Case4:08-cv-00120-ERW Document22 Filed 08/07/2008 Page 1 of …securities.stanford.edu/filings-documents/1039/PNRA... · Panera Breacl Company(PNRA).NasdaqStock Market(U.S.), S&PMiclcap

Case 4:08-cv-00120-ERW Document 22 Filed 08/07/2008 Page 1 of 88

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

ST. LOUIS DIVISION

WESTERN WASHINGTON LABORERS-EMPLOYERS PENSION TRUST,Individually and on Behalf of All OthersSimilarly Situated,

No. 4:08-cv-00120 ERW(Consolidated)

CLASS ACTION

Plaintiff, DEMAND FOR JURY TRIAL

vs.

PANERA BREAD CO., RONALD M.SHAICH, MARK E. HOOD and NEALYANOFSKY,

AMENDED CLASS ACTION COMPLAINTFOR VIOLATIONS OF FEDERALSECURITIES LAWS

Defendants.


INTRODUCTION

1. This is a federal class action on behalf of purchasers of the common stock of Panera

Bread Co. ("Panera" or the "Company") between November 1, 2005 and July 26, 2007, inclusive

(the "Class Period"), seeking to pursue remedies under the Securities Exchange Act of 1934 (the

"Exchange Act"). Panera owns and franchises bakery-cafes under the Panera Bread® and Saint

Louis Bread Co.® names and its stock trades on the NASDAQ National Market ("NASDAQ") under

the symbol PNRA.

2. At the beginning of the Class Period, defendants Ronald Shaich ("Shaich"), Mark

Hood ("Hood"), and Neal Yanofsky ("Yanofsky") issued extremely and admittedly "aggressive"

sales and earnings guidance for Panera's fiscal year 2006 and told analysts that a new pizza product

("Crispani") that Panera was developing would drive sales and earnings growth in proportion to the

strong sales and earnings growth that had caused Panera's stock price to almost triple in the four

years before the Class Period. Immediately after issuing their aggressive initial guidance, and while

continuing to promote Crispani, defendants and six senior level executives dumped between 29%

and 100% oftheir Panera stock holdings at prices that were near record highs for Panera's stock,

with defendants Shaich and Hood selling 69% and 100% of their stockholdings, respectively. All

told, these executives reaped over $12.7 million from their perfectly timed trades. Defendants

Shaich's and Hood's sales alone contributed $8.6 million to this impressive total. Defendants' stock

sales demonstrate that they secretly knew that Panera's guidance was baseless and that Crispani was

not the savior that defendants were claiming.

3. At the same time that they issued and repeatedly reiterated Panera's aggressive 2006

guidance and when they issued and repeated similarly aggressive guidance for 2007, defendants

knew that the store expansion strategy that had contributed to Panera's growth in the past was

cannibalizing sales and resulting in an over-concentration of what defendants described as immature

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or "green-field" locations (i.e., less developed trade areas where the Panera concept might take up to

three years to hit mature sales and margin levels), which negatively impacted Panera's margins and

earnings guidance. In fact, defendants admitted later that "cannibalization does happen. It

happens for the first 12 months of a new store, affecting an existing store" and that its over-

expansion into "green-field" areas negatively impacted Panera' s sales and earnings - "there is a

higher mix of shall we say, newer markets, or newer - newer company stores that has a - a

downdraft impact [on margins]." These admitted facts seriously undermined Panera's guidance for

2006 and 2007 and preclude any inference that defendants had a reasonable belief in either.

4. Defendants also knew throughout the Class Period , as revealed by their own

admissions and the accounts of numerous former employees and Panera franchises, that Crispani

was suffering from the outset with weak sales and dramatic start-up expenses, which shattered any

belief that Crispani could contribute to the "aggressive" guidance that defendants were giving to

investors. In a stunning turn of events a year after the Class Period, defendant Shaich admitted that

they purposely "sacrifice[d] Crispani sales and Crispani profitability" at the same time that they

were telling investors that "Crispani is performing well and performing as expected," and that

"Crispani is for us essentially breaking even or barely breaking even, somewhere around there. To

us that feels real good." He even admitted later to the contrary that "Crispani sales nevergrew" and

reports from individuals at Panera reveal that Crispani 's sales were nowhere near sufficient to cover

its extraordinary start-up costs. Shaich's admissions about Crispani, along with weekly and monthly

reports and testimonials from individuals at Panera during the Class Period, demonstrate that

defendants knew or recklessly disregarded that their statements about Crispani were false and knew

that Panera's projections based on Crispani were baseless.

5. Defendants' various disclosures of earnings misses and weak sales damaged investors

throughout the Class Period. But when defendants disclosed that they were taking the extreme step

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of withdrawing Panera's 2007 EPS guidance and explained that Crispani was "not meeting

expectations at this point" and "[i]t's costing us money," the stock collapsed and wiped out over

$189.7 million in market capitalization in two days. Panera's market capitalization collapsed by a

combined $482.1 million as a result of defendants ' end of Class Period disclosures . Then in a brazen

display of disregard for the investors that he damaged, defendant Shaich bought back 92,000 shares

(of the 110,675 that he sold) at a 38% discount to his highest original sales price - and he did so

only two weeks after he disclosed the truth about Crispani and Panera 's growth model.

6. Defendants are liable for the damage that their false and misleading statements and

omissions have caused Panera's shareholders.

STATEMENT OF CASE

Background to the Class Period

7. Panera is a restaurant chain that operates bakery-cafes throughout the country. Panera

began as the Au Bon Pain Company, Inc. in Massachusetts in 1981 and expanded by purchasing the

Saint Louis Bread Company in 1993. In 1998, the Company formally changed its name to The

Panera Bread Company after selling the Au Bon Pain division. Defendants manage Panera from

their offices in Boston, Massachusetts.

8. At its core, Panera's story is one of growth - the rewards, but also the costs that come

with the struggle to maintain it. Panera's growth model was simple - open as many stores as

possible regardless of the impact on existing stores. The Company achieved its rapid growth over

the years through continuously opening new company-owned and franchise-operated bakery-cafes in

a ratio of 30/70, respectively , as set by the Company. As a result of this aggressive strategy, the total

number of bakery-cafes more than quadrupled (from 183 stores to 877 stores) from 2000 to 2005.

9. The arrangements between Panera and its franchisees, governed by Area

Development Agreements ("ADA"), were designed to ensure this dramatic growth. Indeed, Panera's

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ADAs required franchisees to open a pre-determined number of stores under threat of reacquisition -

and they did so regardless of the economic environment or the success of existing stores in the area.

10. From 2000 to 2005, the total number of bakery-cafes increased Panera's revenues by

298%. Not surprisingly, analysts and investors alike touted Panera's growth, with multiple securities

analysts initiating coverage and upgrading Panera's stock. Accordingly, Panera enjoyed a meteoric

rise in share price as its stock skyrocketed from $2 per share in 1999 to as high as $69 in November

2005. From 2001 to 2005, Panera's stock outperformed the Nasdaq Stock Market Index and the

S&P MidCap Restaurants Index by a dramatic percentage.

Comparison of 5 Year Cumulative Total Return on $100 Investment:Panera Brea cl Company(PNRA). Nasdaq Stock Market (U.S.), S&P Miclcap Restaurants

$250

$200

$150

$100

$50

A Panera Bread Company (PNRA) - Ar -Nasdaq Stock Market (U.S.) •+ S&P Midcap Restaurants

11. In addition to its aggressive growth strategy, Panera achieved sales growth by

introducing new products. In particular, Panera achieved surprisingly strong sales growth in early

2004 and late 2005, partially resulting from the introduction of Via Panera catering and organic

chicken. By the end of 2005, however, Panera overlapped the introduction of these products and

they, therefore , could no longer sustain Panera' s historic growth rate . Consequently, in early 2005,

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2001 2002 • 2003 2004 2005


Panera began product development and testing for Crispani - a hand-crafted, gourmet pizza product

created to bolster Panera's same-store sales growth.

12. In spring 2005, defendants convened a two-day meeting in Boston to discuss Panera's

growth generally and, specifically, the Crispani product . Defendants Shaich, Hood and Yanofsky

attended the meeting, along with then Panera Senior Vice President of Financial Planning and

Analysis, Jeffery Kip. The meeting focused almost exclusively on the Company' s proposed strategy

to launch the Crispani product, according to a former Panera director in attendance. The discussions

included assessments of the potential risks and rewards that could be gained from launching Crispani

in general and, specifically, introducing Crispani as an evening item at Panera. The objective of the

meeting was to evaluate the Company' s brand and to discuss strategies to increase Company

revenues and profits while maintaining (if not enhancing) the Company' s brand image. The

executive personnel in attendance at this meeting were concerned with "`how to grow your menu,

but not lose your image.'99

13. While Crispani had many supporters , defendant Shaich was not among them.

According to this same director, defendant Shaich expressed skepticism at the meeting and was "`not

convinced Crispani was the right product and right direction for the Company."' Shaich even said at

the meeting that he "was `not sure the product [i.e., Crispani] aligns with our [i.e., PNRA] brand."'

But without a new product to drive growth, Panera would be unable to continue its historic growth

rates, which would adversely affect its stock price. Consequently, defendants introduced Crispani

into 30-40 cafes in 2005, despite Shaich's skepticism.

Panera's Aggressive 2006 Business Outlook

14. On November 1, 2005, defendants issued an aggressive 2006 Business Outlook

insisting that Panera would achieve 2006 earnings per diluted share ("EPS") of $1.97 to $2.01 and

comparable bakery-cafe sales growth of 2.5% to 4.5%. With a change in accounting for option

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expenses, Panera's EPS target, according to defendants, was $1.84 to $1.89 per share (or growth of

21 %). Defendant Yanofsky admitted just how aggressive the targets were: "So we consider our

2006 comp target to be rather aggressive because it represents even stronger two year comp

performance than we've experienced in 2005." Defendants would later increase Panera's guidance

two separate times (once on February 9, 2006 and again on April 25, 2006), increasing EPS guidance

by a whopping $0.13 per share and comparable sales growth to 4.5% to 6.5%. And defendants

would later confirm that their initial guidance and the increase on February 9, 2006 did not include

new products (i.e., Crispani) or foreseeable price increases.

15. Defendants had no reasonable basis for these forecasts when they were made. At the

same time that defendants gave Panera's extraordinary guidance, the Company had limited sources

of continued growth. The primary sources for Panera's growth in recent years were price increases

and new products, such as Via Panera and organic chicken offerings. But according to analysts in

late 2005, the Company indicated that it had no plans to increase prices and defendants themselves

asserted on February 10, 2006 that no new products were "built into [their] planning for `06" or the

guidance they were giving to investors at that time. Worse, Panera was operating in an overall

market that was declining from its peak in 2004. Indeed, the Industry Expectations Index ("IEI"),

which is published monthly by the National Restaurant Association which measures restaurant

owner/operator expectations going forward six months, informed defendants that expectations for

the industry were declining from a peak in 2004. In fact, the IEI had dropped by 1.5% from 2004 to

2006 and was further negative in 2007, indicating a negative industry trend.

16. Given defendants' lack of plans for price increases and new products, the only

possible driver of 2006 growth at the time of defendants' initial guidance was Panera's expansion

strategy. But that strategy was not a reasonable basis on which to base defendants' admittedly

aggressive guidance as it was cannibalizing comparable sales and depleting margins. Indeed,

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defendants admitted later that the Company was, in fact, suffering from cannibalization -

"cannibalization does happen. It happens for the first 12 months ofa new store, affecting an

existing store" - and that the Company's margins were suffering from a higher concentration ofnew

stores - "there is a higher mix ofshall we say, newer markets, or newer - newer company stores

that has a - a downdraft impact [on margins]."

17. While defendants tried to excuse these crippling admissions as having been built into

their comparable sales estimates "over the years," reports from franchisees show otherwise. In fact,

several Panera franchisees have reported that store cannibalization, resulting from too many stores

opening in proximity to one another, was a serious concern and that Panera even refused to conduct

impact reports as franchisees requested. As one former franchisee owner put it, "`we begged them

not to put stores up in our territory."' Defendants, however, continued to aggressively open new

stores, as close as two miles to the franchisee stores, without regard for the resulting cannibalization.

This same franchisee reported that Panera required him to open a pre-determined number of stores

each year, but that his franchise had problems meeting expectations for not only the new store

openings , but also sales targets at his existing stores as a result of cannibalization . The franchisee's

performance deteriorated more so with every passing year and over the course of several years

because new stores were cannibalizing sales of existing stores.

18. Cannibalization also hindered the ability of franchisees to open new stores. Indeed, it

was difficult for franchisees to meet Panera's store expansion goals because existing franchisee

operations yielded insufficient income to meet their own requirements, let alone to serve as start-up

capital for new stores, the cost of which skyrocketed from approximately $1.4 million in 2001 to

$1.9 million in 2008. The cannibalization was intensified for franchise-owned stores because of a

5% franchise fee on gross sales that all franchisees were contractually obligated to pay to Panera.

Consequently, Panera experienced a dramatic reduction in the percentage of stores that were

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franchise owned, which dramatically impacted Panera's earnings . Indeed, Panera had a near 100%

profit margin on franchisee stores, while company-owned stores generated profit margins of only

19%. The percentage of franchise-owned stores to total stores declined from 70% in 2004 to 64% in

2005, further frustrating Panera's ability to achieve its admittedly aggressive guidance.

19. Defendants ' expansion strategy was also causing the Company and franchisees to

open stores in low-populated and outreaching areas, which drove average unit volume (i.e., weekly

sales ) and margins to new lows. Using the Company' s own ambitious penetration goal of one store

per 100,000 people, Panera was over-penetrated in many markets, including Jacksonville,

Indianapolis , Columbus, Milwaukee, Orlando, Kansas City, Cleveland, Pittsburgh, Raleigh/Durham,

Baltimore, Chicago, the District of Columbia, Boston, Detroit, Tampa, Winston-Salem, Greensboro,

and even its home market of St. Louis. Indeed, as many as 17 of the Nielsen Top 50 markets in

which Panera operated were over-saturated using defendants' standard. And using a more

reasonable standard of one store per 150,000 or 200,000 people, as recommended by analysts,

Panera was over-saturated in 25 and 34 markets of the 50, respectively. Defendants themselves

admitted after the Class Period that their site selection was adversely impacting the Company's

results - "[w]e made a decision recently to tighten up our real estate decision-making process"

because "[w]e think the Company is better served with fewer stores in immature trade areas ... in a

time of margin pressure."

20. All of these facts preclude any inference that defendants had a reasonable basis for

their 2006 guidance. In fact, defendants' own actions reinforce the inference that they knew

Panera's guidance had no reasonable basis - just days after announcing the guidance, seven high-

ranking executives, including defendants Hood and Shaich, began a wholesale bail-out of their

Panera stock, selling percentages that are extremely suspicious:

• Ronald Shaich (CEO) between 11/7/05 and 2/15/06 - 67.65%

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• Mark Hood (CFO) between 11/14/05 and 11/21 /05 - 100%

• Mark Borland (SVP and Supply Chain Officer) on 11/10/05 - 83.43%

• Larry Franklin (Director) on 11/17/05 - 83.95%

• Scott Davis (EVP and COO) on 4/28/06 - 29.42%

• John McGuire (SVP and CIO) on 5/1/06 - 55.71%

• Thomas Kish (SVP and CIO) between 11/14/05 7/3/06 - 85.12%

• Michael Kupstas (SVP and Chief Franchise Officer) between 1/29/07 and 2/16/07 -49.83%

21. Not surprisingly, every one of these sales occurred when Panera ' s stock was trading

at or near record highs. Defendant Shaich alone sold over 110,000 shares, approximately 68% ofhis

stock holdings , for proceeds of nearly $7 . 5 million at prices between $61.95 and $72.19. He would

later (only a month after disclosing the truth about Panera), repurchase 84% of those shares at a

fraction of the price at which he sold.

Crispani: The Sales-Driver that Never Was

22. By the start of 2006, defendants were already encountering resistance to Crispani,

including questions within Panera and by franchisees about the product's viability. At a "Round

Table" meeting in February 2006, according to a franchisee at the meeting, approximately 400

franchise owners and operators were in attendance and many owners and operators told defendants

Shaich and Yanofsky that there was no way to justify the enormous costs of the roll-out and that

these expenses could not be recovered with Crispani sales. In fact, many franchisees complained to

defendants about the costs already incurred and expressed concern about the roll-out strategy.

23. A former North Carolina District Manager for one of Panera' s most profitable

franchisees (routinely in the top ten as reflected in monthly Ranking Reports and in the top two

during the Class Period) explained why. In 2005, as part of the first phase of the Crispani product

launch, Panera designated certain geographic areas (primarily in the northeast) as test markets to

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gauge the customer response to Crispani. The Howley Bread Group ("HBG"), a franchise in

Connecticut, served as one of the primary test markets for Crispani. The District Manager for the

North Carolina franchise, along with the owners and other managers, traveled to HBG's

headquarters to learn about the Crispani initiative. HBG, at varying times, hosted personnel from

various franchisees during Crispani's initial launch.

24. During this visit, the VP of Operations for HBG and other HBG personnel expressed

concerns and reservations to the North Carolina visitors about Crispani's "long-term sustainability."

According to HBG personnel, many stores were selling around 12 Crispani's per day, which was

well below what would be needed to maintain product viability (other franchisees identified 120 as

Panera's weekly expectation). Given these sales, the attendees discussed the increased operational

costs that were needed for Crispani, which were a substantial concern to HBG. Like other

franchisees, the District Manager indicated that the costs were substantial and included deck ovens,

kitchen utensils, in-store marketing materials, and labor costs for the new dedicated Crispani

personnel. The Crispani sales were nowhere near sufficient to cover these significant start-up costs

or, for that matter, the fixed labor costs that Panera demanded for Crispani.

25. According to defendants' plan, franchisees were required to front nearly all of the

expenses for the Crispani launch. And many cafes had to convert from a "Sourdough Bread" store

model to the new "Artisan Bread" store model because Crispanis could only be prepared in Artisan

Bread deck ovens, which cost approximately $37,000-$50,000 per oven. Requirements for multiple

deck ovens dramatically increased expenses for company-owned and franchisee stores alike. Indeed,

one franchisee reported that they spent $74,000 on ovens just to accommodate Crispani. Adding to

these extraordinary start-up costs were the costs to hire and train dedicated Crispani personnel,

which also became a fixed labor cost and severely reduced margins. Indeed, all Panera bakery-cafes

were required to maintain at least one employee devoted solely to Crispani, with some company-

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owned stores reporting that they maintained up to three - one to handle baking, another for food

preparation (i. e., rolling the dough and filling the ingredients), and the last to handle "table service."

These dramatic start-up costs, coupled with weak sales (which defendants themselves only described

as "modest"), eliminated any reasonable basis by which to conclude Crispani would be accretive to

earnings in its first or second year, if at all.

26. Despite the costs and already poor Crispani sales, on April 25, 2006, defendants

raised their EPS target to $1.97 to $2.00 (including options expense), and their comparable sales

guidance from a range of 4% to 6% to a range of 4.5% to 6.5%. While defendants made no mention

of Crispani on April 25, 2006, they told analysts two weeks later on May 5, 2006 during an Analyst

Day that "[y]ou should expect that's [sic] it's [Crispani] built into our [April 25, 2006] guidance."

Defendants also told analysts that Crispani was already increasing sales by 3%-4%:

The truth is we're getting 3 to 4% Crisp[a]ni, right? We assume about half of thatis incremental, but with every piece of that comes an equal amount of soup , salad andsandwich. So the net result is 3 to 4% ofsales, 3 to 4% of lift.

