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Copyright 1999 Cable News Network
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August 11, 1999; Wednesday 8:30 pm Eastern Time

Transcript # 99081100V57


SECTION: Business

LENGTH: 4247 words

HEADLINE: Dirty Deals; Rolling in Dough

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BYLINE: James Hattori, Bruce Burkhardt, Stephen Frazier

David Mead's story is a cautionary tale about doing business internationally. He facilitated the payment of a bribe
from his former company, Saybolt International, to a Panamanian official and ended up in jail. Krispy Kreme does not
advertise, but customers will stand in line in the cold, in the rain, even in the middle of the night to get a Krispy Kreme


ANNOUNCER: It seemed like a good idea at the time.
decision that they would pay a bribe.
ANNOUNCER: But it blew up in his face.
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ANNOUNCER: Tonight, a story of bribes and bad judgment: trying to do business overseas.
UNIDENTIFIED MALE: He knew what he was doing.
ANNOUNCER: James Hattori reports on the secret world of "Dirty Deals."
It's Southern-fried...
ANNOUNCER: ... sugar-coated...
UNIDENTIFIED MALE: These are beautiful.
ANNOUNCER: ... and melted his heart.
UNIDENTIFIED MALE: It's a love story with a product. It really is.
ANNOUNCER: The Yankee who convinced Krispy Kreme there were millions to be made going west.
LINCOLN SPOOR (ph), KRISPY KREME STORE OWNER: And I called them, and I said, "You know, you have
got to give me a franchise."
ANNOUNCER: Bruce Burkhardt on a little Southern business that's "Rolling in Dough."
CNN & FORTUNE, with Willow Bay and Stephen Frazier.
STEPHEN FRAZIER, HOST: Welcome to CNN & FORTUNE. Willow is away this week, and I'm at Joe Muggs
Newsstand in Atlanta.
We begin with a cautionary tale about doing business internationally. There are finally signs of life in some of the
economies that have been troubled for most of this year: in Asia, Latin America, even Russia. That means American
executives will be going over there and adapting to local customs in the way they operate.
But what happens in cultures where an under-the-table payment is customary and required to close a deal? That's a
practice that could land an executive in jail back home.
Here's James Hattori with one man's story. And when we first brought you this report earlier this year, jail was
exactly where the executive wound up.
JAMES HATTORI, CNN CORRESPONDENT (voice-over): Another day begins at the federal correctional institu-
tion at Fort Dix, New Jersey. Thirty-six hundred men are serving time here: mostly drug traffickers, some illegal gun
brokers, plus a former corporate president and CEO -- David Mead.
MEAD: It's hard to accept after 35 years of dedicated service to a company. My career has been completely d e-
stroyed. Rather than face a happy retirement I'm facing anything but a happy retirement now."
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Dirty Deals; Rolling in Dough CNN August 11, 1999; Wednesday 8:30 pm Eastern Time
HATTORI: Mead faces razor wire and armed guards now because of a business decision played out thousands of
miles away.
The Panama Canal was a deep channel of cash for Mead's company, Saybolt International. The Dutch firm made
its money testing petroleum, analyzing oil, marking octane levels as the freighters moved from port to port from seller
to buyer all over the world.
Mead, a British citizen, lived and worked in New Jersey and headed Saybolt operations in the West ern Hemisphere.
In 1995, Saybolt had the petroleum inspection business pretty much locked up in the vital Panama region. But
there was one big problem.
MEAD: There was need of a new location to build an office and a lab complex.
HATTORI: A critical need -- Saybolt's lab space was in jeopardy. The company had no long-term lease. The
Panamanians could come in and shut down the operation at any time, putting nearly a million dollars in equipment and
dozens of jobs at risk.
A solution arrived on Mead's computer in early 1995.
(on camera): The e-mails went back and forth between you and Mr. Dunlop (ph), the man in charge of the Panama
MEAD: Correct.
