Retirement / Resignation Agreement - Krispy Kreme Doughnut Corp. and J. A. McAleer Jr.
February 15, 1994
Mr. J. A. McAleer, Jr.
Chief Executive Officer
Krispy Kreme Doughnut Corporation
P O Box 83
Winston-Salem, NC 27102-0083
Dear Mac:
The purpose of this letter is to confirm our commitment to you in the event of
your retirement or resignation from full time employment with Krispy Kreme
within a period of five years from the date hereof.
BACKGROUND
In 1986, during the period of your father's illness, you were managing your
father's doughnut shop in Mobile, Alabama with the expectation that, at some
point - upon your father's retirement, you would own as well as operate this
franchise. At that time, our board requested that you move from Mobile to
Winston-Salem to begin employment with Krispy Kreme Doughnut Corporation. You
accepted this call which necessitated leaving your employment as manager of your
father's Mobile doughnut shop and moving your family to North Carolina. Since
that time, you have had a major role in leading our company through the
management transition arising out of your father's retirement, building our new
management team and leading the company in its growth strategy.
In consideration of your valuable contributions to Krispy Kreme at considerable
personal and family sacrifice, we are pleased to make this commitment upon your
retirement as a full time employee of Krispy Kreme and resignation from full
time employment with Krispy Kreme.
OPTION TO ACQUIRE MOBILE OPERATION
1. You will have the option to purchase the company's Mobile operation
upon the following terms and conditions:
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Mr. J. A. McAleer, Jr.
February 15, 1994
Page 2
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Territory: Choctaw, Washington, Mobile, Clarke, Monroe,
Conecuh and Baldwin (except that portion
granted to Charles C. Scruggs III) counties,
Alabama.
Royalty: 3% and 1%
Sales: Retail, special order, fund raising and
wholesale.
Assets Leased: Real estate, machinery, equipment,
furniture, fixtures, signage, leasehold
improvements and route vehicles used in
Mobile operation.
Lease Rate: Six percent (6%) of your gross sales
Resignation/Retirement: Upon such retirement or resignation, all
other company compensation, allowance and
benefits shall cease.
OPTION TO DEVELOP NEW ORLEANS AREA
2. We will enter into a mutually agreeable development agreement with you
for the franchise development of the New Orleans area upon the
following terms:
Development Period: 10 years from the date you exercise your
option to acquire the Mobile operation.
Development Schedule: One doughnut shop per year.
Territory: St. Bernard, Orleans, Plaquemines, Jefferson
and St. Charles Parishes.
Franchise Agreement: The franchise agreement and terms then being
offered to new franchisees.
Financing: We will enter into a "pioneer" arrangement
for the first Krispy Kreme Express similar
to the current pioneer plan.
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Mr. J. A. McAleer, Jr.
February 15, 1994
Page 3
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This commitment was approved by the board of directors on February 10, 1994.
Please indicate your agreement by signing below.
KRISPY KREME DOUGHNUT CORPORATION
/s/ Scott A. Livengood
Scott A. Livengood
President
Agreed to
/s/ J.A. McAleer, Jr.
J. A. McAleer, Jr.
Dated: 2/15/1994
<PAGE> 4
June 11, 1996
Mr. J.A. McAleer, Jr.
Chief Executive Officer
Krispy Kreme Doughnut Corporation
P.O. Box 83
Winston-Salem, NC 27102-0083
Dear Mac:
The purpose of this letter is to confirm changes to a letter of commitment to
you dated February 15, 1994. The original letter granted you the option to
acquire the Mobile operation and the option to develop the New Orleans area.
Pursuant to a Board of Directors resolution dated April 25, 1996, the following
changes are made to the attached letter:
Option to Acquire Mobile Operation
The terms and conditions of the attached letter remain in force except for the
lease rate. Pursuant to the Board of Directors' resolution, you may elect to
lease the Mobile operation at the stipulated rate of 6%, or you may elect to
purchase the operation with the purchase price being calculated according to the
following formula:
Amount paid for Mobile assets in May 1990 ($1,425,000)
Inventory on hand (approximate - to be verified at date closing)
Accounts receivable (approximate - to be verified at date of closing)
Pro-rata share of taxes and licenses (approximate - to be verified at
date of closing)
Total Purchase Price
The balance of the terms of the attached letter agreement with respect to the
Mobile operation and with respect to the development of the New Orleans,
Louisiana area shall remain unamended and in full force and effect.
Please indicate your agreement by signing below.
Krispy Kreme Doughnut Corporation
/s/ Scott A. Livengood
Scott A. Livengood
President
Agreed to:
/s/ J. A. McAleer, Jr.
J.A. McAleer, Jr.
Dated: 7/22/96
<PAGE> 5
This resolution was voted on approved by all of the Directors with the
exception of Mr. Livengood. Mr. Livengood abstained as he is an interested
party to the resolution.
RESOLUTION
RESOLVED, that Krispy Kreme Doughnut Corporation (the "Corporation")
shall contribute, in a Section 118 transaction, all of the assets owned by the
Corporation and utilized in connection with its Florence, Kentucky doughnut shop
including, but not limited to, any interest it may have in the real property on
which such store is operated, whether as tenant or otherwise, and any and all
interest it may have in the doughnut store building and its design, to
Thornton's Flav-O-Rich Bakery, Incorporated. The Corporation, to the extent
necessary, further authorizes all actions to be taken by the Corporation or its
subsidiaries pursuant to that certain memorandum to Mark Preston from Gary
Tannenbaum dated April 10, 1996, a copy of which is attached hereto and
incorporated by reference. The names of the corporations shall be as set forth
in such memorandum or as may otherwise be established in accordance with
applicable law.
This resolution was approved by all of the Directors.
RESOLUTION
RESOLVED, that that certain letter agreement by and between the
Corporation and Mr. J.A. McAleer, Jr. dated February 15, 1994 and accepted by
Mr. McAleer on such date, a copy of which is attached hereto, is amended as
follows: With respect to the Corporation's Mobile, Alabama operation, Mr.
McAleer shall have the option to lease such operation pursuant to the terms set
forth in such letter agreement or to purchase such operation. In the event Mr.
McAleer elects to purchase such operation, the purchase price for the Mobile,
Alabama operation shall be calculated according to the following formula:
Amount paid for Mobile assets in May 1990 ($1,425,000)
Inventory on hand (approximate - to be verified at date of closing)
Accounts receivable (approximate - to be verified at date of closing)
Pro-rata share of taxes and licenses (approximate - to be verified at
date of closing)
Total Purchase Price
With respect to any election by Mr. McAleer to develop and/or acquire
such Mobile, Alabama and New Orleans, Louisiana markets under the letter
agreement (as amended in accordance with this Resolution), Mr. McAleer and the
Corporation shall execute such standard agreements as are then executed between
the Corporation and its franchisees; provided, however, that such agreements
shall be amended to comply with the terms of the aforesaid letter agreement.
The balance of the terms of said letter agreement with respect to the
Mobile, Alabama operation, and with respect to the development of the New
Orleans, Louisiana area, shall remain unamended and in full force and effect.
This resolution was voted on and approved by all of the Directors with the
exception of Mr. McAleer. Mr. McAleer abstained as he is an interested party to
the resolution.