27. But reality supported no such claims as Crispani was in no position to create lift for

the Company. A year of testing , resulting in what defendants later admitted were "modest sales,"

extraordinary start-up expenses and fixed labor costs eliminated any reasonable basis for adding

$0.06 per share to forecasted earnings. This was especially true given that defendants had just been

told at the Round Table meeting that Crispani sales would not justify the significant costs. In fact,

one franchisee in Georgia reported that they incurred about $100,000 in labor expenses just to hire

additional staff (including bakers and customer service personnel) necessary for Crispani, which was

on top of the costs for several weeks of training and the costs incurred when defendants were

offering Crispani free of charge.

28. By the end of 2Q06, defendants knew that system comparable sales had collapsed to

just 2.2% (down from 8.2% a year earlier) and all indications were that Panera sales would continue

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falling throughout the year, which would have a devastating impact on Panera's stock price

(according to an analyst, "softening same-store sales ha[d] hurt Panera's valuation in the past").

Hoping to offset their then declining sales and the correlating decline in stock price, defendants

desperately pushed to complete the launch of Crispani sooner than planned. Defendants began

pressing bakery-cafes to launch Crispani early - before sufficient marketing had reached the public.

One franchisee reported he had little choice after Panera's Director of Franchise Operations, Todd

Bums, continued to "strong-arm" him during 3Q06 into launching Crispani a quarter earlier than he

had wanted.

29. On July 26, 2006, defendants released Panera's 2Q06 results and revealed that they

were accelerating Crispani's costs into 3Q06 because it was purportedly "progressing more rapidly

than planned," and that they were dropping the bottom out of their 2006 EPS guidance by $0.04 to a

range of $1.93 to $2.00. Panera's stock fell $7.34 per share (or 12%) in response and did so even as

defendant Shaich claimed that "our Crispani program is going exactly as our research, and our

seven or eight different tests that we ran would have indicated." Under ordinary circumstances,

executives are loathe to sacrifice shareholder value and strive to maintain it. But defendants'

decision to voluntarily accelerate Crispani sacrificed shareholder value by contributing to a more

than $260 million collapse in Panera's market capitalization in a single day. The impact of

defendants' decision on Panera's stock price reveals their desperation.

30. Defendants' statements about Crispani were false. It was widely known by this time

within Panera that Crispani was a failure from the outset. Indeed, many franchisees have described

the Crispani effort as "a complete failure" throughout the country, and the facts show that defendants

knew it. Numerous bakery-cafes were reporting that Crispani sales took a nosedive after an initial

coupon blitz and were nowhere near sufficient to cover the enormous costs of the product. In fact,

one franchisee explained that some stores had already stopped selling Crispani by mid- to late 2006

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as a result of the inability to generate profits from the product, which they knew from the Ranking

Reports that defendants circulated on a monthly, and then weekly, basis. And even defendants'

company-owned stores in St. Louis were failing with the Crispani launch as early as August 2006,

immediately after its coupon blitz ended. A General Manager at one of Panera's St. Louis stores

noted that sales continued to dwindle despite defendants' efforts to motivate cafe personnel with

inter-district awards to the district that sold the most Crispanis. Tellingly, defendant Shaich later

admitted that Crispani compressed margins because of its large fixed labor costs, which he also

admitted was "not helping us":

As we focused on the root causes of our margin compression, we realized that therewere four main issues driving down summer margins.... Third, Crispani, with itslarge fixed labor component was not helping us.

Shockingly, defendant Shaich admitted on February 13, 2008 that "Crispani sales never grew."

31. Defendants' accelerated launch of Crispani seriously undermined sales in other ways.

Panera historically had a practice of setting strict training guidelines for product preparation,

employing regional trainers who trained Panera employees at each store. According to a former

training director, the acceleration of the Crispani launch made their usual training approach

unfeasible. Consequently, Panera's training department was forced to use an alternative "training

restaurant" approach where regional trainers trained a single restaurant, which, in turn, trained other

Panera employees in the region. This approach meant that supposedly "certified" employees with no

experience in training were setting the standard for Crispani quality. Not surprisingly, many

customers were displeased with the product they received. Even Panera's Director of Product

Development, Dan Kish, noted the temperamental nature of the product and the importance of

adequate training:

[Crispani is] "one of those products that it's [sic] only as good as the attention thatwas given to it during its making and baking and the point it came out of the oven ...it takes a personal eye on each one to make sure they're right."

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32. Mr. Kish also discussed numerous ways Panera employees, without proper training or

care, could easily make the Crispani poorly. In fact, a former Regional Marketing Director for a

Panera franchisee in Pittsburgh added that the difference between an overcooked and dry Crispani

and an undercooked doughy Crispani was only one or two minutes of baking time and that many

cafes had difficulty making the product as a result . There is no question that defendants knew about

these problems. According to a General Manager for a company-owned store in St. Louis, defendant

Shaich himself complained in a 2006 e-mail to all General Managers throughout the country

following one of his "Where's Waldo?" secret shopper site visits that Crispanis took as long as 25

minutes to prepare (compared to five to six minutes for other items) and that they were not being

prepared properly.

33. After accelerating the launch, numerous former Panera employees and franchisees

reported that defendants flooded customers with coupons for a free Crispani by mail, and even by

passing out free coupons at college campuses. Defendants hoped to create a market for Crispani, as

well as fuel additional sales of other items. But defendants' coupon blitz was disastrous for

franchisees and strained margins for stores systemwide. Indeed, as stores honored the coupons, their

costs spiraled out of control. With the exception of the actual food costs of the Crispani giveaway,

franchisees were required to absorb all of the operational costs during the free Crispani marketing

phase, which further hindered their ability to recoup the dramatic start-up costs related to Crispani

and the additional labor costs that were not being counterbalanced with Crispani sales.

34. All told, Crispani sales were not meeting expectations . Defendants admittedly knew

from the outset of the launch that sales of Crispani were below expectations and nowhere near

sufficient to cover the related fixed costs, let alone the launch costs. Panera's guidelines for a

successful roll-out of Crispani included sales expectations of 120 Crispanis per week for each store

and it took 90 Crispanis per weekjust to break even; anything less than 90 Crispanis meant bakery-

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cafes were losing money on the product. Crispani required a 2.91%-6.75% overall lift in sales in the

first year just to break even, much higher than the purported 2% that defendant Shaich later

claimed they were experiencing - "Crispani was delivering incremental sales of 2 percent."

According to one franchisee, it became clear within one month of the launch that Crispani was not

meeting these expectations. Indeed, the Crispani Ranking Reports, sent weekly after the launch,

revealed that many bakery-cafes were below expectations from the outset. As one President and

Operations partner of a franchisee put it, "ànyone will try it [i.e., Crispani] for free."' But expecting

customers to purchase the product - at a time of day when Panera patrons did not customarily visit

the cafes - was "another story." And a General Manager in one of Panera's St. Louis stores added

that the overwhelming majority of Crispani transactions were coupon redemptions, not actual sales.

When the coupons ran out, so did the demand for Crispani.

35. Further underminin g defendants' positive statements and guidance, during the time of

the Crispani launch, Panera's business in general continued to suffer - in part, from defendants'

continued expansion strategy. Defendants opened 155 new stores in 2006 and these immature stores

were the most prone to cannibalizing sales from other stores. As discussed earlier, defendant Shaich

admitted as much on February 9, 2007. And defendants even admitted later that they had to change

their site selection strategy because the "green-field" stores (i.e., stores in immature locations)

negatively impacted Panera's results. As was the case earlier in the Class Period, franchisees

continued to be concerned about the rapid expansion required of them. In fact, throughout the Class

Period, the percentage of company-owned stores compared to franchisee-operated stores increased

well beyond the 30/70 ratio that the Company was targeting. The percentage of company owned

stores skyrocketed from 30% in 2004 to 38% by year end 2006 and reached as high as 43% in 2007:

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Franchisees were simply refusing or unable to open the corporate-mandated predetermined number

of new stores, knowing that they would needlessly cannibalize sales from their current stores.

36. As a result, lunch transactions, which were the most important part of Panera's

business , were negative in 4Q06; marking the first time in recent history they had ever been so.

Defendant Shaich later admitted that lunch transactions were declining beginning in 4Q06:

As we looked deeper and deeper near the comps, we began to realize thatCrispani was in fact covering up another problem, negative lunch transactions thatbegan in Q4 2006 and continued into Q12007.

And systemwide same store sales continued to plummet for all of Panera's transactions - from 7.7%

in 4Q05 to just 2.0% in 4Q06.

37. Defendants' claim that the sales from Crispani were obscuring this trend from

management is simply not true. Not only were Crispani sales below expectations, but also

defendants received daily reports from Panera's MICROS system, which listed total sales

categorized by product mix and by daypart. Defendants knew exactly how much Panera sold each

-16-


day and how much was attributable to lunch and dinner, especially since they sold Crispani only

after 4 p.m. (i.e., in the dinner day-part). In fact, Shaich admitted that he received this information

on a daily basis - "I'm going to tell you a little inside story here. We get comps everyday."

Nevertheless, defendants continued to push expansion despite cannibalization concerns. As a result

of these growth issues and the failing Crispani launch, on December 6, 2006, Panera again lowered

its 4Q06 targets to EPS of $0.62 to $0.65, implying a full year target of $1.87 to $1.90. As a result,

Panera's stock fell 3.2%.

38. On February 9, 2007, defendants reported comparable sales of 4.1% and EPS for

fiscal 2006 of only $1.84, barely at the EPS guidance they had given over a year earlier in November

2005, and well below any of their raised guidance throughout the year. But meeting the lower end of

their initial guidance was not due to operational growth. Rather, defendants were only able to meet

this figure because of a last minute reduction in executive bonuses. Defendants and other

executives, giving back a small portion of their ill-gotten gains from their stock sales earlier in the

year, sacrificed some or all of their 2006 bonuses, which had been accruing throughout the year.

This reduction in bonuses, which dramatically reduced G&A expense in 4Q06, boosted the

Company's EPS by as much as $0.04 per share. Without this reduction, Panera would have

dramatically missed even its initial outlook, which supposedly did not include prospective Crispani

sales. And without a mid-year price increase (unanticipated when defendants issued initial

guidance) and Crispani sales, defendants would have missed their initial comp sales guidance by an

equally large amount.

39. Defendants nevertheless continued to speak positively about Crispani and issued

aggressive EPS growth guidance of 26% to 27% for 2007. On February 9, 2007, defendant Shaich

said that "We are seeing the 2% lift in our overall business that we expected Crispani would

deliver through our evening-day part.... In short, Crispani is performing well andperforming as

-17-


expected.... Crispani is working particularly well among Panera's target customers, and with high

purchase intents, and I mean, 75, 80% purchase reintent [sic], those kinds of scores in the evening."

And on April 25, 2007, he added that "Crispani is for us essentially breaking even or barely

breaking even, somewhere around there. To us, thatfeels real good. We've got this thing up and

going. It's in space, it's in orbit.... I think the key for us as it has been with almost everything

Panera has done is to let this thing grow organically, to let it build and to move forward."

40. Defendants knew that these statements were patently false and that 2007 guidance

was baseless. Weekly Ranking Reports revealed that virtually all franchisees' sales of Crispani were

well below expectations. And shockingly, defendant Shaich admitted in his April 2, 2008 letter to

shareholders that they "sacrifice[d] Crispani sales and Crispani profitability as we refocused on

transaction growth in our lunch business in summer 2007." It is illogical to believe that defendants

would "sacrifice" Crispani if it was meeting expectations as defendants claimed . In fact, defendants'

explanation was pure sophistry - Crispani could not have interfered with Panera's lunch business in

summer 2007 as it was only sold after 4 p.m. The reality was that defendants abandoned Crispani

because its sales were far below expectations. Indeed, sales of Crispani were so bad that in lQ07,

defendants tried desperately to increase sales, going so far as to suggest "eye-catching" purple,

stand-alone menus. But sales of Crispani remained critical and showed no sign of improving.

41. Problems related to Panera's expansion strategy only worsened throughout 2006 and

into 2007, which, along with Crispani, foreclosed any reasonable belief in 2007 guidance. By late

2007 in fact, an astounding 40% of Panera's stores had been in operation less than 18 months; these

"immature" stores being the most prone to cannibalization. According to one franchisee, Panera was

planning on opening stores within a distance of just over two miles from then existing stores.

Further illustrating the franchisees' resistance to such tactics, the percentage of franchise-operated

stores continued to drop throughout the start of 2007. In stark contrast to the Company's 30/70

-18-


policy, Panera's company-franchisee ratio was 41/59 at the end of 2Q07. Panera responded by

continuing to open company-owned stores in difficult locations as evidenced by defendants'

admission on October 24, 2007, that they had to change Panera's site selection standards because the

new immature stores were impacting margins. Panera's margins (and earnings) suffered as a result

of defendants' demand for continuous store growth.

42. On June 6, 2007, defendants lowered their 2Q07 comparable bakery-cafe sales

growth target by 2% and revised their EPS target to $0.38 to $0.40. The press release gave no

reason for the revision, but analysts reported that new-store performance was not what it should be -

average unit volumes for stores that opened in 2006 were 15% below the average for those stores

that opened in 2005 or earlier. As a result of this partial disclosure, Panera's shares fell 14% in

response.

43. Then, on July 25, 2007, in a sudden reversal just three months after saying that

Crispani was "breaking even" which "feels real good," defendants stunned investors with what they

claimed to be a "frank discussion" saying that they were withdrawing their 2007 guidance and that

"the business today is clearly not where we expected it to be." And for Crispani , they disclosed for

the first time that "It's a [sic] not meeting expectations at this point. It's continued to moderate and

trail off. It's probably giving us, you know, a half of point to a point of lift . It's costing us money.

That's not meeting what is the break even at this point." Panera's stock price collapsed again,

falling 12.38% from $59.27 to $51.53 per share.

44. Defendants abandoned Crispani all together in 1Q08 and pulled it off the market. The

following chart reveals the impact that defendants' misrepresentations and disclosures had on

Panera's stock price:

-19-

$80

$70

$60

CO

41IL

$50

O

$40

$30

Panera Bread CompanyOctober 3, 2005 - September 4, 2007

11/1/05: Defendants announced"aggressive " 2006 guidan ce of $1.84 - $1.89 10/25/06: Defendants lowered 2006wide

deEPS and 2.5% - 4 .5 % system-wide-t guidance to $ 1.92 - $1.93 EPS andcomparable sales growth (" sales comps"). 4.4% - 5.0% sales comps . Analysts

...

WW

discuss new store productivity and

7/25/06: Defendants drop the low end ofsignificant ongoing Crispani costs.Defendants stated : are seeingCrispa 2%

1o4

4 /their 2006 EPS guidance to $1.93 - $2.00,

a 2% to lift from Crispani, which isAnalysts discuss weakening sales and

"i n 75% of our cafes.uncertain impact of Crispani. Defendantsstate: We believe that Crispani will give

/us 2 to 4% lift incremental."

A A,

12/6/06: Defendants loweredtarget EPS to $1,87 - $1.90.Analysts discuss lower than

I e t d lxpec e sa es comps.2/9/06: Defendants raised 2006guidance to $ 1.91 - $1.95 EPSand 4 . 0% - 6 .0% sales comps,

3l stating We expect to continue todeliver on that track record of

o $EPS growth of 25% or more t , iagain in 2006, and well into theforeseeable future." 9v;

4/25/06: Defendants again raised 2006guidance to $1.97 - $2.00 EPS and 4.5%- 6.5% sales comps . Defendants stated:"[T]ell me anybody who is opening 150stores a year or significant numbers thatdon't see their average unit volumes godown .... And ours continue to staystable , essentially."

If trt ii 2 ^.75Ocr

D F

TtrY

6/6/07: Defendants lowered2007 guidance. Analystsreport that weak new-storeperformance contributed to theshortfall,

7125107: Defendantslowered 2007 guidanceto $1.72 - $1.88 EPSand announced that "weare not on track to hit the25% EPS growth in 2007that we announcedpreviously." Defendantsalso announced thatCrispani was "notmeeting what is thebreak even at this point."

4/25107: Defendantsreiterate 2007 guidanceof $2.26-$2.34 EPS.

2/9/07: Defendants announced 2006results of $1.84 EPS and 4.1 %comparable sales growth. and announced2007 guidance of $2.26 - $2.34 EPS and2% - 4% sales comps.

0:0J07 0;'i 1) 07: Dufirircis€';t Sliaich

$3Circire;96's 92,1101) sliarun at

$41.70-$44.94 per :;Kure.•

Class period. 11/1/05 7/25/07 --' i••

10/03/2005 12/09/2005 02/21/2006 05/01/2006 07/10/2006 09/15/2006 11/22/2006 02/0512007 04/1612007 06/22/2007 08/30/200711/04/2005 01/17/2006 03/27/2006 06/05/2006 08/11/2006 10/19/2006 12/2812006 03/12/2007 05/18/2007 07/27/2007

v0C)C

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JURISDICTION AND VENUE

45. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the

Exchange Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule lOb-5 promulgated thereunder by the SEC

(17 C.F.R. §240 . 10b-5).

46. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.

§ 1331 and Section 27 of the Exchange Act.

47. Venue is proper in this district pursuant to Section 27 of the Exchange Act and 28

U.S.C. §1391(b). Many of the acts charged herein , including the preparation and dissemination of

materially false and misleading information, occurred in substantial part in this district.

48. In connection with the acts alleged in this Amended Complaint, defendants, directly

or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited

to, the mails, interstate telephone communications and the facilities of the national securities

markets.

PARTIES

49. Plaintiff Western Washington Laborers-Employers Pension Trust, as set forth in the

certification filed with its earlier motion for lead plaintiff, purchased the common stock of Panera at

artificially inflated prices during the Class Period and has been damaged thereby.

50. Defendant Panera is incorporated in Delaware and maintains its headquarters at 6710

Clayton Road, Richmond Heights, Missouri 63117.

51. Defendant Ronald M. Shaich ("Shaich") is, and was at all relevant times, Chairman

and Chief Executive Officer ("CEO") of Panera.

52. Defendant Mark E. Hood ("Hood") was Senior Vice President and Chief Financial

Officer ("CFO") of Panera until his resignation on or about May 5, 2006.

-21-


53. Defendant Neal Yanofsky ("Yanofsky") was Chief Administrative Officer, Executive

Vice President ("EVP") and Corporate Staff Officer until April 3, 2006, and was President from

April 3, 2006 throughout the Class Period.

54. Defendants Shaich, Hood, and Yanofsky are referred to herein as the "Individual

Defendants."

55. As senior executive officers and/or directors and as controlling persons of a publicly

traded company whose common stock was, and is, registered with the SEC pursuant to the Exchange

Act, and was, and is, traded on the NASDAQ and governed by the federal securities laws, the

Individual Defendants had a duty to promptly disseminate accurate and truthful information with

respect to Panera's financial condition and performance, growth, operations, financial statements,

business, products, markets, management, earnings and present and future business prospects, and to

correct any previously issued statements that had become materially misleading or untrue, so that the

market price of Panera' s common stock would be based upon truthful and accurate information. The

Individual Defendants' misrepresentations and omissions during the Class Period violated these

specific requirements and obligations.

56. The Individual Defendants are liable as participants in a fraudulent scheme and

course of conduct that operated as a fraud or deceit on purchasers of Panera's common stock by

disseminating materially false and misleading statements and/or concealing material adverse facts.

The scheme: (i) deceived the investing public regarding Panera's business, operations and

management and the intrinsic value of Panera's securities; (ii) enabled Defendants Hood and Shaich

and other Company insiders to sell 195,648 shares of their personally-held Panera stock for gross

proceeds in excess of $12.7 million; and (iii) caused plaintiff and members of the Class to purchase

Panera's common stock at artificially inflated prices.

