KRISPY KREME DOUGHNUTS INC, S-1/A, 2000-02-22

KRISPY KREME DOUGHNUTS INC
S-1/A, 2000-02-22
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 2000

REGISTRATION NO. 333-92909
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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PRE-EFFECTIVE

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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KRISPY KREME DOUGHNUTS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
NORTH CAROLINA 5812 56-2169715
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

<TABLE>
<S> <C>
SCOTT A. LIVENGOOD
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
370 KNOLLWOOD STREET 370 KNOLLWOOD STREET
WINSTON-SALEM, NORTH CAROLINA 27103 WINSTON-SALEM, NORTH CAROLINA 27103
(336) 725-2981 (336) 725-2981
(Address, including zip code, and telephone (Name, address, including zip code, and telephone
number, number,
including area code, of registrant's principal including area code, of agent for service)
executive offices)
</TABLE>

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COPIES TO:

<TABLE>
<S> <C>
DAVID A. STOCKTON, ESQ. GERALD S. TANENBAUM, ESQ.
KILPATRICK STOCKTON LLP CAHILL GORDON & REINDEL
1100 PEACHTREE STREET, N.E., SUITE 2800 80 PINE STREET
ATLANTA, GEORGIA 30309 NEW YORK, NEW YORK
(404) 815-6500 (212) 701-3000
(404) 815-6555 (FAX) (212) 269-5420 (FAX)
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______________

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________

If delivery of the prospectus is expected to be made pursuant to Rule 434 under
the Securities Act of 1933, check the following box. [ ]

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON A DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON A DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.

Subject to Completion, Dated February 22, 2000

(Krispy Kreme Doughnuts Logo)

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3,000,000 Shares

Common Stock

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This is the initial public offering of Krispy Kreme Doughnuts, Inc. and we are
offering 3,000,000 shares of our common stock. We anticipate that the initial
public offering price will be between $18.00 and $20.00 per share.

We have applied to have our common stock quoted on the Nasdaq National Market
under the symbol KREM.

Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.

<TABLE>
<CAPTION>
Underwriting
Public Discounts and Proceeds to
Offering Price Commissions Krispy Kreme
------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>

We have granted the underwriters the right to purchase up to an additional
450,000 shares to cover any over-allotments.

Deutsche Banc Alex. Brown J.P. Morgan & Co.

Dain Rauscher Wessels

BB&T Capital Markets

The date of this prospectus is , 2000

<PAGE> 3

[The inside of the prospectus cover contains photographs of our stores,
customers, employees and facilities accompanied by text in substantially the
following form:

INTRODUCTION: Krispy Kreme has been making doughnuts from a secret recipe
since 1937 when the business was founded in a small storefront
in Winston-Salem, NC. Today the company is still headquartered
in the same city, but while the taste of our doughnuts remains
true to the still-secret recipe, it is no secret that the
company and its loyal customer following has grown
substantially.

HEADLINE: OUR PEOPLE DO THE THINGS THAT MAKE THE DIFFERENCE:

SUBHEAD: We Make the Mix.

COPY: To ensure premium quality, we make our own proprietary mix
from our secret recipe in our own mix plant. We test the flour
as it arrives and test each batch of mix before it's shipped
to our stores. Additionally, we realize the profit from the
sale of our mix to our stores.

SUBHEAD: We Make the Equipment.

COPY: We engineer and manufacture our own doughnutmaking equipment.
We build it, we install it and we stand behind it. We design
our equipment to work in harmony with our proprietary mix
which results in doughnuts with uniform consistency and
premium quality.

SUBHEAD: We Distribute the Goods.

COPY: Our own distribution center offers store operators the
convenience of one-stop shopping for key supplies. This
includes all food ingredients, juices, Krispy Kreme coffee,
signage, display cases, uniforms and other items. By combining
our buying power and sourcing from carefully selected,
reliable suppliers, we can ensure better quality and pricing
to our operators.

SUBHEAD: We Make and Sell Doughnuts in Our Stores.

COPY: Our stores are doughnut factories that also offer our
customers a superior retail experience. Systemwide, we produce
over 1.3 billion doughnuts a year in our stores. It is in our
stores that our customers first experience our Hot Original
Glazed and watch the doughnuts being made in our
doughnutmaking theater. The illuminated "Hot Doughnuts Now"
neon sign signals that our Hot Original Glazed are coming
fresh off the line. The Krispy Kreme experience begins with
the first bite of that "hot" doughnut and we believe that a
lifetime relationship then develops between the customer and
the brand.

SUBHEAD: We Sell Off-Premises.

COPY: Our customers can also purchase our doughnuts at convenient
locations off-premises from our store. Utilizing the capacity
of our doughnutmaking equipment enables us to sell fresh
doughnuts in grocery stores, convenience stores and other
high-traffic locations while improving brand visibility in our
markets.

SUBHEAD: We Have a Heritage.

COPY: We were founded in 1937. Over the last 62 years we have
developed a strong brand which has resulted in a loyal
customer following. In 1997, our company was recognized as an
icon of life in the 20th century with the induction of Krispy
Kreme artifacts into the Smithsonian Institution.

SUBHEAD: We Have Substantial Growth Potential.

COPY: With only 141 stores on the national map, we believe our
strongest growth is yet to come. Our growth will be
accomplished primarily through well-capitalized area
developers with the management capacity to develop multiple
stores.]

SUBHEAD: Is It About the Doughnut Or About the Experience?

COPY: The magic of what some have called a mystical experience
begins with the first bite of our Hot Original Glazed doughnut
hot off the line. But it doesn't stop there. It's also about
the people you're with when you take that first bite...it's
about seeing the doughnuts pass through the glaze waterfall,
and being smiled at by a Krispy Kreme employee. And it's about
knowing that when you come back to any Krispy Kreme store at
anytime, anywhere, the doughnut will look and taste the same
as you always remembered it.

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PROSPECTUS SUMMARY

This summary contains basic information about us and this offering. Because it
is a summary, it does not contain all the information that you should consider
before investing. You should read the entire prospectus carefully, including the
section entitled "Risk Factors" and our consolidated financial statements and
the accompanying notes included elsewhere in this prospectus. Information in
this prospectus related to the performance of franchised stores is based solely
on information provided by our franchisees.

KRISPY KREME DOUGHNUTS, INC.

Krispy Kreme is a leading branded specialty retailer of premium quality
doughnuts which are made throughout the day in our stores. We opened our first
store in 1937 and there were 141 Krispy Kreme stores nationwide, consisting of
59 company-owned and 82 franchised stores, as of October 31, 1999. Our principal
business is the high volume production and sale of over 20 varieties of premium
quality doughnuts, including our signature Hot Original Glazed. We have
established Krispy Kreme as a leading consumer brand with a loyal customer base
through our longstanding commitment to quality and consistency. Our place in
American society was recognized in 1997 with the induction of Krispy Kreme
artifacts into the Smithsonian Institution's National Museum of American
History. We differentiate ourselves by combining quality ingredients, vertical
integration and a unique retail experience featuring our stores' fully displayed
production process, or doughnutmaking theater.

The combination of our well-established brand, our one-of-a-kind doughnuts and
our strong franchise system creates significant opportunities for continued
growth. Our sales growth has been driven by new store openings, as well as
systemwide comparable store sales growth of 12.7% in fiscal 1998, 9.7% in fiscal
1999 and 12.4% in the first nine months of fiscal 2000. Our success is based on
the strengths described below.

COMPETITIVE STRENGTHS

Our goal is to become the nation's leading branded specialty retailer of premium
quality doughnuts. To achieve this objective, we intend to capitalize on the
following strengths:

- UNIVERSAL APPEAL OF OUR PRODUCT. The taste, quality and simplicity of
our doughnuts, which we believe our customers view as an affordable
indulgence, appeal across major demographic groups, including age and
income.

- PROVEN CONCEPT. Our stores, which are designed to create a multi-sensory
retail experience featuring our doughnutmaking theaters, serve both as
our primary retail outlets and as platforms to distribute our products
through off-premises sales channels.

- SIGNIFICANT GROWTH POTENTIAL. With only 141 stores as of October 31,
1999, we believe that we have significant new store expansion
opportunities, with an initial emphasis on markets of over 100,000
households.

- INGREDIENTS FOR MARKET LEADERSHIP. We believe that the combination of
our strong brand, highly differentiated product, high-volume production
capability and multiple sales channels provides us with the ability to
establish Krispy Kreme as the recognized leader in every market we enter.

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- STRONG FRANCHISE SYSTEM. We are committed to growth through franchising
and intend to continue to strengthen our franchise system by attracting
experienced and well-capitalized area developers who have the management
capacity to develop multiple stores. In the future, we intend to acquire
minority equity positions in selected franchisee businesses.

- DIRECT STORE DELIVERY CAPABILITIES. We have developed a highly effective
direct store delivery system, or DSD, for executing off-premises sales
whereby we deliver fresh doughnuts, both packaged and unpackaged, to a
variety of supermarkets and convenience stores.

- CONTROLLED PROCESS ENSURING CONSISTENT HIGH QUALITY. We produce our
proprietary mixes, manufacture our custom doughnutmaking equipment and
test all key ingredients through our vertically integrated, highly
automated system designed to create quality, consistency and efficiency.

- BALANCED FINANCIAL MODEL. Krispy Kreme generates sales and income from
three distinct sources -- company stores, franchise fees and royalties
and our vertically integrated supply chain -- which we believe provides
increased stability to our revenues and earnings and improves our return
on investment.

GROWTH STRATEGY

We believe there are significant opportunities to expand our business by further
penetrating existing markets and entering new markets. After establishing our
brand in a new market through our retail stores, we attempt to maximize store
productivity by selling off-premises to grocery and convenience stores,
institutional customers and select co-branding customers. Key elements of our
growth strategy include:

- OPEN NEW STORES. We plan to expand primarily through franchising with
area developers and have existing agreements to open approximately 22 new
stores in fiscal 2001 and over 100 new stores between fiscal 2002 and
fiscal 2005. This represents 15% store growth in fiscal 2001 and an
increase in our store base to over 260 stores by the end of fiscal 2005.

- IMPROVE OUR EXISTING STORES' ON-PREMISES SALES. To improve our
on-premises sales, we plan to remodel and, in certain instances, close
and relocate selected older company-owned stores to emulate the format of
our new, highly successful stores in new markets.

- INCREASE OUR OFF-PREMISES SALES. We intend to expand our off-premises
customer base, as well as increase sales to our existing off-premises
customers by continuing to offer premium quality products, category
management and superior customer service.

---------------------------------------------

Our principal executive offices are located at 370 Knollwood Street,
Winston-Salem, North Carolina 27103 and our telephone number is (336) 725-2981.
Our web site address is http://www.krispykreme.com. Information on our web site
is not a part of this prospectus.

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THE OFFERING

Common Stock Offered by Krispy
Kreme.............................. 3,000,000 shares

Common Stock to be Outstanding
after the Offering................. 12,484,957 shares

Use of Proceeds.................... - Repayment of borrowings under our loan
agreement

- A distribution to our existing
shareholders as part of our
pre-offering corporate reorganization

- Remodeling and relocation of selected
older company-owned stores

- Additional mix production capacity to
support expansion

- Joint venture investments in area
developer stores

- General corporate purposes, including
working capital needs

Dividend Policy.................... We do not anticipate paying any cash
dividends in the foreseeable future.

Proposed Nasdaq National Market
Symbol............................. KREM

The table above excludes 1,831,000 shares of common stock issuable upon exercise
of stock options outstanding under our stock option plan on October 31, 1999, of
which 91,000 were exercisable, and includes 144,737 shares to be contributed to
our stock bonus plans contemporaneously with this offering.

---------------------------------------------

Except as otherwise indicated or required by the context, references to we, our,
us, Krispy Kreme or the company refer to Krispy Kreme Doughnuts, Inc. and its
subsidiaries and predecessors.

Currently, all of the stock of Krispy Kreme Doughnuts, Inc. is owned by Krispy
Kreme Doughnut Corporation, which was incorporated in 1982. Krispy Kreme
Doughnuts, Inc., the issuer of the common stock offered by this prospectus, was
incorporated in North Carolina in 1999 to be the holding company for Krispy
Kreme Doughnut Corporation and its other subsidiaries. This will be effected
through a corporate reorganization in the form of a merger in which each
outstanding share of common stock of Krispy Kreme Doughnut Corporation will be
converted into the right to receive 20 shares of common stock of Krispy Kreme
Doughnuts, Inc. and $15.00 in cash. This merger will occur prior to the closing
of this offering. See "Business -- Our Pre-Offering Reorganization and Other
Matters."

Except as otherwise indicated, all information in this prospectus assumes that
the reorganization has been effected and assumes no exercise of the
underwriters' over-allotment option.

---------------------------------------------

We own or have rights to various trademarks and trade names used in our
business. These include "Krispy Kreme" and the Krispy Kreme logo and "Hot
Doughnuts Now" and the Hot Doughnuts Now logo. This prospectus also includes
trademarks, service marks and trade names owned by other companies.

3
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SUMMARY FINANCIAL DATA

The following table shows our summary financial data which you should read
together with "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," our consolidated financial
statements and accompanying notes and the other financial data included
elsewhere in this prospectus.

Per share amounts reflect an exchange ratio in the merger in connection with our
holding company formation of 20-for-one, which will have the effect of a
20-for-one stock split. Systemwide sales includes the sales of both our
company-owned and franchised stores and excludes the sales of our Support
Operations business segment. Our consolidated financial statements appearing
elsewhere in this prospectus exclude franchised store sales and include
royalties and fees received from our franchisees. The as adjusted balance sheet
data give effect to this offering and the merger as if they had occurred on
October 31, 1999.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
-----------------------------------------------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------------------- -------------------------
JANUARY 29, JANUARY 28, FEBRUARY 2, FEBRUARY 1, JANUARY 31, NOVEMBER 1, OCTOBER 31,
1995 1996 1997 1998 1999 1998 1999
In thousands, except per share data ----------- ----------- ----------- ----------- ----------- ----------- -----------
and store numbers
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.... $ 114,986 $ 118,550 $ 132,614 $ 158,743 $ 180,880 $ 133,190 $ 161,571
Provision for restructuring... -- 3,000 -- -- 9,466 -- --
Income (loss) from operations... 6,057 1,230 5,136 5,420 (3,702) 5,950 10,081
Net income (loss)... 4,617 180 2,427 2,714 (3,167) 2,886 5,725
Net income (loss) per share:
Basic........... $ .63 $ .02 $ .33 $ .37 $ (.38) $ .37 $ .61
Diluted......... .63 $ .02 $ .33 $ .37 $ (.38) $ .36 $ .61
Shares used in calculation of net
income (loss) per share:
Basic........... 7,275 7,284 7,284 7,284 8,249 7,890 9,340
Diluted......... 7,275 7,284 7,284 7,284 8,249 7,910 9,440
OPERATING DATA:
Systemwide sales... $ 146,715 $ 151,662 $ 167,592 $ 203,439 $ 240,316 $ 176,957 $ 231,956
Number of stores at end of period:
Company-owned... 48 53 61 58 61 61 59
Franchised...... 40 42 55 62 70 64 82
--------- --------- --------- --------- ---------- ---------- ----------
Systemwide...... 88 95 116 120 131 125 141
========= ========= ========= ========= ========== ========== ==========
Average weekly sales per store:
Company-owned... $ 45 $ 39 $ 39 $ 42 $ 47 $ 47 $ 53
Franchised...... 22 22 22 23 28 28 37
</TABLE>

<TABLE>
<CAPTION>
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AS OF OCTOBER 31, 1999
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ACTUAL AS ADJUSTED
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<S> <C> <C>
In thousands
BALANCE SHEET DATA:
Working capital............................................. $ 11,683 $
Total assets................................................ 104,691
Long-term debt, including current maturities................ 22,895 --
Total shareholders' equity.................................. 47,524 $92,329
</TABLE>

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RISK FACTORS

You should carefully consider the risks and uncertainties described below and
all other information contained in this prospectus before deciding to purchase
shares of our common stock.

RISKS PARTICULAR TO KRISPY KREME

OUR GROWTH STRATEGY DEPENDS ON OPENING NEW KRISPY KREME STORES. OUR ABILITY TO
EXPAND OUR STORE BASE IS INFLUENCED BY FACTORS BEYOND OUR CONTROL, WHICH MAY
SLOW STORE DEVELOPMENT AND IMPAIR OUR STRATEGY.

Our growth strategy includes, among other things, opening additional franchised
stores. The opening and success of these stores is dependent in part on a number
of factors, which neither we nor our franchisees can control. If we are not able
to address these factors successfully, we may not be able to expand at the rate
currently contemplated by our strategy. These factors are discussed below and in
"Business."

IF OUR FRANCHISEES CANNOT DEVELOP OR FINANCE NEW STORES OR BUILD THEM ON
SUITABLE SITES, OUR GROWTH AND SUCCESS WILL BE IMPEDED.

Our business is dependent upon our franchisees developing new franchised stores.
Our franchisees consist of associates who operate under our original franchising
program developed in the 1940s and area developers who operate under our
franchising program developed in the mid-1990s. We anticipate most new store
growth will be from area developers. Although associates have the exclusive
rights to develop their assigned geographic territories, most are not
contractually obligated to develop additional stores. Area developers are
generally required under development agreements they enter into with us to
develop a predetermined number of stores in their areas over the term of their
development agreements. Area developers may not have access to the financial
resources that they need to open the stores required by their development
schedules, or be able to find suitable sites to develop them on. They may not be
able to negotiate acceptable lease or purchase terms for the sites, obtain the
necessary permits and approvals or meet construction schedules. Any of these
problems could slow our growth, impair our strategy and reduce our franchise
revenues.

IF OUR FRANCHISEES CANNOT OPEN NEW STORES ON SCHEDULE, OUR GROWTH AND SUCCESS
WILL BE IMPEDED.

Delays in store openings could adversely affect our future operations by slowing
new store growth and reducing our franchise revenues. Most area development
agreements specify a schedule for opening stores in the territory covered by the
agreement. These schedules form the basis for our expectations regarding the
number and timing of new store openings. In the past, we have agreed to extend
or modify development schedules for certain area developers, and we may do so in
the future. Currently, all of our area developers are on schedule to develop a
total of 130 additional stores in their territories during their initial
development schedule, which is generally five years.

WE MAY BE HARMED BY ACTIONS TAKEN BY OUR FRANCHISEES THAT ARE OUTSIDE OF OUR
CONTROL.

Area developers and associates are generally independent contractors and are not
our employees. We provide training and support to area developers and
associates, but the quality of franchised store operations may be diminished by
any number of factors beyond our control. Consequently, area developers and
associates may not successfully operate stores in a manner consistent with our
standards and requirements, or may not hire and train qualified managers and
other store

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personnel. If they do not, our image and reputation may suffer, and systemwide
sales could decline.

WE MAY BE EXPOSED TO FLUCTUATIONS IN COMMODITY PRICING BECAUSE OF THE LARGE
QUANTITIES OF RAW MATERIALS AND OTHER PRODUCTS THAT WE BUY, WHICH MAY
UNEXPECTEDLY INCREASE OUR COSTS.

The basic raw materials we use are agricultural products such as flour,
shortening and sugar. We also purchase other products, such as coffee, in large
quantities, and use paper products, films and plastics to package our products.
In addition, we are dependent on gasoline for our delivery trucks that supply
our off-premises sales customers and natural gas as a fuel in the doughnut
production process. Increases in prices of agricultural and food products,
packaging materials or fuels could cause substantial and sudden increases in
costs that we might not be able to recover through price increases.

Shortages or interruptions in the supply of agricultural or food products can
result from adverse weather conditions, such as droughts or floods. These
shortages or other factors could lead to increased prices for raw materials and
some finished goods. Our general policy is to enter into long-term purchase
agreements covering one- to three-year periods with specific vendors within a
range of prices that we believe are advantageous to us. To the extent commodity
prices in the spot market are lower than those we pay our suppliers under our
long-term purchase agreements, we are exposed to commodity market risk. In those
cases, we pay more for our commodity ingredients than if we had no long-term
purchase agreements.

WE ARE THE EXCLUSIVE SUPPLIER OF DOUGHNUT MIXES, OTHER KEY INGREDIENTS AND
FLAVORS TO ALL KRISPY KREME STORES. IF WE HAVE ANY PROBLEMS SUPPLYING THESE
INGREDIENTS, OUR STORES' ABILITY TO MAKE DOUGHNUTS WILL BE NEGATIVELY AFFECTED.

We are the exclusive supplier of doughnut mixes and other key ingredients and
flavors to all of our company-owned and franchised stores. If our business
expands according to our growth strategy, we will require additional capacity to
produce our doughnut mixes and other ingredients. In addition, as our business
continues to expand on the West Coast and in other geographic areas which are
located at greater distances from our sole manufacturing facility in
Winston-Salem, North Carolina, we may incur greater costs in supplying our
doughnut mixes and other ingredients to these areas and may need to establish
one or more additional manufacturing plants. Although we have a backup source to
manufacture our doughnut mixes in the event of the loss of our Winston-Salem
plant, this facility does not regularly produce our doughnut mixes. Any
interruption of existing or planned production capacity at our manufacturing
plant could impede our ability or that of our franchisees to make doughnuts.

In addition, because we generally enter into long-term purchase agreements with
our suppliers, in the event that any of these relationships terminate
unexpectedly, even where we have multiple suppliers for the same ingredient, we
may not be able to obtain adequate quantities of the same high-quality
ingredient at competitive prices.

WE ARE THE ONLY MANUFACTURER OF OUR DOUGHNUTMAKING EQUIPMENT. IF WE HAVE ANY
PROBLEMS PRODUCING THIS EQUIPMENT, OUR STORES' ABILITY TO MAKE DOUGHNUTS WILL BE
NEGATIVELY AFFECTED.

Our Winston-Salem facility is the only location where we manufacture our custom
doughnutmaking equipment. Although we have limited backup sources for our
equipment, obtaining our equipment quickly in the event of the loss of our
Winston-Salem plant would be difficult, and

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<PAGE> 10

would jeopardize our ability to supply equipment to new stores or new parts for
the maintenance of existing equipment in established stores on a timely basis.

ANY INTERRUPTION IN THE DELIVERY OF GLAZE FLAVORING FROM OUR ONLY SUPPLIER COULD
IMPAIR OUR ABILITY TO MAKE OUR TOP PRODUCT.

We are dependent on a sole supplier for our glaze flavoring. Although we are in
the process of identifying an alternative source to produce our glaze flavoring,
we have not currently identified such a source, and any interruption in the
distribution from our current supplier could affect our ability to produce our
signature Hot Original Glazed.

WE ARE SUBJECT TO FRANCHISE LAWS AND REGULATIONS THAT GOVERN OUR STATUS AS A
FRANCHISOR AND REGULATE SOME ASPECTS OF OUR FRANCHISEE RELATIONSHIPS. OUR
ABILITY TO DEVELOP NEW FRANCHISED STORES AND TO ENFORCE CONTRACTUAL RIGHTS
AGAINST FRANCHISEES MAY BE ADVERSELY AFFECTED BY THESE LAWS AND REGULATIONS,
WHICH COULD CAUSE OUR FRANCHISE REVENUES TO DECLINE.

Krispy Kreme, as a franchisor, is subject to both regulation by the Federal
Trade Commission and state laws regulating the offer and sale of franchises. Our
failure to obtain or maintain approvals to sell franchises would cause us to
lose franchise revenues. If we are unable to sell new franchises, our growth
strategy will be significantly harmed. In addition, state laws that regulate
substantive aspects of our relationships with franchisees may limit our ability
to terminate or otherwise resolve conflicts with our franchisees.

OUR QUARTERLY RESULTS MAY FLUCTUATE AND COULD FALL BELOW EXPECTATIONS OF
SECURITIES ANALYSTS AND INVESTORS DUE TO SEASONALITY AND OTHER FACTORS,
RESULTING IN A DECLINE IN OUR STOCK PRICE.

Our quarterly and yearly results have varied in the past, and we believe that
our quarterly operating results will vary in the future. For this reason, you
should not rely upon our quarterly operating results as indications of future
performance. In some future periods, our operating results may fall below the
expectations of securities analysts and investors. This could cause the trading
price of our common stock to fall. Factors, such as seasonality, which may cause
our quarterly results to fluctuate are discussed in this section and in
"Business."

A NUMBER OF OUR DIRECTORS OWN AND SOME OFFICERS HAVE A FINANCIAL INTEREST IN
SOME OF OUR FRANCHISES. THE INTERESTS OF THESE INDIVIDUALS MAY THEREFORE BE
POTENTIALLY IN CONFLICT WITH OUR INTERESTS.

Some of our directors own and some officers have a financial interest in some of
our franchises. As directors and officers of Krispy Kreme, these individuals
influence the way our business is managed and the formulation of business
strategies. The interests of these individuals may therefore potentially be in
conflict with our interests. In addition, we have made guaranties, entered into
collateral repurchase agreements and provided other financial assistance to some
directors and one officer. You should read "Related Party Transactions" for
descriptions of these relationships.

OUR FAILURE OR INABILITY TO ENFORCE OUR TRADEMARKS COULD ADVERSELY AFFECT THE
VALUE OF OUR BRAND.

We own certain common law trademark rights and a number of federal trademark and
service mark registrations. We believe that our trademarks and other proprietary
rights are important to our success and our competitive position. We therefore
devote appropriate resources to the protection of our trademarks and proprietary
rights. The protective actions that we take, however,

7
<PAGE> 11

may not be enough to prevent imitation by others which might harm our image or
our brand position.

Although we are not aware of anyone else who is using "Krispy Kreme" or "Hot
Original Glazed" or "Hot Doughnuts Now," as a trademark or service mark, we are
aware that some businesses are using "Krispy" or a phonetic equivalent as part
of a trademark or service mark associated with retail doughnut stores. We
believe that, in the instances where "Krispy" or a phonetic equivalent is used,
we have superior rights and are taking the necessary legal actions. There may,
however, be similar uses we are unaware of which could arise from prior users.
These uses could limit our operations and possibly cause us to incur litigation
costs or pay damages or licensing fees to a prior user or registrant of similar
intellectual property.

RISKS RELATING TO THE FOOD SERVICE INDUSTRY

THE FOOD SERVICE INDUSTRY IS AFFECTED BY CONSUMER PREFERENCES AND PERCEPTIONS.
CHANGES IN THESE PREFERENCES AND PERCEPTIONS MAY LESSEN THE DEMAND FOR OUR
PRODUCTS, WHICH WOULD REDUCE SALES AND HARM OUR BUSINESS.

Food service businesses are often affected by changes in consumer tastes;
national, regional and local economic conditions; and demographic trends.
Individual store performance may be adversely affected by traffic patterns, the
cost and availability of labor, purchasing power, availability of products and
the type, number and location of competing stores. Our sales could also be
affected by changing consumer tastes -- for instance, if prevailing health or
dietary preferences cause consumers to avoid doughnuts in favor of foods that
are perceived as more healthy.

THE FOOD SERVICE INDUSTRY IS AFFECTED BY LITIGATION AND PUBLICITY CONCERNING
FOOD QUALITY, HEALTH AND OTHER ISSUES, WHICH CAN CAUSE CUSTOMERS TO AVOID OUR
PRODUCTS AND RESULT IN LIABILITIES.

Food service businesses can be adversely affected by litigation and complaints
from customers or government authorities resulting from food quality, illness,
injury or other health concerns or operating issues stemming from one store or a
limited number of stores, including stores operated by our franchisees. Adverse
publicity about such allegations may negatively affect us and our franchisees,
regardless of whether the allegations are true, by discouraging customers from
buying our products. We could also incur significant liabilities if a lawsuit or
claim results in a decision against us, or litigation costs regardless of the
result.

OUR SUCCESS DEPENDS ON OUR ABILITY TO COMPETE WITH MANY FOOD SERVICE BUSINESSES.

We compete with many well-established food service companies. At the retail
level, we compete with other doughnut retailers and bakeries, specialty coffee
retailers, bagel shops, fast-food restaurants, delicatessens, take-out food
service companies, supermarkets and convenience stores. At the wholesale level,
we compete primarily with grocery store bakeries, packaged snack foods and
vending machine dispensers of snack foods. Aggressive pricing by our competitors
or the entrance of new competitors into our markets could reduce our stores'
sales and profit margins.

Many of our competitors or potential competitors have substantially greater
financial and other resources than us which may allow them to react to changes
in pricing, marketing and the quick service restaurant industry better than us.
Also, many of our competitors are less dependent on a single, primary product
than we are. As competitors expand their operations, we expect competition to
intensify. In addition, the start-up costs associated with retail doughnut and
similar food service establishments are not a significant impediment to entry
into the retail doughnut business.

8
<PAGE> 12

THE COSTS TO COMPLY WITH GOVERNMENT REGULATIONS RELATING TO FOOD SERVICE STORES
AND EMPLOYMENT COULD INCREASE, WHICH COULD ADVERSELY AFFECT OUR BUSINESS AND
IMPEDE NEW STORE DEVELOPMENT.

Our business depends on our ability to maintain numerous store sites where food
is prepared and sold, and our strategy depends on opening new stores. These
operations are subject to federal, state and local government regulations
relating to the preparation and sale of food, building and zoning requirements
and other matters. To date, federal and state environmental regulations have not
had a material effect on our operations, but more stringent and varied
requirements of local government with respect to zoning, building codes, land
use and environmental factors have in the past increased, and can be expected in
the future to increase store operating costs, and the time and cost required for
opening new stores.

Because many of our employees and our franchisees' employees are paid hourly
rates based upon federal and state minimum wage laws, recent legislation
increasing the minimum wage has resulted in higher labor costs for us and our
franchisees. In addition, our operations and those of our franchisees are also
subject to other laws governing employer relationships with employees, including
overtime, working and safety conditions and citizenship requirements. The costs
to comply with any of these laws could also increase. We cannot assure you that
we or our franchisees will be able to pass any of these additional costs on to
customers in whole or in part.

RISKS RELATING TO THE OFFERING

WE HAVE BROAD DISCRETION IN THE USE OF THE NET PROCEEDS FROM THIS OFFERING AND
MAY NOT USE THEM EFFECTIVELY.

As of the date of this prospectus, we cannot specify with certainty the
particular uses for the net proceeds we will receive from this offering. We
currently intend to use the net proceeds from the offering as described under
"Use of Proceeds" in this prospectus, but our management will have broad
discretion in the use of the net proceeds. If our management fails to apply
these funds effectively, we may not be successful in our efforts to grow our
business and revenues.

OUR CHARTER, BYLAWS AND SHAREHOLDER RIGHTS AGREEMENT CONTAIN ANTI-TAKEOVER
PROVISIONS THAT MAY MAKE IT MORE DIFFICULT OR EXPENSIVE TO ACQUIRE US IN THE
FUTURE OR MAY NEGATIVELY AFFECT OUR STOCK PRICE.

Our articles of incorporation, bylaws and shareholder rights agreement contain
several provisions that may make it more difficult for a third party to acquire
control of us without the approval of our board of directors. These provisions
may make it more difficult or expensive for a third party to acquire a majority
of our outstanding voting common stock. They may also delay, prevent or deter a
merger, acquisition, tender offer, proxy contest or other transaction that might
otherwise result in our shareholders receiving a premium over the market price
for their common stock. Our stock price could also be negatively affected. See
"Description of Capital Stock -- Anti-Takeover Provisions of Krispy Kreme's
Articles of Incorporation, Bylaws and Shareholder Rights Plan."

9.3 MILLION, OR 74.8%, OF OUR TOTAL OUTSTANDING SHARES ARE RESTRICTED FROM
IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET IN THE FUTURE, WHICH COULD
DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.

After this offering, we will have outstanding approximately 12.5 million shares
of common stock, or 12.9 million shares if the underwriters fully exercise their
over-allotment option. This includes the 3 million shares that we are selling in
this offering, which may be resold in the public market immediately, unless held
by one of our affiliates, and the 144,737 shares to be contributed to our stock
bonus plans. The remaining 74.8%, or 9.3 million shares, of our total
outstanding shares will

9
<PAGE> 13

become available for resale in the public market one year after this offering.
However, it is possible that these shares may be sold sooner if they are
registered under the Securities Act of 1933. For a more detailed description,
see "Shares Eligible for Future Sale."

As restrictions on resale end, the prevailing market price of our common stock
could drop significantly if the holders of these restricted shares sell them or
are perceived by the market as intending to sell them. Our ability to raise
additional capital through future issuances of equity securities could also be
impaired.

As soon as practicable after this offering, we intend to register for resale
1,913,000 shares of common stock reserved under our stock option plan, of which
options exercisable into 1,831,000 shares of common stock were outstanding as of
October 31, 1999. Options for 91,000 shares were exercisable as of that date.

OUR EXISTING SHAREHOLDERS WILL CONTINUE TO CONTROL US AFTER THIS OFFERING, AND
THEY MAY MAKE DECISIONS WITH WHICH YOU MAY DISAGREE.

After this offering, our existing shareholders will beneficially hold
approximately 74.8% of our outstanding common stock, or approximately 72.2% if
the underwriters' over-allotment option is exercised in full. Our executive
officers and directors as a group -- currently 16 persons -- will beneficially
hold approximately 23.1% of our outstanding common stock after this offering,
including currently exercisable stock options, or 22.3% if the over-allotment
option is fully exercised. Consequently, our existing shareholders will continue
to control us after this offering is completed, and our officers and directors
will continue to be significant holders. Through their voting power, these
persons may make decisions regarding Krispy Kreme with which you may disagree.

YOU WILL EXPERIENCE AN IMMEDIATE AND SUBSTANTIAL DILUTION IF YOU PURCHASE COMMON
STOCK IN THIS OFFERING.

The initial public offering price is substantially higher than the net tangible
book value per share of the outstanding common stock will be immediately after
this offering. Any common stock you purchase in this offering will have a
post-offering net tangible book value per share of $7.40 less than the initial
public offering price, assuming an initial public offering price of $19.00 per
share, which is the mid-point of the range shown on the cover page of this
prospectus. Future issuances of our common stock, including issuances in
connection with stock option exercises, could cause further dilution.

10
<PAGE> 14

FORWARD-LOOKING STATEMENTS

This prospectus contains statements about future events and expectations which
are characterized as forward-looking statements. Forward-looking statements are
based on management's beliefs, assumptions and expectations of our future
economic performance, taking into account the information currently available to
them. These statements are not statements of historical fact. Forward-looking
statements involve risks and uncertainties that may cause our actual results,
performance or financial condition to differ materially from the expectations of
future results, performance or financial condition we express or imply in any
forward-looking statements. Factors that could contribute to these differences
include those discussed in "Risk Factors" and in other sections of this
prospectus. The words believe, may, will, should, anticipate, estimate, expect,
intend, objective, seek, strive or similar words, or the negatives of these
words, identify forward-looking statements. We qualify any forward-looking
statements entirely by these cautionary factors.

11
<PAGE> 15

USE OF PROCEEDS

Krispy Kreme is offering for sale 3,000,000 shares of common stock by this
prospectus. Based on an assumed initial public offering price of $19.00 per
share, the mid-point of the range shown on the cover page of this prospectus, we
estimate that our net proceeds from the sale of these shares will be
approximately $51.8 million after deducting the underwriting discounts and
estimated offering expenses. Our estimated net proceeds will be approximately
$59.8 million if the underwriters exercise their option to purchase an
additional 450,000 shares from us to cover over-allotments.

We expect to use our net proceeds for the following purposes in the following
approximate amounts:

- Repayment of $30 million in borrowings under our loan agreement, which we
anticipate will be outstanding when we consummate this offering

- A distribution of $7 million to our existing shareholders as part of our
pre-offering corporate reorganization

The remainder will be used for:

- Remodeling and relocation of selected older company-owned stores

- Additional mix production capacity to support expansion

- Joint venture investments in area developer stores

- General corporate purposes, including working capital needs

Although we do not contemplate any changes in our use of proceeds, we may
reprioritize the uses listed above, or use some proceeds for other purposes in
the event extra proceeds are available or the specified uses require less
capital than expected.

Our loan agreement covers both a revolving line of credit and a term loan. At
our option, the revolving line of credit bears interest at either our lender's
prime rate minus 110 basis points or a rate equal to LIBOR plus 100 basis
points. Alternatively, we can choose to convert all or a portion of our
indebtedness under the revolving line of credit to a term loan for a period of
60, 84 or 120 months with interest based on, at our option, either: (1) a
variable prime rate method; (2) a variable LIBOR method; or (3) a swap rate
method with a prime rate-linked cap. Interest on our term loan is computed on
the same basis as the revolving line of credit, except that the rate has a floor
of 5.500% and a ceiling of 8.125%. At October 31, 1999, our revolving line of
credit and term loan both bore interest rates of 6.401%.

As of October 31, 1999, $4.2 million was outstanding under the term loan and
$18.7 million under the revolving line of credit. None of our indebtedness
incurred in the past year was used for purposes other than for working capital
needs. If we do not prepay it, indebtedness under our revolving credit facility
matures in July 2002, and under our term loan, in June 2001.

Pending application of the net proceeds as described above, we will invest the
net proceeds in short-term, interest-bearing investment grade or government
securities.

12
<PAGE> 16

DIVIDEND POLICY

We intend to retain our earnings to finance the expansion of our business and do
not anticipate paying cash dividends in the foreseeable future. Any future
determination regarding cash dividend payments will be made by our board of
directors and depends upon the following factors:

<TABLE>
<S> <C>
- - Earnings - Capital requirements
- - Our financial condition - Restrictions in financing agreements
- Other factors deemed relevant by the board of directors
</TABLE>

Dividend payments are restricted by our loan agreement to 50% of our net income
for the immediately preceding fiscal year.

We have routinely declared cash dividends on our common stock in the past. The
following table shows total and per share cash dividends we have declared on the
shares of our common stock during the periods indicated:

<TABLE>
<CAPTION>
-------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
----------------------------------- -----------------
FEBRUARY 1, 1998 JANUARY 31, 1999 OCTOBER 31, 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
Total cash dividends declared................ $1,179,562 $1,517,787 $ --
Per share.................................... $ 0.16 $ 0.16 $ --
</TABLE>

13
<PAGE> 17

CAPITALIZATION

The following table shows, as of October 31, 1999, our cash and cash
equivalents, short-term debt and capitalization, both actual and as adjusted.
The adjustment gives effect to:

- The merger in connection with our holding company formation

- The sale of 3,000,000 shares of common stock in this offering, assuming
an initial public offering price of $19.00 per share, which is the
mid-point of the range shown on the cover page of this prospectus

- The application of a portion of the estimated net proceeds from that
sale, after deducting underwriting discounts and estimated offering
expenses, to repay bank debt and pay a distribution to our existing
shareholders as described in "Use of Proceeds"

You should read the following capitalization data in conjunction with "Use of
Proceeds," "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the consolidated financial
statements and accompanying notes and the other financial data included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
---------------------
OCTOBER 31, 1999
---------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
In thousands, except share data
Cash and cash equivalents................................... $ 3,944 $25,854
======= =======
Short-term debt:
Current maturities of long-term debt...................... $ 2,400 $ --
======= =======
Long-term debt, excluding current maturities................ $20,495 $ --
------- -------
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized after the merger; none issued and
outstanding............................................ -- --
Common stock, $10.00 par value; 1,000,000 shares
authorized before the merger; 467,011 and 0 shares
issued and outstanding................................. 4,670 --
Common stock, no par value; 100,000,000 shares authorized
after the merger; 0 and 12,484,957 shares issued and
outstanding............................................ --
Paid-in capital........................................... 10,805 67,285
Notes receivable.......................................... (2,547) (2,547)
Retained earnings......................................... 34,596 27,591
------- -------
Total shareholders' equity............................. 47,524 92,329
------- -------
Total capitalization................................... $68,019 $92,329
======= =======
</TABLE>

The table above excludes 1,831,000 shares of common stock issuable upon the
exercise of stock options outstanding under our stock option plan on October 31,
1999, of which 91,000 were exercisable, and includes 144,737 shares to be
contributed to our stock bonus plans contemporaneously with this offering.

14
<PAGE> 18

DILUTION

Our net tangible book value as of October 31, 1999 was $47,523,705, or $5.09 per
share of common stock. Net tangible book value per share is the amount by which
total tangible assets exceeds total liabilities, divided by the total number of
shares of common stock outstanding. Our adjusted net tangible book value as of
October 31, 1999 would have been $92,328,540, or $7.40 per share, after giving
effect to the sale of 3,000,000 shares of common stock offered by this
prospectus at an assumed initial offering price of $19.00 per share, the
midpoint of the range shown on the cover page of this prospectus, and after
deducting estimated underwriting discounts and estimated offering expenses and
the distribution to be paid to existing shareholders as part of the corporate
reorganization in connection with this offering. This represents an immediate
increase in the net tangible book value of $2.31 per share to existing
shareholders, in addition to the cash distribution they will receive, and an
immediate dilution of $11.60 per share to new investors. The following table
illustrates the per share dilution:

<TABLE>
<S> <C> <C>
--------------
Assumed initial public offering price....................... $19.00
Net tangible book value per share as of October 31,
1999................................................... $5.09
Increase attributable to the sale of shares offered
hereby................................................. $2.31
-----
Adjusted net tangible book value after this offering........ $ 7.40
------
Dilution in the net tangible book value to new
investors.............................................. $11.60
======
</TABLE>

The following table shows, as of October 31, 1999, the number of shares of
common stock purchased from us, the total consideration paid to us and the
average price per share paid to us by existing shareholders, reduced to reflect
the cash distribution the existing shareholders will receive, and by new
investors in this offering at an assumed initial offering price of $19.00 per
share, the midpoint of the range shown on the cover page of this prospectus:

<TABLE>
<CAPTION>
------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................... 9,340,220 75.7% $15,474,673 23.0% $ 1.66
New investors........................... 3,000,000 24.3 51,810,000 77.0 $17.27
---------- ----- ----------- -----
Total......................... 12,340,220 100.0% $67,284,673 100.0%
========== ===== =========== =====
</TABLE>

The tables above exclude 144,737 shares to be contributed to our stock bonus
plans contemporaneously with this offering and assume no exercise of stock
options outstanding as of October 31, 1999 under our stock option plan. If any
of the options are exercised, there will be further dilution to new investors.

15
<PAGE> 19

SELECTED FINANCIAL DATA

The following table shows selected financial data for Krispy Kreme. The selected
historical statement of operations data for each of the years ended, and the
selected historical balance sheet data as of January 29, 1995, January 28, 1996,
February 2, 1997, February 1, 1998 and January 31, 1999 have been derived from
our audited consolidated financial statements, some of which are included in
this prospectus. Those consolidated financial statements and the accompanying
notes have been audited by PricewaterhouseCoopers LLP, independent public
accountants. Please note that our fiscal year ended February 2, 1997 contained
53 weeks.

The selected historical statement of operations data for the nine months ended,
and the selected historical balance sheet data as of, November 1, 1998 and
October 31, 1999 are derived from our unaudited consolidated financial
statements, which are included in this prospectus, except for the historical
balance sheet as of November 1, 1998. In the opinion of management, the
unaudited consolidated financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary to present the data for those
periods fairly. Operating results for interim periods are not necessarily
indicative of results for a full fiscal year.

You should read the following selected financial data in conjunction with "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," the consolidated financial statements and accompanying
notes and the other financial data included elsewhere in this prospectus.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------------------- -------------------------
JANUARY 29, JANUARY 28, FEBRUARY 2, FEBRUARY 1, JANUARY 31, NOVEMBER 1, OCTOBER 31,
1995 1996 1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands, except per share
data
STATEMENT OF OPERATIONS DATA:
Total revenues.................. $ 114,986 $ 118,550 $ 132,614 $ 158,743 $ 180,880 $ 133,190 $ 161,571
Operating expenses.............. 98,587 104,717 116,658 140,207 159,941 116,019 137,821
General and administrative
expenses...................... 7,578 6,804 7,630 9,530 10,897 7,885 10,171
Depreciation and amortization
expenses...................... 2,764 2,799 3,189 3,586 4,278 3,336 3,498
Provision for restructuring..... -- 3,000 -- -- 9,466 -- --
--------- --------- --------- --------- ---------- ---------- ----------
Income (loss) from operations... 6,057 1,230 5,137 5,420 (3,702) 5,950 10,081
Interest expense, net, and
other......................... (1,291) 930 1,091 895 1,577 1,049 847
--------- --------- --------- --------- ---------- ---------- ----------
Income (loss) before income
taxes......................... 7,348 300 4,046 4,525 (5,279) 4,901 9,234
Provision (benefit) for income
taxes......................... 2,731 120 1,619 1,811 (2,112) 2,015 3,509
--------- --------- --------- --------- ---------- ---------- ----------
Net income (loss)............... $ 4,617 $ 180 $ 2,427 $ 2,714 $ (3,167) $ 2,886 $ 5,725
========= ========= ========= ========= ========== ========== ==========
Net income (loss) per share:
Basic......................... $ .63 $ .02 $ .33 $ .37 $ (.38) $ .37 $ .61
Diluted....................... .63 .02 .33 .37 (.38) .36 .61
Shares used in calculation of
net income (loss) per share:
Basic......................... 7,275 7,284 7,284 7,284 8,249 7,890 9,340
Diluted....................... 7,275 7,284 7,284 7,284 8,249 7,910 9,440
Cash dividends declared per
common share.................. $ .16 $ .16 $ .16 $ .16 $ .16 $ -- $ --
</TABLE>

16
<PAGE> 20

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
AS OF AS OF
------------------------------------------------------------------- -------------------------
JANUARY 29, JANUARY 28, FEBRUARY 2, FEBRUARY 1, JANUARY 31, NOVEMBER 1, OCTOBER 31,
1995 1996 1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands
BALANCE SHEET DATA:
Working capital................. $ 7,730 $ 5,742 $ 10,148 $ 9,151 $ 8,387 $ 7,811 $ 11,683
Total assets.................... 67,257 72,888 78,005 81,463 93,181 93,400 104,691
Long-term debt, including
current maturities............. 12,533 18,311 20,187 20,870 21,020 20,053 22,895
Total shareholders' equity...... 35,817 35,033 36,516 38,265 42,247 49,587 47,524
</TABLE>

17
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations
should be read together with the financial statements and the accompanying notes
included elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in those forward-looking statements as a
result of certain factors, including, but not limited to, those described under
"Risk Factors" and included in other portions of the prospectus.

COMPANY OVERVIEW AND INDUSTRY OUTLOOK

Our principal business, which began in 1937, is owning and franchising Krispy
Kreme doughnut stores where we make and sell over 20 varieties of premium
quality doughnuts, including our Hot Original Glazed. Each of our stores is a
doughnut factory with the capacity to produce from 2,400 dozen to over 6,000
dozen doughnuts daily. Consequently, each store has significant fixed or semi-
fixed costs, and margins and profitability are significantly impacted by
doughnut production volume and sales. Our doughnut stores are versatile in that
most can support multiple sales channels to more fully utilize production
capacity. These sales channels are comprised of:

- ON-PREMISES SALES. Sales to customers visiting our stores, including the
drive-through windows, along with deeply discounted sales to community
organizations that in turn sell our products for fundraising purposes.

- OFF-PREMISES SALES. Daily sales of fresh doughnuts on a branded,
unbranded and private label basis to convenience and grocery stores and
select co-branding customers. Doughnuts are sold to these customers on
trays for display and sale in glass-enclosed cases and in packages for
display and sale on both stand-alone display units and on our customers'
shelves. "Branded" refers to products sold bearing the Krispy Kreme brand
name. "Unbranded" products are sold unpackaged from the retailer's
display case. "Private label" products carry the retailer's brand name or
some other non-Krispy Kreme brand.

In addition to our retail stores, we are vertically integrated. Our Support
Operations business unit produces doughnut mixes and manufactures our
doughnutmaking equipment, which all of our stores are required to purchase.
Additionally, it operates a distribution center that provides Krispy Kreme
stores with essentially all supplies for the critical areas of their business.
This business unit is volume-driven, and its economics are enhanced by the
opening of new stores. Our vertical integration allows us to:

- Maintain the consistency and quality of our products throughout our
system

- Utilize volume buying power which helps lower the cost of supplies to
each of our stores

- Enhance our profitability

We expect doughnut industry sales to continue growing. We believe growth in the
fragmented doughnut market will be aided by a variety of factors, including a
shift from food consumed at home to food consumed away from home, increased
snack food consumption and increased doughnut sales through in-store bakeries.

We intend to expand our concept primarily through opening new franchise stores
in territories across the continental United States. We may also enter into
joint ventures with some of our franchisees. As of October 31, 1999, there were
a total of 141 Krispy Kreme stores nationwide consisting of 59 company-owned and
82 franchised stores. In fiscal 2001, we anticipate opening approximately 22 new
stores under existing agreements, all of which are expected to be franchise

18
<PAGE> 22

stores. Additionally, our franchisees are contractually obligated to open over
100 new stores in the period fiscal 2002 through fiscal 2005.

As we expand the Krispy Kreme concept, we will incur infrastructure costs in the
form of additional personnel to support the expansion, and additional facilities
costs to provide mixes, equipment and other items necessary to operate the
various new stores. In the course of building this infrastructure, we may incur
unplanned costs which could negatively impact our operating results.

RESULTS OF OPERATIONS

In order to facilitate an understanding of the results of operations for each
period presented, we have included a general overview along with an analysis of
business segment activities. In addition to this analysis, refer to Note 1,
Nature of Business and Significant Accounting Policies, in our audited
consolidated financial statements. A guide to the discussion for each period is
presented below.

OVERVIEW. Outlines information on total systemwide sales, which includes both
company-owned and franchised stores, and systemwide comparable store sales.
Systemwide sales includes the sales of both our company-owned and franchised
stores and excludes the sales of our Support Operations business segment. Our
consolidated financial statements appearing elsewhere in this prospectus exclude
franchised store sales and include royalties and fees received from our
franchisees. We believe systemwide sales data is significant because it shows
the overall penetration of our brand, consumer demand for our products and the
correlation between systemwide sales and our total revenues. A store is added to
our comparable store base in its nineteenth month of operation. A summary
discussion of our consolidated results is also presented.

SEGMENT RESULTS. In accordance with Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
we have three reportable segments. A description of each of the segments
follows.

- COMPANY STORE OPERATIONS. Represents the results of our company-owned
stores. Company stores make and sell doughnuts and complementary products
through the sales channels discussed above. Expenses for this business
unit include store level expenses along with direct general and
administrative expenses.

- FRANCHISE OPERATIONS. Represents the results of our franchise program.
We have two franchise programs: (1) the associate program, which is our
original franchising program developed in the 1940s, and (2) the area
developer program, which was developed in the mid-1990s. Associates pay
royalties of 3.0% of on-premises sales and 1.0% of all other sales, with
the exception of private label sales, for which they pay no royalties.
Area developers pay royalties of 4.5% of all sales, contribute 1.0% of
all sales to our national advertising fund and pay franchise fees ranging
from $20,000 to $40,000 per store. See "Business -- Store Ownership" for
further information on our franchising programs. Expenses for this
business segment include costs incurred to recruit new franchisees and to
monitor and aid in the performance of these stores and direct general and
administrative expenses.

- SUPPORT OPERATIONS. Represents the results of our Support Operations
business unit, located in Winston-Salem, North Carolina. This business
unit buys ingredients used to produce doughnut mixes and manufactures
doughnutmaking equipment which all of our stores are required to
purchase. Additionally, this business unit purchases and sells
essentially all supplies necessary to operate a Krispy Kreme store,
including all food ingredients, juices, Krispy Kreme coffee, signage,
display cases, uniforms and other items. Generally, shipments are made to
each of our stores on a weekly basis by common carrier.

19
<PAGE> 23

All intercompany transactions between Support Operations and Company
Store Operations have been eliminated in consolidation. Expenses for this
business unit include all expenses incurred at the manufacturing and
distribution level along with direct general and administrative expenses.

OTHER. Includes a discussion of significant line items not discussed in the
overview or segment discussions, including general and administrative expenses,
depreciation and amortization expenses, provision for store closings and
restructuring, interest expense, net, and other expenses and the provision for
income taxes.

Our fiscal year is based on a 52 or 53 week year. The fiscal year ends on the
Sunday closest to the last day in January. The table below shows our operating
results for fiscal 1997 (53 weeks ended February 2, 1997), fiscal 1998 (52 weeks
ended February 1, 1998) and fiscal 1999 (52 weeks ended January 31, 1999) and
for the nine months ended November 1, 1998 (39 weeks) and October 31, 1999 (39
weeks) expressed as a percentage of total revenues. Certain operating data are
also shown for the same periods.

<TABLE>
<CAPTION>
-------------------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
--------------------------------------- -------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31, NOVEMBER 1, OCTOBER 31,
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses...................... 88.0 88.3 88.4 87.1 85.3
General and administrative expenses..... 5.8 6.0 6.0 5.9 6.3
Depreciation and amortization
expenses.............................. 2.4 2.3 2.4 2.5 2.2
Provision for restructuring............. -- -- 5.2 -- --
-------- -------- -------- -------- --------
Income (loss) from operations........... 3.8 3.4 (2.0) 4.5 6.2
Interest expense, net, and other........ 0.8 0.6 1.0 0.8 0.5
-------- -------- -------- -------- --------
Income (loss) before income taxes....... 3.0 2.8 (3.0) 3.7 5.7
Provision (benefit) for income taxes.... 1.2 1.1 (1.2) 1.5 2.2
-------- -------- -------- -------- --------
Net income (loss)..................... 1.8% 1.7% (1.8)% 2.2% 3.5%
======== ======== ======== ======== ========
In thousands
OPERATING DATA:
Systemwide sales........................ $167,592 $203,439 $240,316 $176,957 $231,956
Increase in comparable store sales:
Company-owned......................... 5.5% 11.5% 11.1% 11.3% 10.2%
Systemwide............................ 4.9% 12.7% 9.7% 10.2% 12.4%
</TABLE>

20
<PAGE> 24

The table below shows business segment revenues and operating expenses expressed
in dollars. Support Operations revenues are shown net of intercompany sales
eliminations. See Note 3 to our unaudited consolidated financial statements and
Note 10 to our audited consolidated financial statements. Operating expenses
exclude depreciation and amortization expenses.

<TABLE>
<CAPTION>
-------------------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
--------------------------------------- -------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31, NOVEMBER 1, OCTOBER 31,
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
In thousands
REVENUES BY BUSINESS SEGMENT:
Company Store Operations................ $113,940 $132,826 $145,251 $108,172 $121,104
Franchise Operations.................... 1,709 2,285 3,236 2,297 3,798
Support Operations...................... 16,965 23,632 32,393 22,721 36,669
-------- -------- -------- -------- --------
Total revenues........................ $132,614 $158,743 $180,880 $133,190 $161,571
======== ======== ======== ======== ========
OPERATING EXPENSES BY BUSINESS SEGMENT:
Company Store Operations................ $100,655 $117,252 $129,297 $ 94,358 $103,814
Franchise Operations.................... 1,575 2,368 2,731 1,931 2,791
Support Operations...................... 14,428 20,587 27,913 19,730 31,217
-------- -------- -------- -------- --------
Total operating expenses.............. $116,658 $140,207 $159,941 $116,019 $137,822
======== ======== ======== ======== ========
</TABLE>

The following table shows business segment revenues expressed as a percentage of
total revenues and business segment operating expenses expressed as a percentage
of applicable business segment revenues. Operating expenses exclude depreciation
and amortization expenses.

<TABLE>
<CAPTION>
-------------------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
--------------------------------------- -------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31, NOVEMBER 1, OCTOBER 31,
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES BY BUSINESS SEGMENT:
Company Store Operations................... 85.9% 83.7% 80.3% 81.2% 75.0%
Franchise Operations....................... 1.3 1.4 1.8 1.7 2.4
Support Operations......................... 12.8 14.9 17.9 17.1 22.6
----- ----- ----- ----- -----
Total revenues........................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
OPERATING EXPENSES BY BUSINESS SEGMENT:
Company Store Operations................... 88.3% 88.3% 89.0% 87.2% 85.7%
Franchise Operations....................... 92.2% 103.6% 84.4% 84.1% 73.5%
Support Operations......................... 85.0% 87.1% 86.2% 86.8% 85.1%
Total operating expenses................... 88.0% 88.3% 88.4% 87.1% 85.3%
</TABLE>

21
<PAGE> 25

Additionally, data on store opening activity are shown below. Transferred stores
represent stores sold between the company and franchisees.

<TABLE>
<CAPTION>
--------------------------------
COMPANY-
OWNED FRANCHISED TOTAL
--------- ----------- ------
<S> <C> <C> <C>
YEAR ENDED FEBRUARY 2, 1997
Beginning count............................................. 53 42 95
Opened...................................................... 7 15 22
Closed...................................................... -- (1) (1)
Transferred................................................. 1 (1) --
-- -- ---
Ending count.............................................. 61 55 116
== == ===
YEAR ENDED FEBRUARY 1, 1998
Beginning count............................................. 61 55 116
Opened...................................................... -- 7 7
Closed...................................................... (2) (1) (3)
Transferred................................................. (1) 1 --
-- -- ---
Ending count.............................................. 58 62 120
== == ===
YEAR ENDED JANUARY 31, 1999
Beginning count............................................. 58 62 120
Opened...................................................... -- 14 14
Closed...................................................... -- (3) (3)
Transferred................................................. 3 (3) --
-- -- ---
Ending count.............................................. 61 70 131
== == ===
NINE MONTHS ENDED OCTOBER 31, 1999
Beginning count............................................. 61 70 131
Opened...................................................... 2 13 15
Closed...................................................... (4) (1) (5)
Transferred................................................. -- -- --
-- -- ---
Ending count.............................................. 59 82 141
== == ===
</TABLE>

NINE MONTHS ENDED OCTOBER 31, 1999 COMPARED WITH NINE MONTHS ENDED NOVEMBER 1,
1998

Overview

Systemwide sales increased to $232.0 million in the first nine months of fiscal
2000 from $177.0 million in the first nine months of fiscal 1999, an increase of
31.1%. This increase was comprised of company store sales increases of $12.9
million and franchise store sales increases of $42.1 million. Systemwide
comparable store sales, with 111 stores in the comparable store base, increased
12.4%. The overall systemwide sales increase was driven by comparable store
sales improvement and the opening of new stores.

Total company revenues increased to $161.6 million in the first nine months of
fiscal 2000 from $133.2 million in the first nine months of fiscal 1999, an
increase of 21.3%. This increase was comprised of Company Store Operations
revenues increases of $12.9 million, Franchise Operations revenues increases of
$1.5 million and Support Operations revenues increases of $13.9 million. Net
income increased 98.4% to $5.7 million from $2.9 million. Net income as a
percentage of total revenues was 3.5% in the first nine months of fiscal 2000
compared with 2.2% in the first nine months of fiscal 1999.

22
<PAGE> 26

Company Store Operations

Company Store Operations revenues. Company Store Operations revenues increased
to $121.1 million in the first nine months of fiscal 2000 from $108.2 million in
the first nine months of fiscal 1999, an increase of 12.0%. Comparable store
sales, with 56 stores in the comparable store base, increased by 10.2%. The
revenue growth was primarily due to strong growth in sales from both our
on-premises and off-premises sales channels. On-premises sales increased
approximately $3.2 million and off-premises sales increased approximately $9.7
million. On-premises sales grew principally as a result of more customer visits
and an increase in brand awareness generated by national publicity and our
national store expansion. Our company stores continued to benefit from an
increase in the number of stores we serve via our off-premises sales programs.
The current period revenue increase in off-premises sales is due primarily to
the addition of new convenience store outlets.

Company Store Operations operating expenses. Company Store Operations operating
expenses increased to $103.8 million in the first nine months of fiscal 2000
from $94.4 million in the first nine months of fiscal 1999, an increase of
10.0%. Company Store Operations operating expenses as a percentage of Company
Store Operations revenues were 85.7% in the first nine months of fiscal 2000
compared with 87.2% in the first nine months of fiscal 1999. The decrease in
Company Store Operations operating expenses as a percentage of revenues was due
to increased operating efficiencies resulting from increased sales levels at our
stores. These additional sales have utilized excess production capacity thereby
enhancing the stores' profitability.

Franchise Operations

Franchise Operations revenues. Franchise Operations revenues increased to $3.8
million in the first nine months of fiscal 2000 from $2.3 million in the first
nine months of fiscal 1999, an increase of 65.3%. The growth in revenue was
primarily due to the opening of 13 franchise stores in the first nine months of
fiscal 2000 and the impact of 14 franchise stores opened in fiscal 1999 being
open for the full nine months in fiscal 2000. Many of these stores have had
company record-setting opening week on-premises sales levels and their
on-premises sales have remained strong in the months following their openings.

Franchise Operations operating expenses. Franchise Operations operating
expenses increased to $2.8 million in the first nine months of fiscal 2000 from
$1.9 million in the first nine months of fiscal 1999, an increase of 44.5%.
Franchise Operations operating expenses as a percentage of Franchise Operations
revenues were 73.5% in the first nine months of fiscal 2000 compared with 84.1%
in the first nine months of fiscal 1999. The decrease in Franchise Operations
operating expenses as a percentage of revenues was due to leveraging the
infrastructure we have built in preparing for our expansion. In prior years, we
hired and trained personnel to oversee the expansion of our concept across the
country. In addition to our management training program, they received field
training primarily consisting of working with and learning from existing
personnel who were qualified to oversee store operations. As these personnel
have successfully completed their training, we have been able to open additional
stores without incurring significant incremental personnel costs.

Support Operations

Support Operations revenues. Support Operations sales to franchise stores
increased to $36.7 million in the first nine months of fiscal 2000 from $22.7
million in the first nine months of fiscal 1999, an increase of 61.4%. The
primary reason for the increase in revenues was the opening of new franchise
stores, including current period openings, the impact of stores opened in fiscal
1999 and comparable store sales increases. Increased doughnut sales through both
the on-premises and off-premises sales channels by franchise stores translated
into increased revenues for Support

23
<PAGE> 27

Operations from sales of mixes, sugar, shortening and other supplies. Also, each
of these new stores is required to purchase doughnut manufacturing equipment and
other peripheral equipment from Support Operations, thereby enhancing Support
Operations sales. An increase in doughnut manufacturing equipment prices of
approximately 20.0% also contributed.

Support Operations operating expenses. Support Operations operating expenses
increased to $31.2 million in the first nine months of fiscal 2000 from $19.7
million in the first nine months of fiscal 1999, an increase of 58.2%. Support
Operations operating expenses as a percentage of Support Operations revenues
were 85.1% in the first nine months of fiscal 2000 compared with 86.8% in the
first nine months of fiscal 1999. The decrease in Support Operations operating
expenses as a percentage of revenues was due to the increased capacity
utilization and resulting economies of scale of the mix and equipment
manufacturing operations attributable to the increased volume in the facilities.
Favorable commodities prices also contributed.

Other

General and administrative expenses. General and administrative expenses
increased to $10.2 million in the first nine months of fiscal 2000 from $7.9
million in the first nine months of fiscal 1999, an increase of 29.0%. General
and administrative expenses as a percentage of total revenues were 6.3% in the
first nine months of fiscal 2000 compared with 5.9% in the first nine months of
fiscal 1999. The primary reason for the increase in these expenses was our
continued investment in infrastructure to support our expansion. The investment
in infrastructure consisted primarily of the hiring of new personnel in
corporate support departments. Costs incurred in the first nine months of fiscal
2000 for these personnel, including salaries and benefits, increased
approximately $953,000 over the first nine months of fiscal 1999.

Depreciation and amortization expenses. Depreciation and amortization expenses
increased to $3.5 million in the first nine months of fiscal 2000 from $3.3
million in the first nine months of fiscal 1999, an increase of 4.9%.
Depreciation and amortization expenses as a percentage of total revenues were
2.2% in the first nine months of fiscal 2000 compared with 2.5% in the first
nine months of fiscal 1999. Depreciation and amortization expenses increased due
to capital asset additions.

Provision for restructuring. During the nine months ended October 31, 1999, we
reassessed certain provisions of our accrued restructuring expense initially
recorded in the fourth quarter of fiscal 1999. This reassessment, along with the
sale of a parcel of land included in the provision, resulted in a net charge to
operating expenses of $86,000. See Note 5 to our unaudited consolidated
financial statements.

Interest expense. Interest expense decreased to $1.1 million in the first nine
months of fiscal 2000 from $1.2 million in the first nine months of fiscal 1999,
a decrease of 4.5%. Borrowing amounts were fairly consistent in the first nine
months of each fiscal year; however, interest rates were lower in the first nine
months of fiscal 2000 compared with the first nine months of fiscal 1999.

Provision for income taxes. The provision for income taxes is based on the
effective tax rate applied to the respective nine-month period's pre-tax income.
The provision for income taxes increased 74.1% to $3.5 million in the first nine
months of fiscal 2000 representing a 38.0% effective rate. The provision in the
first nine months of fiscal 1999 was $2.0 million representing an effective rate
of 41.1%.

24
<PAGE> 28

YEAR ENDED JANUARY 31, 1999 COMPARED WITH YEAR ENDED FEBRUARY 1, 1998

Overview

Systemwide sales increased to $240.3 million in fiscal 1999 from $203.4 million
in fiscal 1998, an increase of 18.1%. This increase was comprised of company
store sales increases of $12.4 million and franchise store sales increases of
$24.5 million. Systemwide comparable store sales, with 104 stores in the
comparable store base, increased 9.7%. The overall systemwide sales increase was
driven by comparable store sales improvement and the opening of new stores.

Total company revenues increased to $180.9 million in fiscal 1999 from $158.7
million in fiscal 1998, an increase of 13.9%. This increase was comprised of
Company Store Operations revenues increases of $12.4 million, Franchise
Operations revenues increases of $951,000 and Support Operations revenues
increases of $8.8 million. For fiscal 1999, the net loss was $3.2 million
compared with net income of $2.7 million for fiscal 1998. The net loss in fiscal
1999 was due to a provision for restructuring of $9.5 million, discussed below.
Absent this provision, net income for fiscal 1999 would have been $2.5 million,
or 1.4% of total revenues, compared with $2.7 million, or 1.7% of total
revenues, in fiscal 1998.

Company Store Operations

Company Store Operations revenues. Company Store Operations revenues increased
to $145.3 million in fiscal 1999 from $132.8 million in fiscal 1998, an increase
of 9.4%. Comparable store sales, with 56 stores in the comparable store base,
increased by 11.1%. The revenue growth was primarily driven by an increase in
the number of off-premises outlets that we serve. Our sales efforts were
particularly directed at convenience stores.

Company Store Operations operating expenses. Company Store Operations operating
expenses increased to $129.3 million in fiscal 1999 from $117.3 million in
fiscal 1998, an increase of 10.3%. Company Store Operations operating expenses
as a percentage of Company Store Operations revenues were 89.0% in fiscal 1999
compared with 88.3% in fiscal 1998. The increase in Company Store Operations
operating expenses as a percentage of revenues was primarily due to a charge of
$2.3 million for store closings and impairment costs in the normal course of
business. The charge consisted of $417,000 related to the write-off of
unamortized leasehold improvements for two stores to be closed and the accrual
of $283,000 in remaining lease costs on a site that will not be used. The
remaining $1.6 million related to the write-down of building and equipment of a
facility that will remain open but whose carrying value we determined was not
fully recoverable.

The impact of this charge was offset by increased operating efficiencies
resulting from increases in the off-premises sales channels discussed above. The
stores' operations benefited from the utilization of excess production capacity.
Additionally, we converted our direct store delivery, or DSD, route system for
packaged products from a daily delivery system to an every other day system
which reduced our route delivery costs.

Franchise Operations

Franchise Operations revenues. Franchise Operations revenues increased to $3.2
million in fiscal 1999 from $2.3 million in fiscal 1998, an increase of 41.6%.
This growth in revenue was primarily due to the opening of 14 new franchise
stores in fiscal 1999 along with the seven franchise stores opened in fiscal
1998 having a full year of operating results in fiscal 1999.

