<PAGE>   1

EXHIBIT 10.28

                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT AGREEMENT (THE "AGREEMENT") is made effective this 10th
day of August, 1999, by and between KRISPY KREME DOUGHNUT CORPORATION, a North
Carolina corporation (the "Company"), and JOHN N. MCALEER (the "Executive").

                                     RECITAL

         The Executive is currently serving as Executive Vice President, Concept
and Brand Development of the Company and the parties have negotiated this
Agreement in consideration of the Executive's valuable services and leadership.

         NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties do hereby agree as follow:

         1. EFFECTIVE DATE. This Agreement shall be effective upon, and from and
after, the date set forth above.

         2. DEFINITIONS. As used herein, the following terms shall have the
following meanings:

                  (a) "Disability" shall mean the Executive becoming disabled
                  and unable to continue his employment with the Company as
                  defined in the Company's then applicable disability policy for
                  the Senior Management of the Company.

                  (b) "Discharge" shall mean the termination by the Company of
                  the Executive's employment during the Period of Employment for
                  any reason other than (i) Good Cause, (ii) death of the
                  Executive, (iii) Disability of the Executive, or (iv)
                  Retirement of the Executive.

                  (c) "Expiration Date" means the date that the Period of
                  Employment (as it may have been extended) expires.

                  (d) "Good Cause" has its meaning as defined in Section 6
                  hereof.

                  (e) "Period of Employment" shall be for a term of three years
                  beginning August 10, 1999 and ending August 10, 2002;
                  provided, however, that commencing August 10, 2000, the
                  Executive's Period of Employment shall automatically be
                  extended for successive one-year periods each year as of
                  August 10 of each year unless the Company gives Executive
                  written notice of nonextension on or before that date.


<PAGE>   2

                  (f) "Retirement" shall mean a time when the sum of the
                  Executive's age and employment with the Company equals or
                  exceeds 65.

                  (g) "Senior Management" shall mean the senior executive
                  management of the Company currently consisting of the chief
                  executive officer, the president, and the executive vice
                  presidents.

                  (h) "Stock Option Plan" shall mean the Krispy Kreme Doughnut
                  Corporation 1998 Stock Option Plan.

                  (i) "Termination Date" shall mean:

                           (i) If the Executive's employment is terminated by
                           reason of death, the Executive's date of death;

                           (ii) If the Executive's employment is terminated by
                           reason of Retirement, the date of his Retirement;

                           (iii) If the Executive's employment is terminated by
                           reason of Disability, the date of his Disability;

                           (iv) If the Executive's employment is terminated for
                           Good Cause, the date specified in the written notice
                           of termination given by the Company pursuant to
                           Section 6(a);

                           (v) If the Executive's employment is terminated by
                           reason of a Discharge, the effective date of
                           Discharge;

                           (vi) If the Executive's employment is terminated by
                           reason of non-extension of the Period of Employment,
                           the Expiration Date; and

                           (vii) If the Executive voluntarily terminates his
                           employment as permitted by Section 6(b), the
                           effective date of his termination of employment.

         3. EMPLOYMENT; PERIOD OF EMPLOYMENT.

         The Company hereby employs the Executive, and the Executive hereby
accepts employment by the Company, for the Period of Employment, in the position
and with the duties and responsibilities set forth in Section 4, upon the terms
and subject to the conditions of this Agreement.



                                       2
<PAGE>   3

         4. POSITION, DUTIES AND RESPONSIBILITIES. During the Period of
Employment, the executive shall

                  (a) serve as Executive Vice President, Concept and Brand
                  Development of the Company and its subsidiaries or in such
                  other senior management position as may be assigned to him by
                  mutual agreement with the Board of Directors. The Executive
                  shall be employed hereunder in Forsyth County, North Carolina
                  and he shall not be required to relocate his residence or
                  principal office to any place outside Forsyth County, North
                  Carolina without his consent; and

                  (b) devote his best efforts to the furtherance of the interest
                  of the Company and the performance of his duties hereunder and
                  agrees not to engage in any competition whatsoever, either
                  directly or indirectly, with the Company or any of its
                  subsidiaries or affiliates. The Executive shall be allowed
                  holiday and vacation periods, leaves for periods of illness or
                  incapacity and personal leaves in accordance with the
                  Company's regular practices for members of Senior Management.

