Case2:07-cv-00852-GLF-NMK Document37 Filed 10/03/2008...

Case 2:07-cv-00852-GLF-NMK Document 37 Filed 10/03/2008

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

JUNE GRUHN, On Behalf of Herself and AllOthers Similarly Situated,

of 51

No. 2:07-cv-00852-GLF-NMK(Consolidated)

Plaintiff,

vs.

TWEEN BRANDS, INC., et al.,

Defendants.

CLASS ACTION

[Caption continued on following page.]

AMENDED CONSOLIDATED COMPLAINT FOR VIOLATION OF THE FEDERALSECURITIES LAWS

COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP

HENRY ROSENRAMZIABADOU655 West Broadway, Suite 1900San Diego, CA 92101Telephone : 619/231-1058619/231-7423 (fax)

MURRAY MURPHY MOUL + BASIL LLPJOSEPH F. MURRAY (0063373)BRIAN K. MURPHY (0070654), Trial AttorneyGEOFFREY J. MOUL (0070663)1533 Lake Shore Drive , Suite 150Columbus , OH 43204Telephone : 614/488-0400614/488-0401 (fax)

Lead Counsel for Plaintiffs Liaison Counsel

Case 2:07-cv-00852-GLF-NMK Document 37 Filed 10/03/2008 of 51

ALLISON ANDREWS, Individually and On )Behalf of All Others Similarly Situated, )

Plaintiff, )

vs. )


Defendants.

JOHN SELFER, Individually and On Behalf of)

All Others Similarly Situated, )

Plaintiff,

vs.


No. 2:07-cv-00894-GLF-NMK

CLASS ACTION

No. 2:07-cv-00925-GLF-NMK

CLASS ACTION

Defendants.


INTRODUCTION

1. This is a securities class action on behalf of all persons who purchased or otherwise

acquired the common stock of Tween Brands , Inc. ("Tween Brands or the "Company ) between

February 21, 2007 and August 21, 2007 (the "Class Period ), against Tween Brands and certain of

its officers and/or directors for violations of the Securities Exchange Act of 1934 ("1934 Act )

2. Tween Brands is an operator of two specialty retailing brands, Limited Too and

Justice stores, which sell apparel, footwear, and lifestyle and personal care products to girls aged

seven to 14 . Tween Brands is headquartered in New Albany, Ohio.

3. During the Class Period, defendants issued materially false and misleading statements

regarding the Company's business and prospects. As a result ofdefendants ' false statements, Tween

Brands stock traded at artificially inflated prices during the Class Period, reaching a high of $46.54

per share on July 6, 2007.

4. Defendant Michael W. Rayden ("Rayden ) as Chief Executive Officer ("CEO ) of

Tween Brands, he closely controlled the Company's two business lines Limited Too and Justice.

Rayden was a very hands-on CEO, involved in every decision affecting both businesses . Rayden

had unlimited access to Company sales and financial data, and prided himself on reviewing and

questioning staff about the data for both businesses on a daily basis.

5. Rayden and Kenneth T. Stevens ("Stevens ), ChiefOperating Officer ("COO ), and

Paul C. Carbone ("Carbone ), Chief Financial Officer ("CFO ) (collectively the "Individual

Defendants ) all had access to extensive Company data regarding current sales , forecasted sales and

markdowns. Each day the Individual Defendants would receive daily sales data via email. Each

week the Individual Defendants would receive the Weekly Operating Summary, a detailed report

including data regarding profits, sales , markdowns and inventories. In weekly meetings with the

presidents of Limited Too, Justice, and Corporate, defendants Rayden and Stevens reviewed

-1-


financial projections and budget to actual data. The Individual Defendants also had access to the

Stock to Sales and Open to Buy Reports, which were updated on a weekly basis to show sales

history for the four years prior, broken down by department, current and planned sales and

inventory.

6. In 2004, Tween Brands embarked on an ambitious program to offer its products to a

wider spectrum ofyoung girls by adding the Justice line of stores to the existing Limited Too stores.

By the beginning of the Class Period, Tween Brands had 563 Limited Too stores and 159 Justice

stores. Originally, the two store concepts were not supposed to compete with each other because the

Justice stores were intended to be placed in less expensive locations, such as strip malls, whereas the

Limited Too stores were placed in higher end shopping malls. The problem was, by the first half of

2006, as the Company had opened over 150 Justice stores , it was becoming very difficult for

defendants to prevent the stores from competing with each other. Because Justice stores offered

virtually the same products at much cheaper prices than Limited Too stores and in the same

locations, Justice stores started stealing customers from Tween Brands' higher end Limited Too

stores.

7. Rayden knew that any growth in Justice was at the expense ofLimited Too, but chose

to keep data indicating such cannibalization to himself, even when requested by concerned staff.

Rayden instead focused on the growth of Justice, the concept he created and developed, naming it

after his daughter.

8. The Individual Defendants monitored the amount of cannibalization in two ways.

First, through market analysis reports, which broke down sales by business line and contained sales,

inventory and profit information. Additionally, the Company's marketing department also kept

careful track of the "crossover customers, that were originally Limited Too customers that began

-2-


shopping at a Justice store when one opened in their area. Both of these measures indicated the

cannibalization of Limited Too as Justice grew.

9. Rayden was so focused on the success of Justice, that some employees became

concerned that Rayden was favoring Justice to the detriment of Limited Too. Many times Rayden

refused to spend much needed money on Limited Too, such as for point of sale improvements like

new registers, but had no problem spending money on similar items for Justice.

10. As the Company grappled with competition from within, Tween Brands was also

experiencing competition from outside rivals, the discount and chain stores. Retailers like

Abercrombie & Fitch, American Eagle and American Apparel appealed to younger teens and

prevented the Company from keeping the girls as customers as they became older, while discount

stores appealed to parents in convenience and price. Based on Tween Brands' systems to monitor

sales, defendants knew that despite the growing numbers of Justice stores, the Company's overall

growth was achieved by sacrificing sales at Limited Too stores that were stagnating.

11. Faced with intense internal and external competition, Tween Brands used various

promotional programs and direct-mailers to help drive sales . One of these key promotional

programs was the "Too Buck program, developed by Rayden at his prior company and brought to

Tween Brands . The Company ran the Too Buck program twice per year ; one in the spring around

Easter and one during back-to-school season. During the Too Buck distribution period, for every

$50 (pre-tax) spent at Limited Too, the customer received two $25 Too Bucks cards to use during

the redemption period. Tween's back-to-school season was the second most important time of the

year for the Company after the holiday season . To maximize earnings potential , Tween used the

Too Buck program over the back-to school season to extend the natural back-to-school shopping

season by getting the customer to come in early in summer and spend the money necessary to

receive the $50 coupons and then return later to redeem the coupons after peak back-to-school

-3-


shopping was over. When the program was run perfectly, with distribution before the back-to-

school season and redemption after kids return to school, the results had the potential to dramatically

enhance revenues and thus earnings. In contrast, even a minor miscalculation in dates had the

potential for disastrous consequences since the back-to-school merchandise sold at a high margin

could be sold at a deep discount if the coupons were valid at the wrong time. Ifused improperly the

Too Buck program, instead ofenhancing profitability, would undercut profit margins and the entire

back-to-school shopping season would be shortened.

12. Although the Company held itself out to analysts and investors as using the

promotional programs with discipline and maintaining consistently high margins, over time the

Company was forced to use these programs to simply maintain sales , thereby undercutting profit

margins. During the Class Period disaster struck when the Company failed to execute the Too Buck

program to properly coincide with changing back-to-school dates.

13. Defendant Carbone took over the back-to-school Too Buck program in 2007 and

brought in entirely new staff. Instead of conducting the intense research and modeling required to

administer the program, Carbone and his team underestimated the project and disregarded the

meticulous processes used in prior years. Carbone was loath to take suggestions from the previous

experienced retail financial staffregarding the program, and instead attempted to implement his own

unsuccessful procedures. Defendants knew that the Too Buck program had not been properly

implemented because Carbone and his team did not use Rayden's time-tested method of extensive

financial modeling and research related to timing the Too Buck program perfectly with the new

back-to-school dates and instead implemented their own system.

14. During this time of disarray surrounding the Too Buck program, the Individual

Defendants continued to meet with analysts and assure investors that everything was going as

planned for the back-to-school season and that the Company was properly executing the Too Buck

-4-


program. To accomplish this, defendants gave false assurances to the market that their growth

strategy would succeed through 2007. To convince the markets, when Tween Brands reported 4Q

2006 and FY 2006 results on February 21, 2007 and 1Q 2007 results on May 23, 2007, defendants

falsely assured investors that Tween Brands would achieve 2007 earnings per share ("EPS ) of

$2.15-$2. 25. Defendants reiterated this guidance throughout the Class Period.

15. To compound the failure to properly plan and implement the Too Buck program,

news broke at the end ofMay 2007 that Florida and Texas were going to change their state sales tax

holidays to later dates than prior years. Although this shift had a major impact on the Company's

anticipated 2Q 2007 results, the Company gave no indication that this shift would impact their sales

or their back-to-school promotions. Instead of disclosing this impact ofthe tax holiday change or the

failure to implement the Too Buck program, Rayden instead dumped 153,683 shares of Tween

Brands stock and reaped $6.3 million in proceeds after news of the new tax holiday dates were

announced. In addition to other stock sales in February 2007, Rayden sold 49% of his holdings of

Tween Brands stock during the Class Period.

16. The true facts, which were known by defendants but concealed from the investing

public during the Class Period, were that growth at Justice was primary accomplished by

cannibalizing Limited Too stores . The Company 's existing Limited Too stores were performing

poorly and any sales growth was coming from opening new stores and not from same-store sales

growth. In addition, Justice was actually stealing Limited Too store's sales such that future results

would not be anywhere near as high as the defendants led the market to believe. The Company was

also experiencing competition from outside rivals, such as discount and chain stores that chipped

away Tween Brands' market share.

17. Additionally, the Company's failure to properly execute the Too Buck program with

back-to-school start dates caused Tween Brands to sell their best back-to-school merchandise at

-5-


discounted prices, thereby significantly undercutting profit margins. During this time, Tween

Brands was also experiencing ballooning infrastructure costs that were unsustainable over the long

run because of the decision to essentially operate the Justice and Limited Too lines as separate

companies with Tween Brands. Thus, the Company's ability to achieve projected earnings was

impaired as the Justice line grew because of the increasing overhead costs.

18. On August 22, 2007, before the market opened, Tween Brands issued a press release

entitled "Tween Brands Reports Second Quarter Sales and Earnings. The press release stated in

part:

Tween Brands, Inc., today reported its operating results for the second quarter endedAugust 4, 2007. As compared to the results for the second quarter ended July 29,2006:

- Net sales increased 15% to $213.7 million from $185.8 million attributable toa 15% increase in store count;

- Comparable store sales decreased 2% versus a 10% increase for secondquarter 2006. By brand, Justice comparable store sales increased 13%, whileLimited Too's decreased 4%;

- The gross income rate declined 170 basis points primarily due to a lowermerchandise margin and higher buying and occupancy costs as a percentageof net sales;

- Store operating, general and administrative expenses as a rate of salesincreased 120 basis points primarily due to higher marketing costs,principally from increased Justice catazine circulation;

- Net income for the 2007 quarter was $2.1 million, or $0.07 per share,compared to net income of $5.9 million, or $0.18 per share for the 2006period; and

- Total inventories at the end ofthe 2007 quarter were up 5% per square foot atcost compared to inventories at the end ofthe 2006 period. However, in-storeinventories were down 6% per square foot at cost, in-line with the company'sprevious guidance. The difference is attributable in part to inventoryadditions resulting from the company's higher level of direct sourcing.

