UNITED STATES DISTRICT COURTDISTRICT OF MINNESOTA

CASE NO . : 05cv1762 (DWF/AJB)

In re Buca Inc. Securities Litigation )SECOND AMENDED

This Pleading Relates To : All Actions ) CONSOLIDATED COMPLAINT

CLASS ACTION COMPLAINT FOR VIOLATIONSOF THE FEDERAL SECURITIES LAWS

TABLE OF CONTENT

1. SUMMARY AND INTRODUCTION . . . . . . . . . . . . . . . . .. . . . . . .. . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . .. . . .. . . . . 1II . JURISDICTION AND VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5III . THE PARTIES . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 5

IV. BACKGROUND TO THE ACCOUNTING FRAUD .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8A . Micatrotto and Gadel's Detailed Knowledge of Each Restaurant's Earnings . . . . . . . . . 9B . Micatrotto and Gadel's Focus on Wall Street's Expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 d

V. THE ACCOUNTING FRAUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1A . The Scheme to Inflate Revenue and Same Store Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1B . The Scheme to Capitalize Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 0C . The Material Impact of the Accounting Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7D . Specific False and Misleading Statements about Buca's Revenue, Same

Store Sales, and Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3E. Scienter : The Defendants' Knew of and Perpetrated the Accounting Fraud . . . . . . . . . 42

VI. THE SCHEME TO CONCEAL BUCA'S GROSSLY INADEQUATEINTERNAL CONTROLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

A. Buca's Internal Controls Were Inadequate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 0B. Micatrotto Fostered and Benefited from Inadequate Internal Controls . . . . . . . . . . . . . . . . . 52C. Gadel Fostered and Benefited from Inadequate Internal Controls . . . . . . . . . . . . . . . . . . . . . . . . . 5 3D. The Defendants' False Statements Regarding Buca's Internal Controls . . . . . . . . . . . . . . . 5 6E. Scienter : The Defendants' Knew of and Perpetuated Inadequate Interna l

Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 9F. The Criminal and Civil Litigation Against Micatrotto and Gadel Confirm s

They Made False Statements About Buca's Internal Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62VII. DISCLOSURE OF THE FRAUD AND LOSS CAUSATION . . . . . . . . . . . . . . . . . . . . . . . . . . 65

A. The July and October 2002 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5B. The May 2004 Disclosure . . . . . .• . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6C. The February and March 2005 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 8

VIII . FRAUD-ON-THE-MARKET PRESUMPTION .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 7 1IX. CLASS ACTION ALLEGATIONS .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 73X. NO SAFE HARBOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 74XI. CAUSES OF ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 75XII. PRAYER FOR RELIEF . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 78XIII . JURY TRIAL DEMAND .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 79ATTACHMENT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 81

1 . Plaintiffs bring this action as a class action on behalf of themselves and al l

other persons who purchased shares of the common stock of Buca, Inc . ("Buca" or the

"Company"), an operator of Italian restaurants, from February 6, 2001 through March 11 ,

2005 (the "Class Period") to recover damages caused by Defendants' violation of th e

federal securities laws. During the Class Period, Buca stock traded at artificially inflate d

prices because Defendants' fraudulent schemes misled investors by falsely reporting th e

Company's revenue and earnings and by falsely certifying that Buca had adequate an d

effective internal controls . Plaintiffs purchased Buca stock at inflated prices and were

harmed as the artificial inflation came out of the stock as investors learned of Buca's tru e

financial position. Plaintiffs make the allegations in this Complaint upon personal

knowledge as to themselves and their own acts and upon information and belief as to al l

other matters based upon an investigation made by and through their attorneys, whic h

investigation included a review of Buca's public documents and news releases, including

public filings with the Securities and Exchange Commission (the "SEC"), a review of th e

documents filed in civil and criminal cases brought against Defendants by the SEC, th e

U.S. Attorney and by Buca itself, a review of news a rticles and analyst reports, and

interviews of former employees of Buca with knowledge of the matters alleged herein .

1 . SUMMARY AND INTRODUCTIO N

2. Acting with the actual and apparent authority of Buca, Defendants Joseph

Micatrotto and Greg Gadel, Buca's Chief Executive Officer ("CEO") and Chief Financia l

Officer ("CFO") during most of the Class Period, carried out a series of interrelate d

fraudulent schemes that caused massive losses to investors who purchased Buca shares

during the Class Period . Motivated by a desire to enrich themselves, they artificiall y

inflated Buca's revenue and earnings and manipulated publicly reported same store sales .

They also conspired to perpetuate Buca's inadequate internal controls and to conceal this

material inadequacy from investors . The inadequate internal controls made th e

manipulation of revenue, earnings and same store sales possible and also allowed

Micatrotto and Gadel to steal hundreds of thousands of dollars from Buca . According to

the Company's own statements , Defendant Pete Mihajlov, as chairman of Buca' s audit

committee, and later as Micatrotto's successor as CEO, learned of the Company' s

inadequate internal controls during the Class Period but falsely certified that these

controls were adequate and effective .

3. Micatrotto and Gadel manipulated the Company's reported revenue and

earnings to make Buca appear to be much more successful than was actually the case .

They did this, in part, by wrongly treating meals given away to employees as revenue .

This made "same store sales ," a critical indicator for investors , appear to be much more

robust than was actually the case . In the initial year of this scheme the growth rate for

same store sales was overstated by 583% .

4. Micatrotto and Gadel also improperly inflated earnings by materially

understating Buca's expenses . Specifically, they wrongly treated routine operating

expenses as capital expenditures whose cost could be spread over several years . As a

result of Buca's improper capitalization practices, the Company fraudulently increased its

reported earnings by $12 .6 million during the period 2000 through 2003, inflating Buca's

earnings by over 35%.

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5 . Investigations by the SEC and Federal prosecutors eventually forced Buca to

restate its financial reporting for the Class Period . In its restatement Buca acknowledge d

that its results of operations had been materially false and misleading .

6. Micatrotto and Gadel knew what they were doing . The SEC investigation

concluded that they deliberately and intentionally misled investors about Buca's tru e

financial condition during the Class Period . In June 2006 comments on the SEC's civi l

cases against Micatro tto and Gadel, Linda C. Thomsen, the SEC's director of

enforcement, explained that "Buca's top officers created a tone at the top and a corporate

culture that allowed them to loot the company and engage in a financial fraud," according

to the New York Times. The investigation by the U .S . Attorney's office concluded with

Micatrotto and Gadel pleading guilty to criminal charges of fraudulently filing fals e

statements about Buca with the SEC. The conclusion that Micatrotto and Gadel acted

with a wrongful state of mind is inescapable, given the circumstances and magnitude o f

the abuses during the Class Period and the statements of former Buca employees . Both

men were experienced restaurant executives who knew the truth about Buca's financia l

situation because they carefully monitored what each of Buca' s restaurants were makin g

and spending on a daily basis . And several knowledgeable former employees of Buca

confirmed to the SEC and Plaintiffs' counsel in this case that Micatrotto and Gade l

personally ordered the use of improper accounting procedures even though they wer e

repeatedly warned not do so .

7 . As Chairman of Buca's Audit Committee, Defendant Mihajlov became

aware of substantial fraud by Micatrotto and other Buca managers prior to replacin g

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Micatrotto as CEO in May 2004 . According to the SEC, by January 2004 the Audit

Committee had learned that Micatrotto had taken advantage of the Company's poor

internal controls to engage in self-dealing. But Mihajlov kept Buca's stock price from

falling further by concealing the fraud . Even after Mihajlov and other board members

forced Micatrotto to leave the Company because they had learned that Micatrotto had

taken advantage of poor internal controls to steal hundreds of thousands of dollars ,

Mihajlov certified to investors that Buca's internal controls were adequate and effective ,

that there had been no significant change in internal control procedures since Micatrotto' s

departure, and that all fraud by key Company personnel had been reported to Buca' s

auditors .

8 . Buca's investors suffered substantial losses when Buca's stock price droppe d

sharply on July 16, 2002 and on October 24, 2002, when Buca unexpectedly announce d

poor same store sales, and again on May 11, 2004, when Micatrotto suddenly left the

Company with no explanation . These partial corrective disclosures alerted investors to

serious problems at Buca and the market responded by reducing the artificial inflation in

Buca's stock price caused by the Company's prior false statements about its financia l

health. But much material information was still concealed from investors .

9. In the wake of these partial disclosures investors learned that same stor e sales

were declining and were not stable or increasing, as Buca had been claiming . However,

the true nature of the accounting fraud and its full impact on same store sales would no t

be disclosed until the end of the Class Period . Investors only learned the full truth abou t

Buca when the Company unexpectedly disclosed, on February 7 and March 11, 2005 ,

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that it was being investigated by the SEC for accounting irregularities, that the real reaso n

Micatrotto had left the Company was that he had been fired because of massive theft

from the Company, that the Company had improperly booked revenue and would likely

have to restate its financial statements and that the Company had suspended its actin g

CFO. On these announcements the price of Buca's stock dropped further .

H. JURISDICTION AND VENUE

10. The claims alleged herein arise under Sections 10(b) and 20(a) of the

Securities Exchange Act of 1934 (the "Exchange Act"), 15 U .S.C . 5 78j(b) and 78t, and

SEC Rule 10b-5, 17 C .F.R. 5 240 . 1 Ob-5, promulgated thereunder .

11 . The jurisdiction of this Court is based on Section 27 of the Exchange Act, 1 5

U.S.C. § 78aa and 28 U.S .C . §§ 1331 and 1337. 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 alleged

herein, including the dissemination to the investing public of the misleading statement s

and omissions at issue, occurred in substantial part in this District . Moreover, Defendants

conduct substantial business in this District . In connection with the acts, transactions and

conduct alleged herein, Defendants used the means and instrumentalities of interstat e

commerce, including the United States mails, interstate telephone communications and

the facilities of national securities exchanges and markets .

III. THE PARTIES

12 . Lead Plaintiffs in this action, West Palm Beach Police Pension Fund, Steven

Jones, Charles Booth and Bert-Mary Brady purchased shares of Buca's common stock a s

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set forth in their respective certifications previously filed with the Court and incorporated

by reference herein, and were damaged thereby . Lead plaintiffs seek to represent a class

of persons ("the Class") who purchased Buca stock during the Class Period .

13. Defendant Buca, Inc . ("Buca" or "the Company") is incorporated i n

Minnesota and maintains its principal executive offices in Minneapolis , Minnesota.

Since the Company went public in 1999 its common stock has traded on the NASDAQ

under the ticker symbol "BUCA ." It owns and operates approximately 93 "Buca di

Beppo" Italian restaurants in 30 states and the District of Columbia . Buca also owned

and operated some eleven "Vinny T's of Boston" Italian restaurants until September

2006, when these restaurants were sold . During the Class Period, Buca pursued a rapid

expansion strategy . In December 2000, it owned and operated 51 restaurants, and by

December 2004, it owned and operated 107 restaurants .

14. Defendant Joseph Micatrotto ("Micatrotto") became Buca's CEO in 1996

and was named Chairman of Buca's board of directors shortly after the Company went

public in April 1999. He served in both these positions until May 10, 2004, when he was

fired by Buca's board . Micatrotto had extensive experience in the restaurant industry .

According to Buca's Proxy Statement for the Company's May 2003 annual meeting,

"Mr. Micatrotto's 29-year career in restaurant management includes being CEO of Panda

Management Company, Inc ., where he led the company's expansion and president and

CEO of Chi-Chi's Mexican Restaurant, Inc., where he was instrumental in its national

growth." On June 20, 2006 Micatrotto plead guilty to a criminal Information charging

him with committing wire fraud in connection with his scheme to violate federal

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securities laws . The SEC also filed a civil complaint against Micatrotto alleging that h e

violated the securities laws .

15 . Defendant Greg A . Gadel ("Gadel") served as Buca's Executive Vice

President, CFO, Secretary and Treasurer from prior to the Class Period until about

February 15, 2005 . According to a prospectus filed with the SEC by Buca on April 13 ,

2000 , Gadel was a Certi fied Public Accountant (CPA). The prospectus also describe s

Gadel's extensive experience in both corporate finance and the restaurant industry : "Prior

to joining BUCA, Mr. Gadel was CFO for the 32-unit restaurant chain , Leeann Chin . In

addition, he previously was vice president and controller for the largest Chi-Chi' s

franchisee, Consul Corporation- He has also worked for Marriott, McDonald's and th e

Deloitte & Touche LLP accounting firm, and has over 16 years experience in th e

restaurant industry ." On June 23, 2006, Gadel plead guilty to a criminal Information

charging him with committing mail fraud in connection with his scheme to violate federa l

securities laws. The SEC also filed a civil complaint against Gadel a lleging that he

violated the securities laws. Buca itself also filed a civil complaint against Gadel ,

accusing him of fraud . After leaving Buca Gadel went to work at Parasole, a privat e

company owned by Buca's founders, including Defendant Mihajlov

16 . Defendant Pete Mihajlov ("Mihajlov") was a founder of Buca . He served as

Buca 's Chairman and CEO from May 10, 2004 until October 15, 2004 . He was a

member of Buca's board of directors from 1993 through the end of the Class Period .

Until he assumed the post of CEO on Micatrotto's dismissal in May 2004, Mihajlov was

chairman of the Buca's Audit Committee . The audit committee "was responsible for

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overseeing [Buca's] accounting and financial reporting process and the audits of [Buca's ]

financial statements," according to the prospectus Buca filed with the SEC on April 26 ,

2004. Like Micatrotto and Gadel, Mihajlov had extensive experience in the restauran t

industry-according to Buca's Proxy Statement for the Company's May 2003 annua l

meeting "Mr. Mihajlov has been in the restaurant industry since 1977 ." Mihajlov is also

a principal owner of Parasole Restaurant Holdings, Inc ., a restaurant holding company

which he co-founded in 1986 .

17. Micatrotto, Gadel, and Mihajlov are collectively referred to as th e

"Individual Defendants . "

IV. BACKGROUND TO THE ACCOUNTING FRAUD

18 . Defendants Micatrotto and Gadel personally orchestrated a scheme to

manipulate both revenue and net earnings at Buca through a highly centralized

accounting system. According to former Buca employees and the Company'-s own

securities filings, Micatrotto and Gadel were micromanagers who had access to near real

time information on sales at each of Buca ' s restaurants . They used this information to

monitor developments at each restaurant on a daily basis . They also closely followed

Wall Street's expectations for Buca, and they communicated to their subordinates th e

vital importance of reporting financial results that met the expectations of analysts wh o

followed the Company . Gadel also used Buca assets to operate a separate business in

which he held an ownership interest.

