8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): May 24, 2007

BANK OF THE CAROLINAS CORPORATION

(Exact name of registrant as specified in its charter)

North Carolina	000-52195	20-4989192
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

135 Boxwood Village Drive
Mocksville, North Carolina	27028
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (336) 751-5755

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements with Certain Officers

Approval of 2007 Omnibus Equity Plan. At our annual meeting of shareholders held on May 24, 2007, our shareholders approved our 2007 Omnibus Equity Plan which authorizes:

(1) grants to our and our subsidiaries’ employees of:

• incentive stock options that qualify for favored tax treatment under Section 422 of the Internal Revenue Code;

• non-qualified stock options;

• restricted stock awards; and

• performance share awards; and

(2) grants to our and our subsidiaries’ non-employee directors of:

• non-qualified stock options; and

• restricted stock awards.

The Plan authorizes the issuance of an aggregate of 300,000 shares of our common stock in connection with the various types of stock options and awards. That number amounts to approximately 7.8% of our total outstanding shares, and it includes 299,045 new shares being authorized for issuance, plus 955 shares that remained available for stock option grants under our existing Employee Stock Option Plan when the new plan was approved by our Board of Directors. No additional stock options will be granted under that existing plan or under our existing Director Stock Option Plan.

The Plan was approved by our Board of Directors, upon the recommendation of its Corporate Governance Committee (which functions as the Board’s independent compensation committee), on March 28, 2007. A description of the terms of the Plan and each of the types of stock options and awards that may be granted under it is contained in our definitive proxy statement dated April 20, 2007, that we filed with the Securities and Exchange Commission and distributed to our shareholders in connection with the annual meeting.

Adoption of Revised Management Incentive Compensation Plan and 2007 Annual Plan Rules. On May 24, 2007, the Board of Directors of our subsidiary, Bank of the Carolinas (“BOC”), upon the recommendation of the joint Corporate Governance Committee of our and BOC’s Boards (which functions as the Boards’ independent compensation committee), approved revisions to BOC’s Management Incentive Compensation Plan (the “Plan”) and adopted Annual Plan Rules for 2007.

Under the revised Plan, the Board will establish Annual Plan Rules each year for the operation of the Plan that year and the determination of incentive awards to be paid to each participant for that year. Those rules will include, at a minimum:

• the maximum award that may be paid to each participant;

• individual performance goals for each participant, which ordinarily will be expressed as quantitative and/or qualitative measures of individual, branch and/or company-wide performance related to the participants’ duties and responsibilities; and

• formulae or other methods for the calculation of the amounts of incentive awards that are paid to each participant.

The maximum awards that may be paid, and individual goals, may vary from participant to participant. The rules approved by the Board for a year may contain any other conditions on the payment of awards to any or all participants, or other provision relating to the operation of the Plan for that year, that the Board determines, in its discretion, to be appropriate. The Annual Plan Rules adopted by the Board for 2007 include:

• a list of participants in the Plan for 2007;

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• each participant’s maximum award under the Plan for 2007;

• performance goals for 2007, including each participant’s individual performance goals and a company-wide performance goal for all participants based on our 2007 consolidated earnings, before taxes and before any deduction for the payment of incentive awards under the Plan; and.

• a formula for the calculation of the amount to be paid to each participant for 2007.

The threshold amount of pre-tax, pre-incentive profits required before any awards may be paid under the Plan for 2007 is $3,800,000, and, subject to the extent to which individual goals are met, the maximum incentive awards will be payable for pretax, pre-incentive profits of $6,200,000.

A copy of the revised Plan, and a copy of the portions of the 2007 Annual Plan Rules that are applicable to our named executive officers who are participants in the Plan, are attached as Exhibits 10.2 and 10.3 to this Report.

Item 8.01. Other Events

The annual meeting of our shareholders was held on May 24, 2007. At the meeting, our shareholders:

• elected a full Board of Directors consisting of 14 directors for terms of one year each; and

• voted on a proposal to approve our 2007 Omnibus Equity Plan described in this Report in Item 5.02 above.

The following table describes the results of the voting on directors and the other proposal voted on at the meeting.

Name of Nominee or Description of Other Matter Voted On	Shares Voted “For”	Shares “Withheld” or Voted “Against”	Shares Abstained	Broker “Nonvotes”
Election of Directors
Jerry W. Anderson	2,980,801	156,782	-0-	-0-
Alan M. Bailey	2,980,801	156,782	-0-	-0-
William A. Burnette	2,979,674	157,909	-0-	-0-
John A. Drye	2,980,801	156,782	-0-	-0-
Thomas G. Fleming	2,981,315	156,268	-0-	-0-
John W. Googe	2,981,807	155,776	-0-	-0-
Henry H. Land	2,983,681	153,902	-0-	-0-
Michael D. Larrowe	2,982,481	155,102	-0-	-0-
Steven G. Laymon	2,990,472	147,111	-0-	-0-
Robert E. Marziano	2,988,485	149,098	-0-	-0-
Grady L. McClamrock, Jr.	2,976,025	161,558	-0-	-0-
Lynne Scott Safrit	2,972,277	165,306	-0-	-0-
Francis W. Slate	2,980,247	157,336	-0-	-0-
Stephen R. Talbert	2,974,749	162,834	-0-	-0-

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Name of Nominee or Description of Other Matter Voted On	Shares Voted “For”	Shares “Withheld” or Voted “Against”	Shares Abstained	Broker “Nonvotes”
Proposal to Approve 2007 Omnibus Equity Plan	1,763,022	523,552	37,557	813,452

Item 9.01. Financial Statements and Exhibits

Exhibits. The following exhibits are being filed or furnished with this Report:

Exhibit No.	Exhibit Description
10.1	2007 Omnibus Equity Plan
10.2	Management Incentive Compensation Plan
10.3	2007 Annual Plan Rules

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	BANK OF THE CAROLINAS CORPORATION
	(Registrant)
Date: May 30, 2007	By:	/S/ Eric E. Rhodes
		Eric E. Rhodes
		Chief Financial Officer

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EX-10.1

Exhibit 10.1

2007 OMNIBUS EQUITY PLAN

BANK OF THE CAROLINAS CORPORATION

ARTICLE 1

PURPOSE AND EFFECTIVE DATE

1.1        Purpose. The purpose of this 2007 Omnibus Equity Plan of Bank of the Carolinas Corporation (“BOC”) is to promote BOC's long-term financial success and increase stockholder value by providing employees and directors the opportunity to acquire an ownership interest in BOC and enabling BOC and its related entities to attract and retain the services of the employees and directors upon whom the successful conduct of its business depends.