"Our sales for the quarter failed to meet our expectations in large part becausewe underestimated the impact of so many schools in our markets moving their back-to-school start dates later, as well as Texas and Florida shifting their state sales taxholidays from July to August, said Tween Brands Chairman and CEO Mike

-6-


Rayden. "These shifts aggravated what had been a decline in retail traffic and lowerstore transactions throughout the quarter.

Third and Fourth Quarter Outlook

The company said that it is estimating earnings per diluted share for the thirdquarter ending November 3, 2007 of $.40 to $.45, below the $.58 per diluted sharereported for the like period last year. The principal reason for the comparativelylower forecasted range of earnings is a revised estimate of the calendar shift on thecompany's quarterly sales and earnings comparisons. In accordance with the 2007retail calendar, the third quarter shifted the higher sales volume first week ofAugustinto second quarter, and moved the lower volume first week ofNovember into thirdquarter. Also, Limited Too plans to take markdowns earlier in the season comparedto last year to better position inventory going into fourth quarter. The third quarterguidance assumes a consolidated comparable store sales percentage increase in themid single digit range. By brand, that would equate to an increase for Limited Too inthe low single digits and an increase in the mid teens for Justice. Additionally, TweenBrands said it expects in-store inventories at the end of the third quarter to be downin the mid single digit percentage range on a cost per square foot basis.

The company also said that it expects earnings per diluted share for the fourthquarter ending February 2, 2008 to be in the range of $0.94 to $1.04, which would bea 9% to 21% increase on the $0.86 per diluted share reported for fourth quarter 2006.The 2006 quarter included the benefit from an extra week and a lower effective taxrate as a result of favorable tax settlements during the period.

As a result of Tween Brands' lower second quarter earnings and revisedoutlook on the third and fourth quarters, the company expects full-year earnings perdiluted share of $1.80 to $1.95 compared to its previous guidance of $2.10 to $2.25.The company reported earnings per diluted share of $1.95 for fiscal 2006, whichcomprised 53 weeks.

Commenting on the revised earnings guidance, Mr. Rayden said, "While weare projecting positive comparable store sales for the third quarter at both of ourbrands, we remain cautious regarding the current trend in retail traffic and thecontinuing uncertainties in the U. S. economy.

Tween Brands Store Growth

Justice opened 29 stores during the second quarter 2007, ending the period at213 stores, an increase of 98 stores on the 115 open at end of second quarter 2006.Justice is on target to open 100 to 105 new stores in 2007.

Justice is also developing a larger format store that would be 15% to 25%bigger than the average store size today. The company said that the larger stores, thefirst of which should open in 2008, would allow Justice to expand existingmerchandise categories, introduce new ones and increase the space used for theirsuccessful party business.

Limited Too opened four new, closed one and remodeled 16 existing storesinto the more contemporary Girl's World store format, ending the period at 573

-7-


stores. Limited Too continues to plan a net increase of 25 to 30 stores and 40 to 50

share, a decline of 29% on volume of 8 million shares, 10 times the average three-month volume.

This was the largest one-day decline of the Company' s shares in almost seven years.

Too Buck program, failed to make up for Texas and Florida moving their state sales tax holidays

from July to August and the Company was experiencing a fundamental decline in demand for its

products. Tween Brands' downward revision of its 3Q 2007 guidance had a devastating impact on

the Company's stock price, causing massive losses to class members, as reflected in the chart below,

remodels for 2007.

19. On this news, Tween Brands' stock collapsed $11.00 per share to close at $27.59 per

20. Tween Brands failed to achieve its 2Q 2007 guidance because it failed to execute the

but not before Rayden profited by dumping 49% of his holdings.

S50

S45

S40

Tween Brands, Inc.Indexed vs. Peer Group

February 1. 2007 to September 14. 2007

Tween Brands

Peer Grou p ^-

5.30-07 During the FBR Grov„thConference defendant Carbonereiterates 2007 EPS guidance of

iIncr1e5ase2

fro25m

a 102006

°•0-15%n

='3;07 - :12.07LEO Rayden sells163 683 shares forSr 3 million

2.21-87 Tueen Reports4Qand FY 2006 Results 4thQuarter sales up 15% to5272 21.1 and FY sales uF17% to 5883 7M and EPSup 22% to Si 96Defendants guidance at

5r23.07 T^.;een Reports 1Q 87Results 1st Quarter sales up 14% toS223 2M and EPS up 11%to SO 39

the 13th consecutive quarterlyincrease Reiterated 2007 EPSguidance of 52 10-;2 26

52 15-;2 26 for 2007 EPS

7i2A7 The Buckingham Research Groupanalyst Barbara '•t `;ckoff publishes a reporthased on her meeting with management

I stating that Justice has glitch free growth

A

touting the Too Bucks program and praisingthe Company s ability to maintain margins

SrvD s

cL

p= 335

S30

S25

7-2.23•ro7 Rayden ' s Class Period Sales.^EO Rayden sellsX51 •598 shares for

4 million. Shares Sold: 218.281Proceeds: $8 7 Million-

-"'{n? Teen Reports 'Ur7 Results of SCI ii? EPersus Sri 18 in 2Q !ii andell helo•.. 51i 13-5 ii 1'i

e:pected T.eenalsel...-red FY 2 1 r, i? auidan^cto 51 8ii-^ 1 fl on-1

Class - -- - ► ;

32:0V2007 03 08'2007 04 12 2007 05.16.2007 06.2Q.2007 07.25.2007 08 28 200702 20 2007 03/26/2007 04 30 2007 06 4 2007 07 09 2007 08 1 0 2007 09 14 2007

(1) Tween Brands Peer Group derived from the 05/24/2007 Proxy peer list and is composed of ANF, All All ANN,BKE, PLCE, CLE, GES, GYMB , HOTT, PSUN, TLB and WTSL equally weighted and averaged.

-8-


JURISDICTION AND VENUE

21. Jurisdiction is conferred by §27 of the 1934 Act. The claims asserted herein arise

under §§10(b) and 20(a) of the 1934 Act and the Securities and Exchange Commission ("SEC )

Rule lOb-5.

22. (a) Venue is proper in this District pursuant to §27 ofthe 1934 Act. Many ofthe

false and misleading statements were made in or issued from this District.

(b) Tween Brands' principal executive offices are located at 8323 Walton

Parkway, New Albany, Ohio.

PARTIES

23. Lead Plaintiff, the Electrical Workers Pension Fund, Local 103, I.B.E.W. ("Lead

Plaintiff ), as set forth in the attached certification, purchased 15,290 shares of Tween Brands

common stock at artificially inflated prices during the Class Period and was damaged thereby. See

Ex. 1.

24. Defendant Tween Brands is an operator of two specialty retailing brands, Limited

Too and Justice stores, which sell apparel, footwear, and lifestyle and personal care products to girls

aged seven to 14. Limited Too sells apparel, accessories, footwear, and lifestyle and girl care

products to fashion-aware, trend-setting tween girls. Justice sells apparel, footwear, accessories and

lifestyle items for tween girls.

25. Defendant Rayden is, and at all relevant times was, a director, Chairman ofthe Board

and CEO ofTween Brands. Additionally, Rayden served as President from 1996 until January 2007.

During the Class Period, Rayden was responsible for the Company' s false financial statements and

reaped proceeds ofover $8.7 million by selling 218,281 shares ofhis Tween Brands stock or 49% of

his holdings.

-9-


26. Defendant Stevens is , and at all relevant times was, President , COO, Secretary and

Treasurer of Tween Brands. During the Class Period, Stevens was responsible for the Company's

false financial statements.

27. Defendant Carbone is, and at all relevant times was, Senior Vice President, Finance

of Tween Brands and the Principal Accounting Officer of the Company. Additionally, since June

2007, Carbone has served as CFO of the Company. During the Class Period, Carbone was

responsible for the Company' s false financial statements.

28. The Individual Defendants, because oftheir positions with the Company, possessed

the power and authority to control the contents of Tween Brands' quarterly reports, press releases

and presentations to securities analysts , money and portfolio managers and institutional investors,

i.e., the market. They were provided with copies of the Company's reports and press releases

alleged herein to be misleading prior to or shortly after their issuance and had the ability and

opportunity to prevent their issuance or cause them to be corrected. Because oftheir positions with

the Company, and their access to material non-public information available to them but not to the

public, the Individual Defendants knew that the adverse facts specified herein had not been disclosed

to and were being concealed from the public and that the positive representations being made were

then materially false and misleading. The Individual Defendants are liable for the false statements

pleaded herein at 1130-31, 37-38, 40, 42-44.

FRAUDULENT SCHEME AND COURSE OF BUSINESS

29. Defendants are liable for: (i) making false statements; or (ii) failing to disclose

adverse facts known to them about Tween Brands. Defendants' fraudulent scheme and course of

business that operated as a fraud or deceit on purchasers of Tween Brands common stock was a

success, as it: (i) deceived the investing public regarding Tween Brands' prospects and business; (ii)

artificially inflated the price ofTween Brands' common stock; (iii) allowed defendant Rayden to sell

-10-


49% of his holdings in Tween Brands stock at artificially inflated prices; and (iv) caused Lead

Plaintiff and other members ofthe Class to purchase Tween Brands common stock at inflated prices.

DEFENDANTS' FALSE AND MISLEADINGSTATEMENTS ISSUED DURING THE CLASS PERIOD

30. On February 21, 2007, Tween Brands issued a press release to report 4Q 2006 and

FY 2006 results entitled "Tween Brands Reports 12th Consecutive Quarterly Earnings Increase;

Higher Earnings for 2007 Forecast. The press release stated in part:

Tween Brands, Inc., today announced its operating results for the fourth quarter andfiscal year 2006 ended February 3, 2007, which included:

Fourth quarter net sales up 16% to $272 .3 million;

Fourth quarter earnings per diluted share up 8% to $0.86, the 12thconsecutive quarterly earnings increase;

Fiscal year sales up 17% to $883.7 million and earnings per dilutedshare up 22% to $1.95.

Fourth Quarter Performance

Tween Brands had net income of$28.2 million, or $0.86 per diluted share, onnet sales of $272.3 million, for the fourteen weeks ended February 3, 2007. Thiscompares to net income of $27.1 million, or $0.80 per diluted share, on net sales of$235.1 million, for the thirteen weeks ended January 28, 2006. The additional weekin the fiscal 2006 quarter provided store sales of $11.6 million. The 2006 quarter alsoincluded an after-tax charge of approximately $0.03 per share for the previously-disclosed costs associated with the separation agreement for a former executiveofficer. Earnings per diluted share, adjusted for executive severance, are $0.89.

Tween Brands had a comparable store sales increase of 2% for the 2006quarter, including a 21% comparable store sales increase for the 92 Justice stores thatwere open at least one year during the quarter, and flat comparable store sales forLimited Too stores. Due to the 14th week in the period, fourth quarter 2006comparable store sales are measured against the fourteen week period endedFebruary 4, 2006. Tween Brands reported a fourth quarter 2005 comparable storesales increase of 6%.

In-store inventories as ofFebruary 3, 2007 were up 10% on a cost per squarefoot basis , when compared to inventories at the end of the first week of fiscal 2006.

Fiscal Year Performance

-11-


For the 2006 fiscal year ended February 3, 2007, Tween Brands had netincome of $64.8 million, or $1.95 per diluted share, on net sales of $883.7 million.This compares to net income for fiscal 2005 of $54.5 million, or $1.60 per dilutedshare, on net sales of $757.9 million. Fiscal 2006 benefited from the additional weekof store sales in the fourth quarter described above.

The earnings increase for 2006 was largely a result of higher net sales andlower general, administrative and store operating expenses as a rate of net sales.

