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.









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.




3




(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




4




(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.





5




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.




6




(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.




7




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.




8




(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.




9




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.




10




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.




11




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.





12





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





Witnesses
                      
                      Crescent
      Financial CorporationBy:Its:





Witnesses
                      
                      Crescent
      State BankBy:Its:





Witnesses
                        
                        Executive/s/
      Michael G. CarltonMichael 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
      PublicMy
      Commission Expires:





13