LOEHMANNS INC, 424B1, 1996-10-16

LOEHMANNS INC
424B1, 1996-10-16
WOMEN'S CLOTHING STORES

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Filed Pursuant to Rule 424(b)(1)
Registration Nos. 333-12881 and 333-14195

2,054,000 SHARES

LOEHMANN'S

COMMON STOCK

All of the shares of Common Stock offered hereby are being offered by
certain of the Company's stockholders (the "Selling Stockholders"). See
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of the shares by the Selling Stockholders.

The Common Stock is quoted on the Nasdaq National Market under the symbol
"LOEH." The last sale price of the Common Stock as reported on the Nasdaq
National Market on October 15, 1996 was $29.25. See "Price Range of the Common
Stock."

The Company has two classes of authorized common stock, Common Stock, which
is offered hereby, and Class B Common Stock, par value $0.01 per share (the
"Class B Common Stock"). Holders of Common Stock are entitled to one vote per
share and holders of Class B Common Stock are not entitled to vote, but each
share of Class B Common Stock is convertible into one share of Common Stock
after November 6, 1996. See "Description of Capital Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C>
Proceeds to
Price to Underwriting Selling Stockholders
Public Discount (1) (2)
Per Share................................. $28.75 $1.49 $27.26
Total (3)................................. $59,052,500 $3,060,460 $55,992,040
</TABLE>

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting estimated offering expenses of $525,000, which will be
payable by the Selling Stockholders.

(3) Certain of the Selling Stockholders have granted to the Underwriters a
30-day option to purchase up to 308,100 additional shares of Common Stock
solely to cover over-allotments, if any. If the Underwriters exercise this
option in full, the Price to Public will total $67,910,375, the Underwriting
Discount will total $3,519,529 and the Proceeds to Selling Stockholders will
total $64,390,846. See "Principal and Selling Stockholders" and
"Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject any orders in whole or in part. It is expected that
delivery of the certificates representing the shares will be made against
payment therefor at the office of Montgomery Securities on or about October 21,
1996.

------------------------
MONTGOMERY SECURITIES
SALOMON BROTHERS INC
ROBERTSON, STEPHENS & COMPANY

October 15, 1996

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[pictures]

The inside front cover of the prospectus contains an artist's rendering
of the Manhattan store scheduled to open October 1996, three photographs
depicting different views of the interior of the Company's stores, a photograph
of a woman wearing designer clothing and a photograph of the exterior of one of
the Company's stores. The inside back cover of the prospectus contains two
photographs depicting different views of the interior of the Company's stores
and one photograph of a woman wearing designer clothing.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information in this Prospectus,
including the share and per share information, (i) gives effect to the
Recapitalization Transactions as defined under "The Company" and (ii) assumes no
exercise of the Underwriters' over-allotment option. As used in this Prospectus,
references to a fiscal year refer to Loehmann's, Inc.'s fiscal year ended or
ending on the Saturday closest to January 31 of the following year. Certain
statements in this Prospectus (including this Prospectus Summary) constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). See "Special Note Regarding
Forward-Looking Statements."

THE COMPANY

Loehmann's, Inc. ("Loehmann's" or the "Company"), founded in 1921 as the
"Original Designer Outlet," is a leading specialty retailer of well known
designer and brand name women's fashion apparel, accessories and shoes offered
at prices that are typically 25% to 50% below department store prices. The
Company believes it has developed a unique franchise as the largest national
upscale off-price specialty retailer--one that differentiates itself from finer
department stores by offering similar merchandise at significantly lower prices,
and from other off-price apparel retailers by offering a broad range of designer
and bridge merchandise. The Company currently operates 73 stores in major
metropolitan markets located in 23 states. The Company has embarked on an
expansion strategy to capitalize on the strength of its franchise and
well-recognized name.

The following factors serve as the Company's key strengths and
distinguishing characteristics:

- The Company, like finer department stores, is known for carrying designer
and bridge labels by prominent designers such as Donna Karan, Calvin
Klein, Ralph Lauren, Adrienne Vittadini, Tahari, Dana Buchman, Andrea
Jovine and Emanuel Ungaro, among others. However, unlike finer department
stores, the Company offers such merchandise for sale at a substantial
discount.

- Loehmann's high quality image and affluent customer base uniquely
position the Company as a principal choice for well known designers who
believe their prestige will be preserved by having their merchandise
offered by Loehmann's as opposed to other off-price retailers.

- The Company provides in-season high quality merchandise to its stores on
a daily basis as a result of its flexible purchasing strategy, low-price,
cyclical markdown policy and efficient inventory management systems.

- The Company has a low-cost operating structure as a result of its
no-frills store format, lean corporate overhead and disciplined real
estate strategy.

In recent years, the Company has sought to broaden its appeal and to
increase margins through the addition of new product categories such as shoes
and a broader range of accessories and intimate apparel. Since the introduction
or expansion of these categories starting in fiscal 1992, gross margins have
increased from 26.4% for fiscal 1992 to 31.1% for fiscal 1995 and to 31.7% for
the first six months of fiscal 1996. In addition, to prepare for its store
expansion program, the Company has made significant investments in
merchandising, planning, allocation and MIS infrastructure and has continued to
refine its store format.

To capitalize on its unique franchise, the Company has embarked on a new
store expansion program under which it intends to open seven stores in fiscal
1996 and seven to ten stores in each of the next two fiscal years. Four of the
seven stores planned for fiscal 1996 already have been opened. Based on its
historical operating experience, the Company believes that its larger stores
typically experience

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enhanced operating performance with increased inventory turns, higher margins
and increased profitability. The Company's eight stores which exceed 23,000
square feet averaged $11.7 million in net sales in fiscal 1995 as compared to
$4.7 million for the balance of the Company's stores which were open for the
entire year in fiscal 1995. These eight stores generated store contribution as a
percentage of net sales of 15.1% as compared to 13.3% for the balance of the
Company's stores. To take advantage of the favorable economics associated with
its larger stores, the Company's prototype for its new stores is 25,000 to
35,000 square feet compared to the Company-wide average of approximately 16,000
square feet.

The Company's planned store openings for fiscal 1996 will be located in
existing markets where the Loehmann's franchise is well established and in
central business districts which have appealing demographics, such as New York
and Boston. As part of its store opening program, the Company intends to open a
new 60,000 square foot flagship store in downtown Manhattan at the site that
recently housed Barneys' Seventh Avenue Men's Store in October 1996.

RECENT DEVELOPMENTS

Since February 1996, the Company has opened four of the seven stores
planned for fiscal 1996, one each in Merrick, New York, Houston, Texas, San
Diego, California and Paramus, New Jersey. These new stores reflect the
Company's new, larger store format and average approximately 26,000 square feet
compared to the Company-wide average of approximately 16,000 square feet. Two of
the new stores being opened in fiscal 1996 are replacing existing, smaller
format stores.

The Company has signed leases for its three remaining stores planned for
fiscal 1996. Two of these stores are scheduled to open during the third quarter,
including the Company's new 60,000 square foot flagship store in downtown
Manhattan and a new central business district store in Boston, Massachusetts.
The third store, a replacement store in Brooklyn, New York, is scheduled to open
in November 1996. These new stores, other than the Company's Manhattan store,
will each be approximately 30,000 square feet. The Company has also signed four
leases associated with stores to be opened in fiscal 1997 including locations in
Seattle, Washington, Ft. Lauderdale, Florida, Tustin, California, and Westbury,
New York. The Company is currently in lease negotiations for several other store
locations for fiscal 1997 openings.

Combined sales of the Company for the months of August and September 1996
rose 12.0% to $73.2 million from $65.4 million in the comparable period in 1995,
and combined comparable store sales of the Company for August and September 1996
were up 3.4% from the comparable period in 1995.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Selling Stockholders.................. 2,054,000 shares
Common Stock to be outstanding after the Offering................. 8,384,809 shares (1)
Nasdaq National Market symbol..................................... LOEH
</TABLE>

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(1) Excludes (i) 958,664 shares of Common Stock, par value $0.01 per share, of
the Company (the "Common Stock") which, upon consummation of the Offering,
will be issuable upon the exercise of outstanding stock options at a
weighted average exercise price of approximately $7.08 per share, 365,963 of
which will be exercisable immediately and (ii) 469,237 shares of Class B
Common Stock, which are convertible after November 6, 1996 into 469,237
shares of Common Stock.

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)

FISCAL YEAR SIX MONTHS ENDED
----------------------------------------------------- ---------------------------
JULY 29, AUGUST 3,
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
]Net sales................................ $ 389,183 $ 389,330 $ 373,443 $ 392,606 $386,090 $ 186,932 $ 194,772
Gross profit.............................. 92,310 102,691 98,452 114,208 120,201 57,705 61,834
Store contribution (1).................... 39,384 45,948 39,180 49,192 52,159 25,240 28,402
Depreciation and amortization............. 12,462 11,492 14,334 11,955 12,120 6,062 6,046
Charge for store closings and
impairment of assets (2)................ -- -- -- -- 15,300 15,300 --
Operating income (loss)................... 11,146 16,233 8,654 16,613 3,296 (6,116 ) 11,101
Interest expense, net..................... 17,663 16,889 17,299 18,085 18,153 8,955 7,990
Income (loss) before extraordinary items.. (6,472) (783) (8,724) (1,506) (14,963) (15,179 ) 3,051
Extraordinary items (3)................... -- -- 3,507 -- -- -- 7,101
Net loss (4).............................. (6,472) (783) (12,231) (1,506) (14,963) (15,179 ) (4,050 )
Stock dividends on and normal and
accelerated accretion of preferred stock
(5)....................................... 1,181 1,335 1,496 1,802 2,056 922 5,668
Net loss applicable to common stock (4)... (7,653) (2,118) (13,727) (3,308) (17,019) (16,101 ) (9,718 )
Net loss per share applicable to common
stock before extraordinary items.......... $(1.78) $(0.49) $(2.18) $(0.63) $(3.12) $(3.07 ) $(0.38 )
Net loss per share applicable to common
stock after extraordinary items........... (1.78) (0.49) (2.93) (0.63) (3.12) (3.07 ) (1.40 )
Weighted average common shares outstanding
(6)....................................... 4,297 4,299 4,680 5,228 5,463 5,247 6,934
</TABLE>

SIX MONTHS ENDED
---------------------------
JULY 29, AUGUST 3,
1995 1996
------------ -------------
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA (7):
Net sales............................................................................ $ 186,932 $ 194,772
Store contribution (1)............................................................... 25,240 28,402
Depreciation and amortization........................................................ 5,722 5,895
Operating income (loss).............................................................. (5,776)* 11,253
Interest expense, net................................................................ 5,800 5,499
Net income (loss).................................................................... (7,061)* 3,510
Earnings (loss) per share............................................................ $ (0.79)* $ 0.37
Weighted average common shares and common share equivalents outstanding.............. 8,946 9,503
</TABLE>

- ---------------
* Includes a charge to operating income (loss) and net income (loss) of $15.3
million, related to the closure of 11 stores in August 1995 and the impairment
of certain primarily intangible assets, which had a negative impact of $1.03
per share (after tax effect) on earnings per share.

<TABLE>
<S> <C>
AUGUST 3,
1996
---------
BALANCE SHEET DATA:
Working capital......................................................................................... $ 12,985
Total assets............................................................................................ 155,667
Total debt.............................................................................................. 100,543
Common stockholders' equity............................................................................. 16,721
</TABLE>

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(1) Computed as gross profit less store operating expenses and pre-opening
costs.

(2) In fiscal 1995, the Company recorded charges related to the closure of 11
stores in August and the impairment of certain primarily intangible assets
of $10.35 million and $4.95 million, respectively. Of the total $15.3
million charge, $10.45 million represents non-cash items. See Notes 5 and 6
to the Consolidated Financial Statements of the Company.

(3) The extraordinary loss recorded in the first six months of fiscal 1996
related to the prepayment of the Company's 10 1/2% Senior Secured Notes
($52.5 million face amount), 13 3/4% Senior Subordinated Notes ($77.6
million face amount), 11 7/8% Senior Notes ($5.0 million face amount) along
with the write-off of related deferred financing amounts of $2.2 million.
The extraordinary loss in fiscal 1993 related to the repurchase of $30.0
million principal amount 13 3/4% Senior Subordinated Notes and the payment
of $12.0 million on the remaining balance of a term loan in October 1993.
The loss includes a $2.0 million premium paid on the repurchase of the 13
3/4% Senior Subordinated Notes and a $1.5 million write-off of the deferred
financing costs attributed to the term loan.

(4) At February 3, 1996, the Company had a net operating loss carryforward of
$27.0 million which is available to reduce taxes payable on future taxable
income. The Company's ability to utilize its net operating loss carryforward
will be dependent on the Company generating taxable income in future years
and will be subject to certain limitations on its ability to use all of the
net operating loss carryforward in any single fiscal year pursuant to
Section 382 of the Internal Revenue Code.

(5) Represents stock dividends on and normal and accelerated accretion of the
Company's Series A Preferred Stock to its liquidation price of $0.56 per
share. All shares of Series A Preferred Stock were redeemed in connection
with the Company's debt and equity offerings completed in May 1996 (see "The
Company").

(6) Excludes for fiscal years 1991 to 1995 and for the six months ended July 29,
1995, 453,317 shares of Common Stock issuable as of August 3, 1996 upon the
exercise of outstanding stock options at a weighted average exercise price
of approximately $1.60 per share, 416,587 of which are exercisable within 60
days following such date, as inclusion of such options in weighted average
shares would have been antidilutive. Excludes for the six months ended
August 3, 1996, 877,884 shares of Common Stock issuable as of August 3, 1996
upon the exercise of outstanding stock options at a weighted average
exercise price of approximately $3.77 per share, 416,587 of which are
exercisable within 60 days following such date, as inclusion of such options
in weighted average shares would have been antidilutive. Includes 469,237
shares of Class B Common Stock, convertible after November 6, 1996 into
469,237 shares of Common Stock.

(7) Pro forma to reflect the effects of the Company's debt and equity offerings
completed in May 1996 (see "The Company") and an assumed effective tax rate
of 39%, as if such transactions had been completed immediately prior to the
commencement of the respective periods.

(8) Average net sales per gross square foot is determined by dividing total net
sales by the weighted average gross square footage of stores open during the
period indicated.

(9) Inventory turnover is determined by dividing cost of sales by monthly
average inventory valued at cost.

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RISK FACTORS

In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing any of the shares of Common Stock offered
hereby. Certain statements in "Risk Factors" constitute "forward-looking
statements" within the meaning of the Reform Act. See "Special Note Regarding
Forward-Looking Statements."

AGGRESSIVE EXPANSION STRATEGY

The Company intends to pursue an expansion strategy involving opening many
more stores than it has in recent years, and its future operating results will
depend to a substantial extent upon its ability to open and operate new stores
successfully. The new stores are expected to be significantly larger than most
of the Company's existing stores and several of the new stores, unlike all but
one of the Company's existing stores, will be located in central business
districts. The Company may also enter certain new markets in various regions in
the United States. Operating larger format stores as well as expanding into new
markets and central business districts may present competitive and merchandising
challenges that are different than those currently encountered by the Company in
its existing markets. In addition, the Company's ability to open new stores on a
timely basis will depend upon a number of factors, including the ability to
properly identify and enter new markets, locate suitable store sites, negotiate
acceptable lease terms, construct or refurbish sites, hire, train and retain
skilled managers and personnel, and other factors, some of which may be beyond
the Company's control. There can be no assurance that the Company's new stores
will be profitable or achieve sales and profitability levels comparable to the
Company's larger stores or its existing stores generally. In addition, because
of the nature of the Company's business, the Company's new store openings will
be clustered during the Company's significant spring or fall selling seasons and
thus any delay in such openings could materially adversely affect the Company's
financial performance in the relevant fiscal year or period. See
"Business--Expansion Strategy." Furthermore, the Company believes that its
expansion within existing markets will adversely affect the financial
performance of the Company's existing stores within those markets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

To manage its expansion, the Company continually will need to evaluate the
adequacy of its existing systems and procedures, including financial controls,
management information systems and store management, as well as its existing
distribution center which will be used to supply new stores. There can be no
assurance that the Company will anticipate all of the changing demands that its
expanding operations will impose on its existing infrastructure. The failure of
the Company's infrastructure to handle its expansion program could adversely
affect its future operating results. In addition, the Company intends to finance
its store expansion program primarily through its own operating cash flow. The
Company anticipates that its capital expenditures related to store expansion
will total approximately $10.0 million in fiscal 1996 and approximately $6.0
million to $8.0 million in fiscal 1997. If the Company does not generate
sufficient operating cash flow to support its store expansion program, the
Company may not be able to achieve its targets for opening new stores. See
"Business--Expansion Strategy."

ADEQUATE SOURCES OF MERCHANDISE SUPPLY

The Company's business is dependent to a significant degree upon its
ability to purchase designer and other brand name merchandise at substantially
below normal wholesale prices. The Company does not have any long-term supply
contracts with its suppliers. The loss of certain key vendors or the failure to
establish and maintain relationships with popular vendors could have a material
adverse effect on the Company's business. The Company believes it currently has
adequate sources of designer and brand

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name merchandise; however, there can be no assurance, especially given the
Company's expansion plans, that the Company will be able to acquire sufficient
quantities and an appropriate mix of such merchandise at acceptable prices.

COMPARABLE STORE SALES

The Company's comparable store sales results have experienced significant
fluctuations in the past. In addition, the Company anticipates that opening new
stores in existing markets will generally result in decreases in comparable
store sales for existing stores in such markets. The Company believes that this
negative impact on existing store sales, coupled with the maturity of the
Company's existing stores, will make it difficult to achieve increases in
comparable store sales until a significant number of new stores are included in
the comparable store base. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

SUBSTANTIAL LEVERAGE AND RESTRICTIVE COVENANTS

The Company has substantial indebtedness and, as a result, significant debt
service obligations. As of August 3, 1996, the Company had approximately $100.5
million of outstanding indebtedness. The degree to which the Company is
leveraged could have several material adverse effects, including, but not
limited to the following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired; (ii) the Company's
substantial leverage could make it more vulnerable to a downturn in general
economic conditions; (iii) the Company may be more highly leveraged than other
companies with which it competes, which may place it at a competitive
disadvantage; and (iv) a substantial portion of the Company's cash flow from
operations may be dedicated to the payment of interest on its indebtedness,
thereby reducing the funds available to the Company for its operations. The
Company's indebtedness contains financial and operating covenants including, but
not limited to, restrictions on the Company's ability to incur additional
indebtedness and issue preferred stock, pay dividends or make other
distributions, create liens, sell assets, enter into certain transactions with
affiliates and enter into certain mergers and consolidations. Failure by the
Company to comply with such covenants may result in an event of default, which,
if not cured or waived, could have a material adverse effect on the Company. In
addition, upon the occurrence of a Change of Control (as defined in the
indenture pursuant to which the Company's 11 7/8% Senior Notes due May 15, 2003
(the "Senior Notes") were issued (the "Senior Note Indenture")), the Company
will be obligated to repurchase the Senior Notes at 101% of their principal
amount. In such event, there is no assurance that the Company will be able to
obtain the necessary financing to repurchase the Senior Notes. See "Description
of Certain Indebtedness."

HISTORY OF LOSSES

The Company has incurred net losses in each fiscal year since the
Acquisition including fiscal 1995. There can be no assurance that such losses
will not continue in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

MERCHANDISE TRENDS

The Company's success depends in part on its ability to anticipate and
respond to changing merchandise trends and consumer preferences in a timely
manner. Accordingly, any failure by the Company to anticipate, identify and
respond to changing fashion trends could adversely affect consumer acceptance of
the merchandise in the Company's stores, which in turn could adversely affect
the Company's business and its image with its customers. If the Company
miscalculates either the market for its merchandise or its customers' purchasing
habits, it may be required to sell a significant amount of

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unsold inventory at below average markups over the Company's cost, or below
cost, which would have an adverse effect on the Company's financial condition
and results of operations.

IMPACT OF ECONOMIC CONDITIONS ON INDUSTRY RESULTS

The Company's business is sensitive to customers' spending patterns, which
in turn are subject to prevailing economic conditions. There can be no assurance
that consumer spending will not be affected by economic conditions, thereby
impacting the Company's growth, net sales and profitability. A decline in
economic conditions in one or more of the markets in which the Company's stores
are concentrated could have an adverse effect on the Company's financial
condition and results of operations.

CONCENTRATION OF OPERATIONS IN CALIFORNIA AND THE NORTHEAST

As of August 3, 1996, 22 of the Company's stores were located in the
northeastern United States (New York, New Jersey, Connecticut and Massachusetts)
and generated 35% of the Company's net sales for the first six months of fiscal
1996 and 13 of the Company's stores were located in California and generated 23%
of the Company's net sales for the first six months of fiscal 1996. Of the
stores in the Northeast, 19 were located in New York, New Jersey and Connecticut
and generated 32% of the Company's net sales for the first six months of fiscal
1996. Although the Company has opened stores in other areas in the United
States, a significant percentage of the Company's net sales is likely to remain
concentrated in the Northeast and California for the foreseeable future.
Consequently, the Company's results of operations and financial condition are
heavily dependent upon general consumer trends and other general economic
conditions in those regions.

