A judge in Harris County, Texas, issued an order in May preventing the subsidiary, Krispy Kreme Doughnut Corp., from changing the terms of an agreement on supply shipment and payment with Lone Star Doughnuts Ltd., the franchisee.

The judge wrote in the order that "the agreement between the parties does not allow Krispy Kreme to require cash on delivery or cash before delivery under these circumstances."

Krispy Kreme franchisees are required to buy supplies from the company.

Krispy Kreme threatened to stop shipments unless it received $1 million that is in dispute, according to a Dow Jones report.

Krispy Kreme declined to comment. Kevin Gordon, who is listed as an officer of Lone Star in the judge's order, referred questions to the company's attorney, who was unavailable for comment.

Payment for supplies is due 30 to 35 days after delivery, according to the order on the court clerk's Web site.

The order said that Lone Star presented evidence that Krispy Kreme "has refused to ship Plaintiff ingredients, supplies, and equipment, including doughnut mix - all of which are necessary to Plaintiff's business operations - on terms previously agreed to by the parties."

"The cessation of Lone Star's supplies will force Lone Star to cease operations, will destroy Lone Star's business, and will cause Lone Star to lose customers and goodwill," the judge wrote.

Lone Star's Web site says that it is the licensed franchisee for the Gulf Coast of Texas. It opened its first store on Nov. 10, 1998, according to the site.

Separately, Krispy Kreme said yesterday that it has appointed Douglas Muir, the former chief financial officer of Oakwood Homes Corp., as its chief accounting officer. He will be paid an annual base salary of $300,000 and will be eligible for incentive plans available to the company's senior management, the company said in a regulatory filing. Michael Phalen, Krispy Kreme's chief financial officer, had been acting as the company's principal accounting officer.

Oakwood, a manufactured-housing company, filed for Chapter 11 bankruptcy protection in November 2002 and was bought by a subsidiary of Warren Buffett's Berkshire Hathaway Inc. last year.

Krispy Kreme said that Muir has been a consultant to the company since December. He was paid $205,000 for the consulting work, according to the filing.

Krispy Kreme's accounting practices are under investigation by the Securities and Exchange Commission. The company is also under investigation by federal prosecutors in New York.

Shares of Krispy Kreme closed 47 cents higher, or 7.1 percent, at $7.10, on a day when the overall market rallied.

• Brian Louis can be reached at 727-7378 or at blouis@wsjournal.com

Source:Winston-Salem Journal