COMPREHENSIVE EQUITY COMPENSATION PLAN FOR DIRECTORS AND EMPLOYEES DIRECTOR FEE DEFERRAL AGREEMENT LSB BANCSHARES, INC.

EXHIBIT 10.1

COMPREHENSIVE EQUITY COMPENSATION PLAN
FOR DIRECTORS AND EMPLOYEES

DIRECTOR FEE DEFERRAL AGREEMENT

LSB BANCSHARES, INC.

Participant’s Name: _________________________

Year: 200___

     THIS DIRECTOR FEE DEFERRAL AGREEMENT (“Deferral Agreement”) is between LSB Bancshares, Inc., a North Carolina corporation (the “Company”), and the Participant named above (“Participant”). This Deferral Agreement together with any attachments is an “Award Agreement” within the meaning of and made pursuant and subject to the provisions of the LSB Bancshares, Inc. Comprehensive Equity Compensation Plan for Directors and Employees (the “Equity Plan”), a copy of which has been furnished to Participant. All capitalized terms used but not defined herein have the same meaning given them in the Equity Plan.

Deferral Election

Instructions to Participant: To defer Board retainers, select A; to defer Board meeting fees, select B (you may select both A and B if you wish). Choose C if you do not wish to defer Board meeting fees or quarterly retainers. (To make your selection(s), put an “X” in the brackets of your choice or choices below.)

Deferred Stock Units

     The Quarterly Retainers and Board Meeting Fees deferred pursuant to this Deferral Agreement will be converted into Deferred Stock Units in accordance with the additional provisions established by the Committee and described in Exhibit A attached hereto and incorporated herein by reference (the “Deferral Provisions”). Deferred Stock Units may be redeemed and paid only as provided in the Deferral Provisions and the Equity Plan.

Effective Date

     This Deferral Agreement shall be effective as of the later of (a) the date of execution below, or (b) the date on which the Committee approves this Deferral Agreement and the final form of the Deferral Provisions. The undersigned Participant may revoke this Deferral Agreement by delivering written notice of revocation to the Company’s Chief Financial Officer or Secretary no later than 5:00 p.m. Eastern Standard Time on December 31, 2004.

Acknowledgment and Agreement

     By signing this Deferral Agreement, I agree to be bound by all the terms and provisions of this Deferral Agreement, the Deferral Provisions and the Equity Plan. I hereby acknowledge receipt of the Equity Plan and a draft of the Deferral Provisions and I understand and acknowledge that the final Deferral Provisions attached hereto as Exhibit A will reflect such changes as the Committee or its designee may approve. I understand that no monies or Shares will be set aside in trust in my name with respect to any of my deferrals or any Deferred Stock Units credited to my account under the Deferral Provisions, and that I will at all times be an unsecured creditor of the Company with respect to benefits that may become payable hereunder.

Return your completed Fee Deferral Agreement to the Committee, care of:
Mr. Monty Oliver
LSB Bancshares, Inc.
One LSB Plaza
Lexington, North Carolina 27292

Approval/Rejection of Election

     The Committee hereby (please check one box): o accepts o rejects the deferral elections contained herein.

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EXHIBIT A

DEFERRAL PROVISIONS ASSOCIATED WITH

DIRECTOR FEE DEFERRAL AGREEMENT

ARTICLE 1
PARTICIPATION

     Section 1.1 Applicability. The Committee has established a form of Director Fee Deferral Agreement (“Deferral Agreement”) to provide a vehicle for members of the Board (each, a “Participant”) to defer receipt of quarterly retainers (“Quarterly Retainers”) and/or regular monthly meeting fees (“Meeting Fees”) for serving on the Board. Absent a deferral election, the aggregate amount of the Participant’s Quarterly Retainers and Meeting Fees for a calendar year are generally paid in full in a single payment during the first calendar quarter of such year.

