Amendment No. 3 to the Second Lien Credit Agreement


    EXHIBIT
      10.2

     

    Execution
      Counterpart


    


     

    AMENDMENT
      NO. 3 TO SECOND LIEN CREDIT AGREEMENT dated as of December 12, 2005 (this
“Amendment
      Agreement”)
      among
      KRISPY KREME DOUGHNUT CORPORATION, a North Carolina corporation (the
“Borrower”),
      the
      GUARANTORS (as defined in the Credit Agreement referred to below) signatory
      hereto and the LENDERS (as defined in the Credit Agreement referred to below)
      signatory hereto.

     

    The
      Borrower is party to a Second Lien Credit Agreement dated as of April 1, 2005
      (as amended, amended and restated, supplemented or otherwise modified up to
      the
      date hereof, the “Credit Agreement”) among the Borrower, the Parent Guarantor,
      the Subsidiary Guarantors, the Lenders, and Credit Suisse (formerly known as
      Credit Suisse First Boston), as Administrative Agent, Paying Agent, Fronting
      Bank, and Collateral Agent.

     

    The
      Borrower has requested that the Required Lenders agree to amend certain
      provisions of the Credit Agreement, and the Required Lenders have agreed,
      subject to the terms and conditions hereinafter set forth to such
      amendments.

     

    Accordingly,
      in consideration of the premises and for other good and valuable consideration,
      the sufficiency and receipt of all of which are hereby acknowledged, the parties
      hereto hereby agree as follows:

     

    SECTION 1.
      Defined
      Terms.
      Capitalized terms used but not herein shall be used herein as defined in the
      Credit Agreement.

     

    SECTION 2.
      Amendments.
      As of
      the Amendment Effective Date (as defined below):

     

    (a) Section
      1.01 of the Credit Agreement is hereby amended by inserting the following new
      defined term therein in the appropriate alphabetical location:

     

    “Amendment
      No. 3 Effective Date”
means
      the date that the amendments to this Agreement effected by Amendment No. 3
      hereto become effective.

     

    (b) The
      definition of “Applicable Margin” in Section 1.01 of the Credit Agreement is
      hereby amended to read as follows:

     

    “Applicable
      Margin”
means:
      (a) with respect to each Tranche A Loan, zero, (b) with respect to any
      Tranche B ABR Loan, (i) 6.25% per annum on or prior to the last day of the
      2007 Fiscal Year and (ii) 4.875% per annum thereafter or (c) with respect
      to any Tranche B Eurodollar Loan, (i) 7.25% per annum on or prior to the last
      day of the 2007 Fiscal Year and (ii) 5.875% per annum thereafter; provided
      that:
      (i) the Applicable Margin with respect to any principal of any Tranche A
      Loan of any Class not paid when due resulting in a withdrawal from the Tranche
      A
      Credit-Linked Deposit Account shall be equal to the Applicable Margin for
      Tranche B Loans of the same Class, (ii) for each date falling on or after
      May 2, 2005, the Applicable Margin for each Tranche B Loan shall be
      increased by the Applicable Adjustment, if any, on such date and (iii) with
      respect to any date on or prior to the last day of the 2007 Fiscal Year, the
      Applicable Margin for each Type of Tranche B Loan shall be reduced by 0.50%
      per
      annum if, on the last day of each of any two consecutive Fiscal Quarters falling
      in the 2007 Fiscal Year 