COMPETITION

All aspects of the women's apparel industry, including the off-price retail
segment, are highly competitive. The Company competes primarily with department
stores, other off-price retailers, specialty stores, discount stores and mass
merchandisers, many of which have substantially greater financial and marketing
resources than the Company. Finer department stores, which constitute the
Company's principal competitors, offer a broader selection of merchandise and
higher quality service. In addition, many department stores have become more
promotional and have reduced their price points, and certain finer department
stores and certain of the Company's vendors have opened outlet stores which
offer off-priced merchandise in competition with the Company. Accordingly, the
Company may face periods of intense competition in the future which could have
an adverse effect on its financial results. See "Business--Competition."

QUARTERLY RESULTS AND SEASONALITY

The Company's quarterly results of operations may fluctuate materially
depending on, among other things, the timing of new store openings and related
pre-opening expenses, net sales contributed by new stores, increases or
decreases in comparable store sales, adverse weather conditions, shifts in
timing of certain holidays and changes in the Company's merchandise mix. The
Company's business is also subject to seasonal influences with higher margins in
its first and third quarters and lower margins in its second and fourth
quarters. Because of fluctuations in net sales and net income, the results of
operations for any quarter are not necessarily indicative of the results that
may be achieved for a full fiscal year or any future quarter. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results and Seasonality."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant extent upon the performance
of its senior management team, particularly Robert N. Friedman, Chairman and
Chief Executive Officer, and

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Philip Kaplan, President and Chief Operating Officer. The loss of services of
any of the Company's executive officers could have a material adverse impact on
the Company. The Company maintains key man life insurance on the life of Mr.
Kaplan in the amount of $5.0 million and Mr. Friedman in the amount of $8.0
million. The Company's success will depend on its ability to motivate and retain
its key employees and to attract and retain qualified personnel in the future.
See "Management."

VOLATILITY OF STOCK PRICE

The Common Stock is currently quoted on the Nasdaq National Market System,
which has experienced and is likely to experience in the future significant
price and volume fluctuations which could adversely affect the market price of
the Common Stock without regard to the operating performance of the Company. In
addition, the Company believes that factors such as quarterly fluctuations in
the financial results of the Company, the Company's comparable store sales
results, announcements by other apparel retailers, the overall economy and the
condition of the financial markets could cause the price of the Common Stock to
fluctuate substantially.

SHARES ELIGIBLE FOR FUTURE SALE

There will be 8,384,809 shares of Common Stock outstanding upon the
consummation of the Offering. Of such shares, 4,107,800 shares of Common Stock
sold in the Initial Public Offering are freely tradeable and, upon completion of
this Offering, an additional 2,054,000 shares will be freely tradeable. Of the
2,223,009 remaining shares, 1,908,687 shares are held by executive officers,
directors and certain shareholders who, together with the Company, have agreed
not to sell, contract to sell, or otherwise dispose of, any shares of Common
Stock without the consent of Montgomery Securities for a period of 120 days
after the date of this Prospectus. Upon expiration of such agreements, such
shares will be eligible for sale in the public markets in accordance with Rule
144 ("Rule 144") promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). All other shares will be eligible for sale in the public
markets in accordance with Rule 144 after November 3, 1996. In addition, upon
consummation of the Offering, there will be outstanding options to purchase a
total of 958,664 shares of Common Stock. Except as limited by the agreements
described above and by Rule 144 volume limitations applicable to affiliates,
shares issued upon the exercise of stock options generally are available for
sale in the open market. The Company also has issued and outstanding 469,237
shares of Class B Common Stock which may, after November 6, 1996, be converted
into shares of Common Stock on a one-to-one basis. Future sales of substantial
amounts of Common Stock in the open market, or the availability of such shares
for sale following this Offering, could adversely affect the prevailing market
price of the Common Stock. See "Description of Capital Stock," "Shares Eligible
for Future Sale," "Principal and Selling Stockholders," "Management" and
"Underwriting."

ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation and By-laws contain certain
provisions that may discourage other persons from attempting to acquire control
of the Company. These provisions include, without limitation, (i) classification
of the Company's Board of Directors, (ii) prohibitions on stockholder action by
written consent and (iii) procedural requirements in connection with stockholder
proposals or director nominations. In addition, the Board of Directors, without
further action of the stockholders, has the authority to issue preferred stock
in one or more series. In certain circumstances, the fact that provisions are in
place which inhibit or discourage takeover attempts could reduce the market
value of the Common Stock. See "Description of Capital Stock."

10
<PAGE>
THE COMPANY

Loehmann's is a leading national specialty retailer of well known designer
and brand name women's fashion apparel, accessories and shoes offered at prices
that are typically 25% to 50% below department store prices. Frieda Loehmann
founded the original Loehmann's business in 1921. She acquired the overruns and
samples from designers who supplied major department stores and sold these goods
at discount prices at her store in Brooklyn, New York. With the success of the
original Brooklyn store, her son Charles began expanding the business, first in
the northeastern United States and then nationally. Loehmann's remained
privately held until 1964. After 17 years as a public company, Loehmann's was
acquired in 1981 by AEA Investors ("AEA") in a leveraged buyout transaction. AEA
then sold the Company in 1983 to Associated Dry Goods Corporation ("ADG"),
owners of the Lord & Taylor and other retail chains. Loehmann's ownership
changed again in October 1986 when the May Department Stores purchased ADG. On
September 19, 1988 Loehmann's was acquired in a leveraged buyout transaction
(the "Acquisition") led by Sefinco Ltd., an affiliate of Entrecanales y Tavora,
S.A., the Sprout Group, a venture capital affiliate of Donaldson, Lufkin &
Jenrette, Inc., Desai Capital Management, Inc. and certain of its affiliates and
members of senior management.

On May 10, 1996, the Company issued and sold 3,572,000 shares of Common
Stock in an initial public offering (the "Initial Public Offering") and issued
and sold $100 million principal amount of the Senior Notes in a concurrent debt
offering (the "Debt Offering"). The net proceeds of approximately $155 million
from the Initial Public Offering and the Debt Offering were used to redeem
certain indebtedness of the Company and all of the outstanding shares of the
Company's Series A Preferred Stock (the "Series A Preferred Stock"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."

Prior to consummation of the Initial Public Offering in May 1996,
Loehmann's Holdings, Inc. ("Holdings"), the former parent of the Company, whose
only material assets consisted of all of the outstanding stock of the Company
and an intercompany note with the Company, was merged with and into a new
wholly-owned Delaware subsidiary formed for the purpose of reincorporating
Holdings from Maryland to Delaware. Subsequently, but prior to consummation of
the Initial Public Offering, the surviving corporation of such merger was merged
with and into the Company with the Company being the ultimate surviving
corporation (together, the two mergers are herein referred to as the "Holdings
Merger"). Each share of common stock of Holdings ("Holdings Common Stock") and
Class B common stock of Holdings ("Holdings Class B Common Stock") was converted
in the Holdings Merger into approximately 0.22 shares of Common Stock and Class
B Common Stock, respectively. The transactions described above are referred to
collectively as the "Recapitalization Transactions." Accordingly, the historical
financial information appearing in the Registration Statement of which this
Prospectus is a part (the "Registration Statement") reflects the retroactive
application of, and all share and per share data has been restated to reflect,
the Recapitalization Transactions.

The Company is a Delaware corporation whose executive offices are located
at 2500 Halsey Street, Bronx, New York 10461 and its telephone number is (718)
409-2000.

11
<PAGE>

USE OF PROCEEDS

The Company will not receive any of the proceeds from the sale of the
Common Stock offered hereby, and none of such proceeds will be available
otherwise for use by the Company or for the Company's benefit.

PRICE RANGE OF COMMON STOCK

The Common Stock is quoted on the Nasdaq National Market under the symbol
"LOEH." The Common Stock was initially offered to the public on May 7, 1996 at
$17.00 per share. The following table sets forth for the periods indicated the
high and low reported sales prices per share for the Common Stock as reported by
the Nasdaq National Market. There is no established trading market for the
Company's Class B Common Stock.

HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1996
Second Quarter (commencing May 7).............................................................. $28 3/8 $18
Third Quarter (through October 15)............................................................. 29 1/4 20 1/2
</TABLE>

On September 20, 1996, the number of stockholders of record of Common Stock
was 74 and the number of stockholders of record of the Class B Common Stock was
10. The Company estimates that the number of beneficial owners of its Common
Stock is significantly more than the number of record owners of its Common
Stock. On October 15, 1996, the last reported sale price of the Common Stock as
reported by the Nasdaq National Market was $29.25 per share.

DIVIDEND POLICY

The Company has not paid any dividends on its Common Stock or its Class B
Common Stock since its inception. The Company intends to retain its earnings, if
any, to finance the growth and development of its business including its store
expansion program and does not anticipate paying cash dividends on its Common
Stock or Class B Common Stock in the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, the future earnings, operations,
capital requirements and financial condition of the Company. In addition, the
Company's $35.0 million revolving credit facility (the "Credit Facility") and
the Senior Note Indenture contain various covenants which may restrict the
Company's ability to pay dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Description of Certain Indebtedness."

12
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
August 3, 1996.

AUGUST 3,
1996
--------------
(IN THOUSANDS)
<S> <C>
Long-term debt:
11 7/8% Senior Notes............................................................................ $ 95,000
Credit Facility (1)............................................................................. 2,791
Revenue bonds and notes......................................................................... 2,686
--------------
Total long-term debt....................................................................... 100,477

Common stockholders' equity
Common stock, 25,000,000 shares authorized, 8,322,186 issued and outstanding (2)................ 83
Class B convertible common stock, 469,237 shares authorized,
issued and outstanding....................................................................... 2,352
Additional paid-in-capital...................................................................... 79,340
Accumulated deficit............................................................................. (65,054)
--------------
Total common stockholders' equity.......................................................... 16,721
--------------
Total capitalization..................................................... $ 117,198
--------------
--------------
</TABLE>

- ---------------
(1) The total commitment under the Credit Facility is $35.0 million.

(2) Excludes 1,022,116 shares of Common Stock issuable as of October 15, 1996
upon the exercise of outstanding stock options at a weighted average
exercise price of approximately $6.64 per share, 429,415 of which are
exercisable within 60 days following such date.

13
<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)

The statement of operations and balance sheet data set forth below for
fiscal years 1991 through 1995 and as of the end of each such fiscal year are
derived from the audited consolidated financial statements of the Company. The
statement of operations data set forth below for the six months ended July 29,
1995 and August 3, 1996 and the balance sheet data set forth below as of August
3, 1996 have been derived from, and should be read in conjunction with, the
unaudited consolidated financial statements of the Company. In the opinion of
the Company, such unaudited financial statements reflect all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the results for such periods. Results for the six months ended August 3, 1996
are not necessarily indicative of results for the full year. The following
financial data should be read in conjunction with the consolidated financial
statements, related notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus. All fiscal years for which financial information is set forth below
had 52 weeks except fiscal 1995, which had 53 weeks.

The following unaudited pro forma statement of operations data for the six
months ended August 3, 1996 and July 29, 1995 give effect to the completion of
the various transactions contemplated by the Initial Public Offering and the
Debt Offering as if the same had been completed immediately prior to the
commencement of the respective periods. The pro forma financial information and
notes thereto do not purport to represent what the Company's results of
operations would actually have been if such transactions had in fact been
completed immediately prior to such dates or project the results of operations
for any future period.

14
<PAGE>

SIX MONTHS ENDED
]FISCAL YEAR --------------------
----------------------------------------------------- JULY 29, AUGUST 3,
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $ 389,183 $ 389,330 $ 373,443 $ 392,606 $ 386,090 $ 186,932 $ 194,772
Cost of sales................... 296,873 286,639 274,991 278,398 265,889 129,227 132,938
--------- --------- --------- --------- --------- --------- ---------
Gross profit.................... 92,310 102,691 98,452 114,208 120,201 57,705 61,834
Operating Expenses:
Store operating expenses...... 51,888 56,108 59,059 64,869 68,042 32,465 33,056
Pre-opening costs............. 1,038 635 213 147 -- -- 376
General and administrative
expenses........................ 15,776 18,223 16,192 20,624 21,443 9,994 11,255
Depreciation and
amortization.................... 12,462 11,492 14,334 11,955 12,120 6,062 6,046
Charge for store closings and
impairment of assets (1).... -- -- -- -- 15,300 15,300 --
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)......... 11,146 16,233 8,654 16,613 3,296 (6,116) 11,101
Interest expense, net........... 17,663 16,889 17,299 18,085 18,153 8,955 7,990
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes........................... (6,517) (656) (8,645) (1,472) (14,857) (15,071) 3,111
(Benefit) provision for income
taxes........................... (45) 127 79 34 106 108 60
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary items............. (6,472) (783) (8,724) (1,506) (14,963) (15,179) 3,051
Extraordinary items (2)......... -- -- 3,507 -- -- -- 7,101
--------- --------- --------- --------- --------- --------- ---------
Net loss (3).................... (6,472) (783) (12,231) (1,506) (14,963) (15,179) (4,050)
Stock dividends on and normal
and accelerated accretion of
preferred stock (4)............. 1,181 1,335 1,496 1,802 2,056 922 5,668
--------- --------- --------- --------- --------- --------- ---------
Net loss applicable to common
stock (3)....................... $ (7,653) $ (2,118) $ (13,727) $ (3,308) $ (17,019) $ (16,101) $ (9,718)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share applicable to
common stock before
extraordinary items............. $ (1.78) $ (0.49) $ (2.18) $ (0.63) $ (3.12) $ (3.07) $ (0.38)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share applicable to
common stock after
extraordinary items............. $ (1.78) $ (0.49) $ (2.93) $ (0.63) $ (3.12) $ (3.07) $ (1.40)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average common shares
outstanding (5)................. 4,297 4,299 4,680 5,228 5,463 5,247 6,934
</TABLE>

SIX MONTHS ENDED
--------------------
JULY 29, AUGUST 3,
1995 1996
--------- ---------

<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA (6):
Net sales.................................................................................. $ 186,932 $ 194,772
Store contribution (7)..................................................................... 25,240 28,402
Depreciation and amortization.............................................................. 5,722 5,895
Operating income (loss).................................................................... (5,776)* 11,253
Interest expense, net...................................................................... 5,800 5,499
Net income (loss).......................................................................... (7,061)* 3,510
Earnings (loss) per share.................................................................. $ (0.79)* $ 0.37
Weighted average common shares and common share equivalents outstanding.................... 8,946 9,503
</TABLE>

SIX MONTHS
ENDED
]FISCAL YEAR -----------
----------------------------------------------------- JULY 29,
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Number of stores open at end of period................ 81 85 81 80 69 69
Average net sales per gross square foot (8)........... $ 350 $ 333 $ 320 $ 337 $ 327 --
Inventory turnover (9)................................ 5.4x 5.4x 5.1x 5.7x 5.4x --

AUGUST 3,
1996
-----------
SELECTED OPERATING DATA:
Number of stores open at end of period................ 71
Average net sales per gross square foot (8)........... --
Inventory turnover (9)................................ --
</TABLE>

15
<PAGE>

FEB. 1, JAN. 30, JAN. 29, JAN. 28, FEB. 3, AUGUST 3,
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 2,743 $ 16 $ 8,288 $ 14,049 $ 12,669 $ 12,985
Total assets........................................ 186,466 184,189 177,666 178,612 163,611 155,667
Total debt.......................................... 134,088 127,931 130,886 132,029 131,799 100,543
Common stockholders' equity (deficit)............... 3,187 1,607 (9,475) (12,282) (29,080) 16,721
</TABLE>

-----------------

(1) In fiscal 1995, the Company recorded charges related to the closings of 11
stores in August and the impairment of certain primarily intangible assets
of $10.35 million and $4.95 million, respectively. Of the total $15.3
million charge, $10.45 million represents non-cash items. See Notes 5 and 6
to the Consolidated Financial Statements of the Company.

(2) The extraordinary loss recorded in the first six months of 1996 related to
the prepayment of the Company's 10 1/2% Senior Secured Notes ($52.5 million
face amount), 13 3/4% Senior Subordinated Notes ($77.6 million face
amount), 11 1/8% Senior Notes ($5.0 million face amount), along with the
write-off of related deferred financing costs of $2.2 million. The
extraordinary loss in fiscal 1993 related to the repurchase of $30.0
million principal amount 13 3/4% Senior Subordinated Notes and the payment
of $12.0 million on the remaining balance of a term loan in October 1993.
The loss includes a $2.0 million premium paid on the repurchase of the 13
3/4% Senior Subordinated Notes and a $1.5 million write-off of the deferred
financing costs attributed to the term loan.

(3) At February 3, 1996, the Company had a net operating loss carryforward of
$27.0 million which is available to reduce taxes payable on future taxable
income. The Company's ability to utilize its net operating loss
carryforward will be dependent on the Company generating taxable income in
future years and will be subject to certain limitations on its ability to
use all of the net operating loss carryforward in any single fiscal year
pursuant to Section 382 of the Internal Revenue Code.

(4) Represents stock dividends and normal and accelerated accretion of the
Company's Series A Preferred Stock to its liquidation price of $0.56 per
share. All shares of Series A Preferred Stock were redeemed in connection
with the Initial Public Offering and the Debt Offering completed in May
1996 (see "The Company").

(5) Excludes for fiscal years 1991 to 1995 and for the six months ended July
29, 1995, 453,317 shares of Common Stock issuable as of August 3, 1996 upon
the exercise of outstanding stock options at a weighted average exercise
price of approximately $1.60 per share, 416,587 of which are exercisable
within 60 days following such date, as inclusion of such options in
weighted average shares would have been antidilutive. Excludes for the six
months ended August 3, 1996, 877,884 shares of common stock issuable as of
August 3, 1996 upon the exercise of outstanding stock options at a weighted
average exercise price of approximately $3.77 per share, 416,587 of which
are exercisable within 60 days following such date, as inclusion of such
options in weighted average shares would have been antidilutive. Includes
469,237 shares of Class B Common Stock, convertible after November 6, 1996
into 469,237 shares of Common Stock.

(6) Pro forma to reflect the effects of the Initial Public Offering and the
Debt Offering completed in May 1996 (see "The Company") and an assumed
effective tax rate of 39%, as if such transactions had been completed
immediately prior to the commencement of the respective periods.

(7) Computed as gross profit less store operating expenses and pre-opening
costs.

(8) Average net sales per gross square foot is determined by dividing total net
sales by the weighted average gross square footage of stores open during
the period indicated.

(9) Inventory turnover is determined by dividing cost of sales by the monthly
average inventory valued at cost.

16
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" constitute "forward-looking statements"
within the meaning of the Reform Act. See "Special Note Regarding
Forward-Looking Statements."

OVERVIEW

Loehmann's, founded in 1921, currently operates 73 stores in major
metropolitan markets located in 23 states.

The Company continues to refine its store format and has sought to broaden
its appeal and increase margins through the addition of new product categories
such as shoes and a broader range of accessories and intimate apparel. Since the
introduction or expansion of these categories starting in fiscal 1992, gross
margins have increased from 26.4% for fiscal 1992 to 31.1% for fiscal 1995 and
to 31.7% for the first six months of fiscal 1996. In addition, the Company has
found that its larger stores, those in excess of 23,000 square feet, typically
experience enhanced operating performance with increased inventory turns, lower
markdowns and thus higher profitability on a higher sales basis. Accordingly,
the Company's new prototype store is 25,000 to 35,000 square feet as opposed to
an average of approximately 16,000 square feet for the Company's existing
stores. The Company has embarked on a store expansion program focused on opening
large stores both in existing markets where the Loehmann's franchise is well
established and in central business districts which have appealing demographics.
As part of its expansion program, the Company intends to open seven such stores
in fiscal 1996 and seven to ten stores in each of the next two fiscal years.
Four of the seven stores planned for fiscal 1996 already have been opened. The
Company also will continue to expand the selling space of existing stores where
possible. In fiscal 1995 and in fiscal 1996 to date, the Company added an
aggregate of approximately 35,000 square feet to eight existing stores and
approximately 9,000 square feet to two existing stores, respectively. There can
be no assurance that future stores will achieve sales or profitability levels
comparable to the Company's current larger stores. See "Business--Expansion
Strategy."

In anticipation of its expansion program, the Company expanded or replaced
selected stores and closed certain of its underperforming stores, including 11
stores in August 1995, which represented approximately 4.7% and 2.1% of net
sales in fiscal 1994 and fiscal 1995, respectively, and did not significantly
contribute to the Company's operating income. The Company believes that closure
of these stores will allow it to improve overall profitability and achieve a
more competitive cost structure, although on a short-term basis, these closings
may result in reduced net sales. In connection with such closings, the Company
incurred a charge of $10.35 million during fiscal 1995. The Company also
recorded an unrelated charge of $4.95 million reflecting the write-down of
certain primarily intangible assets deemed to have been impaired. As a result of
this $15.3 million charge (of which $10.45 million is non-cash), future
depreciation and amortization relating to the Company's existing asset base will
be reduced. The amount of such reduction in fiscal 1996 is expected to be
approximately $800,000.