     Section 1.2 Deferral Elections. The Participant may elect to defer receipt of Quarterly Retainers and/or Meeting Fees by filing a completed Deferral Agreement with the Committee in accordance with the provisions of this Section. The Participant must file the Deferral Agreement with the Committee prior to the first day of the calendar year for which it is to be effective (the “Deferral Year”). The Deferral Agreement shall, to the extent set forth therein, apply only to Quarterly Retainers and/or Meeting Fees payable in the Deferral Year but not yet earned by the Participant and to which he has not yet become entitled at the time he files his Deferral Agreement with the Committee. Once filed in accordance with this paragraph, the Participant’s Deferral Agreement shall remain in effect for the entire Deferral Year and shall expire on December 31 of the Deferral Year or, if earlier, on the effective date of the Participant’s termination of Service as a member of the Board.

     Section 1.3 Crediting Deferred Stock Units to the Participant’s Account. The Committee shall establish and maintain a separate bookkeeping account for each Participant who defers Quarterly Retainers or Meeting Fees under the Deferral Agreement. Whenever payment of a Quarterly Retainer or Meeting Fee is deferred pursuant to a Participant’s Deferral Agreement (a “Deferral Date”), the Committee shall credit to the Participant’s account the number of Deferred Stock Units equal to:

For purposes hereof, each “Deferred Stock Unit” is a bookkeeping entry representing a single or fractional Share, as applicable.

     Section 1.4 Crediting Dividend Equivalents. Whenever the Company pays a dividend on its Shares, the Committee shall credit to the Participant’s account the number of Deferred Stock Units equal to:

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     Section 1.5 Statement of Account. As soon as administratively practicable following the Participant’s written request, the Committee shall provide to him a statement showing the number of Deferred Stock Units credited to his account. Notwithstanding the foregoing, the Committee is not required to provide a written statement more than once per year.

ARTICLE 2
BENEFIT PAYMENTS

     Section 2.1 Termination of Service. Upon a Participant’s termination of Service on the Board for any reason other than death, the Participant shall be entitled to receive payment with respect to the Deferred Stock Units credited to his account as provided in this Section. At the time of payment, the Company shall redeem the Participant’s Deferred Stock Units by delivering to the Participant one Share for each one Deferred Stock Unit. Except as provided in Section 2.3, the Company shall deliver the Shares payable under this Section in a single transaction as soon as administratively practicable in the calendar year immediately following the year in which the Participant terminates Service. Notwithstanding the foregoing:

     Section 2.2 Survivor Benefits. If a Participant dies while in Service on the Board, the Participant’s Beneficiary shall be entitled to receive payment with respect to the Deferred Stock Units credited to the Participant’s account as provided in this Section. At the time of payment,

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the Company shall redeem the Deferred Stock Units credited to the Participant’s account by delivering to the Beneficiary one Share for each one Deferred Stock Unit. Except as provided in Section 2.3, the Company shall deliver the Shares payable under this Section in a single transaction as soon as administratively practicable in the calendar year immediately following the year in which the Participant dies.

     Section 2.3 Installment Payout Election. Notwithstanding the provisions of Sections 2.1 and 2.2, a Participant who makes an installment payout election in accordance with this Section 2.3 shall have his Deferred Stock Units redeemed into Shares and delivered in five substantially equal annual installments (subject to adjustments on account of the continuing crediting of dividend equivalents pursuant to Section 1.3) beginning at the time specified in Section 2.3(b)(i) or 2.3(b)(ii), as applicable. The following rules shall apply to installment payout elections:

     Section 2.4 Payment Before Service as Director Terminates. Except as permitted in Section 2.5, benefits are not payable prior to the Participant’s termination of Service.

