Plan to Provide Franchise Opportunities For Corporate Management - Krispy Kreme Doughnuts Corp.
PLAN TO PROVIDE FRANCHISE OPPORTUNITIES FOR
CORPORATE MANAGEMENT
OCTOBER 3, 1994
I. Plan
Beginning December 1, 1994, corporate management shall have the opportunity to
apply for, qualify for and receive a grant of a franchise(s) for one or more
Krispy Kreme store(s) in open territories.
II. Purpose of the Plan
The purpose of the plan is to provide opportunities for eligible and qualifying
corporate management to obtain a franchise(s) for one or more Krispy Kreme
stores thereby allowing those who have made substantial contributions to Krispy
Kreme's success to share and participate in the growth of the Company.
III. Benefits of the Plan to the Company
The benefits to the company are as follows:
1. the plan serves to attract, retain and motivate quality
employees;
2. the plan provides the greatest likelihood of successful store
expansion due to the knowledge and experience of the plan
participant;
3. the plan expedites and enhances the development of the
company's franchise program and store expansion program;
<PAGE> 2
4. the plan gives our successful corporate management an
additional opportunity to grow in their career at Krispy
Kreme; and
5. The plan will add to a sense of ownership, opportunity and
entrepreneurship which is vital to achieving the company's
commitment to exceeding shareholders and customer
expectations.
IV. Conditions of the Plan
A. Eligibility: Members of corporate management who
- are participants in the ELTIP
- meet franchise applicant qualifications which are set forth on
Exhibit A.
These qualifications include
- business plan for developing the market which meets
company standards and
- financial resources/bank commitment for full market
development which meets company standards
- are employed in good standing
- have a trained and capable replacement (if leaving company)
B. Available franchise areas: Any qualifying area in the United States
except for territories of existing associates and company markets. For
available territories, see the list set forth on Exhibit B. The list is
subject to change from time to time. Areas must meet the
2
<PAGE> 3
Company's requirements for population density, which currently is
100,000 households within a metropolitan statistical area. Any
exceptions must have corporate approval.
C. Investor Groups: Applicants may qualify by forming an investor group
provided that the applicant will have at least a 20% equity interest
(40% for two participants in the same investor group and 50% for three
or more participants).
D. Franchise Agreement: Corporate management will sign the same franchise
agreement which has been developed for new franchisees which includes
the prevailing franchise fee, royalty and advertising fee.
E. Awarding of Markets: Markets will be awarded on a "first come, first
serve" basis to qualifying applicants. Applicants must be ready to
develop market immediately. Markets . will not be held or reserved - no
right of first refusal.
V. Financing by Krispy Kreme
Krispy Kreme will guarantee conventional financing for any number of store(s)
per applicant. The types of guarantees are as follows:
Equipment Buy Back -
- upon default, buy back of production equipment, other
equipment, signage, furniture and fixtures at a price equal to
purchase price declining with the amortization of the bank
loan to 50% of purchase price
3
<PAGE> 4
ELTIP Guarantee -
- guarantee equal to amount of balance in ELTIP accounts
- ELTIP Article VF provides:
"when KK distributes amounts credited to the Account of a
Participant, KK has the right to deduct therefrom . . . any
amounts the Participant may owe the Company."
Other Guarantee of Loan -
- corporate guarantee of bank loan in an additional amount
sufficient to enable him/ her to obtain financing for 100% of
the cost of the store (within the parameters set forth in Item
VII of the franchise offering circular).
- If participant can qualify for conventional bank
financing (with equipment buy back and ELTIP
guarantees).
- There will be no fee for the guarantee for the first
15 months. Thereafter, the participant shall pay
Krispy Kreme a fee of the two percent (2%) per annum
of the amount guaranteed until Participant's lender
releases Krispy Kreme from the guarantee (unless the
ratio of cash flow to debt from the Store is less
than 1.25 to 1.00 primarily due to the Store's
location).
The plan and related guarantees will require approval of Southern National Bank,
the company's lender. The participant will be required to sign an Accommodation
Agreement under which he/ she agrees to repay the company if its performs under
the guarantee.
4
<PAGE> 5
VI. Other Conditions
- Production equipment is subject to availability.
- Employees of Krispy Kreme who participate must continue to devote full
time and best efforts to current job. If a plan participant's
employment with Krispy Kreme Doughnut Corporation is terminated for
cause, the company has the right to terminate the Franchise Agreement
and all rights granted therein.
Each store must have a full time manager who has successfully completed the
training school.
All sales of equipment, signage packages and modular building, as well as mix
and distribution center products will be made at standard prices and on standard
terms.
