Document:

Exhibit 10.1 - Employment Agreement

     

    Exhibit
      10.1

     

    EMPLOYMENT
      AGREEMENT

     

    EMPLOYMENT
      AGREEMENT (“Agreement”)
      dated
      as of March 6, 2006 among Krispy Kreme Doughnut Corporation, a North
      Carolina corporation (“KKDC”),
      Krispy Kreme Doughnuts, Inc., a North Carolina corporation (the “Company”
and,
      together with KKDC, the “Companies”), and
      Daryl
      G. Brewster (the “Executive”).

     

    The
      parties hereto agree as follows:

     

    ARTICLE
      1

     

    DEFINITIONS

     

    SECTION
      1.01.  Definitions.
      For
      purposes of this Agreement, the following terms have the meanings set forth
      below:

     

    “Base
      Salary” has
      the
      meaning set forth in Section 4.01.

     

    “Board”
means
      the Board of Directors of the Company.

     

    “Cause” shall
      mean (i) the Executive’s failure or refusal to perform the Executive’s
      lawful and proper duties hereunder (other than as a result of total or partial
      incapacity due to physical or mental illness), (ii) the Executive’s
      conviction of or plea of nolo
      contendere
      to any
      felony (other than a traffic infraction), (iii) an act or acts on the
      Executive’s part constituting fraud, theft or embezzlement or that otherwise
      constitutes a felony under the laws of the United States or any state thereof
      which results or was intended to result directly or indirectly in gain or
      personal enrichment by the Executive at the expense of the Companies, or
      (iv) the Executive’s willful violation of any material provision of the
      code of ethics of the Companies applicable to the Executive. In the case of
      any
      item described in the previous sentence, the Executive shall be given written
      notice of the alleged act or omission constituting Cause, which notice shall
      set
      forth in reasonable detail the reason or reasons that the Board believes the
      Executive is to be terminated for Cause, including any act or omission that
      is
      the basis for the decision to terminate the Executive. In the case of an act
      or
      omission described in clause (i) or (iv) of the definition of Cause, (A) if
      reasonably capable of being cured, the Executive shall be given 30 days from
      the
      date of such notice to effect a cure of such alleged act or omission
      constituting “Cause” which, upon such cure to the reasonable satisfaction of the
      Board, shall no longer constitute a basis for Cause, and (B) the Executive
      shall be given an opportunity to make a presentation to the Board (accompanied
      by counsel or other representative, if the Executive so desires) at a meeting
      of
      the Board held promptly following such 30-day cure period if the Board intends
      to determine that no cure has occurred. At or following such meeting, the Board
      shall determine whether or not to terminate the Executive for “Cause” and shall
      notify the Executive in writing of its determination and the effective date
      of
      such termination (which date may be no earlier than the date of the
      aforementioned Board meeting).

     

    “Change
      in Control”
means
      any of the following events:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (a)
      the
      acquisition (other than from the Company) by any Person of “beneficial
      ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
      of fifty percent (50%) or more of the combined voting power of the Company’s
      then outstanding voting securities; provided,
      however,
      that a
      Change in Control shall not be deemed to occur solely because fifty percent
      (50%) or more of the combined voting power of the Company’s then outstanding
      securities is acquired by (i) a trustee or other fiduciary holding securities
      under one or more employee benefit plans maintained by the Company or any of
      its
      Subsidiaries, or (ii) any Person, which, immediately prior to such acquisition,
      is owned directly or indirectly by the shareholders of the Company in the same
      proportion as their ownership of stock in the Company immediately prior to
      such
      acquisition;

     

    (b)
      consummation of (i) a merger or consolidation involving the Company if the
      shareholders of the Company, immediately before such merger or consolidation
      do
      not, as a result of such merger or consolidation, own, directly or indirectly,
      more than fifty percent (50%) of the combined voting power of the then
      outstanding voting securities of the corporation resulting from such merger
      or
      consolidation in substantially the same proportion as their ownership of the
      combined voting power of the voting securities of the Company outstanding
      immediately before such merger or consolidation, or (ii) a sale or other
      disposition of all or substantially all of the assets of the Company other
      than
      to a Person which is owned directly or indirectly by the shareholders of the
      Company in the same proportion as their ownership of stock in the
      Company;

     

    (c)
      a
      change in the composition of the Board such that the individuals who, as of
      the
      Effective Date, constitute the Board (such Board shall be hereinafter referred
      to as the “Incumbent Board”) cease for any reason to constitute at least a
      majority of the Board; provided,
      however,
      for
      purposes of this definition, that any individual who becomes a member of the
      Board subsequent to the Effective Date whose election, or nomination for
      election by the Company’s shareholders, was approved by a vote of at least a
      majority of those individuals who are members of the Board and who were also
      members of the Incumbent Board (or deemed to be such pursuant to this proviso)
      shall be considered as though such individual were a member of the Incumbent
      Board; provided
      further, however,
      that
      any such individual whose initial assumption of office occurs as a result of
      either an actual or threatened election contest (as such terms are used in
      Rule
      14a-11 of Regulation 14A promulgated under the Exchange Act, including any
      successor to such Rule), or other actual or threatened solicitation or proxies
      or consents by or on behalf of a Person other than the Board, shall not be
      so
      considered as a member of the Incumbent Board; or

     

    (d)
      approval by shareholders of the Company of a complete liquidation or dissolution
      of the Company.

     

    “Code”
means
      the Internal Revenue Code of 1986, as amended.

     

    “Confidential
      Information”
means
      information that is not generally known to the public and that was
      or is
      used,
      developed or obtained by the Company or its Subsidiaries in connection with
      the
      business of the Company and its Subsidiaries and which constitutes trade secrets
      or information which they have attempted to protect, which may include, but
      is
      not limited to, trade “know-how”, customer information, supplier information,
      cost and pricing information, marketing and sales techniques, strategies and
      programs, computer programs and software 

     

    
      
        
        

      

      
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    and
      financial information. It shall not include information (a) required to be
      disclosed by court or administrative order; (b) lawfully obtainable from other
      sources or which is in the public domain through no fault of the Executive;
      or
      (c) the disclosure of which is consented to in writing by the
      Company.

     

    “Confidentiality
      Agreement” has
      the
      meaning set forth in Section 6.01.

     

    “Date
      of Termination” has
      the
      meaning set forth in Section 5.07.

     

    “Effective
      Date”
      has the
      meaning set forth in Section 2.01.

     

    “Employment
      Period” has
      the
      meaning set forth in Section 2.01.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    “Good
      Reason”
shall
      mean (i) the failure of the Companies to pay any material amount of
      compensation to the Executive when due hereunder, (ii) the Executive is no
      longer the most senior executive officer of (A) the Company or (B) in
      the event of a merger, consolidation or other business combination involving
      the
      Company, the successor to the Company’s business or assets or (C) if all or
      substantially all of the voting stock of the Company is held by another public
      company, such public company (it being understood that it shall not be an event
      of Good Reason for the applicable entity described in this clause (ii) to
      appoint an individual other than the Executive as the non-executive chairman
      of
      its board of directors), (iii) the assignment to the Executive of any
      duties or responsibilities materially inconsistent with the Executive’s status
      under clause (ii) of this sentence or his failure at any time to report
      directly to the board of directors of the applicable company described in such
      clause (ii), (iv) the failure of the Executive to be appointed or elected
      (or reelected) to the Board, other than due to the Executive’s decision not to
      stand for election or reelection, or his removal from the Board not for Cause
      and not due to his Permanent Disability or death, (v) any failure by the
      Companies to maintain the Executive’s principal place of employment and the
      executive offices of the Companies within 25 miles of the Winston-Salem, North
      Carolina area, (vi) any material breach by the Companies of this Agreement,
      or (vii) the term of the Employment Period ending as a result of the Companies
      giving the Executive notice of nonextension of the term of this Agreement in
      accordance with Section 5.01 solely at either the end of the initial term or
      the
      end of the first, second or third one year extensions of the term under Section
      5.01 (but, for the avoidance of doubt, not at the end of any further extension
      of the term); provided,
      however,
      that
      for any of the foregoing to constitute Good Reason, the Executive must provide
      written notification of his intention to resign within 60 days after the
      Executive knows or has reason to know of the occurrence of any such event,
      and
      the Companies shall have 30 days (10 days in the case of a material breach
      related to payment of any amounts due hereunder) from the date of receipt of
      such notice to effect a cure of the condition constituting Good Reason, and,
      upon cure thereof by the Companies, such event shall no longer constitute Good
      Reason.

     

    “Notice
      of Termination” has
      the
      meaning set forth in Section 5.06.

