EXHIBIT 10(iii)
 
Employment Agreement

This Employment Agreement (this “Agreement”) is entered into effective as of
this 10 day of September, 2008 by and among Michael G. Carlton (the
“Executive”), Crescent Financial Corporation, a North Carolina corporation (the
“Corporation”), and Crescent State Bank, a North Carolina-chartered bank and
wholly owned subsidiary of Crescent Financial Corporation (the “Bank”).  The
Corporation and the Bank are hereinafter sometimes referred to together or
individually as the “Employer.”

Whereas, the Executive is the President and Chief Executive Officer of the
Corporation and the Bank, possessing unique skills, knowledge, and experience
relating to their business, and the Executive has made and is expected to
continue to make major contributions to the profitability, growth and financial
strength of the Corporation and affiliates,

Whereas, the Executive and the Employer intend that this Agreement shall
supersede and replace in its entirety the October 24, 2007 Employment Agreement
between the Executive and the Employer, and

Whereas, none of the conditions or events included in the definition of the term
“golden parachute payment” that is set forth in Section 18(k)(4)(A)(ii) of the
Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal
Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)]
exists or, to the best knowledge of the Employer, is contemplated insofar as the
Employer or any affiliates are concerned.

Now Therefore, in consideration of these premises, the mutual covenants
contained herein, and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.

Article 1
Employment

1.1           Employment.  The Employer hereby employs the Executive to serve as
President and Chief Executive Officer according to the terms and conditions of
this Agreement and for the period stated in section 1.3.  The Executive hereby
accepts employment according to the terms and conditions of this Agreement and
for the period stated in section 1.3.

1.2           Duties.  As President and Chief Executive Officer, the Executive
shall serve under the direction of the Employer’s board of directors and in
accordance with the Employer’s Articles of Incorporation and Bylaws, as each may
be amended or restated from time to time.  The Executive shall report directly
to the board of directors.  The Executive shall serve the Employer faithfully,
diligently, competently, and to the best of the Executive’s ability.  The
Executive shall exclusively devote full time, energy, and attention to the
business of the Employer and to the promotion of the Employer’s interests
throughout the term of this Agreement.  Without the written consent of the board
of directors of each of the Corporation and the Bank, the Executive shall not
render services to or for any person, firm, corporation, or other entity or
organization in exchange for compensation, regardless of the form in which such
compensation is paid and regardless of whether it is paid directly or indirectly
to the Executive.  Nothing in this section 1.2 shall prevent the Executive from
managing personal investments and affairs, provided that doing so does not
interfere with the proper performance of the Executive’s duties and
responsibilities under this Agreement.

1.3           Term.  The initial term of this Agreement shall be for a period of
three years commencing on the effective date of this Agreement.  On the first
anniversary of the effective date of this Agreement and on each anniversary
thereafter, this Agreement shall be extended automatically for one additional
year unless the Employer’s board of directors determines that the term shall not
be extended.  If the board of directors determines not to extend the term, it
shall promptly notify the Executive in writing, and this Agreement shall
nevertheless remain in force until its term expires.  The board’s decision not
to extend the term of this Agreement shall not – by itself – give the Executive
any rights under this Agreement to claim an adverse change in position,
compensation, or circumstances or otherwise to claim entitlement to severance
benefits under Articles 4 or 5.  References herein to the term of this Agreement
mean the initial term, as the same may be extended.  Unless sooner terminated,
the Executive’s employment and the term of this Agreement shall terminate when
the Executive attains age 65.
 
 

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1.4           Service on the Board of Directors.  The Executive is currently
serving as a director of each of the Corporation and the Bank.  The Corporation
shall nominate the Executive for election as a director at such times as
necessary so that the Executive will, if elected by stockholders, remain a
director of the Corporation throughout the term of this Agreement.  The
Executive hereby consents to serving as a director and to being named as a
director of the Corporation in documents filed with the Securities and Exchange
Commission.  The board of directors of each of the Corporation and the Bank
shall undertake every lawful effort to ensure that the Executive continues
throughout the term of this Agreement to be elected or reelected as a director
of the Bank.  The Executive shall be deemed to have resigned as a director of
each of the Corporation and the Bank effective immediately after termination of
the Executive’s employment under Article 3 of this Agreement, regardless of
whether the Executive submits a formal, written resignation as director.

Article 2
Compensation and Benefits

2.1           Base Salary.  In consideration of the Executive’s performance of
the obligations under this Agreement, the Employer shall pay or cause to be paid
to the Executive a salary at the annual rate of not less than $320,000, payable
in semi-monthly installments.  No less frequently than annually, the Executive’s
salary shall be reviewed by the Compensation Committee of the Employer’s board
of directors or by the board committee with jurisdiction over executive
compensation.  The Executive’s salary shall be increased no more frequently than
annually to account for cost of living increases.  The Executive’s salary also
may be increased beyond the amount necessary to account for cost of living
increases at the discretion of the committee having jurisdiction over executive
compensation.  However, the Executive’s salary shall not be reduced.  The
Executive’s salary, as the same may be increased from time to time, is referred
to in this Agreement as the “Base Salary.”

2.2           Benefit Plans and Perquisites.  The Executive shall be entitled
throughout the term of this Agreement to participate in any and all officer or
employee compensation, bonus, incentive, and benefit plans in effect from time
to time, including without limitation stock option and other stock-based
compensation, incentive, bonus, or purchase plans existing on the date of this
Agreement or adopted during the term of this Agreement and plans providing
pension, medical, dental, disability, and group life benefits, including the
Employer’s 401(k) plan, and to receive any and all other fringe benefits
provided from time to time, provided that the Executive satisfies the
eligibility requirements for any such plans or benefits.  Without limiting the
generality of the foregoing –

(a)           Club dues.  During the term of this Agreement the Employer shall
pay or cause to be paid the Executive’s membership dues in civic clubs.  Without
limiting the generality of the foregoing, the Executive shall be reimbursed for
dues and expenses associated with membership in and use of the McGregor Down
County Club.

