DIRECTOR INDEMNIFICATION
AGREEMENT
This Director
Indemnification Agreement, dated as of October 4, 2004 (this
“ Agreement ”), is made by and between
Krispy Kreme Doughnuts, Inc., a North Carolina corporation (the
“ Company ”), and
(“ Indemnitee ”).
A. Section 55-8-01
of the North Carolina Business Corporation Act provides that the
business and affairs of a corporation shall be managed by or under
the direction of its board of directors.
B. By virtue
of the managerial prerogatives vested in the directors of a North
Carolina corporation, directors act as fiduciaries of the
corporation and its stockholders.
C. Thus, it
is critically important to the Company and its stockholders that
the Company be able to attract and retain the most capable persons
reasonably available to serve as directors of the
Company.
D. In
recognition of the need for corporations to be able to induce
capable and responsible persons to accept positions in corporate
management, North Carolina law authorizes (and in some instances
requires) corporations to indemnify their directors and officers,
and further authorizes corporations to purchase and maintain
insurance for the benefit of their directors and
officers.
E. The North
Carolina courts have recognized that indemnification by a
corporation serves the dual policies of (1) allowing corporate
officials to resist unjustified lawsuits, secure in the knowledge
that, if vindicated, the corporation will bear the expense of
litigation and (2) encouraging capable women and men to serve as
corporate directors and officers, secure in the knowledge that the
corporation will absorb the costs of defending their honesty and
integrity.
F. The number
of lawsuits challenging the judgment and actions of directors of
North Carolina corporations, the costs of defending those lawsuits,
and the threat to directors’ personal assets have all
materially increased over the past several years, chilling the
willingness of capable women and men to undertake the
responsibilities imposed on corporate directors.
G. Recent
federal legislation and rules adopted by the Securities and
Exchange Commission and the national securities exchanges have
imposed additional disclosure and corporate governance obligations
on directors of public companies and have exposed such directors to
new and substantially broadened civil liabilities.
H. These
legislative and regulatory initiatives have also exposed directors
of public companies to a significantly greater risk of criminal
proceedings, with attendant defense costs and potential criminal
fines and penalties.
I. Under
North Carolina law, a director’s right to be reimbursed for
the costs of defense of criminal actions, whether such claims are
asserted under state or federal law, does not depend upon the
merits of the claims asserted against the director and is separate
and distinct from any right to indemnification the director may be
able to establish, and indemnification of
the director
against criminal fines and penalties is permitted if the director
satisfies the applicable standard of conduct.
J. Indemnitee
is a director of the Company and his/her willingness to serve in
such capacity is predicated, in substantial part, upon the
Company’s willingness to indemnify him/her in accordance with
the principles reflected above, to the fullest extent permitted by
the laws of the State of North Carolina, and upon the other
undertakings set forth in this Agreement.
K. Section 55-8-57(b)
of the North Carolina Business Corporation Act provides that the
authorization, adoption, approval, and favorable recommendation of
this Agreement by the Company’s Board of Directors will not
be deemed an act or corporate transaction in which the Indemnitee
has a conflict of interest and this Agreement will not be void or
voidable on such grounds, provided that this Agreement does not
apply to claims made or liabilities asserted against the director
prior to the date of this Agreement.
L. Therefore,
in recognition of the need to provide Indemnitee with substantial
protection against personal liability, in order to procure
Indemnitee’s continued service as a director of the Company
and to enhance Indemnitee’s ability to serve the Company in
an effective manner, and in order to provide such protection
pursuant to express contract rights (intended to be enforceable
irrespective of, among other things, any amendment to the
Company’s Articles of Incorporation or Amended and Restated
Bylaws (collectively, the “ Constituent
Documents ”), any change in the composition of the
Company’s Board of Directors (the “ Board
”) or any change-in-control or business combination
transaction relating to the Company), the Company wishes to provide
in this Agreement for the indemnification of and the advancement of
Expenses (as defined in Section 1(e)) to Indemnitee as set
forth in this Agreement and for the continued coverage of
Indemnitee under the Company’s directors’ and
officers’ liability insurance policies.