     

    
      
        
        

      

      
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    “Permanent
      Disability” means
      the
      Executive becomes permanently disabled within the meaning of the long-term
      disability plan of the Companies applicable to the Executive, and the Executive
      commences to receive benefits under such plan.

     

    “Person”
means
      an individual, a partnership, a corporation, a limited liability company, an
      association, a joint stock company, an estate, a trust, a joint venture, an
      unincorporated organization or a governmental entity or any department, agency
      or political subdivision thereof.

     

    “Reimbursable
      Expenses” has
      the
      meaning set forth in Section 4.04.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended.

     

    “Subsidiary”
or
      “Subsidiaries”
means,
      with respect to any Person, any corporation, partnership, limited liability
      company, association or other business entity of which (a) if a
      corporation, 50 percent or more of the total voting power of shares of stock
      entitled (without regard to the occurrence of any contingency) to vote in the
      election of directors, managers or trustees thereof is at the time owned or
      controlled, directly or indirectly, by that Person or one or more of the other
      Subsidiaries of that Person or combination thereof; or (b) if a
      partnership, limited liability company, association or other business entity,
      50
      percent or more of the partnership or other similar ownership interests thereof
      are at the time owned or controlled, directly or indirectly, by any Person
      or
      one or more Subsidiaries of that Person or a combination thereof. For purposes
      of this definition, a Person or Persons will be deemed to have a 50 percent
      or
      more ownership interest in a partnership, limited liability company, association
      or other business entity if such Person or Persons are allocated 50 percent
      or
      more of partnership, limited liability company, association or other business
      entity gains or losses or control the managing director or member or general
      partner of such partnership, limited liability company, association or other
      business entity.

     

    ARTICLE
      2

     

    EMPLOYMENT

     

    SECTION
      2.01.  Employment.
      The
      Companies shall employ the Executive, and the Executive shall accept employment
      with the Companies, upon the terms and conditions set forth in this Agreement
      for the period beginning on the date set forth in the first paragraph of this
      Agreement (the “Effective
      Date”)
      and
      ending as provided in Section 5.01 (the “Employment
      Period”).

     

    ARTICLE
      3

     

    POSITION
      AND DUTIES

     

    SECTION
      3.01.  Position
      and Duties.
      During
      the Employment Period, the Executive shall serve as Chief Executive Officer
      of
      the Company reporting directly to the Board and shall be the Company’s most
      senior executive officer. During the Employment Period, the Executive also
      shall
      serve as Chief Executive Officer of KKDC and shall be KKDC’s most
      sen-

     

    
      
        
        

      

      
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    ior
      executive officer. The Executive shall have such responsibilities, powers and
      duties as may from time to time be prescribed by the Board; provided
      that
      such
      responsibilities, powers and duties are substantially consistent with those
      customarily assigned to individuals serving in such position at comparable
      companies or as may be reasonably required for the proper conduct of the
      business of the Companies. As soon as practicable following the Effective Date,
      the Executive shall be appointed as a member of the Board. During the Employment
      Period, the Executive shall devote substantially all of his working time and
      efforts to the business and affairs of the Company and its Subsidiaries. The
      Executive shall not directly or indirectly render any services of a business,
      commercial or professional nature to any other person or organization not
      related to the business of the Company or its Subsidiaries, whether for
      compensation or otherwise, without the prior approval of the Board; provided,
      however,
      the
      Executive may serve on the board of directors of one for-profit corporation
      with
      the prior approval of the Board, which will not be unreasonably withheld (and
      his service on the board of directors of E*trade Financial Corporation has
      such
      prior approval), and the Executive may serve as a director of not-for-profit
      organizations or engage in other charitable, civic or educational activities,
      so
      long as the activities described in this proviso do not interfere with the
      Executive’s performance of his duties hereunder or result in any conflict of
      interest with the Companies. 

     

    ARTICLE
      4

     

    BASE
      SALARY AND BENEFITS

     

    SECTION
      4.01.  Base
      Salary.
      During
      the Employment Period, the Executive will receive base salary from the Companies
      equal to $700,000 per annum (the “Base
      Salary”).
      The
      Base Salary will be payable in accordance with the normal payroll practices
      of
      the Companies. Annually during the Employment Period the Board and/or its
      Compensation Committee shall review with the Executive his job performance
      and
      compensation, and if deemed appropriate by the Board, in its discretion, the
      Executive’s Base Salary may be increased but not decreased. After any such
      increase, the term “Base Salary” as used in this Agreement will thereafter refer
      to the increased amount.

     

    SECTION
      4.02.  Bonuses.
      In
      addition to Base Salary, the Executive shall be eligible to be considered for
      an
      annual bonus, and the Executive’s annual target bonus shall be equal to 70% of
      Base Salary. The Executive’s annual target bonus for the fiscal year of the
      Company including the Effective Date shall be $490,000. Annual bonus performance
      goals shall be reasonably set by the Board in good faith after consultation
      by
      the Board and/or its Compensation Committee with the Executive. The annual
      bonus
      plan shall include a matrix providing for an increase in annual bonus for
      performance above target.

     

    SECTION
      4.03.  Benefits.
      During
      the Employment Term, the Executive shall be entitled to participate in all
      employee benefit, perquisite and fringe benefit plans and arrangements made
      available by the Companies to their executives and key management employees
      upon
      the terms and subject to the conditions set forth in the applicable plan or
      arrangement. Such benefits shall include medical, life and disability insurance
      provided in accordance with the policies of the Companies. The Executive also
      shall be provided an executive allowance of 

     

    
      
        
        

      

      
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    $2,000
      per month, and the Executive shall be entitled to five weeks of paid vacation
      annually during the Employment Term.

     

    SECTION
      4.04.  Expenses.
      The
      Companies shall reimburse the Executive for all reasonable expenses incurred
      by
      him in the course of performing his duties under this Agreement which are
      consistent with the Companies’ policies in effect from time to time with respect
      to travel, entertainment and other business expenses (“Reimbursable
      Expenses”), subject
      to the Companies’ requirements with respect to reporting and documentation of
      expenses. In addition, the Companies shall reimburse the Executive for
      reasonable attorney’s fees and expenses incurred by him in connection with
      negotiating and entering into this Agreement and in representing the Company
      in
      assisting the Executive to understand his obligations under this Agreement
      as
      well as the release requirement described below (not to exceed $17,500), subject
      to the Companies’ requirements with respect to recording and documentation of
      expenses.

     

    SECTION
      4.05.  Stock
      Options.
      The
      Company shall grant to the Executive options to purchase 500,000 shares of
      its
      common stock (the “Option
      Shares”)
      at an
      exercise price per share equal to the fair market value per share on the date
      of
      grant which is expected to be March 6, 2006. The options will vest and
      become exercisable in three equal installments, the first two of which shall
      be
      on the first and second anniversaries of the Effective Date, and the third
      shall
      be on February 1, 2009, so long as, except as otherwise set forth herein, the
      Executive’s employment continues through such vesting dates. The term of the
      options will be ten years from the date of grant, subject to earlier termination
      in the event the Executive’s employment terminates. To the extent the options
      are, or become, vested at the time of termination of his employment, if such
      termination of employment is (i) by the Executive without Good Reason, the
      vested portion of the option will remain exercisable for 90 days following
      such
      termination (but not beyond the ten-year option term); (ii) by the Executive
      for
      Good Reason or by the Companies not for Cause, the vested portion of the option
      will remain exercisable for three years following such termination (but not
      beyond the ten-year option term); (iii) due to the death or Permanent Disability
      of the Executive or at the end of the Employment Period due to notice of
      nonrenewal given by the Companies (after the sixth anniversary of the Effective
      Date) or the Executive pursuant to Section 5.01, the vested portion of the
      option will remain exercisable for two years following such termination (but
      not
      beyond the ten-year option term), or (iv) by the Companies for Cause, the option
      (whether or not vested) shall be immediately forfeited. The Option Shares will
      be registered as soon as practicable on Form S-8 under the Securities Act.
      The
      Executive agrees that, without the prior written consent of the Board, he will
      not sell or otherwise transfer the Option Shares or the economic benefit thereof
      prior to the first anniversary of his termination of employment with the
      Companies, except that this Agreement shall not prevent the Executive from
      selling a number of Option Shares required to fund the exercise price of the
      option and his tax liability resulting from such exercise.

