Document:

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                                                                  Exhibit 10.120

                                 EQUIPMENT LEASE

         LEASE made as of the 4th day of April, 2004, by and between LJH, LTD.,
a Texas Limited Partnership, of 377 Neva Lane, Denison, Texas 75020, hereinafter
referred to as the Lessor, and TIMCO Aviation Services, Inc., a Delaware
Corporation, 623 Radar Road, Greensboro, North Carolina 27410, hereinafter
referred to as the Lessee. In consideration of the mutual promises herein
contained, the parities hereto agree as follows:

                                    ARTICLE I
                                      LEASE

                                EQUIPMENT LEASED

         The Lessor hereby leases to the Lessee and the Lessee hereby leases and
hires from the Lessor, the equipment and other property described in Exhibit "A"
attached hereto. All said equipment and other property is hereinafter called
"Equipment". Exhibit "A" shall be supplemented as additional equipment is
acquired by Lessor and included as Equipment leased hereunder.

                                   ARTICLE II
                                      TERM

                                    DURATION

         The term of this Lease commences on the date hereof and ends February
28, 2006.

                                  ARTICLE III
                                      RENT

         3.01     Amount. The Rent for all items of Equipment shall be the sum
of $74,076.67 per month. The Lessee shall pay said Rent monthly on the 19th day
of each month beginning April 19, 2004, at the office of the Lessor, or at such
other place as the Lessor may from time to time designate in writing.

         3.02     Security Deposit. Lessee has made no security deposit in
connection with this Lease.

         3.03     Default. If the Lessee with regard to any item or items of
Equipment fails to pay Rent or other amount herein provided within TEN (10) days
after the same is due and payable, or if any execution or any other writ or
process shall be issued in any action or proceeding against the Lessee whereby
said Equipment may be seized, taken, or distrained, or if a proceeding in
bankruptcy, receivership, or insolvency shall be instituted by or against the
Lessee or its property, or if the Lessee shall enter into any arrangement or
composition with its creditors, or if Lessee, with regard to any item or items
of Equipment, fails to observe, keep, or perform any other provision of this
Lease required to be observed, kept, or performed by the Lessee, the Lessor
shall, if such default shall continue for FIVE (5) days after written notice
thereof, have the right to exercise any one or more of the following remedies:

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                  (1)      To declare the entire amount of Rent hereunder
         immediately due and payable as to any or all items of Equipment,
         without notice or demand to the Lessee.

                  (2)      To sue for and recover all Rent and other payments
         then accrued or thereafter accruing, with respect to any or all items
         of Equipment.

                  (3)      To take possession of any or all items of Equipment,
         without demand or notice, wherever the same may be located, without any
         court order or other process of law. The Lessee hereby waives any and
         all damages occasioned by such taking of possession. Any said taking of
         possession shall not constitute a termination of this Lease as to any
         or all items of Equipment unless the Lessor expressly so notifies the
         Lessee in writing.

                  (4)      To terminate this Lease as to any or all items of
         Equipment.

                  (5)      To pursue any other remedy at law or in equity.

         Notwithstanding any said repossession, or any other action which the
Lessor may take, the Lessee shall be and remain liable for the full performance
of all obligations to be performed by the Lessee under this Lease.

         All such remedies are cumulative, and may be exercised concurrently or
separately.

         3.04     Interest. If the Lessee fails to pay any part of the Rent
herein reserved or any other sum required by the Lessee to be paid to the Lessor
within TEN (10) days after the due date thereof, the Lessee shall pay to the
Lessor interest on such delinquent payment from the expiration of said TEN (10)
days until paid at the rate of 18 percent per annum.

         3.05     Offset. The Lessee may not assert, any existing or future
claims, defenses, and offsets against any Rent or other payments due hereunder.
The Lessee agrees to pay the Rent and other amounts hereunder before deducting
any claim, defense or offset which may be asserted by the Lessee or on its
behalf.

                                   ARTICLE IV
                                       USE

         4.01     Manner of Use. The Lessee shall use the Equipment in a careful
and proper manner and shall comply with all laws, ordinances, and regulations
relating to the possession, use, or maintenance of the Equipment.

         4.02     Markings. If at any time during the term of this Lease, the
Lessor supplies the Lessee with labels, plates or other markings, stating that
the Equipment is owned by the Lessor, the Lessee shall affix and keep the same
in a prominent place on the Equipment

                                    ARTICLE V
                                   INSPECTION

         5.01     Lessee's Inspection. The Lessee acknowledges that he has
inspected the Equipment and finds that the Equipment is in good condition and
repair.