-22-


SUBSTANTIVE ALLEGATIONS

57. The Class Period begins on November 1, 2005, when Panera issued a press release

announcing its financial results for the third quarter of 2005, the period ended October 4, 2005. For

the first time, the Company established its guidance for the 2006 fiscal year:

The Company is today establishing its initial target for fiscal 2006 earningsper diluted share at $1.97 to $2.01. This 2006 EPS target is stated prior toimplementation of SFAS No. 123R, "Share Based Payment," which requires theCompany to begin expensing stock options in fiscal 2006....

The assumptions on key metrics underlying the 2006 target are new bakery-cafe development of 150 to 160 (70 to 75 company and 80 to 85 franchise),comparable bakery-cafe sales growth of 2.5% to 4.5% (equivalent to 2 year comps ofapproximately 10-12%), average weekly sales of $38,800 to $39,800 and operatingweeks of 48,500 to 49,000.

58. Both defendants Shaich and Yanofsky confirmed on a conference call the next day

that Panera's 2006 outlook was "aggressive," and defendant Shaich even added that Panera was

"shooting to hit higher" than projected:

And I guess what we're really trying to indicate to you is that the 10% two yearcomp level, which we think is pretty aggressive, it is not insignificant. And it isaggressive . But we think we've got - we think that the very things that have broughtus to the table over the last 18 months will continue carrying us for the next 12months. But we will see. We will be working at it. We will be shooting to hithigher than that and we will see where it comes out.

59. For his part, defendant Yanofsky characterized the guidance outlined in Panera's

press release as "aggressive" and informed investors that an accounting change resulted in EPS

guidance of $1.84 to $1.89:

Let's now turn our attention to 2006. And again, let's start with the metrics thatdrive our results . We're projecting system compsfor `06 of2.5% to 4.5%. At firstblush, these may seem modest in comparison to the comps we've enjoyed in `05.But I would hasten to point out that in `06, we will be running over those very strong`05 comps. And in fact, with systemwide comps for full year 2005 expected at over7%, our 2.5% to 4.5% target for next year equates to two year comps of 10% to 12%approximately. So we consider our 2006 comp target to be rather aggressivebecause it represents even stronger two year comp performance than we'veexperienced in 2005 . These strong comps will contribute to increasing average

-23-


weekly sales to a target range of 38,800 to 39,800 or somewhat over $2 million an[sic] an annualized basis.

On the development front, we're targeting another year of 150 to 160 new cafes.Comprising 70 to 75 Company stores and 80 to 85 franchise. This will result in anexpected 48,500 to 49,000 operating weeks. If we achieve the targeted ranges onthese key metrics we expect earnings per share for 2006 of $1.97 to $2.01 beforethe effect ofoptions expenses. As [M]ark mentioned we currently think the SFAS123 to be $0.12 to $0.13 a share in 2006 resulting in an actual EPS target of$1.84to $1.89.

60. Analysts reported favorably on defendants' November 1 and 2, 2005 announcements

and reiterated the Company's guidance. For example, on November 2, 2005, KeyBanc Capital

Markets reported as follows based on defendants' representations during the conference call:

Guidance for FY06 was initiated as well at a range of $1.97-$2.01 vs. the consensusof $1.98 and our previous Street-high estimate of $2.01.

Given the trends in SSS, we are lifting our 4Q05 EPS estimate from $0.46 to $0.49and our FY05 EPS estimate to $1.63 from $1.60. We are also raising our FY06estimate to $2.03 from $2.01.

61. As a result of defendants' upbeat statements on November 1 and 2, 2005, Panera

stock traded at artificially inflated prices between $58.02 and $67.93 over the next three weeks.

62. Defendants' 2006 EPS outlook was made without a reasonable basis. At the same

time that defendants disseminated this admittedly "aggressive" outlook, they knew that the baseline

for that outlook was extraordinarily high and that Panera's impressive growth rates in 2004 and 2005

were based on factors that had disappeared or were not planned for Panera at the time of the outlook

- new products and price increases. In fact, Panera had experienced lackluster sales throughout 2003

and early 2004, due in part to consumer trends toward low-carb diets and premium product rollouts

by fast food companies. In 2004, Panera attempted to resuscitate sales growth by issuing a series of

price increases : 0.5% in May, 1.5% in July, and 1.5% in November. These price increases had their

intended effect and drove Panera' s strong sales growth in late 2004 and early 2005. The price factor

at company stores contributed significantly: 3.5% of the 6% sales growth in l Q05, 3% of the 9.4%

-24-


sales growth in 2Q05, and 1.6% of the 8.2% sales growth in 3Q05. Also adding to strong sales in

late 2004/early 2005 was the Company's system-wide rollout in 4Q04 of Via Panera (a catering

division of Panera) and organic chicken. Panera's growth in 2005, therefore, came largely or almost

exclusively from price increases or new products.

63. By 4Q05, Panera's same store comparisons year-over-year had become much more

challenging as the Company lapped these 2004 initiatives . In fact, by 4Q05, the 2004 price increases

that had driven 2005 sales growth lended a mere 0.8% to sales growth. In addition, by 3Q05, same-

store profit growth had become anemic, with average unit dollar profit growth falling from 17% in

lQ05 and 9.3% in 2Q05 to a mere 0.4% in 3Q05. Adding to the challenge, the Company had

announced that it would not make additional price increases in 2005 or 2006 and did not build new

products into its initial guidance. Analysts reported that "Panera may take more price [increases],

though the company has indicated that it will not" and defendant Shaich said on February 10, 2006

that "[n]othing is built into our planning for `06, the guidance that we're giving to you at this time."

Without price increases to drive sales growth and no new products built into their initial guidance,

Panera was relying on store expansion to drive its "aggressive" 2006 sales forecasts. Panera's

aggressive store expansion strategy, however, was causing its comparable sales growth to decline

and its margins to contract as a result of over-saturation and store cannibalization - both of which

undermined Panera's ability to reach its outlook.

64. Panera's aggressive store expansion strategy had allowed the Company to grow from

183 stores in 2000 (81 company-owned and 102 franchise-owned) to 877 stores in 2005 (311

company-owned and 566 franchise-owned). To effectuate this growth strategy, Panera required its

franchisees to sign ADAs, as outlined in its Form 10-K. Under the ADAs, the Company set a

"Development Schedule" requiring each franchise to open a pre-determined number of stores every

year. If a franchisee failed to comply with Panera's store expansion goals, Panera considered the

-25-


franchisee in "breach" of the ADA, which meant that it faced the possibility of being reacquired by

Panera. The ADAs also allowed Panera to open company-owned stores at any time within a certain

mile radius of franchisee stores based on the demographics of the area or designate another franchise

to compete directly with the existing store.

65. In setting the Development Schedule, Panera used a penetration goal of one store per

100,000 people. This goal was aggressive by any reasonable standard, especially considering not all

people in any given area are potential Panera customers . As one analyst stated, "[t]his [goal] is

ambitious," and a more reasonable penetration goal would be one store per every 150,000 or 200,000

people. Even using Panera's overly-aggressive standards, however, Panera was already over

penetrated in 17 of the Nielsen Top 50 markets in which Panera operates, including its home market

of St. Louis, Missouri. Using a more reasonable standard of one store per 150,000 or 200,000

people as considered by analysts, Panera was over-saturated in 25 or 34, respectively, of the 50

markets. Despite this saturation, Panera continued its aggressive store expansion policy, opening

stores in saturated or near-saturated markets and requiring franchisees to do the same. As a result,

both existing and new stores were experiencing a significant drop in comparable sales growth due to

store cannibalization as a result of too many store openings in proximity to one another. This drop in

comparable sales and resulting impact on margins prevented countless stores from achieving

anywhere close to defendants' aggressive outlook, especially without new product offerings and

price increases to drive sales and earnings.

66. Panera' s expansion policy was so aggressive that many franchisees were unable to

succeed at the level ofnew store openings that Panera demanded. According to a franchisee District

Manager, the aggressive expansion initiatives were prohibitively expensive for franchisees.

Franchisees were required to supply all of the capital to build new stores (as dictated by the terms of

the ADA), which according to franchisees and a development capital accountant at Panera, averaged

-26-


over $1.4 million, and could be as high as $2.2 million. Panera did not provide any financing for the

store expansion costs, and the existing franchisee store operations yielded insufficient income to

meet their own requirements let alone serve as start-up capital. Additionally, franchises were

required to pay a 5% franchise fee to Panera for every new store opened, further adding to the costs.

As one former franchisee owner explained it - the ADA required the franchisee to open five to six

new stores every year. Initially, the franchisee was able to meet this goal, opening six new stores in

both 2003 and 2004. As the market became more saturated , however, the franchisee could no longer

sustain this aggressive strategy, opening only three stores in 2005, far below Panera's expectations

and requirements. As a result of its failure to meet Panera's expansion goals, by late 2005, the

franchisee was constantly ranked in the lowest category (the bottom ten percent) of franchisees and

was in jeopardy of being reacquired by Panera - directly because of store cannibalization.

67. Countless other franchisees encountered the same. Indeed, Panera acquired 21

franchise stores in November 2005, a significant change from fiscal year 2004 when Panera

purchased only one store from a franchisee and actually sold two company stores to franchisees.

And the Company acquired another 13 franchisees in 2006 and a whopping 36 in 2007. The

significant increase in franchisee acquisitions demonstrates that Panera was holding franchisees in

breach for failing to expand or that franchisees were bailing out of or unable to meet Panera's growth

plan. And for those adhering to it, they did so by opening many stores in low populated or

outreaching areas, which defendants termed "green-field" locations, which one analyst described as

less developed trade areas where the Panera concept might take up to three years to hit mature sales

and margin levels. Doing so drove down average weekly volumes and earnings. Indeed, defendants

even admitted in October 2007 that these stores drove down margins and impacted results - "there is

a higher mix of shall we say, newer markets, or newer - newer company stores that has a - a

-27-


downdraft impact [on margins]." Either scenario undermined the reasonableness of Panera's

guidance.

68. Panera's franchisee ratio (and resulting sales, margins and earnings) suffered under

defendants ' growth demand. Franchisees had such difficulty meeting Panera' s aggressive goals that

by late 2005, company-owned stores represented over 36% of total stores, an increase from

approximately 30% the prior year and above the Company' s publicly set standard of one-third

company-owned , two-thirds franchise-owned . The Company' s increasing reliance on company-

owned store growth only further impacted its corporate level returns, as the Company's profit

margins on franchisee stores was much higher, a near 100% profit margin, versus an average 19%

company-operated margin. Panera's lack of planned price increases and new products and failing

growth strategy eliminated any reasonable basis for defendants' aggressive 2006 outlook.

69. Almost immediately after defendants issued this "aggressive" and baseless guidance

for 2006, defendant Hood unloaded 100% of his personally held Panera stock on November 14 and

21, 2005, for gross proceeds of approximately $1.3 million. Defendant Hood sold his stock at prices

of $62.00 and $67.89 per share. Defendant Shaich and other executives did the same. Shortly after

issuing its 2006 outlook, defendants began to publicly discuss the development of Crispani. Based

on defendants ' presentations, analysts were excited about the Company' s drive to develop its dinner

daypart. In fact, while defendant Shaich would later disclose that Crispani did not factor into initial

2006 guidance, analysts considered it crucial to Panera's 2006 prospects.

(a) CIBC World Markets reported on November 18, 2005, after its investor

meetings with Panera's senior management, including defendants Shaich, Hood, and Yanofsky, that

"we left these sessions with an increased sense of confidence that Panera has the capacity to continue

to grow its unit base and increase its average unit volumes through multiple product and service

initiatives ... The most significant `new news 'from our perspective was management 's laying

-28-


out ofits products and service initiatives over the next severalyears, including most importantly,

an initiative for the evening daypart [i.e., Crispani]."

(b) KeyBanc did the same on December 13, 2005, explaining that: "We are

raising our FY05 and FY06 EPS estimates from $1.63 and $2.03 to $1.65 and $2.05, respectively.

This is due to the strength in same-store sales (SSS) in the quarter to date.... Goingforward, we

believe investors are optimistic about newproducts in 2006. In particular, we believe investors are

licking their chops aboutpotential growth in the dinner daypart. PNRA will likely make a push

through a pizza product. Timing is unclear, but we think the introduction is in the 2H06 at the

earliest."

(c) On December 19, 2005, WR Hambrecht + Co reported that "[f]latbread pizza,

which is geared to evening takeout, is not yet officially on the menu for next year, but it is inching

closer. Lookfor the company to again add items and experiment to try and drive traffic at non-

peak times."

(d) On January 15, 2006, the St. Louis Post-Dispatch, Inc. reported: "To boost

revenue, Panera is testing flatbread pizzas for dinner and drive-throughs aimed at busy parents." It

also quoted defendant Hood's comments about Panera's business model: "Ì think the inherent

business model remains as robust today as it ever has been, and we continue to be excited by it,

humbled by it somewhat,' said Mark Hood, chieffinancial officer. `Very few have had as

successful a run for as long as Panera has."'

(e) On February 1, 2006, Canaccord Adams issued an upbeat report stating that it

"expect[s] ... strength to persist on the heels of new product launches, including all-natural

chicken-based Chicken Olivada sandwich and Crispanifiat breadpizza, which is currently being

tested in roughly 100 bakery cafes and which shouldfuel after-4pm (dinnertime) traffic."

-29-


70. On February 9, 2006, Panera issued a press release announcing its financial results for

the fourth quarter and year end of 2005, the period ended December 27, 2005, and raised its earnings

outlook for 2006:

The Company today raised its full year fiscal 2006 earnings per dilutedshare target to $1.91 to $1.95 (including $0.13 for option expense), an increase of26% to 28% from comparable pro forma 2005 results (including footnote optionexpense of $0.13). This increase in targeted EPS is based on upward adjustments intargeted ranges on the company's key metrics. The Company today has raised its2006 system -wide comparable sales growth target to 4.0% to 6.0% (equivalent to 2year comps ofapproximately 12% to 14%). Additional assumptions on 2006 keymetrics include new bakery-cafe development of 150 to 160 bakery-cafes (70 to 75company and 80 to 85 franchise), average weekly sales of $39,200 to $40,200, andoperating weeks of 48,500 to 49,000.

71. By this time, defendants began to discuss the possibility of a price increase in mid-

2006 ("the intent is to take 1 to 2% of menu pricing sometime mid-year") but still maintained that

their guidance did not include new products - "[n]othing is built into our planning for `06, the

guidance that we're giving to you at this time." On February 10, 2006, defendant Yanofsky

reiterated the guidance outlined in the press release and clarified that the $1.91 to $1.95 range

included options expense:

We are also today raising our 2006full year comp target, from the original rangeof 2.5% to 4.5%, to a revised range of 4 to 6%. This corresponds to a two-yearcomp ofabout 12 to 14%, which is substantially above our historical run rate.

Our other top line metric is average weekly sales. For the first quarter, we'retargeting AWS of $38,800 to $39,300, and in conjunction with our increased comptarget, we're raising our full-year AWS target, to a range of $39,200 to $40,200.This results in an expected average unit volume for the year of 2.038 million to 2.090million....

The last two key metrics are store openings and store open weeks. For the firstquarter we anticipate 23 new cafe openings, 14 franchise, and 9 company. Our 2006full year opening goals remain unchanged at 80 to 85 franchise, 70 to 75 company,totaling 150 to 160 system-wide....

More notably, we are substantially increasing our 2006 EPS target. In light ofourgreater than anticipated earnings results in 2005, and our very robust start to this

-30-


year, we are now anticipating 2006 earnings per share to be $1.91 to $1.95.Equivalent to $2.04 to $2.08 before $0.13 ofoptions expense. On aproforma afteroptions andfootnote basis, this represents year-over-year earnings growth of26%to 28%.

72. Defendant Shaich told investors that Panera's growth in 2006 would be similar to its

historical growth rate and added that "[a]t no time have we felt more confident about delivering on

our future":

As we look at our profit growth over the last decade, we see a 39% compoundedannual growth rate in our EPS since 2001. In fact, the only year we dipped below30% EPS growth was 2004, when we weathered the impact of Atkins, yet stillproduced 25% EPS growth. We believe our 32% EPS growth in 2005 is indicativeof the strength of our concept and demonstrative of the vitality of our brand. Weexpect to continue to deliver on that track record ofEPS growth of25% or moreagain in 2006, and well into the foreseeable future.

... We have become a significant company in the last few years, and yet we believethe best is still in front of us. At no time have we felt more confident aboutdelivering on our future, and at no time have we felt more ready to create thatfuture.

73. Defendants reiterated this guidance in Panera's April 13, 2006 Form 8-K filed with

the SEC.

74. By this time, defendant Shaich was only days away from completing his 70% stock

dump. In fact, from November 7, 2005 to February 15, 2006, defendant Shaich unloaded 110,675

shares of his personally held Panera common stock, reaping more than $7 million in gross proceeds.

Defendant Shaich sold nearly 70% of his stock at prices between $61.65 per share and $72.19 per

share and at an average of more than $66 per share, at near record highs for Panera stock.

75. Analysts responded favorably to defendants ' announcements, particularly to the

increase in guidance. For example, on February 10, 2006, Dow Jones Factiva emphasized defendant

Shaich's comments about 2006 EPS guidance exceeding 2005 levels:

On a conference call, Chief Executive Ron Shaich waxed enthusiastic about2005 results, calling the year "exhilarating."

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Noting that bakery-cafe unit growth was 19% last year, Shaich projected"continued strong unit growth in the high teens throughout the foreseeable future."

After the market Thursday, Panera reported fourth-quarter per-share earningsof 51 cents, matching Wall Street expectations.

The restaurateur also said it expects 2006 earnings per share to exceed2005 levels and raised its same-store sales targets . Fullyear earnings now areseen in the range of $1.91 to $1.95 a share, which includes 13 cents for stockoptions; this is up from the $1. 65 a share generatedfor 2005.

Analysts currently expect 2006 earnings, on average, of $2 a share.

The systemwide same-store sales growth assumption is now 4% to 6%, upfrom 2.5% to 4.5%.

76. In response to these announcements , shares of the Company' s common stock reached

a high of $75.09, up from the previous day's close of $72.40.

77. Defendants ' statements on February 9 and 10, 2006 were false and misleading, and

their forecasts were without reasonable basis. For the same reasons discussed in 1162-68, Panera's

aggressive store expansion strategy seriously undermined defendants' statements, and particularly

their significant increase in guidance. By February 9, defendants knew that Panera's aggressive

store expansion policy was causing its comparable sales growth to decline as a result of over-

saturation and store cannibalization - both of which undermined Panera's ability to reach its outlook.

Both existing stores and new stores were experiencing a significant drop in comparable sales due to

store cannibalization as a result of too many store openings in proximity to one another, and this

drop in comparable sales and resulting impact on margins prevented countless stores from achieving

any where close to defendants' aggressive outlook. In addition, countless franchisees were unable to

sustain Panera's aggressive strategy and, as a result, were in constant jeopardy of being reacquired

by Panera.

78. In addition to the negative effects of store cannibalization on Panera' s comparable

sales growth, defendants raised Panera's already aggressive guidance without building in new

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products, which had been a primary driver of growth in the past. Indeed, defendants stated during

the February 10 conference call regarding new products that, "[n]othing is built into our planning for

`06, the guidance that we're giving to you at this time." Recognizing that the increase of already

aggressive sales growth and earnings guidance had no reasonable basis, defendants instead noted for

the first time that they may take a 1 %-2% price increase sometime mid-year - "the intent is to take 1

to 2% of menu pricing sometime mid-year." Even a modest price increase, however, could not

support defendants' overly aggressive forecast with no new products and with the negative effect

store cannibalization was having on sales growth.

