CAROLINA FINANCIAL CORPORATION (NASDAQ:CARO) Files An 8-K Entry into a Material Definitive Agreement

Item 1.01

On June 9, 2017, Carolina Financial Corporation (Carolina
Financial), the parent holding company for CresCom Bank,
Charleston, South Carolina, and First South Bancorp, Inc. (First
South), the parent holding company for First South Bank,
Washington, North Carolina, entered into an agreement and plan of
merger and reorganization (the Agreement), which provides that,
subject to the terms and conditions set forth in the Agreement,
First South will merge with and into Carolina Financial, with
Carolina Financial being the surviving corporation in the merger.
In addition, as soon as practicable following the merger of First
South with and into Carolina Financial, First South Bank will be
merged with and into CresCom Bank.

Subject to the terms and conditions of the Agreement, each share
of First South common stock will be converted into the right to
receive 0.5200 shares of Carolina Financials common stock. Cash
will be paid in lieu of fractional shares. Notwithstanding the
foregoing, the exchange ratio may be adjusted in certain
circumstances. If the average closing price of Carolina Financial
common stock over a specified period prior to closing the merger
is greater than $35.14, and Carolina Financial common stock
overperforms the Nasdaq Bank Index by 15% or more between the
date of the Agreement and closing of the merger, the exchange
ratio will be decreased automatically based upon the change in
the Nasdaq Bank Index. Alternatively, if the average closing
price of Carolina Financial common stock over a specified period
prior to closing the merger is less than $25.98, and Carolina
Financial common stock underperforms the Nasdaq Bank Index by 15%
or more between the date of the Agreement and closing of the
merger, First South may terminate the Agreement unless Carolina
Financial agrees to increase the exchange ratio or add cash
consideration to make up the difference based upon the change in
the Nasdaq Bank Index.

The Agreement contains customary representations and warranties
from Carolina Financial and First South, and Carolina Financial
and First South have agreed to customary covenants and
agreements, including, among others, covenants and agreements
relating to: (i) the conduct of their respective businesses
during the interim period between the execution of the Agreement
and the closing of the merger; (ii) Carolina Financials and First
Souths obligation to facilitate their respective stockholders
consideration of, and voting upon, the necessary approval of the
Agreement and, in the case of Carolina Financial, the issuance of
Carolina Financial common stock in the merger; (iii) the
recommendations by the boards of directors of Carolina Financial
and First South in favor of the necessary approvals by their
stockholders; (iv) First Souths non-solicitation obligations
relating to alternative business combination transactions; (v)
Carolina Financials intention to appoint two current directors of
First South to the board of directors of Carolina Financial; (vi)
CresCom Banks intention to appoint Bruce W. Elder, the current
president and chief executive officer of First South, to the
CresCom Bank board of directors and to establish an advisory
board consisting of the other directors of First South Bank; and
(vii) the respective employment agreements between CresCom Bank
and Mr. Elder and Cornelius F. Sullivan, to which Mr. Elder will
become CresCom Banks President of North Carolina Banking, and Mr.
Sullivan will become CresCom Banks SVP and Raleigh Area
Executive.

The boards of directors of Carolina Financial and First South
have unanimously approved the Agreement. The Agreement and the
transactions contemplated thereby, including the issuance of
Carolina Financial common stock, are subject to the approval of
the Carolina Financial stockholders and the First South
shareholders, regulatory approvals, and other customary closing
conditions.