The Company estimates that its average net cash requirement to open a
typical new store will be approximately $1.7 million, consisting of
approximately $1.0 million of capital expenditures for store fixtures and
equipment and leasehold improvements, approximately $0.5 million for net working
capital and approximately $0.2 million for pre-opening expenses. Actual costs
will vary from store to store based upon, among other things, geographic
location, the size of the store and the extent of the build-out required at the
selected site. The Company anticipates that the cost of its expansion program,
approximately $10.0 million in fiscal 1996 and approximately $6.0 million to
$8.0 million in fiscal 1997, will be principally funded from operating cash
flow. Based on its historical experience, the Company believes that its new
stores will generate a positive store contribution in the first full year of
operation and are generally expected to recoup their investment within two
years. Expenses incurred in connection

17
<PAGE>

with the opening of new stores are expensed in the fiscal quarter in which the
stores open. The Company anticipates opening four stores in the third quarter of
fiscal 1996 and thus expects to incur significant pre-opening expenses in that
quarter. The aggregate charge for pre-opening expense may vary substantially
from quarter to quarter depending upon the timing of the opening of new stores.

The Company selects new locations in existing markets based on anticipated
profitable incremental sales volume for that market. Opening new stores in
existing markets generally results in decreases in the comparable sales for
existing stores in such markets. The Company believes that this negative impact
on existing store sales coupled with the maturity of the Company's existing
stores will make it more difficult to achieve increases in comparable store
sales until a significant number of new stores are included in the comparable
store base.

Inherent in the Company's expansion strategy is an ongoing increase in
occupancy costs as the Company opens larger stores in more desirable locations.
This will have a negative impact on store expenses as a percentage of net sales.
This negative impact should be at least partially offset by leveraging general
and administrative expenses as net sales from new stores are added to the net
sales base.

The net proceeds received from the Initial Public Offering and Debt
Offering were used (i) to redeem in full $52.5 million face amount of the
Company's 10 1/2% Senior Secured Notes due 1997 (the "10 1/2% Secured Notes") at
a redemption price of 103.5% of the face amount of such notes plus accrued and
unpaid interest, (ii) to redeem in full $77.6 million face amount of the
Company's 13 3/4% Senior Subordinated Notes due 1999 (the "13 3/4% Subordinated
Notes") at a redemption price of 101.0% of the face amount of such notes, plus
accrued and unpaid interest and (iii) to redeem all issued and outstanding
shares of the Company's Series A Preferred Stock (the "Series A Preferred
Stock") at its liquidation price of $0.56 per share totaling $20.9 million. As a
result of these transactions, in the second quarter of fiscal 1996 the Company
incurred extraordinary losses of approximately $4.7 million on the early
extinguishment of debt and $2.0 million from the write-off of related deferred
financing costs associated with such indebtedness, and a $5.1 million charge to
accumulated deficit from the accelerated accretion of the Series A Preferred
Stock to its liquidation price of $0.56 per share.

At February 3, 1996, the Company had a net operating loss carryforward of
approximately $27.0 million to reduce taxes payable on future taxable income.
The Company's ability to utilize its net operating loss carryforward will be
dependent on the Company generating taxable income in future years and will be
subject to certain limitations on its ability to use all of the net operating
loss carryforward in any single fiscal year pursuant to Section 382 of the
Internal Revenue Code.

18
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, statement of
operations data expressed as a percentage of net sales.

FISCAL YEAR (1) SIX MONTHS ENDED
------------------------------- ------------------------
JULY 29, AUGUST 3,
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales (2)...................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................................... 73.6 70.9 68.9 69.1 68.3
--------- --------- --------- ----------- -----------
Gross margin....................................................... 26.4 29.1 31.1 30.9 31.7
Operating expenses:
Store operating expenses......................................... 15.8 16.5 17.6 17.4 17.0
Pre-opening costs................................................ 0.1 -- -- -- 0.2
General and administrative expenses.............................. 4.3 5.3 5.6 5.3 5.8
Depreciation and amortization.................................... 3.8 3.0 3.1 3.2 3.1
Charge for store closings and impairment of assets............... -- -- 4.0 8.2 --
--------- --------- --------- ----------- -----------
Operating income (loss)............................................ 2.3 4.2 0.9 (3.3) 5.7
Interest expense, net.............................................. 4.6 4.6 4.7 4.8 4.1
--------- --------- --------- ----------- -----------
Income (loss) before income taxes.................................. (2.3)% (0.4)% (3.8)% (8.1 )% 1.6%
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>

- ---------------

(1) Fiscal 1993 and 1994 had 52 weeks, and fiscal 1995 had 53 weeks.

(2) Numbers may not total due to rounding.

Six Months Ended August 3, 1996 Compared to Six Months Ended July 29, 1995

Net sales increased by approximately $7.9 million, or 4.2%, to $194.8
million for the six months ended August 3, 1996 as compared to $186.9 million
for the six months ended July 29, 1995. Comparable store sales (sales at stores
that were in operation for both periods) increased by 4.7%. The increase in net
sales was due to the improved comparable store sales results, plus the opening
of two new stores (Merrick and Houston) opened in the first quarter of fiscal
1996 partially offset by the impact of the eleven stores closed in August 1995.

Gross profit increased by approximately $4.1 million to $61.8 million for
the six months ended August 3, 1996 as compared to $57.7 million for the six
months ended July 29, 1995. Gross margin increased to 31.7% from 30.9% in the
prior year period. The improvement in margin was primarily a result of the
continuing shift in the Company's sales mix towards merchandise categories with
higher average gross margins coupled with a reduction of markdowns and inventory
shortage.

Store operating expenses increased by approximately $0.6 million to $33.1
million for the six months ended August 3, 1996 as compared to $32.5 million for
the six months ended July 29, 1995. As a percentage of net sales, store
operating expenses decreased to 17.0% from 17.4% in the comparable prior year
period. The dollar increase in store operating expenses was primarily due to an
increase in variable expenses associated with the sales increase of $7.9
million.

Pre-opening costs totaled $376,000 during the six months ended August 3,
1996. These costs were associated with the opening of two new stores in Merrick,
New York and Houston, Texas. The Company charges the costs associated with the
new store openings to operations in the fiscal quarter of the store's opening.
Since August 3, 1996, the Company has opened two new stores, one each in San
Diego, California and Paramus, New Jersey. The Company anticipates opening three
additional stores in fiscal 1996. There were no store openings in the first six
months of fiscal 1995.

General and administrative expenses increased by approximately $1.3 million
to $11.3 million for the six months ended August 3, 1996 as compared to $10.0
million for the six months ended July 29,

19
<PAGE>

1995. As a percent of net sales, general and administrative expenses increased
to 5.8% as compared to 5.3% for the same period in the prior year.

Depreciation and amortization for the six months ended August 3, 1996, was
essentially unchanged from the same period in the prior year.

Operating income increased $17.2 million to $11.1 million for the six
months ended August 3, 1996 from an operating loss of $6.1 million for the six
months ended July 29, 1996. Before the charges for store closings and impairment
of assets, operating income increased by approximately $1.9 million to $11.1
million for the first six months of fiscal 1996 from $9.2 million for the
comparable period in fiscal 1995. As a percentage of net sales, operating income
before the charges for store closings and impairment of assets increased to 5.7%
from 4.9%.

Interest expense, net for the six months ended August 3, 1996 was $8.0
million versus $9.0 million for the comparable period in fiscal 1995, a decrease
of $1.0 million, or 10.8%. The reduction in net interest expense resulted from
the Company's net reduction of long-term debt of approximately $30.0 million and
a reduction of the average interest rate paid on the long-term debt by
approximately 60 basis points. In May 1996, the Company redeemed the 10 1/2%
Secured Notes and the 13 3/4% Subordinated Notes totalling $130.0 million face
value and issued $100.0 million face value of the 11 7/8% Senior Notes.

For the six months ended July 29, 1995, the Company recorded a $10.35
million charge related to the implementation of a plan to close eleven
underperforming stores. The Company believes that these closures will improve
overall chain profitability and allow the Company to achieve a more competitive
cost structure. Additionally, the Company recorded a $4.95 million charge to
continuing operations in connection with the write-down to fair value of certain
primarily intangible assets that were determined to have been impaired in
accordance with FAS No. 121. Of this combined $15.3 million charge, $10.45
million represents a non-cash charge. See Notes 5 and 6 to the Consolidated
Financial Statements.

Fiscal 1995 Compared to Fiscal 1994

Net sales decreased by approximately $6.5 million, or 1.7%, to $386.1
million during fiscal 1995 as compared to $392.6 million during fiscal 1994.
Comparable store sales decreased by 0.4% during fiscal 1995 as compared to
fiscal 1994 due to a relatively weak retail environment. The remaining decrease
in total sales was attributable to the closure of 11 stores in August 1995 which
represented approximately 4.7% and 2.1% of net sales in fiscal 1994 and fiscal
1995, respectively. Sportswear, dresses and suits represented an aggregate of
$284.2 million of net sales in fiscal 1995, as compared to $295.6 million in
fiscal 1994, while accessories, intimate apparel and shoes represented an
aggregate of $77.2 million of net sales in fiscal 1995 as compared to $64.4
million in fiscal 1994. These changes reflect the Company's efforts in recent
years to expand its merchandise mix to include shoes and a broader range of
accessories and intimate apparel, which typically have higher gross margins than
the Company's traditional apparel offerings.

Gross profit increased by approximately $6.0 million to $120.2 million
during fiscal 1995 as compared to $114.2 million for fiscal 1994. Gross margin
increased to 31.1% for fiscal 1995 from 29.1% in the prior fiscal year. The
increase in margin was primarily a result of a continuing shift in the Company's
sales mix towards merchandise with a higher average gross margin coupled with a
reduction of markdowns and shrinkage.

Store operating expenses increased by approximately $3.1 million to $68.0
million during fiscal 1995 as compared to $64.9 million during fiscal 1994. As a
percentage of net sales, store operating expenses increased to 17.6% for fiscal
1995 from 16.5% in the prior fiscal year. Direct mail and advertising
expenditures increased by $2.8 million to $13.0 million in fiscal 1995 from
$10.2 million in

20
<PAGE>

fiscal 1994, primarily as a result of the growth of the Company's Insider Club
membership list for direct mail sale announcements. The remaining increase was
attributable to higher occupancy costs due to the addition of square footage at
eight of the Company's existing stores partially offset by the closing of 11
stores in August 1995.

General and administrative expenses increased by approximately $0.8 million
to $21.4 million during fiscal 1995 as compared to $20.6 million for fiscal
1994. As a percentage of net sales, general and administrative expenses
increased to 5.5% for fiscal 1995 from 5.2% in the prior fiscal year. The
increase in general and administrative expenses was primarily due to the
Company's continued investment in corporate infrastructure to support the
Company's planned new store expansion program.

Depreciation and amortization for fiscal 1995 remained essentially
unchanged as compared to the prior fiscal year. The reduction in depreciation
and amortization attributable to the closing of 11 stores in fiscal 1995 was
offset by additional depreciation associated with capital expenditures in fiscal
1995.

Charge for store closings for fiscal 1995 includes a $10.35 million charge
related to the closure of 11 underperforming stores in August 1995. Reserved
amounts at February 3, 1996 related to long-term lease commitments were not
material. The Company believes the store closings will improve overall
profitability and enable the Company to achieve a more competitive cost
structure. See Note 5 to the Consolidated Financial Statements.

Charge for impairment of assets for fiscal 1995 includes a $4.95 million
write-down to fair value of certain assets, primarily intangible favorable
leasehold rights, that were determined to be impaired. As discussed in Note 6 to
the Consolidated Financial Statements, the Company completed certain market
analyses as part of an overall strategic plan in the second quarter of fiscal
1995. As an outcome of these analyses, the Company shortened the period of time
in which it intended to occupy certain stores and as a consequence, the
undiscounted cash flows estimated to be generated from the revised intended use
were not sufficient to recover the assets' carrying amount. Fair value was based
on appraisal value.

Operating income decreased by $13.3 million to $3.3 million for fiscal 1995
as compared to $16.6 million for fiscal 1994. Before the charges for store
closings and impairment of assets, operating income increased by approximately
$2.0 million to $18.6 million for fiscal 1995 from $16.6 million for fiscal
1994. As a percentage of net sales, operating income before the charges for
store closings and impairment of assets increased to 4.8% from 4.2%.

Interest expense, net for fiscal 1995 was essentially unchanged as compared
to fiscal 1994.

Fiscal 1994 Compared to Fiscal 1993

Net sales increased by approximately $19.2 million to $392.6 million, or
5.1%, during fiscal 1994 as compared to $373.4 million during fiscal 1993.
Comparable store sales increased by 4.9% during fiscal 1994 as compared to
fiscal 1993. Management believes that the principal factors contributing to this
increase in net sales were the introduction of shoes, expansion of accessories
and intimate apparel and the general upgrading of store interiors and
merchandise presentation. Sportswear, dresses and suits represented an aggregate
of $295.6 million of net sales in fiscal 1994, as compared to $292.0 million in
fiscal 1993, while accessories, intimate apparel and shoes represented an
aggregate of $64.4 million of net sales in fiscal 1994 as compared to $50.0
million in fiscal 1993.

Gross profit increased by approximately $15.7 million to $114.2 million
during fiscal 1994 as compared to $98.5 million during fiscal 1993. Gross margin
increased to 29.1% for fiscal 1994 from 26.4% in the prior fiscal year. The
improvement in margin was the result of a reduction in markdowns of 2.7% coupled
with an improvement in initial markup of 0.4% of net sales partially offset by
an increase in shrinkage.

21
<PAGE>

Store operating expenses increased by approximately $5.8 million to $64.9
million during fiscal 1994 as compared to $59.1 million during fiscal 1993. As a
percentage of net sales, store operating expenses increased to 16.5% for fiscal
1994 from 15.8% in the prior fiscal year. Direct mail and advertising expenses
increased to $10.2 million in fiscal 1994 from $7.7 million in fiscal 1993. This
increase of $2.5 million was primarily due to the growth of the Company's
Insider Club membership list for direct mail sale announcements. Store operating
expenses also increased $1.0 million as a result of the opening of a new larger
store during fiscal year 1994 partially offset by the closing of two smaller
stores, increases resulting from bonus and profit sharing costs for store-level
employees associated with the earnings increase in fiscal 1994 over fiscal 1993
and certain increased variable expenses.

General and administrative expenses increased by approximately $4.4 million
to $20.6 million during fiscal 1994 as compared to $16.2 million during fiscal
1993. As a percentage of net sales, general and administrative expenses
increased to 5.3% for fiscal 1994 from 4.3% in the prior fiscal year. This
increase resulted from an increase in bonus and profit sharing costs for
corporate-level employees, one-time fees associated with the development of a
corporate long-range plan and real estate expansion strategy and costs
associated with the Company's investment in corporate infrastructure. In
addition, fiscal 1993 general and administrative expenses were partially offset
by approximately $2.0 million of income from one-time landlord settlements and
an insurance claim related to the Reseda, California location which was damaged
in an earthquake which reduced general and administrative expenses for that
fiscal year.

Depreciation and amortization decreased by $2.3 million to $12.0 million
during fiscal 1994 as compared to $14.3 million during fiscal 1993. The decrease
was primarily due to the absence of prior year write-offs of assets associated
with closed and relocated stores and the decrease in amortization of stock
option compensation.

Operating income increased by $7.9 million to $16.6 million during fiscal
1994 as compared to $8.7 million during fiscal 1993. As a percentage of net
sales, operating income increased to 4.2% for fiscal 1994 from 2.3% in the prior
fiscal year.

Interest expense, net increased by $0.8 million in fiscal 1994 from the
prior fiscal year. This increase was primarily due to a full year of non-cash
accretion expense associated with the 10 1/2% Secured Notes which were issued in
October 1993, at a discount.

QUARTERLY RESULTS AND SEASONALITY

While the Company's net sales do not show significant seasonal variation,
the Company's operating income has traditionally been significantly higher in
its first and third fiscal quarters. The Company believes that its merchandise
is purchased primarily by women who are buying for their own wardrobes rather
than as gifts. As a result, unlike many other retailers, the Company does not
experience increases in net sales during the Christmas shopping season. In
addition, the Company's quarterly results of operations may fluctuate materially
depending on, among other things, the timing of new store openings and related
pre-opening expenses, net sales contributed by new stores, increases or
decreases in comparable store sales, adverse weather conditions, shifts in
timing of certain holidays and changes in the Company's merchandise mix. Results
of operations during the second and fourth quarters are traditionally impacted
by end of season clearance events. In addition, fourth quarter operations can be
affected by employee performance bonuses.

22
<PAGE>

The following table sets forth certain unaudited operating data for the
Company's ten fiscal quarters ended August 3, 1996. The unaudited quarterly
information includes all normal recurring adjustments which management considers
necessary for a fair presentation of the information shown.

FISCAL 1994
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(1)
----------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $ 96,170 $ 90,798 $ 105,762 $ 99,876
Gross profit................................................... 28,248 26,419 32,322 27,219
Store contribution (2)......................................... 12,968 11,669 15,053 9,502
Operating income (loss)........................................ 5,448 3,334 6,776 1,055

AS A PERCENTAGE OF NET SALES:
Gross margin................................................... 29.4% 29.1% 30.6% 27.3%
Store contribution (2)......................................... 13.5% 12.9% 14.2% 9.5%
Operating income (loss)........................................ 5.7% 3.7% 6.4% 1.1%

</TABLE>

<TABLE>
<CAPTION>
FISCAL 1995
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(1)
----------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $ 97,506 $ 89,426 $ 99,362 $ 99,796
Gross profit................................................... 30,823 26,882 32,694 29,802
Store contribution (2)......................................... 13,906 11,334 15,433 11,486
Operating income (loss)........................................ 5,818 (11,934 (3) 7,364 2,048

AS A PERCENTAGE OF NET SALES:
Gross margin................................................... 31.6% 30.1% 32.9% 29.9%
Store contribution (2)......................................... 14.3% 12.7% 15.5% 11.5%
Operating income (loss)........................................ 6.0% (13.3 (3) 7.4% 2.1 %

</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
-----------------------
FIRST SECOND
QUARTER QUARTER
----------- ----------
(IN THOUSANDS)
<S> <C>
<C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $ 104,120 $ 90,652
Gross profit................................................... 33,734 28,100
Store contribution (2)......................................... 15,508 12,894
Operating income (loss)........................................ 6,702 4,399

AS A PERCENTAGE OF NET SALES:
Gross margin................................................... 32.4% 31.0%
Store contribution (2)......................................... 14.9% 14.2%
Operating income (loss)........................................ 6.4% 4.9%

</TABLE>

- ---------------

(1) For the 14 weeks ended February 3, 1996 and the 13 weeks ended January 28,
1995.

(2) Reflects total gross profit less store operating expenses and pre-opening
costs.

(3) In the second quarter of fiscal 1995, the Company incurred a charge for
store closings and impairment of assets of $15.3 million.

23
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 1995 and the first six months of fiscal 1996, the Company's
primary uses of cash (other than the use of the net proceeds from the Initial
Public Offering and the Debt Offering as described below) were to service its
debt and fund capital expenditures. The Company has satisfied its cash
requirements principally from cash flow from operations and from the net
proceeds of the Initial Public Offering and the Debt Offering. On May 10, 1996,
the Company issued and sold 3,572,000 shares of Common Stock in the Initial
Public Offering and $100.0 million aggregate principal amount of the Senior
Notes in the Debt Offering. The approximate $155 million in net proceeds
received from the Initial Public Offering and Debt Offering were used to redeem
the 10 1/2% Secured Notes, the 13 3/4% Subordinated Notes and the Series A
Preferred Stock.

During the first six months of fiscal 1996, net cash used as a result of
operating activities totaled $4.7 million. During such period, cash of $9.6
million was provided from operations after adding back non-cash charges offset
by the use of net working capital of $11.0 million related to new store openings
and a reduction in accrued interest expense. In addition, $3.4 million cash was
used for new debt issuance costs. For the first six months of fiscal 1996, the
Company also used cash of approximately $3.7 million to fund capital
expenditures and approximately $2.2 million for financing activities. The
Company's financing activities during the first six months of fiscal 1996
included the issuance of the Common Stock in the Initial Public Offering and the
Senior Notes in the Debt Offering for an aggregate of $155 million, the use of
the net proceeds of the Initial Public Offering and the Debt Offering to repay
certain indebtedness and redeem the Series A Preferred Stock and the repurchase
and retirement of $5.0 million aggregate principal amount of the Senior Notes
for $5.1 million.