1.2        Effective Date. This Plan shall be effective when it is adopted by BOC's Board of Directors and thereafter approved by the affirmative vote of BOC's stockholders in accordance with applicable rules and procedures, including those in Internal Revenue Code Section 422 and Treasury Regulation Section 1.422-3. Any award granted under this Plan before stockholder approval shall be null and void if stockholders do not approve the Plan within 12 months after the Plan’s adoption by BOC's Board of Directors. Subject to Article 10, the Plan shall continue until the tenth anniversary of the date it is approved by BOC's Board of Directors.

ARTICLE 2

DEFINITIONS

When used in this Plan, the following words, terms, and phrases have the meanings given in this Article 2 unless another meaning is expressly provided elsewhere in this document or is clearly required by the context. When applying these definitions and any other word, term, or phrase used in this Plan, the form of any word, term, or phrase shall include any and all of its other forms.

2.1        Award means a grant of (a) the right under Article 6 to purchase BOC common stock at a stated price during a specified period of time (an “Option”), which Option may be (x) an Incentive Stock Option that on the date of the Award is identified as an Incentive Stock Option, satisfies the conditions imposed under Internal Revenue Code Section 422, and is not later modified in a manner inconsistent with Internal Revenue Code Section 422 or (y) a Nonqualified Stock Option, meaning any Option that is not an Incentive Stock Option, (b) Restricted Stock, meaning a share of BOC common stock granted to a Participant contingent upon satisfaction of conditions described in Article 7, or (c) Performance Shares, meaning shares of BOC common stock granted to a Participant contingent upon satisfaction of conditions described in Article 8.

2.2        Award Agreement means the written or electronic agreement between BOC and each Participant containing the terms and conditions of an Award and the manner in which it will or may be settled if earned. If there is a conflict between the terms of this Plan and the terms of the Award Agreement, the terms of this Plan shall govern.

2.3        Covered Officer means those Employees whose compensation is or likely will be subject to limited deductibility under Internal Revenue Code Section 162(m) as of the last day of any calendar year.

2.4        Director means a person who, on the date an Award is made to him or to her, is not an Employee but who is a member of BOC’s Board of Directors, a member of the Board of Directors of a Related Entity, or a member of the governing body of any unincorporated Related Entity. For purposes of applying this definition, a Director’s status will be determined as of the date an Award is made to him or to her.

2.5        Employee means any person who, on any applicable date, is a common law employee of BOC or a Related Entity. A worker who is not classified as a common law employee but who is subsequently reclassified

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as a common law employee of BOC or a Related Entity for any reason and on any basis shall be treated as a common law employee solely from the date reclassification occurs. Reclassification shall not be applied retroactively for any purpose of this Plan.

2.6        Exercise Price means the amount, if any, a Participant must pay to exercise an Award.

2.7        Fair Market Value means the value of one share of BOC common stock, determined according to the following rules: (x) if BOC common stock is traded on an exchange or on an automated quotation system giving closing prices, the reported closing price on the relevant date if it is a trading day and otherwise on the next trading day, (y) if BOC common stock is traded over-the-counter with no reported closing price, the mean between the highest bid and the lowest asked prices on that quotation system on the relevant date if it is a trading day and otherwise on the next trading day, or (z) if neither clause (x) nor clause (y) applies, the fair market value as determined by the Plan Committee in good faith and, for Incentive Stock Options, consistent with the rules prescribed under Internal Revenue Code Section 422.

2.8        Internal Revenue Code means the Internal Revenue Code of 1986, as amended or superseded after the date this Plan becomes effective under Section 1.2, and any applicable rulings or regulations issued under the Internal Revenue Code of 1986.

2.9        Participant means an Employee or Director to whom an Award is granted, for as long as the Award remains outstanding.

2.10        Plan means this 2007 Omnibus Equity Plan, as amended from time to time.

2.11        Plan Committee means a committee of BOC’s Board of Directors consisting entirely of individuals who (a) are outside directors as defined in Treasury Regulation Section 1.162-27(e)(3)(i), (b) are non-employee directors within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, (c) do not receive remuneration from BOC or any Related Entity in any capacity other than as a Director, except as permitted under Treasury Regulation Section 1.162-27(e)(3), and (d) are independent directors within the meaning of rules of The Nasdaq Stock Market, Inc. The Plan Committee shall consist of at least three individuals.

2.12        Plan Year means BOC’s fiscal year.

2.13        Related Entity means an entity that is or becomes related to BOC through common ownership, as determined under Internal Revenue Code Section 414(b) or (c) but modified as permitted under Proposed Treasury Regulation Section 1.409A-1(b)(5)(iii)(D) and any successor to those proposed regulations.

2.14        Bank of the Carolinas Corporation, or BOC, means Bank of the Carolinas Corporation, a North Carolina corporation. Except for purposes of determining whether a Change in Control has occurred (according to Article 9), the term Bank of the Carolinas Corporation, or BOC, also means any corporation or entity that is a successor to Bank of the Carolinas Corporation or substantially all of its assets and that assumes the obligations of Bank of the Carolinas Corporation under this Plan by operation of law or otherwise.

ARTICLE 3

PARTICIPATION

3.1        Awards to Employees. Consistent with the terms of the Plan and subject to Section 3.3, the Plan Committee alone shall decide which Employees will be granted Awards, shall specify the types of Awards granted to Employees, and shall determine the terms upon which Awards are granted and may be earned. The Plan Committee may establish different terms and conditions for each type of Award granted to an Employee, for

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each Employee receiving the same type of Award, and for the same Employee for each Award the Employee receives, regardless of whether the Awards are granted at the same or different times. The Plan Committee shall have exclusive authority to determine whether an Award qualifies or is intended to qualify for the exemption from the deduction limitations of Internal Revenue Code Section 162(m) for performance-based compensation.

3.2        Awards to Directors. Consistent with the terms of the Plan and subject to Section 3.3, BOC's Board of Directors alone may grant Nonqualified Stock Options under Section 6.1, and Restricted Stock under Section 7.1, to Directors.

3.3        Conditions of Participation. By accepting an Award, each Employee and Director agrees (x) to be bound by the terms of the Award Agreement and the Plan and to comply with other conditions imposed by the Plan Committee, and (y) that the Plan Committee (or BOC's Board of Directors, as appropriate) may amend the Plan and the Award Agreements without any additional consideration if necessary to avoid penalties arising under Internal Revenue Code Section 409A, even if the amendment reduces, restricts, or eliminates rights that were granted under the Plan, the Award Agreement, or both before the amendment.