VII. Application Procedure
Begin accepting applications on December 1, 1994. Applications must be
accompanied by
- business plan
- financial statements
* * * * * * * * * * * * * * * * * * * * *
This Plan may be changed at any time due to availability of production equipment
the financial condition of the company, demand and other factors. It is for an
indefinite term but subject to termination at any time by the Board of
Directors.
5
<PAGE> 6
Exhibit A
Franchise Fee: $20,000
Development Fee: $10,000 (Credited against Franchise Fee)
Royalty: 4.5%
Advertising: 4% (broken down as follows)
- Marketing and Promotional Fund: Up to a maximum of 3% of Gross
Sales.
- Local Advertising: 4% of Gross sales less the percent of gross
sales contributed to the Marketing and Promotional Fund.
Estimate per store total investment: Low - high range of $640,000 - $813,000
(Includes build ing cost but is exclusive of land and site costs) to develop one
outlet. These costs include the franchise fee, $50,000 - $85,000 in working
capital, grand opening advertising/promotion and initial inventory.
Applicants should demonstrate, in addition to any other items the Company feels
are relevant, the following to the Company's satisfaction:
1. They possess food service operating experience;
2. They possess or have the proven ability to, raise capital sufficient to
fund their development commitment;
3. They have familiarity with the market proposed for development;
4. They possess the ability to timely and diligently fulfill all
obligations of the Company's development and franchise agreement;
5. They are not contractually or legally prohibited from fully performing
their obligations, in a timely and diligent manner, under the Company's
area development and franchise agreements and
6. They are honest and creditworthy; possess sound reputation and
integrity, and have no prior criminal records.
For more information: Details about the franchise are made available at a
personal meeting with the Krispy Kreme Franchise Department at which time
prospects receive the Krispy Kreme Uniform Offering Circular and discuss their
franchise opportunities.
<PAGE> 7
PLAN TO PROVIDE FRANCHISE OPPORTUNITIES FOR
ASSOCIATE OPERATORS
OCTOBER 3, 1994
I. Plan
Beginning December 1, 1994, associate operators shall have the opportunity to
apply for, qualify for and receive a grant of a franchise(s) for one or more
Krispy Kreme store(s) in open territories.
II. Purpose of the Plan
The purpose of the plan is to provide opportunities for eligible and qualifying
associate operators to obtain a franchise(s) for one or more Krispy Kreme stores
thereby allowing those who have made substantial contributions to Krispy Kreme's
success to share and participate in the growth of the Company.
III. Benefits of the Plan to the Company
The benefits to the company are as follows:
1. the plan gives associates the opportunity to grow both inside
and outside their existing markets and give family members
opportunities;
2. the plan provides the greatest likelihood of successful store
expansion due to the knowledge and experience of the plan
participants;
3. the plan expedites and enhances the development of the
company's franchise program and store expansion program;
<PAGE> 8
4. the plan gives our successful associate operators an
additional opportunity to grow in their career at Krispy
Kreme; and
5. The plan will add to a sense of ownership, opportunity and
entrepreneurship which is vital to achieving the company's
commitment to exceeding shareholders and customer
expectations.
IV. Conditions of the Plan
A Eligibility: Associate operators outside their existing territories
A. OUTSIDE EXISTING MARKET
- who have already fully penetrated their existing
markets on the basis of one store per 100,000
households
B. BOTH INSIDE AND OUTSIDE
- are in, and have had a history of, good financial
standing with the company
- accounts receivable under 60 days
- financial statements submitted timely
- royalties timely paid
- have a history of operating within company standards
- operations sanitation
- safety
- product quality
2
<PAGE> 9
- meets franchise applicant qualifications which are set forth
on Exhibit A. These qualifications include
- business plan for developing the market which meets
company standards and
- financial resources/bank commitment for full market
development which meets company standards
B. Available franchise areas: Any qualifying area in-the United States
except for terri tories of existing associates and company markets. For
available territories, see the list set forth on Exhibit B. This list
is subject to change from time to time. Areas must meet the Company's
requirements for population density, which currently is 100,000 house
holds within a metropolitan statistical area. Any exceptions must have
corporate approval.
C. Investor Groups: Applicants may qualify by forming an investor group
provided that the applicant will have at least a 20% equity interest
(40% for two participants in the same investor group and 50% for three
or more participants).
D. Franchise Agreement: For stores outside their area, associate operators
will sign the same franchise agreement which has been developed for new
franchisees which includes the prevailing franchise fee, royalty and
advertising fee.