(b)           Reimbursement of business expenses.  The Executive shall be
entitled to reimbursement for all reasonable business expenses incurred
performing the Executive’s obligations under this Agreement, including but not
limited to all reasonable business travel and entertainment expenses incurred
while acting at the request of or in the service of the Employer and reasonable
expenses for attendance at annual and other periodic meetings of trade
associations.

(c)           Use of automobile.  The Employer further agrees to provide the
Executive, for both business and personal use so long as the Executive is
actually providing services hereunder, an automobile selected by the
Executive.  The Employer agrees to provide the Executive with an automobile
every three years, with the next automobile anticipated to be provided to the
Executive on or about February 1, 2011.  The Bank shall be responsible for all
automobile expenses (including adequate insurance), repairs and maintenance
thereof; provided, however, the Executive shall be responsible for gas and oil
expense for automobile travel not related to the business of the Employer.  The
Employer shall obtain and maintain or cause to be obtained and maintained
adequate insurance coverage on such automobile, providing at least as much
coverage for loss, theft, damage, or injury on terms as the Employer generally
provides for company-owned vehicles.  The Executive shall be entitled to retain
the automobile provided for the Executive’s use at termination of this
Agreement.

2.3           Vacation.  The Executive shall be entitled to paid annual vacation
and sick leave in accordance with the policies established from time to time by
the Employer, but in no event fewer than four weeks of vacation per year.  The
Executive shall schedule at least five consecutive days of vacation per
year.  The timing of vacations shall be scheduled in a reasonable manner by the
Executive.  The Executive shall not be entitled to any additional compensation
for failure to use allotted vacation or sick leave nor shall the Executive be
entitled to accumulate unused sick leave from one year to the next, unless
authorized by the Employer’s board of directors to do so.
 
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2.4           Indemnification and Insurance.  (a)  Indemnification.  The
Employer shall indemnify the Executive or cause the Executive to be indemnified
for the Executive’s activities as a director, officer, employee, or agent of the
Employer or as a person who is serving or has served at the request of the
Employer (a “representative”) as a director, officer, employee, agent, or
trustee of an affiliated corporation, joint venture, trust or other enterprise,
domestic or foreign, in which the Employer has a direct or indirect ownership
interest against expenses (including without limitation attorneys’ fees,
judgments, fines, and amounts paid in settlement) actually and reasonably
incurred (“Expenses”) in connection with any claim against the Executive that is
the subject of any threatened, pending, or completed action, suit, or other type
of proceeding, whether civil, criminal, administrative, investigative, or
otherwise and whether formal or informal (a “Proceeding”), to which the
Executive was, is, or is threatened to be made a party by reason of the
Executive being or having been such a director, officer, employee, agent, or
representative.

The indemnification provided herein shall not be exclusive of any other
indemnification or right to which the Executive may be entitled and shall
continue after the Executive has ceased to occupy a position as an officer,
director, employee, agent or representative with respect to Proceedings relating
to or arising out of the Executive’s acts or omissions during the Executive’s
service in such position.  The indemnification provided to the Executive under
this Agreement for the Executive’s service as a representative shall be payable
if and only if and only to the extent that reimbursement to the Executive by the
affiliated entity with which the Executive has served as a representative,
whether pursuant to agreement, applicable law, articles of incorporation or
association, by-laws or regulations of the entity, or insurance maintained by
such affiliated entity, is insufficient to compensate the Executive for Expenses
actually incurred and otherwise payable by the Employer under this
Agreement.  Any payments in fact made to or on behalf of the Executive directly
or indirectly by the affiliated entity with which the Executive served as a
representative shall reduce the obligation of the Employer hereunder.

(b)           Exclusions.  Despite anything herein to the contrary however,
nothing in this section 2.4 requires indemnification, reimbursement, or payment
by the Employer, and the Executive shall not be entitled to demand
indemnification, reimbursement or payment –

1)            if and to the extent indemnification, reimbursement, or payment
constitutes a “prohibited indemnification payment” within the meaning of Federal
Deposit Insurance Corporation Rule 359.1(l)(1) [12 CFR 359.1(l)(1)], or

2)            for any claim or any part thereof for which the Executive shall
have been determined by a court of competent jurisdiction, from which no appeal
is or can be taken, by clear and convincing evidence, to have acted with
deliberate intent to cause injury to the Employer or with reckless disregard for
the best interests of the Employer, or

3)            for any claim or any part thereof arising under section 16(b) of
the Securities Exchange Act of 1934 as a result of which the Executive is
required to pay any penalty, fine, settlement, or judgment, or

4)            for any obligation of the Executive based upon or attributable to
the Executive gaining in fact any personal gain, profit, or advantage to which
the Executive was not entitled, or

5)            any proceeding initiated by the Executive without the consent or
authorization of the Employer’s board of directors, but this exclusion shall not
apply with respect to any claims brought by the Executive (x) to enforce the
Executive’s rights under this Agreement, or (y) in any Proceeding initiated by
another person or entity whether or not such claims were brought by the
Executive against a person or entity who was otherwise a party to such
proceeding.

(c)           Insurance.  The Employer shall maintain or cause to be maintained
liability insurance covering the Executive throughout the term of this
Agreement.

Article 3
Termination

3.1           Termination Because of Death or Disability.  (a)  Death.  The
Executive’s employment shall terminate automatically on the date of the
Executive’s death.  If the Executive’s employment terminates because of the
Executive’s death, the Executive’s estate shall receive any sums due the
Executive as Base Salary and reimbursement of expenses through the end of the
month in which death occurred, plus any bonus earned or accrued through the date
of death, including any unvested amounts awarded for previous years.  If the
Executive dies in active service to the Employer, for 12 months after the
Executive’s death the Employer shall provide on a cost-free basis the
Executive’s family with continuing health care coverage under COBRA
substantially identical to that provided for the Executive before death.
 
