Krispy Kreme Doughnut Corporation International Franchise Agreement

 

Exhibit 10.4
KRISPY KREME DOUGHNUT CORPORATION
INTERNATIONAL FRANCHISE AGREEMENT
     THIS AGREEMENT is made and entered into on this ___day of 20___, by and between KrispyKreme Doughnut Corporation, a North Carolina corporation, with its principal business address atP.O. Box 83, Winston-Salem, North Carolina 27102 (“Company”) and _____, a_____, whose principal business address is _____(“Franchisee”).
BACKGROUND FACTS
Company has developed a unique system for the operation of store facilities called “Krispy KremeStores” that offer and serve a variety of fresh doughnuts and certain other quality food productsunder the trademark and service mark “KRISPY KREME.”
Company operates, and licenses others to operate, Krispy Kreme Stores using the Krispy KremeSystem. Company grants to persons who meet its qualifications and are willing to undertake theinvestment and effort a franchise to own and operate a Krispy Kreme Store offering the Products andother products and services Company authorizes and utilizing the Krispy Kreme System subject to theterms and conditions of this Agreement.
Pursuant to the terms of the Development Agreement, Franchisee has applied for a franchise to ownand operate a Krispy Kreme Store.
THE PARTIES AGREE:
1.   DEFINITIONS
Affiliate means any person that directly or indirectly owns or controls, that is directly orindirectly owned or controlled by, or that is under common ownership or control with, Company orFranchisee.
Competitive Business means a business or enterprise, other than a Krispy Kreme Store, that: (i)sells yeast raised doughnuts, cake doughnuts, or any other types of doughnuts, miniature doughnutsor doughnut holes in any distribution channels to any customer for consumption or resale and suchsales constitute ten percent (10%) or more in total or at or from any single location; (ii) sellscoffee in any distribution channels to any customer for consumption or resale and such salesconstitute twenty percent (20%) or more in total or at or from any single location; or (iii) grantsor has granted franchises or licenses, or establishes or has established joint ventures, for thedevelopment and/or operation of a business that offers the food products referred to in (i) or (ii)in any such channel of distribution.
Copyrighted Works means the contents of the Manuals and all other know-how, information,specifications, systems and data used by Company in or in respect to the Krispy Kreme System,

 


 

including, without limitation, trade secrets, copyrights, designs, patents, and other intellectualproperty.
Development Agreement means the development agreement pursuant to which Franchisee has applied fora franchise to own and operate a Krispy Kreme Store.
Dollar or $ means the legal currency of the United States.
Franchise means the rights granted and the obligations imposed pursuant to this Agreement thatrelate to the operation of the STORE at the Site and to the use of the Krispy Kreme System in theoperation thereof.
General Manager means the general manager of the STORE that Franchisee designates concurrently withthe execution of this Agreement and identifies in Exhibit A attached hereto.
Grand Opening Marketing Program means the grand opening public relations and marketing program thatFranchisee is required to conduct for the STORE in accordance with Subsection 6.2 of thisAgreement.
Gross Sales means all revenue Franchisee derives from sales of Products and operation of the STORE,whether from cash, check, credit card or credit transactions, but excluding all federal, state ormunicipal sales, value added, use or service taxes collected from customers and paid or payable tothe appropriate taxing authority.
HDN means HDN Development Corporation.
Initial Franchise Fee means the non-recurring and non-refundable initial franchise fee thatFranchisee agrees to pay Company per STORE prior to the opening of such STORE. The amount of theInitial Franchise Fee is specified in Schedule A.
Krispy Kreme System means the distinctive business formats, methods, procedures, designs, lay-outs,equipment, mixes, standards and specifications designated by Company for use in Krispy KremeStores, all of which Company may modify from time to time, along with the Marks.
Managing Director means the managing director of Franchisee’s business. The initial ManagingDirector will be identified in Exhibit A of this Agreement.
Manuals means such materials (including, without limitation, if applicable, audiotapes, videotapes,magnetic media, computer software and written materials) that Company generally furnishes tofranchisees from time to time for use in operating Krispy Kreme Stores.
Marks means the trademarks, service marks, trade dress and other commercial symbols used in theoperation of Krispy Kreme Stores, including, without limitation, the trade and service marks“KRISPY KREME” and associated logos, as same may be changed, enhanced or supplemented from time totime.

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Non-Core Products means any product identified by the Marks other than the Products, such as, forexample, ice cream, clothing, hats, cups and other logoed items, etc.
Owner means each person other than Company and its Affiliates holding a direct or indirect legal orbeneficial Ownership Interests or voting rights in Franchisee, including, without limitation, anyperson who has a direct or indirect interest in Franchisee, this Agreement, the Franchise or theSTORE (and any person who owns, directly or indirectly, a five percent (5%) or greater OwnershipInterest in any such person (other than Company or its Affiliates), including without limitationany person who has any legal or equitable interest, or the power to vest in himself or herself anylegal or equitable interest, in the revenue, profits, rights or assets thereof.
Ownership Interest means in relation to any of the following: (a) a corporation, the ownership ofshares in the corporation; (b) an unlimited or limited liability company, the memberships or otherownership interest of such company; or (c) a partnership, the general and limited partnershipinterests in such partnership.
Payment Day means the day of the week specified in Schedule A on which the Royalty is due.
Principal Owner means the Principal Owners specified in Exhibit A.
Products means a variety of fresh doughnuts (including among others, yeast raised doughnuts, cakedoughnuts, miniature doughnuts and doughnut holes, some of which have various types and flavors offillings, glazes or other coatings) as well as certain other food products and beverages(specifically including, but not limited to, coffee) and food services as identified by Companyfrom time to time and which are customarily sold in Krispy Kreme Stores.
Royalty means the payment made by Franchisee to Company on the Payment Day each week based on theGross Sales of the STORE for the preceding week. The amount of Royalty to be paid is specified inSchedule A.
Site means a physical location that Company has approved as meeting its minimum criteria for thedevelopment and operation of the STORE.
STORE means the Krispy Kreme Store owned and operated by Franchisee pursuant to this Agreement.
System Standards means the mandatory and suggested specifications, standards, operating proceduresand rules that Company prescribes from time to time for the operation of Krispy Kreme Storesincluding, without limitation, the standards, specifications and other requirements related to thepurchase, preparation, marketing and sale of the Products and Non-Core Products; customer service;the design, décor and appearance of the STORE; the maintenance and remodeling of the STORE and theequipment, fixtures and furnishings therein; the use and display of the Marks; the insurancecoverage required to be carried for the STORE; the hiring and training of STORE employees; thedays and hours of STORE operation; and the content, quality and use of advertising and promotionalmaterials.

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Transfer means with respect to a Franchise, the STORE, this Agreement or an Ownership Interest inFranchisee, any of the following, without limitation, whether voluntary or involuntary, direct orindirect: (i) an assignment, sale, gift or pledge; (ii) the grant of a mortgage, lien, securityinterest, charge, or any encumbrance whatsoever including, without limitation, the grant of acollateral assignment; and (iii) a transfer that occurs as a result of Franchisee’s insolvency ordissolution or other transfer by operation of law. The term “Transfer” will not be deemed toinclude (i) the grant of a lien or security interest to secure financing for the acquisition ofequipment, fixtures and supplies for the STORE; (ii) an assignment of a leasehold interest in aSite in accordance with the terms of this Agreement; or (iii) the relocation of the STORE from oneSite to another Site.
Website means an interactive electronic document contained in a network of computers linked bycommunications software.
2.   GRANT OF FRANCHISE
 
2.1   Company grants to Franchisee the right to use the Krispy Kreme System for a term of fifteen(15) years (the “Term”) solely in connection with the conduct and operation of the STORE andsubject to the terms and conditions of this Agreement.
 
2.2   During the Term, Franchisee will strictly and diligently perform its obligations under thisAgreement and will continuously exert its best efforts to promote and enhance the development,operation and success of the STORE.
 
2.3   In addition to selling the Products, Franchisee will sell such other goods as Company mayrequire from time to time in its sole discretion.
 
2.4   No exclusive territory, protection or other right in the contiguous space, area or market ofthe STORE is expressly or impliedly granted to Franchisee. Company reserves the right tooperate or to grant others the right to operate Krispy Kreme Stores at any location other thanthe location of the STORE; to acquire and operate, or be acquired by, a business operating oneor more businesses located at any location other than the location of the STORE; to develop,manufacture, distribute and/or sell, and license others to develop, market, distribute and/orsell, Products to customers located anywhere in the world through any channel of distribution;and to develop, manufacture, distribute and/or sell, and license others to develop, market,distribute and/or sell, Non-Core Products to customers located anywhere in the world throughany channel of distribution.
 
3.   INITIAL FRANCHISE FEE AND ROYALTY
 
3.1   Concurrently with the execution of this Agreement and prior to the opening of the STORE,Franchisee agrees to pay to Company the Initial Franchise Fee specified in Schedule A.
 
