Document:

Management Incentive Compensation Plan

 Exhibit 10.2 
 BANK OF THE CAROLINAS 
 MANAGEMENT INCENTIVE COMPENSATION PLAN 
 SECTION 1. PURPOSE 
 The purpose of the
Management Incentive Compensation Plan (“the Plan”) is to enhance and reinforce the goals of Bank of The Carolinas (the “Bank”) for profitable growth and continuation of a sound overall condition by tying a portion of the cash
compensation of executive officers and other employees chosen to participate in the Plan to the Bank’s financial performance and individual performance that contributes to the Bank’s financial performance . 
 SECTION 2. DEFINITIONS 
 Definitions of terms
as used throughout this Plan are as follows: 
  

	(a)	“Award Year.” The 12 month period coinciding with the Bank’s annual accounting period. 

  

	(b)	“Committee.” The Committee established by the Board of Directors of the Bank to administer the Plan as described in Section 3. 

  

	(c)	“Participant.” An employee designated by the Committee to participate in the Plan for a particular Award Year. 

 SECTION 3. ADMINISTRATION 
 The Plan shall be
administered by the Corporate Governance Committee of the Board of Directors or another committee appointed by the Board from time to time. If any such other committee is appointed by the Board to administer the Plan, it shall be composed of at
least three independent directors who are members of the Bank’s Corporate Governance Committee. 
 The Committee shall have full power and authority to
select participants from among those eligible, to determine the size and timing of individual awards, and to adopt and revise such rules and procedures as it shall deem necessary for administration of the Plan. The decision of the Committee with
respect to any question arising as to the individuals selected for awards, and to interpretation of this Plan, shall be final, conclusive, and binding on all parties. 
 SECTION 4. PARTICIPATION 
 Participation in the Plan shall be limited to regular salaried employees of the
Bank, including officers. In selecting Participants, the Committee shall consider an individual’s position and potential influence on the Bank’s business results and performance. The selection of Participants shall be determined annually
by the Committee and communicated to Participants as as early as possible during each Award Year. 
  

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 SECTION 5. ANNUAL PLAN RULES 
 For each Award Year, the Board of Directors will establish Annual Plan Rules for the operation of the Plan and the determination of incentive awards to be paid to each Participant for that year. Those rules will
include, at a minimum: 
  

	(a)	the maximum award that may be paid to each Participant, which may be expressed as a percentage of that Participant’s annual salary for the Award Year; 

 

	(b)	individual performance goals for each Participant, which ordinarily will be expressed as quantitative and/or qualitative measures of individual, branch and/or Bank-wide performance
related to the Participant’s duties and responsibilities; and 

  

	(c)	formulae or other methods for the calculation of the amounts of incentive awards paid to each Participant. 

 The maximum awards that may be paid, and individual goals, may vary from Participant to Participant. The Annual Plan Rules approved by the Board for any year may contain
any other conditions on the payment of awards to any individual Participants or other provision relating to the operation of the Plan for the year that the Board determines, in its discretion, to be appropriate. 
 During or following the end of any Award Year, the Board of Directors may, at its discretion, modify, adjust or amend any portion of the Annual Plan Rules for that year
to reflect changes in circumstances or unexpected events that have affected the Bank’s financial performance, the individual performance of any Participant, or the operation of the Plan for that year. 
 SECTION 6. PAYMENT OF AWARDS 
  

	(a)	Approval of Incentive Award Amounts by Board; Discretion of the Board. The amount of each Participant’s incentive award for a year shall be subject to the approval of
the Board of Directors prior to payment. Notwithstanding anything contained in the Plan or annual rules to contrary, 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. Also at its discretion, and for reasons satisfactory to it, the Board may approve and pay a cash bonus to any or all Participants in addition to, or in lieu of, incentive awards under the Plan. 

  

	(b)	Normal Payment. Incentive awards shall be calculated as of the last business day of the Award Year. However, a Participant shall not be entitled to receive any incentive
award under the Plan for an Award Year until it actually is paid. Payment of awards ordinarily shall be made in cash within 60 days following the end of the Award Year. Except as described below, no Participant shall receive an incentive award for
an Award Year unless he or she remains employed by the Bank on the last day of that year. 