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    (each
      such day being referred to as a “Test Date”) (w) Consolidated EBITDA
      for
      the
      period for four consecutive Fiscal Quarters ending on such Test Date shall
      be at
      least $55,000,000, (x) the Consolidated Leverage Ratio on such Test Date shall
      not exceed the ratio required to have been maintained on such Test Date by
      Section 7.09(a) of this Agreement as in effect before the Amendment No. 3
      Effective Date, (y) the Consolidated Interest Coverage Ratio on such Test Date
      shall not be less than the ratio required to have been maintained on such Test
      Date by Section 7.09(b) this Agreement as in effect before the Amendment No.
      3
      Effective Date and (z) the Borrower shall have furnished to the Paying Agent
      its
      financial statements as at and for the periods ending on the Test Dates as
      required by Section 6.01(a) or 6.01(b), together with a certificate of a
      Financial Officer of the Parent Guarantor certifying that the conditions set
      forth in the preceding clauses (w), (x) and (y) have been satisfied and setting
      forth reasonably detailed calculations demonstrating such satisfaction. The
      reduction of the Applicable Margin pursuant to clause (iii) of the proviso
      in
      the preceding sentence shall take effect from and after the second Business
      Day
      following receipt by the Paying Agent of the financial statements and
      certificate referred to in clause (z) of said sentence for the second Test
      Date
      (such second Business Day being referred to herein as the “Rate
      Reduction Date”).

     

    (c) The
      definition of “Consolidated EBITDA” in Section 1.01 of the Credit Agreement is
      hereby amended to add the following sentence at the end thereof:

     

    “Notwithstanding
      anything contained herein to the contrary, the amount of Consolidated EBITDA
      attributable to the third Fiscal Quarter of Fiscal Year 2006 shall not be deemed
      to exceed $6,800,000, and, if the amount of Consolidated EBITDA attributable
      to
      such Fiscal Quarter would otherwise exceed $6,800,000, such amount shall be
      reduced to $6,800,000 for purposes of this Agreement.”

     

    (d) The
      definition of “Investment” in Section 1.01 of the Credit Agreement is hereby
      amended by adding the following sentence at the end thereof:

     

    “For
      the
      avoidance of doubt, the forgiveness by the Borrower of receivables owing from
      New England Dough, LLC not to exceed $3,000,000 in connection with the
      contemplated restructuring of New England Dough, LLC shall not be deemed to
      be
      an Investment for purposes of this Agreement.”

     

    (e) The
      first
      sentence of Section 2.11(a) of the Credit Agreement is hereby amended to read
      as
      follows:

     

    “The
      Borrower agrees to pay to the Paying Agent for the account of each
      Tranche A Lender a fee, accruing (subject to Section 2.12(c)) at the rate
      of (i) 7.25% per annum on or prior to the last day of the 2007 Fiscal Year
      and
      (ii) 5.875% per annum thereafter (plus,
      for any
      day falling on or after May 2, 2005, the Applicable Adjustment, if any, for
      such
      day) on the daily amount of the Tranche A Credit-Linked Deposit of such
      Tranche A Lender during the period from and including the date hereof to
      but excluding the date on which each of the Tranche A Funding Amounts of
      all of the Tranche A Lenders and the Tranche A LC Exposure have been
      reduced to zero; provided
      that
      such rate shall be reduced by 0.50% per annum from and after the Rate Reduction
      Date (as defined in the definition of “Applicable Margin” in Section 1.01
      hereof) through the last day of the 2007 Fiscal Year.”

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    (f) Section
      2.12(c) of the Credit Agreement is hereby amended by substituting "the
      Applicable Tranche A Rate" for each occurrence of "7.875%" and by adding the
      following new sentence at the end thereof:

     

    “The
      ‘Applicable
      Tranche A Rate’
as
      used
      in this Section 2.12(c) means (i) 9.25% with respect to any date on or prior
      to
      the last day of the 2007 Fiscal Year and (ii) 7.875%, with respect to any date
      thereafter; provided
      that
      such rate shall be reduced by 0.50% per annum from and after the Rate Reduction
      Date (as defined in the definition of “Applicable Margin” in Section 1.01
      hereof) through the last day of the 2007 Fiscal Year.”