3.2   On or before the Payment Day each week, Franchisee will (a) pay to Company the Royalty on theGross Sales of the STORE for the preceding week and (b) report to

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    Company, in the form Company requires from time to time, the true and correct Gross Sales ofthe STORE for the immediately preceding week ending on Sunday.
 
4.   MANUALS AND SYSTEM STANDARDS
 
4.1   Solely for use in operating the STORE during the Term, Company will loan Franchisee one (1)copy of its Manuals. The copy of the Manuals that Company loans to Franchisee will be inEnglish, however, Franchisee will, at its own expense, translate the Manuals into the languageof the geographic area within which the STORE is located. Franchisee will keep its copy ofthe Manuals current and in a secure location at the STORE. If Franchisee’s copy of theManuals is lost, destroyed or significantly damaged, Franchisee will obtain a replacement copyat Company’s then applicable charge. Franchisee may not at any time copy, duplicate, recordor otherwise reproduce any part of the Manuals. Franchisee may not distribute any part of theManuals and may not disclose any part of the Manuals to any person other than its employeeswho have a need to know the contents of the Manuals in order to perform their jobs.
 
4.2   During the Term, Franchisee will comply with all of the Manuals and the System Standards theycontain in addition to all applicable laws, regulations, rules, by-laws, orders and ordinancesin connection with its operation of the STORE. The Manuals are incorporated by reference intothis Agreement. In the event of a dispute relating to the contents of the Manuals, the mastercopy of the Manuals maintained by Company at its principal office, is controlling. Companymay at any time and from time to time change the Manuals to reflect changes in SystemStandards.
 
4.3   To determine whether Franchisee is in compliance with this Agreement and all SystemStandards, Company and/or its agents have the right at any time during regular business hours,and without prior notice to Franchisee, to: (a) inspect the STORE; (b) observe, photograph andvideotape the operations of the STORE; (c) remove samples of any Products, materials orsupplies for testing and analysis; (d) interview personnel of the STORE; (e) interviewcustomers of the STORE and to require Franchisee to present to its customers any suchevaluation forms periodically prescribed by Company and to participate in and/or request itscustomers to participate in any surveys performed by or on behalf of Company; and (f) inspectand copy any books, records and documents relating to the operation of the STORE.
 
5.   APPROVED PRODUCTS AND SUPPLIERS
 
5.1   Pursuant to a supply program established by Company, Company is the sole supplier toFranchisee of certain mixes, products, equipment and fixtures which consist of, but are notlimited to, the items described in Exhibit B attached hereto. In the event Franchisee is inbreach of this Agreement pursuant to Subsection 14.2 then, in addition to other remedieshereunder or under applicable law, Company may withhold delivery of such items to Franchiseeuntil Franchisee cures such breach in accordance with Subsection 14.2.

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5.2   Franchisee may purchase Non-Core Products only from Company and/or suppliers designated orapproved by Company from time to time.
 
5.3   Franchisee will purchase supplies for the STORE only from Company or from local suppliersthat Company from time to time designates or approves. Company will periodically provideFranchisee with a list of approved products and supplies and designated and approvedsuppliers. If Franchisee wishes to use any type or brand of product or supply item or wishesto purchase products or supplies from a supplier that is not currently designated or approvedby Company, Franchisee will submit to Company specifications, photographs, samples and/orother information Company may request. Company has the right to inspect a proposed supplier’sfacilities. Company will, within a reasonable time, determine whether such products, suppliesor such supplier meets its specifications and standards and notify Franchisee whether it isauthorized to use such product or supply item or purchase from such supplier. Company reservesthe right to periodically re-inspect the facilities and products of any supplier it hasaccepted and to revoke its acceptance if the supplier does not continue to meet Company’scriteria.
 
6.   ADVERTISING AND PUBLIC RELATIONS
 
6.1   Company has established a Brand Fund (the “BrandFund”) for the advertising, promotional,marketing and public relations programs and materials Company deems appropriate. Franchiseeagrees to contribute to the Brand Fund an amount equal to one-quarter percent (.25%) of theSTORE’s Gross Sales, payable in the same manner as the Royalty.
 
6.2   Company will direct all programs that the Brand Fund finances. The Brand Fund periodicallywill give Franchisee samples of advertising, marketing, and promotional formats and materialsat no cost. At Franchisee’s request, Company will sell Franchisee multiple copies of thesematerials.
 
6.3   Company will account for the Brand Fund separately from its other funds and will not use theBrand Fund for any of its general operating expenses. However, Company may use the Brand Fundto pay the reasonable salaries and benefits of personnel who manage and administer the BrandFund, and to pay other expenses that Company incurs in activities reasonably related to themanagement and administration of the Brand Fund.
 
6.4   The Brand Fund will not be Company’s asset. Although the Brand Fund is not a trust, Companywill hold all Brand Fund contributions for the benefit of the contributors and usecontributions only for the purposes described in Subsections 6.1 through 6.8. Company doesnot have any fiduciary obligation for administering the Brand Fund or for any other reason.The Brand Fund may spend in any fiscal year more or less than the total Brand Fundcontributions in that year, borrow from Company or others (paying reasonable interest) tocover deficits, or invest any surplus for future use. Company will use all interest earned onBrand Fund contributions to pay costs before using the Brand Fund’s other assets.

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6.5   Company will prepare an annual, unaudited statement of Brand Fund collections and expensesand give Franchisee the statement upon written request. Company may have the Brand Fundaudited annually, at the Brand Fund’s expense, by an independent certified public accountant.Company may incorporate the Brand Fund or operate it through a separate entity wheneverCompany deems appropriate. The successor entity will have all of the rights and dutiesspecified in Subsections 6.1 through 6.8.
 
6.6   Company cannot ensure that Brand Fund expenditures in or affecting any geographic area areproportionate or equivalent to Brand Fund contributions by contributors operating in thatgeographic area or that any contributor benefits directly or in proportion to its Brand Fundcontribution.
 
6.7   Company has the right, but no obligation, to use collection agents and institute legalproceedings to collect Brand Fund contributions at the Brand Fund’s expense. Company may alsoforgive, waive, settle and compromise any and all claims by or against the Brand Fund. Exceptas expressly provided in Subsections 6.1 through 6.8, Company assumes no direct or indirectliability or obligation to Franchisee for collecting amounts due to, maintaining, directing oradministering the Brand Fund.
 
6.8   Company may at any time defer or reduce the Brand Fund contributions of one or morefranchisees and, upon thirty (30) days’ prior written notice to Franchisee, reduce or suspendBrand Fund contributions and operations for one or more periods of any length and terminate(and, if terminated, reinstate) the Brand Fund. If Company terminates the Brand Fund, it willdistribute all unspent monies to its franchisees, and to Company and its affiliates, inproportion to their, and its, respective Brand Fund contributions during the preceding twelve(12) month period.
 
6.9   Franchisee will not execute or conduct any advertising or promotional activity in relation tothe STORE or the Krispy Kreme System without Company’s prior written approval.
 
6.9   Franchisee will be responsible for conducting, with Company’s guidance, the Grand OpeningMarketing Program during the period commencing thirty (30) days before and ending ninety (90)days after the opening of the STORE. The Grand Opening Marketing Program will utilize thepublic relations and advertising programs and media and advertising and promotional materialsthat Company has developed or approved.
 
6.9   During each twelve (12) month period of the Term, Franchisee will spend for advertising andpromotion of the STORE not less than three percent (3%) of the STORE’s Gross Sales. Companywill have the right to review Franchisee’s books and records from time to time to determineFranchisee’s expenditures for such advertising and promotion.
 
6.10   Before Franchisee uses any advertising, promotional or marketing materials which Company hasnot prepared or previously approved, Franchisee must send samples of all such materials toCompany for approval. If Franchisee does not receive Company’s

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    written approval within thirty (30) days after Company receives the materials, they aredeemed approved. Franchisee may not use any advertising, promotional, or marketingmaterials that Company has disapproved.
 
6.11   Franchisee agrees that any advertising, promotion and marketing it conducts will becompletely clear and factual and not misleading and conform to the highest standards ofethical marketing and the promotion policies that Company prescribes from time to time.
 
6.12   Company may modify or add to its Website to include information relating to the STORE.Company will control Website traffic and registration of additional domain names.
 
7.   TRAINING AND GUIDANCE
 
7.1   Before the STORE begins operating, Company will furnish, at no additional cost to Franchisee,a training program covering the operation of a Krispy Kreme Store for up to two (2) managers.Such training program will be conducted at Company’s designated training facility and/or at anoperating Krispy Kreme Store. The STORE manager(s) must complete the training to Company’ssatisfaction. Company will furnish, again at no additional cost to Franchisee, and subject tothe schedules of the training program in effect from time to time, the same training programto one (1) additional manager of the STORE per year that Franchisee hires after the STOREopens for business. Company may charge reasonable fees for the training of any managersthereafter. Franchisee will be responsible for the wages, salaries, travel and livingexpenses that any STORE manager(s) incur in connection with the training.
 