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A. Micatrotto and Gadel 's Detailed Knowledge of Each Restaurant'sEarnings

19. Buca's accounting function was highly centralized in its Minneapoli s

headquarters . Every night, each restaurant would input sales figures into this accounting

system. As Buca described in its Annual Report on Form 10-K for each year during th e

Class Period :

All of our restaurants use personal computer systemsintegrated with management systems to monitor restaurantsales, product costs and labor costs on a daily basis . Financialcontrols are maintained through a centralized accountingsystem, which includes a sophisticated theoretical food costprogram and a labor scheduling and tracking program .Physical inventories of food and beverage items are taken ona weekly basis . Daily, weekly and monthly financialinformation is provided to management for analysis andcomparison to our budget and to comparable restaurants .We closely monitor restaurant sales, cost of sales, labor andother restaurant trends on a daily, weekly and monthlybasis. [emphasis added ]

20. According to a confidential source, CS-2,' the general manager of a Buc a

restaurant from 1998 through 2003, Micatrotto in particular was "completely on top of

the numbers" for every restaurant on a daily basis . According to CS-2 virtually every

Saturday, Sunday and Monday morning while he was employed by Buca Micatrotto

would leave a voice mail for each restaurant general manager discussing the restaurants '

sales the evening before and how those sales compared to prior periods . Sometimes

Micatrotto would call more often than three times a week . If the restaurant had done well

1 A description of each of the confidential sources referred to in this Complaint isattached as Attachment A .

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the previous night Micatrotto would praise the manager, if sales were poor there woul d

be criticism. Micatrotto also "would tell you how much you needed to do-that night-

to beat last year's numbers ."

21 . There were, according to CS-2, also regular conference calls to discuss sales

during which weekly sales goals were established . The participants in these call s

included Micatrotto, Gadel, Buca's divisional vice presidents and all of the restauran t

general managers .

22. Another source, CS-1, also repo rted that Micatro tto would leave voicemail s

discussing the previous night's sales for the restaurant general managers each Friday,

Saturday and Sunday. CS-I worked for Buca from 1999 until mid--2005. By at least

2001 he/she was a restaurant general manager and in 2003 was promoted to divisional

vice president, with responsibility for Buca restaurants in a particular geographic area .

Micatrotto applied enormous pressure to improve on the prior year's numbers, accordin g

to the source . After CS-1 became a vice president Micatrotto would often call him/her

every day.

B. Micatrotto and Gadel's Focus on Wall Street's Expectation s

23 . Micatrotto and Gadel insisted upon reporting revenue and earnings consisten t

with analyst expectations . According to a former Accounting Manager who worked i n

Buca's corporate offices from 2000 to 2004 and reported to Buca's controller ("CS-3"),

Gadel pressured the controller to "hit whatever earnings had been projected" by Wall

Street analysts . Micatrotto regularly told senior Company managers to "do whatever it

takes to drive sales." According to CS-1, "with Greg [Gadel] and Joe [Micatrotto], it was

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all about what's on the Street, boosting comp sales, driving the stock ." CS-3 stated that

the Company engaged in "aggressive" accounting practices in response to a push by to p

management to "make their numbers . "

V. THE ACCOUNTING FRAU D

24. The Defendants defrauded the investing public by manipulating same store

sales and falsely reporting that Buca restaurants were performing well when measured b y

this important metric . They also made Buca appear far more pro fitable than was actuall y

the case by improperly capitalizing millions of dollars in expenses, allowing the impac t

of these expenses on Buca's profits to be spread over many years . These two accounting

manipulations allowed Buca to falsely report stable or increasing same store sales an d

overstate net earnings .

A. The Scheme to Inflate Revenue and Same Store Sales

25 . Revenue growth is important in any industry . However, in the restaurant

industry comparable restaurant sales (also referred to as same store sales) is a ke y

indicator of growth . Same store sales exclude sales from newly opened restaurants ,

comparing only sales of stores open for a specific period of time-usually one year-an d

allow investors to determine what portion of a restaurant company's sales have come

from sales growth at existing restaurants and what portion is from the opening of ne w

stores. Investors and securities analysts generally understand that looking only at th e

total sales of a rapidly expanding retail company like Buca would provide an inaccurate

picture of the potential for growth of such a company . A company opening many new

restaurants is almost certain to see its sales go up as new customers are attracted to newly

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opened stores . But if the sales of restaurants open more than a year are declining it i s

unlikely that the company can maintain a strong growth rate .

26. Because same store sales was an important statistic for analysts an d

investors, it was also important for Buca's management . Micatrotto and Gadel's bonuses

were based, in part, on same store sales, according to Buca ' s SEC filings . They regularly

touted comparable restaurant sales growth in Buca's press releases and SEC filings . In

its Form 10-K for fiscal 1999 and 2000, Buca stated that an increase in comparabl e

restaurant sales was a sign of growth and expansion for the Company. Buca reported in

its Form 10-K for fiscal year 2000, an increase of 6% for its comparable restaurant sales

for 2000, following increases of 8.9% in 1997, 13.3% in 1998 and 9 .6% in 1999. The

Company also stated its expectation that comparable restaurant sales would continue t o

increase 2% to 4% in fiscal year 2001 .

1 . Inflation of Same Store Revenue

27 . Same store sales began to decline in the first quarter of 2001 . When this

happened Micatrotto and Gadel began to pressure Company officials to report number s

consistent with analyst expectations rather than with reality . This decline in same store

sales was partly due to Buca 's concept of serving customers very large portions . Because

of the portion size, customers tended to order less during each subsequent visit to a

restaurant, resulting in lower sales .

28_ Beginning in at least 2001, each Buca di Beppo restaurant made available t o

its employees and their families every afternoon a "Family Meal ." Employees were not

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required to partake of this meal, nor were they charged for the food . Generally, these

meals consisted of unsold food from the previous night .

29. In order to sustain its comparable sales growth in the face of declining sales ,

but in violation of Generally Accepted Accounting Principles ("GAAP"), Buca began to

regularly book as revenue the purported value of the meals it provided to its employees at

no cost to them- The goal of recognizing revenue on employee meals was, according to a

former restaurant General Manager in Arizona, who worked for Buca from 1999 unti l

March 2005 ("CS-4"), to inflate revenue and, in particular , same store sales .

30. According to another former restaurant general manager , who served in this

capacity at several restaurants from 1998 to 2002 ("CS-5"), in early 2001 Micatrotto and

Gadel directed each Buca di Beppo restaurant to begin to book the "Family Meals" as

though they were actual sales to paying customers, thereby boosting the restaurant's sale s

and revenues figures. They specifically directed each store to book these "Family Meals "

at roughly $100 a night, or $700 per week . Micatrotto reminded restaurant managers o f

this accounting directive every few weeks . CS-3 confirmed that the decision to begin

booking the employees meals as sales came sometime in early 2001, and that Gadel wa s

one of the persons who gave the directive to do so .

31 . The increased sales from employee meals had the greatest impact on Buca' s

financial reporting in the first year after the implementation of this improper practice,

from the first quarter of 2001 to the first quarter of 2002 . During much of that twelve-

month period same store sales appeared to be increasing . At the same time, Buca's stock

price climbed to more than $25 per share. The booking of the employee meals as sales

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also allowed same store sales numbers to remain relatively level during the period after

September 11, 2001, when the restaurant industry as a whole was seeing declinin g

numbers from people not going out to eat. After that first year, the booking of the

employee meals no longer artificially inflated the comparable sales statistic because sale s

were being compared to reporting periods during which employee meals had been

booked as revenue . However, the continued inclusion of such employee meals wa s

improper under GAAP, and distorted the changes in same store sales reported by Buc a

for the remainder of the Class Period .

32. According to the Company's Chief Operating Officer from October 199 8

through February 2001 ("CS-7), the increased sales from this accounting treatment o f

employee meals had a material impact on comparable store sales. CS-7 stated that "i f

you look at four week periods, that is $2,800 at one restaurant . That's an extra Tuesday

night."

33 . In 2001, Micatrotto and Gadel also changed Buca's methodology for

calculating same store sales . In another effort to conceal poor sales at newly opened

restaurants, same stores sales were calculated based on restaurants that had been ope n

more than 18 months, rather than 12 months as had previously been the case .

34. Buca began 2001 by announcing that same store sales and guest visits were

increasing . On April 25, 2001 , it issued a press release with the results for the first

quarter of 2001 . Buca reported sales of $39 .49 million and, "[c]omparable restaurant

sales increased three percent from the first quarter of 2000, with approximately half th e

gain contributed by higher guest counts and the balance attributable to a higher averag e

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check." Micatrotto stated that, "[w]e achieved this growth despite the loss of 2 6

restaurant/sales days due to inclement weather during the first quarter of this year ,

compared to losing just two restaurant/sales days during the same period last year." This

positive news on comparable restaurant sales caused the stock price to jump $3 .11 or 15 . 2

percent from the previous day's close . This dramatic price increase reflects the

importance investors attached to same store sales .

35 . After the first quarter of 2001 same store sales began to drop. To conceal

this development from investors, Micatrotto and Gadel ordered their restaurant manager s

to begin booking the previously unrecognized employee meals as revenue . This allowed

Buca to boost comparable restaurant sales and cushioned what was shaping up to be a

hard drop in same store sales . As a result , Buca was able to announce in its July 24, 200 1

press release sales of $43 .7 million and that, "[f]or the second quarter of 2001 ,

comparable restaurant sales increased 0 .1 percent against the same quarter last year ."

There was no disclosure of the fact that the Company was now including employee meal s

as revenue, and as a new component of same store sales .

36. By booking employee meals as revenue and by excluding from same stor e

sales restaurants open for less than eighteen months, Buca was able to ride out the

downturn in the restaurant industry in the third and fourth quarters of 2001 . On January

28, 2002, Buca announced that for the fourth quarter, it had sales of $48 .3 million and

only a "0.8 percent decrease in comparable restaurant sales" and a "0 .6 percent decreas e

in comparable restaurant sales" for the full fiscal year 2001 . By contrast, the restaurant

15

industry fared much worse during this period, largely due to the September 11, 200 1

attacks .

37. On April 25, 2002, after the close of the market Buca announced record sales

of $56.3 million , but that "[c]omparable restaurant sales decreased 2 .7 percent at the 5 1

Buca di Beppo restaurants in the comparable restaurant base during the 13 weeks ended

March 31, 2002 ." But Defendants insisted that the downturn in same store sales, which

the Company described as "expected," was an aberration . The press release quoted

Micatrotto as saying "we are confident that comparable restaurant sales will be positiv e

in the second quarter and increase three to five percent in the last half of this year ."

38. On May 15, 2002, Buca reiterated its positive view, issuing a press releas e

touting record sales and a historical best one-week sales of $5 .7 million. "The Company

also reported that comparable restaurant sales have turned positive for the Buca di Beppo

concept, as projected, and have been positive for each week since mid--April ." Micatrotto

was quoted as saying "I am pleased to report comparable restaurant sales for the Buca d i

Beppo concept have turned positive, as we projected, and we are confident that

comparable restaurant sales for those restaurants will be positive for the second quarter . "

The following day two analysts, Dennis Joe at Sidoti & Company LLC and R. Scott

Tilghman at Ladenburg Thalmann & Co . reaffirmed their "buy" ratings on Buca stock.

39. The Defendants also implemented another improper accounting mechanis m

in a desperate attempt to maintain the appearance of continued same store sales growth .

Employees at the Company 's Minneapolis headquarters had been receiving

complimentary lunches from a local Buca restaurant . In 2001, Baca "paid" itself $100 0

16

per day for these complimentary employee meals- According to a Cash Accountant a t

Buca's headquarters from October 1998 until October 2002, who also worked on th e

commi ttee in charge of ordering the headquarters ' lunches ("CS-6"), in April or May

2002, to increase same-store sales, the Company increased the amount it "paid" itself t o

$2000 per day . Micatrotto and Gadel made this decision, according to CS-6 .

40. A March 2004 affidavit of Dan Skrypek, then Buca's controller, filed with

the Department of Labor in a whistleblower action against Buca, confirms CS-6' s

account. According to Skrypek, it was in April 2001 when Buca started "paying" itself

$1 ,000 a day for these employee meals . Subsequently, according to Skrypek "we

determined" in "approximately May 2002" to increase this amount to $2,000 . The reason

for the increase was that "we decided" that the $1,000 amount "was too little ."

41 . On June 3, 2002, Buca issued a press release which described topics that

Micatrotto and Gadel would raise at an investors conference later in the day . The release

quoted Micatrotto as saying :

I am pleased to announce the progress we have made on ourcomparable store sales trends . In April, as expected, for theBuca di Beppo concept we began to see an improvement inour comparable store sales, which were down one percent forthe month- In May, that positive trend continued and ourcomparable store sales were up one percent on an even largersales base. We anticipate that our comparable store saleswill continue to improve throughout June and we will be ata ran-rate of approximately two to three percent increase insales by the end of the month. We continue to expectcomparable store sales for Buca di Beppo to be up three tofive percent in the last half of the year. [emphasis added]

17

2 . Micatrotto and Gadel Cash In

42. Realizing that, despite his statements to the contrary, the artificial increase s

in same store sales could not be maintained, seven days after he announced "an

improvement in comparable store sales" Micatrotto sold 100,000 shares at an averag e

price of $18 .25, for proceeds of approximately $1,260,000 . In terms of both shares and

value this was by far the largest open market transaction during Micatrotto's entire tenur e

as CEO. After this sale Micatrotto did not own a single share of Buca stock .

43 . Gadel also sold substantial amounts of Buca shares while same store sale s

were being artificially inflated by including employee meals as revenue . The SEC

concluded that "Gadel . . . profited from the financial fraud at Buca" by "exercising

options and selling Buca stock" at a time when he knew that the Company's publi c

financial filings portrayed its financial position as stronger than was actually the case .

Specifically, according to the SEC's complaint against Gadel, Gadel made "at leas t

$546,000 in profits from 2000 to 2002" from his improper dealings in Buca securities .

Gadel's transactions included the sales of 27,332 shares on March 14, 2001 for $155,678 ,

20,000 shares on April 26, 2001 for $106,846, 20,934 shares on January 30, 2002 for

$121,159, and 20,750 shares on August 13, 2002 for $142,967 .