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(b)           Disability.  By delivery of written notice 30 days in advance to
the Executive, the Employer may terminate the Executive’s employment if the
Executive is disabled.  For purposes of this Agreement the Executive shall be
deemed to be “disabled” if an independent physician selected by the Employer and
reasonably acceptable to the Executive or the Executive’s legal representative
determines that, because of illness or accident, the Executive is unable to
perform the Executive’s duties and will be unable to perform the Executive’s
duties for a period of 90 consecutive days.  The Executive shall not be deemed
to be disabled, however, if the Executive returns to work on a full-time basis
within 30 days after the Employer gives notice of termination because of
disability.  If the Executive is terminated by either of the Corporation or the
Bank because of disability, the Executive’s employment with the other shall also
terminate at the same time.  During the period of incapacity leading up to the
termination of the Executive’s employment under this provision, the Employer
shall continue to pay the full Base Salary at the rate then in effect and all
perquisites and other benefits (other than bonus) until the Executive becomes
eligible for benefits under any disability plan or insurance program maintained
by the Employer, provided that the amount of the Employer’s payments under this
section 3.1(b) to the Executive shall be reduced by the sum of the amounts, if
any, payable to the Executive for the same period under any disability benefit
or pension plan covering the Executive.  Furthermore, the Executive shall
receive any bonus earned or accrued through the date of incapacity, including
any unvested amounts awarded for previous years.

3.2           Involuntary Termination for Cause.  The Employer may terminate the
Executive’s employment for Cause.  If the Executive’s employment is terminated
for Cause by either of the Corporation or the Bank, the Executive’s employment
with the other shall also terminate at the same time.  If the Executive’s
employment terminates for Cause, the Executive shall receive the Base Salary
through the date on which termination becomes effective and reimbursement of
expenses to which the Executive is entitled when termination becomes
effective.  The Executive shall not be deemed to have been terminated for Cause
under this Agreement unless and until there is delivered to the Executive a copy
of a resolution duly adopted at a meeting of the Corporation’s or the Bank’s
board of directors, which resolution shall (x) contain findings that, in the
good faith opinion of the board, the Executive has committed an act constituting
Cause, and (y) specify the particulars thereof.  The resolution of the board of
directors shall be deemed to have been duly adopted if and only if it is adopted
by the affirmative vote of 75% of the directors then in office, excluding the
Executive, at a meeting duly called and held for that purpose.  Notice of the
meeting and the proposed termination for Cause shall be given to the Executive
at least seven calendar days before the board’s meeting.  The Executive and the
Executive’s counsel (if the Executive chooses to have counsel present) shall
have a reasonable opportunity to be heard by the board at the meeting.  Nothing
in this Agreement limits the Executive’s or the Executive’s beneficiaries’ right
to challenge the validity or propriety of the board’s determination of
Cause.  For purposes of this Agreement “Cause” means any of the following occur
–

(a)           an act of fraud, embezzlement, or theft by the Executive in the
course of employment, or misconduct involving dishonesty, or

(b)           intentional violation of any law or significant policy of the
Employer or an affiliate, which in the Employer’s sole judgement causes material
harm to the Employer or affiliate, regardless of whether the violation leads to
criminal prosecution or conviction.  For purposes of this Agreement applicable
laws include any statute, rule, regulatory order, statement of policy, or final
cease-and-desist order of any governmental agency or body having regulatory
authority over the Employer.  For purposes of this Agreement no act or failure
to act on the part of the Executive shall be deemed to have been intentional if
it was due primarily to an error in judgment or negligence.  An act or failure
to act on the Executive’s part shall be considered intentional if it is not in
good faith and if it is without a reasonable belief that the action or failure
to act is in the best interests of the Employer, or

(c)           the Executive’s gross negligence or gross neglect in the
performance of duties, or

(d)           intentional wrongful damage by the Executive to the business or
property of the Employer or its affiliates, including without limitation the
reputation of the Employer, which in the Employer’s sole judgment causes
material harm to the Employer, or
 
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(e)           a breach by the Executive of fiduciary duties as an officer or
director of the Employer, or misconduct involving dishonesty, or

(f)           a breach by the Executive of this Agreement that in the sole
judgment of the Employer is a material breach, which breach is not corrected by
the Executive within ten days after receiving written notice of the breach, or

(g)           removal of the Executive from office or permanent prohibition of
the Executive from participating in the Employer’s affairs by an order issued
under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
1818(e)(4) or (g)(1), or

(h)           the occurrence of any event that results in the Executive being
excluded from coverage, or having coverage limited for the Executive as compared
to other executives of the Employer, under the Employer’s blanket bond or other
fidelity or insurance policy covering its directors, officers, or employees, or

(i)           conviction of the Executive for or plea of no contest to a felony
or conviction of or plea of no contest to a misdemeanor involving moral
turpitude, or the actual incarceration of the Executive for 45 consecutive days
or more.

3.3           Voluntary Termination by the Executive Without Good Reason.  If
the Executive terminates employment without Good Reason, the Executive shall
receive the Base Salary and expense reimbursement to which the Executive is
entitled through the date on which termination becomes effective.

3.4           Involuntary Termination Without Cause and Voluntary Termination
for Good Reason.  With written notice to the Executive 90 days in advance, the
Employer may terminate the Executive’s employment without Cause.  Termination
shall take effect at the end of the 90-day period.  With advance written notice
to the Employer as provided in clause (y), the Executive may terminate
employment for Good Reason.  If the Executive’s employment terminates
involuntarily without Cause or voluntarily but with Good Reason, the Executive
shall be entitled to the benefits specified in Article 4 of this Agreement.  For
purposes of this Agreement a voluntary termination by the Executive shall be
considered a voluntary termination with Good Reason if the conditions stated in
both clauses (x) and (y) are satisfied –

(x)           a voluntary termination by the Executive shall be considered a
voluntary termination with Good Reason if any of the following occur without the
Executive’s advance written consent, and the term Good Reason shall mean the
occurrence of any of the following without the Executive’s advance written
consent –

1)          a material diminution of the Executive’s Base Salary,

2)          a material diminution of the Executive’s authority, duties, or
responsibilities,

3)          a material diminution in the authority, duties, or responsibilities
of the supervisor to whom the Executive is required to report, including a
requirement that the Executive report to a corporate officer or employee instead
of reporting directly to the board of directors,

4)          a material diminution in the budget over which the Executive retains
authority,

5)          a material change in the geographic location at which the Executive
must perform services for the Employer, or

6)          any other action or inaction that constitutes a material breach by
the Employer of this Agreement.