7.2   A management training program and/or modified training programs will be available at nocharge to such members of Franchisee’s senior management as are selected by Company, whichmembers will be required to complete Company’s management training program and/or modifiedtraining programs to Company’s satisfaction. Franchisee will be responsible for all traveland living expenses and compensation of its personnel who attend a training program. If anysuch member is unable to satisfactorily complete the training program, Franchisee willpromptly designate a replacement for such member, who will satisfactorily complete thetraining program. Any subsequent training performed by Company will be at times and placesdesignated by Company and at per diem charges established by Company from time to time.
 
7.3   Company may require previously trained and experienced STORE managers to attend up to one (1)refresher training course per year at such times and locations that Company designates.
 
7.4   Company will provide guidance and assistance to Franchisee from time to time and in themanner Company deems appropriate, regarding the operation of the STORE. Furthermore, ifFranchisee requests or Company requires additional or special training for Franchisee’semployees, all of the expenses incurred by Company in connection with

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    such training, including, without limitation, per diem charges for travel and livingexpenses for Company’s personnel, will be Franchisee’s responsibility.
 
8.   MARKS AND COPYRIGHTED WORKS
 
8.1   Franchisee acknowledges and agrees that the Marks and Copyrighted Works are owned by and arethe valuable property of Company and/or HDN. Franchisee will acquire no right, interest orbenefit in or to the Marks or Copyrighted Works other than the limited rights of use grantedunder this Agreement. If Company authorizes Franchisee to prepare any new works, translationsor derivative works from the Copyrighted Works, Franchisee hereby agrees that such new works,translations or derivative works will be the property of Company, and Franchisee herebyassigns, throughout the world, and will cause all authors or owners thereof likewise toassign, throughout the world, all right, title and interest in and to such new works,translations and derivative works to Company. Franchisee further covenants that any such newmaterials, new works, translations or derivative works created by Franchisee or by any thirdparty engaged by Franchisee are original to Franchisee or to such third party and do notviolate the rights of any other person or entity; this covenant regarding originality shallnot extend to any materials supplied by Company to Franchisee, but does apply to all materialsFranchisee or its third party contractors may add thereto. Franchisee hereby waives all“moral rights” it may have in such new materials, new works, translations or derivative works,and shall cause its third party contractors to waive all “moral rights” they may have in suchnew materials, new works, translations or derivative works. Franchisee will submit all suchmaterials, reproduction or other new works, translations or derivative works to Company forapproval prior to use. All usage of the Marks and Copyrighted Works by Franchisee and anygoodwill established thereby will inure to the exclusive benefit of Company and/or HDN.Franchisee agrees that it will in no way represent that it is the owner of, or has any right,title or interest in the Marks or Copyrighted Works other than the rights granted under thisAgreement. Any unauthorized use of the Marks or Copyrighted Works by Franchisee will be abreach of this Agreement and will constitute an infringement of the rights of Company and HDNin and to the Marks and/or in the Copyrighted Works. Upon the expiration or termination ofthis Agreement for any reason, Franchisee will have no claim whatsoever against Company or HDNfor compensation for any goodwill associated with the Marks and Copyrighted Works.
 
8.2   Franchisee will use the Marks and Copyrighted Works only in such form and manner as isexpressly authorized by Company or HDN from time to time, and Franchisee will follow Companyor HDN’s instructions regarding proper usage of the Marks in all respects. Franchisee willensure that all Copyrighted Works used hereunder bear an appropriate copyright notice underthe Universal Copyright Convention or other copyright laws as prescribed by Company or HDN.Company or HDN may, by notice to Franchisee, at any time change or withdraw any of the Marksand Copyrighted Works or designate new Marks or works in which copyright subsists, andFranchisee will implement such changes, withdrawals and additions within the period specifiedin the notice and at Franchisee’s expense.

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8.3   Franchisee will not apply for or assist any third party in applying for, or seek to applyfor, registration of any of the Marks, or any mark which is substantially identical orconfusingly similar to the Marks or any of the Copyrighted Works, or Copyrighted Works or anyportion thereof or Company’s or HDN’s proprietary rights in the Confidential Informationanywhere in the world.
 
8.4   Franchisee will do nothing to prejudice, damage or contest the validity of the Marks (andregistration thereof), the Copyrighted Works, the goodwill associated with the Marks and theCopyrighted Works, and Company and HDN’s proprietary rights in the Confidential Information.Franchisee will cooperate fully with Company in the protection and defense of the Marks andthe Copyrighted Works. Franchisee will immediately notify Company of any apparentinfringement of or challenge to Franchisee’s use of any Mark or Copyrighted Work, or claim byany person of any rights in any Mark or a confusingly or deceptively similar trademark,service mark or other item of intellectual property or Copyrighted Work. Franchisee will notcommunicate with any person other than its counsel and local governmental authorities (ifrequired), Company and/or its counsel with respect to any such infringement, challenge orclaim. Company has sole discretion to take such action as it deems appropriate in connectionwith any such infringement, challenge or claim of rights, and the right to control exclusivelyany settlement or legal processing arising out of any such infringement, challenge or claim orotherwise relating to any Mark or Copyrighted Work. Any award, or portion of an award,recovered by Company and/or HDN in any such action or proceeding shall belong solely toCompany and/or HDN.
 
9.   CONFIDENTIALITY AND EXCLUSIVE RELATIONSHIP
 
9.1   Franchisee will at all times during and after the Term keep confidential and not disclose toany person, other than with Company’s prior written approval, the terms of this Agreement andany related agreements, the System Standards, the Manuals, all other materials containing orreferring to the Marks or Copyrighted Works and all other information concerning the KrispyKreme System, the Marks or Copyrighted Works, the Products or Non-Core Products, or Company’sbusiness and affairs which may come to Franchisee by any means during the Term. Company maydisclose the Manuals to Franchisee by any means during the Term. Franchisee may disclose theManuals to Franchisee’s employees, on a need-to-know basis, only for the purposes of operatingthe STORE and provided that Franchisee at all times uses best endeavors to ensure thatFranchisee’s employees retain in confidence the Manuals and any other materials or informationdisclosed to them with Company’s approval. This obligation of confidentiality does not applyin respect of information in the public domain or previously known to Franchisee otherwisethan by breach of any obligation of confidentiality, or disclosure required by law or an orderof any court or tribunal. Franchisee acknowledges that any breach of this obligation ofconfidentiality may cause substantial irreparable damage to Company and that, in addition todamages or other monetary compensation, injunctive or other equitable or immediate relief maybe appropriate.

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9.2   Franchisee acknowledges that Company has granted Franchises to Franchisee in consideration ofand reliance upon Franchisee’s agreement that it and its Owners will deal exclusively withCompany. Franchisee therefore agrees that, during the Term, neither Franchisee nor any of itsOwners will, anywhere in the world: (a) have any direct or indirect Ownership Interest in anyCompetitive Business (this restriction is not applicable to the ownership of shares of a classof securities listed on a stock exchange or traded on a public stock market that representless than three percent (3%) of the number of shares of that class of securities issued andoutstanding); (b) perform services as a director, officer, manager, employee, consultant,representative, agent or otherwise for any Competitive Business; or (c) recruit or hire anyperson who is Company’s employee or the employee of any Krispy Kreme Store or who has beenCompany’s employee or the employee of any Krispy Kreme Store within the past six (6) monthswithout obtaining prior written permission from Company or that person’s employer. Franchiseeacknowledges and agrees that the failure of any person or entity restricted by this Section tocomply with this Section will constitute a breach of this Agreement by Franchisee.
 
10.   ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS
 
10.1   Franchisee will, at its expense, retain all records relating to the development and operationof the STORE. Franchisee will furnish to Company via the medium Company prescribes from timeto time, in a form consistent with its then-current accounting practices and procedures: (a)weekly reports of the STORE’s sales, cost of goods sold, labor expense and number oftransactions by 12:00 noon (Eastern Standard Time) on Tuesday of each week for the precedingweek; (b) within thirty (30) days after the end of each month, an operating income statementof Franchisee for such month and fiscal year to date, prepared in accordance with generallyaccepted accounting principles consistently applied in the geographic area within which theSTORE is located; (c) within forty-five (45) days after the end of each fiscal quarter, abalance sheet and income statement of Franchisee for such quarter and fiscal year to date,prepared in accordance with generally accepted accounting principles consistently applied inthe geographic area within which the STORE is located; (d) within one hundred twenty days(120) days after the end of Franchisee’s fiscal year, an income statement for the STORE forsuch fiscal year (reflecting all year-end adjustments), and a statement of cash flow of theSTORE, prepared in accordance with generally accepted accounting principles consistentlyapplied in the geographic area within which the STORE is located; and (e) upon request byCompany, such other data, reports, information and supporting records as Company may from timeto time prescribe.
 
10.2   Franchisee agrees to maintain and to furnish to Company, upon request, complete copies of allwithholding, income, sales, value added, use and service tax returns filed by Franchiseereflecting activities of the STORE. Company has the right to (a) disclose data derived fromsuch reports without identifying Franchisee or the location of the STORE; (b) requireFranchisee to have audited financial statements prepared on an annual basis; and (c) to accessall cash registers/computer terminals and Franchisee’s computer system and retrieve allinformation relating to the STORE, as often as it deems appropriate.