     

    (g) Sections
      2.08(b) and 2.10(a) of the Credit Agreement are hereby amended by substituting
      “August 1, 2006” for each occurrence therein of “the first anniversary of the
      Effective Date”; and the tables in Sections 2.08(d) and 2.10(a) of the Credit
      Agreement are hereby amended to read as follows:

     

    
      	
              Period

            	 	
              Fee

            
	
              At
                any time on or prior to August 1, 2007

               

            	 	
              3%

               

            
	 	 	 
	
              After
                August 1, 2007 and on or before August 1, 2008

               

            	 	
              2%

               

            
	 	 	 
	
              After
                August 1, 2008 and on or before August 1, 2009

               

            	 	
              1%

               

            
	 	 	 
	
              Thereafter

               

            	 	
              zero

               

            


    

     

    (h) Section
      5.02 of the Credit Agreement is hereby amended by deleting “and” at the end of
      paragraph (c) thereof, substituting “; and” for the period at the end of
      paragraph (d) thereof and adding a new paragraph (e) thereto reading as
      follows:

     

    “(e)
      In
      connection with any requested Loan, the aggregate cash balances in all deposit
      accounts (including, without limitation, the Concentration Accounts and the
      Depository Account) of the Obligors, determined at 1:30 p.m., New York City
      time, on the date of such Loan (including, without duplication, the proceeds
      of
      such Loan) shall not exceed $15,000,000 after giving effect to all cash
      disbursements (including the use of the proceeds of such Loan) permitted
      hereunder to be made on such date.”

     

    (i) The
      table
      in Section 7.09(a) of the Credit Agreement is amended to read as
      follows:

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    

      
        	
                Period

              	 	
                Ratio

              
	
                Second,
                  Third and Fourth Fiscal Quarters of 2006 Fiscal Year 

                 

              	 	
                4.50
                  to 1.00

                 

              
	
                First
                  Fiscal Quarter of 2007 Fiscal Year 

                 

              	 	
                5.40
                  to 1.00

                 

              
	
                Second
                  Fiscal Quarter of 2007 Fiscal Year 

                 

              	 	
                5.00
                  to 1.00

                 

              
	
                Third
                  Fiscal Quarter of 2007 Fiscal Year

                 

              	 	
                4.80
                  to 1.00

                 

              
	
                Fourth
                  Fiscal Quarter of 2007 Fiscal Year

                 

              	 	
                4.70
                  to 1.00

                 

              
	
                First
                  Fiscal Quarter of 2008 Fiscal Year and Thereafter

                 

              	 	
                3.70
                  to 1.00

                 

              


      



              (j) The
      table
      in Section 7.09(b) of the Credit Agreement is amended to read as
      follows:

     

     

    

      
        	
                Period

              	 	
                Ratio

              
	
                Second
                  and Third Fiscal Quarters of 2006 Fiscal Year 

                 

              	 	
                3.15
                  to 1.00

                 

              
	
                Fourth
                  Fiscal Quarter of 2006 Fiscal Year

                 

              	 	
                2.50
                  to 1.00

                 

              
	
                First
                  Fiscal Quarter of 2007 Fiscal Year 

                 

              	 	
                2.10
                  to 1.00

                 

              
	
                Second
                  Fiscal Quarter of 2007 Fiscal Year 

                 

              	 	
                2.05
                  to 1.00

                 

              
	
                Third
                  Fiscal Quarter of 2007 Fiscal Year

                 

              	 	
                2.05
                  to 1.00

                 

              
	
                Fourth
                  Fiscal Quarter of 2007 Fiscal Year

                 

              	 	
                2.05
                  to 1.00

                 

              
	
                First
                  Fiscal Quarter of 2008 Fiscal Year and Thereafter

                 

              	 	
                3.40
                  to 1.00

                 

              


      

    

     

     

    (k) Paragraph
      (t) of Article VIII of the Credit Agreement is hereby amended to read as
      follows:

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    “(t)
      the
      Restatement Date shall not have occurred on or before April 30, 2006;
      or”

     

    (l) Exhibit
      G
      of the Credit Agreement is hereby amended by deleting “and” at the end of
      paragraph 3(b) thereof, substituting “; and” for the period at the end of
      paragraph (c) thereof and adding a new paragraph (d) thereto reading as
      follows:

     

    “(d)
      The
      aggregate cash balances in all deposit accounts (including, without limitation,
      the Concentration Accounts and the Depository Account) of the Obligors,
      determined at 1:30 p.m., New York City time, on the above-referenced requested
      date for such Loan (including, without duplication, the proceeds of such Loan),
      shall not exceed $15,000,000 after giving effect to all cash disbursements
      (including the use of the proceeds of such Loan) permitted by the Credit
      Agreement to be made on such date.”

