties.

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To the extent permitted by applicable law, and in addition to such other rights of indemnification members of the Committee may have as Directors of the Company, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal thereof, to which they or any of them may be a party by reason of any action taken or omitted in good faith under or in connection with administration of the Plan or any Option granted hereunder and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that any such Committee member is liable for gross negligence or misconduct in the performance of his duties; provided, however, that within sixty (60) days after institution of any such action, suit or proceeding, such Committee member(s) shall in writing offer the Company the opportunity, at its own expense, to handle and defend same.

ARTICLE IV

GRANT AND TERMS OF OPTIONS

Pursuant to the Plan, from time to time prior to the Termination Date the Company may grant Options to Employees to purchase shares of Common Stock. Options may only be granted by action of the Committee, and no person shall have any rights under the Plan or with respect to any Option except pursuant to such action of the Committee.

The number of shares of Option Stock covered by each Option shall be set by the Committee at the time such Option is granted and shall be specified in the Option Agreement relating to such Option. The number of shares of Option Stock covered by each Option shall be subject to adjustment in the manner described in Paragraph 6.1 below.

At the time an Option is granted, the Committee shall set the Exercise Price applicable to such Option. The Exercise Price shall be determined by the Committee in the manner described below and shall be specified in the Option Agreement evidencing the Option. The Exercise Price applicable to each Option shall be subject to adjustment in the manner described in Paragraph 6.1 below.

The Exercise Price for each share of Option Stock covered by an Option shall not be less than one hundred percent (100%) of the fair market value of one share of the Common Stock on the Date of Grant of such Options (the “Fair Market Value”). The Fair Market Value of a share of the Company’s outstanding Common Stock on any particular date shall be, (i)  if the Common

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Stock is not then listed on the Nasdaq Stock Market, the fair market value of a share of the Common Stock as determined by the Committee in its sole discretion in such manner as it shall deem to be reasonable and appropriate, or, (ii)  if the Common Stock is listed on the Nasdaq Stock Market, the average of the bid and asked prices for a share of the Common Stock as quoted by Nasdaq on such date.

Notwithstanding anything contained herein to the contrary, in the case of an ISO being granted to an Employee who owns, immediately before the ISO is granted, more than ten percent (10%) of the total combined voting power of all classes of Common Stock of the Company, the Exercise Price per share with respect to such ISO, as determined by the Committee and stated in the Option Agreement, shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of the Company’s outstanding Common Stock as of the Date of Grant of the ISO.

Each Option granted under the Plan shall be evidenced by an Option Agreement which shall be executed and delivered by or on behalf of the Company and the Optionee and which shall (i)  specify whether such Option is intended to be an ISO or an NSO, (ii)  contain such other information as is provided or permitted herein to be contained in the Option Agreement, and (iii)  not contain any provisions inconsistent with the Plan. Following the execution of an Option Agreement evidencing an Option, such Option shall be effective as of the Date of Grant of such Option.

The aggregate Fair Market Value (determined as of the Date of Grant of the Option) of the Option Stock for which an Optionee may be granted ISOs exercisable for the first time in any calendar year (including ISOs granted under all option plans of the Company or any of its Subsidiaries) shall not exceed $100,000. This $100,000 limitation shall not apply to the grant of NSOs.

ARTICLE V

EXERCISE OF OPTIONS

No Option may be exercised unless and until the Optionee shall have completed one full year (or such other or longer period as shall be specified by the Committee) of continuous, full time service in the employment of the Company or any of its Subsidiaries following the Date of Grant of the Option, but thereafter may be exercised as provided herein and in the Option Agreement evidencing such Option. The waiting period provided herein shall not operate to extend the Expiration Date or maximum period for exercise of an Option set forth or referred to in Paragraph 5.2 below.

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The Expiration Date of each Option shall be set by the Committee at the time the Option is granted and shall be specified in the Option Agreement evidencing the Option. However, (i)  the Expiration Date of an ISO granted to an Employee who owns, immediately before the ISO is granted, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, shall not be more than 5 years following the Date of Grant of the ISO, and (ii)  the Expiration Date of any Option shall not be more than ten (10) years following the Date of Grant of the Option.

Subject to the other terms and conditions contained in the Plan, each Option may be exercised by the Optionee at such times or intervals and on such other terms and conditions (if any) as are determined by the Committee and specified in the Option Agreement evidencing the Option.

Notwithstanding anything contained herein or in any Option Agreement to the contrary, to the extent that an Option shall not previously have been exercised in the manner required by the Plan, it shall expire and terminate at 5:00 P.M. on its Expiration Date. In addition to the termination provisions set forth above, Options granted pursuant to the Plan shall terminate or may be terminated as provided in Paragraphs 5.7 and 6.1 below. Upon the expiration or termination of all or any portion of an Option, such Option or portion thereof shall, without any further act by the Company, expire and no longer be exercisable or confer any rights to any person to purchase shares of Common Stock under the Plan.

To exercise an Option in whole or in part, the Optionee or other person then entitled to exercise the Option or portion thereof shall notify the Company by delivering written notice of such exercise (a “Notice of Exercise”) to the President, Chief Executive Officer or Executive Vice President-Investor Relations of the Company. Such written notice shall be substantially in the form attached hereto as Exhibit A and shall specify the number of shares of Option Stock to be purchased. A Notice of Exercise shall not be effective (and the Company shall have no obligation to sell any Option Stock to the Optionee pursuant to such Notice) unless it satisfies the terms and conditions set forth herein and actually is received by the Company as provided above prior to the Expiration Date of the Option to be exercised.

In the event an Option or portion thereof is being exercised by a person other than the Optionee (as provided in Paragraph 5.7(c) below), the Notice of Exercise shall be accompanied by appropriate proof of the right of such person(s) to exercise the Option.