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    Franchisee will take such action as may be necessary to provide such access to Company.Furthermore, Franchisee will immediately report to Company any events or developments whichmay have a significant or material adverse impact on the operation of the STORE,Franchisee’s performance under this Agreement, or the goodwill associated with the Marks andKrispy Kreme Stores. Franchisee will sign and verify as correct each report and financialstatement submitted by Franchisee in the manner prescribed by Company.
 
10.3   Company will comply with all applicable consumer privacy and data protection laws andregulations and with any consumer privacy and data protection policies of Company in effectfrom time to time, including without limitation all laws, regulations and policies relating toany transfer of personal information by Franchisee to Company. Franchisee acknowledges andagrees that it is solely responsible for determining whether its data processing policiesrelating to international transfers of personal information are in compliance with allapplicable laws and regulations. Franchisee will immediately notify Company if Franchiseediscovers that its or Company’s consumer privacy and data protection policies applicable toFranchisee are not in conformity with applicable laws and regulations, including withoutlimitation all laws and regulations relating to any transfer of personal information byFranchisee to Company.
 
10.4   Company has the right to audit at any time during regular business hours, and without priornotice to Franchisee, to inspect and audit, or cause to be inspected and audited, thebusiness, financial and tax records of the STORE and Franchisee. Franchisee will fullycooperate and cause its employees and agents to fully cooperate with representatives ofCompany and independent accountants hired by Company to conduct any such inspection or audit.Company’s right to audit includes, without limitation, the right to access Franchisee’scomputer system. In the event any such inspection or audit reveals an understatement of theGross Sales of the STORE, Franchisee will pay to Company, within fifteen (15) days afterreceipt of the inspection or audit report, the Royalty payments due on the amount of suchunderstatement, plus interest (at the rate and on the terms provided in this Agreement) fromthe date originally due until the date of payment. Further, in the event such inspection oraudit is made necessary by the failure of Franchisee to timely furnish any reports orsupporting records required to be submitted under this Agreement or if an understatement ofGross Sales for the period of any audit is determined by any such audit or inspection to begreater than two percent (2%), Franchisee will reimburse Company for the cost of suchinspection or audit, including, without limitation, legal fees, accountants’ fees and thetravel expenses, room and board and per diem charges for employees of Company. The foregoingremedies are in addition to all other remedies and rights of Company hereunder or underapplicable law.
 
11.   FRANCHISEE’S OBLIGATIONS
 
11.1   Franchisee will disclose to Company all ideas, concepts, methods, techniques and products,including without limitation any developments or improvements to existing ideas, concepts,methods, techniques and products, conceived or developed by Franchisee, its Owners, employeesand agents relating to the development and operation

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    of Krispy Kreme Stores. Franchisee hereby grants to Company and agrees to procure from itsOwners, employees and agents who have access to know-how relating to the development andoperation of Krispy Kreme Stores, a perpetual, exclusive, royalty-free and worldwide rightto use such ideas, concepts, methods, techniques and products in all food service businessesoperated by Company, its Affiliates, developers and franchisees. Company has no obligationto pay Franchisee or any other person with respect to any such ideas, concept, method,technique or product. Franchisee will not use or allow any other person to use any suchconcept, method, technique or product without obtaining Company’s prior written approval.
 
11.2   Franchisee agrees that the STORE will be under direct, on-premises management by a trainedManaging Director or General Manager (as designated in the Development Agreement) or one ofFranchisee’s store managers, all of whom have completed training to Company’s satisfaction.
 
12.   PAYMENTS BY FRANCHISEE
 
12.1   Franchisee will pay all amounts due to Company on each Payment Day pursuant to thisAgreement:
  (a)   in Dollars or such other currency as Company notifies Franchisee from time totime using, when applicable, the exchange rate for conversion to the specific currencywhich is posted on the day before Payment Day by such bank as is specified by Companyfrom time to time;
 
  (b)   by electronic funds transfer to the bank account specified in Schedule A or insuch other manner as Company notifies Franchisee from time to time; and
 
  (c)   without any deduction or set-off and free of any taxes payable in respect ofsuch payments, other than as required by law.
12.2   Without limiting Company’s right to terminate this Agreement pursuant to Section 14, allamounts which Franchisee owes to Company or its Affiliates under this Agreement or any relatedagreement will bear interest after due date at a rate specified in Schedule A.
 
12.3   Company reserves the right to apply any of Franchisee’s payments to any of its past dueindebtedness to Company and its Affiliates. Company has the right to set off any amountsFranchisee or its Owners owe Company against any amounts Company might owe Franchisee or itsOwners, with the exception of any amounts that are the subject of a pending arbitrationproceeding between Company and Franchisee. Franchisee will not withhold payment of anyamounts owed to Company on the grounds of Company’s alleged non-performance of any of itsobligations hereunder. All such claims will, if not otherwise resolved by Company, besubmitted to mediation and arbitration as provided in Section 18 herein.

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12.4   Franchisee will pay promptly when due all taxes, duties, charges and levies payable inrespect of the STORE and all debts and other financial obligations incurred in the operationof the STORE, including, without limitation, all obligations to suppliers.
 
12.5   If at any time, legal restriction will be imposed upon the purchase of Dollars of thetransfer to or credit of a non-resident entity with payments in Dollars, Franchisee willnotify Company immediately. Franchisee will use its best efforts to obtain any consents orauthorizations which may be necessary in order to permit timely payments in Dollars of allamounts payable hereunder. While such restrictions are in effect, Company may requireFranchisee to deposit all amounts due but unpaid as a result of such a restriction in any typeof account, in any bank or institution designated by Company and in any currency designated byCompany. Company will be entitled to all interest earned on such deposits. In the event suchrestrictions prevent payment by Franchisee of amounts due hereunder in Dollars for a period oftwelve (12) consecutive months or more, Company may, at its sole and exclusive option,terminate this Agreement effective upon delivery of notice thereof to Franchisee.
 
12.6   In the event that any amounts payable by Franchisee to Company hereunder are subject towithholding or other taxes that Franchisee is required to deduct from such payments,Franchisee is entitled to deduct such taxes and remit the same to the appropriate governmentalauthorities. Within the time required by law, Franchisee will complete all forms prescribedby governmental authorities with regard to taxes withheld or paid and provide copies thereofto Company. Furthermore, Franchisee will promptly deliver to Company receipts of applicablegovernmental authorities for all such taxes withheld or paid. Franchisee will be responsiblefor and will indemnify and hold Company and its Affiliates harmless against any penalties,interest and expenses incurred by or assessed against Company or its Affiliates as a result ofFranchisee’s failure to withhold such taxes or to remit them to the appropriate taxingauthority. Franchisee will fully and promptly cooperate with Company to provide suchinformation and records as Company may request in connection with any application by Companyto any taxing authority for tax credits, exemptions or refunds available for any withholdingor other taxes paid or payable by Franchisee. In the event Company is required to refund toFranchisee any amounts paid hereunder pursuant to the terms and conditions of this Agreement,Company will not be required to refund that portion of those amounts which were withheld byFranchisee in order to comply with any applicable tax law unless and until Company receives arefund of such amounts from the applicable government and/or agency thereof or utilizes aforeign tax credit which is directly attributable to such amounts on its United States federalincome tax return which is accepted by the United States Treasury or with respect to which theperiod within which such credit may be reduced or is allowed has expired.
 
12.7   All amounts which Franchisee owes to Company or its Affiliates under this Agreement or anyrelated agreement will bear interest after due date at a rate specified in Schedule B. Suchinterest will be payable in the same currency as the principal debt on which interest accrues.This Subsection does not constitute Company’s agreement to accept such

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    payments after same are due or a commitment by Company to extend credit to, or otherwisefinance Franchisee’s operation of, the STORE. Franchisee acknowledges that its failure topay all such amounts when due will constitute grounds for termination of this Agreement andthe Franchise granted hereunder, as provided in Section 15 hereof, notwithstanding theprovisions of this Subsection.
 
13.   TRANSFER
 
13.1   This Agreement is fully transferable by Company and will inure to the benefit of any assigneeor other legal successors to Company’s interest. Franchisee agrees that Company has theright, from time to time, to delegate the performance of any portion or all of Company’sobligations and duties under this Agreement to designees, whether the same are Company’sagents or independent contractors with which Company has contracted to provide these services.
 
13.2   Neither an Ownership Interest in Franchisee nor Franchisee’s obligations under thisAgreement, the Franchise, the STORE, or the lease for or ownership of the Site, will betransferred without Company’s prior written approval (which approval will not be unreasonablywithheld).
 