     Section 2.5 Hardship Withdrawals. Notwithstanding any other provision hereof, a Participant may apply for early payment with respect to some or all of his Deferred Stock Units in the event of an unforeseeable emergency. An “unforeseeable emergency” is a severe financial hardship to the Participant resulting from an illness or accident of the Participant, his spouse, or a

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dependent of the Participant (as defined in Code Section 152(a); loss of the Participant’s property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. If the Committee determines in its discretion that the Participant has experienced an unforeseeable emergency, the Committee may direct the Company to redeem some or all of his Deferred Stock Units by issuing or delivering to the Participant Shares having a Fair Market Value not exceeding the amount necessary to satisfy the emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the early payment, and to deliver such Shares to the Participant. In determining the amount necessary to satisfy the emergency, the Committee shall take into account the extent to which the Participant’s hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). The Participant must apply to the Committee for an early payment pursuant to this Section 2.5 in such form and in accordance with such procedures as the Committee shall prescribe.

     Section 2.6 Payment in Shares. Payments hereunder shall be made in whole Shares. Fractional shares shall not be issuable hereunder, and when any provision hereof would otherwise entitle the Participant to receive a fractional share the Fair Market Value of such fractional share shall be paid to the Participant in cash.

     Section 2.7 Certain Equity Plan Provisions Inapplicable. The provisions of Section 9(c) of the Equity Plan shall not apply to the Participant’s Deferral Agreements or these Deferral Provisions.

ARTICLE 3
BENEFICIARY

     Each Participant shall have the right, at any time, to designate a beneficiary or beneficiaries (each a “Beneficiary”) who will receive any payments with respect to any Deferred Stock Units remaining in the Participant’s account at the time of his death. The Participant’s Beneficiary designation shall become effective only when filed in writing with the Committee during the Participant’s lifetime on a form prescribed by the Committee. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed by the Participant. If the Participant fails to designate a Beneficiary, or if he revokes his Beneficiary designation without executing a new designation, or if the designated Beneficiary predeceases the Participant, then the Company shall deliver any payments due on account of the Participant’s death to the Participant’s estate.

ARTICLE 4
AMENDMENT AND TERMINATION OF AWARD AGREEMENT

     Section 4.1 Amendment or Termination. The Committee may at any time and from time to time amend the provisions hereof, cease allowing Participants to defer fees pursuant hereto, or terminate all aspects of this arrangement in its entirety; provided, however, that no such action shall retroactively decrease the benefits payable to any Participant or Beneficiary under any existing Deferral Agreement.

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     Section 4.2 Notice of Amendment or Termination. Within 60 days following a Committee action pursuant to Section 4.1, the Committee shall give written notice thereof to the Participant.

     Section 4.3 Payments Upon Termination. Upon the Committee’s decision to terminate all aspects of this arrangement in its entirety or to cease allowing Participants to defer fees pursuant hereto, as of the last day of the calendar year in which the decision becomes effective each Participant’s Deferral Agreement shall be of no further force and effect and no additional Deferred Stock Units may be credited to his account for any reason but, rather, his Quarterly Retainers and Meeting Fees will thereafter be payable to him when earned. In addition, to the extent permitted by Code Section 409A and applicable guidance thereunder without triggering adverse tax consequences to the Participant or his Beneficiary (other than inclusion of amounts payable in taxable income in the year of termination), the Company shall redeem the Participant’s Deferred Stock Units into Shares and deliver such Shares to the Participant as soon as administratively practicable following the date of such termination. If the Company does not redeem the Participant’s Deferred Stock Units into Shares in accordance with the prior sentence, such Deferred Stock Units will be payable to the Participant in accordance with the other terms and conditions hereof.

ARTICLE 5
MISCELLANEOUS

     Section 5.1 Notices. Any notice or other communication given pursuant hereto shall be in writing and shall be personally delivered, sent by overnight delivery service, or mailed by United States registered or certified mail, postage prepaid, return receipt requested, to the following addresses:

Notwithstanding the foregoing, the Company in its discretion may allow the Participant to provide any notice or other communication pursuant to this Agreement in another form, including but not limited to oral or electronic form.