Franchise Operations operating expenses. Franchise Operations operating
expenses increased to $2.7 million in fiscal 1999 from $2.4 million in fiscal
1998, an increase of 15.3%. Franchise Operations operating expenses as a
percentage of Franchise Operations revenues were 84.4% in fiscal 1999 compared
with 103.6% in fiscal 1998. The decrease in Franchise Operations operating

25
<PAGE> 29

expenses as a percentage of revenues was due to leveraging the infrastructure we
put in place in preparation for additional store openings. In prior years, we
began to hire and train personnel to oversee the expansion of our concept across
the country. Their training consisted primarily of working with and learning
from existing personnel who were qualified to oversee store operations. As these
personnel have successfully completed their training, we have been able to open
additional stores without incurring significant incremental personnel costs.

Support Operations

Support Operations revenues. Support Operations sales to franchise stores
increased to $32.4 million in fiscal 1999 from $23.6 million in fiscal 1998, an
increase of 37.1%. Support Operations revenues were impacted primarily by the
opening of new stores in fiscal 1999 and a full year of operations for those
franchise stores opened in fiscal 1998. Each of these stores was supplied with
doughnut manufacturing equipment and other equipment necessary to open each
store thereby enhancing Support Operations sales. Additionally, a few existing
franchise stores began to implement off-premises sales programs, thereby
increasing the amount of mixes and other supplies they purchased from Support
Operations.

Support Operations operating expenses. Support Operations operating expenses
increased to $27.9 million in fiscal 1999 from $20.6 million in fiscal 1998, an
increase of 35.6%. Support Operations operating expenses as a percentage of
Support Operations revenues was 86.2% in fiscal 1999 compared with 87.1% in
fiscal 1998. The decrease in Support Operations operating expenses as a
percentage of revenues was primarily due to increased sales volumes utilizing
existing capacity in our mix, equipment and distribution operations. Increased
freight costs of approximately $830,000 incurred in delivering products to new
stores opened outside our traditional Southeastern markets partially offset
these efficiency gains.

Other

General and administrative expenses. General and administrative expenses
increased to $10.9 million in fiscal 1999 from $9.5 million in fiscal 1998, an
increase of 14.4%. General and administrative expenses as a percentage of total
revenues were 6.0% in both fiscal 1999 and fiscal 1998. The primary reason for
the increase in the dollar amount of these expenses was our continued investment
in infrastructure to support growth and enhance our profitability. The
investment in infrastructure consisted primarily of the hiring of new personnel
in corporate support departments. Costs incurred in fiscal 1999 for these
personnel, including salaries and benefits, increased approximately $700,000
over fiscal 1998.

Depreciation and amortization expenses. Depreciation and amortization expenses
increased to $4.3 million in fiscal 1999 from $3.6 million in fiscal 1998, an
increase of 19.3%. Depreciation and amortization expenses as a percentage of
total revenues were 2.4% in fiscal 1999 compared with 2.3% in fiscal 1998.
Depreciation and amortization expenses increased due to capital asset additions.

Provision for restructuring. In late fiscal 1999, the board of directors
approved a restructuring plan for assets and operations determined either to be
inconsistent with our strategy or whose carrying value may not be fully
recoverable. Of the total restructuring and impairment charge of $9.5 million,
$7.8 million relates to the closing of five double drive-through company-owned
stores and the write-down of five other inactive double drive-through stores and
sites, including provisions to write-down associated land, building and
equipment costs to estimated net realizable value and to cover operating lease
commitments associated with these stores. An additional $700,000 relates to
future lease payments on double drive-through buildings subleased to
franchisees. We determined that the double drive-through stores were
inconsistent with our strategy as the space constraints in these stores did not
allow them to efficiently execute both on-

26
<PAGE> 30

premises and off-premises sales and these facilities were not producing adequate
levels of brand value for the company. Also included in the charge is a $1.0
million write-down of a facility that produces fried pies and honey buns. These
products are not expected to form a core part of our expansion strategy.

Of the total provision, $5.6 million represents a charge for future cash
outflows, primarily in the form of lease payments on land and buildings, while
$3.6 million represents a write-down or write-off of land and buildings. Future
cash outflows will be paid over each remaining lease term and we believe that
cash flow from operations will be adequate to fund these cash needs. These
stores are scheduled to be closed by the end of fiscal year 2000. No severance
costs were included as a part of the restructuring provision. We anticipate
future benefits as a result of avoiding the losses incurred each year by the
closed stores, reduced depreciation costs on those assets which we determined
were impaired and a write-off of the carrying value of three double
drive-through buildings which had never been placed in service. As of October
31, 1999, there have been no material changes in the restructuring plan as it
was originally recorded.

Interest expense. Interest expense decreased to $1.5 million in fiscal 1999
from $1.6 million in fiscal 1998, a decrease of 6.0%. The decrease was due to
slightly lower borrowing levels as a result of improved cash flow during the
year.

Provision for income taxes. The provision (benefit) for income taxes in fiscal
1999 and fiscal 1998 is based on the effective tax rate applied to the
respective year's pre-tax book income (loss) effective tax rate. Our fiscal 1999
income tax benefit was $2.1 million representing a 40% effective tax rate
compared with a provision of $1.8 million representing a 40% effective tax rate
in fiscal 1998. We recorded a deferred tax benefit for the fiscal 1999 pre-tax
book loss as the items which gave rise to these losses will be utilized to
reduce our future taxable income.

YEAR ENDED FEBRUARY 1, 1998 COMPARED WITH YEAR ENDED FEBRUARY 2, 1997

Overview

Systemwide sales increased to $203.4 million in fiscal 1998 from $167.6 million
in fiscal 1997, an increase of 21.4%. This increase was comprised of company
store sales increases of $18.9 million and franchise store sales increases of
$17.0 million. Systemwide comparable store sales, with 96 stores in the
comparable store base, increased 12.7%. The overall systemwide sales increase
was driven by comparable store sales improvement and the opening of new stores.

Total company revenues increased to $158.7 million in fiscal 1998 from $132.6
million in fiscal 1997, an increase of 19.7%. This increase was comprised of
Company Store Operations revenues increases of $18.9 million, Franchise
Operations revenues increases of $576,000 and Support Operations revenues
increases of $6.7 million. Net income increased to $2.7 million in fiscal 1998
from $2.4 million in fiscal 1997, an increase of 11.8%. Net income as a
percentage of revenues was 1.7% in fiscal 1998 compared with 1.8% in fiscal
1997.

Company Store Operations

Company Store Operations revenues. Company Store Operations revenues increased
to $132.8 million in fiscal 1998 from $113.9 million in fiscal 1997, an increase
of 16.6%. Comparable store sales, with 52 stores in the comparable store base,
increased by 11.5%. The revenue growth was primarily due to significant growth
in our in-store bakery and convenience store off-premises sales programs.

Company Store Operations operating expenses. Company Store Operations operating
expenses increased to $117.3 million in fiscal 1998 from $100.7 million in
fiscal 1997, an increase of 16.5%.

27
<PAGE> 31

Company Store Operations operating expenses as a percentage of Company Store
Operations revenues were 88.3% in both fiscal 1998 and fiscal 1997. The
operating efficiencies from the incremental sales revenues, primarily generated
by the off-premises sales channels, were offset by start-up costs in these
programs related to the delivery of doughnuts to in-store bakeries and
convenience stores. These start-up costs included training and personnel costs.

Franchise Operations

Franchise Operations revenues. Franchise Operations revenues increased to $2.3
million in fiscal 1998 from $1.7 million in fiscal 1997, an increase of 33.7%.
This revenue growth was primarily due to the opening of seven new franchise
stores in fiscal 1998 along with 15 franchise stores opened in fiscal 1997
having a full year of operating results in fiscal 1998.

Franchise Operations operating expenses. Franchise Operations operating
expenses increased to $2.4 million in fiscal 1998 from $1.6 million in fiscal
1997, an increase of 50.4%. Franchise Operations operating expenses as a
percentage of revenues were 103.6% in fiscal 1998 compared with 92.2% in fiscal
1997. We invested significantly in building our infrastructure for our national
expansion in fiscal 1998, primarily through hiring additional personnel to
oversee the expansion.

Support Operations

Support Operations revenues. Support Operations sales to franchise stores
increased to $23.6 million in fiscal 1998 from $17.0 million in fiscal 1997, an
increase of 39.3%. Support Operations revenues were impacted primarily by the
opening of new stores in fiscal 1998 and a full year's sales of those franchise
stores opened in fiscal 1997.

Support Operations operating expenses. Support Operations operating expenses
increased to $20.6 million in fiscal 1998 from $14.4 million in fiscal 1997, an
increase of 42.7%. Support Operations operating expenses as a percentage of
revenues were 87.1% in fiscal 1998 compared with 85.0% in fiscal 1997. As our
franchisees began to open stores outside the Southeast, we incurred increases in
both freight costs and start-up costs.

Other

General and administrative expenses. General and administrative expenses
increased to $9.5 million in fiscal 1998 from $7.6 million in fiscal 1997, an
increase of 24.9%. The primary reason for the increase in these expenses was our
continued investment in infrastructure to support growth and enhance our
profitability. Costs incurred in fiscal 1998 for personnel in corporate support
departments, including salaries and benefits, increased approximately $585,000
over fiscal 1997. Along with personnel additions, we incurred increased costs in
travel, employee benefits and information technology.

Depreciation and amortization expenses. Depreciation and amortization expenses
increased to $3.6 million in fiscal 1998 from $3.2 million in fiscal 1997, an
increase of 12.4%. Depreciation and amortization expenses as a percentage of
total revenues were 2.3% in fiscal 1998 compared with 2.4% in fiscal 1997.
Depreciation and amortization expenses increased due to capital asset additions.

Interest expense. Interest expense increased to $1.6 million in fiscal 1998
from $1.3 million in fiscal 1997, an increase of 22.4%. Although borrowing
levels were fairly consistent between the two years, interest rates were higher
in fiscal 1998 than in fiscal 1997.

Provision for income taxes. The provision for income taxes in fiscal 1998 and
fiscal 1997 is based on the effective tax rate applied to the respective year's
pre-tax book income. Our fiscal 1998 income tax provision was $1.8 million
representing a 40% effective tax rate compared with a provision of $1.6 million
representing a 40% effective tax rate in fiscal 1997.

28
<PAGE> 32

QUARTERLY RESULTS

The following tables set forth unaudited quarterly information for each of the
eight fiscal quarters in the two year period ended October 31, 1999. Per share
amounts reflect an exchange ratio in the merger in connection with our holding
company formation of 20-for-one, which will have the effect of a 20-for-one
stock split. This quarterly information has been prepared on a basis consistent
with our audited financial statements and, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information for the periods presented.
Our quarterly operating results may fluctuate significantly as a result of a
variety of factors, and operating results for any quarter are not necessarily
indicative of results for a full fiscal year.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------------------------------------
FEB. 1, MAY 3, AUG. 2, NOV. 1, JAN. 31, MAY 2, AUG. 1, OCT. 31,
1998 1998 1998 1998 1999 1999 1999 1999
------- ------- ------- ------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In thousands, except per share
data
Total revenues................... $40,147 $45,070 $42,941 $45,179 $47,690 $53,328 $51,356 $56,887
Operating expenses............... 36,017 38,386 37,999 39,634 43,922 45,499 44,131 48,192
General and administrative
expenses....................... 3,344 2,846 2,469 2,570 3,013 2,864 3,658 3,649
Depreciation and amortization
expenses....................... 701 1,116 1,110 1,110 942 1,102 1,159 1,237
Provision for restructuring...... -- -- -- -- 9,466 -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations.... 85 2,722 1,363 1,865 (9,653) 3,863 2,408 3,809
Interest expense, net, and other
expenses....................... 88 348 350 351 527 307 331 208
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes.......................... (3) 2,374 1,013 1,514 (10,180) 3,556 2,077 3,601
Provision (benefit) for income
taxes.......................... (1) 991 395 629 (4,127) 1,351 790 1,368
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).............. $ (2) $ 1,383 $ 618 $ 885 $(6,053) $ 2,205 $ 1,287 $ 2,233
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per share:
Basic.......................... $ -- $ .19 $ .08 $ .10 $ (.65) $ .24 $ .14 $ .24
Diluted........................ -- .19 .08 .10 (.65) .23 .14 .24
</TABLE>

Our operating results for these eight quarters expressed as percentages of
applicable revenues were as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------------------------------------
FEB. 1, MAY 3, AUG. 2, NOV. 1, JAN. 31, MAY 2, AUG. 1, OCT. 31,
1998 1998 1998 1998 1999 1999 1999 1999
------- ------ ------- ------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses.................... 89.7 85.2 88.5 87.7 92.1 85.3 85.9 84.7
General and administrative expenses... 8.3 6.3 5.7 5.7 6.3 5.4 7.1 6.4
Depreciation and amortization
expenses............................ 1.7 2.5 2.6 2.5 2.0 2.1 2.3 2.2
Provision for restructuring........... -- -- -- -- 19.8 -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations......... 0.3 6.0 3.2 4.1 (20.2) 7.2 4.7 6.7
Interest expense, net, and other
expenses............................ 0.3 0.7 0.9 0.8 1.2 0.6 0.7 0.4
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes..... -- 5.3 2.3 3.3 (21.4) 6.6 4.0 6.3
Provision (benefit) for income
taxes............................... -- 2.2 0.9 1.4 (8.7) 2.5 1.5 2.4
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)................... -- 3.1% 1.4% 1.9% (12.7)% 4.1% 2.5% 3.9%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

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<PAGE> 33

Historically, we have experienced seasonal variability in our quarterly
operating results, with higher profits per store in the first and third quarters
than in the second and fourth quarters. The seasonal nature of our operating
results is expected to continue.

LIQUIDITY AND CAPITAL RESOURCES

Because management generally does not monitor liquidity and capital resources on
a segment basis, this discussion is presented on a consolidated basis.

We funded our capital requirements for fiscal 1997, 1998 and 1999 and for the
nine months ended October 31, 1999 primarily through cash flow generated from
operations, but also through borrowings under our line of credit and term loan
facility. A private stock offering in fiscal 1999 also contributed to funding
our cash needs.

Net cash flow from operations was $2.7 million in fiscal 1997, $7.1 million in
fiscal 1998, $11.7 million in fiscal 1999 and $7.5 million for the nine months
ended October 31, 1999. The trend of improved operating cash flow is due to an
improvement in our net income, net of the impact of the provision for store
closings and restructuring in fiscal 1999. Operating cash flow has been
negatively impacted by additional investments in working capital, primarily
accounts receivable and inventories, as a result of the expansion of our
off-premises sales programs and the opening of new stores which we either own or
supply.

Net cash used for investing activities was $3.4 million in fiscal 1997, $5.9
million in fiscal 1998, $11.8 million in fiscal 1999 and $8.2 million in the
nine months ended October 31, 1999. Investing activities primarily consist of
capital expenditures for property, plant and equipment. These capital
expenditures primarily relate to expenditures to support our off-premises sales
programs, maintenance, capital expenditures for existing stores and equipment,
development of new stores and the acquisition of stores from existing
franchisees.

Net cash provided by (used for) financing activities was $759,000 in fiscal
1997, ($456,000) in fiscal 1998, $1.5 million in fiscal 1999 and ($91,000) in
the nine months ended October 31, 1999. Financing activities in fiscal 1997 and
fiscal 1998 consisted primarily of borrowings under our line of credit and
payment of cash dividends. Fiscal 1999 financing activities consisted primarily
of proceeds from a private stock offering, payment of cash dividends and the
issuance of notes. Our financing activities in the first nine months of fiscal
2000 have consisted primarily of borrowings under our line of credit and payment
of cash dividends declared in fiscal 1999.

We entered into a new loan agreement on December 29, 1999. This agreement, which
is unsecured, provides a $40 million revolving line of credit and a $12 million
term loan. The loan agreement expires on July 10, 2002. Under the terms of the
loan agreement, interest on the revolving line of credit is paid monthly and
charged at either the lender's prime rate less 110 basis points or at the
one-month LIBOR rate plus 100 basis points. There is no interest, fee or other
charge for the unadvanced portion of the revolving line of credit. A provision
of the loan agreement allows us to convert, prior to the expiration date of the
agreement, all or a portion of the outstanding principal balance of the
revolving line of credit to a term loan for a period of 60, 84 or 120 months.
Concerning interest on the term loan, we have the option of either a variable
prime rate based method, a variable LIBOR based method or a swap rate based
method with a ceiling tied to the prime rate at the time of conversion. As of
the date of this prospectus, no amounts from the $40 million revolving line of
credit facility have been converted to a term loan. The loan agreement entered
into on December 29, 1999 replaced a previous unsecured agreement which had a
$28 million revolving line of credit and a $12 million term loan. Other than an
increase in the amount of the line of credit facility, all other provisions of
the prior loan agreement were essentially the same as those of the current
agreement. As of October 31, 1999, $18.7 million

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<PAGE> 34

was outstanding under the line of credit facility and $4.2 million was
outstanding under the term loan.

The $12 million term loan entered into on December 29, 1999 was a continuation
of the $12 million term loan contained in the previous loan agreement. Interest
on the $12 million term loan is computed on the same basis as the revolving line
of credit except that the floor and ceiling rates are 5.500% and 8.125%,
respectively. Repayment of this loan began on July 20, 1996 in the amount of
monthly principal payments of $200,000 plus interest; the final payment is on
June 20, 2001. The term loan may be prepaid without penalty or premium at any
time.

The loan agreement entered into on December 29, 1999 requires us to maintain a
consolidated tangible net worth of $41 million through January 28, 2001. For
each fiscal year thereafter, the agreement requires us to maintain a
consolidated tangible net worth of $41 million plus (1) an amount equal to 75%
of the net proceeds from this offering and (2) 50% of our net income for each
fiscal year. Capital expenditures for each fiscal year are limited to $35
million. The loan agreement also contains covenants which place various
restrictions on sales of properties, our ability to enter into collateral
repurchase agreements and guaranties, the payment of dividends and other
customary financial and nonfinancial covenants.

In the next five years, we will use cash primarily for the following activities:

- Repayment of borrowings under our loan agreement

- A distribution of approximately $7 million to our existing shareholders
as part of our pre-offering corporate reorganization

- Remodeling and relocation of selected older company-owned stores

- Additional mix production capacity to support expansion

- Joint venture investments in area developer stores

- General corporate purposes, including working capital needs

Our capital requirements for the items outlined above may be significant. These
capital requirements will depend on many factors including our overall
performance, the pace of store expansion and company store remodels, the
requirements for joint venture arrangements and infrastructure needs for both
personnel and facilities. To date, we have primarily relied on cash flow
generated from operations and our line of credit to fund our capital needs. We
believe that the proceeds from this offering, cash flow generated from
operations and our borrowing capacity under our line of credit will be
sufficient to meet our capital needs for the remainder of fiscal 2000 and in
fiscal 2001 through 2005. If additional capital is needed, we may raise such
capital through public or private equity or debt financings. Future capital
funding transactions may result in dilution to purchasers in this offering.
However, there can be no assurance that additional capital will be available or
be available on satisfactory terms. Our failure to raise additional capital
could have one or more of the following effects on our operations and growth
plans over the next five years:

- Slowing our plans to remodel and relocate older company-owned stores

- Reducing the number and amount of joint venture investments in area
developer stores

- Slowing the building of our infrastructure in both personnel and
facilities

We conduct some of our corporate and store operations from leased facilities and
lease certain equipment under operating leases. Generally, these have initial
lease periods of five to 18 years, and contain provisions for renewal options of
five to ten years.

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<PAGE> 35

INFLATION

We do not believe that inflation has had a material impact on our results of
operations in recent years. However, we cannot predict what effect inflation may
have on our results of operations in the future.

YEAR 2000

The "year 2000 issue" refers to the possible failure of many computer systems
that may arise as a result of existing computer software and hardware using only
the last two digits to refer to a year.

We believe that the most significant internal risk posed by the year 2000 issue
was the possibility of a failure of our accounting systems, either at our
corporate offices, at our Winston-Salem manufacturing and distribution facility
or at our stores. Third parties whose potential year 2000 problems could have
had the greatest effect on us are our banks, the company that processes our
payroll and maintains our human resources databases and companies that supply
our key raw materials.

Prior to the year 2000 date change, we completed reviews of the ability of our
hardware and software serving critical internal functions in our stores and in
our corporate offices to accurately handle the transition of dates from 1999 to
2000. As of the date of this prospectus, we estimate that we have spent $1
million for the dual purpose of upgrading the functionality of systems while at
the same time achieving year 2000 compliance. Additionally, we have developed
contingency plans for critical functions in certain corporate departments and
business units to address potential year 2000 issues.

Since entering the year 2000, we have not experienced any significant
disruptions to our business, nor are we aware of any significant year 2000
issues impacting our banks, vendors or customers. We will continue to monitor
our critical systems over the next several months for any delayed effects of the
year 2000 date change, but do not expect any significant exposure from our
internal systems or from the actions of our banks, vendors and customers.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

We are exposed to market risk from changes in interest rates on our outstanding
bank debt. Our revolving line of credit bears interest at either our lender's
prime rate minus 110 basis points or a rate equal to LIBOR plus 100 basis
points. We elect the rate on a monthly basis. Additionally, our term loan bears
interest under the same method as our revolving line of credit except that the
rate is capped with a floor of 5.500% and a ceiling of 8.125%. The interest cost
of our bank debt is affected by changes in either prime or LIBOR. Such changes
could adversely impact our operating results.

We have no derivative financial interests or derivative commodity instruments in
our cash or cash equivalents. On any business day that we have excess cash
available, we use it to pay down our revolving line of credit.

We purchase certain commodities such as flour, sugar and soybean oil. These
commodities are usually purchased under long-term purchase agreements, generally
one to three years, at a fixed price. We are subject to market risk in that the
current market price of any commodity item may be below our contractual price.
We do not use financial instruments to hedge commodity prices.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued FAS 133, "Accounting for Derivative Instruments
and Hedging Activities," effective for years beginning after June 15, 2000,
Krispy Kreme's fiscal year 2002. FAS

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<PAGE> 36

133 requires that all derivatives be recorded on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change in
the fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The adoption of FAS 133 is not expected to have a
material impact on Krispy Kreme's financial statements.

33
<PAGE> 37

BUSINESS

OVERVIEW

Krispy Kreme is a leading branded specialty retailer of premium quality
doughnuts. We have established Krispy Kreme as a leading consumer brand with a
loyal customer base through our longstanding commitment to quality and
consistency. We differentiate ourselves by combining quality ingredients and a
vertically integrated production process with a unique retail experience
featuring our stores' fully displayed production process, or doughnutmaking
theater.

In the mid-1990s, we began repositioning Krispy Kreme from a wholesale bakery
model to a specialty retail concept. Initiatives supporting the repositioning
included increasing the size of our doughnuts, redesigning our stores to enhance
the total customer experience and adding channels of distribution where our
products are displayed in a manner consistent with our on-premises presentation.
As a result of the success of these initiatives, we began expanding nationwide
primarily through franchising with experienced, well-capitalized area
developers.

We believe that Krispy Kreme has significant opportunities for continued growth.
Our sales growth has been driven by new store openings, as well as systemwide
comparable store sales growth of 12.7% in fiscal 1998, 9.7% in fiscal 1999 and
12.4% in the first nine months of fiscal 2000. Our success is based on the
strengths described below.

COMPETITIVE STRENGTHS

THE UNIVERSAL APPEAL OF OUR PRODUCT. Our market research indicates that Krispy
Kreme's breadth of appeal extends across major demographic groups, including age
and income. In addition to their taste, quality and simplicity, our doughnuts
are an affordable indulgence. This has contributed to many of our customers
purchasing doughnuts by the dozen for their office, clubs and family. Demand for
our doughnuts occurs throughout the day, with approximately half of our
on-premises sales occurring in the morning and half in the afternoon and
evening.

A PROVEN CONCEPT. Krispy Kreme is a focused yet versatile concept. Each of our
distinctive Krispy Kreme stores is a doughnutmaking theater with the capacity,
depending on equipment size, to produce from 2,400 dozen to over 6,000 dozen
doughnuts daily. Our stores serve as our primary retail outlets. They are also
designed to create a multi-sensory experience around our unique product and
production process which is important to our brand-building efforts. In addition
to these on-premises sales, we have developed multiple channels of sales outside
our stores, which we refer to as off-premises sales. These sales channels
improve the visibility of our brand, increase the convenience of purchase and
capture sales from a wide variety of settings and occasions. Additionally, the
ability to generate sales outside of our stores, utilizing the stores' existing
production capacity, minimizes the risk of an underperforming on-premises sales
location.

STRONG GROWTH POTENTIAL. With only 141 stores, we believe that we are in the
infancy of our growth. Our highest priority expansion plans focus on markets
with over 100,000 households. These markets are most attractive because of their
dense population characteristics which enable us to achieve economies of scale
in local operations infrastructure and brand building efforts. We also believe
our universal product appeal, combined with our strategy that utilizes multiple
sales channels, will facilitate our expansion into smaller markets.

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<PAGE> 38

THE INGREDIENTS FOR MARKET LEADERSHIP. The doughnut industry, an approximately
$4.7 billion market in 1998, is large, fragmented and characterized by
low-volume outlets with undifferentiated product quality. We believe that we
have the ability to become the recognized leader in every market we enter
through our unique combination of:

- A strong brand

- A highly differentiated product

- High-volume production capacity

- A market penetration strategy using multiple sales channels

A PROVEN FRANCHISE SYSTEM. Krispy Kreme is committed to growth through
franchising. Our franchisees consist of associates who operate under our
original franchising program developed in the 1940s and area developers who
operate under our franchising program developed in the mid-1990s. See "-- Store
Ownership." We intend to continue to strengthen our franchise system by
attracting experienced and well-capitalized area developers who have the
management capacity to develop multiple stores. Our development strategy permits
us to grow in a controlled manner and enables us to ensure that each area
developer strictly adheres to our high standards of quality and service. We
prefer that area developers have ownership and successful operating experience
in multi-unit food operations within the territory they propose for development.
To ensure a consistent high quality product, we require each franchisee to
purchase our proprietary mixes and doughnutmaking equipment. We devote
significant resources to providing our franchisees with assistance in site
selection, store design, employee training and marketing. Many of our
franchisees are also our shareholders. Additionally, in the future, we intend to
acquire minority equity positions in selected franchisee businesses. We believe
that common ownership of equity will serve to further strengthen our
relationships and align our mutual interests.

DIRECT STORE DELIVERY CAPABILITIES. Krispy Kreme has developed a highly
effective direct store delivery system, or DSD, for executing off-premises
sales. We deliver fresh doughnuts, both packaged and unpackaged, to a variety of
retail customers, such as supermarkets and convenience stores. Through our
company-owned and franchised store operations, our route drivers are capable of
taking customer orders and delivering products directly to our customers' retail
locations where they are typically merchandised from Krispy Kreme branded
displays. We have also developed national account relationships and implemented
electronic invoicing and payment systems with some large DSD customers. We
believe these competencies, coupled with our premium products, will provide us
with significant sales opportunities by allowing us to assume the role of
category manager for doughnut products in both the in-store bakery and food
service distribution channels.

A CONTROLLED PROCESS ENSURING CONSISTENT HIGH QUALITY. Krispy Kreme has a
vertically integrated, highly automated system designed to create quality,
consistency and efficiency. Our doughnutmaking process starts well before the
store-level operations with:

- Our owned and operated manufacturing plant which produces our proprietary
mixes

- Our state-of-the-art laboratory that tests all key ingredients and each
batch of mix produced

- Our self-manufactured, custom stainless steel doughnutmaking equipment

Additionally, at the store-level, we provide a 13-week manager training program
covering the critical skills required to operate a Krispy Kreme store and a
comprehensive training program for all positions in the store. We also provide
easy-to-follow procedures for producing and finishing our doughnuts.

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<PAGE> 39

A BALANCED FINANCIAL MODEL. Krispy Kreme generates sales and income from three
distinct sources: company stores, franchise fees and royalties and a vertically
integrated supply chain, which we refer to as Support Operations. In addition to
lowering the cost of goods sold for our stores, Support Operations generates
attractive margins on sales of our mixes and equipment. Our franchising approach
to growth minimizes our capital requirements and provides a highly attractive
royalty stream. We believe this financial model provides increased stability to
our revenues and earnings and improves our return on investment. Our Company
Store Operations, Franchise Operations and Support Operations comprise three
reportable segments under generally accepted accounting principles. You can
review financial data for these segments in Note 3 to our unaudited consolidated
financial statements and Note 10 to our audited consolidated financial
statements.

BUSINESS MODEL

Krispy Kreme is a vertically integrated company structured to support and profit
from the high volume production and sale of branded and unbranded high quality
doughnut products. "High volume, high quality" has always been the foundation of
our economic strategy. Our business is driven by two complementary business
units: Store Operations, both company and franchise, and Support Operations.
Independently, each is designed to ensure quality and to benefit from economies
of scale. Collectively, both function as an integrated, cost-efficient system.

STORE OPERATIONS. Our principal source of revenue is the sale of doughnuts
produced and distributed by Store Operations. As part of our unique business
model, our stores are both retail outlets and highly automated, high volume
producers of our doughnut products and can sell their products through our
multiple sales channels.

- ON-PREMISES SALES. Each of our stores offers at least 15 of our more
than 20 varieties of doughnuts, including our signature Hot Original
Glazed and nine other prescribed varieties. We also sell our special
blend Krispy Kreme coffee, other beverages, other bakery items and
collectible memorabilia such as tee shirts, sweatshirts and hats.
Fundraising sales, described in "-- Marketing", are another component of
on-premises sales. In order to establish our brand identity with the
total store experience and because of the higher margins associated with
on-premises sales, we plan to focus our initial sales efforts on this
channel.

- OFF-PREMISES SALES. We accomplish off-premises sales through our direct
store delivery system which is designed to: (1) generate incremental
sales; (2) increase market penetration and brand awareness; (3) increase
customer convenience; (4) optimize our stores' production capacity; and
(5) improve a store's return on investment. As of October 31, 1999, 97 of
our stores sold to major grocery store chains, including Kroger, Food
Lion, Giant Food and Acme Markets and to over 1,500 convenience stores,
as well as to select co-branding customers.

SUPPORT OPERATIONS. The mission of our Support Operations is to create
competitive advantages for our stores while operating as a profitable business
enterprise. We have developed important operating competencies and capabilities
which we use to support our stores, including:

- Strong product knowledge and technical skills

- Control of all critical production and distribution processes

- Collective buying power

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<PAGE> 40

The basic raw materials used in our products are flour, sugar, shortening and
packaging materials. We obtain most of these materials under long-term purchase
agreements and in the commodity spot markets.

We implement the mission of Support Operations through three strategic business
units:

- MIX MANUFACTURING. We produce all of our proprietary doughnut mixes at
our manufacturing facility in Winston-Salem, North Carolina. We control
production of this critical input in order to ensure that our products
meet quality expectations and to maximize our profit potential.
Manufacturing and selling our own mixes allows us to capture the profit
that normally would accrue to an outside supplier and is more cost
effective than purchasing from third party vendors. Our mixes are
produced according to our high quality standards which include:

-- Requiring each carefully selected supplier to meet or exceed industry
standards

-- Receiving truckloads of our main ingredients daily

-- Testing each incoming key ingredient

-- Testing each batch of mix

- EQUIPMENT MANUFACTURING. We manufacture proprietary doughnutmaking
equipment which our franchisees are required to purchase. Our carefully
engineered equipment, when combined with our proprietary mixes, produces
doughnuts with uniform consistency and high quality. Manufacturing our
equipment results in several advantages including:

-- Flexibility. We manufacture several models, with varying capacities,
which are capable of producing multiple products and fitting unusual
store configurations.

-- Cost-effectiveness. We believe our costs are lower than if we
purchased our equipment from third parties.

-- Efficiency. We continually refine our equipment design to ensure
maximum automation and thereby reduce in-store labor costs and/or
improve consistency.

- DISTRIBUTION CENTER. Also located at our Winston-Salem complex is our
distribution center, which is capable of supplying our stores with all of
their key supplies including all food ingredients, juices, Krispy Kreme
coffee, signage, display cases, uniforms and other items. Stores must use
our doughnut mixes and special blend coffee exclusively. In addition, all
store operators have agreed contractually through our Supply Chain
Alliance Program to purchase all of their requirements for the critical
areas of their business through 2002. We believe that our ability to
distribute supplies to our operators produces several advantages
including:

-- Economies of scale. We are able to purchase at volume discount prices
which we believe are lower than those that would be available to our
operators individually. In addition, we are selective in choosing our
suppliers and require that they meet certain standards with regard to
quality and reliability. Also, inventory is controlled on a systemwide
basis rather than at the store level.

-- Convenience. Our distribution center offers our operators the
convenience of one-stop shopping. We are able to supply our operators
with all of the key items they need to operate their stores which
enables them to focus their energies on running their stores, rather
than managing supplier relationships.

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<PAGE> 41

KRISPY KREME BRAND ELEMENTS

Krispy Kreme is a blend of several important brand elements which has created a
special bond with many of our customers. The key elements are:

- ONE-OF-A-KIND TASTE. The taste experience of our doughnuts is the
foundation of our concept and the common thread that binds generations of
our loyal customers. Our doughnuts are made from a secret recipe that has
been in our company since 1937. We use only premium ingredients, which
are blended by our custom equipment, to create this unique and very
special product.

- DOUGHNUTMAKING THEATERS. Each of our stores showcases our doughnutmaking
process. Our goal is to provide our customers with a unique entertainment
experience, and in addition, visibly reinforce our commitment to quality
and freshness.

- HOT DOUGHNUTS NOW. The Hot Doughnuts Now sign, when illuminated, is a
signal that our Hot Original Glazed are being made. The Hot Doughnuts Now
sign is a strong impulse purchase generator and an integral contributor
to our brand's mystique. Our Hot Original Glazed are made for several
hours every morning and evening, and at other special times during the
day.

- DESTINATION LOCATIONS. Our full-service stores incorporate
doughnutmaking theaters, which are designed to produce a multi-sensory
customer experience and establish a strong brand identity. Our research
indicates that many of our stores have the geographic drawing power
comparable to a regional shopping mall and that our customers, on
average, drive 14 miles from their homes to our stores.

- AFFORDABLE INDULGENCES. Our doughnuts are reasonably priced to ensure
that they are affordable for the widest audience possible.

- COMMUNITY RELATIONSHIPS. We are a national company, yet we are committed
to strong local community relationships. Our store operators support
their local communities through fundraising programs and the sponsorship
of charitable events. Many of our loyal customers have warm memories of
selling Krispy Kremes to raise money for their schools, clubs and
community organizations.

INDUSTRY OVERVIEW

Krispy Kreme competes in the doughnut market, a highly fragmented industry,
which, according to industry sources, had sales of approximately $4.7 billion in
1998.

We expect doughnut sales to grow due to a variety of factors, including: (1) the
growth in two-income households and corresponding shift to foods consumed away
from home; (2) increased snack food consumption; and (3) further growth of
doughnut purchases from in-store bakeries.

We view the fragmented competition in the doughnut industry as an opportunity
for our continued growth. We also believe that the premium quality of our
products and the strength of our brand will help enhance the growth and
expansion of the overall doughnut market.

GROWTH STRATEGY

Krispy Kreme is a proven concept with an established heritage. The strength of
our brand and our attractive unit economics position us very well for growth. We
plan to increase our revenues and profits by expanding our store base, improving
on-premises sales at existing stores, and increasing off-premises sales.

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<PAGE> 42

EXPAND OUR STORE BASE. We view our stores as platforms from which we pursue
on-premises as well as off-premises sales opportunities. We have existing
agreements with our franchisees to open approximately 22 new stores in fiscal
2001 and over 100 new stores between fiscal 2002 and fiscal 2005. This
represents 15% store growth in fiscal 2001 and an increase in our store base to
over 260 stores by the end of fiscal 2005. The addition of new stores will be
accomplished primarily through franchising with area developers following a
prescribed development plan for their respective territories. An initial
development plan has been created to optimally penetrate territories with over
100,000 households. The plan assumes stores will be built in high density,
prime-retailing locations in order to maximize customer traffic and on-premises
sales volumes. We believe a territory-based development strategy creates
substantial benefits to both Krispy Kreme and our area developers. These
benefits include:

- Real estate procurement and development

- Scale to cost-justify a strong local support infrastructure

- Brand building and advertising

- Ability to make marketwide commitments to chain store customers

With respect to new store growth, we believe that secondary markets in the
United States with less than 100,000 households also offer additional sales and
profit growth opportunities. Although we operate successfully in some secondary
markets today, we believe that our primary expansion territories are sufficient
to achieve our intermediate growth objectives.

IMPROVE EXISTING STORES' ON-PREMISES SALES. Our area developers have
demonstrated that a store employing our updated design located in a densely
populated area is capable of generating and sustaining high volume on-premises
sales. Many of our stores built prior to 1997 were designed primarily as
wholesale bakeries and their formats and site attributes differ considerably
from newer stores. In order to improve the on-premises sales of some of these
stores, we plan to remodel many of our company-owned stores and, in some limited
instances, close or relocate certain stores to a more dynamic area within their
territories. Finally, we consistently evaluate improvements or additions to our
product line in order to increase same store sales levels and balance
seasonality of sales.

INCREASE OFF-PREMISES SALES. In new markets, we typically focus our initial
efforts on on-premises sales and then leverage the store platform to capitalize
on off-premises opportunities. We intend to secure additional grocery and
convenience store customers, as well as increase sales to our existing customer
base by offering premium quality products, category management and superior
customer service. In new markets where capacity utilization remains high solely
from servicing on-premises sales, we may develop commissary production
facilities to service off-premises sales. We believe that once high brand
awareness has been established in a market, a commissary has the potential to
improve market penetration and profitability.

UNIT ECONOMICS

We believe that Krispy Kreme unit economics represent an attractive investment
opportunity for our area developers and as such are a significant factor
contributing to the growth and success of the Krispy Kreme concept.

We estimate that the investment for a new store, excluding land and pre-opening
costs, is $500,000 for a building of approximately 3,600 square feet and
$500,000 for equipment, furniture and fixtures.

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The following table provides certain financial information relating to
company-owned and franchised stores. Average weekly sales per store are
calculated by dividing store revenues by the actual number of sales weeks
included in each period. Company-owned stores' operating cash flow is store
revenues less all direct store expenses other than depreciation expenses.

Average weekly sales for company-owned stores are higher than for franchised
stores due to the lower average weekly sales volumes of older associate stores
that are included in the franchised stores' calculations. However, franchised
stores' average weekly sales have been increasing as higher-volume area
developer stores become a larger proportion of the franchised store base.
Additionally, new area developer stores' sales are principally on-premises
sales, which have higher operating margins than off-premises sales.
Company-owned and associate stores generate a significant percentage of revenues
from lower-margin off-premises sales.

STORE DEVELOPMENT AND OPERATIONS

SITE SELECTION. Our objective is to create highly visible destination
locations. Our comprehensive site selection process focuses on:

- High volume traffic
- High household density
- Proximity to both daytime employment and residential centers
- Proximity to other retail traffic generators

We work closely with our franchisees to assist them in selecting sites. A site
selection team visits each site and the surrounding area before approving a
store location. We believe that this process ensures that each new store will
comply with our standards.

STORE OPERATIONS. Our new stores are approximately 3,600 square feet. They are
equipped with automated doughnutmaking equipment capable of making approximately
240 dozen doughnuts per hour. This capacity can support sales in excess of
$100,000 per week. We outline uniform specifications and designs for each Krispy
Kreme store and require compliance with our standards regarding the operation of
the store, including, but not limited to:

- Varieties of products
- Product specifications
- Sales channels
- Packaging
- Sanitation and cleaning
- Signage
- Furniture and fixtures
- Image and use of logos and trademarks
- Training
- Marketing and advertising

We also require the use of a computer and cash register system with specified
capabilities to ensure the collection of sales information necessary for
effective store management. All of our franchisees provide us with weekly sales
reports and periodic financial statements.

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We routinely assist our franchisees with issues such as:

- Operating procedures

- Advertising and marketing programs

- Administrative, bookkeeping and accounting procedures

- Public relations

- Generation of sales and operating data

We also provide an opening team which consists of up to nine people, to provide
on-site training and assistance during the first two weeks of operation for each
initial store opened by a new franchisee. The number of opening team members
providing this assistance is reduced with each subsequent store opening.

Our stores which engage in off-premises sales typically operate on a 24-hour
schedule. Other stores generally operate from 5:30 a.m. to 1:00 a.m. seven days
a week, excluding Christmas. Traditionally, our sales have been slower during
the Christmas holiday season and the summer months.

QUALITY STANDARDS AND CUSTOMER SERVICE. We encourage all of our employees to be
courteous, helpful, knowledgeable and attentive. We emphasize the importance of
performance by linking a portion of both a company store manager's and an
assistant store manager's incentive compensation to profitability and customer
service. We also encourage high levels of customer service and the maintenance
of our high quality standards by frequently monitoring our stores through a
variety of methods including periodic quality audits and "mystery shoppers." In
addition, our Customer Experience Department handles customer comments and also
conducts routine satisfaction surveys of our off-premises customers.

MANAGEMENT AND STAFFING. It is important that our corporate staff and store
managers work as a team. Our Senior Vice President, Company Store and Associate
Operations, and Senior Vice President, Area Developer Operations report to our
Chief Operating Officer. Together, they are responsible for corporate
interaction with our store operations division and store management. Through our
divisional directors, each of whom is responsible for a specific geographic
region, we communicate frequently with all store managers and their staffs
using: store audits; weekly communications by telephone or e-mail; and scheduled
and surprise store visits.

We offer a comprehensive 13-week training program, conducted both at our
headquarters and at designated stores, which provides store managers the
critical skills required to operate a Krispy Kreme store. We plan to add
computer-based training modules that will enhance the program.

Our staffing varies depending on a store's size, volume of business, and number
of sales channels. Stores with sales through all sales channels have
approximately 35 employees handling on-premises sales, processing, production,
bookkeeping and sanitation and between 2-15 delivery personnel. Area developers
frequently hire employees from leasing agencies and employ staff based on store
volume and size. Hourly employees, along with delivery personnel, are trained by
local store management through hands-on experience and training manuals.

We believe that our success is a natural result of the growth and development of
our people. We are developing a career model for both management and non-exempt
employees which will focus on personal development and career growth. The
program will link an individual's economic, career and personal goals with our
corporate and store-level goals.

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STORE OWNERSHIP

We divide our stores into three categories of ownership: company stores,
associate stores and area developer stores. We refer to associates and area
developers as franchisees, collectively.

COMPANY STORES. Krispy Kreme owned 59 stores as of October 31, 1999. Most of
these stores were developed between 1937 and 1996 and: (1) were designed as
wholesale bakeries; (2) generate a majority of their sales volume through
off-premises sales; (3) are located in the Southeast; and (4) are larger than
new Krispy Kreme stores.

ASSOCIATES. We had 25 associates who operated 49 stores as of October 31, 1999.
Associate stores have attributes which are similar to those of company stores.
This group generally concentrates on growing sales within their current base of
stores rather than developing new stores or new territories. With two
exceptions, associates are not obligated to develop additional stores within
their territories. We cannot grant licenses to other franchisees or sell
products bearing the Krispy Kreme brand name within an associate's territory
during the term of their license agreement.

Associates are typically parties to 15-year licensing agreements which generally
permit them to operate stores using the Krispy Kreme system within a specific
territory. Associates pay royalties of 3.0% of on-premises sales and 1.0% of all
other sales, with the exception of private label sales for which there are no
royalties. They are not currently required to contribute to the public relations
and advertising fund. Our associates who are shareholders are parties to
franchise agreements which will be extended automatically for a period of 20
years following this offering and thereafter are renewed automatically for
five-year periods, unless previously terminated by either party. We do not plan
to license any new Krispy Kreme franchisees under the terms of the associate
license agreement.

AREA DEVELOPERS. In the mid-1990s, we began to strategically expand nationally
to new territories through area developers. Under this structure, we license
territories, usually defined by metropolitan statistical areas, to area
developers who are capable of developing a prescribed number of stores within a
specified time period. Area developer stores typically are designed and
developed in locations favorable to achieving high volume on-premises sales,
although they are also equipped to generate off-premises sales. As of
October 31, 1999, we had 13 area developers operating 33 stores with contractual
commitments to open an additional 130 stores in their territories during their
initial development schedule, which is generally five years. Preferred area
developer candidates are multi-unit food operators with a high level of
knowledge about the local territory or territories they will develop. They must
have a proven financial capability to fully develop their territories.

Each of our area developers is required to enter into two types of agreements: a
development agreement which establishes the number of stores to be developed in
an area and a franchise agreement for each store which they open. Area
developers typically pay franchise fees ranging from $20,000 to $40,000 for each
store which they develop.

Our current standard franchise agreement provides for a 15-year term. The
agreement is renewable subject to our discretion and can be terminated for a
number of reasons including the failure of the franchisee to make timely
payments within applicable grace periods subject to state law. Area developers
pay a 4.5% royalty fee on all sales and are required to contribute 1.0% of all
sales to a company-administered public relations and advertising fund.

In addition to a franchise agreement, all area developers have signed
development agreements which require them to develop a specified number of
stores on or before specific dates. Generally, these agreements have a five-year
term. If area developers fail to develop their stores on schedule,

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we have the right to terminate the agreement and develop company-owned stores,
or develop stores through new area developers or joint ventures.

Generally, we do not provide financing to our franchisees. We do, however, have
a program permitting franchisees to lease proprietary Krispy Kreme equipment
from our primary bank, and we will guarantee the leases. Currently, one
franchisee has taken advantage of this program, and we do not anticipate that
the program will grow substantially.

MARKETING

Krispy Kreme's approach to marketing is a natural extension of our brand equity,
brand attributes, relationship with our customers, and our values. We believe we
have a responsibility to our customers to engage in marketing activities that
are consistent with, and further reinforce, their confidence and strong feelings
about Krispy Kreme. Accordingly, we have established certain guiding brand
principles which include:

- We will not attempt to define the Krispy Kreme experience for our
customer

- We prefer to have our customers tell their Krispy Kreme stories and share
their experiences with others

- We will focus on enhancing customer experiences through product-focused,
value-added activities

- We will develop local, community-based relationships in all Krispy Kreme
markets

To build our brand and drive our comparable store sales in a manner aligned with
our brand principles, we have focused our marketing activities in the following
areas:

STORE EXPERIENCE. Our stores are where customers first experience a Hot
Original Glazed. Customers know that when our Hot Doughnuts Now sign in the
store window is illuminated, they can see our doughnuts being made and enjoy a
Hot Original Glazed within seconds after it passes through the glaze waterfall.
We believe this begins a lifetime relationship with our customers and forms the
foundation of the Krispy Kreme experience.

RELATIONSHIP MARKETING. Most of our brand-building activities are
grassroots-based and focus on developing relationships with various
constituencies, including consumers, schools, communities and businesses.
Specific initiatives include:

- Product donations to local radio and television stations, schools,
government agencies, and other community organizations

- Good neighbor product deliveries to create trial uses

- Sponsorship of local events and nonprofit organizations

- A "Good Grades Program" which recognizes scholastic achievement with
certificates and free doughnuts

- Our "Krispy Kreme Ambassador Program" which enlists our fans as
ambassadors in new markets to generate awareness and excitement around a
new store opening

FUNDRAISING SALES. Fundraising sales are high volume sales to local charitable
organizations at discounted prices. Charities in turn resell our products at
prices which approximate retail. We believe that providing a fundraising program
to local community organizations and schools helps demonstrate our commitment to
the local community, enhances brand awareness, increases consumer loyalty and
attracts more customers into our stores.

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PRODUCT PLACEMENT. Since fiscal 1997, as we began growing nationally, there has
been a significant increase in our product placements and references to our
products on television programs and in selected films, including NBC Today Show,
Rosie O'Donnell, The Tonight Show with Jay Leno, Ally McBeal, NYPD Blue, The
Practice and Primary Colors. We have been mentioned in more than 80 television
shows during 1998 and 1999. We have also been featured or mentioned in over
1,000 print publications in those two years, including The Wall Street Journal.,
The New York Times, the Washington Post, the Los Angeles Times, Forbes and Fast
Company. We believe the increasing number of placements and references are a
reflection of the growing interest in our product and brand.

ADVERTISING. Relationship marketing and product placement have been central to
building our brand awareness. Although our marketing strategy has not
historically employed traditional advertising, we intend to develop and test
media advertising in a manner consistent with our brand principles.

STORE LOCATIONS AND OTHER PROPERTIES

STORES. As of October 31, 1999, there were 141 Krispy Kreme stores operating in
27 states, 59 of which were owned by us, 33 of which were owned by area
developers and 49 of which were owned by associates. The following map and table
shows the geographic location of these stores by ownership category.

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(MAP AND LIST SHOWING KRISPY KREME STORE LOCATIONS)

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All of our stores, except for our Charlotte manufacturing facility, have
on-premises sales, and 97 stores also engage in off-premises sales.

Of the 59 stores we operated ourselves as of October 31, 1999, we owned the land
and buildings for 32 stores. We leased both the building and the land for 12
stores. We leased only the building for six stores, and we leased only the land
for nine stores.

SATELLITE STORES. Our franchisees operated 14 satellite locations as of October
31, 1999. A satellite location is a retail doughnut store that does not produce
doughnuts on site. Satellite locations are supplied with doughnuts from another
local Krispy Kreme store that has production capability.

SPECIAL PRODUCTION FACILITIES. The manufacturing facility in Charlotte, North
Carolina produces doughnuts and other bakery items, such as honey buns, fruit
pies, dunkin sticks and miniature doughnuts for off-premises sales.

OTHER PROPERTIES. Our corporate headquarters is located in Winston-Salem, North
Carolina. We occupy this facility of approximately 35,000 square feet under a
lease which expires on December 31, 2009, with one five-year renewal option. We
also own a 137,000 square foot manufacturing plant and distribution center in
Winston-Salem.

MANAGEMENT INFORMATION SYSTEMS

Krispy Kreme has a management information system that allows for the rapid
communication of extensive information among our corporate office, support
operations, company stores, associates and area developers. Our franchisees and
other affiliates connect to this system through our Intranet and have access to
e-mail and the ability to provide financial reporting. We have adopted a
balanced scorecard approach for measuring key performance drivers in each of our
business units. Scorecard data are generated internally through our management
information system.

An enterprise resource planning system supports all major financial and
operating functions within the corporation including financial reporting,
inventory control and human resources. A comprehensive data warehouse system
supports the financial and operating needs of our Store Operations and Support
Operations.

All company stores have been retrofitted with a Windows NT-based point of sale,
or POS, system. This POS system provides each store with the ability to more
closely manage on-premises and off-premises sales while providing a kiosk into
our Intranet. We poll the sales information from each store's POS system which
gives us the ability to analyze data regularly. Daily two-way electronic
communication with our stores permits sales transactions to be uploaded and
price changes to be downloaded to in-store POS servers.

Direct store delivery sales operations have access to an internally-developed
route accounting system networked into the corporate Intranet. Information from
these systems is polled weekly and aggregated into the corporate manufacturing
data warehouse.

All information technology hardware, including POS systems, is leased.

COMPETITION

Our competitors include retailers of doughnuts and snacks sold through
supermarkets, convenience stores, restaurants and retail stores. We compete
against Dunkin' Donuts, which has the largest number of outlets in the doughnut
retail industry, as well as against regionally and locally owned doughnut shops.
We compete on elements such as food quality, concept, convenience, location,
customer service and value. Customer service, including frequency of deliveries
and maintenance of fully stocked shelves, is an important factor in successfully
competing for shelf space in grocery stores and convenience stores.

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We believe that our controlled process, which ensures the high volume production
of premium quality doughnuts, makes us strong competitors in both food quality
and value. Through our comprehensive site selection process and uniform store
specifications and designs, we identify premiere locations that are highly
visible and increase customer convenience.

We believe that in the in-store bakery market, many operators are looking for
cost-effective alternatives to making doughnuts on-site. With a quality product
and recognized brand name, Krispy Kreme has been able to provide a turnkey
program that is profitable for the grocer. In addition, we also believe that we
compete effectively in convenience stores. There is an industry trend moving
towards expanded fresh product offerings during morning and evening drive times,
and products are either sourced from a central commissary or brought in by local
bakeries. Krispy Kreme provides a fresh daily delivery, merchandised in an
attractive branded display which retailers must use to participate in the
program. Through effective signage and merchandising, operators are able to draw
customers into the store, thus gaining add-on sales. As category management
increases in this segment, growth will come from increased market penetration
and enhanced display opportunities for our products.

In the packaged doughnut market we offer a full product line of doughnuts and
snacks that are sold on a consignment basis and are typically merchandised on a
free-standing branded display. We compete primarily with other well known
producers of baked goods such as Hostess and Dolly Madison and some regional
brands.

TRADEMARKS

Our doughnut shops are operated under the Krispy Kreme name and we use over 40
federally registered trademarks, including "Krispy Kreme" and "Hot Doughnuts
Now" and the logos associated with these marks. We have also registered some of
our trademarks in approximately 20 other countries. We license the use of these
trademarks to our franchisees for the operation of their doughnut shops. We also
license the use of certain trademarks to convenience stores and grocery stores
in connection with the sale of some of our products at those locations.

Although we are not aware of anyone else who is using "Krispy Kreme" or "Hot
Doughnuts Now" as a trademark or service mark, we are aware that some businesses
are using "Krispy" or a phonetic equivalent, such as "Crispie Creme," as part of
a trademark or service mark associated with retail doughnut stores. There may be
similar uses we are unaware of which could arise from prior users. We
aggressively pursue persons who unlawfully and without our consent use our
trademarks.

GOVERNMENT REGULATION

LOCAL REGULATION. Our stores are subject to licensing and regulation by a
number of government authorities, which may include health, sanitation, safety,
fire, building and other agencies in the states or municipalities in which our
doughnut shops are located. Developing new doughnut stores in particular areas
could be delayed by problems in obtaining the required licenses and approvals or
by more stringent requirements of local government bodies with respect to
zoning, land use and environmental factors. Our standard development and
franchise agreements require our area developers and associates to comply with
all applicable federal, state and local laws and regulations, and indemnify us
for costs we may incur attributable to their failure to comply.

FOOD PRODUCT REGULATION. Our doughnut mixes are produced at our manufacturing
facility in Winston-Salem, North Carolina. The North Carolina Department of
Agriculture has regulatory power over food products shipped from this facility,
as well as from Krispy Kreme's commissary in Charlotte, North Carolina. Similar
state regulations may apply to products shipped from our

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doughnut shops to grocery or convenience stores. Many of our grocery and
convenience store customers require us to guarantee our products' compliance
with applicable food regulations.

As is the case for other food producers, numerous other government regulations
apply to our products. For example, the ingredient list, product weight and
other aspects of our product labels are subject to state and federal regulation
for accuracy and content. Most states will periodically check the product for
compliance. The use of various product ingredients and packaging materials is
regulated by the U.S. Department of Agriculture and the Federal Food and Drug
Administration. Conceivably, one or more ingredients in our products could be
banned and substitute ingredients would then need to be found.

FRANCHISE REGULATION. We must comply with regulations adopted by the Federal
Trade Commission, or the FTC, and with several state laws that regulate the
offer and sale of franchises. The FTC's Trade Regulation Rule on Franchising, or
the FTC Rule, and certain state laws require that we furnish prospective
franchisees with a franchise offering circular containing information prescribed
by the FTC Rule and applicable state laws and regulations.

We also must comply with a number of state laws that regulate some substantive
aspects of the franchisor-franchisee relationship. These laws may limit a
franchisor's ability to: terminate or not renew a franchise without good cause;
prohibit interference with the right of free association among franchisees;
disapprove the transfer of a franchise; discriminate among franchisees with
regard to charges, royalties and other fees, and place new stores near existing
franchises. To date, these laws have not precluded us from seeking franchisees
in any given area and have not had a material adverse effect on our operations.

Bills intended to regulate certain aspects of franchise relationships have been
introduced into Congress on several occasions during the last decade, but none
has been enacted.

EMPLOYMENT REGULATIONS. We are subject to state and federal labor laws that
govern our relationship with employees, such as minimum wage requirements,
overtime and working conditions and citizenship requirements. Many of our
on-premises and delivery personnel are paid at rates related to the federal
minimum wage. Accordingly, further increases in the minimum wage could increase
our labor costs. Furthermore, the work conditions at our facilities are
regulated by the Occupational Safety and Health Administration and subject to
periodic inspections.

OTHER REGULATIONS. We have several contracts to serve United States military
bases, which require compliance with certain applicable regulations. The stores
which serve these military bases are subject to health and cleanliness
inspections by military authorities. These accounts are not material to our
overall business. We are also subject to federal and state environmental
regulations, but we currently believe that these will not have a material effect
on our operations.

EMPLOYEES

As of October 31, 1999 we had 2,923 employees. Of these, 196 were employed in
our administrative offices and 100 were employed in our manufacturing and
distribution centers. In our company-owned stores and commissaries, we have
2,627 employees. Of these, 2,364 are full-time, including 182 managers and
administrators.

None of our employees are parties to a collective bargaining agreement, although
we have experienced occasional unionization initiatives. We believe our
relationships with our employees are good.

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LEGAL PROCEEDINGS

As of the date of this prospectus, we are not a party to any litigation that we
believe is likely to have a material effect on our financial condition or
results of operations.

OUR PRE-OFFERING REORGANIZATION AND OTHER MATTERS

As a result of the merger, Krispy Kreme Doughnut Corporation will become a
wholly-owned subsidiary of Krispy Kreme Doughnuts, Inc., and all the
shareholders of Krispy Kreme Doughnut Corporation will become shareholders of
Krispy Kreme Doughnuts, Inc. We believe that the holding company structure will
provide greater organizational flexibility and broaden the alternatives
available for future financings. The new holding company structure will create a
framework for future growth, promote new business opportunities and facilitate
the formation of joint ventures or other business combinations with third
parties.

After this offering, we intend to furnish to our shareholders annual reports
containing audited financial statements and quarterly reports containing
unaudited interim financial information for the first three quarters of each
fiscal year.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following contains information concerning our directors and executive
officers as of December 10, 1999, each of whom will continue to serve in the
following capacities for both us and our operating subsidiary after this
offering:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
DIRECTOR
NAME AGE POSITION TERM EXPIRES
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Scott A. Livengood....... 47 Chairman of the Board of Directors, President and 2001
Chief Executive Officer
John N. McAleer.......... 41 Vice Chairman of the Board of Directors and 2002
Executive Vice President, Concept Development
J. Paul Breitbach........ 62 Executive Vice President, Finance, Administration --
and Support Operations
Margaret M. Urquhart..... 50 Executive Vice President and Chief Operating --
Officer
Randy S. Casstevens...... 34 Senior Vice President, Finance and Secretary --
L. Stephen Hendrix....... 50 Senior Vice President, Company Store and --
Associate Operations
Michelle P. Parman....... 37 Senior Vice President, Corporate Development --
Robert H. Vaughn, Jr..... 43 Senior Vice President, Area Developer Operations --
Philip R.S. Waugh, Jr.... 39 Senior Vice President, Franchise Development --
Frank E. Guthrie......... 60 Director 2000
William T. Lynch, Jr..... 57 Director 2002
Joseph A. McAleer, Jr.... 49 Director 2001
Robert L. McCoy.......... 50 Director 2000
Robert J. Simmons........ 76 Director 2000
Steven D. Smith.......... 46 Director 2001
Robert L. Strickland..... 68 Director 2002
</TABLE>

- ---------------

SCOTT A. LIVENGOOD has been employed by Krispy Kreme since 1978. He was
appointed Chairman of the board of directors in October 1999. He has served as
Chief Executive Officer since February 1998 and as President since August 1992.
From August 1992 to January 1998, Mr. Livengood was also Chief Operating
Officer. He has served as a director since February 1994.

JOHN N. MCALEER has been employed by Krispy Kreme since 1981. Mr. McAleer has
served as Executive Vice President, Concept Development and as Vice Chairman of
the board of directors since October 1999. He has also served as Executive Vice
President, Brand Development from March 1998 until October 1999, Executive Vice
President, Marketing from August 1992 until March 1998 and as Senior Vice
President, Marketing, Real Estate and Construction from September 1990 until
August 1992. Mr. McAleer has served as a director since September 1990 and
served as Chairman of the board of directors from February 1998 until October
1999. Mr. McAleer is the brother of Mr. Joseph A. McAleer, Jr., another member
of the board of directors.

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J. PAUL BREITBACH has been employed by Krispy Kreme since November 1992 as
Executive Vice President, Finance, Administration and Support Operations. From
1973 to November 1992, Mr. Breitbach was a partner at the accounting firm of
Price Waterhouse, and from 1983 to 1992 was managing partner of that firm's
Winston-Salem, North Carolina office. From 1987 to 1992 he was also group
managing partner for all Price Waterhouse offices in North Carolina and South
Carolina. Mr. Breitbach is a certified public accountant.

MARGARET M. URQUHART has been employed with Krispy Kreme as Executive Vice
President and Chief Operating Officer since December 1999. Prior to joining
Krispy Kreme, Ms. Urquhart was President of Lowes Foods, a supermarket chain,
since November 1995. From July 1993 until November 1995, Ms. Urquhart was
President of Spurwink Consulting Group, a consulting firm advising national
consumer goods manufacturers and retailers. Previously, she was employed for 17
years in various capacities with Hannaford Bros. Co., a supermarket chain,
including as President of its subsidiary, Wellby Super Drug Stores.

RANDY S. CASSTEVENS has been employed by Krispy Kreme since 1993. Mr. Casstevens
has served as Senior Vice President, Finance, since April 1998 and as Secretary
since November 1995. Prior to joining Krispy Kreme, Mr. Casstevens was employed
by Price Waterhouse from 1987 to 1993. Mr. Casstevens is a certified public
accountant.

L. STEPHEN HENDRIX has been employed by Krispy Kreme since January 1978. From
October 1993 to March 1995, Mr. Hendrix served as Senior Vice President,
Development. Mr. Hendrix has served as Senior Vice President, Company Store and
Associate Operations, since March 1995.

MICHELLE P. PARMAN has been employed by Krispy Kreme since 1993. Ms. Parman has
served as Senior Vice President, Corporate Development since April 1998.
Previously, she served as Vice President, Strategic Planning. Before joining
Krispy Kreme, Ms. Parman was employed by Price Waterhouse from 1984 to 1993. Ms.
Parman is a certified public accountant.

ROBERT H. VAUGHN, JR. has been employed by Krispy Kreme since March 1998. Mr.
Vaughn has served as Senior Vice President, Area Developer Operations since
December 1999. Previously, he served as Senior Vice President, Sales and
Marketing. From January 1993 to March 1998, Mr. Vaughn was President of Gullwing
Productions, a licensed apparel company. Mr. Vaughn also served in various
capacities with Hanes Printables, a printed and embroidered sportswear
manufacturer and a division of Sara Lee Knit Products and the Sara Lee
Corporation, from September 1987 until November 1992.

PHILIP R.S. WAUGH, JR. has been employed by Krispy Kreme since May 1993. He has
served as Senior Vice President, Franchise Development since April 1998.
Previously, he served as Vice President, Franchising. From October 1991 until he
joined Krispy Kreme, Mr. Waugh served as Vice President, Corporate Banking with
Southern National Bank of North Carolina. From 1982 until October 1991, he
served in various capacities with Wachovia Bank, N.A. Mr. Waugh is a co-owner of
Midwest Doughnuts, LLC, our Kansas City franchisee.

FRANK E. GUTHRIE has been a director since February 1994. Mr. Guthrie has been
President of Magic City Doughnuts Corp., our Orlando area franchisee, since
1998, and co-owns that company with another one of our directors, Mr. McCoy. He
has also been President and owner of Classic City Doughnuts Corp., our Athens,
Georgia franchisee, since 1992. Additionally, he has been employed by Augusta
Doughnut Company, our Augusta, Georgia franchisee, in various capacities since
1961, and he is currently its President and majority owner.

WILLIAM T. LYNCH, JR. has been a director since November 1998. He has served as
President and Chief Executive Officer of Liam Holdings LLC, a marketing and
capital management firm, since

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April 1997. Mr. Lynch retired as President and Chief Executive Officer of Leo
Burnett Co. in March 1997 after serving with that advertising agency for 31
years.

JOSEPH A. MCALEER, JR. has been a director since May 1988. Mr. McAleer served as
Chairman of the board of directors and Chief Executive Officer from September
1995 until his retirement from Krispy Kreme in January 1998. He also served as
President from May 1988 until August 1992 and as Chief Operating Officer from
May 1988 until August 1992. Mr. McAleer is a co-owner with Mr. Smith, another
one of our directors, of Dallas Doughnuts, our Dallas/Fort Worth franchisee. Mr.
McAleer is also manager and owner of Mackk LLC, our Mobile, Alabama franchisee.
Mr. McAleer is the brother of John N. McAleer, Vice Chairman of our board of
directors.

ROBERT L. MCCOY has been a director since February 1994. Mr. McCoy has been
President and majority owner of Gulf Florida Doughnut Corp., our Tampa, Florida
franchisee, since November 1983, and he is Vice President and co-owner of Magic
City Doughnuts with Mr. Guthrie.

ROBERT J. SIMMONS has been a director since May 1989. Since 1970, he has also
been the President and majority owner of Simac, Inc., our Akron, Ohio
franchisee.

STEVEN D. SMITH has been a director since April 1991. Since April 1997, Mr.
Smith has been President, and a co-owner with Mr. Joseph A. McAleer, Jr., of
Dallas Doughnuts. He has also been President and majority owner of Dales
Doughnut Corp., our Tallahassee and Panama City, Florida franchisee, since 1985
and Dales of Dothan, Inc., our Dothan, Alabama franchisee, since 1991. He has
also been the Chief Executive Officer and owner of Smiths Doughnuts Inc., our
Tuscaloosa, Alabama franchisee, since 1994.

ROBERT L. STRICKLAND has been a director since November 1998. Mr. Strickland
retired as Chairman of the Board of Directors of Lowe's Companies, Inc., a home
improvement retailer, in January 1998, after 41 years of service. He is still a
director of Lowe's. Mr. Strickland is also a director of T. Rowe Price
Associates, an investment management firm, and Hannaford Bros. Co., a
supermarket chain.

BOARD OF DIRECTORS

CLASSIFICATION OF DIRECTORS

The board of directors is divided into three classes under our articles of
incorporation. Class I consists of three directors who will stand for election
at the annual meeting of shareholders to be held in 2000. Class II consists of
three directors who will stand for election at the annual meeting of
shareholders to be held in 2001. Class III consists of three directors who will
stand for election at the annual meeting of shareholders to be held in 2002.

We intend to nominate two additional independent directors for election to the
board shortly after this offering. After their initial term following this
offering, directors in each class will serve for a term of three years. Our
bylaws provide that directors can be removed only with cause by a two-thirds
majority of the shareholders. Officers are chosen by and serve at the discretion
of the board of directors.

BOARD COMMITTEES

The audit committee has the responsibility to review our audited consolidated
financial statements and accounting practices and to consider and recommend the
employment of, and approve the fee arrangements with, independent accountants
for both audit functions and for advisory and other consulting services. Messrs.
William T. Lynch, Jr., Steven D. Smith, Frank E. Guthrie and Robert J. Simmons
comprise the members of the audit committee.

The compensation committee reviews and approves the compensation and benefits
for our executive officers and the employee benefit plans for all other
employees. It makes recommendations to our board of directors regarding these
matters. Messrs. Robert L. Strickland, Robert L. McCoy and Joseph A. McAleer,
Jr. comprise the members of the compensation committee.

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<PAGE> 56

EXECUTIVE COMPENSATION

The table below provides information concerning the total compensation received
for services rendered to Krispy Kreme during its fiscal year ended January 30,
2000 by our chief executive officer and Krispy Kreme's four other highest paid
executive officers, who are referred to as the named officers. "Other annual
compensation" includes perquisites and other personal benefits paid to each of
the named officers, such as automobile allowances, club dues and medical
insurance premiums.

