If he was making donuts and calling them KK donuts, that would be a trademark violation. He was buying KK donuts from KK and selling them to his own customers. There was no trademark infringement. Those were his KK donuts. He was free to sell them as what they were. By taking his money KK relinquished any control they had over those donuts and he was free to sell them.
Obviously KK realized they were wrong to tell him to stop selling his own donuts.
If he was advertising them as KK donuts he was using THEIR trademarked name to promote HIS business. That’s trademark violation. He can do whatever he wants with the donuts. He cannot do whatever he wants with their name, logo or slogan.
Legally they weren’t wrong. But the way everybody gets their panties in a twist every time a “big corporation” shuts down a “little guy” it was bad pr. So now they’ve entered into an agreement with him so he WON’T be violating their trademark, and all is well.