3 . The Truth is Partially Revealed

44. On July 16, 2002, after the market closed, Buca announced its results for th e

second quarter of 2002. The Company surprised the market reporting "[c]omparable

restaurant sales decreased 1 .3 percent for the 51 Buca di Beppo restaurants in the

comparable restaurant sales base during the .13 weeks ending June 30 , 2002 . "

18

45. Given the reported 2001 sales, and public comments by Micatrotto about firs t

quarter 2002 sales, the decline in same store sales was totally unexpected. Analysts Allan

Hickock at U .S. Bancorp Piper Jaffray and Bryan M. Stouffer at BB&T Capital Market s

both downgraded Buca's stock. Both analysts told the Star Tribune on July 19, 2002 ,

that they had not expected the same-store sales decrease . In response to the news, Buca' s

stock dropped nearly 30 percent in a day, from $13 .35 per share on July 16, 2002 to

$9.26 per share on July 17, 2002.

46. Investors now realized that Buca was not the growth company they ha d

thought. Analyst Bryan C. Elliot of Raymond James stated in his report on July 17, 2002

that, "average weekly sales fell 3 .7% in Q2 to $52 .8 million, indicating that newer units ,

not in the 18-month comp base, are still underperforming more established stores .

Further concern stems from BUCA's fourth straight quarter of SSS (same store sales )

declines, contrary to other casual dining concepts' SSS results ." Elliot went on to say ,

"we remain apprehensive of BUCA's long-term SSS growth . "

47 . The July 16, 2002 announcement was the first indicator to the market tha t

Buca's same store sales were much worse than it had been lead to believe . On July 18 ,

2002, Allan Hickock of U .S . Bancorp Piper Jaffray complained in his analyst report that

the announcement of a same store sales drop had been :

prefaced by more comforting reassurance about sales trendsby management halfway through the quarter, leading manyinvestors to believe that BUCA was poised to report resultsmore in line with its peer group . That turned out not to be thecase, and, in conjunction with insider selling late in thequarter, the 20% decline in share price following an inlin e

19

earnings release reflects negative investor sentiment aboutguidance, confidence and credibility .

48. On October 24, 2002, prior to the market's opening, Buca reported its results

for the third quarter of 2002, announcing that "[c]omparable restaurant sales decreased 2

percent for the 56 Buca di Beppo restaurants in the comparable sales base during the 1 3

weeks ending Sept . 29, 2002 ." In other words, same store sales were down 2 percen t

from the third quarter in 2001, which suffered the effects of September 11 . The market

again hammered Buca's shares, which fe ll $2 .05 or approximately 22% from their clos e

of $9.18 on October 23 .

49. By October 24, 2002 investors knew that Buca faced difficulties that had no t

been expected based on the Company's public statements, and Buca's stock price ha d

fallen accordingly . The July 16, 2002 and October 24, 2002 announcements were partial

corrective disclosures, in that the market recognized that same store sales were much

worse than Buca's management had lead it to expect and adjusted the value of Buc a

shares. But the full truth would not be revealed until the end of the Class Period, when

the market finally discovered that actual same store sales had not been as high as reported

in 2001 and early 2002, and had been artificially inflated by improperly includin g

employee meals as revenue , in violation of GAAP.

B. The Scheme to Capitalize Operating Expense s

50. Improper revenue recognition was not the only aspect of the accounting frau d

at Buca. Micatrotto and Gadel recognized that market analysts also paid close attentio n

to earnings, in addition to same store sales . While same store sales were a key indicator

20

of growth, profitability was also critical to securities analysts and the investing public .

Growth alone, without earnings, would not support Buca's stock price. Inflating same

store sales through employee meals did not increase earnings, because there wer e

comparable costs associated with those meals . Accordingly, Micatrotto and Gadel

engaged in a scheme to artificially inflate net earnings by capitalizing expenses ove r

extended financial reporting periods, rather than taking the entire expense in the reportin g

period required by GAAP. This allowed Buca to appear to meet Wall Street earning s

expectations when, in fact, earnings were falling short of those expectations .

51 . Beginning in 2000, according to the SEC's complaint against him, Gade l

would preliminarily assess Buca's financials at the close of each quarter and the n

determine how much income he needed to "find" in order to meet analysts' earning s

estimates for Buca . Gadel, with the assistance of his direct report Dan Skrypek, Buca' s

Vice President and Controller, found a number of different ways to in flate Buca 's income

by decreasing expenses through improper capitalization . As CFO, Gadel , along with

Micatrotto, had ultimate responsibility at Buca for whether an expense item should b e

capitalized.

52 . This scheme to inflate Buca's income was not complex . It involved taking

ordinary expenses, which should be expensed in the period in which they are incurred,

and treating them as capital expenditures . A capital expenditure is an expenditure to

acquire or improve a long-term asset. Under GAAP the cost is spread (expensed) over

the period it benefits . For example, footnote 4 to Buca's Fiscal 2004 Form 10- K

indicates that Buca depreciates, i.e., expenses, the capitalized cost of "buildings an d

21

leasehold improvements" over a range of 5-25 years . Thus, if Buca capitalized

consulting fees of $25,000 as part of leasehold improvements and intended to depreciat e

that cost over the lease term (say, for example, 10 years) it would recognize $2,500 per

year in expense over the next 10 years . The impact of such scheme is dramatic-a

$25,000 cost is reduced ten fold to $2,500 .

53. CS-I0 is a certified public accountant and former Assistant Controller who

worked in Buca's corporate offices in Minnesota from the first quarter of 2000 unti l

he/she made an internally "noisy" resignation in October 2001 . CS-10 indicated that

while he/she was at Buca, Gadel and Skrypek would monitor Wall Street' s earnings

expectations for Buca. CS-10 said that the Company would capitalize expenses in orde r

to meet these expectations . In fact, Gadel would often order that any expenses ove r

$1,000 be capitalized regardless of what the item was . CS-10 stated that during pressing

times when the Company "badly needed the pennies" to meet Wall Street estimates, the y

did not even look at invoices with respect to expenses that they were capitalizing .

54. CS-3 is the former Accounts Payable Manager who worked at Buca' s

corporate offices from July 2000 through February 2005 . CS-3 is familiar with GAAP

based on his/her extensive accounting experience . CS-3 confirms that the Company

would improperly capitalize expenses to "fill the gap" at the end of the quarter .

55 . The confidential sources , the SEC complaints , and Buca itself in its

subsequent public statements and filings, have described the principal mechanisms

Defendants used to fraudulently turn regular expenses into capital expense .

22

1 . Sham Donations from Vendors

56. Buca improperly capitalized at least $713,000 in expenses incurred in

connection with an elaborate bill-back arrangement with certain vendors, according to th e

SEC's complaint against Gadel . The bill-back scheme concerned an annual conference

for Buca store managers called the "Paisano Partners Conference ." Buca ostensibly

funded the Paisano Partners Conference through contributions from its vendors. In

reality, certain Buca vendors made contributions to the Conference with the expres s

understanding that they could bill the contribution amount back to Buca . Gadel focused

the bill-back scheme on vendors . The vendors involved would pay contributions to Buc a

to help fund the Paisano Partners Conferences . They would then bill back the amount of

the contribution by burying the amount in a subsequent inflated invoice to Buca . Buca,

in turn, would characterize the inflated invoices as capital expenditures . As a result ,

Buca effectively capitalized the expense of the conference .

57. Gadel orchestrated the bill-back scheme, according to the SEC's complain t

against him. For example, he directed Buca's construction manager to request tha t

Buca's construction vendors make contributions to the Paisano Partners Conference and

then bill back the contribution. The vendors typically billed for the contribution amount s

in vaguely worded change orders and invoices, or inflated project bids . According to the

SEC's complaint, Gadel told the construction manager that this arrangement would allow

Buca to capitalize the vendor's bill-back, and that any Buca vendor with questions abou t

the arrangement could call him directly .

23

2. Capitalization of Repairs and Maintenance

58. Buca also improperly capitalized at least $4 .67 million in repair an d

maintenance expenses, as well as general and administrative expenses, according to th e

same SEC complaint . Gadel and Skrypek targeted repair and maintenance expenses t o

make up the difference between analyst earnings expectations and Buca's preliminar y

financial results . They directed Buca employees at quarter end to review repair and

maintenance account invoices over $1,000 to find invoices that could be capitalized in a

sufficient quantity to meet an earnings target . Many of the capitalized invoices did no t

present properly capitalized expenses . According to the SEC's complaint, a Buc a

assistant controller advised Skrypek that he was uncomfortable with the practice of

searching for items to capitalize at the end of each qua rter in view of earnings targets, ye t

neither Skrypek nor Gadel did anything to change the practice .

59. According to the SEC, as the scheme continued, the improper capitalization

of repair and maintenance invoices significantly expanded . First, Buca capitalized most

repair and maintenance invoices over $1,000 so that there was no need to review invoices

at quarter end for capitalization purposes. Later, at Gadel's direction , Buca set up a

capitalization account for invoices under $1,000, according to the complaint . Gadel and

Skrypek eventually allowed Buca accounting employees to put any small repair or

maintenance invoice that the company received into this account, regardless of whethe r

or not the invoice represented a capital expense .

24

3 . Invoices from High Wire and ED P

60. According to the SEC's civil complaint against Gadel, early in the Clas s

Period Gadel was a director and a 10% owner of High Wire Networks, Inc . ("High

Wire"), a telecommunications company. High Wire was ostensibly a Buca contractor

but, according to the SEC, "High Wire provided most of its services to companies othe r

than Buca ." Nevertheless ,

Buca essentially funded High Wire's operations . . . . HighWire had its offices in a portion of Buca's office complex andBuca paid nearly $98,000 to build out the office spaceoccupied by High Wire . Further . . . Buca [was billed] forsalary payments totaling $1,394,775 made to High Wireemployees, even though many of these High Wire employeesspent little or no time working for Buca .

61 . CFO Gadel was responsible for payments to Buca's vendors, including Hig h

Wire. Given High Wire's presence in Buca's office space, at a time when, according to a

Buca SEC filing, Buca had only around 100 employees at its headquarters, the improper

relationship between Buca and High Wire was widely known within the Company .

According to the SEC's complaint a Buca assistant controller pointed out to Gadel, the

Company's transactions with High Wire were "related party transactions" that should b e

publicly disclosed, as required by SEC regulations . No disclosures were ever made .

62. According to the SEC's complaint against Gadel, Gadel exploited Buca' s

unusual relationships with High Wire and EDP Computer Systems ("EDP"), a Buc a

supplier closely connected to High Wire, to improperly capitalize expenses . Gadel also

had an undisclosed material financial interest in EDP . Buca, at the direction of Gadel an d

Skrypek, improperly capitalized at least $1 .5. million worth of invoices submitted as par t

25

of an arrangement involving High Wire and EDP . First, EDP billed Buca for salary

payments to High Wire employees totaling $1 ,394,775, even though many of these

employees did little or no work for Buca . Gadel and Skrypek approved capitalization o f

these salary payments despite having no documentation supporting such accounting

treatment . Second, at Gadel's direction Buca used an inflated invoice from EDP to

improperly capitalize at least $130,000 of ordinary expenses , including Buca 's monthly

telephone bill . Finally, High Wire occasionally submitted invoices to Buca in the round

amount of $100,000 with no description of the goods or services provided . Gadel and

Skrypek authorized payment of these vague invoices and approved the capitalization o f

the invoice payments. They did so, according to the SEC , even though Buca's assistan t

controller had raised questions about the nature of these vaguely worded invoices .

4. Payments to Independent Contractors

63_ Buca, at the direction of Gadel and Skrypek, also improperly capitalized a t

least $1 million in what should have been expenses for employee salaries as payments to

independent contractors, according to the SEC complaint . The improperly capitalized

payments involved both the mischaracterization of certain Buca employees a s

independent contractors and the mischaracterization of the work of genuine independen t

contractors as capital expenses .

64. According to the SEC, Buca improperly characterized certain of its

employees as independent contractors so it could capitalize payments to them . For

example, in 2002, a portion of the salary of Buca's assistant controller was capitalized .

Skrypek told the assistant controller that he would be an independent contractor for hi s

26

first three months of employment . Since Buca was acquiring another restaurant chain at

this time, Buca capitalized the assistant controller's salary payments as part of th e

acquisition. The capitalization of such normal salary items had no possible justificatio n

under GAAP .

65. In another example cited by the SEC, Buca laid off its vice president of real

estate but immediately hired her as an independent contractor . Gadel instructed the

assistant controller to pay the former vice president of real estate a $100,000 "finder's

fee" for two leases she had previously negotiated. This allowed Buca to effectively

capitalize her severance payments .

66 . According to the SEC complaint, Buca also mischaracterized the invoices o f

genuine independent contractors as capital expenses . For example, Buca, through Gadel

and Skrypek, capitalized payments totaling approximately $572,000 made to a n

independent contractor who provided permitting services for Buca restaurants, despit e

having no basis to do so . The invoices from this independent contractor contained no

itemization of her time or work . The permitting contractor's work mainly concerned th e

ongoing operations of Buca's restaurants, expenses which were not appropriate for

capitalization .

C. The Material Impact of the Accounting Frau d

67 . As Buca has now acknowledged by restating its fin ancial statements, th e

Company's accounting for employee meals was a violation of GAAP which materiall y

distorted Buca's public financial statements . Buca's restatement was for the years ending

December 26, 2000, December 27, 2001, December 28, 2002, December 29, 2003 an d

27

for its quarterly reports for the periods ended March 28, 2004, June 27, 2004 an d

September 26, 2004 . By removing the value of employees meals from sales, Buca

reduced its total revenue by the following material amounts :

Fiscal Year Endin g

First Nine December 29, December 28, December 27, December 26,Months of 2003 2002 2001 20002004

$5,040,000 $7,418,000 $6,871,000 $4,349,000 $2,023 ,000

68 . Improperly treating employee meals as revenue increased the Company' s

reported revenue and same store sales for 2000 through the first nine months of 2004 .

The employee meals represented more than 2% of the total sales for the Company for

each year. Put into perspective, the employee meals would have the effect of addin g

more than ten days of sales each year for every Buca restaurant . Or, put another way,

implementation of this accounting practice allowed each store to appear to have increase d

sales of at least $700 per week when compared with same store sales for the same wee k

the year prior. The "Family Meals" resulted in the appearance of increased sales of

between $2 and $7.4 million per year between 2000 and 2003 , and more than $5 million

in the first nine months of 2004 .