Amounts under "LTIP Payouts" represent bonuses paid to cover loan repayments due
to Krispy Kreme in connection with the recognition of income upon the conversion
of the Long-Term Incentive Plan, or LTIP, by the named officer. See "-- Other
compensation -- Conversion of the Long-Term Incentive Plan" for more
information. Amounts under "All Other Compensation" represent the dollar value
of bonuses credited to the named officers under our stock bonus plans. See
"-- Other Compensation -- Stock Bonus Plan" and "-- Supplemental Retirement
Plan."

Fiscal 2000 Summary Compensation Table

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -----------------------------
---------------------------------- COMMON SHARES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAMED OFFICER SALARY BONUS COMPENSATION OPTIONS PAYOUTS COMPENSATION
- ------------- -------- -------- ------------ ------------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Scott A. Livengood........ $332,446 $448,386 $66,751 580,000 $151,098 $ 46,331
Chairman of the Board,
President and Chief
Executive Officer
J. Paul Breitbach......... 234,731 297,316 57,547 150,000 162,434 33,169
Executive Vice
President, Finance,
Administration and
Support Operations
John N. McAleer........... 199,845 253,129 52,903 150,000 80,636 28,240
Vice Chairman of the
Board and Executive
Vice President,
Concept Development
L. Stephen Hendrix........ 130,091 125,502 31,824 60,000 35,729 16,565
Senior Vice President,
Company Store and
Associate Operations
Robert H. Vaughn, Jr...... 139,792 132,798 3,372 60,000 -- 16,425
Senior Vice President,
Area Developer
Operations
</TABLE>

STOCK OPTIONS

In fiscal 1999, we established the 1998 Stock Option Plan. Under the terms of
the plan, 1,913,000 shares of our common stock are reserved for issuance to
employees and directors. Grants may be made to participants in the form of
either incentive stock options or nonqualified stock options. A board committee
is granted discretion to administer the plan. Options granted to employees under
the plan vest ratably over a three-year period commencing with the second
anniversary of the grant date. Options granted to directors under the plan vest
ratably over a three-year period commencing on the grant date of the options.

In fiscal 1999, 1,558,000 options were granted to all employees as a group, and
273,000 options were granted to non-employee directors. All such grants were
made under our 1998 stock option plan and are nonqualified stock options. The
options are for a term of ten years and vest in one-

53
<PAGE> 57

third increments over a three-year period that begins on the second anniversary
after the date of grant. Under the terms of the plan, any forfeitures of options
by participants for any reason will be granted to Mr. Livengood, up to a maximum
of 140,000 shares. All shares of our common stock acquired pursuant to the
exercise of stock options are subject to a stock purchase agreement and, at the
board committee's discretion, a separate voting agreement, neither of which will
be in effect following the completion of this offering. No options were granted
to the named officers in fiscal 2000.

The following table shows information concerning stock options held by each of
the named officers at January 30, 2000. None of the named officers held
exercisable options as of that date. The value of unexercised in-the-money
options assumes the fair value at fiscal year end was $19.00 per share, which is
the mid-point of the range shown on the cover page of this prospectus.

Fiscal Year End Option Values

<TABLE>
<CAPTION>
-----------------------------------------------
VALUE OF
UNEXERCISED
COMMON SHARES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS
NAMED OFFICER OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
- ------------- -------------------------- ------------------
<S> <C> <C>
Scott A. Livengood................................... 580,000 $8,015,600
J. Paul Breitbach.................................... 150,000 2,073,000
John N. McAleer...................................... 150,000 2,073,000
L. Stephen Hendrix................................... 60,000 829,200
Robert H. Vaughn, Jr................................. 60,000 829,200
</TABLE>

RETIREMENT INCOME PLAN FOR KEY EMPLOYEES

Effective May 1, 1994, we established a noncontributory, nonqualified defined
benefit pension plan known as the Retirement Income Plan for Key Employees for
certain of our key employees. The benefits under the retirement plan are based
on years of service after 1993 and average final compensation during the
employee's career.

The following table shows estimated annual benefits payable to participants in
the retirement plan upon retirement at age 65 at the specified remuneration in
the various years of service classifications:

Retirement Plan Table

<TABLE>
<CAPTION>
---------------------------------------
YEARS OF SERVICE
---------------------------------------
FINAL AVERAGE COMPENSATION 15 20 25 30
- -------------------------- ------- ------- -------- --------
<S> <C> <C> <C> <C>
$100,000................................................ $15,000 $20,000 $ 25,000 $ 30,000
$200,000................................................ 30,000 40,000 50,000 60,000
$300,000................................................ 45,000 60,000 75,000 90,000
$400,000................................................ 60,000 80,000 100,000 120,000
</TABLE>

Except for Mr. Vaughn, each of the named officers has five years of credited
service. Final average compensation is based solely on the officer's salary.
Benefits are computed on a straight-life annuity basis and are not subject to
any deductions.

OTHER COMPENSATION

Conversion of the Long-Term Incentive Plan

The Employees' Long-Term Incentive Plan, or the LTIP, enabled eligible employees
to defer some or all of bonuses earned under our incentive compensation plans.
The deferred amounts were converted to units of phantom stock based on a formula
contained in the LTIP. The phantom stock

54
<PAGE> 58

units granted under the LTIP were credited with dividends in a manner identical
to our common stock. Pursuant to the terms of the LTIP, a participant's account
was to be distributed to him in accordance with the deferral election made by
the participant.

In fiscal 1999, we determined that it was in Krispy Kreme's best interest to
liquidate the LTIP. Accordingly, we undertook a conversion program whereby
phantom stock units under the LTIP were converted into an equivalent number of
actual shares of Krispy Kreme common stock. Participants who elected to
participate in the conversion received a distribution of shares of our common
stock. Non-participants received a cash payout. All shares so distributed are
subject to a stock purchase agreement and a special voting agreement, neither of
which will be in effect upon completion of this offering.

Because the distribution of shares of our common stock pursuant to the
conversion triggered recognition of income for participants, we established a
loan program by which we made 10-year loans with fixed 6% rates of interest
available to senior executive participants in an amount equal to 45% of the
amount of income recognized as a result of the conversion. Pursuant to this
program, we extended loans to the following officers and directors on August 31,
1998:

<TABLE>
<CAPTION>
-----------------------------------------
AMOUNT OUTSTANDING
OFFICER OR DIRECTOR PRINCIPAL AMOUNT AS OF OCTOBER 31, 1999
- ------------------- ---------------- ----------------------
<S> <C> <C>
Scott A. Livengood....................................... $449,730 $415,610
J. Paul Breitbach........................................ 532,279 491,897
John N. McAleer.......................................... 261,406 241,574
L. Stephen Hendrix....................................... 124,663 115,205
Joseph A. McAleer, Jr.................................... 504,390 466,123
</TABLE>

Some of our other officers and directors also received loans of less than
$60,000. Although we are not legally obligated to do so, we have paid and intend
to pay supplemental bonuses to the participants over the ten-year period of the
loan in an amount necessary to enable the participant to make the loan payment
due us after payment of federal and state taxes. The amounts shown in the
"Fiscal 2000 Summary Compensation Table" under the "LTIP Payouts" column
reflects the bonuses paid to the named officers in that year.

Stock Bonus Plan

Effective February 1, 1999, we established a stock bonus plan. The stock bonus
plan provides that Krispy Kreme, in its discretion, may make annual
contributions to the plan. Contributions will be made either in the form of
Krispy Kreme stock or, if made in cash, invested primarily in Krispy Kreme
stock. Company contributions are allocated to eligible employees based on a
specific percentage of compensation.

Supplemental Retirement Plan

Effective February 1, 1999, we established a nonqualified supplemental
retirement plan for certain management employees. This plan has two components.
It provides for "make-whole" contributions to certain management employees whose
benefits under the stock bonus plan are limited as a result of legal
restrictions on the amount of compensation that can be taken into account under
the stock bonus plan. Under this component of this plan, we intend to make a
contribution consistent with the contribution made for participants in the stock
bonus plan. Contributions will be made in the form of Krispy Kreme stock, or if
made in cash, invested primarily in Krispy Kreme stock. In the future, the plan
will also provide eligible participants with the opportunity to defer the same
percentage of compensation that nonhighly compensated employees can defer under
our 401(k) plan.

55
<PAGE> 59

Subject to tax limits, we intend to fund the stock bonus plan and the stock
bonus component of the supplemental retirement plan for fiscal 2000 by
contributing 144,737 shares of stock contemporaneously with this offering.
Amounts credited to the named officers for stock bonuses in fiscal 2000 are
shown under the "All Other Compensation" column in the "Fiscal 2000 Summary
Compensation Table."

Compensation of directors

We compensate each director who is not an employee with an annual fee of
$18,800. Beginning in our fiscal year ending January 28, 2001, this fee will be
paid quarterly. Non-employee directors also receive additional fees of $300 per
quarter for miscellaneous expenses and approximately $200 monthly for insurance
coverage for themselves and their spouses. In addition to these fees, we
reimburse each director for travel and other related expenses incurred in
attending meetings of the board of directors. In fiscal 1999, we granted each of
our seven non-employee directors nonqualified stock options for 39,000 shares
under the 1998 stock option plan. These options vest ratably over a three-year
period commencing on the grant date and have an exercise price of $5.18 per
share. Options for 91,000 shares are currently exercisable.

Restricted stock plan

In November 1993 and April 1994, the board of directors authorized the issuance
of 252,900 and 50,000 shares of restricted stock, respectively, to some of our
directors and officers. We made loans to each of the participants for the
purchase of these restricted shares. The loans were repaid over a four to six
year period and bore interest at 6% per annum. All of these loans have been
repaid and all restrictions on the purchased shares have lapsed. The following
named officers received loans to purchase restricted stock: Scott A.
Livengood -- $155,311; J. Paul Breitbach -- $116,652; and John N.
McAleer -- $52,844. Some of our other directors also received loans in amounts
not exceeding $60,000. We paid the restricted stock plan participants a bonus
each year equal to the installment due on the loan.

EXECUTIVE CONTRACTS, TERMINATION AND CHANGE-IN-CONTROL ARRANGEMENTS

Employment contracts

Krispy Kreme has entered into employment agreements with the following named
officers:

Scott A. Livengood. Mr. Livengood's employment agreement expires on August 10,
2002. Commencing on August 10, 2000, the term of the agreement is automatically
extended for successive one-year periods each year as of August 10, unless
Krispy Kreme notifies him, on or before that date each year, that his term is
not being extended. Mr. Livengood receives an annual salary of $332,446 and is
eligible for annual increases and a performance-based bonus. Additionally, Mr.
Livengood receives non-incentive compensation in the amount of $5,081 per month.
He is entitled to participate in and receive other employee benefits which may
include, but are not limited to, benefits under any life, health, accident,
disability, medical, dental and hospitalization insurance plans, use of a
company automobile or an automobile allowance, and other perquisites and
benefits as are provided to senior managers.

Mr. Livengood's employment agreement may be terminated by Krispy Kreme for good
cause. If the agreement is terminated without good cause, Mr. Livengood is
entitled to a severance payment consisting of:

- An amount equal to his current annual base salary and non-incentive
compensation through the expiration date of the agreement

56
<PAGE> 60

- A lump sum payment, payable within 30 days of termination, equal to his
current monthly base salary multiplied by the number of months between
the month of discharge and the preceding August, inclusive

- A lump sum payment, payable within 30 days of termination, equal to three
times Mr. Livengood's bonus, calculated at 50% of his annualized base
salary for the then current fiscal year, and discounted at the rate of 6%
per annum

Mr. Livengood is entitled to the same payments if he terminates his employment
after a change in control of Krispy Kreme and his duties or responsibilities
with Krispy Kreme are diminished, or he is required to relocate or Krispy Kreme
fails to maintain his corporation or benefits levels.

If Mr. Livengood's employment is terminated by reason of death, retirement or
voluntary termination, Krispy Kreme will pay him or his estate his base salary,
non-incentive compensation, bonuses and benefits through the expiration date of
the agreement. In the event he dies, his estate will be paid a $5,000 benefit.
In the event Mr. Livengood's employment is terminated by reason of disability,
Krispy Kreme will pay his base salary, non-incentive compensation, bonuses and
benefits for a period of six months following the date of disability. In
addition, if Mr. Livengood is terminated for any reason other than by voluntary
termination or upon a change in control of Krispy Kreme (whether or not he
terminates employment), his outstanding stock options will fully vest.

Krispy Kreme will also pay Mr. Livengood an additional amount equal to any
excise tax he is required to pay due to any payments under his agreement
constituting "excess parachute payments" under the Internal Revenue Code, as
well as any additional income taxes or excise taxes imposed on such payments.

In the event Mr. Livengood's employment is terminated for good cause or he
terminates voluntarily, Mr. Livengood will be subject to a non-compete agreement
for a period of two years following the termination. During this two year
period, Mr. Livengood will be prohibited from engaging in the business of making
and selling doughnuts and complementary products within certain defined
geographical areas. This prohibition does not apply, however, to Mr. Livengood's
development rights described in "Related Party Transactions."

John N. McAleer. Mr. McAleer's employment agreement expires on August 10, 2002.
Commencing on August 10, 2000, the term of this agreement is automatically
extended for successive one-year periods each year as of August 10, unless
Krispy Kreme notifies him, on or before that date each year, that his term is
not being extended. Mr. McAleer receives an annual salary of $199,845 and is
eligible for annual increases and for a performance-based bonus. Additionally,
Mr. McAleer receives non-incentive compensation in the amount of $3,927 per
month. Mr. McAleer is entitled to participate in and receive other employee
benefits and perquisites similar to those provided to Mr. Livengood, and the
severance provisions for Mr. McAleer are also similar to Mr. Livengood's.

J. Paul Breitbach. Mr. Breitbach's employment agreement expires on August 10,
2001. Commencing on August 10, 2000, the term of this agreement is automatically
extended for successive one-year periods each year as of August 10, unless
Krispy Kreme notifies him, on or before that date each year, that his term is
not being extended. Mr. Breitbach receives an annual salary of $234,732 and is
eligible for annual increases and for a performance-based bonus. Additionally,
Mr. Breitbach receives non-incentive compensation in the amount of $4,314 per
month. Mr. Breitbach is entitled to participate in and receive other employee
benefits and perquisites similar to those provided to Mr. Livengood, and the
severance provisions for Mr. Breitbach are also similar to Mr. Livengood's.

57
<PAGE> 61

Termination arrangements

On August 10, 1999, our board of directors approved the transfer to Mr.
Livengood of some membership benefits to the Educational Foundation of the
University of North Carolina at Chapel Hill upon Mr. Livengood's termination of
service.

Change-in-control arrangements

The option agreements under our stock option plan provide that all options
become vested and exercisable upon a corporate reorganization, as defined in the
stock option plan, provided that the executives Krispy Kreme employed on the
date of that corporate reorganization remain employed by Krispy Kreme on the
date of the corporate reorganization.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. Robert L. Strickland, Robert L. McCoy and Joseph A. McAleer, Jr.
comprised the members of the compensation committee during our fiscal year ended
January 30, 2000. Mr. McAleer is a former executive officer of Krispy Kreme, and
both Messrs. McAleer and McCoy conduct business with Krispy Kreme through
franchises as described in "Related Party Transactions."

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<PAGE> 62

PRINCIPAL SHAREHOLDERS

The following table presents information regarding the beneficial ownership of
common stock as of October 28, 1999 by: (1) each person who beneficially owns
more than 5% of our common stock; (2) each of our directors and named officers;
and (3) all current executive officers and directors as a group. Beneficial
ownership is determined under the rules of the Securities and Exchange
Commission, or SEC. These rules deem common stock subject to options currently
exercisable, or exercisable within 60 days, to be outstanding for purposes of
computing the percentage ownership of the person holding the options or of a
group of which the person is a member, but they do not deem such stock to be
outstanding for purposes of computing the percentage ownership of any other
person or group. To our knowledge, except under applicable community property
laws or as otherwise indicated, the persons named in the table have sole voting
and sole investment control with regard to all shares beneficially owned. The
applicable percentage ownership for each shareholder before the offering is
based on 9,340,220 shares of common stock outstanding as of October 28, 1999.
The percentages for after the offering give effect to the issuance of 3,000,000
shares in this offering and the contribution of 144,737 shares to our new stock
bonus plan contemporaneously with this offering.

<TABLE>
<CAPTION>
----------------------------------------
PERCENT
BENEFICIALLY
OWNED
-------------------
NUMBER OF SHARES BEFORE AFTER
NAME BENEFICIALLY OWNED OFFERING OFFERING
- ---- ------------------ -------- --------
<S> <C> <C> <C>
Jeanne McAleer Sanderford (1)......................... 2,533,480 27.1% 20.3%
Robert L. McCoy (2)(3)(4)............................. 705,380 7.5 5.6
Bonnie Silvey Vandegrift (4)(5)....................... 625,000 6.7 5.0
Carolyn McCoy (4)(6).................................. 550,000 5.9 4.4
Joseph A. McAleer, Jr. (2)............................ 455,720 4.9 3.6
John N. McAleer....................................... 346,520 3.7 2.8
J. Paul Breitbach (7)................................. 324,560 3.5 2.6
Scott A. Livengood.................................... 307,860 3.3 2.5
Steven D. Smith (2)(8)................................ 193,580 2.1 1.5
Frank E. Guthrie (2)(9)............................... 180,380 1.9 1.4
Robert J. Simmons (2)(10)............................. 133,000 1.4 1.1
L. Stephen Hendrix.................................... 73,460 *
William T. Lynch (2)(11).............................. 33,000 *
Robert L. Strickland (2).............................. 33,000 *
Robert H. Vaughn, Jr.................................. 20,000 *
All directors and executive officers as a group (16
persons)............................................ 2,905,500 30.8 23.1
</TABLE>

- ---------------

* Less than one percent.

(1) Includes: (a) 2,344,060 shares owned by the estate of Joseph A. McAleer, of
which Mrs. Sanderford is the executrix. Mrs. Sanderford's address is 6148 Lennox
Place, Mobile, Alabama 36693; (b) 2,000 shares held by a trust for the benefit
of Carter Reid Sanderford, of which Mrs. Sanderford is the trustee; and (c)
2,000 shares held by a trust for the benefit of Ryan Nicholas Sanderford, of
which Mrs. Sanderford is the trustee.

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<PAGE> 63

(2) Includes 13,000 shares issuable upon the exercise of currently vested stock
options awarded under our stock option plan.

(3) Includes: (a) 15,000 shares owned beneficially by Patricia B. McCoy, Mr.
McCoy's spouse; (b) 20,000 shares held by the Patricia B. McCoy Revocable Trust,
a trust of which Patricia B. McCoy is the sole trustee; (c) 10,000 shares held
by the Robert L. McCoy Revocable Trust, a trust of which Mr. McCoy is the sole
trustee; (d) 9,200 shares held by the William Robert McCoy Trust established
under the Florida Uniform Trust for Minors Act, a trust of which Mr. McCoy is
the sole custodian; (e) 9,300 shares held by the Julie Ann McCoy Trust
established under the Florida Uniform Trust for Minors Act, a trust of which Mr.
McCoy is the sole custodian; (f) 9,000 shares held by the Robert Bailey McCoy
Trust established under the Florida Uniform Trust for Minors Act, a trust of
which Mr. McCoy is the sole custodian; (g) 9,000 shares held by the Sarah
Elizabeth McCoy Trust established under the Florida Uniform Trust for Minors
Act, a trust of which Mr. McCoy is the sole custodian; (h) 9,000 shares held by
the Lisa Michelle McCoy Trust established under the Florida Uniform Trust for
Minors Act, a trust of which Mr. McCoy is the sole custodian; and (i) 9,000
shares held by the Michael Phillip McCoy Trust established under the Florida
Uniform Trust for Minors Act, a trust of which Mr. McCoy is the sole custodian.
Mr. McCoy's address is 8425 North Florida Avenue, Tampa, Florida 33604.

(4) Includes 550,000 shares held by the B.L. McCoy, Jr. Residual Trust, a trust
of which Carolyn McCoy, Robert L. McCoy and Bonnie Silvey Vandegrift are
co-trustees.

(5) Mrs. Vandegrift's address is 5 Robin Circle, Brevard, North Carolina,
28712.

(6) Mrs. McCoy's address is College Walk Apartment 224, Neely Road, Brevard,
North Carolina, 28712.

(7) Includes 67,800 shares held by the Breitbach Children's Trust, a trust of
which Mr. Breitbach is the sole trustee.

(8) Includes 28,320 shares owned beneficially by Connie Sue Smith, Mr. Smith's
spouse.

(9) Includes 132,000 shares owned by Mr. Guthrie indirectly through his
ownership of 60% of the outstanding voting shares of Augusta Doughnut Company.

(10) Includes 80,000 shares owned by Mr. Simmons indirectly through his
ownership of 60% of the outstanding shares of Simac, Inc.

(11) Includes 20,000 shares owned by Mr. Lynch indirectly through his ownership
of 100% of the outstanding shares of Liam Holdings, LLC.

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<PAGE> 64

RELATED PARTY TRANSACTIONS

ASSOCIATES' LICENSE AGREEMENTS WITH RELATED PARTIES

We are parties to associates' license agreements with some of our directors. Our
associates' license agreements permit the associate to sublicense the franchise
to a company which is majority-owned and principally managed by the associate.
Our director-associates have generally sublicensed in this manner. These
agreements grant each associate a license to produce, market, package and sell
Krispy Kreme doughnuts and other products in a specified territory. We have
agreed to extend the license agreements of our existing shareholders, which
include our director-associates, for a term of 20 years commencing upon the
completion of this offering.

Each associate must purchase mixes and equipment from us and, as a result, we
have outstanding accounts receivable, from time to time, with each of our
associates. Additionally, our associates pay us franchise royalties. The table
below shows Support Operations sales to and royalties from our directors'
affiliated franchise companies during the periods indicated.

<TABLE>
<CAPTION>
----------------------------------------------------
YEAR ENDED
----------------------------------------------------
DIRECTOR AND FRANCHISE COMPANIES FEBRUARY 2, 1997 FEBRUARY 1, 1998 JANUARY 31, 1999
- -------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
In thousands
Frank E. Guthrie:
Augusta Doughnut Company................ $392 $639 $669
Classic City Doughnuts Corp............. 225 229 236
Joseph A. McAleer, Jr.:
Mackk LLC............................... -- -- 1,878
Robert L. McCoy:
Gulf Florida Doughnut Corp.............. 1,016 1,290 1,868
Robert J. Simmons:
Simac, Inc.............................. 445 578 576
Steven D. Smith:
Dales Doughnut Corp..................... 681 646 803
Dale's Doughnuts of Dothan, Inc......... 231 287 288
Smiths Doughnuts, Inc................... 329 429 435
</TABLE>

Our agreement with Mr. Guthrie, which he has sublicensed to Magic City Doughnuts
Corporation, obligates him to develop and operate a total of four stores in the
Orlando, Florida area by December 31, 2001, one of which was open as of December
2, 1999. Mr. Guthrie co-owns Magic City Doughnuts with Mr. McCoy. Our agreement
with Mr. Joseph A. McAleer, Jr., which he has sublicensed to Dallas Doughnuts,
obligates him to develop and operate a total of eight stores in the Dallas/Fort
Worth territory by December 31, 2003, one of which was open as of December 2,
1999. Mr. Joseph A. McAleer, Jr. co-owns Dallas Doughnuts with Mr. Smith.

We are also parties to associates' license agreements with two brothers-in-law
of Messrs. Joseph A. McAleer, Jr. and John N. McAleer, our Vice Chairman and
Executive Vice President, Concept Development. Mr. William J. Dorgan operates
stores in Biloxi and Gulfport, Mississippi through Dorgan's Doughnut Company,
Inc. Total Support Operations sales to and royalties from Dorgan's Doughnuts
were $211,000 in fiscal 1997, $315,000 in fiscal 1998 and $332,000 in fiscal
1999. Since September 1998, Pat Silvernail has operated two stores in Macon,
Georgia through S&P of Macon, Inc.

THE KINGSMILL PLAN

In December 1994, we implemented a plan to provide franchise opportunities to
corporate management, which we refer to as the Kingsmill Plan. Under the terms
of the Kingsmill Plan, we

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<PAGE> 65

agreed to make franchise opportunities available to members of corporate
management who met our ordinary franchisee qualifications and to provide
financial assistance in the form of collateral repurchase agreements and company
guaranties of bank loans. We established similar franchise opportunity plans for
store managers and associate operators. We anticipate terminating the plan,
except for existing participants with whom we have entered into or agreed to
enter into a franchise agreement. The collateral repurchase agreements and
guaranties we have made pursuant to the Kingsmill Plan are described below.

DEVELOPMENT RIGHTS OF OFFICERS AND DIRECTORS

We entered into a letter agreement with Mr. Scott A. Livengood, our Chairman,
President and Chief Executive Officer, on April 12, 1994. We granted Mr.
Livengood the option to develop stores in Alamance, Durham and Orange Counties,
North Carolina, and the State of Colorado pursuant to the Kingsmill Plan. Mr.
Livengood subsequently relinquished his development rights to the State of
Colorado and obtained the rights to develop stores in Northern California, also
pursuant to the Kingsmill Plan. Mr. Livengood anticipates releasing these rights
in favor of Krispy Kreme. It is contemplated that Mr. Livengood will purchase a
minority interest (not more than 7.5%) in a limited liability company to which
Krispy Kreme will grant the area development rights for Northern California and
a minority interest (not more than 7.5%) in future joint ventures between Krispy
Kreme and other area developers. Mr. Livengood will not be active in the
management of the ventures while employed by Krispy Kreme. Also, he will not
receive any financial assistance from us under the Kingsmill Plan or any other
arrangement. Additionally, the terms of the franchise agreements for these
ventures will be consistent with other area developers.

In August 1999, Mr. John N. McAleer, our Vice Chairman and Executive Vice
President, Concept development, obtained area development rights for the
metropolitan areas of Portland and Seattle pursuant to the Kingsmill Plan. Mr.
McAleer anticipates releasing these rights in favor of Krispy Kreme. Upon
approval by the board of directors, it is contemplated that Mr. McAleer will
purchase a minority interest in a limited liability company to which Krispy
Kreme will grant area development rights for the metropolitan areas of Portland,
Seattle, Anchorage, Honolulu and Vancouver. Mr. McAleer will not be active in
the management of the territory while employed by Krispy Kreme. Also, he will
not receive any financial assistance from us under the Kingsmill Plan or any
other arrangement. Additionally, the terms of the franchise agreement for this
territory will be consistent with other area developers.

Pursuant to the Kingsmill Plan, we are a party to an area development agreement
with Midwest Doughnuts, LLC, dated May 29, 1996. Mr. Philip R.S. Waugh, Jr., our
Senior Vice President, Franchise Development, owns 50% of the membership
interests in Midwest Doughnuts. Under the terms of the agreement, the area
developer is required to open a minimum of four stores in the Kansas City
territory, three of which were open as of December 2, 1999. The requirement to
open a fourth store has been suspended. Total Support Operations sales to and
royalties from Midwest Doughnuts were $388,000 in fiscal 1997, $545,000 in 1998
and $1.4 million in fiscal 1999.

We entered into a letter agreement with Mr. Joseph A. McAleer, Jr., a Krispy
Kreme director, on February 15, 1994 granting him the option to acquire three
stores located in Mobile, Alabama. Mr. McAleer purchased the stores on February
1, 1998 for a total purchase price of $1.6 million, subject to certain
adjustments. The purchase price was determined on the basis of the amount paid
for the stores in 1990, the face value of store receivables and the cost of the
store's inventory, mutually determined by Mr. McAleer and Krispy Kreme. We also
granted Mr. McAleer the right to develop up to ten stores in the New Orleans,
Louisiana territory.

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COLLATERAL REPURCHASE AGREEMENTS, FRANCHISEE GUARANTIES AND OTHER AGREEMENTS

On December 21, 1998, we entered into collateral repurchase agreements in favor
of Suntrust Bank, Central Florida, National association with respect to a loan
incurred by Magic City Doughnut Corporation in the original principal amount of
$435,000. Messrs. Frank E. Guthrie and Robert L. McCoy, two of our directors,
co-own Magic City Doughnut Corporation. The loan is secured by the equipment
used in the operation of a Krispy Kreme store located in Winter Park, Florida
and a pledge of company stock owned by: (1) Mr. Guthrie; (2) a trust of which
Mr. McCoy is the sole trustee; and (3) Mrs. Patricia B. McCoy, who is Mr.
McCoy's spouse. In the event that the borrower defaults on the loan, we are
obligated to repurchase the equipment at a purchase price equal to the lesser of
$302,000 or the unpaid balance of the loan. We are also obligated to purchase
the pledged shares from the bank at book value.

On September 18, 1998, we entered into a guaranty agreement with Mr. Beattie F.
Armstrong and Beattie F. Armstrong, Inc. for Mr. Pat Silvernail and his wife,
Mrs. Shannon McAleer Silvernail, and S&P of Macon, Inc., our Macon, Georgia
franchisee. Mrs. Silvernail is the sister of, and Mr. Silvernail is consequently
a brother-in-law to, Mr. Joseph A. McAleer, Jr. and Mr. John N. McAleer. Under
the terms of the agreement, we agreed to guarantee two loans in the combined
original principal amount of $1.0 million obtained by the Silvernails and S&P of
Macon to finance the purchase of a Krispy Kreme associates' license agreement
and the two Macon stores.

On March 31, 1998 and December 31, 1998, respectively, we entered into a
collateral repurchase agreement and a guaranty agreement in favor of Bank of
Blue Valley with respect to a loan in the amount of $765,000 incurred by Midwest
Doughnuts under the terms of the Kingsmill Plan. Mr. Philip R.S. Waugh, Jr., who
is our Senior Vice President, Franchise Development, is a 50% owner of Midwest
Doughnuts. The loan is secured by the equipment used in the operation of a
Krispy Kreme store located in Merriam, Kansas. In the event Midwest Doughnuts
defaults on the loan, we are obligated to repurchase the equipment at a purchase
price equal to the lesser of $335,000 or the unpaid portion of the loan used to
fund the purchase of the pledged assets. In addition to our obligation under the
collateral repurchase agreement, we are obligated under the guaranty agreement
to pay the lender up to $205,000 in the event Midwest Doughnuts defaults on the
loan.

On January 30, 1998, we entered into a collateral repurchase agreement in favor
of Branch Banking and Trust Company with respect to loans incurred by Mackk, LLC
in the maximum aggregate principal amount of $1.8 million. Mr. Joseph A.
McAleer, Jr. is the manager and owner of Mackk, LLC. The loans are secured in
part by the equipment and other items of personal property used in the operation
of three Krispy Kreme stores located in Mobile, Alabama. The loans are further
secured by a pledge of shares of Krispy Kreme stock owned by Mr. McAleer. In the
event that Mackk, LLC defaults on the loans, we are obligated to repurchase the
equipment and personal property at a purchase price equal to the lesser of
$325,000 or the unpaid portion of the loans used to fund the purchase of the
pledged assets. We are also required to purchase the pledged shares from the
bank at book value in the event of default. We have been released from our
obligations under this collateral repurchase agreement.

On January 2, 1998, we entered into a collateral repurchase agreement in favor
of Branch Banking and Trust Company with respect to a loan incurred by the
Brevard Tennis and Athletic Club, Incorporated and Mrs. Bonnie Silvey Vandegrift
in the original principal amount of $326,000. Mrs. Vandegrift beneficially owns
more than 5% of our outstanding stock and is the sister of Mr. Robert L. McCoy,
one of our directors. The loan is secured by a pledge of Krispy Kreme stock
personally owned by Mrs. Vandegrift. In the event that the borrower defaults on
the loan, we are obligated to purchase the pledged shares from the bank at book
value.

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On October 15, 1997, we entered into a collateral repurchase agreement and a
guaranty agreement in favor of Bank of Blue Valley with respect to a loan in the
amount of $765,000 incurred by Midwest Doughnuts under the terms of the
Kingsmill Plan. The loan is secured by the equipment used in the operation of a
Krispy Kreme store located in Overland Park, Kansas. In the event Midwest
Doughnuts defaults on the loan, we are obligated to repurchase the equipment at
a purchase price equal to the lesser of $205,000 or the unpaid portion of the
loan used to fund the purchase of the pledged assets. In addition to our
obligation under the collateral repurchase agreement, we are obligated under the
guaranty agreement to pay the lender up to $300,000 in the event Midwest
Doughnuts defaults on the loan.

On December 1, 1997, we entered into a commitment letter among Krispy Kreme,
Branch Banking and Trust Company, Mr. Waugh and the other owners of Midwest
Doughnuts pursuant to the Kingsmill Plan. Under the terms of the commitment
letter, we agreed to guarantee loans obtained by Mr. Waugh and the other members
of Midwest Doughnuts to finance the development of two Krispy Kreme stores in
the Kansas City territory. Our maximum liability under the two guaranties was
limited to $150,000. We have been released from these guarantees.

On October 22, 1996, we entered into a collateral repurchase agreement in favor
of Branch Banking and Trust Company with respect to a loan incurred by Gulf
Florida Doughnut Corp. in the original principal amount of $180,000. Mr. McCoy,
one of our directors, is the President and majority owner of Gulf Florida
Doughnut Corp. The loan is secured by a pledge of Mr. McCoy's Krispy Kreme
shares. In the event that the borrower defaults on the loan, we are obligated to
purchase the pledged shares from the bank at book value.

On May 29, 1996, we entered into a collateral repurchase agreement and a
guaranty agreement in favor of The First National Bank of Olathe with respect to
a loan in the amount of $905,000 incurred by Mr. Waugh and the other members of
Midwest Doughnuts under the terms of the Kingsmill Plan. The loan is secured by
the equipment used in the operation of a Krispy Kreme store located in
Independence, Missouri. In the event Midwest Doughnuts defaults on the loan, we
are obligated to repurchase the equipment at a purchase price equal to the
lesser of $300,000 or the unpaid portion of the loan used to fund the purchase
of the pledged assets. In addition to our obligation under the collateral
repurchase agreement, we are obligated under the guaranty agreement to pay the
lender up to $300,000 in the event Midwest Doughnuts defaults on the loan.

On May 16, 1996, we entered into a guaranty agreement with Branch Banking and
Trust Company for Mr. Waugh and the other members of Midwest Doughnuts pursuant
to the Kingsmill Plan. Under the terms of the agreement, we agreed to guarantee
a loan in the original principal amount of $200,000 obtained by Mr. Waugh and
the other members of Midwest Doughnuts to finance expansion in the Kansas City
market. Our maximum liability under the guaranty was limited to $175,000. We
have been released from the guaranty.

On March 1, 1996, we entered into a collateral repurchase agreement in favor of
Wachovia Bank of North Carolina, N.A. with respect to two separate loans
incurred by Mr. Steven D. Smith, one of our directors, in the original principal
amounts of $310,000 and $900,000. The loans were secured by store equipment and
other personal property and a pledge of Mr. Smith's Krispy Kreme shares. In the
event of default, we were obligated to purchase the pledged shares from the bank
at book value and to repurchase the equipment at a purchase price equal to the
greater of its amortized cost or 20% of its original cost. Those loans have been
fully repaid.

On July 7, 1995, we entered into a collateral repurchase agreement in favor of
First National Bank of Ohio with respect to a loan incurred by Simac, Inc. in
the original principal amount of $340,000. Mr. Robert J. Simmons, a Krispy Kreme
director, is the President and majority owner of Simac, Inc., our Akron, Ohio
franchisee. The loan is secured by the equipment and personal property assets

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used in the operation of a Krispy Kreme store located in Middleburg Heights,
Ohio. In the event that Simac, Inc. defaults on the loan, we are obligated to
repurchase the bank's collateral at a purchase price equal to the lesser of the
unpaid balance of the loan or the amortized cost of the pledged assets. On
September 29, 1996, we leased the Middleburg Heights, Ohio store for a term of
five years from Mr. Simmons and certain related parties. Under the terms of the
lease we are required to pay annual rent in the amount of $72,000 and have the
option to purchase the store for a total purchase price equal to $1.0 million.

On February 25, 1994, we entered into an equipment repurchase and amendment to
associates' license agreement with Mr. William J. Dorgan, a brother-in-law to
Messrs. Joseph A. McAleer, Jr. and John N. McAleer. This agreement was in
connection with financing in the aggregate amount of $1.2 million obtained by
Mr. Dorgan and his wife, Mrs. Patricia M. Dorgan, from Branch Banking and Trust
Company, relating to Mr. Dorgan's Biloxi and Gulfport, Mississippi franchises.
Upon termination of Mr. Dorgan's associates' license agreement for any reason,
we are obligated to repurchase some equipment used in the operation of Mr.
Dorgan's stores at a purchase price of $350,000. We also executed a collateral
repurchase agreement in favor of Branch Banking and Trust Company with respect
to Krispy Kreme stock pledged by Mrs. Dorgan, who is a sister to Messrs. Joseph
A. McAleer, Jr. and John N. McAleer, as collateral for the loan. Under the terms
of the collateral repurchase agreement, in the event of default on the loan, we
are required to repurchase the pledged common stock at book value and/or the
equipment under the terms of the equipment repurchase agreement.

On February 1, 1993, we entered into an equipment repurchase agreement and
amendment to associate's license agreement with Mr. Smith, one of our directors.
Upon termination of Mr. Smith's associates' license agreement for any reason, we
are obligated to repurchase some equipment used in the operation of the
franchise store in Dothan, Alabama at a purchase price equal to the greater of
its amortized cost or 20% of its original cost of $335,000. Mr. Smith operates
his Dothan franchise through Dale's Doughnuts of Dothan, Inc. We have been
released from our obligations under this repurchase agreement.

On September 22, 1992, we entered into an equipment repurchase and amendment to
associates' license agreement with Mr. Guthrie, one of our directors. Upon the
termination of Mr. Guthrie's associates' license agreement for any reason, we
are obligated to repurchase some equipment used in the operation of the
franchise store in Athens, Georgia at a purchase price equal to the greater of
its amortized cost or 20% of its original cost of $348,000. Mr. Guthrie operates
his Athens franchise through Classic City Doughnuts.

LOAN AGREEMENTS AND OTHER TRANSACTIONS

We have entered into loan agreements with some of our directors and officers as
described below.

On March 13, 1997, we made two loans to Midwest Doughnuts, LLC in the principal
amounts of $66,000 and $34,000, bearing interest at 9.25% and the prime rate
plus 1%, respectively. Mr. Waugh, our Senior Vice President, Franchise
Development, is a 50% owner of Midwest Doughnuts. The loans, which have been
fully repaid, were secured by the equipment and property used in connection with
a Krispy Kreme store located in Independence, Missouri.

On November 17, 1995, we made a loan to Mr. Livengood, our Chairman, President
and Chief Executive Officer, in the principal amount of $333,000. The loan,
which has been fully repaid, provided bridge financing in the purchase of a
personal residence. The loan was secured by a deed of trust and bore interest at
the rate applicable to our revolving line of credit.

On November 17, 1995, we made a loan to Mr. John N. McAleer, our Vice Chairman
and Executive Vice President, Concept Development, in the principal amount of
$80,000. The loan, which has

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been fully repaid, provided bridge financing in the purchase of a personal
residence. The loan was secured by a deed of trust and bore interest at the rate
applicable to our revolving line of credit.

We have waived the payment of royalties by Mr. Guthrie in connection with his
Athens, Georgia store, operated through Classic City Doughnuts, during the past
several years due to operational difficulties the store has encountered. The
cumulative amount of these royalties during the last three fiscal years did not
exceed $60,000.

In connection with the holding company formation occurring in conjunction with
this offering, each existing shareholder of our operating subsidiary, including
our directors, officers and their affiliates, will receive 20 shares of common
stock in our holding company, plus $15.00 in cash, in exchange for each share of
operating subsidiary common stock they hold.

We have extended loans to some of our officers and directors to cover tax
payments in connection with the conversion of our LTIP and to purchase shares of
restricted stock, as described in "Management -- Executive Compensation -- Other
compensation."

POLICY ON RELATED PARTY TRANSACTIONS

On November 10, 1999, our board of directors adopted a resolution whereby all
future transactions with related parties, including any loans from us to our
officers, directors, principal shareholders or affiliates, must be approved by a
majority of the disinterested members of the board of directors and must be on
terms no less favorable to us than could be obtained from unaffiliated third
parties. The audit committee of the board of directors will be responsible for
reviewing all related party transactions on a continuing basis and potential
conflict of interest situations where appropriate.

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DESCRIPTION OF CAPITAL STOCK

Our articles of incorporation authorize the issuance of up to 100,000,000 shares
of common stock and 10,000,000 shares of preferred stock, the rights and
preferences of which may be established from time to time by our board of
directors. Upon completion of this offering, 12,484,957 shares of common stock
and no shares of preferred stock will be outstanding. As of October 28, 1999, we
had approximately 114 shareholders.

COMMON STOCK

Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Thus, holders of a majority of the shares of common stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Holders of common stock are entitled to receive ratably any dividends
that may be declared by our board of directors out of funds legally available
for dividends, subject to any preferential dividend rights of outstanding
preferred stock. If we liquidate, dissolve or wind up, the holders of common
stock are entitled to receive ratably all of our assets available after payment
of all debts and other liabilities, subject to the prior rights of any
outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights or any rights to share in any
sinking fund. The rights, preferences and privileges of the holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock that we may designate and
issue in the future. There has been no established public trading market for our
common stock before this offering.

PREFERRED STOCK

Our articles of incorporation authorize the issuance of up to 10,000,000 shares
of preferred stock from time to time in one or more series and with terms of
each series stated in our board's resolutions providing for the designation and
issue of that series. Our articles also authorize the board of directors to
determine the dividend, voting, conversion, redemption and liquidation
preferences, rights, privileges and limitations pertaining to each series of
preferred stock that we issue. Without seeking any shareholder approval, our
board of directors may issue preferred stock with voting and other rights that
could adversely affect the voting power of the holders of our common stock and
could have the effect of delaying, deferring or preventing a change in control.
Other than the issuance of the series of preferred stock previously authorized
by the board of directors in connection with the shareholder rights plan
described below, we have no present plans to issue any shares of preferred
stock.

ANTI-TAKEOVER PROVISIONS OF KRISPY KREME'S ARTICLES OF INCORPORATION, BYLAWS AND
SHAREHOLDER RIGHTS PLAN

The rights of our shareholders are governed by provisions in our articles of
incorporation, bylaws and shareholder rights plan that are intended to affect
any attempted change in control. Our articles of incorporation opt us out of
some provisions of North Carolina law that would otherwise affect attempted
changes in control of Krispy Kreme.

CLASSIFICATION OF DIRECTORS

Our bylaws provide that our board of directors consists of not more than 15 nor
less than nine members. The board of directors has the power to set the
authorized number of directors by majority vote of the whole board within those
limits. The board currently consists of nine directors, two of whom are employed
by Krispy Kreme and five of whom are Krispy Kreme franchisees. Our bylaws also
divide the board into three classes serving staggered three-year terms. The

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classification of directors could prevent a shareholder, or group of
shareholders, having majority voting power, from obtaining control of our board
until the second annual shareholders' meeting following the date that the
shareholder, or group of shareholders, obtains majority voting power. Thus, this
provision may discourage a potential acquiror from making a tender offer or
otherwise attempting to obtain control of us.

ADVANCE NOTICE PROVISIONS

Our bylaws provide that shareholders must provide timely notice in writing to
bring business before an annual meeting of shareholders or to nominate
candidates for election as directors at an annual meeting of shareholders.
Notice for an annual meeting is timely if our Secretary receives the written
notice not less than 40 days prior to the scheduled annual meeting. If less than
50 days notice of the meeting is given or made by us to the shareholders, a
shareholder's notice will be timely if received by our Secretary on the tenth
day following the date such notice was given or made.

The bylaws also specify the form and content of a shareholder's notice. These
provisions may prevent shareholders from bringing matters before an annual
meeting of shareholders or from making nominations for directors at an annual
meeting of shareholders.

SHAREHOLDER RIGHTS PLAN

We intend to implement a shareholder rights plan prior to completing this
offering. To do so, our board of directors will declare a dividend of one
preferred share purchase right for each share of Krispy Kreme common stock. Each
share purchase right entitles the registered holder to purchase from us one
one-hundredth (1/100) of a share of Krispy Kreme Series A Participating
Cumulative Preferred Stock, $1.00 par value per share, at a price of $ per
one one-hundredth of a Series A preferred share. The exercise price and the
number of Series A preferred shares issuable upon exercise are subject to
adjustments from time to time to prevent dilution. The share purchase rights are
not exercisable until the earlier to occur of (1) 10 days following a public
announcement that a person or group of affiliated or associated
persons -- referred to as an acquiring person -- have acquired beneficial
ownership of 15% or more of our outstanding common stock or (2) 10 business days
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer which would result in an acquiring person beneficially
owning 15% or more of our outstanding shares of common stock.

If we are acquired in a merger or other business combination, or if 50% or more
of our consolidated assets or earning power is sold after a person or group has
become an acquiring person, proper provision will be made so that each holder of
a share purchase right -- other than share purchase rights beneficially owned by
the acquiring person, which will thereafter be void -- will have the right to
receive, upon exercise of the share purchase right at the then current exercise
price, the number of shares of common stock of the acquiring company which at
the time of the transaction have a market value of two times the share purchase
right exercise price. If any person or group becomes an acquiring person, proper
provision shall be made so that each holder of a share purchase right -- other
than share purchase rights beneficially owned by the acquiring person, which
will thereafter be void -- will have the right to receive upon exercise, and
without paying the exercise price, the number of shares of Krispy Kreme common
stock with a market value equal to the share purchase right exercise price.

Series A preferred shares purchasable upon exercise of the share purchase rights
will not be redeemable. Each Series A preferred share will be entitled to a
minimum preferential dividend payment of $1.00 per share and will be entitled to
an aggregate dividend of 100 times the dividend declared per share of common
stock. In the event we liquidate, the holders of the Series A

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preferred shares will be entitled to a minimum preferential liquidation payment
of $1.00 per share but will be entitled to an aggregate payment of 100 times the
payment made per share of common stock. Each Series A preferred share will have
100 votes, voting together with the shares of common stock. Finally, in the
event of any merger, consolidation or other transaction in which shares of
common stock are exchanged, each Series A preferred share will be entitled to
receive 100 times the amount received per share of common stock. These rights
are protected by customary antidilution provisions.

Before the date the share purchase rights are exercisable, the share purchase
rights may not be detached or transferred separately from the common stock. The
share purchase rights will expire on , unless that
expiration date is extended or unless the share purchase rights are redeemed or
exchanged by Krispy Kreme. At any time before an acquiring person acquires
beneficial ownership of 15% or more of our outstanding common stock, our board
of directors may redeem the share purchase rights in whole, but not in part, at
a price of $.001 per share purchase right. Immediately upon any share purchase
rights redemption, the exercise rights terminate, and the holders will only be
entitled to receive the redemption price. A more detailed description and terms
of the share purchase rights are set forth in a rights agreement between Krispy
Kreme and , as rights agent. This rights agreement could
have the effect of discouraging tender offers or other transactions that might
otherwise result in Krispy Kreme shareholders receiving a premium over the
market price for their common stock.

DIRECTOR REMOVAL AND VACANCIES

A director may be removed only with cause by the vote of the holders of a
two-thirds majority of the shares entitled to vote for the election of
directors. Our bylaws generally provide that any board vacancy may be filled by
a majority of the remaining directors, even if less than a quorum, which is
normally a majority of the authorized number of directors. A vacancy resulting
from an increase in the authorized number of directors may only be filled by the
shareholders at an annual or special meeting.

ABILITY TO CONSIDER OTHER CONSTITUENCIES

Our articles of incorporation permit our board of directors, in determining what
is believed to be in the best interest of Krispy Kreme, to consider the
interests of our employees, customers, suppliers and creditors, the communities
in which our offices or other facilities are located and all other factors our
directors may consider pertinent, in addition to considering the effects of any
actions on Krispy Kreme and our shareholders. Pursuant to this provision, our
board of directors may consider many judgmental or subjective factors affecting
a proposal, including certain nonfinancial matters. On the basis of these
considerations, our board may oppose a business combination or other transaction
which, viewed exclusively from a financial perspective, might be attractive to
some, or even a majority, of our shareholders.

INDEMNIFICATION AND LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS

Our bylaws provide for indemnification of directors to the fullest extent
permitted by North Carolina law. The articles of incorporation, to the extent
permitted by North Carolina law, eliminate or limit the personal liability of
directors to Krispy Kreme and its shareholders for monetary damages for breach
of the duty of care. Such indemnification may be available for liabilities
arising in connection with this offering. To the extent that limitation of
liability or indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling Krispy Kreme under the
foregoing provisions, we have been informed that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is therefore unenforceable. Our bylaws also allow us to indemnify
our officers,

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employees, agents and other persons to the fullest extent permitted by North
Carolina law. Our bylaws obligate us, under certain circumstances, to advance
expenses to our directors, officers, employees and agents in defending an
action, suit or proceeding for which indemnification may be sought. We can also
indemnify someone serving at our request as a director, officer, trustee,
partner, employee or agent of one of our subsidiaries or of any other
organization against these liabilities.

Our bylaws also provide that we have the power to purchase and maintain
insurance on behalf of any person who is or was one of our directors, officers,
employees or agents against any liability asserted against that person or
incurred by that person in these capacities, whether or not we would have the
power to indemnify that person against these liabilities under North Carolina
law. We maintain insurance on behalf of all of our directors and executive
officers.

TRANSFER AGENT AND REGISTRAR

Branch Banking and Trust Company will act as the transfer agent and registrar
for our common stock.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering there has been no public market for our common stock, and
we cannot predict the effect, if any, that sales of our common stock or the
availability of common stock for sale will have on its market price.
Nevertheless, sales of substantial amounts of our common stock in the public
market, or the perception that such sales could occur, could negatively affect
the market price of our common stock and impair our ability to raise capital
through the sale of our equity securities in the future.

Upon completion of this offering, we will have approximately 12.5 million shares
of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options under the plan. Of
these shares, the 3 million shares sold in this offering will be freely
transferable without restriction or further registration under the Securities
Act of 1933, unless held by affiliates of our company, as that term is defined
in Rule 144 under the Securities Act. For purposes of Rule 144, an affiliate is
a person that, directly or indirectly through one or more intermediaries,
controls, or is controlled by or is under common control with, Krispy Kreme. Any
shares held by one of our affiliates will be subject to the resale limitations
of restricted stock as defined in Rule 144 under the Securities Act.

All of our officers, directors and shareholders will agree not to sell any
shares of common stock for 180 days after the date of this prospectus without
the prior written consent of J.P. Morgan Securities Inc., subject to some
exceptions.

Beginning one year after this offering, 9.3 million shares will become eligible
for sale in reliance upon Rule 144 under the Securities Act. It is possible that
these shares may be sold sooner if the sale is registered under the Securities
Act. We may, but are not obligated to, undertake such a registration to permit
our shareholders to sell their shares in the public market or in private
transactions after the expiration of the contractual restrictions described
above.

In general, under Rule 144 as currently in effect, a person who has beneficially
owned shares of our common stock for at least one year is entitled to sell,
within any three-month period, a number of shares that is not more than the
greater of:

- 1% of the number of shares of common stock then outstanding, which will
equal approximately 125,000 shares immediately after this offering, or

- the average weekly trading volume of the common stock during the four
calendar weeks before a notice of the sale is filed.

Sales under Rule 144 must also comply with manner of sale provisions and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who has not been one of our affiliates at any time
during the 90 days before a sale, and who has beneficially owned the restricted
shares for at least two years, is entitled to sell the shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.

Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon regarding the resale of securities
originally purchased from us by our employees, directors, officers, consultants
or advisors before the date we become subject to the reporting requirements of
the Exchange Act, under written compensatory benefit plans or written contracts
relating to compensation of those persons. In addition, the SEC has indicated
that Rule 701 will apply to the typical stock options granted by an issuer
before it becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, along with the shares acquired upon exercise of these
options, including exercises after the date of this prospectus. Securities
issued in reliance on Rule 701 are restricted securities and, subject to the
180-day contractual

71
<PAGE> 75

restrictions described above, beginning 90 days after the date of this
prospectus, may be sold (1) by persons other than affiliates, subject only to
the manner of sale provisions of Rule 144, and (2) by affiliates under Rule 144
without compliance with its one-year holding period requirement. Based on stock
option grants as of the date of this prospectus, options for shares
will be exercisable upon the expiration of the 180-day restricted period.

We have agreed not to offer, sell or dispose of any shares of common stock or
any securities convertible into or exercisable or exchangeable for common stock
or any rights to acquire common stock for a period of 180 days after the date of
this prospectus without the prior written consent of J.P. Morgan Securities Inc.
with a limited number of exceptions.

We intend to file one or more registration statements under the Securities Act
to register all shares of common stock issued, issuable or reserved for issuance
under our stock option plan. These registration statements are expected to be
filed as soon as practicable after the date of this prospectus and will
automatically become effective upon filing. Following this filing, shares
registered under these registration statements will, subject to the 180-day
lock-up agreements described above and Rule 144 volume limitations applicable to
affiliates, be available for sale in the open market.

72
<PAGE> 76

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., J.P. Morgan Securities Inc., Dain Rauscher Incorporated and BB&T Capital
Markets, a division of Scott & Stringfellow, Inc. have severally agreed to
purchase from Krispy Kreme the following respective number of shares of common
stock at a public offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus:

<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
UNDERWRITERS ----------------
<S> <C>
Deutsche Bank Securities Inc................................
J.P. Morgan Securities Inc..................................
Dain Rauscher Incorporated..................................
BB&T Capital Markets/Scott & Stringfellow, Inc..............
---------
Total............................................. 3,000,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.

The underwriters propose to offer the shares of common stock to the public at
the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of
$ per share under the public offering price. The underwriters may
allow, and these dealers may re-allow, a concession of not more than $
per share to other dealers. After the initial public offering, representatives
of the underwriters may change the offering price and other selling terms.

We have granted to the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to 450,000 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered hereby. To the extent that
the underwriters exercise this option, each of the underwriters will become
obligated, subject to conditions, to purchase approximately the same percentage
of additional shares of common stock as the number of shares of common stock to
be purchased by it in the above table bears to the total number of shares of
common stock offered hereby. We will be obligated, pursuant to the option, to
sell these additional shares of common stock to the underwriters to the extent
the option is exercised. If any additional shares of common stock are purchased,
the underwriters will offer the additional shares on the same terms as those on
which the 3,000,000 shares are being offered.

The underwriting fee is equal to the public offering price per share of common
stock less the amount paid by the underwriters to us per share of common stock.
The underwriting fee is % of the initial public offering price. We have
agreed to pay the underwriters the following fees, assuming either no exercise
or full exercise by the underwriters of the underwriters' over-allotment option:

<TABLE>
<CAPTION>
TOTAL FEES
------------------------------------------------------
WITHOUT EXERCISE OF WITH FULL EXERCISE
FEE PER OVER-ALLOTMENT OF OVER-ALLOTMENT
SHARE OPTION OPTION
----------- ------------------- ------------------
<S> <C> <C> <C>
Fees paid by Krispy Kreme..................... $ $ $
</TABLE>

73
<PAGE> 77

In addition, we estimate that our share of the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately
$ .

We have agreed to indemnify the underwriters against some specified types of
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments the underwriters may be required to make in respect of
any of these liabilities.

Each of our officers and directors and our shareholders has agreed not to offer,
sell, contract to sell or otherwise dispose of, or enter into any transaction
that is designed to, or could be expected to, result in the disposition of any
portion of our common stock held by these persons prior to this offering or
common stock issuable upon exercise of options held by these persons for a
period of 180 days after the effective date of the registration statement of
which this prospectus is a part without the prior written consent of J.P. Morgan
Securities Inc., subject to limited exceptions. This consent may be given at any
time without public notice.

The representatives of the underwriters have advised us that the underwriters do
not intend to confirm sales to any account over which they exercise
discretionary authority.

In order to facilitate the offering of our common stock, the underwriters may
engage in transactions that stabilize, maintain or otherwise affect the market
price of our common stock. Specifically, the underwriters may over-allot shares
of our common stock in connection with this offering, thus creating a short
position in our common stock for their own account. A short position results
when an underwriter sells more shares of common stock than that underwriter is
committed to purchase. Additionally, to cover these over-allotments or to
stabilize the market price of our common stock, the underwriters may bid for,
and purchase, shares of our common stock in the open market. Finally, the
representatives, on behalf of the underwriters, may also reclaim selling
concessions allowed to an underwriter or dealer if the underwriting syndicate
repurchases shares distributed by that underwriter or dealer. Any of these
activities may maintain the market price of our common stock at a level above
that which might otherwise prevail in the open market. These transactions may be
effected on the Nasdaq National Market or otherwise. The underwriters are not
required to engage in these activities and, if commenced, may end any of these
activities at any time.

At our request, the underwriters have reserved shares of common stock for sale
to our officers, directors and management, Krispy Kreme franchisees and some of
their management, current shareholders, persons having business relationships
with us and friends who have expressed an interest in participating in this
offering, through a directed share program. We expect these persons to purchase
no more than 15% of the common stock offered in this offering. The underwriters
intend to seek lock-up agreements from select participants in the directed share
program. The number of shares available for sale to the general public will be
reduced to the extent these persons purchase reserved shares.

We have applied to have the common stock quoted on the Nasdaq National Market
under the symbol KREM.

It is expected that delivery of the shares will be made to investors on or about
, 2000.

As described under "Use of Proceeds" in this prospectus, we intend to use a
portion of the proceeds of this offering to repay borrowings under our existing
loan agreement with our bank, Branch Banking and Trust Company. We estimate that
this repayment will exceed 10% of the net proceeds we receive from this
offering. BB&T Capital Markets, a division of Scott & Stringfellow, Inc., one of
the representatives, is an affiliate of Branch Banking and Trust Company. In
view of this relationship, this offering is being conducted in accordance with
Conduct Rules 2710(c)(8) and 2720(c)(3) of the National Association of
Securities Dealers, Inc., which provide that the offering

74
<PAGE> 78

price to the public may not be higher than that recommended by a qualified
independent underwriter who has participated in the preparation of the
registration statement and prospectus and has exercised the usual standards of
due diligence with respect thereto. J.P. Morgan Securities Inc. has agreed to
serve as the qualified independent underwriter, and the offering price to the
public will not be higher than the price recommended by J.P. Morgan Securities
Inc.

From time to time in the ordinary course of their respective businesses, some of
the underwriters and their affiliates have engaged in and may in the future
engage in commercial banking and/or investment banking transactions with Krispy
Kreme and its affiliates.

PRICING OF THIS OFFERING

Prior to this offering, there has been no public market for our common stock.
Consequently, the initial public offering price for our common stock has been
determined by negotiation among us and the representatives of the underwriters.
Among the primary factors considered in determining the public offering price
were:

- Prevailing market conditions

- Our results of operations in recent periods

- The present stage of our development

- The market capitalizations and stages of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business

- Estimates of our business potential

LEGAL MATTERS

Certain legal matters with respect to the validity of common stock offered
hereby are being passed upon for us by Kilpatrick Stockton LLP, Atlanta, Georgia
and Winston-Salem, North Carolina. Cahill Gordon & Reindel, New York, New York,
is acting as counsel to the underwriters in connection with certain legal
matters relating to the common stock offered hereby.

EXPERTS

The financial statements of Krispy Kreme Doughnut Corporation as of February 1,
1998 and January 31, 1999 and for each of the three years in the period ended
January 31, 1999 and the balance sheet of Krispy Kreme Doughnuts, Inc. as of
December 3, 1999 included in this prospectus have been so included in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

This prospectus is part of a registration statement on Form S-1 that Krispy
Kreme has filed with the SEC covering the shares of common stock that Krispy
Kreme is offering. This prospectus does not contain all of the information
presented in the registration statement, and you should refer to that
registration statement with its exhibits for further information. Statements in
this prospectus describing or summarizing any contract or other document are not
complete, and you should review the copies of those documents filed as exhibits
to the registration statement for more detail. You may read and copy the
registration statement at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. For information on the operation of the Public
Reference

75
<PAGE> 79

Room, call the SEC at 1-800-SEC-0330. You can also inspect our registration
statement on the Internet at the SEC's web site, http://www.sec.gov.

After this offering, we will be required to file annual, quarterly, and current
reports, proxy and information statements and other information with the SEC.
You can review this information at the SEC's Public Reference Room or on the
SEC's web site, as described above.

76
<PAGE> 80

KRISPY KREME DOUGHNUT CORPORATION

INDEX TO THE FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ----
<S> <C>
Unaudited Consolidated Balance Sheets....................... F-2
Unaudited Consolidated Statements of Operations............. F-3
Unaudited Consolidated Statements of Cash Flows............. F-4
Notes to Unaudited Consolidated Financial Statements........ F-5

AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-9
Consolidated Balance Sheets................................. F-10
Consolidated Statements of Operations....................... F-11
Consolidated Statements of Shareholders' Equity............. F-12
Consolidated Statements of Cash Flows....................... F-13
Notes to Audited Consolidated Financial Statements.......... F-14
</TABLE>

KRISPY KREME DOUGHNUTS, INC.

INDEX TO THE FINANCIAL STATEMENT

<TABLE>
<CAPTION>
PAGE
AUDITED BALANCE SHEET ----
<S> <C>
Report of Independent Accountants........................... F-27
Balance Sheet............................................... F-28
Notes to Balance Sheet...................................... F-28
</TABLE>

F-1
<PAGE> 81

KRISPY KREME DOUGHNUT CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
-------------------------------------------
PRO FORMA
JANUARY 31, OCTOBER 31, OCTOBER 31,
1999 1999 1999 (NOTE 7)
----------- ------------ --------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 4,312,518 $ 3,944,201 $ 3,944,201
Accounts receivable, less allowance for doubtful
accounts of $975,000 (January 31, 1999) and
$1,602,000 (October 31, 1999)....................... 13,775,436 17,944,741 17,944,741
Accounts receivable, affiliates....................... 1,297,372 1,698,979 1,698,979
Other receivables..................................... 535,309 1,723,467 1,723,467
Inventories........................................... 9,754,194 9,884,675 9,884,675
Prepaid expenses...................................... 1,528,617 1,317,446 1,317,446
Deferred income taxes................................. 2,120,288 4,074,804 4,074,804
Assets held for sale.................................. 325,000 400,000 400,000
----------- ------------ ------------
Total current assets........................ 33,648,734 40,988,313 40,988,313
Property and equipment, net........................... 53,575,399 58,192,290 58,192,290
Deferred income taxes................................. 3,036,134 2,633,468 2,633,468
Other assets.......................................... 2,920,746 2,876,991 2,876,991
----------- ------------ ------------
Total assets................................ $93,181,013 $104,691,062 $104,691,062
=========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................... $11,404,763 $ 13,401,989 $ 13,401,989
Dividends payable..................................... 1,517,786 -- --
Capital distribution to shareholders payable.......... -- -- 7,005,165
Accrued salaries and wages............................ 2,445,863 2,645,649 2,645,649
Accrued restructuring expenses........................ 1,690,772 1,007,878 1,007,878
Accrued expenses...................................... 4,648,142 7,068,862 7,068,862
Current maturities of long-term debt.................. 2,400,000 2,400,000 2,400,000
Income taxes payable.................................. 1,154,637 2,780,890 2,780,890
----------- ------------ ------------
Total current liabilities................... 25,261,963 29,305,268 36,310,433
----------- ------------ ------------
Compensation deferred (unpaid)........................ 792,204 789,526 789,526
Long-term debt........................................ 18,620,409 20,495,421 20,495,421
Accrued restructuring expenses........................ 4,742,270 5,118,209 5,118,209
Other long-term obligations........................... 1,517,176 1,458,933 1,458,933
----------- ------------ ------------
Total long-term liabilities................. 25,672,059 27,862,089 27,862,089
SHAREHOLDERS' EQUITY -- SUBJECT TO REDEMPTION:
Common stock, $10 par value, 1,000,000 shares
authorized; issued and outstanding -- 467,011
(January 31, 1999 and October 31, 1999)............. 4,670,110 4,670,110 4,670,110
Paid-in capital....................................... 10,804,563 10,804,563 10,804,563
Notes receivable, employees........................... (2,098,559) (2,546,730) (2,546,730)
Retained earnings..................................... 28,870,877 34,595,762 27,590,597
----------- ------------ ------------
Total shareholders' equity.................. 42,246,991 47,523,705 40,518,540
----------- ------------ ------------
Total liabilities and shareholders'
equity.................................... $93,181,013 $104,691,062 $104,691,062
=========== ============ ============
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-2
<PAGE> 82

KRISPY KREME DOUGHNUT CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
---------------------------
NINE MONTHS ENDED
---------------------------
NOVEMBER 1, OCTOBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Total revenues.............................................. $133,190,030 $161,571,316
Operating expenses.......................................... 116,018,700 137,821,692
General and administrative expenses......................... 7,885,480 10,170,699
Depreciation and amortization expenses...................... 3,336,183 3,497,625
------------ ------------
Income from operations...................................... 5,949,667 10,081,300
Interest income............................................. 113,761 263,058
Interest expense............................................ 1,162,574 1,110,472
------------ ------------
Income before income taxes.................................. 4,900,854 9,233,886
Provision for income taxes.................................. 2,015,000 3,509,000
------------ ------------
Net income.................................................. $ 2,885,854 $ 5,724,886
============ ============

Basic earnings per share.................................... $ 7.31 $ 12.26
============ ============
Diluted earnings per share.................................. $ 7.30 $ 12.11
============ ============
Pro forma (Note 2):
Basic earnings per share.................................. $ .37 $ .61
============ ============
Diluted earnings per share................................ $ .36 $ .61
============ ============
Supplemental (Note 2):
Basic earnings per share.................................. $ .58
============
Diluted earnings per share................................ $ .57
============
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-3
<PAGE> 83

- --------------------------------------------------------------------------------

KRISPY KREME DOUGHNUT CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------
NINE MONTHS ENDED
--------------------------
NOVEMBER 1, OCTOBER 31,
1998 1999
------------ -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.................................................. $ 2,885,854 $ 5,724,886
Items not requiring cash:
Depreciation and amortization............................. 3,336,183 3,497,625
Deferred income taxes..................................... -- (1,551,850)
Provision for store closings and restructuring............ -- 86,159
Change in assets and liabilities:
Receivables............................................... (4,337,079) (5,759,070)
Inventories............................................... (384,379) (130,481)
Prepaid expenses.......................................... (860,238) 324,641
Income taxes, net......................................... 1,984,882 1,626,253
Accounts payable.......................................... 4,023,811 1,997,226
Accrued restructuring expenses............................ (136,404) (854,549)
Accrued expenses.......................................... 2,248,956 2,620,506
Deferred compensation and other long-term obligations..... 845,750 (60,921)
------------ -----------
Net cash provided by operating activities......... 9,607,336 7,520,425
------------ -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (10,919,937) (7,850,360)
Increase in other assets.................................... (759,415) (675,919)
Decrease in other assets.................................... 1,477,390 342,047
Proceeds from sale of assets held for sale.................. -- 386,435
------------ -----------
Net cash used for investing activities............ (10,201,962) (7,797,797)
------------ -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of long-term debt................................. (1,800,000) (1,800,000)
Net borrowings from revolving line of credit................ 982,322 3,675,012
Proceeds from stock offering................................ 4,399,908 --
Cash dividends paid......................................... (1,179,562) (1,517,786)
Issuance of notes receivable................................ (2,076,559) (674,111)
Collection of notes receivable.............................. -- 225,940
------------ -----------
Net cash provided by (used for) financing
activities...................................... 326,109 (90,945)
------------ -----------
Net decrease in cash and cash equivalents................... (268,517) (368,317)
Cash and cash equivalents at beginning of period............ 2,932,610 4,312,518
------------ -----------
Cash and cash equivalents at end of period.................. $ 2,664,093 $ 3,944,201
============ ===========
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-4

<PAGE> 84

KRISPY KREME DOUGHNUT CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated balance sheet as of October 31, 1999,
and the unaudited consolidated statements of operations and cash flows for the
nine month periods ended November 1, 1998 and October 31, 1999, should be read
in conjunction with the audited consolidated financial statements and
accompanying footnotes of Krispy Kreme Doughnut Corporation (the Company) as of
February 1, 1998, and January 31, 1999, and for each of the three years in the
period ended January 31, 1999, included elsewhere herein. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all material adjustments, consisting principally of normal recurring
adjustments, necessary for a fair presentation of the Company's interim results.
Certain information and footnote disclosures required for complete financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to applicable rules and regulations;
however, the Company believes that the disclosures herein when read with the
aforementioned audited financial statements are adequate to make the information
presented not misleading. The operating results for the interim periods are not
necessarily indicative of the results to be expected for the full year.