     

    (m) Amendment
      and Waiver No. 2 to the Second Lien Credit Agreement dated as of October 25,
      2005 among the Borrower, the Guarantors signatory thereto and the Lenders
      signatory thereto is hereby amended as follows:

     

    (A) The
      ninth
“Whereas” clause thereof is hereby amended to read as follows:

     

    “WHEREAS,
      Krispy Kreme International Ltd. (“KKI”),
      one
      of the Borrower’s Included Subsidiaries, desires to sell to KKA Holdings Pty Ltd
      (as trustee for the KKA Holdings Unit Trust) (the “Australia
      Sale”) all
      of
      its equity interests in Krispy Kreme Australia Pty Limited (“KKA”)
      for
      approximately AUD 3,500,000 in cash and KKI and the Borrower desire to sell
      to
      said trustee loans made to KKA for approximately AUD 5,075,000 in cash, but
      the
      Borrower’s existing Guarantee of Indebtedness of KKA will not be reduced or
      cancelled concurrently with such sale;” 

     

    
      	(B)  	
              Clause
                (ii) of Section 1(c) thereof is hereby amended to read as
                follows:

            


    

     

    “(ii) agree
      that the sale by KKI and the Borrower of their loans made to KKA as part of
      the
      Australia Sale shall be deemed to be a sale by KKI of equity interests in KKA
      for purposes of said Section 7.03(f) and that said Section 7.03(f) shall not
      be
      deemed to prohibit the sale of such loans in a separate transaction from, and
      on
      a different date than, the sale of the equity interests in KKA”

     

    SECTION 3.
      Conditions
      to Effectiveness.
      The
      amendments set forth in Section 2 hereof shall become effective when, and only
      when, and as of the date (the “Amendment
      Effective Date”)
      on
      which (a) the Administrative Agent shall have received counterparts of this
      Amendment Agreement executed by the Borrower, each of the Guarantors (other
      than
      Freedom Rings, LLC) and the Required Lenders (b) all the conditions to the
      effectiveness of the Amendment No. 3 to the First Lien Credit Agreement of
      even
      date herewith, substantially in the form heretofore delivered to the Lenders,
      shall have occurred other than the effectiveness of this Amendment Agreement,
      (c) the Administrative Agent shall have received payment of all accrued fees
      and
      expenses of the Administrative Agent (including the reasonable and accrued
      fees
      of counsel to the Administrative Agent invoiced on or prior to the date hereof)
      and (d) the Borrower shall have paid to the Administrative Agent for the account
      of each Lender that shall have executed and delivered to the Administrative
      Agent a counterpart of this Amendment Agreement on or before the Amendment
      Effective Date the amendment fee payable to such Lender under Section 4
      hereof.

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    SECTION
      4. Fees.
      The
      Borrower shall pay to the Administrative Agent for the account of each Lender
      that executes and delivers to the Administrative Agent a counterpart of this
      Amendment Agreement on or before December 15, 2005 (New York time) an amendment
      fee equal to 0.25% of the sum of the Tranche A Funding Amounts (or, if the
      Tranche A Funding Amounts have been reduced to zero, Tranche A Exposures) and
      the outstanding Tranche B Loans of such Lender, such fee to be payable (i)
      in
      the case of Lenders that execute and deliver this Amendment Agreement on or
      before the Amendment Effective Date, on the Amendment Effective Date and (ii)
      in
      the case of all other Lenders entitled to receive such fee, not later than
      December 19, 2005.

     

    SECTION 5.
      Reference
      to and Effect on the Financing Documents.