69 . Buca also restated its same store sales for the same period . It reduced (or

increased) its comparable restaurant sales by the following material percentages :

28

Comparable Restaurant Sales Increase (Decrease )

Fiscal Year December 30, December 29, December 28 ,Ending 2001 2002 2003As

Originally (0 .6%) (2 .1%) (6.9%)ReportedRestated

(4.1%) (2 .5%) (6.8%)AmountDifference (3 .5%) (0.4%) 0.1 %Percent

583% 19% 1.4 %Change

70. As the chart above shows , the increased sales from employee meals and

complimentary lunches had a massive impact during the first year this fraudulent schem e

was in effect. But for the improper treatment of employee meals as revenue, reporte d

same store sales would have been materially worse . After the first year, the booking of

the employee meals was necessary simply to keep same store sales at least level with th e

prior year .

71 . In booking employee meals as sales, Buca violated GAAP standards for

revenue recognition . Statement of Financial Accounting Concepts No . 5, Recognition

and Measurement in Financial Statements of Business Enterprises states in paragraph

83a that "[r]evenues and gains are realized when products (goods or services) ,

merchandise, or other assets are exchanged for cash or claims to cash." The Buca

employee meals were a cashless benefit to employees, not transactions with `third party '

outsiders and should not have been recognized as revenue.

72 . The aggregate effect of the capitalization of expenses scheme was material ,

as it allowed the Company to meet Wall Street's earnings expectations . Buca' s

29

subsequent restatement revealed that the scheme added approximately $12.6 million to

net earnings over fiscal years 2000 to 2003 . The fact that the Company was able t o

overstate its earnings by such a magnitude, despite the relatively small amount of man y

of the improperly capitalized transactions, demonstrates the pervasiveness of this scheme .

73 . While this scheme was in effect, Buca met EPS estimates in eleven o f

thirteen quarters . In most instances, Buca exactly met EPS estimates or exceeded them

by a penny :

BucaEarning sPressRelease

Date of BucaEarningsPress Release

EPSEstimates

EPSReported

EPSEstimatesMet OrExceeded

Q4 2003 2/9/04 $ 0 .01 $ 0 .03 yesQ3 2003 10/22/03 -$0.11 -$0.1 2Q2 2003 7/24/03 $ 0 .03 $ 0 .03 yesQ1 2003 4/22/03 $ 0 .07 $ 0 .07 yesQ4 2002 2/13/03 $ 0.14 $ 0 .14 yesQ3 2002 10/24/02 $ 0.13 $ 0 .07Q2 2002 7/16/02 $ 0.17 $ 0 .17 yesQ1 2002 4/25/02 $ 0.12 $ 0 .13 yesQ4 2001 1/28/02 $ 0.14 $ 0 .16 yesQ3 2001 10/23/01 $ 0.09 $ 0.09 yesQ2 2001 7/24/01 $ 0.15 $ 0.15 yesQ1 2001 4/25/01 $ 0 .10 $ 0.11 yesQ4 2000 2/6/01 $ 0 .22 $ 0.23 yes

74 . Buca's 2005 restatement described the extent and magnitude of the

capitalization fraud and admitted that "policies and practices regarding the capitalization

of certain expenditures had not been properly applied." In the restatement, Buc a

specifically admitted that it improperly capitalized the following expenses :

30

(a) Pre-Opening Expenses . Buca improperly capitalized a s

leasehold improvements certain expenditures, such a s

utility costs , property tax payments and consulting fees ,

incurred prior to restaurant openings . Buca should have

recognized these expenditures as pre-opening expense s

during the period incurred .

(b) Deco- Warehouse Expense and Repairs and Maintenance

Expenses. Buca improperly capitalized expenses that

should have been treated as decor warehouse expenses or

repair and maintenance expenses .

(c) Certain Consulting Fees . Buca improperly capitalized a s

fixed assets or as leasehold improvements certain

expenses related to consulting arrangements with

individuals for services in connection with the opening of

new restaurants and in connection with the maintenance o f

existing restaurants .

(d) Certain Contributions to Annual Paisano Partner s

Conference. Buca held an annual conference for Paisan o

Partners that was supposedly funded by contribution s

from vendors . Buca determined that certain contributions,

primarily from vendors providing construction service s

for new restaurants or repairs and maintenance of existin g

31

restaurants, had been inappropriately recorded as credit s

to general and administrative expense .

(e) Construction Management Expense. Buca improperly

capitalized expenses of employees who were managing

the construction of its new restaurants . Certain of the

amounts capitalized exceeded the expenses that Buca

actually incurred for the employees.

(f) Capitalized Interest. Buca identified instances where it

had capitalized interest on restaurants constructed after th e

related assets had been placed in service .

(g) Insufficient Documentation to Support Fixed Asset

Additions and Dispositions. Buca improperly capitalized

the cost of certain technology services, equipment an d

maintenance services provided to it . Buca determined that

there was insufficient documentation to support the

capitalization of consulting labor and maintenance an d

that these costs should have been recognized as consulting

expenses or repairs and maintenance expenses when

incurred.

75. The restatement also quantified the impact of the fraudulent scheme on th e

Company's earnings for the fiscal years 2000 through 2003 . The following chart shows

32

the impact of the scheme on prior fiscal years and certain quarterly periods (results for

quarterly periods prior to 2003 were not provided in the restatement) :

eriodReported NetIncome

ReportedNetIncomePer Share

Date ofPressRelease

Date ofSECFiling

Overstatementof Net Income

Overstatementof Net Incom ePer Share

% ofNetIncome

FY 00 $7,284,000 $0.54 02/06/01 03/30/01 $2,106,000 $0.16 28.9 %FY 01 $6,818,000 $0.41 01/28/02 04/15/02 $3,934,000 $0.24 57.7%FY 02 $7,996,000 $0.47 02/13/03 03/17/03 $2,796,000 $0.16 35.0%Q103 $1,098,000 $0.07 04/22/03 05/12/03 $394,000 $0.03 35.9%Q2 03 $427,000 $0.03 07/24/03 08/08/03 $469,000 $0.03 109.8%Q3 03 ($2,091,000) ($0.12 10/22/03 11/12/03 $344,000 $0.02 16.5%Q4 03 ($11,734,000) ($0.70 02/09/04 03/12/04 $2,622,000 $0.16 22.3%FY 03 ($12,300,000) ($0.73) 02/09/04 03/12/04 $3,828,000 $0.23 31 .1%

D. Specific False and Misleading Statements about Buca's Revenue, SameStore Sales, and Earnings

76. As a result of the foregoing scheme to artificially inflate revenues b y

including employee meals as revenue, and improperly capitalizing expenses, Buca mad e

numerous false and misleading statements, including the following press releases and

quarterly and annual reports filed with the SEC :

(a) Buca's February 6, 2001 press release announcing the

Company's financial results for the annual reporting

period ending December 31, 2000 . This press release was

approved by Micatrotto and Gadel and quotes Micatrotto

extensively.

(b) Buca's Form 10-K annual report filing with the SEC o n

March 30, 2001 for the year ended December 31, 2000 .

This document falsely indicated that the reported financia l

33

statements had been prepared in accordance with GAAP.

It was signed by Micatrotto, Gadel and Mihajlov .

(c) Buca's April 25, 2001 press release announcing the

Company's financial results for the three-month perio d

ending April 1, 2001 . This press release was approved by

Micatrotto and Gadel and quoted Micatrotto extensively ,

including his false and misleading assertion that "[w]e are

pleased to have achieved a three percent sales increase in

comparable restaurants ."

(d) Buca's Fonn 10-Q quarterly report filed with the SEC on

May 15, 2001, for the three-month period ending on April

1, 2006. This form was signed by Micatrotto and Gadel .

(e) Buca's July 24, 2001 press release announcing the

Company's financial results for the reporting perio d

ending July 1, 2001 . This press release was approved by

Micatrotto and Gadel and quoted Micatrotto extensively ,

including his false and misleading assertion that

"[o]perating costs were right on target in the second

quarter ."

(f) Buca's Form 10-Q quarterly report filed with the SEC on

August 8, 2001 for the three-month period ending on Jul y

1, 2001 . This form was signed by Micatrotto and Gadel .

34

(g) Buca's October 23, 2001 press release, announcing th e

Company's financial results for the reporting perio d

ending September 30, 2001 . This press release was

approved by Micatrotto and Gadel and quotes Micatrott o

extensively .

(h) Buca's Form 10-Q quarterly report filed with the SEC o n

November 13, 2001 for the three-month period ending

September 30, 2001 . This form was signed by Micatrotto

and Gadel .

(i) Buca's January 28, 2002 press release announcing the

Company's financial results for the last three months o f

the year and for the year as a whole. This press release

was approved by Micatrotto and Gadel and quotes

Micatrotto extensively.

(j) Buca's Form 10-K annual report filed with the SEC on

April 1, 2002 for the year ending December 30, 2002 .

The form and the accompanying certification by Buca' s

independent auditing firm falsely indicated that the

financial statements being reported had been prepared in

accordance with GAAP . This form was signed by

Micatrotto, Gadel and Mihajlov .

35

(k) Buca's April 25, 2002 press release announcing the

Company's financial results for the three months ending

March 31, 2002 . This press release was approved by

Micatrotto and Gadel and quotes Micatrotto extensively .

(1) Buca 's Form 10-Q quarterly report filed with the SEC o n

May 14, 2002 for the first three months of 2002 . Thi s

form was signed by Micatrotto and Gadel .

(m) Buca's July 16, 2002 press release announcing the

Company's financial results for the three-month period

ending June 30, 2002. This press release was approved by

Micatrotto and Gadel and quotes Micatrotto extensively .

(n) Buca's Form 10-Q quarterly report filed with the SEC o n

August 14, 2002 for the three-month period ending June

30, 2002. This form was signed by Micatrotto and Gadel .

(o) Buca's October 24, 2002 press release announcing th e

Company's financial results for the three-month perio d

ending September 29, 2002 . This press release was

approved by Micatrotto and Gadel and quotes Micatrotto

extensively .

(p) Buca ' s Form 10-Q quarterly report filed with the SEC on

November 13, 2002 for the three-month period endin g

36

September 29, 2002 . This document was signed by

Micatrotto and Gadel .

(q) Buca's February 13, 2003 press release announcing th e

Company's financial results for the three-month perio d

and the year ending December 29, 2002 . This press

release was approved by Micatrotto and Gadel and quote s

Micatrotto extensively .

(r) Buca's Form 10-K annual report filed with the SEC on

March 26, 2003 for the year ending December 29, 2002 .

This document was signed by Micatrotto, Gadel and

Mihajlov.

(s) Buca's April 22, 2003 press release announcing th e

Company's financial results for the three-month perio d

ending March 30, 2003 . This press release was approved

by Micatrotto and Gadel and quotes Micatrotto

extensively .

(t) Buca's Form 10-Q quarterly report filed with the SEC o n

May 12, 2003 for the three-month period ending March

30, 2003 . This document was signed by Micatrotto an d

Gadel .

(u) Buca's July 24, 2003 press release announcing th e

Company's financial . results for the three months endin g

37

June 29, 2003. This press release was approved by

Micatrotto and Gadel and quotes Micatrotto extensively .

(v) Buca's Form 10-Q quarterly report filed with the SEC o n

August 8, 2003 for the three-month period ending June 29 ,

2003 . This form was signed by Gadel and Micatrotto .

(w) Buca's October 22, 2003 press release announcing the

Company's financial results for the three-month period

ending September 28, 2003 . This press release was

approved by Micatrotto and Gadel, quotes Micatrotto

extensively and lists Gadel as the contact point for furthe r

information.

(x) Buca 's Form 10-Q quarterly report filed with the SEC on

November 12, 2003 for the three-month period ending

September 28, 2003 . This document was signed b y

Micatrotto and Gadel .

(y) Buca's February 9, 2004 press release announcing the

Company's financial results for the three-month perio d

and the year ending December 28, 2003 . The press

release was approved by Micatrotto and Gadel, quote s

Micatrotto extensively and lists Gadel as the contact poin t

for further information .

38

(z) Buca's Form 10-K annual report filed with the SEC on

March 12, 2004 for the year ending December 28, 2003 .

This document was signed by Micatrotto, Gadel and

Mihajlov.

(aa) Buca's Form 10-Q quarterly report filed with the SE C

on May 7, 2004 for the three months ended March 28 ,

2004. This document was signed by Micatrotto and

Gadel .

(bb) Buca's May 11, 2004 press release describing financia l

results for the three months ending March 28, 2004 . The

press release was approved by Mihajlov and Gadel an d

quotes Mihajlov extensively .

(cc) Buca's July 15, 2004 press release announcing the

Company's financial results for the three-month period

ending June 27, 2004. This press release was approved by

Mihajlov and Gadel and quotes Mihajlov extensively.

(dd) Buca's Form 10-Q quarterly report filed with the SEC

on August 6, 2004 for the three-month period ending Jun e

27, 2004. This document was signed by Mihajlov and

Gadel .

(ee) Buca 's October 15, 2004 press release announcing the

Company's financial results for the three months ending

39

September 26, 2004 . This press release was approved by

Mihajlov and Gadel, quotes Mihajlov extensively, an d

lists Gadel as the contact for further information.

(ff)Buca's Form 10-Q quarterly report filed with the SEC o n

November 5, 2004 for the three-month period endin g

September 26, 2004 . The form was signed by Mihajlov

and Gadel .

77 . Each of the Form 10-Qs discussed above contained substantially the

following language :

The accompanying financial statements have been preparedby us without audit and reflect all adjustments, consisting ofnormal recurring adjustments, which are, in the opinion ofmanagement, necessary for a fair statement of financialposition and the results of operations for the interim periods .The statements have been prepared in accordance withaccounting principles generally accepted in the United Statesof America (generally accepted accounting principles) andwith the regulations of the Securities and ExchangeCommission (SEC) .

78 . Each of the Form 10-Qs and 10-Ks discussed above that were filed on o r

after November 13, 2002 contained substantially the following certification signed b y

Gadel, Buca's CFO, and by Buca's CEO (Micatrotto through May 10, 2004 and then

Mihajlov) :

I I have reviewed this quarterly report on Form I0-Q [or annual reporton Form 10-K] of BUCA, Inc . ;

2 . Based on my knowledge, this quarterly [or annual] report does notcontain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, no t

40

misleading with respect to the period covered by this quarterlyreport ;

3 . Based on my knowledge, the financial statements, and otherfinancial information included in this quarterly [or annual] report,fairly present in all material respects the financial condition, resultsof operations and cash flows of the registrant as of, and for, theperiods presented in this quarterly report .