         5. COMPENSATION, COMPENSATION PLANS AND BENEFITS. During the Period of
Employment, the Executive shall be compensated as follows:

                  (a) He shall receive an annual base salary equal to his
                  current annual base salary, with annual increases in
                  accordance with the Company's regular practices for members of
                  Senior Management. In addition, he shall receive non-incentive
                  compensation (including automobile allowance) at his current
                  monthly rate. Such compensation shall be paid in accordance
                  with the Company's regular schedule for payment of salaried
                  employees.

                  (b) He shall receive such other bonuses as are afforded the
                  Company's Senior Management and be eligible to participate in
                  all of the Company's executive compensation plans provided to
                  members of Senior Management of the Company from time to time.

                  (c) He shall be entitled to participate in and receive other
                  employee benefits, which may include, but are not limited to,
                  benefits under any life health, accident, disability, medical,
                  dental and hospitalization insurance plans, use of a Company
                  automobile or an automobile allowance, and other perquisites
                  and benefits, as are provided to members of Senior Management
                  of the Company from time to time.

                  (d) He shall be entitled to be reimbursed for the reasonable
                  and necessary out-of-pocket expenses, including entertainment,
                  travel and similar items, incurred by him in performing his
                  duties hereunder upon presentation of such documentation
                  thereof as the Company may normally and customarily require of
                  the members of Senior Management.



                                       3
<PAGE>   4

                  (e) The Company agrees to pay the Executive's dues and
                  assessments for membership in Forsyth Country Club and the
                  Piedmont Club.

         6. TERMINATION OF EMPLOYMENT. During the Period of Employment:

                  (a) Termination for Good Cause.

                             (i) The Company may terminate the Executive's
                  employment for Good Cause. Termination of employment shall be
                  deemed to have been for Good Cause if (i) the Executive
                  habitually neglects or refuses to do his duties and fails to
                  cure such neglect within ten (10) days after having received
                  written notice of same from the Company or (ii) the Executive
                  commits (a) acts constituting a felony or (b) acts of gross
                  negligence or willful misconduct to the material detriment of
                  the Company.

                           (ii) Termination by the Company for Good Cause may be
                  made only by written notice of termination from the Company to
                  the Executive that has been specifically approved in advance
                  by the Board of Directors. Such notice shall set forth all
                  acts constituting such neglect or refusal to do duties or
                  gross negligence or willful misconduct as is applicable.

                  (b) Voluntary Termination.

                           The Executive may voluntarily terminate his
                  employment with the Company upon 30 days prior written notice.

                  (c) Termination by Reason of Death, Disability, or Retirement.

                           The employment of the Executive shall be terminated
                  by death, Disability or Retirement of the Executive.

         7. EFFECT OF TERMINATION.

                  (a) If the Executive's employment is terminated by reason of
                  death, Retirement or voluntary termination of employment, the
                  Company shall pay the Executive (or his estate in the case of
                  his death) his base salary, non-incentive compensation
                  (including automobile allowance), bonuses and benefits as
                  provided in Section 5 through the Termination Date and (in the
                  case of his death) a death benefit of $5,000. Any payments and
                  benefits due to the Executive under employee benefit plans and
                  programs of the Company, including the Stock Option Plan,
                  shall be determined in accordance with the terms of such
                  benefit plans and programs; provided, however, that all
                  options held by the Executive under the Stock Option Plan
                  shall become 100% vested if the Executive's employment is
                  terminated by reason of death or Retirement.



                                       4
<PAGE>   5

                  (b) If the Executive's employment is terminated by reason of
                  Disability, the Company shall pay the Executive his base
                  salary, non-incentive compensation, bonuses and benefits for a
                  period of six months following the date of Disability.
                  Thereafter, this Agreement terminates and the Executive shall
                  receive those benefits payable to him under the applicable
                  disability insurance plan provided by the Company. Any
                  payments and benefits due to the Executive under employee
                  benefit plans and programs of the Company, including the Stock
                  Option Plan, shall be determined in accordance with the terms
                  of such benefit plans and programs; provided, however, that
                  all options held by the Executive under the Stock Option Plan
                  shall become 100% vested as of the Executive's termination of
                  employment by reason of Disability.