(y)           the Executive must give notice to the Employer of the existence of
one or more of the conditions described in clause (x) within 90 days after the
initial existence of the condition, and the Employer shall have 30 days
thereafter to remedy the condition.  In addition, the Executive’s voluntary
termination because of the existence of one or more of the conditions described
in clause (x) must occur within 24 months after the initial existence of the
condition.

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Article 4
Severance

4.1           Continued Salary after Termination Without Cause or Termination
for Good Reason.  (a)  Subject to the possibility that continued Base Salary for
the first six months after employment termination might be delayed because of
section 4.1(b), if the Executive’s employment terminates involuntarily but
without Cause or if the Executive voluntarily terminates employment with Good
Reason, the Executive shall continue to receive in accordance with the
Employer’s regular pay practices Base Salary for 24 months from the date of
termination, but the Executive shall not be entitled to continued participation
in the Employer’s or a subsidiary’s retirement plan(s) or any stock-based
plans.  The Employer and the Executive acknowledge and agree that the
compensation and benefits under this section 4.1 shall not be payable if
compensation and benefits are payable or shall have been paid to the Executive
under section 5.1(a) of this Agreement.

(b)           If when employment termination occurs the Executive is a specified
employee within the meaning of section 409A of the Internal Revenue Code of
1986, and if continued Base Salary under section 4.1(a) would be considered
deferred compensation under section 409A, and finally if an exemption from the
six-month delay requirement of section 409A(a)(2)(B)(i) is not available, the
Executive’s continued Base Salary under section 4.1(a) for the first six months
after employment termination shall be paid to the Executive in a single lump sum
on the first day of the seventh month after the month in which the Executive’s
employment terminates.  References in this Agreement to section 409A of the
Internal Revenue Code of 1986 include rules, regulations, and guidance of
general application issued by the Department of the Treasury under Internal
Revenue Code section 409A.

4.2           Post-Termination Insurance Coverage.  (a)  Subject to section
4.2(b), if the Executive’s employment terminates involuntarily but without
Cause, voluntarily but with Good Reason, or because of disability, the Employer
shall continue or cause to be continued at the Employer’s expense and for the
Executive’s benefit life and medical insurance coverage in effect during and in
accordance with the same schedule prevailing in the two years preceding the date
of the Executive’s termination.  The benefits provided by this section 4.2 shall
continue until the first to occur of (w) the Executive’s return to employment
with the Employer or another employer, (x) the Executive’s attainment of age 65,
(y) the Executive’s death, or (z) the end of the term remaining under this
Agreement at the time of the Executive’s termination.

(b)           If (x) under the terms of the applicable policy or policies for
the insurance benefits specified in section 4.2(a) it is not possible to
continue the Executive’s coverage, or (y) when employment termination occurs the
Executive is a specified employee within the meaning of section 409A of the
Internal Revenue Code of 1986, if any of the continued insurance coverage
benefits specified in section 4.2(a) would be considered deferred compensation
under section 409A, and finally if an exemption from the six-month delay
requirement of section 409A(a)(2)(B)(i) is not available for that particular
insurance benefit, instead of continued insurance coverage under section 4.2(a)
the Employer shall pay to the Executive in a single lump sum an amount in cash
equal to the present value of the Employer’s projected cost to maintain that
particular insurance benefit had the Executive’s employment not terminated,
assuming continued coverage for the lesser of 36 months or the number of months
until the Executive attains age 65.  The lump-sum payment shall be made 30 days
after employment termination or, if section 4.1(b) applies and a six-month
payment delay is required by Internal Revenue Code section 409A, on the first
day of the seventh month after the month in which the Executive’s employment
terminates.

4.3           Additional Severance Benefits.  (a)  Cash-out of the value of
unvested stock options.  If the Employer terminates the Executive’s employment
without Cause or if the Executive terminates employment with Good Reason before
full vesting of stock options then held by the Executive, the Executive shall be
entitled to receive from the Employer an amount in cash equal to the intrinsic
value of the unvested stock options as of the effective date of
termination.  For this purpose intrinsic value means the per share fair market
value of the Corporation common stock minus the option exercise price per share,
multiplied by the number of shares acquirable by the unvested options.  If the
common stock is traded on an exchange or over the counter, fair market value
shall mean the closing price on the trading day immediately before the date of
termination.  If the common stock is not traded on an exchange or over the
counter, the per share fair market value of the Corporation common stock shall
be determined by the Corporation’s board of directors in good faith.  Amounts
payable under this paragraph (a) shall be paid in a single lump sum 30 days
after termination of the Executive’s employment or, if section 4.1(b) applies
and a six-month payment delay is required by Internal Revenue Code section 409A,
on the first day of the seventh month after the month in which the Executive’s
employment terminates.
 
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(b)           Outplacement and support.  If the Employer terminates the
Executive’s employment without Cause or if the Executive terminates employment
with Good Reason, the Employer shall pay or cause to be paid to the Executive
reasonable outplacement expenses in an amount up to $25,000 and for one year
after termination the Employer shall provide the Executive with the use of
office space and reasonable office support facilities, including secretarial
assistance.