2. EARNINGS PER SHARE

HISTORICAL. Earnings per share data presented is computed in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share", which was issued in 1998. Basic earnings per share (EPS) is computed by
dividing income available to common shareholders (net income) by the
weighted-average number of common shares outstanding for the year. Diluted EPS
reflects the potential dilution that could occur if stock options were
exercised.

The weighted average number of shares outstanding for basic EPS was 394,524 for
the nine months ended November 1, 1998, and 467,011 for the nine months ended
October 31, 1999. The calculation of diluted EPS in both nine month periods
includes the assumed exercise of 91,550 stock options issued in August 1998. The
weighted average number of shares used for the diluted earnings per share
calculation for the nine months ended November 1, 1998, and October 31, 1999,
was 395,487 and 472,888, respectively.

PRO FORMA. On November 10, 1999, shareholders approved a corporate
reorganization to create a holding company (Krispy Kreme Doughnuts, Inc.) to
function as the publicly held parent of Krispy Kreme Doughnut Corporation and
its subsidiaries. Krispy Kreme Doughnut Corporation and the holding company will
enter into a plan of merger, expected to become effective just prior to the
closing of the holding company's public offering of its common stock. As a
result of the merger, the former shareholders of Krispy Kreme Doughnut
Corporation will become shareholders of the holding company, with each of them
receiving a number of holding company shares based on his or her percentage
ownership of the shares of Krispy Kreme Doughnut Corporation and a cash payment
of $15 per share to be paid from the proceeds of the offering. This merger will
result in Krispy Kreme Doughnut Corporation becoming a wholly-owned subsidiary
of the holding company. Pro forma basic and diluted earnings per share is
calculated in the same manner as historical earnings per share after giving
effect to the merger exchange ratio of 20-for-1. Shares used in pro forma basic
and diluted earnings per share are 7,890,480 and 7,909,740, respectively for the
nine months ended November 1, 1998 and 9,340,220 and 9,439,900, respectively for
the nine months ended October 31, 1999.

F-5
<PAGE> 85
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SUPPLEMENTAL. Supplemental earnings per share adjusts pro forma earnings per
share to reflect the assumed issuance of 528,592 holding company common shares
to fund the cash payment to shareholders. The number of shares used in the
calculation of supplemental basic and diluted earnings per share are 9,868,812
and 9,968,492, respectively.

3. BUSINESS SEGMENT INFORMATION

The Company has three reportable business segments. The Company Store Operations
segment is comprised of the operating activities of the 59 stores owned by the
Company. These stores sell doughnuts and complementary products through both
on-premises and off-premises sales. The majority of the ingredients and
materials used by Company Store Operations is purchased from the Support
Operations business segment.

The Franchise Operations segment is comprised of the operating activities of the
individual franchise business units which license qualified operators to conduct
business under the Krispy Kreme name and also monitor the operations of these
stores. Under the terms of the agreements, the licensed operators pay royalties
and fees to the Company in return for the use of the Krispy Kreme name.

The Support Operations segment supplies mix, equipment and other items to both
Company-owned and franchisee-owned stores. All intercompany transactions between
the Support Operations business segment and Company-owned stores are eliminated
in consolidation.

Segment operating income is income before general corporate expenses and income
taxes.

Segment information for total assets and capital expenditures is not presented
as such information is not used in measuring segment performance or allocating
resources among segments.

<TABLE>
<CAPTION>
---------------------------
NINE MONTHS ENDED
---------------------------
NOVEMBER 1, OCTOBER 31,
1998 1999
------------ ------------
<S> <C> <C>
REVENUES:
Company Store Operations.................................... $108,172,655 $121,104,100
Franchise Operations........................................ 2,296,732 3,797,800
Support Operations.......................................... 80,033,293 104,132,062
Intercompany sales eliminations............................. (57,312,650) (67,462,646)
------------ ------------
Total revenues.................................... $133,190,030 $161,571,316
============ ============
OPERATING INCOME:
Company Store Operations.................................... $ 11,538,999 $ 14,900,096
Franchise Operations........................................ 322,623 952,781
Support Operations.......................................... 2,822,135 5,278,293
Unallocated general and administrative expenses............. (8,734,090) (11,049,870)
------------ ------------
Total operating income............................ $ 5,949,667 $ 10,081,300
============ ============
</TABLE>

F-6
<PAGE> 86
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
---------------------------
NINE MONTHS ENDED
---------------------------
NOVEMBER 1, OCTOBER 31,
1998 1999
------------ ------------
<S> <C> <C>
DEPRECIATION AND AMORTIZATION EXPENSES:
Company Store Operations.................................... $ 2,275,810 $ 2,390,290
Franchise Operations........................................ 43,094 54,000
Support Operations.......................................... 168,669 174,164
Corporate administration.................................... 848,610 879,171
------------ ------------
Total depreciation and amortization expenses...... $ 3,336,183 $ 3,497,625
============ ============
</TABLE>

4. RELATED PARTY TRANSACTIONS

Total revenues includes $5,663,621 for the nine months ended November 1, 1998
and $8,634,646 for the nine months ended October 31, 1999 of sales to franchise
doughnut stores owned by directors and an employee of the Company. Trade
accounts receivable from these stores totaled $1,297,372 and $1,698,979 at
January 31, 1999 and October 31, 1999, respectively. Total revenues also
includes royalties from these stores of $387,582 for the nine months ended
November 1, 1998 and $614,904 for the nine months ended October 31, 1999.
Additionally, from time to time the Company extends credit to customers in the
form of notes receivable. Interest is generally charged at the prime rate plus
1% and terms range from six months to ten years. Notes receivable from franchise
doughnut stores owned by directors and an employee totaled $56,339 at January
31, 1999 and $22,181 at October 31, 1999.

5. RESTRUCTURING

<TABLE>
<CAPTION>
-------------------------------------
LEASE ACCRUED TOTAL
LIABILITIES EXPENSES ACCRUAL
----------- ---------- ----------
<S> <C> <C> <C>
Balance at January 31, 1999................................ 5,799,875 350,000 6,149,875
Additions.................................................. 722,593 -- 722,593
Reductions................................................. (781,001) (175,000) (956,001)
---------- ---------- ----------
Balance at October 31, 1999................................ $5,741,467 $ 175,000 $5,916,467
========== ========== ==========
</TABLE>

As of October 31, 1999, the Company reassessed certain provisions of its
restructuring accrual. The Company determined that it was under accrued for
losses associated with operating lease commitments related to double
drive-through buildings by $722,593 and over accrued for certain other exit
costs by $175,000. In addition, land included in Assets Held for Sale with a
book value of $100,000 was sold in October 1999 for $386,435 resulting in a
credit to restructuring expense. The Company increased the estimated net
realizable value for another piece of land held for sale by $175,000. Together,
these adjustments resulted in a net increase in restructuring expenses of
$86,158 for the nine months ended October 31, 1999. This amount has been
included in Operating Expenses of the Company Store Operations segment.
Reductions in Lease Liabilities represent ongoing lease payments on remaining
lease obligations.

F-7
<PAGE> 87
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. STORE CLOSINGS AND IMPAIRMENT

<TABLE>
<CAPTION>
-----------
LEASE
LIABILITIES
-----------
<S> <C>
Balance at January 31, 1999................................. $283,167
Reductions.................................................. (73,548)
--------
Balance at October 31, 1999................................. $209,619
========
</TABLE>

Reductions in the accrual consist of ongoing lease payments on remaining lease
obligations.

7. PRO FORMA BALANCE SHEET

The pro forma balance sheet at October 31, 1999 reflects the accrual of the cash
payment to shareholders to be paid from the proceeds of the offering as
discussed in Note 2, "Pro Forma."

F-8
<PAGE> 88

KRISPY KREME DOUGHNUT CORPORATION

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Krispy Kreme Doughnut Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Krispy Kreme
Doughnut Corporation and its subsidiaries (the Company) at February 1, 1998 and
January 31, 1999, and the results of their operations and their cash flows for
each of the three years in the period ended January 31, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP
Greensboro, North Carolina
March 19, 1999

F-9
<PAGE> 89

KRISPY KREME DOUGHNUT CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
-------------------------
FEBRUARY 1, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 2,932,610 $ 4,312,518
Accounts receivable, less allowance for doubtful accounts of
$373,388 (1998) and $975,000 (1999)....................... 11,260,986 13,775,436
Accounts receivable, affiliates............................. 727,123 1,297,372
Other receivables........................................... 198,163 535,309
Inventories................................................. 7,874,169 9,754,194
Prepaid expenses............................................ 1,277,338 1,528,617
Income taxes refundable..................................... 241,716 --
Deferred income taxes....................................... 1,280,113 2,120,288
Assets held for sale........................................ -- 325,000
----------- -----------
Total current assets.............................. 25,792,218 33,648,734
Property and equipment, net................................. 51,546,773 53,575,399
Deferred income taxes....................................... 218,350 3,036,134
Other assets................................................ 3,905,803 2,920,746
----------- -----------
Total assets...................................... $81,463,144 $93,181,013
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 6,821,253 $11,404,763
Dividends payable........................................... 1,179,562 1,517,786
Accrued salaries and wages.................................. 1,542,493 2,445,863
Accrued restructuring expenses.............................. 665,777 1,690,772
Accrued expenses............................................ 4,032,535 4,648,142
Current maturities of long-term debt........................ 2,400,000 2,400,000
Income taxes payable........................................ -- 1,154,637
----------- -----------
Total current liabilities......................... 16,641,620 25,261,963
----------- -----------
Compensation deferred (unpaid).............................. 6,434,653 792,204
Long-term debt.............................................. 18,470,180 18,620,409
Accrued restructuring expenses.............................. -- 4,742,270
Other long-term obligations................................. 1,651,293 1,517,176
----------- -----------
Total long-term liabilities....................... 26,556,126 25,672,059
SHAREHOLDERS' EQUITY -- SUBJECT TO REDEMPTION:
Common stock, $10 par value, 1,000,000 shares authorized;
issued and outstanding -- 364,221 (1998) and 467,011
(1999).................................................... 3,642,210 4,670,110
Paid-in capital............................................. 1,101,437 10,804,563
Notes receivable, employees................................. (33,921) (2,098,559)
Retained earnings........................................... 33,555,672 28,870,877
----------- -----------
Total shareholders' equity........................ 38,265,398 42,246,991
----------- -----------
Total liabilities and shareholders' equity........ $81,463,144 $93,181,013
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE> 90

KRISPY KREME DOUGHNUT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
------------------------------------------
YEAR ENDED
------------------------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Total revenues....................................... $132,614,004 $158,743,022 $180,880,485
Operating expenses................................... 116,657,907 140,206,728 159,940,594
General and administrative expenses.................. 7,630,802 9,530,172 10,897,994
Depreciation and amortization expenses............... 3,188,753 3,586,150 4,277,711
Provision for restructuring.......................... -- -- 9,466,312
------------ ------------ ------------
Income (loss) from operations........................ 5,136,542 5,419,972 (3,702,126)
Interest income...................................... 152,460 178,884 181,277
Interest expense..................................... 1,309,698 1,603,009 1,507,299
(Gain) loss on sale of property and equipment........ (66,384) (529,276) 250,861
------------ ------------ ------------
Income (loss) before income taxes.................... 4,045,688 4,525,123 (5,279,009)
Provision (benefit) for income taxes................. 1,619,001 1,811,000 (2,112,000)
------------ ------------ ------------
Net income (loss).................................... $ 2,426,687 $ 2,714,123 $ (3,167,009)
============ ============ ============
Basic and diluted earnings (loss) per share.......... $ 6.66 $ 7.45 $ (7.68)
============ ============ ============
Pro forma (Unaudited -- Note 1):
Basic and diluted earnings (loss) per share........ $ .33 $ .37 $ (.38)
============ ============ ============
Supplemental (Unaudited -- Note 1):
Basic and diluted loss per share................... (.36)
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE> 91

KRISPY KREME DOUGHNUT CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
COMMON PAID-IN UNEARNED NOTES RETAINED SHAREHOLDERS'
STOCK CAPITAL COMPENSATION RECEIVABLE EARNINGS EQUITY
---------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 28,
1996...................... $3,642,210 $ 1,101,437 $(368,476) $ (109,540) $30,767,118 $35,032,749
---------- ----------- --------- ----------- ----------- -----------
Net income for the year
ended February 2, 1997.... -- -- -- -- 2,426,687 2,426,687
Cash dividends on common
stock ($3.25 per share)... -- -- -- -- (1,172,694) (1,172,694)
Compensation expense
associated with the
restricted stock plan..... -- -- 187,317 -- -- 187,317
Collections on notes
receivable................ -- -- -- 41,980 -- 41,980
---------- ----------- --------- ----------- ----------- -----------
Balance as of February 2,
1997...................... $3,642,210 $ 1,101,437 $(181,159) $ (67,560) $32,021,111 $36,516,039
---------- ----------- --------- ----------- ----------- -----------
Net income for the year
ended February 1, 1998.... -- -- -- -- 2,714,123 2,714,123
Cash dividends on common
stock ($3.25 per share)... -- -- -- -- (1,179,562) (1,179,562)
Compensation expense
associated with the
restricted stock plan..... -- -- 181,159 -- -- 181,159
Collections on notes
receivable................ -- -- -- 33,639 -- 33,639
---------- ----------- --------- ----------- ----------- -----------
Balance as of February 1,
1998...................... $3,642,210 $ 1,101,437 $ -- $ (33,921) $33,555,672 $38,265,398
---------- ----------- --------- ----------- ----------- -----------
Net loss for the year ended
January 31, 1999.......... -- -- -- -- (3,167,009) (3,167,009)
Cash dividends on common
stock ($3.25 per share)... -- -- -- -- (1,517,786) (1,517,786)
Collections on notes
receivable................ -- -- -- 33,921 -- 33,921
Conversion of Long-Term
Incentive Plan shares to
common stock.............. 589,720 5,522,138 -- -- -- 6,111,858
Sale of common stock........ 438,180 4,180,988 -- -- -- 4,619,168
Issuance of notes
receivable................ -- -- -- (2,098,559) -- (2,098,559)
---------- ----------- --------- ----------- ----------- -----------
Balance as of January 31,
1999...................... $4,670,110 $10,804,563 $ -- $(2,098,559) $28,870,877 $42,246,991
========== =========== ========= =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE> 92

KRISPY KREME DOUGHNUT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
---------------------------------------
YEAR ENDED
---------------------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ 2,426,687 $ 2,714,123 $(3,167,009)
Items not requiring (providing) cash:
Depreciation and amortization......................... 3,188,753 3,586,150 4,277,711
Deferred income taxes................................. 744,575 391,970 (3,657,959)
Loss (gain) on disposal of property and equipment,
net................................................ (66,384) (529,276) 250,861
Compensation deferred................................. 572,845 660,926 --
Provision for restructuring........................... -- -- 9,466,312
Provision for store closings and impairment........... -- -- 2,335,847
Other................................................. 209,454 795,325 --
Change in assets and liabilities:
Receivables........................................... (3,895,297) (674,985) (3,421,845)
Inventories........................................... (82,075) (1,034,436) (1,880,025)
Prepaid expenses...................................... (527,589) 281,177 (251,279)
Income taxes, net..................................... (571,196) 696,991 1,396,353
Accounts payable...................................... 1,001,234 617,977 4,583,510
Accrued restructuring expenses........................ (803,038) (11,317) --
Accrued expenses...................................... 796,138 (77,252) 1,008,198
Deferred compensation and other long-term
obligations........................................ (341,814) (290,647) 741,702
----------- ----------- -----------
Net cash provided by operating activities..... 2,652,293 7,126,726 11,682,377
----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment...................... (9,572,362) (6,707,579) (12,375,792)
Proceeds from disposal of property and equipment........ 5,430,118 1,740,008 --
Assets held for sale.................................... 698,269 1,292,641 --
Increase in other assets................................ (185,631) (2,746,797) (841,143)
Decrease in other assets................................ 203,154 525,342 1,389,269
----------- ----------- -----------
Net cash used for investing activities:....... (3,426,452) (5,896,385) (11,827,666)
----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................. (2,199,964) (2,400,000) (2,400,000)
Net borrowings from revolving line of credit............ 4,076,277 3,083,155 2,550,229
Proceeds from stock offering............................ -- -- 4,619,168
Cash dividends paid..................................... (1,159,051) (1,172,694) (1,179,562)
Issuance of notes receivable............................ -- -- (2,098,559)
Collection of notes receivable.......................... 41,980 33,639 33,921
----------- ----------- -----------
Net cash provided by (used for) financing
activities:................................. 759,242 (455,900) 1,525,197
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.... (14,917) 774,441 1,379,908
Cash and cash equivalents at beginning of year.......... 2,173,086 2,158,169 2,932,610
----------- ----------- -----------
Cash and cash equivalents at end of year................ $ 2,158,169 $ 2,932,610 $ 4,312,518
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE> 93

KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS. Krispy Kreme Doughnut Corporation (the Company) and its
subsidiaries are engaged principally in the sale of doughnuts through
Company-owned and franchised locations. The Company also produces and sells
doughnut-making equipment and mix for use by the Company-owned and franchised
stores. Additionally, the Company operates a commissary to distribute food
products and supplies to Company-owned and franchised stores.

The significant accounting policies followed by the Company in preparing the
accompanying financial statements are as follows:

BASIS OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.

FISCAL YEAR. The Company's fiscal year is based on a fifty-two/fifty-three week
year. The fiscal year ends on the Sunday closest to the last day in January. The
year ended February 2, 1997 contained 53 weeks while the years ended February 1,
1998 and January 31, 1999 contained 52 weeks.

CASH AND CASH EQUIVALENTS. The Company considers cash on hand, deposits in
banks, and all highly liquid debt instruments with a maturity of three months or
less at date of acquisition to be cash and cash equivalents.

INVENTORIES. Inventories are recorded at the lower of average cost or market.

PROPERTY AND EQUIPMENT. Property and equipment are stated at cost less
accumulated depreciation. Major renewals and betterments are charged to the
property accounts while replacements, maintenance, and repairs which do not
improve or extend the lives of the respective assets are expensed currently.
Interest is capitalized on major capital expenditures during the period of
construction.

Depreciation of property and equipment is provided on the straight-line method
over the estimated useful lives: Buildings -- 15 to 35 years; Equipment -- 3 to
15 years; Leasehold improvements -- lesser of useful lives of assets or lease
term.

Assets acquired in the first half of the fiscal year are depreciated for a half
year in the year of acquisition. Assets acquired in the second half of the
fiscal year are not depreciated in the year of acquisition but are depreciated
for a full year in the next fiscal year.

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

INCOME TAXES. The Company uses the asset and liability method to account for
income taxes, which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
tax bases and financial reporting bases for assets and liabilities.

F-14
<PAGE> 94
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EARNINGS PER SHARE. Historical: Earnings per share data presented are computed
in accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share," which was issued in 1998. Basic earnings per share (EPS)
is computed by dividing income available to common shareholders (net income) by
the weighted-average number of common shares outstanding for the year. Diluted
EPS reflects the potential dilution that could occur if stock options were
exercised.

The weighted average number of shares outstanding for basic EPS was 364,221 in
fiscal 1997 and fiscal 1998 and 412,459 in fiscal 1999. There were no stock
options outstanding in fiscal 1997 or fiscal 1998. The calculation of diluted
EPS in fiscal 1999 included the assumed exercise of 91,550 stock options issued
during the year. This assumed exercise had an antidilutive effect on the
earnings per share calculation thus diluted earnings per share equals basic
earnings per share.

Pro forma (Unaudited): On November 10, 1999, shareholders approved a corporate
reorganization to create a holding company (Krispy Kreme Doughnuts, Inc.) to
function as the publicly held parent of Krispy Kreme Doughnut Corporation and
its subsidiaries. Krispy Kreme Doughnut Corporation and the holding company will
enter into a plan of merger, expected to become effective just prior to the
closing of the holding company's public offering of its common stock. As a
result of the merger, the former shareholders of Krispy Kreme Doughnut
Corporation will become shareholders of the holding company, with each of them
receiving a number of holding company shares based on his or her percentage of
ownership of the shares of Krispy Kreme Doughnut Corporation and a cash payment
of $15.00 per share to be paid from the proceeds of the offering. This merger
will result in Krispy Kreme Doughnut Corporation becoming a wholly-owned
subsidiary of the holding company. Pro forma basic and diluted earnings per
share is calculated in the same manner as historical earnings per share after
giving effect to the merger exchange ratio of 20-for-1. Shares used in pro forma
basic and diluted earnings per share are 7,284,420 for fiscal 1997 and fiscal
1998 and 8,249,180 for fiscal 1999.

Supplemental (Unaudited): Supplemental earnings per share adjusts pro forma
earnings per share to reflect the assumed issuance of 528,592 holding company
common shares to fund the cash payment to shareholders. The number of shares
used in the calculation of supplemental basic and diluted earnings per share is
8,777,772.

FAIR VALUE OF FINANCIAL INSTRUMENTS. SFAS No. 107. "Disclosures about Fair
Value of Financial Instruments," requires disclosure about the fair value of
certain instruments. Cash, accounts receivable, accounts payable, accrued
liabilities and variable rate debt are reflected in the financial statements at
cost which approximates fair value because of the short-term maturity of these
instruments.

ADVERTISING COSTS. All costs associated with advertising and promoting products
are expensed in the period incurred.

STORE OPENING COSTS. Costs incurred to open either Company or franchise stores
are expensed in the period incurred.

F-15
<PAGE> 95
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REVENUE RECOGNITION. A summary of the revenue recognition policies for each
segment of the Company (see Note 10) is as follows:

- Company Store Operations revenue is derived from the sale of doughnuts
and related items to on-premises and off-premises customers. Revenue is
recognized at the time of sale for on-premises sales and at the time of
delivery for off-premises sales.

- Franchise Operations revenue is derived from: (1) development and
franchise fees from the opening of new stores; and (2) royalties charged
to franchisees based on sales. Development and franchise fees are charged
for each new store and are recognized when the store is opened. The
royalties recognized in each period are based on the sales in that
period.

- Support Operations revenue is derived from the sale of doughnut-making
equipment and mix to Company-owned and franchised stores. Revenue is
recognized at the time goods are shipped.

COMPREHENSIVE INCOME. SFAS No. 130, "Reporting Comprehensive Income," requires
that certain items such as foreign currency translation adjustments, unrealized
gains and losses on certain investments in debt and equity securities and
minimum pension liability adjustments be presented as separate components of
shareholders' equity. SFAS 130 defines these as items of other comprehensive
income and as such must be reported in a financial statement that is displayed
with the same prominence as other financial statements. At January 31, 1999, the
Company does not have any items of other comprehensive income to report.

RECENT ACCOUNTING PRONOUNCEMENTS. In June 1998, the FASB issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," effective for
years beginning after June 15, 2000, the Company's fiscal year 2002. SFAS 133
requires that all derivatives be recorded on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives are either offset against the change in the fair
value of hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The adoption of FAS 133 is not expected to have a material impact on
the financial statements of the Company.

F-16
<PAGE> 96
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. INVENTORIES

The components of inventories are as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------
DISTRIBUTION EQUIPMENT MIX COMPANY
CENTER DEPARTMENT DEPARTMENT STORES TOTAL
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FEBRUARY 1, 1998
Raw materials....................... $ -- $2,596,311 $ 390,556 $ 773,061 $3,759,928
Work in progress.................... -- 119,026 -- -- 119,026
Finished goods...................... 487,496 461,002 12,190 -- 960,688
Purchased merchandise............... 2,516,266 -- -- 483,022 2,999,288
Manufacturing supplies.............. -- -- 35,239 -- 35,239
---------- ---------- ---------- ---------- ----------
Totals.................... $3,003,762 $3,176,339 $ 437,985 $1,256,083 $7,874,169
========== ========== ========== ========== ==========
JANUARY 31, 1999
Raw materials....................... $ -- $2,749,910 $ 411,946 $1,115,388 $4,277,244
Work in progress.................... -- 45,898 -- -- 45,898
Finished goods...................... 723,854 1,280,802 21,395 -- 2,026,051
Purchased merchandise............... 2,843,402 -- -- 540,379 3,383,781
Manufacturing supplies.............. -- -- 21,220 -- 21,220
---------- ---------- ---------- ---------- ----------
Totals.................... $3,567,256 $4,076,610 $ 454,561 $1,655,767 $9,754,194
========== ========== ========== ========== ==========
</TABLE>

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
-------------------------
FEBRUARY 1, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
Land........................................................ $11,254,812 $11,128,569
Buildings................................................... 20,616,612 22,702,866
Machinery and equipment..................................... 35,687,400 40,236,973
Leasehold improvements...................................... 9,021,532 8,262,368
Construction in progress.................................... 1,600,966 22,993
----------- -----------
78,181,322 82,353,769
Less: accumulated depreciation.............................. 26,634,549 28,778,370
----------- -----------
Property and equipment, net....................... $51,546,773 $53,575,399
=========== ===========
</TABLE>

An analysis of the loss (gain) on disposal of property and equipment is as
follows:

<TABLE>
<CAPTION>
---------------------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Gain on sale of real estate................................ $ -- $(567,473) $ --
Other, net................................................. (66,384) 38,197 250,861
-------- --------- --------
$(66,384) $(529,276) $250,861
======== ========= ========
</TABLE>

F-17
<PAGE> 97
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. REVOLVING CREDIT AGREEMENT AND LONG-TERM DEBT

On December 21, 1998, the Company amended and restated its Loan Agreement (the
Agreement) with a bank. The new agreement provides a $28 million revolving line
of credit and a $12 million term loan. The Agreement, which is unsecured,
expires on July 10, 2002.

REVOLVING LINE OF CREDIT. Under the terms of the Agreement, interest on the
revolving line of credit is charged, at the Company's option, at either the
Lender's Prime Rate less 110 basis points or at the one-month Interbank Rate
plus 100 basis points. There is no interest, fee or other charge for the
unadvanced portion of the line of credit. As of January 31, 1999, the amount
outstanding under the revolving line of credit was $15,020,409 and the interest
rate was 6.064%.

A provision of the Agreement allows the Company to convert, prior to the
expiration date of the Agreement, all or a portion of the outstanding principal
balance of the revolving line of credit to a term loan for a period of 60, 84,
or 120 months with interest at the Company's option of either a variable Prime
Rate based method, a variable Interbank Rate based method, or a Swap Rate based
method with a ceiling tied to the Prime Rate at the time of conversion. As of
January 31, 1999, no amounts from the $28 million line of credit facility had
been converted to a term loan.

TERM LOAN. Interest on the term loan is computed on the same basis as the
revolving line of credit except that the floor and ceiling rates are 5.5% and
8.125%, respectively (6.064% at January 31, 1999). Repayment of this loan began
on July 20, 1996, in the amount of monthly principal payments of $200,000 plus
interest; the final payment is due on June 20, 2001. The Term Loan may be
prepaid without penalty or premium at any time. As of February 1, 1998 and
January 31, 1999, the outstanding principal balance of the term loan was
$8,400,000 and $6,000,000, respectively and the interest rate was 6.598% and
6.064%, respectively.

At January 31, 1999, the annual maturities of the principal amounts of the term
loan were:

<TABLE>
<CAPTION>
-----------
FISCAL YEAR ENDING IN AMOUNT
- --------------------- -----------
<S> <C>
2000........................................................ $ 2,400,000
2001........................................................ 2,400,000
2002........................................................ 16,220,409
2003........................................................ --
2004........................................................ --
-----------
$21,020,409
===========
</TABLE>

The Agreement contains provisions that, among other requirements, restrict
capital expenditures, require the maintenance of certain financial ratios and
restrict the payment of dividends. At January 31, 1999, the Company was in
compliance with each of these covenants.

Interest paid, net of amounts capitalized, was $1,183,000 in fiscal 1997,
$1,482,000 in fiscal 1998, and $1,404,000 in fiscal 1999.

The amended and restated Agreement which was entered into in December 1998
replaced a Loan Agreement with a bank which was scheduled to expire on July 20,
1999. The previous Loan Agreement was in the form of a $30 million line of
credit facility and had term loan provisions similar to those described above
for the amended and restated Agreement. The interest rate methods under the
former Loan Agreement did not vary significantly from those prescribed in the
amended and restated Agreement.

F-18
<PAGE> 98
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LEASE COMMITMENTS

The Company conducts some of its operations from leased facilities and,
additionally, leases certain equipment under operating leases. Generally, these
have initial lease periods of 5 to 18 years and contain provisions for renewal
options of 5 to 10 years.

At January 31, 1999, future minimum annual rental commitments under
noncancelable operating leases are as follows:

<TABLE>
<CAPTION>
-----------
FISCAL YEAR ENDING IN AMOUNT
- --------------------- -----------
<S> <C>
2000........................................................ $ 6,410,000
2001........................................................ 6,275,000
2002........................................................ 5,781,000
2003........................................................ 4,749,000
2004........................................................ 3,186,000
Thereafter.................................................. 11,121,000
-----------
$37,522,000
===========
</TABLE>

Rental expense, net of rental income, totaled $3,772,000 in 1997, $4,912,000 in
1998 and $5,565,000 in 1999.

6. INCOME TAXES

The components of the provision for federal and state income taxes are
summarized as follows:

<TABLE>
<CAPTION>
---------------------------------------
YEAR ENDED
---------------------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable......................................... $ 874,425 $1,419,030 $ 1,545,959
Deferred.................................................. 744,575 391,970 (3,657,959)
---------- ---------- -----------
$1,619,000 $1,811,000 $(2,112,000)
========== ========== ===========
</TABLE>

A reconciliation of the statutory federal income tax rate with the Company's
effective rate is as follows:

<TABLE>
<CAPTION>
---------------------------------------
YEAR ENDED
---------------------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Federal taxes at statutory rate........................... $1,375,534 $1,538,542 $(1,794,863)
State taxes, net of federal benefit....................... 227,502 229,486 (440,220)
Other..................................................... 15,964 42,972 123,083
---------- ---------- -----------
$1,619,000 $1,811,000 $(2,112,000)
========== ========== ===========
</TABLE>

Income tax payments, net of refunds, were $1,664,293 in fiscal 1997, $669,904 in
fiscal 1998 and $239,341 in fiscal 1999.

F-19
<PAGE> 99
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The net current and non-current components of deferred income taxes recognized
in the balance sheet are as follows:

<TABLE>
<CAPTION>
-------------------------
FEBRUARY 1, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
Net current assets.......................................... $1,280,113 $2,120,288
Net non-current assets...................................... 218,350 3,036,134
---------- ----------
$1,498,463 $5,156,422
========== ==========
</TABLE>

The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
-------------------------
FEBRUARY 1, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Compensation deferred (unpaid).............................. $2,680,039 $ 470,731
Accrued group insurance..................................... 149,422 209,646
Other long-term obligations................................. 354,086 418,432
Accrued insurance........................................... 686,242 340,580
Accrued reorganization costs................................ 252,995 2,444,556
Unearned revenue............................................ 334,758 201,400
Accounts receivable......................................... 141,887 370,500
Inventory................................................... 210,866 229,202
Charitable contributions carryforward....................... -- 704,752
State NOL carryforwards..................................... -- 571,373
Other....................................................... -- 621,684
---------- ----------
Gross deferred tax assets......................... 4,810,295 6,582,856
---------- ----------
LIABILITIES
Property and equipment...................................... 3,061,269 1,174,082
Prepaid VEBA contribution................................... -- 133,000
Prepaid expenses............................................ 250,563 119,352
---------- ----------
Gross deferred tax liabilities.................... 3,311,832 1,426,434
---------- ----------
Net asset......................................... $1,498,463 $5,156,422
========== ==========
</TABLE>

The Company has recorded a deferred tax asset reflecting the benefit of future
deductible amounts. Realization of this asset is dependent on generating
sufficient future taxable income. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced.

7. EMPLOYEE BENEFITS PLANS

The Company has a 401(k) savings plan, which provides that employees may
contribute a portion of their salary to the plan on a tax deferred basis. The
Company matches one-half of the first 2% and one-fourth of the next 4% of salary
contributed by each employee. The Company's matching contributions approximated
$350,000 in fiscal 1997, $419,000 in fiscal 1998 and $440,000 in fiscal 1999.

F-20
<PAGE> 100
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Effective May 1, 1994, the Company established the Retirement Income Plan for
Key Employees of Krispy Kreme Doughnut Corporation (the Plan), a nonqualified
noncontributory defined benefit pension plan. The benefits are based on years of
service and average final compensation during the employees' career. The Plan at
all times shall be entirely unfunded as such term is defined for purposes of the
Employee Retirement Income Security Act (ERISA). The actuarial cost method used
in determining the net periodic pension cost is the projected unit credit
method.

The following tables summarize the status of the Plan and the amounts recognized
in the Balance Sheet:

<TABLE>
<CAPTION>
-------------------------
FEBRUARY 1, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION
a. Projected benefit obligation at beginning of year........ $ 451,677 $ 669,973
b. Service cost............................................. 130,251 152,469
c. Interest cost............................................ 33,876 46,891
d. Actuarial (gain) loss.................................... 54,169 (21,872)
e. Benefits paid............................................ -- (13,452)
f. Change in plan provisions................................ -- --
g. Projected benefit obligation at end of year.............. 669,973 834,009
CHANGE IN PLAN ASSETS
a. Fair value of plan assets at beginning of year........... $ -- $ --
b. Actual return on plan assets............................. -- --
c. Employer contributions................................... -- 13,452
d. Benefits paid............................................ -- (13,452)
e. Fair value of plan assets at end of year................. -- --
NET AMOUNT RECOGNIZED
a. Funded status............................................ $(669,973) $(834,009)
b. Unrecognized transition obligation (asset)............... -- --
c. Unrecognized prior service cost.......................... -- --
d. Unrecognized net loss.................................... 54,169.... 32,297
e. Contributions from measurement date to fiscal year end... -- --
f. Net amount recognized.................................... (615,804) (801,712)
WEIGHTED-AVERAGE ASSUMPTIONS
a. Weighted average assumed discount rate................... 7.00% 6.75%
b. Weighted average expected long-term rate of return on
plan assets............................................... N/A N/A
c. Assumed rate of annual compensation increases............ 5.00% 5.00%
NET PERIODIC PENSION COST
a. Service cost............................................. $ 130,251 $ 152,469
b. Interest cost............................................ 33,876 46,891
c. Estimated return on plan assets.......................... -- --
d. Amortization of unrecognized transitional liability
(asset)................................................... -- --
e. Amortization of prior service cost....................... -- --
f. Recognized net actuarial (gain) or loss.................. -- --
g. Total.................................................... 164,127 199,360
</TABLE>

F-21
<PAGE> 101
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
-------------------------
FEBRUARY 1, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET PENSION ASSET (LIABILITY) FOR FISCAL
YEAR
a. Prepaid (accrued) pension cost as of end of prior year... $(451,677) $(615,804)
b. Contributions during the fiscal year..................... -- 13,452
c. Net periodic pension cost for the fiscal year............ 164,127 199,360
d. Prepaid (accrued) pension cost as of fiscal year end..... (615,804) (801,712)
</TABLE>

8. INCENTIVE COMPENSATION

The Company has an incentive compensation plan for officers, directors and
management level employees. Incentive compensation amounted to $1,380,000 in
fiscal 1997, $1,652,000 in fiscal 1998 and $2,300,000 in fiscal 1999.

In addition, in fiscal 1997 and fiscal 1998, the Company had a Long-Term
Incentive Plan (the Plan). Under the provisions of the Plan, a participant could
elect to defer, for a period of not less than five years, from 0% to 100% of the
bonus earned under the provisions of the incentive compensation plan described
above. The deferred amount was converted to performance units based on the
appropriate value (book value) of the Company's common stock as defined in the
Plan. Upon completion of the deferral period, each participant's account would
be distributed in accordance with the participant's election. The performance
units granted under the Plan were credited with dividends in a manner identical
to the common stock of the Company. The amount payable to a participant at the
time benefit payments are due was equal in amount to the number of performance
units credited to a participant's account multiplied by the current book value
of the Company's common stock as defined in the Plan. Effective with fiscal
year-end 1997, the right to defer additional incentive compensation under the
provisions of the plan was temporarily suspended. Long-term incentive
compensation amounted to $386,000 in fiscal 1997 and $480,000 in 1998.

In fiscal 1999, participants still employed by the Company were given the option
to convert their performance units earned under the Plan to common shares of the
Company's common stock, subject to certain restrictions. Shares received through
the conversion are subject to the provisions of the Stock Purchase Agreement
dated July 1, 1982, as amended by the Amendment to Stock Purchase Agreement
dated March 19, 1998 and the Addition to the Amendment to the Stock Purchase
Agreement dated April 21, 1998 along with any other agreements which may be
approved by the holders of common shares prior to the conversion. These shares
have no voting rights until the earlier of July 31, 2008, or an initial public
offering of the Company's common stock. The number of performance units
converted was 58,972 at a conversion rate of $103.64 per performance unit for a
total of $6,111,858 in common stock issued in connection with the conversion.
Due to the Federal and State income tax consequences of the conversion incurred
by each participant, the Company made a loan to each participant equal to their
tax liability. These loans were executed via a 10-year promissory note
(collateralized by the common stock) with a fixed interest rate of 6%. The
amount of such loans outstanding at January 31, 1999, was $2,098,559 and has
been recorded as a deduction from shareholders' equity.

In November 1993 and April 1994, the Board of Directors authorized the issuance
of 12,645 and 2,500 respectively, restricted stock awards in substitution for
stock options previously granted to certain directors and officers of the
Company. All unexercised stock options were canceled in

F-22
<PAGE> 102
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

substitution for restricted stock awards. Restricted stock plan participants are
not entitled to receive cash dividends and voting rights on their shares until
the lapse of restrictions. The Company made loans to each of the participants
for the purchase of the restricted shares. Vesting of such awards occurs equally
over a four to six year period from the date of grant and is subject to future
service requirements. The difference between cash paid by the employee for the
awarded shares and the market value of the shares as of the award date was
charged as unearned compensation and is amortized over the four to six year
service period. The unamortized, unearned compensation value is shown as a
reduction of shareholders' equity in the accompanying consolidated balance
sheet. Compensation expense under the plan for fiscal 1997, fiscal 1998 and
fiscal 1999 was approximately $187,000, $181,000 and $0 respectively.

9. STOCK OPTION PLAN

During fiscal 1999, the Company established the Krispy Kreme Doughnut
Corporation 1998 Stock Option Plan (the Plan). Under the terms of the Plan,
95,650 shares of common stock of the Company were reserved for issuance to
employees and Directors of the Company. Grants may be in the form of either
incentive stock options or nonqualified stock options. During fiscal 1999,
91,550 options with a 10-year life were issued to employees and Directors at an
exercise price of $103.64 per share which was the fair market value of the
common stock at the date of grant. Options granted to employees under the Plan
vest ratably over a three-year period commencing with the second anniversary of
the grant date. Options granted to Directors under the Plan vest ratably over a
three-year period commencing on the grant date of the options.

The Financial Accounting Standards Board has adopted SFAS No. 123 "Accounting
for Stock-Based Compensation," which permits, but does not require, the Company
to utilize a fair-value based method of accounting for stock-based compensation.
The Company has elected to continue use of the APB 25 accounting principles for
its stock option plan and accordingly has recorded no compensation cost for
grants of stock options. Had compensation cost for the Company's stock option
plan been determined based on the estimated fair value at the grant dates for
the awards made in 1999 consistent with the provisions of SFAS No. 123, the
Company's net income and basic and diluted earnings per share would have been
reduced by $117,512 and $.28, respectively. This proforma information reflects
an estimated fair value of $9.86 for each stock option issued in fiscal 1999.
This estimated fair value was computed using the Black-Scholes option pricing
model with the following assumptions: the expected life for all options is seven
years, the expected dividend is $3.25 per year, the expected volatility of all
stock is zero and a risk-free interest rate of 4.8%.

10. BUSINESS SEGMENT INFORMATION

The Company has three reportable business segments. The Company Store Operations
segment is comprised of the operating activities of the 61 stores owned by the
Company. These stores sell doughnuts and complementary products through both
on-premises and off-premises sales. The majority of the ingredients and
materials used by Company Store Operations is purchased from the Support
Operations business segment.

F-23
<PAGE> 103
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the licensed operators pay royalties and fees to the Company in return for the
use of the Krispy Kreme name.

The Support Operations segment supplies mix, equipment and other items to both
Company-owned and franchisee owned stores. All intercompany transactions between
the Support Operations business segment and Company-owned stores are eliminated
in consolidation.

Segment information for total assets and capital expenditures is not presented
as such information is not used in measuring segment performance or allocating
resources among segments.

Segment operating income is income before general corporate expenses and income
taxes.

<TABLE>
<CAPTION>
------------------------------------------
YEAR ENDED
------------------------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Company Store Operations............................. $113,939,454 $132,826,003 $145,251,369
Franchise Operations................................. 1,709,245 2,285,256 3,236,456
Support Operations................................... 77,141,243 90,820,523 107,430,686
Intercompany sales eliminations...................... (60,175,938) (67,188,760) (75,038,026)
------------ ------------ ------------
Total revenues............................. $132,614,004 $158,743,022 $180,880,485
============ ============ ============
OPERATING INCOME:
Company Store Operations............................. $ 10,325,537 $ 13,236,186 $ 13,081,881
Franchise Operations................................. (23,067) (183,028) 448,032
Support Operations................................... 2,343,110 2,843,570 4,255,073
Unallocated general and administrative expenses...... (7,509,039) (10,476,756) (12,020,799)
Provision for restructuring.......................... -- -- (9,466,312)
------------ ------------ ------------
Total operating income..................... $ 5,136,541 $ 5,419,972 $ (3,702,125)
============ ============ ============
DEPRECIATION AND AMORTIZATION EXPENSES:
Company Store Operations............................. $ 2,958,768 $ 2,338,514 $ 2,872,869
Franchise Operations................................. 157,202 100,000 57,144
Support Operations................................... 194,546 201,051 224,892
Corporate administration............................. (121,763) 946,585 1,122,806
------------ ------------ ------------
Total depreciation and amortization
expenses................................. $ 3,188,753 $ 3,586,150 $ 4,277,711
============ ============ ============
</TABLE>

11. RELATED PARTY TRANSACTIONS

Total revenues includes $3,458,192 in fiscal 1997, $4,304,382 in fiscal 1998 and
$7,614,014 in fiscal 1999 of sales to franchise doughnut stores owned by
directors and an employee of the Company. Trade accounts receivable from these
stores totaled $727,123 and $1,297,372 at February 1, 1998 and January 31, 1999,
respectively. Total revenues also includes royalties from these stores of
$248,958 in fiscal 1997, $338,448 in fiscal 1998 and $525,228 in fiscal 1999.
Additionally, from time to time the Company extends credit to customers in the
form of notes receivable. Interest is generally charged at the Prime Rate plus
1% and terms range from 6 months to 10 years. Notes receivable due from
franchise doughnut stores owned by directors and an employee totaled $108,838 at
February 1, 1998 and $56,339 at January 31, 1999.

F-24
<PAGE> 104
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Certain members of the board of directors own 22 stores and are committed to
open an additional 22 stores. Two officers of the Company are investors in
groups that own three stores and are committed to open four additional stores.

In December 1994, the Company implemented the Kingsmill Plan to provide
franchise opportunities to corporate management and directors. Under the terms
of the Kingsmill Plan, the Company makes franchise opportunities available to
members of corporate management and provides financial assistance in the form of
collateral repurchase agreements and guarantees of bank loans. At February 1,
1998 and January 31, 1999, the Company had guaranteed bank loans of $550,000 and
$425,146, respectively, under the Kingsmill Plan. The Kingsmill Plan was
suspended in fiscal 1999.

In January 1998, the Company sold a market to a shareholder. The gain recognized
on this sale was approximately $267,000.

12. COMMITMENTS AND CONTINGENCIES

Under the terms of a stock purchase agreement dated July 1, 1984, the Company
has agreed to purchase the outstanding stock of any deceased shareholder at a
price equal to the book value of the stock as of the last day of the fiscal
quarter immediately preceding death. The stock purchase agreement will terminate
upon the closing of an initial public offering of the Company's stock.

In order to assist certain associate and franchise operators in obtaining
third-party financing, the Company has entered into collateral repurchase
agreements involving both Company stock and doughnut-making equipment. The
Company's contingent liability related to these agreements is approximately
$5,146,000 at February 1, 1998 and $4,054,000 at January 31, 1999. Additionally,
the Company has guaranteed certain loans to third-party financial institutions
on behalf of associate and franchise operators. The Company's contingent
liability related to these guarantees was approximately $2,683,000 at February
1, 1998 and $2,407,000 at January 31, 1999.

The Company is engaged in various legal proceedings incidental to its normal
business activities. In the opinion of management, the outcome of these matters
is not expected to have a material effect on the Company's consolidated
financial statements.

Because the Company enters into long-term contracts with its suppliers, in the
event that any of these relationships terminate unexpectedly, even where it has
multiple suppliers for the same ingredient, the Company's ability to obtain
adequate quantities of the same high quality ingredient at the same competitive
price could be negatively impacted.

13. RESTRUCTURING

<TABLE>
<CAPTION>
-----------------------------------
LEASE ACCRUED TOTAL
LIABILITIES EXPENSES ACCRUAL
----------- -------- ----------
<S> <C> <C> <C>
Balance at February 1, 1998................................. $ 205,000 $100,000 $ 305,000
Additions................................................... 5,594,875 250,000 5,844,875
---------- -------- ----------
Balance at January 31, 1999................................. $5,799,875 $350,000 $6,149,875
========== ======== ==========
</TABLE>

On January 13, 1999, the Board of Directors of the Company approved a
restructuring plan for assets and operations included in the Company Store
Operations segment determined either to be inconsistent with the Company's
strategy or whose carrying value may not be fully recoverable. Of

F-25
<PAGE> 105
KRISPY KREME DOUGHNUT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the total restructuring and impairment charge of $9.5 million, $7.8 million
relates to the closing of five double drive-through stores and the write down of
five other inactive double drive-through stores and sites including provisions
to write down associated land, building and equipment costs to estimated net
realizable value and to cover operating lease commitments associated with these
stores. The Company is in the process of closing these double drive-though
stores and there are no plans to open any new ones. An additional $700,000
relates to future lease payments on double drive-through buildings subleased to
franchisees. Also included in the total charge is a $1.0 million write down of a
facility that produces fried pies and honey buns. These products are not
expected to be a core part of the Company's strategy going forward. Of the total
charge, $5.6 million represents a charge for future cash outflows for lease
payments on land and buildings while $3.6 million represents the write-down of
land and the write-off of buildings and equipment. The remaining $250,000
represents the accrual of costs to remove double drive-through buildings from
their leased locations. Land held for sale is carried at $325,000, the estimated
net realizable value determined through review of current prices for comparable
retail locations. After an income tax benefit of $3,786,525, this action reduced
fiscal 1999 earnings by $5,679,787 or $12.16 per share.

14. STORE CLOSINGS AND IMPAIRMENT

<TABLE>
<CAPTION>
-----------
LEASE
LIABILITIES
-----------
<S> <C>
Balance at January 31, 1999................................. $283,167
</TABLE>

During the year, the Company recorded a charge of $2.3 million for store
closings and impairment costs. The charge consists of $417,000 related to the
write-off of unamortized leasehold improvements for two stores to be closed in
the first quarter of fiscal 2000 and the accrual of $283,000 in remaining lease
costs on a potential store site that will not be used. The remaining $1.6
million relates to the write-down of building and equipment of a facility that
will remain open but whose carrying value was determined not to be fully
recoverable. The fair market value of assets to be held and used was determined
using a formula based on five times after-tax cash flow. This charge has been
recorded in Operating Expenses of the Company Store Operations segment.

F-26
<PAGE> 106

KRISPY KREME DOUGHNUTS, INC.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholder
of Krispy Kreme Doughnuts, Inc.

In our opinion, the accompanying balance sheet presents fairly, in all material
respects, the financial position of Krispy Kreme Doughnuts, Inc. (the Company)
at December 3, 1999, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the balance
sheet is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statement, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.

PRICEWATERHOUSECOOPERS LLP
Greensboro, North Carolina
December 3, 1999

F-27
<PAGE> 107

KRISPY KREME DOUGHNUTS, INC.

BALANCE SHEET

<TABLE>
<CAPTION>
-----------
DECEMBER 3,
1999
-----------
<S> <C>
ASSETS -- Cash.............................................. $1,000
===========
SHAREHOLDER'S EQUITY........................................ $1,000
===========
</TABLE>

NOTES TO BALANCE SHEET

1. ORGANIZATION AND PURPOSE

Krispy Kreme Doughnuts, Inc. (the Company) was incorporated in North Carolina on
December 2, 1999 as a wholly-owned subsidiary of Krispy Kreme Doughnut
Corporation. Subject to a plan of merger approved by the shareholders on
November 10, 1999, the shareholders of Krispy Kreme Doughnut Corporation will
become shareholders of Krispy Kreme Doughnuts, Inc. Each shareholder will
receive a number of shares of Krispy Kreme Doughnuts, Inc. based on his or her
percentage ownership of the shares of Krispy Kreme Doughnut Corporation and a
cash payment of $15.00 per share. As a result of this merger, Krispy Kreme
Doughnut Corporation will become a wholly-owned subsidiary of Krispy Kreme
Doughnuts, Inc. This plan of merger is expected to become effective just prior
to the completion of a public offering of the Company's common stock.

2. SHAREHOLDER'S EQUITY

The Company is authorized to issue 10 million shares of no par value preferred
stock and 100 million shares of no par value common stock. Krispy Kreme Doughnut
Corporation has invested $1,000 in exchange for shares of the Company's common
stock.

F-28
<PAGE> 108

You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in the
prospectus. Neither the delivery of this prospectus nor sale of common stock
means that information contained in this prospectus is correct after the date of
this prospectus. This prospectus is not an offer to sell or solicitation of an
offer to buy these shares in any circumstances under which the offer or
solicitation is unlawful.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary............... 1
Risk Factors..................... 5
Forward-Looking Statements....... 11
Use of Proceeds.................. 12
Dividend Policy.................. 13
Capitalization................... 14
Dilution......................... 15
Selected Financial Data.......... 16
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 18
Business......................... 34
Management....................... 50
Principal Shareholders........... 59
Related Party Transactions....... 61
Description of Capital Stock..... 67
Shares Eligible for Future
Sale........................... 71
Underwriting..................... 73
Legal Matters.................... 75
Experts.......................... 75
Where You Can Find More
Information.................... 75
Index to the Financial
Statements..................... F-1
</TABLE>

Dealer Prospectus Delivery Obligation: Until , 2000 (25
days after the date of this prospectus) all dealers that buy, sell or trade in
these shares of common stock, whether or not participating in this offering, may
be required to deliver a prospectus. Dealers are also obligated to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

(KRISPY KREME LOGO)

3,000,000 Shares

Common Stock

Deutsche Banc Alex. Brown

J.P. Morgan & Co.

Dain Rauscher Wessels

BB&T Capital Markets

Prospectus

, 2000

<PAGE> 109

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting commissions and discounts) payable by Krispy
Kreme Doughnuts, Inc. ("Krispy Kreme" or the "Company") in connection with this
offering.

<TABLE>
<CAPTION>
----------
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 19,734
National Association of Securities Dealers Inc. Registration
Fee....................................................... 7,975
Nasdaq National Market Listing Fees......................... 95,000
Printing and Engraving Expenses............................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Transfer Agent Fees and Expenses............................ *
Miscellaneous............................................... *
----------
Total............................................. $1,200,000+
==========
</TABLE>

- ---------------

* To be filed by amendment

+ Estimate

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Krispy Kreme's Articles of Incorporation and Bylaws provide that our directors
and officers shall not be personally liable to us or our shareholders for
monetary damages for breach of fiduciary duty as a director or officer to the
fullest extent permitted by North Carolina law. Under Section 55-8-51 of the
North Carolina Business Corporation Act, we may indemnify a present or former
director if he conducted himself in good faith and reasonably believed, in the
case of conduct in his official capacity, that his conduct was in Krispy Kreme's
best interests. In all other cases, the director must have believed that his
conduct was at least not opposed to our best interests. In the case of any
criminal proceeding, the director must have had no reasonable cause to believe
his conduct was unlawful. We may not indemnify a director in connection with a
proceeding by or in the right of Krispy Kreme in which the director was adjudged
liable to us or, in connection with any other proceeding, whether or not
involving action in his official capacity, in which he was adjudged liable on
the basis that personal benefit was improperly received by him. Under North
Carolina law, we may indemnify our officers to the same extent as our directors
and to such further extent as is consistent with public policy. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or persons controlling Krispy Kreme pursuant to
the foregoing provisions, or otherwise, we have been informed that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.

Krispy Kreme maintains directors' and officers' liability insurance against any
actual or alleged error, misstatement, misleading statement, act, omission,
neglect or breach of duty by any director or officer, excluding certain matters
including fraudulent, dishonest or criminal acts or self-dealing.

The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of Krispy Kreme, its directors and executive officers and other
persons for certain liabilities, including liabilities arising under the
Securities Act of 1933.

II-1
<PAGE> 110

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In connection with a corporate reorganization in the form of a merger conducted
in conjunction with this offering, Krispy Kreme Doughnuts, Inc. will issue 20
shares of its common stock, no par value, in exchange for each outstanding share
of the common stock, par value $10.00 per share, of Krispy Kreme Doughnut
Corporation. Krispy Kreme Doughnuts, Inc. expects to issue a total of 9,340,220
shares of its common stock in this exchange. The issuance will be a private
placement exempt from registration under Section 4(2) of the Securities Act.
Pursuant to the reorganization, Krispy Kreme Doughnut Corporation will become a
wholly-owned subsidiary of Krispy Kreme Doughnuts, Inc.

The shareholders of Krispy Kreme Doughnut Corporation approved this transaction
at a special shareholders' meeting on November 10, 1999. It is anticipated that
the reorganization will be effective concurrently with the effectiveness of this
registration statement. The Agreement and Plan of Merger by and between Krispy
Kreme Doughnut Corporation, Krispy Kreme Doughnuts, Inc. and KKDC Reorganization
Corporation dated December 2, 1999 is filed with this registration statement as
Exhibit 2.1.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a. Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
2.1+ -- Agreement and Plan of Merger among the Company, Krispy Kreme
Doughnut Corporation and KKDC Reorganization Corporation
dated December 2, 1999
3.1+ -- Articles of Incorporation of the Company
3.2+ -- Bylaws of the Company
4.1* -- Form of Certificate for Common Stock
5.1* -- Opinion of Kilpatrick Stockton, LLP, as to the legality of
the securities being registered
10.1+ -- Amended and Restated Loan Agreement, dated December 21,
1998, between Krispy Kreme Doughnut Corporation and the
subsidiaries thereof and Branch Banking and Trust Company
10.2+ -- Form of Associates License Agreement
10.3+ -- Form of Development Agreement
10.4+ -- Form of Franchise Agreement
10.5 -- Letter Agreement, dated April 12, 1994, between Krispy Kreme
Doughnut Corporation and Mr. Scott A. Livengood
10.6 -- Letter Agreement, dated February 15, 1994, between Krispy
Kreme Doughnut Corporation and Mr. Joseph A. McAleer, Jr.
10.7 -- Guaranty of Payment Agreement, dated September 18, 1998, by
Krispy Kreme Doughnut Corporation for the benefit of Beattie
F. Armstrong and Beattie F. Armstrong, Inc.
10.8 -- Collateral Repurchase Agreement, dated March 31, 1998 by and
among Krispy Kreme Doughnut Corporation, the Bank of Blue
Valley and Midwest Doughnuts, LLC
10.9 -- Guaranty by Krispy Kreme Doughnut Corporation, dated
December 31, 1998, in favor of the Bank of Blue Valley with
respect to the obligations of Midwest Doughnuts, LLC
</TABLE>

II-2
<PAGE> 111

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
10.10+ -- Collateral Repurchase Agreement, dated January 30, 1998, by
and among Krispy Kreme Doughnut Corporation, Mackk, L.L.C.
and Branch Banking and Trust Company
10.11+ -- Collateral Repurchase Agreement, dated January 30, 1998, by
and among Mr. Joseph A. McAleer, Jr., Mackk, L.L.C., Krispy
Kreme Doughnut Corporation and Branch Banking and Trust
Company
10.12 -- Collateral Repurchase Agreement, dated January 2, 1998, by
and among Mrs. Bonnie Silvey Vandegrift, Brevard Tennis and
Athletic Club Incorporated, Krispy Kreme Doughnut
Corporation and Branch Banking and Trust Company
10.13 -- Collateral Repurchase Agreement, dated October 15, 1997, by
and among Krispy Kreme Doughnut Corporation, Midwest
Doughnuts, LLC, and the Bank of Blue Valley
10.14* -- Guaranty by Krispy Kreme Doughnut Corporation, dated October
15, 1997, in favor of the Bank of Blue Valley with respect
to the obligation of Midwest Doughnuts, LLC
10.15 -- Collateral Repurchase Agreement, dated October 22, 1996, by
and among Robert L. McCoy, Gulf Florida Doughnut
Corporation, Krispy Kreme Doughnut Corporation and Branch
Banking and Trust Company
10.16+ -- Collateral Repurchase Agreement, dated May 29, 1996, among
Krispy Kreme Doughnut Corporation, Midwest Doughnuts, LLC
and The First National Bank of Olathe
10.17 -- Guaranty by Krispy Kreme Doughnut Corporation, dated May 29,
1996, in favor of the First National Bank of Olathe with
respect to the obligations of Midwest Doughnuts, LLC
10.18 -- Collateral Repurchase Agreement, dated July 7, 1995 by and
among Robert J. Simmons, Simac, Inc., Krispy Kreme Doughnut
Corporation and First National Bank of Ohio
10.19 -- Collateral Repurchase Agreement, dated February 25, 1994, by
and among Mr. William J. Dorgan, Mrs. Patricia M. Dorgan,
Krispy Kreme Doughnut Corporation and Branch Banking and
Trust Company
10.20 -- Promissory Note, dated March 13, 1997, of Midwest Doughnuts,
LLC, Mr. Philip R.S. Waugh, Jr. and certain other parties
payable to the order of Krispy Kreme Doughnut Corporation
10.21* -- Promissory Note, dated March 13, 1997, of Midwest Doughnuts,
LLC, Mr. Philip R.S. Waugh, Jr. and certain other parties
payable to the order of Krispy Kreme Doughnut Corporation
10.22 -- Trademark License Agreement, dated May 27, 1996, between HDN
Development -- Corporation and Krispy Kreme Corporation
10.23 -- Stock Option Plan dated August 6, 1998
10.24 -- Long-Term Incentive Plan dated January 30, 1993
10.25 -- Form of Promissory Note relating to termination of Long-Term
Incentive Plan
10.26 -- Form of Restricted Stock Purchase Agreement
10.27 -- Form of Promissory Note relating to restricted stock
purchases
10.28 -- Employment Agreement dated August 10, 1999 between Krispy
Kreme Doughnut Corporation and John N. McAleer
10.29 -- Employment Agreement dated August 10, 1999 between Krispy
Kreme Doughnut Corporation and Scott A. Livengood
</TABLE>

II-3
<PAGE> 112

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
10.30 -- Employment Agreement dated August 10, 1999 between Krispy
Kreme Doughnut Corporation and J. Paul Breitbach
10.31 -- Kingsmill Plan
21.1+ -- List of subsidiaries
23.1* -- Consent of Kilpatrick Stockton LLP (will be included in the
opinion filed as Exhibit No. 5 to this Registration
Statement)
23.2 -- Consent of PricewaterhouseCoopers LLP
24.1+ -- Powers of Attorney of certain officers and directors of the
Company (included on the signature pages of this
Registration Statement)
27.1 -- Financial Data Schedule
</TABLE>

- ---------------

* To be filed by amendment.

+ Previously filed.

b. Financial Statement Schedules

Schedule II -- Consolidated Valuation and Qualifying Accounts and Reserves of
Krispy Kreme Doughnut Corporation

ITEM 17. UNDERTAKINGS.

Krispy Kreme hereby undertakes to provide to the Underwriters at the closing
specified in the underwriting agreements certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of Krispy Kreme
pursuant to the provisions of our Articles of Incorporation and Bylaws or
otherwise, Krispy Kreme has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by a director, officer or controlling
person of Krispy Kreme in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Krispy Kreme will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The undersigned undertakes that:

1. For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by Krispy Kreme pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

2. For the purposes of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE> 113

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Krispy Kreme has
duly caused this first pre-effective amendment to the registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Winston-Salem, North Carolina, on February 18, 2000.

KRISPY KREME DOUGHNUTS, INC.

By: /s/ J. PAUL BREITBACH

------------------------------------

J. Paul Breitbach

Executive Vice President, Finance,

Administration and Support
Operations

Pursuant to the requirements of the Securities Act of 1933, this first
pre-effective amendment to the registration statement has been signed on
February 18, 2000, by the following persons in the capacities indicated.

<TABLE>
<CAPTION>
SIGNATURE POSITION
- --------- --------
<S> <C>

* Chairman of the Board of Directors,
- ------------------------------------------- President and Chief Executive Officer
Scott A. Livengood (Principal Executive Officer)

* Vice Chairman of the Board of Directors and
- ------------------------------------------- Executive Vice President, Concept
John N. McAleer Development

/s/ J. PAUL BREITBACH Executive Vice President, Finance,
- ------------------------------------------- Administration and Support Operations
J. Paul Breitbach (Principal Financial and Accounting
Officer)

* Director
- -------------------------------------------
Frank E. Guthrie

* Director
- -------------------------------------------
William T. Lynch

* Director
- -------------------------------------------
Joseph A. McAleer, Jr.

* Director
- -------------------------------------------
Robert L. McCoy

* Director
- -------------------------------------------
Robert J. Simmons
</TABLE>

II-5
<PAGE> 114

<TABLE>
<CAPTION>
SIGNATURE POSITION
- --------- --------
<S> <C>
* Director
- -------------------------------------------
Steven D. Smith

* Director
- -------------------------------------------
Robert L. Strickland

*By: /s/ RANDY S. CASSTEVENS
- -------------------------------------------
as attorney-in-fact
</TABLE>

II-6
<PAGE> 115

REPORT OF INDEPENDENT ACCOUNTANTS ON

FINANCIAL STATEMENT SCHEDULES

To the Board of Directors of

Krispy Kreme Doughnut Corporation:

Our report on the consolidated financial statements of Krispy Kreme Doughnut
Corporation and its subsidiaries is included herein. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule of Krispy Kreme Doughnut Corporation and subsidiaries.

In our opinion, the financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.

PRICEWATERHOUSECOOPERS LLP

Greensboro, North Carolina

March 19, 1999

II-7
<PAGE> 116

KRISPY KREME DOUGHNUT CORPORATION

SCHEDULE II -- CONSOLIDATED

VALUATION AND QUALIFYING

ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
-----------------------------------------------------------------
ADDITIONS
ADDITIONS CHARGED
BALANCE AT CHARGED TO BALANCE AT
BEGINNING TO OTHER END
RESERVE FOR DOUBTFUL ACCOUNTS OF PERIOD OPERATIONS ACCOUNTS DEDUCTIONS(1) OF PERIOD
- ----------------------------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended February 2, 1997......... $257,349 $ 144,000 $ -- $ 108,430 $292,919
======== ========== ========== ========== ========
For the year ended February 1, 1998......... $292,919 $ 180,573 $ -- $ 100,104 $373,388
======== ========== ========== ========== ========
For the year ended January 31, 1999......... $373,388 $2,101,099 $ -- $1,499,487 $975,000
======== ========== ========== ========== ========
</TABLE>

- ---------------

(1) Amounts represent write-off of uncollectible receivable balances.

II-8

<PAGE> 1

EXHIBIT 10.5

April 12, 1994

Mr. Scott A. Livengood
President
Krispy Kreme Doughnut Corporation
P O Box 83
Winston-Salem, NC 27102-0083

Dear Scott:

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. In consideration of your
valuable contributions to Krispy Kreme, 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 DEVELOP AREA

We will enter into a development agreement with you for the franchise
development of an area for markets with a potential for 10 or more stores:

Development Period: A number of years determined by multiplying
the number of doughnut shops to be developed
(to be mutually agreed upon) by one

Development Schedule: One doughnut shop per year.

Territory: To be elected by you within one year of the
date of this letter (excluding New York,
Chicago, Los Angeles and San Francisco and
any markets for which development rights
are granted prior to your election and
within such one year period.)

Franchise Agreement: The franchise agreement and terms then being
offered to new franchisees.

<PAGE> 2

Mr. Scott A. Livengood
April 12, 1994
Page 2
- -------------------

Financing: We will enter into a "pioneer" arrangement
for the first Krispy Kreme Express similar
to the current pioneer plan.

This commitment was approved by the board of directors on April 12, 1994.

Please indicate your agreement by signing below.

KRISPY KREME DOUGHNUT CORPORATION

/s/ J. A. McAleer, Jr.
J. A. McAleer, Jr.
Chairman of the Board and
Chief Executive Officer

Agreed to

/s/ Scott A. Livengood
Scott A. Livengood

Dated: April 19, 1994

<PAGE> 3

June 11, 1996

Mr. Scott A. Livengood
President
Krispy Kreme Doughnut Corporation
P.O. Box 83
Winston-Salem, NC 27102

Dear Scott:

The purpose of this letter is to confirm changes to a letter of commitment to
you dated April 12, 1994. This original letter granted you the option to develop
certain areas in the event of your retirement or resignation from full time
employment with Krispy Kreme. Pursuant to a Board of Directors resolution dated
April 25, 1996, the following changes are made to the attached letter:

Territory Elected: You have elected Alamance, Durham and Orange Counties
in the State of North Carolina; the entire state of
Colorado.

Development Period: 5 years from the date of the Board of Directors'
resolution. You may begin to develop the territories
while still employed at Krispy Kreme Doughnut
Corporation, i.e., you do not have to wait until
retirement or resignation.

Franchise Agreement: The franchise agreement and terms then being offered
to new franchisees.

Other Arrangements: You are allowed to take advantage of the benefits as
outlined in the "Kingsmill" agreement.

Please indicate your agreement by signing below.

Krispy Kreme Doughnut Corporation

/s/ J. A. McAleer, Jr.
J.A. McAleer, Jr.
Chairman of the Board and Chief Executive Officer

Agreed to:

/s/ Scott A. Livengood
Scott A. Livengood

Dated: 7/22/96

<PAGE> 1

Exhibit 10.6

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:

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:

<PAGE> 2

Mr. J. A. McAleer, Jr.
February 15, 1994
Page 2
- ------------------

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.

<PAGE> 3

Mr. J. A. McAleer, Jr.
February 15, 1994
Page 3
- ------------------

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.

<PAGE> 1

EXHIBIT 10.7

GUARANTY OF PAYMENT AGREEMENT

THIS GUARANTY OF PAYMENT AGREEMENT ("Agreement") is entered into as of
September 18, 1998, by KRISPY KREME DOUGHNUT CORPORATION, a North Carolina
corporation ("Guarantor"), for the benefit of BEATTIE F. ARMSTRONG, a resident
of Macon, Georgia ("Armstrong"), and BEATTIE F. ARMSTRONG, INC., a Georgia
corporation ("BFA"; BFA and Armstrong are sometimes collectively referred to as
the "Lenders" and individually as a "Lender").