HATTORI (voice-over): At first, there was only good news. Quote -- "Note some extremely positive develop-
ments taking place."
Panamanian officials offered Saybolt a permanent lease to, a new lab site in the free trade zone, Dunlop wrote.
Weeks later came the bad news. There was a string attached to the government's offer, a demand for money: a
Saybolt's man in Panama writes to Mead, "As always in Latin America once the palms have been greased, all is
"The fee is $50,000 for the new lab site," the Panama chief writes.
"If we pay, all is ours. If we don't, we get nothing. Welcome to the Third World."
MARTIN WEINSTEIN, ATTORNEY: This is a classic situation. Usually what happens is that they get down the
road in a transaction, they get very close to closing a deal, a request is made of them, and they make a bad judgment.
HATTORI: Attorney Martin Weinstein advises multinational corporations on how to compete successfully and l e-
gally overseas. Of particular concern, the U.S. Foreign Corrupt Practices Act. Passed 20 years ago, the law prohibits
the payment of bribes to officials in other countries. Until recently, almost all other nations looked the other way,
passing no laws to curtail international bribery. The end result, U.S. competitors could win big global contracts with
payoffs, a business advantage American companies do without.
WEINSTEIN: I think it's a very difficult situation. If you are a salesperson or a project manager, and your pay
salary, your pay grade, your career, your whole future with the company can be determined on how well you do, if a
company places that type of pressure on you, the -- the judgments that you have to make become very, very difficult.
HATTORI (on camera): Is it like in the movies? Somebody shows up in a meeting room and passes an attache
case and the money is exchanged? Or does it...
WEINSTEIN: No. For the most part, for the most part, that scene is reserved for the movies. Most folks these
days -- most individuals and government officials have some sensitivity to the Foreign Corrupt Practices Act. So while
you may have instances where people want a payment, most of the time, a government official will want an interest in
the joint venture project, a business opportunity, a campaign contribution, a job for a relative.
HATTORI: If you were to take a globe and spin it and -- and randomly pick a spot in the world...
NANCY BOSWELL (ph), TRANSPARENCY INTERNATIONAL: You'd find corruption alive and well.
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HATTORI (voice-over): Nancy Boswell is with Transparency International, a group that tracks corruption and its
BOSWELL: There was a recent article that estimated 200 million to 300 million in development assistance to
Uganda disappears annually. We simply can't afford that to continue.
HATTORI: Based in Berlin, Transparency International was formed six years ago when battling corruption was a
taboo topic. But recent riots in the streets of Indonesia following the collapse of the Suharto regime put battling cor-
ruption on the world's agenda.
BOSWELL: I think the Asian crisis was the final straw. Here was a region that seemed to be able to thrive despite
what many knew in terms of there was prevalent corruption, and "crony capitalism" it's now called.
When that all came apart, people recognized that the failures of transparency had a critical role in this crisis.
HATTORI: For David Mead, the crisis was one of ethics. Should he pay the bribe or face losing the Panama deal
and perhaps his job?
(on camera): What was your recommendation?
MEAD: My recommendation was that we should not do this, that it was not something that I could sanction as a
normal business matter and that I didn't feel comfortable with it. HATTORI (voice-over): In fact, a lawyer told David
Mead it would be illegal under the Foreign Corrupt Practices Act for an American subsidiary like Saybolt to pay a gov-
ernment official for favorable treatment. The act covers any company officer, even a resident alien like Mead.
(on camera): But it's not a crime to bribe a foreign official in the Netherlands, where Saybolt 's parent company was
based. So a man named Frerik Pluimers, Mead's boss here in Rotterdam, ordered the $50,000 payment wired directly
to Panama, bypassing the U.S. subsidiary.
With no Dutch prohibitions, Saybolt could pay the bribe and even write it off as a business expense.
(voice-over): But prosecutors say the bribe took an incriminating detour through New Jersey when Mead at U.S.
headquarters directed an employee to fly down to Panama City and arrange for a Saybolt agent to go to a bar and hand
over a plain paper bag filled with $50,000.
