Wednesday, November 01, 2006

Mmmm, Donuts!

Yesterday, Krispy Kreme Doughnuts, Inc. (NYSE: KKD) announced that the company had entered into an agreement to settle the securities class action and derivative litigation that were pending against the company and certain current and former officers and directors in the United States District Court for the Middle District of North Carolina.

The settlement in the securities litigation is valued at approximately $75 million, consisting of:
  • $34,967,000 in cash from the company's directors' and officers' insurers;
  • $200,000 in cash from John W. Tate, the former Chief Operating Officer and Randy Casstevens, the former Chief Financial Officer;
  • $4,000,000 in cash from PricewaterhouseCoopers LLP, the company's outside auditors; and
  • Common stock and warrants to purchase common stock to be issued by Krispy Kreme having an aggregate value of $35,833,000.
The settlement in the derivative litigation provides for:
  • Messrs. Tate and Casstevens each agreed to contribute $100,000 in cash to the settlement of the securities class action;
  • Mr. Tate's agreement to cancel his interest in 6,000 shares of company stock;
  • Messrs. Tate and Casstevens agreed to limit their claims for indemnity from the Krispy Kreme in connection with future proceedings before the Securities and Exchange Commission or the United States Attorney for the Southern District of New York to specified amounts.
Additionally the derivative claims against Scott A. Livengood, Krispy Kreme's former Chairman and Chief Executive Officer have not been resolved, and "counsel for the derivative plaintiffs are deferring their application for fees until conclusion of the derivative actions against Mr. Livengood."

Lead plaintiffs in the class action are the Alaska Electrical Pension Fund, Pompano Beach Police & Firefighters Retirement System, City of St. Clair Shores (Mich.) Police and Fire Pension System, City of Sterling Heights (Mich.) General Employees Retirement System, and Jason Hennessy, and lead counsel is Lerach Coughlin Stoia Geller Rudman & Robbins LLP.

Daily Trivia: Mr. Tate's (the former COO) employment contract, provides that Tate is not permitted to:
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

(c) in any state where the Company is doing business or has done business since the Effective Date.
According to the company's store locator, Alaska, Maine, Montana, New Hampshire, Vermont, and Wyoming, are the only states that Mr. Tate could possibly sell donuts in during the period of his non-compete.

This is a theoretical statement, as a) there is no indication that Mr. Tate has any interest in hawking donuts and b) the 100 mile restriction would likely knock out New Hampshire and Vermont due to their proximity to Canadian, New York, and Massachusetts locations.

No comments: