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Krispy Kreme Sued Over Profit Warning

May 13, 2004 | a proposed class-action lawsuit against Krispy Kreme Doughnuts Inc. and its top executives in the wake of last week's earnings warning and stock price tumble has been filed.

The action is pending in the U.S. District Court for the Middle District of North Carolina against defendants Krispy Kreme, CEO Scott Livengood and executives Randy S. Casstevens, Michael C. Phalen and John W. Tate.

A Krispy Kreme spokeswoman was not immediately available for comment.

The complaint alleges that Krispy Kreme violated the Securities Exchange Act of 1934. The complaint alleges that, during the last year, Krispy Kreme touted its strong operational growth but failed to disclose that it was being affected by the low-carbohydrate diet trend.

On May 7, Krispy Kreme announced fiscal 2005 diluted earnings per share from continuing operations, excluding charges, were to be 10 percent lower than previously announced, and that Krispy Kreme was closing certain company-owned stores and reducing plans to open new ones. Krispy Kreme also announced that it was closing its Montana Mills bread stores, an operation that it had bought a year ago, and that it was going to write-off as much as $40 million on the venture.

On this news, shares of Krispy Kreme fell $9.29, or 29 percent, to close at $22.51, a new 52-week low and more than 50 percent below Krispy Kreme's 52-week high of $49.74.

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