Exhibit 10.1

Cape Fear Bank Corporation

Annual Cash Incentive Plan

1. Purpose

The purpose of the Cape Fear Bank Corporation Annual Cash Incentive Plan (the
“Plan”) is to provide key employees of Cape Fear Bank Corporation (the “Bank”)
with the opportunity to receive payments of additional compensation based upon
the earnings of the Bank, and on the achievement of individual and/or team
objectives (the “Objectives”). The Plan provides an incentive to participating
employees to enhance the profitability of the Bank, within the constraints of
safe and sound banking practices.

It must be emphasized that the Plan in no way contravenes the importance of
either long-term goal achievement or the proper exercise of appropriate
management accountability. These goals and areas of accountability include, but
are not limited to, the following items:

 

1. Collection, recovery, charge-off, and bankruptcy activity.

 

2. Maintenance and increase in market share through salesmanship and customer
service.

 

3. Continued salesmanship (call programs) and improved customer service.

 

4. Employee management and development (staff supervision, tracking and
cross-training, employee turnover, etc.)

 

5. Development of new and better ways of doing business.

 

6. Appropriate audit and documentation procedures.

 

7. Responsible management of fixed assets/resources.

 

8. Adherence to all Bank policy and philosophy.

 

9. Maintenance of the highest ethical standards.

It is anticipated that the limited amount of incentive potential available
through the Plan, as compared to the size of salaries paid for performance of
these long term management accountabilities, in conjunction with the controls
built into the Plan objectives, will create the appropriate focus. The Board of
Directors, through the Compensation Committee, administers the plan.

At management’s discretion and with the approval of the Compensation Committee,
funds may be used to pay discretionary bonuses. As an example an employee with
outstanding overall performance could receive a discretionary bonus in
recognition of performance unaccounted for through the Incentive Program. It is
understood that discretionary bonuses will be an exception as opposed to the
rule.

2. Definitions

“Objective” – A critical measurement of the effectiveness of a team or
individual role, expressed as a goal, with a range of specific, measurable and
valuable outcomes, ranging from a “Base,” or threshold below which no weight is
earned, to an “Objective,” or goal with stretch, at which all weight assigned to
the Objective is earned.

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

“Participant” – A bona-fide employee of the Bank who is employed during at least
the final six months of the Plan Year, still employed on the day any incentives
earned under the Plan are paid out, and is also selected for participation by
the Compensation Committee of the Board during the first six months of the Plan
year.

“Potential Award” – initially means with respect to each Participant for the
Plan Year a dollar amount determined by multiplying the mid-point of the base
salary range for the individual’s job by a percentage designated by the
Compensation Committee. The Potential Award represents the Incentive Award
payable to the Participant if the Bank fully achieves its Pre-Tax, Pre-Incentive
Net Income objective for the Plan Year. If the Bank fails to achieve 100% of its
Pre-Tax, Pre-Incentive Net Income objective for the Plan Year, but does achieve
more than a Base amount of Pre-Tax, Pre-Incentive Net Income objective for the
Plan Year, the Potential Award is prorated by the percent of the Bank’s
achievement of its Pre-Tax, Pre-Incentive Net Income objective range for the
Plan Year. After adjusting for the Bank’s achievement of its Pre-Tax,
Pre-Incentive Net Income objective for the Plan Year, the adjusted Potential
Award represents the Incentive Award payable to the Participant in the event
that all of the Participant’s personal and/or team objectives are fully achieved
for the Plan Year.

“Pre-Tax, Pre-Incentive Net Income” – Audited net income for a Plan Year after
adding back to reportable Net Income any accruals for taxes and incentives paid
from this Annual Cash Incentive Plan.

“Base” – The base of a range of performance in an objective below which no
points are awarded.

“Objective” – The top performance in a range of performance in an objective at
which 100% of the weight points for that objective is awarded.

3. Effective Date and Plan Year

The Effective Date of the Plan shall be January 1, 2007. The Plan Year shall be
the calendar year.