R E C I T A L S :

A. S&P of Macon, Inc. ("S&P") has purchased substantially all of the
assets of BFA pursuant to that certain Assets Purchase Agreement of even date
(the "Purchase Agreement"), and BFA has financed the payment of the purchase
price for such assets by accepting from S&P a promissory note (the "Assets
Note") of even date in the principal amount of $300,000 (the "Assets Loan").

B. Pat Silvernail ("Silvernail") has purchased from Armstrong his
License Agreement with Guaranty to operate as a Krispy Kreme(R) franchisee in
Macon, Georgia and surrounding areas pursuant to the Purchase Agreement, and
Armstrong has financed the payment of the purchase price for the License
Agreement by accepting from Silvernail and his spouse (collectively, the
"Silvernails") a promissory note (the "Franchise Note") of even date in the
principal amount of $700,000 (the "Franchise Loan"). (The Silvernails and S&P
are sometimes collectively referred to as the "Borrowers" and individually as a
"Borrower"; the Assets Note and the Franchise Note are sometimes collectively
referred to as the "Notes" and individually as a "Note"; and the Assets Loan and
the Franchise Loan are sometimes collectively referred to as the "Loans" and
individually as a "Loan").

C. Silvernail was a long-term employee of Guarantor prior to the
consummation of the transactions described in the Purchase Agreement. Guarantor
desires continuity in the Macon, Georgia market by way of a sale to an
experienced operator like Silvernail, with an opportunity, in consideration of
this Guaranty, to reclaim the Macon, Georgia operations in the event of a
default by the Silvernails (or either of them) or S&P to Lender. Guarantor has a
substantial interest in assisting Silvernail in acquiring the Krispy Kreme
franchise subject to the Purchase Agreement, and Silvernail has caused the
incorporation of S&P (and the Silvernails own all the issued and outstanding
stock thereof) to acquire the operating assets of such franchise and to
thereafter operate the same.

D. Lender is unwilling to extend the Loans to the Silvernails and S&P
without a guaranty thereof by Guarantor. As a material inducement to each Lender
to make its respective Loan and accept the Note made payable to it or him,
Guarantor has agreed to guaranty the payment and performance of each Loan as set
forth below.

<PAGE> 2

NOW, THEREFORE, in consideration of the foregoing recitals and other
good and valuable consideration, the receipt and sufficiency of which are
acknowledged, Guarantor agrees as follows:

1. Guaranty. Guarantor hereby unconditionally and irrevocably
guarantees to each Lender the full and punctual payment of all past, present and
future indebtedness, liabilities and obligations to each Lender of the
Borrowers, or any of them, of any kind, nature or description whatsoever, when
they become due and payable under each Note (the "Guaranteed Liabilities"),
including, without limitation, the punctual payment and performance of all
obligations of the Borrowers to pay the principal of and interest on the Notes,
and all costs of collection therefor.

As to Guarantor, the guarantee provided for in this Agreement is an
absolute, unconditional, continuing guarantee of payment and not of
collectibility and is in no way conditioned upon or limited by: (a) any attempt
to collect from any Borrower; (b) any attempt to collect from, or the exercise
of any rights and remedies against any person other than the Borrowers who may
at any time now or hereafter be primarily or secondarily liable for any or all
of the Guaranteed Liabilities, including without limitation any other guarantor
and any other maker, endorser or surety of all of or a portion of the Guaranteed
Liabilities or any person who is now or hereafter a party (collectively
"Obligors") to any to the Notes or the Purchase Agreement (collectively with the
Notes, the "Transaction Documents"); or (c) any resort or recourse to or against
any security or collateral now or hereafter pledged, assigned, or granted to a
Lender under the provisions of any instrument or agreement. If a Borrower fails
to pay any of the Guaranteed Liabilities on which it is obligated, when they
become due and payable, Guarantor shall pay such Guaranteed Liabilities on
demand in immediately available funds, in lawful money of the United States of
America.

2. Nature of Obligations. The obligations and liabilities of Guarantor
under this Agreement are primary obligations of Guarantor, are continuing,
absolute and unconditional, shall not be subject to any counterclaim,
recoupment, set off, reduction or defense based upon any claim that Guarantor
may have against a Borrower, are independent of any other guaranty or guaranties
at any time in effect with respect to all or any part of the Guaranteed
Liabilities, and may be enforced regardless of the existence of such other
guaranty or guaranties. The obligations and liabilities of Guarantor under this
Agreement shall not be affected, impaired or released by the invalidity or
unenforceability of any or all of the Transaction Documents. Guarantor hereby
consents that, at any time and from time to time, any Lender may, without in
any manner affecting, impairing or releasing any or all of the obligations and
liabilities of Guarantor under this Agreement, do any one or more of the
following, all without notice to, or further consent of, Guarantor and with or
without consideration: (a) renew, extend, change the time or terms for payment
of the principal and interest on any of the Guaranteed Liabilities or any
renewals or extensions, including, without limitation, either Note or any
renewals or extensions; (b) extend and/or change the time or terms for
performance of any other obligations, covenants or agreements under the
Transaction Documents of a Borrower, or any other party to the Transaction
Documents; (c) modify, compromise, substitute, release or otherwise deal with in
any manner satisfactory to any Lender (i) any or all of the provisions of any or
all of the Transaction Documents, (ii) any or all of the Guaranteed
Liabilities, (iii) any or all of the obligations and liabilities

<PAGE> 3

of Guarantor under this Agreement or under any and all transaction Documents to
which Guarantor is a party or any or all property or other security given at
any time as collateral by Guarantor without affecting, impairing or releasing
any or all of the obligations and liabilities of Guarantor under this Agreement
or under any or all of the Transaction Documents to which guarantor is a party,
(iv) any or all of the Obligors or any or all other parties to any or all of the
Transaction Documents, and (v) any or all property or other security now or
hereafter serving as collateral for any or all of the Guaranteed Liabilities or
other obligations under any or all of the Transaction Documents; (d) receive
additional property or other security as collateral for any or all of the
Guaranteed Liabilities or other obligations under any or all of the Transaction
Documents; (e) delay to enforce any right, power, privilege or remedy conferred
upon a Lender under the provisions of any of the Transaction Documents or under
applicable laws; (f) grant consents or indulgences or take action or omit to
take action under, or in respect of, any or all of the Transaction Documents,
and (g) apply any payment received by a Lender of, or on account of, any of the
Guaranteed Liabilities from a Borrower, or from any source other than Guarantor
to the Guaranteed Liabilities in whatever order arid manner the Lenders elect,
and any payment received by a Lender from Guarantor for or on account of this
Agreement may be applied by such Lender to any of the Guaranteed Liabilities in
whatever order and manner such Lender elects.

3. Waiver by Guarantor. Except as may be limited by the provisions of
paragraph 16 of that certain Standby Agreement of even date by and among
Guarantor, Armstrong, BFA, S&P and the Silvernails (the "Standby Agreement"),
Guarantor unconditionally waives, to the extent permitted by applicable laws:
(a) notice of the execution and delivery of the Transaction Documents; (b)
notice of each Lender's acceptance of and reliance on this Agreement or the
making of the Loans to the Borrowers or of the creation of any of the Guaranteed
Liabilities; (c) presentment, demand, dishonor, protest, notice of non-payment,
and notice of dishonor of the Guaranteed Liabilities, the Transaction Documents
and any property or other security serving at any time as collateral under the
Transaction Documents; (d) all notices required by statute, rule of law or
otherwise to preserve any rights against Guarantor under this Agreement or under
any of the Transaction Documents, including, without limitation, any demand,
proof or notice of non-payment of any of the Guaranteed Liabilities by a
Borrower and notice of any failure or default on the part of a Borrower to
perform or comply with any term of any of the Transaction Documents to which
such Borrower is a party; (e) any diligence in collecting the Guaranteed
Liabilities or this Agreement or protecting or realizing upon any security;
(f) any duty or obligation on the part of a Lender to ascertain the validity,
extent. or nature of any security for the Guaranteed Liabilities or any
insurance or other rights respecting such security, or the liability of any
party primarily or secondarily liable for payment of the Guaranteed Liabilities
or liable upon any security, or to take any steps or action to protect,
information respecting, or otherwise follow in any manner, any such security,
insurance or other rights; (g) any duty or obligation on the part of a Lender,
required by statute, rule of law or otherwise, to proceed to collect payment of
the Guaranteed Liabilities from, or to commence an action against, a Borrower or
any other person, or to resort to any security or to any balance of any deposit
account or credit on the books of a Lender in favor of a Borrower or any other
person, despite any notice or request of Guarantor to do so; (h) any rights of
Guarantor pursuant to N.C.G.S. ss. 26-7 or any similar or subsequent law; and
(i) so long as any part of the Guaranteed Liabilities remains outstanding and
for a period of

<PAGE> 4

ninety-one (91) days after the payment in full thereof, any right to subrogation
to a Lender's interest under any Transaction Documents and any right to
subrogation, reimbursement, contribution, exoneration and indemnity against any
property or other security serving at any time as collateral for any or all of
the Guaranteed Liabilities or under any of the Transaction Documents.
Notwithstanding any provision of this Agreement to the contrary. Guarantor
irrevocably and absolutely waives any and all rights of subrogation,
contribution, indemnification, reimbursement, exoneration or any similar rights
against the Borrowers with respect to this Agreement and the payment or
performance by Guarantor of any Guaranteed Liabilities, whether such rights
arise under an express or implied contract or by operation of law, it being the
intention of the parties that Guarantor shall not be deemed to be a creditor of
a Borrower by reason of the existence of this Agreement and the payment or
performance by Guarantor of any Guaranteed Liabilities so long as any part of
the Guaranteed Liabilities remains outstanding and for a period of ninety-one
(91) days after the payment in full thereof. This waiver is given to induce each
Lender to extend credit to the Borrowers under the Transaction Documents.

4. Default. Except as may be limited by the provisions of paragraphs 2
and 3 of the Standby Agreement, the occurrence of any one or more of the.
following events shall constitute an event of default ("Event of Default") under
this Agreement: (a) the failure of Guarantor to pay to a Lender when due and
payable any and all amounts payable by Guarantor to such Lender under the
provisions of this Agreement; (b) the failure of Guarantor to perform or comply
with any of the provisions of this Agreement; (c) the occurrence of an event of
default under any of the Transaction Documents; (d) if Guarantor generally is
unable to pay its debts as they mature; (e) the filing of any petition for
relief under the Bankruptcy Code or any similar Federal or state statute by
Guarantor; (f) if Guarantor is served with any petition for relief under the
Bankruptcy Code or any similar Federal or state statute and such petition is not
dismissed within sixty (60) days after the date on which Guarantor is served
with such a petition; (g) any application for the appointment of a receiver or
custodian for, the making of a general assignment for the benefit of creditors
by, or the insolvency of Guarantor; or (h) the termination of existence,
dissolution or liquidation of Guarantor.

Whenever there is an Event of Default under this Agreement, each Lender
may, at his or its option, declare an amount equal to any or all of the then
unpaid balance of the Guaranteed Liabilities due to him or it to be immediately
due and payable by Guarantor, and Guarantor shall on demand pay such unpaid
balance to the accelerating Lender(s) in immediately available funds in lawful
money of the United States of America.

5. Enforcement Expenses. Guarantor (a) agrees to pay reasonable
attorneys' fees and costs of collection if any of the Guaranteed Liabilities are
referred to an attorney at law for collection or the liability of Guarantor
under this Agreement shall be enforced by an attorney at law, and (b) shall
indemnify and hold harmless each Lender all-against any loss, liability, or
expense, including reasonable attorneys' fees and disbursements and any other
fees and disbursements, that may result from any failure of a Borrower to pay
any of the Guaranteed Liabilities when due and payable or that may, be incurred
by or on behalf of a Lender in enforcing any obligation of a Borrower to pay any
of the Guaranteed Liabilities and any obligations and liabilities of Guarantor
under this Agreement. For purposes of this paragraph, the term

<PAGE> 5

"reasonable attorneys' fees" shall mean reasonable attorneys' fees incurred and
computed on the basis of usual and customary hourly rates and not on the basis
of any percentage of the Guaranteed Liabilities or any common law or statutory
presumption.

6. Delay and Waiver by a Lender. No delay in the exercise of, or
failure to exercise, any right, remedy or power accruing upon any default or
failure of Guarantor in the performance of any obligation under this Agreement
shall impair any such right, remedy or power or shall be construed to be a
waiver by a Lender, but any such right, remedy or power may be exercised from
time to time and as often as may be deemed by a Lender expedient. In order to
entitle the Lenders to exercise any right, remedy or power reserved to them in
this Agreement, it shall not be necessary to give any notice to Guarantor. If
Guarantor should default in the performance of any obligation under this
Agreement, and such default should thereafter be waived by a Lender, such waiver
shall be limited to the waiving Lender and the particular default so waived. No
waiver, amendment, release or modification of this Agreement shall be
established by conduct, custom or course of dealing.

7. Notices and Communications. All notices and other communications
under this Agreement shall be in writing and delivered in person or sent by
certified or registered mail, postage prepaid and properly addressed as follows:

To the Lenders:

Beattie F. Armstrong
1538 Maplewood Drive
Macon, GA 31210

To Guarantor:

Krispy Kreme Doughnut Corporation
370 Knollwood Street, Suite 500
Winston-Salem, NC 27103
Attn: Stephen A. Johnson

Any party may, from to time, change its address for the purpose of notices to
that party by providing a notice as aforesaid specifying the new address for
such a party.

8. Assignment. Each Lender may, without notice to or consent of
Guarantor, sell, assign or transfer to any person or persons ail or any part of
the Guaranteed Liabilities payable to it or him, and each such person or persons
shall have the right to enforce this Agreement as fully as such Lender, provided
that such Lender shall continue to have the unimpaired right to enforce this
Agreement as to so much of the Guaranteed Liabilities that it or he has not
sold, assigned or transferred.

<PAGE> 6

9. Successors and Assigns. All covenants and agreements of Guarantor
set forth in this Agreement shall bind Guarantor and its successors and assigns
and shall inure to the benefit of, and be enforceable by, each Lender and their
respective heirs, personal representatives, successors and assigns, including,
without limitation, any holder of either Note or any or all of the Transaction
Documents.

10. Reinstatement of Guaranteed Liabilities. Notwithstanding
termination of this Agreement, to the extent that a Lender receives any payment
on the Guaranteed Liabilities (whether from a Borrower, Guarantor or otherwise)
or a Lender enforces any security interest or lien or exercises any right of
setoff and such payments, or the proceeds of such enforcement or setoff or any
part thereof, are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable principles, then to the extent of such recovery, the liability or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred and shall be Guaranteed Liabilities under this
Agreement.

11. Miscellaneous. Neither this Agreement nor any term may be amended,
waived, released or modified orally, but only by an instrument in writing,
signed by the party against which the enforcement of the amendment, waiver,
release or modification is sought. Whenever used in this Agreement, the singular
number shall include the plural, the plural the singular, and the use of the
masculine, feminine or neuter gender shall include all genders. Whenever used in
this Agreement, the word "person" or "persons" shall mean and include a
corporation, an association, a partnership, a limited liability company, an
organization, a business, an individual, a government or political subdivision
or agency, or an estate or trust. This Agreement shall in all respects be deemed
to be made in, and governed by, construed and enforced in accordance with the
laws of North Carolina. Each Lender shall have the right: to grant
participations in the Guaranteed Liabilities to others at any time and from time
to time, and either Lender may divulge to any such participant or potential
participant all information, reports, financial statements and documents
obtained in connection with this Agreement, any of the Transaction Documents or
otherwise. If any term of this Agreement or any obligation under this Agreement
shall be held to be invalid, illegal or unenforceable, the remainder of this
Agreement and any other application of such term shall not be affected. The
paragraph and section headings of this Agreement have been inserted for
convenience only and shall not modify, define, limit or expand the express
provisions. This Agreement may be executed in duplicate originals or in several
counterparts, each of which shall be deemed an original but all of which
together shall constitute one instrument, and it shall not be necessary to
produce or account for more than one such duplicate original or counterpart. .
This Agreement, together with the other Transaction Documents, contains the
entire agreement and understanding of the parties. Furthermore, no course of
dealing between the parties, no usage of trade and no parcel or extrinsic
evidence shall be used to supplement or modify any terms of this Agreement; nor
are there any conditions to the complete effectiveness of this Agreement.
Guarantor has adequate means to obtain from each Borrower on a continuing basis
information concerning their financial condition and Guarantor is not relying on
either Lender to provide such information) (including, but not limited to,

<PAGE> 7

information respecting any changes in the business or financial condition of a
Borrower) either now or in the future. No Lender shall have a duty to notify
Guarantor of any such information.

[NEXT PAGE IS SIGNATURE PAGE]

<PAGE> 8

SEPARATE SIGNATURE PAGE TO
GUARANTY OF PAYMENT AGREEMENT BY
KRISPY KREME DOUGHNUT CORPORATION ("Guarantor")
FOR THE BENEFIT OF
BEATTIE F. ARMSTRONG and BEATTIE F. ARMSTRONG, INC. ("Lender")

IN WITNESS WHEREOF, Guarantor has signed, sealed and delivered this Agreement as
of the day and year written above.

GUARANTOR:

KRISPY KREME DOUGHNUT CORPORATION

By: /s/ J. Paul Breitbach
Name: J. Paul Breitbach
Title: Exec. Vice President
ATTEST:
/s/ Stephen A. Johnson
Asst. Secretary

[AFFIX CORPORATE SEAL]

________________________________________________________________________________

NORTH CAROLINA )
)
FORSYTH COUNTY )

I, Jane Bryant, a Notary Public of said Davidson County and State,
certify that Stephen A. Johnson personally came before me this day and
acknowledged that he is the Assistant Secretary of KRISPY KREME DOUGHNUT
CORPORATION, a North Carolina corporation, and that by authority duly given and
as the act of the Corporation, the foregoing instrument was signed in its name
by its President, sealed with its corporate seal and attested by Stephen A.
Johnson as its Assistant Secretary, for and on behalf of such Corporation.

WITNESS my hand and Notarial Seal, or Stamp, this 24th day of
September, 1998.

/s/ Jane R. Bryant
Notary Public

My Commission Expires: October 27, 2001.

NOTARIAL SEAL/STAMP:

<PAGE> 1

EXHIBIT 10.8

COLLATERAL REPURCHASE AGREEMENT

THIS COLLATERAL REPURCHASE AGREEMENT (the "Agreement") is made and
entered into this 31st day of March, 1998 by and among KRISPY KREME DOUGHNUT
CORPORATION, a North Carolina corporation, with its principal office and place
of business at 370 Knollwood Street, Suite 500, Winston-Salem, North Carolina,
27103 ("Krispy Kreme"), MIDWEST DOUGHNUTS, L.L.C., a North Carolina limited
liability company (the "Borrower") and BANK OF BLUE VALLEY (the "Bank").

R E C I T A L S :

1. The Borrower has requested a loan from the Bank to finance
the purchase of certain equipment, signage, furniture and fixtures for
use at the Krispy Kreme Doughnut Shop to be established by Borrower at
8703 West 63rd Street, Merriam, Kansas.

2. The Bank has agreed to lend to Borrower Seven Hundred
Sixty-Five Thousand and 00/100 Dollars ($765,000) secured in part by a
security interest in the Equipment (as defined below) (the "Bank Loan")
as evidenced by the Note (as defined below); and

3. Therefore, the parties desire to enter into this Agreement.

NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto do agree as follows:

1. A copy of the Note is attached hereto as EXHIBIT A and
incorporated herein by reference (the "Note").

2. Bank shall provide Krispy Kreme with a copy of any notice
to Borrower declaring a default under the Note and demanding payment in
full and a copy of any notice to Borrower after which Bank will
exercise its remedies under the Note. Such copies shall be sent to
Krispy Kreme within three (3) business days of the sending of the same
to Borrower.

3. In the event of a default under the Note, as long as Bank
has fully complied with the terms of this Agreement, Bank shall have
the right, but not the obligation, to demand by notice to Krispy Kreme
(the "Notification") that Krispy Kreme repurchase the Equipment at a
price equal to the lesser of (i) Three Hundred Thirty-Five Thousand and
00/100 Dollars ($335,000.00) or (ii) the unpaid balance of the
applicable portion of the Bank Loan (the "Unpaid Balance"). Such lesser
amount is sometimes herein referred to as the "Purchase Price." The
parties acknowledge that the Bank Loan is for Borrower's entire project
for the construction, equipping and fixturing of a Krispy Kreme

<PAGE> 2

Doughnut Shop and includes, but is not limited to, the purchase of the
Equipment. Consequently, the unpaid Bank Loan balance will be prorated
in relationship to the amount of the Loan for the purchase of the
Equipment to determine the Unpaid Balance as such term is used in this
Agreement. For example, purchase price of the Equipment is $335,000 and
the Bank Loan is $765,000, then the Unpaid Balance, for purposes of
this Agreement, shall be equal to 43.7% of the actual unpaid balance of
the Bank Loan at the time of the Notification.

4. The parties acknowledge and agree that any default by
Borrower under the Note or any other documents related to the Bank
Loan, whether or not waived by the Bank, shall, at the option of Krispy
Kreme, constitute a default under the Franchise Agreement, Development
Agreement and any and all other agreements between Borrower and Krispy
Kreme.

5. The liability of Krispy Kreme hereunder shall be subject
to, and conditioned upon, full and complete compliance by Bank with the
following:

(a) Bank shall obtain and perfect a first priority
security interest in the Equipment (the "Security Interest")
and shall continuously maintain such perfected Security
Interest from the moment Borrower acquires any interest in the
Equipment. All filings and indicia of such Security Interest
shall state that they are subject to the terms of this
Agreement.

(b) Bank shall notify Krispy Kreme of each advance
under the Bank Loan for any purchase of Equipment not from
Krispy Kreme within thirty (30) days after such advance is
made and Krispy Kreme's obligations to Bank hereunder shall be
reduced by the amount of any advances for which Krispy Kreme
does not receive such notice.

(c) The Security Interest shall be perfected separate
and apart from any other security interest of Bank in and to
any and all other property of Borrower.

(d) Any transfer of the Security Interest or any
interest therein to any other party shall provide that it is
subject to the terms of this Agreement and the transferee
thereof shall enter into an agreement with Krispy Kreme
agreeing to abide by the terms hereof.

(e) Bank shall not release the Security Interest in
the Equipment nor shall Bank take any action, or fail to take
any action, which action or failure to act will compromise or
diminish the Security Interest in any way. Provided, however,
Bank may release the Security Interest in portions of the
Equipment if Bank, at Bank's election, either (i) releases
Krispy Kreme from liability under this Agreement or (ii)
determines that Borrower reasonably desires to replace the
Equipment with new or different equipment (the "New
Equipment") of value and function comparable to that in which
the Security Interest is to be released and

<PAGE> 3

ensures that the New Equipment is obtained by Borrower prior
to such release and that the Security Interest applies to such
New Equipment as a first priority Security Interest. Upon such
replacement, the New Equipment shall be deemed to be
"Equipment" under this Agreement. Bank shall provide notice to
Krispy Kreme of any such release and shall provide Krispy
Kreme with a list of the New Equipment and evidence that the
Security Interest applies thereto.

6. Upon election by Bank to require repurchase of the
Equipment by Krispy Kreme hereunder, Bank shall assign and transfer the
Security Interest together with an interest in the Note equal to the
Purchase Price to Krispy Kreme or such entity as Krispy Kreme may
designate in writing. Borrower shall transfer all of its right, title
and interest in the Equipment to Krispy Kreme at the same time. The
Security Interest is agreed by the parties to also secure all of
Borrower's obligations under this Agreement and Borrower hereby grants
to Bank and to Krispy Kreme a security interest (which is agreed to be
a part of the Security Interest) in the Equipment to secure Borrower's
obligations under this Agreement. In no event shall the Security
Interest be permitted to merge with ownership of the Equipment.

7. Except as permitted under subparagraph 5(e) hereof,
Borrower shall not sell or transfer, and bank shall not consent to the
sale or transfer, whether by gift or with or without consideration, of
all or any part of the Equipment. Bank shall not sell or transfer the
Equipment or any portion thereof through exercise of its rights under
the Bank Loan and any documents executed in connection therewith, or
otherwise, without first giving Krispy Kreme the option to purchase the
Equipment in an amount equal to the Purchase Price. bank shall provide
notice to Krispy Kreme of its proposed transfer and thirty (30) days in
which to exercise its right to purchase said Equipment. At the time
Krispy Kreme purchases the Equipment, Bank shall also transfer the
Security Interest as provided under Paragraph 6 above. In no event
shall the Security Interest be permitted to merge with ownership of the
Equipment.

8. As used herein, the term Equipment shall mean all
furniture, fixtures, equipment, doughnut making equipment and signage
purchased by Borrower and reasonably necessary for the operation of a
Krispy Kreme Doughnut Shop to be located at 8703 West 63rd Street,
Merriam, Kansas, and as to which the Security Interest is effective.
Krispy Kreme must approve the purchase of each item of Equipment.

9. Borrower consents and agrees to the terms of this Agreement
and agrees to transfer the Equipment to Krispy Kreme immediately and at
the same time as Krispy Kreme makes a payment of the Purchase Price to
Bank or at the time Krispy Kreme elects to purchase the Equipment under
Paragraph 7 hereof or as otherwise provided herein. Any such transfer
shall be free and clear of all liens, claims or interests other than
the Security Interest. In no event shall the Security Interest be
permitted to merge with ownership of the Equipment.

<PAGE> 4

10. A partial list of the Equipment is attached as EXHIBIT B
hereto and incorporated herein by reference. The parties agree to amend
such list as each item of Equipment is purchased, upon the completion
of the purchase of the Equipment, and again upon the purchase of any
New Equipment. No New Equipment shall be considered a part of the
Equipment until added to this EXHIBIT B.

11. All notices required or desired to be sent hereunder shall
be sent by certified mail, return receipt requested, postage prepaid,
or by a recognized overnight courier such as Airborne Express, FedEx,
etc. and shall be effective on receipt. Any party may change the
address for notices to it by notice sent in accordance herewith.
Notices shall be sent the parties hereto at their respective addresses
set forth below (or at such address may be changed as permitted
herein):

IF TO KRISPY KREME: Krispy Kreme Doughnut Corporation
By Mail: P.O. Box 83
Winston-Salem, NC 27102-0083
Attention: Stephen A. Johnson
By Overnight: 370 Knollwood Street
Suite 500
Winston-Salem, NC 27103
Attention: Stephen A. Johnson

IF TO BORROWER: MIDWEST DOUGHNUTS, L.L.C.
620 Staffordshire Road
Winston-Salem, NC 27104
Attention: Philip R.S. Waugh, Jr.

IF TO BANK: Bank of Blue Valley
By Mail: P.O. Box 26128
Overland Park, KS 66225
Attention: Lanny Drummond
By Overnight: 11935 Riley
Overland Park, KS 66225
Attention: Lanny Drummond

12. No failure of Bank to provide Krispy Kreme with a copy of
any notice sent to Borrower shall relieve Krispy Kreme of its liability
hereunder.

13. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and to the successors and assigns of
Bank and Krispy Kreme. Borrower shall not have any right to assign this
Agreement or any interest herein without the prior written consent of
Bank and Krispy Kreme. Bank and Krispy Kreme shall each provide the
other with a copy of any assignment of this Agreement. Any such
assignment by Bank may be whole or partial, shall only be to a holder
of an interest in the Note, and shall contain an agreement by the
assignee to abide by the terms hereof. No assignment

<PAGE> 5

hereof by Krispy Kreme shall relieve it of its obligations hereunder
without Bank's consent to such release.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the day and year first above written.

KRISPY KREME DOUGHNUT CORPORATION

By: /s/ Scott A. Livengood
Printed Name: Scott A. Livengood
Printed Title: President

BORROWER:

MIDWEST DOUGHNUTS, L.L.C.

By: /s/ Jimmy B. Strickland
Jimmy B. Strickland,
Managing Member

BANK:

BANK OF BLUE VALLEY

By: /s/ Lanny Drummond
Printed Name: Lanny Drummond
Printed Title: Vice President

<PAGE> 1
EXHIBIT 10.9

GUARANTY BY CORPORATION

________________________________, _______________
(City) (State)
December 31, 1998
_________________________________________________

For good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, and to induce Bank of Blue Valley (herein, with
its participants, successors and assigns, called "Lender"), at its option, at
any time or from time to time to make loans or extend other accommodations to or
for the account of Midwest Doughnuts, L.L.C. the ______ evidenced by the Note
comprising the Indebtedness (herein called "Borrower") or to engage in any other
transactions with Borrower, the Undersigned hereby absolutely and
unconditionally guarantees to the Lender the full and prompt payment when due,
whether at maturity or earlier by reason of acceleration or otherwise, of the
debts, liabilities and obligations described as follows:

A. If this [X] is checked, the Undersigned guarantees to Lender
the payment and performance of the debt, liability or
obligation of Borrower to Lender evidenced by or arising out
of the following: promissory note dated December 31, 1998 in
the amount of $765,000 and any extensions, renewals or
replacements thereof (hereinafter referred to as the
"Indebtedness").

B. If this [ ] is checked, the Undersigned guarantees to Lender
the payment and performance of each and every debt, liability
and obligation of every type and description which Borrower
may now or at any time hereafter owe to Lender (whether such
debt, liability or obligation now exists or is hereafter
created or incurred, and whether it is or may be direct or
indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or joint,
several, or joint and several; all such debts, liabilities and
obligations being hereinafter collectively referred to as the
"Indebtedness"). Without limitation, this guaranty includes
the following described debt(s):______________________________

The term, "Indebtedness" as used in this guaranty shall not include any
obligations entered into between Borrower and Lender after the date hereof
(including any extensions, renewals, or replacements of such obligations).

The Undersigned further acknowledges and agrees with Lender that:

1. No act or thing need occur to establish the liability of the
Undersigned hereunder, and no act or thing, except full payment and discharge of
all Indebtedness, shall in any way exonerate the Undersigned or modify, reduce,
limit or release the liability of the Undersigned hereunder.

2. This is an absolute, unconditional and continuing guaranty of
payment of the Indebtedness and shall continue to be in force and be binding
upon the Undersigned, whether or not all Indebtedness is paid in full, until
this guaranty is revoked by written notice actually received by the Lender, and
such revocation shall not be effective as to Indebtedness existing or committed
for at the time of actual receipt of such notice by the Lender, or as to any
renewals, extensions and refinancings thereof.

The Undersigned represents and warrants to the Lender that the
Undersigned has a direct and substantial economic interest in Borrower and
expects to derive substantial benefits therefrom and from any loans and
financial accommodations resulting in the creation of Indebtedness guaranteed
hereby, and that this guaranty is given for a corporate purpose. The Undersigned
agrees to rely exclusively on the right to revoke this guaranty prospectively as
to future transactions, by written notice actually received by Lender if at any
time, in the opinion of the directors or officers of the Undersigned, the
corporate benefits then being received by the Undersigned in connection with
this guaranty are not sufficient to warrant the continuance of this guaranty as
to future Indebtedness. Accordingly, so long as this guaranty is not revoked
prospectively in accordance with this guaranty, the Lender may rely conclusively
on a continuing warranty, hereby made, that the Undersigned continues to be
benefited by this guaranty and the Lender shall have no duty to inquire into or
confirm the receipt of any such benefits, and this guaranty shall be effective
and enforceable by the Lender without regard to the receipt, nature or value of
any such benefits.

3. If the Undersigned shall be dissolved or shall be or become
insolvent (however defined) or revoke this guaranty, then the Lender shall have
the right to declare immediately due and payable, and the Undersigned will
forthwith pay to the Lender, the full amount of all Indebtedness, whether due
and payable or unmatured. If the Undersigned voluntarily commences or there is
commenced involuntarily against the Undersigned a case under the United States
Bankruptcy Code, the full amount of all Indebtedness, whether due and payable or
unmatured, shall be immediately due and payable without demand or notice
thereof.

4. The liability of the Undersigned hereunder shall be limited to a
principal amount of $205,000.00 of the Indebtedness (inclusive of attorney's
fees, collection of costs and enforcement expenses) (if unlimited or if no
amount is stated, the Undersigned shall be liable for all Indebtedness, without
any limitation as to amount), plus accrued interest thereon. Indebtedness may be
created and continued in any amount, whether or not in excess of such principal
amount, without affecting or impairing the liability of the Undersigned
hereunder. The Lender may apply any sums received by or available to the Lender
on account of the Indebtedness from Borrower or any other person (except the
Undersigned), from their properties, out of any collateral security or from any
other source to payment of the excess. Such application of receipts shall not
reduce, affect or impair the liability of the Undersigned hereunder. If the
liability of the Undersigned is limited to a stated amount pursuant to this
paragraph 4, any payment made by the Undersigned under this guaranty shall be
effective to reduce or discharge such liability only if accompanied by a written
transmittal document, received by the Lender, advising the Lender that such
payment is made under this guaranty for such purpose.

5. The Undersigned will pay or reimburse the Lender for all costs and
expenses (including reasonable attorneys' fees and legal expenses) incurred by
the Lender in connection with the protection, defense or enforcement of this
guaranty in any litigation or bankruptcy or insolvency proceedings. This
guaranty includes the additional provisions on page 2 hereof, all of which are
made a part hereof.

This guaranty is [X] unsecured; [ ] secured by a mortgage or security
agreement dated ______________________;
[ ] secured by ________________________________________________________________.

IN WITNESS WHEREOF, this guaranty has been duly executed by the Undersigned the
day and year first above written. By acceptance of this guaranty, and
notwithstanding anything contained herein to the contrary, Lender agrees that it
shall not amend, extend, renew, or replace the Indebtedness in any manner which
extends the final payment date thereof, increases the interest rate thereunder
or increases the amount of the regularly scheduled payments thereunder, or
permits the delay of any regularly scheduled payment due thereunder for more
than sixty (60) days, without the prior written consent of the Undersigned. Any
such amendment, renewal or replacement made without the prior written consent
of the Undersigned shall not be binding on the Undersigned. The Undersigned
agrees that variations in the interest rate in accordance with the variable rate
feature of the above referenced Note shall not he in violation of the foregoing.

____________________________________
Krispy Kreme Doughnut Corporation

__________________________________(Title)

_________________________________________
"Undersigned" shall refer to all entities
who sign this guaranty, individually and
jointly.

<PAGE> 2

ADDITIONAL PROVISIONS

6. Whether or not any existing relationship between the Undersigned and
Borrower has been changed, or,. ended and whether or not this guaranty has been
revoked, the Lender may, but shall not be obligated to, enter Into transactions
resulting in the creation or continuance of Indebtedness, without any consent or
approval by the Undersigned and without any notice to the Undersigned. The
liability of the Undersigned shall not be affected or impaired by any of the
following acts or things (which the Lender Is expressly authorized to do, omit
or suffer from time to time, both before and after revocation of this guaranty,
without notice to or approval by the Undersigned): (I) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all Indebtedness; (ii) any one or more extensions or renewals of Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities or other contractual terms applicable to any
Indebtedness; (iii) any waiver adjustment, forbearance, compromise or Indulgence
granted to Borrower, any delay or lack of diligence in the enforcement of
Indebtedness, or any failure to Institute proceedings, file a claim, give any
required notices or otherwise protect any Indebtedness; (iv) any full or partial
release of, settlement with, or agreement not to sue, Borrower or any other
guarantor or other person liable in respect of any Indebtedness; (v) any
discharge of any evidence of Indebtedness or the acceptance of any Instrument in
renewal thereof or substitution therefor; (vi) any failure to obtain collateral
security (including rights of setoff) for Indebtedness, or to see to the proper
or sufficient creation and perfection thereof, or to establish the priority
thereof, or to protect, Insure, or enforce any collateral security; or any
release, modification, substitution, discharge, impairment, deterioration,
waste, or loss of any collateral security; (vii) any foreclosure or enforcement
of any collateral security; (viii) any transfer of any Indebtedness or any
evidence thereof; (ix) any order of application of any payments or credits upon
Indebtedness; (x) any election by the Lender under ss. 1111(b)(2) of the United
States Bankruptcy Code.

7. The Undersigned waives any and all defenses, claims and discharges
of Borrower or any other obligor, pertaining to Indebtedness, except the defense
of discharge by payment in full. Without limiting the generality of the
foregoing, the Undersigned will not assert, plead or enforce against the Lender
any defense of waiver, release, estoppel, statute of limitations, res judicata,
statute of frauds, fraud, forgery, incapacity, minority, usury, illegality or
unenforceability which may be available to Borrower or any other person liable
in respect of any Indebtedness, or any setoff available against the Lender to
Borrower or any such other person, whether or not on account of a rated
transaction. The Undersigned expressly agrees that the Undersigned shall be and
remain liable, to the fullest extent permitted by applicable law, for any
deficiency remaining after foreclosure of any mortgage or security interest
securing Indebtedness, whether or not the liability of Borrower or any other
obligor for such deficiency is discharged pursuant to statute or judicial
decision. The undersigned shall remain obligated, to the fullest extent
permitted by law, to pay such amounts as though Borrower's obligations had not
been discharged.

8. The Undersigned further agree(s) that the Undersigned shall be and
remain obligated to pay Indebtedness even though any other person obligated to
pay Indebtedness, Including Borrower, has such obligation discharged in
bankruptcy or otherwise discharged by law. 'Indebtedness' shall Include
post-bankruptcy petition Interest and attorneys' fees and any other amounts
which Borrower is discharged from paying or which do not accrue to Indebtedness
due to Borrower's discharge, and Undersigned shall remain obligated to pay such
amounts as fully as if Borrower's obligations had not been discharged.

9. If any payment applied by the Lender to Indebtedness Is thereafter
set aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, Insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued in
existence, notwithstanding such application, and this guaranty shall be
enforceable as to such Indebtedness as fully as if such application had never
been made.

10. Until payment of the above-referenced Note is made in full, the
Undersigned will subordinate to any claim of Lender against Borrower any claim,
remedy or other right which the Undersigned may now have or hereafter acquire
against Borrower or any other person obligated to pay Indebtedness arising out
of the creation or performance of the Undersigned's obligation under this
guaranty, Including, without limitation, any right of subrogation, contribution,
reimbursement, indemnification, exoneration or any right to participate in any
claim or remedy the Undersigned may have against the Borrower, collateral, or
other party obligated for Borrower's debt, whether or not such claim, remedy, or
right arises In equity, or under contract, statute or common law.

11. The Undersigned waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest any instrument evidencing Indebtedness. The
Lender shall not be required first to resort for payment of the indebtedness to
Borrower or other persons or their properties, or first to enforce, realize upon
or exhaust any collateral security for Indebtedness, before enforcing this
guaranty.

12. The liability of the Undersigned under this guaranty Is In addition
to and shall be cumulative with all other liabilities of the Undersigned to the
Lender as guarantor or otherwise, without any limitation as to amount, unless
the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.

13. The Undersigned represents and warrants to the Lender that (i) the
Undersigned Is a corporation duly organized and existing In good standing and
has full power and authority to make and deliver this guaranty; (ii) the
execution, delivery and performance of this guaranty by the Undersigned have
been duly authorized by all necessary action of Its directors and shareholders
and do not and will not violate the provisions of, or constitute a default
under, any presently applicable law or its articles of Incorporation or by-laws
or any agreement presently binding on It; (iii) this guaranty has been duly
executed and delivered by the authorized officers of the Undersigned and
constitutes its lawful, binding and legally enforceable obligation (subject to
the United States Bankruptcy Code and other similar laws generally affecting the
enforcement of creditors' rights); and (iv) the authorization, execution,
delivery and performance of this guaranty do not require notification to,
registration with, or consent or approval by, any federal, state or local
regulatory body or administrative agency.

14. This guaranty shall be effective upon delivery to the Lender,
without further act, condition or acceptance by the Lender, shall be binding
upon the Undersigned and the successors and assigns of the Undersigned and shall
inure to the benefit of the Lender and its participants, successors and assigns.
Any invalidity or unenforceability of any provision or application of this
guaranty shall not affect other lawful provisions and application hereof, and to
this and the provisions of this guaranty are declared to be severable. Except as
allowed by the terms herein, this guaranty may not be waived, modified, amended,
terminated, released or otherwise changed except by a writing signed by the
Undersigned and the Lender. This guaranty shall be governed by the laws of the
State in which it is executed. The Undersigned waives notice of the Lender's
acceptance hereof.

<PAGE> 1

EXHIBIT 10.12

COLLATERAL REPURCHASE AGREEMENT

THIS COLLATERAL REPURCHASE AGREEMENT, made as of the 2nd day of
January, 1998, by and among BONNIE SILVEY VANDEGRIFT, a resident of Transylvania
County, North Carolina, and BREVARD TENNIS AND ATHLETIC CLUB, INCORPORATED, a
North Carolina corporation (collectively, the "Borrower"); KRISPY KREME DOUGHNUT
CORPORATION, a North Carolina corporation (the "Company"); and BRANCH BANKING
AND TRUST COMPANY, a national banking institution ("BB&T").

R E C I T A L S :

A. BB&T has on this date extended credit to the Borrower in the
aggregate principal sum of Three Hundred Twenty-Six Thousand and no/100 Dollars
($326,000.00) (the "Indebtedness"), evidenced by a Promissory Note of even date
herewith executed and delivered by the Borrower to BB&T.

B. The Indebtedness is secured, in part, by a pledge by Bonnie Silvey
Vandegrift ("Pledgor") of all of the common voting stock of the Company owned by
Pledgor (the "Pledged Stock"), pursuant to a pledge agreement of even date
herewith executed by and between Pledgor and BB&T (the "Pledge Agreement,"); the
Pledge Agreement, and all other documents, instruments and agreements executed
to evidence, create or secure the Indebtedness are herein called the "Loan
Documents").

C. The Pledged Stock is subject to a stock purchase agreement dated
July 1, 1984 executed by and among the Company and its shareholders (as it may
be amended) (the "Stock Purchase Agreement"), which Stock Purchase Agreement has
been consented and agreed to by Pledgor.

D. In order to induce BB&T to make the loans giving rise to the
Indebtedness, the Company has agreed to purchase all or part of the Pledged
Stock in the event of a default under the Note or any of the Loan Documents in
accordance with the terms of this Agreement.

E. BB&T has required the execution and delivery of this Agreement by
the parties hereto as a condition to making the loans comprising the
Indebtedness.

NOW, THEREFORE, in consideration of the premises and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:

<PAGE> 2

following terms. The notice shall specify whether the purchase is to be made (a)
from the Pledgor prior to the commencement of proceedings by BB&T to exercise
its rights and remedies as a secured party against the Pledged Stock, or (b) at
a private sale ("Private Sale") conducted pursuant to the terms of the Pledged
Agreement and applicable law. For purposes of determining the time as of which
such purchase price is to be determined, the Pledgor and BB&T agree that such
notice shall constitute written notice of a proposed transfer, disposition or
sale of its Pledged Stock under paragraph 2(a) of the Stock Purchase Agreement.
At the Closing (as defined in Paragraph 3 hereof), the Company shall pay to BB&T
and not to the Borrower or Pledgor, in United States dollars and in immediately
available funds, a purchase price determined in accordance with the Stock
Purchase Agreement. If the purchase price of the Pledged Stock is greater than
the then outstanding Indebtedness (including accrued but unpaid interest and all
other sums owed by Borrower to BB&T pursuant to the terms of the Note and the
Loan Documents), then the Company shall be required to purchase hereunder only
so much of the Pledged Stock as is necessary to pay in full the Indebtedness. In
consideration of the purchase price received by BB&T, the Pledgor shall transfer
title to the Pledged Stock (or so much therefor as shall be purchased) to the
Company or in the event the sale is at a Private Sale, BB&T shall deliver to
Company the certificates evidencing the Pledged Stock (or so much thereof as
shall be purchased) together with stock powers executed in blank by the Pledgor.
In either case, BB&T shall release its security interest in the Pledged Stock
purchased by the Company upon receipt of the purchase price. The Borrower and
the Company hereby acknowledge that the Pledged Stock is subject to the terms
and provisions of the Stock Purchase. Agreement which provides, in part, an
option to purchase the Pledged Stock in favor of the Company and each of its
shareholders in the event Pledgor desires to transfer, sell or dispose of all or
any portion of the Pledged Stock. Accordingly, and given the difficulty of
obtaining a reasonable price for the Pledged Stock at a public sale or auction
and the difficulty of selling the Pledged Stock at a public sale or auction in
compliance with the Stock Purchase Agreement and applicable federal and state
securities laws, the Company, the Pledgor and the Borrower specifically agree
that a Private Sale at which the Company shall purchase any or all of the
Pledged Stock pursuant to the terms of this Agreement shall have been conducted
in a commercially reasonable manner, and, to the extent permitted by applicable
law, the Company, the Pledgor and the Borrower hereby waive any claim or defense
to any such sale arising under Section 9504(3) of the Uniform Commercial Code as
in effect in the applicable jurisdiction.

2. Other Purchasers. In the event of a default under any of the Loan
Documents, BB&T agrees not to purchase all or any part of the Pledged Stock or
allow any other person (other than the Company) to do so, without the prior
written consent of the Company, unless the Company shall, within thirty (30)
days after BB&T's request for performance hereunder, fail, refuse or be unable
to perform its obligations hereunder.

3. The Closing. If purchase of the Pledged Stock is to be made from the
Pledgor, or the Borrower, as the case may be, the Closing shall take place at a
time and place selected by BB&T within fifteen (15) days after the date of
BB&T's notice to the Company and the Borrower requiring that the Company
purchase the Pledged Stock. If purchase of the Pledged Stock is to take place
pursuant to a Private Sale, Closing shall take place at a time and in the manner
as provided for by applicable law or in the Pledge Agreement, as the case may
be, or as

<PAGE> 3

may be provided for in any notice given by BB&T pursuant thereto for the Private
Sale provided, however, that the Closing and delivery of the Pledged Stock
purchased by the Company shall occur at the principal office of BB&T in
Winston-Salem, North Carolina, at no expense to BB&T.

4. Surplus. If all proceeds ever received by BB&T, either before or
after the Closing, from any sale or other disposition of any collateral, or
part therefor, for the Indebtedness, or the exercise of any other remedy
pursuant to the Note or any of the Loan Documents, together with the aggregate
purchase price actually received by BB&T for the Pledged Stock to be purchased
pursuant to this Agreement, shall exceed the aggregate amount of the
Indebtedness, interest thereon, the costs and expenses incurred or other sums
thereunder owed by the Borrower to BB&T pursuant to any of the Note or the Loan
Documents, and the costs and expenses incurred in the enforcement of the
Borrower's obligations under this Agreement, including reasonable attorneys'
fees, the amount of such excess shall be remitted to or for the account of the
Borrower, subject however, to the rights and claims of others having a prior
interest in or a lien upon any such proceeds.

5. Assignment by Borrower. Borrower hereby assigns all of its right,
title and interest in and to this Agreement to BB&T as collateral security for
the Indebtedness and agrees to execute and deliver Uniform Commercial Code
Financing Statements with respect thereto as BB&T may request.

6. Continuing Obligations. The obligations of the Company under this
Agreement shall be continuing, and the Company agrees that its obligations
hereunder shall not be modified, diminished, extinguished or released by reason
that the whole or any part of any security or collateral for the Indebtedness
now or hereafter held may be exchanged, compromised, impaired, released, or
surrendered from time to time, that the time or place of payment of any
Indebtedness or of any security therefor may be exchanged or extended, in whole
or in part, to a time certain or otherwise, and may be renewed or accelerated,
in whole or in part, that the Borrower may be granted indulgences generally,
that any of the provisions of any note or other instrument evidencing any debt
of the Borrower or any security therefor, including, without limitation, the
Note and the Loan Documents, may be modified or waived, or that any party liable
for the payment thereof (including but not limited to any guarantor, surety or
endorser) may be granted indulgences or released, all of which are hereby
expressly consented to by the Company, provided, however, that the original
principal amount of the Note may not be increased nor may additional amounts be
advanced or readvanced under the Note. Neither the death, disability,
bankruptcy, or insolvency of any one or more of the Borrower or any guarantor,
surety or endorser shall affect the continuing obligation of the Company. No
claim need be asserted against the personal representative, guardian,
custodian, trustee, debtor in bankruptcy, or receiver of any deceased,
incompetent, bankrupt or insolvent borrower, guarantor, surety or endorser. Any
deposit balance to the credit of the Borrower or any other party liable for the
payment of the Indebtedness or liable upon any security therefor may be
released, in whole or in part, at, before and/or after the stated, extended or
accelerated maturity of any Indebtedness. All of the foregoing may be done
without notice to or further assent by the Company, which shall remain bound
hereon notwithstanding any such exchange, compromise, surrender, extension,
renewal, acceleration, modification,

<PAGE> 4

indulgence or release. The Company expressly waives notice of acceptance of this
Agreement and of all extensions of credit to the Borrower, presentment and
demand for payment of the Indebtedness, protest and any notice of dishonor or of
default to the Company or to any other party with respect to any of the
Indebtedness or with respect to any security or collateral therefor and all
other notices to which the Company might otherwise be entitled. The obligations
of the Company under this Agreement shall be direct and immediate and not
conditional or contingent upon either the pursuit of any remedies against the
Borrower or any other person or foreclosure of any security interest or liens
available to BB&T, its successors, endorsees or assigns, the Company hereby
waiving any rights to require that any action be brought against the Borrower or
any other person or to require that resort be had to any security or to any
balance of any deposit account or credit on the books of BB&T in favor of the
Borrower or any other person, and the Company hereby waiving any rights of the
Company pursuant to North Carolina General Statutes Section 26-7 or any similar
or subsequent law. If the Indebtedness is partially paid through the election of
BB&T, its successors, endorsees or assigns, to pursue any of the remedies
mentioned herein, in the Note, or in the Loan Document or if such Indebtedness
is otherwise partially paid, the Company shall nevertheless remain fully liable
and obligated under and pursuant to the terms of this Agreement. The Borrower
and BB&T agree to provide the Company with copies of all Loan Documents and
modifications thereof.

7. No Credit; Waiver of Defenses. The Company shall not be entitled to
provide for the payment of the purchase price either for the Pledged Stock (or
any part thereof) by the issuance of credit or credits to or for the account of
the Borrower, the Pledgor or either of them. Nor shall any portion of any
purchase price for the Pledged Stock be subject to offset, reduction or
diminution by reason of any disputed or undisputed claim, suit or demand which
the Company may have against the Borrower, the Pledgor or either of them, or by
reason of any disputed or undisputed unpaid accounts or liabilities of or
amounts otherwise owed by the Borrower, the Pledgor or either of them to the
Company. Nothing herein shall prohibit the Company from purchasing the Pledged
Stock over and above the amounts necessary to satisfy the Borrower's obligations
to BB&T and applying the proceeds thereof to any obligation of the Borrower to
the Company.

8. Notification of Stock Purchase Agreement. Nothing herein shall
prevent or restrict the Company and the Pledgor from amending or terminating the
Stock Purchase Agreement (and the Company and Pledgor shall have the right to
amend and/or terminate the Stock Purchase Agreement) provided that, in the event
of the termination or modification of the Stock Purchase Agreement, the Company
and the Pledgor shall remain obligated to comply with Paragraph 1 above as if
the Stock Purchase Agreement remained in force (unmodified) as it is as of the
date hereof.

9. Choice of Law. The parties hereby acknowledge and agree that this
Agreement shall be governed by and construed in accordance with the laws of the
State of North Carolina.

<PAGE> 5

Pledgor shall be released, waived or modified by BB&T or any officer or agent of
BB&T except by a writing signed by a duly authorized officer of BB&T and bearing
the seal of BB&T. This Agreement shall be irrevocable by the Company, the
Borrower and the Pledgor until the Indebtedness has been completely repaid and
all other obligations and undertakings of the Borrower under, or by reason of,
or pursuant to the Note or any of the Loan Documents have been completely
performed and satisfied.

11. Notices. Any and all notices or demands permitted or required to be
made under this Agreement shall be in writing, signed by the party giving such
notice or demand, and shall be delivered personally or by a nationally
recognized courier service or sent by registered or certified United States
mail, postage prepaid, to the other party(ies) at the addressees) set forth
below, or at such other address as may have been designated in writing. The
effective date of such notice or demand shall be date of personal service or the
date on which the notice or demand is deposited in the mails.

The address of the Borrower is: Bonnie Silvey Vandegrift
5 Robin Circle
Brevard, NC 28712

Brevard Tennis and Athletic Club, Inc.
P.O. Box 1520
Brevard, NC 28712

The address of the Company is: Krispy Kreme Doughnut Corporation
370 Knollwood Street, Suite 500
Winston-Salem, NC 27103
Attn: Stephen A. Johnson

The address of BB&T is: Branch Banking and Trust Company
Post Office Box 15008
Winston-Salem, NC 27113
Attn: Adam D. Jackson

12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but taken together shall
constitute but one Agreement.

13. Benefit. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective legal representatives,
heirs, successors and assigns.

14. Termination of Existing Collateral Repurchase Agreements. This
Agreement shall replace previously executed Collateral Repurchase Agreements
dated May 25, 1994 and September 28, 1995, which are hereby terminated.

<PAGE> 6

IN WITNESS WHEREOF, the parties have either hereunto set his hand and
seal or caused this Agreement to be executed as of the day and year first above
written.

/s/ Bonnie Silvey Vandergrift (SEAL)

BREVARD TENNIS AND ATHLETIC
CLUB, INC.

By: /s/ Bonnie Silvey Vandergrift
President

ATTEST:
/s/ Michael A. Vandergrift
Secretary

(CORPORATE SEAL)

KRISPY KREME DOUGHNUT
CORPORATION

By: Randy S. Casstevens
Title: VP-Finance

ATTEST:
/s/ Stephen A. Johnson
Assistant Secretary

(CORPORATE SEAL)

BRANCH BANKING AND TRUST
COMPANY

By: /s/ Adam D. Jackson
Banking Officer

<PAGE> 1

EXHIBIT 10.13

COLLATERAL REPURCHASE AGREEMENT

THIS COLLATERAL REPURCHASE AGREEMENT (the "Agreement") is made and
entered into this 15th day of October, 1997 by and among KRISPY KREME DOUGHNUT
CORPORATION, a North Carolina corporation, with its principal office and place
of business at 370 Knollwood Street, Suite 500, Winston-Salem, North Carolina,
27103 ("Krispy Kreme"), MIDWEST DOUGHNUTS, L.L.C., a North Carolina limited
liability company (the "Borrower") and BANK OF BLUE VALLEY (the "Bank").

R E C I T A L S :

3. Therefore, the parties desire to enter into this Agreement.

NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto do agree as follows:

1. A copy of the Note is attached hereto as EXHIBIT A and
incorporated herein by reference (the "Note").

3. In the event of a default under the Note, as long as Bank
has fully complied with the terms of this Agreement, Bank shall have
the right, but not the obligation, to demand by notice to Krispy Kreme
(the "Notification") that Krispy Kreme repurchase the Equipment at a
price equal to the lesser of (i) Two Hundred Five Thousand and 00/100
Dollars ($205,000.00) or (ii) the unpaid balance of the applicable
portion of the Bank Loan (the "Unpaid Balance"). Such lesser amount is
sometimes herein referred to as the "Purchase Price." The parties
acknowledge that the Bank Loan is for Borrower's entire project for the
construction, equipping and fixturing of a Krispy Kreme Doughnut

<PAGE> 2

Shop and includes, but is not limited to, the purchase of the
Equipment. Consequently, the unpaid Bank Loan balance will be prorated
in relationship to the amount of the Loan for the purchase of the
Equipment to determine the Unpaid Balance as such term is used in this
Agreement. For example, purchase price of the Equipment is $205,000 and
the Bank Loan is $765,000, then the Unpaid Balance, for purposes of
this Agreement, shall be equal to 26.8% of the actual unpaid balance of
the Bank Loan at the time of the Notification.

5. The liability of Krispy Kreme hereunder shall be subject
to, and conditioned upon, full and complete compliance by Bank with the
following:

(c) The Security Interest shall be perfected separate
and apart from any other security interest of Bank in and to
any and all other property of Borrower.

<PAGE> 3

8. As used herein, the term Equipment shall mean all
furniture, fixtures, equipment, doughnut making equipment and signage
purchased by Borrower and reasonably necessary for the operation of a
Krispy Kreme Doughnut Shop to be located at Indian Creek Shopping
Center, Overland Park, Kansas, and as to which the Security Interest is
effective. Krispy Kreme must approve the purchase of each item of
Equipment.

<PAGE> 4

IF TO BORROWER: MIDWEST DOUGHNUTS, L.L.C.
620 Staffordshire Road
Winston-Salem, NC 27104
Attention: Philip R.S. Waugh, Jr.

IF TO BANK: Bank of Blue Valley
By Mail: P.O. Box 26128
Overland Park, KS 66225
Attention: Lanny Drummond
By Overnight: 11935 Riley
Overland Park, KS 66225
Attention: Lanny Drummond

12. No failure of Bank to provide Krispy Kreme with a copy of
any notice sent to Borrower shall relieve Krispy Kreme of its liability
hereunder.

<PAGE> 5

hereof by Krispy Kreme shall relieve it of its obligations hereunder
without Bank's consent to such release.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the day and year first above written.

KRISPY KREME DOUGHNUT CORPORATION

By: /s/ Scott A. Livengood
Printed Name: Scott A. Livengood
Printed Title: President

BORROWER:

MIDWEST DOUGHNUTS, L.L.C.

By: /s/ Jimmy B. Strickland
Jimmy B. Strickland, Managing Member

BANK:

BANK OF BLUE VALLEY

By: /s/ Lanny Drummond
Printed Name: Lanny Drummond
Printed Title: Vice President

<PAGE> 1

EXHIBIT 10.15

COLLATERAL REPURCHASE AGREEMENT

THIS COLLATERAL REPURCHASE AGREEMENT, made as of the 22nd day of
October, 1996, by and among ROBERT L. McCOY, a resident of Tampa, Florida; Gulf
Florida Doughnut Corp d/b/a Krispy Kreme Doughnut Co. (collectively, the
"Borrower"); KRISPY KREME DOUGHNUT CORPORATION, a North Carolina corporation
(the "Company"); and BRANCH BANKING AND TRUST COMPANY, a national banking
institution ("BB&T").

R E C I T A L S :

A. BB&T has on this date extended credit to the Borrower in the
aggregate principal sum of One Hundred Eighty Thousand and no/100 Dollars
($180,000.00) (the "Indebtedness"), evidenced by a Promissory Note of even date
herewith executed and delivered by the Borrower to BB&T.

B. The Indebtedness is secured, in part, by a pledge by Robert L. McCoy
("Pledgor") of all of the common voting stock of the Company owned by Pledgor
(the "Pledged Stock"), pursuant to a pledge agreement of even date herewith
executed by and between Pledgor and BB&T (the "Pledge Agreement," and all other
documents, instruments and agreements executed to evidence, create or secure the
Indebtedness are herein called the "Loan Documents").

C. The Pledged Stock is subject to a stock purchase agreement (the
"Stock Purchase Agreement"), dated July 1, 1984 executed by and among the
Company and its shareholders (as it may be amended), which Stock Purchase
Agreement has been consented and agreed to by Pledgor.

E. BB&T has required the execution and delivery of this Agreement by
the parties hereto as a condition to making the loans comprising the
Indebtedness.

NOW, THEREFORE, in consideration of the premises and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:

1. Election by BB&T to Cause the Company to Purchase the Pledged Stock.
Upon a default under the Note or any of the Loan Documents (hereinafter referred
to as a "Default"), BB&T may give notice to the Company and the Borrower,
requiring the Company to purchase, and the Pledgor to sell, the Pledged Stock in
the following manner and upon the following terms. The notice shall specify
whether the purchase is to be made (a) from the Pledgor prior to the
commencement of proceedings by BB&T to exercise its rights and remedies

<PAGE> 2

as a secured party against the Pledged Stock, or (b) at a private sale ("Private
Sale") conducted pursuant to the terms of the Pledged Agreement and applicable
law. For purposes of determining the time as of which such purchase price is to
be determined, the Pledgor and BB&T agree that such notice shall constitute
written notice of a proposed transfer, disposition or sale of its Pledged Stock
under paragraph 2(a) of the Stock Purchase Agreement. At the Closing (as defined
in paragraph 3 hereof), the Company shall pay to BB&T and not to the Borrower or
Pledgor, in United States dollars and in immediately available funds, a purchase
price determined in accordance with the Stock Purchase Agreement. If the
purchase price of the Pledged Stock is greater than the then outstanding
Indebtedness (including accrued but unpaid interest and all other sums owed by
Borrower to BB&T pursuant to the terms of the Note and the Loan Documents), then
the Company shall be required to purchase hereunder only so much of the Pledged
Stock as is necessary to pay in full the Indebtedness. In consideration of the
purchase price received by BB&T, the Pledgor shall transfer title to the Pledged
Stock (or so much there for as shall be purchased) to the Company or in the
event the sale is at a Private Sale, BB&T shall deliver to Company the
certificates evidencing the Pledged Stock (or so much thereof as shall be
purchased) together with stock powers executed in blank by the Pledgor. In
either case, BB&T shall release its security interest in the Pledged Stock
purchased by the Company upon receipt of the purchase price. The Borrower and
the Company hereby acknowledge that the Pledged Stock is subject to the terms
and provisions of the Stock Purchase. Agreement which provides, in part, an
option to purchase the Pledged Stock in favor of the Company and each of its
shareholders in the event Pledgor desires to transfer, sell or dispose of all or
any portion of the Pledged Stock. Accordingly, and given the difficulty of
obtaining a reasonable price for the Pledged Stock at a public sale or auction
and the difficulty of selling the Pledged Stock at a public sale or auction in
compliance with the Stock Purchase Agreement and applicable federal and state
securities laws, the Company, the Pledgor and the Borrower specifically agree
that a Private Sale at which the Company shall purchase any or all of the
Pledged Stock pursuant to the terms of this Agreement shall have been conducted
in a commercially reasonable manner, and, to the extent permitted by applicable
law, the Company, the Pledgor and the Borrower hereby waive any claim or defense
to any such sale arising under Section 9504(3) of the Uniform Commercial Code as
in effect in the applicable jurisdiction.

<PAGE> 3

occur at the principal office of BB&T in Winston-Salem, North Carolina, at no
expense to BB&T.

4. Surplus. If all proceeds ever received by BB&T, either before or
after the Closing, from any sale or other disposition of any collateral, or
part therefor, for the Indebted ness, or the exercise of any other remedy
pursuant to the Note or any of the Loan Documents, together with the aggregate
purchase price actually received by BB&T for the Pledged Stock to be purchased
pursuant to this Agreement, shall exceed the aggregate amount of the
Indebtedness, interest thereon, the costs and expenses incurred or other sums
thereunder owed by the Borrower to BB&T pursuant to any of the Note or the Loan
Documents, and the costs and expenses incurred in the enforcement of the
Borrower's obligations under this Agreement, including reasonable attorneys'
fees, the amount of such excess shall be remitted to or for the account of the
Borrower, subject however, to the rights and claims of others having a prior
interest in or a lien upon any such proceeds.

<PAGE> 4

Indebtedness, protest and any notice of dishonor or of default to the Company or
to any other party with respect to any of the Indebtedness or with respect to
any security or collateral therefor and all other notices to which the Company
might otherwise be entitled. The obligations of the Company under this Agreement
shall be direct and immediate and not conditional or contingent upon either the
pursuit of any remedies against the Borrower or any other person or foreclosure
of any security interest or liens available to BB&T, it successors, endorsees or
assigns, the Company hereby waiving any rights to require that any action be
brought against the Borrower or any other person or to require that resort be
had to any security or to any balance of any deposit account or credit on the
books of BB&T in favor of the Borrower or any other person, and the Company
hereby waiving any rights of the Company pursuant to North Carolina General
Statutes Section 26-7 or any similar or subsequent law. If the Indebtedness is
partially paid through the election of BB&T, its successors, endorsees or
assigns, to pursue any of the remedies mentioned herein, in the Note, or in the
Loan Document or if such Indebtedness is otherwise partially paid, the Company
shall nevertheless remain fully liable and obligated under and pursuant to the
terms of this Agreement. The Borrower and BB&T agree to provide the Company
with copies of all Loan Documents and modifications thereof.

8. Notification of Stock Purchase Agreement. Nothing herein shall
prevent or restrict the Company and the Pledgor from amending or terminating the
Stock Purchase Agreement provided that, in the event of the termination or
modification of the Stock Purchase Agreement, the Company and the Pledgor shall
remain obligated to comply with paragraph 1 above as if the Stock Purchase
Agreement remained in force (unmodified) as it is as of the date hereof.

9. Choice of Law. The parties hereby acknowledge and agree that this
Agreement shall be governed by and construed in accordance with the laws of the
State of North Carolina.

10. Modification of Collateral Repurchase Agreement. This Agreement may
not be changed, amended or modified orally or by implication but only by a
written instrument signed by each of the parties hereto, and no obligation of
the Company or the Borrower or the Pledgor shall be released, waived or modified
by BB&T or any officer or agent of BB&T except by a writing signed by a duly
authorized officer of BB&T and bearing the seal of BB&T. This Agreement shall be
irrevocable by the Company, the Borrower and the Pledgor until the Indebt-

<PAGE> 5

edness has been completely repaid and all other obligations and undertakings of
the Borrower under, or by reason of, or pursuant to the Note or any of the Loan
Documents have been completely performed and satisfied.

The address of the Borrower is: Robert L. McCoy
4810 Culbreath Isles Road
Tampa, FL 33629

Gulf Florida Doughnut Corp. d/b/a
Krispy Kreme Doughnut Co.
8425 N. Florida Avenue
Tampa, FL 33604

The address of the Company is: Krispy Kreme Doughnut Corporation
1814 Ivy Avenue
Winston-Salem, NC 27105
Attn: John L. Barber

The address of BB&T is: Branch Banking and Trust Company
Post Office Box 15008
Winston-Salem, NC 27113-5008
Attn: Christopher Verwoerdt

12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but taken together shall
constitute but one Agreement.

13. Benefit. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective legal representatives,
heirs, successors and assigns.

<PAGE> 6

IN WITNESS WHEREOF, the parties have either hereunto set his hand and
seal or caused this Agreement to be executed as of the day and year first above
written.

/s/ Robert L. McCoy

GULF FLORIDA DOUGHNUT CORP.
d/b/a KRISPY KREME DOUGHNUT CORP.
By: /s/ Robert L. McCoy
President

Attest:
/s/ Donna C. Hollingsworth
Secretary

(CORPORATE SEAL)

KRISPY KREME DOUGHNUT
CORPORATION
By: /s/ J.A. McAleer, Jr.
Chairman of the Board and
Chief Executive Officer

Attest:
/s/ Randy S. Casstevens
Secretary

(CORPORATE SEAL)

BRANCH BANK AND TRUST COMPANY
By: /s/ Christopher E. Verwoerdt
Asst. Vice President

Attest:
/s/ _______________________
Asst. Secretary

(CORPORATE SEAL)

<PAGE> 7

CONSENT AND AGREEMENT

FOR VALUE RECEIVED, the undersigned, who is a party to the Stock Purchase
Agreement (the "Stock Purchase Agreement") referred to and described in the
foregoing Collateral Repurchase Agreement (the "Collateral Repurchase
Agreement"), hereby acknowledges and consents to the Collateral Repurchase
Agreement. The undersigned hereby agrees that, (a) in the event of any default
by Borrower under the terms of any documents evidencing, securing or otherwise
relating to the Note (as defined in the Collateral Repurchase Agreement), Branch
Bank and Trust Company (the "Bank") shall of Borrower's right, title interest
under the Stock Purchase Agreement, and that, (b) in the event of any default by
Borrower under the terms of any documents evidencing, securing or otherwise
relating to the Note, the undersigned shall continue its performance under the
Stock Purchase Agreement on behalf of the Bank, and that (c) the undersigned may
modify or terminate the Stock Purchase Agreement only in accordance with the
terms of the Collateral Repurchase Agreement of even date herewith by and among
the Bank, the undersigned and the Borrower, or otherwise upon the prior written
consent of the Bank, and that (d) the undersigned is not a party to any other
agreements intended as a substitute for or modification or amendment of the
Stock Purchase Agreement (except for the Collateral Repurchase Agreement), true,
complete and correct copies of which are attached hereto.