Article 5
Change in Control Benefits

5.1           Change in Control Benefits.  (a)  If a Change in Control occurs
before the Executive’s employment termination, the Employer shall make or cause
to be made a lump-sum cash payment to the Executive in the amount equal to three
times the Executive’s annual compensation.  For this purpose annual compensation
means (x) the Executive’s Base Salary when the Change in Control occurs plus (y)
any cash bonuses or cash incentive compensation awarded for the calendar year
ended immediately before the year in which the Change in Control occurs,
regardless of when the bonus or incentive compensation earned for the preceding
calendar year is paid and regardless of whether all or part of the bonus or
incentive compensation is subject to elective deferral or vesting.  Annual
compensation shall be calculated without regard to any deferrals under qualified
or nonqualified plans, but annual compensation shall not include interest or
other earnings credited to the Executive under qualified or nonqualified
plans.  The amount payable to the Executive hereunder shall not be reduced to
account for the time value of money or discounted to present value.  The payment
required under this paragraph (a) is payable within 15 business days after the
Change in Control occurs.  If the Executive receives payment under this section
5.1(a) the Executive shall not be entitled to continued Base Salary under
section 4.1 of this Agreement after employment termination.  The Executive shall
be entitled to benefits under this section 5.1(a) on no more than one occasion
during the term of this Agreement.

(b)           In addition to insurance benefits under section 4.2 to which the
Executive may be entitled after employment termination and the outplacement and
other benefits specified in section 4.3, if after a Change in Control the
Executive’s employment terminates involuntarily without Cause or voluntarily but
for Good Reason the Employer shall cause the Executive to become fully vested in
awards under any stock option, stock incentive, or other non-qualified plans,
programs, or arrangements in which the Executive participated if (x) the plan,
program, or arrangement does not address the effect of a change in control or
termination after a change in control and (y) award vesting occurs automatically
with the passage of time or years of service.  Provided the Executive is at the
time a covered employee within the meaning of Internal Revenue Code section
162(m), accelerated vesting in or entitlement to awards shall not occur under
this section 5.1(b) in the case of any award for which vesting or entitlement is
based on achievement of performance conditions, whether the conditions have to
do with individual performance or corporate performance measures, including but
not limited to stock price or financial statement or other financial measures.

5.2           Change in Control Defined.  For purposes of this Agreement “Change
in Control” means a change in control as defined in Internal Revenue Code
section 409A and rules, regulations, and guidance of general application
thereunder issued by the Department of the Treasury, including –

(a)           Change in ownership: a change in ownership of the Corporation
occurs on the date any one person or group accumulates ownership of Corporation
stock constituting more than 50% of the total fair market value or total voting
power of Corporation stock,

(b)           Change in effective control: (x) any one person or more than one
person acting as a group acquires within a 12-month period ownership of
Corporation stock possessing 30% or more of the total voting power of
Corporation stock, or (y) a majority of the Corporation’s board of directors is
replaced during any 12-month period by directors whose appointment or election
is not endorsed in advance by a majority of the Corporation’s board of
directors, or

(c)           Change in ownership of a substantial portion of assets: a change
in ownership of a substantial portion of the Corporation’s assets occurs if in a
12-month period any one person or more than one person acting as a group
acquires from the Corporation assets having a total gross fair market value
equal to or exceeding 40% of the total gross fair market value of all of the
Corporation’s assets immediately before the acquisition or acquisitions.  For
this purpose, gross fair market value means the value of the Corporation’s
assets, or the value of the assets being disposed of, determined without regard
to any liabilities associated with the assets.
 
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5.3           Gross-Up for Taxes.  (a)  Additional payment to account for Excise
Taxes.  If the Executive’s benefits under this Agreement and under any other
benefit, compensation, or incentive plan or arrangement with the Employer
(collectively, the “Total Benefits”) are subject to the Excise Tax under section
280G and section 4999 of the Internal Revenue Code (the “Excise Tax”), the
Employer shall pay to the Executive the following additional amounts, consisting
of (x) a payment equal to the Excise Tax payable by the Executive under section
4999 on the Total Benefits (the “Excise Tax Payment”) and (y) a payment equal to
the amount necessary to provide the Excise Tax Payment net of all income,
payroll, and excise taxes.  Together, the additional amounts described in
clauses (x) and (y) are referred to in this Agreement as the “Gross-Up Payment
Amount.”

Calculating the Excise Tax.  For purposes of determining whether any of the
Total Benefits will be subject to the Excise Tax and for purposes of determining
the amount of the Excise Tax,

 
1)
Determination of “parachute payments” subject to the Excise Tax: any other
payments or benefits received or to be received by the Executive in connection
with a Change in Control or the Executive’s termination of employment (whether
under the terms of this Agreement or any other agreement or any other benefit
plan or arrangement with the Employer, any person whose actions result in a
Change in Control, or any person affiliated with the Employer or such person)
shall be treated as “parachute payments” within the meaning of section
280G(b)(2) of the Internal Revenue Code, and all “excess parachute payments”
within the meaning of section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of the certified public accounting firm that
is retained by the Employer as of the date immediately before the Change in
Control (the “Accounting Firm”) such other payments or benefits do not
constitute (in whole or in part) parachute payments, or such excess parachute
payments represent (in whole or in part) reasonable compensation for services
actually rendered within the meaning of section 280G(b)(4) of the Internal
Revenue Code in excess of the base amount (as defined in section 280G(b)(3) of
the Internal Revenue Code), or are otherwise not subject to the Excise Tax,

 
2)
Calculation of benefits subject to the Excise Tax:  the amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal to
the lesser of (x) the total amount of the Total Benefits reduced by the amount
of such Total Benefits that in the opinion of the Accounting Firm are not
parachute payments, or (y) the amount of excess parachute payments within the
meaning of section 280G(b)(1) (after applying clause (1), above), and

 
3)
Value of noncash benefits and deferred payments:  the value of any noncash
benefits or any deferred payment or benefit shall be determined by the
Accounting Firm in accordance with the principles of sections 280G(d)(3) and (4)
of the Internal Revenue Code.