     

    SECTION
      4.06.  Restricted
      Shares.
      The
      Company shall grant to the Executive 300,000 restricted shares of the Company’s
      common stock (the “Restricted
      Shares”);
      provided,
      however,
      that
      the grant of Restricted Shares hereunder is based on his representation to
      the
      Companies that the awards from his prior employer which he is irrevocably
      forfeiting have a value that is at least $2 million. Except as otherwise
      provided below, the Restricted Shares will vest, provided that the Executive’s
      employment continues through the applicable vesting dates, in 

     

    
      
        
        

      

      
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    twelve
      equal installments, beginning three months following the Effective Date and
      continuing on each of the following ten three-month anniversaries of the
      Effective Date, with the final installment vesting on February 1, 2009. The
      Executive hereby agrees to appropriate legends and transfer restrictions on
      the
      Restricted Shares in order to reflect such vesting provisions. The Restricted
      Shares will be registered as soon as practicable on Form S-8 under the
      Securities Act. The Executive agrees that, without the prior written consent
      of
      the Board, he will not sell or otherwise transfer any of the shares received
      under this Section 4.06 or the economic benefit thereof prior to the first
      anniversary of his termination of employment with the Companies, except that
      this Agreement shall not prevent the Executive from selling a number of such
      shares required to fund his tax liability resulting from the vesting of the
      Restricted Shares.

     

    SECTION
      4.07.  Relocation.
      The
      Companies shall reimburse the Executive for all reasonable expenses incurred
      by
      him in relocating his and his immediate family’s household items to
      Winston-Salem, North Carolina, subject to the Companies’ requirements with
      respect to reporting and documentation of such expenses, such relocation
      reimbursements to include all normal expenses of moving, packing and unpacking,
      home hunting, temporary housing, buying and selling brokerage fees, transfer
      taxes, origination fees (not to exceed 1% of the loan amount) and mortgage
      points (not to exceed 1% of the loan amount).

     

    SECTION
      4.08.  Pension
      Plan.
      The
      Companies will credit, as of the Effective Date, the Executive’s account under
      the Krispy Kreme Doughnut Corporation NonQualified Deferred Compensation Plan
      with an amount having a present value (determined using an interest rate of
      5%,
      compounded annually) equal to the excess of (i) $1,374,631 on November 30,
      2011
      over (ii) the actuarial present value on November 30, 2011 of the Executive’s
      vested accrued benefit under the qualified and non-qualified defined benefit
      pension plans of Kraft Foods, Inc. and its affiliates (determined using the
      actuarial assumptions set forth in such plans). The Executive’s account into
      which such credit is made will vest in equal monthly installments, beginning
      April 1, 2006 and continuing on the first day of each month thereafter through
      November 1, 2011, so long as the Executive remains employed by the Companies
      through each monthly vesting date. Notwithstanding the foregoing, in the event
      the Executive’s employment is terminated by the Company not for Cause or by the
      Executive for Good Reason or the Executive’s employment terminates due to his
      death or Permanent Disability, an additional portion of the Executive’s account
      will become vested at the time of such termination of employment equal to the
      percentage that would have vested if the Executive had remained employed for
      an
      additional two years.

     

    ARTICLE
      5

     

    TERM
      AND
      TERMINATION

     

    SECTION
      5.01.  Term.
      The
      Employment Period will terminate on February 1, 2009, unless sooner terminated
      as hereinafter provided; provided,
      however,
      that
      the Employment Period will be automatically extended for successive one-year
      periods following the original term ending February 1, 2009 until either the
      Companies, on the one hand, or the Executive, on the other hand, at least 180
      days prior to the expiration of the original term or any extended term, shall
      give written notice to the other of their intention not to so extend the
      Employment Period.

     

    
      
        
        

      

      
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    SECTION
      5.02.  Termination
      Due to Death or Permanent Disability.
      If the
      Employment Period shall be terminated due to death or Permanent Disability
      of
      the Executive, the Executive (or his estate or legal representative) shall
      be
      entitled solely to the following: (i) Base Salary through the Date of
      Termination; (ii) any stock options and restricted shares that would have
      vested and/or become exercisable if the Executive’s employment had continued for
      two additional years will become vested and/or exercisable on the Date of
      Termination; and (iii) medical benefits as provided in Section 5.05 below.
      The Executive’s entitlements under any other benefit plan or program shall be as
      determined thereunder. In addition, promptly following any such termination,
      the
      Executive (or his estate or legal representative) shall be reimbursed for all
      Reimbursable Expenses incurred by the Executive prior to such
      termination.

     

    SECTION
      5.03.  Termination
      for Good Reason or Without Cause.
      If the
      Employment Period shall be terminated (a) by the Executive for Good Reason,
      or
      (b) by the Companies not for Cause, provided the Executive has executed an
      irrevocable (except to the extent required by law, and to the extent required
      by
      law to be revocable, has not revoked) general release of claims, in the form
      attached hereto as Exhibit
      A,
      the
      Executive shall be entitled solely to the following: (i) Base Salary through
      the
      Date of Termination; (ii) an amount equal to two times the sum of the Base
      Salary and the Executive’s target annual bonus amount for the year of
      termination (or the Base Salary or target annual bonus for the prior year if
      reduction of the Executive’s Base Salary or target annual bonus, or both, was
      the event giving rise to Good Reason), provided that, the Executive shall be
      entitled to any unpaid amounts only if the Executive has not breached and does
      not breach the provisions of Sections 6.01, 7.01, 8.01 or 9 below; (iii) a
      bonus for the year of termination of employment equal to the Executive’s target
      annual bonus for such year pro rated for the number of full months during the
      bonus year prior to such termination of employment, payable as soon as
      practicable following such termination of employment; (iv) all of the
      restricted shares and stock options held by the Executive shall vest and/or
      become exercisable on the Date of Termination; and (v) medical benefits as
      provided in Section 5.05 below. If the Companies do not also execute (and not
      revoke) the release, the Executive’s release shall be null, void and without
      effect, and the Executive shall still receive all of the payments and benefits
      described in this Section. The Executive’s entitlements under any other benefit
      plan or program shall be as determined thereunder, except that severance
      benefits shall not be payable under any other plan or program. Amounts described
      in clause (ii) above will be payable in equal monthly installments for a period
      of 24 months commencing on the first month anniversary of the Date of
      Termination, except (i) if such termination of employment is within two
      years after a Change in Control, such payments shall be made in a lump sum
      upon
      such termination of employment, and (ii) to the extent required by Section
      409A of the Code, amounts otherwise payable under clause (ii) within six months
      after the Executive’s termination of employment shall be deferred to and paid on
      the day following the six month anniversary of such termination of employment.
      In addition, promptly following any such termination, the Executive shall be
      reimbursed for all Reimbursable Expenses incurred by the Executive prior to
      such
      termination.

     

    SECTION
      5.04.  Termination
      for Cause or Other Than Good Reason.
      If the
      Employment Period shall be terminated (a) by the Companies for Cause, or (b)
      as
      a result of the Executive’s resignation or leaving of his employment other than
      for Good Reason, the
      Executive shall be entitled to receive solely Base Salary through the Date
      of
      Termination and reimbursement of all Reimbursable Expenses incurred by the
      Executive prior to such termination. In addi-

     

    
      
        
        

      

      
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    tion,
      the
      Executive’s entitlements to unvested restricted shares and unvested stock
      options shall be forfeited, and if such termination is by the Companies for
      Cause, all vested stock options shall be immediately forfeited. Otherwise,
      the
      Executive’s rights under the benefit plans and programs shall be as determined
      thereunder. A voluntary resignation by the Executive shall not be deemed to
      be a
      breach of this Agreement.

     

    SECTION
      5.05.  Benefits.
      If the
      Employment Period is terminated as a result of a termination of employment
      as
      specified in Section 5.02 or 5.03, the Executive and his covered dependents
      shall continue to receive medical insurance coverage benefits from the
      Companies, with the same contribution toward such coverage from the Executive
      or
      his estate, for a period equal to the lesser of (x) eighteen months
      following the Date of Termination, or (y) until the Executive is provided
      by another employer with benefits substantially comparable to the benefits
      provided by the Companies’ medical plan.

     

    SECTION
      5.06.  Notice
      of Termination.
      Any
      termination by the Companies for Permanent Disability or Cause or without Cause
      or by the Executive with or without Good Reason shall be communicated by written
      Notice of Termination to the other party hereto. For purposes of this Agreement,
      a “Notice
      of Termination”
shall
      mean a notice which shall indicate the specific termination provision in this
      Agreement relied upon and shall set forth in reasonable detail the facts and
      circumstances claimed to provide a basis for termination of employment under
      the
      provision indicated.

     

    SECTION
      5.07.  Date
      of Termination.
      “Date
      of Termination” shall
      mean (a) if the Employment Period is terminated as a result of a Permanent
      Disability, five days after a Notice of Termination is given, (b) if the
      Employment Period is terminated as a result of his death, on the date of his
      death, and (c) if the Employment Period is terminated for any other reason,
      the later of the date of the Notice of Termination and the end of any applicable
      correction period.