79. And even if defendants had any hope that the introduction of the Crispani product

would help drive sales growth, as analysts were predicting, defendants' guidance still had no

reasonable basis. By February 9, 2006, defendants knew that Crispani would not drive comparable

sales growth and required additional sales traffic to effect payback. As early as 4Q05, product tests

of Crispani already showed that it would do neither. Panera began testing Crispani in early 2005

through various corporate-owned and franchisee-owned stores in the Northeast. As part of this pilot

testing phase, the Company offered the product for sale in certain test locations and evaluated its

overall sales. Even during this initial phase, however, there was a strong concern among company-

owned managers and franchisees about the potential likelihood of Crispani's success. Franchisees

testing the product expressed concerns and reservations about Crispani's sustainability based on

lackluster sales results in test markets, which were transmitted to corporate daily via the stores'

MICROS Point of Sale ("POS") systems (which Shaich has admitted defendants received daily) and

were well below the level needed to maintain product viability. Indeed, defendant Shaich later

admitted in October 2007 that "[i]n 2005, our market test with Crispani produced . .. modest sales."

In addition, the massive costs associated with the launch of Crispani seriously undermined its

viability. Franchisees were required to invest significant resources to successfully launch and carry

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the product, including new deck ovens and other kitchen utensils, in-store marketing materials, and

labor costs for new dedicated Crispani personnel. These costs, combined with poor sales results,

only added to the product's early failure. The results of Crispani's test sales were so dire that they

could not possibly provide a reasonable basis for defendants' upwardly revised 2006 guidance on

February 9 and 10, 2006.

80. Analysts, however, were unaware of Crispani's poor testing results and continued to

associate the product with defendants' increase in guidance and bullish statements:

(a) On February 16, 2006, A.G. Edwards & Sons, Inc. issued an upbeat report,

reiterating defendants' increased guidance and reporting that Panera' s "[n]ew Crispani Pizza test

offerings could lead to further penetration of the dinner segment and help continue strong

earnings momentum .... We estimate this product could generate $10-$20 million in sales and

boost annualized EPS by 1-3 cents."

(b) On March 20, 2006, Oppenheimer issued a report entitled "Panera Bread

Pizza! Pizza!" stating that "[t]he company is currently testing a new pizza product in several

markets, and management seems pleased with consumers' reaction to this effort. Ideally, the

product will benefit the evening sales . It is currently offered after 4:00pm through close. There is

little added investment to deliver this product as it uses the ovens the company uses for their

Artisan baked goods."

(c) On April 19, 2006, Morgan Keegan reported that "[w]e recently updated our

Panera fieldwork in an East Coast market on the chain's new Crispani pizza. Following that visit,

our question is not if the product will be successful, but by how much? According to the chain's

website, the product is currently available in over 110 bakery cafes or 12% of the system.... We

believe Crispani will prove a resounding success. Though no new program is without risk,

management's recent and successful intros of Via Panera catering, ABF chicken, and hot Egg

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Souffles reinforce our confidence . We are initiating our FY2007 EPS at $2.55 and reiterate our

Outperform rating."

(d) On April 20, 2006, William Blair & Co reported that "[w]hile no official

announcement has yet been made, we view the likely rollout ofdinnerpizzas (now in test at about

100 locations) as afavorable near-term wildcard to ourforward compprojections , particularly as

it could serve as a catalyst in Panera's lower-volume dinner daypart."

81. On March 9, 2006, Panera filed its fiscal year 2005 Form 10-K with the SEC. In it,

defendants claimed that the average investment for a bakery-cafe was $.92 million after landlord

allowances - "[T]he average construction, equipment, furniture and fixture, and signage cost for the

66 Company-owned operated bakery-cafes in 2005 was $.92 million per bakery-cafe after landlord

allowances."

82. Defendants' statement about the cost of investing in a bakery-cafe was false. Reports

from a former Panera capital accountant noted that the cost of a bakery-cafe was approximately $1.5

million, with Panera working to negotiate with landlords for an offsetting concession payment, to

hold the "net" to $1 million. Panera could not hit the $.92 million that defendants were representing

unless landlord concessions averaged at least $500,000, which they did not. In the 2005 to 2007

timeframe, commercial real estate conditions were extremely strong and many landlords would not

have felt the need to grant so much in concessions , particularly for a non-retail anchor with a fairly

small lease space of 4,500 square feet that Panera needed. In fact, defendants told a Bear Stearns

analyst in 2005 that landlord concessions averaged only $120,000 - far below the $500,000 needed

to reach defendants' claimed investment amount. Defendants' false representation of the investment

amount artificially inflated Panera' s cash on cash return (i. e., the measure of the amount of cash that

new bakery cafes were producing), which misled analysts and investors about Panera's position as a

growth stock.

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83. On April 25, 2006, Panera issued a press release announcing its financial results for

the first quarter of 2006, the period ended March 28, 2006, and again raised its 2006 EPS outlook.

While defendants did not attribute the increase to anything in particular, defendants' later comments

on May 5, 2006 revealed that they increased it because of Crispani: "you should expect it's [i.e.,

Crispani] built into our 4.5 to 6.5 comps guidance." According to the April 25, 2006 release,

defendants raised comp sales guidance for 2006 to 4.5% to 6.5% and EPS to $1.97 to $2.00, which

represented growth of 30% to 32% over 2005 results:

"We are pleased to be able to raise our 2006 EPS targetfor the second time. Thestrength ofourfirst quarter 2006 comparable sales growth, confidence in our 2006developmentplan and our outlookfor the remainder ofthe year have allowed us toraise ourfullyear earnings per diluted share target to $1.97 to $2. 00, which wouldrepresent an increase of30% to 32%from comparable 2005 results."

The Company today raised its fiscal 2006 full year earnings per dilutedshare target to $1.97 to $2.00, which ifachieved represents an increase of30% to32% from comparable 2005 results ($1.52 inclusive of footnote stock optionexpense in 2005). The increase in the 2006 target is a result of the strength of year todate results combined with an increase in expected full year system-widecomparable sales growth to 4.5% to 6.5%. Average weekly sales for full year 2006are now expected to be in the range of $39,500 to $40,500 and operating weeks in therange of 48,500 to 49,000. Bakery-cafe openings in 2006 are expected to be 150 to160 (70 to 75 company-owned and 80 to 85 franchise-operated).

84. On a conference call the next day, defendant Yanofsky reiterated the guidance

outlined in the press release and attributed the increase in sales comps to "greater visibility on certain

initiatives that we anticipate will have a sales impact in the last quarter of the year" (i.e., Crispani).

He also expressed his gratification with targeting earnings over a "record-setting" 2005:

We arepleased today to raise our 2006 earnings targetfor a second time to a rangeof$1.97 to $2.00 perfully diluted share. This new target, ifachieved, will result inanother year ofEPS growth up 30% or more.

We're similarly raising our comp store sales targetfor 2006from the priorfrom the prior [sic] range of 4% to 6% to a new range of 4.5% percent [sic] to6.5%. This corresponds to two-year comps of 12.3% to 14.3%. This increasedcomp range comes from our greater visibility on certain initiatives that we

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anticipate will have a sales impact in the last quarter ofthe year.... We also havea newly increased target range for average weekly sales for the year, which is nowtargeted at $39,500 to $40,500.

... We're leaving the targets for the remaining two key metrics unchanged for theyear. We continue to anticipate total store operating weeks in the range of $48,500to $49,000, and, as Ron has already noted, we remain confident in our ability to open150 to 160 new cafes in 2006, 70 to 75 on the Company side and 80 to 85 by ourfranchisees.

We're expecting strong performance on allfour ofour key metrics, including two-year comps ofabout 12% to 14%. And we're extremely gratified to be able to raiseour earnings expectations so early in the year, and to be targeting such robustgrowth over what was a record-setting 2005.

85. Defendant Shaich also emphasized projected 30% EPS growth and Panera's ability to

open new stores without a depreciating impact on existing stores:

As you can see, 2006 is shaping up to be another powerful yearfor Panera. Wethink our ability to target fullyear 2006 EPS of 30% or more speaks to thestrength of this brand, the strong steady execution of our operators andfranchisees, and thefuture that is in front of us.

We are, you know, very pleased at the very high average unit volumes that we'rerunning, these $2 million plus average units and the number of units. We areextraordinarily pleased to be targeting and would be excited to accomplish 12% to14% two-year comps. I don't know that there are many people delivering thosekinds ofnumbers, at leastfor us, we would be excited by it and characterize it asdamn good. In addition, we would be very pleased to deliver 4.5%, 6.5%J%11-yearone-year comps on top of the, you know, the 6.3% comps we ran last year. I'msorry, 7.8?

But at any rate, yes on top of the 7.8 we ran last year. So we feel great about it. Ialso think we have continued, and this will be another year in which the averageweekly sales go up, if you look at it, you know, and you think about it, our averageweekly sales were $36,000 a week in `04, they were $38,300 in `05, and we'retargeting $39,500 to $40,500.

And I also believe, andyou guys can tell me different, tell me anybody whois opening 150 stores a year or significant numbers that don't see their averageunit volumes going down. At least in terms of the current - the opening year

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volumes. And ours continue to stay stable, essentially . So the bottom line ischaracterize it as you will, we feel pretty good about it.

86. The following day, Morgan Keegan issued an upbeat report raising its 2006 earning

target for Panera and focusing on Crispani as a strong sales and earnings driver:

Based on confidence in its plan, management raised its Q2 and 2006 EPSguidance.... We have lifted our Q2 EPS projection to $0.45 and the high end ofmanagement's guided range reflecting better margin projections versus previousassumptions. In addition, we have raised our 2002 [sic] EPS a corresponding $0.05to $2.02.

We continue to believe the upcoming rollout of the company's evening daypartinitiative could be one of the company's strongest sales and earnings drivinginitiatives since the brand's inception.

87. On May 5, 2006, the Company held an Analyst Day with analysts and investors.

During the Analyst Day, the Company officially announced its new Crispani product. Regarding

Crispani, defendant Shaich stated: "The truth is we 're getting 3 to 4% Crisp[a]ni, right? We

assume about half of that is incremental , but with every piece of that comes an equal amount of

soup , salad and sandwich . So the net result is 3 to 4% of sales, 3 to 4% of lift. Now that's what

we're imagining today, but again I hesitate to tell you what to expect. I mean you should expect

we're going to roll it out. You should expect that's [sic] it 's built into our guidance. And you

should expect its built into our 4.5 to 6.5 comps guidance."

88. Defendants ' April-May 2006 statements were false and misleading and without

reasonable basis. Defendants admitted that the increase in the 2006 outlook on April 25, 2006

included a potential increase in sales growth from Crispani ("you should expect it's [Crispani] built

into our 4.5 to 6.5 comps guidance"). For the same reasons discussed in 179, defendants knew by

late 2005 that product tests of Crispani had shown that it would not drive comparable sales growth

and nothing had changed by April 2006 . To the contrary , the product involved massive costs that

were not being recouped by continued weak sales. In fact, the costs were so high that Panera

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required a 2.91%-6.75% overall sales lift in the first year from Crispani just to break even on the

product, well above the purported 2% lift that defendants later claimed to have received from

Crispani. The results of Crispani's test sales were so dire that defendants' continued upward

revision of already "aggressive" 2006 forecasts had no reasonable basis.

89. Additionally, as discussed in 99[62-68 and 77-78, over-saturation and store

cannibalization resulting from Panera's aggressive store expansion strategy continued to negatively

affect the Company's comparable sales growth and seriously undermined defendants' statements and

outlook. At the same time that defendants were reassuring investors that the Company's average

unit volumes continued to stay "stable" and weren't "going down" as a result of pushing to open at

least 150 new stores in 2006, franchisees were reporting significant declines in sales growth and

were "begg[ing] them not to put stores up in our territory" because of the resulting store

cannibalization. Panera, however, continued its aggressive store expansion policy, opening stores in

saturated or near-saturated markets and requiring franchisees to do the same. As a result, both

existing and new stores were experiencing a significant drop in comparable sales growth due to store

cannibalization, which prevented countless stores from achieving anywhere close to defendants'

aggressive outlook. Panera's failing growth strategy, combined with the early failure of Crispani,

eliminated any reasonable basis for defendants' statements and 2006 outlook.

90. Analysts responded favorably to Panera's May 5, 2006 representations, and

particularly to the confidence defendants expressed in Crispani. On May 8, 2006, A. G. Edwards &

Sons, Inc. issued an upbeat report on Crispani. In stark contrast to the reports of numerous

franchisees, the report falsely claimed that Crispani did not involve capital expenditures for ovens:

"Another beautiful thing about this new product is the requirement for no additional capital

expenditures as these pizzas are baked in the existing $50,000 stone-deck ovens found in every

bakery cafe."

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91. On June 27, 2006, Panera senior management, including defendant Shaich and CFO

Jeffery Kip, presented at William Blair & Company's 26th Annual Growth Stock Conference. The

William Blair & Company report following the presentation revealed that defendants reiterated 2006

sales and earnings guidance and told analysts that Crispani would contribute 3% to comparable

sales:

Overall, the tone was very bullish, with management reiterating second-quarter andfullyear sales and earnings guidance , while indicating it is very happywith their current performance. In addition, management expressed confidence thatthe company would meet or exceed its new unit development target of 150 to 160locations for 2006, while maintaining high-teens unit growth in years ahead.

Crispani remains on track to roll out to the system in the third quarter, withroughly 70% ofcafes expected to serve theflat-breadpizzas by thefourth quarter.Management continues to expect dinner sales to increase by roughly 15% as aresult of the product introduction, up from current levels of 20% of sales, anapproximate 3% comp increase.

92. On July 17, 2006, in an article entitled Running Low on Yeast?, Barron' s issued a

negative article discussing Panera's declining same store sales, declining return on invested capital

and declining unit volumes. But defendants' positive reassurances about the strength of Crispani and

the Company's ability to meet its guidance convinced analysts to dismiss the Barron ' s article in large

part because of Crispani:

(a) On July 17, 2006, Morgan Keegan & Co, Inc. reported : "In this weekend's

Barron's, old Panera Bread "news" of slowing SSS, declining return on invested capital and high

short interest were rehashed in a negative article.... We remain comfortable with Q2 EPS of$0.45

(the high end of management 's $0.44-0.45 guidance), and our 2006 EPS projection of $2.02

though the pending rollout of the new Crispani pizza product may cause some lumpiness in

quarterly EPS results."

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(b) On July 24, 2006, the St. Louis Business Journal reported that "Panera Bread

Co. expects same-store sales to rise with the addition ofCrispaniflat-breadpizza to its bakery-cafe

menus."

93. By the end of July, defendants knew that Panera's comparable sales would decline

further throughout the year. Indeed, sales comps had weakened in April 2006 and had not recovered

materially. Defendants' solution - accelerate Crispani regardless of the cost. Accordingly, on

July 26, 2006, Panera issued a press release announcing its financial results for the second quarter of

2006, the period ended June 27, 2006 and announced that they were accelerating Crispani's rollout

despite the impact that doing so would have on Panera's stock. The press release also announced a

dramatic decline in same-store sales (a year-over-year decrease for the second quarter from 9.4% in

2005 to 3.2% in 2006, and for period 7 from 7.9% in 2005 to 1.7%-1.9% in 2006), and reduced the

low end of the Company' s earnings guidance by $0.04 (from $1.97 to $1.93 ). The press release

couched the negative developments in a positive light, adding that "we expect to meet the targets for

our 2006 key metrics":

"We expect to meet the targets for all ofour 2006 key metrics . As a result, 2006 isshaping up to be another strong year . We are extremely pleased to be in position todeliver 27% to 32% EPS growth while making investments in our business whichwillfuel our ability to deliver 25% EPS growth for theforeseeable future."

Business Outlook - Fiscal 2006

Based on its strong operating results, the Company expects to achieve itspreviously established full year metrics targets . They are: full year system- widecomparable bakery-cafe sales growth of4.5% to 6.5%; average weekly sales for fullyear 2006 in the range of $39,500 to $40,500; operating weeks in the range of48,500to 49,000; and bakery-cafe openings of 150 to 160 (70 to 75 company-owned and 80to 85 franchise-operated). The Company is particularly pleased with the solid paceof new bakery-cafe development in 2006 after an extremely strong second quarter(43 new bakery-cafes in the second quarter of 2006 versus 25 new bakery-cafes inthe comparable period of 2005).

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Today, the Company is projecting comparable bakery-cafe sales growthforperiod 7 (thefour-weekperiod ending July 25, 2006) in the range of1.7% to 1.9%.Period 7 projected results are below recent trend, and represent two- year compsales of9.6% to 9.8%. This is approximately three percentage points below secondquarter two-year comps. Uncertainty also exists as comp salesfor the second halfof the year are expected to be materially influenced by sales results of the newCrispani(R) product, currently in operational rollout.

In addition, the gradual introduction of Crispani(R) is progressing morerapidly than planned, bringing certain startup expenses, such as training andinitial marketing costs, forwardfrom thefourth quarter to the third quarter. Theearlier operational rollout will lead to somewhat reduced margins in the third quarter,owing to both the cost shift between quarters in the second half, and the longerperiod of time cafes with Crispani(R) will operate before full marketing support,which is planned to begin late in the third quarter, is initiated.

In acknowledgement ofthis greater uncertainty relative to comp sales andCrispani(R) impact, the Company today widened itsfiscal 2006fullyear earningsper diluted share target to $1.93 to $2.00. If achieved, this EPS target wouldrepresent an increase of 27% to 32% from comparable 2005 results ($1.52inclusive offootnote stock option expense in 2005).

94. On a conference call the same day, defendant Shaich told investors that they

continued to believe that Panera would achieve 2006 guidance and said that Crispani was meeting

expectations:

Let me begin by stating that we are pleased with the company's second quarterperformance. Despite the tough operating environment, our key metrics have showncontinued strength and we continue to believe we will meet ourfullyear targets oneach....

As you all know, our comps in Q2 came in at 3.2% which was within our 3 to 4% Q2target range. This represents two-year comps of 12.6%, based on three weeks ofcomp store sales results in period 7, we now anticipate G-7 comps to come in at 1.7%to 1.9%. This represents two-year comps of 9.6% to 9.8%....

We believe, Crispani will ultimately have a positive impact, a positive lift of 2 to4%. But at the same time, we're somewhat uncertain exactly how it will impact usin quarters three and in quarters four, as we complete our rollout and begin ourmarketing across those quarters.

We believe that Crispani will give us 2 to 4% left incremental. That's ourposition.... I think more empirically, the question you're asking - we're getting

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extraordinarily positive response in our research. We have something above 85%ofconsumers are highly pleased with this product and the quality of it.

And so, I think that from every perspective at the highest level, our Crispaniprogram is going exactly as our research, and our seven or eight different tests thatwe ran would have indicated . And though there is a lot of moving pieces, andthough it's something that's new, and it's not something that we can simply, -- tellyou add one plus one equals two, it strikes us that everything is steady as you go, andas we said in prior releases relative to it.

95. Defendant Yanofsky did the same, telling investors that Crispani would help Panera

produce 4.5% to 6.5% comps. He added that any downside from accelerating Crispani would be

recaptured in 4Q06:

Another significant factor in the second half comps is the introduction of Crispani,and the impact it will have on building our evening day part. In market testing andnow operational rollout, were [sic] gratified to see our customer's enthusiasm forCrispani in particular, and more broadly for Panera as an evening destination. Sowe're optimistic that when we initiate full marketing support for Crispani in Augustand in September, we will see customer acceptance reflected in our sales.