Assumed Marginal Income Tax Rate. For purposes of determining the Gross-Up
Payment Amount, the Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar years in which
the Gross-Up Payment Amount is to be made and state and local income taxes at
the highest marginal rate of taxation in the state and locality of the
Executive’s residence on the date of termination of employment, net of the
reduction in federal income taxes that can be obtained from deduction of state
and local taxes (calculated by assuming that any reduction under section 68 of
the Internal Revenue Code in the amount of itemized deductions allowable to the
Executive applies first to reduce the amount of state and local income taxes
that would otherwise be deductible by the Executive, and applicable federal FICA
and Medicare withholding taxes).

Return of Reduced Excise Tax Payment or Payment of Additional Excise Tax.  If
the Excise Tax is later determined to be less than the amount initially
determined under this Agreement, the Executive shall repay to the Employer –
when the amount of the reduction in Excise Tax is finally determined – the
portion of the Gross-Up Payment Amount attributable to the reduction (plus that
portion of the Gross-Up Payment Amount attributable to the Excise Tax, federal,
state and local income taxes and FICA and Medicare withholding taxes imposed on
the Gross-Up Payment Amount being repaid by the Executive to the extent that the
repayment results in a reduction in Excise Tax, FICA and Medicare withholding
taxes and/or a federal, state or local income tax deduction).

If the Excise Tax is later determined to be more than the amount initially
determined under this Agreement (due, for example, to a payment whose existence
or amount cannot be determined at the time of the Gross-Up Payment Amount), the
Employer shall make an additional payment to the Executive for that excess (plus
any interest, penalties or additions payable by the Executive for the excess)
when the amount of the excess is finally determined.
 
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(b)           Responsibilities of the Accounting Firm and the
Employer.  Determinations Shall Be Made by the Accounting Firm.  Subject to the
provisions of section 5.3(a), all determinations required to be made under this
section 5.3(b) – including whether and when a Gross-Up Payment Amount is
required, the amount of the Gross-Up Payment Amount and the assumptions to be
used to arrive at the determination (collectively, the “Determination”) – shall
be made by the Accounting Firm, which shall provide detailed supporting
calculations both to the Employer and the Executive within 15 business days
after receipt of notice from the Employer or the Executive that there has been a
Gross-Up Payment Amount, or such earlier time as is requested by the Employer.

Fees and Expenses of the Accounting Firm and Agreement with the Accounting
Firm.  All fees and expenses of the Accounting Firm shall be borne solely by the
Employer.  The Employer shall enter into any agreement requested by the
Accounting Firm in connection with the performance of its services hereunder.

Accounting Firm’s Opinion.  If the Accounting Firm determines that no Excise Tax
is payable by the Executive, the Accounting Firm shall furnish the Executive
with a written opinion to that effect and to the effect that failure to report
Excise Tax, if any, on the Executive’s applicable federal income tax return will
not result in the imposition of a negligence or similar penalty.

Accounting Firm’s Determination Is Binding; Underpayment and Overpayment.  The
Determination by the Accounting Firm shall be binding on the Employer and the
Executive.  Because of the uncertainty when the Determination is made whether
any of the Total Benefits will be subject to the Excise Tax, it is possible that
a Gross-Up Payment Amount that should have been made will not have been made by
the Employer (“Underpayment”) or that a Gross-Up Payment Amount will be made
that should not have been made by the Employer (“Overpayment”).  If after a
Determination by the Accounting Firm the Executive is required to make a payment
of additional Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment.  The Underpayment (together with interest at the rate provided in
section 1274(d)(2)(B) of the Internal Revenue Code) shall be paid promptly by
the Employer to or for the benefit of the Executive.  If the Gross-Up Payment
Amount exceeds the amount necessary to reimburse the Executive for the Excise
Tax according to section 5.3(a), the Accounting Firm shall determine the amount
of the Overpayment.  The Overpayment (together with interest at the rate
provided in section 1274(d)(2)(B) of the Internal Revenue Code) shall be paid
promptly by the Executive to or for the benefit of the Employer.  Provided that
the Executive’s expenses are reimbursed by the Employer, the Executive shall
cooperate with any reasonable requests by the Employer in any contests or
disputes with the Internal Revenue Service relating to the Excise Tax.

Accounting Firm Conflict of Interest.  If the Accounting Firm is serving as
accountant or auditor for the individual, entity, or group effecting the Change
in Control, the Executive may appoint another nationally recognized public
accounting firm to make the Determinations required hereunder (in which case the
term “Accounting Firm” as used in this Agreement shall be deemed to refer to the
accounting firm appointed by the Executive).

Article 6
Confidentiality and Creative Work

6.1           Non-disclosure.  The Executive covenants and agrees not to reveal
to any person, firm, or corporation any confidential information of any nature
concerning the Employer or its business.  As used in this Article 6, the term
“confidential information” means all of the Employer’s and its affiliates’
confidential and proprietary information and trade secrets in existence on the
date hereof or existing at any time during the term of this Agreement, including
but not limited to –

(a)           the whole or any portion or phase of any business plans, financial
information, purchasing data, supplier data, accounting data, or other financial
information,

(b)           the whole or any portion or phase of any research and development
information, design procedures, algorithms or processes, or other technical
information,

(c)           the whole or any portion or phase of any marketing or sales
information, sales records, customer lists, prices, sales projections, or other
sales information, and

(d)           trade secrets, as defined from time to time by the laws of the
State of North Carolina.
 
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Despite the foregoing, confidential information excludes information that – as
of the date hereof or at any time after the date hereof – is published or
disseminated without obligation of confidence or that becomes a part of the
public domain (x) by or through action of the Employer or (y) otherwise than by
or at the Executive’s direction.  This section 6.1 does not prohibit disclosure
required by an order of a court having jurisdiction or a subpoena from an
appropriate governmental agency or disclosure made by the Executive in the
ordinary course of business and within the scope of the Executive’s authority.