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         5.02     Lessor's Inspection. The Lessor shall, at any and all times
during business hours, have the right to enter into and on the premises where
the Equipment may be located for the purpose of inspection the same or observing
its use. The Lessee shall give the Lessor immediate notice of any attachment or
other judicial process affecting any item of Equipment and shall, whenever
requested by the Lessor, advise the Lessor of the exact location of the
Equipment.

                                   ARTICLE VI
                             ALTERATIONS AND REPAIRS

         6.01     Alterations. Without the prior written consent of the Lessor,
the Lessee shall not make any alterations, additions, or improvements to the
Equipment. All additions and improvements of whatsoever kind or nature made to
the Equipment shall belong to and become the property of the Lessor on the
termination of this Lease.

         6.02     Repairs. The Lessee, at its own cost and expense, shall keep
the Equipment in good repair, condition, and working order and shall furnish any
and all parts, mechanisms, and devices required to keep the Equipment in good
mechanical and working order.

                                   ARTICLE VII
                                 LOSS AND DAMAGE

         7.01     Risk of Loss and Damage. The Lessee shall bear the entire risk
of loss and damage to the Equipment from any and every cause. No loss or damage
to the Equipment or any part thereof shall impair any obligation of the Lessee
under this Lease which shall continue in full force and effect.

         7.02     Options of Lessor. In the event of loss or damage of any kind
to any item of Equipment, the Lessee, at the option of the Lessor, shall:

                  (1)      Place the same in good repair, condition, and working
         order; or

                  (2)      Replace the same with like Equipment in good repair,
         condition, and working order.

         7.03     Stipulated Loss Value. If the Equipment is determined by the
Lessor to be lost, stolen, destroyed, or damaged beyond repair, the Lessee shall
replace the same with like Equipment in good repair, condition and working
order.

                                  ARTICLE VIII
                                    SURRENDER

         On the expiration or earlier termination of this Lease, with respect to
any item of Equipment, the Lessee shall return the same to the Lessor in good
repair, condition, and working order (ordinary wear and tear resulting from
proper use thereof alone excepted).

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                                   ARTICLE IX
                               INSURANCE AND TAXES

         9.01     Insurance. The Lessee shall keep the Equipment insured against
all risks of loss or damage from every cause whatsoever for not less than the
fun replacement value thereof as determined by the Lessor. The Lessee shall
carry public liability and property insurance in the form and amount and with
companies approved by the Lessor, and shall be in the joint names of the Lessor
and Lessee. The Lessee shall pay the premiums therefor and shall deliver said
policies, or duplicates thereof, to the Lessor. Each insurer shall agree, by
endorsement on the policy issued by it or by independent instrument furnished to
the Lessor, that it will give the Lessor and Lessee THIRTY (30) days written
notice before the policy in question shall be altered or cancelled. The proceeds
of such insurance shall be applied toward the replacement, restoration, or
repair of the Equipment.

         9.02     Taxes. The Lessee shall keep the Equipment free and clear of
all levies, liens, and encumbrances and shall pay all license fees, registration
fees, assessments, charges, and taxes which may now or hereafter be imposed on
the ownership, leasing, renting, sale, possession, or use of the Equipment

         9.03     Lessee's Payment. In case of failure of the Lessee to procure
or maintain said insurance or to pay said fees, assessments, charges, and taxes,
as hereinbefore specified, the Lessor shall have the right, but shall not be
obligated, to effect such insurance, or pay said fees, assessments., charges,
and taxes, as the case may be. In that event, the cost thereof shall be
repayable to the Lessor with the next installment of Rent, and failure to repay
the same shall carry with it the same consequences, including interest at 18
percent per annum, as failure to pay any installment of Rent.

                                    ARTICLE X
                                   WARRANTIES

         THE LESSOR MAKES NO WARRANTIES WHATSOEVER CONCERNING THE SUITABILITY
AND CONDITION OF THE EQUIPMENT.

                                   ARTICLE XI
                                PERSONAL PROPERTY

         The Equipment is, and shall at all times be and remain, personal
property, notwithstanding that the Equipment or any part thereof may now be, or
hereafter become, in any manner affixed or attached to, or embedded in, or
permanently resting on, real property or any building thereon.

