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It's a sure sign of trouble when a company flags down Stephen Cooper and his band of corporate fixers.

And things probably couldn't be stickier for Krispy Kreme Doughnuts Inc., which yesterday hired Mr. Cooper and his New York-based team of corporate workout consultants to replace Scott Livengood, 52, who's retiring early as chairman, president and chief executive officer.

Mr. Cooper, 58, who has spent three years guiding Enron Corp. through the second largest bankruptcy in U.S. history, faces an equally daunting challenge at Krispy Kreme of Winston-Salem, N.C.

The doughnut chain has slipped into a boiling vat of trouble since its initial public offering in 2000, when it was Wall Street's hottest new stock of the year. The company is facing a U.S. government probe into acknowledged accounting errors, as well as investor lawsuits, a crucial deadline with lenders, and a fading stock price.

Krispy Kreme also warned that its basic business is suffering. It said it will likely report a fourth-quarter loss, stung by a sharp drop in sales in the final weeks of 2004.

Krispy Kreme's shares, which have sunk 76 per cent in the past year, rebounded a bit yesterday amid investor optimism that Mr. Cooper can help the company stave off bankruptcy. The stock rose 89 cents (U.S.) or 10.2 per cent to $9.61 on the New York Stock Exchange.

"This is positive for the company," said Glenn Guard, an analyst at Legg Mason in Baltimore. "The previous management team's credibility was very low, and those responsible for Krispy Kreme's current situation are no longer with the firm."

Mr. Cooper is expected to move quickly to shut some of the chain's poorly performing stores. Krispy Kreme has 435 franchised and company-owned stores in the United States, Canada, Mexico, Australia and Britain.

"They'll probably have to shrink to grow at this point," agreed Jonathan Waite, an analyst at KeyBanc Capital Markets.

The company also installed Steven Panagos as president and chief operating officer. James Morgan, Krispy Kreme's vice-chairman since mid-2004, becomes chairman.

Krispy Kreme also announced it has hired Mr. Cooper's New York-based company, Kroll Zolfo Cooper LLC, as financial adviser and interim management consultant. Kroll bills itself as "the world's foremost independent risk consulting company." Mr. Cooper is chairman of Kroll and Mr. Panagos is managing director.

The company said Mr. Livengood would stay on as a consultant for an interim period.

"I am looking forward to working with all of the company's employees, franchisees, vendors and other business partners to strengthen Krispy Kreme," said Mr. Cooper, who becomes CEO. He will continue to serve as Enron CEO.

Kroll is perhaps best known for salvaging the pieces of the Enron energy empire. But the consultancy has been involved in an eclectic array of crisis management cases over the past two decades, including the Texas A&M University bonfire tragedy and international probes into the finances of former Haitian dictator Jean-Claude (Baby Doc) Duvalier, former Philippines president Ferdinand Marcos and deposed Iraqi dictator Saddam Hussein. Mr. Cooper has an impressive track record of restructuring distressed companies without destroying them. He did it at Laidlaw Inc. from 2000 to 2002, displaying a knack for negotiating with nervous bondholders and other creditors.

The rub has always been that his talent doesn't come cheaply. At Enron, for example, Mr. Cooper and his company pocketed $63.4-million to manage the bankruptcy proceedings. Then, last September, Mr. Cooper demanded an extra $25-million "success fee" for rehabilitating the fallen energy giant.

Mr. Cooper liquidated the entire company to pay off creditors owed $67-billion. He was also a key player in the bankruptcy reorganizations of retailers Federated Department Stores Inc. and Bradlees Inc.

In its latest filing with the U.S. Securities and Exchange Commission, Krispy Kreme said it continues to probe various errors and proposed restatements. The review could result in its profit being cut by nearly 8 per cent.

The SEC probe of the company is focusing two aspects of Krispy Kreme's accounting -- its reporting of franchise buybacks and profit outlooks.

Krispy Kreme has closed a number of stores since May and taken other steps to address its problems.

The company has blamed the low-carb diet trend for much of its problems.

But analysts have faulted Mr. Livengood for taking Krispy Kreme on a wild expansion drive without keeping a close eye on the bottom line, growing from 144 U.S. stores in April, 2000, to nearly 400 today. Mr. Livengood joined Krispy Kreme in 1977 and guided the company through its rocky transition to a public company.

A class-action suit brought by shareholders alleges that Mr. Livengood and other officers falsified financial reports and masked declining demand by shipping more doughnuts than customers ordered.

Krispy Kreme said yesterday that its bankers have agreed to delay until Jan. 24 the date on which it would be in default on its loans.

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