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Krispy Kreme CEO is out; chairman steps in

January 08, 2008|From Bloomberg News

Krispy Kreme Doughnuts Inc., which lost 72% on the stock market last year, said Monday that Chief Executive Daryl Brewster resigned and would be replaced by Chairman James Morgan.

The shares rose 11%, amounting to the most in almost a month, after the chain said Morgan would be CEO for the "foreseeable future."

Brewster, 51, and the retailer "mutually determined" to end his employment, the company said in a regulatory filing. His resignation comes after 13 straight quarters of losses.

Krispy Kreme, the second-largest U.S. doughnut chain, is closing stores opened during a four-year expansion after its 2000 initial stock sale. The company has been hurt by allegations of misconduct on the part of former management, trends toward healthier eating in the U.S. and bankruptcies of several franchisees.

"The model is broken and someone has to change it," said Malcolm Knapp, a restaurant consultant in New York.

"The economic model does not work and hasn't worked for a while."

Morgan, 60, who has been on the board since July 2000 and chairman since January 2005, will serve as president and CEO while retaining the chairmanship, the company said.

Morgan most recently was chairman and chief investment officer of Covenant Capital, an investment management firm he founded. Before that, he was chairman and CEO of Interstate/Johnson Lane Inc., an investment and brokerage company, which was purchased by Wachovia Corp. in 1999.

Shares of Krispy Kreme, which sold its first glazed doughnut in 1937, rose 32 cents to $3.15, their biggest gain since Dec. 10.

Brewster, a former Kraft Foods Inc. executive, had been CEO since March 2006. He will remain with the company until the end of the month. Krispy Kreme shares have tumbled 94% since their August 2003 record close of $49.37.

Brewster will receive $700,000 under a separation agreement and $1.2 million in restricted shares, according to the filing with the Securities and Exchange Commission.

Krispy Kreme ousted former CEO Scott Livengood and six other executives in 2005 after the company said an internal investigation found they might have inflated earnings to beat company forecasts. The SEC is probing the company's books.

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