     

    SECTION
      5.08.  No
      Duty to Mitigate.
      The
      Executive shall have no duty to seek new employment or other duty to mitigate
      following a termination of employment as described in this Article 5, and no
      compensation or benefits described in this Article 5 shall be subject to
      reduction or offset on account of any subsequent compensation, other than as
      provided in Sections 5.05.

     

    SECTION
      5.09.  Change
      in Control.
      All
      stock options and restricted shares held by the Executive will become vested
      in
      full upon a Change in Control; provided,
      however,
      that
      the vesting of the restricted shares and stock options held by the Executive
      shall not be accelerated where the Executive continues as chief executive
      officer of a publicly
      traded parent corporation of the parent/subsidiary affiliated group that
      includes the Companies (the “Surviving
      Entity”)
      and
      either
      the Company’s common stock remains outstanding or replacement equity awards are
      granted by the Surviving Entity so long as the terms of this Agreement are
      expressly assumed and continued by the Surviving Entity.

     

    
      
        
        

      

      
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    ARTICLE
      6

     

    CONFIDENTIAL
      INFORMATION

     

    SECTION
      6.01.  Nondisclosure
      and Nonuse of Confidential Information.
      The
      Executive will not disclose or use at any time during or after the Employment
      Period any Confidential Information of which the Executive is or becomes aware,
      whether or not such information is developed by him, except to the extent he
      reasonably believes that such disclosure or use is directly related to and
      appropriate in connection with the Executive’s performance of duties assigned to
      the Executive pursuant to this Agreement. Under all circumstances and at all
      times, the Executive will take all appropriate steps to safeguard Confidential
      Information in his possession and to protect it against disclosure, misuse,
      espionage, loss and theft. In addition, the obligations of the Executive under
      the confidentiality agreement dated January 24, 2006 between the Executive
      and
      the Companies (the “Confidentiality
      Agreement”)
      shall
      remain in full force and effect.

     

    ARTICLE
      7

     

    INTELLECTUAL
      PROPERTY

     

    SECTION
      7.01.  Ownership
      of Intellectual Property.
      In the
      event that the Executive as part of his activities on behalf of the Companies
      generates, authors or contributes to any invention, design, new development,
      device, product, method of process (whether or not patentable or reduced to
      practice or comprising Confidential Information), any copyrightable work
      (whether or not comprising Confidential Information) or any other form of
      Confidential Information relating directly or indirectly to the business of
      the
      Company or its Subsidiaries as now or hereafter conducted (collectively,
“Intellectual
      Property”),
      the
      Executive acknowledges that such Intellectual Property is the sole and exclusive
      property of the Company and its Subsidiaries and hereby assigns all right,
      title
      and interest in and to such Intellectual Property to the Company or its
      designated Subsidiary. Any copyrightable work prepared in whole or in part
      by
      the Executive during the Employment Period will be deemed “a work made for hire”
under Section 201(b) of the Copyright Act of 1976, as amended, and the Company
      or its designated Subsidiary will own all of the rights comprised in the
      copyright therein. The Executive will promptly and fully disclose all
      Intellectual Property and will cooperate with the Companies to protect their
      interests in and rights to such Intellectual Property (including providing
      reasonable assistance in securing patent protection and copyright registrations
      and executing all documents as reasonably requested by the Companies, whether
      such requests occur prior to or after termination of Executive’s employment
      hereunder).

     

    ARTICLE
      8

     

    DELIVERY
      OF MATERIALS UPON TERMINATION OF EMPLOYMENT

     

    SECTION
      8.01.  Delivery
      of Materials upon Termination of Employment.
      As
      requested by the Companies from time to time, and upon the termination of the
      Executive’s employment with the Companies for any reason, the Executive will
      promptly deliver to the Companies all property of the Company or its
      Subsidiaries, including, without limitation, all copies and 

     

    
      
        
        

      

      
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    embodiments,
      in whatever form or medium, of all Confidential Information in the Executive’s
      possession or within his control (including written records, notes, photographs,
      manuals, notebooks, documentation, program listings, flow charts, magnetic
      media, disks, diskettes, tapes and all other materials containing any
      Confidential Information) irrespective of the location or form of such material
      and, if requested by the Companies, will provide the Companies with written
      confirmation that to the best of his knowledge all such materials have been
      delivered to the Companies or destroyed.

     

    ARTICLE
      9

     

    NON-COMPETITION
      AND NONSOLICITATION

     

    SECTION
      9.01.  Noncompetition.
      The
      Executive acknowledges that, during his employment with the Companies, he will
      become familiar with trade secrets and other Confidential Information concerning
      the Company and its Subsidiaries and his services will be of special, unique
      and
      extraordinary value to the Companies. In addition, the Executive hereby agrees
      that at any time during the Noncompetition Period (as defined below), he will
      not directly or indirectly own, manage, control, participate in, consult with,
      become employed by or otherwise render services to any business listed on
      Exhibit B hereto in the Territory. During the Noncompetition Period, the Company
      shall have the right to, in good faith, add other entities which are in
      substantial competition with the Companies to the list of businesses on Exhibit
      B, subject to the consent of the Executive which shall not be unreasonably
      withheld. Notwithstanding the foregoing, if the Executive’s termination of
      employment occurs at the end of the Employment Period due to the Companies
      giving written notice after the fifth anniversary of the Effective Date pursuant
      to Section 5.01 of its intention not to extend the Employment Period, this
      Section 9.01 will only apply if the Companies elect and agree in writing to
      pay the Executive his Base Salary and his annual target bonus in effect for
      the
      year during which his employment is terminated for an additional one-year period
      following the termination of employment, such amount to be payable in monthly
      installments over the additional one-year period, except that, to the extent
      required by Section 409A of the Code, amounts otherwise payable under this
      sentence within six months after the Executive’s termination of employment shall
      be deferred to and paid on the day following the six month anniversary of such
      termination of employment. It shall not be considered a violation of this
      Section 9.01 for the Executive to be a passive owner of not more than 2% of
      the
      outstanding stock of any class of any corporation which is publicly traded,
      so
      long as the Executive has no active participation in the business of such
      corporation.

     

    SECTION
      9.02.  Nonsolicitation.
      The
      Executive hereby agrees that (a) during the Nonsolicitation Period (as defined
      below), the Executive will not, directly or indirectly through another Person,
      induce or attempt to induce any employee of the Company or its Subsidiaries
      to
      leave the employ of the Company or its Subsidiaries, or in any way interfere
      with the relationship between the Company or its Subsidiaries and any person
      employed by them at any time during such Nonsolicitation Period, and
      (b) during the Nonsolicitation Period, the Executive will not induce or
      attempt to induce any customer, supplier, client or other business relation
      of
      the Company or its Subsidiaries to cease doing business with the Company or
      its
      Subsidiaries.

     

    
      
        
        

      

      
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    SECTION
      9.03.  Definitions.
      It is
      agreed that then “Territory,”
      for
      purposes of this Article 9, shall mean:

     

        (i)  
      The
      entire United States and any other country where the Company or any of its
      Subsidiaries, joint venturers, franchisees or affiliates has operated a retail
      facility at which the Company’s products have been sold at any time in the
      one-year period ending on the last day of the Executive’s employment with the
      Companies;

     

        (ii)  In
      the
      event that the preceding clause shall be determined by judicial action to define
      too broad a territory to be enforceable, then “Territory” shall mean the entire
      United States; 

     

        (iii)  In
      the
      event that the preceding clauses shall be determined by judicial action to
      define too broad a territory to be enforceable, then “Territory” shall mean the
      states in the United States where the Company or any of its Subsidiaries, joint
      venturers, franchisees or affiliates has operated a retail facility at which
      the
      Company’s products have been sold at any time in the one-year period ending on
      the last day of Executive’s employment with the Companies;

     

        (iv)  In
      the
      event that the preceding clauses shall be determined by judicial action to
      define too broad a territory to be enforceable, then “Territory” shall mean the
      area that includes all of the areas that are within a 50-mile radius of any
      retail store location in the United States at which the Company’s products have
      been sold at any time in the one-year period ending on the last day of the
      Executive’s employment with the Companies; and

     

        (v)  In
      the
      event that the preceding clauses shall be determined by judicial action to
      define too broad a territory to be enforceable, then “Territory” shall mean the
      entire state of North Carolina.

