Panera Bread 2010 Annual Report Download - page 75

plaintiff. On August 7, 2008, the plaintiff filed an amended complaint, which extended the class period to
November 1, 2005 through July 26, 2007. On October 6, 2008, the Company filed a motion to dismiss all of the
claims in this lawsuit. Following filings by both parties on the Company’s motion to dismiss, on June 25, 2009, the
Court converted the Company’s motion to one for summary judgment and denied it without prejudice. On
August 10, 2009, the Company filed a new motion for summary judgment. On September 9, 2009, the plaintiff filed
a request to deny or continue the Company’s motion for summary judgment to allow the plaintiff to conduct
discovery. Following a hearing and subsequent filings by both parties on the plaintiff’s request for discovery, on
November 6, 2009, the Court denied the plaintiff’s request. On March 16, 2010, the Court granted in part and denied
in part the Company’s motion for summary judgment. On April 5, 2010, the Court granted a joint motion by the
parties to stay the case through July 6, 2010, which stay was subsequently extended by the Court until July 30, 2010,
pending an attempt by the parties to resolve through mediation. On August 30, 2010 the Company answered the
complaint. On December 3, 2010, the parties filed a joint motion to stay the case pending the submission of a
stipulation of settlement and the plaintiff’s motion for preliminary approval, to be filed on or before January 28,
2011, which stay was extended until February 11, 2011. On February 11, 2011, the parties filed with the Court a
Stipulation of Settlement regarding the class action lawsuit. Under the terms of the Stipulation of Settlement, the
Company’s primary directors and officers liability insurer will deposit $5.7 million into a settlement fund for
payment to class members, plaintiff’s attorneys’ fees and costs of administering the settlement. The settlement must
be approved by the Court before becoming effective. The Stipulation of Settlement contains no admission of
wrongdoing. The Company and the other defendants have maintained and continue to deny liability and wrong-
doing of any kind with respect to the claims made in the class action lawsuit. However, given the potential cost and
burden of continued litigation, the Company believes the settlement is in its best interests and the best interests of its
stockholders. On February 22, 2011, the Court preliminarily approved the settlement and scheduled a settlement
hearing on June 22, 2011. If the Court grants final approval of the Stipulation of Settlement, the Court will dismiss
the class action lawsuit with prejudice and the plaintiff will be deemed to have released all claims against the
Company relating to the allegations in the class action. The Company can provide no assurance that the Court will
approve the Stipulation of Settlement. If the Court does not approve the Stipulation of Settlement, the Company will
continue to defend against these claims, which could have a material adverse effect on its financial condition and
business. If these matters were concluded in a manner adverse to the Company, it could be required to pay
substantially more in damages than the amount provided for in the Stipulation of Settlement. In addition, the costs to
the Company of defending any litigation or other proceeding, even if resolved in its favor, could be substantial. Such
litigation could also substantially divert the attention of its management and resources in general. The amount to be
deposited by the Company’s primary directors and officers liability insurer into the settlement fund of $5.7 million
is included in other accounts receivable and accrued expenses in the Company’s Consolidated Balance Sheets.
On February 22, 2008, a shareholder derivative lawsuit was filed against the Company as nominal defendant
and against certain of its current or former officers and certain current directors. The lawsuit was filed by Paul
Pashcetto in the Circuit Court of St. Louis, Missouri. The complaint alleges, among other things, breach of fiduciary
duty, abuse of control, waste of corporate assets and unjust enrichment between November 5, 2006 and February 22,
2008. The complaint seeks, among other relief, unspecified damages, costs and expenses, including attorneys’ fees,
an order requiring the Company to implement certain corporate governance reforms, restitution from the defendants
and such other relief as the Court might find just and proper. The Company believes that it and the other defendants
have meritorious defenses to each of the claims in this lawsuit. On July 18, 2008, the Company filed a motion to
dismiss all of the claims in this lawsuit, which, on December 14, 2009, the Court denied. The Company filed an
answer to the complaint on January 27, 2010 and the case subsequently moved into the discovery. On July 28, 2010,
the Company filed a motion for summary judgment. The Court held a hearing on the motion for summary judgment
on November 19, 2010. On December 20, 2010, the parties filed a joint motion requesting that the Court defer its
ruling on the motion for summary judgment pending the finalization of a settlement agreement. On January 18,
2011, the parties advised the Court in a status conference that they intended to submit a stipulation of settlement and
plaintiff’s motion for preliminary approval by February 14, 2011. On February 22, 2011, the parties filed with the
Court a Stipulation of Settlement regarding the shareholder derivative lawsuit. Under the terms of the Stipulation of
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PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)