  

	(c)	Payment Under Conditions of Normal Termination. If a Participant’s employment terminates during an Award Year on account of death, total disability, retirement or
approved leave of absence, the Board of Directors may, at its discretion, approve payment to that Participant of a pro rated incentive award equal to the amount that would have been earned had the Participant been employed by the Bank during
the full Award Year, multiplied by a fraction, the numerator of which is the number of days that the Participant was employed by the Bank and the denominator of which is the number of days in that full Award Year. 

  

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 If a Participant’s employment terminates during an Award Year for any reason other than death, total
disability, retirement or approved leave of absence, no incentive award shall be paid to the Participant under the Plan for the Award Year in which such termination occurs. 
 SECTION 7. DISSOLUTION OR MERGER 
 If, during an Award Year, the Bank should be
liquidated and/or dissolved, or if the Bank should become a party to a merger or consolidation in which it is not the surviving corporation, the Board of Directors may, at its discretion, approve the payment of incentive awards under the Plan,
calculated as described in the annual rules for that year, as of the date immediately prior to the effective date of such dissolution or merger and based on results through that date. 
 SECTION 8. AMENDMENT OR TERMINATION 
 The Board of Directors may, at any time during an
Award Year, terminate, modify, or amend this Plan. However, except as provided below, no termination or amendment shall, without the consent of the Participants, adversely affect the rights of such Participants in incentive awards previously paid to
them. No awards may be made under this Plan at any time if, in the judgment of the Board of Directors, the overall financial condition of the Bank is not sound or if the Board believes that payment of those awards would be prohibited by any law or
regulation applicable to the Bank or any stated policy of the Bank’s banking regulators. 
 SECTION 9. IMPROPER CONDUCT

 The provisions of this paragraph shall be controlling notwithstanding any other provisions contained in the Plan and shall override any contrary
provisions contained in the Plan. If the Committee finds that a Participant has engaged in conduct (herein called “Improper Conduct”) that is fraudulent, disloyal, criminal, or injurious to the Bank, including, without limitation,
embezzlement, theft, misappropriation, commission of a felony, dishonesty, or intentional misrepresentation in the course of his or her employment or service, or disclosure of trade secrets or confidential information of the Bank to persons not
entitled to receive such information (and, in the case of the commission of an illegal or criminal act, whether or not the Participant is charged, prosecuted or convicted), the Participant or the Participant’s estate, as applicable, shall
immediately forfeit any award that otherwise would have been due to the Participant (or his estate, as applicable) under the Plan (or that was paid under the Plan within the previous twelve months) and such award shall be treated for all purposes
under the Plan as not having been earned. If a Participant has engaged in Improper Conduct, such Participant (or his estate, as applicable) shall not be entitled to any benefit or award under the Plan, whether the discovery of such Improper Conduct
is made before or after the end of an Award Year or before or after termination of employment. Further, the Participant (or his estate, as applicable) shall be required to immediately repay to the Bank any benefit or award paid under the Plan during
the last twelve months preceding discovery of such Improper Conduct. 
  

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 SECTION 10. OTHER CONDITIONS 
  

	(a)	Right of Assignment. No right or interest of any Participant in the Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law or
otherwise, including levy, garnishment, attachment, pledge, or bankruptcy. In the event of a Participant’s death, payment shall be made to the Participant’s designated beneficiary or in the absence of such designation to the
Participant’s estate. 

  

	(b)	No Right of Employment. The designation of an officer or employee as a Participant in the Plan for an Award Year, or a Participant’s receipt of an award under this Plan,
shall not give that Participant any right to continued employment with the Bank, and the right to dismiss any employee is specifically reserved to the Bank. The receipt of an award in any year shall not give an employee the right to be designated as
a Participant, or to receive an award, in any subsequent Award Year. 

  

	(c)	Withholding for Taxes. The Bank shall have the right to deduct from all payments under this Plan any federal or state taxes required by law to be withheld with respect to
such payments. 

  

	(d)	Miscellaneous. Paragraph captions and section headings are included in this Plan for convenience of reference only and are not intended to affect the meaning or
interpretation of those paragraphs. Except when otherwise indicated by the context, any masculine terminology used herein shall also include the feminine, and any terms used herein in the singular shall also include the plural.

 SECTION 11. EFFECTIVE DATE 
 The effective date of the Plan shall be January 1st of the Award Year of its adoption by the Board of Directors of the Bank. 
  

 42007 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	%

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