     Section 5.2 Interpretation of Deferral Agreement and Deferral Provisions Consistent with Deferred Compensation Rules. The Committee intends that amounts deferred by the Participant under a Deferral Agreement shall not be included in the Participant’s income for federal, state or local income tax purposes until benefits are actually paid or delivered to the Participant. Accordingly, the Deferral Agreement and any installment payout or other election hereunder shall be interpreted and administered consistently with the requirements of Code Section 409A, as amended or supplanted from time to time, and current and future Internal

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Revenue Service guidance thereunder. Notwithstanding any provision hereof or within the Participant’s Deferral Agreement to the contrary, the Committee shall have the power to amend these Deferral Provisions from time to time without the consent of any other party to the extent the Committee deems necessary or appropriate to preserve the intended tax treatment of amounts deferred under a Deferral Agreement and/or installment payout or other election hereunder.

     Section 5.3 Unsecured General Creditor. Each Deferral Agreement is an unfunded arrangement providing deferred compensation benefits. Neither the Participant nor his Beneficiaries shall have any legal or equitable right, interest or claim in any specific property or assets of the Company, nor shall the Participant or his Beneficiaries have any rights, claims or interests in any life insurance policies, Shares or other assets (or the proceeds therefrom) owned or which may be acquired by the Company. The assets of the Company shall not be held under any trust for the benefit of the Participant or his Beneficiaries or held in any way as security for the fulfillment of the obligations of the Company hereunder. With respect to benefits payable under a Deferral Agreement and/or installment payout election, the Participant and his Beneficiaries are and shall remain unsecured general creditors of the Company.

     Section 5.4 Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, hypothecate or convey in advance of actual receipt any benefits payable under a Deferral Agreement and/or installment payout election and all rights created herein are expressly declared to be non-assignable and nontransferable. No part of the benefits payable under a Deferral Agreement and/or installment payout election shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor shall any such benefits be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.

     Section 5.5 Obligations to Company. At the time benefits are payable to the Participant or Beneficiary pursuant to Article 2, any amount due to the Company from the Participant may be deducted from such benefits. Such determination shall be made by the Committee.

     Section 5.6 No Shareholder Rights. The Participant shall not have any shareholder rights with respect to Deferred Stock Units credited to his account pursuant hereto.

     Section 5.7 No Entitlement or Claims for Compensation. The deferral of fees contemplated hereby is wholly discretionary in nature and is not to be considered part of the Participant’s normal or expected compensation subject to severance, resignation, redundancy or similar compensation.

     Section 5.8 Change in Capital Structure. The Deferred Stock Units are subject to adjustment by the Committee as provided in the Equity Plan, including but not limited to Section 5(e) thereof.

     Section 5.9 Governing Law. This Agreement shall be governed by the internal laws of the State of North Carolina.

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     Section 5.10 Compliance with Laws. The issuance of Shares upon redemption of Deferred Stock Units shall be subject to compliance by the Company and the Participant with all applicable requirements of law relating thereto and with all applicable regulations of the Nasdaq National Market (or any stock exchange or automated trading system on which the Shares may be listed and trading at the time of such issuance). The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and delivery of any Shares pursuant hereto shall relieve the Company of any liability with respect to the non-issuance or delivery of the Shares as to which such approval shall not have been obtained. The Company, however, shall use its reasonable efforts to obtain all such approvals.

     Section 5.11 Conflicts. In the event of any conflict between the provisions of the Equity Plan as in effect on the date hereof and the provisions of these Deferral Provisions, the provisions of the Equity Plan shall govern. All references herein to the Equity Plan shall mean the Equity Plan as in effect on the date hereof.

     Section 5.12 Binding Effect. Subject to the limitations stated above and in the Equity Plan, these Deferral Provisions shall be binding upon and inure to the benefit of the legatees, distributees, and personal representatives of the Participant and the successors of the Company.

     IN WITNESS WHEREOF, the Company’s Stock Option and Compensation Committee, by its duly authorized Chairman, has executed this instrument.

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