Crispani is the most significant newproduct introduction ofPanera in manyyears.One implication of this, though, is that this single initiative, one of a more substantialimpact on our near term results than is typical in our concept. To summarize ourview of the second half of the year, we remain confident of the positive impactCrispani will have and ofour ability to producefull year comps of4.5% to 6.5%.The stability of our targets for key metrics demonstrates that there is nofundamental shift in our anticipated results.

The biggest factor in Q3 results is, of course, the Crispani rollout.... Today, closeto 40% of our system cafes, and virtually all company cafes are already live withCrispani; another 30 to 35% will start up in the next nine weeks.

There are two economic impacts on this earlier rollout in Q3 though, which I'llnow detail for you. The first, is a timing effect. Certain costs that would havefallen predominantly in thefourth quarter, are now expected to be incurred in thethird quarter. We estimate that $2 million to $3 million ofmarketing costs, andabout $1 million in training and other operational startup costs will be incurredone quarter early. This will have an unfavorable impact of $0.06 to $0.08 pershare in the third quarter, but an offsetting positive effect on Q4.

The second economic impact from the early rollout is a net cost to the company, nottiming. We chose to move up the operational introduction more dramatically than

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the marketing launch. As a result, more cafes will be operatingfor a longerperiodof time with Crispani in its pre-marketing mode. During this period, these cafeswill experience all the incremental costs with minimal incremental sales. This isgoodfor training, but badfor margins.

... To summarize, our third quarter EPS targets include $0.06 to $0 .08 of costsmoved forward into the quarter from Q4, and a net $0.02 to $0 .04 earnings hit frommargin loss due to accelerated introduction of Crispani.

96. In response to defendants ' July 26, 2006 announcements, analysts discussed Panera's

weakening sales growth and the uncertain impact of Crispani. Defendants' partial disclosure of

Panera's projected earnings miss and the impact of Crispani's costs on margins caused the price of

Panera common stock to fall $7.34 per share, or approximately 12%, to close at $51.93 per share, on

extremely heavy trading volume. Panera's shareholders lost over $220 million in market

capitalization as a result of defendants' decision to accelerate Crispani's launch. Panera's stock

price nevertheless continued to trade at artificially inflated prices throughout the remainder of the

Class Period due to defendants' positive reassurances regarding Panera's business and ability to

"meet the targets for all of our 2006 key metrics," and defendants' confidence in the "positive

impact" of Crispani sales on comparable sales growth.

97. Defendants' statements on June 27 and July 26 about Panera's guidance, and the

contribution that Crispani would make to that guidance, were false and misleading. For the same

reasons discussed in 1179, 88, defendants knew that Crispani would not drive comparable sales

growth anywhere close to what defendants were claiming, and required additional sales traffic to

affect payback, which it was not getting in any meaningful amount. As early as 4Q05, product tests

of Crispani already showed that it would do neither. Tests of Crispani in 2005 and results in other

areas in the first half of 2006 showed lackluster sales, which were transmitted to corporate daily via

the stores' MICROS POS systems and were well below the level needed to maintain product

viability. Indeed, defendant Shaich later admitted that "in 2005, our market test with Crispani

produced .. . modest sales ." He also admitted that "Crispani sales never grew." In addition, the

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massive costs associated with the launch of Crispani, such as purchasing new deck ovens and other

kitchen utensils, in-store marketing materials, and labor costs for new dedicated Crispani personnel,

seriously undermined its success. These costs, combined with poor sales results, only added to the

product ' s failure. Indeed, defendants later claimed that the sales lift from Crispani was purportedly

2%, which, even if true, was well below the 2.91%-6.75% required in the first year to break even on

the product. The results of Crispani's test sales were so dire that defendants' "aggressive" 2006

forecasts had no reasonable basis.

98. Despite Panera's mixed 2Q06 results, analysts were still convinced by defendants'

positive reassurances about the strength of Panera's business, particularly Crispani, and its ability to

meet its long-term forecasts, and reported favorably on the stock:

(a) On July 26, 2006, William Blair & Company reported: "[W]e remain

optimistic that the launch of Crispani ... will bolster top-line results, likely benefiting third-quarter

comps by 1 % and fourth-quarter comps by 2%.... With management stillprojecting a 2% to 4%

unit-level sales liftfollowing the introduction, we project third-quarter comps of3%followed by

what we believe could be a conservative fourth-quarter comp projection of4%."

(b) On July 27, 2006, Canaccord Adams reported "[t]he negative EPS impact

from the acceleration of the Crispani introduction is not a significant issue, in our opinion....

Crispani remains a significant opportunity in Q4as thefaster than expected roll-out, followed by

a full launch and marketing effort early in the quarter, should drive comps."

(c) On July 27, 2006, Morgan Keegan reported "While the Crispani roll-out is

clearly creating some near-term lumpiness with regards to SSS and EPS, we believe any potential

short-term impact is well offset by the product's longer-term benefits."

99. On August 15, 2006, Panera announced that second-quarter net income grew to $14.1

million, or $0.44 per share, from $10.4 million, or $0.33 per share, during the same period in the

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prior year. Panera also reiterated its full year EPS guidance of $1.93-$2.00. In response to this

announcement , the Company' s stock rose over 10% over the next two days, to close at $53.46 on

August 17, 2006.

100. Analysts again responded favorably because of Crispani. On September 6, 2006,

Canaccord Adams reported that "we are confident that accelerating trends will materialize once the

rollout of Crispani reaches critical mass and consumers are informed of the new product

offering."

101. On September 13, 2006, PR Newswire US reported on the praise that defendant

Shaich was giving to Crispani as staying true to Panera's brand - "`Crispani responds to our guests'

desire for a quick, flavorful, wholesome dinner menu option that stays true to Panera 's commitment

to offering fresh meals featuring the best ingredients served in a welcoming setting' .... `We are

confident that the special quality of our crust and toppings will make Crispani a great dinner

experience for our guests." These statements were the polar opposite of the skepticism that Shaich

had expressed about Crispani at a two-day company meeting in spring 2005 - Shaich was "`not

convinced Crispani was the right product and right direction for the Company,"' and was "`not sure

the product [i.e., Crispani] align[ed] with [Panera's] brand."'

102. On October 25, 2006, Panera issued a press release announcing 3Q06 results. The

release noted that Panera would be "at the low end of the revised target set in July" but added that

"we are pleased to be on track to both achieve our initial targets set at this time last year and

exceed our long-term EPS growth target of 25%." The release said nothing about the fact that

defendants' initial target did not include new prices and products. The release also included for the

first time Panera's outlook for 2007, which they claimed would grow 22% to 26% over expected

results for 2006:

"2006 is shaping up to be another strong year, with full year earnings growth at26% to 27%. Although we are disappointed that 2006 results are expected to be at

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the low end of the revised target we set in July, we are pleased to be on track toboth achieve our initial targets set at this time last year and exceed our long-termEPS growth target of25%. In addition, we believe that the development activityand concept evolution we have executed in 2007 will be instrumental in helping usmeet our earnings growth targets for theforeseeable future."

Business Outlook - Q4 2006

The Company today established its fourth quarter 2006 earnings per dilutedshare target at $0.67 to $0.68, which would represent an increase of29% to 31 % overthe comparable period in 2005.. .

Ifthe Company achieves itsfourth quarter targets, itsfiscal2006full yearearnings per diluted share would be $1.92 to $1.93, an increase of 26% to 27%overfiscalyear 2005 ($1.52 inclusive of footnote stock option expense), and its full-year 2006 key metrics would be as follows: at least 160 total new bakery-cafeopenings (70 Company-owned and 90 franchise-operated ), system-wide comps of4.4% to 5.0% (two-year comps of 12.2% to 12.8%), system-wide average weeklysales of $39,250 to $39,500, and 48,862 to 48,912 operating weeks.

103. On a conference call the same day, defendant Shaich praised Crispani as meeting

expectations but disclosed that Panera was not seeing underlying traffic growth:

Let me now turn our attention - our discussion at Crispani in the evening. Ourinitial read is that Crispani is giving us the 2 to 4% comp lift per cafe that weexpected. This is the equivalent of 800 to $2,000 a week in sales. Now let me add,it's too early to tell how Crispani ultimately land, but we are very pleased with wherewe stand at this point....

Result, bottom line is that 1 to 2% ofour comps are attributed to the Crispani inperiods nine and ten, when taken together.

Simply put, we didn't expect to encounter the more normalized comps that we did inQ2 and Q3. Yes, we are disappointed to now be targeting at the lower end of ourupwardly revised range. But taken as a whole, 2006 is shaping up to be a very, verystrong yearfor us. Our evening daypart has been launched.

More importantly, inclusive ofthe costs ofthat launch, we currently project that2006 EPS will be up 26% to 27%, easily exceeding our 25% long-term EPSgrowthtarget.

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... As we go forward since the remainder of this year, we probably have taken a bitof a more conservative stance. There was a time probably, there was a time wherewe thought that was possible we might get 2% to 5% on top of - 2% to 4% fromCrispani on top of underlying traffic growth of 2% to 4%. We haven't seen thatunderlying traffic growth.

104. On the same October 25, 2006 earnings conference call, defendant Yanofsky stated

that Crispani was adding 2% to 4% to comp sales and that a price increase would also contribute to

comp sales:

As Ron mentioned, we are seeing a 2% to 4% liftfrom Crispani, which is in 75% ofour cafes. So this accountsfor 1.5% to 3% comp. Add to that, 1.5% ofprice in Q4and modest traffic increases in our non-evening daypartand that brings to you our3% to 5% target.

105. Analysts attributed defendants' announcement of downwardly revised guidance to

weakening new store productivity and significant ongoing Crispani expenses . As a result of the

foregoing partial disclosures, the Company's stock fell 6% to close at $64.41.

106. Despite Panera's mixed 3Q06 results, analysts continued to be convinced by

defendants' positive reassurances about the strength of the Company's business, particularly

Crispani, and reported favorably on the stock:

(a) On October 25, 2006, William Blair & Company reported that: "Crispani

(now in 75% of cafes and benefiting from full marketing support) is meeting top-line expectations,

generating a 2% to 4% lift in sales."

(b) On October 26, 2006, Canaccord Adams reported: "The initial results on

Crispani appear favorable as it is giving each cafe a 2%-4% comp lift since marketing support was

begun late in Q3.... We believe that the relatively flat traffic trends (excluding Crispani lift)

currently being experienced are insignificant given that price and Crispani could drive a 5%

improvement in comparable store sales trends during 2007."

107. Defendants' statements that Panera was "on track" to meet its initial targets and its

projection for the remainder of 2006 and 2007, and its statements about Crispani were false and

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misleading. By 3Q06, it was clear that defendants pinned Panera's hopes on Crispani. But while

defendants reassured investors that Crispani was driving sales growth, giving Panera a2%to 4% lift

in sales , defendants knew by early- to mid-2006 that Crispani had alreadyfailed in numerous stores.

Crispani was launched in stores nation-wide on a rolling basis, beginning in late 2005/early 2006 in

the Northeast and continuing to the West. By early to mid-2006 , several stores, including those in

the Northeast and in Missouri, had introduced Crispani. Similarly, corporate-owned stores in

St. Louis launched Crispani in July 2006. According to a General Manager in St. Louis, it became

very clear within a month of the launch that Crispani simply was not drawing in customers during

the evening hours as Panera had hoped. Defendant Shaich even admitted in February 2008 that

"Crispani sales never grew."

108. As the results of the 2005 test markets had revealed, Crispani did not and could not

convert Panera from a lunch destination (with 40%-50% of Panera's sales made during the lunch

hour) to a dinner destination. Franchisees experienced the same. For example, Crispani was

launched at a Pennsylvania franchisee in early 2006. Panera had established sales requirements of

120 Crispanis per week but the "break even" sales point for Crispani, as determined by top ranking

personnel at the Pennsylvania franchisee, was 90 Crispanis per week. In reality, Panera had to sell

pizzas and bring in new customers at the same time to secure payback. However, once Crispani was

launched, most of the Pennsylvania franchisee stores obtained sales averages of only 85 Crispanis

per week, which was not only far below Panera's expectations, but also below the minimum internal

requirements to break even. As such, the Pennsylvania franchisee was losing money on Crispani by

early- to mid-2006. Indeed, defendants later claimed that Panera received a purported 2% lift in

sales from Crispani, which, even if true, was at the bottom of the 2%-4% they were saying publicly,

and below the 2.91%-6.75% lift required for the product to break even. Reports from Panera

employees and franchisees reveal that defendants were not even seeing the represented 2% lift.

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109. As a result of these lackluster sales, defendants' forecasts and positive statements, and

particularly defendants' upward revision of guidance on April 25, 2006, which was based on the

potential lift from Crispani sales, were without reasonable basis. Given these lackluster sales,

defendants knew that Crispani would not be "ìnstrumental in helping [Panera] meet [its] earnings

growth targets for the foreseeable future"' because the Company and its franchisees were also

experiencing massive expenditures associated with the Crispani launch. Franchisees, which could

not opt out of the initiative, were required to incur the overwhelming majority of expenses for new

equipment, kitchen utensils, in-store marketing materials, and training. In addition, according to

franchisee operators, many stores were required to purchase new $37,000-$50,000 Artisan Bread

deck ovens, as the Crispanis could not be cooked in the stores' older Sourdough Bread ovens. All

stores also incurred additional labor costs for new dedicated Crispani personnel. These employees,

sometimes as many as three at any given time, were restricted to only preparing Crispanis, and

required special training to prepare the product. According to a franchisee manager, franchisees

were forced to spend as much as $100,000 just to hire and train the additional staff that was

necessary for the Crispani launch. This additional labor cost alone amounted to an increase of 100

basis points ($20,332 per store) or about $20 million per year every yearfor the system.

110. Defendants knew as early as 2005 that Crispani's "modest sales," which persisted

throughout 2006, were not covering Crispani's costs and belied any belief that it could be accretive

in any way to defendants' earnings projections. Both company-owned stores and franchisees were

losing money from the outset and defendants' rush to offset its declining same-store sales growth

further exacerbated Crispani's poor results. In fact, store-level personnel did not receive adequate

training because defendants accelerated the product's launch, contributing to Crispani's early failure.

The failure to properly prepare the Crispani was a recurring problem during the time the product was

offered. The massive cost to launch the product, combined with dire sales results, caused many

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franchisees grave concerns about the Crispani product because they did not believe the expenses

would be recouped quickly, if at all. In fact, according to a franchisee in attendance , many owners

and operators openly expressed these concerns as to the launch of Crispani to defendants during a

three day Round Table meeting in February/March 2006. Defendants continued to receive similar

reports throughout the year.

111. Panera's marketing efforts only exacerbated these costs. In 2006, after the cafes had

installed equipment and hired/trained Crispani staff, Panera began a major marketing initiative

whereby both corporate and franchisee-owned cafes offered free Crispanis to customers. Millions of

coupons were sent by Panera's marketing department via direct mail to households throughout the

country. Each coupon could be redeemed for one free Crispani at any Panera cafe. With the

exception of actual food costs associated with the Crispani giveaways, franchisees were required to

absorb all of the operational costs during this "free Crispani" marketing phase. In addition, stores

were required to provide "sampling" of the product, where bite-sized portions of Crispani were

offered to patrons for free. Franchisees reported that sampled and free Crispanis accounted for the

majority of nightly Crispani "sales." As a result, the labor costs during this timeframe skyrocketed,

and no Crispani sales were being initiated to counterbalance the additional labor.

112. Despite the coupon and sampling push, according to franchisee operators, Panera's

marketing efforts to support the Crispani launch and on-going sales throughout 2006 were

insufficient to drive sales, further adding to the product's failure. Panera did not provide the

appropriate in-store advertising and marketing materials, or was significantly delayed in doing so.

These materials were supposed to be placed in prominent locations throughout the stores to raise

customer awareness of the new product, but many stores did not receive the necessary materials.

Without these materials, customers were not generally made aware of the introduction of this major

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new product, or that it was only being sold during select hours of the day, and as a result, did not buy

the product.

113. As a result of Crispani's meager sales, which defendants led investors to believe

would drive 2006 sales growth, combined with Panera's insufficient marketing efforts and Crispani's

massive costs, defendants' forecasts and positive statements had no reasonable basis.

114. Additionally, while defendants reassured investors that Panera would achieve

aggressive full year sales growth, which defendants upwardly revised from 2.5%-4.5% to 4.0%-6.0%

in February, and then again to 4.5%-6.5% in April, and then to 4.4%-5.0% in October, Panera's

stores continued to experience significant drops in sales growth due to store cannibalization,

resulting from the Company's aggressive store expansion strategy. By 3Q06, several markets,

including Jacksonville, Raleigh/Durham, Chicago, the District of Columbia, Boston, Detroit,

Winston-Salem, Greensboro, Tampa, St. Louis, Baltimore, Pittsburgh, Cleveland, Kansas City,

Orlando, Milwaukee, Columbus, Ohio, and Indianapolis were over-saturated using defendants'

aggressive measure of one store per every 100,000 people. Using a more reasonable measure of one

store per every 150,000 or 200,000 people, Panera's over-saturation was far worse, with 25 and 34

of the Nielsen Top 50 markets over-saturated, respectively, and with 17 at a factor of two times or

more of what would be a more prudent standard. Despite this saturation, however, Panera continued

to push its aggressive store expansion policy, opening stores in saturated or near-saturated markets,

and requiring franchisees to do the same.

115. Panera's expansion policy was so aggressive that many franchisees were falling short

of achieving the level ofnew store openings that Panera demanded. Franchisees that were unable to

meet Panera's aggressive goals faced being acquired by Panera or having other stores enter their

"area" and directly compete with the existing store, further exacerbating the sales cannibalization. In

fact, Panera purchased 13 stores from franchisees in 2006 . Franchisees had such difficulty meeting

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Panera' s aggressive expansion policy that by late 2006, company-owned stores represented over

38% of Panera ' s total stores, well above the one-third standard set by the Company, and this number

continued to grow throughout the Class Period. The Company's increasing reliance on company-

owned store growth only further impacted corporate level returns. The effect of store

cannibalization on sales growth was so severe in 2006 that defendants' aggressive forecasts and

positive statements had no reasonable basis.

116. In addition to loss of sales due to store cannibalization, Panera's aggressive growth

strategy continued to negatively impact the Company's corporate level returns. Unbeknownst to

investors, in order to maintain its aggressive growth strategy, the Company was opening stores in

immature areas (i.e., "green-field" locations), which they later admitted by altering the company's

site selection standard - "We made a decision recently to tighten up our real estate decision-

making process ." As a result , the Company's margins and resulting restaurant level margins

declined from 21.16% in 2003 to 18.50% in 2006. Correspondingly, with higher investment costs,

restaurant cash on cash returns (i.e., investment return) were lower than the company advertised.

Defendant Shaich admitted in 2008 that Panera's aggressive store expansion caused return on

invested capital ("ROIC") to fall in 2006 and 2007 and that "new cafes [were] underdelivering on

their returns." Additionally, defendants later admitted that on a site selection ranking scale from 1 to

5 (1 being the highest rating) in 2006 and 2007, approximately 20% of Panera's new unit openings

were ranked 4 or 5 and that "the larger year-over-year mix of relatively younger stores as a

percentage of our total store base was negatively impacting our margins." Given defendants'

increasing reliance on immature stores, defendants had no reasonable basis for forecasting even the

lowest range of its earnings guidance.