ARTICLE 4

ADMINISTRATION

4.1        Duties. The Plan Committee is responsible for administering the Plan and shall have all powers appropriate and necessary for that purpose. Consistent with the Plan’s objectives, BOC's Board of Directors and the Plan Committee may adopt, amend, and rescind rules and regulations relating to the Plan to protect BOC’s and its Related Entities’ interests. Consistent with the Plan’s objectives, BOC’s Board of Directors and the Plan Committee shall have complete discretion to make all other decisions necessary or advisable for the administration and interpretation of the Plan. Actions of BOC’s Board of Directors and the Plan Committee shall be final, binding, and conclusive for all purposes and upon all persons.

4.2        Delegation of Duties. In its sole discretion, BOC’s Board of Directors and the Plan Committee may delegate ministerial duties associated with the Plan to any person that it deems appropriate, including an Employee. However, neither BOC’s board of directors nor the Plan Committee shall delegate a duty it must discharge to comply with the conditions for exemption of performance-based compensation from the deduction limitations of Section 162(m).

4.3        Award Agreement. As soon as administratively practical after the date an Award is made, the Plan Committee or BOC’s Board of Directors shall prepare and deliver an Award Agreement to each affected Participant. The Award Agreement shall:

(a)        describe the terms of the Award, including the type of Award and when and how it may be exercised or earned,

(b)        state the Exercise Price, if any, associated with the Award,

(c)        state how the Award will or may be settled,

(d)        if different from the terms of the Plan, describe (x) any conditions that must be satisfied before the Award may be exercised or earned, (y) any objective restrictions placed on the Award and any performance-related conditions and performance criteria that must be satisfied before those restrictions will be released, and (z) any other applicable terms and conditions affecting the Award.

4.4        Restriction on Repricing. Regardless of any other provision of this Plan or an Award Agreement, neither BOC’s Board of Directors nor the Plan Committee may reprice (as defined under rules of the New York

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Stock Exchange or The Nasdaq Stock Market) any Award unless the repricing is approved in advance by BOC’s stockholders acting at a meeting.

ARTICLE 5

LIMITS ON STOCK SUBJECT TO AWARDS

5.1        Number of Authorized Shares of Stock. With any adjustments required by Section 5.4, the maximum number of shares of BOC common stock that may be subject to Awards under this Plan is 300,000, which includes 955 shares authorized to be granted under BOC’s Employee Stock Option Plan that are not subject to outstanding awards under those plans on the date this Plan becomes effective under Section 1.2, but excluding any shares subject to awards issued under the Employee Stock Option Plan or the Director Stock Option Plan that are subsequently forfeited under the terms of those plans. However, if this Plan is not approved by BOC’s stockholders, BOC’s Employee Stock Option Plan and Director Stock Option Plan, each as amended, shall be unaffected and shall remain in effect for the remaining term specified in those plans. The shares of BOC common stock to be delivered under this Plan may consist in whole or in part of treasury stock or authorized but unissued shares not reserved for any other purpose.

5.2        Award Limits and Annual Participant Limits.

(a)        Award Limits. Of the total shares authorized under Section 5.1, up to a maximum of 150,000 shares may be reserved for issuance under Incentive Stock Options.

(b)        Annual Participant Limits. The aggregate number of shares of BOC common stock underlying Awards granted under this Plan to any Participant in any Plan Year, regardless of whether the Awards are thereafter canceled, forfeited, or terminated, shall not exceed 25,000 shares. This annual limitation is intended to include the grant of all Awards, including but not limited to Awards representing performance-based compensation described in Internal Revenue Code Section 162(m)(4)(C).

5.3        Share Accounting.

(a)        As appropriate, the number of shares of BOC common stock available for Awards under this Plan shall be conditionally reduced by the number of shares of BOC common stock subject to any outstanding Award.

(b)        As appropriate, the number of shares of BOC common stock available for Awards under this Plan shall be absolutely reduced by (x) the number of shares of BOC common stock issued through Option exercises, and (y) the number of shares of BOC common stock issued because of satisfaction of the terms of an Award Agreement for Restricted Stock or Performance Stock that, by the terms of the applicable Award Agreement, are to be settled in shares of BOC common stock.

(c)        As appropriate, shares of BOC common stock subject to an Award that for any reason is forfeited, cancelled, terminated, relinquished, exchanged, or otherwise settled without the issuance of BOC common stock or without payment of cash equal to its Fair Market Value or the difference between the Award’s Fair Market Value and its Exercise Price, if any, may again be granted under the Plan. If the Exercise Price of an Award is paid in shares of BOC common stock, the shares received by BOC shall not be added to the maximum aggregate number of shares of BOC common stock that may be issued under Section 5.1.

5.4        Adjustment in Capitalization. If after the date this Plan becomes effective under Section 1.2 there is a stock dividend or stock split, recapitalization (including payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to stockholders, exchange of shares or other similar corporate change affecting BOC common stock, then consistent with the applicable provisions of Internal Revenue Code Sections 162(m), 409A, 422, and 424 and associated regulations and to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, the Plan

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Committee shall, in a manner the Plan Committee considers equitable, adjust (a) the number of Awards that may or will be granted to Participants during a Plan Year, (b) the aggregate number of shares of BOC common stock available for Awards under Section 5.1 or subject to outstanding Awards, as well as any share-based limits imposed under this Plan, (c) the respective Exercise Price, number of shares, and other limitations applicable to outstanding or subsequently granted Awards, and (d) any other factors, limits, or terms affecting any outstanding or subsequently granted Awards.

ARTICLE 6

OPTIONS

6.1        Grant of Options. Subject to Article 8 and the terms of the Plan and the associated Award Agreement, at any time during the term of this Plan the Plan Committee may grant Incentive Stock Options and Nonqualified Stock Options to Employees and BOC’s Board of Directors may grant Nonqualified Stock Options to Directors. Unless an Award Agreement provides otherwise, Options awarded under this Plan are intended to satisfy the requirements for exclusion from coverage under Internal Revenue Code Section 409A, and all Option Award Agreements shall be construed and administered consistent with that intention.

6.2        Exercise Price. Except as necessary to implement Section 6.6, each Option shall have an Exercise Price per share at least equal to the Fair Market Value of a share of BOC common stock on the date of grant, meaning the closing price on the date of grant if BOC common stock is traded on an exchange (or the closing price on the next trading day if the grant date is not a trading day). However, the Exercise Price per share shall be at least 110% of the Fair Market Value of a share of BOC common stock on the date of grant for any Incentive Stock Option granted to an Employee who, on the date of grant, owns (as defined in Internal Revenue Code Section 424(d)) BOC common stock possessing more than 10% of the total combined voting power of all classes of stock (or the combined voting power of any Related Entity), determined according to rules issued under Internal Revenue Code Section 422.