13.3   Subject to the other provisions of this Section: (a) a Transfer of ownership, possessioncontrol or any other interest in the STORE will be made only in conjunction with a Transfer ofthe Franchise. This rule will also apply where the Transfer is one of a series of Transferswhich in the aggregate constitute the Transfer of the STORE; (b) a Transfer of the Franchisewill be made only in conjunction with a Transfer, approved by Company, of this Agreement andall other franchise agreements between the parties. This rule will also apply where theTransfer is one of a series of Transfers which in the aggregate constitute the Transfer of theFranchise; and (c) a Transfer of this Agreement will be made only in conjunction with aTransfer, approved by Company, of all franchises for Krispy Kreme Stores operated byFranchisee or its Affiliate.
 
13.4   If Franchisee determines to sell, assign or transfer an interest in this Agreement, theFranchise or the STORE, Franchisee will obtain (a) a bona fide, arms length, executed writtenoffer, (b) an earnest money deposit (in the amount of five percent (5%) or more of theoffering price) from a qualified, responsible, bona fide and fully disclosed purchaser.Franchisee will immediately submit to Company a true and complete copy of such offer(conditioned on Company’s first refusal rights) and any proposed ancillary agreements, whichincludes details of the payment terms of the proposed sale and the sources and terms of anyfinancing for the proposed purchase price. The offer must apply only to an interest in thisAgreement, the Franchise and the STORE although the offer may include any other Krispy KremeStores in which Franchisee or any of its Owners have a beneficial interest and any rightsFranchisee or any of its Owners have in any development agreement with Franchisee, and may notinclude an offer to purchase any of Franchisee’s (or its Owners’) property or rights otherthan incidental to the operation of Krispy Kreme Stores. However, if the offeror proposes tobuy any other property or rights from Franchisee (or its Owners) under a separate,contemporaneous offer, such

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    separate, contemporaneous offer must be disclosed to Company, and the price and terms ofpurchase offered to Franchisee in the offer for the interest, this Agreement, the Franchiseand the STORE will reflect the bona fide price offered therefor and not reflect any valuefor any other property or rights.
        13.4.1 Company has the right, exercisable by written notice delivered to Franchiseewithin thirty (30) days from the date of delivery to Company of an exact copy of such offer(and any ancillary agreements), a complete executed application for Company’s approval ofthe Transfer and all other information Company requests, to purchase such interest for theprice and on the terms and conditions contained in such offer, provided that Company maysubstitute cash for any form of payment proposed in such offer; Company’s credit will bedeemed equal to the credit of any proposed purchaser and Company will have not less thanninety (90) days after giving notice to prepare for closing.
        13.4.2 Company will be entitled to purchase such interest subject to allrepresentations and warranties given by the seller of a business including, withoutlimitation, representations and warranties as to (a) ownership, condition and title to stockand/or assets, (b) liens and encumbrances relating to the stock and/or assets, and (c)validity of contracts and liabilities, contingent or otherwise, of the business beingpurchased.
        13.4.3 If Company exercises its right of first refusal, Franchisee and its Owners will,for a period of two (2) years commencing on the date of closing be bound by thenon-competition covenant contained respectively in this Section and in the form provided inExhibit D.
        13.4.4 If Company does not exercise its right of first refusal, Franchisee may completethe sale to such purchaser pursuant to and on the exact terms of such offer, subject toSubsections 13.2 and 13.3 of this Agreement, provided that if the sale to such purchaser isnot completed within one hundred twenty (120) days after delivery of such offer to Company,or if there is any change in the terms of the sale (which Franchisee agrees promptly tocommunicate to Company), Company will again have an additional right of first refusal forthirty (30) days on the same terms and conditions as are applicable to the initial right offirst refusal.
14.   DEFAULT AND TERMINATION
 
14.1   Company has the right to terminate the Franchise, effective immediately upon delivery ofwritten notice to Franchisee, if any of the following events occur:
  (a)   Franchisee or any of its Owners has made any materialmisrepresentation or omission in connection with its application for andpurchase of the Franchise;

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  (b)   Franchisee abandons or fails actively to operate the STORE forfive (5) or more consecutive business days, unless such STORE has been closedfor a purpose Company has approved or because of casualty or government order;
 
  (c)   Franchisee (or any of its Owners) makes an unauthorizedTransfer of the Franchise or of an Ownership Interest in Franchisee or theSTORE;
 
  (d)   Franchisee (or any of its Owners) is or has been convicted by atrial court of, or pleads guilty or has pleaded no contest to, a felony or anyother crime or offense that may adversely affect the reputation of Krispy KremeStores, or the goodwill associated with the Marks, or engages in any misconductthat may adversely affect the reputation of the STORE or other Krispy KremeStores or the goodwill associated with the Marks;
 
  (e)   Franchisee violates any health, safety or sanitation law,ordinance or regulation and does not completely correct such non-compliance orviolation within seventy-two (72) hours, after delivery of written noticethereof;
 
  (f)   Franchisee makes an assignment for the benefit of creditors oradmits in writing its insolvency or inability to pay its debts generally asthey become due; Franchisee consents to the appointment of a receiver, trusteeor liquidator of all or the substantial part of its property; the STORE isattached, seized, subjected to a writ or distress warrant or levied upon,unless such attachment, seizure, writ, warrant or levy is vacated within thirty(30) days; or any order appointing a receiver, trustee or liquidator ofFranchisee or the STORE is not vacated within thirty (30) days following theentry of such order;
 
  (g)   Franchisee (or any of its Owners) engages in any dishonest orunethical conduct which may adversely affect the reputation of the STORE orother Krispy Kreme Stores or the goodwill associated with the Marks;
 
  (h)   Franchisee knowingly or negligently maintains false records inrespect of the STORE or submits any false report to Company;
 
  (i)   Company has terminated any of Franchisee’s development rightsunder the Development Agreement or any other Franchise granted to Franchiseeunder this Agreement;
 
  (j)   Franchisee fails to make payments of amounts due to Company anddoes not correct such failure within ten (10) days after delivery of writtennotice of such failure; or

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  (k)   Franchisee (or any of its Owners) fails on three (3) or moreseparate occasions within any period of twelve (12) consecutive months tosubmit when due reports or other data, information or supporting records, topay when due amounts owed to Company or otherwise to comply with the Franchise,whether or not such failures to comply were corrected after written notice ofsuch failure was delivered to Franchisee.
14.2   Except as otherwise expressly provided herein, Company has the right to terminate theFranchise if Franchisee fails to comply with its obligations hereunder and does not correctsuch failure within thirty (30) days after written notice of such failure is delivered toFranchisee, in particular if:
  (a)   In the event of the dissolution or insolvency, if a legalentity, of Franchisee or of an Owner of a controlling interest in Franchiseeis not assigned as herein required;
 
  (b)   Franchisee surrenders or transfers its control of the operationof the STORE without Company’s prior written consent;
 
  (c)   Franchisee loses the right to possession of the Site and hasnot relocated to another site approved by Company within a reasonable period oftime;
 
  (d)   Franchisee (or any of its Owners) makes any unauthorized use ordisclosure of any Confidential Information or uses, duplicates (other than foruse in the STORE) or discloses any portion of the Manuals in violation of thisAgreement;
 
  (e)   Franchisee (or any of its Owners) makes any unauthorized use ofthe Marks, or Copyrighted Works (including, but not limited to, unauthorizeduse of the Marks as part of a Website domain name or electronic address or aspart of information available on such Website) or challenges or seeks tochallenge the validity of the Marks;
 
  (f)   The guarantor(s) of this Agreement breach the Guaranty andAssumption of Obligations executed concurrently with this Agreement;
 
  (g)   Franchisee fails to pay when due any foreign, federal, state orlocal income, service, sales or other taxes due on the operations of the STORE,unless Franchisee is in good faith contesting its liability for such taxes;
 
  (h)   Franchisee sells any food or beverage item that has not beenapproved by Company; or
 
  (i)   Franchisee (or any of its Owners) fails to comply with anyother obligation of the Franchise or any System Standard.

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14.3   Company has the option, but not the obligation, to cure Franchisee’s default under Subsection14.2. If Company chooses to exercise such option, then within five (5) days of the dateFranchisee receives notice from Company of the expenses Company incurred in curingFranchisee’s default, Franchisee shall reimburse Company for all such expenses.
 