     

    It
      is
      also agreed that “Noncompetition
      Period,”
      for
      purposes hereof, shall mean:

    

    (i) the
      Employment Period and a period ending one year after the Date of Termination;
      and

     

    (ii) In
      the
      event that the preceding clause shall be determined by judicial action to define
      too long a period to be enforceable, “Noncompetition Period” shall mean the
      Employment Period and a period ending six months after the Date of
      Termination.

     

    It
      is
      also agreed that “Nonsolicitation
      Period,”
      for
      purposes hereof, shall mean:

    

    (i) the
      Employment Period and a period ending two years after the Date of Termination;
      

     

    (ii) In
      the
      event that the preceding clause shall be determined by judicial action to define
      too long a period to be enforceable, “Nonsolicitation Period” shall mean the
      Employment Period and a period ending eighteen months after the Date of
      Termination;

     

    
      
        
        

      

      
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    (iii) In
      the
      event that the preceding clauses shall be determined by judicial action to
      define too long a period to be enforceable, “Nonsolicitation Period” shall mean
      the Employment Period and a period ending one year after the Date of
      Termination; and

     

    (iv) In
      the
      event that the preceding clauses shall be determined by judicial action to
      define too long a period to be enforceable, “Nonsolicitation Period” shall mean
      the Employment Period and a period ending six months after the Date of
      Termination.

     

    

    ARTICLE
      10

     

    EQUITABLE
      RELIEF

     

    SECTION
      10.01.  Equitable
      Relief.
      The
      Executive acknowledges that (a) the covenants contained herein are reasonable,
      (b) the Executive’s services are unique, and (c) a breach or threatened breach
      by him of any of his covenants and agreements with the Companies contained
      in
      Sections 6.01, 7.01, 8.01 or Article 9 could cause irreparable harm to the
      Companies for which they would have no adequate remedy at law. Accordingly,
      and
      in addition to any remedies which the Companies may have at law, in the event
      of
      an actual or threatened breach by the Executive of his covenants and agreements
      contained in Sections 6.01, 7.01, 8.01 or Article 9, the Companies shall have
      the absolute right to apply to any court of competent jurisdiction for such
      injunctive or other equitable relief, without the necessity to post bond, as
      such court may deem necessary or appropriate in the circumstances.

     

    ARTICLE
      11

     

    EXECUTIVE
      REPRESENTATION AND INDEMNIFICATION

     

    SECTION
      11.01.  Executive
      Representation.
      The
      Executive hereby represents and warrants to the Companies that (a) the
      execution, delivery and performance of this Agreement by the Executive does
      not
      and will not conflict with, breach, violate or cause a default under any
      contract, agreement, instrument, order, judgment or decree to which the
      Executive is a party or by which he is bound, (b) except for agreements provided
      to the Companies by the Executive, the Executive is not a party to or bound
      by
      any employment agreement, noncompetition agreement or confidentiality agreement
      with any other Person, and (c) upon the execution and delivery of this Agreement
      by the Companies, this Agreement will be the valid and binding obligation of
      the
      Executive, enforceable in accordance with its terms. Notwithstanding Section
      11.02 below, in the event that any action is brought against Executive involving
      any breach of any employment agreement, noncompetition agreement or
      confidentiality agreement with any other Person, the Executive shall bear his
      own costs incurred in defending such action, including but not limited to court
      fees, arbitration costs, mediation costs, attorneys’ fees and
      disbursements.

     

    SECTION
      11.02.  General
      Indemnification.
      The
      Companies agree that if the Executive is made a party, or is threatened to
      be
      made a party, to any action, suit or proceeding, whether civil, criminal,
      administrative or investigative (each, a “Proceeding”),
      by
      reason of the fact that he is or was a director, officer or employee of the
      Company or any of its Subsidiaries or 

     

    
      
        
        

      

      
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    is
      or was
      serving at the request of the Company or any of its Subsidiaries as a director,
      officer, member, employee or agent of another corporation, partnership, joint
      venture, trust or other enterprise, including service with respect to employee
      benefit plans, whether or not the basis of such Proceeding is the Executive’s
      alleged action in an official capacity while serving as a director, officer,
      member, employee or agent, the Executive shall be indemnified and held harmless
      by the Companies to the fullest extent permitted or authorized by applicable
      law
      and their bylaws, against all cost, expense, liability and loss (including,
      without limitation, advancement of attorneys’ and other fees and expenses)
      reasonably incurred or suffered by the Executive in connection therewith. The
      Companies agree to use their best efforts to maintain a directors’ and officers’
liability insurance policy covering the Executive during the Employment Period
      and for at least four years thereafter to the extent available on commercially
      reasonable terms.

     

    ARTICLE
      12

     

    CERTAIN
      ADDITIONAL PAYMENTS

     

    SECTION
      12.01.  Anything
      in this Agreement to the contrary notwithstanding, in the event it shall
      be determined
      that any payment, award, benefit or distribution (including, without limitation,
      the acceleration of any payment, award, distribution or benefit) by the Company
      or its Subsidiaries to or for the benefit of the Executive (whether pursuant
      to
      the terms of this Agreement or otherwise, but determined without regard to
      any
      additional payments required under this Article 12) (a “Payment”)
      would
      be subject to the excise tax imposed by Section 4999 of the Code or any
      corresponding provisions of state or local tax law, or any interest or penalties
      are incurred by the Executive with respect to such excise tax (such excise
      tax,
      together with any such interest and penalties, are hereinafter collectively
      referred to as the “Excise
      Tax”),
      then
      the Executive shall be entitled to receive an additional payment (a
“Gross-Up
      Payment”)
      in an
      amount such that after payment by the Executive of all taxes (including any
      Excise Tax, income tax or employment tax) imposed upon the Gross-Up Payment
      and
      any interest or penalties imposed with respect to such taxes, the Executive
      retains from the Gross-Up Payment an amount equal to the Excise Tax imposed
      upon
      the Payments. The payment of a Gross-Up Payment under this Section 12.01 shall
      not be conditioned upon the Executive’s termination of employment.
      Notwithstanding the foregoing provisions of this Section 12.01, if it shall
      be determined that the Executive is entitled to a Gross-Up Payment, but that
      the
      portion of the Payments that would be treated as “parachute payments” under
      Section 280G of the Code does not exceed the lesser of 110% of the Safe
      Harbor Amount (as defined in the following sentence) or $200,000, then no
      Gross-Up Payment shall be made to the Executive and the amounts payable under
      this Agreement shall be reduced so that the Payments, in the aggregate, are
      reduced to the Safe Harbor Amount. The “Safe Harbor Amount” is the greatest
      amount of payments in the nature of compensation that are contingent on a Change
      in Control for purposes of Section 280G of the Code that could be paid to the
      Executive without giving rise to any Excise Tax. The reduction of the amounts
      payable hereunder, if applicable, shall be made by first reducing the cash
      payments under Section 5.03. For purposes of reducing the payments to the
      Safe Harbor Amount, only amounts payable under this Agreement (and no other
      Payments) shall be reduced. If the reduction of the amounts payable under this
      Agreement would not result in a reduction of the Payments to the Safe Harbor
      Amount, no amounts payable under this Agreement shall be reduced pursuant to
      this Section 12.01.

     

    
      
        
        

      

      
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    SECTION
      12.02.  Subject
      to the provisions of Section 12.03, all determinations required to be made
      under
      this Article 12, including the determination of whether a Gross-Up Payment
      is required and of the amount of any such Gross-up Payment, shall be made by
      the
      Company’s independent auditors or such other accounting firm agreed by the
      parties hereto (the “Accounting
      Firm”),
      which
      shall provide detailed supporting calculations to the Companies within 15
      business days after the receipt of notice from the Companies that the Executive
      has received a Payment, or such earlier time as is requested by the Companies,
      provided that any determination that an Excise Tax is payable by the Executive
      shall be made on the basis of substantial authority. The Companies will promptly
      provide copies of such supporting calculations to the Executive on which the
      Executive may rely. The initial Gross-Up Payment, if any, as determined pursuant
      to this Section 12.02, shall be paid to the Executive (or for the benefit of
      the
      Executive to the extent of the Companies’ withholding obligation with respect to
      applicable taxes) no later than one day prior to the due date for the payment
      of
      any Excise Tax. If the Accounting Firm determines that no Excise Tax is payable
      by the Executive, it shall furnish the Companies with a written opinion that
      substantial authority exists for the Executive not to report any Excise Tax
      on
      his Federal income tax return and, as a result, the Companies are not required
      to withhold Excise Tax from payments to the Executive. The Companies will
      promptly provide a copy of any such opinion to the Executive on which the
      Executive may rely. Any determination by the Accounting Firm meeting the
      requirements of this Section 12.02 shall be binding upon the Companies and
      the
      Executive. As a result of the uncertainty in the application of
      Section 4999 of the Code at the time of the initial determination by the
      Accounting Firm hereunder, it is possible that Gross-Up Payments which will
      not
      have been made by the Companies should have been made (“Underpayment”),
      consistent with the calculations required to be made hereunder. In the event
      that the Companies exhausts their remedies pursuant to Section 12.03 and the
      Executive thereafter is required to make a payment of any Excise Tax, the
      Accounting Firm shall determine the amount of the Underpayment that has
      occurred, and any such Underpayment shall be promptly paid by the Companies
      to
      or for the benefit of the Executive. The fees and disbursements of the
      Accounting Firm shall be paid by the Companies.