6.2           Return of Materials.  The Executive agrees to deliver or return to
the Employer upon employment termination, upon expiration of this Agreement, or
as soon thereafter as possible, all written information and any other similar
items furnished by the Employer or prepared by the Executive in connection with
the Executive’s services hereunder.  The Executive will retain no copies thereof
after termination of this Agreement or termination of the Executive’s
employment.

6.3           Injunctive Relief.  The Executive acknowledges that it is
impossible to measure in money the damages that will accrue to the Employer if
the Executive fails to observe the obligations imposed by this Article
6.  Accordingly, if the Employer institutes an action to enforce the provisions
hereof, the Executive hereby waives the claim or defense that an adequate remedy
at law is available to the Employer, and the Executive agrees not to urge in any
such action the claim or defense that an adequate remedy at law exists.

6.4           Affiliates’ Confidential Information is Covered; Confidentiality
Obligation Survives Termination.  For purposes of this Article 6, the term
“affiliate” of the Employer includes the Bank and any entity that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with the Corporation.  The rights and obligations set forth
in this Article 6 shall survive termination of this Agreement.

6.5           Creative Work.  The Executive agrees that all creative work and
work product, including but not limited to all technology, business management
tools, processes, software, patents, trademarks, and copyrights developed by the
Executive during the term of this Agreement, regardless of when or where such
work or work product was produced, constitutes work made for hire, all rights of
which are owned by the Employer.  The Executive hereby assigns to the Employer
all rights, title, and interest, whether by way of copyrights, trade secret,
trademark, patent, or otherwise, in all such work or work product, regardless of
whether the same is subject to protection by patent, trademark, or copyright
laws.

Article 7
Miscellaneous

7.1           Successors and Assigns.  (a)  This Agreement is binding on
successors.  This Agreement shall be binding upon the Employer and any successor
to the Employer, including any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Employer by purchase, merger,
consolidation, reorganization, or otherwise.  But this Agreement and the
Employer’s obligations under this Agreement are not otherwise assignable,
transferable, or delegable by the Employer.  By agreement in form and substance
satisfactory to the Executive, the Employer shall require any successor to all
or substantially all of its business or assets expressly to assume and agree to
perform this Agreement in the same manner and to the same extent the Employer
would be required to perform had no succession occurred.

(b)           This Agreement is enforceable by the Executive’s heirs.  This
Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors, heirs,
distributees, and legatees.

(c)           This Agreement is personal and is not assignable.  This Agreement
is personal in nature.  Without written consent of the other parties, no party
shall assign, transfer, or delegate this Agreement or any rights or obligations
under this Agreement except as expressly permitted.  Without limiting the
generality or effect of the foregoing, the Executive’s right to receive payments
hereunder is not assignable or transferable, whether by pledge, creation of a
security interest, or otherwise, except for a transfer by the Executive’s will
or by the laws of descent and distribution.  If the Executive attempts an
assignment or transfer that is contrary to this section 7.1, the Employer shall
have no liability to pay any amount to the assignee or transferee.
 
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7.2           Governing Law, Jurisdiction and Forum.  This Agreement shall be
construed under and governed by the internal laws of the State of North
Carolina, without giving effect to any conflict of laws provision
or rule (whether of the State of North Carolina or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than North
Carolina.  By entering into this Agreement, the Executive acknowledges that the
Executive is subject to the jurisdiction of both the federal and state courts in
North Carolina.  Any actions or proceedings instituted under this Agreement
shall be brought and tried solely in courts located in Wake County, North
Carolina or in the federal court having jurisdiction in Cary, North
Carolina.  The Executive expressly waives the right to have any such actions or
proceedings brought or tried elsewhere.

7.3           Entire Agreement.  This Agreement sets forth the entire agreement
of the parties concerning the employment of the Executive.  Any oral or written
statements, representations, agreements, or understandings made or entered into
before or contemporaneously with the execution of this Agreement are hereby
rescinded, revoked, and rendered null and void by the parties.  Benefits payable
under this Agreement shall not be reduced by any benefits payable under the
Salary Continuation Agreement between the Executive and the Bank, as that
agreement may be amended, and benefits payable under the Salary Continuation
Agreement likewise shall not be reduced by any benefits payable under this
Agreement.  This Agreement supersedes and replaces in its entirety the October
24, 2007 Employment Agreement entered into by the Executive, the Bank, and the
Corporation.

7.4           Notices.  Any notice under this Agreement shall be deemed to have
been effectively made or given if in writing and personally delivered, delivered
by mail properly addressed in a sealed envelope, postage prepaid by certified or
registered mail, delivered by a reputable overnight delivery service, or sent by
facsimile.  Unless otherwise changed by notice, notice shall be properly
addressed to the Executive if addressed to the address of the Executive on the
books and records of the Employer at the time of the delivery of such notice,
and properly addressed to the Employer if addressed to Crescent Financial
Corporation, 1005 High House Road, Cary, North Carolina 27513, Attention:
Corporate Secretary.

7.5           Severability.  In the case of conflict between any provision of
this Agreement and any statute, regulation, or judicial precedent, the latter
shall prevail, but the affected provisions of this Agreement shall be curtailed
and limited solely to the extent necessary to bring them within the requirements
of law.  If any provision of this Agreement is held by a court of competent
jurisdiction to be indefinite, invalid, void or voidable, or otherwise
unenforceable, the balance of this Agreement shall continue in full force and
effect unless such construction would clearly be contrary to the intentions of
the parties or would result in an injustice.

7.6           Captions and Counterparts.  The captions in this Agreement are
solely for convenience.  The captions do not define, limit, or describe the
scope or intent of this Agreement.  This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

7.7           No Duty to Mitigate.  The Employer hereby acknowledges that it
will be difficult and could be impossible (x) for the Executive to find
reasonably comparable employment after employment termination and (y) to measure
the amount of damages the Executive may suffer as a result of
termination.  Additionally, the Employer acknowledges that its general severance
pay plans do not provide for mitigation, offset, or reduction of any severance
payment received thereunder.  The Employer further acknowledges that the payment
of severance benefits under this Agreement is reasonable and shall be liquidated
damages.  The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment.  Moreover,
the amount of any payment provided for in this Agreement shall not be reduced by
any compensation earned or benefits provided as the result of employment of the
Executive or as a result of the Executive being self-employed after employment
termination.