The Agreement may be terminated in certain circumstances,
including: (i) by mutual written consent of the parties; (ii) by
either party, in the event of a breach by the other party of any
representation or warranty contained in the Agreement which
breach cannot be or has not been cured within a specified period
or due to the breaching partys failure to comply in all material
respects with all agreements and covenants required by the
Agreement; (iii) by either party, if consummation of the
transaction is prohibited by regulatory, legal, or judicial
action, the approval of the First South shareholders is not
obtained, or the approval of the Carolina Financial stockholders
is not obtained; (iv) by either party in the event that the
merger shall not have been consummated by March 31, 2018; (v) by
Carolina Financial, if (A) the First South board of directors
fails to recommend to First Souths shareholders that they approve
the Agreement; (B) the First South board of directors has
approved, recommended, or proposed publicly to approve or
recommend, an acquisition proposal by an entity other than
Carolina Financial; (C) the First South board of directors fails
to reaffirm its recommendation that First Souths shareholders
approve the Agreement following receipt of an acquisition
proposal by an entity other than Carolina Financial and within 10
business days of Carolina Financials request that it reaffirm
such recommendation; or (D) First South fails to comply in all
material respects with its non-solicitation and shareholder
meeting obligations under the Agreement; provided, that Carolina
Financial is not then in material breach of any representation,
warranty, covenant or other agreement contained in the Agreement;
(vi) by First South, if First Souths shareholder meeting has been
held, the approval of the First South shareholders has not been
obtained, and prior to the First South shareholder meeting, First
South received a superior proposal which did not result from a
breach of its non-solicitation obligations under the Agreement,
and First Souths board of directors determines to enter into a
definitive agreement for such proposal upon termination of the
Agreement to this provision and enter into such agreement
concurrently with its termination of the Agreement; (vii) by
First South, if the average closing price of Carolina Financial
common stock over a specified period prior to closing of the
merger is less than $25.98, and Carolina Financial common stock
has underperformed the Nasdaq Bank Index by 15% or more, unless
Carolina Financial agrees to increase the exchange ratio or add
cash consideration to make up the difference based upon the
change in the Nasdaq Bank Index; or (viii) by First South, prior
to the approval of the First South shareholders, if the First
South board of directors shall have changed its recommendation
that the shareholders approve the Agreement in response to a
material development or change in circumstances that occurs,
arises, or becomes known to the First South board unrelated to
any potential or actual acquisition proposal that First Souths
board of directors determines in good faith, after consultation
with its outside counsel, that a recommendation change is
required in order to comply with the boards fiduciary
obligations. Upon termination of the Agreement by Carolina
Financial to (v) listed above, by First South to (vi) listed
above, or in the event that (A) an acquisition proposal by a
third party has been communicated to or otherwise made known to
the shareholders, senior management, or board of directors of
First South, or any person other than Carolina Financial has
publicly announced an intention to make a proposal to acquire
First South, (B) thereafter, the Agreement is terminated (x) by
either party to (iv) listed above (if the First South shareholder
approval has not been obtained), (B) by Carolina Financial to
(ii) above, or (C) by either party to (iii) above only if the
First South shareholder approval has not been obtained, and (D)
within 12 months of such termination, First South is acquired by,
or enters into an acquisition agreement with, a third party.

The foregoing description of the Agreement does not purport to be
complete and is qualified in its entirety by reference to the
complete text of the Agreement, which is set forth below as
Exhibit 2.1 hereto and is incorporated herein by reference.
Capitalized terms used but not defined herein shall have such
meanings as set forth in the Agreement. The Agreement has been
attached as an exhibit to this report in order to provide
investors and security holders with information regarding its
terms. It is not intended to provide any other financial
information about Carolina Financial, First South, or their
respective subsidiaries and affiliates. The representations,
warranties and covenants contained in the Agreement were made
only for purposes of that agreement and as of specific dates, are
solely for the benefit of the parties to the Agreement, may be
subject to limitations agreed upon by the parties, including
being qualified by confidential disclosures made for the purposes
of allocating contractual risk between the parties to the
Agreement instead of establishing these matters as facts, and may
be subject to standards of materiality applicable to the parties
that differ from those applicable to investors. Investors should
not rely on the representations, warranties, or covenants or any
description thereof as characterizations of the actual state of
facts or condition of Carolina Financial, First South, or any of
their respective subsidiaries or affiliates. Moreover,
information concerning the subject matter of the representations,
warranties, and covenants may change after the date of the
Agreement, which subsequent information may or may not be fully
reflected in public disclosures by Carolina Financial.