Federal prosecutors in Boston got wind of the bribe and tracked down a trail of evidence linking Mead to the deal
in panama.
Donald Stern, U.S. district attorney for the state of Massachusetts, led the investigation against Mead.
STERN: The e-mails, the corporate minutes, the witnesses, that made it a little bit unusual and frankly made it ea s-
ier to prosecute than might otherwise have been the case.
HATTORI (on camera): When did you find out later that you would have so me culpability?
MEAD: When I was arrested in Houston in January of 1998.
HATTORI (voice-over): Mead spent five harrowing days in the Harris County jail. He bailed out later, putting up
his house as collateral.
Mead and Frerik Pluimers in the Netherlands were charged with five counts, all stemming from the violation of the
Foreign Corrupt Practices Act.
(on camera): But you're the only one that's facing a jail sentence.
MEAD: I am.
HATTORI: Where's Mr. Pluimers at?
MEAD: In the Netherlands.
HATTORI: Free man.
MEAD: Yes, he's a free man. HATTORI: Free, but U.S. prosecutors say they know where Pluimers is and are a c-
tively pursuing his extradition.
So far only Mead has been prosecuted.
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(on camera): Do you think you were singled out by the prosecutors?
MEAD: I certainly have that feeling, yes.
STERN: And is he being singled out? No, absolutely, he was not being singled out. He was a high corporate o f-
ficial who intentionally violated the law.
This was not an accident. Nothing will send a message more t o the board rooms of this country if high officials
face the prospect of not only being prosecuted and convicted but going to jail.
HATTORI (voice-over): Mead's trial lasted six days. The jury's verdict? Guilty.
STERN: He made a business decision and his company made a business decision that they would run for luck (ph),
that they would pay a bribe hoping that they would get a return on the other end in the hopes that they would never be
prosecuted. And unfortunately for Mr. Mead and for his company, they guessed wrong.
HATTORI: On a cold and windy March morning, Mead -- surrounded by his wife and children -- arrived for sen-
His daughter stood before the judge sobbing, saying her father's reputation and honor have been shattered. She
begged for mercy as Mead dropped his head in despair. Later, Mead rose and told the judge it was the most painful
day of his life. He admitted he should have done more to stop the bribe from taking place.
(on camera): What sentence did you receive for this crime?
MEAD: Four months of incarceration, four months of home arrest to follow. I think it's three years of probation
thereafter, and a $20,000 fine.
HATTORI: What do you think your experience and this case says to other business people who might be in the
same position?
MEAD: I think that it clearly indicates that people need to be extremely careful, that where a businessman may b e-
lieve that he's completely free of any association with matters of this type, that in actual fact, that may not be the case.
I want to get this over, do what I need to do, and get on with my life.
FRAZIER: David Mead now has that chance to get on with his life. He was released from prison three weeks ago.
Looking back, besides landing him in jail, that $50,000 Saybolt paid was a waste of money. Panamanian officials ult i-
mately decided not to grant Saybolt a lease for that new lab site.
ANNOUNCER: Next, he gave up a career to take on a business full of holes.
SPOOR: I just had to do it. I didn't have a choice. I know that now.
ANNOUNCER: Dollars and doughnuts when CNN & FORTUNE continues.
FRAZIER: Imagine a product you never need to advertise. Just open a store, hang a sign, and customers will stand
in line, in cold, in rain, even in dark of night. That's what is happening where Bruce Burkhardt went for this report.
And it is making lots of money for a big city businessman who left the bright lights to follow his heart and his sweet
BRUCE BURKHARDT, CNN CORRESPONDENT (on camera): Once upon a time, on an island called Manhat-
tan, there was a man named Lincoln. Now, Lincoln was a very successful man. He was an investment banker. But the
problem was, something was missing. It wasn't money, it was dough. And this is the story of Lincoln's dream and
what he did, just because of a doughnut.