                  (c) In the event of the Executive's Discharge by the Company,

                           (i) the Company shall pay the Executive

                                    A. his then current annual base salary and
                                    non-incentive compensation (including
                                    automobile allowance) and provide the
                                    Executive with his then current benefits (as
                                    provided in Section 5) through the
                                    Expiration Date pursuant to Section 2(e);
                                    and

                                    B. within thirty (30) days from the
                                    Termination Date (1) a lump sum equal to
                                    Executive's then current monthly base salary
                                    amount multiplied by the number of months
                                    between the month of Discharge and the
                                    preceding August, and (2) a lump sum amount
                                    equal to the sum of adding three times the
                                    Executive's bonus calculated at 50% of his
                                    annualized base salary for the then current
                                    fiscal year, discounted at the rate of six
                                    percent (6%) per annum. The latter payment
                                    is full and final satisfaction of all the
                                    Company's obligations for bonus and/or other
                                    incentive payments.

                           (ii) Any payments and benefits due to executive under
                           the employee benefit plans and programs of the
                           Company, including the Stock Option Plan, shall be
                           determined in accordance with the terms of such
                           benefit plans and programs; provided, however, that
                           all options held by the Executive under the Stock
                           Option Plan shall become 100% vested as of the
                           Termination Date.

                  (d) In the event of the Company's nonextension of the
                  Employment Period,

                           (i) the Company shall pay the Executive

                                    A. his then current annual base salary and
                                    non-incentive compensation (including
                                    automobile allowance) and provide the


                                       5
<PAGE>   6

                                    Executive with his then current benefits (as
                                    provided in Section 5) through the
                                    Expiration Date, pursuant to Section 2(e);

                                    B. within thirty (30) days from the
                                    Termination Date, (1) a lump sum equal to
                                    Executive's then current annual base salary,
                                    and (2) a lump sum amount equal to three
                                    times the Executive's bonus calculated at
                                    50% of his base salary for the then current
                                    fiscal year discounted at the rate of six
                                    percent (6%) per annum. The latter payment
                                    is full and final satisfaction of all the
                                    Company's obligations for bonus and/or other
                                    incentive payments.

                           (ii) Any payments and benefits due to Executive under
                           employee benefit plans and programs of the Company,
                           including the Stock Option Plan, shall be determined
                           in accordance with the terms of such benefit plans
                           and programs; provided, however, that all options
                           held by the Executive under the Stock Option Plan
                           shall become 100% vested as of the Expiration Date.

                  Provided, however, that within sixty (60) days of the date of
                  notification by the Company to the Executive of its intention
                  not to extend the Period of Employment, the Executive may, at
                  his option, elect to have the non-extension treated as a
                  Discharge with an effective date thirty (30) days after the
                  Executive's notification to the Company of his election.

                  (e) In the event of the Executive's Termination For Cause by
                  the Company, the Company shall pay the Executive his then
                  current base salary and non-incentive compensation (including
                  automobile allowance) and provide the Executive with his then
                  current benefits (as provided in Section 5) through the
                  Termination Date. Any payments and benefits due the Executive
                  under employee benefit plans and programs of the Company,
                  including the Stock Option Plan, shall be determined in
                  accordance with the terms of such benefit plans and programs.

                  (f) In the event the Executive's employment is terminated by
                  reason of Discharge or nonextension of the Employment Period,
                  the Executive may, at his option, elect to receive a lump sum
                  amount equal to the base salary and non-incentive compensation
                  due, discounted at a rate of six percent (6%) per annum.

                  (h) In the event the Executive's employment is terminated by
                  reason of Discharge, the Company shall furnish the Executive,
                  for a period of six (6) months subsequent to the Termination
                  Date, outplacement services, reasonable office space, and
                  secretarial assistance.

                  (h) If any of the payments provided for in this Agreement,
                  together with any other payments which the Executive has the
                  right to receive from the Company or



                                       6
<PAGE>   7

                  any corporation which is a member of an "affiliated group" as
                  defined in Section 1504(a) of the Code (without regard to
                  Section 1504(b) of the Code) of which the Company is a member,
                  would constitute an "excess parachute payment" as defined in
                  Section 280G(b)(1) of the Code as it presently exists, such
                  that any portion of such payments are subject to the excise
                  tax imposed by Section 4999 of the Code, or any interest or
                  penalty with respect to such excise tax (such excise tax,
                  together with any such interest or penalty, are collectively
                  referred to as the "Excise Tax"), then the Executive shall be
                  entitled to receive an additional payment (an "Excise Tax
                  Restoration Payment"). The amount of the Excise Tax
                  Restoration Payment shall be the amount necessary to fund the
                  payment by the Executive of any Excise Tax on the total
                  payments, as well as all income taxes imposed on the Excise
                  Tax Restoration Payment, any excise tax imposed on the Excise
                  Tax Restoration Payment, and any interest or penalties imposed
                  with respect to taxes on the Excise Tax Restoration Payment or
                  any Excise Tax.

