2007 Annual Plan Rule



 Exhibit 10.3 
 BANK OF THE CAROLINAS 
 MANAGEMENT INCENTIVE COMPENSATION PLAN 
 2007 ANNUAL PLAN RULES 
 The 2007
Annual Plan Rules for the operation of the Management Incentive Compensation Plan shall be as described below. All capitalized terms used in these rules that are defined in the Plan shall have the same meanings as are assigned to them in the Plan.
In the event that any of these rules are inconsistent with any term of the Plan, the Plan term will control. 
  

	A.	Participants 

 The employees of the Bank listed on
Exhibit A are the Participants in the Plan for 2007. 
  

	B.	Maximum Potential Awards 

 Each Participant’s
“Maximum Potential Award” under the Plan for 2007 is the dollar amount listed on Exhibit A and is the maximum incentive award that can be paid to that Participant under the Plan for 2007. 
  

	C.	Individual Performance Goals 

 Each
Participant’s 2007 individual performance goals under the Plan are listed on Exhibit B. 
  

	D.	Calculation of Incentive Awards Payable to Participants 

 Each Participant’s incentive award for 2007 will be calculated as described below based on both (i) the extent to which his or her individual performance goals are met for the year and (ii) the amount of the Bank’s
earnings for 2007, before taxes and before any deduction for the payment of incentive awards under the Plan (“Pre-tax, Pre-Incentive Income”). 
  

	 	1.	At the end of 2007, the Committee will determine the extent to which each Participant’s individual goals have been met. Subject to Paragraph D.2. below, each Participant
will be eligible to receive a percentage (from 0.0% to 100.0%) of his or her Maximum Potential Award equal to the aggregate of the percentages listed on Exhibit B beside the descriptions of his or her individual goals that are met for 2007. To the
extent that any such performance goal is not met for 2007, the Participant will not be eligible to receive the percentage of his or her Maximum Potential Award related to that goal. 

  

	 	2.	The amount of incentive award that may be paid to each Participant will be the “Applicable Percentage” (from 0.0% to 100.0%) of the amount calculated under
Paragraph D.1. above based on the Bank’s 2007 Pre-tax, Pre-incentive Income as indicated on Exhibit C attached to these Plan Rules. No incentive award will be paid to Participants unless the Bank’s 2007 Pre-tax, Pre-incentive Income
exceeds $3,800,000, and 100% of the amount calculated for each Participant under Paragraph D.1. above will be paid if the Bank's Pre-tax, Pre-incentive Income equals or exceeds $6,200,000. 

  

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	E.	Incentive Award Amounts Subject to Approval by Board of Directors 

 The Committee will determine the amounts of incentive awards payable to Participants for 2007. However, as provided in the Plan, the amount of each Participant’s incentive award for 2007 shall be subject to the
approval of the Board of Directors, based on the Committee’s recommendation, prior to payment, and the Board may, at its discretion, decline to pay, or reduce the amount of, an incentive award payable to any Participant for any reason
satisfactory to it. 
  

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 Exhibit A 
 Bank of the Carolinas 
 2007 MANAGEMENT INCENTIVE PLAN PARTICIPANTS 
  

														
	 Employee
	  	Title	  	Location	  	 2007
 Current
 Salary
	  	 Maximum
 Potential Award

	  	  	  	  	 Percent of
Current
 Salary
	 	 	 Dollar
 Amount

	 Senior Management Participants
	  		  		  			  			 		
	 Robert Marziano
	  	CEO	  	Sr. Management Team	  	$	280,000	  	35	%	 	$	98,000
	 Ed Jordan
	  	Pres/COO	  	Sr. Management Team	  	$	135,600	  	35	%	 	$	47,460
	 Eric Rhodes
	  	CFO	  	Sr. Management Team	  	$	106,700	  	35	%	 	$	37,345
	 Retail and Other Participants
	  		  		  			  			 		
	 Harry Hill
	  	Commercial Loan Officer, Sr.	  	Mocksville/Davie Co.	  	$	120,060	  	30	%	 	$	36,018

 [Participants who are not named executive officers have been omitted.] 







 Exhibit B 
 2007 INDIVIDUAL PERFORMANCE GOALS 
 Senior Management Participants 
 Robert Marziano, Ed Jordan, Eric Rhodes 
  

						
	1.	  	Improve bank profitability with an ROAE (calculated before taxes and before deduction for payment of incentive awards under the Plan) of 9.50%	  	30	%
	2.	  	Maintain overall CAMEL rating of 2 or better	  	30	%
	3.	  	Control charge-offs to no more than 0.25% of average loans	  	20	%
	4.	  	Maintain a ratio of Non-performing Assets of no more than 1.0% of Average Assets	  	20	%

 Retail and Other Participants 
 Harry Hill 
  

						
	1.	  	Loan volume average per month $1,750,000	  	40	%
	2.	  	Past due loans by $ amount must average 1% or less	  	15	%
	3.	  	All exceptions must average at or below stated goals per month	  	15	%
	4.	  	Non-performing assets must average below 1% or less per month	  	15	%
	5.	  	Charge offs must be less than 0.25% for the year	  	15	%

 [Participants who are not named executive officers are omitted.] 







 Exhibit C 
 APPLICABLE PERCENTAGES FOR PARTICIPANTS 
  

				
	 2007 Pre-tax,
Pre-incentive Income
	  	Applicable Percentage	 
	 $3,400,000 or below
	  	0.0	%
	 3,500,000
	  	0.0	%
	 3,600,000
	  	0.0	%
	 3,700,000
	  	0.0	%
	 3,800,000
	  	4.0	%
	 3,900,000
	  	8.0	%
	 4,000,000
	  	12.0	%
	 4,100,000
	  	16.0	%
	 4,200,000
	  	20.0	%
	 4,300,000
	  	24.0	%
	 4,400,000
	  	28.0	%
	 4,500,000
	  	32.0	%
	 4,600,000
	  	36.0	%
	 4,700,000
	  	40.0	%
	 4,800,000
	  	44.0	%
	 4,900,000
	  	48.0	%
	 5,000,000
	  	52.0	%
	 5,100,000
	  	56.0	%
	 5,200,000
	  	60.0	%
	 5,300,000
	  	64.0	%
	 5,400,000
	  	68.0	%
	 5,500,000
	  	72.0	%
	 5,600,000
	  	76.0	%
	 5,700,000
	  	80.0	%
	 5,800,000
	  	84.0	%
	 5,900,000
	  	88.0	%
	 6,000,000
	  	92.0	%
	 6,100,000
	  	96.0	%
	 6,200,000 and above
	  	100.0	%