M. In light
of the considerations referred to in the preceding recitals, it is
the Company’s intention and desire that the provisions of
this Agreement be construed liberally, subject to their express
terms, to maximize the protections to be provided to Indemnitee
hereunder.
NOW, THEREFORE,
the parties hereby agree as follows:
1. Certain Definitions. In addition to terms defined
elsewhere herein, the following terms have the following meanings
when used in this Agreement with initial capital
letters:
(a)
“Change in Control” means the occurrence
after the date of this Agreement of any of the following
events:
(i) the
acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
“Person” ) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of the combined voting power of the
then-outstanding Voting Stock of the Company; provided ,
however , that:
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(A) for purposes of this Section 1(a)(i), the following
acquisitions shall not constitute a Change in Control: (1) any
acquisition of Voting Stock of the Company directly from the
Company that is approved by a majority of the Incumbent Directors,
(2) any acquisition of Voting Stock of the Company by the
Company or any Subsidiary, (3) any acquisition of Voting Stock
of the Company by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary, and
(4) any acquisition of Voting Stock of the Company by any
Person pursuant to a Business Combination that complies with
clauses (A), (B) and (C) of Section 1(a)(iii)
below;
(B) if any Person acquires beneficial ownership of 20% or more
of the combined voting power of the then-outstanding Voting Stock
of the Company as a result of a transaction described in clause
(A)(1) of Section 1(a)(i) and such Person thereafter becomes
the beneficial owner of any additional shares of Voting Stock of
the Company representing 1% or more of the then-outstanding Voting
Stock of the Company, other than in an acquisition directly from
the Company that is approved by a majority of the Incumbent
Directors or other than as a result of a stock dividend, stock
split or similar transaction effected by the Company in which all
holders of Voting Stock are treated equally, such subsequent
acquisition shall be deemed to constitute a Change in
Control;
(C) a Change in Control will not be deemed to have occurred if
a Person acquires beneficial ownership of 20% or more of the Voting
Stock of the Company as a result of a reduction in the number of
shares of Voting Stock of the Company outstanding unless and until
such Person thereafter becomes the beneficial owner of any
additional shares of Voting Stock of the Company representing 1% or
more of the then-outstanding Voting Stock of the Company, other
than in an acquisition directly from the Company that is approved
by a majority of the Incumbent Directors or other than as a result
of a stock dividend, stock split or similar transaction effected by
the Company in which all holders of Voting Stock are treated
equally; and
(D) if at least a majority of the Incumbent Directors
determine in good faith that a Person has acquired beneficial
ownership of 20% or more of the Voting Stock of the Company
inadvertently, and such Person divests as promptly as practicable a
sufficient number of shares so that such Person beneficially owns
less than 20% of the Voting Stock of the Company, then no Change in
Control shall have occurred as a result of such Person’s
acquisition; or
(ii) a majority of the Directors are not Incumbent Directors;
or
(iii) the consummation of a reorganization, merger or
consolidation, or sale or other disposition of all or substantially
all of the assets of the Company or the acquisition of assets of
another corporation, or other transaction (each, a
“Business Combination” ), unless, in each
case, immediately following such Business Combination (A) all
or substantially all of the individuals and entities who were the
beneficial owners of Voting Stock of the Company immediately prior
to such Business Combination beneficially own, directly or
indirectly, more than 60% of the combined voting power of the then
outstanding shares of Voting Stock of the entity resulting from
such Business Combination (including, without limitation, an entity
which as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or
through one or more subsidiaries), (B) no Person (other than
the
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Company, such entity resulting from such Business Combination, or
any employee benefit plan (or related trust) sponsored or
maintained by the Company, any Subsidiary or such entity resulting
from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of the combined voting power of the then
outstanding shares of Voting Stock of the entity resulting from
such Business Combination, and (C) at least a majority of the
members of the Board of Directors of the entity resulting from such
Business Combination were Incumbent Directors at the time of the
execution of the initial agreement or of the action of the Board
providing for such Business Combination; or
(iv) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company, except pursuant to a
Business Combination that complies with clauses (A), (B) and
(C) of Section 1(a)(iii).
