Jan. 7 (Bloomberg) -- Krispy Kreme Doughnuts Inc., which lost 72 percent of its value in New York trading last year, said Chief Executive Officer Daryl Brewster resigned and will be replaced by Chairman James Morgan.

The shares rose the most in almost a month after the chain said Morgan will be CEO for the ``foreseeable future.''

Brewster, 51, and the retailer ``mutually determined'' to end his employment, the company said in a regulatory filing today. His resignation follows 13 straight quarters of losses. Krispy Kreme, at the second-largest U.S. doughnut chain, is closing stores opened during a four-year expansion after its 2000 initial stock sale. The company has been hurt by alleged misconduct by former management, trends for healthier eating in the U.S. and bankruptcies by several franchisees.

``The model is broken and someone has to change it,'' said Malcolm Knapp, a New York-based restaurant consultant. ``The economic model does not work and hasn't worked for a while.''

Morgan, 60, who has been on the board since July 2000 and chairman since January 2005, will serve as president and CEO while retaining the chairman role, the company said.

Morgan most recently was chairman and chief investment officer of Covenant Capital LLC, an investment management firm he founded. Prior to that, he was chairman and CEO of Interstate/Johnson Lane Inc., an investment and brokerage company, which was purchased by Wachovia Corp. in 1999.

Shares Rise

Krispy Kreme, which sold its first glazed doughnut in 1937, rose 32 cents, or 11 percent, to $3.15 at 4:03 p.m. in New York Stock Exchange composite trading, the biggest gain since Dec. 10.

Brewster, a former Kraft Foods Inc. executive, had been CEO since March 2006. He will remain with company until the end of the month. Krispy Kreme shares have tumbled 94 percent since its August 2003 record close of $49.37.

Brewster will receive $700,000 under a separation agreement and $1.19 million in restricted shares, according to today's filing with the U.S. Securities and Exchange Commission.

Director Robert McCoy, who was reached at his home, declined to comment.

Krispy Kreme ousted former CEO Scott Livengood and six other executives in 2005 after the company said an internal probe found they may have inflated earnings to beat company forecasts. The SEC is probing the company's books.

Narrowing Loss

Last month, the doughnut maker said its third-quarter loss narrowed to $798,000, or 1 cent a share, from $7.2 million, or 12 cents a share. Revenue fell 12 percent, with sales at stores open at least 13 months dropping 2.6 percent. The doughnut chain said at the time that it expected that franchisees will close a ``significant'' number of stores because of increased financial pressures.

The chain said in September that it may not meet some financial agreements in loans because earnings trailed its forecasts. Great Circle Family Foods LLC, once the largest franchisee, filed for bankruptcy protection in August.

Krispy Kreme had 423 locations worldwide as of Oct. 28. Dunkin' Brands Inc.'s Dunkin' Donuts chain is the largest in the U.S.

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net.

Last Updated: January 7, 2008 18:27 EST