     

    SECTION
      12.03.  The
      Executive shall notify
      the Companies in writing of any claim by the Internal Revenue Service that,
      if
      successful, would require the payment by the Companies of a Gross-Up Payment.
      Such notification shall be given as soon as practicable but not later than
      ten
      business days after the Executive receives written notice of such claim and
      shall apprise the Companies of the nature of such claim and the date on which
      such Claim is requested to be paid. The Executive shall not pay such claim
      prior
      to the expiration of the 30-day period following the date on which it gives
      such
      notice to the Companies (or such shorter period ending on the date that any
      payment of taxes with respect to such claim is due). If the Companies notify
      the
      Executive in writing prior to the expiration of such period that they desire
      to
      contest such claim, the Executive shall:

     

        (i)  give
      the
      Companies any information reasonably requested by the Companies relating to
      such
      claim,

     

        (ii)  take
      such
      action in connection with contesting such claim as the Companies shall
      reasonably request in writing from time to time, including, without limitation,
      

     

    
      
        
        

      

      
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    accepting
      legal representation with respect to such claim by an attorney reasonably
      selected by the Companies,

     

        (iii)  cooperate
      with the Companies in good faith in order effectively to contest such claim,
      and

     

        (iv)  permit
      the Companies to participate in any proceedings relating to such claim;

     

    provided,
      however,
      that
      the Companies shall bear and pay directly all costs and expenses (including
      additional interest and penalties) incurred in connection with such contest
      and
      shall indemnify and hold the Executive harmless, on an after-tax basis, for
      any
      Excise Tax, income tax or employment tax, including interest and penalties
      with
      respect thereto, imposed as a result of such representation and payment of
      costs
      and expenses. Without limitation on the foregoing provisions of this
      Section 12.03, the Companies shall control all proceedings taken in
      connection with such contest and, at its sole option, may pursue or forgo any
      and all administrative appeals, proceedings, hearings and conferences with
      the
      taxing authority in respect of such claim and may, at its sole option, either
      direct the Executive to pay the tax claimed and sue for a refund or contest
      the
      claim in any permissible manner, and the Executive agrees to prosecute such
      contest to a
      determination before any administrative tribunal, in a court of initial
      jurisdiction and in one or more appellate courts, as the Companies shall
      determine; provided,
      however,
      that if
      the Companies direct the Executive to pay such claim and sue for a refund,
      the
      Companies shall advance the amount of such payment to the Executive on an
      interest-free basis and shall indemnify and hold the Executive harmless, on
      an
      after-tax basis, from any Excise Tax, income tax or employment tax, including
      interest or penalties with respect thereto, imposed with respect to such advance
      (except that if such a loan would not be permitted under applicable law, the
      Companies may not direct the Executive to pay the claim and sue for a refund);
      and further provided
      that any
      extension of the statute of limitations relating to the payment of taxes for
      the
      taxable year of the Executive with respect to which such contested amount is
      claimed to be due is limited solely to such contested amount. Furthermore,
      the
      Companies’ control of the contest shall be limited to issues with respect to
      which a Gross-Up Payment would be payable hereunder and the Executive shall
      be
      entitled to settle or contest, as the case may be, any other issue raised by
      the
      Internal Revenue Service or any other taxing authority.

     

    SECTION
      12.04.  If,
      after
      the receipt by the Executive of an amount advanced by the Companies pursuant
      to
      Section 12.03, the Executive becomes entitled to receive any refund with respect
      to such claim, the Executive shall (subject to the compliance by the Companies
      with the requirements of Section 12.03) promptly pay to the Companies the
      amount of such refund (together with any interest paid or credited thereon
      after
      taxes applicable thereto). If, after the receipt by the Executive of an amount
      advanced by the Companies pursuant to Section 12.03, a determination is
      made that the Executive shall not be entitled to any refund with respect to
      such
      claim and the Companies do not notify the Executive in writing of their intent
      to contest such denial of refund prior to the expiration of 30 days after such
      determination, then such advance shall be forgiven and shall not be required
      to
      be repaid and the amount of such advance shall offset, to the extent thereof,
      the amount of the Gross-Up Payment required to be paid.

     

    
      
        
        

      

      
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    ARTICLE
      13

     

    MISCELLANEOUS

     

    SECTION
      13.01.  Binding
      Arbitration.
      The
      parties agree that, except as provided in Articles 9 and 10 above, any
      disputes under this Agreement shall be settled exclusively by arbitration
      conducted in Winston-Salem, North Carolina. Except to the extent inconsistent
      with this Agreement, such arbitration shall be conducted in accordance with
      the
      National Rules for the Resolution of Employment Disputes of the American
      Arbitration Association then in effect at the time of the arbitration and
      otherwise in accordance with principles which would be applied by a court of
      law
      or equity. The arbitrator shall be acceptable to both the Companies and the
      Executive. If the parties cannot agree on an acceptable arbitrator, the dispute
      shall be decided by a panel of three arbitrators, one appointed by each of
      the
      parties and the third appointed by the other two arbitrators or if the two
      arbitrators do not agree, appointed by the American Arbitration Association.
      The
      costs of arbitration incurred by the Executive (or his beneficiaries) will
      be
      borne by the Companies (including, without limitation, reasonable attorneys’
fees and other reasonable charges of counsel) (i) if the arbitration occurs
      prior to a Change in Control, if the Executive prevails on a majority of the
      material issues in the dispute, and (ii) if the arbitration occurs after a
      Change in Control, if the Executive prevails on at least one material issue
      in
      the dispute. Judgment upon the final award rendered by such arbitrator(s) may
      be
      entered in any court having jurisdiction thereof. 

     

    SECTION
      13.02.  Consent
      to Amendments; No Waivers.
      The
      provisions of this Agreement may be amended or waived only by a written
      agreement executed and delivered by the Companies and the Executive. No other
      course of dealing between the parties to this Agreement or any delay in
      exercising any rights hereunder will operate as a waiver of any rights of any
      such parties.

     

    SECTION
      13.03.  Successors
      and Assigns.
      All
      covenants and agreements contained in this Agreement by or on behalf of any
      of
      the parties hereto will bind and inure to the benefit of the respective
      successors and assigns of the parties hereto whether so expressed or not,
provided
      that the
      Executive may not assign his rights or delegate his obligations under this
      Agreement without the written consent of the Companies and the Company may
      assign this Agreement only to a successor to all or substantially all of the
      assets of the Company.

     

    SECTION
      13.04.  Severability.
      Whenever possible, each provision of this Agreement will be interpreted in
      such
      manner as to be effective and valid under applicable law, but if any provision
      of this Agreement is held to be prohibited by or invalid under applicable law,
      such provision will be ineffective only to the extent of such prohibition or
      invalidity, without invalidating the remainder of this Agreement.

     

    SECTION
      13.05.  Counterparts.
      This
      Agreement may be executed simultaneously in two or more counterparts, any one
      of
      which need not contain the signatures of more than one party, but all of which
      counterparts taken together will constitute one and the same
      agreement.

     

    
      
        
        

      

      
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    SECTION
      13.06.  Descriptive
      Headings.
      The
      descriptive headings of this Agreement are inserted for convenience only and
      do
      not constitute a part of this Agreement.

     

    SECTION
      13.07.  Notices.
      All
      notices, demands or other communications to be given or delivered under or
      by
      reason of the provisions of this Agreement will be in writing and will be deemed
      to have been given when delivered personally to the recipient, two business
      days
      after the date when sent to the recipient by reputable express courier service
      (charges prepaid) or four business days after the date when mailed to the
      recipient by certified or registered mail, return receipt requested and postage
      prepaid. Such notices, demands and other communications will be sent to the
      Executive and to the Companies at the addresses set forth below.

     

    

    
      	
              If
                to the Executive:

               

            	
              To
                the last address delivered to the Companies by the 
Executive in the
                manner set forth herein.