6.3        Exercise of Options. Subject to Article 8 and any terms, restrictions, and conditions specified in the Plan, and unless specified otherwise in the Award Agreement, Options shall be exercisable at the time or times specified in the Award Agreement, and they may become exercisable as to portions of the shares covered by Options at intervals during a stated period of time, but (x) no Incentive Stock Option may be exercised more than ten years after it is granted, or more than five years after it is granted in the case of an Incentive Stock Option granted to an Employee who on the date of grant owns (as defined in Internal Revenue Code Section 424(d)) BOC common stock possessing more than 10% of the total combined voting power of all classes of stock or the combined voting power of any Related Entity, determined under rules issued under Internal Revenue Code Section 422, (y) no Nonqualified Stock Option granted to a Director shall be exercisable more than ten years after it is granted, and (z) Nonqualified Stock Options not granted to Directors shall be exercisable for the period specified in the Award Agreement, but not more than ten years after the grant date if no period is specified in the Award Agreement.

6.4        Incentive Stock Options. Despite any provision in this Plan to the contrary:

(a)        no provision of this Plan relating to Incentive Stock Options shall be interpreted, amended, or altered, nor shall any discretion or authority granted under the Plan be exercised, in a manner that is inconsistent with Internal Revenue Code Section 422 or, without the consent of the affected Participant, to cause any Incentive Stock Option to fail to qualify for the federal income tax treatment provided by Internal Revenue Code Section 421,

(b)        the aggregate Fair Market Value of the BOC common stock (determined as of the date of grant) for which Incentive Stock Options are exercisable for the first time by a Participant in any calendar year under all stock option plans of BOC and all its Related Entities shall not exceed $100,000 (or other amount specified in

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Internal Revenue Code Section 422(d)), determined under rules issued under Internal Revenue Code Section 422, and

(c)        no Incentive Stock Option shall be granted to a person who is not an Employee on the grant date.

6.5        Exercise Procedures and Payment for Options. The Exercise Price associated with each Option must be paid according to procedures described in the Award Agreement. These procedures may allow either of the following payment methods: (x) payment in cash or a cash equivalent or (y) surrender by the Participant of unrestricted shares of BOC common stock he or she has owned for at least six months before the exercise date as partial or full payment of the Exercise Price, either by actual delivery of the shares or by attestation, with each share valued at the Fair Market Value of a share of BOC common stock on the exercise date. In its sole discretion the Plan Committee may withhold its approval for any method of payment for any reason, including but not limited to concerns that the proposed method of payment will result in adverse financial accounting treatment, adverse tax treatment for BOC or the Participant, or a violation of the Sarbanes-Oxley Act of 2002, as amended from time to time, and related regulations and guidance. A Participant may exercise an Option solely by sending to the Plan Committee or its designee a completed exercise notice in the form prescribed by the Plan Committee along with payment, or designation of an approved payment procedure, of the Exercise Price.

6.6        Substitution of Options. In BOC’s discretion, persons who become Employees as a result of a transaction described in Internal Revenue Code Section 424(a) may receive Options in exchange for options granted by their former employer or the former Related Entity subject to the rules and procedures prescribed under Section 424.

6.7        Rights Associated With Options. A Participant holding an unexercised Option shall have no voting or dividend rights associated with shares underlying the unexercised Option. The Option shall be transferable solely as provided in Section 13.1. Unless otherwise specified in the Award Agreement or as otherwise specifically provided in the Plan, BOC common stock acquired by Option exercise shall have all dividend and voting rights associated with BOC common stock and shall be transferable, subject to applicable federal securities laws, applicable requirements of any national securities exchange or system on which shares of BOC common stock are then listed or traded, and applicable blue sky or state securities laws.

ARTICLE 7

RESTRICTED STOCK

7.1        Grant of Restricted Stock. Subject to the terms, restrictions, and conditions specified in the Plan and the associated Award Agreement, at any time during the term of this Plan the Plan Committee may grant shares of Restricted Stock to Employees and BOC’s Board of Directors may grant shares of Restricted Stock to Directors. Restricted Stock may be granted at no cost or at a price per share determined by the Plan Committee or the Board of Directors, which may be less than the Fair Market Value of a share of BOC common stock on the date of grant.

7.2        Earning Restricted Stock. Subject to the terms, restrictions, and conditions specified in the Plan and the associated Award Agreement, and unless otherwise specified in the Award Agreement:

(a)        terms, restrictions, and conditions imposed on Restricted Stock granted to Employees and Directors shall lapse as described in the Award Agreement, and any Award Agreement may provide for a schedule under which terms, restrictions and conditions lapse as to portions of the shares included in an Award at lapse at intervals during a stated period of time;

(b)        during the period in which satisfaction of the conditions imposed on Restricted Stock is to be determined, Restricted Stock and any shares of BOC common stock issuable as a dividend or other distribution on the Restricted Stock shall be held by BOC as escrow agent,

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(c)        at the end of the period in which satisfaction of the conditions imposed on Restricted Stock is to be determined, the Restricted Stock shall be (x) forfeited if all terms, restrictions, and conditions described in the Award Agreement are not satisfied (with a refund, without interest, of any consideration paid by the Participant), or (y) released from escrow and distributed to the Participant as soon as practicable after the last day of the period in which satisfaction of the conditions imposed on Restricted Stock is to be determined if all terms, restrictions, and conditions specified in the Award Agreement are satisfied. Any Restricted Stock Award relating to a fractional share of BOC common stock shall be rounded to the next whole share when settled.

7.3        Rights Associated With Restricted Stock. During the period in which satisfaction of the conditions imposed on Restricted Stock is to be determined, and unless the Restricted Stock Award Agreement specifies otherwise, Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated. Except as otherwise required for compliance with the conditions for exemption of performance-based compensation from the deduction limitations of Internal Revenue Code Section 162(m) and except as otherwise required by the terms of the applicable Award Agreement, during the period in which satisfaction of the conditions imposed on Restricted Stock is to be determined each Participant to whom Restricted Stock is issued may exercise full voting rights associated with that Restricted Stock and shall be entitled to receive all dividends and other distributions on that Restricted Stock; provided, however, that if a dividend or other distribution is paid in the form of shares of BOC common stock, those shares shall also be considered Restricted Stock and shall be held in escrow by BOC and be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock to which the dividend or distribution relates.

7.4        Internal Revenue Code Section 83(b) Election. The Plan Committee may provide in an Award Agreement that the Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election under Internal Revenue Code Section 83(b). If a Participant makes an election under Internal Revenue Code Section 83(b) concerning a Restricted Stock Award, the Participant must promptly file a copy of the election with BOC.