4. Eligibility

An individual shall be eligible to become a Participant in the Plan who
satisfies the following requirements:

 

  a. The individual is an employee of the Bank. For this purpose, an individual
shall be considered to be an “employee” if there exists between the individual
and the Bank the legal and bona fide relationship of employer and employee.

 

  b. The individual employee’s position is classified as a full time or part
time position that is normally scheduled.

 

  c. The individual is approved by the Compensation Committee as a Participant
in the Plan.

 

2

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

5. Participation

Prior to the beginning of each Plan Year, the Chief Executive Officer shall
recommend to the Compensation Committee each individual or position eligible to
become a Participant in the Plan (a “Participant”) with respect to such Plan
Year. Participants shall be approved by the Compensation Committee in its
discretion. In the event of the promotion of an employee or the hiring of a new
employee during the Plan Year, the Compensation Committee, upon the
recommendation of the Chief Executive Officer, may approve the entry of a
Participant into the Plan Year. However, if the position has been previously
approved, no such approval shall be required. In such case, the Incentive Award
determined under Section 6 with respect to such Participant shall be the
percentage as determined by the Compensation Committee for the position
multiplied by the individual’s actual base salary as of January 1st of the Plan
Year. However, in no event shall an employee be a Participant for less than the
full final six months of the Plan Year. Participation in the Plan shall be
subject to the provisions of the Plan and such other terms and conditions, as
the Compensation Committee shall provide.

6. Incentive Award

 

6.1 Subject to Section 6.2, each Participant for a Plan Year shall receive an
Incentive Award to the extent it is earned as determined by:

 

  a. Multiplying the Potential Award by the Bank’s percent achievement of the
range of its Plan Year objective for Pre-Tax, Pre-Incentive Net Income, and then

 

  b. Multiplying by the sum of the weights derived (if applicable) by
multiplying the individual’s percentage achievement of each personal and/or team
objectives’ performance ranges (if applicable) by a weighting factor for each
objective (positive or negative). If no individual objectives were established
for a position, then the Incentive Award will be equal to the Participant’s
Potential Award as adjusted by the Bank’s achievement of its Pre-Tax,
Pre-Incentive Net Income objective range.

 

6.2 Notwithstanding any other provision of this Plan, the Compensation Committee
shall review and approve the payment of the Incentive Award as determined under
Section 6.1 and in its discretion may adjust the amount of the payment as it
deems necessary to meet the purpose of this Plan and the best interest of the
Bank. In no event shall an Incentive Award be paid to a Participant who in the
sole determination of the Compensation Committee has violated established
policies and practices of the Bank as reflected in the minutes of the Board.
Where interpretations of achievement of objectives is inconsistent, the judgment
of the Compensation Committee will prevail.

Individual objectives are not to be achieved at the expense of the overall Bank
objectives or long term objectives of any individual. For example, if an
employee achieves individual objectives, but in so doing clearly creates
unnecessary strife among peers or subordinates, violates policy, avoids
behaviors that develop business in the long term, or in any way ignores the best
interest of the Bank, then no Incentive Award will be paid.

 

3

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

7. Termination of Employment during Plan Year

The Participant shall not receive an Incentive Award with respect to a Plan Year
if, for reasons other than a Termination Event as defined in this Section 7, the
employment of the Participant by the Bank is terminated during the Plan Year or
the duties of the position of the Participant are changed during the Plan Year
so that he/she is no longer in a position as described in Section 4, including
being selected by the Committee as a Participant. The following shall each
constitute a “Termination Event”:

 

  a. Death of the Participant while employed by the Bank.

 

  b. Retirement of the Participant from the Bank with the approval of the Board.

 

  c. Disability of the Participant while employed by the Bank. For this purpose,
the term “disability” shall mean the inability of a Participant, by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or to be of long continued or of indefinite duration, to
perform his duties for the Bank. The determination of disability shall be made
by the Compensation Committee based on medical evidence from an independent
physician selected by the Participant with the approval of the Compensation
Committee; and, shall date from the original cessation of work.