During fiscal 1995, net cash provided by operations was $9.5 million. Net
cash used in investing activities, principally related to capital expenditures
for leasehold improvements and fixtures primarily associated with the upgrading
of existing stores and to a lesser extent improving corporate infrastructure,
was $8.1 million for fiscal 1995. Additionally, fiscal 1995 capital expenditures
include purchases related to stores scheduled to open in fiscal 1996. Net cash
used in financing activities, principally related to the repurchase of $1.6
million face amount of the 10 1/2% Secured Notes, was $1.6 million during fiscal
1995.

On June 12, 1996, the Company amended and restated its credit agreement
with BankAmerica Business Credit, Inc. (the "Bank") to provide the Company with
the Credit Facility. The Credit Facility provides for a $35.0 million revolving
line of credit with interest payable, at the Company's option, on amounts drawn
under the facility at either (i) the Bank's prime plus 0.75%, or (ii) the London
Interbank Offered Rate ("LIBOR") plus 2.2%. As of August 3, 1996, approximately
$2.8 million of indebtedness was outstanding under the Credit Facility. The
Company also is required to pay a per annum fee equal to 0.375% on the undrawn
portion of the Bank's commitment with respect of the Credit Facility. The Credit
Facility is subject to certain borrowing base limitations, subjects the Company
to certain convenants and imposes limitations upon investments dividends and
other restricted payments and capital expenditures. The Credit Facility is
secured by substantially all of the Company's assets, including accounts
receivable, inventory, fixtures and equipment and is not subject to scheduled
annual repayments, except upon maturity. The Credit Facility has a term of four
years, expiring on June 17, 2000. See "Description of Certain
Indebtedness--Credit Facility."

During fiscal 1995 and the first six months of fiscal 1996, the Company's
capital expenditures for leasehold improvements, fixtures and equipment and
investments in infrastructure were approximately $3.5 million and $1.2 million,
respectively. In addition, in fiscal 1995 and the first six months of fiscal
1996, approximately $2.8 million and $0.3 million, respectively, was expended
principally to expand and renovate certain of its stores and approximately $1.8
million and $1.9 million, respectively, was expended in connection with stores
scheduled to open in fiscal 1996. The Company anticipates its capital
expenditures for the second half of fiscal 1996 will be approximately $11.0
million, consisting of

24
<PAGE>

$8.1 million primarily to open new stores and $2.4 million for other general
capital expenditures. For fiscal 1997, the Company anticipates its capital
expenditures will be approximately $12.0 million to open new stores and for
other uses.

The Company believes that cash generated from operations will be sufficient
to satisfy its cash requirements for fiscal 1996 and fiscal 1997, as
supplemented if necessary, by borrowings under the Credit Facility.

25
<PAGE>

BUSINESS

Loehmann's, founded in 1921 as the "Original Designer Outlet," is a leading
national specialty retailer of well known designer and brand name women's
fashion apparel, accessories and shoes offered at prices that are typically 25%
to 50% below department store prices. The Company believes it has developed a
unique franchise as the largest national upscale off-price specialty retailer in
the industry. The Company's strong brand name, loyal customer base and
long-standing relationships with leading designers and vendors of quality
merchandise has enabled it to maintain its franchise. The Company's target
customers are relatively affluent women between the ages of 30 and 55 who are
attracted to designer and other high quality merchandise offered at exceptional
values. The Company currently operates 73 stores in major metropolitan markets
located in 23 states. Management believes it has successfully positioned the
Company to build on its franchise through an expansion program initially
focusing on its core suburban markets and certain central business districts.

INDUSTRY OVERVIEW

According to published reports, total retail sales of women's apparel and
accessories in the United States were approximately $71.8 billion in 1995. The
womenswear industry is served by a variety of distribution channels including
department stores, specialty stores and off-price retailers.

The women's apparel industry is categorized into five product
classifications: designer, bridge, better, moderate and budget. Designer
merchandise is the most expensive product classification and is characterized by
high fashion styling. Designer brands include Donna Karan, Calvin Klein and
Ralph Lauren. Bridge products are typically brand name merchandise which may
carry designer labels but are less expensive than the designer classification
and allow customers to purchase designer-like merchandise at below designer
prices. Bridge brands include DKNY, A Line/Anne Klein, Anne Klein II, Adrienne
Vittadini, CK/Calvin Klein, Emanuel Ungaro and Tahari. Apparel in the better
classification carries brand name labels but is less expensive than bridge
apparel. Better brands include Jones New York, Harve Bernard and Kenar.
Merchandise in the moderate classification is also generally brand name but is a
less expensive product category. Moderate brands include Oleg Cassini and Leslie
Fay. Budget merchandise is the least expensive product classification.

Designer and bridge merchandise is generally sold in finer department
stores such as Bloomingdale's, Lord & Taylor, Nordstrom and Saks Fifth Avenue.
Because manufacturers of designer and bridge merchandise are very concerned
about maintaining the upscale image of their trademarks, they are typically very
selective about which retailers carry their products. As a result, the Company
believes that most other off-price retailers have limited access to designer and
bridge merchandise.

BUSINESS STRATEGY

The Company's strategy is to deliver value to its customers by offering at
substantial discounts a wide selection of high quality in-season merchandise,
including designer and bridge apparel, accessories and shoes. The Company
believes that it has created a unique niche market as the largest national
upscale off-price specialty retail store--one that differentiates itself from
finer department stores by offering similar merchandise at significantly lower
prices and from other off-price apparel retailers by offering a broad range of
designer and bridge merchandise. The principal elements of the Company's
business strategy are as follows:

Emphasis on In-Season Designer and High Quality Merchandise

The Company offers a wide selection of in-season apparel, accessories and
shoes, approximately one-third of which is designer and bridge merchandise. The
Company, like finer department stores, is known for carrying designer and bridge
labels, including Donna Karan, Calvin Klein, Ralph Lauren, Adrienne Vittadini,
Tahari, Dana Buchman, Andrea Jovine and Emanuel Ungaro.

26
<PAGE>

Value Pricing

The Company provides its customers with exceptional value by offering its
merchandise at prices that are typically 25% to 50% below prices charged by
department stores for the same items and that are comparable to or lower than
prices charged by other off-price retailers.

Capitalize on Long-Standing Vendor Relationships

Loehmann's is uniquely positioned among off-price retailers as a principal
choice for well known designers who believe that their prestige will be
preserved by having their merchandise offered by Loehmann's because of its high
quality image and affluent customer base. Loehmann's long-standing vendor
relationships and its ability to sell large quantities of goods have provided
the Company with ready access to a wide selection of merchandise, often on a
preferential basis.

Broaden Merchandise Categories

The Company continually seeks to broaden its appeal and has over the past
several years expanded its merchandise mix to include shoes and a broader range
of accessories and intimate apparel. These items, which typically generate
higher gross margins than the Company's traditional apparel categories,
accounted for more than 20% of the Company's net sales in fiscal 1995, an
increase from 8% in fiscal 1992.

Flexible Purchasing Strategy

The Company relies on a flexible purchasing strategy under which it enters
any given month with a substantial portion of its purchasing requirements
unfulfilled. This strategy enables the Company to react to sales trends, fashion
trends and changing customer preferences while enhancing the Company's ability
to negotiate with its vendors and take advantage of market inefficiencies and
opportunities as they may arise.

Efficient Inventory Management

The Company ships new high quality merchandise to its stores on a daily
basis. The Company believes it is able to constantly replenish its stores
because of its efficient allocation and distribution system, which enables the
Company to distribute merchandise to its stores typically within 48 to 72 hours
after delivery to its distribution center. In addition, the Company utilizes a
cyclical markdown strategy which automatically reduces prices as goods age. As a
result of this efficient inventory management, the Company is able to enhance
its gross margin, maintain a comparatively low investment in inventory, increase
its inventory turn and react more effectively to changing fashion trends and
customer preferences.

Low-Cost Structure

In order to provide its customers with exceptional value while maximizing
profitability and cash flow, the Company is focused on maintaining an efficient,
low-cost operating structure. Key elements of this focus include the Company's
no-frills store format, lean corporate overhead and disciplined real estate
strategy.

EXPANSION STRATEGY

The Company has embarked on a store expansion program designed to
capitalize on its unique franchise by opening new stores both in existing
suburban markets where the Loehmann's franchise is well established and in
central business districts which have appealing demographics. The Company
intends to open seven stores during fiscal 1996, four of which already have been
opened: one each in Merrick, New York, Houston, Texas, San Diego, California and
Paramus, New Jersey. Based on the success of its downtown San Francisco store
and market research performed by the Company, Loehmann's believes that it can
successfully expand its franchise by opening stores in other central business
districts in such cities as New York, Boston and Seattle. The Company intends to
open a 60,000 square foot flagship store in downtown Manhattan at the site which
recently housed Barneys'

27
<PAGE>

Seventh Avenue Men's Store. To date, the Company has entered into leases for the
three remaining stores expected to be opened in fiscal 1996 including the
Manhattan site. Two of the new stores being opened in fiscal 1996 are replacing
existing, smaller format stores. In addition, the Company intends to continue
its expansion strategy by opening seven to ten stores in each of fiscal 1997 and
fiscal 1998. The Company has signed four leases associated with stores to be
opened in fiscal 1997 including locations in Seattle, Washington, Ft.
Lauderdale, Florida, Tustin, California, and Westbury, New York. The Company is
currently in lease negotiations for several other store locations for fiscal
1997 openings.

Larger Store Format

Based on its historical operating experience, the Company believes that its
larger stores are more profitable. The Company's eight largest stores in excess
of 23,000 square feet (excluding a test market store in an outlet mall) that
were open for the entire year in fiscal 1995 averaged $11.7 million in net
sales, as compared to $4.7 million for the balance of the Company's stores
(which average approximately 16,000 square feet). These eight largest stores
generated store contribution as a percentage of related net sales of 15.1% as
compared to 13.3% for the balance of the Company's stores. A comparison of the
Company's larger store base to the balance of its store base supports the
Company's determination that larger stores generally permit the Company to
better display and offer a broader selection of merchandise, enhance turnover of
inventory and require fewer markdowns, thus enabling such stores to achieve
greater sales, higher margins and increased profits. Accordingly, the Company's
new stores are planned to be substantially larger at 25,000 to 35,000 square
feet than most of its existing stores. As part of its strategy, the Company will
continue to expand the selling area of existing stores where possible.

Store Opening Costs

The Company does not believe its expansion program will entail significant
capital expenditures on a per store basis. Based on its historical experience,
the Company believes that its new stores will generate a positive store
contribution in the first full year in which such stores are open and are
expected to recoup their investment within two years. Furthermore, the Company
believes it has a sufficient corporate, purchasing and distribution
infrastructure in place ready to handle its current and anticipated expansion
program. The Company estimates that its average net cash requirement to open a
typical new store will be approximately $1.7 million, consisting of
approximately $1.0 million of capital expenditures for store fixtures and
equipment and leasehold improvements, approximately $0.5 million for net working
capital and approximately $0.2 million for pre-opening expenses. Actual costs
will vary from store to store.

Site Selection

Based on its historical operating results, the Company believes that in
addition to store size, key elements in determining the success of an individual
store are the density of the store area's female population over age 18, the
affluence of the population frequenting the store's area and the retail strength
of the store's area, particularly the upscale nature of the surrounding retail
establishments. The Company believes Loehmann's is a destination store which,
together with its reputation as a desirable tenant, affords it greater
flexibility in selecting store sites. This enables the Company to adhere to its
policy of not entering into leases under which the occupancy costs exceed
certain acceptable percentages of anticipated net sales. The Company has
retained the services of a retail consulting firm that has conducted an
extensive analysis of the relevant demographics to advise the Company with
respect to its expansion strategy. All decisions as to store openings are
decided on a case by case basis by the Company's Board of Directors based on the
recommendations of management.

28
<PAGE>

MERCHANDISING

Selection

The Company offers a wide selection of women's sportswear, dresses, suits,
outerwear, coats, accessories, intimate apparel and shoes. Approximately
one-third of the Company's sales are generated by designer and bridge
merchandise with the remainder in the brand name, better and moderate
classifications. The Company does not offer budget merchandise in its stores.
Most of the Company's merchandise is in-season and is therefore generally
available at Loehmann's during the same selling season as it is available in
department stores.

The following is a list of many of the key brands offered at the Company's
stores:

Adrienne Vittadini CK/Calvin Klein Harve Bernard
Andrea Jovine Dana Buchman Jones NY
A Line/Anne Klein Depeche Mode Kenar
Anne Klein II DKNY Oleg Cassini
Augustus Donna Karan Ralph Lauren
Calvin Klein Emanuel Ungaro Tahari

The Company continually seeks to broaden its appeal and has over the past
several years expanded its merchandise mix to include shoes and a broader range
of accessories and intimate apparel. These items, which typically generate
higher gross margins than the Company's traditional apparel categories,
accounted for approximately 20% of the Company's net sales in fiscal 1995, an
increase from 8% in fiscal 1992. The following table shows the percentages of
the Company's net sales attributable to its various product categories for
fiscal 1992 through fiscal 1995:

FISCAL YEAR
------------------------------------------
1992 1993 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sportswear......................................... 50.4% 49.6% 48.8% 47.6%
Dresses & Suits.................................... 31.5 28.6 26.5 26.0
Coats & Outerwear.................................. 7.2 5.9 5.2 5.1
Accessories/Intimate Apparel....................... 8.0 11.3 13.0 14.5
Shoes.............................................. -- 2.1 3.4 5.5
Other.............................................. 2.9 2.5 3.1 1.3
--------- --------- --------- ---------
Total............................................ 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

All Loehmann's stores carry items from each of its merchandise categories.
However, the allocation of merchandise among the stores varies based upon
factors relating to the demographics and geographic location of each store as
well as the size of the store and its ability to adequately display the
merchandise. In a continuing effort to broaden its appeal, the Company currently
offers infantwear in approximately 30 of its stores and women's large sizes
apparel in approximately 35 of its stores.

Pricing

The Company seeks to provide its customers with exceptional value by
offering its merchandise at prices that are typically 25% to 50% below prices
charged by department stores for the same items and that are comparable to or
lower than prices charged by other off-price retailers. The Company's central
buying staff adheres to a disciplined approach to acquiring merchandise that
enables the Company to consistently offer its merchandise at favorable prices.
The Company's buyers will only acquire merchandise at prices which permit the
Company to offer its merchandise for sale initially at a significant discount to
the first marked down price that a department store would charge for the same
item. Each item of merchandise offered by the Company carries a price tag
displaying the Company's price as well as the typical department store's initial
price for the same item.

29
<PAGE>

The Company uses a cyclical markdown policy to reduce prices automatically
as goods age. The purpose of this policy is to improve inventory turnover and
minimize the amount of unsold merchandise at the end of the season, while
reinforcing the customer's perception of value and enabling the Company to
provide the stores with fresh merchandise on a regular basis. In addition, the
Company closely monitors prices charged by competitors in each of its markets
and adjusts its prices to preserve its pricing advantage.

VENDOR RELATIONSHIPS AND PURCHASING

Loehmann's is uniquely positioned among off-price retailers as a principal
choice for well known designers who believe that their prestige will be
preserved by having their merchandise offered by Loehmann's because of its high
quality image and affluent customer base. Approximately 75% of the Company's 50
most active suppliers have been selling merchandise to the Company for at least
10 years. Because of these long-standing vendor relationships and its ability to
sell large quantities of goods, the Company has ready access to a wide selection
of merchandise, often on a preferential basis.

The Company does not engage in significant forward purchasing and a large
portion of its purchasing requirements in any given month intentionally remains
unfulfilled at the beginning of the month. This strategy enables the Company to
react to fashion trends and changing customer preferences while enhancing the
Company's ability to negotiate with its vendors and take advantage of market
inefficiencies and opportunities as they may arise.

The Company purchases a majority of its inventory during the manufacturer's
selling season enabling the Company to offer merchandise during the same selling
season as it is available in department stores. The Company also purchases a
portion of its inventory at the end of the season, when the Company is prepared
to purchase a manufacturer's remaining items at an even steeper discount.
Vendors who sell to the Company do not need to build into their price structure
any anticipation of returns, markdown allowances or advertising allowances, all
of which are typical in the department store industry. In addition, the Company
pays for goods within an average of approximately 25 to 30 days and often picks
up the merchandise directly from the vendors.

The Company purchases its inventory from over 400 suppliers, which in many
cases include separate divisions of a single manufacturer or designer. These
suppliers include a substantial majority of the designer and brand name apparel
manufacturers in the United States. Some purchases are also made in the European
market, primarily Italy. The Company's 20 largest suppliers accounted for
approximately 36% of purchases made by the Company in fiscal 1995. During fiscal
1995, no supplier or group of related suppliers accounted for more than 4% of
the Company's total purchases. The Company does not have any long-term supply
contracts with its suppliers.

The Company maintains its own central buying staff, comprised of 13
experienced off-price buyers, many of whom also have extensive experience with
traditional department stores. Historically, the Company has had very low
turnover within its buying group, enabling Loehmann's to capitalize on an
experienced, respected group of buyers capable of enhancing the Company's
already strong vendor relationships.

STORE LAYOUT

Loehmann's store format and merchandise presentation are designed to
project the image of deep discount and exceptional value, as well as to
emphasize Loehmann's niche as the off-price equivalent of an upscale specialty
store. Loehmann's stores are divided into two shopping areas: a large, open
selling area with wall-to-wall merchandise and a smaller, separate, and more
intimate area called "The Back Room." The Company presents moderate and better
sportswear, dresses and suits, as well as all outerwear, accessories, intimate
apparel and shoes on the main selling floor. Designer and bridge merchandise,
including gowns, dresses, suits and sportswear, are displayed in The Back Room.

30
<PAGE>

The Back Room provides a key point of differentiation to the consumer, as
it projects the image of designer goods sold in a no-frills environment and,
therefore, at exceptional values. Although the Company estimates that The Back
Room generally accounts for only approximately 10% to 15% of a typical
Loehmann's store's selling space, The Back Room has generated approximately
one-third of the Company's net sales over the last several years.

All stores are low maintenance, simple, and functional facilities designed
to maximize selling space and contain overhead costs. Store layouts are flexible
in that product groupings can be easily moved or expanded. All stores have two
or more communal fitting rooms. However, in response to customer preferences,
private fitting rooms have been added in most stores. Because the Company is
committed to maintaining virtually all of its in-store inventory on the selling
floor, its stores do not require significant space devoted to inventory storage.

INVENTORY MANAGEMENT AND CONTROL

The Company continually strives to improve its merchandising, distribution,
planning and allocation methods to manage its inventory efficiently. The Company
believes that a key to its success is the efficient distribution of merchandise
to its stores and an appropriate allocation of merchandise based on individual
store sales data and geographic and demographic factors. The Company's
successful inventory management is demonstrated by its rapid inventory turnover;
in each of the last five years, inventory turned in excess of five times (on a
cost basis).

Loehmann's has recently invested in its Merchandise Control, Planning and
Allocation Department. The department's goal is to maximize inventory potential
rather than just allocate the merchandise. The allocation by this department of
merchandise among Company's stores varies based upon factors relating to the
demographics and geographic location of each store as well as the size of the
store and its ability to adequately display the merchandise. In addition to
ensuring a proper allocation of merchandise, the department works closely with
senior merchants to develop seasonal sales, inventory, markdown and purchase
plans. As each selling season progresses, the department updates the plans for
opportunities and focuses the Company's buyers on the most profitable
merchandise. Information from the Company's point-of-sale computer system is
regularly reviewed and analyzed to assist in making merchandise allocation
decisions. In order to facilitate further the planning and allocation process,
the Company is currently implementing a new state-of-the-art planning and
allocation software package.

The Company operates a 126,000 square foot centralized distribution center
located at the Company's headquarters as well as a 32,000 square foot satellite
warehouse for processing shoes located near the main distribution center. As
merchandise arrives at the distribution center, it is priced, ticketed, assigned
to individual stores by the Company's merchandising systems, packaged for
delivery and transported to the stores. The Company generally transports
merchandise from vendors to its distribution center by means of common carrier
or its own truck fleet. After the merchandise has been processed, ticketed,
sorted and allocated, it is distributed to stores in company-owned or commercial
trucks or by air. The time from receipt of goods at the distribution center to
placement of merchandise in existing stores typically ranges from 48 to 72
hours. Inventory acquired in anticipation of new store openings may be held at
temporary warehouse facilities. The Company believes that its current facilities
are capable of servicing its existing stores and planned stores through fiscal
1998.

ADVERTISING AND PROMOTION

Loehmann's has built its reputation over the years through "word-of-mouth"
advertising. In the last two fiscal years, the Company has significantly
increased its advertising expenditures. The Company advertises predominantly
through direct mail and to a lesser extent through newspaper advertising.