WITNESS the hand and seal of the undersigned, as of the day and year
set forth.

KRISPY KREME DOUGHNUT
CORPORATION

By: /s/ J.A. McAleer, Jr.
Chairman of the Board and
Chief Executive Officer

10/31/96
Date Signed

Attest:
/s/ Randy S. Casstevens
Secretary

(CORPORATE SEAL)

<PAGE> 1

EXHIBIT 10.17

GUARANTY BY CORPORATION

_________________________, ______________
(City) (State)

For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and to induce THE FIRST NATIONAL BANK OF OLATHE
(herein, with its participants, successors and assigns, called 'Lender'), at its
option, at any time to make a loan to MIDWEST-DOUGHNUTS, L.L.C. (herein called
'Borrower"), the Undersigned hereby absolutely and unconditionally guarantees to
the Lender the full and prompt payment when due, whether at maturity or earlier
by reason of acceleration or otherwise, of the debts, liabilities and
obligations described as follows:

A. If this ___ is checked, the Undersigned guarantees to Lender the
payment and performance of the debt, liability or obligation of Borrower to
Lender evidenced by or arising out of the following: that certain note from
Borrower to Lender in the original principal amount of $____________, a copy of
which is attached hereto and incorporated herein by reference, and any
extensions, renewals or replacements thereof (hereinafter referred to as the
"Indebtedness'). The term, "Indebtedness" as used in this guaranty shall not
include any obligations entered into between Borrower and Lender after the date
hereof (including any extensions, renewals, or replacements of such
obligations). The Undersigned further acknowledges and agrees with Lender that:

<PAGE> 2

committed for at the time of actual receipt of such notice by the Lender, or as
to any renewals, extensions and refinancings thereof.

4. The liability of the Undersigned hereunder shall be limited to a
principal amount of the Indebtedness (if unlimited or if no amount is stated,
the Undersigned shall be liable for all Indebtedness, without any limitation as
to amount), plus accrued interest thereon and all attorneys' fees, collection
costs and enforcement expenses actually incurred and referable thereto.

5. The Undersigned will pay or reimburse the Lender for all costs and
expenses (including reasonable attorneys' fees and legal expenses actually
incurred by the Lender in

<PAGE> 3

connection with the protection, defense or enforcement of this guaranty in any
litigation or bankruptcy or insolvency proceedings.

This guaranty includes the additional provisions on page 2 hereof and
of the Addendum hereto, all of which are made a part hereof.

This guaranty is __ unsecured; __ secured by a mortgage or security
agreement dated ___________________; __ secured by_____________________________.

IN WITNESS WHEREOF, this guaranty has been duly executed by the
Undersigned the day and year first above written. THIS INSTRUMENT WILL BE
CONSTRUED UNDER THE LAWS OF THE STATE OF KANSAS.

KRISPY KREME DOUGHNUT CORPORATION

By: ________________________________
Title: _________________________

By: ________________________________

"Undersigned" shall refer to all entities who sign this guaranty, individually
and jointly.

<PAGE> 4

ADDITIONAL PROVISIONS

6. Whether or not any existing relationship between the Undersigned and
Borrower has been changed or ended and whether or not this guaranty has been
revoked, the Lender may, but shall not be obligated to, enter into transactions
resulting in the creation or continuance of Indebtedness, without any consent or
approval by the Undersigned and without any notice to the Undersigned. The
liability of the Undersigned shall not be affected or impaired by any of the
following acts or things (which the Lender is expressly authorized to do, omit
or suffer from time to time, both before and after revocation of this guaranty,
without notice to or approval by the Undersigned): (i) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all Indebtedness; (ii) any one or more extensions or renewals of Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities or other contractual terms applicable to any
Indebtedness; (iii) any waiver adjustment, forbearance, compromise or indulgence
other than a release of liability granted to Borrower, any delay or lack of
diligence in the enforcement of Indebtedness, or any failure to institute
proceedings, file a claim, give any required notices or otherwise protect any
Indebtedness; (iv) any full or partial release of, settlement with, or agreement
not to sue, Borrower--or any other guarantor or other person liable in respect
of any Indebtedness; (v) any failure to obtain collateral security (including
rights of setoff) for Indebtedness, or to see to the proper or sufficient
creation and perfection thereof, or to establish the priority thereof, or to
protect, insure, or enforce any collateral security; or any release,
modification, substitution, discharge, impairment, deterioration, waste, or loss
of any collateral security; (vi) any foreclosure or enforcement of any,
collateral security; (vii) any transfer of any Indebtedness or any evidence
thereof; (viii) any order of application of any payments or credits upon
Indebtedness; (x) any election by the Lender under ss. 1111(b)(2) of the United
States Bankruptcy Code.

7. The Undersigned waives any and all defenses, claims and discharges
of Borrower, or any other obligor, pertaining to Indebtedness, except the
defense of discharge by payment in full. Without limiting the generality of the
foregoing, the Undersigned will not assert, plead or enforce against the Lender
any defense of waiver, release, estoppel, statute of limitations, res judicata,
statute of frauds, fraud, forgery, incapacity, minority, usury, illegality or

<PAGE> 5

unenforceability which may be available to Borrower or any other person liable
in respect of any Indebtedness, or any setoff available against the Lender to
Borrower or any such other person, whether or not on account of a related
transaction other than a release of liability of Borrower. The Undersigned
expressly agrees that the Undersigned shall be and remain liable, to the fullest
extent permitted by applicable law, for any deficiency remaining after
foreclosure of any mortgage or security interest securing Indebtedness, whether
or not the liability of Borrower or any other obligor for such deficiency is
discharged pursuant to statute or judicial decision. The undersigned shall
remain obligated, to the fullest extent permitted by law, to pay such amounts as
though Borrower's obligations had not been so discharged.

8. The Undersigned further agree(s) that the Undersigned shall be and
remain obligated to pay Indebtedness even though any other person obligated to
pay Indebtedness, including Borrower, has such obligation discharged in
bankruptcy or otherwise discharged by law. "Indebtedness' shall include
post-bankruptcy petition interest and attorneys' fees actually incurred and any
other amounts which Borrower is discharged from paying or which do not accrue to
Indebtedness due to Borrower's discharge, and Undersigned shall remain obligated
to pay such amounts as fully as if Borrower's obligations had not been
discharged.

9. If any payment applied by the Lender to Indebtedness is thereafter
set aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued in
existence, notwithstanding such application, and this guaranty shall be
enforceable as to such Indebtedness as fully as if such application had never
been made.

10. The Undersigned waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
The Lender shall not be required first to resort for payment of the Indebtedness
to Borrower or other persons or their properties, or first to enforce, realize
upon or exhaust any collateral security for Indebtedness, before enforcing this
guaranty.

11. The liability of the Undersigned under this guaranty is in addition
to and shall be cumulative with all other liabilities of the Undersigned to the
Lender as guarantor or otherwise,

<PAGE> 6

without any limitation as to amount, unless the instrument or agreement
evidencing or creating such other liability specifically provides to the
contrary.

12. The Undersigned represents and warrants to the Lender that (i) the
Undersigned is a corporation duly organized and existing in good standing and
has full power and authority to make and deliver this guaranty; (ii) the
execution, delivery and performance of this guaranty by the Undersigned have
been duly authorized by all necessary action of its directors and shareholders
and do not and will not violate the provisions of, or constitute a default
under, any presently applicable law or its articles of incorporation or by-laws
or any agreement presently binding on it; (iii) this guaranty has been duly
executed and delivered by the authorized officers of the Undersigned and
constitutes its lawful, binding and legally enforceable obligation (subject to
the United States Bankruptcy Code and other similar laws generally affecting the
enforcement of creditors' rights); and (iv) the authorization, execution,
delivery and performance of this guaranty do not require notification to,
registration with, or consent or approval by, any federal, North Carolina state
or North Carolina local regulatory body or administrative agency.

13. This guaranty shall be effective upon delivery to the Lender,
without further act, condition or acceptance by the Lender, shall be binding
upon the Undersigned and the successors and assigns of the Undersigned and shall
inure to the benefit of the Lender and its participants, successors and assigns.
Any invalidity or unenforceability of any provision or application of thus
guaranty shall not affect other lawful provisions and application hereof, and to
this end the provisions of this guaranty are declared to be severable. Except s
allowed by the terms herein, this guaranty may not be waived, modified, amended,
terminated, released or otherwise changed except by a writing signed by the
Undersigned and the Lender. This guaranty shall be governed by the laws of the
State in which it is executed. The Undersigned waives notice of the Lender's
acceptance hereof.

<PAGE> 7

ADDENDUM
TO
GUARANTY BY CORPORATION
FROM KRISPY KREME DOUGHNUT CORPORATION
TO THE FIRST NATIONAL BANK OF OLATHE as Lender
AND MID-WEST DOUGHNUTS, L.L.C. as Borrower

THIS ADDENDUM (this "Addendum") is made to the above-described
Guaranty. In the event of any conflict between this Addendum and the terms of
the Guaranty, the terms of this Addendum shall control.

The Guaranty is amended as follows:

1. This Guaranty shall extend only to the principal and
interest of the note constituting the Indebtedness and other items
described in this Guaranty only to the extent they relate to said note.
Lender agrees to provide the undersigned with a copy of any notice of
default or demand to Borrower related to Indebtedness at the same time
it provides the same to Borrower, and a copy of any amendments or
modifications or extensions to the note or other agreements entered
into with respect to the Indebtedness, at the following address:

Krispy Kreme Doughnut Corporation
P.O. Box 83
Winston-Salem, NC 27102-0083
ATTENTION: Stephen A. Johnson

2. No modification of the Indebtedness shall be made which
increases the principal or interest thereunder or extends the time for
payment thereof without the prior written consent of the undersigned.

3. The Maximum liability of the Undersigned Krispy Kreme
Doughnut Corporation under this Guaranty, including, but not limited
to, all principal, interest and all other costs, expenses and
obligations of any and every nature, shall not exceed $300,000.00.

<PAGE> 1

EXHIBIT 10.18

COLLATERAL REPURCHASE AGREEMENT

THIS COLLATERAL REPURCHASE AGREEMENT (the "Agreement") is made this the
7th day of July, 1995 by and among KRISPY KREME DOUGHNUT CORPORATION, a North
Carolina corporation, with its principal office and place of business at 1814
Ivy Avenue, Winston-Salem, NC 27105 ("Krispy Kreme"); ROBERT J. SIMMONS (the
"Associate") of Union Town, OH, whose business address is 354 South Maple
Street, Akron, OH 44302; SIMAC, INC. (the "Borrower"), an Ohio corporation,
whose address is the same as that of the Associate; and FIRST NATIONAL BANK OF
OHIO (the "Bank") whose address is 106 South Main Street, Akron, Ohio 44308.

RECITALS:

1. Krispy Kreme and the Associate entered into an Associate's License
Agreement and Addendum thereto dated July 11, 1993( the "License Agreement") for
Krispy Kreme Doughnut Shops in Akron and Cuyahoga Falls, Ohio;

2. In connection with the License Agreement, the Associate purchased
from Krispy Kreme the retail furniture and fixtures, machinery, equipment and
signage listed in Schedule A attached hereto (the "Equipment") for a new
doughnut store at 6907 Pearl Road, Middleburg Heights, OH;

3. The Bank has loaned to the Borrower $340,000 secured by a security
interest in the Equipment (the "Bank Loan") in the event of the Borrower's
Default on the Bank Loan; and

4. Therefore, the parties desire to enter into this Agreement.

NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties do hereby agree as follows:

A. Default. In the event of a Default by the Borrower on the Bank Loan,
the Bank shall notify Krispy Kreme and the Borrower thereof in writing (the
"Notification") within thirty (30) days of the occurrence of the Default, in
which case Krispy Kreme shall have the first option to purchase, and if
exercised shall purchase the Equipment within forty (40) days from receipt of
the Notification. In such event, the Associate shall deliver to Krispy Kreme,
and Krispy Kreme shall repurchase from Associate, all of the Equipment at the
price which shall be the lessor of

(i) the Balance Due under the Bank Loan or

(ii) a purchase price of $340,000 through the date of June 27, 1995
and thereafter at a purchase price equal to the difference
between

(a) $340,000 (which is the cost thereof) less an amount
determined as follows:

<PAGE> 2

(b) $5,666.67 on July 27, 1995 and an additional
$5,667.67 on the 27th of each month thereafter
through June 27, 2000.

The effective date of such Notification shall be the date as of which
such purchase price is determined. At the closing of such purchase, Krispy Kreme
shall pay to the Bank such pur chase price in United States dollars and in
immediately available funds. At such closing, the Bank shall transfer title to
and release its security interest in the repurchased Equipment.

In such event, Krispy Kreme, at its sole discretion, may terminate the
License Agreement.

B. The Closing. The purchase of the Equipment shall take place within
40 days of such Notification at the offices of the Bank at 106 South Main
Street, Akron, Ohio 44308. Any surplus in such purchase price shall be remitted
to or for the account of the Borrower.

C. Rights of Krispy Kreme. Nothing herein shall prevent or restrict
Krispy Kreme from exercising any of its rights and privileges including, without
limitation, the right of amendment or termination, under and pursuant to the
License Agreement provided that, in such an event, Krispy Kreme shall either

(i) remain obligated to repurchase the Equipment as if the License
Agreement had not been so amended or terminated or its rights
and privileges had not been exercised thereunder; or

(ii) repurchase the Equipment and pay to the Bank the lesser of the
purchase price therefor or balance due on the Bank Loans.

D. Definitions. As used herein, the terms or phrases set forth below
are defined as follows:

(i) "Default" has the same meaning as it does in documentation
pertaining to the Bank Loan

(ii) "Balance Due under the Bank Loan" shall mean unpaid principal
and interest and fees and expenses due under the documentation
pertaining to the Bank Loan.

E. Term. The term of this Agreement shall be a period commencing on the
date hereof and expiring June 27, 2000.

F. Miscellaneous. The parties hereby acknowledge and agree that this
Agreement shall be governed by and construed in accordance with the laws of the
State of North Carolina. This Agreement may not be changed, amended or modified
orally or by implication but only by written agreement signed by each of the
parties hereto and no obligation of Krispy Kreme or the Borrower shall be
released, waived, or modified by the Bank or any officer or agent of the Bank

<PAGE> 3

except by a writing signed by duly authorized officer or agent of the Bank. Any
and all notices or demands permitted or required to be made under this Agreement
shall be made in writing, signed by the party giving the notice or demand, and
shall be delivered personally or by a nationally recognized courier service or
sent by registered or certified United States mail, postage prepaid, to the
other parties at the addresses set forth above or at such other address as may
have been designated in writing. The effective date of such notice or demand
shall be the date of delivery or the date on which notice or demand is deposited
in the mail. This Agreement shall be binding upon and shall insure to the
benefit of the parties hereto and their respective legal representatives,
heirs, successors and assigns.

IN WITNESS WHEREOF, Krispy Kreme, the Bank, and Simac, Inc. have caused
this Agreement to be executed on their behalf and the Associate has hereunto set
his hand and seal as of the day and year set forth above.

KRISPY KREME DOUGHNUT CORPORATION

by: /s/ John L. Barber
John L. Barber
General Counsel and Secretary

/s/ Robert J. Simmons (SEAL)
Robert J. Simmons

SIMAC, INC.

by: /s/ Robert J. Simmons
Robert J. Simmons, President

FIRST NATIONAL BANK OF OHIO

by: /s/ Nicholas V. Browning
Nicholas V. Browning
Vice President

<PAGE> 4

KRISPY KREME DOUGHNUT CORPORATION
BOB SIMMONS - COLLATERAL BUY-BACK ON EQUIPMENT
AMORTIZATION SCHEDULE

Reference Date Reducing Amount Balance
- --------- ---- --------------- -------

Beginning Balance $340,000
1 27-Jul-95 5,667.67 $334,332
2 27-Aug-95 5,667.67 328,665
3 27-Sep-95 5,667.67 322,997
4 27-Oct-95 5,667.67 317,329
5 27-Nov-95 5,667.67 311,662
6 27-Dec-95 5,667.67 305,994
7 27-Jan-96 5,667.67 300,326
8 27-Feb-96 5,667.67 294,659
9 27-Mar-96 5,667.67 288,991
10 27-Apr-96 5,667.67 283,323
11 27-May-96 5,667.67 277,656
12 27-Jun-96 5,667.67 271,988
13 27-Jul-96 5,667.67 266,320
14 27-Aug-96 5,667.67 260,653
15 27-Sep-96 5,667.67 254,985
16 27-Oct-96 5,667.67 249,317
17 27-Nov-96 5,667.67 243,650
18 27-Dec-96 5,667.67 237,982
19 27-Jan-97 5,667.67 232,314
20 27-Feb-97 5,667.67 226,647
21 27-Mar-97 5,667.67 220,979
22 27-Apr-97 5,667.67 215,311
23 27-May-97 5,667.67 209,644
24 27-Jun-97 5,667.67 203,976
25 27-Jul-97 5,667.67 198,308
26 27-Aug-97 5,667.67 192,641
27 27-Sep-97 5,667.67 186,973
28 27-Oct-97 5,667.67 181,305
29 27-Nov-97 5,667.67 175,638
30 27-Dec-97 5,667.67 169,970
31 27-Jan-98 5,667.67 164,302
32 27-Feb-98 5,667.67 158,635
33 27-Mar-98 5,667.67 152,967
34 27-Apr-98 5,667.67 147,299
35 27-May-98 5,667.67 141,632
36 27-Jun-98 5,667.67 135,964
37 27-Jul-98 5,667.67 130,296
38 27-Aug-98 5,667.67 124,629
39 27-Sep-98 5,667.67 118,961
40 27-Oct-98 5,667.67 113,293
41 27-Nov-98 5,667.67 107,626
42 27-Dec-98 5,667.67 101,958
43 27-Jan-99 5,667.67 96,290
44 27-Feb-99 5,667.67 90,623
45 27-Mar-99 5,667.67 84,955
46 27-Apr-99 5,667.67 79,287
47 27-May-99 5,667.67 73,620
48 27-Jun-99 5,667.67 67,952
49 27-Jul-99 5,667.67 62,284
50 27-Aug-99 5,667.67 56,616
51 27-Sep-99 5,667.67 50,949
52 27-Oct-99 5,667.67 45,281
53 27-Nov-99 5,667.67 39,613
54 27-Dec-99 5,667.67 33,946
55 27-Jan-00 5,667.67 28,278
56 27-Feb-00 5,667.67 22,610
57 27-Mar-00 5,667.67 16,943
58 27-Apr-00 5,667.67 11,275
59 27-May-00 5,667.67 5,607
60 27-Jun-00 5,667.67 (60)

<PAGE> 1

EXHIBIT 10.19

COLLATERAL REPURCHASE AGREEMENT

THIS COLLATERAL REPURCHASE AGREEMENT, made as of the 25th day of
February, 1994 by and among WILLIAM J. DORGAN and wife, PATRICIA M. DORGAN,
residents of Harrison County, Mississippi (collectively, the "Borrower"); KRISPY
KREME DOUGHNUT CORPORATION, a North Carolina corporation (the "Company"); and
SOUTHERN NATIONAL BANK OF NORTH CAROLINA, a national banking institution
("SNB");

R E C I T A L S :

A. SNB has on this date extended credit to the Borrower in the
aggregate principal sum of One Million One Hundred Fifty Thousand and No/100
Dollars ($1,150,000.00) (the "Indebtedness"), evidenced by (i) a Promissory Note
of even date executed and delivered by the Borrower to SNB in the principal sum
of Two Hundred Seventy Five Thousand and No/100 Dollars ($275,000.00) (the
"First Note"), and (ii) a Promissory Note of even date executed and delivered by
the Borrower to SNB in the principal sum of Eight Hundred Seventy Five Thousand
and No/100 Dollars ($875,000.00) (the "Second Note"; the First Note and the
Second Note are sometimes collectively referred to herein as the "Notes").

B. The Indebtedness is secured, in part, by (i) a security interest in
favor of SNB in all of the machinery, equipment, furniture, fixtures, signage
and vehicles used by William J. Dorgan (the "Associate") in his Krispy Kreme
franchise operations in Biloxi and Gulfport, Mississippi pursuant to Security
Agreement of even date herewith executed by and between the Borrower and SNB
(the "Security Agreement"); and (ii) a pledge by Patricia M. Dorgan ("Pledgor")
of all of the common voting stock of the Company owned by Pledgor (the "Pledged
Stock"), pursuant to a Pledge Agreement of even date herewith executed by and
between Pledgor and SNB and consented to by the Associate (the "Pledge
Agreement"; the Pledge Agreement, the Security Agreement and all other
documents, instruments and agreements executed to evidence, create or secure the
Indebtedness are herein called the "Loan Documents").

C. The Company and the Associate on this date have entered into the
Amended and Restated Equipment Repurchase Agreement and Amendment to Associate's
License Agreement pursuant to which the Company has agreed upon termination of
the Associate's License Agreement and Addendum thereto dated February 25, 1992
between the Company and the Associate (as it may be amended) (the "License
Agreement") to purchase from the Associate all of his machinery, equipment,
furniture, fixtures, signage, vehicles and inventory (the "Equipment") for a
cash purchase price of $350,000.00.

D. The Pledged Stock is subject to a Stock Purchase Agreement dated
July 1, 1984 executed by and among the Company and its shareholders (as it may
be amended) (the "Stock Purchase Agreement"), which Stock Purchase Agreement has
been consented and agreed to by Pledgor.

<PAGE> 2

E. In order to induce SNB to make the loans giving rise to the
Indebtedness, the Company has agreed to purchase all or part of the Pledged
Stock and/or the Equipment in the event of a default under the First Note, the
Second Note, or any of the Loan Documents in accordance with the terms of this
Agreement.

F. SNB has required the execution and delivery of this Agreement by the
parties hereto as a condition to making the loans comprising the Indebtedness.

NOW, THEREFORE, in consideration of the premises and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:

1. Election by SNB to Cause the Company to Purchase the Pledged Stock.
Upon a default under the First Note, the Second Note or any of the Loan
Documents (hereinafter referred to as a "Default"), SNB may give notice to the
Company and the Borrower, requiring the Company to purchase, and the Pledgor to
sell, the Pledged Stock in the following manner and upon the following terms.
The notice shall specify whether the purchase is to be made (a) from the Pledgor
prior to the commencement of proceedings by SNB to exercise its rights and
remedies as a secured party against the Pledged Stock, or (b) at a private sale
("Private Sale") conducted pursuant to the terms of the Pledge Agreement and
applicable law. For purposes of determining the time as of which such purchase
price is to be determined, the Pledgor and SNB agree that such notice shall
constitute written notice of a proposed transfer, disposition or sale of its
Pledged Stock under paragraph 2(a) of the Stock Purchase Agreement. At the
Closing (as defined in paragraph 3 hereof), the Company shall pay to SNB and not
to the Borrower or Pledgor, in United States dollars and in immediately
available funds, a purchase price determined in accordance with the Stock
Purchase Agreement. If the purchase price of the Pledged Stock is greater than
the then outstanding Indebtedness (including accrued but unpaid interest and all
other sums owed by Borrower to SNB pursuant to the terms of the Notes and the
Loan Documents), then the Company shall be required to purchase hereunder only
so much of the Pledged Stock as is necessary to pay in full the Indebtedness. In
consideration of the purchase price received by SNB, the Pledgor shall transfer
title to the Pledged Stock (or so much therefor as shall be purchased) to the
Company or in the event the sale is at a Private Sale, SNB shall deliver to the
Company the certificates evidencing the Pledged Stock (or so much thereof as
shall be purchased) together with stock powers executed in blank by the Pledgor.
In either case, SNB shall release its security interest in the Pledged Stock
purchased by the Company upon receipt of the purchase price. The Borrower and
the Company hereby acknowledge that the Pledged Stock is subject to the terms
and provisions of the Stock Purchase Agreement which provides an option to
purchase the Pledged Stock in favor of the Company and each of its shareholders
in the event Pledgor desires to transfer, sell or dispose of all or any portion
of the Pledged Stock. Accordingly, and given the difficulty of obtaining a
reasonable price for the Pledged Stock at a public sale or auction and the
difficulty of selling the Pledged Stock at a public sale or auction in
compliance with the Stock Purchase Agreement and applicable federal and state
securities laws the Company, the Pledgor and the Borrower specifically agree
that a Private Sale at which the Company shall purchase any or all of the
Pledged Stock pursuant to the terms of this Agreement shall have been conducted
in a commercially reasonable manner, and, to the extent permitted by

<PAGE> 3

applicable law, the Company, the Pledgor and the Borrower hereby waive any claim
or defense to any such sale arising under Section 9-504(3) of the Uniform
Commercial Code as in effect in the applicable jurisdiction.

2. Election by SNB to Cause Company to Purchase the Equipment. Upon a
Default, SNB, by notice to the Company and the Borrower, may give notice to the
Associate and to the Company requiring the Company to purchase (and Associate to
sell) the Equipment in the following manner and upon the following terms. The
notice shall specify whether the purchase is to be made (a) from the Associate
prior to the commencement of proceedings by SNB to exercise its rights and
remedies as a secured party against the Equipment, or (b) at a Private Sale
conducted pursuant to the terms of the Loan Documents and applicable law. At the
Closing, the Company shall pay to SNB and not to the Associate or the Borrower,
in United States dollars and in immediately available funds, a purchase price
determined in accordance with the Equipment Repurchase Agreement. In the event
the purchase price of the Equipment is greater than the then outstanding
Indebtedness (including accrued but unpaid interest and all other sums owed to
SNB pursuant to the terms of the Notes and the Loan Documents), then the Company
shall be required to purchase hereunder only so much of the Equipment as is
necessary to pay in full the Indebtedness. In such event an equitable, ratable
portion of the Purchase Price for all Equipment shall be paid for that portion
of the Equipment which is purchased. In consideration of the purchase price
received by SNB, the Borrower shall transfer title to the Equipment (or so much
thereof as shall be purchased) to the Company or in the event the sale is at a
Private Sale, SNB shall cause title to the Equipment purchased by the Company to
be transferred to the Company "as is" and without representation or warranty of
any kind whatsoever. In either case, SNB shall release its security interest in
the Equipment purchased by the Company upon receipt of the purchase price. The
Company and the Borrower each agree that the Equipment is special purpose
Equipment and that a Private Sale at which the Company purchases the Equipment
pursuant to this Agreement shall have been conducted in a commercially
reasonable manner, and, to the extent permitted by applicable law, the Company
and the Borrower hereby waive any claim or defense to any such sale arising
under Section 9-504(3) of the Uniform Commercial Code as in effect in the
applicable jurisdiction. The Company and the Borrower acknowledge that the
Equipment is subject to the Equipment Repurchase Agreement which sets forth the
purchase price for the Equipment agreed upon by the Borrower and the Company.

3. Other Purchasers. In the event of a default under any of the Loan
Documents, SNB agrees not to purchase all or any part of the Pledged Stock or
the Equipment or allow any other person (other than the Company) to do so,
without the prior written consent of the Company, unless the Company shall,
within thirty (30) days after SNB's request for performance hereunder, fail,
refuse or be unable to perform its obligations hereunder.

4. The Closing. If purchase of the Pledged Stock and/or the Equipment
is to be made from the Pledgor, the Associate and/or the Borrower, as the case
may be, the Closing shall take place at a time and place selected by SNB within
fifteen (15) days after the date of SNB's notice to the Company and the Borrower
requiring that the Company purchase the Pledged Stock and/or the Equipment. If
purchase of the Pledged Stock and/or the Equipment is to take place pursuant to
a Private Sale, Closing shall take place at a time and in the manner as provided
for by

<PAGE> 4

applicable law or in the Pledge Agreement and/or the Security Agreement, as the
case may be, or as may be provided for in any notice given by SNB pursuant
thereto for the Private Sale provided, however, that the Closing and delivery
of the Pledged Stock purchased by the Company shall occur at the principal
office of SNB in Winston-Salem, North Carolina, at no expense to SNB and the
Closing and delivery of the Equipment purchased by the Company shall occur at
the premises of the Borrower where the Equipment is located.

5. Surplus. If all proceeds ever received by SNB, either before or
after the Closing, from any sale or other disposition of any collateral, or part
therefor, for the Indebtedness, or the exercise of any other remedy pursuant to
the Notes or any of the Loan Documents, together with the aggregate purchase
price actually received by SNB for the Pledged Stock and the Equipment to be
purchased pursuant to this Agreement, shall exceed the aggregate amount of the
Indebtedness, interest thereon, the costs and expenses incurred or other sums
thereunder owed by the Borrower to SNB pursuant to any of the Notes or the Loan
Documents, and the costs and expenses incurred in the enforcement of the
Borrower's obligations under this Agreement, including reasonable attorneys'
fees, the amount of such excess shall be remitted to or for the account of the
Borrower, subject however, to the rights and claims of others having a prior
interest in or a lien upon any such proceeds.

6. Assignment by Borrower. Borrower hereby assigns all of its right,
title and interest in and to this Agreement to SNB as collateral security for
the Indebtedness and agrees to execute and deliver Uniform Commercial Code
Financing Statements with respect thereto as SNB may request.

7. Continuing Obligations. The obligations of the Company under this
Agreement shall be continuing, and the Company agrees that its obligations
hereunder shall not be modified, diminished, extinguished or released by reason
that the whole or any part of any security or collateral for the Indebtedness
now or hereafter held may be exchanged, compromised, impaired, released, or
surrendered from time to time, that the time or place of payment of any
Indebtedness or of any security therefor may be exchanged or extended, in whole
or in part, to a time certain or otherwise, and may be renewed or accelerated,
in whole or in part, that the Borrower may be granted indulgences generally,
that any of the provisions of any note or other instrument evidencing any debt
of the Borrower or any security therefor, including, without limitation, the
Notes and the Loan Documents, may be modified or waived, or that any party
liable for the payment thereof (including but not limited to any guarantor,
surety or endorser) may be granted indulgences or released, all of which are
hereby expressly consented to by the Company. Neither the death, disability,
bankruptcy, or insolvency of any one or more of the Borrower or any guarantor,
surety or endorser shall affect the continuing obligation of the Company. No
claim need be asserted against the personal representative, guardian, custodian,
trustee, debtor in bankruptcy, or receiver of any deceased, incompetent,
bankrupt or insolvent borrower, guarantor, surety or endorser. Any deposit
balance to the credit of the Borrower or any other party liable for the payment
of the Indebtedness or liable upon any security therefor may be released, in
whole or in part, at, before and/or after the stated, extended or accelerated
maturity of any Indebtedness. All of the foregoing may be done without notice to
or further assent by the Company, which shall remain bound hereon
notwithstanding any such exchange, compromise, surrender, extension,

<PAGE> 5

renewal, acceleration, modification, indulgence or release. The Company
expressly waives notice of acceptance of this Agreement and of all extensions of
credit to the Borrower, presentment and demand for payment of the Indebtedness,
protest and any notice of dishonor or of default to the Company or to any other
party with respect to any of the Indebtedness or with respect to any security or
collateral therefor and all other notices to which the Company might otherwise
be entitled. The obligations of the Company under this Agreement shall be direct
and immediate and not conditional or contingent upon either the pursuit of any
remedies against the Borrower or any other person or foreclosure of any security
interest or liens available to SNB, its successors, endorsees or assigns, the
Company hereby waiving any rights to require that any action be brought against
the Borrower or any other person or to require that resort be had to any
security or to any balance of any deposit account or credit on the books of SNB
in favor of the Borrower or any other person, and the Company hereby waiving any
rights of the Company pursuant to North Carolina General Statutes Section 26-7
or any similar or subsequent law. If the Indebtedness is partially paid through
the election of SNB, its successors, endorsees or assigns, to pursue any of the
remedies mentioned herein, in the Notes, or in the Loan Documents or if such
Indebtedness is otherwise partially paid, the Company shall nevertheless remain
fully liable and obligated under and pursuant to the terms of this Agreement.
The Borrower and SNB agree to provide the Company with copies of all Loan
Documents and modifications thereof.

8. No Credit; Waiver of Defenses. The Company shall not be entitled to
provide for the payment of the purchase price either for the Pledged Stock or
the Equipment (or any part thereof) by the issuance of credit or credits to or
for the account of the Borrower, the Pledgor or either of them. Nor shall any
portion of any purchase price either for the Pledged Stock or the Equipment be
subject to offset, reduction or diminution by reason of any disputed or
undisputed claim, suit or demand which the Company may have against the
Borrower, the Pledgor or either of them, or by reason of any disputed or
undisputed unpaid accounts or liabilities of or amounts otherwise owed by the
Borrower, the Pledgor or either of them to the Company. Nor shall the Company
assert any claims or defenses against payment or be afforded any reduction of
any purchase price for the Equipment by reason of the condition of the Equipment
or by reason of any failure by the Borrower to maintain or repair the Equipment
or by reason of the manner in which the Borrower has utilized or employed the
Equipment in the operation of Borrower's business. Nothing herein shall
prohibit the Company from purchasing the Pledged Stock or Equipment over and
above the amounts necessary to satisfy the Borrower's obligations to SNB and
applying the proceeds thereof to any obligation of the Borrower to the Company.

9. Nothing herein shall prevent or restrict

(a) the Company from exercising any of its rights and privileges,
including, without limitation, the right of termination, under and as set forth
in the Associate's License Agreement or

(b) the Company and the Pledgor and/or the Associate from amending
or terminating the Stock Purchase Agreement or the Associate's License Agreement
provided that, (i) upon the termination of the Associate's License Agreement,
the Company and the Associate shall give written notice of such termination to
SNB and shall comply with the provisions of

<PAGE> 6

paragraph 2 above as if SNB had given the notice referred to therein unless SNB
notifies the Company and the Borrower to the contrary; (ii) in the event of the
termination or modification of the Stock Purchase Agreement, the Company and the
Pledgor shall remain obligated to comply with paragraph I above as if the Stock
Purchase Agreement remained in force (unmodified) as it is as of the date
hereof; (iii) in the event of the modification of the Associate's License
Agreement, the Company and the Associate shall remain obligated to comply with
paragraph 2 above as if the Associate's License Agreement remained in force
(unmodified) as it is as of the date hereof; (iv) in no event shall the purchase
price of the Pledged Stock be less than the purchase price for such Pledged
Stock as determined in accordance with the Stock Purchase Agreement as it exists
on the date hereof, and (v) in no event shall the purchase price of the
Equipment be less than the purchase price for such Equipment as determined in
accordance with the Equipment Repurchase Agreement as it exists on the date
hereof.

10. Choice of Law. The parties hereby acknowledge and agree that this
Agreement shall be governed by and construed in accordance with the laws of the
State of North Carolina.

11. Modification. This Agreement may not be changed, amended or
modified orally or by implication but only by a written instrument signed by
each of the parties hereto, and no obligation of the Company or the Borrower or
the Pledgor shall be released, waived or modified by SNB or any officer or agent
of SNB except by a writing signed by a duly authorized officer of SNB and
bearing the seal of SNB. This Agreement shall be irrevocable by the Company, the
Borrower and the Pledgor until the Indebtedness has been completely repaid and
all other obligations and undertakings of the Borrower under, or by reason of,
or pursuant to the Notes or any of the Loan Documents have been completely
performed and satisfied.

12. Notices. Any and all notices or demands permitted or required to be
made under this Agreement shall be in writing, signed by the party giving such
notice or demand, and shall be delivered personally or sent by registered or
certified United States mail, postage prepaid, to the other party(ies) at the
addressees) set forth below, or at such other address as may have been
designated in writing. The effective date of such notice or demand shall be date
of personal service or the date on which the notice or demand is deposited in
the mails.

The address of the Borrower is: William J. Dorgan
Patricia M. Dorgan
2 Palmer Place
Gulfport, Mississippi 39501

The address of the Company is: Krispy Kreme Doughnut Corporation
1814 Ivy Avenue
Winston-Salem, North Carolina 27105
Attn: John L. Barber

<PAGE> 7

The address of SNB is: Southern National Bank of North Carolina
Post Office Box 15008
Winston-Salem, North Carolina 27150
Attn: Jeff T. Clark

13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but taken together shall
constitute but one Agreement.

14. Benefit. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective legal representatives,
heirs, successors and assigns.

IN WITNESS WHEREOF, the parties have signed and sealed this Agreement
as of the day and year first above written.

/s/ William J. Dorgan (SEAL)
William J. Dorgan

/s/ Patricia M. Dorgan (SEAL)
Patricia M. Dorgan

KRISPY KREME DOUGHNUT CORPORATION

By: /s/ J. A. McAleer, Jr.
J. A. McAleer, Jr., Chairman of the Board
and Chief Executive Officer

ATTEST:

/s/ John L. Barber
John L. Barber, Secretary

[CORPORATE SEAL]

<PAGE> 8

SOUTHERN NATIONAL BANK
OF NORTH CAROLINA

By: /s/ Jeff T. Clark
Jeff T. Clark, Vice President

ATTEST:

/s/ Melvin S. ________

_______________________
Asst. Secretary

[CORPORATE SEAL]

<PAGE> 1

EXHIBIT 10.20

SATISFACTION: The Debt evidenced by
this Note has been satisfied in full this
_______ day of _____________, 19__
Signed: __________________________

PROMISSORY NOTE

Winston-Salem, NC

$65,705.72 MARCH 13, 1997

FOR VALUE RECEIVED the undersigned, jointly and severally, promise to pay to
KRISPY KREME DOUGHNUTS COMPANY or order, the principal sum of SIXTY-FIVE
THOUSAND SEVEN HUNDRED FIVE AND 72/100 DOLLARS ($65,705.72) with interest from
March 13, 1997, at a rate per annum equal to nine and one-fourth percent (9.25%)
on the unpaid balance until paid or until default, both principal and interest
payable in lawful money of the United States of America, at the office of KRISPY
KREME DOUGHNUTS COMPANY, P O BOX 83, WINSTON-SALEM, NORTH CAROLINA 27102-0083
(ATTENTION: RANDY S. CASSTEVENS) or at such place as the legal holder hereof may
designate in writing and, at Payee's election, via electronic funds transfer
pursuant to the Authorization Agreement to Initiate Debits / Credits of even
date herewith. It is understood and agreed that additional amounts may be
advanced by the holder hereof as provided in the instruments, if any, securing
this Note and such advances will be added to the principal of this Note and will
accrue interest at the above specified rate of interest from the date of advance
until paid. The principal and interest shall be due and payable in thirty-five
(35) equal consecutive monthly payments of principal and interest in the amount
of $2,097.08 each to be paid on the 13th day of each month during the term
hereof, the first such payment shall be due and payable on April 13, 1997 with a
final payment of all unpaid principal and all accrued and unpaid interest herein
due on March 13, 2000. Maker anticipates that on or before April 2, 1997 it will
make a lump sum payment greater than a standard monthly payment due hereunder.
In the event such lump sum payment is greater than $5,000.00, then Payee agrees
to recalculate the schedule of payments so that equal payments of principal and
interest shall be made in a manner causing this Note to be paid in full upon the
thirty-fifth (35th) payment after such lump sum payment. Payee shall not
directly draft Maker's bank account prior to May 13, 1997.

If payable in installments, each such installment shall, unless otherwise
provided, be applied first to payment of interest then accrued and due on the
unpaid principal balance, with the remainder applied to the unpaid principal.

Unless otherwise provided, this Note may be prepaid in full or in part at any
time without penalty or premium. Partial prepayments shall be applied to
installments due in reverse order of their maturity.

In the event of (a) default in payment of any installment of principal or
interest hereof or under any other note from Maker to Payee as the same becomes
due and such default is not cured within ten (10) days from the due date, or (b)
default under the terms of any instrument securing this Note, and such default
is not cured within fifteen (15) days after written notice to maker, then in
either such event the holder may without further notice, declare the remainder
of the principal sum, together with all interest accrued thereon and the
prepayment premium, if any, at once due and payable. Failure to exercise this
option shall not constitute a waiver of the right to exercise the same at any
other time. The unpaid principal of this Note and any part thereof, accrued
interest and all other sums due under this Note and the Deed of Trust, if any,
shall bear interest at the rate provided for above after default until paid.

All parties to this Note, including maker and any sureties, endorsers, or
guarantors hereby waive protest, presentment, notice of dishonor, and notice of
acceleration of maturity and agree to continue to remain bound for the payment
of principal, interest and all other sums due under this Note and the Deed of
Trust notwithstanding any change or changes by way of release, surrender,
exchange, modification or substitution of any security for this Note or by way
of any extension or extensions of time for the payment of principal and
interest; and all such parties waive all and every kind of notice of such change
or changes and agree that the same may be made without notice or consent of any
of them.

Upon default the holder of this Note may employ an attorney to enforce the
holder's rights and remedies and the maker, principal, surety, guarantor and
endorsers of this Note hereby agree to pay to the holder reasonable attorneys
fees not exceeding a sum equal to fifteen percent (15%) of the outstanding
balance owing on said Note, plus all other reasonable expenses incurred by the
holder in exercising any of the holder's rights and remedies upon default. The
rights and remedies of the holder as provided in this Note and any instrument
securing this Note shall be cumulative and may be pursued singly, successively,
or together against the property described in any Deed of Trust or any other
instrument securing this Note or any other funds, property or security held by
the holder for payment or security, in the sole discretion of the holder. The
failure to exercise any such right or remedy shall not be a waiver or release or
such rights or remedies or the right to exercise any of them at another time.

This Note is to be governed and construed in accordance with the laws of the
State of North Carolina.

This Note is given for money owed. To further secure this Note, Maker(s)
grants Payee a first priority security interest under the UCC in all machinery,
equipment, furniture and fixtures owned by Maker(s) and/or in which Maker(s) has
any interest now or hereafter located at 4242 South Noland Road, Independence,
Missouri, and agrees to execute such further instruments, security agreements
and financing statements as Payee may from time to time request to evidence
and/or perfect such security interest. In the event such security interest ever
constitutes a lower than first priority security interest, Payee may declare
this Note in default and no cure period for such default shall exist.

Any default hereunder shall constitute a default under that certain Franchise
Agreement by and between Krispy Kreme Doughnut Corporation and Midwest
Doughnuts, L.L.C. dated May 29, 1996 (the "Franchise Agreement") and any default
under the Franchise Agreement shall constitute a default under this Note.

IN TESTIMONY WHEREOF, EACH CORPORATE MAKER HAS CAUSED THIS IN TESTIMONY
WHEREOF, EACH INDIVIDUAL MAKER HAS SET HIS HAND TO INSTRUMENT TO BE EXECUTED AS
ITS CORPORATE NAME BY ITS MEMBER, THIS INSTRUMENT AND ADOPTED HIS SEAL THE WORK
"SEAL" APPEARING ATTESTED BY ITS MEMBER, AND ITS CORPORATE SEAL TO BE HERETO
AFFIXED, BESIDE THE DAY AND YEAR FIRST ABOVE WRITTEN. BY ORDER OF ITS BOARD OF
DIRECTORS FIRST DULY GIVEN, THE DAY AND YEAR FIRST ABOVE WRITTEN.

IN TESTIMONY WHEREOF, EACH INDIVIDUAL MAKER HAS SET HIS HAND TO THIS
INSTRUMENT AND ADOPTED HIS SEAL THE WORK "SEAL" APPEARING BESIDE THE DAY AND
YEAR FIRST ABOVE WRITTEN.

MIDWEST DOUGHNUTS, L.L.C. /S/ PHILIP R.S. WAUGH, JR. (SEAL)
PHILIP R.S. WAUGH, JR.

/S/ ROBERT E.L. HODGES (SEAL)
BY: /S/ PHILIP R.S. WAUGH, JR. ROBERT E.L. HODGES
PHILIP R. S. WAUGH, JR., MEMBER
/S/ JIMMY B. STRICKLAND (SEAL)
ATTEST: /S/ ROBERT E.L. HODGES JIMMY B. STRICKLAND
ROBERT E.L. HODGES, SECRETARY

(Corporate Seal)

<PAGE> 1

EXHIBIT 10.22

TRADEMARK LICENSE AGREEMENT

This Agreement, effective as of the 27th day of May, 1996, is made
between HDN Development Corporation, a Delaware corporation with offices in
Florence, Kentucky ("HDN"), and Krispy Kreme Doughnut Corporation, a North
Carolina corporation with offices in Winston-Salem, North Carolina ("Krispy
Kreme").

RECITALS

WHEREAS, HDN is the owner of all right, title and interest in and to
those certain trademarks, trade names and service marks, and all related
registrations and applications for registration, as more particularly identified
on Exhibit A which is attached hereto and made a part hereof (collectively, the
"Trademarks").

WHEREAS, Krispy Kreme desires to acquire the right to use the
Trademarks: (i) at all of its retail locations; (ii) at the locations in which
it distributes the Licensed Products; (iii) as part of its corporate name; and
(iv) in connection with its business of manufacturing, packaging, selling,
marketing, and distributing the Licensed Products under the Trademarks in the
Territory, and to franchise or sub-license the right to do the same to
franchisees, sublicensees, affiliates and subsidiaries of Krispy Kreme;

WHEREAS, HDN is willing to authorize and license Krispy Kreme such
rights under the Trademarks.

NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are acknowledged by the parties, HDN and Krispy Kreme,
intending to be legally bound, agree as follows:

ARTICLE I - DEFINITIONS

1.1 "Trademarks" shall mean all those certain registered and
unregistered trade names, trademarks, service marks, and all
related registrations and applications for registration,
identified on Exhibit A hereto, and any future trade names,
trademarks and service marks added to the scope of this
Agreement by the mutual agreement of the parties.

1.2 "Licensed Products" shall mean all services and products of
Krispy Kreme delivered under the Trademarks, including but not
limited to fresh and frozen doughnuts, fried pies, honeybuns,
bagels, muffins, sweet rolls, all products sold at Krispy
Kreme retail locations and such other products as the parties
shall agree from time to time.

<PAGE> 2

1.3 "Territory" shall mean the world.

1.4 "Affiliate" or "Subsidiary" - shall mean any entity in which
Krispy Kreme owns at least a majority of the voting control of
such entity.

1.5 "Franchisee" or "Sublicensee" - shall mean any entity in which
Krispy Kreme does not own a majority of the voting control of
such entity to whom Krispy Kreme grants a franchise or
sublicense of the Trademarks.

ARTICLE II - GRANT OF LICENSE

2.1 HDN grants Krispy Kreme the non-exclusive, non-assignable
right and license to use the Trademarks in Krispy Kreme's
corporate name and in connection with the manufacture,
packaging, sale, marketing, and distribution of the Licensed
Products within the Territory.

2.2 HDN further authorizes Krispy Kreme to grant appropriate
sublicenses hereunder to Affiliates or Subsidiaries, all
subject to the terms and conditions hereinafter stated.

2.3 HDN further authorizes Krispy Kreme to franchise and
sublicense the Trademarks to Franchisees and Sublicensees, all
subject to the terms and conditions hereinafter stated. This
authorization is conditioned, however, upon such Franchisee or
Sublicensee paying to HDN a Franchise Fee as provided in
Section 7.2 hereunder. HDN reserves the right to disallow any
Franchise or Sublicense of the Trademarks within 30 days of
HDN receiving notice of the grant of such Franchise or
Sublicense.

2.4 It is the intent of the parties to this Agreement to permit
Krispy Kreme to utilize the Trademarks at such retail
locations as it may operate, or, in the case of Franchisees
or Sublicensees of Krispy Kreme, at such locations as may be
operated by such Franchisees or Sublicensees, and at the
locations in which Krispy Kreme distributes the Licensed
Products. Additionally, the parties intend that Krispy Kreme
will utilize the Trademarks at non-retail locations for the
limited purposes of labeling, packaging, advertisement and for
use in its corporate name.

ARTICLE III - QUALITY CONTROL

3.1 HDN shall have the right to exercise quality control over
Krispy Kreme's use of the Trademarks and Licensed Products to
a degree reasonably necessary to maintain the validity of the
Trademarks and to protect the goodwill associated therewith.
HDN recognizes and approves the quality of Krispy Kreme
products

<PAGE> 3

heretofore sold by Krispy Kreme under the trademarks now
termed the Trademarks in the territory now termed the
Territory.

3.2 Krispy Kreme shall use the Trademarks on or in connection only
with those Licensed Products that conform to the
specifications and standards of quality which HDN prescribes.
HDN adopts as said standards of quality those standards
embodied in said products sold heretofore by Krispy Kreme, and
Krispy Kreme will not deviate materially from those standards
without prior written approval from HDN.

3.3 In order to verify compliance with Paragraph 3.2 hereof, HDN
may from time to time require Krispy Kreme to submit samples
of Licensed Products, packaging and promotional materials
therefor, and other items bearing the Trademarks, and HDN, or
its delegate, may inspect the Licensed Products, packaging, or
promotional materials on Krispy Kreme's premises during
business hours, upon forty-eight (48) hours advance notice.

3.4 In order to further verify compliance with Paragraph 3.2
hereof, Krispy Kreme shall be required to submit to HDN a
quarterly progress report summary and information concerning
the number of customer complaints. The report submitted to HDN
(which will accompany the quarterly progress report summary)
shall be in a form substantially similar to the form attached
as Exhibit B to this Agreement, and shall be submitted to HDN
no later than thirty (30) days after the last day of each
fiscal quarter of Krispy Kreme.

3.5 Krispy Kreme shall use its best efforts to ensure that the
Licensed Products, and packaging or promotional materials
therefor, comply with all applicable ordinances, laws, and
statutes governing the manufacture, packaging, promotion, and
sale of such products.

ARTICLE IV - USE OF THE TRADEMARKS

4.1 Krispy Kreme shall use its best efforts to promote and extend
demand for the Licensed Products sold under the Trademarks in
the Territory.

4.2 Krispy Kreme recognizes the great value and goodwill
associated with the Trademarks and acknowledges HDN's
ownership in same. Krispy Kreme is a related company as
defined in Section 45 of the Trademark Act of the United
States, 15 U.S.C. ss. 1127, and Krispy Kreme's use of the
Trademarks inures to the benefit of HDN for all purposes
including trademark registration. Krispy Kreme shall not,
however:

(a) challenge the validity of the Trademarks or any
registration therefor;

<PAGE> 4

(b) contest the fact that its rights under this Agreement
are solely those of a licensee;

(d) use the Trademarks in any manner that would
jeopardize HDN's rights in the Trademarks; or

(e) knowingly do any act that would invalidate or be
likely to invalidate the HDN's trademark
registrations.

4.3 Krispy Kreme shall affix as a trademark registration notice to
the Licensed Products, and on the packaging, advertising,
promotional items used in conjunction with the Licensed
Products, the symbol 0 for registered trademarks and TM for
unregistered trademarks.

4.4 Krispy Kreme may not combine the Trademarks with any other
marks, names or symbols unless it obtains HDN's prior written
consent.

4.5 Krispy Kreme may not make any significant change in the
presentation of the Trademarks as affixed to the Licensed
Products, or used on packaging or promotional materials,
unless it obtains HDN's prior written consent.

4.6 HDN shall be responsible for trademark registration and
maintenance. Krispy Kreme shall cooperate with HDN and shall
execute any documents reasonably required by HDN or supply HDN
with any samples or other materials reasonably necessary to
maintain the Trademarks.

4.7 Krispy Kreme is authorized to use the Trademarks in connection
with the advertisement of its products and services in any
manner it deems appropriate, including without limitation use
of the Trademarks on apparel, print media, radio and
television. This authorization is conditioned, however, on
such advertising complying with all applicable local, state
and federal laws. Also, if sales of advertising products are
made by Krispy Kreme, such sales will be included with the
calculation of the Royalty under Section 7.1 of this
Agreement.

ARTICLE V - TRADEMARK ENFORCEMENT

5.1 In the event that Krispy Kreme learns of any infringement or
unauthorized use of any of the Trademarks, it shall promptly
notify HDN. HDN has the right to transmit notices of
infringement to or bring infringement actions against
infringing parties. If requested to do so, Krispy Kreme shall
cooperate with and assist HDN in any such action, including
joining the action as a party if necessary, at HDN's expense.
Any award, or portion of an award, recovered by HDN in any
such

<PAGE> 5

action or proceeding commenced by HDN shall belong solely to
HDN after recovery by both parties of their respective actual
out-of-pocket costs.

5.2 If HDN determines not to bring any such action, Krispy Kreme
may then bring such action in its own name at its own expense
provided it obtains the consent of HDN, which consent shall
not be unreasonably withheld. If requested to do so, HDN shall
cooperate with Krispy Kreme in any such action, including
joining the action as a party if necessary, at Krispy Kreme's
expense. Any award, or portion of an award, recovered by
Krispy Kreme in any such action or proceeding commenced by
Krispy Kreme shall belong solely to Krispy Kreme after
recovery by both parties of their respective actual
out-of-pocket costs.

5.3 In the event a third party institutes an infringement action
against Krispy Kreme for its use of the Trademarks as provided
in this Agreement, Krispy Kreme shall promptly notify HDN of
such suit in writing. HDN shall defend, at its own expense,
any such action, and Krispy Kreme shall cooperate in such
defense as reasonably requested by HDN, at HDN's expense. HDN
shall pay all judgments and settlements resulting from such
suits. Any award received by HDN in such an action shall
belong solely to HDN.

5.4 HDN and Krispy Kreme shall keep one another informed of the
status of , and their respective activities regarding, any
litigation concerning the Trademarks. Krispy Kreme may not
enter into a settlement or consent judgment involving the
trademarks, however, unless it obtains HDN's prior written
consent.

ARTICLE VI - INDEMNITY

6.1 Krispy Kreme shall indemnify and hold harmless HDN and its
affiliated entities and their respective officers, employees,
and agents, from any and all claims, suits, damages,
attorney's fees, costs, and expenses arising from Krispy
Kreme's performance and activities under this Agreement,
whenever and however asserted and established.

6.2 HDN shall indemnify and hold harmless Krispy Kreme and its
affiliated entities and their respective officers, employees,
and agents, from any and all claims, suits, damages,
attorney's fees, costs, and expenses arising from any claim by
any other person, firm or corporation of either a superior
right in and to the Licensed Products or any feature thereof
or infringement action arising out of the manufacture and
sale of the Licensed Products by Krispy Kreme.

<PAGE> 6

ARTICLE VII - ROYALTY

7.1 In consideration of the rights granted herein, Krispy Kreme
shall pay to HDN a royalty equivalent to a percentage of all
sales of the Licensed Products sold by Krispy Kreme, such
percentage currently being two percent (2%) (the "Royalty").

7.2 In consideration of the right to Franchise or Sublicense the
Trademarks hereunder, Krispy Kreme shall require, as an
integral part of any such Franchise or Sublicense of the
Trademarks, that all royalty fees payable to Krispy Kreme as a
result of such Franchise or Sublicense shall be payable to HDN
(the "Franchise Fees"). Krispy Kreme shall guaranty and shall
ultimately be responsible for payment of all Franchise Fees.

7.3 Unless agreed to the contrary, Krispy Kreme shall calculate
the Royalty and Franchise Fees payable to HDN on the last day
of each fiscal quarter of Krispy Kreme occurring during the
term of this Agreement, and shall pay or cause to have paid to
HDN such Royalty and Franchise Fees within thirty days of the
last day of each fiscal quarter occurring during the term of
this Agreement. Notwithstanding the foregoing, the Royalty
and Franchise Fees shall be deemed to accrue from day to day.
Simultaneous with submission of the Royalty and Franchise
Fees, Krispy Kreme shall deliver to HDN a detailed report of
the Royalty and Franchise Fees payable for the quarter.

7.4 HDN shall have the right to assess interest on any Royalty or
Franchise Fee due and remaining unpaid in the manner and on
the date stipulated for payment hereunder at a rate of two
percent (2%) per annum above the average prime rate as
reported in The Wall Street Journal for the period of default,
such interest being compounded at the end of each fiscal year.

7.5 Krispy Kreme shall maintain complete and accurate records
showing in detail the net sales of the Licensed Products. HDN,
or its duly authorized representative, is entitled to inspect
Krispy Kreme's records at all reasonable times.

7.6 HDN shall pay to Krispy Kreme a fee equal to twenty-five
percent (25%) of all collected Franchise Fees in consideration
for materials, marketing and know-how provided by Krispy Kreme
to Franchisees or Sublicensees, and for effort expended by
Krispy Kreme in increasing demand for products sold under the
Trademarks pursuant to Franchise and Sublicense arrangements.
This fee shall be paid to Krispy Kreme within ten days
following payment of the Franchisee Fee to HDN.

ARTICLE VIII - TERM AND TERMINATION

8.1 This Agreement will remain in force and effect for a period of
one year from the effective date of this agreement, and shall
renew automatically for successive

<PAGE> 7

yearly periods until either party provides written notice to
terminate the Agreement within sixty (80) days before the
expiration of the then current term.

8.2 In the event either party commits a material breach of this
Agreement, the other party may, upon written notice, terminate
the Agreement; provided, however, that the Agreement will not
be terminated if the breaching party cures the breach within
thirty (30) days of receipt of said notice (the "Cure
Period"). Further, if the breaching party is unable to cure
its breach within the Cure Period for reasons of force
majeure, or because of actions or omissions of the
non-breaching party, the breaching party shall have up to an
additional thirty (30) days in which to cure, so long as the
Agreement has not expired.

8.3 Notwithstanding anything to the contrary in Paragraph 8.2,
either party may, by written notice to the other party,
terminate this Agreement if any of the following events occur:

(a) the other party goes into liquidation other than a
voluntary liquidation for the purpose of
reorganization;

(b) the other party ceases to carry on business;

(c) the other party or a significant part of its
business, assets, ownership, management, or right of
disposition are confiscated, requisitioned,
nationalized, expropriated, or in any other manner
acquired without consent of the other party or its
shareholders, as the case may be, by or on behalf of
or under any law or at the instance of any Government
de jure or de facto.

ARTICLE IX - MISCELLANEOUS

9.1 This Agreement contains the entire understanding between the
parties.

9.2 This Agreement may be amended, modified, or supplemented, and
any provision hereof waived, only by a written agreement of
the parties hereto.

9.3 Krispy Kreme is not an agent of HDN, and nothing in this
Agreement places the parties in a relationship as partners or
joint venturers.

9.4 Any waiver of a breach by either party is not a waiver of any
subsequent or other breach.

9.5 This Agreement is governed by the laws of the .Commonwealth of
Kentucky, without respect to the conflict of laws provisions
thereof.

<PAGE> 8

9.6 The parties will attempt in good faith to resolve any dispute
arising under this Agreement through negotiation Failing
resolution through negotiation within thirty (30) days, the
parties will submit the dispute for mediation in the
Commonwealth of Kentucky under the CPR Institute for Dispute
Resolution (CPR) Model Procedure for Mediation of Business
Disputes or, in the case of a trademark or unfair competition
dispute, under the CPR Institute for Dispute Resolution/
International Trademark Association (CPR/INTA) Model Procedure
for Mediation of Trademark and Unfair Competition Disputes.
If the mediation fails to produce a resolution within thirty
(30) days, the parties will submit the dispute for binding
arbitration in Kentucky under the CPR Model Rules for
Non-Administered Arbitration of Business Disputes or the
CPR/INTA Model Rules for Non-Administered Arbitration of
Trademark and Unfair Competition. A judgment upon such an
arbitration award may be entered in any Kentucky court having
competent jurisdiction, or application may be made to an
appropriate Kentucky court for a judicial acceptance of the
award and an order of enforcement, as the party seeking to
enforce such award may accept. The Commonwealth of Kentucky
shall have full jurisdiction to prescribe, adjudicate and
enforce each matter with respect to this Agreement and Krispy
Kreme hereby voluntarily submits to the jurisdiction of the
Kentucky court system. The agreements of the parties
contained in this Paragraph have been made in exchange for
mutual consideration and such agreements are irrevocable.

9.7 Notices are received when delivered in person, sent by
overnight courier, or mailed by certified mail to:

HDN: HDN DEVELOPMENT CORPORATION
c/o Tucci & Tannenbaum
Suite 206
Three Mill Road
Wilmington, Delaware 19806

Krispy Kreme: KRISPY KREME DOUGHNUT CORPORATION
c/o Mark T. Preston
1814 Ivy Avenue
Winston-Salem, NC 27102

9.8 This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and
permitted assigns.

9.9 This Agreement may be executed in counterparts, each of which
when so executed and delivered shall constitute a complete and
original instrument but all of which together shall constitute
one and the same agreement, and it shall not be necessary when
making proof of this Agreement or any counterpart thereof to
account for any other counterpart.

<PAGE> 9

[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURES ONLY TO FOLLOW]

<PAGE> 10

IN WITNESS WHEREOF each of the undersigned represents that he is
authorized to bind his company to the terms of this Agreement, signed to be
effective this 27th day of May, 1996:

HDN DEVELOPMENT CORPORATION

By: /s/ Mark T. Preston
Name: Mark T. Preston
Title: President

KRISPY KREME DOUGHNUT CORPORATION

By: /s/ Randy S. Casstevens
Name: Randy S. Casstevens
Title: VP-Finance

<PAGE> 11

EXHIBIT A
TO
LICENSE AGREEMENT

[SEE ATTACHED IDENTIFICATION OF TRADEMARKS]

<PAGE> 12

EXHIBIT A
TO
LICENSE AGREEMENT

IDENTIFICATION OF U.S. REGISTERED TRADEMARKS

Trademark Registration Number
- --------- -------------------

EARLY MORN 1,454,537

EARLY MORN 1,366,921

HOT DOUGHNUTS NOW 1,973,398

HOT DOUGHNUTS NOW and Design 1,719,628

KING OF AMERICA'S DOUGHNUTS 945,871

KK (and Design) 967,682

KK (Walking K's logo w/circle) 939,105

KK and Design 622,399

KRISPY CRULLERS 1,894,237

KRISPY DELIGHT 1,723,019

KRISPY DIPPERS 1,798,838

KRISPY JUNIORS 1,776,001

KRISPY KNIBBLES 1,663,032

KRISPY KREME 967,683

KRISPY KREME 967,684

KRISPY KREME 995,291

KRISPY KREME 938,245

KRISPY KREME 961,976

<PAGE> 13

Trademark Registration Number
- --------- -------------------

KRISPY KREME (Stylized) 1,001,792

KRISPY KREME (Stylized) 539,165

KRISPY KREME (Stylized) 961,975

KRISPY KREME and Design 1,068,228

KRISPY KREME and Design 1,907,245

KRISPY KREME and Design 1,066,864

KRISPY KREME in Bowtie Design 1,683,112

KRISPY-ETTES 1,617,814

THORNTON'S 1,316,008

YOU KNOW BY THE GLOW 1,840,750

IDENTIFICATION OF U.S. TRADEMARK APPLICATIONS

Trademark Serial Number
- --------- -------------

HOT DOUGHNUTS NOW 75/022,750

KK (and Design) 75,022,751

KRISPY KREME 75,022,752

KRISPY KREME 75,022,753

KRISPY KREME 74/734,791

KRISPY KREME DOUGHNUTS 75/022,754

<PAGE> 14

IDENTIFICATION OF FOREIGN TRADEMARK
REGISTRATIONS AND APPLICATIONS

Trademark Registration/Serial Number Jurisdiction
- --------- -------------------------- ------------

KRISPY KREME (Stylized) 417,435 Switzerland

KRISPY KREME 448,289 Canada

KRISPY KREME 06690/1993 Denmark

KRISPY KREME 395 15 768.4 Germany

KRISPY KREME 190552 France

KRISPY KREME 89311 Israel

KRISPY KREME RM93C/003400 Italy

KRISPY KREME 106782/1993 Japan

KRISPY KREME 158,578 Ireland

KRISPY KREME 11788.797 Spain

KRISPY KREME 1551084 U.K.

KRISPY KREME and Design 152 017 Austria

KRISPY KREME (Device) 667633 Australia

KRISPY KREME 96-14382 South Korea

KRISPY KREME DOUGHNUTS
and Design 538,038 Benelux

KRISPY KREME DOUGHNUTS
and Design 458,880 Mexico

KRISPY KREME DOUGHNUTS
(Device) 93 5338 Norway

KRISPY KREME DOUGHNUTS 266,235 Sweden

<PAGE> 15

IDENTIFICATION OF STATE TRADEMARK REGISTRATIONS

Trademark Registration Number Jurisdiction
- --------- ------------------- ------------

EARLY MORN DOUGHNUTS Tennessee

KRISPY KREME DOUGHNUTS Tennessee

KRISPY KREME 677 North Carolina

IDENTIFICATION OF UNREGISTERED TRADEMARKS

Trademark Products
- --------- --------

Race to Daytona Sweepstakes

Doughnuts with Davey
At Your House Sweepstakes

Red-E-Made Products of the Nashville, TN fresh
bakery division of Rich Products
Corporation, acquired by Krispy Kreme
Doughnut Corporation on July 6, 19898.

Early Morn Fried pies, honey buns, and dunkin'
sticks

America's Favorite Doughnuts, fried pies, honey buns and
dunkin' sticks

Thornton's the Donut King [trademark]

Thornton's Flav-O-Rich [tradename]

<PAGE> 16

EXHIBIT B
TO
LICENSE AGREEMENT

[FORM OF QUALITY CONTROL STANDARDS REPORT]

<PAGE> 17

QUALITY CONTROL STANDARDS REPORT

THIS QUALITY CONTROL STANDARDS REPORT (the "Report") is given by Krispy
Kreme Doughnut Corporation (the "Licensee") to HDN Corporation (the 'Licensor")
pursuant to Section 3.4 of the License Agreement made effective as of May 27,
1996, by and between HDN Development Corporation and the Licensee (the "License
Agreement").

The Licensee does hereby certify to the Licensor that the Standards
were being substantially maintained with respect to each of the Services and
Products for the Quarter ended __________________, _____ (the "Report Period").

Licensee further certifies that it has received less than _________
customer complaints for the Report Period.

A progress report summary for the Report Period is attached hereto.

Except as otherwise set forth herein, capitalized terms as used herein
have the same meaning as set forth in the License Agreement.

IN WITNESS WHEREOF, the Licensee has caused this Quality Control
Standards Report to be executed on its behalf by one of its officers and
delivered to the Licensor this the _____ day of ___________________, ______.