15.   CONSEQUENCES OF TERMINATION OR EXPIRATION
 
15.1   Immediately upon the expiration or termination of this Agreement, Franchisee will:
  (a)   pay all amounts owing to Company;
 
  (b)   discontinue all use of the Marks and the Copyrighted Works and otherwise ceaseholding out any affiliation or association with Company or the Krispy Kreme Systemunless authorized pursuant to any other written agreement with Company;
 
  (c)   cease using and dispose of all materials bearing the Marks and all proprietarysupplies and confidential information (as described in Section 9 of this Agreement) inaccordance with Company’s instructions unless authorized pursuant to any other writtenagreement with Company; and
 
  (d)   if Company so requires, de-identify the STORE in accordance with Company’sinstructions.
15.2   Upon termination of this Agreement, neither Franchisee nor any of its Owners will directly orindirectly, through any entity in which an Owner holds a direct or indirect OwnershipInterest, for a period of two (2) years commencing on the effective date of such terminationor expiration or the date on which Franchisee ceases to conduct its activities under thisAgreement, whichever is later, have any direct or indirect interest as a disclosed orbeneficial owner, investor, partner, director, officer, manager, employee, consultant,representative, agent, or in any other capacity in any Competitive Business located withinforty (40) kilometers of the Site; or within eight (8) kilometers of any other Krispy KremeStore in operation or under construction. The restrictions of this Subsection should not beconstrued to prohibit Franchisee, any of its Owners, or any entity in which Owner holds adirect or indirect Ownership Interest, from (a) having a direct or indirect Ownership Interestin Krispy Kreme Stores, development agreement or franchise for the development or operation ofKrispy Kreme Stores or from providing services to Krispy Kreme Stores or to Franchiseepursuant to other agreements with Company or with Franchisee or (b) owning publicly tradedOwnership Interests of a Competitive Business that constitute less than three percent (3%) ofa class of Ownership Interests issued and outstanding.
 
15.3   Upon termination or expiration (without the grant of a successor franchise) of thisAgreement, Company will have the option, exercisable by giving written notice thereof toFranchisee within sixty (60) days from the date of such expiration or termination, to purchasefrom Franchisee any or all the assets used in the STORE. Company’s right to purchase underthis Subsection includes the leasehold rights (subject to any rights of

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    approval retained by the owner of the leasehold) to or ownership of the Site. Company orits assignee will be entitled to all warranties and representations requested by Companyincluding, without limitation, representations and warranties as to: (a) ownership,condition and title to assets; (b) liens and encumbrances on the assets, validity ofcontracts and agreements; (c) liabilities inuring to Company or affecting the assets,contingent or otherwise; and (d) a general release referred to below.
  15.3.1   As a condition of Company’s purchase of the STORE, Franchisee and its Owners furtheragree to execute a general release, in form satisfactory to Company, of any and allclaims against Franchisee and its Affiliates, shareholders, officers, directors,employees, agents, successors and assigns relating to the performance of Company or anyof its Affiliates under this Agreement.
 
  15.3.2   Franchisee agrees at Company’s election (a) to sell and assign its leasehold interestin the Site to Company at fair market value, if any; or (b) if Franchisee is unable toassign its leasehold interest, to enter into subleases at a fair market rental for theremainder of the lease term on the same terms (including, without limitation, renewaloptions) as the prime leases; or (c) if Franchisee owns the Site, to lease the Site toCompany at a reasonable commercial rent and according to terms comparable with rentalterms for similar leased properties in the marketplace where the Site is located.
 
  15.3.3   The purchase price for the assets of the STORE will be their fair market value,determined as of the date of termination or expiration in a manner consistent with thereasonable depreciation of leasehold improvements owned by Franchisee and theequipment, furniture, fixtures, signs, delivery vehicles, materials and supplies. TheSTORE’s market value includes, without limitation, the goodwill Franchisee hasdeveloped in the market of the STORE that is independent of the goodwill of the Marksand the Krispy Kreme System; the length of the remaining term of the lease or subleasefor the Site, if any; and the age and condition of the improvements, equipment,fixtures, furnishings, décor, signs and delivery vehicles of the STORE. Company mayexclude from the assets purchased hereunder cash or its equivalent and any leaseholdimprovements, equipment, furnishings, fixtures, signs, delivery vehicles, materials andsupplies and other assets that are not necessary or appropriate (in function orquality) to the STORE’s operation or that Company has not approved as a meetingstandards for Krispy Kreme Stores, and the purchase price will reflect such exclusions.
 
  15.3.4   If Company and Franchisee are unable to agree on the fair market value of the assetsof the STORE which Company has elected to purchase, the fair market value will bedetermined by three (3) independent appraisers who collectively will conduct one (1)appraisal. Company will appoint one (1) appraiser, Franchisee will appoint one (1)appraiser, and then those appraisers will appoint the third appraiser. Franchisee andCompany will select their respective appraisers within fifteen (15) days after theNotification Date, and the two (2) appraisers so chosen will appoint the thirdappraiser within fifteen (15) days after the date on which the

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      last of the appointed appraisers is appointed. Company and Franchisee will eachbear the cost of their own appraiser and share equally the fees and expenses of thethird appraiser. Company and Franchisee will instruct the three (3) appraises tocomplete their appraisal within thirty (30) days after the third appraiser’sappointment. The purchase price for the assets of the STORE will be paid at theclosing of the purchase, which will take place no later than ninety (90) days afterdetermination of the purchase price. At the closing Franchisee will deliverinstruments transferring to Company or its assignee: (a) good and merchantabletitle to the assets purchased, free and clear of all liens and charges (other thanliens and charges acceptable to Company or its assignee), with all applicable sales,value added, and other transfer taxes paid by Franchisee; (b) all licenses andpermits of such STORE which may be assigned or transferred; and (c) the leaseholdinterest in (or unencumbered title to) the Site and improvements thereon. IfFranchisee cannot deliver clear title to all of the purchased assets, or if thereare other unresolved issues, the closing of the sale will be accomplished through anescrow of trust, at the sole discretion of Company.
15.4   In lieu of exercising its option to buy the STORE as provided herein, Company will have theoption to buy from Franchisee any or all of the items of equipment and fixtures thatFranchisee originally purchased from Company, its Affiliates, or its designated suppliers withrespect to the STORE. Franchisee may not sell any of these items without waiver of Company’soption to purchase the same. The purchase price for such equipment and fixtures will be theirfair market value, determined in the same manner as set forth in Subsection 15.3.3. Theclosing purchase of such equipment and fixtures will be accomplished in the same mannerprovided in Subsection 15.3.4.
 
15.9   All obligations of Company and Franchisee, its Owners or their immediate family under thisAgreement, which expressly or by their nature survive or are intended to survive thetermination or expiration of this Agreement, will continue in full force and effect subsequentto and notwithstanding the termination or expiration until they are satisfied in full or bytheir nature expire.
 
16.   SUCCESSOR FRANCHISE
 
16.1   Upon expiration of the Term, Company will grant Franchisee a successor franchise ifFranchisee and each of its Owners are in full compliance with the provisions of this Agreementand provided that the following conditions are met:
  (a)   Franchisee maintains possession of the Site and agrees to upgrade the STORE toCompany’s then-current standards for Krispy Kreme Stores;
 
  (b)   If Franchisee is unable to maintain possession of the Site, or if in Company’sjudgment the STORE should be relocated, and Franchisee secures a substitute siteapproved by Company, develops such site in compliance with Company’s then-currentstandards for Krispy Kreme Stores, and continues to operate the STORE at the Site untiloperations are transferred to the substitute site;

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  (c)   Franchisee gives Company written notice of its election to acquire a successorfranchise at least six (6) months but not more than twelve (12) months prior to theexpiration of the term of the Franchise;
 
  (d)   Franchisee has been in compliance with all of the terms and conditions of theFranchise through the date of its expiration;
 
  (e)   Franchisee and its Owners will execute the terms and conditions of theagreements Company is then customarily using in connection with the grant of successorfranchises for Krispy Kreme Stores; and
 
  (g)   Franchisee and its Owners will execute general releases and deliver them toCompany for acceptance and execution within sixty (60) days after their delivery toFranchisee, in form satisfactory to Company, of any and all claims against Company andits Affiliates, shareholders, officers, directors, employees, agents, successors andassigns.
16.2   Once Company receives notice from Franchisee in accordance with paragraph (c) above, Companywill give Franchisee notice, within ninety (90) days after Company’s receipt of Franchisee’snotice, of its decision: (a) to grant Franchisee a successor franchise; (b) to grantFranchisee a successor franchise on the condition that deficiencies of the STORE, and/or inits operation of the STORE, are corrected; or (c) not to grant Franchisee a successorFranchise. If Company’s notice states that Franchisee must cure certain deficiencies of theSTORE or its operation as a condition to the grant of a successor franchise, Franchisee willhave thirty (30) days from the receipt of such notice to cure such deficiencies. IfFranchisee does not cure such deficiencies, Company will give Franchisee written notice of adecision not to grant a successor franchise, based upon Franchisee’s failure to cure suchdeficiencies, within thirty (30) days after the expiration of the cure period, provided,however, that Company will not be required to give Franchisee such notice if Company decidesnot to grant Franchisee a successor franchise due to its breach of the Franchise during thecure period or the thirty (30) day period thereafter. If Company fails to give Franchisee:(a) notice of deficiencies in the STORE, or in its operation of the STORE, within ninety (90)days after Company receives Franchisee’s timely election to acquire a successor franchise; or(b) notice of its decision not to grant a successor franchise within thirty (30) days afterthe expiration of the cure period (if such notice is required), Company may extend the term ofthe Franchise for such period of time as is necessary in order to provide Franchisee witheither reasonable time to correct deficiencies or the thirty (30) day notice of its refusal togrant a successor franchise required hereunder.
 