         8. Termination For Good Reason. In the event of a "Change in Control"
of the Company (as hereinafter defined), the Executive may terminate his
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following events during the twelve (12) months
immediately preceding or following the effective date of a Change in Control of
the Company:

                  (a) a material change in the scope of the Executive's assigned
duties and responsibilities from those in effect immediately prior to a Change
in Control of the Company or the assignment of duties or responsibilities that
are inconsistent with the Executive's status in the Company;

                  (b) a reduction by the Company in the Executive's base salary
or incentive compensation as in effect on the date of a Change in Control;

                  (c) the Company's requirement that the Executive be based
anywhere other than the Company's office in Forsyth County, North Carolina, at
which he was based prior to the Change in Control of the Company; or

                  (d) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those specified in Section 5 of
this Agreement.

         For purposes of Section 8(c) above, the Company shall be deemed to have
required the Executive to be based somewhere other than the Company's office at
which he was based prior to the Change in Control if the Executive is required
to spend more than two days per week on a regular basis at a business location
not within 50 miles of the Executive's primary business location as of the
effective date of a Change in Control.

         If the Executive terminates his employment for Good Reason, this shall
be treated as the Discharge of the Executive by the Company. Accordingly, the
Company shall pay the amounts and provide the benefits to the Executive
specified in Section 7 above, applicable in the event of



                                       7
<PAGE>   8

Discharge. The Executive shall not be obligated in any way to mitigate the
Company's obligations to him under this Section 8 and any amounts earned by the
Executive subsequent to his termination of employment shall not serve as an
offset to the payments due him by the Company under this Section.

         For purposes of this Agreement, a "Change in Control" means the date on
which the earlier of the following events occur:

                  (a) the acquisition by any entity, person or group of
beneficial ownership, as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934, of more than 30% of the outstanding capital stock of the
Company entitled to vote for the election of directors ("Voting Stock");

                  (b) the merger or consolidation of the Company with one or
more corporations as a result of which the holders of outstanding Voting Stock
of the Company immediately prior to such a merger or consolidation hold less
than 60% of the Voting Stock of the surviving or resulting corporation;

                  (c) the transfer of substantially all of the property of the
Company other than to an entity of which the Company owns at least 80% of the
Voting Stock; or

                  (d) the election to the Board of Directors of the Company of
three or more directors during any twelve month period without the
recommendation or approval of the incumbent Board of Directors of the Company.

         Upon a Change in Control, as defined above in this Section 8, all
outstanding stock options shall become 100% vested and immediately exercisable,
regardless of whether the Executive terminates employment or not.

         If the Executive terminates employment with Good Reason within twelve
(12) months of a Change in Control, to the extent permitted by law, the Company
shall continue the medical, disability and life insurance benefits which
Executive was receiving at the time of termination for a period of 36 months
after termination of employment or, if earlier, until Executive has commenced
employment elsewhere and becomes eligible for participation in the medical,
disability and life insurance programs, if any, of his successor employer.
Coverage under Employer's medical, disability and life insurance programs shall
cease with respect to each such program as Executive becomes eligible for the
medical, disability and life insurance programs, if any, of his successor
employer.

         9. CONFIDENTIALITY. During the Period of Employment and following
termination for any reason, the Executive covenants and agrees that he will not
divulge any trade secrets or other confidential information pertaining to the
business of the Company. It is understood that the term "trade secrets" as used
in this Agreement is deemed to include any information which gives the Company a
material and substantial advantage over its competitors but that such term does
not include knowledge, skills or information which is otherwise publicly
disclosed.



                                       8
<PAGE>   9

         10. NON-COMPETITION. In the event of Termination For Good Cause, or
Voluntary Termination of the Executive, the Executive agrees that for a period
of two years following the Termination Date, Executive shall not directly or
indirectly, personally or with other employees, agents or otherwise, or on
behalf of any other person, firm, or corporation, engage in the business of
making and selling doughnuts and complementary products

                  (a) within a 100 mile radius of any place of business of the
                  Company (including franchised operations) or of any place
                  where the Company (or one of its franchised operations) has
                  done business since the Effective Date of this Agreement,

                  (b) in any county where the Company is doing business or has
                  done business since the Effective Date, or

                  (c) in any state where the Company is doing business or has
                  done business since the Effective Date.