Store Growth

Justice opened 18 stores during the 2006 fourth quarter, ending the year at159 stores, an increase of 67 stores for the year. Justice plans to open approximately100 net stores in 2007, primarily in power strip centers across the United States.

Limited Too opened 4 new, remodeled 3 existing and closed 11underperforming stores during the quarter, ending the fiscal year with 563 stores.Current plans for 2007 call for a net increase of 20 to 30 Limited Too stores, withlocations in lifestyle and specialty centers, and outlet malls, throughout the UnitedStates. Limited Too also plans to remodel 30 to 40 older format stores.

2007 Capital Budget

Tween Brands' capital budget for 2007 is $105.0 million, compared to totalcapital expenditures of $66.0 million in 2006. Approximately $70.0 million will beinvested in opening new Justice and Limited Too stores, and remodeling olderLimited Too stores. The balance will be used for the previously-announcedexpansion of the company's home office, as well as information technology andsupply chain initiatives.

2007 Outlook

For the first quarter of fiscal 2007, Tween Brands expects earnings perdiluted share to be in the range of $0.34 to $0.37 compared to reported earnings perdiluted share of $0.35 for the first quarter 2006. The range of earnings estimates forthe first quarter assumes a comparable store sales percentage increase in the lowsingle digit range for Tween Brands, representing a percentage increase for Justice inthe high teens and flat comparable store sales for Limited Too.

For the full year 2007, Tween Brands is targeting earnings per dilutedshare of$2.15 to $2.25. The operating resultsfor the 52 weeks ofthe 2007fiscalyear will be compared to those reportedfor the 53 weeks ofthe 2006fiscalyear. Inaddition, the company is projecting a higher effective tax rate for fiscal 2007compared to 2006 because the prior year reflected various favorable taxsettlements that lowered the effective income tax rate.

31. After Tween Brands issued its 4Q 2006 and FY 2006 financial results , defendants

Rayden, Stevens and Carbone hosted a conference call with securities analysts, media

-12-


representatives and investors to discuss these results during which defendants represented the

following:

[STEVENS:] I'd like to review our beginning of Spring season inventoryposition a little further. The balance sheets show total inventories up 39% or 28%per square foot; however when we look at inventory on a comparable time frame,that is 52 weeks ago, it's up 17% per square foot. This is composed of Justice up13%, and Limited Too up 11 %. The remainder ofthe increase is due to inventory inour direct sourcing operation in which we take ownership for a given in-store datethree to four weeks earlier than outsourced inventory. Looking at the brands, we feelJustice's inventory is in good shape, and the increase is in line with forecasted salesgrowth in the first quarter.

Limited Too is admittedly higher than we would have liked. That said, ourSpring component of the total inventory is at a similar level to last year at this time,and the initial reads on this Spring assortment are in line with our expectations froma selling standpoint. Although at higher levels than we anticipated, we believe ourFall carryover inventory at Limited Too is owned at an appropriate level, and theeffects of clearing the remaining Fall goods are incorporated in our first quarterguidance.

[RAYDEN:] Thanks, Ken. Good morning, everyone . The results for thefourth quarter that Ken has just recapped, record sales and earnings, and the fact thatwe met the range of earnings guidance provided six weeks ago does not alter the factthat Limited Too had a disappointing holiday.

While it would be convenient to blame milder weather in December and acolder January than last year for dismal seasonal apparel sales, Limited Too'sproblems were largely our own doing. The sales momentum Limited Too generatedup through the Thanksgiving weekend was not sustained into the first three weeks ofDecember, where we had anticipated a much stronger comp sales given the relativelyeasy comparisons to December `05. Limited Too sales decelerated further in January,thus we were forced to take even more aggressive markdowns to clear end of seasonapparel inventory.

We've taken steps to address the problems of the fourth quarter and getLimited Too 's business back on track Thefirst step has already been taken. JillDean is nowprovidingfull-time leadership as President ofLimited Too, a role Iwas performing along with my corporate CEO responsibilities . Jill and her teamhave taken additional steps, includingplanning sales andmarkdowns much tighterto trend And theyplan to distort more buys to uptrending categories, and be moreopen to chase proven winners. All of us believe that Limited Too has the rightfashionfor Spring and we're very encouraged by our early Spring season results;however given Limited Too 'sfourth quarter results, we areplanning the businessmore conservatively, including aflat compfor thefirst quarter.

-13-


Our Justice business continues to meet or exceed our business objectives.New store openings are running as scheduled. We are adding five catazines this yearincluding two in the first quarter that should benefit their top line. We're introducingnew merchandise categories such as intimate apparel that will help build comp salesand the Justice birthday party program continues to add sales while introducing moreand more tween girls and their moms to a great offthe mall brand that's just right forgirls. We're planning a Justice first quarter comp store sales increase in the highteens, and as mentioned, we are continuing to plan an aggressive store openingschedule for 2007.

With Justice's first quarter comp expectation, along with a flat comp plannedat Limited Too, we estimate Tween Brands first quarter earnings per diluted share tobe in the range of $0.34 to $0.37. For the full year, we are targeted earnings perdiluted share of $2.15 to $2.25, compared to the $1.95 reportedfor 2006, whichincluded the 53rd week. The estimates for 2007 also assume a higher effectiveincome tax rate than that experienced in 2006. With that, I'll turn it back over to Bobto introduce the Q & A. Bob

[ANALYST:] Good morning. Can you talk about the inventoryplans at theend ofthefirst quarter and when you expect them to normalize and just secondly,can you talk about Justice accretion in the fourth quarter and the expectation for `07?Thank you.

[CARBONE:] This is Paul, So our inventory in the first quarter, in storeinventory we expect to end in thefirst quarter similar to where we have ended thefourth quarter, up about 10% in store on a[n] enterprise level We believe it willnormalize out by the end of the second quarter, and of course that is all thoseexpectations are baked on ourguidanceforflat comps in Limited Too and then thehigh single teens in Justice.

[ANALYST:] You said a couple of things that I was hoping you mightexpand on. Your comments regarding the go forward strategy at Limited Too.First, you were going to plan sales and markdowns to trend Ifyou could justexpand on what you mean by tha4 and then in terms ofplanning the businessmore conservatively, are you planning sales more conservatively, or inventorymore conservatively and when doyou expect to have bothplans sort ofin line ifthecurrent sales plan is trending below inventory ? Thanks.

[RAYDEN:] The way we normally plan the Limited Too business is weusuallyplan the business, I would say, semi-aggressively, and the reason we havealways done that is because ofthe high margin component ofthe business, and therisk ofthe markdowns is relatively low normally ifthe range is not too great. Withthe kind ofIMUs we have, the cost ofthe markdown is minimal, especially withour ability to dispose of merchandise in other methods as well, so it's been aprocess oftaking some chances in Limited Too. With the recent uncertainty in the

-14-


business, and I'm not really thinking that we're not going to have a good season,we arejust taking that risk out ofthe business andplanning the business to whatwe are also budgeting the business, so we are taking the inventory risk basicallyout ofthe business and areplanning to chase the goods as opposed to bet upfronton categories that we believe in, so we're just taking a much more conservativeposture on both sales and inventory and taking that sort of layer [sic]aggressiveness or assertiveness that we might have taken in the past out of thebusiness.

On the Justice side, the business is moving quite well and we've actually beenin a chase mode pretty much since we've opened the business, so we're going to stayin that mode in Justice and get in that mode in Limited Too, and we expect theinventories to be well in line by the end of April which really is basically the end ofthe first quarter. The first quarter this year has all of our Too Bucks redemption in itas opposed to last year with the later Easter and therefore, the first quarter sales willbe accelerated versus last year and that will enable us to get the inventory in line andas Ken mentioned, the excess inventory is on the Fall carryover side that we havealready accounted for in our guidance and it's not on the Spring inventory side.

[ANALYST:] I just had one quick follow-up. It sounds like you 're stillexpecting inventory to be up in store around 10% at the end of first quarter and thatwould seem to be still above a comp plan that you would predict for the secondquarter.

[RAYDEN:] I think we 've got a long way before we get to the end ofApriland a lot of things to happen before then, and I would like Limited Too's inventorymaximum to be up no more than 5% in the right goods and if I really had mydruthers , it would be up less than that depending on the base ofthe business of sales.

[ANALYST:] Hi. Looking atyour 2007 earnings guidance andforecastedsquarefootage growth, the guidance seems to imply that margins are expected todecline. Can you talk about what 's changing at the Company to cause the margindecrease?

[CARBONE:] Hi, this is Paul, Jaime. Our margin decrease is really drivenby events that we actually saw happen in thefourth quarter to us that shifted awayfrom apparel into hard goods so hard goods would play a bigger role in bothbrands this year in 2007, and those traditionally carry lower IMUs, and they alsocarry a lower markdown rate, so that will certainly drive our margin rates down.On the Spring side, we're looking at an enterprise level, gross margin rates generallyflat, so I think that composition is merch margin rates will be down slightly due tomix. We will continue to leverage through B&O through store occupancy expensesas we've seen through Justice, getting the enterprise gross margin to a flat for theSpring.

-15-


[ANALYST:] Okay, and on the guidance asfar as it relates to thefullyearof `07, can we assume thatyou 're looking at kind ofapositive low single comp ratein that, baked into that assumption on afull year basis?

[RAYDEN:] Clearly, John, the way you got to look at this and we try tolook at it depending on the corporate overhead is if we're going to have 15% squarefootage growth and everything would remain constant on an annual basis and we hada great Spring and a not as great Fall, we would probably just normally get a 15%relatively earnings per share growth ifwe didn't spend it all in expense. Ifyou add,then on top oftha4 a low single digit comp and some corporate overhead, you stillget the guidance that we have given which is the $2.25 a share at the top end oftheguidance, so that's the way it works, so we think there's opportunity in margin andsales in the third andfourth quarter. Limited Too was flat in both. Justice we'veseen no deceleration. Matter offact, they're offto a spectacular start in Februarywith the newfirst catazine, so we'repretty confident with our annualguidance andthat annual guidance, that's not even getting much leverage.

32. Based on Tween Brands' February 21, 2007 press release and conference call, and on

communications with defendants regarding 4Q 2006 and FY 2006 results, on February 22, 2007

analysts issued a number ofreports repeating defendants' statements and lowered EPS estimates as a

result of the Company's conservative guidance. Analyst reports were issued by Wachovia

Securities, FBR Research and Buckingham Research Group, Inc. which revised their estimates for

1 Q 2007 and FY 2007 based on management ' s guidance that Tween Brands EPS for FY 2007 would

be $2.15 - $2.25, a 10%- 15% increase over FY 2006.

33. As a result ofTween Brands' positive report for 4Q 2006 and FY 2006 and earnings

guidance of $2.25 a share for 2007, the Company's share price jumped $2.16 from $35.11 on

February 21 to $37.27 on February 22, 2007. Immediately following this announcement, on

February 22 and 23, 2007, defendant Rayden sold 64,598 shares of Tween Brands stock at prices

between $37.00 and $37.12 per share reaping $2,392,070 in insider trading proceeds. These sales

represented 17% of his holdings at the time.

-16-


34. Defendants statements regarding the Company's 4Q 2006 and FY 2006 results and

guidance for 1 Q and FY 2007 were false and misleading when made because defendants concealed

from the investing public that:

(a) The Company and the Individual Defendants lacked any basis to make the

earnings projections they made for 1Q and 2Q 2007 and FY 2007 because of rising competition

within the Company. Defendants knew that any overall growth in the Company was coming from

opening new Justice stores , at the expense of current Limited Too stores . Although the Company

claimed that Justice stores were not being placed within direct competition of Limited Too stores,

many Justice stores were placed within close proximity to Limited Too stores, and in some instances

even at the same malls . With many of the same fashion looks and styles to Limited Too, Justice

targeted virtually the same customer but with prices 20-25% beneath Limited Too. Thus, any

growth at Justice stores cannibalized Limited Too store sales;

(b) The Company was also experiencing competition from outside rivals. Tween

Brands' market share was increasingly being chipped away by both discount and chain stores.