79 . Each of the form 10-Qs and 10-Ks discussed above that were filed on or afte r

or after July 16, 2002 contained the following certification signed by Gadel, Buca's CFO ,

and by Buca's CEO (Micatrotto through May 10, 2004 and then Mihajlov) :

Pursuant to 18 U .S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, theundersigned certifies that this periodic report fully complieswith the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934 and that informationcontained in this periodic report fairly presents, in all materialrespects, the financial condition and results of operations ofBuca, Inc .

80. The statements described in paragraphs 76 to 79 above were materially fals e

and misleading when made for the reasons explained in this Complaint , including the

following reasons :

(a) The financial statements presented in these document s

were not accurate or reliable and were not presented in

accordance with GAAP ;

(b) The financial results set forth in such statements

materially overstated Buca's revenues by including, as

sales, amounts attributed to meals given away to

employees in violation of GAAP ;

41

(c) The financial results set forth in such statements

materially overstated Buca's net earnings by understating

its corresponding expenses . Specifically, Buca

improperly capitalized and deferred certain expenses .

E. Scienter: The Defendants' Knew of and Perpetrated the AccountingFraud

1 . Gadel and Micatrotto's Knowing False Statements and FalseCertifications of Buca's Financial Statements

81 . The Defendants told investors that Buca's financial statements during th e

Class Period were accurate even though they knew this was not the truth . Micatrotto and

Gadel knew that employee meals were being accounted for as if they were purchases b y

customers-according to two confidential sources Micatrotto and Gadel, in fact, ordere d

this accounting change . They did this knowing that they were violating GAAP. No

reasonable person with extensive experience in the restaurant industry, as did bot h

Micatrotto and Gadel, could have thought it appropriate to account for meals given awa y

to employees as if they had been sold to the public . In addition, as a CPA Gadel woul d

have been especially aware of the impropriety of this accounting treatment .

82 . Moreover, the circumstances of this accounting change makes it clear tha t

Gadel and Micatrotto were trying to deceive investors into thinking that Buca's revenue s

were growing when they were not . The accounting for meals policy was implemented

just as Buca's much-watched same store sales were faltering . Defendants, who received

and reviewed daily revenue reports from the Company's restaurants were well aware o f

this trend .

42

83 . The timing of Micatrotto and Gadel's sale of stock, just before the July and

October 2002 announcements of declining same store sales caused Buca ' s pri ce to

collapse, is also highly suspicious- Furthermore, Micatrotto and Gadel had, as terms i n

their respective employment agreements du ring the Class Period, that they were eligibl e

for substantial bonuses, if the Company achieved certain performance targets . Among

these targets were total sales and comparable restaurant sales . Gadel's Employment

Agreement specifically used a 2% increase in comparable restaurant sales as a

performance benchmark. The booking of employee meals as revenue increased same

store sales by more than 2% every year . It also had the effect of overstating the yearl y

total sales by between $2 million and $7 .4 million .

84. Several Buca employees put Micatrotto and Gadel on notice that recognitio n

of revenue from "Family Meals" was improper . From April 2001 until April 2002, CS- 5

says that he/she repeatedly questioned both men about the booking of the "Family Meals "

and why the recognition of this revenue was not disclosed in the Company's public

filings and investor reports . CS-5 questioned Gadel about this at least 10 times during

this period, and was told by Gadel that the decision not to disclose this change in revenu e

recognition policy was a result of an "executive decision" and that he/she should not

worry about it.

85 . Micatrotto and Gadel's publication of financial statements that inflate d

revenues, artificially propped up same store sales, understated expenses and overstate d

earnings was knowing and intentional . As discussed above, numerous former Buc a

employees have told the SEC and Plaintiffs' counsel in this action, about the extent t o

43

which Micatrotto and Gadel personally directed the improper booking of revenue and th e

improper capitalization of expenses .

86. Also indicative of scienter is Buca's response to a Sarbanes-Oxle y

whistleblower claim filed against Buca on December 30, 2002. The claim was brought

by Wade Lerbs, Buca's Cash Manager from October 1998 through October 2002 .

According to a document filed in the litigation by Buca, Lerbs was responsible for

keeping track of all of Buca's cash and for dealing with all banking issues- According to

Buca's filings Lerbs reported to Buca Controller Skrypek and also dealt directly wit h

Gadel . Lerbs said that he had been fired because he had reported accounting

irregularities to senior Buca managers, including the improper accounting for employe e

meals. One of Lerbs' specific allegations was that when he complained to Joe Kohaut ,

Vice President of Food and Beverage and Purchasing, about Micatrotto and Gadel' s

improper decision to double the amount Buca "paid" for employee meals at the

Company's Kohaut responded that "we should really be paying $5000 per day to reall y

boost those sales ."

87 . Micatrotto and Gadel were undoubtedly aware that a former employee ha d

taken the extraordinary step of filing a Department of Labor action against the Company .

Indeed, Gadel filed an affidavit in the case in March 2004, at a time when Buca continued

to fraudulently report employee meals as sales .

88 . Under the circumstances the failure of Buca's CEO and CFO to full y

investigate Lerbs' allegations of serious accounting irregularities indicates, at the least ,

extremely reckless conduct. Instead of investigating, however, in a March 2004 filing i n

44

the case Buca asserted that there was nothing improper about accounting for food given

away to employees as revenue . As Buca would later admit in its restatement, this

statement was false .

89. The improper capitalization of expenses was also the result of knowing an d

intentional misconduct . GAAP standards for the capitalization of expenditures are no t

complex . GAAP requires that for an expenditure to be capitalized over time, th e

expenditure must have a future economic benefit or service potential . Buca violated this

provision of GAAP when it improperly capitalized expenses that provided the Comp any

with no future economic benefit or service potential during the Class Period .

Nevertheless, Micatrotto and Gadel repeatedly falsely certified that Buca's financia l

statements were accurate and that they were consistent with GAAP .

90 . With years of experience as executives at public companies in the restauran t

industry Micatrotto and Gadel knew, or were extremely reckless in not knowing, tha t

capitalizing routine expenses was in violation of GAAP. Similarly, Gadel was a CPA,

had served as Buca 's CFO and Treasurer since 1997, had been an accountant at Deloitte

& Touche and, prior to joining Buca, had over fifteen years of experience in the financia l

aspects of the restaurant industry. Moreover, as part owner of High Wire, Gadel kne w

that Buca's payments for High Wire employee salaries and office space were not

legitimate capital expenses of Buca .

91 . CS-10, Buca's former assistant controller, resigned in October 2001 . He

stated that he did so "in disgust" over accounting issues at the Company and was "fed up "

with what was going on, particularly with Gadel and how he was capitalizing expenses t o

45

meet earnings per share ("EPS") forecasts at the end of each quarter . CS-10 knew that

the practice of capitalizing expenses to meet the desired numbers was "absolutely" a

violation of GAAP and believes that Gadel must have known this as we ll .

92. According to CS-10, he met with Gadel and Skrypek in October 2001 t o

discuss the reasons for his resignation. After his October 2001 meeting with Gadel, CS-

10 submitted a letter of resignation, a copy of which was also sent to Human Resource s

and Gadel . The letter set forth the reasons CS-10 had resigned, including concerns abou t

the propriety of expense reports, improper related party transactions and the manipulatio n

of earnings by improperly capitalizing costs .

93 . This internally "noisy" resignation by CS-10 was far from the only tim e

management challenged these accounting improprieties- In June 2003, a group of Buca' s

senior accounting personnel, including the assistant controller, the tax director, an d

Skrypek, met with Gadel to confront him about some of the accounting abuses identifie d

above. When questioned about the capitalization of expenses, Gadel acknowledged tha t

some of his accounting methods were aggressive . When asked specifically about

relationships with vendors like High Wire and EDP, he responded that no problems with

these relationships existed. Gadel took no remedial action with respect to the issues

raised at the meeting .

94 . In addition, Micatrotto and Gadel's sales of Buca stock when the Compan y

was about to surprise the market by revealing a declining trend in same store sales (tha t

had been hidden by their own manipulation of reported same store sales) strongly

suggests knowing and intentional conduct . The timing and quantity of such sales are

46

unusual and telling, particularly when compared to Micatrotto's public pronouncement s

just prior to his sales-

95 . Moreover, as described in detail below, the Defendants worked to ensure that

Buca lacked adequate internal controls . This allowed them to create an environment i n

which self-dealing, theft and conflict of interest were rampant . This environment, and the

Defendants ' role in creating it, strongly supports a finding of scienter as to all

Defendants .

2. Mihajlov's Role in the Accounting Fraud

96. Mihajlov, first in his role as Chairman of the Audit Committee, by no later

than the beginning of 2004, and later as CEO, acted, at a minimum, recklessly in

disseminating to the investing public false and misleading results of Buca's operations.

97. Mihajlov was one of the founders of Buca in 1993 . Until his resignation on

July 12, 2006, he was a director of Buca, serving as Chairman of Buca's Audi t

Committee during much of the Class Period. As Chairman of the Audit Committee ,

Mihajlov was charged with investigating any irregularities in Buca's financial reporting .

Notwithstanding the numerous complaints by various Buca employees about Buca' s

revenue recognition practices and improper capitalization of expenses, there is n o

evidence that the Audit Committee investigated these accounting irregularities . In

addition, as discussed below, there was significant evidence that Buca had inadequat e

internal controls . Yet the Audit Committee took no action while Mihajlov chaired it t o

ensure that Buca had effective internal controls, as mandated by law .

98 . According to the SEC's complaint, by January 2004, Buca's Board , including

47

Mihajlov, knew that Micatrotto had wrongfully titled a Villa in Italy, purchased wit h

Company funds, in his own name. Mihajlov, in his role as Chairman of the Audi t

Committee, also learned of other instances of self-dealing by Micatrotto at that time, o r

shortly thereafter- Yet Mihajlov took no steps to ensure that Buca 's financial statements

fairly stated the Company's financial condition .

99. According to its charter, the primary function of Buca's Audit Committee

was to oversee the accounting and financial reporting processes of the Company . In

particular, one of the Audit Committee's primary duties was to "[r]eview with the

Company's outside counsel legal matters that may have a material impact on the financial

statements, the Company's compliance policies, and any management material reports or

inquiries received from regulatory or governmental agencies ." Mihajlov, as Chairman of

the Audit Committee, knew that Micatrotto had engaged in self-dealing, by putting a

major Company asset the Italian Villa-in his own name, and that Buca's interna l

controls were clearly inadequate- Given that knowledge, his role as audit committee

Chairman, and the Sarbanes-Oxley whistleblower action that had been filed against Buca,

by January 2004, if not sooner, Mihajlov knew or was severely reckless in not knowing

that the Company had been improperly inflating revenues .

100 . After Micatrotto's resignation on May 10, 2004, Mihajlov became Buca' s

CEO and assumed the responsibility of personally certifying the Company's financia l

statements . Nevertheless, Buca continued its practice of inflating same store sales during

the first three quarters of fiscal 2004 . As CEO Mihajlov repeatedly certified as accurate

financial statements that overstated revenue and earnings, and understated expenses, unti l

48

Buca revealed in March of 2005 that its results of operations included accounting

irregularities .

VI. THE SCHEME TO CONCEAL BUCA'S GROSSLY INADEQUATEINTERNAL CONTROL S

101 . As a public company Buca and its management were required by law and by

GAAP to establi sh and maintain adequate and effective inte rnal controls . According to

SEC Rule 13a-15(f), internal controls are practices and procedures meant to "provide

reasonable assurance regarding the reliability of financial reporting and the preparation of

financial statements for external purposes in accordance with generally accepted

accounting principles ." An effective system of internal controls must include practice s

and procedures that "[p]rovide reasonable assurance regarding prevention or timel y

detection of unauthorized acquisition, use or disposition of [a company's] assets tha t

could have a material effect on [its] financial statements ." Effective internal controls ar e

important to investors because without such controls a company's financial reporting i s

not likely to be accurate . Moreover, a company with inadequate internal controls is less

attractive to investors because such a company has an increased risk of material

accounting irregularities and fraud .

102 . An adequate system of internal controls requires procedures that provide a

reasonable assurance that payments made by a company are for properly authorize d

purposes. For example, a company should not issue a check unless the request for the

check is accompanied by documentation sufficient to show that the check is for a prope r

obligation of the company. An adequate system of internal controls also include s

49

procedures for reporting fraud to the company's auditors and directors . Buca had non e

of these procedures in place .

103 . Aware of the importance of internal controls to investors, the Defendants

repeatedly stated publicly that adequate and effective internal controls were in place

These statements were false and, at the time they made these statements, each defendan t

knew they were false . Moreover, the Defendants' repeated assertions that Buca's public

financial statements were accurate were false or, at best, highly misleading because the y

did not reveal that Buca lacked the internal controls necessary to provide a reasonabl e

assurance of the accuracy of the data on which these financial statements were based .

104. The true situation at Buca during the Class Period was that the Defendant s

deliberately and intentionally refused to implement or follow adequate internal contro l

procedures and hid these deficiencies from investors . Buca's deficient internal control s

allowed them to implement their schemes to manipulate the Company's books. They

also made it easier for Micatrotto and Gadel to steal from Buca, something they di d

throughout the Class Period .

A. Buca' s Internal Controls Were Inadequate

105. According to information provided by former Buca employees, the

Company's internal controls were grossly deficient during the Class Period . A

confidential source ("CS-5") who worked for Buca from mid-1995 to late 2002 reported

that internal controls were basically non-existent . CS-5 was in a position to know-

he/she has a degree in accounting, extensive experience in the restaurant industry and on e

of his/her responsibilities at Buca was performing audits . According to this source,

50

inadequate internal controls made it possible for senior managers to regularly us e

company money to pay personal expenses .

106. Another source, an accounts payable manager at Buca's headquarters fro m

July 2000 until February 2005 who was in charge of all payments by check made by the

Company ("CS-9"), confirms that Buca's internal controls were inadequate throughou t

the Class Period. One problem , according to CS-9, was that checks were routinely issue d

without adequate documentation .