31
<PAGE>

In August 1992, the Company began a free membership program called "The
Insider Club" which entitles members to notice of special events throughout the
year and to a 15% discount on their birthdays. The list of members now includes
approximately one million active customers, defined as customers who have made a
purchase within the last 12 months. The Company spends a significant portion of
its advertising and promotional budget on directed mail to Insider Club members.
For example, during fiscal 1995, the Company sent to each Insider Club member
approximately 20 to 25 mailings. Such mailings typically include two full-color
catalogs featuring the Company's merchandise and containing special discount
incentives, announcements of the arrival of new designer merchandise and
occasional special sales. In addition all Insider Club members are invited to
The Back Room events and fashion promotions via direct mail throughout the year.
During these events, special distributions of designer and bridge merchandise
are allocated to the participating stores. Management believes that these events
generate higher than average traffic and maintain a sense of shopping
enthusiasm. In order to enhance the productivity of these and other advertising
expenditures, the Company has recently engaged the services of a direct mail
target marketing firm to assist the Company in analyzing its database to better
target its direct mail program.

STORE OPERATIONS

The Company operates its stores to enhance the customer's shopping
experience by creating a friendly shopping environment within a self-service
operation. The Company's stores are organized into seven separate geographic
districts each with a district manager. District managers monitor the financial
performance of the stores in their respective geographic districts and
frequently visit stores to ensure adherence to the Company's merchandising,
operations and personnel standards. The typical staff for a Loehmann's store
consists of a store manager, and a number of associate store and department
managers, sales specialists and additional full and part-time hourly associates
depending upon the store's needs.

The Company is committed to maintaining consistency throughout its stores.
To ensure consistency, district managers visit their stores frequently to
evaluate the stores against predetermined company standards. Senior management
meets with the district managers on a periodic basis to maintain a clear line of
communication. In addition, "mystery shoppers" shop the stores to help ensure
that sales associates are friendly and helpful and maintain all of the Company's
merchandising, customer service and loss prevention standards.

Store management personnel currently complete a training program at a
designated training store before assuming management responsibility. Sales
specialists receive product and customer service training at the store level.

All store and district managers participate in a bonus plan that ties
compensation awards to the achievement of specified store profits goals and
overall Company profits and also are eligible to participate in the Company's
stock option plan. All employees participate in a company profit sharing plan.

Loehmann's stores are generally open seven days per week, 12 hours per day
from Monday through Saturday and eight hours on Sunday unless prohibited by
local statute. The Company accepts cash, personal checks and major credit cards.

MANAGEMENT INFORMATION SYSTEMS

Each Loehmann's store is linked to the Company's headquarters through a
point-of-sale system that interfaces with an IBM RS6000 computer equipped with
integrated merchandising, distribution and accounting software packages. The
Company's point-of-sale computer system has features that include merchandise
scanning, the capture of customer sales information and on-line credit card

32
<PAGE>

approval. These features improve transaction accuracy, speed and checkout time
as well as increase overall store efficiency.

The Company's management information and control systems enable the
Company's corporate headquarters to promptly identify sales trends, identify
merchandise to be marked down and monitor merchandise mix and inventory levels
at individual stores. Management believes that these systems provide a number of
benefits, including improved store inventory management, better in-stock
availability and higher operating efficiency. The Company believes that the
current management information and control systems are capable of supporting the
Company's planned expansion for the foreseeable future.

33
<PAGE>

PROPERTIES

Store Locations

The Company currently operates 73 stores in 23 states including four
newly-opened stores in Merrick, New York, Houston, Texas, San Diego, California
and Paramus, New Jersey. The states and regions in which the Company operates
its stores are as follows:

[MAP OF UNITED STATES SHOWING STORE LOCATIONS]

NUMBER OF PERCENT OF FISCAL
STATES OR REGION STORES 1995 SALES(1)
- ----------------------------------------------------------- --------------- -----------------
<S> <C> <C>
California................................................. 14 22.2%
New York................................................... 9 19.6
Florida.................................................... 6 10.5
Other Mid-Atlantic......................................... 8 9.9
New Jersey................................................. 8 9.1
New England................................................ 6 6.9
Midwest.................................................... 7 6.8
Other Southeast............................................ 7 6.5
Texas...................................................... 5 4.6
Other West................................................. 3 3.9
--
-------
Total................................................. 73 100.0%
--
--
-------
-------
</TABLE>

- ---------------

(1) These percentages exclude sales from the Company's 11 stores closed in
August 1995 and the four stores opened in fiscal 1996.

34
<PAGE>

Leases

The leases for the Company's stores typically provide for a 15 to 20-year
term with three five-year renewals that are automatic unless the Company elects
to terminate the lease. The rental rate in every case is a fixed amount rather
than a contingent payment based on a store's gross sales. The leases typically
contain tax escalation clauses and require the Company to pay insurance,
utilities, repair and maintenance expenses. Increases in the fixed rent payable
during the renewal terms are generally less than 10% to 15% of the base rent
(although this percentage may increase for new stores). The leases for the
stores which are open have initial or renewal terms expiring as follows:
1996-1997 (11 stores); 1998-2000 (31 stores); 2001-2003 (14 stores); and 2004
and later (17 stores).

Three of the four leases that expire by year-end fiscal 1996 have renewal
options. The Company has generally been successful in renewing its store leases
as they expire.

The Company leases the land for a 153,000 square foot facility located in
an industrial park in the Bronx, New York, which serves as its corporate
headquarters and as the site of its central warehousing and distribution
operations. This facility contains 27,000 square feet of office space and
126,000 square feet of warehouse space. The ground lease with respect to the
land on which the facility is situated provides for aggregate annual base rental
payments of $37,500. The lease expires in 2010, but is renewable at certain
increased rates until 2050. The facility is subject to two mortgages which
relate to New York City Industrial Development Agency Revenue Bonds. See
"Description of Certain Indebtedness." In addition, the Company leases a 32,000
square foot warehouse in the Bronx, New York, which serves as additional
warehouse space. The lease expires on December 31, 1998 and provides for annual
rental payments of $198,000.

COMPETITION

All aspects of the off-price fashion apparel business are highly
competitive, and the Company expects competitive pressures to increase in the
future as more factory outlet centers open and department stores continue price
discounting. The Company believes that the principal elements of competition are
the price, quality, selection and presentation of merchandise, store location
and customer service. Management believes that the Company is well positioned to
compete on the basis of each of these factors. The competitive environment may
also be affected by factors beyond a particular retailer's control, such as
shifts in consumer preferences, change in population demographics and traffic
patterns, and fluctuating economic conditions.

The Company competes primarily with finer department stores. The Company
believes it competes successfully with such department stores by offering a wide
selection of comparable quality merchandise at significantly lower prices.
Recently, many department stores have become more promotional, although such
promotions are typically focused on moderate merchandise. Although the Company's
gross margins have not been materially affected to date by department stores'
pricing strategies, there can be no assurances that, if finer department stores
continue to price more aggressively, the Company's margins will not be adversely
affected. Most of the department stores and some of the off-price and discount
retailers with which the Company competes have access to substantially greater
financial and marketing resources than those available to the Company.

The Company also faces competition from factory outlet malls and a variety
of off-price and discount retailers, some of which are relatively new companies,
but many of which are established retail chains or divisions thereof. Such
competitors include Burlington Coat Factory, Filene's Basement, Marshall's, Saks
Off 5th, Syms, and T.J. Maxx. The Company believes it competes successfully with
other off-price and discount retailers by reason of the quality, selection and
price of the designer and other better quality merchandise available in the
Company's stores.

35
<PAGE>

In recent years, some designer and other better quality women's apparel has
been offered through mail order catalogs. While not significant at the present
time, the Company cannot predict the impact of this and other in-home shopping
competition.

EMPLOYEES

At September 20, 1996, the Company had 2,627 employees, of whom 1,797 were
store sales and clerical employees, 187 performed store managerial functions,
and 643 were corporate and warehouse personnel. Approximately half of the
Company's store and warehouse personnel were employed on a part-time basis at
that date. Except for managerial employees, professional support staff and the
Company's buyers, all employees are paid on an hourly basis. None of the
Company's employees are represented by a labor union. The Company believes that
its employee relations are good.

TRADEMARK AND SERVICE MARK

"Loehmann's" has been registered as a trademark and a service mark with the
United States Patent and Trademark Office. The registration of the trademark and
the service mark may be renewed to extend the original 20-year registration
period indefinitely, provided the marks are still in use. The Company intends to
continue to use its trademark and service mark and maintain their registrations.
The Company believes its trademark and service mark have received broad
recognition and their continued existence is important to the Company's
business.

LEGAL MATTERS

Management is not aware of any litigation or regulatory proceedings against
the Company which would materially impact its business or financial condition.

36
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following persons are the executive officers and directors of the
Company.

NAME AGE POSITION
- --------------------------------- ----------- ------------------------------------------------------------------------
<S> <C> <C>
Norman S. Matthews(1)(3)......... 63 Chairman of the Board and Director
Robert N. Friedman(1)............ 55 Chairman, Chief Executive Officer and Director
Philip Kaplan(1)................. 65 President, Chief Operating Officer, Secretary and Director
Bonnie Dexter.................... 45 Senior Vice President, Merchandising
Robert Glass..................... 50 Senior Vice President, Chief Financial Officer, Treasurer and Assistant
Secretary
Jan Heppe........................ 44 Senior Vice President and Director of Stores
Janet A. Hickey(1)(2)............ 51 Director
Richard E. Kroon(3).............. 54 Director
Christina A. Mohr(2)............. 40 Director
Arthur Reiner.................... 56 Director
Cynthia Cohen Turk(2)(3)......... 43 Director
</TABLE>

- ---------------

(1) Member of the Executive Committee.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

NORMAN S. MATTHEWS has been Chairman of the Board and a Director of
Loehmann's since September 1995. Mr. Matthews served as Chairman of the Board of
Holdings from December 1993 until May 1996 and as a Director of Holdings from
October 1988 until May 1996. Mr. Matthews currently serves as a consultant to
various retailers. He was President of Federated Department Stores from March
1987 until April 1988 and served in other executive capacities with Federated
Department Stores prior to that date. He is a Director of Progressive Corp., an
insurance holding company, Lechters, Inc., a housewares chain, Finlay Fine
Jewelry, a jewelry lessee in major department stores, Toys "R" Us, a childrens'
specialty retailer, and Eye Care Centers of America, Inc.

ROBERT N. FRIEDMAN has been Chairman, Chief Executive Officer and a
Director of Loehmann's since November 1995 and was President, Chief Executive
Officer and a Director of Loehmann's from September to November 1995. Mr.
Friedman was President and Chief Executive Officer of Holdings from April 1992
until May 1996. Prior to joining Loehmann's, Mr. Friedman was employed by R.H.
Macy Co., Inc. for 28 years in various capacities, including President and Vice
Chairman, Merchandising, at Macy's East from 1990-1992, Chairman and C.E.O. of
Macy's Bamberger Division and Chairman and C.E.O. of Macy's South/Bullocks. He
serves on the Board of Trustees of The Fashion Institute of Technology.

PHILIP KAPLAN has been President, Chief Operating Officer, Secretary and a
Director of Loehmann's since November 1995, was Chairman, Chief Operating
Officer and a Director of Loehmann's from September to November 1995 and was
Chairman, Chief Operating Officer, Secretary and Treasurer of Loehmann's from
September 1988 to September 1995. Mr. Kaplan was Vice Chairman, Treasurer and a
Director of Holdings from February 1987 until May 1996. Mr. Kaplan was president
of Verdi International, a manufacturer of luggage, from 1983 to 1987, Senior
Vice President of Abraham and Strauss, a division of Federated Department
Stores, Inc., from 1979 until 1983 and Executive Vice President--Chief Financial
Officer of E.J. Korvette's from 1971 until 1979.

BONNIE DEXTER has been Senior Vice President, Merchandising of Loehmann's
since May 1994. Ms. Dexter joined the Company as Vice President, Merchandising
in May 1993. Prior to that time, she was a Vice President of Retail and
Wholesale for Belle France and held a number of merchandising and store
management positions at various retail chains, including as a buyer of the May
Company of Los

37
<PAGE>

Angeles, as a buyer and as a merchandise manager of Filene's and as Senior Vice
President, Stores of Accessory Place.

ROBERT GLASS has been Senior Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary of Loehmann's since September 1994. From 1992
to 1994, Mr. Glass served as a retail consultant. Prior to that time, he held a
number of senior retail management positions, including Chief Financial Officer
and later President of Gold Circle Stores, a division of Federated Department
Stores, Inc., and Executive Vice President of Thrifty Drug from 1990 to 1992.

JAN HEPPE has been Senior Vice President and Director of Stores of
Loehmann's since September 1995. Prior to that time, she held a number of senior
retail management positions including Senior Vice President/General Manager of
the John Wanamaker Department Store in Philadelphia, Pennsylvania from 1992
through 1995, Divisional Vice President/General Manager of the John Wanamaker
Department Store in Moorestown, New Jersey from 1991 to 1992 and a senior
management retail position at Henri Bendel in 1991. Prior to 1991, Ms. Heppe was
General Manager of On Course, a catalog and wholesale operation and also held
various executive positions at Gimbels, New York.

JANET A. HICKEY has been a Director of Loehmann's since September 1995 and
was a Director of Holdings from 1988 until May 1996. Ms. Hickey has been Senior
Vice President and General Partner of the Sprout Group, a shareholder of the
Company, and the venture capital affiliate of Donaldson Lufkin & Jenrette, Inc.
("DLJ, Inc.") and a Divisional Senior Vice President of DLJ Capital Corporation,
a subsidiary of DLJ, since June 1985. Ms. Hickey is a director of Corporate
Express, Inc. and other private companies.

RICHARD E. KROON has been a Director of Loehmann's since September 1995 and
was a Director of Holdings from 1988 until May 1996. Mr. Kroon has been Managing
Partner of the Sprout Group, the venture capital affiliate of DLJ, since 1981.
Mr. Kroon is President, Director and Chief Executive Officer of DLJ Capital
Corporation, a subsidiary of DLJ, Inc. He is a Director of several private
companies.

CHRISTINA A. MOHR has been a Director of Loehmann's since September 1995
and was a director of Holdings from January 1994 until May 1996. Ms. Mohr has
been Managing Director, Banking Group of Lazard Freres & Co. LLC, an investment
banking firm, since 1990. She was a Vice President, Banking Group, from 1984 to
1990. She is a Director of United Retail Group, Inc., a retail chain.

ARTHUR REINER has been a Director of Loehmann's since August 1996. Mr.
Reiner has been President and Chief Executive Officer of Finlay Enterprises, the
parent of Finlay Fine Jewelry, since January 1996 and Chairman and Chief
Executive Officer of Finlay Fine Jewelry since January 1995. Prior to that, he
was employed by R.H. Macy Co., Inc. serving as Chairman and Chief Executive
Officer of Macy's East from January 1992 to October 1994 and Chairman and Chief
Executive Officer of Macy's Northeast from April 1988 to January 1992.

CYNTHIA COHEN TURK has been a Director of Loehmann's since September 1995
and was a Director of Holdings from January 1994 until May 1996. Ms. Turk has
been President of MARKETPLACE 2000, a retail marketing and strategy consulting
firm, which she founded in 1990. Prior to that, Ms. Turk was a partner of Touche
Ross (a predecessor of Deloitte & Touche LLP). Ms. Turk is a Director of One
Price Clothing, Inc., an apparel retail chain, Specs Music Stores, Inc., a music
and video retailer, Office Depot, an office products retailer, the Mark Group
and Capital Factors, Inc.

Directors of the Company are elected by holders of Common Stock for a
three-year term, but are divided into three classes with staggered terms that
currently have expiration dates as follows: (a) Class A Directors--1999, (b)
Class B Directors--1997, and (c) Class C Directors--1998. As of the date hereof,
Mr. Matthews, Mr. Kaplan and Mr. Friedman serve as Class A Directors, Mr. Kroon
and Ms. Mohr serve as Class B directors and Ms. Hickey, Ms. Turk and Mr. Reiner
serve as Class C

38
<PAGE>

Directors. The executive officers of the Company are appointed by the Board of
Directors and serve at the pleasure of the Board.

EXECUTIVE COMPENSATION

The following table sets forth the compensation awarded to, earned by or
paid to the named executive officers for services rendered to Holdings and its
subsidiary during the fiscal years ended February 3, 1996, January 28, 1995 and
January 29, 1994.

SUMMARY COMPENSATION TABLE

LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
OTHER SECURITIES
NAME AND FISCAL ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)(1)
- -------------------------------------- --------- --------- --------- --------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Friedman.................... 1995 475,000 135,000 (2) 187,639 (3)
Chairman and Chief 1994 450,000 301,000 (2) -- 3,129
Executive Officer 1993 450,000 150,000 (2) -- --
Philip Kaplan......................... 1995 356,250 105,000 (2) 14,657 (3)
President and Chief Operating 1994 350,000 234,000 (2) 10,261 3,129
Officer 1993 343,750 -- 57,208 -- --
Robert Glass (4)...................... 1995 211,250 17,500 (2) -- 574 (3)
Senior Vice President and Chief 1994 74,546 12,947 -- 11,172 4,552
Financial Officer 1993 -- -- -- -- --
Henry Mittleman (5)................... 1995 200,929 -- (2) -- --
Former Senior Vice President, Store 1994 178,196 18,937 (2) -- 3,129
Operations 1993 184,139 1,087 (2) 2,234 --
Bonnie Dexter (6)..................... 1995 165,000 20,000 (2) -- (3)
Senior Vice President, Merchandising 1994 139,054 26,985 -- 3,910 1,442
1993 -- -- -- -- --
</TABLE>

- ---------------

(1) Consists of Company contributions under the Loehmann's, Inc. Deferred Profit
Sharing Plan of $3,129 for each of Messrs. Friedman, Kaplan and Mittleman
and $1,442 for Ms. Dexter in fiscal 1994, and reimbursement of $4,552 and
$574 in moving expenses for Mr. Glass during fiscal 1994 and fiscal 1995,
respectively.

(2) For each named executive officer, the aggregate amount of other annual
compensation is less than the lesser of 10% of such officer's total salary
and bonus for such year or $50,000.

(3) Amounts to be contributed under the Loehmann's, Inc. Deferred Profit Sharing
Plan have not yet been determined.

(4) Mr. Glass became an executive officer of Loehmann's in September 1994.

(5) Mr. Mittleman resigned as Senior Vice President for Store Operations
effective September 14, 1995.

(6) Although Ms. Dexter was employed by the Company during a portion of fiscal
1993, she did not serve as an executive officer of the Company. Accordingly,
in accordance with the rules of the Securities and Exchange Commission,
information for Ms. Dexter for fiscal 1993 has been omitted.

The following table provides certain summary information concerning
individual grants of stock options made to each of the executives named in the
Summary Compensation Table above during the fiscal year ended February 3, 1996.

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
--------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES ANNUAL RATES OF
UNDERLYING % OF TOTAL STOCK PRICE
----------- OPTIONS GRANTED EXERCISE OR APPRECIATION
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
- -------------------------------- ----------- ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Friedman.............. 187,639 71.1% 5.01 (1) $ 383,407 $ 897,535
Philip Kaplan................... 14,657 5.6% 5.01 (1) 29,950 70,113
Robert Glass.................... -- -- -- -- -- --
Henry Mittleman................. -- -- -- -- -- --
Bonnie Dexter................... -- -- -- -- -- --
</TABLE>

- ---------------

(1) One-third of these options vest in each of the next three fiscal years and
expire five years from the date of vesting, with certain exceptions.

39
<PAGE>
The following table sets forth information concerning the value of
unexercised options as of February 3, 1996 held by the executives named in the
Summary Compensation Table above.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF SECURITIES
SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON EXERCISE REALIZED AT FISCAL YEAR END(#) AT FISCAL YEAR END ($)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---------------------------------- ------------- ----------- ------------------------- ---------------------------
<S> <C> <C> <C> <C>
Robert N. Friedman................ -- -- 140,303/187,639 980,786/571,029
Philip Kaplan..................... -- -- 208,850/14,657 1,460,906/44,604
Robert Glass...................... -- -- 2,234/8,938 15,616/62,477
Henry Mittleman................... 5,669 38,927 --/ -- --/ --
Bonnie Dexter..................... -- -- 1,788/3,799 12,498/26,555
</TABLE>

- ---------------

(1) Based on an estimated stock price at February 3, 1996 of $8.06.

EMPLOYMENT AND SEVERANCE AGREEMENTS

The Company is a party to an employment agreement with each of Messrs.
Friedman, Kaplan and Glass (the "Employment Agreements").

MR. FRIEDMAN

Mr. Friedman's employment agreement, as amended (the "Friedman Agreement"),
provides that he will serve as Chairman and Chief Executive Officer of Holdings
and the Company from November 1, 1995 through January 31, 1999, for an annual
base salary of not less than $550,000 for fiscal 1996, $575,000 for fiscal 1997
and $600,000 for fiscal 1998. Mr. Friedman also is eligible to receive an annual
bonus equal to 100% of his base salary in effect for each of fiscal 1996 and
fiscal 1997 and 60% of his base salary in effect for fiscal 1998 if, for each
such fiscal year, the Company attains its targeted EBITDA (as defined in the
Friedman Agreement). The Friedman Agreement also provides for certain insurance
and other benefits to be maintained and paid by the Company.