SPOOR: A little slice of paradise right here.
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I like that shirt.
Try one.
What a beautiful sight.
UNIDENTIFIED FEMALE: It is. Tell me about it.
BURKHARDT (voice-over): Lincoln Spoor is either crazy in love.
SPOOR: We love this product so much.
BURKHARDT: Or just plain crazy.
SPOOR: I just had to do it. I didn't have a choice. I know that now.
BURKHARDT: The object of his affection is a 2-1/2 ounce lightly fried treat, a Krispy Kreme doughnut. Until
recently, you could only eat Krispy Kreme in the south. But thanks to its discovery by this ex-New Yorker and other
true believers, the gospel is spreading. And for Lincoln, life will never be the same, just because of a doughnut.
SPOOR: It's not just a doughnut, it's an experience.
BURKHARDT: An experience that started back in 1992. His wife told him about this great doughnut place in
Washington, D.C.
SPOOR: So I went, flew down on a Friday, and went to Krispy Kreme, and they happened to be making hot fresh
glazed, and I absolutely fell in love with it.
BURKHARDT: This is what fueled Lincoln's dream: the hot glazed original. It is Krispy Kreme's signature
doughnut and accounts for about 60 percent of yearly doughnut sales. That's 780 million hot glazed, in case you were
wondering. It's best consumed right out of the shower, a shower of hot, dripping sugar.
SPOOR: The more I found out about it, the more I wanted to be, you know, affiliated with it somehow.
BURKHARDT: You may be wondering, right about now, if this man might be a few doughnuts short of a dozen.
But know this: Lincoln Spoor is a 42-year-old Ivy League MBA. He was richly successful in high-yield investment
banking for the Bank of America.
SPOOR: I went down to see the company and I said, "gee, you know, I can raise money for you." And they said,
"no, thank you." I said, "you know, we can talk about acquiring other companies." And they said "no, thank you." So I
said, "we can lend you money." And they said "well, no, thank you."
BURKHARDT (on camera): Doesn't sound like they wanted much to do with you?
SPOOR: They wanted nothing to do with me.
BURKHARDT (voice-over): Undeterred, Lincoln came up with a new scheme. He would take Krispy Kreme
west, franchising stores in Nevada and Utah. Once again, the answer was no.
SPOOR: It was like being -- you know, you wanted to take this girl to the prom and she said no.
BURKHARDT: In reality, Krispy Kreme was not ready to franchise outside of the Southeast. And as for Lincoln,
well, he didn't have the operating experience Krispy Kreme demanded of their area developers. After all, this wasn't
just any doughnut business.
PHIL WAUGH, SENIOR V.P. OF FRANCHISING, KRISPY KREME: It's not a doughnut. That's not what it is.
It's kind of a way of life, it's a cult.
BURKHARDT: A cult that had humble beginnings, in 1937, in Winston-Salem, North Carolina, still the home of
company headquarters. It's where Vernon Rudolph began making the doughnuts, behind a storefront window. His idea
was to sell them wholesale to local stores, but crowds would come to watch at the window. Rudolph may not have
realized it, but he invented doughnut theater, the hallmark of Krispy Kreme. (on camera): So this is doughnut theater?
SCOTT LIVENGOOD, CEO, KRISPY KREME: This is Krispy Kreme theater. See this in all our stores. It's like
you've got little nose prints up against the glass. You know they've been there.
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BURKHARDT (voice-over): Hard-core Krispy Kremers are trained, always on the lookout for that flash of neon.
That "hot doughnuts now" sign.
SPOOR: That tell you that we're making the hot, fresh glazed.
BURKHARDT: As the company grew throughout the Southeast, it was the same at all 111 stores. Turn the light
on and they will come.
UNIDENTIFIED MALE: I think most people do that after church. You go to church, you go to Krispy Kreme.
BURKHARDT: Growing up in Minnesota, Lincoln didn't know about this brand of southern comfort. He had his
own pleasures.