ARTICLE 8

PERFORMANCE SHARES

8.1        Generally. Subject to the terms, restrictions, and conditions specified in the Plan and the Award Agreement, the granting or vesting of Performance Shares shall, in the Plan Committee’s sole discretion, be based on achievement of performance objectives derived from one or more of the Performance Criteria specified in Section 8.2. Performance Shares may be granted (x) to Covered Officers in a manner that qualifies as performance-based compensation under Internal Revenue Code Section 162(m) or (y) to Employees who are not Covered Officers in any manner reasonably determined by the Plan Committee. Unless an Award Agreement provides otherwise, Performance Shares awarded under this Plan are intended to satisfy the requirements for exclusion from coverage under Internal Revenue Code Section 409A, and all Performance Share Award Agreements shall be construed and administered consistent with that intention.

8.2        Performance Criteria.

(a)        Vesting of Performance Shares that are intended to qualify as performance-based compensation under Internal Revenue Code Section 162(m) shall be based on one or more or any combination of the following criteria (the “Performance Criteria”) and may be applied solely with reference to BOC, to a Related Entity, to BOC and a Related Entity, or relatively between BOC, a Related Entity, or both and one or more unrelated entities –

(1) net earnings or net income (before or after taxes),

(2) earnings per share,

(3) deposit or asset growth,

(4) net operating income,

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(5) return measures (including return on assets and equity),

(6) fee income,

(7) earnings before or after taxes, interest, depreciation and/or amortization,

(8) interest spread,

(9) productivity ratios,

(10) share price, including but not limited to growth measures and total stockholder return,

(11) expense targets,

(12) credit quality,

(13) efficiency ratio,

(14) market share,

(15) customer satisfaction, and

(16) net income after cost of capital.

(b)        Vesting of Performance Shares granted to Participants who are not Covered Officers may be based on one or more or any combination of the Performance Criteria listed in Section 8.2(a) or on other factors the Plan Committee considers relevant and appropriate.

(c)        Different Performance Criteria may be applied to individual Employees or to groups of Employees and, as specified by the Plan Committee, may be based on the results achieved (x) separately by BOC or any Related Entity, (y) by any combination of BOC and Related Entities, or (z) by any combination of segments, products, or divisions of BOC and Related Entities.

(d)        The Plan Committee shall make appropriate adjustments of Performance Criteria to reflect the effect on any Performance Criteria of any stock dividend or stock split affecting BOC common stock, a recapitalization (including without limitation payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to stockholders, exchange of shares, or similar corporate change. Also, the Plan Committee shall make a similar adjustment to any portion of a Performance Criterion that is not based on BOC common stock but that is affected by an event having an effect similar to those just described. As permitted under Internal Revenue Code Section 162(m), the Plan Committee may make appropriate adjustments of Performance Criteria to reflect a substantive change in an Employee’s job description or assigned duties and responsibilities.

(e)        Performance Criteria shall be established in an associated Award Agreement as soon as administratively practicable after the criteria are established, but in the case of Covered Officers no later than the earlier of (x) 90 days after the beginning of the applicable Performance Period and (y) the expiration of 25% of the applicable period in which satisfaction of the applicable Performance Criteria is to be determined.

8.3        Earning Performance Shares. Except as otherwise provided in the Plan or the Award Agreement, at the end of each applicable period in which satisfaction of the Performance Criteria is to be determined, the Plan Committee shall certify that the Employee has or has not satisfied the Performance Criteria. Performance Shares shall then be:

(a)        forfeited to the extent the Plan Committee certifies that the Performance Criteria are not satisfied, or

(b)        to the extent the Performance Criteria are certified by the Plan Committee as having been satisfied, distributed to the Employee in the form of shares of BOC common stock (unless otherwise specified in the Award Agreement) on or before the later of (x) the 15^th day of the third month after the end of the Participant’s taxable year in which the Plan Committee certifies that the related Performance Criteria are satisfied and (y) the

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15^th day of the third month after the end of BOC’s taxable year in which the Plan Committee certifies that the related Performance Criteria are satisfied. However, the Performance Shares may be distributed later if BOC reasonably determines that compliance with that schedule is not administratively practical and if the distribution is made as soon as practical.

8.4        Rights Associated with Performance Shares. During the applicable period in which satisfaction of the Performance Criteria is to be determined, Performance Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated. During the applicable period in which satisfaction of the Performance Criteria is to be determined and unless the Award Agreement provides otherwise, Employees may not exercise voting rights associated with their Performance Shares and all dividends and other distributions paid on Performance Shares shall be held by BOC as escrow agent. At the end of the period in which satisfaction of the applicable Performance Criteria is to be determined, dividends or other distributions held in escrow shall be distributed to the Participant or forfeited as provided in Section 8.3. No interest or other accretion will be credited on dividends or other distributions held in escrow. If a dividend or other distribution is paid in the form of shares of BOC common stock, those shares shall be held in escrow by BOC and be subject to the same restrictions on transferability and forfeitability as the shares of BOC common stock to which the dividend or distribution relates.

ARTICLE 9

TERMINATION

9.1        Termination for Cause.

(a)        If a Participant’s employment or director service terminates for Cause, or if in BOC’s judgement a basis for termination for Cause exists, all Awards held by the Participant that are outstanding shall be forfeited, regardless of whether the Awards are exercisable and regardless of whether Participant’s employment or director service with BOC or a Related Entity actually terminates, except that Restricted Stock or Performance Shares that have been released from escrow and distributed to the Participant shall not be affected by termination for Cause.

(b)        The term “Cause” shall mean one or more of the acts described in this Section 9.1, including:

(1) an act of fraud, intentional misrepresentation, embezzlement, misappropriation, or conversion by the Participant of the assets or business opportunities of BOC or a Related Entity,

(2) conviction of the Participant of or plea by the Participant of guilty or no contest to a felony or a misdemeanor,

(3) violation by the Participant of the written policies or procedures of BOC or the Related Entity with which the Participant is employed, including but not limited to violation of BOC’s or the Related Entity’s code of ethics,

(4) unless disclosure is inadvertent, disclosure to unauthorized persons of any confidential information not in the public domain relating to BOC’s or a Related Entity’s business, including all processes, inventions, trade secrets, computer programs, technical data, drawings or designs, information concerning pricing and pricing policies, marketing techniques, plans and forecasts, new product information, information concerning methods and manner of operations, and information relating to the identity and location of all past, present, and prospective customers and suppliers,

(5) intentional breach of any contract with or violation of any legal obligation owed to BOC or a Related Entity,

(6) dishonesty relating to the duties owed by the Participant to BOC or a Related Entity,

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(7) the Participant’s willful and continued refusal to substantially perform assigned duties, other than refusal resulting from sickness or illness or while suffering from an incapacity due to physical or mental illness, including a condition that does or may constitute a disability,

(8) the Participant’s willful engagement in gross misconduct materially and demonstrably injurious to BOC or a Related Entity,

(9) the Participant’s breach of any term of this Plan or an Award Agreement,

(10) intentional cooperation with a party attempting a Change in Control of BOC, unless BOC’s Board of Directors approves or ratifies the Participant’s action before the Change in Control or unless the Participant’s cooperation is required by law, or

(11) any action that constitutes “cause” for termination as defined in any written agreement between the Participant and BOC or a Related Entity.