107. CS-9 explained that Buca managers, including Micatrotto and Gadel,

regularly requested company checks in amounts up to $40,000 without providing an y

supporting documentation or invoice . Moreover, on several occasions, Gadel asked fo r

blank checks, again without providing supporting documentation and without explainin g

what the checks were for. As a practical matter, according to CS-9, Buca had an "open

checkbook" for its top management .

108 . Because of the inadequate internal controls CS-9 found it difficult to keep

track of Buca's outstanding checks . CS-9 does not know how much money was stolen

because of the improper issuance of checks, but estimates it was in the hundreds o f

thousands of dollars .

109 . A particularly egregious example of the Company's inadequate interna l

controls was Micatrotto's appropriation of the Villa Buca purchased in Italy. According

to the SEC's complaint against Micatrotto, in approximately 2001 Buca paid $167,00 0

for the Villa and spent approximately $45,000 more to renovate it . Even though the

property was purchased by Buca for Buca's use, Micatrotto unlawfully titled the Villa i n

51

his and his wife's names, according to the complaint . According to the SEC, Buca' s

board did not learn of what Micatrotto had done until January 2004. The SEC' s

information on this point is consistent with information provided by former Buca Boar d

of Directors member Phil Roberts . Roberts told a journalist in 2005 that he had no t

known that the Villa was titled in Micatrotto's name when he resigned from the Board in

September 2003 .

B. Micatrotto Fostered and Benefited from Inadequate Internal Controls

110. Micatrotto's conduct during the Class Period and his own subsequent

admissions demonstrate both the inadequacy of internal controls at Buca and Micatrotto' s

knowledge of the inadequacy of these internal controls . An example was provide by CS-

9, the accounts payable manager, who, in the course of his/her job, personally reviewe d

Micatrotto 's expense reports and was responsible for issuing checks to pay Micatrotto's

expenses. According to CS-9, Micatrotto frequently requested and received imprope r

payments for personal expenses, including improvements to his three homes, the

purchase of works of art, birthday cards, dental work, coffee and newspapers . Another

confidential source, CS-10, Buca's Assistant Controller at the beginning of the Clas s

Period, also reported that Micatrotto's expense reports were loaded with imprope r

personal expenses .

111 . The SEC's investigation confirmed CS-9 and CS-10's information .

According to the SEC's complaint against Micatrotto, "Micatrotto regularly submitte d

reimbursement requests accomp anied by little or no supporting documentation, enablin g

him to bill Buca for a wide variety of personal and inappropriate expenses ." According

52

to the SEC, "[t]he amount of unsupported, duplicate, or personal expenses reimbursed t o

Micatrotto from 2000 to 2003 totaled approximately $849,100 ."

112. By pleading guilty to the criminal Information against him, Micatrotto

admitted to a specific fraudulent transaction made possible by inadequate interna l

controls . According to the criminal Information, in June 2003 Micatrotto caused a check

for $85,647 to be paid to a Buca contractor, referred to as "High Wire 2," supposedly fo r

services from the contractor . In fact, at least $65,000 of this payment was "for services

that [High Wire 2] had not provided, and did not intend to provide , BUCA." As

explained in the criminal Information, and admitted by Micatrotto during his plea

colloquy, Micatrotto intended that High Wire 2 channel these funds to him personally an d

he did, in fact, receive this $65,000 from High Wire .

C . Gadel Fostered and Benefited from Inadequate Internal Control s

113 . By pleading guilty to the criminal Information filed against him, Gade l

admitted conduct that demonstrates both inadequacy of internal controls at Buca and hi s

knowledge of the inadequacy of internal controls . According to the June 7, 2006 criminal

Information against Gadel (and also according to the civil complaint Buca filed against

Gadel), on September 11, 2002 Gadel submitted a Buca check request for a $30,000

payment to "American Express ." The request was not accompanied by proper

documentation. According to the criminal Information, Gadel indicated on the request

that the check was for a conference of the Company 's restaurant managers ("Paisano

Partners") even though he knew it was not for that purpose . Gadel received the check on

or about September 13 and used it to pay personal expenses he had incurred on hi s

53

American Express credit card, principally expenses related to his visits to adul t

entertainment establishments .

114 . According to Buca' s civil complaint filed against Gadel, Gadel also arrange d

for Buca to reimburse him substantial amounts for other personal expenses . These

expenses included a trip to London by Gadel's family, a Caribbean cruise, and politica l

fundraising . According to the SEC's complaint against Gadel, from 2000 to 2003 Gade l

received more than $96,000 in improper compensation for personal expenses .

115 . Buca's inadequate internal controls also made it possible for Gadel to

repeatedly approve payment of fraudulent invoices submitted by High Wire, the Buca

vendor in which Gadel had a substantial financial interest and from whom he receive d

secret cash payments and gifts . According to Buca's civil complaint, at or about the end

of 2001 Gadel, acting illegally and without the knowledge of Buca's Board, caused Buc a

to improperly pay some $98,000 for the construction of office space for High Wire .

Moreover, during the one year period ending in approximately the fall of 2001 Gade l

caused Buca to pay the salaries of ten High Wire employees by having High Wire submi t

fraudulent invoices, which Gadel arranged to be paid for work that was never done. (The

information in Buca's civil complaint is consistent with a statement by CS-5 that an

employee of High Wire told him/her that the employee was actually paid by Buca .)

116. According to Buca 's civil complaint, from 2002 to at least mid-2004, Gade l

arranged to receive improper kickbacks from High Wire 2, a successor entity to Hig h

Wire which was also a Buca contractor. According to the complaint, Gadel arranged fo r

54

High Wire 2 to be reimbursed for these kickbacks by submitting fraudulent invoices t o

Buca .

117. The criminal Information against Gadel details one of the improper payment s

by High Wire 2 to Gadel . On or about December 22, 2003 Gadel caused High Wire 2 to

give him a check for $15,000 made out to American Express . Gadel used this check t o

pay personal expenses incurred on his American Express bill, primarily expenses relate d

to his visit to an adult entertainment establishment . Gadel authorized High Wire 2 to

recoup these funds by adding $15,000 to a future invoice to Buca. According to the

criminal Information, in January 2004 Buca paid High Wire 2 invoice number 4814 ,

totaling $83,843 .80. Of this amount, $15,000 was for services High Wire 2 had no t

provided and did not intend to provide to Buca and was meant to reimburse High Wire 2

for its payment to Gadel .

118. In its fiscal year 2004 Form 10-K, filed in mid-2005, Buca admitted tha t

there were grave internal control problems during the Class Period :

Deficiencies Related to the Design and Operation ofCompany-Level Controls as a Result of Tone Set by SeniorManagement. Our company lacked an appropriate tone anddemonstrable commitment by former senior executives to sethigh standards of ethics, integrity, accounting and corporategovernance. These conditions resulted in a controlenvironment that permitted the following deficiencies :

• inadequate policies and procedures to preventsenior executives from overriding existingcontrols and accounting systems ,

• inadequate procedures for proper corporateauthorizations for certain expenditures andtransactions, inadequate approval proceduresand poor documentation ,

• lack of safeguarding of the Company's assets ,

55

• inadequate related party and vendor proceduresgoverning relationships, transactions and relateddisclosures ,

• accounting practices that were not inaccordance with GAA P

***

Our current management believes that an environmentsupporting strong systems of internal controls and disclosurecontrols and procedures was not established nor were suchpolicies and procedures communicated to employees .Additionally, the assessment of financial reporting risks andmonitoring of internal control did not operate effectively .Our current management believes that this situationrepresents a material weakness and has led to the othermaterial weaknesses reported by the company as well as theneed to restate our financial statements .

119. In the 2004 Form 10-K the Company also acknowledged that , during the

Class Period, "certain of our accounting control procedures, policies and documentatio n

were not sufficient to ensure that our financial statements were presented in accordanc e

with GAAP." Among these deficiencies were "inadequate approval procedures and

documentation [procedures]," such as the issuance of checks without adequat e

documentation .

D. The Defendants' False Statements Regarding Buca's Internal Controls

120 . During the Class Period, Buca falsely represented to the investing public tha t

its internal controls and procedures were in place and effective . Each of the Form 10-Qs

and 10-Ks that were filed on or after May 12, 2003 contained substantially the following

assertion :

As of the end of the period covered by this report, weconducted an evaluation, under the supervision and with theparticipation of the principal executive officer and principalfinancial officer, of our disclosure controls and procedures (as

56

defined in Rules 13a-14(c) and 15d-14(c) under the SecuritiesExchange Act of 1934 (the "Exchange Act") . Based on thisevaluation, the principal executive officer and principalfinancial officer concluded that our disclosure controls andprocedures are effective to ensure that information required tobe disclosed by us in reports that we file or submit under theExchange Act is recorded, processed, summarized andreported within the time periods specified in Securities andExchange Commission rules and forms . There was nochange in our internal control over financial reporting duringour most recently completed fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, ourinternal control over financial reporting .

121 . In each of Buca's periodic filings with the SEC on or after November 13 ,

2002, Buca CFO Gadei and Buca's CEO (Micatrotto, through May 10, 2004, an d

thereafter Mihajlov) falsely certified that Buca had established and maintained effectiv e

internal controls . In each such SEC filings they represented :

1 . The registrant's other certifying officer and I areresponsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and wehave:a) designed such disclosure controls and

procedures to ensure that material informationrelating to the registrant, including itsconsolidated subsidiaries, is made known to usby others within those entities, particularlyduring the period in which this quarterly [orannual] report is being prepared ;

b) evaluated the effectiveness of the registrant'sdisclosure controls and procedures as of a datewithin 90 days prior to the filing date of thisquarterly [or annual] report (the "EvaluationDate"); and

c) presented in this quarterly [or annual] report ourconclusions about the effectiveness of thedisclosure controls and procedures based on ourevaluation as of the Evaluation Date ;

57

2 . The registrant's other certifying officer and I havedisclosed, based on our most recent evaluation, to theregistrant's auditors and the audit committee ofregistrant's board of directors (or persons performingthe equivalent function) :a) all significant deficiencies in the design or

operation of internal controls which couldadversely affect the registrant's ability torecord, process, summarize and report financialdata and have identified for the registrant'sauditors any material weaknesses in internalcontrols; and

b) any fraud, whether or not material, that involvesmanagement or other employees who have asignificant role in the registrant's internalcontrols; and

3 . The registrant's other certifying officer and I haveindicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to thedate of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and materialweaknesses .

122 . The statements contained paragraphs 120 to 121, were materially false an d

misleading when made for the following reason :

Micatrotto, Gadel and Mihajlov, falsely certified that Buca' s

financial reporting did not contain untrue statements of

material fact and that they had evaluated the effectiveness of

the Company's disclosure controls and disclosed to th e

Company's independent auditors all significant deficiencie s

in the design or operation of Buca's internal controls . They

knew, or were reckless in not knowing, that these filing s

contained untrue statements of material fact, and that Buc a

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lacked adequate internal controls. Mihajlov also knew that

there had been changes in Buca's internal controls after

Micatrotto left the Company .

E . Scienter: The Defendants' Knew of and Perpetuated InadequateInternal Control s

1 . Micatrotto and Gadel Knew Their Statements Regarding InternalControls Were Fals e

123. Micatrotto and Gadel were well aware of Buca's inadequate internal controls .

Both had years of experience as executives of public companies in the restaurant industry

and Gadel was a CPA . Based on their education and experience alone, neither Defendant

could have thought that a company with the internal control deficiencies described in thi s

Complaint, which they used as a personal piggy bank , had adequate internal controls . At

the least they were extremely reckless in not recognizing the inadequacy of Buca' s

internal controls .

124. Moreover, Defendants were warned that the Company's internal control s

were gravely deficient . For example, CS-9 repeatedly told Gadel that he was improperl y

using Buca's accounts as a personal checking account . Gadel would usually respond that

it was not CS-9's concern or by saying that he would go to Buca Controller Dan Skrypek

to sign off on a payment if CS-9 would not do so. Another source, CS-3, the Accounting

Manager, also repeatedly expressed concern to Gadel about the inadequacy of internal

controls. Gadel's response was to "laugh it off."

125 . In fact, both Micatrotto and Gadel worked to ensure that Buca's internal

controls remained ineffective. According to the SEC complaint against him, "[a]s Buca' s

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top officer, Micatrotto helped create a corporate culture that lacked sufficient controls t o

protect Buca from fraud ." Similarly, the SEC's complaint against Gadel explains that

Gadel "showed little regard for sound corporate governance and helped create a n

environment that was conducive to fraud ."

126. Despite their knowledge of the true facts, Micatrotto and Gadel repeatedl y

told investors that the Company' s internal controls were adequate . They also affirmed

the accuracy of Buca's financial statements although they knew (or were extremel y

reckless in not knowing) that Buca's internal control deficiencies meant that thes e

statements could not be relied upon . Moreover, both Gadel and Micatrotto certified tha t

they had reported all instances of fraud, whether or not material , to the Company' s

auditors and to the audit committee of its board of directors . But in pleading guilty both

Gadel and Micatrotto acknowledged the truth of the allegation in the crimina l

Informations against them that they had each signed these certifications knowing them t o

be false. At the time they signed these certifications Micatrotto and Gadel had no t

reported the fraud they committed to the Company's auditors or to its audit committee .

2 . Miha'lov's Intentional False Statements Regarding Internal Controls

127. Mihajlov also knowingly made false statements to investors regardin g

internal controls when he was chairman of the audit committee and after he replaced

Micatrotto as CEO . According to the SEC's complaint against Micatrotto, by January

2004 Buca's board had learned that the Italian Villa had been wrongly titled in

Micatrotto's name. According to Buca's February 7, 2005 press release, an investigation

by Buca's audit committee, which was chaired by Mihajlov, had concluded that

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Micatrotto had also used Buca "funds for purposes that were either personal in nature, no t

properly authorized, or insufficiently documented as proper business expenditures ." The

audit committee investigation, which led to Micatrotto 's May 2004 forced resignation,

"also indicated that certain other executive officers incurred travel, entertainment, an d

other expenses of a lesser amount that were questionable, not properly authorized, o r

insufficiently documented as business expenses," according to the press release . Despite

this evidence of the egregious inadequacy of Buca's internal controls, as a member of th e

Board, and after becoming Buca's CEO in May 2004, Mihajlov repeatedly and falsel y

certified that Buca's internal controls were adequate .

128 . Mihajlov also certified that all fraud, whether or not material, involvin g

management personnel had been reported to Buca's outside auditors . In fact, according

to CS-3, the Accounting Manager, in approximately June of 2004 Buca's board receive d

a report of an investigation of irregularities at Buca which detailed grave weaknesses in

Buca's internal controls, and improper conduct by Micatrotto and other Buca employees .