7.8           Amendment and Waiver.  This Agreement may not be amended,
released, discharged, abandoned, changed, or modified except by an instrument in
writing signed by each of the parties hereto.  The failure of any party hereto
to enforce at any time any of the provisions of this Agreement shall not be
construed to be a waiver of any such provision nor in any way to affect the
validity of this Agreement or any part thereof or the right of any party
thereafter to enforce each and every provision.  No waiver or any breach of this
Agreement shall be held to be a waiver of any other or subsequent breach.
 
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7.9           Payment of Legal Fees.  The Employer is aware that after a Change
in Control management of the Employer could cause or attempt to cause the
Employer to refuse to comply with its obligations under this Agreement, or could
institute or cause or attempt to cause the Employer to institute litigation
seeking to have this Agreement declared unenforceable, or could take or attempt
to take other action to deny Executive the benefits intended under this
Agreement.  In these circumstances the purpose of this Agreement would be
frustrated.  The Employer desires that the Executive not be required to incur
the expenses associated with the enforcement of rights under this Agreement,
whether by litigation or other legal action, because the cost and expense
thereof would substantially detract from the benefits intended to be granted to
the Executive hereunder.  The Employer desires that the Executive not be forced
to negotiate settlement of rights under this Agreement under threat of incurring
expenses.  Accordingly, if after a Change in Control occurs it appears to the
Executive that (x) the Employer has failed to comply with any of its obligations
under this Agreement, or (y) the Employer or any other person has taken any
action to declare this Agreement void or unenforceable, or instituted any
litigation or other legal action designed to deny, diminish, or to recover from
the Executive the benefits intended to be provided to the Executive hereunder,
the Employer irrevocably authorizes the Executive from time to time to retain
counsel of the Executive’s choice, at the Employer’s expense as provided in this
section 7.9, to represent the Executive in the initiation or defense of any
litigation or other legal action, whether by or against the Employer or any
director, officer, stockholder, or other person affiliated with the Employer, in
any jurisdiction.  Despite any existing or previous attorney-client relationship
between the Employer and any counsel chosen by the Executive under this section
7.9, the Employer irrevocably consents to the Executive entering into an
attorney-client relationship with that counsel, and the Employer and the
Executive agree that a confidential relationship shall exist between the
Executive and that counsel.  The fees and expenses of counsel selected from time
to time by the Executive as provided in this section shall be paid or reimbursed
to the Executive by the Employer on a regular, periodic basis upon presentation
by the Executive of a statement or statements prepared by such counsel in
accordance with such counsel’s customary practices, up to a maximum aggregate
amount of $250,000, whether suit be brought or not, and whether or not incurred
in trial, bankruptcy, or appellate proceedings.  The Employer’s obligation to
pay the Executive’s legal fees provided by this section 7.9 operates separately
from and in addition to any legal fee reimbursement obligation the Employer may
have with the Executive under any separate employment, severance, or other
agreement between the Executive and the Employer.  Despite anything in this
section 7.9 to the contrary however, the Employer shall not be required to pay
or reimburse the Executive’s legal expenses if doing so would violate section
18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of
the Federal Deposit Insurance Corporation [12 CFR 359.3].

7.10           Consultation with Counsel and Interpretation of this
Agreement.  The Executive acknowledges and agrees that the Executive has had the
assistance of counsel of the Executive’s choosing in the negotiation of this
Agreement, or the Executive has chosen not to have the assistance of
counsel.  Both parties hereto having participated in the negotiation and
drafting of this Agreement, they hereby agree that there shall not be strict
interpretation against either party in any review of this Agreement in which
interpretation thereof is an issue.

7.11           Compliance with Internal Revenue Code Section 409A.  The Employer
and the Executive intend that their exercise of authority or discretion under
this Agreement shall comply with section 409A of the Internal Revenue Code of
1986.  If when the Executive’s employment terminates the Executive is a
specified employee, as defined in section 409A of the Internal Revenue Code of
1986, and if any payments under this Agreement, including Articles 4 or 5, will
result in additional tax or interest to the Executive because of section 409A,
then despite any contrary provision of this Agreement the Executive shall not be
entitled to the payments until the earliest of (x) the date that is at least six
months after termination of the Executive’s employment for reasons other than
the Executive’s death, (y) the date of the Executive’s death, or (z) any earlier
date that does not result in additional tax or interest to the Executive under
section 409A.  As promptly as possible after the end of the period during which
payments are delayed under this provision, the entire amount of the delayed
payments shall be paid to the Executive in a single lump sum.  If any provision
of this Agreement does not satisfy the requirements of section 409A, such
provision shall nevertheless be applied in a manner consistent with those
requirements.  If any provision of this Agreement would subject the Executive to
additional tax or interest under section 409A, the Employer shall reform the
provision.  However, the Employer shall maintain to the maximum extent
practicable the original intent of the applicable provision without subjecting
the Executive to additional tax or interest, and the Employer shall not be
required to incur any additional compensation expense as a result of the
reformed provision.

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In Witness Whereof, the parties have executed this Employment Agreement as of
the date first written above.

Witnesses
 
Crescent Financial Corporation
               
By:
                 
Its:
 

Witnesses
 
Crescent State Bank
               
By:
                 
Its:
 

Witnesses
 
Executive
                 
/s/ Michael G. Carlton
       
  Michael G. Carlton
           

County of Wake
)

 
) ss:

State of North Carolina)

Before me this ___ day of _______________, 2008, personally appeared the above
named ____________________ and Michael G. Carlton, who acknowledged that they
did sign the foregoing instrument and that the same was their free act and deed.

   
(Notary Seal)
Notary Public
     
My Commission Expires:

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