         Notwithstanding the above, ownership by Executive of an interest in any
licensed franchisee of the Company shall not be deemed to be in violation of
this Section 10. In the event of an actual or threatened breach of this
provision, the Company shall be entitled to an injunction restraining Executive
from such action and the Company shall not be prohibited in obtaining such
equitable relief or from pursuing any other available remedies for such breach
or threatened breach, including recovery of damages from Executive.

         11. SUCCESSORS; BINDING AGREEMENT.

                  (a) This Agreement shall be binding upon, and inure to the
                  benefit of, the parties hereto, their heirs, personal
                  representatives, successors and assigns.

                  (b) The Company shall require any successor (whether direct or
                  indirect and whether by purchase, merger, consolidation or
                  otherwise) to all or substantially all of the business or
                  assets of the Company expressly to assume and agree to perform
                  this Agreement in the same manner and to the same extent that
                  the Company would be required to perform if no such succession
                  had taken place. As used herein, "Company" shall mean the
                  Company as defined in the preamble to this Agreement and any
                  successor to its business or assets which executes and
                  delivers (or is required to execute and deliver) the agreement
                  provided for in this Section 11(b), or which otherwise becomes
                  bound by the terms and provisions of this Agreement or by
                  operation of law.

         12. ARBITRATION. Except as hereinafter provided, any controversy or
claim arising out of or relating to this Agreement of any alleged breach thereof
shall be settled by arbitration in the City of Winston-Salem, North Carolina in
accordance with the rules then obtaining of the American Arbitration Association
and any judgment upon any award, which may include an



                                       9
<PAGE>   10

award of damages, may be entered in the highest State or Federal court having
jurisdiction. Nothing contained herein shall in any way deprive the Company of
its claim to obtain an injunction or other equitable relief arising out of the
Executive's breach of the provisions of Paragraphs 9 and 10 of this Agreement.
In the event of the termination of Executive's employment, Executive's sole
remedy shall be arbitration as herein provided and any award of damages shall be
limited to recovery of lost compensation and benefits provided for in this
Agreement.

         12. NOTICES. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:

         IF TO THE EXECUTIVE: John N. McAleer
                              435 Westover Avenue
                              Winston-Salem, NC  27104

         IF TO THE COMPANY:   Krispy Kreme Doughnut Corporation
                              P.O. Box 83
                              Winston-Salem, NC  27102-0083
                              (for mail)

                              370 Knollwood
                              Suite 500
                              Winston-Salem, NC  27103
                              (for delivery)

                              Attn:  Randy S. Casstevens, Corporate Secretary

         13. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
North Carolina.

         14. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of other provisions or conditions at the same or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.

         15. SEPARABILITY. The invalidity or lack of enforceability of a
provision of this Agreement shall not affect the validity of any other provision
hereof, which shall remain in full force and effect.



                                       10
<PAGE>   11

         16. WITHHOLDING OF TAXES. The Company may withhold from any benefits
payable under this Agreement all federal, state and other taxes as shall be
required pursuant to any law or governmental regulation or ruling.

         17. SURVIVAL. The provisions of Sections 9 and 10 of the Agreement
shall survive the termination of this Agreement and shall continue for the terms
set forth in Sections 9 and 10.

         18. CAPTIONS. Captions to the sections of this Agreement are inserted
solely for the convenience of the parties, are not a part of this Agreement, and
in no way define, limit, extend or describe the scope hereof or the intent of
any of the provisions.

         19. NON-ASSIGNABILITY. This Agreement is personal in nature and neither
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder.
Without limiting the foregoing, the Executive's right to receive payments
hereunder shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise, other than a transfer by will or by the
laws of descent or distribution. In the event of any attempted assignment or
transfer contrary to this section, the Company shall have no liability to pay
any amount so attempted to be assigned or transferred.

         IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and delivered under its seal pursuant to the specific authorization of
its board of directors and the Executive has hereunto set his hand and seal on
the day and year first above written.

                                   KRISPY KREME DOUGHNUT CORPORATION



                                   By: /s/ Scott A. Livengood
                                           Scott A. Livengood, CEO and President


[CORPORATE SEAL]


                                   EXECUTIVE


                                   /s/ John N. McAleer                    (Seal)
                                       John N. McAleer




                                       11