Krispy Kreme settles case with Great Circle franchisee.

KRISPY Kreme Doughnuts Inc. and its biggest franchisee, Los Angeles-based Great Circle Family Foods LLC, settled a dispute last week that neither company had been able to glaze over.

Under the agreement, a Krispy Kreme subsidiary christened Southern Doughnuts LLC will buy back three Great Circle Krispy Kreme stores in Burbank, Ontario and Orange, along with the related franchisee rights, for $2.9 million. The companies are also discussing an option agreement under which Krispy Kreme could acquire 100 percent of Great Circle.

Great Circle was unable to comment under the terms of the settlement.

The chain and its franchisee have had a long-running feud.

Great Circle sued the Winston Salem, N.C.-based doughnut maker last September, claiming executives misappropriated marketing funds and that the franchisee was billed for fake charges.

Great Circle Partners Richard Reinis and Roger Glickman additionally alleged that the chain was trying to force them into bankruptcy, made false representations, inflated prices and engaged in deceptive business practices.

In January, Krispy Kreme terminated Great Circle's license for one day, alleging that Great Circle neglected to make royalty payments and make contributions to the company's marketing and advertising fund. The license termination shut down all 28 Great Circle stores in California. At the time, they had 750 employees. They now operate 23 stores and have 600 employees. The deal is expected to close in mid-to-late August.

Once a hot stock, Krispy Kreme sales have been sluggish since 2004, when the company cited the low-carb craze as the source of its malaise. Former Kraft Foods Inc. executive Daryl Brewster took the helm in March.

in addition to the settlement, Krispy Kreme last week announced that it was delaying the filing of its fiscal 2006 annual report by three months, to October 31. The company said the delay was caused by its shifting of accounting resources to complete its overdue 2005 annual report, which was filed in April to avoid a delisting from the New York Stock Exchange.