KRISPY KREME DOUGHNUT CORPORATION

By ________________________________
Name ______________________________
Title _____________________________

<PAGE> 1

EXHIBIT 10.23

________________________________________________________________________________

KRISPY KREME DOUGHNUT CORPORATION

1998 STOCK OPTION PLAN

EFFECTIVE AS OF AUGUST 6, 1998

________________________________________________________________________________

<PAGE> 2

TABLE OF CONTENTS

ARTICLE 1 - GENERAL PROVISIONS.................................................1
1.1 Purpose......................................................1
1.2 Types of Awards..............................................1
1.3 Effective Date...............................................1

ARTICLE 2 - DEFINITIONS........................................................1
2.1 Act..........................................................1
2.2 Agreement....................................................1
2.3 Board........................................................1
2.4 Code.........................................................2
2.5 Committee....................................................2
2.6 Corporation..................................................2
2.7 Disability...................................................2
2.8 Effective Date...............................................2
2.9 Eligible Participant.........................................2
2.10 Fair Market Value............................................2
2.11 Incentive Stock Option.......................................2
2.12 Non-Employee Director........................................2
2.13 Nonqualified Stock Option....................................2
2.14 Option Grant Date............................................2
2.15 Parent Corporation...........................................3
2.16 Participant..................................................3
2.17 Plan.........................................................3
2.18 Retirement...................................................3
2.19 Stock........................................................3
2.20 Stock Option.................................................3
2.21 Subsidiary Corporation.......................................3
2.22 Termination of Employment....................................3

ARTICLE 3 - ADMINISTRATION.....................................................4
3.1 Committee....................................................4
3.2 Action by Committee..........................................4
3.3 Authority of Committee.......................................4
3.4 Decisions Binding............................................5
3.5 Written Agreement............................................5
3.6 Securities Law Restrictions..................................5
3.7 Rights as Shareholder........................................6
3.8 Change in Capital Structure..................................6
3.9 Indemnification of Committee.................................7
3.10 Adjustment to Stock Option Terms.............................7
3.11 Cancellation of Stock Options................................7

<PAGE> 3

ARTICLE 4 - SHARES SUBJECT TO THE PLAN.........................................8
4.1 Number of Shares.............................................8
4.2 Lapsed Awards................................................8
4.3 Stock Distributed............................................8

ARTICLE 5 - INCENTIVE STOCK OPTIONS............................................8
5.1 Compliance With Code.........................................8
5.2 Available Shares.............................................8
5.3 Incentive Stock Option Terms.................................8
5.4 Repurchase of Incentive Stock Options........................9
5.5 Individual Dollar Limitation.................................9

ARTICLE 6 - NONQUALIFIED STOCK OPTIONS.........................................9
6.1 Grants.......................................................9
6.2 Available Shares.............................................9
6.3 Exercise Price..............................................10
6.4 Nonqualified Stock Option Terms.............................10

ARTICLE 7 - INCIDENTS OF STOCK OPTIONS........................................10
7.1 Terms and Conditions........................................10
7.2 Restrictions on Transfer....................................10
7.3 Form of Payment.............................................11
7.4 Stock Purchase Agreement....................................11
7.5 Dividends...................................................12
7.6 Death or Disability.........................................12
7.7 Retirement..................................................12
7.8 Replacement Stock Option Grants.............................12

ARTICLE 8 - AMENDMENT AND TERMINATION.........................................12
8.1 Amendment or Termination of Plan............................12
8.2 Effect of Amendment or Termination of Plan..................13

ARTICLE 9 - MISCELLANEOUS PROVISIONS..........................................13
9.1 No Right to Employment......................................13
9.2 Tax Withholding.............................................14
9.3 Subject to Federal and State Laws...........................14
9.4 Successors and Assigns......................................15
9.5 Governing Law...............................................15
9.6 Unfunded Status of Plan.....................................15
9.7 Notice of Section 83(b) Election............................15
9.8 Severability of Plan........................................15
9.9 Additional Provisions.......................................15
9.10 Resolution of Controversy...................................15

<PAGE> 4

KRISPY KREME DOUGHNUT CORPORATION
1998 STOCK OPTION PLAN

ARTICLE 1 - GENERAL PROVISIONS

1.1 PURPOSE. The Plan is designed, for the benefit of the Corporation, to
attract and retain for the Corporation employees and directors of
exceptional ability; to motivate such individuals through added
incentives to make a maximum contribution to greater profitability; to
develop and maintain a highly competent management team; and to be
competitive with other companies with respect to equity compensation.

1.2 TYPES OF AWARDS. Awards under the Plan may be made to Participants in
the form of (i) Incentive Stock Options; and/or (ii) Nonqualified Stock
Options.

1.3 EFFECTIVE DATE. The Plan shall be effective as of August 6, 1998.

(a) Notwithstanding any other provision of this Plan, any Stock
Option granted to a Participant prior to the date on which the
shareholders of the Corporation approve the Plan (which
approval must be obtained within the 12-month period before
the Effective Date or the 12-month period after the Effective
Date in order for Incentive Stock Options to be granted under
the Plan) shall be conditioned upon and subject to such
shareholder approval to the extent required by Section 16(b)
of the Act or Section 422 of the Code.

(b) If an Incentive Stock Option is granted prior to the date on
which such shareholder approval is obtained, and such approval
is obtained after the end of the 12-month period beginning on
the Effective Date, such Incentive Stock Option shall be
deemed a Nonqualified Stock Option granted pursuant to Article
5.

ARTICLE 2 - DEFINITIONS

Except where the context otherwise indicates, the following definitions apply:

2.1 "Act" means the Securities Exchange Act of 1934, as now in effect or as
hereafter amended. All citations to sections of the Act or rules
thereunder are to such sections or rules as they may from time to time
be amended or renumbered.

2.2 "Agreement" means the written agreement evidencing a Stock Option
granted to a Participant under the Plan.

2.3 "Board" means the Board of Directors of Krispy Kreme Doughnut
Corporation.

<PAGE> 5

2.4 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.

2.5 "Committee" means the committee consisting of two or more members
appointed by the Board to administer this Plan pursuant to Article 3 or
for such limited purposes as may be provided by the Board. To the
extent required by Rule 16b-3 under the Act, the Committee shall
consist of individuals who are Non-Employee Directors. The Board shall
function as the Committee at any time the Committee is not otherwise
constituted.

2.6 "Corporation" means Krispy Kreme Doughnut Corporation, a North Carolina
corporation, and its successors and assigns. The term "Corporation"
shall include any Parent Corporation and any Subsidiary Corporation.
With respect to all purposes of the Plan, including, but not limited
to, the establishment, amendment, termination, operation and
administration of the Plan, Krispy Kreme Doughnut Corporation shall be
authorized to act on behalf of all other entities included within the
definition of Corporation.

2.7 "Disability" means a condition resulting in the Participant commencing
full disability benefits under the Employer's program of long-term
disability insurance.

2.8 "Effective Date" shall mean August 6, 1998.

2.9 "Eligible Participant" means any employee of the Corporation, as shall
be determined by the Committee, as well as any other person, including
directors and consultants whose participation in the Plan the Committee
determines is in the best interest of the Corporation, subject to
limitations as may be provided by the Code, the Act or the Committee.

2.10 "Fair Market Value" shall be the value of a share of stock, as
determined by the Committee in its sole discretion from time to time.
The determination of Fair Market Value in connection with an Incentive
Stock Option shall be made by the Committee in accordance with Section
422 of the Code and the rules and regulations thereunder.

2.11 "Incentive Stock Option" means a Stock Option granted under Article 4
of the Plan, and as defined in Section 422 of the Code.

2.12 "Non-Employee Director" shall have the meaning set forth in Rule 16b-3
under the Act.

2.13 "Nonqualified Stock Option" means a Stock Option granted under Article
5 of the Plan.

2.14 "Option Grant Date" means, as to any Stock Option, the latest of:

(a) the date on which the Committee grants the Stock Option by
authorizing the officers of the Corporation to enter into an
Agreement with the Participant for a specified number of
options at a specified exercise price;

<PAGE> 6

(b) the date the Participant receiving the Stock Option becomes an
employee of the Corporation, to the extent employment status
is a condition of the grant or a requirement of the Code or
the Act; or

2.15 "Parent Corporation" means any corporation (other than Krispy Kreme
Doughnut Corporation) in an unbroken chain of corporations ending with
Krispy Kreme Doughnut Corporation if, at the time of the granting of
the option, each of the corporations other than Krispy Kreme Doughnut
Corporation owns stock possessing 50 percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.

2.16 "Participant" means an Eligible Participant to whom a Stock Option has
been granted and who has entered into an Agreement evidencing the Stock
Option.

2.17 "Plan" means the Krispy Kreme Doughnut Corporation 1998 Stock Option
Plan, as amended from time to time.

2.18 "Retirement" shall mean the Participant's Termination of Employment at
a time when (i) for an employee, the sum of the Participant's age and
years of employment with the Corporation equals or exceeds 65, and (ii)
for a Participant who is a Non-Employee Director, the Non-Employee
Director is deemed to be in good standing, as determined by the
Committee in its sole discretion.

2.19 "Stock" means shares of common stock of Krispy Kreme Doughnut
Corporation, as may be adjusted pursuant to the provisions of Section
3.9.

2.20 "Stock Option" means an Incentive Stock Option granted under Article 4
or a Nonqualified Stock Option granted under Article 5 herein.

2.21 "Subsidiary Corporation" means any corporation (other than Krispy Kreme
Doughnut Corporation) in an unbroken chain of corporations beginning
with the employer corporation if, at the time of the granting of the
option, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50 percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

2.22 "Termination of Employment" with respect to an employee means the
discontinuance of employment of a Participant with the Corporation for
any reason. The determination of whether a Participant has discontinued
employment shall be made by the Committee in its discretion.
"Termination of Employment" with respect to a Non-Employee Director
means the discontinuance of the Non-Employee Director's service as a
member of the Board. In

<PAGE> 7

determining whether a Termination of Employment has occurred, the
Committee may provide that service as a consultant or service with a
business enterprise in which the Corporation has a significant
ownership interest or which is a franchisee of the Corporation shall be
treated as employment with the Corporation. The Committee shall have
the discretion, exercisable either at the time the Stock Option is
granted or at the time the Participant terminates employment, to
establish as a provision applicable to the exercise of one or more
Stock Options that during the limited period of exercisability
following Termination of Employment, the Stock Option may be exercised
not only with respect to the number of shares of Stock for which it is
exercisable at the time of the Termination of Employment but also with
respect to one or more subsequent installments for which the Stock
Option would have become exercisable had the Termination of Employment
not occurred.

ARTICLE 3 - ADMINISTRATION

3.1 COMMITTEE. This Plan shall be administered by the Committee. At any
time that the officers and directors of the Corporation are subject to
Section 16 of the Act, a Committee member who is not a Non-Employee
Director shall not be able to participate in any decision made by the
Committee to the extent proscribed by Rule 16b-3 under the Act. The
Committee, in its discretion, may delegate to one or more of its
members such of its powers as it deems appropriate. The Committee also
may limit the power of any member to the extent necessary to comply
with Rule 16b-3 under the Act or any other law. Members of the
Committee shall be appointed originally, and as vacancies occur, by the
Board, to serve at the pleasure of the Board. The Board may serve as
the Committee if by the terms of the Plan all Board members are
otherwise eligible to serve on the Committee.

3.2 ACTION BY COMMITTEE. The Committee shall meet at such times and places
as it determines. A majority of its members shall constitute a quorum,
and the decision of a majority of those present at any meeting at which
a quorum is present shall constitute the decision of the Committee. A
memorandum signed by all of its members shall constitute the decision
of the Committee without necessity, in such event, for holding an
actual meeting.

3.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power,
authority and discretion to:

(a) designate Participants;

(b) determine the type or types of Stock Options to be granted to
each Participant;

(c) determine the number of Stock Options to be granted and the
number of shares of Stock to which a Stock Option will relate;

<PAGE> 8

(d) determine the terms and conditions of any Stock Option granted
under the Plan, including, but not limited to, the exercise
price, grant price, or purchase price, any restrictions or
limitations on the Stock Option, any schedule for lapse of
forfeiture restrictions or restrictions on the exercisability
of a Stock, and accelerations or waivers thereof, based in
each case on such considerations as the Committee in its sole
discretion determines;

(e) accelerate the vesting or lapse of restrictions of any
outstanding Stock Option, based in each case on such
considerations as the Committee in its sole discretion
determines;

(f) determine whether, to what extent, and under what
circumstances a Stock Option may be settled in, or the
exercise price of a Stock Option may be paid in, cash, Stock,
other Stock Options, or other property, or a Stock Option may
be cancelled, forfeited, or surrendered;

(g) prescribe the form of each Stock Option Agreement, which need
not be identical for each Participant;

(h) decide all other matters that must be determined in connection
with a Stock Option;

(i) establish, adopt or revise any rules and regulations as it may
deem necessary or advisable to administer the Plan;

(j) make all other decisions and determinations that may be
required under the Plan or as the Committee deems necessary or
advisable to administer the Plan; and

(k) amend the Plan or any Stock Option Agreement as provided in
Article 8.

3.4 DECISIONS BINDING. The Committee's interpretation of the Plan, any
Stock Options granted under the Plan, any Stock Option Agreement and
all decisions and determinations by the Committee with respect to the
Plan are final, binding, and conclusive on all parties.

3.5 WRITTEN AGREEMENT. Each Stock Option granted under the Plan shall be
evidenced by a written Agreement. Each Agreement shall be subject to
and incorporate, by reference or otherwise, the applicable terms and
conditions of the Plan, and any other terms and conditions, not
inconsistent with the Plan, required by the Committee.

3.6 SECURITIES LAW RESTRICTIONS. All certificates for shares of Stock
delivered under the Plan shall also be subject to such stop-transfer
orders and other restrictions as the Committee may deem advisable under
the rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange or national quotation system
upon which the Stock is then listed and any applicable federal or state
laws, and the Committee may cause a legend or legends to be placed on
any such certificates to make appropriate

<PAGE> 9

reference to such restrictions. In making such determination, the
Committee may rely upon an opinion of counsel for the Corporation.

The Committee may require each person purchasing shares of Stock
pursuant to a Stock Option granted under the Plan to represent to and
agree with the Corporation in writing that he is acquiring the shares
of Stock without a view to distribution thereof. The certificates for
such shares of Stock may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.

3.7 RIGHTS AS SHAREHOLDER. Except as provided otherwise in the Plan or in
an Agreement, no Participant awarded a Stock Option shall have any
right as a shareholder with respect to any shares of Stock covered by
his or her Stock Option prior to the date of issuance to him or her of
a certificate or certificates for such shares of Stock.

3.8 CHANGE IN CAPITAL STRUCTURE. If any reorganization, recapitalization,
reclassification, stock split-up, stock dividend, or consolidation of
shares of Stock, merger or consolidation of the Corporation or sale or
other disposition by the Corporation of all or a portion of its assets,
any other change in the Corporation's corporate structure, or any
distribution to shareholders other than a cash dividend results in the
outstanding shares of Stock, or any securities exchanged therefor or
received in their place, being exchanged for a different number or
class of shares of Stock or other securities of the Corporation, or for
shares of Stock or other securities of any other corporation; or new,
different or additional shares or other securities of the Corporation
or of any other corporation being received by the holders of
outstanding shares of Stock, then equitable adjustments shall be made
by the Committee in:

(a) the limitation of the aggregate number of shares of Stock that
may be awarded as set forth in Section 3.5 of the Plan;

(b) the number and class of Stock that may be subject to a Stock
Option, and which have not been issued or transferred under an
outstanding Stock Option;

(d) the terms, conditions or restrictions of any Stock Option and
Agreement, including the price payable for the acquisition of
Stock;

provided, however, that all adjustments made as the result of the
foregoing in respect of each Incentive Stock Option shall be made so
that such Stock Option shall continue to be an Incentive Stock Option,
as defined in Section 422 of the Code, unless the Committee has stated
its intent in writing to treat such Stock Option instead as a
Nonqualified Stock Option.

<PAGE> 10

3.9 INDEMNIFICATION OF COMMITTEE. In addition to such other rights of
indemnification as they may have as directors or as members of the
Committee, the members of the Committee shall be indemnified by the
Corporation against reasonable expenses, including attorney's fees,
actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein,
to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any
Stock Option granted hereunder, and against all amounts paid by them in
settlement thereof, provided such settlement is approved by independent
legal counsel selected by the Corporation, or paid by them in
satisfaction of a judgment or settlement in any such action, suit or
proceeding, except as to matters as to which the Committee member has
been negligent or engaged in misconduct in the performance of his
duties; provided, that within 60 days after institution of any such
action, suit or proceeding, a Committee member shall in writing offer
the Corporation the opportunity, at its own expense, to handle and
defend the same.

3.10 ADJUSTMENT TO STOCK OPTION TERMS. The Committee shall be authorized to
make adjustments in performance based criteria or in the other terms
and conditions of Stock Options in recognition of unusual or
nonrecurring events affecting the Corporation or its financial
statements or changes in applicable laws, regulations or accounting
principles. Unless otherwise required by applicable law, rule or
regulation, such adjustments will not be considered to result in the
grant of a new Stock Option. The Committee may correct any defect,
supply any omission or reconcile any inconsistency in the Plan or any
Agreement in the manner and to the extent it shall deem desirable to
carry it into effect. In the event the Corporation shall assume
outstanding employee benefit awards or the right or obligation to make
future such awards in connection with the acquisition of another
corporation or business entity, the Committee may, in its discretion,
make such adjustments in the terms of Stock Options under the Plan as
it shall deem appropriate to assume the outstanding awards, rights and
obligations.

3.11 CANCELLATION OF STOCK OPTIONS. If the Committee determines that
egregious circumstances exist which have been caused by the
Participant, the Committee shall have the full power and authority to
cancel or suspend any Stock Option granted to such Participant. In
particular, but without limitation, all outstanding Stock Options
granted to any Participant may be canceled if (a) the Participant,
without the consent of the Committee, while employed by the Corporation
or after termination of such employment, becomes associated with,
employed by, renders services to, or owns any interest in, other than
any insubstantial interest, as determined by the Committee, any
business that is in competition with the Corporation or with any
business in which the Corporation has a substantial interest as
determined by the Committee; (b) the Participant is terminated for
cause as determined by the Committee in its discretion; or (c) the
Corporation voluntarily or involuntarily files for and obtains relief
under the United States Bankruptcy Code or any similar state law for
the protection of creditors.

<PAGE> 11

ARTICLE 4 - SHARES SUBJECT TO THE PLAN

4.1 NUMBER OF SHARES. The aggregate number of shares of Stock which are
available for Stock Options under the Plan shall be Ninety-Five
Thousand Six Hundred Fifty (95,650) shares, subject to adjustment as
provided in Section 3.8.

4.2 LAPSED AWARDS. To the extent that a Stock Option is cancelled,
terminates, expires or lapses for any reason, any shares of Stock
subject to the Stock Option will again be available for the grant of a
Stock Option under the Plan.

4.3 STOCK DISTRIBUTED. Any Stock distributed pursuant to a Stock Option may
consist, in whole or in part, of authorized and unissued Stock,
treasury Stock or Stock purchased on the open market.

ARTICLE 5 - INCENTIVE STOCK OPTIONS

5.1 COMPLIANCE WITH CODE Each provision of this Article 5 and of each
Incentive Stock Option granted hereunder shall be construed in
accordance with the provisions of Section 422 of the Code, and any
provision hereof that cannot be so construed shall be disregarded.

5.2 AVAILABLE SHARES All or any portion of the shares of Stock authorized
for issuance pursuant to Section 4.1 herein shall be available for
issuance pursuant to Incentive Stock Options granted hereunder.

5.3 INCENTIVE STOCK OPTION TERMS. Incentive Stock Options shall be granted
only to Eligible Participants who are in the active employment of the
Corporation, each of whom may be granted one or more such Incentive
Stock Options for a reason related to his employment at such time or
times determined by the Committee following the Effective Date until
August 5, 2008, subject to the following conditions:

(a) The Incentive Stock Option price per share of Stock shall be
set in the corresponding Agreement, but shall not be less than
100% of the Fair Market Value of the Stock on the Option Grant
Date. However, if the Optionee owns more than 10% of the
outstanding Stock (as determined pursuant to Section 424(d) of
the Code) on the Option Grant Date, the Incentive Stock Option
price per share shall not be less than 110% of the Fair Market
Value of the Stock on the Option Grant Date.

(b) Subject to any conditions upon exercise that the Committee may
specify in the corresponding Agreement, the Incentive Stock
Option may be exercised in whole or in part within ten years
from the Option Grant Date (within five years if the Optionee
owns more than 10% of the Stock on the Option Grant Date), or
such shorter period as may be specified by the Committee in
the Agreement; provided, that, in any event, the Incentive
Stock Option shall lapse and cease to be exercisable

<PAGE> 12

upon a Termination of Employment or within such period
following a Termination of Employment as shall have been
specified in the Agreement, which period shall not exceed 90
days unless:

(i) employment shall have terminated as a result of death
or Disability, in which event such period shall not
exceed one year after the date of death or
Disability; or

(ii) death shall have occurred following a Termination of
Employment and while the Incentive Stock Option was
still exercisable, in which event such period shall
not exceed one year after the date of death;

provided, further, that such period following a Termination of
Employment shall in no event extend the original exercise
period of the Incentive Stock Option.

(c) The Committee may adopt any other terms and conditions which
it determines should be imposed for the Incentive Stock Option
to qualify under Section 422 of the Code, as well as any other
terms and conditions not inconsistent with this Article 5 as
determined by the Committee.

5.4 REPURCHASE OF INCENTIVE STOCK OPTIONS. The Committee may at any time
offer to buy out for a payment in cash, Stock or other consideration an
Incentive Stock Option previously granted, based on such terms and
conditions as the Committee shall establish and communicate to the
Participant at the time that such offer is made.

5.5 INDIVIDUAL DOLLAR LIMITATION. To the extent the aggregate Fair Market
Value, determined as of the Option Grant Date, of the shares of Stock
with respect to which Incentive Stock Options (determined without
regard to this subsection) are first exercisable during any calendar
year by any Eligible Participant exceeds $100,000, or any Incentive
Stock Options fail to qualify under Section 422 of the Code, such
Incentive Stock Options shall be treated as Nonqualified Stock Options
granted under Article 5.

ARTICLE 6 - NONQUALIFIED STOCK OPTIONS

6.1 GRANTS. One or more Stock Options may be granted as Nonqualified Stock
Options to Eligible Participants to purchase shares of Stock at such
time or times determined by the Committee, subject to the terms and
conditions set forth in this Article 6.

6.2 AVAILABLE SHARES. All or any portion of the shares of Stock authorized
for issuance pursuant to Section 4.1 herein shall be available for
issuance pursuant to Nonqualified Stock Options granted hereunder.

<PAGE> 13

6.3 EXERCISE PRICE. The Nonqualified Stock Option price per share of Stock
shall be established in the Agreement and may be less than 100% of the
Fair Market Value at the time of the grant, or at such later date as
the Committee shall determine.

6.4 NONQUALIFIED STOCK OPTION TERMS. The Nonqualified Stock Option may be
exercised within such period, and subject to such restrictions as may
be specified by the Committee in the corresponding Agreement or
otherwise; provided, that, in any event, the Nonqualified Stock Option
shall lapse and cease to be exercisable upon a Termination of
Employment or within such period following a Termination of Employment
as shall have been specified in the Agreement, which period shall not
exceed 90 days unless:

(a) employment shall have terminated as a result of death or
Disability, in which event such period shall not exceed one
year after the date of death or Disability; or

(b) death shall have occurred following a Termination of
Employment and while the Nonqualified Stock Option was still
exercisable, in which event such period shall not exceed one
year after the date of death;

(d) such provision is adjusted by the Committee;

provided, further, that such period following a Termination of
Employment shall in no event extend the original exercise period of the
Nonqualified Stock Option.

The Nonqualified Stock Option Agreement may include any other terms and
conditions not inconsistent with this Article 6 or in Article 7, as
determined by the Committee.

ARTICLE 7 - INCIDENTS OF STOCK OPTIONS

7.1 TERMS AND CONDITIONS. Each Stock Option shall be granted subject to
such terms and conditions, if any, not inconsistent with this Plan, as
shall be determined by the Committee, including any provisions as to
continued employment as consideration for the grant or exercise of such
Stock Option and any provisions which may be advisable to comply with
applicable laws, regulations or rulings of any governmental authority.

7.2 RESTRICTIONS ON TRANSFER A Stock Option shall not be transferable by
the Participant other than by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the
Participant only by him or, in the event of his death or Disability, by
his guardian, legal representative, executor, legatee, heir or
distributee of the estate of the Participant. For so long as the Stock
Purchase Agreement remains in effect, a Participant may bequest a Stock
Option only to, or in trust for the benefit of, his spouse, children,
or grandchildren. Notwithstanding any language herein or in any
Agreement to the contrary, the Committee may (but need not) permit
other transfers

<PAGE> 14

where the Committee concludes that such transferability (i) does not
result in accelerated taxation, (ii) does not cause any Option intended
to be an incentive stock option to fail to be described in Code ss.
422(b), and (iii) is otherwise appropriate and desirable, taking into
account any state or federal securities laws applicable to transferable
Stock Options.

Except as provided herein, in any Agreement, or otherwise provided by
the Committee, no Stock Option shall be transferable. If any
Participant makes such a transfer in violation hereof, any obligation
of the Corporation with respect to such Stock Option shall forthwith
terminate.

7.3 FORM OF PAYMENT. Subject to limitations set forth in the corresponding
Agreement, the Participant may exercise a Stock Option and purchase
Stock by:

(a) personal check;

(b) surrender of shares of Stock that either (i) are being
purchased pursuant to the exercise of a Stock Option such that
the Participant pays the Stock Option price by directing the
Corporation to withhold from the shares of Stock that would
otherwise be issued upon exercise of the Stock Option the
number of shares having a Fair Market Value on the exercise
date equal to the Option price; (ii) have been owned by
Participant for more than 180 days (unless the Committee
permits a Participant to exercise an Option by pyramiding, in
which event the 180 days holding period shall not apply) and
have been "paid for" within the meaning of SEC Rule 144 (and,
if such shares were purchased from the Corporation by use of a
promissory note, such note has been fully paid with respect to
such shares); or (iii) were obtained by Participant in the
public market;

(c) with the consent of the Committee, by tender of a full
recourse promissory note having such terms as may be approved
by the Committee, bearing interest at a rate sufficient to
avoid imputation of income under Sections 483 and 1274 of the
Code, and being secured by such collateral as the Committee
deems appropriate; provided, further, that the portion of the
purchase price equal to the par value of the Stock, if any,
must be paid in cash if required by state law; or

(d) with the consent of the Committee, by waiver of compensation
due or accrued to Participant for services rendered and/or for
goods delivered.

Any such payment terms must comply with any applicable requirements
under Rule 16b-3 of the Act.

7.4 STOCK PURCHASE AGREEMENT A Participant who exercises a Stock Option
shall be deemed to be a party to the Stock Purchase Agreement, as
amended, among the Corporation and its shareholders, originally
effective July 1, 1984, and shall be subject to all provisions of such
Stock Purchase Agreement. The Committee may place additional
restrictions on the transfer of Stock purchased by a Participant under
a Stock Option.

<PAGE> 15

Similarly, the Committee may require a Participant to enter into the
Voting Agreement originally dated August 26, 1998 as a condition for
the Participant's exercise of a Stock Option.

7.5 DIVIDENDS. No cash dividends shall be paid on shares of Stock subject
to unexercised Stock Options.

7.6 DEATH OR DISABILITY. In the event of Disability or death, the
Committee, with the consent of the Participant or his legal
representative, may authorize payment, in cash or in Stock, or partly
in cash and partly in Stock, as the Committee may direct, of an amount
equal to the difference at the time between the Fair Market Value of
the Stock subject to a Stock Option and the option price in
consideration of the surrender of the Stock Option.

7.7 RETIREMENT. If a Participant's Termination of Employment is on account
of Retirement, the Participant shall retain any Stock Option previously
granted to him until the expiration of the term of the Stock Option,
determined without regard to the Termination of Employment, so long as
the Participant does not engage in competition with the Corporation, as
determined by the Committee, in its sole discretion.

7.8 REPLACEMENT STOCK OPTION GRANTS. The Committee may permit the voluntary
surrender of all or a portion of any Stock Option granted under the
Plan to be conditioned upon the granting to the Participant of a new
Stock Option for the same or a different number of shares of Stock as
the Stock Option surrendered, or may require such surrender as a
condition precedent to a grant of a new Stock Option to such
Participant. Subject to the provisions of the Plan, and except as
otherwise agreed by the Participant, such new Stock Option shall be
exercisable at the same price as the surrendered Stock Option and
during such period and on such other terms and conditions as are
specified by the Committee at the time the new Stock Option is granted.
Upon surrender, the Stock Options surrendered shall be canceled and the
shares of Stock previously subject to them shall be available for the
grant of other Stock Options. For purposes of determining the number of
Stock Options issued pursuant to the Plan, new Stock Options offered in
consideration for Stock Options to be surrendered shall not be
considered as issued until such Stock Options are surrendered unless
otherwise required by law.

ARTICLE 8 - AMENDMENT AND TERMINATION

8.1 AMENDMENT OR TERMINATION OF PLAN. Upon recommendation of the Committee
or otherwise, the Board may amend or terminate the Plan at any time and
from time to time. To the extent required by Rule 16b-3 under the Act
(if the officers and directors of the Corporation are subject to
Section 16 of the Act) and/or to the extent required by Code section
422, no amendment, without approval by the Corporation's shareholders,
shall:

(a) alter the group of persons eligible to participate in the
Plan;

<PAGE> 16

(b) increase the maximum number of shares of Stock available for
issuance pursuant to Stock Options granted under the Plan;

(d) change the definition of an Eligible Participant for the
purpose of an Incentive Stock Option or increase the limit or
the value of shares of Stock for which an Eligible Participant
may be granted an Incentive Stock Option;

(e) materially increase the benefits accruing to Participants
under this Plan;

(f) materially modify the requirements as to eligibility for
participation in this Plan; or

(g) change any of the provisions of this Article 8.

The Committee shall be entitled to create, amend or delete appendices
to this Plan as specified herein.

8.2 EFFECT OF AMENDMENT OR TERMINATION OF PLAN. No amendment to or
discontinuance of this Plan or any provision thereof by the Board or
the shareholders of the Corporation shall, without the written consent
of the Participant, adversely affect, as shall be determined by the
Committee, any Stock Option theretofore granted to such Participant
under this Plan; provided, however, the Committee retains the right and
power to:

(a) annul any Stock Option if the Participant is terminated for
cause as determined by the Committee in its discretion;

(b) provide for the forfeiture of shares of Stock or other gain
under an Stock Option as determined by the Committee for
competing against the Corporation;

(d) cancel or terminate any and all Stock Options in connection
with any proceeding under the United States Bankruptcy Code or
any similar proceeding under state law for the protection of
creditors.

ARTICLE 9 - MISCELLANEOUS PROVISIONS

9.1 NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Stock Option granted
hereunder shall confer upon any Participant any right to continue in
the employ of the Corporation, or to serve as a director or consultant
thereof, or interfere in any way with the right of the Corporation to
terminate his or her employment or relationship at any time. Unless

<PAGE> 17

specifically provided otherwise, no Stock Option granted under the Plan
shall be deemed salary or compensation for the purpose of computing
benefits under any employee benefit plan or other arrangement of the
Corporation for the benefit of its employees unless the Corporation
shall determine otherwise. No Participant shall have any claim to a
Stock Option until it is actually granted under the Plan. To the extent
that any person acquires a right to receive payments from the
Corporation under the Plan, such right shall, except as otherwise
provided by the Committee, be no greater than the right of an unsecured
general creditor of the Corporation. All payments to be made hereunder
shall be paid from the general funds of the Corporation, and no special
or separate fund shall be established and no segregation of assets
shall be made to assure payment of such amounts, except as provided
otherwise by the Committee.

9.2 TAX WITHHOLDING. The Corporation may make such provisions and take such
steps as it may deem necessary or appropriate for the withholding of
any taxes which the Corporation is required by any law or regulation of
any governmental authority, whether federal, state or local, domestic
or foreign, to withhold in connection with any Stock Option or the
exercise thereof, including, but not limited to, the withholding of
payment of all or any portion of such Stock Option or another Stock
Option under this Plan until the Participant reimburses the Corporation
for the amount the Corporation is required to withhold with respect to
such taxes, or canceling any portion of such Stock Option or another
Stock Option under this Plan in an amount sufficient to reimburse
itself for the amount it is required to so withhold, or selling any
property contingently credited by the Corporation for the purpose of
paying such Stock Option or another Stock Option under this Plan, in
order to withhold or reimburse itself for the amount it is required to
so withhold.

If the Corporation is required to pay, or desires to pay, an amount
with respect to income and employment tax withholding obligations in
connection with exercise of a Nonqualified Stock Option, and/or with
respect to certain dispositions of Stock acquired upon the exercise of
an Incentive Stock Option, the Committee, subject to such rules as it
may adopt, shall permit the Participant to satisfy the obligation, in
whole or in part, by making an irrevocable election that a portion of
the total Fair Market Value of the shares of Stock subject to the
Nonqualified Stock Option and/or the Incentive Stock Option, be paid in
the form of cash in lieu of the issuance of Stock and that such cash
payment be applied to the satisfaction of the withholding obligations.
The amount to be withheld shall not exceed the statutory minimum
federal and state income and employment tax liability arising from the
Stock Option exercise transaction. Notwithstanding any other provision
of the Plan, any election under this Section 9.2 is required to satisfy
any applicable requirements under Rule 16b-3 of the Act.

9.3 SUBJECT TO FEDERAL AND STATE LAWS. The Plan and the grant of Stock
Options shall be subject to all applicable federal and state laws,
rules, and regulations and to such approvals by any United States
government or regulatory agency as may be required. Any provision
herein relating to compliance with Rule 16b-3 under the Act shall not
be applicable with respect to participation in the Plan by Participants
who are not subject to Section 16(b) of the Act.

<PAGE> 18

9.4 SUCCESSORS AND ASSIGNS. The terms of the Plan shall be binding upon the
Participant, the Corporation, and their successors and assigns.

9.5 GOVERNING LAW. This Plan and all actions taken hereunder shall be
governed by the laws of the State of North Carolina, without respect to
the principles of the choice of law or the conflicts of laws.

9.6 UNFUNDED STATUS OF PLAN The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect
to any payments not yet made to a Participant by the Corporation,
nothing contained herein shall give any such Participant any rights
that are greater than those of a general unsecured creditor of the
Corporation. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver shares of Stock or payments in lieu
of or with respect to Stock Options hereunder; provided, however, that,
unless the Committee otherwise determines with the consent of the
affected Participant, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.

9.7 NOTICE OF SECTION 83(b) ELECTION. Each Participant exercising a Stock
Option hereunder agrees to give the Committee prompt written notice of
any election made by such Participant under Section 83(b) of the Code,
or any similar provision thereof.

9.8 SEVERABILITY OF PLAN. If any provision of this Plan or an Agreement is
or becomes or is deemed invalid, illegal or unenforceable in any
jurisdiction, or would disqualify the Plan or any Agreement under any
law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws or if it
cannot be construed or deemed amended without, in the determination of
the Committee, materially altering the intent of the Plan or the
Agreement, it shall be stricken and the remainder of the Plan or the
Agreement shall remain in full force and effect.

9.9 ADDITIONAL PROVISIONS The Committee may incorporate additional or
alternative provisions for this Plan with respect to residents of one
or more individual states to the extent necessary or desirable under
state securities laws. Such provisions shall be set out in one or more
appendices hereto which may be amended or deleted by the Committee from
time to time.

9.10 RESOLUTION OF CONTROVERSY Any controversy between the Corporation and
the Participant (including any person claiming any interest in the Plan
through the Participant) arising out of or under the Plan, the Options
and/or any Agreement, including the construction or application of any
term, provision or condition of the Plan and/or an Agreement (a
"Controversy"), shall, on the written request of either party delivered
to the other, be submitted to non-binding mediation by an independent
mediator selected by the mutual consent of the parties to such
Controversy or, if the parties cannot agree, as selected by the Plan
Administrator in its discretion. Following the determination of the
mediator with regard to such Controversy, a party to such Controversy
who intends to appeal such

<PAGE> 19

determination may do so, on the written request of such party delivered
to the other, but only by submitting such Controversy to binding
arbitration. Mediation shall comply with and be governed by the rules
prescribed by the independent mediator. Arbitration shall comply with
and be governed by the provisions of the American Arbitration
Association.

The cost of mediation and arbitration (defined to include only (i) the
cost of the mediator(s) and arbitrator(s), (ii) the parties' reasonable
attorney fees and (iii) the parties' reasonable direct, out-of-pocket
expenses incurred in connection with such proceedings) shall be borne
by the losing party or, if the mediator(s) or arbitrator(s) determines
otherwise, in such proportions as the mediator(s) or arbitrator(s) so
determines.

Such mediation and arbitration proceeding(s) shall take place in the
county of the Corporation's principal business office.

IN WITNESS WHEREOF, this document is executed effective as of August 6,
1998.

KRISPY KREME DOUGHNUT CORPORATION

By: /s/ Scott A. Livengood
President

ATTEST:

(Corporate Seal)

/s/ Randy Casstevens
Secretary

<PAGE> 1

EXHIBIT 10.24

DIRECTORS' LONG-TERM INCENTIVE PLAN

KRISPY KREME DOUGHNUT CORPORATION

* * * * * * * * * * * * * * * *

Adopted February 10, 1993

Effective January 30, 1993

<PAGE> 2

TABLE OF CONTENTS

ARTICLE I
DEFINITIONS 2

ARTICLE II
PARTICIPATION 3

ARTICLE III
DEFERRED COMPENSATION 3
Section A. Amount of Deferred Compensation 3
Section B. Election to Defer Compensation 4

ARTICLE IV
CREDITING OF PHANTOM SHARE UNITS 4
Section A. Crediting of Phantom Share Units 4
Section B. Additions to Deferred Amounts 5
Section C. Valuation of Units 6

ARTICLE V
DISTRIBUTION OF BENEFITS 6
Section A. Normal Distribution of Benefits 6
Section B. Distribution Upon Death 7
Section C. Distribution Upon Termination of Directorship 8
Section D. Distribution Upon Financial Emergency 9
Section E. Withholding From Distributions 9

ARTICLE VI
MISCELLANEOUS 10
Section A. Nonassignability 10
Section B. Sale, Public Offering, Merger or ESOP 10
Section C. Scope of DLTIP 13
Section D. Vesting 13
Section E. Term 13
Section F. Administration and Interpretation 13
Section G. Funding of Benefits/General Creditor Status 15
Section H. Governing Law 15

<PAGE> 3

DIRECTORS' LONG-TERM INCENTIVE PLAN
OF
KRISPY KREME DOUGHNUT CORPORATION

THIS DIRECTORS' LONG-TERM INCENTIVE PLAN OF KRISPY KREME DOUGHNUT
CORPORATION is adopted this the 10th day of February, 1993, effective as of the
30th day of January, 1993, by Krispy Kreme Doughnut Corporation, a North
Carolina corporation with its principal office and place of business in
Winston-Salem, Forsyth County, North Carolina for the benefit of the
Participants.

W I T N E S S E T H:

WHEREAS, as members of the board of directors of Krispy Kreme, the
Participants receive an annual stipend for their services; and

WHEREAS, beginning with the Stipend earned during and for the fiscal
year ending January 28, 1994, Krispy Kreme desires to provide Participants with
the opportunity to defer the receipt of all or part of their Stipend, with the
Deferred Amount to be credited on its books in Phantom Share Units in accordance
with the terms of the DLTIP; and

WHEREAS, Krispy Kreme intends that the DLTIP be considered an unfunded
arrangement maintained to provide deferred compensation benefits to those
directors of Krispy Kreme who receive a stipend for their services as such.

NOW, THEREFORE, the DIRECTORS' LONG-TERM INCENTIVE PLAN OF KRISPY KREME
DOUGHNUT CORPORATION is hereby adopted to read as follows:

<PAGE> 4

ARTICLE I

For the purposes of the DLTIP, the following terms shall have the
meanings shown below:

DEFINITIONS

Account(s): the account(s) on the books and records of the
Company to which are credited each Participant's
Deferred Amount, Units, the value of the Units and
other adjustments thereto under the DLTIP.

Board: the Board of Directors of Krispy Kreme Doughnut
Corporation.

Company: Krispy Kreme Doughnut Corporation

DLTIP: the Directors' Long-Term Incentive Plan of Krispy
Kreme Doughnut Corporation.

Deferred Amount: the amount of any Stipend deferred by a Participant
pursuant to Article III of the DLTIP.

Krispy Kreme: Krispy Kreme Doughnut Corporation

Market Value: the current market price per share at which the stock
is being traded in the event of a public offering of
the stock [See Article VI B(2)]

<PAGE> 5

Participants: the members of the board of directors of Krispy Kreme
who receive a Stipend for their services as such and
who may participate in the DLTIP.

Service Year: the fiscal year.

Stipend: the amount of compensation that a Participant
receives for his services as a member of the Board of
Directors of Krispy Kreme from time to time.

Stock: the issued and outstanding $10.00 Par Value Common
Stock of the Company (as it subsequently may be split
or reclassified).

Stock Purchase Agreement: the Stock Purchase Agreement dated July 1, 1984 by
and among Krispy Kreme and its shareholders (as it
may be amended from time to time).

Units: phantom share units as described in Article IV
(sometimes referred to as "Phantom Share Units").

ARTICLE II
PARTICIPATION

Prior to the beginning of each of the Company's fiscal years for which
the DLTIP is in effect, the Board shall communicate to the Participants their
right to Participate in the DLTIP. Participants for the first fiscal year of the
DLTIP (fiscal year ending January 28, 1994) were notified of their participation
for such year on the date of the adoption of the DLTIP. Such Participants shall
be set forth on Schedules Al through A5 respectively.

<PAGE> 6

ARTICLE III
DEFERRED COMPENSATION

Section A. Amount of Deferred Compensation. Commencing with the fiscal
year ending January 28, 1994, and continuing through the earlier of the date on
which (1) a Participant's directorship terminates for any reason; (2) the
Participant ceases to be eligible under the terms of the DLTIP; or (3) the DLTIP
ceases to be in effect pursuant to Article VI, Section E, a Participant may
elect to defer all or any portion of any Stipend that the Company may pay to him
or her for each fiscal year. The Participants Deferred Amount shall be credited
to the Participant's Account as of the date or dates any Stipend would, but for
such deferral, be payable to the Participant which, for each Service Year, is
currently payable in one lump sum in advance on or about February 1.

Section B. Election to Defer Compensation. A Participant may elect to
defer a portion of the Stipend earned during the fiscal year ending January 28,
1994 (until a date not later than the Participant's attainment of age 70) by
filing a written Election of Deferral with the Company within 90 days of the
date the DLTIP is adopted by the Company. A Participants initial Election of
Deferral shall continue in effect pursuant to the terms thereof for Deferred
Amounts for subsequent fiscal years unless and until the Participant files with
the Company a Notice of Discontinuance or a new Election of Deferral specifying
a different amount of, and/or method of payment of, Deferred Amounts. Each
Election of Deferral filed subsequently to the initial Election of Deferral
shall similarly continue in effect until the Participant files a Notice of
Discontinuance or a new Election of Deferral. With respect to fiscal years
beginning January 28, 1994, any new Election of Deferral or Notice of
Discontinuance must be filed at least 15 days prior to the commencement of a
fiscal Year to be effective for the Stipend earned during that fiscal year;
provided however, if Participant is not a director on the first day of a fiscal
year and becomes a director during the fiscal Year, such Election must be filed
within 45 days after he or she becomes a director. Once a Notice of
Discontinuance is filed with the Company, a aid thereafter unless and until he
or she has properly filed a new Election of Deferral.

<PAGE> 7

The form of the Election of Deferral and Notice of Discontinuance are
attached hereto as Exhibits 1 and 2 respectively.

ARTICLE IV
CREDITING OF PHANTOM SHARE UNITS

Section A. Crediting of Phantom Share Units. Krispy Kreme shall
establish Accounts on its books for each Participant to record the Deferred
Amount credited to each Participant, as well as any adjustments as provided in
this Article. A separate Account shall be established for each fiscal year in
which a Participant elects to defer a portion of his or her Stipend pursuant to
Article III.

The time of Crediting of the Deferred Amounts is more Particularly set
forth in Article III Section A. With respect to each fiscal year, the Deferred
Amount credited to a Participant's Account shall be converted into Units by
dividing the Deferred Amount by the value of Krispy Kreme Stock, as described
more particularly as follows: The number of Units credited to the Participant's
Account shall equal the Deferred Amount divided by an amount equal to the
average of the of the value of the Company's Stock under the Stock Purchase
Agreement as of the end of the last five fiscal years (prior to the fiscal year
for which the Deferred Amount was earned), or, if the DLTIP has not been in
existence five years or the Participant has not been a director for five years,
the average of the value of the Company's Stock under the Stock Purchase
Agreement for fiscal years ending after the later of January 29, 1993, or the
initial date of the Participant's directorship and following. For example, for a
Stipend payable for fiscal year ending January 26, 1996, the number of Units
shall equal the Deferred Amount divided by the average of the value of the
Company's Stock under the Stock Purchase Agreement as of the end of the fiscal
years ended January 29, 1993, January 28, 1994 and January 27, 1995. For another
example, for a Stipend payable for the fiscal year ending January 28, 1994, the
number of Units shall equal the Deferred Amount divided by the value of the
Company's Stock under the Stock Purchase Agreement as of the end of the fiscal
year ending January 29, 1993.

<PAGE> 8

Credit shall be given to Accounts for fractional Units.

Section B. Additions to Deferred Amounts. Krispy Kreme will credit all
Units in a Participant's Accounts with additions thereon from and after the
dates Deferred Amounts are credited to a Participant's Accounts. Except as
otherwise specifically provided herein, such additions shall accrue commencing
on the date an Account first has a positive balance and shall continue up to the
date all amounts credited to the Account have been distributed to the
Participant, except as otherwise provided in the DLTIP. Additions shall be
calculated at a rate computed in whole or fractional Units, as more particularly
described below.

(1) Each time a dividend is paid on Krispy Kreme's Stock, there
shall be credited to each Participant's Accounts an amount
equal to the product of the number of Units previously
credited to the Accounts, as of the record date of such
dividend, times the amount of the dividend per share of Krispy
Kreme's Stock. The amount credited to a Participant's Accounts
pursuant to the preceding sentence shall then be converted
into Units by dividing the amount so credited by the value of
Stock in the same manner as set forth in Section A above as if
the dividend credit were a Stipend.

(2) After the close of each Fiscal Year, Krispy Kreme's certified
public accountants shall determine during their regular annual
audit of the Company's books the value of Krispy Kreme Stock
pursuant to the Stock Purchase Agreement for the most recently
ended fiscal year. Based on such determination, the value of
the Units in-a each of a Participant's Accounts as of the end
of the most recently ended fiscal year shall be recalculated
by multiplying the number of Units credited to such
Participant's Accounts as of the end of such fiscal year times
the value of the Units as determined by the accounting firm.

(3) The number of Units in each of a Participant's Accounts shall
be adjusted (as though each Unit were a share of Krispy Kreme
Stock) to reflect stock dividends

<PAGE> 9

or stock splits of Krispy Kreme Stock or any other adjustment
or recapitalization affecting the number of shares of Krispy
Kreme Stock outstanding.

Section C. Valuation of Units. As indicated above,, the number of Units
awarded under the Plan and the value of those Units shall be determined based on
the book value of the Company's Stock, as determined pursuant to the Stock
Purchase Agreement. The Company reserves the right, however, to revise the
method used to determine the value of Units; provided, however, that any change
in the method of valuation must be identical to the method of valuation used for
determining the value of the actual shares of the Company's Stock.

ARTICLE V
DISTRIBUTION OF BENEFITS

Section A. Normal Distribution of Benefits. As part of the Election of
Deferral made pursuant to Article III, a Participant shall make a separate
election regarding how and when Deferred Amounts credited to his or her Account
shall be distributed to him. The Participant may elect one of the following
options:

(1) a lump sum payment made no earlier than the fifth anniversary
of the crediting of. the Deferred Amount;

(2) five consecutive annual installments commencing no earlier
than the fifth anniversary of the crediting of the Deferred
Amount; and

(3) ten consecutive annual installments commencing no earlier than
the fifth anniversary of the crediting of the Deferred Amount.

The time of Crediting of the Deferred Amounts is more Particularly set forth in
Article III Section A. With respect to each installment payment, the amount of
such payment shall be determined by dividing the value of the Account by the
number of payments remaining

<PAGE> 10

(including the installment for which the calculation is being made). At the time
of each installment payment the value of the Account shall be determined by
multiplying the number of Units in the Participant's Account by the value of the
Stock as of the end of the most recently ended fiscal quarter, as determined
under the Stock Purchase Agreement. At the time of such a payment, the number of
Units in the Account shall be reduced by a number equal to the result of
dividing the total number of Units remaining in the Account by the number of
remaining payments (including the installment for which the calculation is being
made).

Regardless of the method of payment elected by the Participant,
distributions must commence no later than within a reasonable time following the
end of the fiscal year in which a Participant attains age 70.

Section B. Distribution Upon Death. If a Participant dies prior to the
distribution of all amounts credited to his or her Accounts, the value of his or
her Accounts shall be recalculated by multiplying the number of Units then
credited to each of his or her Accounts by the value of the Stock, as determined
under the Stock Purchase Agreement, as of the most recently ended fiscal quarter
preceding his or her death. Upon the death of a Participant, there shall be no
further credits (or debits) to his or her Accounts on account of dividends or
increases (or decreases) in the value of Krispy Kreme Stock. Notwithstanding the
provisions of a Participant's Election of Deferral made pursuant to Article III,
the amounts credited to his or her Accounts after such recalculation shall be
distributed to the Participant's designated beneficiary in a lump sum at a time
determined by the Company in its sole discretion, but no later than one year
after the date of the Participant's death.

Notwithstanding the preceding paragraph, the Company may in its sole
discretion distribute the amounts credited to a Participant's Accounts in
installment payments over a period not to exceed five years, the amount of such
installment payments to be calculated in accordance with Article V, Section A
above. Simple interest shall be credited annually to the Participant's Accounts
from the date of death until the date installment payments are completed at the
prime rate of the Company's primary bank.

<PAGE> 11

The portion of any Stipend awarded after a Participants death which the
Participant had elected to defer under the DLTIP shall be paid in a lump sum at
the time that the Stipend would have been paid had the Election of Deferral not
been made. See Article III Section A.

Each Participant may designate a person or persons, including a
corporation, unincorporated association or trust, as the beneficiary of his or
her Accounts under the DLTIP. Such designation must be in writing, signed by the
Participant and delivered to the Company prior to his or her death. A
Participant may from time to time revoke or change any such beneficiary
designation. Such revocation or change must have been made in writing, signed by
the Participant and delivered to the Company prior to his or her death. The
designation of beneficiary last delivered to Krispy Kreme according to its
records shall control.

If there is no unrevoked designation on file with the Company at the
time of a participant's death or if the Participant's designated beneficiary
shall have predeceased the Participant or ceased to exist prior to the
Participant's death, the Participant's Accounts shall be distributed to his or
her estate.

The form of a Beneficiary Designation is attached hereto as Exhibit 3.

Section C. Distribution Upon Termination of Directorship. Upon
termination of a Participant' s directorship for any reason other than death,
the value of his or her Accounts shall be recalculated by multiplying the number
of Units credited to his or her Accounts by the value of the Stock as of the end
of the most recently ended fiscal quarter, as determined under the Stock
Purchase Agreement. Thereafter, there shall be no further credits (or debits) to
his or her Accounts on account of dividends or increases (or decreases) in the
value of Krispy Kreme Stock. Regardless of the provisions of a Participant's
Election of Deferral made pursuant to Article III, the amounts credited to his
or her Accounts pursuant to such recalculation shall be distributed to him or
her in a lump sum cash payment at a time determined by the Company in its sole
discretion, but no later than six months after the termination of the
Participant's directorship.

<PAGE> 12

Notwithstanding the preceding paragraph, the Company may in its sole
discretion distribute the amounts credited to a Participant's Accounts in
installment payments over a period not to exceed five years, the amount of such
installment payments to be calculated in accordance with Article V., Section A
above. Simple interest shall be credited annually to the Participant's Accounts
from the time his or her directorship terminates until the date installment
payments are completed at the prime rate of the Company's primary bank. There
shall be no dividend credits or other increases in the value of a Participant's
Accounts following his or her termination of directorship.

Section D. Distribution Upon Financial Emergency. If a Participant
establishes, to the satisfaction of the Company, that he or she is confronted by
a severe financial. hardship, the Company, in its sole discretion, may alter the
timing or manner of payment of Deferred Amounts in the manner and subject to the
conditions set forth hereafter:

(1) A severe financial hardship will be deemed to exist only if it
arises out of an emergency caused by circumstances or events
which are beyond the control of the Participant. A severe
financial hardship will be deemed to have occurred in the
event of the Participant's impending bankruptcy, serious
illness of the Participant or a dependent of the Participant,
or such other circumstances or events as may be determined by
the Company to affect severely the financial affairs of the
Participant or his or her immediate family.

(2) In the event that the Company determines that the Participant
is confronted by a severe financial hardship, the Company may
provide that all or a portion of the amounts previously
deferred by the Participant may be paid immediately in a lump
sum cash payment, or provide that all or a portion of the
installments payable over a period of time may be paid
immediately in a lump sum cash payment, or provide such other
payment schedule as the Company deems appropriate under the
circumstances.

<PAGE> 13

(3) In no event shall any distribution made by the Company under
this Subsection be in excess of the amount necessary to
alleviate the Participant's severe financial hardship.

(4) The Company's decision in passing on the severe financial
hardship of the . Participant, and the manner in which, if at
all, the payment of deferred amounts shall be altered or
modified shall be final, conclusive, and not subject to
appeal.

(5) For purposes of this Subsection, the term "Participant" shall
include the Participant, his or her designated beneficiary or
beneficiaries, his or her estate, or any other person claiming
through the Participant under this Plan as the case may be.

Section E. Withholding From Distributions. When Krispy Kreme
distributes amounts credited to the Account of a Participant, Krispy Kreme has
the right to deduct therefrom (1) necessary amounts to provide for withholding
of required federal and state income taxes, F.I.C.A. tax, and other taxes, if
any, due on the payment; and (2),any amounts the Participant may owe the
Company. If a distribution is to be made in a form other than cash pursuant to
Article VI, Section B(3), a Participant may direct Krispy Kreme to satisfy its
withholding obligation either by reducing the amount of the distribution or in
any other manner satisfactory to the Company.

ARTICLE VI
MISCELLANEOUS

Section A. Nonassignability. The payments provided for in this DLTIP to
the Participant or to his or her designated beneficiary are personal to him or
her. Neither the Participant nor his or her designated beneficiary shall have
any power or right to transfer, assign, anticipate, hypothecate or otherwise
encumber any part or all of the amounts payable hereunder.

<PAGE> 14

Such amounts shall not be subject to seizure by any creditor of any Participant
or beneficiary, by a proceeding at law or in equity, nor transferable by
operation of law in the event of the bankruptcy, insolvency or death of the
Participant or his or her designated beneficiary. Any such attempted assignment
or transfer shall be void and shall terminate the Participant's rights under the
Plan.

Section B. Sale, Public Offering, Merger or ESOP.

(1) Except as provided in Article VI Section B (3) below, if the
majority of the Stock of the Company is sold for cash, whether
pursuant to a sale of Stock, tender offer or merger, the value
of the Units in a Participant's Accounts shall be revalued as
of the effective date of such transaction by multiplying the
number of Units in each Account as of the day prior to the
effective date of such transaction by the consideration paid
in such transaction per share of Stock. The balance of each
Participants Accounts after such recalculation (less the
required withholding, if any) shall be distributed in full in
a lump sum to the Participants within sixty (60) days
thereafter.

(2) If there is a public offering of the Stock of Krispy Kreme,
there shall be no immediate change in the valuation of a
Participant's Accounts. On the first anniversary date of the
public offering, however, a Participant's Accounts shall be
revalued by multiplying the number of Units in the
Participants Accounts as of the date of the public offering
times the sum of (a) the value of each Unit immediately prior
to the public offering, plus (b) one-third of the difference
between the Market Value at such anniversary immediately prior
to the public offering. On the second anniversary date of the
public offering, a Participant's Accounts shall be revalued by
multiplying the number of Units in the Participant's Accounts
as of the public offering date times the sum of (a) the value
of each Unit immediately prior to the public offering, plus
(b) two-thirds of the difference between the Market Value at
such anniversary and the value of a Unit immediately prior to
the

<PAGE> 15

public offering. On the third anniversary date of the public
offering, a Participant's Accounts shall be revalued by
multiplying the number of Units in the Participant's Accounts
as of the public offering date times the Market Value at such
anniversary. Thereafter, the value of the Participant's
Accounts shall be at all times be determined by multiplying
the number of Units in the Accounts by the Market Value of the
Stock.

Notwithstanding the above, the valuation of all Units paid out
on account of (a) the cessation of the Participants
directorship; or (b) death shall be determined by multiplying
the number of Units for which payment is made by the Market
Value as of the date of distribution.

If (a) a Participant is scheduled to receive a distribution
from the Plan after the date of the public offering but prior
to the date on which all Units credited under the Plan are
first valued based solely on the Market Value of the Company's
Stock (third anniversary of public offering) pursuant to an
Election of Deferral made pursuant to Article III, and (b) the
Participant is a director of the Company on the date of the
public offering, the Participant may elect to defer the
payment of all amounts scheduled to be distributed to him or
her -until the third anniversary date of the public offering.
Any amounts so deferred shall be distributed upon the
occurrence of the third anniversary date of the public
offering revalued by multiplying the number of Units in the
Participant's Accounts times the Market Value as of the date
of distribution.

Notwithstanding any of the above, the Board shall have
discretion to accelerate the date upon which the value of a
Participant's Accounts is based on the publicly traded price
of the Company's Stock.

At all times following a public offering, the Participant's
Accounts shall continue to be credited with dividends pursuant
to the terms of the DLTIP. The DLTIP

<PAGE> 16

shall be amended following a public offering to provide for a
method of awarding Units based on a market valuation of the
Stock, as opposed to the valuation method in effect prior to
the public offering.

(3) In the event of a merger or similar transaction in which any
securities of the acquiring entity (or an affiliate thereof)
are to be issued to shareholders of Krispy Kreme in exchange
for their Stock, then

(a) the Units in each of a Participant's Accounts shall
be revalued prior to the record date for such merger
or other transaction by multiplying the number of
Units therein times tae value of the Stock under the
Stock Purchase Agreement as of the end of the most
recently ended fiscal quarter, and

(b) the Units shall be converted into Stock on the basis
of one share of Stock for one Unit so that the
Participant shall be shareholder of record for such
transaction and have the right to receive securities
or other consideration in such transaction in the
same fashion as other shareholders of Krispy Kreme.
Certificates for Stock shall be issued in the name of
the Participant. Fractional Units shall not be issued
and the value thereof shall be paid to the
Participant in cash.

(c) Thereafter, the successor entity to Krispy Kreme
shall at its discretion (1) terminate the DLTIP and
immediately pay out all Accounts hereunder; (2)
freeze the DLTIP so that no additional Deferred
Amounts are credited to any Participant, but the
remaining provisions of the DLTIP remain in effect;
or (3) continue the DLTIP in all respects. If the
successor entity elects to freeze or continue the
DLTIP, each Participant shall have the right to
request and receive a distribution of his or her
Accounts by so electing prior to the date oil which
the events described in this Section

<PAGE> 17

B(3) occur. The amount of any such distribution shall
be computed in accordance with subsections (a) and
(b) of this Section.

(4) If Krispy Kreme establishes an Employee Stock Ownership Plan
("ESOP"), the valuation of all Units under the DLTIP for all
purposes after the adoption of tae. ESOP shall be made using
the appraised value of the Stock under the ESOP.

Section C. Scope of DLTIP. This DLTIP describes only the deferral of
Stipend payments to be main to a Participant and the eventual payment thereof.
It is not intended to and does not relate to any other benefits to which a
Participant may be entitled. Nothing in this DLTIP shall be deemed to constitute
a contract on behalf of Krispy Kreme to retain a Participant for a definite
length of time, as a director, or at a definite rate of compensation, and
agreements by the parties as to those matters, if any, shall be covered by other
contracts or arrangements.

Section D. Vesting. A Participant shall always be fully vested in all
Deferred Amounts, dividends and other amounts credited to his or her Accounts.

Section E. Term. The DLTIP shall be applicable to the Stipends for
fiscal years beginning with the fiscal year ending January 28, 1994; provided,
however, that the Board may terminate the DLTIP at any time. If the DLTIP is
terminated,, all amounts credited to a Participant's Accounts under Article IV
shall be paid at the time and in the manner designated by the Participant or
otherwise provided hereunder. In such event, the provisions of Article IV
including, but not limited to, Article IV, Section B(l) (with respect to
dividends) and Article IV, Section B(2) (with respect to the recalculation of
the value of the Units) shall continue to apply to all amounts credited to each
Account until paid.

Section F. Administration and Interpretation. A Committee appointed by
the Board of Directors (the "Committee") shall administer the Plan in all
respects. The Committee has absolute and complete discretion to interpret the
terms of the Plan, to determine each

<PAGE> 18

Participant's eligibility for benefits under the Plan, and to determine the
amount of benefits due under the Plan.

(1) Claims. A person who believes that he or she is being denied a
benefit to which he or she is entitled under the Plan
(hereinafter referred to as "Claimant") may file a written
request for such benefit with the Committee,, setting forth
his or her claim. The request must be addressed to the
Committee at the Company's principal place of business.

(2) Claim Decision. Upon receipt of a claim, the Committee shall
advise the claimant that a reply will be forthcoming within 90
days and shall in fact, deliver such reply within such period.
The Committee may, however, extend the reply period for an
additional 90 days for reasonable cause.

If the claim is denied in whole or in part, the Committee
shall adopt a written opinion, using language calculated to be
understood by the Claimant, setting forth:

(a) The specific reason or reasons for such denial;

(b) The specific reference to pertinent Provisions of
this Plan on which such denial is based;

(c) A description of any additional material or
information necessary for the Claimant to perfect his
or her claim and an explanation why such material or
such information is necessary;

(d) Appropriate information as to the steps to be taken
if the Claimant wishes to submit the claim for
review; and

<PAGE> 19

(e) The time limits for requesting a review under
subsection c. and for review under subsection d.
hereof

(3) Request for Review. Within 60 days after the receipt by the
Claimant of the written opinion described above, the Claimant
may request in writing that the Company review the
determination of the Committee. Such request must be addressed
to the Company, at its then principal place of business. The
Claimant or his or her duly authorized representative may, but
need not, review the pertinent documents and submit issues and
comments in writing for consideration by the Company. If the
Claimant does not request a review of the Committee's
determination by the Company within such 60 day period, he or
she shall be barred and estopped from challenging the
Committee's determination.

(4) Review of Decision. Within 60 days after the Company's receipt
of a request for review, it will review the Committee's
determination. After considering all materials presented by
the Claimant, the Company will render a written opinion,
written in a manner calculated to be understood by the
Claimant, setting forth the specific reasons for the decision
and containing specific references to the pertinent provisions
of this Plan on which the decision is based. If special
circumstances require that the 60 day time period be extended,
the Company will so notify the Claimant and will render the
decision as soon as possible, but no later than 120 days after
receipt of the request for review.

Section G. Funding of Benefits/General Creditor Status. The amounts
credited to each Participant's accounts shall not be held in any trust or
separate fund that would cause the Plan to be considered "funded" for purposes
of ERISA. Such amounts shall not be secured by any specific assets of the
Company nor shall any specific assets of Krispy Kreme be designated as allocated
to the satisfaction of its obligations to any Participant hereunder. Each
Participant's

<PAGE> 20

right to receive payment for amounts credited to his or her Accounts shall be
those of a general creditor of the Company.

Section H. Governing Law. This DLTIP shall be construed in accordance
with and governed by the laws of the State of North Carolina.

IN WITNESS WHEREOF, the Company has cause the DLTIP to be executed in
its name and behalf by its duly authorized representative as of the date written
above.

KRISPY KREME DOUGHNUT CORPORATION

By: /s/ Scott A. Livengood
Scott A. Livengood, President

ATTEST:

/s/ John L. Barber
John L. Barber, Assistant Secretary

<PAGE> 21

Schedule Al
Participants
Fiscal Year Ending January 28, 1994

Name:

Robert J. Simmons

Steven D. Smith

Note: Elbert N. Herring is a participant in the Employees Long Term Incentive
Plan

<PAGE> 22

Schedule A2
Participants
Fiscal Year Ending January 27, 1995

<PAGE> 23

Schedule A3
Participants
Fiscal Year Ending January 26, 1996

<PAGE> 24

Schedule A4
Participants
Fiscal Year Ending January 31,1997

<PAGE> 25

Schedule A5
Participants
Fiscal Year Ending January 30, 1998

<PAGE> 26

EXHIBIT 1
ELECTION OF DEFERRAL
UNDER
DIRECTORS' LONG-TERM INCENTIVE PLAN
OF
KRISPY KREME DOUGHNUT CORPORATION

____________________________________

I hereby make the following elections under the Long-Term Incentive Plan with
respect to my Stipend commencing with the Stipend for the fiscal year ending
January ___,199__. I understand that such elections shall remain in effect
unless and until a new Election of Deferral or Notice of Discontinuance is
properly filed. Any new Election of Deferral or Notice of Discontinuance shall
have no effect on amounts previously deferred under the Plan.

I. Deferred Compensation Election

I elect to defer ____% of my Stipend under the Directors' Long-Term
Incentive Plan in excess of $__________, to be paid out as follows:

[ ] Lump sum payable on _________________ of the _______ year
following Stipend is credited to my Account*;

[ ] Five consecutive annual installments commencing ______*; or

[ ] Ten consecutive annual installments commencing ______*.

No payment shall be made earlier than the fifth anniversary of the crediting of
the portion of the Stipend so deferred to my Account; PROVIDED, HOWEVER,
distributions must commence no later than within a reasonable time following the
end of the fiscal year in which a Participant attains age 70.

*The Stipend so deferred is credited to my Account at the time the Stipend would
have been paid to me had it not been deferred which, for each Service Year, is
currently payable in one lump sum in advance on or shortly before the annual
meeting of shareholders on which such Service Year begins.

II. Lump Sum Cash Payment

I elect to receive ______________% or $____________ of my Stipend
commencing with the Stipend for the fiscal year ending January ____,
199__ in cash, to be paid in one lump sum payment at the normal time
for the payment of the Stipend.

PARTICIPANT

_______________________(SEAL) __________________
Date

Receipt by Krispy Kreme Doughnut Corporation Acknowledged

By: ____________________________ __________________
Date

<PAGE> 27

EXHIBIT 2

NOTICE OF DISCONTINUANCE
OF
ELECTION OF DEFERRAL
UNDER
DIRECTORS' LONG-TERM INCENTIVE PLAN
OF
KRISPY KREME DOUGHNUT CORPORATION

____________________________________

I do hereby revoke my Election of Deferral dated __________, 199___. I
understand that 100 % of any Stipend paid to me for fiscal years beginning after
this revocation shall be paid to me in cash at the normal time for payment of
the Stipend under the Company's directors compensation policy.

This the ____ day of _________________, 199___.

PARTICIPANT

___________________________________

Receipt on behalf of Krispy Kreme Doughnut Corporation acknowledged

By _____________________________
Title __________________________

Dated _______ day of ________________, 199____

<PAGE> 28

EXHIBIT 3

BENEFICIARY DESIGNATION
UNDER
DIRECTORS' LONG-TERM INCENTIVE PLAN
OF
KRISPY KREME DOUGHNUT CORPORATION

____________________________________

If I die prior to receiving all of amounts credited to my Accounts under the
Directors' Long-Term Incentive Plan and any future amendments or restatements
thereof or successor plans thereto (the "DLTIP"), I hereby designate the
following primary beneficiary as recipient of such benefits:

Relation to
Name Address Participant
---- ------- -----------

________________________ _________________________ _________________________

In the event the above-named primary beneficiary fails to survive me or
otherwise ceases to exist prior to the date of my death, I hereby designate the
following contingent beneficiary as recipient of such benefits:

Relation to
Name Address Participant
---- ------- -----------

________________________ _________________________ _________________________

I do hereby revoke all previous beneficiary designations made under the DLTIP
and I understand that the above designations are revocable by me at any time
prior to my death. This Beneficiary Designation is not valid until delivered to
and acknowledged by Krispy Kreme Doughnut Corporation.

___________________________________ ______________________________(SEAL)
Date Participant

WITNESSED BY:

___________________________________

Receipt by Krispy Kreme Doughnut Corporation Acknowledged

By: _______________________________
Dated: _____ day of _______________, 19__.

<PAGE> 1

EXHIBIT 10.25

SATISFACTION: The Debt evidenced by
this Note has been satisfied in full this
_______ day of _____________, 19__
Signed: __________________________

PROMISSORY NOTE
AND SECURITY AGREEMENT

Winston-Salem, NC

$"AMOUNT" AUGUST 31, 1998

FOR VALUE RECEIVED the undersigned promises to pay to KRISPY KREME DOUGHNUT
CORPORATION or order, the principal sum of "PAYMENT" and 00/100 DOLLARS
($"AMOUNT") with interest from the date hereof at the rate of six percent (6%)
per annum on the unpaid balance until paid or until default, both principal and
interest payable in lawful money of the United States of America, at the office
of KRISPY KREME DOUGHNUT CORPORATION, P O BOX 83, WINSTON-SALEM, NORTH CAROLINA
27102-0083 (ATTENTION: RANDY S. CASSTEVENS) or at such place as the legal holder
hereof may designate in writing. The principal and interest shall be due and
payable in 10 equal consecutive annual payments of principal and interest in the
amount of $"ANNUAL" each, such installments to be paid on AUGUST 31 of each
year during the term hereof, the first such payment being due and payable on
AUGUST 31, 1999 with a final payment of all unpaid principal and all accrued and
unpaid interest herein due and payable on AUGUST 31, 2008. Payee has advanced
Maker $"M_1stPay" of the total principal owed hereunder on the date hereof and
Maker acknowledges receipt thereof. An additional amount of $"M_2ndPay" shall
be advanced by Payee to maker on or before February 26, 1999.