                                   ARTICLE XII
                            OWNERSHIP AND ASSIGNMENT

         12.01    Ownership. The Equipment is, and shall at all times be and
remain, the sole and exclusive property of the Lessor. The Lessee shall have no
right, title, or interest therein, except as expressly set forth in this Lease.

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         12.02    Lessee's Assignment. Without the prior written consent of the
Lessor, the Lessee may not:

                  (1)      Assign, transfer, pledge, or hypothecate this Lease,
         the Equipment or any part of it, or any interest in it; or

                  (2)      Sublet the Equipment or any part of it.

12.03    Lessor's Assignment. Without the prior written consent of Lessee, the
rights of the Lessor under this Lease may be assigned, pledged, mortgaged,
transferred, or otherwise disposed of, either in whole or in part.

                                  ARTICLE XIII
                                    INDEMNITY

         The Lessee shall indemnify the Lessor against, and shall hold the
Lessee harmless from, any and all claims, actions, suits, proceedings, costs,
expenses, damages, and liabilities, including attorney's fees, arising out of,
connected with, or resulting from the Equipment, including, without limitation,
the manufacture, selection, delivery, possession, use, operation, or return of
the Equipment.

                                   ARTICLE XIV
                                 PURCHASE OPTION

         Provided Lessee is not otherwise in default hereunder, and no default
has occurred which is uncured, Lessee shall have the option to purchase the
Equipment at the termination of this Lease. The purchase price shall be $10.00.

                                   ARTICLE XV
                               GENERAL PROVISIONS

         15.01    Expenses. The losing party shall pay all costs and expenses,
including attorney's fees, incurred by the prevailing party in exercising any of
its rights or remedies hereunder or enforcing any of the terms, conditions or
provisions hereof.

         15.02    Concurrent Remedies. No right or remedy herein conferred on or
reserved to either party is exclusive or any other right or remedy herein or by
law or equity provided or permitted; but each shall be cumulative or every other
right or remedy given hereunder or now or hereafter existing at law or in equity
or by statute or otherwise, and may be enforced concurrently therewith or from
time to time.

         15.03    Nonwaiver. No covenant or condition of this Lease may be
waived except by the written consent of the party affected. Forbearance or
indulgence by either party in any regard whatsoever shall not constitute a
waiver of the covenant or condition to be performed by the party to which the
same may apply.

         15.04    Entire Agreement. This Lease constitutes the entire agreement
between the Lessor and the Lessee and supersedes any prior understandings or
written or oral agreements

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between the parties respecting the within subject matter. It shall not be
amended, altered, or changed except by a written agreement signed by the parties
hereto.

         15.05    Notices. Service of all notices under this Lease shall be
sufficient if given personally or mailed to the party involved at its respective
address hereinabove set forth, or at such address as such party may provide in
writing from time to time. Any such notice mailed to such address shall be
effective when deposited in the United States mail, duly addressed, and with
postage prepaid.

         15.06    Gender; Number. Whenever the context of this Lease requires,
the masculine gender includes the feminine or neuter, and the singular number
includes the plural. Whenever the word "Lessor" or "Lessee" is used herein, it
shall include all assignees of the Lessor and Lessee.

         15.07    Time. Time is of the essence in this Lease and in each and all
of its provisions.

         15.08    Texas Law to Apply. This Lease shall be construed under and in
accordance with the laws of the State of Texas, and all obligations of the
parties created hereunder are performable in Grayson County, Texas.

         15.09    Parties Bound. This Lease shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns where permitted by
this Lease.

         15.10    Legal Construction. If any one or more of the provisions
contained in this Lease shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision thereof and this Lease shall be construed
as if such invalid, illegal, or unenforceable provision had never been contained
herein.

         15.11    Replacement Lease. This lease replaces in its entirety, that
any leases between the parties hereto related to the Equipment leased hereunder
("Prior Lease"). The Prior Lease is hereby terminated and of no further force
and effect.

                       (Signatures Continued on Next Page)

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         IN WITNESS WHEREOF the parties hereto have executed this Lease and day
and year first above written.

                                          LESSOR:

                                          LJH, LTD.

                                          By: DLH Management, LLC, General
                                              Partner

                                              By: /s/
                                                  ------------------------------
                                                  Lacy J. Harber, President

                                          LESSEE:

                                          TIMCO AVIATION SERVICES, INC.