               

            
	
              Copies
                (which shall not constitute notice) of notices to the Executive shall
                also
                be sent to:

               

            
	 	
              Morgan,
                Lewis & Bockius LLP

              1701
                Market Street

              Philadelphia,
                PA 19103-2921

               

              Attn:
                Robert J. Lichtenstein

            
	 	 
	
              If
                to the Companies:

               

            	
              Krispy
                Kreme Doughnuts, Inc.

              Krispy
                Kreme Doughnut Corporation

              Suite
                500

              370
                Knollwood Street

              Winston-Salem,
                NC 27103 

               

              Attn:
                Senior Vice President-Human Resources

            
	 	 
	
              Copies
                (which shall not constitute notice) of notices to the Companies shall
                also
                be sent to:

               

            
	 	
              Cahill
                Gordon & Reindel LLP

              80
                Pine Street

              New
                York, NY 10005

               

              Attn:
                Gerald S. Tanenbaum, Esq.

            

    

    

    or
      to
      such other address or to the attention of such other person as the recipient
      party has specified by prior written notice to the sending party.

     

    SECTION
      13.08.  Withholding.
      The
      Companies may withhold from any amounts payable under this Agreement such
      federal, state, local or foreign taxes as shall be required to be withheld
      pursuant to any applicable law or regulation.

     

    SECTION
      13.09.  No
      Third-Party Beneficiary.
      This
      Agreement will not confer any rights or remedies upon any person other than
      the
      Companies, the Executive and their respective heirs, executors, successors
      and
      assigns.

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

    

     

    SECTION
      13.10.  Entire
      Agreement.
      This
      Agreement (including the Confidentiality Agreement and the other documents
      referred to herein) constitutes the entire agreement among the parties and
      supersedes any prior understandings, agreements or representations by or among
      the parties, written or oral, that may have related in any way to the subject
      matter hereof.

     

    SECTION
      13.11.  Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rule of strict construction
      will
      be applied against any party. Any reference to any federal, state, local or
      foreign statute or law will be deemed also to refer to all rules and regulations
      promulgated thereunder, unless the context requires otherwise.

     

    SECTION
      13.12.  Survival.
      Sections 6.01, 7.01, 8.01 and Articles 9, 11, 12 and 13 will survive and
      continue in full force in accordance with their terms notwithstanding any
      termination of the Employment Period, and the Agreement shall otherwise remain
      in full force to the extent necessary to enforce any rights and obligations
      arising hereunder during the Employment Period.

     

    SECTION
      13.13.  GOVERNING
      LAW.
      ALL
      QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
      AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW OF NORTH CAROLINA, WITHOUT REGARD
      TO PRINCIPLES OF CONFLICT OF LAWS.

     

    SECTION
      13.14.  Section
      409A.
      It is
      intended that this Agreement will comply with Section 409A of the Code (and
      any
      regulations and guidelines issued thereunder) to the extent the Agreement is
      subject thereto, and the Agreement shall be interpreted on a basis consistent
      with such intent. If an amendment of the Agreement is necessary in order for
      it
      to comply with Section 409A, the parties hereto will negotiate in good faith
      to
      amend the Agreement in a manner that preserves the original intent of the
      parties to the extent reasonably possible.

     

    SECTION
      13.15.  Representations
      of the Companies.
      The
      Companies represent and warrant that (i) the execution, delivery and performance
      of this Agreement by the Companies has been fully and validly authorized by
      all
      necessary corporate action, (ii) the officer(s) signing this Agreement on behalf
      of the Companies is duly authorized to do so, (iii) the execution, delivery
      and
      performance of this Agreement does not violate any applicable law, regulation,
      order, judgment or decree or any agreement, plan or corporate governance
      document to which the Companies are a party or by which they are bound, and
      (iv)
      upon execution and delivery of this Agreement by the parties hereto, it will
      be
      a valid and binding obligation of the Companies enforceable against the
      Companies in accordance with its terms, except to the extent that enforceability
      may be limited by applicable bankruptcy, insolvency or similar laws affecting
      the enforcement of creditors’ rights generally.

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
      date
      and year first above written.

     

    KRISPY
      KREME DOUGHNUTS, INC.

     

    By:
      /s/
      James H. Morgan

          
James
      H.
      Morgan

          
Chairman
      of the Board

     

    KRISPY
      KREME DOUGHNUT CORPORATION

    

    

    By:
      /s/
      Michael C. Phalen

          
      Michael C. Phalen

          
Chief
      Financial Officer

     

    

             
      /s/ Daryl G. Brewster      

           
      DARYL G. BREWSTER

    

    

    
      
        
        

      

      
        -20-Exhibit 10.1

    

      March
        2,
        2006

      

      John
        W.
        Somerhalder II

      [via
        hand
        delivery]

       

      

      Dear
        John:

      

      It
        is our
        pleasure to provide the details of the offer extended to you by our Board
        of
        Directors for the position of President and Chief Executive Officer of AGL
        Resources Inc. This letter outlines your compensation and benefits package
        and
        also explains the terms of this employment offer.

      

      Your
        Compensation and Benefits

      The
        compensation and benefits package you will receive in this position includes
        the
        following, subject to your continued employment with the Company:

      

      
        	
                Base
                  Salary

              	
                Your
                  monthly base salary will be $58,333.33 ($700,000 annually). Your
                  paycheck
                  will be directly deposited in the bank account of your
                  choice.

                 

              
	
                Annual
                  Incentives

              	
                Your
                  annual incentive target will be 75% of your earned base salary
                  and
                  administered under the terms of the Executive Performance Incentive
                  Program (EPIP), or successor plan, for the portion (75%) attributed
                  to
                  corporate performance and the Annual Incentive Plan, or successor
                  plan,
                  for the portion (25%) related to your individual performance. For
                  2006,
                  your annual incentive will be guaranteed at a total not less than
                  a full
                  year’s participation at target level performance - $700,000 x 75% =
                  $525,000 - provided that you remain employed by the Company through
                  December 31, 2006.

                 

              
	
                Long-Term
                  Incentives

              	
                Effective
                  with your start date, you will be granted (the “Start Date Equity
                  Grants”):

                 

                ·  200,000
                  non-qualified stock options (the “Start Date Options”) having a term of
                  ten years and a cliff vesting requirement of five years. The exercise
                  price per share of the Start Date Options will be the closing price
                  of the
                  Company’s stock on March 2, 2006.

                ·  40,000
                  shares of restricted stock (the “Start Date Restricted Stock”) also having
                  a cliff vesting requirement of five years and issued pursuant to
                  the
                  LTIP.

                 

                All
                  other terms and conditions of the Start Date Equity Grants will
                  be
                  substantially similar to the terms and conditions of equity grants
                  most
                  recently granted to the Company’s other senior executives pursuant to the
                  terms of the Company’s Long Term Incentive Plan (1999) (“LTIP”). Beginning
                  in 2007, you will be eligible to participate in the annual long
                  term
                  incentive program for executives at the level and forms of incentive
                  to be
                  determined by the Compensation and Management Development Committee
                  of the
                  Board of Directors when it regularly considers such matters for
                  other AGL
                  Resources executives.

                 

                Your
                  base salary, annual incentive target and long-term incentive target
                  (and
                  forms of long-term incentives) will be subject to review from time
                  to time
                  by the Compensation and Management Development Committee of the
                  Company’s
                  Board of Directors.

                 

              
	
                Sign-on
                  Bonus

              	
                As
                  soon as practicable following your start date, you will receive
                  a cash
                  payment of $150,000.

                 

              

      

       

      
        
          

        

      

       

      
        	 	 
	
                Change
                  in Control Agreement

              	
                You
                  will be covered by AGL Resources’ current form of Change in Control
                  Agreement for Tier 1 Officers providing certain payments and benefits
                  following a change in your employment status resulting from a change
                  in
                  control of AGL Resources Inc.

                 

              
	
                Company-Paid
                  Benefits

              	
                You
                  are eligible for coverage under the AGL Resources Benefits Program
                  on your
                  31st
                  day of employment. AGL Resources offers a number of Company-paid
                  benefits
                  to its employees which include:

                ·  Retirement
                  program which provides a lifetime annuity based on your career
                  average
                  earnings and length of service

                ·  $60,000
                  basic life insurance

                ·  $60,000
                  basic AD&D coverage

                ·  Business
                  Travel Insurance

                ·  Short
                  Term Disability paid at 70% of base salary

                ·  Long
                  Term Disability paid at 40% of base salary

                ·  40
                  hours of Wellness Leave for doctor and dentist appointments for
                  you or if
                  you are the caregiver of an immediate family member

                ·  Educational
                  Assistance / Tuition Reimbursement program

                ·  Employee
                  Assistance Program

                ·  8
                  paid holidays (6 for the remainder of 2006), plus 3 floating
                  holidays.