Nevertheless, according to the source, Buca did not turn this report over to its outsid e

auditor until approximately January 2005, and then only after the auditor threatened not

to sign off on Buca's financial statements if it did not receive a copy.

129. Mihajlov's public explanations of why Micatrotto had left the Compan y

were, at best, also highly misleading . They were meant to keep the market from learning

of the serious internal control problems at Buca that would have been revealed had th e

true reasons for Micatrotto's departure been known. Mihajlov announced Micatrotto's

resignation on May 10, 2004, claiming in a statement that "[t]he board and Joe are in

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agreement that it's time for a management change ." Similarly, Mihajlov told a reporte r

that Micatrotto's departure had occurred because "[i]t was time for a leadership change ."

130. Mihajlov did not disclose the truth, which the Company was forced to revea l

in February of the following year-that Micatrotto had been fired for misconduct . In his

comments to the reporter Mihajlov implied that Micatrotto had left because of a

downturn in business, a downturn Mihajlov attributed to 9/11 and the low carb diet craze .

He also told the reporter that, despite Micatrotto's departure, Buca still had "a stron g

management team," even though he knew that the audit committee investigation had als o

turned up misconduct by other senior Buca managers .

131 . Mihajlov further reassured investors by certifying in SEC filings that, despit e

Micatrotto's departure, "[t]here was no change in our internal control over financial

reporting during our most recently completed fiscal quarter that has materially affected ,

or is reasonably likely to materially affect, our internal control over financial reporting ."

But these statements were false. According to the February 7 press release, after

Micatrotto's dismissal "BUCA [took] steps to ensure compliance with its expense report

documentation guidelines and added new requirements, where appropriate ."

IF. The Criminal and Civil Litigation Against Micatrotto and GadelConfirms They Made False Statements About Buca 's Internal Controls

1 . Charges Against Micatrott o

132 . On June 7, 2006 the Acting U.S . Attorney for the District of Minnesota file d

a criminal Information charging Micatrotto with wire fraud in connection with a schem e

to defraud Buca while he was Buca 's CEO . On June 20 , 2006, acting pursuant to a plea

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agreement with the Government, Micatrotto pled guilty to carrying out the fraudulent

scheme charged in the criminal Information. According to the criminal Information, as

part of the scheme to defraud ,

Micatrotto falsely certified [in an SEC filing] that he haddisclosed to BUCA's auditors and [to the] audit committee ofBUCA' s Board of Directors any fraud, whether or notmaterial , that involved management or other employees whohad a significant role in BUCA 's internal controls overfinancial reporting, when, in fact , Micatrotto had not reportedthis fraud.

133. On June 7, 2006 the SEC filed a civil complaint against Micatrotto in thi s

Court. The SEC charged Micatrotto with violating the federal securities laws, includin g

"Violations of Section 10(b) of the Exchange Act [15 U .S .C . § 78j(b)] and Rule 10b-5

[ 17 C.F.R . § 240.1 Ob-5] Promulgated Thereunder ," by a lengthy pattern of conduct that

defrauded Buca of hundreds of thousands of dollars during the Class Period and by filin g

reports that he knew to be false with the SEC .

134. The case was resolved by a judgment, entered by consent, against Micatrotto

on June 26, 2006, pursuant to a settlement agreement between Micatrotto and the SEC .

Micatrotto did not admit or deny wrongdoing, but he agreed to the terms of the judgment,

which provides that he must pay disgorgement of $74,638.29 and a civil penalty of

$500,000.

2 . Charges Against Gade l

135 . On June 7, 2006 the Acting U .S . Attorney for the District of Minnesota als o

filed a criminal Information charging Gadel (and another former Buca officer, John J .

Motschenbacher) with mail fraud in connection with schemes to defraud Buca whil e

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Gadel was Buca's CFO . On June 23, 2006, acting pursuant to a plea agreement with the

Government, Gadel pled guilty to carrying out the fraudulent schemes charged in the

criminal Information. According to the criminal Information, as part of his schemes to

defraud,

in connection with BUCA' s filing of a Form 10-Q with theSEC, Gadel falsely certified that he had disclosed to BUCA'sauditors and [to the ] audit committee of BUCA' s Board ofDirectors any fraud, whether or not material, that involvedmanagement or other employees who had a signi ficant role inBUCA's internal control over financial reporting , when, infact, Gadel had not disclosed his fraudulent misappropriationof corporate funds .

136. Also on June 7, 2006 the SEC filed a civil complaint against Gadel in thi s

Court. Like Micatrotto, Gadel was charged with violating the federal securities laws,

including "Violations of Section 10(b) of the Exchange Act [15 U.S .C . § 78j(b)] and Rule

lOb-5 [17 C.F.R. § 240. 1Ob-51 Promulgated Thereunder ," by engaging in a length y

pattern of fraudulent conduct . This case has not yet been resolved .

137 . In July 2005 Buca announced that it had filed a civil complaint against Gadel

(and Motschenbacher) . According to the August 7, 2006 amended complaint in that case

Gadel, while employed at Buca, engaged in fraudulent schemes and self-dealing to enric h

himself at Buca's expense . Buca seeks from Gadel unspecified damages of more tha n

$50,000 for breach of fiduciary duty and unjust enrichment .

138 . Buca's litigation against Gadel seeks to recover for harm to Buca. It does not

seek damages for investors who purchased Buca stock at inflated prices .

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VII. DISCLOSURE OF THE FRAUD AND LOSS CAUSATION

A. The July and October 2002 Disclosures

139. In paragraphs 44 through 49 above, Plaintiffs discuss how the July 16, 200 2

and October 24, 2002 disclosures revealed that Buca's same store sales were not in fact

growing or stable, but were declining . This was highly significant to the market becaus e

it revealed that Buca was not the growth company it had been portrayed as by th e

Individual Defendants . The market price reaction demonstrates the significance of thi s

information to the market .

140 . On July 17, 2002, the first trading day after the July 16, 2002 disclosure o f

declining same store sales, Buca stock price declined 31 .55% when compared to an

industry peer group index . This $4.21 adjusted price change, when compared to the

industry peer group, was highly statistically significant . The reported volume on that

day, nearly three million shares traded, well above the average daily volume of 324,76 1

for the previous year, also indicates a significant market correction resulting fro m

previously undisclosed information.

141 . On October 24, 2002, when Buca announced a second straight quarter o f

declining same store sales, Buca's share price fell an adjusted $1 .99, or 21 .62%, when

compared with its industry peer group . This is also a highly statistically significant price

correction, reflecting the impact of previously undisclosed information . Trading volume,

at nearly 2 million shares, was also well in excess of the average trading volume for th e

previous year of 319,789 .

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142, As discussed above, when the market learned in July and October 2002 tha t

Buca's same store sales were not, in fact, stable or increasing, but were instead declining ,

there was no disclosure of the extent to which same store sales, as well as net earnings ,

had been manipulated . Moreover, the fraud continued after October 2002, with th e

Individual Defendants certifying as true financial statements they knew were false, an d

making statutorily required representations about internal controls that bore no semblanc e

to reality.

B. The May 2004 Disclosure

143 . On April 26, 2004, Buca filed a proxy statement on Schedule 14A with the

SEC. The proxy statement identified Micatrotto as a continuing director of the Company .

144. On the evening of Friday, May 7, 2004, after the market closed, Buca filed its

quarterly report on Form 10-Q with the SEC disclosing its financial results for the firs t

quarter of 2004. The Form 10-Q was signed by Micatrotto and Gadel. The Form 10-Q

stated, inter alia, that "[a]t March 28, 2004 we had $429,000 invested in the developmen t

of a training facility in Sermenino, Italy . We estimate the additional cost to complete

construction of the facility to be approximately $550,000 . "

145 . On May 10, 2004, after the market closed, Buca issued a press release

announcing that its Board of Directors had accepted the resignation of Chairman and

Chief Executive Officer Joe Micatrotto effective immediately . The press release also

stated :

Pete Mihajlov, BUCA co-founder and board member,has been named executive chairman and chief executiv e

66

officer and will serve in that capacity until the search for apermanent successor is completed .

"The board and Joe are in agreement that it's time for amanagement change," said Mihajlov . "Looking forward, weremain focused on implementing our strategies to increasesame-store sales and to improve our appeal to a broader rangeof guests . We have a strong, experienced management teamand a great family of employees who are committed to thosegoals . "

146. On May 11, 2004, the Dow Jones News Service noted that the "timing of the

earnings release raised eyebrows on Wall Street" given the unusual sequence of filing o f

the Company's quarterly financial results on Form 10-Q prior to issuing a press release .

According to the article, BB&T Capital Markets analyst Barry Stouffer characterized thi s

timing as "Investor Relations 101-Not!" in a report to his clients . Stouffer stated that ,

" [e]arnings visibility remains very suspect, in our view."

147 . On May 12, 2004, after the market closed , Mihajlov and Gadel participated

in an earnings conference call with analysts . During the call Stouffer inquired about th e

unusual timing of the Company's recent filings .

BARRY STOUFFER, ANALYST, BB&T CAPITAL : Greg[Gadel] , can you explain the timing of the recent filings?Typically, the Company has reported earnings within threeweeks after the close of the quarter. And that obviouslydidn't happen, and then you issued a press release and filed a10-Q last Friday, and then follow that up with the normalpress release .PETE MIHAJLOV : Sure, Barry. And obviously that wasunusual , and the sequence of events was on the advice ofcounsel .BARRY STOUFFER : Including the delay of the pressrelease from the normal time frame?PETE MIHAJLOV : Yes, the sequence of events was on theadvice of counsel .

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BARRY STOUFFER: And with [sic] that related to thechange in management or related to something else?PETE MIHAJLOV : It was on the advice of counsel .

148 . While the May 10, 2004 announcement of Micatrotto' s sudden and

unexplained departure failed to reveal the true circumstances that gave rise to his force d

resignation, and was therefore a false and misleading statement, it alerted the market tha t

there were significant issues at Buca .

149. On Tuesday, May 11, 2004, the first trading day after the Monday evening

disclosure of Micatrotto's departure, Buca's stock price declined a peer group adjusted

10.569%, or $ .66 on an adjusted basis . This was clearly a statistically significant pric e

decline. Reported volume on that date of 420, 874 shares was more than four times the

average daily volume for the previous year of 101,192 .

150. The sudden resignation of a CEO without explanation, particularly when all

prior indications suggest a transition is not imminent, is a red flag that causes marke t

professionals to anticipate further negative disclosure. The statistically signi ficant

decline in Buca's stock price is consistent with such a reaction .

C. The February and March 2005 Disclosures

151 . After the close of the market on February 7, 2005, Buca issued a pres s

release announcing that the SEC had launched an investigation of the Company. But

Buca downplayed the importance of this development . It asserted that "[t]he SEC has

advised BUCA that this [ investigation ] is a non-public fact finding inquiry and that the

investigation does not mean that the SEC has concluded that BUCA has violated any

securities laws." In fact, based on the internal investigation conducted at the direction o f

68

Buca's audit committee, the Company knew that there almost certainly had bee n

violations of the securities laws, including the false certifications of the adequacy of the

Company's internal controls and the false certifications that all fraud discovered at th e

Company had been reported to the audit committee and to Buca's auditors .

152 . In a separate press release on the same day, also issued after the close of the

market, Buca revealed that it had been accounting for employee meals as sales and tha t

this had been improper. The press release also said that Buca was reviewing whether i t

had properly booked certain capital expenses and that it would probably need to restate

its previously issued financial statements . Again, Buca sought to downplay this negativ e

news . In the same press release the Company announced that "[w]e are pleased to repor t

that our positive comparable restaurant sales trends have continued for the entire mont h

of January, with BUCA, Inc . comparable restaurant sales [up] approximately 2 .5% . "

153 . Not surprisingly, given the misleading and incomplete nature of thi s

disclosure, which was coupled with unrelated positive news about same store sales, the

market's reaction to the February 7 announcement was relatively muted. Moreover,

much of the artificial inflation had come out of the stock's price following the disclosure s

earlier in the Class Period of poor same store sales and following Micatrotto' s

unexpected resignation . The market had learned from these disclosures that there wer e

serious problems at Buca, although Buca had continued to conceal the true extent o f

those problems and the fact that they were caused by fraud, not adverse busines s

developments .

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154. Nevertheless, in the wake of this disclosure, the Company's stock fell fro m

its February 7, 2005 closing price of $6.91 per share to close at $6 .75 on February 8, a

decline of approximately 2 .3%, on above average daily volume for the preceding year .

When compared against its Peer Group Index, Buca 's stock declined 2.637% or $0.20 . It

dropped further on February 9, closing at $6 .55 a share .

155 . After the close of trading on Friday, March 11, 2005, the last day of the Clas s

Period, Buca issued a press release announcing that that the Company's annual report

would be delayed and that Dan Skrypek, the Company's Interim CFO, Vice Presiden t

and Controller , and John Motschenbacher, Buca 's Senior Vice President and Chie f

Information Officer, had been suspended "pending the Company's continuing review

associated with its 2004 fiscal year-end financial statement closing and audit-" On th e

following day the Star Tribune newspaper reported on comments made the previou s

evening by Robert Kleiber, Buca's director of investor relations . Kleiber had told the

press that the suspensions occurred because of "possible accounting violations" whic h

had been discovered in the Company's year-end audit . He added that the delay in filing

Buca's annual report was also because of the possible accounting violations .

156. Investors immediately realized that a material and previously undisclosed

accounting fraud had occurred at the Company, notwithstanding Buca's earlier efforts t o

portray any accounting irregularities as minor and unimportant . Within hours of Buca' s

disclosure an investor posting to the Yahoo Internet bulletin board which follows Buca's

stock urged other investors to sell their shares . In his view Buca had become a "pigg y

bank for execs! ! !" On the same evening another investor posted his interpretation of th e

70

news: "its bad[, u dont delay earnings and suspend your cfo and senior vp unless th e

stuff has [gone wrong] bigtime. . . . . BUCA is in serious trouble." Another poster

expressed a similar view-"[s]ounds like fraud has been committed ."