The Friedman Agreement provides for a grant to Mr. Friedman on November 1,
1995, of options to purchase up to 187,639 shares of Common Stock at an exercise
price of $5.01 per share. Of such options, 134,068 vest automatically in equal
installments at the end of each of the current and next two succeeding fiscal
years commencing after fiscal 1996 and the remaining 53,571 options vest
automatically in equal installments at the end of each of the current and next
succeeding fiscal year commencing after fiscal 1996. In addition, on February
23, 1996, the Company granted Mr. Friedman options to purchase up to 35,707
shares of Common Stock at an exercise price of $8.06. One-half of such options
vest automatically at the end of each of the current and the next fiscal year.
As of September 20, 1996, 186,222 of Mr. Friedman's options had vested and, of
these vested options, 45,919 had been exercised.

The Friedman Agreement provides that if Mr. Friedman's employment is
terminated by the Company without Cause or by Mr. Friedman with Good Reason (as
such terms are defined in the Friedman Agreement), the Company will be required
to pay his base salary then in effect for the greater of 12 months following his
termination or the remainder of his term of employment. Mr. Friedman also will
be entitled to receive any bonus earned with respect to any previously completed
fiscal year which remains unpaid as of the date of termination. If Mr.
Friedman's employment is terminated, either by the Company or by Mr. Friedman
for Good Reason, coincident with or within one year after a Change of Control
(as defined in the Friedman Agreement), the Company will be required to pay Mr.
Friedman a lump sum, in cash, equal to two times his base salary then in effect
and all unvested options will vest in

40
<PAGE>

full. If Mr. Friedman's employment is terminated by the Company without Cause,
by Mr. Friedman for Good Reason or as a result of a Change of Control, the
Company also, with certain exceptions, will be required to continue to maintain
life insurance for Mr. Friedman for the remainder of his life or until he
attains the age of 70 with a death benefit equal to his base salary at the date
of termination and medical insurance for Mr. Friedman and his spouse until their
respective deaths.

The Friedman Agreement provides that the Company has certain rights to
purchase shares of the Common Stock and/or vested options held by Mr. Friedman
upon termination of his employment. Finally, the Friedman Agreement provides
that Mr. Friedman will not, with certain exceptions, "engage or be engaged in a
competing business" (as defined in the Friedman Agreement) for a period of two
years following termination of his employment (unless he is terminated without
Cause or he resigns with Good Reason).

MR. KAPLAN

Mr. Kaplan's employment agreement, as amended (the "Kaplan Agreement"),
provides that he will serve as President and Chief Operating Officer of Holdings
and the Company from November 1, 1995 through January 31, 1998, for an annual
base salary of $375,000. Mr. Kaplan also is eligible to receive an annual bonus
equal to 64% of his base salary in effect for each fiscal year during the term
of the Kaplan Agreement if, for such fiscal year, the Company attains its
targeted EBITDA (as defined in the Kaplan Agreement). The Kaplan Agreement also
provides for certain insurance and other benefits to be maintained and paid by
the Company.

The Kaplan Agreement provides for a grant on November 1, 1995 of options to
purchase 14,657 shares of Common Stock at an exercise price of $5.01 per share.
Such options vest automatically during the term of Mr. Kaplan's employment. In
addition, on February 23, 1996, the Company granted Mr. Kaplan options to
purchase up to 6,840 shares of Common Stock at an exercise price of $8.06. One-
half of such options vest automatically at the end of each of the current and
the next fiscal year. As of September 20, 1996, 264,711 of Mr. Kaplan's options
had vested and, of these vested options, 55,861 had been exercised.

The Kaplan Agreement provides that if Mr. Kaplan's employment is terminated
by the Company without Cause or by Mr. Kaplan for Good Reason (as such terms are
defined in the Kaplan Agreement), the Company will be required to pay his base
salary, annual bonus and life and medical insurance through the remainder of his
term of employment, and certain of Mr. Kaplan's unvested options will vest. In
addition, if such termination is subsequent to a Change of Control of the
Company (as defined in the Kaplan Agreement), the Company will be required to
pay Mr. Kaplan's base salary and bonus in one lump sum promptly following such
termination and all of Mr. Kaplan's unvested options will vest.

The Kaplan Agreement provides that the Company has certain rights to
purchase shares of the Common Stock held by Mr. Kaplan upon termination of his
employment, and that Mr. Kaplan has certain rights to require the Company to
purchase shares and/or vested options held by him upon termination. Upon the
expiration of the term of Mr. Kaplan's Employment Agreement, Mr. Kaplan has
agreed to act as a consultant to the Company and to serve on the Boards of
Directors of the Company and Holdings (unless such Boards request his
resignation therefrom) in exchange for which the Company will pay him 20% of his
base salary and will provide him with an automobile. Finally, the Kaplan
Agreement provides that Mr. Kaplan will not, with certain exceptions, "engage or
be engaged in a competing business" (as defined in the Kaplan Agreement) for a
period of two years following termination of his employment (unless he is
terminated without Cause or he resigns with Good Reason).

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<PAGE>

COMPENSATION OF MEMBERS OF THE BOARD OF DIRECTORS

Except as described below, the members of the Company's Board of Directors
are not paid an annual retainer or meeting fee.

In connection with Ms. Mohr's and Ms. Turk's service as directors of the
Company, Entrecanales Inc., ("Entrecanales"), an affiliate of Sefinco Ltd.
("Sefinco"), entered into agreements with each of Ms. Mohr and Ms. Turk
providing for (a) compensation for Ms. Mohr and Ms. Turk of $25,000 and $40,000
per annum, respectively, payable by Entrecanales, and (b) the grant by
Entrecanales to each of Ms. Mohr and Ms. Turk of 44,680 stock appreciation
rights ("SARs"), on terms described below. The SARs were not granted by and are
not obligations of the Company.

All SARs have vested in accordance with their terms. Upon redemption of any
vested SAR, the holder is entitled to receive the amount by which the market
value per share of Common Stock exceeds $5.59 per SAR. Ms. Turk has exercised
all of her SARs. All vested and unredeemed SARs lapse on June 1, 1998.

In connection with Mr. Reiner's election as a member of the Company's Board
of Directors, the Company has agreed to pay him an annual retainer of $15,000
and meeting fees of $1,000 per board meeting ($500 for telephonic meetings).

COMPENSATION OF CHAIRMAN OF THE BOARD

The Company has an open-ended consulting agreement with Mr. Matthews,
pursuant to which he is currently paid $75,000 per annum. In addition, in
connection with Mr. Matthews' agreement to serve as Chairman of the Board, Mr.
Matthews was granted options pursuant to the 1988 Stock Plan to purchase up to
91,232 shares of the Common Stock, 24,197 exercisable at $1.07 per share, 22,345
exercisable at $4.48 per share, 22,345 exercisable at $2.24 per share and 22,345
exercisable at $8.95 per share. All such options have vested. Mr. Matthews has
exercised options on 24,197 shares at $1.07 per share and 22,345 shares at $2.24
per share.

In addition, on July 1, 1995 Mr. Matthews was granted options pursuant to
the 1988 Stock Plan to purchase 44,689 shares of the Common Stock at $5.01 per
share. Half of the options vested on July 1, 1996 and the other half will vest
on July 1, 1997. Unvested options vest upon certain changes in control of the
Company. Within 180 days upon termination, depending on the cause of
termination, the Company has the right to purchase Mr. Matthews' shares and
unexercised vested options. The Company also has a right of first refusal upon
notice of proposed sale of shares by Mr. Matthews.

STOCK INCENTIVE PLANS

1988 Stock Plan. On September 30, 1988, the Board of Directors of Holdings
adopted the Loehmann's Holdings, Inc. 1988 Stock Option Plan (the "1988 Stock
Plan"). The purpose of the 1988 Stock Plan is to promote the success of Holdings
by providing a method whereby key employees and directors of Holdings and its
subsidiaries may be encouraged to invest in Holdings Common Stock and thereby
increase their proprietary interest in its business, encourage them to remain in
the employ of, or as directors of, Holdings and increase their personal interest
in the continued success and progress of Holdings. The 1988 Stock Plan provides
that a committee appointed by the Board of Holdings, consisting of at least two
directors, is authorized to grant options to purchase shares of Holdings Common
Stock thereunder. In connection with the Holdings Merger each such outstanding
option became an option to purchase approximately 0.22 shares of the Company's
Common Stock on the same terms and conditions.

A maximum of 1,077,010 shares of Common Stock (subject to adjustment as
described below) may be delivered by the Company pursuant to options granted
under the 1988 Stock Plan, 1,048,537 of

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<PAGE>

which have been granted and of which 429,415 are currently exercisable. The
number and kind of options granted is subject to adjustment, in the sole
discretion of the committee, upon the occurrence of certain corporate events
(such as a stock dividend, reorganization or offer to sell shares at below fair
market value) in order to preserve the benefits intended to be made available to
grantees under the 1988 Stock Plan. Certain of the options vest in installments
over a period of time from the date of the grant and certain of the options vest
depending on the attainment by the Company of certain performance criteria. As
amended, nonemployee directors are no longer eligible to receive awards under
the 1988 Stock Plan.

The Company's Board of Directors may amend, suspend or discontinue the 1988
Stock Plan at any time except that, without the prior approval of the
stockholders of the Company, no such amendment may (i) abolish the committee,
change the qualifications of committee members or withdraw the 1988 Stock Plan
administration from its supervision, (ii) materially change the requirements as
to eligibility for participation in the 1988 Stock Plan, (iii) increase the
maximum number of shares as to which options may be granted under the 1988 Stock
Plan, except for adjustments to reflect stock dividends or other
recapitalizations affecting the number or kind of outstanding shares, (iv)
extend the maximum option period or the period during which options may be
granted under the 1988 Stock Plan or (v) decrease the minimum option price.

Since the end of fiscal 1995, under the terms of the 1988 Stock Plan, the
committee made grants under the 1988 Stock Plan of stock options to purchase
shares of Common Stock at an exercise price equal to $22.69 as follows: certain
employees who are not Executive Officers were granted options to purchase an
aggregate of 30,000 shares of Common Stock. The options will not vest until the
fifth anniversary of the date of the grant.

New Stock Plan. Prior to the consummation of the Initial Public Offering,
the Company adopted the Loehmann's, Inc. New Stock Incentive Plan (the "New
Stock Plan" and together with the 1988 Stock Plan, the "Stock Plans"). A maximum
of 446,892 shares of Common Stock (subject to adjustment as described below) may
be delivered by the Company pursuant to options, stock appreciation rights
("SARs"), restricted stock, unrestricted stock and performance awards
(collectively, "awards") granted under the New Stock Plan, subject to specified
aggregate limits on certain types of awards and annual individual limits on
certain types of awards. Only officers, directors and executive, managerial and
professional employees of the Company and its affiliates are eligible for awards
under the New Stock Plan.

The New Stock Plan is administered by a committee appointed by the
Company's Board of Directors consisting of at least two directors. During the
ten-year term of the plan, the committee will have authority, subject to the
terms of the New Stock Plan, to determine when and to whom to make grants under
the plan, the number of shares to be covered by the grants, the types and terms
of options, "incentive stock options" within the meaning of Section 422 of the
Code, "nonqualified stock options" SARs, restricted stock, unrestricted stock
and performance awards granted and the exercise price of options and SARs and to
prescribe, amend and rescind rules and regulations relating to the New Stock
Plan. The committee may, in its discretion, with the grantee's consent, cancel
any award under the plan and issue a new award in substitution therefor or
accelerate the exercisability of any award granted under the plan or extend the
scheduled expiration date of an award. The New Stock Plan limits the number of
shares with respect to which options and SARs may be granted to any individual
to 223,446 in any year. Shares subject to issuance under the New Stock Plan may
be authorized and unissued or treasury shares of Common Stock.

The Company's Board of Directors may amend, suspend or discontinue the New
Stock Plan at any time except that, without stockholder approval no such
amendment may (i) materially increase the benefits accruing to New Stock Plan
grantees, (ii) materially increase the maximum number of shares as to which
awards or specific types of awards may be granted under the New Stock Plan,
except for

43
<PAGE>

adjustments to reflect stock dividends or other recapitalizations affecting the
number or kind of outstanding shares, (iii) materially change the requirements
as to eligibility for participation in the New Stock Plan, (iv) permit a stock
option to have an option exercise price, or a SAR to have an appreciation base,
of less than 100% of the fair market value of a share of Common Stock on the
date the stock option or SAR is granted, (v) permit an option or unrelated SAR
to be exercisable, a restricted stock award to vest, or shares of Common Stock
to become deliverable pursuant to a performance award, more than ten years after
the date of grant or (vi) extend the term of the New Stock Plan beyond the
initial ten-year period.

Since the end of fiscal 1995, under the terms of the New Stock Plan, the
committee made grants under the New Stock Plan of stock options to purchase
shares of Common Stock at exercise prices equal to between $8.06 and $23.13 as
follows: Mr. Friedman was granted options to purchase 63,614 shares of Common
Stock, exercisable at $8.06 per share; Mr. Kaplan was granted options to
purchase 10,513 shares of Common Stock, exercisable at $8.06 per share; Mr.
Glass was granted options to purchase 11,172 shares of Common Stock, exercisable
at $8.06 per share and options to purchase 20,000 shares of Common Stock,
exercisable at $22.69 per share; Ms. Dexter was granted options to purchase
11,172 shares of Common Stock, exercisable at $8.06 and options to purchase
20,000 shares of Common Stock, exercisable at $22.69 per share; all Executive
Officers as a group were granted options to purchase 167,643 shares of Common
Stock, exercisable at prices equal to between $8.06 and $22.69 per share; and
all employees who are not Executive Officers as a group were granted options to
purchase 126,355 shares of Common Stock, exercisable at prices equal to between
$8.06 and $23.13 per share. All but 120,000 options to exercise shares will vest
equally over a two, three or five year period beginning on the first anniversary
of the date of grant and will become 100% vested on the second, third or fifth
anniversary of the date of grant. The remainder of the options vest on the fifth
anniversary of the date of grant. Additional awards may be made under the plan
upon such terms and conditioning as determined by the committee in its
discretion as described above.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 1995, Messrs. Kroon and Matthews and Ms. Turk served as
members of the Compensation Committee of the Board of Directors.

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<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information as of October 15, 1996
with respect to beneficial ownership of shares of the Common Stock by (i) all
stockholders known by the Company to be beneficial owners of more than 5% of
such class, (ii) each director, (iii) each executive officer named in the
Summary Compensation Table, (iv) each Selling Stockholder and (v) all directors
and executive officers as a group.

BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING SHARES AFTER THE OFFERING(1)
------------------------- BEING --------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED(1) NUMBER PERCENTAGE
- ----------------------------------------------- ---------- ------------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Sefinco Ltd.(2)................................ 1,279,023 15.3% 511,609 767,414 9.1%
c/o Entrecanales Inc.
767 Fifth Avenue, 5th Floor
New York, New York 10153
Sprout Capital V(3)............................ 396,914 4.8% 166,622 230,292 2.8%
Sprout Growth, L.P.(3)......................... 479,923 5.8 201,469 278,454 3.3%
Sprout Growth, Ltd.(3)......................... 53,430 * 22,431 30,999 *
DLJ Venture Capital Fund II, L.P.(3)........... 23,853 * 10,014 13,839 *
Donaldson, Lufkin & Jenrette
Securities Corporation(3).................... 249,405 3.0% 104,699 144,706 1.7%
Equity-Linked Investors, L.P.(4)............... 323,797 3.9% 273,954 49,843 *
Equity-Linked Investors-II(4).................. 323,797 3.9% 53,328 270,469 3.2%
Putnam Investors(5)............................ 373,586 4.5% 373,586 -- --
Trust U/D Paul J. Pinto........................ 21,653 * 10,827 10,826 *
Trust U/D John J. Pinto........................ 21,653 * 10,827 10,826 *
Allan Bogner................................... 199,177 2.4% 80,000 119,177 1.4%
Philip Kaplan(6)............................... 315,963 3.7% 78,991 236,972 2.7%
Robert Friedman(7)............................. 437,474 5.0% 109,371 328,103 3.8%
Norman S. Matthews(8).......................... 185,088 2.2% 46,272 138,816 1.6%
Janet A. Hickey(3)............................. -- -- -- -- --
Richard E. Kroon(3)............................ -- -- -- -- --
Christina A. Mohr.............................. -- -- -- -- --
Arthur Reiner.................................. -- -- -- -- --
Cynthia Cohen Turk............................. -- -- -- -- --
Bonnie Dexter(9)............................... 2,788 * -- 2,788 *
Robert Glass(10)............................... 12,234 * -- 12,234 *
Henry Mittleman................................ -- -- -- -- --
All directors and executive officers as a group
(11 persons)(11)............................... 953,547 10.5% 234,634 718,913 7.9%
</TABLE>

- ---------------
* Less than 1%

(1) Without giving effect to the Underwriters' over-allotment option. The
Selling Stockholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to an aggregate of 308,100 shares of Common Stock, solely to
cover over-allotments, if any, as follows: Sefinco Ltd., 93,387 shares;
Sprout Capital V, 29,513 shares; Sprout Growth, L.P., 35,685 shares; Sprout
Growth, Ltd., 3,974 shares; DLJ Venture Capital Fund II, L.P., 1,774
shares; Donaldson, Lufkin & Jenrette Securities Corporation, 18,545 shares;
Equity-Linked Investors-II, 59,741 shares; Trust U/D Paul J. Pinto, 1,976
shares; Trust U/D John J. Pinto, 1,976 shares; Allan Bogner, 14,603 shares;
Philip Kaplan, 15,798 shares; Robert Friedman, 21,874 shares; and Norman
Matthews, 9,254 shares.

(2) Includes 33,517 shares of Class B Common Stock which are convertible into
Common Stock after November 6, 1996.

(3) Sprout Capital V, Sprout Growth, L.P., Sprout Growth, Ltd., DLJ Venture
Capital Fund II, L.P. and Donaldson Lufkin & Jenrette Securities
Corporation ("DLJ" and, collectively with the other entities named above,
the "Sprout Group") are all affiliates. Ms. Hickey, who is a Director, and
Mr. Kroon, who is a Director, are general partners of, or executive
officers in (1) certain of the affiliates of DLJ that own shares of Common
Stock or (2) entities that control such affiliates. The business address of
all such entities is 277 Park Avenue, New York, New York 10172. Ms. Hickey
and Mr. Kroon disclaim beneficial ownership of such shares.

(4) Includes 49,843 shares of Class B Common Stock which are convertible into
Common Stock after November 6, 1996. Equity-Linked Investors, L.P. and
Equity-Linked Investors-II are New York limited partnerships whose business
address is c/o Desai Capital Management Incorporated, 540 Madison Avenue,
New York, New York 10022. Pursuant to an investment and advisory agreement,
Desai Capital Management Incorporated ("DCMI") may vote or dispose of the
shares owned by Equity-Linked Investors, L.P. and Equity-Linked
Investors-II. Rohit M. Desai is the managing general partner of the general
partner of each of Equity-Linked, L.P. and Equity-Linked Investors-II. Mr.
Desai is also the sole

45
<PAGE>

stockholder, Chairman of the Board and President of DCMI. DCMI and Mr.
Desai each disclaims beneficial ownership of the shares owned by
Equity-Linked Investors, L.P. and Equity-Linked Investors-II.

(5) Putnam Investors includes Putnam Diversified Income Trust, Putnam Master
Intermediate Income Trust, Putnam Managed High Yield Trust, Putnam Master
Income Trust, Putnam Capital Manager Trust--PCM High Yield Fund, Putnam
High Income Convertible and Bond Fund, Putnam High Yield Managed Trust,
Putnam Premier Income Trust and the Ameritech Corp. Pension Trust
(collectively, "Putnam Investors").

(6) Includes options to purchase 208,850 shares of Common Stock granted
pursuant to the Stock Plans which are immediately exercisable and options
to purchase 25,170 shares of Common Stock granted pursuant to the Stock
Plans which are not immediately exercisable.

(7) Includes options to purchase 140,303 shares of Common Stock granted
pursuant to the Stock Plans which are immediately exercisable and options
to purchase 251,253 shares of Common Stock granted pursuant to the Stock
Plans which are not immediately exercisable.

(8) Includes 22,345 shares of Class B Common Stock which are convertible into
Common Stock after November 6, 1996, options to purchase 67,034 shares of
Common Stock granted pursuant to the Stock Plans which are immediately
exercisable and options to purchase 22,344 shares of Common Stock granted
pursuant to the Stock Plans which are not immediately exercisable.

(9) Consists of options to purchase 1,788 shares of Common Stock granted
pursuant to the Stock Plans which are immediately exercisable.

(10) Consists of options to purchase 2,234 shares of Common Stock granted
pursuant to the Stock Plans which are immediately exercisable.

(11) Includes 22,345 shares of Class B Common Stock which are convertible into
Common Stock after November 6, 1996, options to purchase 420,209 shares of
Common Stock granted pursuant to the Stock Plans which are immediately
exercisable and options to purchase 298,767 shares of Common Stock granted
pursuant to the Stock Plans which are not immediately exercisable.