In the event of a Termination Event, the Participant or his Beneficiary shall
receive an Incentive Award with respect to such Plan Year equal to the amount
determined under Section 5 multiplied by a fraction, the numerator of which is
the number of full calendar months during the Plan Year in which he was a
Participant prior to the Termination Event and the denominator of which is
twelve. Participants in multiple selected positions, each determined to be a
participant position shall receive an amount reflecting the time-weighted
service in each position. Participants departing a selected position for a
non-selected position, provided that such departure is not pursuant to poor
performance, shall receive an award reflecting the period of the year in which
they served.

8. Leaves of Absence

In general, the determination of an award for an individual who has taken a
leave of absence during the year shall mirror the pro-rata pay-out provisions of
termination. However, the Compensation Committee, acting on behalf of the Board
of Directors, shall in its sole discretion determine the amount of award in each
case so as to preserve the intent of the Plan.

9. Payment of Incentive Awards

Unless otherwise determined by the Compensation Committee, the Incentive Award
for a Plan Year shall be paid by the Bank in cash to the Participant or his
Beneficiary by the later of (i) March 15 following the end of the Plan Year, or
(ii) thirty days following the determination of the final audited financial
results for the Plan Year and the final achievement of the Participant’s
individual objectives (if applicable.) A participant must be an employee on the
day of payment in order to be eligible.

 

4

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

10. Nonassignability of Incentive Awards

The right to receive payment of the Incentive Award shall not be assignable or
transferable (including by pledge or hypothecation) other than by will or the
laws of intestate succession.

11. No Trust Fund: Unsecured Interest

A Participant shall have no interest in any fund or specified asset of the Bank.
No trust fund shall be created in connection with the Plan or any Incentive
Award, and there shall be no required funding of amounts which may become
payable under this Plan. Any amounts which are or may be set aside under the
provisions of this Plan shall continue for all purposes to be a part of the
general assets of the Bank, and no person other than the Bank shall, by virtue
of the provisions of this Plan, have any interest in such assets. No right to
receive payment from the Bank pursuant to the Plan shall be greater than the
right of any unsecured creditor of the Bank.

12. No Right or Obligation of Continued Employment

Nothing contained in the Plan shall require the Bank to continue to employ the
Participant, nor shall the Participant be required to remain in the employment
of the Bank.

13. Withholding

There shall be deducted from the payment of the Incentive Award the amount of
any tax or other amount required by any governmental authority to be withheld
and paid over by the Bank to such authority for the account of the person
entitled to such payment.

14. Retirement Plans

In no event shall any amounts accrued or payable under this Plan be treated as
compensation for the purpose of determining the amount of contributions or
benefits to which a Participant shall be entitled under any retirement plan to
which the Bank may be a party. Actual payments (as opposed to accruals) will be
treated as compensation for accruing benefits under all retirement/pension
plans.

15. Dilution or Other Adjustments

If there is any change in the Bank because of a merger, consolidation or
reorganization involving the Bank, the Compensation Committee shall make such
adjustments to any provisions of this Plan, as the Compensation Committee deems
desirable to prevent the dilution or enlargement of rights granted hereunder.

16. Administration of the Plan

The Plan shall be administered by the Chief Executive Officer with the consent
and approval of the Board; provided, that all matters pertaining to the
Incentive Award of the Chief Executive Officer shall be determined by the
Compensation Committee. Subject to the

 

5

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

provisions of the Plan, the Compensation Committee shall have plenary authority
in its discretion, among other things, to designate the Participants to receive
Incentive Awards, to determine the Potential Award of each Participant, to
interpret the Plan and to prescribe, amend and rescind rules and regulations
relating to the Plan, provided that no member of the Board shall take part in
any action with respect to the decisions to pay an Incentive Award to such
member, or with respect to the terms or conditions of any Incentive Award
awarded to such member.

17. Amendment and Termination of the Plans

The Plan may be amended or terminated at any time by the Board.

18. Binding on Successors

The obligations of Bank under the Plan shall be binding upon any organization
which shall succeed to all or substantially all of the assets of the Bank, and
the term “Bank,” whenever used in the Plan, shall mean and include any such
organization after the succession.

19. Applicable Law

The Plan shall be governed by and construed in accordance with the laws of the
State of North Carolina.

 

6