Document:

Exhibit 10.1 - Employment Agreement/KK and Sandra K. Michel

     

      
        

      

    

    Exhibit
      10.1

     

     

    EMPLOYMENT
      AGREEMENT

     

    EMPLOYMENT
      AGREEMENT (“Agreement”)
      dated
      as of April
      23,
      2007
      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
Sandra
      K.
      Michel
      (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
      or a
      court or governmental order),
      (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 insubordination to the Companies’ most senior executive officer
      or 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 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.

     

    
      
        
        

      

      
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    “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 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.

     

    “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 legal
      officer and an executive
      vice
      president
      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,
      (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
her
      failure
      at any time to report directly to the most
      senior executive officer
      of the
      applicable company described in such clause (ii), (iv) 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, (v)
      any
      material breach by the Companies of this Agreement, or (vi)
      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 her
      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 Executive Vice President
      and
      General Counsel of the Company reporting directly to the most
      senior executive officer
      and
      shall be the Company’s most senior legal
      officer.
      During the Employment Period, the Executive also shall serve as Executive Vice
      President and General Counsel of KKDC and shall be KKDC’s most senior
      legal
      officer.
      The Executive shall have such responsibilities, powers and duties as may from
      time to time be prescribed by the Board or the most senior executive officer
      of
      the Companies; 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. During
      the Employment Period, the Executive shall devote substantially all of
her
      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 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
her
      duties
      hereunder or result in any conflict of interest with the Companies. Executive
      shall be required to relocate her primary residence to Winston-Salem, North
      Carolina, or the surrounding area, within twelve (12) months of the execution
      of
      this Agreement, in order to be readily accessible to the Companies’
headquarters, but she shall not thereafter be required to relocate her residence
      or principal office to any place outside Forsyth County, North Carolina without
      her consent.

     

    
      
        
        

      

      
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    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 $330,000
      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 her
      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
60%
      of Base
      Salary. The Executive’s annual target bonus for the fiscal year of the Company
      including the Effective Date will
      be
      $198,000 (the Executive’s bonus being based upon a full year of service), of
      which $99,000 is guaranteed provided Executive remains employed with the
      Companies as of February 3, 2008, which bonus shall be paid when the bonuses
      for
      the Companies’ other executives are paid.
      The
      Compensation Committee of the Board and the Board shall set targets with respect
      to and otherwise determine Executive’s bonus in accordance with the Company’s
      then current incentive plans.

     

    SECTION
      4.03. Benefits.
      During
      the Employment Period, 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. Executive shall
      be
      entitled to four
      weeks of
      paid vacation annually during the Employment Period.

     

    SECTION
      4.04. Expenses.
      The
      Companies shall reimburse the Executive for all reasonable expenses incurred
      by
her
      in the
      course of performing her
      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. The
      Company
      shall
      reimburse Executive for expenses
      necessary to maintain her license to practice law, including continuing legal
      education requirements (to be fulfilled in a reasonably cost effective manner)
      and reasonable professional association membership fees.

     

    SECTION
      4.05. Stock
      Options.
      The
      Company shall grant to the Executive options to purchase 100,000
      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 (the “Exercise Price”) which is expected to be April
      23,
      2007. One half of the options (specifically, 50,000 shares)
      will
      vest and become exercisable in four equal installments, on
      the
      first,
      second,
      third
      and
      fourth anniversaries of the Effective Date, so
      long
      as, except as otherwise set forth in the applicable stock option plan, the
      Executive’s employment continues through such vesting dates.
      The
      other half of the options (specifically, 50,000 shares) will vest based upon
      the
      performance of the Companies, with (i) one half of these options (specifically
      25,000 shares) to vest if and when the following two conditions have occurred:
      (a) two years have elapsed since the Effective Date and (b) following the
      Effective Date, the closing price per share of the Company’s stock on the
      principal securities exchange on which the Company’s shares are then traded has
      exceeded 120% of the Exercise Price for a period of ten consecutive trading
      days
      and (ii) the remaining one half of these options (specifically 25,000 shares)
      to
      vest
      if and when the following two conditions have occurred: (a) two years have
      elapsed since the Effective Date and (b) following the Effective Date, the
      closing price per share of the Company’s stock on the principal securities
      exchange on which the Company’s shares are then traded has exceeded 140% of the
      Exercise Price for a period of ten consecutive trading days. 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. The Option Shares will be
      registered as soon as practicable on Form S-8 under the Securities
      Act,
      if not
      currently registered.
      The
      Executive agrees that, in
      the
      event of her resignation, she will not, without
      the prior written consent of the Board, sell
      or
      otherwise transfer the Option Shares or the economic benefit thereof prior
      to
      the first anniversary of her
      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 her
      tax
      liability resulting from such exercise. The Option Shares shall be subject
      to
      the terms of the Krispy Kreme Doughnuts, Inc. 2000 Stock Incentive Plan, and
      the
      option grant agreement for Executive’s Option Shares shall have terms similar to
      those of other executive vice presidents of the Companies. The Option Shares
      shall also be subject to, and Executive agrees to comply with, the ownership
      guidelines adopted by the Companies as may be applicable to the option shares
      of
      the Companies’ executive vice presidents.