     

    (a)
       On
      and
      after the Amendment Effective Date, each reference in the Credit Agreement
      to
“this Agreement”, “hereunder”, “hereof” or words of like import referring to the
      Credit Agreement, and each reference in the other Loan Documents to “the Credit
      Agreement”, “thereunder”, “thereof”, or words of like import referring to the
      Credit Agreement shall mean and be a reference to the Credit Agreement as
      modified hereby.

     

    (b) The
      Credit Agreement and each of the other Loan Documents, as specifically modified
      by this Amendment Agreement, are and shall continue to be in full force and
      effect and are hereby in all respects ratified and confirmed.

     

    (c) The
      execution, delivery and effectiveness of this Amendment Agreement shall not,
      except as expressly provided herein, operate as a waiver of any right, power
      or
      remedy of the Credit Agreement or the other Loan Documents, nor constitute
      a
      waiver of any provision of the Credit Agreement or the other Loan
      Documents.

     

    SECTION 6.
      Affirmation
      of Guarantors.
      Each
      Guarantor signatory hereto hereby consents to the amendments to the Credit
      Agreement effected hereby, and hereby confirms and agrees that, notwithstanding
      the effectiveness of the amendments set forth in Section 2 hereof (and
      notwithstanding the failure of Freedom Rings, LLC to be a party hereto), the
      obligations of such Guarantor contained in Article III of the Credit
      Agreement or in any other Loan Documents to which it is a party are, and shall
      remain, in full force and effect and are hereby ratified and confirmed in all
      respects, except that, on and after the effectiveness of such amendments, each
      reference in Article III of the Credit Agreement and in each of the other
      Loan Documents to “the Credit Agreement”, “thereunder”, “thereof” or words of
      like import shall mean and be a reference to the Credit Agreement as modified
      by
      this Amendment Agreement.

     

    SECTION 7.
      GOVERNING
      LAW.
      THIS
      AMENDMENT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
      LAWS OF THE STATE OF NEW YORK.

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    SECTION 8.
      Execution
      in Counterparts.
      This
      Amendment Agreement may be executed by one or more of the parties to this
      Amendment Agreement on any number of separate counterparts, and all of said
      counterparts taken together shall be deemed to constitute one and the same
      instrument. Delivery of an executed counterpart of a signature page to this
      Amendment Agreement by telecopier shall be effective as delivery of a manually
      executed counterpart of this Amendment Agreement.

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to
      be
      duly executed and delivered by their respective proper and duly authorized
      officers as of the day and year first above written.

     

    KRISPY
      KREME DOUGHNUT CORPORATION

     

    By:
      /s/
      Michael C. Phalen

    Name:
      Michael C. Phalen

    Title:
      CFO

     

    GUARANTORS:

     

    KRISPY
      KREME DOUGHNUTS, INC.

     

    KRISPY
      KREME DISTRIBUTING COMPANY, INCORPORATED

     

    KRISPY
      KREME MOBILE STORE COMPANY

     

    KRISPY
      KREME CANADA, INC.

     

    HD
      CAPITAL CORPORATION

     

    HDN
      DEVELOPMENT CORPORATION

     

    KRISPY
      KREME COFFEE COMPANY, LLC

     

    
      	 	 	
              By:

            	
              KRISPY
                KREME DOUGHNUT CORPORATION, an authorized
                Member

            


    

     

    GOLDEN
      GATE DOUGHNUTS, LLC

     

    
      	 	 	
              By:

            	
              KRISPY
                KREME DOUGHNUT CORPORATION, an authorized
                Member

            


    

     

    PANHANDLE
      DOUGHNUTS, LLC

     

    
      	 	 	
              By:

            	
              KRISPY
                KREME DOUGHNUT CORPORATION, an authorized
                Member

            


    

     

    NORTH
      TEXAS DOUGHNUTS, L.P.

     

    
      	 	 	
              By:

            	
              KRISPY
                KREME DOUGHNUT CORPORATION, its General
                Partner

            


    

     

    


     

    By:
      /s/
      Michael C. Phalen

    Name:
      Michael C. Phalen

    Title:
      Authorized Officer

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    LENDER

     

    Consent
      of Required Lenders Received