117. On December 6, 2006, Panera issued a press release announcing that system-wide

comparable bakery-cafe sales increased 1.4% for the five weeks ended November 28, 2006. The

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Company also issued revised Q4 target comps of 1.5% to 2.3% (two year comps of 9.1% to 9.9%)

and lowered target Q4 EPS to $0.62 - $0.65, implying a revised targetforfull year EPS of$1.87-

$1.90. While defendants attributed the decline partially to "storms in the Midwest," analysts

attributed the lowered guidance to weaker than expected comparable sales. As a result of Panera's

lower fourth quarter and 2006 full year profit forecasts , Panera shares fell 3.2%.

118. Based on defendants' assurances that Crispani would drive sales growth, however,

analysts continued to report favorably on the stock. For example, on December 6, 2006, CIBC

reported: "Longer-term story is still intact.... While mgmt has not revised its comments on `07,

we don 't see a reason that it won 't be within the prior range of22-26% EPS growth." Canaccord

Adams issued a similarly upbeat report on December 7, 2006, stating: "Despite the revision to

guidance, we continue to believe that the development ofCrispani and the dinner daypart are the

primary near-term drivers of the shares and offer considerable long-term opportunity for

improved unit volumes and earnings ." These analysts obviously were not aware of the poor

Crispani results or that defendants were receiving information showing that Crispani sales were far

below expectations.

119. Defendants met with analysts in January 2007 (after reporting dismal results for the

four weeks ended December 26, 2006) to allay concerns about Panera's business and outlook. At

these meetings, defendants told analysts that there were no changes to its growth plans. In fact,

Deutsche Bank reported on January 25, 2007, that: "Following a meeting with management, we

came away more comfortable with management's commitment to the long-term growth plan (17%

unit growth, 2%-5% comp growth, 22%-26% EPS growth)." CIBC reported the same on

January 28, 2007 - "[T]here was nothing that would change management's view about either `07

unit openings or the concept's long-term growth potential," and "[g]iven that capitulating on long-

term unit growth is the number one fear in owning a growth stock, we think the absence ofany

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change in growth plans for Panera will be viewed as a positive for the shares." By this time,

defendants were taking desperate steps to salvage Crispani, including colored menus to attract

customer attention. Defendants took these steps because Crispani sales dropped after the free

coupon blitz in 3Q06. In fact, defendants later admitted in October 2007 that sales of Crispani

dropped significantly as early as November 2006 - but told no one:

Why, then, do we believe our comp performance will improve in periods 11 and 12[i.e., November and December 2007]? ... [I]n period 10 [of2007] we were runningover the second month in which we had substantial marketing support ofCrispaniin 2006. In periods 11 and 12 last year, comps relaxed by about 175 basis points.So we expect to strengthen against that easier comparison in the latter part of thisquarter.

In other words, Crispani sales growth collapsed by defendants' own admission in November (i.e.,

period 11) of 2006.

120. On February 9, 2007, the Company issued a press release announcing its financial

results for the fourth quarter and year ended December 26, 2006. For the quarter, the Company

reported earnings per diluted share of $0.59 and net income of $19 million, EPS of $1.84 and

system-wide comparable sales growth of 4.1 % for the year ended December 26, 2006, below the

revised target on December 6, 2006for full year EPS of$1.87-$1.90 and sales comps of 4.4%-

5.0% and at the low end of the target that defendants set in November 2005. To blunt the impact of

this negative announcement , the release focused investors ' attention on strong projected 2007

results. It also told investors that Crispani expenses were impacting margins but mentioned nothing

about the product's weak sales and added that Crispani's costs were offset by a reduction in bonus

expense. In other words, the results that Panera did reach resulted, not from operational growth, but

instead from a last minute decision to cut bonuses:

"We now project comp stores sales increases for the first quarter of 2007 to be flat tomodestly positive (over first quarter 2006, when we enjoyed record comp salesgrowth of 9.0%) and our earnings growth to reflect the attendant lack of salesleverage. We expect our earnings growth to strengthen markedly as the yearprogresses into the second quarter and third quarter. Tactically 2007 will be a year in

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which we focus on further differentiation to maintain our competitive advantage,aggressive development while protecting our industry leading average weekly sales,and 2% to 4% comps, all the while generating leverage from our fresh dough systemand our G&A. Taken as a whole, 2007 will be yet another strong yearfor Paneraand one in which the Company will generate earnings growth in the low-to-midtwenties percent."

[T]he rollout of the evening daypart, which began in the third quarter of fiscal 2006,continued to impact restaurant margins unfavorably in the fourth quarter. Thismargin unfavorability was offset in part by leverage against the Company's generaland administrative expenses , driven in part by lower bonus expense as a percent ofsales infourth quarter 2006 (given the Company's corporate performance in fiscal2006) as compared to the fourth quarter of 2005 when the company had higher bonusexpense (given the Company's corporate performance in 2005).

2007 Business Outlook

The Company is also today setting an earnings per diluted share targetforfiscalyear 2007 of$2.26 to $2.34, representing growth of23% to 27% over our 2006EPS and 21 % over our 2006 EPS excluding the one-time charge of $0.03 per dilutedshare stemming from the Paradise acquisition.

Thefullyear 2007 target assumes system-wide comparable sales growth of2% to 4%, system-wide average weekly sales of $39,000 to $40,000, and system-wide operating weeks of 56,750 to 57,250. Bakery-cafe openings are expected to be170 to 180 (85 to 90 Company-owned and 85 to 90 franchise-operated) compared to155 (70 Company-owned and 85 franchised-operated) in 2006.

121. On a conference call the same day, defendant Yanofsky sent the same message about

Panera's projected growth for 2007:

We see `07 shaping up as another year of strong revenue and strong earningsgrowth. We are today setting an earnings per share target of $2.26 to $2.34for2007. This represents targeted growth of23% to 27% over our 2006 EPS, and 21%to 25% over our `06 EPS excluding the $0.03 one-time charge from the Paradiseacquisition.

As always, we base our target on projected performance on key metrics which we areestablishing today as follows: Comp store sales growth of2% to 4%for the year,which represents a two-year comp ofabout 6% to 8%; 170 to 180 new bakery-cafeopenings consisting of 85 to 90 company cafes and 85 to 90 franchise cafes for a unitgrowth rate of 17 to 18%; average weekly sales of 39,000 to 40,000, which is a

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change of negative 0.5% to positive 2% over 2006 AWS of 39,200. We're targetingAWS for new bakery-cafes in the range of 35,000 to 37,000, which is the samestrong opening level that we've been enjoying for about 6 years. And finally, we'retargeting store weeks of 56,750 to 57,250.

122. For his part, defendant Shaich continued to convince investors that the prospects for

Crispani had not changed. He did so despite the fact that internal reports informed him that Crispani

sales were well below expectations for the entire Company:

We are seeing the 2% lift in our overall business that we expected Crispani woulddeliver through our evening-day part. Frankly, Crispani sales are not meeting ourhighest hopes and expectations, but they 're doingjustfine ... In short, Crispani isperforming well andperforming as expected.

That said, the real issue in the falloff in our comps in 2006 has been the weakness inlunch comps.... What constrained our comps in Q4 was a modest falloff in lunchtransactions.

[T]he dinner set section has been very high . Very high purchase - repurchase intentamong people who have had the Crispani. Particularly among our target customers,that is to say Panini - Crispani is working particularly well among Panera's targetcustomers, and with high purchase intents, and I mean 75, 80% purchase reintent[sic], those kinds of scores in the evening. We think, across a whole number ofmeasures, very high satisfaction in the evening. I think that - that's one way we lookat it, another is to go visit stores. I've probably been in 200 cafes in the last three orfour months in the evenings as part of this process and you just can feel the energy.It's a different place. And that energy is part of what we're trying to create. And wefeel very positive about that.

123. Defendants also admitted on the call that new stores were, in fact cannibalizing sales

in existing stores. They dismissed it, however, as built into their comp guidance "over years now":

ANALYST: ... Ron, do you see that the new units that you're opening, is that aproblem, in your view, as far as cannibalizing restaurants? Playing into your same-store sales trend?

NEAL YANOFSKY: ... We don' t, one of the ways we look at this is, we look atthe saturation that we have in different markets [inaudible] penetration and we findthat some of the markets where we have highest penetration per capita, markets likeour home market in St . Louis or Columbus or now Jacksonville , they' re starting toget up there . Those are some of our strongest markets in terms ofAWS and in terms

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of comps. So, there's certainly individual cases where we elect that there's a greatmarket area for us and we elect to put a cafe a mile down the road from another cafeand it may affect that individual one for a short period of time, but we have yet todiscover a single market where we're experiencing systemic cannibalization in themarket that affects our comps.

RON SHAICH: I would add to that, Bob, that cannibalization does happen. Ithappens for the first 12 months ofa new store, affecting an existing store. Butthat's been essentially built into these comps over years now. Three, four, fiveyears. That is a real phenomenon, it will continue, but it's implicitly built into thisand we find that 18 months later they'll pop back.

124. Defendants' February 9, 2007 announcement of 2006 EPS of $1.84 was barely at the

guidance they had given over a year earlier in November 2005 of $1.84 to $1.89, and was well below

any of their raised guidance throughout the year. But meeting the very lowest end of their initial

guidance was not due to operational growth. Rather, defendants were able to meet this figure only

because of last minute reductions in executive bonuses and an unanticipated 1.5% price increase in

June 2006, which also helped increase Panera's comparable sales to 4.1 %. Neither of these factors

were included in defendants' November 2005 initial outlook. Indeed, defendants were telling

analysts in late 2005 that they had no plans to increase prices. And the reduction in bonuses, which

dramatically reduced G&A expense in 4Q06, boosted the Company' s EPS by as much as $0.04 per

share. Without this reduction in expense and increase in prices, Panera would have dramatically

missed even its initial outlook.

125. Defendants' February 9, 2007 representations and announcement of 2006 EPS of

$1.84 (below the revised guidance of $1.87-$1.90) and system-wide sales comparisons of 4.1%

(below the revised guidance in October 2007 of 4.4%-5.0%) partially revealed the severe decline in

sales growth and serious impact of store cannibalization on sales. As a result, the price of Panera

stock fell from a high of $58.98 on February 9, 2007 to a low of $56.78 on February 12, 2007.

Panera's stock price nevertheless continued to trade at artificially inflated prices through the

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remainder of the Class Period due to defendants' positive reassurances regarding Crispani and its

contribution to Panera's growth.

126. On February 26, 2007, Panera filed its fiscal year 2006 Form 10-K with the SEC. In

it, defendants claimed that the average investment for a bakery-cafe remained at $.92 million after

landlord allowances - "[t]he average construction, equipment, furniture and fixture, and signage cost

for the 70 Company-owned operated bakery-cafes opened in 2006 was $.92 million per bakery-cafe,

after landlord allowances."

127. Like the same in Panera's 2005 Form 10-K, this statement was false. According to a

former Panera capital accountant, the cost of a bakery/cafe was approximately $1.5 million, with

Panera working to negotiate with landlords for an offsetting concession payment, to hold the "net" to

$1 million. Panera could not hit the $.92 million that defendants were representing unless landlord

concessions averaged at least $500,000, which they did not. In 2006 and 2007, commercial real

estate conditions continued to remain strong and many landlords would not have felt the need to

grant so much in concessions, particularly for a non-retail anchor with a fairly small lease space of

4,500 square feet that Panera needed. In fact, defendants told a Bear Stearns analyst in 2005 that

landlord concessions averaged only $120,000 - far below the $500,000 needed to reach defendants'

claimed investment amount. Defendants' false representation of the investment amount artificially

inflated the cash on cash return (i.e., the measure of the amount of cash that new bakery-cafes were

producing), which misled analysts and investors about Panera's position as a growth stock.

128. On April 25, 2007, the Company issued a press release announcing its financial

results for the first quarter ended March 27, 2007 and reiterated 2007 EPS guidance of $2.26-$2.34.

On a conference call that same day, defendant Shaich told investors that Crispani was breaking even

and that he felt "good" about its performance. And while he would later admit that Panera had

"sacrifice[d]" Crispani for a summer salad celebration, he told investors the exact opposite - "And I

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think that I'd sooner cut it than I would ever start to adjust it down where I'm not even able to do a

good job at it."

Crispani is for us essentially breaking even or barely breaking even, somewherearound there. To us, thatfeels real good. We've got this thing up and going. It'sin space, it's in orbit. That's a major initiative. It's a tough thing to build anotherday part. Very few companies do that. I think we recognized that when we wentinto it. And I think we're - we've made much progress. I think the key for us as ithas been with almost everything that Panera has done is to let this thing groworganically, to let it build and to move forward. The key to that is the quality ofexecution. The key to that is the quality day in and day out of what we do andhaving a positive customer experience that drives them to return.

So in that context, our response to it is rooted in a view that to be reactive may bethe mostfoolish thing in it. And I think that I'd sooner cut it than I would everstart to adjust down where I'm not even able to do a good job at it . And so Iwouldn't have an expectation of us making marginal improvements on the laborfront. I would have an expectation of us continuing to try to figure out how we driveit to what we think is the opportunity of this. I think that what we now have on ourmenu is a product with tremendous untapped potential. Let's see if we can get tothat.

129. On the same conference call, defendant Yanofsky added:

So we see Q2 as the pivot for 2007. We expect to enjoy a return to comp growth anda return to our history of earnings growth. In short, we expect it to be a transitionalquarter that moves us into a stronger second half of the year.

130. By this time, defendants had stopped sending Ranking Reports to its stores regarding

Crispani because Crispani sales had fallen so far below expectations.

131. Despite mixed 1 Q07 results , analysts continued to respond favorably to defendants'

representations. For example, on April 25, 2007, Deutsche Bank reported: "[T]he company did not

change annual guidance; we believe the market willfind reliefin this . Bottom line, an inflection

point is indeed here - in our view, this is what the market has been awaiting."

132. On June 6, 2007, Panera issued a press release lowering its second quarter 2007

system-wide comparable bakery-cafe sales growth target to 1.5% to 2.5% from 3.5% to 4.5% and

revising its second quarter 2007 EPS to $0.38 to $0.40. While the press release gave no indication of

the reason for the downward revision, analysts reported that new-store performance contributed to

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the expected second quarter shortfall and that it had deteriorated significantly in lQ07. In lQ07,

average unit volumes from units that opened in 2006 were 15% below the average unit volume for

those units that opened in 2005 and earlier. As a result of this partial disclosure that Panera's

aggressive store expansion strategy was negatively affecting comparable sales growth, Panera stock

collapsed from its close of $58.32 on June 5, 2007 to $48.78 on June 7, 2007, an extraordinary

trading volume of 12.75 million shares. Panera lost a total of $292 million in market capitalization

from this disclosure.

133. Despite Panera's lowered guidance, analysts continued to rely on defendants' positive

reassurances about the strength of the Company. For example, on June 28 , 2007, William Blair &

Company reported: "We recently hosted Panera' s senior management team for several days of

investor meetings, and came away with reinforced conviction thatPanera 's long-term growth story

remains intact despite ongoing lackluster traffic trends throughout the industry."

134. Defendants' statements about Crispani were materially false and misleading and their

2007 earnings projections had no reasonable basis. At the same time that defendants were telling

investors that Crispani was "breaking even" and that it "feels real good," defendants were

contemplating or had decided to "sacrifice" Crispani because of its weak sales. By mid- to late-

2006, the already lackluster sales of Crispani had taken a significant nosedive, from which Crispani

never recovered. According to a franchisee store manager, sales of Crispani were not even sufficient

to cover the labor and food costs of the product, much less recoup the significant amounts spent to

launch the product. In fact, by mid- to late-2006, some stores had already stopped selling Crispani

altogether, due to the inability to generate profits from the product. According to franchisee

managers, Ranking Reports in late 2006 indicated that numerous stores in the Northeast region had

suffered dramatic drops in sales only months after the launch. Similarly, sales throughout the

Missouri region, which launched Crispani only two months prior, had dropped dramatically by

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September 2006, if not earlier. Defendants have admitted that Crispani sales collapsed by November

2006 and that sales slid by $2.2 million through November and December 2006.

135. In an effort to salvage the floundering Crispani sales, Panera issued a directive for

stores to create a stand-alone menu using an "eye-catching" shade of purple, which would

prominently and exclusively feature the Crispani product. This was yet another cost that franchisees

had to partially incur, but which had no material effect, once implemented in l Q07, in terms of

increasing Crispani sales.

136. By late 1Q07, the majority of franchisees throughout the country had launched

Crispani, and the Ranking Reports showed sales figures that increasingly missed Panera' s sales

expectations for virtually all franchisee operations throughout the country. Eventually, as mid-2007

approached, Panera stopped distributing the Ranking Reports altogether, as sales of Crispani

throughout the country had fallen so far below Panera's expectations. In fact, despite defendants'

continuous reassurances of Crispani 's success , defendant Shaich later admitted in an April 2, 2008

letter to shareholders that defendants "sacrifice[d] Crispani sales and Crispani profitability as we

refocused on transaction growth in our lunch business in summer 2007." As a result of Crispani's

exorbitant costs and complete failure to achieve sales results, defendants' forecasts and positive

statements lacked any reasonable basis and their statements about Crispani were false.

137. Defendants' expansion strategy further undermined their statements about 2007

growth. Between October 2006 and June 2007, Panera's aggressive store expansion continued to

result in market saturation and store cannibalization and, as a result, decreased sales growth. In fact,

Panera's growth strategy was so aggressive that by late 2007, a whopping 40% of Panera's stores

were "immature," or less than 18 months of age and numerous markets were over-saturated. Despite

this saturation, however, Panera continued its aggressive store expansion strategy, opening stores in

saturated or near-saturated markets and at less than ideal locations, to the detriment of both its new

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and existing stores. For example, according to a franchisee operator in the Atlanta region, Panera

opened several stores in early 2007 within very close (just over two-mile) proximity to existing

and/or newly-opened franchisee stores in Atlanta. Although the franchisee in that area requested that

Panera conduct an impact report to assess the potential negative sales impact to the franchisee stores,

Panera refused , citing its rights under the ADA. The newly opened corporate stores immediately and

negatively exacerbated the already declining sales at the franchise stores. Moreover, all newly

opened stores in this area (whether franchisee or corporate) were unable to achieve their widely

known sales goals because of the impact of sales cannibalization that occurred by over-saturating the

Atlanta market. Panera experienced the same in many other markets. Such store cannibalization

was so serious that defendants' forecasts and positive statements had no reasonable basis.

138. Store cannibalization had such a negative effect on sales that by 4Q06, the Company

was for the first time experiencing negative lunch transactions , the Company's strongest "day-

part," which continued into 1Q07. By 1Q07, lunch transactions had fallen to negative 2.1%.

Weekly sales, which included both new and previously existing stores, dropped from $39,522 in

1Q06 to only $38,359 in 1Q07. Indeed, defendant Shaich later admitted that "income in Q4 2006

and Q1 2007 [was] much weaker," and that "negative lunch transactions ... began in Q4 2006 and

continued into Q1 2007." Even then, however, he falsely claimed that this negative trend was

"cover[ed] up" by Crispani 's strong sales , even though Crispani was failing and was not even

offered during the lunch period.

139. Additionally, franchisees continued to struggle to meet Panera's aggressive expansion

goals. In fact, Panera had to repurchase or cancel 62 franchisee cafe commitments in 2007 as a

result of franchisees not being able to meet their store expansion commitments. Franchisees had

such difficulty meeting their expansion goals that by 2Q07, company-owned stores represented 42%

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of total stores, a dramatic increase over the one-third standard previously set by the Company, and

further impacting corporate level returns.

