Krispy Kreme's Canadian franchise files for protection

Krispy Kreme Doughnuts Inc., the one-time stock market and media darling that has been troubled by regulatory and financial problems for much of the past year, said yesterday it has obtained bankruptcy protection for its Canadian franchisee.

The Toronto Star
April 16, 2005

Krispy Kreme's Canadian franchise files for protection
Series of missteps blamed, CEO says. ‘We are not closing our doors:’ Official.
Tony Wong

Krispy Kreme Doughnuts Inc., the one-time stock market and media darling that has been troubled by regulatory and financial problems for much of the past year, said yesterday it has obtained bankruptcy protection for its Canadian franchisee.

The company announced in a statement that an application was filed with the Ontario Superior Court of Justice for a restructuring of operations in Eastern and Central Canada of the Markham-based KremeKo Inc. under the Companies' Creditors Arrangement Act.

North Carolina-based Krispy Kreme owns a 40.6 per cent interest in KremeKo, and has agreed to provide debtor-in-possession financing for KremeKo's operations during the restructuring process. However, Krispy Kreme spokesperson Amy Hughes stressed the company did not plan to close its Canadian operations anytime soon.

"We plan on riding the ship and going on in Canada," Hughes said. "We are certainly not closing our doors."

Hughes said Krispy Kreme veteran and senior vice-president of business development Robert Vaughn would be the chief restructuring officer in charge of the Canadian operations.

"This is a difficult but necessary process for KremeKo, and we believe it is in the best interest of the Krispy Kreme brand in Canada in the long term," Krispy Kreme CEO Steve Cooper said in a statement.

KremeKo has the right to develop Krispy Kreme stores in all provinces except British Columbia. It has about a dozen stores in Ontario, Quebec and Alberta.

When Krispy Kreme, the Number 2 doughnut maker in the U.S., opened its first store in Mississauga in December 2001, there were line-ups for the company's hot glazed doughnut.

Since then, a series of missteps, including over-expansion, has caused the company's move to Canada to founder.

KremeKo's parent company has also been in hot water, and has seen its share price drop almost 40 per cent from the start of the year due to a U.S. federal probe and accounting problems.

Hughes said KremeKo's operations would not be affected by U.S. events. But expansion of the Canadian division would be up to the restructuring officer.


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