However, Cause shall not be deemed to exist merely because the Participant is absent from active employment during periods of paid time off, consistent with the applicable paid time-off policy of BOC or its Related Entity with which the Participant is employed, as the case may be, sickness or illness or while suffering from an incapacity due to physical or mental illness, including a condition that does or may constitute a disability, or other period of absence approved by BOC or its Related Entity, as the case may be. The Plan Committee shall have the sole discretion to determine whether any condition constitutes a disability for purposes of the Plan or this Section 9.1.

9.2        Termination for any Other Reason. Unless specified otherwise in the Award Agreement or in this Plan, and except as provided in Section 9.1, when a Participant’s employment or service as a Director terminates for any reason, the portions of the Participant’s outstanding Options that are unvested and unexercisable, and the portions of the Participant's Restricted Stock Awards or Performance Share Awards that are unvested and held in escrow, shall be forfeited. Options that are exercisable when termination occurs shall be forfeited if not exercised before the earlier of (x) the expiration date specified in the Award Agreement, (y) any other time (including the date of termination), or after any number of days following the date of termination, as specified in the Award Agreements pertaining to those Options.

ARTICLE 10

EFFECT OF A CHANGE IN CONTROL

10.1        Definition of Change in Control. The term “Change in Control” shall have the meaning given in any written agreement between the Employee or Director and BOC or any Related Entity. However, if an Award is subject to Internal Revenue Code Section 409A, the term Change in Control shall have the meaning given in Section 409A. If an Award is not subject to Internal Revenue Code Section 409A, and if the term Change in Control is not defined in a written agreement between the Employee or Director and BOC or a Related Entity, any of the following events occurring on or after the date this Plan becomes effective under Section 1.2 shall constitute a Change in Control:

(a)        Change in Board Composition. If individuals who constitute BOC’s Board of Directors on the date this Plan becomes effective under Section 1.2 (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board of Directors. A person who becomes a Director after the date this Plan becomes effective and whose election or nomination for election is approved by a vote of at least two-thirds (2/3) of the Incumbent Directors on the Board of Directors shall be deemed to be an Incumbent Director. The necessary two-thirds approval may take the form of a specific vote on that person’s election or nomination or approval of BOC’s proxy statement in which the person is named as a nominee for Director, without written objection by Incumbent Directors to the nomination. A person elected or nominated as a Director of BOC initially as the result of an actual or threatened director-election contest or any other actual or threatened solicitation of proxies by or

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on behalf of any person other than BOC’s Board of Directors shall never be considered an Incumbent Director, unless at least two-thirds (2/3) of the Incumbent Directors specifically vote to treat that person as an Incumbent Director.

(b)        Significant Ownership Change. If any person directly or indirectly is or becomes the beneficial owner of securities whose combined voting power in the election of BOC’s Directors is:

(1) 50% or more of the combined voting power of all of BOC’s outstanding securities eligible to vote for the election of BOC's Directors,

(2) 25% or more, but less than 50%, of the combined voting power of all of BOC’s outstanding securities eligible to vote in the election of BOC’s Directors, except that an event described in this paragraph (b)(2) shall not constitute a Change in Control if it is the result of any of the following acquisitions of BOC’s securities:

(A) by BOC or a Related Entity, reducing the number of BOC securities outstanding (unless the person thereafter becomes the beneficial owner of additional securities that are eligible to vote in the election of BOC's Directors, increasing the person’s beneficial ownership by more than one percent),

(B) by or through an employee benefit plan sponsored or maintained by BOC or a Related Entity and described (or intended to be described) in Internal Revenue Code Section 401(a),

(C) by or through an equity compensation plan maintained by BOC or a Related Entity, including this Plan and any program described in Internal Revenue Code Section 423,

(D) by an underwriter temporarily holding securities in an offering of securities,

(E) in a Non-Control Transaction, as defined in Section 10.1(c), or

(F) in a transaction (other than one described in Section 10.1(c)) in which securities eligible to vote in the election of BOC's Directors are acquired from BOC, if a majority of the Incumbent Directors approves a resolution providing expressly that the acquisition shall not constitute a Change in Control.

(c)        Merger. Consummation of a merger, consolidation, share exchange, or similar form of corporate transaction involving BOC or a Related Entity requiring approval of BOC’s stockholders, whether for the transaction or for the issuance of securities in the transaction (a “Business Combination”), unless immediately after the Business Combination:

(1) more than 50% of the total voting power of either (x) the corporation resulting from consummation of the Business Combination (the “Surviving Corporation”) or, if applicable, (y) the ultimate parent corporation that directly or indirectly beneficially owns 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”) is represented by securities that were eligible to vote in the election of BOC's Directors and that were outstanding immediately before the Business Combination (or, if applicable, represented by securities into which the BOC securities were converted in the Business Combination), and that voting power among the holders thereof is in substantially the same proportion as the voting power of securities eligible to vote in the election of BOC's Directors among the holders thereof immediately before the Business Combination,

(2) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation or any employee stock benefit trust created by the Surviving Corporation or the Parent Corporation) directly or indirectly is or becomes the beneficial owner of 25% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation), and

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(3) at least a majority of the members of the Board of Directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were Incumbent Directors when the initial agreement providing for the Business Combination was approved by BOC’s Board of Directors.

A Business Combination satisfying all of the criteria specified in clauses (1), (2), and (3) of this Section 10.1(c) shall constitute a “Non-Control Transaction,” or

(d)        Sale of Assets. If BOC’s stockholders approve a plan of complete liquidation or dissolution of BOC or a sale of all or substantially all of its assets, but in any case only if BOC’s assets are transferred to an entity not owned directly or indirectly by BOC or its stockholders.