17.   INDEPENDENT CONTRACTORS/INDEMNIFICATION
 
17.1   Company and Franchisee understand and agree that this Agreement does not create a fiduciaryrelationship between them, that Company and Franchisee are and will be

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    independent contractors, and that nothing in this Agreement is intended to make either partya general or special agent, joint venturer, partner, or employee of the other for anypurpose. Franchisee agrees to conspicuously identify itself in all dealings with others asthe owner of the STORE under a franchise Company has granted and will conspicuously andprominently place such other notices of independent ownership on such forms, business cards,stationery, advertising and other materials as Company may require from time to time.
 
17.2   Franchisee will not employ any of the Marks in signing any contract, application for anylicense or permit, or in a manner that may result in liability of Company or its Affiliatesfor any indebtedness or obligation of Franchisee, nor will Franchisee use the Marks in any waynot expressly authorized herein. Except as expressly authorized in writing, neither Companynor Franchisee will make any express or implied agreements, warranties, guarantees orrepresentations, or incur any debt in the name of or on behalf of the other, or represent thattheir relationship is other than manufacturer/developer and franchisor/franchisee and neitherCompany nor Franchisee will be obligated by or have any liability under any agreements orrepresentations made by the other that are not expressly authorized in writing, nor willCompany be obligated for any damages to any person or property directly or indirectly arisingout of the development or operation of STORE or Franchisee’s business authorized by orconducted pursuant to this Agreement.
 
17.3   During the Term, Franchisee is required to seek approval from Company for certain acts andactivities. Company and Franchisee agree that such approvals by Company do not constitute anyassurance, guarantee, representation or warranty that such acts and activities are sound andappropriate, and Company (and its Affiliate) decline any responsibility in relation with suchacts and activities which remain Franchisee’s sole responsibility.
 
17.4   Company will have no liability for any sales, value added, use, service, occupation, excise,gross receipts, income, property, payroll or other taxes, whether levied upon Franchisee orthe STORE in connection with the sales made or business conducted by Franchisee (except anytaxes Company is required by law to collect from Franchisee). Payment of all such taxes willbe the responsibility of Franchisee.
 
17.5   Franchisee agrees to indemnify, defend and hold Company, its Affiliates, and their respectiveshareholders, directors, officers, employees, agents, successors and assignees (each, an“Indemnified Party”) harmless against and to reimburse them for: all claims, losses,obligations and damages described in Subsection 17.6, any and all claims and liabilities ofits customers and other third parties with whom Franchisee deals, directly or indirectlyarising out of this Agreement, any and all taxes described in Subsection 17.4, the developmentor operation of the STORE pursuant to this Agreement (including, without limitation, itsbreach or violation of any representation, warranty, agreement, contract or commitmentresulting from its signing of this Agreement or performance of any of its obligations underthis Agreement), unauthorized activities conducted in association with the Marks, or theTransfer of any interest in this Agreement, the

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    Franchise, or the STORE, to the extent that such claims, obligations, damages, losses orliabilities do not arise solely from Company’s gross negligence or wrongful conduct.
 
17.6   For purposes of this Section, “claims” means and includes all obligations, damages(including, without limitation actual, consequential, special, loss of profits and punitive)and costs reasonably incurred in the defense of any such claim against the Indemnified Party,including without limitation reasonable accountants’, attorneys’, attorney assistants’,arbitrators’ and expert witness fees, costs of investigation and proof of facts, court costs,other litigation expenses, and travel and living expenses. The Indemnified Party will havethe right to defend any such claim against it or its Affiliates in such manner as Companydeems appropriate or desirable in its sole discretion. This indemnity will continue in fullforce and effect subsequent to and notwithstanding the expiration or termination of thisAgreement.
 
17.7   Under no circumstances will the Indemnified Party be obligated to seek recovery from anyinsurer or other third party, or otherwise to mitigate its losses and expenses, in order tomaintain and recover fully a claim against the party against which indemnification is sought(the “Indemnifying Party”). A failure to pursue such recovery or mitigate a loss, will in noway reduce or alter the amounts the Indemnified Party may recover from the Indemnifying Party.
 
18.   DISPUTE RESOLUTION
 
18.1   If any part of this Agreement is held to be void, invalid or otherwise unenforceable, Companymay elect either to modify the void, invalid or unenforceable part to the extent necessary torender it legal, valid and enforceable or to sever the void, invalid or unenforceable part, inwhich event the remainder of this Agreement will continue in full force and effect.
 
18.2   If any applicable and binding law or rule of any jurisdiction requires greater prior noticethan is required hereunder for the termination of any rights under this Agreement or thetaking of some other action not required hereunder, the prior notice and/or other actionrequired by such law or rule will be substituted for the comparable provisions hereof.
 
18.3   Company and Franchisee acknowledge that certain disputes may arise that they are unable toresolve, but may be resolved through mediation. To facilitate such resolution, Company andFranchisee agree that either of them has the right, prior to commencement of an arbitrationproceeding by a party as provided herein, to require that a dispute first be submitted fornon-binding mediation at a mutually agreeable location (if the parties cannot agree on alocation, the mediation will be conducted in New York, New York). Such mediation will beconducted pursuant to the rules of the American Arbitration Association (“AAA”). The partiesagree that statements made by any party in such mediation proceeding will not be admissiblefor any purpose in a subsequent arbitration or other legal proceeding.

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18.4   Subject to Subsection 18.3, and except for controversies, disputes or claims related to orbased on Franchisee’s use of the Marks after the expiration or termination of the Franchise orFranchisee’s development rights under the Development Agreement, all controversies, disputesor claims arising between Company, its Affiliates and their respective shareholders, officers,directors, employees and agents (in their representative capacity) and Franchisee (and itsowners and the guarantors of this Agreement) arising out of or related to the relationship ofthe parties hereto, this Agreement or any other agreement between the parties or any provisionof such agreement and the validity thereof, will be submitted for binding arbitration to theAAA on demand of either party.
 
18.5   Such arbitration proceedings will be conducted in New York, New York, and, except asotherwise provided herein, will be heard before a panel of three (3) arbitrators and conductedin accordance with the then current commercial arbitration rules of the AAA for internationalarbitrations. All matters relating to arbitration will be governed by the United StatesFederal Arbitration Act (9 U.S.C. § 1 et seq.) and not by any state or foreignarbitration law.
 
18.6   Company and Franchisee will each appoint one (1) arbitrator and the two (2) arbitrators soappointed will appoint a third arbitrator to act as chairman of the tribunal. If a partyfails to nominate an arbitrator within thirty (30) days from the date when a party’s requestfor arbitration has been communicated to the other party, such appointment will be made by theAAA. The two (2) arbitrators thus appointed will attempt to agree upon the third arbitratorto act as chairman. If said two (2) arbitrators fail to nominate the chairman within thirty(30) days from the date of appointment of the second arbitrator to be appointed, the chairmanwill be appointed by the AAA.
 
18.7   The arbitrators will have the right to award or include in their award any relief which theydeem proper in the circumstances, including, without limitation, money damages (with intereston unpaid amounts from date due), specific performance, injunctive relief and attorneys’ feesand costs, provided that the arbitrators will not have the right to declare any Mark genericor otherwise invalid or, except as otherwise provided herein, to award exemplary,consequential, special or punitive damages. The award and decision of the arbitrators will beconclusive and binding upon all parties hereto and judgment upon the award may be entered inany court of competent jurisdiction, and Franchisee and Company waive any right to contest thevalidity or enforceability of such award.
 
18.8   The parties further agree to be bound by the provisions of any applicable limitation on theperiod of time in which claims must be brought under applicable law or this Agreement,whichever is less. The parties further agree that in connection with any such arbitrationproceeding each will submit or file all claims which it has against the other party within thesame proceeding as the claim to which it relates. Any such claim which is not submitted orfiled as described above will forever be barred. The parties further agree that arbitrationwill be conducted on an individual, not a class-wide basis, and that any arbitrationproceeding between Company and Franchisee will not be consolidated with any other arbitrationproceeding involving Company and any other person.

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18.9   Notwithstanding anything to the contrary contained in this Section 18, each party has theright, in a proper case, to obtain temporary restraining orders and temporary or preliminaryinjunctive relief from a court of competent jurisdiction, provided, however, that the partiesto the dispute agree to submit their dispute for contemporaneous, non-binding mediation asprovided in Subsection 18.3 and, if such dispute cannot be resolved through such mediation andis subject to arbitration pursuant to the terms of this Section, for arbitration as providedin this Section. The arbitration provision contained herein will continue in full force andeffect subsequent to and notwithstanding expiration or termination of this Agreement.
 
19.   NOTICES
 
19.1   All written notices and reports permitted or required to be delivered by the provisions ofthis Agreement or of the Manuals will be deemed so delivered: (a) at the time delivered byhand, (b) one (1) business day after transmission by telegraph, facsimile or other electronicsystem (evidenced by machine generated receipt), (c) one (1) business day after being placedin the hands of an international commercial courier service for next business day delivery,(d) or three (3) business days after placement in the United States Mail by registered orcertified mail, return receipt requested, postage prepaid and addressed to the party to benotified at its most current principal business address of which the party sending the noticehas been notified. All payments and reports required by this Agreement will be directed toCompany at such address, or to such other persons and places, as Company may direct in writingfrom time to time. Any required payment or report not actually received by Company duringregular business hours on the date due (or postmarked by postal authorities at least two (2)days prior thereto) will be deemed delinquent.
 