Retailers like Abercrombie & Fitch, American Eagle and American Apparel appealed to younger

teens and prevented the Company from keeping the girls as customers as they became older, while

discount stores appealed to parents in convenience and price;

(c) Tween Brands' promotional activities and increased markdowns were

significantly undercutting the profit margins at the Company's Limited Too stores. With

competition both inside the brand as well as by other teen retailers, Tween used promotional

activities to drive sales in the store. Over time, to maintain sales the Company was forced to extend

the duration of these sales incentive programs as well as add additional promotions and increase

customer discounts ultimately resulting in decreased margins;

-17-


(d) The Company' s existing stores were performing poorly and any sales growth

was coming from the development ofnew stores and not from a growth in same-store sales such that

future results would not be anywhere near as high as the defendants led the market to believe.

(e) Tween Brands had bloated inventory which it could only dispose of at

significant discounts at Limited Too stores;

(f) Tween Brands was also experiencing ballooning infrastructure costs because

Justice and Limited Too were run as completely separate business lines with their own layers of

human resources, finance, etc. Since the Company's inception, the Company's administrative staff

had grown six-fold, while the Company' s business had barely tripled; and

(g) The Company had significantly increased its inventory risks by increasing its

direct sourcing , which required the Company to take ownership of its inventory earlier , including

while in transit from the manufacturers to the Company.

35. Defendants knew about the cannibalization of Limited Too by Justice within the

Company as well as competition outside the Company from regularly issued reports, meetings and

cannibalization measures . The Individual Defendants all had access to extensive Company data

regarding current sales, forecasted sales and markdowns. Each day the Individual Defendants would

receive daily sales data via email. Each week the Individual Defendants would receive the Weekly

Operating Summary, a detailed report including data regarding profits, sales , markdowns and

inventories. In weekly meetings with the presidents of Limited Too, Justice, and Corporate,

defendants Rayden and Stevens reviewed financial projections and budget to actual data. The

Individual Defendants had access to the Stock to Sales and Open to Buy Reports, which were

updated on a weekly basis to show sales history for the four years prior broken down by department

and current and planned sales and inventory. Individual Defendants also had access to

cannibalization measures such as market analysis reports, which broke down sales by business line

-18-


and contained sales , inventory and profit information . The Company's marketing department also

kept careful track of the "crossover customers, those original Limited Too customers that began

shopping at a Justice store when one opened in their area.

36. The Individual Defendants were well aware ofthe issues with bloated inventory and

direct sourcing because oftheir access to internal reports such as the Open to Buy Report that closely

monitored inventory, showing all inventory receipts , beginning ofmonth inventory, sales inventory

and mark downs. Based on their knowledge, defendants knew the Company would not achieve their

guidance for 2Q and FY 2007.

37. On May 23, 2007, Tween Brands issued a press release entitled "Tween Brands

Reports Record First Quarter Sales and Earnings Per Share. The press release stated in part:

Tween Brands, Inc., today reported its operating results for the first quarter endedMay 5, 2007, which included:

- First quarter net sales increased 14% to $223.2 million;

- First quarter earnings per diluted share increased 11% to $0.39, the 13thconsecutive quarterly earnings increase;

- Return of $59.2 million to shareholders through the repurchase of 1.6 millioncommon shares during the first quarter.

First Quarter Performance

Tween Brands delivered net income of $12.5 million, or $0.39 per dilutedshare, on net sales of $223.2 million for the first quarter ended May 5, 2007,compared to net income of $11.7 million, or $0.35 per diluted share, on net sales of$195.1 million for the first quarter 2006.

Tween Brands had a comparable store sales increase of 3% for the 2007quarter, in-line with the company's previous guidance. Justice delivered a 22%increase in comparable sales for the 102 Justice stores that were open at least oneyear during the quarter. Comparable sales for Limited Too stores were flat.

"In the face of difficult sales comparisons with first quarter 2006, we arepleased with the first quarter results at Limited Too and Justice, said Mike Rayden,Chairman and CEO of Tween Brands.

The company's gross income rate for the 2007 quarter was flat with that forthe like period in 2006. Store operating, general and administrative expenses as a rate

-19-


of sales increased 90 basis points, primarily due to the introduction of three Justicecatazines, their catalog within a magazine format.

Tween Brands' in-store inventories at the end of first quarter 2007 increased8% on a cost per square foot basis compared to the end of the first quarter 2006.

Stock Repurchase

During the first quarter 2007, Tween Brands returned $59.2 million toshareholders with the repurchase in the open market of 1.6 million shares ofcommonstock. The dollar value of the year-to-date repurchases approximates the total dollarvalue of repurchases for all of 2006.

Store Growth

Justice opened 25 stores during the first quarter 2007, ending the period at184 stores, an increase of 82 stores on the 102 open at end of first quarter 2006.Justice remains on target to open a total of 100 new stores in 2007.

Limited Too opened ten new, closed three and remodeled six existing storesinto the more contemporary Girl's World store format, ending the period at 570stores. Limited Too continues to plan a net increase of 25 to 30 new stores and 40 to50 remodels for 2007.

"Store growth for 2007 is a key component of our strategic plan for thecompany, said Mr. Rayden. "We intend to add more than a half million square feetto our store base in 2007, representing an increase of 17% to 19% over 2006.

Capital expenditures for the first quarter 2007 increased $9 million over firstquarter 2006, to $23 million.

Second Quarter and Full Year Outlook

For the second quarter of2007, Tween Brands is projecting earnings perdiluted share of$0.13 to $0. 16. The earnings range assumesflat to slightly downcomparable store sales, a decrease in thegross income rate of30 to 60 basispoints,and a similar basis point increase in store operating, general and administrativeexpenses as a rate ofsales, primarily due to the continued introduction ofJusticespring season catazines. The second quarter 2007 income tax rate is expected to behigher than that for the like period last year, which benefitedfrom a favorablestate tax settlement. The company expects store inventories at the endofthe secondquarter to beflat to down slightly on a costper squarefoot basis when compared toend ofsecond quarter 2006 inventories.

Forfiscal 2007, Tween Brands reiterated itsprojected earningsper dilutedshare of $2.15 to $2.25, which would be a 10% to 15% increase on the $1.95reportedforfiscal 2006. The operating resultsfor the 52 weeks ofthe 2007fiscalyear will be compared to those reportedfor the 53 weeks ofthe 2006fiscal year.

-20-


38. After Tween Brands issued its IQ 2007 financial results , defendants Rayden, Stevens

and Carbone hosted a conference call with securities analysts, media representatives and investors,

during which defendants represented the following:

[RAYDEN:] Given the head winds in comp sales comparisons faced byboth of our divisions , we are pleased with our operating results for the first quarter.We met our projections on comp sales and earnings per share, even when excludingthe lower tax rate . Our end of quarter inventories , while still high at Limited Too,came in at a level below that projected in our February conference call. We believeso much in our short-term and long-term strategies that we repurchased $59 millionworth ofour stock in late February and March, nearly as much as we purchased in allof 2006.

Jill Dean and her team atLimited Too have done and continue to do a goodjob. All of us know that we hurt ourselves with the level of inventory at storesthroughout the quarter. The good news aboutfirst quarter inventories at LimitedToo is that they are clean and well managed It's been clear to us that throughoutthe quarter, investors have been concerned about Limited Too 's inventories. Theunfortunate consequence is that investors have looked past the ongoing success ofJustice. Sally Boyer and her Justice team continue to meet or exceed ourexpectations. Acceptance of the Justice brand, response to our marketing, and thetrajectory of our growth are all positive indicators for this increasingly successfulconcept.

Tween Brands is projecting square footage growth of 17 to 19% and much ofthat is coming from Justice. We are on target to open 100 Justice stores, almost 50%more stores than we did last year. We have all of those store openings on ourschedule and have a significant number of deals already for 2008 in process. LimitedToo has its own real estate growth story, with a net increase of 25 to 30 new storesplanned this year and the remodeling of 40 to 50 older format stores also expected.

In marketing, both Justice and Limited Too are introducing mini catazines totheir circulation plans. These are roughly 5 by 8-inch 20 page mailers highlightingthe latest summer styles. The Justice mini catazine is in homes now, featuring theirbest looks that are part of Justice's Summer Stock-up Sale. Limited Too's minicatazine will be in homes beginning June 11, featuring the freshest looks in skimps,leggings, baby doll tops and patchwork plaid shorts, all part ofour summer transitionmini floor set beginning June 14. Limited Too customers will be able to order fromthe mini catazine, as well as online, just as with our full-size catazines. LimitedToo's direct sales, catalog and web, experienced at 33% increase during the firstquarter. Growing our direct sales, including the launch ofeCommerce at Justice nextyear, are key strategic initiatives.

Our outlookfor second quarter is appropriately, we believe, conservative.As with the first quarter, both Limited Too and Justice face difficult comp salescomparisons with second quarter 2006. Accordingly, we are assuming flat toslightly down comparable store salesfor Tween Brands. We are also assuming a 30

-21-


to 60-basis point decrease in the gross income rate and an increase in the SG&Arate in the same basis point range. Attributable primarily to the continuingintroduction ofspring season Justice catazines.

And lastly, regarding second quarter earnings, we delivered a 30.2% effectiveincome tax rate last year, as a result of a favorable state tax settlement. We expectour second quarter 2007 tax rate to be closer to 38%. With all of theseconsiderations, we are projecting second quarter earnings per diluted share of$0.13 to $0.16. For the full year 2007, we are reiterating our previous earningsguidance of$2.15 to $2.25per diluted share, which would equate to a 10 to 15%increase on the $1.95for the 53-week 2006.

I'll just conclude my remarks by saying that we are well positioned forcontinued growth. We believe Limited Too is every bit as popular with the tween girland her mom as they have always been. They have the hottest fashions for the currentseason at the right price and Justice has already developed a loyal following of offthe mall shoppers who want a store just for her.

[ANALYST:] Hi I wasjust wondering ifyou could talk about changes tothe back to school calendar. Will there be changes to timing offloor sets, catazinesorpromotions that we should know about?

[RAYDEN:] All the, all the timing changes are-- well, first off, there's amajor change in the country in back to school timing in a number of the majorearly states. So a number ofstores are gettingpushed back closer to Labor Day, sowhen schools go back is a rather dramatic change. Luckily it all still occurs in thethird quarter, so whether it occurs in August, the beginning of or the end of,probably doesn 't make a lot of difference. We have maintained all 5 of our TooBucks and marketing groups that we've always, had but the number of stores withineach group has changed drastically.

So other than that, and other than sort of the mini book launch as a newvehicle with pre-floor sets to these major floor sets, which we're doing in bothbusinesses to keep a flow ofnewness and tell the customer about it is really the mostdramatic change. Obviously other than any increased marketing books that we'redoing in both and we do have increased marketing for both brands, both in catazineand direct marketing because in Limited Too, you've got three mini books and inJustice you've got - I think we've added another mini book and another major bookas well. So it's more about the back to school timing.

[ANALYST: ] Good morning, everyone. Canyou talk a little bit about directsourcing, how that'sprogressing, whatpercent ofthe mix it is, and also how that iscontributing to gross margin, and if it differs for either division at all, and thenalso on the expectation for the gross margin for the second quarter, can you justclarifyjust to be a little more explicit, is the reason for the lower gross margin in

-22-


Q2, is it more markdowns that you 're anticipating, is it given potentially a lowermargin Justice, orjust IMU improvement is more limited goingforward? Thankyou.