10.2        Effect of Change in Control. If a Change in Control occurs, the Plan Committee shall have the right in its sole discretion to –

(a)        accelerate the exercisability of any or all Options, despite any limitations contained in the Plan or Award Agreement,

(b)        accelerate the vesting of Restricted Stock or Performance Shares, despite any limitations contained in the Plan or Award Agreement,

(c)        cancel any or all outstanding Awards in exchange for the kind and amount of shares of the surviving or new corporation, cash, securities, evidences of indebtedness, other property, or any combination thereof that the holder of the Award would have received upon consummation of the Change-in-Control transaction (the “Acquisition Consideration”) had the Option, Restricted Stock or Performance Shares been exercised or converted into shares of BOC common stock before the transaction, less the applicable exercise or purchase price,

(d)        cause the holders of any or all Awards to have the right during the term of the Awards to receive upon exercise the Acquisition Consideration receivable upon consummation of the transaction by a holder of the number of shares of BOC common stock that might have been obtained upon exercise or conversion of all or any portion thereof, less the applicable exercise or purchase price therefor, or to convert the Award into a stock option, restricted stock or performance shares relating to the surviving or new corporation in the transaction, or

(e)        take such other action as it deems appropriate to preserve the value of the Award to the Participant.

The Plan Committee may provide for any of the foregoing actions in an Award Agreement in advance, may provide for any of the foregoing actions in connection with the Change in Control, or both. Alternatively, the Plan Committee shall also have the right to require any purchaser of BOC’s assets or stock, as the case may be, to take any of the actions set forth in the preceding sentence as such purchaser may determine to be appropriate or desirable. The manner of application and interpretation of the provisions of this Section 10.2 shall be determined by the Plan Committee in its sole and absolute discretion. Despite any provision of this Plan or an Award Agreement to the contrary, a Participant shall not be entitled to any amount under this Plan if he or she acted in concert with any person to effect a Change in Control, unless the Participant acted at the specific direction of BOC’s Board of Directors and in his or her capacity as an Employee of BOC or any Related Entity. For purposes of this Plan the term “person” shall be as defined in Section 3(a)(9) and as used in Sections 13(d)(3) and 14(d) (2) of the Securities Exchange Act of 1934, and the terms “beneficial owner” and “beneficial ownership” shall have the meaning given in the Securities and Exchange Commission’s Rule 13d-3 under the Securities Exchange Act of 1934.

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ARTICLE 11

AMENDMENT, MODIFICATION, AND TERMINATION OF THIS PLAN

BOC may terminate, suspend, or amend the Plan at any time without stockholder approval, unless stockholder approval is necessary to satisfy applicable requirements imposed by (a) Rule 16b-3 under the Securities Exchange Act of 1934, or any successor rule or regulation, (b) the Internal Revenue Code, which requirements may include qualification of an Award as performance-based compensation under Internal Revenue Code Section 162(m), or (c) any securities exchange, market, or other quotation system on or through which BOC’s securities are listed or traded. However, no Plan amendment shall (x) result in the loss of a Plan Committee member's status as a “non-employee director,” as that term is defined in Rule 16b-3 under the Securities Exchange Act of 1934 or any successor rule or regulation, (y) cause the Plan to fail to satisfy the requirements imposed by Rule 16b-3, or (z) without the affected Participant’s consent (and except as specifically provided otherwise in this Plan or the Award Agreement), adversely affect any Award granted before the amendment, modification, or termination. Despite any provision in the Plan, including this Article 10, to the contrary, BOC shall have the right to amend the Plan and any Award Agreements without additional consideration to affected Participants if amendment is necessary to avoid penalties arising under Internal Revenue Code Section 409A, even if the amendment reduces, restricts, or eliminates rights granted under the Plan, the Award Agreement, or both before the amendment.

ARTICLE 12

ISSUANCE OF SHARES AND SHARE CERTIFICATES

12.1        Issuance of Shares. BOC shall issue or cause to be issued shares of its common stock as soon as practicable upon exercise or conversion of an Award that is payable in shares of BOC common stock. No shares shall be issued until full payment is made, if payment is required by the terms of the Award. In the case of an Option, until a stock certificate evidencing the shares is issued, no right to vote or receive dividends or any other rights as a stockholder shall exist for the shares of BOC common stock to be issued, despite the exercise of the Option. Issuance of a stock certificate shall be evidenced by the appropriate entry on the books of BOC or of a duly authorized transfer agent of BOC.

12.2        Delivery of Share Certificates. BOC shall not be required to issue or deliver any certificates until all of the following conditions are fulfilled:

(a)        payment in full for the shares and for any tax withholding,

(b)        completion of any registration or other qualification of the shares the Plan Committee in its discretion deems necessary or advisable under any Federal or state laws or under the rulings or regulations of the Securities and Exchange Commission or any other regulating body,

(c)        if BOC common stock is listed on the Nasdaq Stock Market or another exchange, admission of the shares to listing on the Nasdaq Stock Market or the other exchange,

(d)        if the offer and sale of shares of BOC common stock is not registered under the Securities Act of 1933, qualification of the offer and sale as a private placement under the Securities Act of 1933 or qualification under another registration exemption under the Securities Act of 1933,

(e)        obtaining any approval or other clearance from any Federal or state governmental agency the Plan Committee in its discretion determines to be necessary or advisable, and

(f)        the Plan Committee is satisfied that the issuance and delivery of shares of BOC common stock under this Plan complies with applicable Federal, state, or local law, rule, regulation, or ordinance or any rule or regulation of any other regulating body, for which the Plan Committee may seek approval of BOC’s counsel.

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12.3      Applicable Restrictions on Shares. Shares of BOC common stock issued may be subject to such stock transfer orders and other restrictions as the Plan Committee may determine are necessary or advisable under any applicable Federal or state securities law rules, regulations and other requirements, the rules, regulations and other requirements of The Nasdaq Stock Market or any stock exchange upon which BOC common stock is listed, and any other applicable Federal or state law. Certificates for the common stock may bear any restrictive legends the Plan Committee considers appropriate.

12.4      Book Entry. Instead of issuing stock certificates evidencing shares, BOC may use a “book entry” system in which a computerized or manual entry is made in the records of BOC to evidence the issuance of shares of BOC common stock. BOC’s records are binding on all parties, unless manifest error exists.

ARTICLE 13

MISCELLANEOUS

13.1      Assignability. Except as described in this Section or as provided in Section 13.2, an Award may not be transferred except by will or by the laws of descent and distribution, and an Award may be exercised during the Participant’s lifetime solely by the Participant or by the Participant’s guardian or legal representative. However, with the permission of the Plan Committee a Participant or a specified group of Participants may transfer Awards other than Incentive Stock Options to a revocable inter vivos trust of which the Participant is the settlor, or may transfer Awards other than Incentive Stock Options to a member of the Participant’s immediate family, a revocable or irrevocable trust established solely for the benefit of the Participant’s immediate family, a partnership or limited liability company whose only partners or members are members of the Participant’s immediate family, or an organization described in Internal Revenue Code Section 501(c)(3). An Award transferred to one of these permitted transferees shall continue to be subject to all of the terms and conditions that applied to the Award before the transfer and to any other rules prescribed by the Plan Committee. A permitted transferee may not retransfer an Award except by will or by the laws of descent and distribution, and the transfer by will or by the laws of descent and distribution must be a transfer to a person who would be a permitted transferee according to this Section 13.1.