     

    
      
        
        

      

      
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      SECTION
        4.06. Restricted
        Shares.
        The
        Company shall grant to the Executive 20,000
        restricted shares of the Company’s common stock (the “Restricted
        Shares”).
        Except
        as otherwise provided below, the Restricted Shares will vest, provided that
        the
        Executive’s employment continues through the applicable vesting dates, in
four
        equal installments, on the first, second, third and fourth anniversaries
        of the
        Effective Date.
        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,
        if not
        currently registered.
        The
        Executive agrees that
        in the
        event of her resignation,
        without
        the prior written consent of the Board, she
        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 her
        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
her
        tax
        liability resulting from the vesting of the Restricted Shares. The Restricted
        Shares shall be subject to the terms of the Krispy Kreme Doughnuts, Inc.
        2000
        Stock Incentive Plan. The Restricted Shares shall also be subject to, and
        Executive agrees to comply with, the ownership guidelines adopted by the
        Companies as may be applicable to the restricted shares of the Companies’
executive vice presidents.

       

    

    SECTION
      4.07. Relocation.
      The
      Companies shall reimburse the Executive for all reasonable expenses incurred
      by
her
      in
      relocating her
      and
her
      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
      (including interim commuting costs),
      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). The
      Companies may require the Executive to use a home owned by the Companies for
      her
      temporary housing needs, which will be made available for up to 12
      months.

     

    ARTICLE
      5

     

    TERM
      AND
      TERMINATION

     

    SECTION
      5.01. Term.
      The
      Employment Period will terminate on April
      23,
      2010,
      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 April
      23,
      2010
      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.

     

    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 her
      estate
      or legal representative) shall be entitled solely to the following: (i) Base
      Salary through the Date of Termination; and (ii) 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 her
      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 one times the Base Salary, 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; and (iv) 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, except that duplicative
      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 12 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. Notwithstanding the above provisions of this Section 5.03, if
      Executive’s employment with the Companies is terminated by the Companies not for
      Cause prior to December 31, 2008, then the amount otherwise payable under clause
      (ii) above shall be two times the Base Salary (not one times Base Salary),
      payable not over 12 months but over 24 months commencing on the first month
      anniversary of the Date of Termination, 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.

     

    
      
        
        

      

      
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      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 her
        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.
        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 her
      covered
      dependents shall continue to receive medical insurance coverage
      benefits
      from the Companies, with the same contribution toward such coverage from the
      Executive or her
      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.
      Furthermore, in the event of Executive’s Permanent Disability, insurance
      benefits will continue under the Companies’ long term disability plan in
      accordance with its terms.

     

    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 her
      death,
      on the date of her
      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 and Resignation for Good Reason.
      If the
      Employment Period shall be terminated by the Executive for Good Reason within
      two years after a Change of Control, then Executive’s compensation and benefits
      upon termination shall be governed by this Section 5.09 instead of the
      provisions of Section 5.03 above. Upon such resignation by Executive for Good
      Reason within two years after a Change of Control, 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 her Base Salary and her target annual bonus for
      the year of termination, 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; and (iv) medical benefits as provided in Section
      5.05. The Executive’s entitlements under any other benefit plan or program shall
      be as determined thereunder, except that duplicative severance benefits shall
      not be payable under any other plan or program. In addition, promptly following
      any such termination, the Executive shall be reimbursed for all Reimbursable
      Expenses incurred by the Executive prior to such termination. The amounts due
      under clauses (i), (ii) and (iii) of this Section 5.09 shall be due upon
      termination of employment.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    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 her,
      except
      to the extent she
      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 her
      possession and to protect it against disclosure, misuse, espionage, loss and
      theft.
      Executive also agrees to execute and comply with such other confidentiality
      agreements or provisions as required of executive vice presidents of the
      Company.