[RAYDEN:] The penetration on direct sourcing for the quarter wasapproximately about 25%. It did positively impact the gross margin on theenterprise level in about the 20-basis point range, so we are growing, as we'vetalked before, the direct sourcing is growing, not only as a penetration, but asJustice adds 100 stores and Limited Too adds approximately 40 stores, the base isalso growing, so we're getting it in both ways. On your gross margin question, it isa combination really ofthe top line being, we've guided to slightly down comps inthat 30 to 60 basispoints. It really isjust the amount ofleverage we're getting outofthe Justice group and thereby in occupancy with a lower compfor the quarter.We'rejust not seeing the same degree we did in in [sic] Q1.

[ANALYST:] Hi. Just a quick follow-up on the inventory. I was justwondering where you expected inventories to be at the end ofthe second quarterand ifyou were still on plan to implement your chase strategy by the end of thesecond quarter?

[RAYDEN:] Yes, so I'm 20 minutes into the question and answer, firstquestion on inventory is a good sign . We are projecting end of second quarterinventories at the enterprise level to beflat to slightly down on a squarefoot basisand as far as the chase strategy goes, I think these, as we, as we really look atinventory management and not start the quarter offas heavy as we have in thepastactually allows us to do more chase. So, yes, the chase strategy continues and willbecome even more important to the enterprise as we go into these next quartersand we're notfront end loaded with inventory.

[ANALYST:] [A]lso how should we be thinking about the shift , we get theweek of August instead of the week of May?

[CARBONE:] On the shifted week, we are shifting - there's really - there'stwo pieces on a top line comp basis. You don't really see any effect because youshift the dollars into Q2, but you also shift the comps in. So that July week four thisyear is going against August week 1 last year, so there's no effect on the comps.And really what you're getting from a top line is you're taking in an August week 1from last year versus a May week 1 and that week is probably two times May week1.

39. Based on Tween Brand's May 23, 2007 press release and conference call and on

communications with defendants regarding IQ 2007 results, on May 23 and 24, 2007, analysts

-23-


issued reports repeating defendants' guidance for 2007 EPS. Analyst reports were issued by Credit

Suisse First Boston, Buckingham Research Group, RBC Capital Markets Corp., Stifel Nicolaus,

Wachovia Securities and FBR Research which noted that management reiterated its EPS guidance of

$2.15-$2.25 for FY 2007.

40. On May 30, 2007, at the FBR Growth Conference attended by defendant Carbone and

Sally Boyer ("Boyer ), President of Justice, Carbone reiterated the Company's previously

announced earnings guidance for 2007 of $2.15 - $2.25 for EPS, a 10%-15% increase from 2006.

Defendant Carbone also discussed both the Too Buck program and the cannibalization of Limited

Too by Justice:

[W]e have developed two key loyalty programs to keep them coming back time andtime again. They include Limited Too's Too Bucks and also Bonus Cards, whichreward customers during peak shopping periods - spring break, back-to-school andholiday. We have found these programs enhance an already strong value propositionoffered at Limited Too. Our sophisticated marketing programs, including direct-mail, give us a competitive advantage that drive both transactions and sales.

The question is really about cannibalization between Justice and Limited Too. Wehave very few data points to measure cannibalization, meaning we don't have verymany Justice stores that are within very close proximity of a mall in which there's aLimited Too, and we haven't had them open very long.

So, we're not willing to call a cannibalization number. There probably is one,or will be one in those locations. Our belief, however, is that when you combine thesales from those two locations in that particular market area, we are taking moredollars out of the market than we would have by just having one or the other of theconcepts.

So, rather than letting one of our competitors go after us in a differentlocation, ifthere are going to be dollars extracted from the market, we want to be theones taking them. But we do believe, given the real estate strategy differences, thatcannibalization will be relatively minimal over time.

41. As a result of Tween Brands' 1Q 2007 earnings announcement and defendants

reiteration of their prior earnings guidance for FY 2007 of $2.25 per share, the Company's stock

price jumped $3.31 from $38.91 on May 22, 2007 to $43.53 on May 31, 2007. Shortly after these

-24-


announcements, between June 8 and June 12, 2007, defendant Rayden sold 153,683 shares of stock

at prices between $41.00 and $41.34 per share, reaping $6,314,009 in insider trading proceeds.

These sales represented 32% of his holdings at the time.

42. Throughout June 2007, Tween Brands' senior management, including defendants

Rayden, Stevens and Carbone, met with various analysts and continued to tout the Company's

business and its prospects going forward, reiterating guidance for 2007 and providing assurances

about the Company's inventory controls and the potential for markdown risk.

43. On June 26, 2007, Company management, including defendants Stevens and

Carbone, held a conference call at the Wachovia Securities 2007 Nantucket Equity Conference. In

response to a question regarding the overlap between Limited Too and Justice, defendant Carbone

responded:

There are very few stores, maybe 25 or 26 within that close proximity toLimited Too. We are very conscious, we've built an incredibly good model at thispoint on strips and the viability of where we can project our sales, and we are tryingto not cannibalize ourselves by building too close, even though eventually we will.

Geographically, there's the whole country available to us. There are morestrips than there are good malls. And we haven't really found a bad location in thecountry that we can't do well in, so we've got a market strategy for the top 55markets in the United States for both brands, and we will fill in to those marketstrategies whenever a reasonable site becomes available. So we are not any moreselectively looking for a particular market as opposed to the market strategy sites thatwe have seen.

With 200 stores in Justice already, going to 260 you really start to cover mostof the country anyway. We're up to our third regional, and the growth plan isbasically just to take over this entire country.

44. On July 2, 2007, Barbara Wyckoff ("Wyckoff ) from The Buckingham Research

Group issued an analyst report on Tween Brands based on her June 27, 2007 meeting with Company

management, including Defendants Stevens and Carbone, Jill Dean, President of Limited Too,

Boyer, President of Justice , and May Huddleston , Vice President & GM. In her report, Wyckoff

stated:

-25-


We continue to recommend purchase of the shares of TWB with anAccumulate rating. Our revised $54 target is based on a 19x P/E multiple on ourrevised 2008 EPS estimate of $2.85 (from $2.80), slightly below current EPS growthprojected at 21% for this year and next. 2006 EPS grew 32%. TWB shares arecurrently trading slightly ahead of its three year average historical P/E multiple ontwo year forward earnings of 15x. We believe that TWB will accelerate its earningsthis year given the strong momentum in Justice, its fledgling strip mall based tweenchain coupled with several initiatives that are expected to drive incremental trafficand conversions into the stores starting in July and into the fall and holiday seasons.

Management articulated a strategic good-better-best plan to ensure continueddomination of the tween space. Every year customers enter this demographicensuring a fresh crop of new customers annually.

TWB continues to have minimal competition in the mall in the tween space....Others are eyeing the space, but we do not see any major competitors coming on thehorizon for at least the next 2 years.

Good-Better-Best Strategy

Management articulated its "good-better-best strategy with Limited TOOoccupying the "best niche, Justice the "better strategy and concept 3 the "goodstrategy. Prices in Justice are 25% lower than in Limited TOO, prices in concept 3(targeted for a 2010 start?) are expected to be 25% below Justice. TWB is now fullystaffed in Justice headquarters which has facilitated the rapid, glitch free growth.

1. Limited Too

Limited TOO should benefit from new discipline in running the business. LimitedTOO stores continue to maintain 65% margins on a 75% initial markup. Jill Deanhas added new assortment planning strategies, faster and more frequent flow ofnewness to drive traffic and conversions and expects to accelerate its markdowncadence with the implementation of the Oracle markdowns management system.This should help improve margins as more goods will likely be sold in season athigher margins vs. the current practice where clearance lingers seemingly forever inthe stores, affecting the look of the store and the integrity of the brand.

It plans to continue with its planned price incentives of TOO Bucks, $10 fun cardsand 20% off coupons in the catazines which announce the flow ofnew merchandise.While we have never been a fan of this type of promotion, we acknowledge thatTWB has shown more discipline in its promotional activities of late and its marketresearch indicates that tween mom's like to think they are getting an incentive.Certainly TOO has the consistent 65% maintained margins on 75% initial markup isan indicator that these events are not margin drainers. Limited TOO will continue to

-26-


run 5 catazines per season (6 month) with 4 mini-catazines added for smaller,transitional deliveries of 60-80 styles. The smaller books should also help to offsetsome of the effects of a 40% postage increase. New paper suppliers and zip codepre-sorting are also expected to help offset the higher costs.

45. These positive statements about Tween Brands' business and prospects caused its

stock to rise, hitting its Class Period high of $46.54 per share on July 6, 2007.

46. Defendants statements regarding 1Q 2007 results and statements made during

investor conferences and repeated by securities analysts were false and misleading when made. The

true facts, which were known by the defendants but concealed from the investing public, were as

follows:

(a) Growth at Justice was not "glitch free as defendants told securities analysts,

because the growth of that line was accomplished by cannibalizing Limited Too stores. Although

the Company claimed that Justice stores were not being placed within direct competition ofLimited

Too stores, many Justice stores were placed within close proximity to Limited Too stores, and in

some instances even at the same malls . With many of the same fashion looks and styles Limited

Too, Justice targeted virtually the same customer but had prices 20-25% beneath Limited Too.

Thus, any growth at Justice stores cannibalized Limited Too store sales;

(b) The Company and the Individual Defendants lacked any basis to make the

earnings projections they made for 2Q 2007 and FY 2007 because of rising competition within the

Company. Defendants knew that any overall growth in the Company was coming from opening new

Justice stores , at the expense of current Limited Too stores;

(c) The Company was also experiencing competition from outside rivals. Tween

Brands' market share was increasingly being chipped away by both discount and chain stores.

Retailers like Abercrombie & Fitch, American Eagle and American Apparel appealed to younger

teens and prevented the Company from keeping the girls as customers as they became older, while

discount stores appealed to parents in convenience and price;

-27-


(d) Tween Brands' was not implementing its promotional programs with

discipline and maintaining consistent margins. Instead, the Company's promotional activities and

increased markdowns were significantly undercutting the profit margins at the Company's Limited

Too stores, not leading to increased growth. Over time, to simply maintain sales the Company was

forced to extend the duration ofthese sales incentive programs as well as add additional promotions

and increase customer discounts , all of which had the effect of decreasing margins;

(e) Furthermore, more goods were not likely to be sold in season at higher

margins rather than lingering in clearance since the Company did not successfully execute their

back-to-school Too Buck program. Rather, stores actually sold their best back-to-school

merchandise at discounted prices thereby significantly reducing margins, due to miscalculations in

the Too Buck redemption period;

(f) The Company's existing Limited Too stores were performing poorly and any

sales growth was coming from the development ofnew stores and not from a growth in same-store

sales such that future results would not be anywhere near as high as the defendants led the market to

believe;

(g) Tween Brands had bloated inventory which it could only dispose of at

significant discounts at Limited Too stores;

(h) Tween Brands was also experiencing ballooning infrastructure costs that were

unsustainable over the long run because ofthe decision to essentially operate the Justice and Limited

Too lines as separate companies with Tween Brands. As such, the Company duplicated all functions

so that each line had their own separate departments for corporate, marketing, finance and human

resources functions. These separate departments forced Tween Brands to duplicate work that could

have been handled by a single department for each function. Essentially, this duplication forced

Tween Brands to incur double expenses for each function. As a result, while the Company's

-28-


administrative staff had grown six-fold to provide the personnel necessary to fulfill the double

departments , the Company's business had barely tripled. Thus, the Company's ability to achieve

projected earnings was impaired as Justice line grew because ofthe every increasing overhead costs;

and

(i) The Company had significantly increased its inventory risks by increasing its

direct sourcing , which required the Company to take ownership of its inventory earlier, including

while in transit from the manufacturers to the Company.