SHAREHOLDERS' AGREEMENTS

Sefinco Ltd. and the Sprout Group are parties to a shareholders' agreement
dated September 19, 1988, as amended and supplemented (the "Shareholders'
Agreement"), which provides that Sefinco and the Sprout Group each is entitled
to nominate two directors to the Board of Directors until the earlier of (i) the
date on which 60% of the shares of Common Stock then outstanding have been sold
pursuant to one or more public offerings (including the Offering contemplated
hereby) and (ii) the Company's 1998 annual meeting of stockholders. Upon
consummation of the Offering, the Shareholders Agreement will terminate.

Certain of the Company's stockholders have been granted registration
rights, which rights will have terminated upon completion of the Offering.

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<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

AFFILIATE TRANSACTIONS

DLJ and certain of its affiliates are principal stockholders of the Company
and DLJ acted as an underwriter of the Senior Notes in the Debt Offering. In
addition, (i) members of the Sprout Group are selling certain of its shares of
Common Stock in this Offering, (ii) members of the Sprout Group sold 104,653
shares of Common Stock in the Initial Public Offering for $1,654,564 in the
aggregate, (iii) approximately $20.9 million of the proceeds from the Initial
Public Offering and the Debt Offering were used to redeem all of the outstanding
Series A Preferred Stock, certain of which shares are owned by DLJ and other
significant holders of the Company's Common Stock and (iv) DLJ has been paid
$50,000 for financial advisory services rendered to the Company each year during
the last three fiscal years and this fiscal year. See "Principal and Selling
Stockholders."

Entrecanales Inc., a principal stockholder, has been paid $50,000 for
financial advisory services rendered to the Company each year during the last
three fiscal years and this fiscal year. See "Principal and Selling
Stockholders."

Certain of the principal and selling stockholders of the Company (including
Putnam Investors) have owned and currently own debt securities of the Company.

Pursuant to agreements with certain stockholders of the Company, the
Company paid all of the fees and expenses for the Registration Statement on Form
S-1 for the Initial Public Offering, which fees and expenses totaled
approximately $748,000. Certain of the stockholders of the Company (including
Sefinco Ltd., the Sprout Group, Equity-Linked Investors, L.P., Equity-Linked
Investors-II and Putnam Investors) sold 535,800 shares of Common Stock for
$8,470,998 in the aggregate in the Initial Public Offering.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company is authorized to issue up to 66,969,237 shares of stock, which
shares consist of 25,000,000 shares of Common Stock, 469,237 shares of Class B
Common Stock, and 41,500,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). As of the date hereof, 8,321,357 shares of Common Stock
are outstanding, 469,237 shares of Class B Common Stock are outstanding and no
shares of Preferred Stock are outstanding.

COMMON STOCK

General. The shares of Common Stock are entitled to share ratably with the
shares of Class B Common Stock in such dividends (other than dividends on Common
Stock payable in shares of the capital stock of the Company) as may be declared
by the Board of Directors and paid by the Company out of funds legally available
therefor. The payment of cash dividends by the Company is restricted by the
terms of the Credit Facility and by the Senior Note Indenture, and the Company
does not anticipate paying cash dividends in the foreseeable future. See
"Dividend Policy" and "Description of Certain Indebtedness."

In the event of any liquidation, dissolution or winding up of the Company,
holders of the Common Stock and Class B Common Stock are entitled to share
ratably in the balance, if any, remaining after payment of all debts and other
liabilities of the Company. Holders of the Common Stock have no redemption,
preemptive or subscription rights.

Holders of Common Stock are entitled to one vote per share for the election
of directors and for all other matters to be submitted to a vote of the
Company's stockholders. Except as provided below, the exclusive voting power for
all purposes is vested in the holders of the Common Stock. Holders of shares of
Common Stock have no cumulative voting rights. Shares of Common Stock are not
convertible into shares of any other class.

CLASS B COMMON STOCK

General. The shares of Class B Common Stock are entitled to share ratably
with the shares of Common Stock in such dividends (other than dividends on
Common Stock payable in shares of the capital stock of the Company) as may be
declared by the Board of Directors and paid by the Company out of funds legally
available therefor. Although the holders of Class B Common Stock will not share
in any dividends on the Common Stock payable in shares of capital stock of the
Company, the number of shares of Common Stock issuable upon the conversion of a
share of Class B Common Stock will be subject to adjustment in such event. See
"Adjustments." The payment of cash dividends by the Company is restricted by the
terms of the Credit Facility and restricted by the Senior Note Indenture, and
the Company does not anticipate paying cash dividends in the foreseeable future.
See "Dividend Policy" and "Description of Certain Indebtedness."

In the event of any liquidation, dissolution or winding up of the Company,
holders of the Common Stock and Class B Common Stock are entitled to share
ratably in the balance, if any, remaining after payment of all debts and other
liabilities of the Company. Except as described below, holders of the Class B
Common Stock have no redemption, preemptive or subscription rights.

Except as required by Delaware's General Corporation Law (the "Delaware
GCL"), holders of Class B Common Stock have no right to vote for the election of
directors or for any other matters that may be submitted to a vote of the
Company's stockholders, except for an increase in the number of authorized
shares of the Class B Common Stock, which must be approved by two-thirds of each
of the shares of Common Stock and the shares of Class B Common Stock. Holders of
shares of Class B Common Stock have no cumulative voting rights.

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<PAGE>

Shares of Class B Common Stock are convertible, at any time after November
6, 1996, at the option of the holder, on a one-for-one basis (subject to
adjustment), into shares of Common Stock. Shares of Class B Common Stock may be
converted by surrendering to the Transfer Agent for the Class B Common Stock a
stock certificate signed by the registered holder indicating such holder's
election to convert all or a portion of the shares of the Class B Common Stock
evidenced by such certificate. As used herein, the term "Underlying Common
Stock" means the shares of Common Stock issued or issuable upon conversion of
the Class B Common Stock.

Mergers and Other Business Combinations. In the event of a Non-Surviving
Combination (as defined below), each share of Class B Common Stock will be
exchanged for the same consideration as it would have received if it had been
converted into Common Stock immediately prior to such event. As used herein, a
"Non-Surviving Combination" means any merger, consolidation or other business
combination by the Company with one or more persons (other than a wholly owned
subsidiary of the Company) in which the other person is the survivor, or a sale
of all or substantially all of the assets of the Company to one or more such
other persons, if, in connection with any of the foregoing, consideration (other
than common equity securities of the Company) is distributed to holders of
Common Stock in exchange for all or substantially all of their equity interest
in the Company.

Adjustments. The number of shares of Common Stock issuable upon the
conversion of each share of Class B Common Stock (as well as the number of votes
allocable to each such share of Class B Common Stock, the amount payable in
respect of each such share on account of the liquidation, dissolution or winding
up of the Company and the dividends payable on each such share) are subject to
adjustment in certain events, including (i) a distribution on the Common Stock
in shares of its capital stock or a combination, subdivision or reclassification
of Common Stock or (ii) the issuance or sale of rights, warrants or options or
convertible or exchangeable securities to holders of Common Stock or other
persons entitling such holders to purchase shares of Common Stock for a
consideration per share less than the then current market value (as defined) per
share of Common Stock (not including certain sales or issuances to the
management of the Company, if approved by the Board of Directors). In the case
of distributions described in clause (i) above and sales or issuances to holders
of Common Stock described in clause (ii) above, no adjustment in the number of
shares of Common Stock issuable upon conversion of the Class B Common Stock will
be required until cumulative adjustments require an adjustment of at least 1%
thereof. The Company will notify the holders of the Class B Common Stock in the
event of any adjustments.

The Company has authorized and reserved for issuance such number of shares
of Common Stock as shall be issuable upon the conversion of all outstanding
shares of Class B Common Stock. Such shares of Common Stock, when issued, will
be duly and validly issued and fully paid and nonassessable.

No fractional shares will be issued upon conversion of shares of Class B
Common Stock, but the Company will pay the cash value of any fractional shares
otherwise issuable.

PREFERRED STOCK

Authorized but Unissued Preferred Stock. The Board of Directors of the
Company is authorized, without further action of the shareholders of the
Company, to issue any unissued stock and to classify or reclassify, or set or
change the preferences, dividend, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such stock.

CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS

Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and By-laws of the Company are summarized in the following
paragraphs. These provisions may be deemed to have an anti-takeover effect and
may delay or prevent a tender offer or takeover attempt that a stockholder might
consider in its best interest, including those attempts that might result in a
premium over the market price for the shares held by stockholders.

49
<PAGE>

Stockholder Meetings. The Amended and Restated Certificate of Incorporation
provides that any action required or permitted to be taken by the stockholders
of the Company may be effected only at an annual or special meeting of
stockholders and prohibits stockholder action by written consent in lieu of a
meeting in all other circumstances. The Company's By-laws provide that special
meetings of stockholders may be called only by the President, Chairman of the
Board or the Board of Directors. This provision will make it more difficult for
stockholders to take actions opposed by the Board of Directors.

Advance Notice Provisions. The Company's By-laws establish an advance
notice procedure for stockholders to make nominations of candidates for election
as directors, or to bring other business before an annual meeting of
stockholders of the Company. The By-laws provide that only persons who are
nominated by, or at the direction of, the Board of Directors, or by a
stockholder who has given timely written notice to the Secretary of the Company
prior to the meeting at which directors are to be elected, will be eligible for
election as directors of the Company. Under the By-laws, for notice of
stockholder nominations to be made at an annual meeting to be timely, such
notice must be received by the Company not less than 30 days nor more than 60
days prior to the meeting, or in the event that less than 40 days' notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. Under the By-laws, a stockholder's notice must also contain certain
information specified in the By-laws.

Indemnification. The Certificate provides that directors and officers of
the Company will be indemnified by the Company against all expenses and
liabilities reasonably incurred in connection with or resulting from any claim,
action, suit or proceeding in which he or she may become involved by reason of
his service for or on behalf of the Company, provided he or she acted in good
faith in what he or she reasonably believed to be the best interests of the
Company. The Certificate also provides that this right of directors and officers
to indemnification is not exclusive of any other right now possessed or
hereafter acquired under any statute, agreement or otherwise.

Classified Board of Directors. The By-laws provide that the Board of
Directors shall be divided into three classes of directors serving staggered
three year terms, with each class to consist as nearly as practicable of
one-third of the members of the Board of Directors.

The overall effect of the provisions of the Certificate of Incorporation
and By-laws described above may be to render more difficult or to discourage a
merger, tender offer, proxy context, the assumption of control of the Company by
a holder of a large block of the Company's capital stock or other person, or the
removal of incumbent management, even if such actions may be beneficial to the
Company's stockholders generally.

PERSONAL LIABILITY OF DIRECTORS

The Delaware GCL authorizes a Delaware corporation to eliminate or limit
the personal liability of a director to the corporation and its stockholders for
monetary damages for breach of certain fiduciary duties as a director and,
accordingly, the Company's Amended and Restated Certificate of Incorporation
includes a provision eliminating liability for monetary damages for any breach
of fiduciary duty as a director, except (i) for any breach of the duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for any transaction from which the director derived an improper
personal benefit; or (iv) for willful or negligent payment of dividends, or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. Pursuant to the Delaware GCL, directors of the Company are not insulated
from liability for breach of their duty of loyalty (requiring that, in making a
business decision, directors act in good faith and in the honest belief that the
action taken was in the best interest of the corporation), or for claims arising
under the Federal securities laws. The foregoing provision of the Amended and
Restated Certificate of Incorporation may reduce the likelihood of derivative
litigation against directors and may discourage or deter stockholders or
management from bringing a lawsuit against directors for

50
<PAGE>

breaches of their fiduciary duties, even though such an action, if successful,
otherwise might have benefitted the Company and its stockholders.

CERTAIN STATUTORY PROVISIONS

Section 203 of the Delaware GCL contains certain provisions that may make
more difficult the acquisition of control of the Company by means of a tender
offer, open market purchase, proxy fight or otherwise. These provisions are
designed to encourage persons seeking to acquire control of the Company to
negotiate with the Board of Directors. However, these provisions could have the
effect of discouraging a prospective acquiror from making a tender offer or
otherwise attempting to obtain control of the Company. To the extent that these
provisions discourage takeover attempts, they could deprive stockholders of
opportunities to realize takeover premiums for their shares or could depress the
market price of shares. Set forth below is a description of the relevant
provisions of Section 203 of the Delaware GCL. The description is intended as
summary only and is qualified in its entirety by reference to Section 203 of the
Delaware GCL.

Section 203 of the Delaware GCL prohibits certain "business combination"
transactions between a publicly held Delaware corporation, such as the Company
after the Offering, and any "interested stockholder" for a period of three years
after the date on which such stockholder became an interested stockholder,
unless (i) the board of directors approves, prior to such date, either the
proposed business combination or the proposed acquisition of stock which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction in which the stockholder becoming an interested
stockholder, the interested stockholder acquires at least 85% of those shares of
the voting stock of the corporation which are not held by the directors, offers
or certain employee stock plans or (iii) on or subsequent to the consummation
date, the business combination with the interested stockholder is approved by
the board of directors and also approved at a stockholders' meeting by the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of the corporation's voting stock other than shares held by the interested
stockholder. For purposes of Section 203, a "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. A corporation, at its option, may
exclude itself from the coverage of Section 203 by amending its charter or
by-laws by action of its stockholders to exempt itself from coverage, provided
that such by-law or charter amendment shall not become effective until 12 months
after the date it is adopted. To date, the Company has not elected to opt out of
Section 203 of the Delaware GCL pursuant to its terms.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company. The Transfer Agent and Registrar for the Company's
Class B Common Stock is Chemical Trust Company of California, San Francisco,
California.

51
<PAGE>

DESCRIPTION OF CERTAIN INDEBTEDNESS

SENIOR NOTES

As of August 3, 1996, $95 million aggregate principal amount of the Senior
Notes were outstanding. The Senior Notes mature on May 15, 2003, are limited to
$100.0 million aggregate principal amount, and are unsecured senior obligations
of the Company, senior in right of payment to any subordinated indebtedness of
the Company. Each Senior Note bears interest at a rate of 11 7/8% from May 10,
1996 or from the most recent interest payment date to which interest has been
paid, payable semiannually on May 15 and November 15, in each year, commencing
November 15, 1996.

The Senior Notes are subject to redemption at any time on or after May 15,
2000 at the option of the Company, in whole or in part, on not less than 30 nor
more than 60 days' prior notice in amounts of $1,000 or integral multiples
thereof at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning May 15th of
the years indicated below:

REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------- ------------
<S> <C>
2000................................................................ 105.938%
2001................................................................ 102.969%
2002 and thereafter................................................. 100.000%
</TABLE>

in each case, together with accrued and unpaid interest, if any, to the
redemption date (subject to the rights of holders of record on relevant record
dates to receive interest due on an interest payment date).

The Senior Notes are not entitled to the benefit of any sinking fund.

In the event of a Change of Control (as defined in the Senior Note
Indenture), the Company will be obligated to make an offer to purchase all
outstanding Senior Notes at a purchase price of 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of repurchase.

The Senior Note Indenture contains certain covenants that, among other
things, will limit the ability of the Company or any of its subsidiaries to
incur additional indebtedness, transfer or sell assets, pay dividends or make
certain other restricted payments, incur liens, enter into certain transactions
with affiliates or consummate certain mergers, consolidations or sales of all or
substantially all of its assets. In addition, subject to certain conditions, the
Company is obligated to make offers to repurchase the Senior Notes with the net
proceeds of certain asset sales. These covenants are subject to certain
exceptions and qualifications.

CREDIT AGREEMENT

On June 12, 1996, the Company amended and restated its credit agreement
with the Bank to provide the Company with the Credit Facility. The Credit
Facility provides for a $35.0 million revolving line of credit with interest
payable, at the Company's option, on amounts drawn under the facility at either
(i) the Bank's prime rate plus 0.75% or (ii) LIBOR plus 2.2%. On August 3, 1996,
approximately $2.8 of indebtedness was outstanding under the Credit Facility.The
Company also is required to pay a per annum fee equal to 0.375% on the undrawn
portion of the Bank's commitment in respect of the Credit Facility. The Credit
Facility is subject to certain borrowing base limitations, subjects the Company
to certain covenants and imposes limitations upon investments, dividends and
other restricted payments and capital expenditures. The Credit Facility is
secured by substantially all of the Company's assets, including accounts
receivable, inventory, fixtures and equipment and is not subject to scheduled
annual repayments, except upon maturity. The Credit Facility has a term of four
years, expiring on June 17, 2000.

52
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

GENERAL

There will be 8,384,809 shares of Common Stock outstanding upon the
consummation of the Offering. Of these shares, the 4,107,800 shares sold in the
Initial Public Offering are freely tradeable, and upon completion of this
Offering 2,054,000 additional shares will be freely tradeable, without
restriction or further registration under the Securities Act except for any of
such shares held by "affiliates" of the Company.

The remaining 2,223,009 shares of Common Stock held by the existing
stockholders are "restricted securities" under the Securities Act. Of these
restricted securities, 1,908,687 shares are held by executive officers,
directors and certain shareholders who, together with the Company, have agreed
not to sell, contract to sell, or otherwise dispose of, any shares of Common
Stock without the consent of Montgomery Securities for a period of 120 days
after the date of this Prospectus. Upon expiration of such agreements, such
shares will be eligible for sale in the public markets in accordance with Rule
144. The 399,151 shares not subject to such agreements will be eligible for sale
in the public markets in accordance with Rule 144 on November 3, 1996.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least two years, including persons who may be deemed "affiliates" of the
Company, will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission. Sales pursuant to
Rule 144 are also subject to certain other requirements relating to manner of
sale, notice and availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the three months immediately
preceding the sale is entitled to sell restricted shares pursuant to Rule 144(k)
without regard to the limitations described above, provided that three years
have expired since the later of the date on which such restricted shares were
first acquired from the Company or from an affiliate of the Company. See
"Security Ownership of Certain Beneficial Owners."

Upon consummation of the Offering, options to purchase 958,664 shares of
Common Stock granted to certain officers and key employees of the Company
pursuant to the Stock Plans will be outstanding. Of the shares underlying these
outstanding options, 719,431 are subject to the agreements described above
restricting the sale of such shares for a period of 120 days after the date of
this Prospectus. The Company has filed a registration statement under the
Securities Act to register shares of Common Stock issuable upon the exercise of
stock options granted under the Company's Stock Option Plans. Except as limited
by the agreements described above and by Rule 144 volume limitations applicable
to affiliates, shares issued upon the exercise of stock options generally are
available for sale in the open market. In addition, 469,237 shares of Class B
Common Stock may be converted into shares of Common Stock beginning on November
6, 1996 and such shares of Common Stock may be freely sold by such holders who
are not deemed affiliates of the Company.

The Company is unable to predict the effect that sales made under Rule 144,
pursuant to future registration statements, or otherwise, may have on any then
prevailing market price for shares of the Common Stock. Nevertheless, sales of a
substantial amount of Common Stock in the public market, or the perception that
such sales could occur, could adversely affect market prices.

53
<PAGE>

UNDERWRITING

The Underwriters named below have severally agreed, subject to the terms
and conditions set forth in the Underwriting Agreement, to purchase from the
Selling Stockholders the number of shares of Common Stock indicated below
opposite their respective names at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of the shares if they purchase any.

NUMBER
NAME OF UNDERWRITER OF SHARES
- -------------------------------------------------------------------------------- -----------
<S> <C>
Montgomery Securities........................................................... 684,668
Salomon Brothers Inc ........................................................... 684,666
Robertson, Stephens & Company LLC............................................... 684,666
-----------
Total...................................................................... 2,054,000
</TABLE>

The Underwriters have advised the Selling Stockholders that the
Underwriters propose initially to offer the Common Stock to the public on the
terms set forth on the cover page of this Prospectus. The Underwriters may allow
to selected dealers a concession of not more than $0.85 per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $0.10 per share to certain other dealers. After the public offering, the
offering price and other selling terms may be changed by the Underwriters. The
Common Stock is offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part.

Certain of the Selling Stockholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of an aggregate of 308,100 additional
shares of Common Stock to cover over-allotments, if any, at the same price per
share as the shares initially to be purchased by the Underwriters. See
"Principal and Selling Stockholders." To the extent that the Underwriters
exercise this option, the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this Offering.

The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.

The Company's officers and directors and the Selling Stockholders have
agreed that, subject to certain limited exceptions, for a period of 120 days
after the date of this Prospectus, they will not offer, sell or dispose of any
shares of their Common Stock without the prior written consent of Montgomery
Securities.

The Underwriters have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.

Certain of the Underwriters and selling group members (if any) that
currently act as market makers for the Common Stock may engage in "passive
market making" in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). Rule 10b-6A permits, upon the satisfaction of certain
conditions, underwriters and selling group members participating in a
distribution that are also Nasdaq market makers in the security being
distributed to engage in limited market making transactions during the period
when Rule 10b-6 under the Exchange Act would otherwise prohibit such activity.
Rule 10b-6A prohibits underwriters and selling group members engaged in passive
market making generally from

54
<PAGE>

entering a bid or effecting a purchase at a price that exceeds the highest bid
for those securities displayed on Nasdaq by a market maker that is not
participating in the distribution. Under Rule 10b-6A, each underwriter or
selling group member engaged in passive market making is subject to a daily net
purchase limitation equal to 30% of such entity's average daily trading volume
during the two full consecutive calendar months immediately preceding the date
of the filing of the registration statement under the Securities Act pertaining
to the security to be distributed. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.

