Hey Guys,

In July 2005, Krispy Kreme Doughnut Corporation (NYSE:KKD), a wholly-owned subsidiary of Krispy Kreme Doughnuts, Inc. (the “Registrant”), was sued by one of its area developers, Sweet Traditions, LLC, and its Illinois corporate entity, Sweet Traditions of Illinois, LLC, in the Circuit Court for St. Clair County, Illinois.  The case was subsequently removed to the United States District Court for the Southern District of Illinois. This litigation is described in the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 30, 2005 under “Item 3. LEGAL PROCEEDINGS — Litigation — Franchisee Litigation.” A settlement was reached between the parties and on August 25, 2006 a joint stipulation for dismissal of the litigation with prejudice was filed with the court.  The court dismissed the case on August 28, 2006. The resolution of this matter will not result in any accounting charge to the Registrant.

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