     

    ARTICLE
      7

     

    INTELLECTUAL
      PROPERTY

     

    SECTION
      7.01. Ownership
      of Intellectual Property.
      In the
      event that the Executive as part of her
      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 embodiments,
      in whatever form or medium, of all Confidential Information in the Executive’s
      possession or within her
      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 her
      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 her
      employment with the Companies, she
      will
      become familiar with trade secrets and other Confidential Information concerning
      the Company and its Subsidiaries and her
      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), she
      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 her
      Base
      Salary and her
      annual
      target bonus in effect for the year during which her
      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.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    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.

     

    SECTION
      9.03. Definitions.
      It is
      agreed that the“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;

     

        (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.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    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 her
      of any
      of her
      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 her
      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 she
      is
      bound, (b) 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 her
      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,
      jointly
      and severally,
      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 she
      is or
      was a director, officer or employee of the Company or any of its Subsidiaries
      or
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
her
        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,
      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;

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    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.

     

    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 her
      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.

     

    
      
        
        

      

      
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      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,
        assigns,
        heirs,
        executors and estates
        of the
        parties hereto whether so expressed or not, provided that the Executive may
        not
        assign her
        rights
        or delegate her
        obligations under this Agreement without the written consent of the
        Companies
        (other
        than to her estate or heirs)
        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.

     

    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.

               

            
	
              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

            

    

     

    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.

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    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.

     

    SECTION
      13.10. Entire
      Agreement.
      This
      Agreement (including any
      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
      5,
      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 and
      their
      successors and assigns 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.

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    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/
        Daryl G. Brewster

      Daryl
        G.
        Brewster

      President
        and Chief Executive Officer

       

       

      KRISPY
        KREME DOUGHNUT CORPORATION

       

       

      By:    
         /s/
        Kenneth J. Hudson

      Kenneth
        J. Hudson

      Senior
        Vice President of Human Resources

       
and
        Organizational Development

       

       

      EXECUTIVE

       

       

      By:    
         /s/
        Sandra K. Michel

      Sandra
        K.
        MichelExhibit 10.2 - Employment Agreement/KK and Douglas R. Muir

     

    Exhibit
      10.2

    

      EMPLOYMENT
        AGREEMENT

       

      EMPLOYMENT
        AGREEMENT (“Agreement”)
        dated
        as of April
        23,
        2007
        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
Douglas
        R. Muir (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
        or a
        court or governmental order),
        (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 insubordination to the Companies’ most senior executive officer
        or 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 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.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      

       

      “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 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.

       

      “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 financial
        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,
        (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 most
        senior executive officer
        of the
        applicable company described in such clause (ii), (iv) 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, (v)
        any
        material breach by the Companies of this Agreement, or (vi)
        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 

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      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.

       

      “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 June 5, 2007 (the “Effective
        Date”)
        and
        ending as provided in Section 5.01 (the “Employment
        Period”).

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      

       

      ARTICLE
        3

       

      POSITION
        AND DUTIES

       

      SECTION
        3.01.  Position
        and Duties.
        During
        the Employment Period, the Executive shall serve as Executive Vice President
        and
        Chief Financial
        Officer of
        the
        Company reporting directly to the most
        senior executive officer
        and
        shall be the Company’s most senior financial
        officer. During the Employment Period, the Executive also shall serve as
        Executive Vice President and Chief Financial
        Officer of KKDC and shall be KKDC’s most senior
        financial
        officer.
        The Executive shall have such responsibilities, powers and duties as may
        from
        time to time be prescribed by the Board or the most senior executive officer
        of
        the Companies; 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. 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 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 $330,000
        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
60%
        of Base
        Salary. The Compensation Committee of the Board and the Board shall set targets
        with respect to and otherwise determine Executive’s bonus in accordance with the
        Company’s then current incentive plans.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      

       

      SECTION
        4.03.  Benefits.
        During
        the Employment Period, 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. Executive shall
        be
        entitled to four
        weeks of
        paid vacation annually during the Employment Period.