13.2      Beneficiary Designation. Each Participant may name a beneficiary or beneficiaries to receive or to exercise any vested Award that is unpaid or unexercised at the Participant’s death. Beneficiaries may be named contingently or successively. Unless otherwise provided in the beneficiary designation, each designation made shall revoke all prior designations made by the same Participant. A beneficiary designation must be made on a form prescribed by the Plan Committee and shall not be effective until filed in writing with the Plan Committee. If a Participant has not made an effective beneficiary designation, the deceased Participant’s beneficiary shall be his or her surviving spouse or, if none, the deceased Participant’s estate. None of BOC, its Board of Directors, or the Plan Committee is required to infer a beneficiary from any other source. The identity of a Participant’s designated beneficiary shall be based solely on the information included in the latest beneficiary designation form completed by the Participant and shall not be inferred from any other evidence.

13.3      No Implied Rights to Awards or Continued Services. No employee or director has any claim or right to be granted an Award under this Plan, and there is no obligation of uniformity of treatment of Participants under this Plan. Nothing in the Plan shall or shall be construed to guarantee that any Participant will receive a future Award. Neither this Plan nor any Award shall be construed as giving any individual any right to continue as an Employee or Director of BOC or a Related Entity. Neither the Plan nor any Award shall constitute a contract of employment, and BOC expressly reserves to itself and all Related Entities the right at any time to terminate Employees free from liability or any claim under this Plan, except as may be specifically provided in this Plan or in an Award Agreement.

13.4      Tax Withholding.

(a)        BOC shall withhold from other amounts owed to the Participant or require a Participant to remit to BOC an amount sufficient to satisfy federal, state, and local withholding tax requirements on any Award,

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exercise, or cancellation of an Award or purchase of Stock. If these amounts are not to be withheld from other payments due to the Participant or if there are no other payments due to the Participant, BOC shall defer payment of cash or issuance of shares of Stock until the earlier of (x) 30 days after the settlement date, or (y) the date the Participant remits the required amount.

(b)        If the Participant does not remit the required amount within 30 days after the settlement date, BOC shall permanently withhold from the value of the Awards to be distributed the minimum amount required to be withheld to comply with applicable federal, state, and local income, wage, and employment taxes, distributing the balance to the Participant.

(c)        In its sole discretion, which may be withheld for any reason or for no reason, the Plan Committee may permit a Participant to reimburse BOC for this tax withholding obligation through one or more of the following methods, subject to conditions the Plan Committee establishes:

(1) having shares of Stock otherwise issuable under the Plan withheld by BOC, but only to the extent of the minimum amount that must be withheld to comply with applicable state, federal, and local income, employment, and wage tax laws,

(2) delivering to BOC previously acquired shares of BOC common stock that the Participant has owned for at least six months,

(3) remitting cash to BOC, or

(4) remitting a personal check immediately payable to BOC.

13.5      Indemnification. Each individual who is or was a member of BOC’s Board of Directors or Plan Committee shall be indemnified and held harmless by BOC against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be made a party or in which he or she may be involved by reason of any action taken or not taken under the Plan as a Director of BOC or as a Plan Committee member and against and from any and all amounts paid, with BOC’s approval, by him or her in settlement of any matter related to or arising from the Plan as a BOC Director or as a Plan Committee member or paid by him or her in satisfaction of any judgment in any action, suit or proceeding relating to or arising from the Plan against him or her as a BOC Director or as a Plan Committee member, but only if he or she gives BOC an opportunity at its expense to handle and defend the matter before he or she undertakes to handle and defend it in his or her own behalf. The right of indemnification described in this Section is not exclusive and is independent of any other rights of indemnification to which the individual may be entitled under BOC’s organizational documents, by contract, as a matter of law, or otherwise.

13.6      No Limitation on Compensation. Nothing in the Plan shall be construed to limit the right of BOC to establish other plans or to pay compensation to its Employees or Directors in cash or property in a manner not expressly authorized under the Plan.

13.7      Governing Law. The Plan and all agreements hereunder shall be construed in accordance with and governed by the laws, other than laws governing conflict of laws, of the State of North Carolina. This Plan is not intended to be governed by the Employee Retirement Income Security Act of 1974, and the Plan shall be construed and administered in a manner that is consistent with that intention.

13.8      No Impact on Benefits. Plan Awards are not compensation for purposes of calculating a Participant’s rights under any employee benefit plan that does not specifically require the inclusion of Awards in benefit calculations.

13.9      Securities and Exchange Commission Rule 16b-3. The Plan is intended to comply with all applicable conditions of Securities and Exchange Commission Rule 16b-3 under the Securities Exchange Act of

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1934, as that rule may be amended from time to time. All transactions involving a Participant who is subject to beneficial ownership reporting under Section 16(a) of the Securities Exchange Act of 1934 shall be subject to the conditions set forth in Rule 16b-3, regardless of whether the conditions are expressly set forth in this Plan, and any provision of this Plan that is contrary to Rule 16b-3 shall not apply to that Participant.

13.10    Internal Revenue Code Section 162(m). The Plan is intended to comply with applicable requirements of Section 162(m) for exemption of performance-based compensation from the deduction limitations of Section 162(m). Unless the Plan Committee expressly determines otherwise, any provision of this Plan that is contrary to those Section 162(m) exemption requirements shall not apply to an Award that is intended to qualify for the exemption for performance-based compensation.

13.11    Successors. All obligations of BOC under Awards granted under this Plan are binding on any successor to BOC, whether as a result of a direct or indirect purchase, merger, consolidation, or otherwise of all or substantially all of the business or assets of BOC.

13.12    Severability. If any provision of this Plan or the application thereof to any person or circumstances is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan or other applications, and this Plan is to be construed and enforced as if the illegal or invalid provision had not been included.

13.13    No Golden Parachute Payments. Despite any provision in this Plan or in an Award Agreement to the contrary, BOC shall not be required to make any payment under this Plan or an Award Agreement that would be a prohibited golden parachute payment within the meaning of Section 18(k) of the Federal Deposit Insurance Act.

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EX-10.2

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 1^st of the Award Year of its adoption by the Board of Directors of the Bank.

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EX-10.3

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	%