In connection with entering into the Agreement, First South has
agreed to use its reasonable best efforts to cause each of the
directors and executive officers of First South to enter into a
voting and support agreement (collectively, the Support
Agreements). The parties to the Support Agreements beneficially
own in the aggregate approximately 6.9% of the outstanding shares
of First South common stock. The Support Agreements generally
require that the shareholders party thereto vote all of their
shares of First South common stock in favor of the merger and
against alternative transactions and generally prohibit such
shareholders from transferring their shares of First South common
stock prior to the consummation of the merger. The Support
Agreements will terminate upon the earlier of the consummation of
the merger and the termination of the Agreement in accordance
with its terms.

In connection with entering into the Agreement, First South has
agreed to offer each of the current holders of its stock options
the opportunity to cancel, effective upon and subject to the
merger, all of their respective stock options covering shares of
First Souths common stock having an exercise price per share less
than the per share value of the merger consideration in exchange
for a cash payment equal to the per share value of the merger
consideration minus the exercise price for each share of First
Souths common stock subject to such stock option. Any stock
option not cashed out will convert into an option to acquire
shares of Carolina Financial common stock, as adjusted to reflect
the exchange ratio.

Forward-Looking Statements

Certain statements in this news release contain forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995, such as statements relating to
future plans and expectations, and are thus prospective.Such
forward-looking statements include but are not limited to
statements with respect to plans, objectives, expectations and
intentions and other statements that are not historical facts,
and other statements identified by words such as believes,
expects, anticipates, estimates, intends, plans, targets, and
projects, as well as similar expressions.Such statements are
subject to risks, uncertainties, and other factors which could
cause actual results to differ materially from future results
expressed or implied by such forward-looking statements.Although
the parties making such statements believe that the assumptions
underlying the forward-looking statements are reasonable, any of
the assumptions could prove to be inaccurate. Therefore, neither
Carolina Financial nor First South provides any assurance that
the results contemplated in the forward-looking statements will
be realized.The inclusion of this forward-looking information
should not be construed as a representation byCarolina
Financial,First South or any other person that the future events,
plans, or expectations contemplated will be achieved.

The following factors, among others, could cause actual results
to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements: the
occurrence of any event, change or other circumstances that could
give rise to the right of one or both of the parties to terminate
the definitive merger agreement between Carolina Financial and
First South; the outcome of any legal proceedings that may be
instituted against Carolina Financial or First South; the failure
to obtain necessary regulatory approvals (and the risk that such
approvals may result in the imposition of conditions that could
adversely affect the combined company or the expected benefits of
the transaction), and stockholder approvals or to satisfy any of
the other conditions to the transaction on a timely basis or at
all; the possibility that the anticipated benefits of the
transaction are not realized when expected or at all, including
as a result of the impact of, or problems arising from, the
integration of the two companies or as a result of the strength
of the economy and competitive factors in the areas where
Carolina Financial and First South do business; the possibility
that the transaction may be more expensive to complete than
anticipated, including as a result of unexpected factors or
events; diversion of managements attention from ongoing business
operations and opportunities; potential adverse reactions or
changes to business or employee relationships, including those
resulting from the announcement or completion of the transaction;
Carolina Financials ability to complete the acquisition and
integration of First South successfully; credit risk associated
with commercial real estate, commercial business and construction
lending; interest risk involving the effect of a change in
interest rates on both of Carolina Financials and First Souths
earnings and the market value of the portfolio equity; liquidity
risk affecting each banks ability to meet its obligations when
they come due; price risk focusing on changes in market factors
that may affect the value of traded instruments; transaction risk
arising from problems with service or product delivery;
compliance risk involving risk to earnings or capital resulting
from violations of or nonconformance with laws, rules,
regulations, prescribed practices, or ethical standards;
strategic risk resulting from adverse business decisions or
improper implementation of business decisions; reputation risk
that adversely affects earnings or capital arising from negative
public opinion; cybersecurity risk related to the dependence of
Carolina Financial and First South on internal computer systems
and the technology of outside service providers, as well as the
potential impacts of third-party security breaches, which
subjects each company to potential business disruptions or
financial losses resulting from deliberate attacks or
unintentional events.For a discussion of some of the other risks
and factors that could cause actual results to differ materially
from those described in the forward-looking statements, please
refer to the filings made byCarolina Financial andFirst South in
their respective reports filed with theSEC, including each
companys Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K available at
theSECsInternetsite (http://www.sec.gov).All subsequent written
and oral forward-looking statements concerningCarolina
Financial,First South or any person acting on either companys
behalf are expressly qualified in their entirety by the
cautionary statements above.Neither Carolina Financial norFirst
South undertakes any obligation to update any forward-looking
statement to reflect circumstances or events that occur after the
date the forward-looking statements are made.