47. Defendants knew about the cannibalization of Limited Too by Justice within the

Company as well as competition outside the Company from regularly issued reports, meetings and

cannibalization measures . The Individual Defendants all had access to extensive Company data

regarding current sales, forecasted sales and markdowns. Each day the Individual Defendants would

receive daily sales data via email. Each week the Individual Defendants would receive the Weekly

Operating Summary, a detailed report including data regarding profits, sales , markdowns and

inventories. In weekly meetings with the presidents of Limited Too, Justice, and Corporate,

defendants Rayden and Stevens reviewed financial projections and budget to actual data. The

Individual Defendants had access to the Stock to Sales and Open to Buy Reports, which were

updated on a weekly basis to show sales history for the four years prior broken down by department,

current and planned sales, and inventory. Individual Defendants also had access to cannibalization

measures such as market analysis reports, which broke down sales by business line and contained

sales , inventory and profit information . The Company's marketing department also kept careful

track of the "crossover customers , those original Limited Too customers that began shopping at a

Justice store when one opened in their area.

48. Defendants knew that the back-to-school Too Buck program was not being

implemented properly and that time-tested procedures developed in years past had been disregarded

-29-


because of Rayden's heavy involvement in all facets of the program. Additionally, the Individual

Defendants had continuous access to reports such as the Open to Buy and Stock to Sales Reports

discussed above that indicated throughout the summer and back-to-school season that the Company

was not on track to make its earnings projections for 2Q 2007. Furthermore, defendants knew from

these reports that the Too Buck program was not just a promotional scheme, but had become a

necessity in order to simply maintain sales due to the heavy internal and external competition.

49. The Individual Defendants were well aware ofthe issues with bloated inventory and

direct sourcing because oftheir access to internal reports such as the Open to Buy Report that closely

monitored inventory, showing all inventory receipts , beginning ofmonth inventory, sales inventory

and mark downs.

THE TRUTH EMERGES

50. Then, on August 22, 2007, before the market opened, Tween Brands issued a press

release entitled "Tween Brands Reports Second Quarter Sales and Earnings. The press release

stated in part:

Tween Brands, Inc., today reported its operating results for the second quarter endedAugust 4, 2007. As compared to the results for the second quarter ended July 29,2006:

- Net sales increased 15% to $213.7 million from $185.8 million attributable toa 15% increase in store count;

- Comparable store sales decreased 2% versus a 10% increase for secondquarter 2006. By brand, Justice comparable store sales increased 13%, whileLimited Too's decreased 4%;

- The gross income rate declined 170 basis points primarily due to a lowermerchandise margin and higher buying and occupancy costs as a percentageof net sales;

- Store operating, general and administrative expenses as a rate of salesincreased 120 basis points primarily due to higher marketing costs,principally from increased Justice catazine circulation;

-30-


- Net income for the 2007 quarter was $2.1 million, or $0.07 per share,compared to net income of $5.9 million, or $0.18 per share for the 2006period; and

- Total inventories at the end ofthe 2007 quarter were up 5% per square foot atcost compared to inventories at the end ofthe 2006 period. However, in-storeinventories were down 6% per square foot at cost, in-line with the company'sprevious guidance. The difference is attributable in part to inventoryadditions resulting from the company's higher level of direct sourcing.

"Our sales for the quarter failed to meet our expectations in large partbecause we underestimated the impact ofso many schools in our markets movingtheir back-to-school start dates later, as well as Texas and Florida shifting theirstate sales tax holidaysfrom July to August," said Tween Brands Chairman andCEO Mike Rayden. "These shifts aggravated what had been a decline in retailtraffic and lower store transactions throughout the quarter."

Third and Fourth Quarter Outlook

The company said that it is estimating earnings per diluted share for the thirdquarter ending November 3, 2007 of $.40 to $.45, below the $.58 per diluted sharereported for the like period last year. The principal reason for the comparativelylowerforecasted range ofearnings is a revised estimate ofthe calendar shifton thecompany's quarterly sales and earnings comparisons. In accordance with the 2007retail calendar, the third quarter shifted the higher sales volume first week ofAugust into second quarter, and moved the lower volumefirst week ofNovemberinto third quarter. Also, Limited Tooplans to take markdowns earlier in the seasoncompared to last year to better position inventory going into fourth quarter. Thethird quarter guidance assumes a consolidated comparable store sales percentageincrease in the mid single digit range. By brand, that would equate to an increase forLimited Too in the low single digits and an increase in the mid teens for Justice.Additionally, Tween Brands said it expects in-store inventories at the end ofthe thirdquarter to be down in the mid single digit percentage range on a cost per square footbasis.

The company also said that it expects earnings per diluted share for the fourthquarter ending February 2, 2008 to be in the range of $0.94 to $1.04, which would bea 9% to 21% increase on the $0.86 per diluted share reported for fourth quarter 2006.The 2006 quarter included the benefit from an extra week and a lower effective taxrate as a result of favorable tax settlements during the period.

As a result of Tween Brands ' lower second quarter earnings and revisedoutlook on the third andfourth quarters, the company expectsfullyear earningsper diluted share of$1.80 to $1.95 compared to its previous guidance of$2.10 to$2.25. The company reported earnings per diluted share of $1.95 for fiscal 2006,which comprised 53 weeks.

Commenting on the revised earnings guidance, Mr. Rayden said, "While weare projecting positive comparable store sales for the third quarter at both of our

-31-


brands, we remain cautious regarding the current trend in retail traffic and thecontinuing uncertainties in the U. S. economy.

Tween Brands Store Growth

Justice opened 29 stores during the second quarter 2007, ending the period at213 stores, an increase of 98 stores on the 115 open at end of second quarter 2006.Justice is on target to open 100 to 105 new stores in 2007.

Justice is also developing a larger format store that would be 15% to 25%bigger than the average store size today. The company said that the larger stores, thefirst of which should open in 2008, would allow Justice to expand existingmerchandise categories, introduce new ones and increase the space used for theirsuccessful party business.

Limited Too opened four new, closed one and remodeled 16 existing storesinto the more contemporary Girl's World store format, ending the period at 573stores. Limited Too continues to plan a net increase of 25 to 30 stores and 40 to 50remodels for 2007.

51. On this news, Tween Brands' stock collapsed $11.00 per share to close at $27.59 per

share, a decline of 29% on volume of 8 million shares, 10 times the average three-month volume.

This was the largest one-day decline of the Company 's shares in almost seven years.

52. To explain the quarter' s disastrous results , the Company used the excuse that they did

not appreciate the change in back-to-school dates and calendar shifts. In reality, Tween Brands

failed to achieve its 2Q 2007 guidance because it failed to execute the Too Buck program, failed to

make up for Texas and Florida moving their state sales tax holidays from July to August and the

Company was experiencing a fundamental decline in demand for its products.

53. During the August 22, 2007 conference call to discuss the 2Q 2007 results and the

revised guidance, stunned securities analysts pounded defendants with questions regarding the

reasons defendants were revising 2007 guidance. Analysts were quite skeptical about ostensible

problems with the back-to-school calendar. Under relentless questioning, defendant Carbone

admitted that: "So it was really a top-line miss that fell right through to the bottom line. Part ofthat

miss was the shift in back to school, and part of it was the softness in transactions over the whole

quarter. Given the Company's state of the art inventory and sales monitoring systems , defendants

-32-


knew, as admitted by Carbone, that the Company' s sales were problematic over the whole quarter

because of the failed implementation of the Too Buck program.

54. Securities analysts who followed the Company were very critical of defendants'

explanations for the severe downward revision to FY 2007 guidance and reasons for the miss in 2Q

2007. For example, Robert F. Buchanan from AG Edwards stated:

It seems to us that the larger issue here is the now-chronically over-assorted and out-of-focus [Limited] Too stores and, as such, we aren't going to hesitate to cut our go-forward numbers rather aggressively at this time.

55. S&P analyst John Asaeda stated that: "[H]e was surprised by the fact that the

company didn't know when schools around the country were opening. `They say they do market

research.' He also noted that "[fJashion mistakes also contributed to weak second quarter sales

and "[g]iven heavy markdowns needed to clear inventory, and our concerns over merchandising risk

for the critical holiday selling season, [S&P is] cutting our fiscal year 2008 EPS estimate by 46 cents

to $1.80.

56. Howard Tubin of RBC Capital Markets Corp. stated that "[w]hile most of our

companies are being impacted by these same calendar shifts, the magnitude oftheir impact on TWB

is much greater than what we are seeing anywhere else.

57. Mike Cianciolo at the MotleyFool.com stated:

To explain [second quarter results], the company pointed to a calendar shiftthat moved the first week ofAugust, which typically has strong sales, from the thirdquarter to the second quarter. Huh? Shouldn't that have meant stronger results inthe second quarter? If nothing else, these factors should have canceled each otherout. Instead, the company disappoints in the second quarter and lowers its outlookfor the third. I'm starting to think that management is failing to tell us something,and attempting to make excuses to investors by blaming its problems on confusingcalendar shifts.

The bigger problem appears to be what management must do with a growingamount of inventory on the balance sheet. The company plans to mark downmerchandise at its Limited Too locations, hoping to improve its inventory levels andmix going into the all-important holiday season. But those reductions come at aprice, and they're a big reason why the earnings estimate came down.

-33-


58. As a result of defendants' false statements, Tween Brands' stock price traded at

inflated levels during the Class Period. However, after the above revelations seeped into the market,

the Company's shares were hammered by massive sales , sending them down 41% from their Class

Period high.

59. Nearly a year after the end ofthe Class Period, the Company admitted publicly what

defendant Rayden knew internally - that Justice stores had cannibalized Limited Too and the

Company could not sustain the overhead necessary to operate each store line as separate companies.

As a result all Limited Too stores would be closed. On August 12, 2008, the Company announced

that it was planning to abandon its primary Limited Too brand and convert approximately 560

Limited Too stores across the country to its more value oriented Justice brand to drive growth and

profitability.

60. Tween Brands stock has never recovered and closed at $8.78 a share on October 3,

2008.

DEFENDANT'S SCIENTER

61. Defendants knew that each oftheir misrepresentations alleged at ¶¶30-31, 37-38,40,

42-44 were false or misleading when made, or made them with reckless disregard oftheir misleading

nature, based on facts alleged herein and on the following facts.

62. In 2007, CFO Carbone took over the Too Buck program for the back-to-school

season . Calculating the exact period for distribution and redemption of the Too Bucks required

extreme precision and careful research, taking into account the different start dates for schools

throughout the country as well as the nuances of different state tax rebate programs. In prior years,

the dates selected for the Too Buck program were chosen after the promotional department ran

intense financial models, talked to stores and tested out different dates to find the right combination

of dates for each region. Even a minor miscalculation in dates had the potential for disastrous

-34-


consequences . Ifthe redemption period was slightly off, the best back-to-school merchandise could

be sold at the height of demand at a deep discount, resulting in undercutting profits as well as

shortening the entire back-to-school shopping season.

63. When Carbone took over the program, he brought in entirely new staff. Instead of

conducting the intense research and modeling required to administer the program, Carbone and his

team underestimated the project and disregarded the meticulous processes used in prior years.

Carbone was loath to take suggestions from the previous experienced retail financial staffregarding

the program, and instead attempted to implement his own unsuccessful procedures.