140. Moreover, in order to maintain its aggressive pace, Panera continued to open

company-owned stores at less-than ideal locations, causing cash-on-cash returns (e.g., cash return)

on new company units to cascade to 29% in 2007 (compared to 40% in 2005), which was critical to

analysts because they ranked and rated other restaurant chains on that basis and factored it into their

buy, hold or sell ratings. The Company's increasing reliance on company-owned store growth

negatively impacted corporate level returns , as the Company received much higher percentage

margins from franchise-owned stores than from company-owned stores. Indeed, defendant Shaich

later admitted that Panera's aggressive store expansion caused ROIC to fall and that "new cafes

[were] underdelivering on their returns." Defendants also later admitted that on a site selection

ranking scale from 1 to 5 (1 being the highest rating) in 2006 and 2007, approximately 20% of

Panera's new unit openings were ranked 4 or 5, and that "the larger year-over-year mix of relatively

younger stores as a percentage of our total store base was negatively impacting our margins."

141. As a result of Panera' s aggressive store expansion, and the resulting store

cannibalization and decrease in sales growth and corporate returns, defendants' forecasts and

positive statements had no reasonable basis.

142. Then, on July 24, 2007, Panera surprised the market by dropping Panera's 2007 EPS

target for the remainder of the year to $.086 to $1.02 because of "continued margin pressures," The

press release reduced 2007 guidance from $2.26-$2.34 to $1.72-$ 1.88:

Based on continued margin pressures the Company is experiencing, theCompany today is setting its 2007 earnings per diluted share target for theremainder of the year at $0.86 to $1.02 . This second half of 2007 target assumessystem-wide comparable bakery-cafe sales growth of 2.25% to 4.75%, system-wideaverage weekly sales of $38,800 to $39,900, and system-wide operating weeks of30,650 to 30,750. Bakery-cafe openings are expected to be 110 to 124.

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143. Then, on a conference call the next day, defendant Shaich stunned investors by

withdrawing Panera's 25% EPS growth guidance altogether. He disclosed for the first time what he

had known as early as 2005 - that Crispani was not profitable and was "costing [Panera] money,"

and also that the Company's expansion strategy was impacting margins - "there is a higher mix of

shall we say newer markets, or newer - newer company stores that has a - a downdraft impact":

As you know we had a lot of moving pieces in our business in Q2, some of whichhave been drags on our recent performance and some of which are positive-leadingindicators. Much ofthe downdraft camefrom margin pressure in our cafes andfrom mix and costpressures that have affected our manufacturing business whichsells dough to our retail stores. We are actively working to impact margins in bothbusinesses and will cover those initiatives with you today. On a positive note, we'repleased with the early trends we're seeing in our sales. We are now projecting P7comps will come in at 3.6% to 3.9%. This is the highest comps so far this year, andwith only 60 basis points of price in the mix.... There's a lot of pressure on ourbusiness but there's also some reasons to be quite optimistic.

I'd like to make several observations . I want to be frank with you, the businesstoday is clearly not where we expected it to be. But I also want you to know, wecontinue to believe that the fundamentals are in place to generate a strong record ofearnings growth well into the future.

We all know that we are not on track to hit the 25% EPS growth target in 2007 thatwe announced previously. As a result, we think it prudent to withdraw our 25%EPS growth target until we can once again deliver the results that are consistentwith that kind ofgrowth.

... As we have indicated, we have clearly got some issues, but we are also seeingsigns of continued fundamental strength, not the least of which is our strong concept-producing industry-leading sales, the comp store sales growth we're experiencingrelative to our industry, and continued strong development.

The question was Crispani and let me talk to that directly. It's a [sic] not meetingexpectations at this point. It's continued to moderate and trail off. It's probablygiving us, you know, a halfofpoint to a point oflift. It's costing us money. That'snot meeting what is the break even at this pointfor it. Having said that, we havegot a whole bunch of different things in test relative to it that include, you know,moving it in to the day parts, changing the size on it, actually looking at some othercomplementary products that go with it. We still think that there's a big opportunityfor us in the evening. Wejust simply haven't cracked it open yet, and it's certainly a

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difficult process to get there. You know, I think that anything is on the table, andyou can expect that we'll be considering all options appropriate on how to build ourbusiness at both the top line and at the bottom line.

"[T]here is a higher mix of shall we say newer markets, or newer - newer companystores that has a - a downdraft impact."

144. Defendants' July 24 and 25, 2007 announcements disclosed the severe decline in

sales growth and serious impact of store cannibalization on sales, as well as the failure of Crispani.

It also informed investors that the Company's cash-on-cash returns were overstated given the poor

performance of newly opened stores. As a result of defendants' disclosures, the price of Panera

stock fell $4.17 per share, or 9.07%, from $45.98 on July 24, 2007 to $39.79 at the close of July 27,

2007, on heavy trading volume averaging 20 million shares, wiping out $190 million in market

capitalization and damaging earlier purchasers of Panera stock during the Class Period. A total of

6.1 million shares traded over this three-day period.

Additional Scienter Allegations

145. As alleged herein, defendants acted with scienter in that defendants knew that the

public documents and statements issued or disseminated in the name of the Company were

materially false and misleading; knew that such statements or documents would be issued or

disseminated to the investing public; and knowingly and substantially participated or acquiesced in

the issuance or dissemination of such statements or documents as primary violations of the federal

securities laws.

Defendants' Knowledge of Facts Rendering Their Class Period Statements False

146. The Individual Defendants were top executive officers of Panera and were charged

with not only developing Panera's business strategy, but also overseeing the implementation and

execution of that strategy during the Class Period. Due to the circumstances described in this

Amended Complaint, nothing was more important to defendants than system-wide sales growth and

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the success of new products, particularly Crispani. Defendants knew that there was a direct

correlation between sales growth and Panera's stock price. Indeed, analysts reported that several

significant positive percentage moves in Panera's stock price in 2005 were largely driven by

surprisingly strong same-store sales. Defendants consequently monitored and reviewed specific

reports on these material indicators and knew, based on their review of such information, that their

alleged Class Period misrepresentations were false and misleading and their 2006 and 2007 forecasts

were made with no reasonable basis and were false or misleading.

147. All Panera stores had complex computer systems that allowed defendants to track

numerous sales and product metrics on a daily basis, which defendant Shaich has admitted they

received - "I'm going to tell you a little inside story here. We get comps everyday." According to

the Company's 2005 Form 10-K, during the Class Period, "[e]ach Company-owned bakery-cafe

ha[d] computerized point-of-sale [POS] registers which collect transaction data used to generate

pertinent information, including, among other things, product mix and average check." This POS

system was designed to provide corporate and retail operations management quick access to retail

data. Defendants used this retail data "to generate daily and weekly consolidated reports regarding

sales and other key elements, as well as detailed profit and loss statements for each Company-owned

bakery-cafe." Additionally, defendants "monitor[ed] the average check, customer count, product

mix, and other sales trends." Indeed, defendant Shaich admitted on an October 25, 2006 earnings

conference call that "[t]here is [not] a week that goes by, I don't look at our comps and sit there in

surprise."

148. According to franchisees, franchise-owned stores similarly utilized MICROS POS

systems. These systems generated daily reports that showed a variety of metrics as to the previous

days' operations . The reports contained information on total sales, sales categorized by product mix

and by day part, number of coupons redeemed, labor costs (expressed in dollars and in percentage of

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sales), and "chart hours," a labor metric. On a nightly basis, all of the data gathered through the POS

system was automatically extracted by a corporate IT system and transmitted to Panera's corporate

headquarters and, as defendants admitted, to them. Importantly, according to Senior IT Management

at Panera, during the test market phase for Crispani, Crispani coupons had an associated code that

was entered into the POS systems so that Panera could determine the total number of coupons that

had been redeemed. Daily sales figures for the Crispani product were then transmitted to Panera's

corporate headquarters and to defendants on a daily basis.

149. In addition, Panera stores utilized a data migration system called P-Con to "pull" all

POS data from Panera cafe registers on a nightly basis. Panera also developed a proprietary software

application known as "The Tool," which was used during the Class Period to extract POS data on a

nightly basis from all cafes. Once pulled, the data was stored on a database server in corporate

headquarters and could be accessed from a variety of different systems. According to a General

Manager of Panera corporate-owned stores and Panera IT personnel, each store was also equipped

with a web-based monitor/terminal called "The Portal," which allowed the cafes to send and receive

data to and from the corporate office. Through this portal, Panera cafes loaded Excel spreadsheet

reports containing data on various operational metrics, including sales, labor and food costs, and

overhead costs. Various personnel in the corporate office accessed these reports on a regular basis.

On a monthly basis, each store received a Period-End Report through the Portal, which provided

consolidated monthly performance information for that store.

150. In addition to sales and product metrics, Panera also closely tracked labor costs using

a "chart hours" labor management methodology, which is evidence of a more sophisticated cost

control measurement ability. According to a General Manager for corporate-owned stores, Panera

cafes utilized matrix charts that contained increasing ranges of actual daily sales figures, and had

predetermined numbers of "hours" for each sales range. Panera managers would run Sales and

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Labor reports from the MICROS system at any given time to determine whether actual hours were

above or below the assigned chart hours. Along with chart hours, cafes also closely tracked "non-

service" hours. These were hours that were not directly related to generating revenue, such as hours

used for store opening and closing procedures, promotional in-store activities, and sampling, and

included many non-service activities associated with the Crispani product. Non-service hours were

tracked as part of the total labor cost and percentage of sales.

151. Panera also tracked its product development and market research initiatives, including

Crispani, closely. According to a SVP of Marketing, prior to the launch of a new product, Panera

would offer the product in test markets to determine the product ' s economic viability . Return on

Investment ("ROI") analysis and Gross Profit analysis were critical elements of defendants'

evaluation process. Indeed, defendant Shaich admitted on a July 22, 2008 earnings conference call

that "in tests, we're always able to separate out any individual initiative because we have a very

specific control."

152. In addition, Panera closely monitored individual store performance. Panera DMs,

who managed several stores, usually ranging from six to ten, regularly visited the stores and held

weekly meetings/conference calls with the Store Managers ("SMs"), who reported to DMs, to review

individual store and district performance and to communicate store goals and objectives. According

to franchisee DMs, during these meetings, DMs and SMs reviewed "Unit Reports," which contained

a variety of information for each individual store, such as actual sales compared to forecasted sales

for the period, forecasted sales going forward, and operating budgets. DMs also reviewed daily store

sales reports, as well as monthly profit and loss ("P&L") reports for each individual store. The daily

reports included line items for products that were offered for free through coupons, and also for

products that were sampled, so that the company could track all costs appropriately. Additionally,

DMs met regularly with their supervisor, a Director-level operations employee, to review district

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performance and discuss Company objectives and initiatives. According to franchisee DMs, among

various other topics of discussion, DMs commonly discussed store expansion activities and the

launch of Crispani during the Class Period.

153. Also on a monthly, and sometimes on a weekly basis, DMs met with the corporate

Vice President of Operations for Franchisees to discuss business strategies , store and company

performance and specific challenges that were being encountered. According to DMs, concerns

about cannibalization of existing store sales resulting from Panera's aggressive store expansion

policy were discussed at various times throughout the Class Period during these DM meetings.

154. Moreover, every six to twelve weeks, the Regional Director of Franchise Operations

visited franchisees' headquarters for two to three days. During these meetings, the various problems

with regard to store expansion and the failure of Crispani were discussed. Franchisees also had

phone conversations in early 2007 with the Director, as well as with Panera Director of Franchise

Sales, in which the franchisees repeatedly expressed frustrations with the Crispani initiative.

Defendant Shaich also visited franchisee headquarters on at least an annual basis. He also told

investors on February 9, 2007 that "I've probably been in 200 cafes in the last three to four months

in the evenings as part of this process ...."

155. According to several franchise managers, in 1Q07, Panera's corporate office began

tracking Crispani weekly sales in Ranking Reports, which ranked franchisees against one another,

solely on their respective sales of Crispani. These Reports were distributed to franchisees on a

weekly basis. By late 1Q07, on an increasing basis, the Ranking Reports showed sales figures that

increasingly missed Panera's sales expectations for virtually all franchisee operations throughout the

country. Eventually, as mid-2007 approached, Panera stopped distributing the Reports altogether

because the actual sales of Crispani throughout the country were falling so far below Panera's

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expectations. Given Crispani's status as to what defendants called "the most significant new product

introduction of Panera in many years," defendants certainly received and reviewed those reports.

156. According to franchise owners, operators and managers, defendants also held Round

Table meetings with franchisee owners and operators throughout the Class Period. These meetings

were large gatherings that were held about three to four times every year. During these meetings,

Panera executives , including defendants Shaich and Yanofsky, made presentations and discussed

Company performance, outlook, objectives and strategies . The Panera executives also fielded

questions from franchisees about their concerns. According to franchise operators and managers,

defendant Shaich held a Round Table meeting in late 2005 to discuss the launch of Crispani.

Defendants Shaich and Yanofsky then held another Round Table meeting on or around

February/March 2006, during which many franchise owners and operators openly expressed

concerns about the launch strategy for Crispani and the fact that the franchisees were incurring many

costs and were unable to justify these costs without adequate Crispani sales. During this meeting,

Panera executives also communicated the minimum amount of Crispani products that needed to be

sold in order for a typical cafe to "break even."

157. Additionally, in the spring of 2005, Panera held a two-day meeting in Massachusetts

to discuss the launch of Crispani. The meeting was attended by about 40 personnel, including

several franchisees and defendants Shaich, Hood and Yanofsky, and several other high ranking

personnel. According to a Director in Panera's development and training department, during this

meeting, defendant Shaich expressed, on at least a couple of occasions, his own personal

reservations about the Crispani product.

158. According to store managers, defendant Shaich was known at Panera to be a very

hands-on executive and was intimately involved in the Crispani launch. For example, beginning

around May 2006, defendant Shaich began traveling around the country as a "secret shopper" for

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Crispani. Shaich visited both franchise-owned and company-owned Panera cafes in order to

personally monitor the progress of the product launch. Upon visiting several stores, usually every

week or so, Shaich sent emails entitled "Where's Waldo" to all General Managers throughout the

country, detailing his cafe visits and discussing in length a variety of problems relating to Crispani.

Specifically, Shaich noted that Crispanis were not being prepared properly and were taking a very

long time (25 minutes) to prepare.

159. In addition, because of the highly critical nature of Panera's 2006 and 2007 forecasts

to the Company, its investors and its stock price, defendants are presumed to know all facts material

to the Company's ability or inability to achieve its outlook.

Insider Trading

160. Defendants' insider sales, as well as the sales of other Panera executives, were

suspicious in timing and amount and provide additional inference of scienter. Combined, Company

insiders sold 195,648 shares of their personally-held Panera common stock for gross proceeds in

excess of $12.7 million shortly after the Company issued what they termed "aggressive" guidance

and while Panera stock was trading at near record highs. The following chart sets forth the insider

trading for Panera's most senior executives:

Insider Date Shares Price Proceeds %Sold

% Sold, includingoptions

MARKBORLAND

11/10/2005 12,500 $61.00 $762,500 80.43% 42.68%

SCOTT DAVIS 4/28/2006 5,000 $73.45 $367,2504/28/2006 1,250 $73.45 $91,813

6,250 $459,063 29.42% Data Not Available

LARRYFRANKLIN

11/17/2005 10,000 $62.39 $623,900 83.95% 16.79%

MARK HOOD 11/14/2005 10,000 $62.00 $620,00011/21/2005 10,000 $67.89 $678,900

20,000 $1,298,900 100% 47.06%

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Insider Date Shares Price Proceeds %Sold

% Sold, includingoptions

THOMAS KISH 11/14/2005 1,000 $62.08 $62,08011/29/2005 2,000 $67.22 $134,4405/1/2006 850 $73.80 $62,7306/2/2006 850 $66.00 $56,1007/3/2006 850 $67.38 $57,273


MICHAELKUPSTAS

1/29/07 3,100 $53.70 $166,470

1/29/07 800 $53.73 $42,9841/29/07 300 $53.66 $16,1041/29/07 300 $53.77 $16,1311/29/07 200 $53.94 $10,7881/29/07 100 $53.69 $5,3691/29/07 100 $53.72 $5,3721/29/07 100 $53.92 $5,3922/16/07 10,000 $60.00 $600,000


JOHN MAGUIRE 5/1/2006 7,500 $74.09 $555,675 55.71% 21.87%

RONALDSHAICH

11/7/2005 5,000 $61.95 $309,750

11/14/2005 5,000 $61.65 $308,25011/17/2005 10,000 $64.00 $640,00011/21/2005 10,000 $66.25 $662,50011/28/2005 10,000 $67.86 $678,60012/6/2005 10,000 $67.90 $679,00012/13/2005 10,000 $69.07 $690,70012/21/2005 10,000 $69.51 $695,10012/29/2005 10,000 $66.53 $665,3001/4/2006 10,000 $68.54 $685,4001/11/2006 10,000 $64.03 $640,3001/19/2006 10,000 $64.03 $640,3002/15/2006 675 $72.19 $48,728

110,675 $7,343,928 67.65% 20.72%

Total : 195,648 $12,760,599

161. These sales were highly suspicious in amount. Indeed, defendant Hood sold 100% of

his holdings on November 14 and 21, 2005, and defendant Shaich sold nearly 68% of his holdings

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between November 7, 2005 and February 15, 2006. Other insiders sold enormous amounts during

the Class Period as well: Borland sold 80.43%, Franklin sold 83.95%, Kish sold 85.12%, Maguire

sold 55.71%, Davis sold 29.42%, and Kupstas sold 49.83%. While options are not stock holdings

and should not be included in the insiders retained holdings, even including options, the percentages

and amounts sold are highly suspicious.

162. The timing of these sales was also highly suspicious , as they were timed to take

maximum advantage of the artificial price inflation caused by defendants' misrepresentations, while

Panera stock was trading at its Class Period and record peak. As alleged in 157, on November 1,

2005, Panera reported its financial results for 3Q05 and issued an "aggressive" forecast for 2006.

Almost immediately thereafter, defendant Hood unloaded 100% of his own Panera stock on

November 14 and 21, 2005 at near record prices of $62 and $67.89 per share - $26.08 more than the

closing price of $41.81 after the July 25, 2007 disclosures - for proceeds of approximately $1.3

million.

163. As described in ¶9[70-73, defendants continued to inflate the stock price. On

February 10, 2006, defendants raised their 2006 guidance, stating "[a]t no time have we felt more

confident about delivering on our future," sending Panera's stock price to near-record highs. As

defendants intended, analysts interpreted defendants' optimistic statements and upwardly revised

forecasts as positive indicators of Panera's upcoming Crispani product, which analysts knew was

currently in testing, and the Company's business strength, and responded favorably. At the same

time that defendants were making these optimistic statements and forecasts, defendant Shaich, along

with other Panera insiders, sold significant amounts of their personally held Panera stock. Defendant

Shaich unloaded almost 68% of his own Panera stock (over 20% including his retained options)

between November 17, 2005 and February 15, 2006, at record prices between $61.95 and $72.19 -

an astounding $30.38 more than the closing price of $41. 81 after the July 25, 2007 disclosures - for

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proceeds of over $7.3 million. Even more suspicious is that after dumping massive amounts of his

Panera stock at record high prices during the Class Period, defendant Shaich later repurchased

92,000 shares (of the 110,675 he had sold) of Panera stock in August 2007, after the stock price

plummeted when defendants' fraud was revealed.

164. Defendants' and the other insiders ' Class Period trading was also suspicious in that

these high level officers of Panera sold their shares within days and weeks of each other.