                                          By: /s/
                                              ----------------------------------
                                              its:
                                                  ------------------------------

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                                    SCHEDULE

                                EQUIPMENT LEASED

                                       8<PAGE>

                                                                   Exhibit 10.15

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (THE "AGREEMENT") is made this 6th day of
January, 2004, and is effective the 6th day of January, 2004, by and between
KRISPY KREME DOUGHNUTS, INC., a North Carolina corporation (the "Company"), and
MICHAEL PHALEN (the "Executive").

                                     RECITAL

         The Executive is being hired as Chief Financial Officer, 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 January 6, 2004 and ending January 6, 2007;
                  provided, however, that commencing January 6, 2005, the
                  Executive's Period of Employment shall automatically be
                  extended for successive one-year periods each year as of
                  January 6, of each year unless the Company gives Executive
                  written notice of nonextension on or before that date.

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

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                  (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 and/or the Krispy Kreme
                  Doughnuts, Inc. 2000 Stock Incentive Plan or any successor
                  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.

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

                  (a) serve as Chief Financial Officer, reporting to the CEO, 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

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                  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 $300,000,
                  with annual increases in accordance with the Company's regular
                  practices for members of Senior Management. In addition, he
                  shall receive certain non-incentive compensation (including a
                  monthly automobile allowance of $3,000). 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.
                  He shall be eligible for a bonus target of 60%. For FY 2005,
                  he shall have a minimum bonus guarantee of $300,000.

                  (c) He shall be eligible to receive 75,000 options of Krispy
                  Kreme Doughnuts, Inc. common stock on date of hire. These
                  options will vest at 25% per year over a four year period. The
                  strike price will be the closing price of the stock at the end
                  of the normal trading hours on the first day of his
                  employment.

                  (d) 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.

                  (e) He shall be entitled to be reimbursed for the reasonable
                  and necessary out-of-pocket expenses, including entertainment,
                  travel and similar items, and all expenses necessary to
                  maintain his CPA license and professional memberships,
                  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.

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

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         6. TERMINATION OF EMPLOYMENT. During the Period of Employment,
Executive's employment may be terminated in the following manner:

                  (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 after written notice and within a reasonable
                  period of time as established by the CEO in such written
                  notice, or (ii) the Executive commits (a) acts resulting in a
                  conviction of 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.

                  (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

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                  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) to
                                    the extent permitted by law and unless
                                    Executive elects a lump sum payment pursuant
                                    to subparagraph (f); 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
                                    that have elapsed between the month of
                                    Discharge and the preceding January 6, and
                                    (2) a lump sum amount equal to 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, Executive shall continue to be employed by
                  the Company pursuant to this Agreement through the Expiration
                  Date, and his employment shall be terminated as of the
                  Expiration Date. Then, the following provisions shall apply:

                           (i) within thirty (30) days from the Termination
                           Date, the Company shall pay Executive (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.

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                           (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.

                  It is further 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 Good 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, in lieu of amounts otherwise
                  payable pursuant to Section 7(c)(i)(A), 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.

                  (g) 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 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.

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<PAGE>

                  (i) Notwithstanding anything in this Agreement to the
                  contrary, to the extent not previously paid, the minimum
                  guaranteed bonus for FY 2005 specified in Section 5(b) of this
                  Agreement shall be paid to the Executive (or his estate, as
                  applicable) in full, without discount, in a lump sum payment
                  within thirty (30) days after the Termination Date, the
                  payment of which shall not reduce or offset any other amount
                  due the Executive pursuant to this Section 7.

         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 duties and responsibilities of a Chief Financial
Officer of a public 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 Discharge. The
Executive shall not be obligated in any way to mitigate the Company's
obligations to him under this Section 8 or under Section 7 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 or
under Section 7.

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

                                       7
<PAGE>

                  (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 (12) 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 to pay 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.

         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,

                                       8
<PAGE>

                  (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 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.

         13. 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:

                                       9
<PAGE>

         IF TO THE EXECUTIVE:        Michael Phalen
                                     5208 Bordeaux Cove
                                     Ellcott City, MD 21043

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

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

                                     Attn:  R. Frank Murphy, Corporate Secretary

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

         15. 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.

         16. 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.

         17. 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.

         18. 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.

         19. 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.

         20. NON-ASSIGNABILITY. This Agreement is personal in nature 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

                                       10
<PAGE>

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 DOUGHNUTS, INC.

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

[CORPORATE SEAL]

                                         EXECUTIVE

                                               /s/ Michael Phalen         (Seal)
                                           -------------------------------------
                                               Michael Phalen

                                       11

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