157. In response to the Company's unexpected announcement, on the nex t

business day, Monday March 14, Buca's stock dropped to $5 .50 in the first 90 minutes o f

the trading day, eventually closing, down $ .66. This price decline occurred on a day in

which the average price of stocks in the market as a whole and of stocks in the Peer

Group Index increased. When compared against its Peer Group Index, Buca's stock price

declined 10.569%, a statistically significant amount. Trading volume on March 14, 2005

was 313,381 shares, more than six times the average daily volume in the preceding yea r

(251 trading days) .

VIII. FRAUD-ON-THE-MARKET PRESUMPTION

158. Plaintiffs may rely upon the presumption of reliance established by the fraud-

on-the-market doctrine, in that, among other factors :

a. Defendants made public material misrepresentations or failed to

disclose material facts regarding Buca's business and financia l

condition during the Class Period ;

b. The Company's common stock is traded on NASDAQ, a n

efficient and open market ;

c. The misrepresentations and omissions alleged would tend to

induce a reasonable investor to misjudge the value of the

Company's common stock;

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d. Plaintiffs and the members of the Class purchased their commo n

stock between the time defendants failed to disclose or

misrepresented material facts and the time the true facts wer e

fully disclosed, without knowledge of the misrepresented facts ;

e . At all relevant times Buca was followed by various analysts and

news media . The research analysts that covered Buca during th e

Class Period were from a number of major firms includin g

BB&T Capital Markets; B. Riley & Company ; Fahnestock &

Co., Inc .; Ferris, Baker Watts, Inc .; Ladenburg, Thalmann & Co .

Inc .; McDonald Investments Inc .; Miller Johnson Steichen

Kinnard; Oppenheimer & Co . ; Piper Jaffray ; Raymond James &

Associates, Inc .; and SG Cowen Securities Corporation . During

the Class Period these analysts issued numerous report s

providing analysis and commentary regarding the Company' s

financial condition and prospects based upon, among other

things, the Company's financial statements, press releases and

other public statements. The Company also held periodi c

conference calls with research analysts throughout the Clas s

Period ;

f. Buca's Common Stock is registered pursuant to SEC Form S-I ,

the form used by large public companies ;

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g. At all relevant times Buca stock had market makers an d

arbitrageurs ;

h. At all relevant times there was a substantial amount of publi c

trading in Buca shares . During the Class Period an average of

more than 200,000 shares traded on each trading day ; and

i. At all relevant times, the price of Buca's common stock reflected

the effect of news disseminated in the market .

IX. CLASS ACTION ALLEGATIONS

159. Plaintiffs bring this action as a class action pursuant to Federal Rules of Civil

Procedure 23(a) and (b)(3) on behalf of a class consisting of all persons who purchased

the common stock of Buca during the period February 6, 2001 through and including

March 11, 2005, and who suffered damages thereby (the "Class") . Excluded from the

Class are the Defendants, members of the Defendants' families, any entity in which an y

Defendant has a controlling interest of, is a parent or subsidiary of, or is controlled by the

Company, or the officers, directors, employees, affiliates, legal representatives, heirs ,

predecessors, successors, and assigns of any of the Defendants .

160. The members of the Class are so numerous that joinder of all members i s

impracticable . While the exact number of Class members is unknown to the Plaintiffs at

this time and can only be ascertained through appropriate discovery, Plaintiffs believ e

there are, at a minimum, thousands of members of the Class . Buca had in excess of

20,168,268 shares of its common stock outstanding as of November 1, 2004 .

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161 . Plaintiffs' claims are typical of the claims of the members of the Class as al l

members of the Class are similarly affected by Defendants' wrongful conduct that is

complained of herein .

162 . Plaintiffs will fairly and adequately protect the interests of the members o f

the Class and have retained counsel competent and experienced in class and securitie s

litigation .

163 . Common questions of law and fact exist as to all members of the Class an d

predominate over any questions solely affecting individual members of the Class .

Among these common questions of law and fact are whether the federal securities law s

were violated by Defendants' acts alleged herein ; whether Defendants' public statement s

during the Class Period misrepresented material facts about the business, operations,

financial statements of Buca; and to what extent the members of the Class have sustaine d

damages and the proper measure of damages .

164. 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 individual litigation would make it impossible for many

Class members to individually redress the wrongs done to them . There will be no

difficulty in the management of this action as a class action .

X. NO SAFE HARBOR

165 . The statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the false statements pleaded in thi s

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complaint . The specific statements pleaded herein were not forward looking and 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 . Moreover, defendants made the false statemen t

alleged herein knowing that these statements were false .

XI. CAUSES OF ACTION

COUNT I

VIOLATIONS OF SECTION 10(b) OFTHE EXCHANGE ACT AND SEC RULE 10b- 5

166. Plaintiffs repeat and reallege each and every allegation contained in th e

foregoing paragraphs as if fully set forth herein .

167. By reason of their positions with the Company each of the Individual

Defendants had access to internal documents, reports and other information, including

adverse non-public information concerning the Company's business and financial

condition, and attended management and/or board of director meetings . As a result of th e

foregoing, they were responsible for the truthfulness and accuracy of the Company' s

public reports and releases described herein .

168 . Buca and the Individual Defendants had a duty to not disseminate false and

misleading information about the Company, to disseminate only truthful and accurat e

information with respect to the Company, and to correct any public statements issued b y

or on behalf of the Company that had become false and misleading . Nevertheless, during

75

the Class Period, Defendants, singly and in concert, directly engaged in a common plan ,

scheme, and unlawful course of conduct, pursuant to which they knowingly, or actin g

with extreme recklessness, engaged in acts, transactions, practices, and courses o f

business which operated as fraud and deceit upon Plaintiffs and the other members of th e

Class, and failed to disclose material information in order to make the statement s

described in this Complaint, in light of the circumstances under which they were made ,

not misleading to Plaintiffs and the other members of the Class . The purpose and effect

of said scheme, plan, and unlawful course of conduct was, among other things, to induc e

Plaintiffs and the other members of the Class to purchase Buca's common stock durin g

the Class Period at artificially inflated prices .

169 . All Defendants are liable, jointly and severally, as direct participants and co-

conspirators, for the wrongs complained of herein . During the Class Period, Buca acted

through the Individual Defendants, whom it portrayed and represented to the public as it s

valid representatives . The willfulness, motive, knowledge, and recklessness of th e

Individual Defendants are therefore imputed to Buca, which is also primarily liable fo r

the securities law violations of the Individual Defendants .

170. As a result of the false and misleading statements and failure to disclos e

material facts described in this Complaint, the information Defendants disseminated t o

the investing public regarding Buca's revenue, same store sales, expenses, and ne t

earnings as well as the Company's internal controls was materially false and misleading ,

and the market price of Buca's common stock was artificially inflated during the Clas s

Period. In ignorance of the false and misleading nature of these statements and the

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deceptive and manipulative devices and contrivances employed by the Defendants ,

Plaintiffs and other members of the Class relied, to their detriment, on the integrity of th e

market price of the Company's common stock in purchasing shares of Buca. Had

Plaintiffs and the other members of the Class known the truth , they would not have

purchased said shares or would not have purchased them at the inflated prices that wer e

paid .

171 . Plaintiffs and the other members of the Class have suffered substantial

damages as a result of the wrongs herein alleged in an amount to be proved at trial .

172 . By reason of the foregoing, each Defendant directly violated Section 10(b) of

the Exchange Act and SEC Rule lOb-5 promulgated thereunder in that they : (a) employed

devices, schemes, and artifices to defraud; (b) failed to disclose material information ; or

(c) engaged in acts; practices, and a course of business which operated as a fraud an d

deceit upon Plaintiffs and the other members of the Class in connection with thei r

purchases of Buca's common stock during the Class Period .

COUNT II

VIOLATIONS OF SECTION 20(A) OF THE EXCHANGE AC T

173 . Plaintiffs repeat and reallege each and every allegation contained in each of

the foregoing paragraphs as if set forth fully herein .

174. Each of the Individual Defendants , by virtue of their positions, stock

ownership and/or specific acts described above, were, at the time of the wrongs allege d

herein, controlling persons within the meaning of Section 20(a) of the Exchange Act .

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175. Each of the Individual Defendants had the power and influence and exercise d

the same to cause Buca to engage in the illegal conduct and practices complained o f

herein.

176. By reason of the conduct alleged in Count I of the Complaint, the Individual

Defendants are liable jointly and severally and to the same extent as the Company for th e

aforesaid wrongful conduct, and are liable to Plaintiffs and to the other members of the

Class for the substantial damages which they suffered in connection with their purchases

of Buca common stock during the Class Period

XII. PRAYER FOR RELIEF

177. WHEREFORE, Plaintiffs, on their own behalf and on behalf of the Class ,

pray for judgment as follows :

(a) Declaring this action to be a proper class action an d

certifying Plaintiffs as class representatives under Rule 23

of the Federal Rules of Civil Procedure;

(b) Awarding compensatory damages in favor of Plaintiffs

and the other members of the Class against all Defendants ,

jointly and severally, for the damages sustained as a result

of the wrongdoings of Defendants, together with interest

thereon;

(c) Awarding Plaintiffs the fees and expenses incurred in this

action, including reasonable allowance of fees for

Plaintiffs' attorneys, and experts ;

78

(d) Granting extraordinary equitable and/or injunctive relie f

as permitted by law, equity, and federal and state statutory

provisions sued on hereunder ; and

(e) Granting such other and further relief as the Court ma y

deem just and proper .

XIII. JURY TRIAL DEMAND

178 . Plaintiffs demand a jury trial of all issues so triable .

Date: December 18, 2006 Respectfully submitted ,

HEINS MILLS & OLSON, P.L.C.

s/ Bryan L. CrawfordStacey L. Mills (Bar No. 226373)Bryan L. Crawford (Bar No . 0166819)Muria Kruger (Bar No . 0326987)3550 IDS Center80 South Eighth StreetMinneapolis, Minnesota 55402Tel : (612) 338-4605Fax: (612)338-4692

COHEN, MILSTEIN, HAUSFELD &TOLL, P.L.L.C.

Herbert E . MilsteinSteven J. TollDaniel S . SommersAvi Samuel GarbowMatthew B . Kaplan1100 New York Ave . NWSuite 500, West TowerWashington, D .C . 20005Tel: (202)408-4600Fax: (202)408-4699

79

BERMAN DeVALERIO PEASE TABACCOBURT & PUCILLO

Michael J . PucilloJay W. EngKyle G. DeValerioEsperanto Building, Suite 900222 Lakeview AvenueWest Palm Beach, FL 33401Tel: (561) 835-9400Fax: (561) 835-0322

COUNSEL FOR PLAINTIFF S

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ATTACHMENT A

List of Confidential Sources

81

Confidential Sources Referred to in the Complain t

CS-I worked for Buca from 1999 until mid-2005 . By at least 2001 he/she was arestaurant general manager and in 2003 was promoted to divisional vice president, withresponsibility for Buca restaurants in a particular geographic area .

CS-2 : was a Buca restaurant general manager in California from 1998 to January 2003 .

CS-3 was an Accounting Manager in Buca's corporate offices from 2000 to 2004 whoreported to Buca's Controller . CS-3 continued to learn of developments at Buca becausehe remained in contact with friends who still worked at the Company.

CS-4 was a General Manager for a Buca restaurant in Arizona from 1999 to March 2005 .

CS-5 worked for Buca from mid-1995 to late 2002 in a variety of positions, including asa restaurant general manager . While working at Buca headquarters in another positionCS-5 was responsible for performing audits . CS-5 has a degree in accounting andextensive experience in the restaurant industry .

CS-6 was a Cash Accountant at Buca's headquarters from October 1998 until October2002 who also worked on the committee that was in charge of ordering the headquarters'lunches .

CS-7 was Chief Operating Officer ("COO") for the Company from October 1998 throughFebruary 2001 .

CS-8 was Senior Vice President of Operations . CS-8 worked at Buca from 1999 untilApril 2005 and who reported to the Chief Operating Officer

CS-9 was a Senior Financial Manager at Buca's headquarters from July 2000 to February2005 . CS-9 was responsible for accounts payable and was in charge of all payments bycheck made by the Company.

CS-1 0 is a Certified Public Accountant who worked in Buca's corporate offices inMinnesota as Buca's Assistant Controller from the first quarter of 2000 until October2001 .

UNITED STATES DISTRICT COUR T

DISTRICT OF MINNESOTA

In re BUCA, Inc. Securities Litigation ) Case No . 05-CV-0 1762This Paper Or Pleading Relates To : )

All Actions )

CERTIFICATE OF SERVICE

I hereby certify that on December 18, 2006 I caused a copy of the followingdocument :

1 . Second Amended Consolidated Class Action Complaint,

to be filed electronically, and that ECF will send an e-notice of the electronic filing to thefollowing:

Monica L. Davies monica .davies@leonard .com; patricia . hartmann@ leonard.com

Joseph T. Dixon, Jr . jdixon@hensonefron.com; vvien@hensonefron .com;dsmith@hensonefron.com

Wesley T. Graham wgraham@hensone fron.coin ; jmarxen@hensonefron.corn

Michael M. Krauss mkrauss@faegre .com; kspaulding@faegre .com

Todd A. Noteboom todd . noteboom@leonard .com, jan . hungerford@leonard .com

Douglas R. Peterson douglas .peterson@leonard.com, lisa .kletschka@leonard.com

Kenneth J . Walsh kwalsh@mcdonaldhopkins.com

Wendy J. Wildung wwildung faegre .com; tstorlien@faegre .com

Dated: December 18, 2006 HEINS MILLS & OLSON, P .L.C.

By: sl Muria J . KrugerStacey L. Mills (Bar No. 226373)Bryan L. Crawford (Bar No . 0166819)Muria J. Kruger (Bar No. 0326987)3550 IDS Center80 South Eighth StreetMinneapolis, MN 55402Tel: (612)338-4605Fax: (612)338-4692Liaison Counsel for Plaintiffs

COHEN, MILSTEIN, HAUSFELD &TOLL, P.L.L.C.Steven J. TollDaniel S. SommersAvi GarbowMathew B. Kaplan1100 New York Ave . NW, Ste 500West TowerWashington, D .C. 20005Tel: (202) 408-4600Fax: (202) 408-4699

BERMAN DeVALERIO PEASE TABACCOBURT & PUCILL O

Michael J. PucilloFlorida Bar No. 261033Jay W. EngFlorida Bar No. 0146676Esperanto Building, Suite 900222 Lakeview AvenueWest Palm Beach, FL 33401Tel: (561)835-9400Fax : (561)835-0322Co-Lead Counsel for Plaintiffs