64. Defendant Rayden was intimately involved in the decision making regarding Too

Bucks . The Too Buck program was Rayden's concept , brought to Tween Brands after he

implemented it for the first time at his previous employer in 1996. Since then, Rayden stayed

closely involved in all facets ofthe Too Buck program and no decisions related to the program were

made without his knowledge and express approval, including the critical determination of dates for

the distribution and redemption periods. Defendants knew that the Too Buck program had not been

properly implemented because Carbone and his team did not use Rayden's time-tested method of

extensive financial modeling and research, but disregarded it in favor of implementing their own

system.

65. Despite the true state of disarray affecting the Too Buck program, defendants

continued to assure investors that everything was going as planned for the back-to-school season and

that the Company was expecting great results for the second quarter. Defendants represented to

investors in numerous conference calls that they were aware of changes in the back-to-school

calendar and had successfully implemented their Too Buck program for the back-to-school season in

light of these changes. Defendants further assured investors that the second quarter Too Buck

-35-


program would be a strong driver of sales, even though they had disregarded the prior processes and

procedures to determine program dates.

66. When specifically questioned by analysts about the calendar shift and back-to-school

Too Bucks, defendant Rayden stated that the Company was successfully running the Too Buck

program and that Tween Brands would have a very big week in August moved into the second

quarter that would normally have been in the third quarter.

67. By the time results came out in August 2007, it was clear that the Too Buck program

for the back-to-school season had been a large failure. To explain the quarter's disastrous results,

the Company used the excuse that they did not appreciate the change in back-to-school dates and

calendar shifts. In reality, they were aware of the date changes and shifts well in advance, but

disregarded the prior systems in place to make the program successful.

68. During the Class Period, the Individual Defendants held themselves out to investors

and the market as the persons most knowledgeable about Tween Brands' sales, finances, inventory,

promotions, markdown strategy and business operations. Each of the Individual Defendants

occupied the most senior positions at Tween Brands with responsibility for directing and managing

Tween Brands' finances, inventory and financial reporting.

69. Rayden, Stevens and Carbone regularly communicated with analysts and investors

during the Class Period and represented that they were informed ofand knowledgeable about Tween

Brands' business and finances, specifically that they were aware and had been planning for back-to-

school changes and the calendar shift. Rayden, Stevens and Carbone participated in the Tween

Brands' quarterly conference calls with analysts and investors, as well as conference calls during

various consumer conferences throughout the Class Period. During these conference calls, Rayden,

Stevens and Carbone presented and responded to questions regarding Tween Brands' sales, margins,

inventory, markdowns and questions about the calendar shift and back-to-school changes.

-36-


70. Based on their regular communications with analysts throughout the Class Period, the

Individual Defendants knew what analysts were representing concerning the Company. Further, the

Individual Defendants provided guidance for EPS for 1 Q, 2Q and FY 2007 to securities analysts and

were aware of the analysts EPS estimates based on analysts reports issued throughout the Class

Period. Based on internal reports and forecasts the Individual Defendants received during IQ and

2Q 2007, they were aware or recklessly disregarded that Tween Brands would fall far short oftheir

EPS guidance for 2Q and FY 2007.

71. Defendant Rayden was heavily involved in every decision affecting the Company.

Rayden even kept his own personal performance calendar dating back to 1995. This calendar

contained Rayden's copious notes regarding events and details related to the business, enabling him

to record, observe and interpret trends affecting the business.

72. Defendants knew that any growth in Justice was at the detriment of Limited Too

because they had full and complete access to the Company's sales and inventory reports, which

provided a snapshot at any given time of inventory and sales, what had been planned, and how

results squared with forecasts. Defendants also had access to cannibalization measures including

market analysis reports, which broke down sales by business line and contained sales , inventory and

profit information. Additionally, the Company's marketing department also kept careful track ofthe

"crossover customers , those original Limited Too customers that began shopping at a Justice store

when one opened in their area. Both ofthese measures indicated the cannibalization ofLimited Too

as Justice grew and defendants had continuous access to them. In spite of additional requests for

data and market trends displaying cannibalization which started becoming evident to staff as early as

Spring 2006, defendant Rayden kept other data and indicators to himself.

73. The Individual Defendants had knowledge of internal data regarding current sales,

forecasted sales , and current and future markdowns via regularly conducted meetings and generated

-37-


reports. On a daily basis, each day's sales data would be compiled and emailed to executives,

including defendant Rayden, at 3:45 a.m., enabling them to see Justice data relative to Limited Too.

74. Each week the Individual Defendants received the Weekly Operating Summary, a

detailed report including data regarding profits, sales , markdowns and inventories. This report

compared planned to actual data for the week and month, as well as displayed projections for the

next six months.

75. Defendants Rayden and Stevens held weekly finance meetings to review financial

projections and budget to actual data with the presidents ofeach division - Limited Too, Justice and

Corporate. The purpose of these meetings was to review the previous week's performance figures

and review the forecasts for the next six-18 months. Confidential sales reports were distributed and

discussed at these meetings. At these meetings defendants were well aware ofthe cannibalization of

Limited Too by Justice.

76. Each month, Rayden held sales meetings in his personal conference room with the

presidents from all divisions to review the Company's current and future sales performance.

77. The Individual Defendants also attended the monthly meeting of the planning and

financial group. Rayden, Stevens and Carbone were joined by the Executive Vice Presidents of

Planning, Stores, Marketing, Visual, and General Merchandise, who presented their sales and

inventory updates for that month. These updates would include how different products were doing

within product lines, whether more inventory needed to be ordered, or plans to discount items that

were not selling. This all-day meeting was the formal process by which decisions about inventory

and discounting merchandise were made. At the meeting defendants would review the Stock to

Sales Report, a system generated report prepared for upper management containing four years'

worth of sales history broken down by department including Sales, Inventory, Initial Mark Up, Mark

Downs and Merchandise Margins. The report was expressed in both dollars and units and also

-38-


showed planning forecasts for the next 12 months. Although the report was used in the monthly

merchandising review meetings, it could be pulled up by anyone in merchandising, planning, finance

and executive management at any time and was updated on a weekly basis. Thus, through this

monthly meeting and the Stock to Sales Report, defendants knew that Justice was growing at the

expense of Limited Too.

78. Additionally, defendants were aware that Tween Brands would not meet its Q2

guidance because the Company closely monitored sales and inventory. With every sales transaction,

sales information from each retail store was automatically transmitted from store cash registers to

corporate headquarters. From this data, the system generated the Open to Buy Report, which

contained both actual current season sales plus the next season's planned sales . This report provided

the ability to monitor sales and inventory continuously so that at any time the defendants and other

executives had a "snapshot of what was selling , what was not selling, and what items were being

discounted . Additionally, this close monitoring also allowed the Company to quickly change

strategies depending on buying behavior. The Open to Buy Reports showed all inventory receipts ,

displaying beginning ofmonth inventory, sales inventory and mark downs in both dollars and units.

The report, updated weekly, could be accessed at any time and was reviewed frequently by

executives in merchandise and planning as well as management because it offered such an important

overview of inventory and sales. These reports enabled defendants to have full access to data

indicating that growth at Justice was at the expense of Limited Too.

79. Each year in October, defendants along with other members of the executive

committee held the Strategic Planning Meeting setting forth the next year's budget and business

plan. Each month thereafter the executive committee met to review and compare the budget to

actual figures and financial projections.

-39-


80. Inventory was checked periodically throughout the day at corporate headquarters so

that if an item appeared not to be selling well, Company analysts would begin developing a

liquidation strategy . Inventory at the individual stores was also tightly controlled . The Company

routinely tested new items by sending out very limited shipments to stores, usually only six pieces at

a time in the various sizes . This way the Company could monitor how an item was selling in a

particular store before ordering more and also prevented excessive build-up.

81. Individual retail stores would receive a daily email from corporate headquarters

listing items to be marked down. The email included daily sales goals, calculated by adding 1%-2%

to the prior year's sales figures for that store, depending upon the day of the week. The Individual

Defendants, just like store managers, district managers and regional managers, had access to

company sales figures. Each day, store managers would print a daily printout from corporate

displaying the "Nifty 50 - the fifty top selling stores in the Company, showing where each store

ranked in their district, their region, and Company-wide. At the start of each week, a Sales

Management Report was circulated Company-wide which detailed district and regional sales

numbers.

Insider Trading

82. While defendants kept silent and refused to warn investors about their upcoming

quarterly results , CEO Rayden sold 218 ,281 shares of Tween Brands stock for insider trading

proceeds of $8.7 million during the Class Period. Notwithstanding Rayden's knowledge about the

ongoing fraud and his duty as an officer and director of the Company to disclose adverse material

facts before trading in Tween Brands stock, Rayden personally profited from the artificial inflation

in Tween Brands' stock price which was created by the fraudulent scheme.

83. Rayden was very successful in timing his stock sales, capturing peak prices when

selling. Rayden unloaded nearly 50% ofhis entire holdings during the Class Period at prices as high

-40-


as $41.27. Rayden sold almost 32% ofhis holdings in the middle ofthe second quarter shortly after

Tween Brands' stock price rose following the 1 Q 2007 earnings announcement. Rayden's reported

insider trading during the Class Period is detailed below.

Date Shares Price Proceeds

2/22/2007 47,598 $37.00 - $37.12 $1,762,787

2/23/2007 17,000 $37.00 - $37.07 $629,283

6/8/2007 68,683 $41.05 - $41.34 $2,828,971

6/11/2007 82,300 $41.00 - $41.03 $3,374,338

6/12/2007 2,700 $41.00 $110,700

218,281 $8,706,079

Executive Compensation

84. In addition to the strong motivation provided by lucrative insider selling, the

Individual Defendants were highly motivated by the terms of their employment agreements, which

tied their compensation directly to Tween Brands' reported financial results and the performance of

the Company's stock. A large portion ofeach ofthe Individual Defendants' compensation package

was dependent upon Tween Brands posting favorable financial results. In addition to maintaining

their employment positions, the personal wealth of each of the Individual Defendants was

dramatically enhanced by the reported business and business performance ofTween Brands, as well

as the company's stock price and market capitalization, all of which were inflated by defendants'

misleading statements and material omissions.

85. Pursuant to Tween Brands' FY 2007 Proxy Statement dated April 17, 2006, the

Board of Directors through its Compensation Committee established fixed guidelines relating to

executive compensation. Among the guiding principles was that executives receive "pay for

performance and are rewarded for "achievement ofcorporate performance objectives . A primary

objective, of course, was continuing to report strong growth and added value for shareholders.

86. These guidelines provided that certain Tween Brands executives were paid under an

"Incentive Compensation Performance Plan. This plan was created specifically to address the fact

-41-


that the Budget and Reconciliation Act of 1993 prohibited Company tax deductions on salaries for

employees earning more than $1 million. However, incentive-based compensation does not count

toward the million dollar limitation. Other than base salary, virtually all of the Individual

Defendants' compensation was based on maintaining Tween Brands' inflated stock price and thus

contingent on covering-up the Company' s increasingly dismal financial performance.

LOSS CAUSATION/ECONOMIC LOSS

87. During the Class Period, as detailed herein, the Individual Defendants engaged in a

scheme to deceive the market and a course of conduct that artificially inflated Tween Brands' stock

price and operated as a fraud or deceit on Class Period purchasers of Tween Brands stock by

misrepresenting the Company's financial performance. Later, however, when the truth concerning

Tween Brands' financial performance entered the market and became apparent to investors, Tween

Brands' stock fell precipitously as the prior artificial inflation came out of Tween Brands' stock

price. As a result of their purchases of Tween Brands stock during the Class Period, Lead Plaintiff

and other members of the Class suffered economic loss, i.e., damages under the federal securities

laws.