Loss Causation/Economic Loss

165. The markets for Panera common stock were open, well-developed and efficient at all

relevant times. As a result of defendants' materially false and misleading statements and failures to

disclose, Panera's securities traded at artificially inflated prices during the Class Period. Plaintiff

and other members of the Class purchased or otherwise acquired Panera's common stock relying

upon the integrity of the market price of Panera's common stock and market information relating to

Panera, and have been damaged thereby.

166. At all relevant times, the material misrepresentations and omissions particularized in

this Amended Complaint directly or proximately caused or were a substantial contributing cause of

the damages sustained by plaintiff and other members of the Class. As described herein, during the

Class Period, defendants made or caused to be made a series of materially false or misleading

statements about Panera's business, prospects and operations. These material misstatements and

omissions had the cause and effect of creating in the market an unrealistically positive assessment of

Panera and its business , prospects and operations , thus causing the Company' s common stock to be

overvalued and artificially inflated at all relevant times. Defendants' materially false and misleading

statements during the Class Period resulted in plaintiff and other members of the Class purchasing

the Company's common stock at artificially inflated prices, thus causing the damages complained of

herein, upon defendants' revelations of the truth.

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167. During the Class Period, as detailed herein, defendants engaged in a scheme to

deceive the market and a course of conduct that artificially inflated the prices of Panera's common

stock and operated as a fraud or deceit on Class Period purchasers of Panera's common stock by

failing to disclose to investors that the Company was experiencing declining sales in its restaurants

due to store cannibalization and that its new product, Crispani, was failing, and by issuing guidance

for sales and EPS growth for 2006 and 2007 that had no reasonable basis. Even in the face of results

that were below quarterly analyst expectations and less than the required incremental sales traffic,

defendants continued to misrepresent the Company' s growth prospects and its Crispani product and

to deny that the Company was experiencing a decline in sales due to store cannibalization. When

defendants' prior misrepresentations and fraudulent conduct were disclosed and became apparent to

the market, the price of Panera's common stock fell precipitously as the prior artificial inflation

came out. As a result of their purchases of Panera's common stock during the Class Period, Lead

Plaintiff and the other Class members suffered economic loss, i.e., damages, under the federal

securities laws.

168. By failing to disclose to investors that the Company's growth strategy was causing

declining sales in its restaurants and that Crispani was failing, defendants presented a misleading

picture of Panera's business and prospects. Defendants' false and misleading statements had the

intended effect and caused Panera's common stock to trade at artificially inflated levels throughout

the Class Period, reaching as high as $75.18 per share on March 31, 2006.

169. Specifically, on July 26, 2006, Panera issued a press release announcing its financial

results for 2Q06. The press release disclosed that the Company was widening 2006 EPS guidance to

$1.93-$2.00, that Crispani expenses were being brought forward into 3Q06, and reiterated sales

growth targets of 4.5%-6.5%. On July 26, 2006, defendants held a conference call following the

release of Panera' s financial results for 2Q06. Defendants Shaich and Yanofsky announced that

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two-year comparable store sales were expected to fall from 12.6% in 2Q06 to 9.6%-9.8% in period

7, the four week period immediately following 2Q06. This amounted to a year-over-year decrease

for the second quarter from 9.4% in 2005 to 3.2% in 2006, and for period 7 from 7.9% in 2005 to

1.7%-1.9% in 2006 . Defendants also widened 2006 EPS projected to $1.93-$2.00 , a drop in the

bottom range of $0.04. Analysts attributed the widening in EPS to weakening sales growth and the

uncertain impact of Crispani. This announcement partially revealed the severe decline in sales

growth and margin erosion resulting from store cannibalization and over-saturation. It also partially

disclosed the impact that Crispani's costs would have on Panera's results. As a result, the price of

Panera common stock fell $7.34 per share, or approximately 12%, to close at $51.93 per share, on

extremely heavy trading volume. Defendants, however, continued to reassure investors that Panera

would "meet the targets for all of our 2006 key metrics," and that Crispani was having a "positive

impact" on comparable sales growth.

170. On October 25, 2006, Panera issued a press release lowering 2006 EPS targets to

$1.92-$1.93. According to analysts , this announcement disclosed weakening new store productivity

and significant ongoing Crispani costs. Defendants' partial disclosure on October 25 caused

Panera's stock price to fall $7.86, or 11.4%, from a close $68.70 on October 24, 2006 to a low of

$60.84 on October 25, 2006. Panera's stock, however, continued to trade at artificially inflated

prices throughout the Class Period due to defendants' continued forecasts for sales growth and

earnings and their failure to disclose the full extent to which store cannibalization and the failure of

Crispani was negatively impacting Panera's business.

171. On December 6, 2006, Panera issued a press release revising 4Q06 target sales comps

of 1.5% to 2.3% (two year comps of 9.1% to 9.9%) and lowered target 4Q06 EPS to $0.62-$0.65,

implying a revised target for full year EPS of $1.87-$1.90. While defendants attributed the decline

partially to "storms in the Midwest," analysts credited "soft" November sales growth and "projected

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continued weakness into December," partially disclosing that Panera's sales growth was being

negatively affected by weak Crispani sales and store cannibalization. Defendants' partial disclosure

on December 6 caused Panera's stock price to fall $3.39, or 5.8%, from a close of $58.79 on

December 5, 2006 to a low of $55.40 on December 6, 2006, on extremely high trading volume of

approximately 3 million shares. Panera's stock, however, continued to trade at artificially inflated

prices throughout the Class Period due to defendants' continued bullish statements and forecasts for

sales growth and their failure to disclose the extent to which store cannibalization and the failure of

Crispani was negatively impacting Panera's business.

172. On February 9, 2007, defendants held a conference call following the release of

Panera' s financial results for 4Q06 and year-end 2006. Defendants Shaich and Yanofsky revealed

that Panera's 2006 sales growth and EPS results were below expectations. This announcement

partially disclosed that Panera' s sales growth was being negatively affected by weak Crispani sales

and store cannibalization. Defendants, however, maintained that the Company was not experiencing

store cannibalization and that the Crispani product was succeeding and driving sales growth at

previously forecasted levels. Defendants' partial disclosure on February 9 caused Panera's stock

price to fall approximately 1.2%, from $58.12 on February 8, 2007 to $57.41 per share on

February 9, 2007. Panera's stock, however, continued to trade at artificially inflated prices through

July 25, 2007, due to defendants' continued misrepresentations about sales growth and their failure

to disclose the full extent to which store cannibalization and the failure of Crispani was negatively

impacting Panera's business.

173. On June 6, 2007, Panera issued a press release lowering its second quarter 2007

system-wide comparable bakery-cafe sales growth target to 1.5% to 2.5% from 3.5% to 4.5% and

revising its second quarter 2007 EPS to $0.38 to $0.40. While the press release gave no indication of

the reason for the downward revision, analysts reported that weak new-store performance

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contributed to the expected second quarter shortfall and that it had deteriorated significantly in 1 Q07.

As a result of this partial disclosure that Panera's aggressive store expansion strategy was negatively

affecting comparable sales growth, Panera stock fell $8.04, or nearly 14%, from $58.32 per share on

June 5, 2006 to close at $50.28 per share on June 6, 2006. Panera's stock, however, continued to

trade at artificially inflated prices through July 25, 2007, due to defendants' failure to disclose the

full extent to which store cannibalization and the failure of Crispani were negatively impacting

Panera's business.

174. Then, on July 24 and 25, 2007, defendants issued a press release and held a

conference call announcing disappointing 2Q07 results and that Panera was not on track to hit EPS

and sales growth in 2007 that defendants had announced previously. Defendants also disclosed that

Crispani was not meeting forecasted sales expectations and was losing money. Defendants also

disclosed that they were taking the severe step of withdrawing Panera's 2007 EPS guidance of 25%,

which informed the market that Panera's growth strategy and Crispani products were failing far

more than defendants were representing. As a direct result of information disclosed on July 24 and

25, 2007, the price of Panera common stock fell precipitously, falling $4.17 per share, or 9% from

$45.98 on July 24, 2007 to $39.79 at the close of July 27, 2007, on heavy trading volume of

approximately six million shares, a more than 30% decline from its Class Period high. These drops

removed the inflation from the price of Panera common stock, causing real economic loss to

investors who had purchased Panera common stock during the Class Period.

175. The substantial declines in the price of Panera common stock after these disclosures

came to light was a direct result of the true nature and extent of defendants' fraud finally being

revealed to investors and the market. The timing and magnitude of the price declines in Panera

common stock negates any inference that the loss suffered by plaintiff and the other Class members

was caused by changed market conditions, macroeconomic or industry factors or Company-specific

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facts unrelated to the defendants' fraudulent conduct. The economic loss, i. e., damages, suffered by

plaintiff and the other Class members was a direct result of defendants' fraudulent scheme to

artificially inflate the prices of Panera common stock and the subsequent significant decline in the

value of Panera common stock when defendants' prior misrepresentations and other fraudulent

conduct were revealed.

Applicability of Presumption of Reliance: Fraud on the Market Doctrine

176. At all relevant times , the market for Panera' s common stock was an efficient market

for the following reasons, among others:

(a) Panera common stock met the requirements for listing, and was listed and

actively traded on the NASDAQ, a highly efficient and automated market;

(b) as a regulated issuer, Panera filed periodic public reports with the SEC and the

NASDAQ;

(c) Panera regularly communicated with public investors via established market

communication mechanisms, including through regular disseminations of press releases on the

national circuits of major newswire services and through other wide-ranging public disclosures, such

as communications with the financial press and other similar reporting services; and

(d) Panera was followed by several securities analysts employed by major

brokerage firms who wrote reports that were distributed to the sales force and certain customers of

their respective brokerage firms. Each of these reports was publicly available and entered the public

marketplace.

177. As a result of the foregoing, the market for Panera common stock promptly digested

current information regarding Panera from all publicly available sources and reflected such

information in the prices of the stock. Under these circumstances, all purchasers of Panera common

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stock during the Class Period suffered similar injury through their purchase ofPanera common stock

at artificially inflated prices and a presumption of reliance applies.

No Safe Harbor

178. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this Amended

Complaint . Many of the specific statements pleaded herein were not identified as "forward-looking

statements" when made. To the extent there were any forward-looking statements, there were no

meaningful cautionary statements identifying important factors that could cause actual results to

differ materially from those in the purportedly forward-looking statements. Alternatively, to the

extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein,

defendants are liable for those false forward-looking statements because at the time each of those

forward-looking statements were made, the particular speaker knew that the particular forward-

looking statement was false, and/or the forward-looking statement was authorized and/or approved

by an executive officer of Panera who knew that those statements were false when made.

PLAINTIFF'S CLASS ACTION ALLEGATIONS

179. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a class consisting of all those who purchased the common

stock of Panera between November 1, 2005 and July 25, 2007, inclusive, and who were damaged

thereby (the "Class"). Excluded from the Class are defendants, the officers and directors of the

Company, at all relevant times, members of their immediate families and their legal representatives,

heirs, successors or assigns and any entity in which defendants have or had a controlling interest.

180. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Panera common stock was actively traded on the

NASDAQ. While the exact number of Class members is unknown to plaintiff at this time and can

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only be ascertained through appropriate discovery, plaintiff believes that there are hundreds or

thousands of members in the proposed Class. Record owners and other members of the Class may

be identified from records maintained by Panera or its transfer agent and may be notified of the

pendency of this action by mail, using the form of notice similar to that customarily used in

securities class actions.

181. Plaintiff's claims are typical of the claims ofthe members ofthe Class as all members

of the Class are similarly affected by defendants' wrongful conduct in violation of federal law

complained of herein.

182. Plaintiff will fairly and adequately protect the interests of the members of the Class

and has retained counsel competent and experienced in class action and securities litigation.

183. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by defendants' acts as

alleged herein;

(b) whether statements made by defendants to the investing public during the

Class Period misrepresented material facts about the business and operations of Panera;

(c) whether the price of Panera common stock was artificially inflated during the

Class Period; and

(d) to what extent the members of the Class have sustained damages and the

proper measure of damages.

184. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the

damages suffered by individual Class members may be relatively small, the expense and burden of

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individual litigation make it impossible for members of the Class to individually redress the wrongs

done to them. There will be no difficulty in the management of this action as a class action.

COUNT I

Violation of Section 10(b) of the Exchange Act and Rule 10b-5Promulgated Thereunder Against All Defendants

185. Plaintiff repeats and realleges each and every allegation contained above as if fully set

forth herein.

186. During the Class Period, defendants materially misled the investing public, thereby

inflating the price of Panera' s common stock, by publicly issuing false and misleading statements,

which they knew or deliberately disregarded were misleading, and failed to disclose material facts

necessary in order to make the statements made, in light of the circumstances under which they were

made, not misleading.

187. During the Class Period, defendants disseminated or approved the materially false

and misleading statements specified above, defendants: (a) employed devices, schemes, and artifices

to defraud; (b) made untrue statements of material fact and/or omitted to state material facts

necessary to make the statements not misleading; and (c) engaged in acts, practices, and a course of

business which operated as a fraud and deceit upon the purchasers of the Company' s common stock

during the Class Period.

188. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of

the market, they paid artificially inflated prices for Panera common stock. Plaintiff and the Class

would not have purchased Panera common stock at the prices they paid, or at all, if they had been

aware that the market prices had been artificially and falsely inflated by defendants' misleading

statements.

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189. As a direct and proximate result of defendants' wrongful conduct, plaintiff and the

other members of the Class suffered damages in connection with their purchases of Panera common

stock during the Class Period.

COUNT II

Violation of Section 20(a) of the Exchange Act Against the Individual Defendants

190. Plaintiff repeats and realleges each and every allegation contained above as if fully set

forth herein.

191. The Individual Defendants acted as controlling persons ofPanera within the meaning

of Section 20(a) of the Exchange Act as alleged herein. By reason of their positions as officers

and/or directors of Panera, and their ownership of Panera stock, the Individual Defendants had the

power and authority to cause Panera to engage in the wrongful conduct complained of herein. By

reason of such conduct, the Individual Defendants are liable pursuant to Section 20(a) of the

Exchange Act.

PRAYER FOR RELIEF

WHEREFORE, plaintiff prays for relief and judgment, as follows:

A. Determining that this action is a proper class action and certifying plaintiff as a class

representative under Rule 23 of the Federal Rules of Civil Procedure;

B. Awarding compensatory damages in favor of plaintiff and the other Class members

against all defendants, jointly and severally, for all damages sustained as a result of defendants'

wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding plaintiff and the Class their reasonable costs and expenses incurred in this

action, including counsel fees and expert fees; and

D. Such other and further relief as the Court may deem just and proper.

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JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

DATED: August 7, 2008 DYSART TAYLOR LAY COTTER& MCMONIGLE, P.C.

DON R. LOLLI (#56263)4420 Madison AvenueKansas City, MO 64111Telephone: 816/931-2700816/931-7377 (fax)

Liaison Counsel

COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP

DOUGLAS R. BRITTONSARAH R. HOLLOWAY

S/ DOUGLAS R. BRITTONDOUGLAS R. BRITTON

S:\CasesSD\Panera\CPT00053115 AMD.doc

655 West Broadway, Suite 1900San Diego, CA 92101Telephone : 619/231-1058619/231-7423 (fax)

Lead Counsel for Plaintiffs

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CERTIFICATE OF SERVICE

I hereby certify that on August 7, 2008, I electronically filed the foregoing with the Clerk of

the Court using the CM/ECF system which will send notification of such filing to the e-mail

addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I have

mailed the foregoing document or paper via the United States Postal Service to the non-CM/ECF

participants indicated on the attached Manual Notice List.

I certify under penalty of perjury under the laws of the United States of America that the

foregoing is true and correct. Executed on August 7, 2008.

s/ DOUGLAS R. BRITTONDOUGLAS R. BRITTON

COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP

655 West Broadway, Suite 1900San Diego , CA 92101-3301Telephone : 619/231-1058619/231-7423 (fax)

E-mail: [email protected]

MOED - CM/ECF (LIVE) Page 1 of 1Case 4:08-cv-00120-ERW Document 22 Filed 08/07/2008 Page 88 of 88

Mailing Information for a Case 4:08-cv-00120-ERW

Electronic Mail Notice List

The following are those who are currently on the list to receive e-mail notices for this case.

• Mario Alba, [email protected], [email protected]

• Douglas R. [email protected], stremblay @csgrr.com, e_file_sd@ csgrr.com

• Sarah R. Hollowaysholloway@ csgrr.com,[email protected]

• Jeffrey J. Kalinowskijeff.kalinow ski@huschblackwell. com,kathy.luttrull @huschblackwell. com

• Don R. [email protected],[email protected]

• Thomas 0. [email protected]

• David A. [email protected], [email protected]

• R. Prescott [email protected],[email protected]

Manual Notice List

The following is the list of attorneys who are not on the list to receive e-mail notices for this case (whotherefore require manual noticing). You may wish to use your mouse to select and copy this list intoyour word processing program in order to create notices or labels for these recipients.

• (No manual recipients)

https://ecf.moed .uscourts.gov/cgi-bin/MailList.pl?846254383690603 -L_470_0-1 8/7/2008

Case 4:08-cv-00120-ERW Document 22-2 Filed 08/07/2008 Page 1 of 2

AO 440 ( Rev. 10/93) Summons in a Civil Action

United States District CourtEASTERN DISTRICT OF MISSOURI

Western Washington Laborers-Employers PensionTrust, Individually and on Behalf of.All Others

Similarly Situated,Plaintiff , SUMMONS IN A CIVIL CASE

V. CASE NUMBER : 4:08-cv-00120 ERW

Panera Bread Co., Ronald M. Shaich, Mark E. Hoodand Neal Yanofsky,

Defendants.

TO: (Name and address of defendant)

Neal Yanofsky6710 Clayton RoadRichmond Heights, Missouri 63117

YOU ARE HEREBY SUMMONED and required to serve upon PLAINTIFF'S ATTORNEY (name and address)

Douglas R. Britton, Esq.Coughlin Stoia Geller Rudman & Robbins LLP

655 W. Broadway, Suite 1900

San Diego, CA 92101

(619) 231-1058

an answer to the complaint which is herewith served upon you, within 20 days after

service of this summons upon you, exclusive of the day of service. If you fail to do so, judgment by default will be taken

against you for the relief demanded in the complaint. You must also file your answer with the Clerk of this Court within a

reasonable period of time after service.

CLERK DATE

(BY) DEPUTY CLERK

Case 4:08-cv-00120-ERW Document 22-2

AO 440 ( Rev. 10/93) Summons in a Civil Action

Filed 08/07/2008 Page 2 of 2

RETURN OF SERVICEDATE

Service of the Summons and Complaint was made by met

NAME OF SERVER (PRINT) TITLE

Check one box below to indicate appropriate method of service

El Served personally upon the defendant . Place where served:

q Left copies thereof at the defendant ' s dwelling house or usual place of abode with a person of suitable age and

discretion then residing therein.

Name of person with whom the summons and complaint were left:

q Returned unexecuted:

q Other (specify):

STATEMENT OF SERVICE FEES

TRAVEL SERVICES TOTAL

I declare under penalty of perjury under the laws of the United States of America that the foregoing

information contained in the Return of Service and Statement of Service Fees is true and correct.

Executed onSignature of ServerDate

Address of Server

(1) As to who may serve a summons see Rule 4 of the Federal Rules of Civil Procedure.

Documents

Case4:08-cv-00120-ERW Document22 Filed 08/07/2008 Page 1 of …securities.stanford.edu/filings-documents/1039/PNRA... · Panera Breacl Company(PNRA).NasdaqStock Market(U.S.), S&PMiclcap