updated 5/15/2006 11:23:14 AM ET 2006-05-15T15:23:14

Krispy Kreme has reached a proposed $4.7 million settlement with workers who sued the troubled doughnut maker, alleging they lost millions of dollars in retirement savings because company executives hid evidence of declining sales and profits, the company announced Monday.

The class-action lawsuit was filed in federal court in Greensboro last year for workers who owned stock in the company’s retirement or stock ownership plans after Jan. 1, 2003 — around the time the company’s sales began to decline.

Because the executives said nothing about the company’s troubles, the suit says, workers who bought Krispy Kreme stock for their 401(k) accounts, or were paid stock in bonus plans, had no way of knowing what top executives knew: that the stock was a risky investment.

The executives should have sold the stock from the plans when the investment became “imprudent,” the suit says.

The settlement, which is not expected to get final approval from the court until late 2007, would include a one-time cash payment to Krispy Kreme’s insurer. Krispy Kreme also would merge its Profit Sharing Stock Ownership Plan with the company’s 401(k) plan, according to a company statement.

Krispy Kreme and the individual defendants — including former chief executive officer Scott Livengood, former board member Jack McAleer, former chief financial officer Randy Casstevens and current CFO Michael Phalen — deny any wrongdoing in the proposed settlement. They also would not pay any money as part of agreement, according to the statement.

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