88. By misrepresenting its business, the defendants presented a misleading picture of

Tween Brands' business prospects . Thus, instead of truthfully disclosing during the Class Period

that Tween Brands' business growth was faltering, margins were deteriorating and that the Justice

stores were cannibalizing the Limited Too stores, defendants falsely represented the Company's

growth rates. Tween Brands' business was not as healthy as represented, Tween Brands falsely

represented the success of its initiatives.

89. These claims of profitability and continued growth caused and maintained the

artificial inflation in Tween Brands' stock price throughout the Class Period and until the truth was

revealed to the market.

-42-


90. Defendants' false and misleading statements had the intended effect and caused

Tween Brands stock to trade at artificially inflated levels throughout the Class Period, reaching as

high as $46.54 per share.

91. On August 22, 2007, defendants were forced to publicly disclose that Tween Brands

had failed to meet its projected 2Q 2007 guidance and that it would be reducing its full year 2007

guidance , causing its stock to drop to $27. 59 per share.

92. As a direct result of defendants' admissions and the public revelations regarding the

truth about Tween Brands' business and its business prospects going forward, Tween Brands' stock

price plummeted on August 22, 2007 to $27.59 per share on volume of 8,010,900 shares. The

average daily trading volume during the Class Period was 612,087. This drop removed the inflation

from Tween Brands' stock price, causing real economic loss to investors who had purchased the

stock during the Class Period.

93. The timing and magnitude of Tween Brands' stock price decline negates any

inference that the loss suffered by Lead Plaintiff and other class members was caused by changed

market conditions, in macroeconomic or industry factors or Company specific facts unrelated to the

defendants' fraudulent conduct. As can be seen by comparing Tween Brands' stock price movement

to the peer index, defendants' false statements caused Tween Brands' stock to trade dramatically out

of line with the Company's peer index. See ¶20 above. Furthermore, the decline in Tween Brands'

stock price on August 22, 2007 was not caused by a similar decline in that index. Thus, the

economic loss, i. e., damages suffered by Lead Plaintiff and other members of the Class was a direct

result of defendants' fraudulent scheme to artificially inflate Tween Brands' stock price and the

subsequent significant decline in the value of Tween Brands' stock when the truth was revealed to

the market.

-43-


COUNT I

For Violation of §10(b) of the 1934 Act and SEC Rule lOb-5Against All Defendants

94. Lead Plaintiff incorporates ¶¶1-93 by reference.

95. During the Class Period, defendants disseminated or approved the false statements

specified above, which they knew or deliberately disregarded were misleading in that they contained

misrepresentations and failed to disclose material facts necessary in order to make the statements

made, in light of the circumstances under which they were made, not misleading.

96. Defendants violated § 10(b) of the 1934 Act and SEC Rule 1 Ob-5 in that they:

(a) employed devices, schemes and artifices to defraud;

(b) made untrue statements of material facts or omitted to state material facts

necessary in order to make the statements made, in light ofthe circumstances under which they were

made, not misleading; or

(c) engaged in acts, practices and a course ofbusiness that operated as a fraud or

deceit upon Lead Plaintiff and others similarly situated in connection with their purchases ofTween

Brands common stock during the Class Period.

97. Lead Plaintiffand the Class have suffered damages in that, in reliance on the integrity

of the market, they paid artificially inflated prices for Tween Brands common stock. Lead Plaintiff

and the Class would not have purchased Tween Brands common stock at the prices they paid, or at

all, if they had been aware that the market prices had been artificially and falsely inflated by

defendants' misleading statements.

COUNT II

For Violation of §20(a) of the 1934 ActAgainst All Defendants

98. Lead Plaintiff incorporates ¶¶1-97 by reference.

-44-


99. The Individual Defendants acted as controlling persons of Tween Brands within the

meaning of §20(a) of the 1934 Act. By reason of their positions with the Company, and their

ownership of Tween Brands stock, the Individual Defendants had the power and authority to cause

Tween Brands to engage in the wrongful conduct complained of herein. Tween Brands controlled

the Individual Defendants and all of its employees. By reason of such conduct, defendants are liable

pursuant to §20(a) of the 1934 Act.

CLASS ACTION ALLEGATIONS

100. Lead Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal

Rules of Civil Procedure on behalf of all persons who purchased or otherwise acquired Tween

Brands common stock during the Class Period. Excluded from the Class are defendants.

101. The members of the Class are so numerous that joinder of all members is

impracticable. The disposition of their claims in a class action will provide substantial benefits to

the parties and the Court. Tween Brands has over 30.7 million shares of stock outstanding, owned

by hundreds, if not thousands, of persons.

102. There is a well-defined community of interest in the questions of law and fact

involved in this case. Questions of law and fact common to the members of the Class which

predominate over questions which may affect individual Class members include:

(a) whether the 1934 Act was violated by defendants;

(b) whether defendants omitted and/or misrepresented material facts;

(c) whether defendants' statements omitted material facts necessary to make the

statements made, in light of the circumstances under which they were made, not misleading;

(d) whether defendants knew or deliberately disregarded that their statements

were false and misleading;

-45-


(e) whether the price of Tween Brands common stock was artificially inflated;

and

(f) the extent ofdamage sustained by Class members and the appropriate measure

of damages.

103. Lead Plaintiffs claims are typical ofthose ofthe Class because Lead Plaintiffand the

Class sustained damages from defendants' wrongful conduct.

104. Lead Plaintiff will adequately protect the interests of the Class and has retained

counsel who are experienced in class action securities litigation. Lead Plaintiff has no interests

which conflict with those of the Class.

105. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy.

PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiff prays for judgment as follows:

A. Declaring this action to be a proper class action pursuant to Fed. R. Civ. P. 23;

B. Awarding Lead Plaintiff and the members of the Class damages , including interest;

C. Awarding Lead Plaintiff reasonable costs and attorneys' fees; and

D. Awarding such equitable/injunctive or other relief as the Court may deem just and

proper.

-46-

Case 2:07-cv-00852-GLF-NMK Document 37

JURY DEMAND

Lead Plaintiff demands a trial by jury.

DATED: October 3, 2008

Filed 10/03/2008 of 51


HENRY ROSENRAMZIABADOUCHRISTINA A. ROYCE

s/ HENRY ROSENHENRY ROSEN

S:\CasesSD\Tween Brands\CPT00054595 Amended Consolidated. doc

655 West Broadway, Suite 1900San Diego, CA 92101Telephone: 619/231-1058619/231-7423 (fax)E-mail: [email protected]: [email protected]

Lead Counsel for Plaintiffs

MURRAY MURPHY MOUL + BASIL LLPJOSEPH F. MURRAY (0063373)BRIAN K. MURPHY (0070654)GEOFFREY J. MOUL (0070663)1533 Lake Shore Drive , Suite 150Columbus , OH 43204Telephone : 614/488-0400614/488-0401 (fax)E-mail: [email protected]: [email protected]: [email protected]

Liaison Counsel

-47-


CERTIFICATE OF SERVICE

I hereby certify that on October 3, 2008, I electronically filed the foregoing with the Clerk of

the Court using the CM/ECF system which will send notification of such filing to the e-mail

addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I have

mailed the foregoing document or paper via the United States Postal Service to the non-CM/ECF

participants indicated on the attached Manual Notice List.

I certify under penalty of perjury under the laws of the United States of America that the

foregoing is true and correct. Executed on October 3, 2008.

s/ HENRY ROSENHENRY ROSEN


655 West Broadway, Suite 1900San Diego, CA 92101-3301Telephone : 619/231-1058619/231-7423 (fax)

E-mail: [email protected]

CM/ECF LIVE - U.S. District Court:OHSD Page 1 of 1Case 2:07-cv-00852-GLF-NMK Document 37 Filed 10/03/2008 of 51

Mailing Information for a Case 2:07-cv-00852-GLF-NMK

Electronic Mail Notice List

The following are those who are currently on the list to receive e-mail notices for this case.

• Ramzi [email protected],[email protected],[email protected]

• Daniel S [email protected]

• Douglas M [email protected]

• Thomas P [email protected],[email protected]

• Nancy [email protected]

• James A [email protected],[email protected],[email protected]

• Brian K [email protected],[email protected]

• Henry [email protected]

• Christina A [email protected]

• Robert Ward [email protected]

• Richard Stuart [email protected],[email protected]

Manual Notice List

The following is the list of attorneys who are not on the list to receive e-mail notices for this case(who therefore require manual noticing). You may wish to use your mouse to select and copythis list into your word processing program in order to create notices or labels for theserecipients.

• (No manual recipients)

https ://ecf.ohsd . uscourts . gov/cgi-bin /MaiIList . pl?410418649379991 -L 470_0-1 10/3/2008

Case 2:07-cv-00852-GLF-NMK Document 37-2 Filed 10/03/2008 Page 1 of 4

EXHIBIT 1

Case 2 : 07-cv-00852 -GLF-NMK Document 37-2 Filed 10/03/2008 Page 2 of 4

CERTIFICATION OF NAMED PLAINTIFFPURSUANT TO FEDERAL SECURITIES LAWS

ELECTRICAL WORKERS PENSION FUND, LOCAL 103, I.B.E.W.

("Plaintiff') declares:

Plaintiff has reviewed a complaint and authorized its filing.

2. Plaintiff did not acquire the security that is the subject ofthis action at the

direction of plaintiff's counsel or in order to participate in this private action or any

other litigation under the federal securities laws.

3. Plaintiff is willing to serve as a representative party on behalf of the

class, including providing testimony at deposition and trial, if necessary.

4. Plaintiff's transactions in the securities that are the subject ofthis action

are set forth below:

Security Transaction Date

See attached Schedule A.

Price Per Share

5. (a) Plaintiffhas been appointed to serve as a representative party for a

class in the following actions filed under the federal securities laws during the three

years prior to the date of this Certification:

(b) Plaintiff is seeking to serve as a representative party for a class inthe following actions filed under the federal securities laws:

Matt v. Telik, Inc., et a!., No. I :07-cv-04819-CM (S.D.N.Y.)

(c) Plaintiff initially sought to serve as a representative party for aclass in the following actions filed under the federal securities laws during the threeyears prior to the date of this Certification:

In re Ninvelo, Inc. Sec. Litig., No. 3:07-cv-04056-MMJ (N.D. Cal.)Crofton v. Powerwave Technologies, Inc., et a!., No. SACV-07-0065-PSG(MLGx) (C.D. Cal.)

TWEEN

Case 2:07-cv-00852-GLF-NMK Document 37-2 Filed 10/03/2008 Page 3 of 4

6, no Plaintiff wil l not accept any payment for serving as arepresentative

party on behalf of the class beyond the Plaintiff' s pro rata share of any recovery,

except such reasonable costa. and. expenses. (including lost wages) directly relating to

the repicscntatlon of the oln as ordered or approved by the court,

I, declare once'. penalty of perjury that the foregoing is true- and correct.

Executed t2 1 dab of -„^200.7.

ELECT UCAL WORKERS PENSIONFUND, LOCAL 103, I;B.B. W.

eta, , rT ^^ ,__

-2.rwr9w

Case 2:07-cv-00852-GLF-NMK Document 37-2 Filed 10/03/2008

SCHEDULE A

SECURITIES TRANSACTIONS

Acquisitions

Date Type/Amount of

Acquired Securities Acquired Price

04/04/2007 4,388 $36.50

04/05/2007 4,212 $36.87

04/12/2007 780 $37.12

04/20/2007 1,050 $38.98

04/2412007 10 $38.17

04/25/2007 1,310 $38.97

04/27/2007 1,440 $39.92

05/23/2007 2,100 $40.89

Page 4 of 4

Case2:07-cv-00852-GLF-NMK Document37 Filed 10/03/2008...

Documents

Transcript of Case2:07-cv-00852-GLF-NMK Document37 Filed 10/03/2008...