If not sooner paid, the entire remaining indebtedness (including, but not
limited to, all unpaid principal and all accrued and unpaid interest and all
other sums due hereunder) shall be due and payable on AUGUST 31, 2008.
Notwithstanding the foregoing, in the event the undersigned for any reason
ceases to be a full-time employee of Krispy Kreme Doughnut Corporation, Payee
may declare all sums due under this Note to be immediately due and payable.

In the event of (a) default in payment of any installment of principal or
interest hereof or under any other note from Maker to Payee as the same becomes
due and such default is not cured within ten (10) days from the due date, or (b)
default under the terms of any instrument securing this Note, or under the terms
of the security agreement made in, and/or security interest given under, this
Note and such default is not cured within fifteen (15) days after written notice
to Maker, then in either such event the holder may without further notice,
declare the remainder of the principal sum, together with all interest accrued
thereon at once due and payable. Failure to exercise this option shall not
constitute a waiver of the right to exercise the same at any other time. The
unpaid principal of this Note and any part thereof, accrued interest and all
other sums due under this Note and any instrument securing this Note shall bear
interest at the rate of twelve percent (12%) per annum after default until paid.

<PAGE> 2

In the event this Note is not paid when due (whether on the due date set
forth above or on such earlier date as provided upon default or the happening of
other events set forth in this Note) then Payee shall have the right to exercise
all rights granted under this Note to it and shall have the following additional
rights as well: (i) the right to treat such non-payment as an offer to sell the
shares to a third party under subparagraph 2(a) of the Stock Purchase Agreement
by and between Payee and its shareholders dated July 1, 1984, as amended, (the
terms of which are incorporated herein by reference) and the consequent right to
purchase the Shares (as defined below) under the terms of said Agreement and
(ii) the right to deduct from the proceeds of such sale to Payee all amounts
owed under this Note, paying to Maker only the balance of the proceeds of such
sale remaining after payment of all sums due under this Note and all expenses
incurred by Payee in connection with such sale. In the event the Stock Purchase
Agreement is no longer in effect at the time Payee exercises such rights, then,
between Maker and Payee, Payee shall retain the right under subparagraph 2(a) of
the Stock Purchase Agreement to purchase such Shares as if Maker had determined
to sell such Shares to a third party and the purchase price shall be the average
of the closing price on the five (5) trading days preceding the purchase by
Payee, or, if shares of Krispy Kreme Doughnut Corporation are not then publicly
traded, then the purchase price shall be the then most recent appraised value of
the class of shares of Krispy Kreme Doughnut Corporation of which the Shares are
a part.

All parties to this Note, including maker and any sureties, endorsers, or
guarantors hereby waive protest, presentment, notice of dishonor, and notice of
acceleration of maturity and agree to continue to remain bound for the payment
of principal, interest and all other sums due under this Note and any instrument
securing this Note notwithstanding any change or changes by way of release,
surrender, exchange, modification or substitution of any security for this Note
or by way of any extension or extensions of time for the payment of principal
and interest; and all such parties waive all and every kind of notice of such
change or changes and agree that the same may be made without notice or consent
of any of them.

Upon default the holder of this Note may employ an attorney to enforce the
holder's rights and remedies and the maker, principal, surety, guarantor and
endorsers of this Note hereby agree to pay to the holder reasonable attorneys
fees not exceeding a sum equal to fifteen percent (15%) of the outstanding
balance owing on said Note, plus all other reasonable expenses incurred by the
holder in exercising any of the holder's rights and remedies upon default. The
rights and remedies of the holder as provided in this Note and any instrument
securing this Note shall be cumulative and may be pursued singly, successively,
or together against the property described herein and/or in any instrument
securing this Note or any other funds, property or security held by the holder
for payment or security, in the sole discretion of the holder. The failure to
exercise any such right or remedy shall not be a waiver or release or such
rights or remedies or the right to exercise any of them at another time.

This Note is to be governed and construed in accordance with the laws of the
State of North Carolina. As used herein, the term "Note" shall include the
security agreement contained herein.

This Note is given for money owed. To further secure this Note, Maker(s)
grants Payee a first priority security interest under Chapter 25 of the North
Carolina General Statutes (the "UCC") in those shares of Krispy Kreme Doughnut
Corporation represented by certificate number "Cert" together with all
certificates, shares, options, rights or other distributions issued as an
addition to, in substitution or in exchange for, or on account of, any such
shares, and all proceeds of the foregoing, now or hereafter owned or acquired by
Maker (the "Shares") and agrees that such certificate or other documents
representing the Shares shall remain in the possession of Payee until this Note
is paid in full. Payee shall have all rights of a secured party applicable under
the UCC and under this Note, such rights being cumulative. The undersigned
agrees not to transfer or convey (by sale, gift, devise or otherwise), grant a
security interest in, pledge or otherwise encumber the Shares or any interest
therein without the prior written consent of the Payee, which consent Payee may
grant or withhold in its sole discretion. In addition to, and not in limitation
of the foregoing, in the event of any attempted transfer, pledge or encumbrance
of the Shares or any interest therein, whether or not consented to by Payee (and
whether by sale, gift,

<PAGE> 3

devise or otherwise), Payee may declare all sums due under this Note immediately
due and payable. The Shares shall bear a legend in form satisfactory to Payee
stating they are subject to this Note and Security Agreement. The undersigned
agrees to execute such further instruments, security agreements and financing
statements, and to take such other actions, as Payee may from time to time
request to evidence and/or perfect such security interest. In the event such
security interest ever constitutes a lower than first priority security
interest, Payee may declare this Note in default and no cure period for such
default shall exist unless required by applicable law, in which event such cure
period shall be the minimum required by applicable law.

In the event that during the term of this Note, any additional shares,
options, or warrants issued in connection with the Shares shall be issued to the
Maker, such additional shares, option or warrants shall be immediately assigned
and delivered to Payee, endorsed in blank, to be held under the terms of this
Note in the same manner as the Shares. Furthermore, Maker agrees to execute and
deliver to Payee any necessary endorsement and/or appropriate stock power duly
executed in blank to be held by Payee and to be used to effect Payee's rights
under this Note.

Upon the occurrence and during the continuance of any event of default, any
and all dividends and distributions paid or payable in respect of the Shares
shall be delivered to Payee, together with any necessary endorsement and/or
appropriate stock powers duly executed in blank, to be (i) if cash, applied
against amounts owing by Maker under this Note and (ii) if not cash, held by
Payee in the same manner as the Shares, subject to Payee's rights and remedies
as provided herein.

The Maker hereby irrevocably appoints Payee and any officer thereof the
Maker's Attorney In Fact, with full power of substitution for and on behalf and
in the name of Maker, during the existence and continuance of any default, in
the Payee's sole discretion, to take any action and to execute any instrument
which the Payee may deem necessary or advisable to accomplish the purposes of
this Note, including, without limitation, the right to sell the Shares or
exercise any and all of its rights and remedies under this Note and applicable
law. This Power of Attorney is a Power coupled with an interest and shall be
irrevocable and is conferred on the Payee solely to protect, preserve and
realize on its security interest in the Shares. This Power of Attorney shall be
durable.

IN TESTIMONY WHEREOF, THE MAKER HAS SET HIS
HAND TO THIS INSTRUMENT AND ADOPTED AS HIS SEAL THE
WORD "SEAL" APPEARING BESIDE HIS SIGNATURE THE
DAY AND YEAR FIRST ABOVE WRITTEN.

____________________________________________ (SEAL)
"FIRSTNAME" "LASTNAME"

<PAGE> 1

EXHIBIT 10.26

RESTRICTED STOCK PURCHASE AGREEMENT

THIS RESTRICTED STOCK PURCHASE AGREEMENT (the "Agreement"), made as of
the __th day of ________, 1993 by and between KRISPY KREME DOUGHNUT CORPORATION
(the "Company") and __________ (the "Participant").

For valuable consideration, receipt of which is acknowledged, the
parties agree as follows:

1. Purchase of Shares. The Participant subscribes for and, upon
acceptance by the Company, shall purchase, subject to the terms and conditions
set forth in this Agreement, ___ shares (the "Shares") of common stock ("common
stock"), $10.00 par value, of the Company at a purchase price of $10.00 per
share. The aggregate purchase price of the Shares shall be paid by the
Participant by check, payable to the order of the Company, or such other method
as may be acceptable to the Company. Upon the Company's receipt of payment for
the Shares, the Company shall issue to the Participant one or more certificates
in the name of the Participant for that number of Shares purchased by the
Participant. The Participant agrees that the Shares shall

(a) be subject to the Repurchase Option set forth in Section 2 of
this Agreement and the restrictions on transfer set forth in
Section 4 of this Agreement;

(b) be considered issued when they are no longer subject to the
Repurchase Option (but shall not be considered issued so long
as they are subject to the Repurchase Option); and

(c) shall not be entitled to vote or receive dividends or other
distributions on common stock while subject to the Repurchase
Option.

<PAGE> 2

2. Repurchase Option.

(a) If the Participant ceases to be employed by the Company or
ceases to be a member of the board of directors (as is
applicable) by the Company for any reason other than death or
disability prior to any of the dates set forth on Schedule A,
the Company shall have the right and Option (the "Repurchase
Option") to Purchase any or all of the Shares subject to the
Repurchase Option prior to such date as more particularly set
forth on Schedule A from the Participant at the same price as
the Participant paid for the Shares.

(b) For Purposes of this Agreement, employment with the Company
shall include employment with a parent or subsidiary of the
Company.

3. Exercise of Repurchase Option and Closing.

(a) Upon the termination of the employment of the Participant or
the cessation of his directorship [as referred to in
subsection 2 (a) above], the Repurchase Option shall be
deemed to be automatically exercised by the Company unless
the Company delivers or mails written notice of nonelection of
exercise of the Repurchase Option within 30 days thereafter in
accordance with section 14.

(b) Unless the Company gives such written notice of nonelection
within 30 days after the termination of the employment of the
Participant or the cessation of his directorship [as referred
to in subsection 2 (a) above], the Participant shall tender to
the Company at its principal offices the certificate or
certificates representing such number of Shares that the
Company has elected to purchase, duly endorsed in blank by the
Participant or with duly endorsed stock powers attached, all
in form suitable for the transfer

<PAGE> 3

of the Shares of the Company. Upon its receipt of these
Shares, the Company shall deliver or mail to the Participant
a check in the amount of the aggregate Option Price.

(c) After the date(s) set forth in Schedule A with respect to the
number of Shares set opposite such date or after such Shares
are otherwise not subject to the Repurchase Option pursuant
to subsection 3 (c) above, such Shares shall then be subject
to all of the terms and provisions of the Stock Purchase
Agreement by and between the Company and its shareholders
dated July 1, 1984 (the "Stock Purchase Agreement") and all
the restrictions on transfer set forth therein as if the
Participant and the Company had executed such agreement. The
termination of such Participant's employment or directorship
shall be deemed to constitute written notice of a proposed
transfer, disposition or sale thereof under subsection 2 (a)
of such Stock Purchase Agreement.

(d) The purchase price for such Shares may be payable, at the
discretion of the Company, in cancellation of all or a portion
of any outstanding indebtedness of the Participant to the
Company, or in cash (by check), or both.

(e) If, at any time, prior to the exercise of the Repurchase
Option under sub section 3 (a) above, the common stock of the
Company is acquired through merger, acquisitions
consolidation, purchase, tender offer or otherwise (the
"Acquisition"), the Participant shall be paid by the Company
a sum of money determined by multiplying the cash price per
share (or monetary equivalent thereof) received by the holders
of the common stock times the number of shares then subject to
the Repurchase Option. Such payment shall be made upon the
Closing of the Acquisition.

<PAGE> 4

4. Restrictions on Transfer.

(a) Except as otherwise provided in subsection 4(b), the
Participant shall not, during the term of the Repurchase
Option, sell, assign, transfer, pledge, hypothecate, or
otherwise dispose of, by operation of law or otherwise
(collectively "transfer"), any of the Shares, or any interest
therein, unless the Shares are no longer subject to the
Repurchase Option.

(b) Notwithstanding the foregoing, the Participant may transfer
Shares to or for the benefit of any spouse, child or
grandchild, or to a trust for their benefit, provided that
those Shares shall remain subject to this Agreement, including
without limitation the restrictions on transfer set forth in
this Section 4 and the Repurchase Option, and the permitted
transferee shall, as a condition to the transfer, deliver to
the Company a written instruction confirming that the
transferee shall be bound by all of the terms and conditions
of this Agreement.

5. Effect of Prohibited Transfer. The Company shall not be required:

(a) To transfer on its books any of the Shares that shall have
been sold or transferred in violation of any of the provisions
set forth in this Agreement; or

(b) To treat as owner of those Shares or to pay dividend to any
transferee to whom any of those Shares shall have been sold or
transferred in violation of any of the provisions set forth in
this Agreement.

6. Restricted Legend. All certificates representing Shares shall have
affixed thereto legends in substantially the following form, in addition to any
other legends that may be required under federal or state securities laws:

<PAGE> 5

(a) "The shares of stock represented by this certificate are
subject to restrictions on transfer and an option to purchase
set forth in a Restricted Stock Purchase Agreement between the
corporation and the registered owner of this certificate (or
his predecessor in interest). This Agreement is available for
inspection without charge at the office of the Secretary of
the Corporation"; and

(b) The same legend as required by the Stock Purchase Agreement.

7. Investment Representations. The Participant represents, warrants,
and covenants as follows:

(a) The Participant is purchasing the Shares for his own account
for investment only, and not with a view to, or for sale in
connection with, any distribution of the Shares in violation
of the Securities Act of 1933 (the "Securities Act"), or any
rule or regulation under the Securities Act.

(b) He has had an opportunity he deems adequate to obtain from
representatives of the Company the information necessary to
permit him to evaluate the merits and risks of his investment
in the Company.

(c) He has sufficient experience in business, financial and
investment matters to be able to evaluate the risks involved
in the purchase of the Shares and to make an informed
investment decision with respect to that purchase.

(d) He can afford a complete loss of the value of the Shares and
is able to bear the economic risk of holding the Shares for an
indefinite period.

(e) He understands that:

<PAGE> 6

(i) The Shares cannot be sold, transferred, or otherwise
disposed of unless they are subsequently registered
under the Securities Act or an exemption from
registration is then available; and

(ii) The Company has no obligation or current intention to
register the Shares under the Securities Act.

(f) A legend substantially in the following form will be placed on
the certificate representing the Shares:

"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, transferred or otherwise disposed of in the
absence of an effective registration statement under the Act
or an opinion of counsel satisfactory to the corporation to
the effect that registration is not required."

8. Adjustments. If from time to time during the term of the Repurchase
Option, there is any stock split, stock dividend, stock distribution, or other
reclassification of the common stock of the Company, or any merger,
consolidation, or sale of substantially all of the assets of the Company, any
and all new, substituted, or additional securities to which the Participant is
entitled by reason of his ownership of the Shares shall be subject immediately
to all of the terms and conditions of this Agreement (and be included as
"Shares"), and other provisions of this Agreement in the same manner and to the
same extent as the Shares, and the option price shall be adjusted appropriately.

9. Withholding Taxes.

(a) The Participant acknowledges and agrees that the Company has
the right to deduct from payments of any kind otherwise due to
the Participant any

<PAGE> 7

federal, state or local taxes of any kind required by law to
be withheld with respect to the purchase of the Shares by the
Participant.

(b) If the Participant elects, in accordance with Section 83(b) of
the Internal Revenue Code of 1954, as amended, to recognize
ordinary income in the year of acquisition of the Shares, the
Company will require at the time of that election an
additional payment for withholding tax purposes based on the
difference, if any, between the purchase price for the Shares
and the fair market value of the Shares as of the day
immediately preceding the date of the purchase of the Shares
by the Employee.

10. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, and each other provision of this Agreement shall
be severable and enforceable to the extent permitted by law.

11. Waiver. Any provision contained in this Agreement may be waived,
either generally or in any particular instance, by the Board of Directors of the
Company.

12. Binding Effect. This Agreement shall be binding upon, and inure to
the benefit of, the Company and the Participant and their respective heirs,
executors, administrators, legal representatives, successors, and assigns,
subject to the restrictions on transfer set forth in Section 4 of this
Agreement.

13. No Rights to Employment. Nothing contained in this Agreement shall
be construed as giving the Participant any right to be retained, in any
position, as an employee and/or director of the Company for any definite period
of time.

14. Notice. All notices required or permitted hereunder shall be in
writing and deemed effectively given upon personal delivery or upon deposit in
the United States Post

<PAGE> 8

Office, by registered or certified mail, postage prepaid, addressed to the other
party at the address shown beneath his or its respective signature to this
Agreement, or at such other address or addresses as either party shall designate
to the other in accordance with this Section 14.

15. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine, or neuter
forms. The singular form of nouns and pronouns shall include the plural, and the
plural form of nouns and pronouns shall include the singular.

16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings
relating to the subject matter of this Agreement.

17. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Participant.

18. Governing Law. This Agreement shall be construed, interpreted, and
enforced in accordance with the laws of North Carolina.

IN WITNESS WHEREOF, the Participant has executed this Agreement as of
the day and year first above written and the Company has caused it to be
executed by one of its duly authorized officers.

COMPANY
KRISPY KREME DOUGHNUT CORPORATION

By: _________________________
Scott A. Livengood, President
P O Box 83
Winston-Salem, NC 27102-0083

<PAGE> 9

PARTICIPANT

<PAGE> 1

EXHIBIT 10.27

NOTE

Winston-Salem, North Carolina
November 17, 1993

FOR VALUE RECEIVED, the undersigned (hereinafter referred to as the
"Debtor") promises to pay to the order of KRISPY KREME DOUGHNUT CORPORATION, a
North Carolina corporation ("Krispy Kreme"), at its offices at 1814 Ivy Avenue,
Winston-Salem, North Carolina, or at such other places as the holder of this
Note may designate, in lawful money of the United States of America and in
immediately available funds the principal sum of
______________________________________________________________________________
with interest upon unpaid principal from the date hereof payable on each
interest at the rate of five percent (5%) per annum. This note shall bear
interest at the maximum legal rate after maturity.

Principal payments due under this Note shall be payable in annual
installments as follows:

Interest in arrears shall be payable at the same time as the principal payments.

The Debtor shall be entitled to prepay any amounts of the principal at
any time outstanding, but any such prepayment shall be applied to the payments
then due in inverse order of maturity.

The Debtor waives presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Note. Failure of the holder to exercise any right
hereunder shall not constitute a waiver of the right to later exercise same. The
Debtor agrees to pay to the holder of this Note all costs and expenses,
including, without limitation, court costs and attorneys' fees and expenses, as
are

<PAGE> 2

incidental to the enforcement of any of the provisions hereof and the collection
of the indebtedness evidenced hereby.

The granting, without notice, of any extension of time for the payment
of any sum or sums due hereunder shall in no way release or discharge the
liability of the Debtor, any endorsers, or any guarantors.

If any payment on this Note becomes due and payable on a Saturday,
Sunday or other day on which commercial banks in the State of North Carolina are
authorized or required by law to close, the maturity thereof shall be extended
to the next succeeding Business Day and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.

If the Debtor fails to make any payments of principal or interest on
the due date, whether by acceleration or otherwise, the balance of this Note
will bear interest, at the option of Krispy Kreme or the holder thereof, at the
highest rate then allowed by law.

Payment of this Note is unsecured.

Whenever in this Note there is a reference made to either Krispy Kreme
or the Debtor, such reference shall be deemed to include a reference to the
successors and assigns or heirs, executors and administrators, as the case may
be, of said parties. The provisions of this Note shall be binding upon, and
shall inure to the benefit of, said successors and assigns, or heirs, executors
or administrators, as applicable.

If this Note is referred to an attorney for collection, the Debtor
agrees to pay all of Krispy Kreme's costs of collection, including reasonable
attorneys' fees.

This Note shall be governed as to validity, enforcement,
interpretation, construction, effect and in all other respects in accordance
with the laws and decisions of the State of North

<PAGE> 3

Carolina. Whenever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such or the provisions of this
Note.

IN WITNESS WHEREOF, the Debtor has executed this note on the day and
year set forth above.

<PAGE> 1

EXHIBIT 10.28

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (THE "AGREEMENT") is made effective this 10th
day of August, 1999, by and between KRISPY KREME DOUGHNUT CORPORATION, a North
Carolina corporation (the "Company"), and JOHN N. MCALEER (the "Executive").

RECITAL

The Executive is currently serving as Executive Vice President, Concept
and Brand Development of the Company and the parties have negotiated this
Agreement in consideration of the Executive's valuable services and leadership.

NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties do hereby agree as follow:

1. EFFECTIVE DATE. This Agreement shall be effective upon, and from and
after, the date set forth above.

2. DEFINITIONS. As used herein, the following terms shall have the
following meanings:

(a) "Disability" shall mean the Executive becoming disabled
and unable to continue his employment with the Company as
defined in the Company's then applicable disability policy for
the Senior Management of the Company.

(b) "Discharge" shall mean the termination by the Company of
the Executive's employment during the Period of Employment for
any reason other than (i) Good Cause, (ii) death of the
Executive, (iii) Disability of the Executive, or (iv)
Retirement of the Executive.

(d) "Good Cause" has its meaning as defined in Section 6
hereof.

(e) "Period of Employment" shall be for a term of three years
beginning August 10, 1999 and ending August 10, 2002;
provided, however, that commencing August 10, 2000, the
Executive's Period of Employment shall automatically be
extended for successive one-year periods each year as of
August 10 of each year unless the Company gives Executive
written notice of nonextension on or before that date.

<PAGE> 2

(f) "Retirement" shall mean a time when the sum of the
Executive's age and employment with the Company equals or
exceeds 65.

(g) "Senior Management" shall mean the senior executive
management of the Company currently consisting of the chief
executive officer, the president, and the executive vice
presidents.

(h) "Stock Option Plan" shall mean the Krispy Kreme Doughnut
Corporation 1998 Stock Option Plan.

(i) "Termination Date" shall mean:

(i) If the Executive's employment is terminated by
reason of death, the Executive's date of death;

(ii) If the Executive's employment is terminated by
reason of Retirement, the date of his Retirement;

(iii) If the Executive's employment is terminated by
reason of Disability, the date of his Disability;

(iv) If the Executive's employment is terminated for
Good Cause, the date specified in the written notice
of termination given by the Company pursuant to
Section 6(a);

(v) If the Executive's employment is terminated by
reason of a Discharge, the effective date of
Discharge;

(vi) If the Executive's employment is terminated by
reason of non-extension of the Period of Employment,
the Expiration Date; and

(vii) If the Executive voluntarily terminates his
employment as permitted by Section 6(b), the
effective date of his termination of employment.

3. EMPLOYMENT; PERIOD OF EMPLOYMENT.

The Company hereby employs the Executive, and the Executive hereby
accepts employment by the Company, for the Period of Employment, in the position
and with the duties and responsibilities set forth in Section 4, upon the terms
and subject to the conditions of this Agreement.

2
<PAGE> 3

4. POSITION, DUTIES AND RESPONSIBILITIES. During the Period of
Employment, the executive shall

(a) serve as Executive Vice President, Concept and Brand
Development of the Company and its subsidiaries or in such
other senior management position as may be assigned to him by
mutual agreement with the Board of Directors. The Executive
shall be employed hereunder in Forsyth County, North Carolina
and he shall not be required to relocate his residence or
principal office to any place outside Forsyth County, North
Carolina without his consent; and

(b) devote his best efforts to the furtherance of the interest
of the Company and the performance of his duties hereunder and
agrees not to engage in any competition whatsoever, either
directly or indirectly, with the Company or any of its
subsidiaries or affiliates. The Executive shall be allowed
holiday and vacation periods, leaves for periods of illness or
incapacity and personal leaves in accordance with the
Company's regular practices for members of Senior Management.

5. COMPENSATION, COMPENSATION PLANS AND BENEFITS. During the Period of
Employment, the Executive shall be compensated as follows:

(a) He shall receive an annual base salary equal to his
current annual base salary, with annual increases in
accordance with the Company's regular practices for members of
Senior Management. In addition, he shall receive non-incentive
compensation (including automobile allowance) at his current
monthly rate. Such compensation shall be paid in accordance
with the Company's regular schedule for payment of salaried
employees.

(b) He shall receive such other bonuses as are afforded the
Company's Senior Management and be eligible to participate in
all of the Company's executive compensation plans provided to
members of Senior Management of the Company from time to time.

(c) He shall be entitled to participate in and receive other
employee benefits, which may include, but are not limited to,
benefits under any life health, accident, disability, medical,
dental and hospitalization insurance plans, use of a Company
automobile or an automobile allowance, and other perquisites
and benefits, as are provided to members of Senior Management
of the Company from time to time.

(d) He shall be entitled to be reimbursed for the reasonable
and necessary out-of-pocket expenses, including entertainment,
travel and similar items, incurred by him in performing his
duties hereunder upon presentation of such documentation
thereof as the Company may normally and customarily require of
the members of Senior Management.

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<PAGE> 4

(e) The Company agrees to pay the Executive's dues and
assessments for membership in Forsyth Country Club and the
Piedmont Club.

6. TERMINATION OF EMPLOYMENT. During the Period of Employment:

(a) Termination for Good Cause.

(i) The Company may terminate the Executive's
employment for Good Cause. Termination of employment shall be
deemed to have been for Good Cause if (i) the Executive
habitually neglects or refuses to do his duties and fails to
cure such neglect within ten (10) days after having received
written notice of same from the Company or (ii) the Executive
commits (a) acts constituting a felony or (b) acts of gross
negligence or willful misconduct to the material detriment of
the Company.

(ii) Termination by the Company for Good Cause may be
made only by written notice of termination from the Company to
the Executive that has been specifically approved in advance
by the Board of Directors. Such notice shall set forth all
acts constituting such neglect or refusal to do duties or
gross negligence or willful misconduct as is applicable.

(b) Voluntary Termination.

The Executive may voluntarily terminate his
employment with the Company upon 30 days prior written notice.

The employment of the Executive shall be terminated
by death, Disability or Retirement of the Executive.

7. EFFECT OF TERMINATION.

(a) If the Executive's employment is terminated by reason of
death, Retirement or voluntary termination of employment, the
Company shall pay the Executive (or his estate in the case of
his death) his base salary, non-incentive compensation
(including automobile allowance), bonuses and benefits as
provided in Section 5 through the Termination Date and (in the
case of his death) a death benefit of $5,000. Any payments and
benefits due to the Executive under employee benefit plans and
programs of the Company, including the Stock Option Plan,
shall be determined in accordance with the terms of such
benefit plans and programs; provided, however, that all
options held by the Executive under the Stock Option Plan
shall become 100% vested if the Executive's employment is
terminated by reason of death or Retirement.

4
<PAGE> 5

(b) If the Executive's employment is terminated by reason of
Disability, the Company shall pay the Executive his base
salary, non-incentive compensation, bonuses and benefits for a
period of six months following the date of Disability.
Thereafter, this Agreement terminates and the Executive shall
receive those benefits payable to him under the applicable
disability insurance plan provided by the Company. Any
payments and benefits due to the Executive under employee
benefit plans and programs of the Company, including the Stock
Option Plan, shall be determined in accordance with the terms
of such benefit plans and programs; provided, however, that
all options held by the Executive under the Stock Option Plan
shall become 100% vested as of the Executive's termination of
employment by reason of Disability.

(i) the Company shall pay the Executive

A. his then current annual base salary and
non-incentive compensation (including
automobile allowance) and provide the
Executive with his then current benefits (as
provided in Section 5) through the
Expiration Date pursuant to Section 2(e);
and

B. within thirty (30) days from the
Termination Date (1) a lump sum equal to
Executive's then current monthly base salary
amount multiplied by the number of months
between the month of Discharge and the
preceding August, and (2) a lump sum amount
equal to the sum of adding three times the
Executive's bonus calculated at 50% of his
annualized base salary for the then current
fiscal year, discounted at the rate of six
percent (6%) per annum. The latter payment
is full and final satisfaction of all the
Company's obligations for bonus and/or other
incentive payments.

(ii) Any payments and benefits due to executive under
the employee benefit plans and programs of the
Company, including the Stock Option Plan, shall be
determined in accordance with the terms of such
benefit plans and programs; provided, however, that
all options held by the Executive under the Stock
Option Plan shall become 100% vested as of the
Termination Date.

(d) In the event of the Company's nonextension of the
Employment Period,

(i) the Company shall pay the Executive

A. his then current annual base salary and
non-incentive compensation (including
automobile allowance) and provide the

5
<PAGE> 6

Executive with his then current benefits (as
provided in Section 5) through the
Expiration Date, pursuant to Section 2(e);

B. within thirty (30) days from the
Termination Date, (1) a lump sum equal to
Executive's then current annual base salary,
and (2) a lump sum amount equal to three
times the Executive's bonus calculated at
50% of his base salary for the then current
fiscal year discounted at the rate of six
percent (6%) per annum. The latter payment
is full and final satisfaction of all the
Company's obligations for bonus and/or other
incentive payments.

(ii) Any payments and benefits due to Executive under
employee benefit plans and programs of the Company,
including the Stock Option Plan, shall be determined
in accordance with the terms of such benefit plans
and programs; provided, however, that all options
held by the Executive under the Stock Option Plan
shall become 100% vested as of the Expiration Date.

Provided, however, that within sixty (60) days of the date of
notification by the Company to the Executive of its intention
not to extend the Period of Employment, the Executive may, at
his option, elect to have the non-extension treated as a
Discharge with an effective date thirty (30) days after the
Executive's notification to the Company of his election.

(e) In the event of the Executive's Termination For Cause by
the Company, the Company shall pay the Executive his then
current base salary and non-incentive compensation (including
automobile allowance) and provide the Executive with his then
current benefits (as provided in Section 5) through the
Termination Date. Any payments and benefits due the Executive
under employee benefit plans and programs of the Company,
including the Stock Option Plan, shall be determined in
accordance with the terms of such benefit plans and programs.

(f) In the event the Executive's employment is terminated by
reason of Discharge or nonextension of the Employment Period,
the Executive may, at his option, elect to receive a lump sum
amount equal to the base salary and non-incentive compensation
due, discounted at a rate of six percent (6%) per annum.

(h) In the event the Executive's employment is terminated by
reason of Discharge, the Company shall furnish the Executive,
for a period of six (6) months subsequent to the Termination
Date, outplacement services, reasonable office space, and
secretarial assistance.

(h) If any of the payments provided for in this Agreement,
together with any other payments which the Executive has the
right to receive from the Company or

6
<PAGE> 7

any corporation which is a member of an "affiliated group" as
defined in Section 1504(a) of the Code (without regard to
Section 1504(b) of the Code) of which the Company is a member,
would constitute an "excess parachute payment" as defined in
Section 280G(b)(1) of the Code as it presently exists, such
that any portion of such payments are subject to the excise
tax imposed by Section 4999 of the Code, or any interest or
penalty with respect to such excise tax (such excise tax,
together with any such interest or penalty, are collectively
referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (an "Excise Tax
Restoration Payment"). The amount of the Excise Tax
Restoration Payment shall be the amount necessary to fund the
payment by the Executive of any Excise Tax on the total
payments, as well as all income taxes imposed on the Excise
Tax Restoration Payment, any excise tax imposed on the Excise
Tax Restoration Payment, and any interest or penalties imposed
with respect to taxes on the Excise Tax Restoration Payment or
any Excise Tax.

8. Termination For Good Reason. In the event of a "Change in Control"
of the Company (as hereinafter defined), the Executive may terminate his
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following events during the twelve (12) months
immediately preceding or following the effective date of a Change in Control of
the Company:

(a) a material change in the scope of the Executive's assigned
duties and responsibilities from those in effect immediately prior to a Change
in Control of the Company or the assignment of duties or responsibilities that
are inconsistent with the Executive's status in the Company;

(b) a reduction by the Company in the Executive's base salary
or incentive compensation as in effect on the date of a Change in Control;

(c) the Company's requirement that the Executive be based
anywhere other than the Company's office in Forsyth County, North Carolina, at
which he was based prior to the Change in Control of the Company; or

(d) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those specified in Section 5 of
this Agreement.

For purposes of Section 8(c) above, the Company shall be deemed to have
required the Executive to be based somewhere other than the Company's office at
which he was based prior to the Change in Control if the Executive is required
to spend more than two days per week on a regular basis at a business location
not within 50 miles of the Executive's primary business location as of the
effective date of a Change in Control.

If the Executive terminates his employment for Good Reason, this shall
be treated as the Discharge of the Executive by the Company. Accordingly, the
Company shall pay the amounts and provide the benefits to the Executive
specified in Section 7 above, applicable in the event of

7
<PAGE> 8

Discharge. The Executive shall not be obligated in any way to mitigate the
Company's obligations to him under this Section 8 and any amounts earned by the
Executive subsequent to his termination of employment shall not serve as an
offset to the payments due him by the Company under this Section.

For purposes of this Agreement, a "Change in Control" means the date on
which the earlier of the following events occur:

(a) the acquisition by any entity, person or group of
beneficial ownership, as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934, of more than 30% of the outstanding capital stock of the
Company entitled to vote for the election of directors ("Voting Stock");

(b) the merger or consolidation of the Company with one or
more corporations as a result of which the holders of outstanding Voting Stock
of the Company immediately prior to such a merger or consolidation hold less
than 60% of the Voting Stock of the surviving or resulting corporation;

(c) the transfer of substantially all of the property of the
Company other than to an entity of which the Company owns at least 80% of the
Voting Stock; or

(d) the election to the Board of Directors of the Company of
three or more directors during any twelve month period without the
recommendation or approval of the incumbent Board of Directors of the Company.

Upon a Change in Control, as defined above in this Section 8, all
outstanding stock options shall become 100% vested and immediately exercisable,
regardless of whether the Executive terminates employment or not.

If the Executive terminates employment with Good Reason within twelve
(12) months of a Change in Control, to the extent permitted by law, the Company
shall continue the medical, disability and life insurance benefits which
Executive was receiving at the time of termination for a period of 36 months
after termination of employment or, if earlier, until Executive has commenced
employment elsewhere and becomes eligible for participation in the medical,
disability and life insurance programs, if any, of his successor employer.
Coverage under Employer's medical, disability and life insurance programs shall
cease with respect to each such program as Executive becomes eligible for the
medical, disability and life insurance programs, if any, of his successor
employer.

9. CONFIDENTIALITY. During the Period of Employment and following
termination for any reason, the Executive covenants and agrees that he will not
divulge any trade secrets or other confidential information pertaining to the
business of the Company. It is understood that the term "trade secrets" as used
in this Agreement is deemed to include any information which gives the Company a
material and substantial advantage over its competitors but that such term does
not include knowledge, skills or information which is otherwise publicly
disclosed.

8
<PAGE> 9

10. NON-COMPETITION. In the event of Termination For Good Cause, or
Voluntary Termination of the Executive, the Executive agrees that for a period
of two years following the Termination Date, Executive shall not directly or
indirectly, personally or with other employees, agents or otherwise, or on
behalf of any other person, firm, or corporation, engage in the business of
making and selling doughnuts and complementary products

(a) within a 100 mile radius of any place of business of the
Company (including franchised operations) or of any place
where the Company (or one of its franchised operations) has
done business since the Effective Date of this Agreement,

(b) in any county where the Company is doing business or has
done business since the Effective Date, or

Notwithstanding the above, ownership by Executive of an interest in any
licensed franchisee of the Company shall not be deemed to be in violation of
this Section 10. In the event of an actual or threatened breach of this
provision, the Company shall be entitled to an injunction restraining Executive
from such action and the Company shall not be prohibited in obtaining such
equitable relief or from pursuing any other available remedies for such breach
or threatened breach, including recovery of damages from Executive.

11. SUCCESSORS; BINDING AGREEMENT.

(a) This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto, their heirs, personal
representatives, successors and assigns.

(b) The Company shall require any successor (whether direct or
indirect and whether by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or
assets of the Company expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that
the Company would be required to perform if no such succession
had taken place. As used herein, "Company" shall mean the
Company as defined in the preamble to this Agreement and any
successor to its business or assets which executes and
delivers (or is required to execute and deliver) the agreement
provided for in this Section 11(b), or which otherwise becomes
bound by the terms and provisions of this Agreement or by
operation of law.

12. ARBITRATION. Except as hereinafter provided, any controversy or
claim arising out of or relating to this Agreement of any alleged breach thereof
shall be settled by arbitration in the City of Winston-Salem, North Carolina in
accordance with the rules then obtaining of the American Arbitration Association
and any judgment upon any award, which may include an

9
<PAGE> 10

award of damages, may be entered in the highest State or Federal court having
jurisdiction. Nothing contained herein shall in any way deprive the Company of
its claim to obtain an injunction or other equitable relief arising out of the
Executive's breach of the provisions of Paragraphs 9 and 10 of this Agreement.
In the event of the termination of Executive's employment, Executive's sole
remedy shall be arbitration as herein provided and any award of damages shall be
limited to recovery of lost compensation and benefits provided for in this
Agreement.

12. NOTICES. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:

IF TO THE EXECUTIVE: John N. McAleer
435 Westover Avenue
Winston-Salem, NC 27104

IF TO THE COMPANY: Krispy Kreme Doughnut Corporation
P.O. Box 83
Winston-Salem, NC 27102-0083
(for mail)

370 Knollwood
Suite 500
Winston-Salem, NC 27103
(for delivery)

Attn: Randy S. Casstevens, Corporate Secretary

13. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
North Carolina.

14. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of other provisions or conditions at the same or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.

15. SEPARABILITY. The invalidity or lack of enforceability of a
provision of this Agreement shall not affect the validity of any other provision
hereof, which shall remain in full force and effect.

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<PAGE> 11

16. WITHHOLDING OF TAXES. The Company may withhold from any benefits
payable under this Agreement all federal, state and other taxes as shall be
required pursuant to any law or governmental regulation or ruling.

17. SURVIVAL. The provisions of Sections 9 and 10 of the Agreement
shall survive the termination of this Agreement and shall continue for the terms
set forth in Sections 9 and 10.

18. CAPTIONS. Captions to the sections of this Agreement are inserted
solely for the convenience of the parties, are not a part of this Agreement, and
in no way define, limit, extend or describe the scope hereof or the intent of
any of the provisions.

19. NON-ASSIGNABILITY. This Agreement is personal in nature and neither
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder.
Without limiting the foregoing, the Executive's right to receive payments
hereunder shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise, other than a transfer by will or by the
laws of descent or distribution. In the event of any attempted assignment or
transfer contrary to this section, the Company shall have no liability to pay
any amount so attempted to be assigned or transferred.

IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and delivered under its seal pursuant to the specific authorization of
its board of directors and the Executive has hereunto set his hand and seal on
the day and year first above written.

KRISPY KREME DOUGHNUT CORPORATION

By: /s/ Scott A. Livengood
Scott A. Livengood, CEO and President

[CORPORATE SEAL]

EXECUTIVE

/s/ John N. McAleer (Seal)
John N. McAleer

<PAGE> 1

EXHIBIT 10.29

EMPLOYMENT AGREEMENT

RECITAL

The Executive is currently serving as President of the Company and the
parties have negotiated this Agreement in consideration of the Executive's
valuable services and leadership. This Agreement supersedes the Employment
Agreement entered into between the parties on January 7, 1994.

NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties do hereby agree as follow:

1. EFFECTIVE DATE. This Agreement shall be effective upon, and from and
after, the date set forth above.

2. DEFINITIONS. As used herein, the following terms shall have the
following meanings:

(d) "Good Cause" has its meaning as defined in Section 6
hereof.

<PAGE> 2

(f) "Retirement" shall mean a time when the sum of the
Executive's age and employment with the Company equals or
exceeds 65.

(g) "Senior Management" shall mean the senior executive
management of the Company currently consisting of the chief
executive officer, the president, and the executive vice
presidents.

(h) "Stock Option Plan" shall mean the Krispy Kreme Doughnut
Corporation 1998 Stock Option Plan.

(i) "Termination Date" shall mean:

(i) If the Executive's employment is terminated by
reason of death, the Executive's date of death;

(ii) If the Executive's employment is terminated by
reason of Retirement, the date of his Retirement;

(iii) If the Executive's employment is terminated by
reason of Disability, the date of his Disability;

(iv) If the Executive's employment is terminated for
Good Cause, the date specified in the written notice
of termination given by the Company pursuant to
Section 6(a);

(v) If the Executive's employment is terminated by
reason of a Discharge, the effective date of
Discharge;

(vi) If the Executive's employment is terminated by
reason of non-extension of the Period of Employment,
the Expiration Date; and

(vii) If the Executive voluntarily terminates his
employment as permitted by Section 6(b), the
effective date of his termination of employment.

3. EMPLOYMENT; PERIOD OF EMPLOYMENT.

2
<PAGE> 3

4. POSITION, DUTIES AND RESPONSIBILITIES. During the Period of
Employment, the executive shall

(a) serve as President and Chief Executive Officer of the
Company and its subsidiaries or in such other senior
management position as may be assigned to him by mutual
agreement with the Board of Directors. The Executive shall be
employed hereunder in Forsyth County, North Carolina and he
shall not be required to relocate his residence or principal
office to any place outside Forsyth County, North Carolina
without his consent; and

5. COMPENSATION, COMPENSATION PLANS AND BENEFITS. During the Period of
Employment, the Executive shall be compensated as follows:

3
<PAGE> 4

(e) The Company agrees to pay the Executive's dues and
assessments for membership in Forsyth Country Club and the
Piedmont Club.

6. TERMINATION OF EMPLOYMENT. During the Period of Employment:

(a) Termination for Good Cause.

(b) Voluntary Termination.

The Executive may voluntarily terminate his
employment with the Company upon 30 days prior written notice.

The employment of the Executive shall be terminated
by death, Disability or Retirement of the Executive.

7. EFFECT OF TERMINATION.

4
<PAGE> 5

(i) the Company shall pay the Executive

(ii) Any payments and benefits due to executive
under the employee benefit plans and programs of the
Company, including the Stock Option Plan, shall be
determined in accordance with the terms of such
benefit plans and programs; provided, however, that
all options held by the Executive under the Stock
Option Plan shall become 100% vested as of the
Termination Date.

(d) In the event of the Company's nonextension of the
Employment Period,

(i) the Company shall pay the Executive

A. his then current annual base salary and
non-incentive compensation (including
automobile allowance) and provide the

5
<PAGE> 6

Executive with his then current benefits (as
provided in Section 5) through the
Expiration Date, pursuant to Section 2(e);

(g) In the event the Executive's employment is terminated by
reason of Discharge, the Company shall furnish the Executive,
for a period of six (6) months subsequent to the Termination
Date, outplacement services, reasonable office space, and
secretarial assistance.

(h) If any of the payments provided for in this Agreement,
together with any other payments which the Executive has the
right to receive from the Company or

6
<PAGE> 7

(b) a reduction by the Company in the Executive's base salary
or incentive compensation as in effect on the date of a Change in Control;

(d) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those specified in Section 5 of
this Agreement.

7
<PAGE> 8

For purposes of this Agreement, a "Change in Control" means the date on
which the earlier of the following events occur:

(c) the transfer of substantially all of the property of the
Company other than to an entity of which the Company owns at least 80% of the
Voting Stock; or

(d) the election to the Board of Directors of the Company of
three or more directors during any twelve (12) month period without the
recommendation or approval of the incumbent Board of Directors of the Company.

8
<PAGE> 9

(b) in any county where the Company is doing business or has
done business since the Effective Date, or

11. SUCCESSORS; BINDING AGREEMENT.

(a) This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto, their heirs, personal
representatives, successors and assigns.

9
<PAGE> 10

13. NOTICES. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:

IF TO THE EXECUTIVE: Scott A. Livengood
605 Spring Tree Court
Winston-Salem, NC 27104

IF TO THE COMPANY: Krispy Kreme Doughnut Corporation
P.O. Box 83
Winston-Salem, NC 27102-0083
(for mail)

370 Knollwood
Suite 500
Winston-Salem, NC 27103
(for delivery)

Attn: Randy S. Casstevens, Corporate Secretary

14. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
North Carolina.

15. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of other provisions or conditions at the same or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.

16. SEPARABILITY. The invalidity or lack of enforceability of a
provision of this Agreement shall not affect the validity of any other provision
hereof, which shall remain in full force and effect.

10
<PAGE> 11

17. WITHHOLDING OF TAXES. The Company may withhold from any benefits
payable under this Agreement all federal, state and other taxes as shall be
required pursuant to any law or governmental regulation or ruling.

18. SURVIVAL. The provisions of Sections 9 and 10 of the Agreement
shall survive the termination of this Agreement and shall continue for the terms
set forth in Sections 9 and 10.

19. CAPTIONS. Captions to the sections of this Agreement are inserted
solely for the convenience of the parties, are not a part of this Agreement, and
in no way define, limit, extend or describe the scope hereof or the intent of
any of the provisions.

20. NON-ASSIGNABILITY. This Agreement is personal in nature and neither
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder.
Without limiting the foregoing, the Executive's right to receive payments
hereunder shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise, other than a transfer by will or by the
laws of descent or distribution. In the event of any attempted assignment or
transfer contrary to this section, the Company shall have no liability to pay
any amount so attempted to be assigned or transferred.

KRISPY KREME DOUGHNUT CORPORATION

By: /s/ J. Paul Breitbach
J. Paul Breitbach, Executive Vice President

[CORPORATE SEAL]

EXECUTIVE

/s/ Scott A. Livengood (Seal)
Scott A. Livengood

<PAGE> 1

EXHIBIT 10.30

EMPLOYMENT AGREEMENT

RECITAL

The Executive is currently serving as Executive Vice President of the
Company and the parties have negotiated this Agreement in consideration of the
Executive's valuable services and leadership. This Agreement supersedes the
Employment Agreement entered into between the parties on ________________.

NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties do hereby agree as follow:

1. EFFECTIVE DATE. This Agreement shall be effective upon, and from and
after, the date set forth above.

2. DEFINITIONS. As used herein, the following terms shall have the
following meanings:

(d) "Good Cause" has its meaning as defined in Section 6
hereof.

(e) "Period of Employment" shall be for a term of two years
beginning August 10, 1999 and ending August 10, 2001;
provided, however, that commencing August 10, 2000, the
Executive's Period of Employment shall automatically be
extended for successive one-year periods each year as of
August 10 of each year unless the Company gives Executive
written notice of nonextension on or before that date.

<PAGE> 2

(f) "Retirement" shall mean a time when the sum of the
Executive's age and employment with the Company equals or
exceeds 65.

(g) "Senior Management" shall mean the senior executive
management of the Company currently consisting of the chief
executive officer, the president, and the executive vice
presidents.

(h) "Stock Option Plan" shall mean the Krispy Kreme Doughnut
Corporation 1998 Stock Option Plan.

(i) "Termination Date" shall mean:

(i) If the Executive's employment is terminated by
reason of death, the Executive's date of death;

(ii) If the Executive's employment is terminated by
reason of Retirement, the date of his Retirement;

(iii) If the Executive's employment is terminated by
reason of Disability, the date of his Disability;

(iv) If the Executive's employment is terminated for
Good Cause, the date specified in the written notice
of termination given by the Company pursuant to
Section 6(a);

(v) If the Executive's employment is terminated by
reason of a Discharge, the effective date of
Discharge;

(vi) If the Executive's employment is terminated by
reason of non-extension of the Period of Employment,
the Expiration Date; and

(vii) If the Executive voluntarily terminates his
employment as permitted by Section 6(b), the
effective date of his termination of employment.

3. EMPLOYMENT; PERIOD OF EMPLOYMENT.

2
<PAGE> 3

4. POSITION, DUTIES AND RESPONSIBILITIES. During the Period of
Employment, the executive shall

(a) serve as Executive Vice President of the Company and its
subsidiaries or in such other senior management position as
may be assigned to him by mutual agreement with the Board of
Directors. The Executive shall be employed hereunder in
Forsyth County, North Carolina and he shall not be required to
relocate his residence or principal office to any place
outside Forsyth County, North Carolina without his consent;
and

5. COMPENSATION, COMPENSATION PLANS AND BENEFITS. During the Period of
Employment, the Executive shall be compensated as follows:

3
<PAGE> 4

(e) The Company agrees to pay the Executive's dues and
assessments for membership in Forsyth Country Club and the
Piedmont Club.

6. TERMINATION OF EMPLOYMENT. During the Period of Employment:

(a) Termination for Good Cause.

(b) Voluntary Termination.

The Executive may voluntarily terminate his
employment with the Company upon 30 days prior written notice.

The employment of the Executive shall be terminated
by death, Disability or Retirement of the Executive.

7. EFFECT OF TERMINATION.

4
<PAGE> 5

(i) the Company shall pay the Executive

B. within thirty (30) days from the
Termination Date (1) a lump sum equal to
Executive's then current monthly base salary
amount multiplied by the number of months
between the month of Discharge and the
following August, and (2) a lump sum amount
equal to the sum of adding three times the
Executive's bonus calculated at 50% of his
annualized base salary for the then current
fiscal year, discounted at the rate of six
percent (6%) per annum. The latter payment
is full and final satisfaction of all the
Company's obligations for bonus and/or other
incentive payments.

(d) In the event of the Company's nonextension of the
Employment Period,

(i) the Company shall pay the Executive

A. his then current annual base salary and
non-incentive compensation (including
automobile allowance) and provide the

5
<PAGE> 6

Executive with his then current benefits (as
provided in Section 5) through the
Expiration Date, pursuant to Section 2(e);

(h) If any of the payments provided for in this Agreement,
together with any other payments which the Executive has the
right to receive from the Company or

6
<PAGE> 7

(b) a reduction by the Company in the Executive's base salary
or incentive compensation as in effect on the date of a Change in Control;

(d) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those specified in Section 5 of
this Agreement.

7
<PAGE> 8

For purposes of this Agreement, a "Change in Control" means the date on
which the earlier of the following events occur:

(c) the transfer of substantially all of the property of the
Company other than to an entity of which the Company owns at least 80% of the
Voting Stock; or

8
<PAGE> 9

(b) in any county where the Company is doing business or has
done business since the Effective Date, or

11. SUCCESSORS; BINDING AGREEMENT.

(a) This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto, their heirs, personal
representatives, successors and assigns.

(b) The Company shall require any successor (whether direct or
indirect and whether by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or
assets of the Company expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that
the Company would be required to perform if no such succession
had taken place. As used herein, "Company" shall mean the
Company as defined in the preamble to this Agreement and any
successor to its business or assets which executes and
delivers (or is required to execute and deliver) the agreement
provided for in this Section 10(b), or which otherwise becomes
bound by the terms and provisions of this Agreement or by
operation of law.

9
<PAGE> 10

IF TO THE EXECUTIVE: J. Paul Breitbach
320 Buckingham Road
Winston-Salem, NC 27104

IF TO THE COMPANY: Krispy Kreme Doughnut Corporation
P.O. Box 83
Winston-Salem, NC 27102-0083
(for mail)

370 Knollwood
Suite 500
Winston-Salem, NC 27103
(for delivery)

Attn: Randy S. Casstevens, Corporate Secretary

14. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
North Carolina.

16. SEPARABILITY. The invalidity or lack of enforceability of a
provision of this Agreement shall not affect the validity of any other provision
hereof, which shall remain in full force and effect.

10
<PAGE> 11

18. SURVIVAL. The provisions of Sections 8 and 9 of the Agreement shall
survive the termination of this Agreement and shall continue for the terms set
forth in Sections 8 and 9.

KRISPY KREME DOUGHNUT CORPORATION

By: /s/ Scott A. Livengood
Scott A. Livengood, CEO and President

[CORPORATE SEAL]

EXECUTIVE

/s/ J. Paul Breitbach (Seal)
J. Paul Breitbach

<PAGE> 1

EXHIBIT 10.31

PLAN TO PROVIDE FRANCHISE OPPORTUNITIES FOR

CORPORATE MANAGEMENT

OCTOBER 3, 1994

I. Plan

Beginning December 1, 1994, corporate management shall have the opportunity to
apply for, qualify for and receive a grant of a franchise(s) for one or more
Krispy Kreme store(s) in open territories.

II. Purpose of the Plan

The purpose of the plan is to provide opportunities for eligible and qualifying
corporate management to obtain a franchise(s) for one or more Krispy Kreme
stores thereby allowing those who have made substantial contributions to Krispy
Kreme's success to share and participate in the growth of the Company.

III. Benefits of the Plan to the Company

The benefits to the company are as follows:

1. the plan serves to attract, retain and motivate quality
employees;

2. the plan provides the greatest likelihood of successful store
expansion due to the knowledge and experience of the plan
participant;

3. the plan expedites and enhances the development of the
company's franchise program and store expansion program;

<PAGE> 2

4. the plan gives our successful corporate management an
additional opportunity to grow in their career at Krispy
Kreme; and

5. The plan will add to a sense of ownership, opportunity and
entrepreneurship which is vital to achieving the company's
commitment to exceeding shareholders and customer
expectations.

IV. Conditions of the Plan

A. Eligibility: Members of corporate management who

- are participants in the ELTIP

- meet franchise applicant qualifications which are set forth on
Exhibit A.

These qualifications include

- business plan for developing the market which meets
company standards and

- financial resources/bank commitment for full market
development which meets company standards

- are employed in good standing

- have a trained and capable replacement (if leaving company)

B. Available franchise areas: Any qualifying area in the United States
except for territories of existing associates and company markets. For
available territories, see the list set forth on Exhibit B. The list is
subject to change from time to time. Areas must meet the

<PAGE> 3

Company's requirements for population density, which currently is
100,000 households within a metropolitan statistical area. Any
exceptions must have corporate approval.

C. Investor Groups: Applicants may qualify by forming an investor group
provided that the applicant will have at least a 20% equity interest
(40% for two participants in the same investor group and 50% for three
or more participants).

D. Franchise Agreement: Corporate management will sign the same franchise
agreement which has been developed for new franchisees which includes
the prevailing franchise fee, royalty and advertising fee.

E. Awarding of Markets: Markets will be awarded on a "first come, first
serve" basis to qualifying applicants. Applicants must be ready to
develop market immediately. Markets . will not be held or reserved - no
right of first refusal.

V. Financing by Krispy Kreme

Krispy Kreme will guarantee conventional financing for any number of store(s)
per applicant. The types of guarantees are as follows:

Equipment Buy Back -

- upon default, buy back of production equipment, other
equipment, signage, furniture and fixtures at a price equal to
purchase price declining with the amortization of the bank
loan to 50% of purchase price

<PAGE> 4

ELTIP Guarantee -

- guarantee equal to amount of balance in ELTIP accounts

- ELTIP Article VF provides:

"when KK distributes amounts credited to the Account of a
Participant, KK has the right to deduct therefrom . . . any
amounts the Participant may owe the Company."

Other Guarantee of Loan -

- corporate guarantee of bank loan in an additional amount
sufficient to enable him/ her to obtain financing for 100% of
the cost of the store (within the parameters set forth in Item
VII of the franchise offering circular).

- If participant can qualify for conventional bank
financing (with equipment buy back and ELTIP
guarantees).

- There will be no fee for the guarantee for the first
15 months. Thereafter, the participant shall pay
Krispy Kreme a fee of the two percent (2%) per annum
of the amount guaranteed until Participant's lender
releases Krispy Kreme from the guarantee (unless the
ratio of cash flow to debt from the Store is less
than 1.25 to 1.00 primarily due to the Store's
location).

The plan and related guarantees will require approval of Southern National Bank,
the company's lender. The participant will be required to sign an Accommodation
Agreement under which he/ she agrees to repay the company if its performs under
the guarantee.

<PAGE> 5

VI. Other Conditions

- - Production equipment is subject to availability.

- - Employees of Krispy Kreme who participate must continue to devote full
time and best efforts to current job. If a plan participant's
employment with Krispy Kreme Doughnut Corporation is terminated for
cause, the company has the right to terminate the Franchise Agreement
and all rights granted therein.

Each store must have a full time manager who has successfully completed the
training school.

All sales of equipment, signage packages and modular building, as well as mix
and distribution center products will be made at standard prices and on standard
terms.

VII. Application Procedure

Begin accepting applications on December 1, 1994. Applications must be
accompanied by

- business plan

- financial statements

* * * * * * * * * * * * * * * * * * * * *

This Plan may be changed at any time due to availability of production equipment
the financial condition of the company, demand and other factors. It is for an
indefinite term but subject to termination at any time by the Board of
Directors.

<PAGE> 6

Exhibit A

Franchise Fee: $20,000
Development Fee: $10,000 (Credited against Franchise Fee)
Royalty: 4.5%

Advertising: 4% (broken down as follows)

- Marketing and Promotional Fund: Up to a maximum of 3% of Gross
Sales.

- Local Advertising: 4% of Gross sales less the percent of gross
sales contributed to the Marketing and Promotional Fund.

Estimate per store total investment: Low - high range of $640,000 - $813,000
(Includes build ing cost but is exclusive of land and site costs) to develop one
outlet. These costs include the franchise fee, $50,000 - $85,000 in working
capital, grand opening advertising/promotion and initial inventory.

Applicants should demonstrate, in addition to any other items the Company feels
are relevant, the following to the Company's satisfaction:

1. They possess food service operating experience;

2. They possess or have the proven ability to, raise capital sufficient to
fund their development commitment;

3. They have familiarity with the market proposed for development;

4. They possess the ability to timely and diligently fulfill all
obligations of the Company's development and franchise agreement;

5. They are not contractually or legally prohibited from fully performing
their obligations, in a timely and diligent manner, under the Company's
area development and franchise agreements and

6. They are honest and creditworthy; possess sound reputation and
integrity, and have no prior criminal records.

For more information: Details about the franchise are made available at a
personal meeting with the Krispy Kreme Franchise Department at which time
prospects receive the Krispy Kreme Uniform Offering Circular and discuss their
franchise opportunities.

<PAGE> 7

PLAN TO PROVIDE FRANCHISE OPPORTUNITIES FOR

ASSOCIATE OPERATORS

OCTOBER 3, 1994

I. Plan

Beginning December 1, 1994, associate operators shall have the opportunity to
apply for, qualify for and receive a grant of a franchise(s) for one or more
Krispy Kreme store(s) in open territories.

II. Purpose of the Plan

The purpose of the plan is to provide opportunities for eligible and qualifying
associate operators to obtain a franchise(s) for one or more Krispy Kreme stores
thereby allowing those who have made substantial contributions to Krispy Kreme's
success to share and participate in the growth of the Company.

III. Benefits of the Plan to the Company

The benefits to the company are as follows:

1. the plan gives associates the opportunity to grow both inside
and outside their existing markets and give family members
opportunities;

2. the plan provides the greatest likelihood of successful store
expansion due to the knowledge and experience of the plan
participants;

3. the plan expedites and enhances the development of the
company's franchise program and store expansion program;

<PAGE> 8

4. the plan gives our successful associate operators an
additional opportunity to grow in their career at Krispy
Kreme; and

5. The plan will add to a sense of ownership, opportunity and
entrepreneurship which is vital to achieving the company's
commitment to exceeding shareholders and customer
expectations.

IV. Conditions of the Plan

A Eligibility: Associate operators outside their existing territories

A. OUTSIDE EXISTING MARKET

- who have already fully penetrated their existing
markets on the basis of one store per 100,000
households

B. BOTH INSIDE AND OUTSIDE

- are in, and have had a history of, good financial
standing with the company

- accounts receivable under 60 days

- financial statements submitted timely

- royalties timely paid

- have a history of operating within company standards

- operations sanitation

- safety

- product quality

<PAGE> 9

- meets franchise applicant qualifications which are set forth
on Exhibit A. These qualifications include

- business plan for developing the market which meets
company standards and

- financial resources/bank commitment for full market
development which meets company standards

B. Available franchise areas: Any qualifying area in-the United States
except for terri tories of existing associates and company markets. For
available territories, see the list set forth on Exhibit B. This list
is subject to change from time to time. Areas must meet the Company's
requirements for population density, which currently is 100,000 house
holds within a metropolitan statistical area. Any exceptions must have
corporate approval.

D. Franchise Agreement: For stores outside their area, associate operators
will sign the same franchise agreement which has been developed for new
franchisees which includes the prevailing franchise fee, royalty and
advertising fee.

<PAGE> 10

E. Awarding of Markets: Markets will be awarded on a "first come, first
serve" basis to qualifying applicants. Applicants must be ready to
develop market immediately. Markets will not be held or reserved - no
right of first refusal.

V. Financing by Krispy Kreme

Krispy Kreme will guarantee conventional financing for any number of store(s)
per applicant. The types of guarantees are as follows:

Equipment Buy Back -

- upon default, buy back of production equipment, other
equipment, signage, furniture and fixtures at a price equal
to purchase price declining with the amortization of the bank
loan to 50% of purchase price

Stock Pledge -

- pledge of stock with a buy back of stock, upon default, at-
then book value (or price) under stock purchase agreement

Other Guarantee of Loan -

- If participant can qualify for conventional bank
financing (with equipment buy back and pledge of
stock guaranteed).

- There will be no fee for the guarantee for the first
15 months. Thereafter, the participant shall pay
Krispy Kreme a fee of the two percent (2%) per

<PAGE> 11

annum of the amount guaranteed until Participant's
lender releases Krispy Kreme from the guarantee
(unless the ratio of cash flow to debt from the Store
is less than 1.25 to 1.00 primarily due to the
Store's location).

VI. Other Conditions

- - Production equipment is subject availability.

- - Each store must have a full time manager -who has successfully
completed the training school.

- - Associates who participate must fully develop their existing markets.

- - All sales of equipment, signage packages and modular building, as well
as mix and distribution center products will be made at standard
prices and on standard terms.

VII. Application Procedure

Begin accepting applications on December 1, 1994. Applications must be
accompanied by

- business plan

- financial statements

* * * * * * * * * * * * * * * * * * * * * * * * * * *

<PAGE> 12

Exhibit A

Franchise Fee: $20,000
Development Fee: $10,000 (Credited against Franchise Fee)
Royalty: 4.5%

Advertising: 4% (broken down as follows)

- Marketing and Promotional Fund: Up to a maximum of 3% of Gross
Sales.

- Local Advertising: 4% of Gross sales less the percent of gross
sales contributed to the Marketing and Promotional Fund.

Applicants should demonstrate, in addition to any other items the Company feels
are relevant, the following to the Company's satisfaction:

1. They possess food service operating experience;

2. They possess or have the proven ability to raise capital sufficient to
fund their development commitment;

3. They have familiarity with the market proposed for development;

4. They possess the ability to timely and diligently fulfill all
obligations of the Company's development and franchise agreement;

5. They are not contractually or legally prohibited from fully performing
their obligations, in a timely and diligent manner, under the Company's
area development and franchise agreements and

6. They are honest and creditworthy; possess sound reputation and
integrity, and have no prior criminal records.

<PAGE> 13

PLAN TO PROVIDE FRANCHISE OPPORTUNITIES FOR

STORE MANAGERS

OCTOBER 3, 1994

I. Plan

Beginning December 1, 1994, qualifying store managers shall have the opportunity
to apply for, qualify for and receive a grant of a franchise(s) for one or more
Krispy Kreme store(s) in open territories.

II. Purpose of the Plan

The purpose of the plan is to provide opportunities for eligible and qualifying
store managers to obtain a franchise(s) for one or more Krispy Kreme stores
thereby allowing those who have made substantial contributions to Krispy Kreme's
success to share and participate in the growth of the Company.

III. Benefits of the Plan to the Company

The benefits to the company are as follows:

1. the plan serves to attract, retain and motivate quality
employees;

2. the plan provides the greatest likelihood of successful store
expansion due to the knowledge and experience of the store
managers;

3. the plan expedites and enhances the development of the
company's franchise program and store expansion program;

<PAGE> 14

4. the plan gives our successful store managers an additional
opportunity to grow in their career at Krispy Kreme; and

5. The plan will add to a sense of ownership, opportunity and
entrepreneurship which is vital to achieving the company's
commitment to exceeding shareholders and customer
expectations.

IV. Conditions of the Plan

A. Eligibility: Company store managers who:

- have a track record of superior store performance in
accordance with the standards set forth in mission statement
as evaluated and determined by corporate management

- must be employed as a manager for at least five years

- must have a trained and capable replacement

- meets franchise applicant qualifications which are set forth
on Exhibit A. These qualifications include

- business plan for developing the market which meets
company standards and

- financial resources/bank commitment for full market
development which meets company standards

B. Available franchise areas: Any qualifying area in the United States
except for territories of existing associates and company markets. For
available territories, see the list set forth

<PAGE> 15

on Exhibit B. The list is subject to change from time to time. Areas
must meet the Company's requirements for population density, which
currently is 100,000 households within a metropolitan statistical area.
Any exceptions must have corporate approval.

D. Franchise Agreement: The store managers will sign the same franchise
agreement which has been developed for new franchisees which includes
the prevailing franchise fee, royalty and advertising fee.

V. Financing by Krispy Kreme

Except for the tenure guarantee, Krispy Kreme will guarantee conventional
financing for any number of store(s) per applicant. The types of guarantees are
as follows:

Equipment Buy Back -

- upon default, buy back of production equipment, other
equipment, signage, furniture and fixtures at a price equal
to purchase price declining with the amortization of the bank
loan to 50% of purchase price

<PAGE> 16

Tenure Guarantee -

- guarantee an amount equal to $50,000 x number of years
employed as a store manager (maximum $500,000) - one time only
(one store only)

VI. Other Conditions

- - Production equipment is subject to availability.

- - The plan participant must successfully complete the Manager Training
Program.

- - All sales of equipment, signage packages and modular building, as well
as mix and distribution center products will be made at standard prices
and on standard terms.

VII. Application Procedure

Begin accepting applications on December 1, 1994. Applications must be
accompanied by

- business plan

- financial statements

* * * * * * * * * * * * * * * * * * * * * * * * * * *

<PAGE> 17

Exhibit A

Franchise Fee: $20,000
Development Fee: $10,000 (Credited against Franchise Fee)
Royalty: 4.5%

Advertising: 4% (broken down as follows)

- Marketing and Promotional Fund: Up to a maximum of 3% of Gross
Sales.

- Local Advertising: 4% of Gross sales less the percent of gross
sales contributed to the Marketing and Promotional Fund.

Applicants should demonstrate, in addition to any other items the Company feels
are relevant, the following to the Company's satisfaction:

1. They possess food service operating experience;

2. They possess or have the proven ability to raise capital sufficient to
fund their development commitment;

3. They have familiarity with the market proposed for development;

4. They possess the ability to timely and diligently fulfill all
obligations of the Company's development and franchise agreement;

5. They are not contractually or legally prohibited from fully performing
their obligations, in a timely and diligent manner, under the Company's
area development and franchise agreements and

6. They are honest and creditworthy; possess sound reputation and
integrity, and have no prior criminal records.

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated March 19, 1999 relating to the financial statements and financial
statement schedule of Krispy Kreme Doughnut Corporation and our report dated
December 3, 1999 relating to the balance sheet of Krispy Kreme Doughnuts, Inc.,
which appear in such Registration Statement. We also consent to the references
to us under the headings "Experts" and "Selected Financial Data" in such
Registration Statement.

/S/ PricewaterhouseCoopers LLP

Greensboro, North Carolina

February 22, 2000

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<FISCAL-YEAR-END> JAN-30-2000 JAN-31-1999
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<INCOME-TAX> 3,509,000 (2,112,000)
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