(v) For purposes of this Section 1(a) and as used elsewhere in
this Agreement, the following terms shall have the following
meanings:
(A) “ Exchange Act ” shall mean the
Securities Exchange Act of 1934, as amended.
(B) “Incumbent Directors” means the
individuals who, as of the date hereof, are Directors of the
Company and any individual becoming a Director subsequent to the
date hereof whose election, nomination for election by the
Company’s stockholders, or appointment, was approved by a
vote of at least two-thirds of the then Incumbent Directors (either
by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director,
without objection to such nomination); provided ,
however , that an individual shall not be an Incumbent
Director if such individual’s election or appointment to the
Board occurs as a result of an actual or threatened election
contest (as described in Rule 14a-12(c) of the Exchange Act)
with respect to the election or removal of Directors or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board.
(C) “Subsidiary” means an entity in which
the Company directly or indirectly beneficially owns 50% or more of
the outstanding Voting Stock.
(D) “Voting Stock” means securities
entitled to vote generally in the election of directors (or similar
governing bodies).
(b)
“ Claim ” means, except as stated below,
(i) any threatened, asserted, pending or completed claim,
demand, action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, investigative or other, and whether
made pursuant to federal, state or other law; and (ii) any
threatened, pending or completed inquiry or investigation, whether
made, instituted or conducted by the Company or any other person,
including without limitation any federal, state or other
governmental entity, that Indemnitee determines might lead to the
institution of any such claim, demand, action, suit or proceeding.
Notwithstanding the foregoing, in no event will the term
“Claim” be deemed to include any Claim existing against
Indemnitee prior to the date of this Agreement.
(c)
“Controlled Affiliate” means any
corporation, limited liability company, partnership, joint venture,
trust or other entity or enterprise, whether or not for profit,
that is
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directly
or indirectly controlled by the Company. For purposes of this
definition, “control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of an entity or enterprise, whether through
the ownership of voting securities, through other voting rights, by
contract or otherwise; provided that direct or indirect
beneficial ownership of capital stock or other interests in an
entity or enterprise entitling the holder to cast 20% or more of
the total number of votes generally entitled to be cast in the
election of directors (or persons performing comparable functions)
of such entity or enterprise shall be deemed to constitute control
for purposes of this definition.
(d)
“ Disinterested Director ” means a
director of the Company who is not and was not a party to the Claim
in respect of which indemnification is sought by
Indemnitee.
(e)
“ Expenses ” means attorneys’ and
experts’ fees and expenses and all other costs and expenses
paid or payable in connection with investigating, defending, being
a witness in or participating in (including on appeal), or
preparing to investigate, defend, be a witness in or participate in
(including on appeal), any Claim.