SPOOR: We'd make doughnuts from the refrigerated dough, biscuits. It was my most favorite thing.
BURKHARDT: It's not exaggerating to say Lincoln was always a dough boy. His dad was the CEO of Pillsbury.
But despite his obvious passion, Krispy Kreme still said no to Lincoln's plan. Then, one day, his wife called. Re-
member, she's the one who started this mess.
SPOOR: She said, "Krispy Kreme is coming to New York. I just saw it on 'The Today Show.'"
LIVENGOOD: That's when things really accelerated. It certainly is when all the attention intensified.
BURKHARDT: In the six years since Lincoln originally contacted the company, Krispy Kreme decided the time
was finally right to expand.
SPOOR: Finally, I decided I had to call them again, because I couldn't live without trying one more time. And I
called them and I said, you know, you have got to give me a franchise
BURKHARDT: The New York opening was a raging success.
UNIDENTIFIED MALE: People were raging in New York.
UNIDENTIFIED MALE: People in New York are going bananas, no pun intended, eating Krispy Kreme dough-
UNIDENTIFIED FEMALE: You know Krispy Kreme.
UNIDENTIFIED MALE: I eat Krispy Kreme doughnuts.
BURKHARDT: ... attracting media attention coast to coast. Miraculously, it was the turning point for Lincoln.
The company finally agreed to his plan to go where no Krispy Kreme doughnut had gone before, to the West.
SPOOR: Las Vegas is America's city, in that people who visit here -- 31 million people last year -- also and looking
at the people that move here -- they moved from all over the country. Roughly 14 percent were from what we deter-
mined was Krispy Kreme country.
BURKHARDT: So it was time for Lincoln Spoor to hang up the pinstripes and sign his life on the line at a cost of
about $1 million a store for the stores he wanted. On March 3, 1998, Lincoln's dream opened its doors.
SPOOR: We had lines at 5:30, with our ambassadors then it opened, and then it died at about 10 of 6:00. And I
panicked, and I thought, oh, my god; I am going to go broke after all. And then around 6:30, 6:45...
solute madness -- a town that is so sophisticated and blase, you know been there, done that -- oh, another buffet, oh,
another restaurant, oh, another celebrity chef. A doughnut is after all only a piece of dough with a hole in the middle.
BURKHARDT: But it's about as close as "Sin City" gets to religion. Since Lincoln's store opened, thousands are
called to worship every day.
UNIDENTIFIED MALE: You tell people about a doughnut and they can't really comprehend, because these melt
in your mouth like butter.
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Dirty Deals; Rolling in Dough CNN August 11, 1999; Wednesday 8:30 pm Eastern Time
UNIDENTIFIED FEMALE: It's our third trip down here now, for doughnuts?
UNIDENTIFIED MALE: Yes -- our third trip down from Salt Lake.
BURKHARDT (on camera): You drove from Salt Lake City?
UNIDENTIFIED FEMALE: Now we're headed back.
BURKHARDT: For Krispy Kreme?
UNIDENTIFIED FEMALE: Krispy Kreme Doughnuts.
BURKHARDT (voice-over): A six-hour drive from Utah for a doughnut. Theirs is not an isolated case.
LIVENGOOD: This thing has sort of taken on a life of its own.
BURKHARDT: If the current projections are anything close to reality, Krispy Kreme will be rolling in the dough.
LIVENGOOD: Krispy Kreme will be a billion-dollar business. I think within 10 years, Krispy Kreme will have at
least 500 stores nationally.
BURKHARDT: Currently, each store averages between $1.5 million and $2.5 million a year in revenue -- that's per
store. Now, multiply that times 42 stores.
Forty-two stores is what Roger Glickman and his fellow investors have committed to here in Southern California.
(on camera): You're going to make a lot of money.
ROGER GLICKMAN (ph), KRISPY KREME INVESTOR: Well, I just want to make a lot of doughnuts, and the
money will follow.