                 

                Your
                  participation in these benefits will be in accordance with the
                  terms of
                  the respective programs as in effect from time to time. Nothing
                  herein
                  will restrict the Company’s right to amend or terminate such programs in
                  accordance with their terms.

              
	
                Contributory
                  Benefits

              	
                You
                  will also be eligible to participate in these benefits which require
                  contributions from you for ongoing participation: 

                ·  Company
                  match of 65% on eligible income deferral contributions to the Retirement
                  Savings Plus (RSP) Plan (401(k)), subject to limits for highly
                  compensated
                  employees

                ·  Company
                  match of 65% on up to 8% of eligible income deferral contributions
                  to the
                  Nonqualified Savings Plan (NSP) and RSP. The NSP generally permits
                  deferrals of up to 50% of compensation and 100% of annual
                  bonus.

                ·  Coverage
                  for medical, dental, and group insurance 

                ·  Supplemental
                  insurance programs for additional life insurance, spousal and dependent
                  life insurance

                ·  Additional
                  AD&D for you and your family

                ·  A
                  buy-up program for additional LTD

                ·  Flexible
                  Spending Accounts for Health Care and Dependent Care Reimbursement
                  Accounts

                ·  15%
                  discount for Company stock purchased through the Employee Stock
                  Purchase
                  Program

                ·  Up
                  to 5 additional vacation days

                 

                Your
                  participation in these benefits will be in accordance with the
                  terms of
                  the respective programs as in effect from time to time. Nothing
                  herein
                  will restrict the Company’s right to amend or terminate such programs in
                  accordance with their terms.

              
	
                Vacation:

              	
                You
                  will be eligible for four (4) weeks of paid vacation in
                  2006.

              
	
                Relocation: 

              	
                You
                  will be eligible for AGL Resources’ Executive Relocation Program which
                  will provide for the purchase of your home and moving your family
                  and
                  household goods to Atlanta. This program also provides for necessary
                  visits for your spouse to travel to Atlanta for purposes of house-hunting
                  and selection and temporary living arrangements should you need
                  them.

              

      

       

      
         

        
          
          

          
            

          

        

         

        After
          you
          begin work at AGL Resources, you will receive an Employee Handbook which
          contains further details about the benefits that are available to you as
          well as
          our policies and procedures.

      

       

      
        Termination
          of Employment

      

      Except
        in
        the case of a termination of employment pursuant to which you are eligible
        for
        severance under the Change in Control Agreement for Tier I Officers as described
        above, should your employment be terminated by the Company without cause
        on or
        prior to December 31, 2007, you will be entitled, subject to your execution
        and
        non-revocation of an agreement containing (a) a release in the form generally
        used by the Company (which release will include a non-disparagement and
        cooperation with litigation provision) and (b) covenants not to compete and
        not
        to solicit employees of the Company for employment with durations of eighteen
        months and in the form generally used by the Company:

      

      	(1)  	
              to
                a termination allowance equal to 18 months’ base salary and 1.5 times
                annual bonus (the annual bonus amount for this purpose will be the
                higher
                of your 2006 target bonus amount or the amount of the actual bonus,
                if
                any, paid to you (or payable to you but deferred) in 2007 and attributable
                to 2006 performance (the “Annual Bonus Amount”)), calculated at the date
                of termination. The termination allowance will be paid as salary
                continuance over the 18 month period commencing as of your date of
                termination or, to the extent required in order to comply with Section
                409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), on
                the first business day following the six month anniversary of your
                “separation from service” within the meaning of Section 409A;
                and

            

      

      	(2)  	
              during
                the 18 months following your termination of employment, subject to
                the
                terms of the applicable plan, continued participation in the Company’s
                health plans at the rates you paid as an active employee of the Company
                or, if higher, the rates imposed on similarly situated executives
                of the
                Company following your date of termination. Such health coverage
                would be
                deemed COBRA coverage and will be paid by the Company;
                and

            

      

      	(3)  	
              to
                vesting of (a) the Start Date Equity Grants as follows: (x) if termination
                occurs during calendar year 2006, one-fifth of the Start Date Options
                and
                one-fifth of the Start Date Restricted Stock will vest at the date
                of
                termination and the remainder will be forfeited and (y) if termination
                occurs during calendar year 2007, two-fifths of the Start Date Options
                and
                two-fifths of the Start Date Restricted Stock will vest at the date
                of
                termination and the remainder will be forfeited; and (b) all other
                long-term incentives to the extent provided in the plans and agreements
                evidencing their grant in accordance with their terms;
                and

            

      

      	(4)  	
              to
                a lump sum cash payment within ten days of the date of termination
                or, to
                the extent required in order to comply with Section 409A, on the
                first
                business day following the six month anniversary of your “separation from
                service” within the meaning of Section 409A, equal to a pro rata (to the
                date of termination) portion of the Annual Bonus Amount (the “Pro Rata
                Bonus”).

            

      

      Except
        as
        described above, no long-term incentive awards or other compensation and/or
        benefits will be paid during the salary continuation period. All payments
        will
        be subject to applicable laws and regulations and applicable withholding
        and, if
        you are eligible to receive the payments and benefits hereunder, you will
        not be
        entitled or eligible to receive any other salary, bonus or separation or
        termination pay from the Company or any of its affiliates.

      

      In
        the
        event that your employment is terminated by the Company for cause, you shall
        not
        be entitled to any severance or similar benefits (including any Pro Rata
        Bonus
        for the year in which the termination occurs) under this Agreement or otherwise
        and all unvested long-term incentive awards will be forfeited.

      

      In
        the
        event that your employment terminates by reason of your death or disability
        (within the meaning of the long-term disability plan applicable to you),
        your
        rights and benefits under the Company’s various compensation and benefit plans
        will be as set forth under such plans and the Company shall have no further
        obligations under this Agreement.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Additional
        Retirement Benefit

      Subject
        to your having been employed by the Company through December 31, 2010, you
        will
        be eligible to receive a lump sum payment at the earlier of the time of your
        termination of employment or the time of your retirement in accordance with
        the
        terms of the Company’s pension plan (or a successor plan).  The amount of
        the payment will be equal to the “actuarial equivalent” of the additional
        benefit you would have been entitled to receive under the Company’s pension plan
        and excess benefit plan (or the successors to such plans) at normal retirement
        age (as defined in the pension plan) and in the form of a single life annuity,
        if for each year of your service with the Company (up to a maximum of five
        years), you had earned one additional year of service under such plans or
        the
        successors to such plans. For these purposes, actuarial equivalence will
        be
        based on the assumptions used by the Company for disclosure purposes, for
        the
        fiscal year immediately preceding the year in which the payment occurs. 
The timing of this payment will be subject to the regulations under Section
        409A. The foregoing benefit is in addition to any similar benefit to which
        you
        may be entitled under the Change in Control Agreement for Tier I Officers
        described above.

      

      Code
        of Conduct

      We
        are
        enclosing a copy of our Code of Conduct. Please take the time to read this
        important document.

      

      The
        Terms of This Employment Offer

      This
        letter provides the details of the offer of employment. It does not constitute
        an employment contract. It does not guarantee employment through any specific
        date. By accepting this offer, your employment with AGLR will be “at will” and
        may be terminated by either you or AGLR at any time without notice.

      

      Acceptance
        of This Offer

      If
        the
        terms of this employment offer are satisfactory to you, please sign the
        acceptance below and return this original letter to me. 

      

      Note
        that
        by accepting this offer, you:

      

      	·  	
              Certify
                that you have received and will comply with all of the provisions
                of the
                Commitment to Integrity and Ethics, our Code of Business Conduct.
                

            

       

      	·  	
              Represent
                and warrant to AGL Resources that you are not bound by any other
                agreement—written or oral—that would keep you from entering into
                employment with AGL Resources. If a breach of this provision by you
                results in costs or damage to AGL Resources, you agree to indemnify
                and
                hold AGL Resources harmless with respect to such costs or
                damage.

            

      

      If
        you
        would like further details about any of the information that is outlined
        above,
        please feel free to contact me.

      

      We’re
        looking forward to you leading the AGL Resources team!

      

      Very
        truly yours,

      

      /s/
        Arthur E. Johnson

      

      Arthur
        E.
        Johnson

      Chairman

      Compensation
        & Management Development Committee

      AGL
        Resources Inc. Board of Directors

      

      

      The
        above
        offer is ACCEPTED on the 2nd
        day of
        March, 2006.

      

      

      /s/
        John W. Somerhalder II 

      John
        W.
        Somerhalder II

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