       

      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. The
        Company
        shall
        reimburse Executive for expenses
        necessary to maintain his profession licensing (to be fulfilled in a reasonably
        cost effective manner) and reasonable professional association membership
        fees.

       

      SECTION
        4.05.  Restricted
        Shares.
        The
        Company shall grant to the Executive 15,000 restricted shares of the Company’s
        common stock (the “Restricted
        Shares”)
        on the
        Effective Date. Except as otherwise provided below, the Restricted Shares
        will
        vest, provided that the Executive’s employment continues through the applicable
        vesting dates, in four equal installments, beginning one year following the
        Effective Date and continuing on each of the following three year anniversaries
        of the Effective Date, with the final installment vesting on June 5, 2011.
        The
        Executive hereby agrees to appropriate legends and transfer restrictions
        on the
        Restricted Shares in order to reflect such vesting provisions. The Executive
        agrees that this grant of Restricted Shares is subject to the provisions
        of the
        Company’s Stock Ownership Guidelines.

       

      ARTICLE
        5

       

      TERM
        AND
        TERMINATION

       

      SECTION
        5.01.  Term.
        The
        Employment Period will terminate on June
        5,
        2010,
        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 June
        5,
        2010
        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.

       

      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; and (ii) medical benefits 

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      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 one times the Base Salary, 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; and (iv) 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, except that duplicative
        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 12 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. Notwithstanding the above provisions of this Section 5.03, if
        Executive’s employment with the Companies is terminated by the Companies not for
        Cause prior to December 31, 2008, then the amount otherwise payable under
        clause
        (ii) above shall be two times the Base Salary (not one times Base Salary),
        payable not over 12 months but over 24 months commencing on the first month
        anniversary of the Date of Termination, 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.

       

      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.
        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.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      

       

      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.
        Furthermore, in the event of Executive’s Permanent Disability, insurance
        benefits will continue under the Companies’ long term disability plan in
        accordance with its terms.

       

      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 and Resignation for Good Reason.
        If the
        Employment Period shall be terminated by the Executive for Good Reason within
        two years after a Change of Control, then Executive’s compensation and benefits
        upon termination shall be governed by this Section 5.09 instead of the
        provisions of Section 5.03 above. Upon such resignation by Executive for
        Good
        Reason within two years after a Change of Control, 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 his Base Salary and his target annual bonus
        for
        the year of termination, provided that, the Executive shall be entitled to
        any
        unpaid amounts only if the Executive has not breached and does not breach
        the

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      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; and (iv) medical benefits as provided in Section
        5.05. The Executive’s entitlements under any other benefit plan or program shall
        be as determined thereunder, except that duplicative severance benefits shall
        not be payable under any other plan or program. In addition, promptly following
        any such termination, the Executive shall be reimbursed for all Reimbursable
        Expenses incurred by the Executive prior to such termination. The amounts
        due
        under clauses (i), (ii) and (iii) of this Section 5.09 shall be due upon
        termination of employment.

       

      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.
        Executive also agrees to execute and comply with such other confidentiality
        agreements or provisions as required of executive officers of the
        Company.

       

      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
        

       

      
        
          
          

        

        
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      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 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 

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      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.

       

      SECTION
        9.03.  Definitions.
        It is
        agreed that the“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

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      

       

      (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;

       

      (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 his
        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. 

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      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) 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,
        jointly
        and severally,
        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
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.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      

       

      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.

       

      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 

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

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

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

      

       

      (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 

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

      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.

       

      

       

      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,
        assigns,
        heirs,
        executors and estates
        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
        (other
        than to his estate or heirs)
        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.

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

      

       

      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.

       

      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.

       

      

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

                

        

      

       

       

      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.

       

      SECTION
        13.10.  Entire
        Agreement.
        This
        Agreement (including any
        other
        documents referred to herein) constitutes the entire agreement among the
        parties

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

      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
        5,
        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 and
        their
        successors and assigns 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/
        Daryl G. Brewster

             Daryl
        G. Brewster

            
President
        and Chief Executive Officer

      

       

      KRISPY
        KREME DOUGHNUT CORPORATION

       

      By: /s/
        Kenneth J. Hudson

            
Kenneth
        J. Hudson

            
Senior
        Vice President of Human Resources

              
and
        Organizational Development

      

      

      EXECUTIVE

      

      /s/
        Douglas R. Muir

      Douglas
        R. Muir

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