BURKHARDT: These are beautiful.
(voice-over): Lincoln and corporate executives came to the opening of Roger's first store in La Habra, Cali fornia,
and the opening frenzy, with lines forming in the predawn hours, proved, once again, the inner child in many people
will do anything...
UNIDENTIFIED MALE: Just because of a doughnut.
BURKHARDT: It all looks like great fun, now. But control issues may lie ahead, as the protective corporate par-
ent adopts some savvy kids, like Lincoln and Roger, into the family.
UNIDENTIFIED MALE: What you want to do is incorporate the elements into the prototype.
SPOOR: You know, have a little darker green -- is that possible?
UNIDENTIFIED MALE: I don't know. That's the old Krispy Kreme green.
BURKHARDT: Sometimes the new kids have their own ideas about how to do things.
SPOOR: There were some things about the design that we felt very, very strongly about -- the chairs, the tile -- the
tile everywhere -- the merchandise display case.
BURKHARDT: It's not something that Krispy Kreme is used to.
(on camera): It seems to me, there's bound to be an element -- at first, anyhow -- of, hey, we're not going to let this
Yankee come in and tell us how to do what we've been doing since 1937.
SPOOR: There's no doubt about that. I mean, I'm sure there are people at the company that would just prefer I go
BURKHARDT (voice-over): But whatever their differences, something bigger, or smaller, unites them.
SPOOR: It's everything I am right now.
BURKHARDT (on camera): And it can actually elicit tears? SPOOR: Oh, my God, yes, absolutely.
BURKHARDT (voice-over): That's what dreams do to people, just because of a doughnut.
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SPOOR: It's a wonderful way of making people happy. And that sounds so stupid, and corny, and dumb, and id i-
otic and phony, and it's not.
FRAZIER: Lincoln Spoor just opened his third Krispy Kreme store. It, too, is in Las Vegas. Krispy Kreme now
has 148 stores in 26 states. Its sales rank 111th among U.S. restaurant franchises. And according to "Restaurants and
Institutions" magazine, which tracks these things, Dunkin' Donuts, which ranks 11th, takes in about ten times as much
Some people call the occupant of this week's "Cool Digs" a renaissance man. Check out the combination of art,
literature, music and sports memorabilia in this office, and guess who works here.
FRAZIER (voice-over): Inside this office, a man gets paid a lot of money to think about what women really want.
He gets inspiration from paintings of beautiful ladies. Among his other interests, Latin culture, African art and the
blues. But this CEO isn't singing the blues these days. His company earned $105 million last year. He likes jazz,
too, Quincy Jones, Billie Holiday, Miles Davis, among his favorites. Masks from Papua New Guinea. He also tra v-
eled to Africa with President Clinton last year. That's Jackie Robinson's autograph, one of the boss's heroes. Lots of
books on the radiator, Arthur Ashe, Kareem Abdul-Jabbar, and Lillian Vernon. Did she give the boss pointers for his
booming mail order business? A football signed by the University of New Mexico Lobos. The boss went there on a
full football scholarship. He never got a Heisman, but he did won a lot of awards, including this NAACP Image
Award. He helps 7 million women improve their images every month. So, who is the man women love to love? The
answer when we come back.
FRAZIER: So, who is the executive with masks from New Guinea, and Jackie Robinson's autograph? He's Ed-
ward Lewis, chairman of Essence Communications. Even though "Essence" magazine bills itself as the preeminent
lifestyle magazine for today's African-American woman, about one-third of its seven million monthly readers are men.
That's all for this week.
Next Wednesday, an update on investing in Russia. We follow one Russian fund that went from being the world's
top dog to its biggest dog, overnight. Not the same thing. Guess where it ranks now, next Wednesday at 8:00 Eastern,
5:00 and 10:00 p.m. Pacific.
I'm Stephen Frazier. Willow's back next week. For all of us at CNN & FORTUNE, good night from the news-

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