3
<PAGE> 10
E. Awarding of Markets: Markets will be awarded on a "first come, first
serve" basis to qualifying applicants. Applicants must be ready to
develop market immediately. Markets will not be held or reserved - no
right of first refusal.
V. Financing by Krispy Kreme
Krispy Kreme will guarantee conventional financing for any number of store(s)
per applicant. The types of guarantees are as follows:
Equipment Buy Back -
- upon default, buy back of production equipment, other
equipment, signage, furniture and fixtures at a price equal
to purchase price declining with the amortization of the bank
loan to 50% of purchase price
Stock Pledge -
- pledge of stock with a buy back of stock, upon default, at-
then book value (or price) under stock purchase agreement
Other Guarantee of Loan -
- corporate guarantee of bank loan in an additional amount
sufficient to enable him/ her to obtain financing for 100% of
the cost of the store (within the parameters set forth in Item
VII of the franchise offering circular).
- If participant can qualify for conventional bank
financing (with equipment buy back and pledge of
stock guaranteed).
- There will be no fee for the guarantee for the first
15 months. Thereafter, the participant shall pay
Krispy Kreme a fee of the two percent (2%) per
4
<PAGE> 11
annum of the amount guaranteed until Participant's
lender releases Krispy Kreme from the guarantee
(unless the ratio of cash flow to debt from the Store
is less than 1.25 to 1.00 primarily due to the
Store's location).
The plan and related guarantees will require approval of Southern National Bank,
the company's lender. The participant will be required to sign an Accommodation
Agreement under which he/ she agrees to repay the company if it performs under
the guarantee.
VI. Other Conditions
- Production equipment is subject availability.
- Each store must have a full time manager -who has successfully
completed the training school.
- Associates who participate must fully develop their existing markets.
- All sales of equipment, signage packages and modular building, as well
as mix and distribution center products will be made at standard
prices and on standard terms.
VII. Application Procedure
Begin accepting applications on December 1, 1994. Applications must be
accompanied by
- business plan
- financial statements
* * * * * * * * * * * * * * * * * * * * * * * * * * *
This Plan may be changed at any time due to availability of production equipment
the financial condition of the company, demand and other factors. It is for an
indefinite term but subject to termination at any time by the Board of
Directors.
5
<PAGE> 12
Exhibit A
Franchise Fee: $20,000
Development Fee: $10,000 (Credited against Franchise Fee)
Royalty: 4.5%
Advertising: 4% (broken down as follows)
- Marketing and Promotional Fund: Up to a maximum of 3% of Gross
Sales.
- Local Advertising: 4% of Gross sales less the percent of gross
sales contributed to the Marketing and Promotional Fund.
Estimate per store total investment: Low - high range of $640,000 - $813,000
(Includes build ing cost but is exclusive of land and site costs) to develop one
outlet. These costs include the franchise fee, $50,000 - $85,000 in working
capital, grand opening advertising/promotion and initial inventory.
Applicants should demonstrate, in addition to any other items the Company feels
are relevant, the following to the Company's satisfaction:
1. They possess food service operating experience;
2. They possess or have the proven ability to raise capital sufficient to
fund their development commitment;
3. They have familiarity with the market proposed for development;
4. They possess the ability to timely and diligently fulfill all
obligations of the Company's development and franchise agreement;
5. They are not contractually or legally prohibited from fully performing
their obligations, in a timely and diligent manner, under the Company's
area development and franchise agreements and
6. They are honest and creditworthy; possess sound reputation and
integrity, and have no prior criminal records.
For more information: Details about the franchise are made available at a
personal meeting with the Krispy Kreme Franchise Department at which time
prospects receive the Krispy Kreme Uniform Offering Circular and discuss their
franchise opportunities.
<PAGE> 13
PLAN TO PROVIDE FRANCHISE OPPORTUNITIES FOR
STORE MANAGERS
OCTOBER 3, 1994
I. Plan
Beginning December 1, 1994, qualifying store managers shall have the opportunity
to apply for, qualify for and receive a grant of a franchise(s) for one or more
Krispy Kreme store(s) in open territories.
II. Purpose of the Plan
The purpose of the plan is to provide opportunities for eligible and qualifying
store managers to obtain a franchise(s) for one or more Krispy Kreme stores
thereby allowing those who have made substantial contributions to Krispy Kreme's
success to share and participate in the growth of the Company.