(f)
“ Indemnifiable Claim ” means any Claim
based upon, arising out of or resulting from (i) any actual,
alleged or suspected act or failure to act by Indemnitee in his or
her capacity as a director, officer, employee or agent of the
Company or as a director, officer, employee, member, manager,
trustee or agent of any other corporation, limited liability
company, partnership, joint venture, trust or other entity or
enterprise, whether or not for profit, as to which Indemnitee is or
was serving at the request of the Company as a director, officer,
employee, member, manager, trustee or agent, (ii) any actual,
alleged or suspected act or failure to act by Indemnitee in respect
of any business, transaction, communication, filing, disclosure or
other activity of the Company or any other entity or enterprise
referred to in clause (i) of this sentence, or (iii)
Indemnitee’s status as a current or former director, officer,
employee or agent of the Company or as a current or former
director, officer, employee, member, manager, trustee or agent of
the Company or any other entity or enterprise referred to in clause
(i) of this sentence or any actual, alleged or suspected act
or failure to act by Indemnitee in connection with any obligation
or restriction imposed upon Indemnitee by reason of such status. In
addition to any service at the actual request of the Company, for
purposes of this Agreement, Indemnitee shall be deemed to be
serving or to have served at the request of the Company as a
director, officer, employee, member, manager, trustee or agent of
another entity or enterprise if Indemnitee is or was serving as a
director, officer, employee, member, manager, trustee or agent of
such entity or enterprise and (i) such entity or enterprise is or
at the time of such service was a Controlled Affiliate,
(ii) such entity or enterprise is or at the time of such
service was an employee benefit plan (or related trust) sponsored
or maintained by the Company or a Controlled Affiliate, or
(iii) the Company or a Controlled Affiliate directly or
indirectly caused or authorized Indemnitee to be nominated,
elected, appointed, designated, employed, engaged or selected to
serve in such capacity.
(g)
“ Indemnifiable Losses” means any and all
Losses relating to, arising out of or resulting from any
Indemnifiable Claim.
(h)
“ Independent Counsel ” means a law firm,
or a member of a law firm, that is experienced in matters of
corporation law and neither presently is, nor in the past five
years has been, retained to represent: (i) the Company (or any
Subsidiary) or Indemnitee in any matter
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material to
either such party (other than with respect to matters concerning
the Indemnitee under this Agreement, or of other indemnitees under
similar indemnification agreements), or (ii) any other named (or,
as to a threatened matter, reasonably likely to be named) party to
the Indemnifiable Claim giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term
“Independent Counsel” shall not include any person who,
under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine
Indemnitee’s rights under this Agreement.
(i)
“ Losses ” means, except as stated below,
any and all Expenses, damages, losses, liabilities, judgments,
fines, penalties (whether civil, criminal or other) and amounts
paid in settlement, including without limitation all interest,
assessments and other charges paid or payable in connection with or
in respect of any of the foregoing. Notwithstanding the foregoing,
in no event will the term “Losses” be deemed to include
any Losses incurred by the Indemnitee prior to the date of this
Agreement or relating to any Claim existing against Indemnitee
prior to the date of this Agreement.
2. Indemnification Obligation. Subject to
Section 7, the Company shall indemnify, defend and hold
harmless Indemnitee, to the fullest extent permitted or required by
the laws of the State of North Carolina in effect on the date
hereof or as such laws may from time to time hereafter be amended
to increase the scope of such permitted indemnification, against
any and all Indemnifiable Claims and Indemnifiable Losses;
provided , however , that, except as provided in
Sections 4 and 20, Indemnitee shall not be entitled to
indemnification pursuant to this Agreement in connection with any
Claim initiated by Indemnitee against the Company or any director
or officer of the Company unless the Company has joined in or
consented to the initiation of such Claim.
3. Advancement of Expenses. Indemnitee shall have the
right to advancement by the Company prior to the final disposition
of any Indemnifiable Claim of any and all Expenses relating to,
arising out of or resulting from any Indemnifiable Claim paid or
incurred by Indemnitee or which Indemnitee determines are
reasonably likely to be paid or incurred by Indemnitee.
Indemnitee’s right to such advancement is not subject to the
satisfaction of any standard of conduct. Without limiting the
generality or effect of the foregoing, within five business days
after any request by Indemnitee, the Company shall, in accordance
with such request (but without duplication), (a) pay such
Expenses on behalf of Indemnitee, (b) advance to Indemnitee
funds in an amount sufficient to pay such Expenses, or
(c) reimburse Indemnitee for such Expenses; provided
that Indemnitee shall repay, without interest any amounts actually
advanced to Indemnitee that, at the final disposition of the
Indemnifiable Claim to which the advance related, were in excess of
amounts paid or payable by Indemnitee in respect of Expenses
relating to, arising out of or resulting from such Indemnifiable
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