Additional Information About the Acquisition and Where to
Find It

Carolina Financial and First South will file relevant documents
concerning the transaction with theSecurities and Exchange
Commission (the SEC), including a Registration Statement on
FormS-4 which will include a joint proxy statement of Carolina
Financial and First South and a prospectus of Carolina Financial,
as well as other relevant documents concerning the proposed
transaction. The proposed transaction will be submitted to First
Souths shareholders and Carolina Financials stockholders for
their consideration. This communication shall not constitute an
offer to sell or the solicitation of an offer to buy any
securities, nor shall there be any sale of securities in any
jurisdiction in which such off, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of such jurisdiction.

SHAREHOLDERS OF FIRST SOUTH AND STOCKHOLDERS OF CAROLINA
FINANCIAL ARE URGED TO READ THE REGISTRATION STATEMENT, THE JOINT
PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS WHEN THEY
ARE FILED WITH THE SEC, as well as any amendments or supplements
to those documents WHEN THEY BECOME AVAILABLE, AS THEY WILL
CONTAIN IMPORTANT INFORMATION.

Shareholders ofFirst South and stockholders of Carolina Financial
will be able to obtain a free copy of the joint proxy
statement/prospectus, as well as other filings containing
information about Carolina Financial and First South, at theSECs
internet site (http://www.sec.gov). Copies of the joint proxy
statement/prospectus and the filings with theSEC that will be
incorporated by reference in the joint proxy statement/prospectus
can also be obtained, without charge, by directing a request
to:Carolina Financial Corporation,288 Meeting Street,Charleston,
South Carolina29401, Attention:William A. Gehman, III, Executive
Vice President and Chief Financial Officer orFirst South Bancorp,
Inc.,1311 Carolina Avenue, Washington, NC 27889, Attention:Scott
C. McLean, Executive Vice President and Chief Financial Officer.

Participants in the Solicitation

Carolina Financial, First South and certain of their respective
directors, executive officers and employees and other persons may
be deemed to be participants in the solicitation of proxies in
respect of the proposed transaction. Information
regardingCarolina Financials directors and executive officers is
available in its definitive proxy statement (form type DEF 14A)
which was filed with the SEC on March 20, 2017, and certain of
its Current Reports on Form 8-K. Information regardingFirst
Souths directors and executive officers is available in its
definitive proxy statement (form type DEF 14A) which was filed
with the SEC on June 2, 2017, and certain of its Current Reports
on Form 8-K. Other information regarding the participants in
theproxy solicitation and a description of their direct and
indirect interests, by security holdings or otherwise, will be
contained in the joint proxy statement/prospectus and other
relevant materials to be filed with theSECwhen they become
available.

Item 9.01. Financial Statements and Exhibits

(d)Exhibits

About CAROLINA FINANCIAL CORPORATION (NASDAQ:CARO)

Carolina Financial Corporation is a bank holding company. The Company operates through CresCom Bank, a South Carolina state-chartered bank (the Bank). The Company operates through three segments: community banking, wholesale mortgage banking (mortgage banking) and other. The Company’s community banking segment provides traditional banking services offered through CresCom Bank. The mortgage banking segment provides wholesale mortgage loan origination and servicing offered through Crescent Mortgage Company. The other segment provides managerial and operational support to the other business segments through Carolina Services and Carolina Financial. CresCom Bank provides a range of commercial and retail banking financial services to meet the financial needs of its customers through its branch network in South Carolina and North Carolina. It provides commercial and residential real estate mortgage loans, real estate construction loans, commercial and industrial loans, and consumer loans.