III. Benefits of the Plan to the Company
The benefits to the company are as follows:
1. the plan serves to attract, retain and motivate quality
employees;
2. the plan provides the greatest likelihood of successful store
expansion due to the knowledge and experience of the store
managers;
3. the plan expedites and enhances the development of the
company's franchise program and store expansion program;
<PAGE> 14
4. the plan gives our successful store managers an additional
opportunity to grow in their career at Krispy Kreme; and
5. The plan will add to a sense of ownership, opportunity and
entrepreneurship which is vital to achieving the company's
commitment to exceeding shareholders and customer
expectations.
IV. Conditions of the Plan
A. Eligibility: Company store managers who:
- have a track record of superior store performance in
accordance with the standards set forth in mission statement
as evaluated and determined by corporate management
- must be employed as a manager for at least five years
- must have a trained and capable replacement
- meets franchise applicant qualifications which are set forth
on Exhibit A. These qualifications include
- business plan for developing the market which meets
company standards and
- financial resources/bank commitment for full market
development which meets company standards
B. Available franchise areas: Any qualifying area in the United States
except for territories of existing associates and company markets. For
available territories, see the list set forth
2
<PAGE> 15
on Exhibit B. The list is subject to change from time to time. Areas
must meet the Company's requirements for population density, which
currently is 100,000 households within a metropolitan statistical area.
Any exceptions must have corporate approval.
C. Investor Groups: Applicants may qualify by forming an investor group
provided that the applicant will have at least a 20% equity interest
(40% for two participants in the same investor group and 50% for three
or more participants).
D. Franchise Agreement: The store managers will sign the same franchise
agreement which has been developed for new franchisees which includes
the prevailing franchise fee, royalty and advertising fee.
E. Awarding of Markets: Markets will be awarded on a "first come, first
serve" basis to qualifying applicants. Applicants must be ready to
develop market immediately. Markets will not be held or reserved - no
right of first refusal.
V. Financing by Krispy Kreme
Except for the tenure guarantee, Krispy Kreme will guarantee conventional
financing for any number of store(s) per applicant. The types of guarantees are
as follows:
Equipment Buy Back -
- upon default, buy back of production equipment, other
equipment, signage, furniture and fixtures at a price equal
to purchase price declining with the amortization of the bank
loan to 50% of purchase price
3
<PAGE> 16
Tenure Guarantee -
- guarantee an amount equal to $50,000 x number of years
employed as a store manager (maximum $500,000) - one time only
(one store only)
The plan and related guarantees will require approval of Southern National Bank,
the company's lender. The participant will be required to sign an Accommodation
Agreement under which he/ she agrees to repay the company if it performs under
the guarantee.
VI. Other Conditions
- Production equipment is subject to availability.
- The plan participant must successfully complete the Manager Training
Program.
- All sales of equipment, signage packages and modular building, as well
as mix and distribution center products will be made at standard prices
and on standard terms.
VII. Application Procedure
Begin accepting applications on December 1, 1994. Applications must be
accompanied by
- business plan
- financial statements
* * * * * * * * * * * * * * * * * * * * * * * * * * *
This Plan may be changed at any time due to availability of production equipment
the financial condition of the company, demand and other factors. It is for an
indefinite term but subject to termination at any time by the Board of
Directors.
4
<PAGE> 17
Exhibit A
Franchise Fee: $20,000
Development Fee: $10,000 (Credited against Franchise Fee)
Royalty: 4.5%
Advertising: 4% (broken down as follows)
- Marketing and Promotional Fund: Up to a maximum of 3% of Gross
Sales.
- Local Advertising: 4% of Gross sales less the percent of gross
sales contributed to the Marketing and Promotional Fund.
Estimate per store total investment: Low - high range of $640,000 - $813,000
(Includes build ing cost but is exclusive of land and site costs) to develop one
outlet. These costs include the franchise fee, $50,000 - $85,000 in working
capital, grand opening advertising/promotion and initial inventory.
Applicants should demonstrate, in addition to any other items the Company feels
are relevant, the following to the Company's satisfaction:
1. They possess food service operating experience;
2. They possess or have the proven ability to raise capital sufficient to
fund their development commitment;
3. They have familiarity with the market proposed for development;
4. They possess the ability to timely and diligently fulfill all
obligations of the Company's development and franchise agreement;
5. They are not contractually or legally prohibited from fully performing
their obligations, in a timely and diligent manner, under the Company's
area development and franchise agreements and
6. They are honest and creditworthy; possess sound reputation and
integrity, and have no prior criminal records.
For more information: Details about the franchise are made available at a
personal meeting with the Krispy Kreme Franchise Department at which time
prospects receive the Krispy Kreme Uniform Offering Circular and discuss their
franchise opportunities.