20.   MISCELLANEOUS
 
20.1   This Agreement (including, without limitation, the preambles and Exhibits hereto) togetherwith the Manuals and Company’s other written policies, constitutes the entire agreement of theparties, except as provided below, and there are no other oral or written understandings,representations, warranties or agreements between the parties relating to the subject matterof this Agreement. If two (2) or more persons are at any time an Owner hereunder, whether aspartners or joint venturers, their obligations and liabilities to Company will be joint andseveral. This Agreement may be executed in counterparts, each of which will be deemed anoriginal.
 
20.2   This Agreement is binding upon the parties hereto and their respective executors,administrators, heirs, beneficiaries, assigns and successors in interest, and will not bemodified except by written agreement signed by both Company and Franchisee. The Agreementwill be deemed to be made when accepted on Company’s and Franchisee’s behalf.
 
20.3   Company and Franchisee may by written instrument unilaterally waive or reduce any obligationof or restriction upon the other under this Agreement, effective upon delivery

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    of written notice to the other or such other effective date stated in the notice of waiver.Any waiver Company or Franchisee grant will be without prejudice to any other rights thewaiving party may have, will be subject to its continuing review and may be revoked, in itssole discretion, at any time for any reason, effective upon delivery to the other party often (10) days’ prior written notice. The delay or failure of any party to exercise anyright or remedy pursuant to this Agreement will not operate as a waiver of the right orremedy and a waiver of any particular breach will not be a waiver of any other breach. Allrights and remedies under this Agreement are cumulative and the exercise of one right orremedy will not limit the exercise of any other right or remedy.
 
20.4   Company and Franchisee agree that, except to the extent governed by the United States FederalArbitration Act (9 U.S.C. §1 et seq.), the United States Trademark Act of 1946(Lanham Act, 15 U.S.C. § 1051 et seq.), or other United States federal law,this Agreement and all claims arising from the relationship between the parties will begoverned by the internal laws of the State of New York, exclusive of its choice of law andconflict of law rules, except that any New York law regulating the sale of franchises orbusiness opportunities or governing the relationship of a franchisor and its franchisee willnot apply unless such state’s jurisdictional requirements are met independently withoutreference to this Subsection. Company and Franchisee agree that any action against Franchiseearising out of or relating to this Agreement or the enforcement of an arbitration award mustbe brought in the United States District Court for the Southern District of New York; andFranchisee will irrevocably submit to the jurisdiction of such courts and waive any objectionFranchisee may have to either the jurisdiction of or venue in such courts. Notwithstandingthe foregoing, any party may bring an action to obtain a restraining order or temporary orpreliminary injunction, or to enforce an arbitration award, in any court of generaljurisdiction in the state or country in which Franchisee resides or the geographic area inwhich the STORE is located.
 
20.5   If Company incurs expenses in connection with Franchisee’s failure to pay when due amountsowed to Company, to submit when due any reports, information or supporting records orotherwise to comply with this Agreement, Franchisee will reimburse Company for costs andexpenses Company incurs, including, without limitation, reasonable accounting, attorneys’,arbitrators’ and related fees.
 
20.6   Company and Franchisee have required that this Agreement and all deeds, documents and noticesrelating to this Agreement be drawn up in the English language, and any translation of any ofthe foregoing into any other language will not be an official version thereof. In the eventof any conflict in interpretation between the English version of this Agreement or any deed,document or notice relating to this Agreement and a translation thereof, the English versionwill control.
 
20.7   Neither Company nor Franchisee will be liable for loss or damage or deemed to be in breach ofthis Agreement if its failure to perform its obligations results from: (1) transportationshortages, inadequate supply or equipment, products, supplies, labor, material or energy orthe voluntary foregoing of the right to acquire or use any of the foregoing in order toaccommodate or comply with any law, ruling, order, regulation,

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    requirement, or instruction of any government or any department or agency thereof; (2) actsof God; or (3) fires, strikes, embargoes, war or riot. Any delay resulting from any of saidcauses will extend performance accordingly or excuse performance, in whole or in part, asmay be reasonable, except that said causes will not excuse payment of amounts owed toCompany or designated suppliers at the time of such occurrence or payment of Royalty amountsdue on gross sales of the STORE thereafter. In the event that such causes or occurrencescontinue for a period of twelve (12) months or more, Company, at its sole and exclusiveoption, may terminate this Agreement, effective upon delivery of notice thereof toFranchisee.
 
20.8   Except with respect to (a) each party’s obligation to indemnify the other in accordance withprovisions herein and (b) claims Company brings against Franchisee for its unauthorized use ofthe Marks or Copyrighted Works or unauthorized use or disclosure of any ConfidentialInformation, Company and Franchisee hereby waive to the fullest extent permitted by law, anyright to or claim for any punitive or exemplary damages against the other and agree that inthe event of a dispute between them, each will be limited to the recovery of equitable reliefand to recovery of any actual damages it sustains. Company and Franchisee irrevocably waivetrial by jury in any action, proceeding or counterclaim, whether at law or in equity, broughtby either of them.
 
20.9   Except for claims (a) bought by Company with regard to Franchisee’s obligations to indemnifyCompany in accordance with provisions herein, or (b) arising from Franchisee’s non-payment orunderpayment of amounts Franchisee owes Company pursuant to this Agreement, any and all claimsarising out of or relating to this Agreement or the relationship of Company and Franchisee arebarred unless a judicial proceeding, or a mediation or arbitration proceeding in accordancewith this Agreement, is commenced within one (1) year from the date Company or Franchisee knewor, exercising reasonable diligence should have known, of the facts giving rise to suchclaims, whichever occurs first.
 
20.10   If any covenant herein which restricts competitive activity is deemed unenforceable byvirtue of its scope in terms of area, business activity prohibited and/or length of time, butwould be enforceable by reducing any part or all thereof, Franchisee and Company (and itsAffiliate) agree that such covenant will be enforced to the fullest extent permissible underthe laws and public policies applied in the jurisdiction the law of which is applicable to thevalidity of such covenant.
 
20.11   The rights of Company and Franchisee hereunder are cumulative and no exercise or enforcementby either party of any right or remedy hereunder will preclude the exercise or enforcement byeither party is entitled by law to enforce.
     IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement in multipleoriginals on the day and year first above written.
                     
KRISPY KREME DOUGHNUT CORPORATION   [FRANCHISEE]
 
                   
By:
          By:        
             
 
  Name:           Name:    
                     
 
  Title:           Title:    
                     

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EXHIBIT A
LISTING OF OWNERSHIP INTERESTS AND MANAGING DIRECTOR

Ex. A-1


 

EXHIBIT B
ITEMS REQUIRED TO BE PURCHASED FROM COMPANY

Ex. B-1


 

EXHIBIT C
MARKS

Ex. C-1


 

EXHIBIT D
CONFIDENTIALITY AND NON-COMPETITION COVENANTS

Ex. D-1


 

SCHEDULE A
BUSINESS TERMS
     
Company:
  Krispy Kreme Doughnut Corporation
 
   
Company’s Address:
  P.O. Box 83
 
   
 
  Winston-Salem, North Carolina 27102
 
   
Franchisee:
   
 
   
Franchisee Address:
   
 
   
STORE Address:
   
 
   
Currency:
  Dollar
 
   
Date of Agreement:
  _________, 20______
 
   
Advertising and
  Per year, not less than 3% of STORE’s Gross Sales
Promotion Contribution:
   
(Subsection 6.3)
   
 
   
Royalty:
  6% of Gross Sales
(Subsection 3.2)
   
 
   
Payment Day:
   
(Subsection 3.2)
   
 
   
Bank Account
   
(Subsection 12.1)
   
 
   
Governing Law:
  New York
(Subsection 20.4)
   
 
   
Guarantors:
   
 
   
In-Term Restraint Area:
  Anywhere in the world
(Subsection 9.2)
   
 
   
Initial Franchise Fee:
  $25,000
(Subsection 3.1)
   
 
   
Interest Rate:
  The lesser of (i) eighteen percent (18%) per
(Subsection 12.2)
  annum or (ii) the highest legal rate permitted by
 
  applicable law.

 


 

     
Post-Term Restraint Area:
  A 40 kilometer radius of the Site or within 8
(Subsection 15.2)
  kilometers of any other Krispy Kreme Store in
 
  operation or under construction.
 
   
Post-Term Covenant not
  2 years
to Compete Restraint Period:
   
(Subsection 15.2)
   
 
   
Term:
  15 years commencing on the date STORE opens for
(Subsection 2.1)
  business.
 
   
Transfer Fee:
  $25,000 (increased from time to time to reflect
 
  increases in the Consumer Index)

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