LEGAL MATTERS

Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for the Company by Paul, Weiss, Rifkind, Wharton & Garrison,
New York, New York and for the Underwriters by Fried, Frank, Harris, Shriver &
Jacobson (a partnership including professional corporations), Los Angeles,
California.

EXPERTS

The consolidated financial statements of Loehmann's, Inc. at February 3,
1996 and January 28, 1995, and for each of the fiscal years ended February 3,
1996, January 28, 1995 and January 29, 1994 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.

ADDITIONAL INFORMATION

Holdings is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549 or at its Regional
Offices located at Room 1400, 500 West Madison Street, Chicago, Illinois 60661
and 7 World Trade Center, 13th Floor, New York, New York 10048, and copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Additionally, copies of reports, proxy statements and other information
filed with the Commission
electronically by the Company may be inspected by accessing the Commission's
Internet site at http://www.sec.gov. The Company's Common Stock is listed for
quotation on the Nasdaq National Market, and such reports, proxy statements and
other information can also be inspected at the office of Nasdaq Operations, 1735
K Street, NW, Washington, D.C. 20006.

The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and to the financial statements, and exhibits filed
therewith. Except as provided below, statements contained in this Prospectus
regarding the contents of any contract or other documents referred to are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. This Prospectus contains a description of all provisions of the
documents filed as exhibits to the Registration Statement that are material to
investors.

55
<PAGE>

The Company intends to furnish its stockholders with annual reports
containing audited financial statements.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Prospectus, constitute "forward looking
statements" within the meaning of the Reform Act. Such forward looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. Such factors include,
among others, those described under "Risk Factors" and the following: general
economic and business conditions; competition; success of operating initiatives;
development and operating costs; advertising and promotional efforts; brand
awareness; the existence or adherence to development schedules; the existence or
absence of adverse publicity; availability, locations and terms of sites for
store development; changes in business strategy or development plans; quality of
management; availability, terms and deployment of capital; business abilities
and judgment of personnel; availability of qualified personnel; labor and
employee benefit costs; changes in, or the failure to comply with, government
regulations; construction costs and other factors referenced in this Prospectus.
See "Risk Factors."

56
<PAGE>

INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
LOEHMANN'S, INC.

CONTENTS

PAGE
---------
CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Report of Independent Auditors............................................................................ F-2
Consolidated Balance Sheets at January 28, 1995, February 3, 1996 and August 3, 1996 (unaudited).......... F-3
Consolidated Statements of Operations for the fiscal years ended
January 29, 1994, January 28, 1995 and February 3, 1996 and the six months ended July 29, 1995
(unaudited) and August 3, 1996 (unaudited)................................................................ F-4
Consolidated Statements of Changes in Common Stockholders' Equity
(Deficit) for the fiscal years ended January 29, 1994, January 28, 1995
and February 3, 1996 and the six months ended July 29, 1995 (unaudited) and August 3, 1996
(unaudited)............................................................................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended
January 29, 1994, January 28, 1995 and February 3, 1996 and the six months ended July 29, 1995
(unaudited) and August 3, 1996 (unaudited)................................................................ F-6
Notes to Consolidated Financial Statements................................................................ F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Loehmann's, Inc.

We have audited the accompanying consolidated balance sheets of Loehmann's,
Inc. as of February 3, 1996 and January 28, 1995, and the related consolidated
statements of operations, changes in common stockholders' equity (deficit) and
cash flows for the fiscal years ended February 3, 1996, January 28, 1995 and
January 29, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Loehmann's, Inc. at February 3, 1996 and January 28, 1995, and the consolidated
results of its operations and cash flows for the fiscal years ended February 3,
1996, January 28, 1995 and January 29, 1994 in conformity with generally
accepted accounting principles.

As discussed in Note 5 to the consolidated financial statements, in fiscal
1995 Loehmann's, Inc. adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."

ERNST & YOUNG LLP

New York, New York
May 10, 1996

F-2
<PAGE>

LOEHMANN'S, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

JANUARY 28, FEBRUARY 3, AUGUST 3,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 12,822 $ 12,512 $ 1,884
Accounts receivable..................................................... 1,477 804 847
Merchandise inventory................................................... 44,138 43,721 46,560
Prepaid expenses........................................................ 923 918 1,770
----------- ----------- -----------
Total current assets...................................................... 59,360 57,955 51,061
Property, equipment and leaseholds, net................................... 71,909 60,245 59,142
Deferred debt issuance costs and other assets, net........................ 3,908 3,296 3,997
Purchase price in excess of net assets acquired, net...................... 43,435 42,115 41,467
----------- ----------- -----------
Total assets.............................................................. $ 178,612 $ 163,611 $ 155,667
----------- ----------- -----------
----------- ----------- -----------

LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................................ $ 21,750 $ 21,474 $ 18,512
Accrued expenses........................................................ 16,712 16,709 16,643
Accrued interest........................................................ 6,787 7,037 2,855
Current portion of long-term debt....................................... 62 66 66
----------- ----------- -----------
Total current liabilities................................................. 45,311 45,286 38,076
Long-term debt:
Credit agreement........................................................ -- -- 2,791
11 7/8% senior notes.................................................... -- -- 95,000
13 3/4% senior subordinated notes....................................... 77,550 77,550 --
10 1/2% senior secured notes............................................ 51,639 51,471 --
Revenue bonds and notes................................................. 2,778 2,712 2,686
----------- ----------- -----------
Total long-term debt...................................................... 131,967 131,733 100,477
Other noncurrent liabilities.............................................. 393 393 393
Series A preferred stock, subject to mandatory redemption, 41,500,000
shares authorized 31,312,484, 37,408,739 and 0 shares issued and
outstanding at January 28, 1995, February 3, 1996 and August 3, 1996,
respectively.............................................................. 13,223 15,279 --
Common stockholders' equity (deficit):
Common stock, 25,000,000 shares authorized 4,704,089, 4,725,420,
8,322,186 shares issued and outstanding at January 28, 1995, February
3, 1996 and August 3, 1996, respectively............................. 47 47 83
Class B convertible common stock, 469,237 shares authorized, issued and
outstanding............................................................... 2,352 2,352 2,352
Additional paid-in capital.............................................. 23,636 23,857 79,340
Accumulated deficit..................................................... (38,317) (55,336) (65,054)
----------- ----------- -----------
Total common stockholders' equity (deficit)............................... (12,282) (29,080) 16,721
----------- ----------- -----------
Total liabilities and common stockholders' equity (deficit)............... $ 178,612 $ 163,611 $ 155,667
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>

LOEHMANN'S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------------- ------------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
------------- ------------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 373,443 $ 392,606 $ 386,090 $ 186,932 $ 194,772
Cost of sales............................. 274,991 278,398 265,889 129,227 132,938
------------- ------------- ------------- ----------- -----------
Gross profit.............................. 98,452 114,208 120,201 57,705 61,834

Store operating expenses.................. 59,059 64,869 68,042 32,465 33,056
Pre-opening costs......................... 213 147 -- -- 376
General and administrative expenses....... 16,192 20,624 21,443 9,994 11,255
Depreciation and amortization............. 14,334 11,955 12,120 6,062 6,046
Charge for store closings and impairment
of assets................................. -- -- 15,300 15,300 --
------------- ------------- ------------- ----------- -----------
Operating income (loss)................... 8,654 16,613 3,296 (6,116) 11,101
Interest expense, net..................... 17,299 18,085 18,153 8,955 7,990
------------- ------------- ------------- ----------- -----------
Income (loss) before income taxes......... (8,645) (1,472) (14,857) (15,071) 3,111
Provision for income taxes................ 79 34 106 108 60
------------- ------------- ------------- ----------- -----------
Income (loss) before extraordinary item... (8,724) (1,506) (14,963) (15,179) 3,051
Extraordinary loss on early extinguishment
of debt................................... 3,507 -- -- -- 7,101
------------- ------------- ------------- ----------- -----------
Net loss.................................. (12,231) (1,506) (14,963) (15,179) (4,050)
Stock dividends on and normal and
accelerated accretion of preferred
stock..................................... 1,496 1,802 2,056 922 5,668
------------- ------------- ------------- ----------- -----------
Net loss applicable to common stock....... $ (13,727) $ (3,308) $ (17,019) $ (16,101) $ (9,718)
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Net loss per share applicable to common
stock before extraordinary item......... $ (2.18) $ (0.63) $ (3.12) $ (3.07) $ (0.38)
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Net loss per share applicable to common
stock after
extraordinary item...................... $ (2.93) $ (0.63) $ (3.12) $ (3.07) $ (1.40)
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Weighted average number of common shares
outstanding............................... 4,680 5,228 5,463 5,247 6,934
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>

LOEHMANN'S, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)

CLASS B
COMMON STOCK COMMON STOCK
---------------------- ---------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTALS
----------- --------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of January 30, 1993.......... 3,581,152 $ 36 469,237 $ 2,352 $ 20,501 $ (21,282) $ 1,607
Stock options earned................... -- -- -- -- 728 -- 728
Exercise of stock options.............. 109,908 1 -- -- 116 -- 117
Sale of common stock................... 734,170 7 -- -- 1,793 -- 1,800
Net loss for the fiscal year ended
January 29, 1994......................... -- -- -- -- -- (12,231) (12,231)
Dividend on and accretion of preferred
stock.................................... -- -- -- -- -- (1,496) (1,496)
----------- --------- ----------- --------- ----------- ----------- ---------
Balances as of January 29, 1994.......... 4,425,230 44 469,237 2,352 23,138 (35,009) (9,475)
Stock options earned................... -- -- -- -- 195 -- 195
Exercise of stock options.............. 278,859 3 -- -- 303 -- 306
Net loss for the fiscal year ended
January 28, 1995......................... -- -- -- -- -- (1,506) (1,506)
Dividend on and accretion of preferred
stock.................................... -- -- -- -- -- (1,802) (1,802)
----------- --------- ----------- --------- ----------- ----------- ---------
Balances as of January 28, 1995.......... 4,704,089 47 469,237 2,352 23,636 (38,317) (12,282)
Stock options earned................... -- -- -- -- 199 -- 199
Exercise of stock options.............. 21,331 -- -- -- 22 -- 22
Net loss for the fiscal year ended
February 3, 1996......................... -- -- -- -- -- (14,963) (14,963)
Dividend on and accretion of preferred
stock.................................... -- -- -- -- -- (2,056) (2,056)
----------- --------- ----------- --------- ----------- ----------- ---------
Balances as of February 3, 1996.......... 4,725,420 47 469,237 2,352 23,857 (55,336) (29,080)
Exercise of stock options
(unaudited).............................. 24,766 -- -- -- 55 -- 55
Sale of common stock (unaudited)....... 3,572,000 36 -- -- 55,428 -- 55,464
Dividend on normal and accelerated
accretion of preferred stock
(unaudited).............................. -- -- -- -- -- (5,668) (5,668)
Net loss for the six months ended
August 3, 1996 (unaudited)............... -- -- -- -- -- (4,050) (4,050)
Balances as of August 3, 1996
(unaudited).............................. 8,322,186 $ 83 469,237 $ 2,352 $ 79,340 $ (65,054) $ 16,721
----------- --------- ----------- --------- ----------- ----------- ---------
----------- --------- ----------- --------- ----------- ----------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>

LOEHMANN'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------- ----------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
----------- ----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.......................................... $ (12,231) $ (1,506) $ (14,963) $ (15,179) $ (4,050)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization................... 14,334 11,955 12,120 6,062 6,046
Accretion of 10 1/2% senior secured notes....... 349 1,202 1,328 649 510
Charges for store closings, impairment of assets
and other......................................... 1,474 -- 10,538 10,538 --
Loss on early retirement of senior notes........ -- -- -- -- 7,101
Changes in assets and liabilities:
Accounts receivable........................... (579) 1,279 673 (227) (43)
Merchandise inventory......................... (700) 2,623 417 (514) (2,839)
Prepaid expenses.............................. (1,602) 915 5 152 (852)
Accounts payable.............................. (5,637) 5,836 (276) (1,068) (2,962)
Accrued expenses.............................. 1,064 (207) (3) 818 (66)
Accrued interest.............................. (389) 170 250 (64) (4,182)
----------- ----------- ----------- --------- -----------
Net changes in current assets and liabilities... (7,843) 10,616 1,066 (903) (10,944)
Net change in other noncurrent assets and
liabilities....................................... (2,714) (193) (627) (18) (3,408)
----------- ----------- ----------- --------- -----------
Total adjustments................................. 5,600 23,580 24,425 16,328 (695)
----------- ----------- ----------- --------- -----------
Net cash (used in) provided by operations......... (6,631) 22,074 9,462 1,149 (4,745)
----------- ----------- ----------- --------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.............................. (5,882) (5,853) (8,130) (3,080) (3,727)
----------- ----------- ----------- --------- -----------
Net cash used in investing activities............. (5,882) (5,853) (8,130) (3,080) (3,727)
----------- ----------- ----------- --------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings (payments) on credit agreements, net... 5,023 (5,023) -- -- 2,791
Payments on term loan............................. (17,500) -- -- -- --
Sale of 10 1/2% senior secured notes.............. 50,087 -- -- -- --
Purchase of 10 1/2% senior secured notes.......... -- -- (1,584) (1,584) (55,905)
Purchase of 13 3/4% senior subordinated notes..... (29,950) -- -- (78,325)
Sale of 11 7/8% senior secured notes.............. -- -- -- -- 100,000
Purchase of 11 7/8% senior secured notes.......... -- -- -- -- (5,165)
Redemption of preferred stock..................... -- -- -- -- (20,947)
Sale of common stock.............................. 1,800 -- -- -- 55,421
Other financing activities, net................... 85 159 (58) (3) (26)
----------- ----------- ----------- --------- -----------

Net cash provided by (used in) financing
activities........................................ 9,545 (4,864) (1,642) (1,587) (2,156)
----------- ----------- ----------- --------- -----------
Net (decrease) increase in cash and cash
equivalents....................................... (2,968) 11,357 (310) (3,518) (10,628)
Cash and cash equivalents at beginning of period.. 4,433 1,465 12,822 12,822 12,512
----------- ----------- ----------- --------- -----------
Cash and cash equivalents at end of period........ $ 1,465 $ 12,822 $ 12,512 $ 9,304 $ 1,884
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash interest paid during period.................. $ 17,409 $ 16,738 $ 16,845 $ 8,472 $ 12,352
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>

LOEHMANN'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS AND AUGUST 3, 1996
AND JULY 29, 1995)

1. BASIS OF PRESENTATION AND ORGANIZATION

The accompanying consolidated financial statements include the accounts of
Loehmann's, Inc. and its wholly-owned subsidiaries, collectively referred to
hereafter as the Company. All significant intercompany items have been
eliminated. Certain amounts in the consolidated financial statements have been
reclassified to conform to the fiscal 1995 presentation.

The balance sheet at August 3, 1996 and the statements of operations and
cash flows for each of the six months ended August 3, 1996 and July 29, 1995
have been prepared by the Company without audit in accordance with generally
accepted accounting principals for interim financial information. In the opinion
of management, all adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended August 3, 1996 are not necessarily indicative
of the results that may be expected for the fiscal year ended February 1, 1997.

The Company is a leading specialty retailer of well known designer and
brand name women's fashion apparel, accessories and shoes offered at prices that
are typically 25% to 50% below department store prices.

Effective August 28, 1988 (the "Purchase Date") for accounting purposes but
occurring on September 19, 1988, the Company's stock was acquired for a purchase
price of $170.3 million in a leveraged buyout transaction. The acquisition was
accounted for using the purchase method of accounting. At the date of
acquisition, the excess of the purchase price over the appraised fair market
value of the identifiable net assets acquired was reflected as goodwill.

Effective May 7, 1996, the Company's predecessor, Loehmann's Holdings,
Inc., a Maryland corporation ("Holdings"), whose only material assets consisted
of all of the outstanding stock of and an intercompany note issued by
Loehmann's, Inc., merged with and into a new wholly-owned Delaware subsidiary
formed for the purpose of reincorporating Holdings from Maryland to Delaware.
Effective May 8, 1996, the surviving corporation of such merger merged with and
into the Company, with the Company being the ultimate surviving corporation
(together with the reincorporation from Maryland to Delaware, the "Holdings
Merger"). As a result of the Holdings Merger, each share of Holdings' Common
Stock, par value $0.008403361 per share, and Class B Common Stock, par value
$0.008403361 per share, was converted into approximately 0.22 shares of
Loehmann's, Inc. Common Stock, par value $0.01 per share and 0.22 shares of
Class B Common Stock, par value $0.01 per share, respectively, and the number of
common shares authorized was changed to 25,000,000. Accordingly, the financial
information appearing herein (including all share and per share data) reflects
the retroactive application of the Holdings Merger.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR

The Company follows the standard fiscal year of the retail industry which
is a 52 or 53 week period ending on Saturday closest to January 31. Fiscal years
ended February 3, 1996, January 28, 1995 and January 29, 1994 had 53 weeks, 52
weeks and 52 weeks, respectively.

F-7
<PAGE>

LOEHMANN'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTHS AND AUGUST 3, 1996
AND JULY 29, 1995)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid marketable securities purchased
with an original maturity of three months or less to be cash and cash
equivalents. The carrying amount reported in the consolidated balance sheets for
cash and cash equivalents approximates fair value.

MERCHANDISE INVENTORY

Merchandise inventory is valued at the lower of cost or market as
determined by the retail inventory method. However, certain warehoused inventory
that is not available for sale is valued on a specific cost basis. The
merchandise inventory valued on a specific cost basis at February 3, 1996 and
January 28, 1995 included $10.5 million and $9.7 million, respectively.

ADVERTISING EXPENSE

The cost of advertising is expensed as incurred. The Company incurred $13.0
million, $10.2 million, and $7.7 million in advertising costs during fiscal
1995, fiscal 1994, and fiscal 1993, respectively.

DEPRECIATION AND AMORTIZATION

Building and furniture, fixtures and equipment are depreciated on a
straight-line basis over their estimated useful lives of 20 years and a range
from three years to eight years, respectively. Leasehold interests represent the
beneficial value of operating leases as determined by an independent appraisal
of the individual leases at the Purchase Date. Such amounts are amortized on a
straight-line basis over the related lease term. The Company evaluates the
ongoing value of the leasehold interests based upon each store's operating
results. Leasehold improvements are amortized on a straight-line basis over the
shorter of the related lease terms or their useful life. Amortization expense
for fiscal 1995, fiscal 1994 and fiscal 1993 includes stock option compensation
expense of $199,000, $195,000 and $728,000, respectively.

PRE-OPENING COSTS

Expenses incurred in connection with the opening of new stores are expensed
in the fiscal quarter in which the stores open. There were no expenses incurred
in connection with the opening of new stores in fiscal 1995. In fiscal 1994 and
fiscal 1993, the Company expensed $147,000 and $213,000 of pre-opening costs,
respectively.

F-8
<PAGE>

LOEHMANN'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTHS AND AUGUST 3, 1996
AND JULY 29, 1995)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
PURCHASE PRICE IN EXCESS OF NET ASSETS ACQUIRED, NET

The purchase price in excess of identifiable net assets acquired is being
amortized on a straight-line basis over 40 years. Amortization expense for
fiscal 1995, fiscal 1994 and fiscal 1993 amounted to $1.3 million annually.
Accumulated amortization at February 3, 1996 and January 28, 1995 was $9.6
million and $8.3 million, respectively.

On an ongoing basis, the Company evaluates the carrying value of its
goodwill relying on a number of factors, including operating results, business
plans and certain economic projections. In addition, the Company's evaluation
considers nonfinancial data such as changes in the operating environment,
competitive information, market trends and business relationships. Finally, the
evaluation also considers changes in the Company's strategic direction or market
emphasis. The Company believes the carrying value of goodwill at February 3,
1996 to be economically recoverable.

DEFERRED DEBT ISSUANCE COSTS

Deferred debt issuance costs are amortized over the terms of the related
debt agreements. Deferred debt issuance costs were $6.9 million at February 3,
1996 and January 28, 1995. Amortization expense for fiscal 1995, fiscal 1994 and
fiscal 1993 amounted to $1.2 million, $1.2 million, and $2.7 million,
respectively. Total accumulated amortization at February 3, 1996 and January 28,
1995 amounted to $4.5 million and $3.3 million, respectively.

INCOME TAXES

Income taxes are provided using the liability method. Under the liability
method, deferred income taxes reflect tax carryforwards and the net tax effects
of temporary differences between the carrying amount of assets and liabilities
for financial statement and income tax purposes, as determined under enacted tax
laws and rates. The financial effect of changes in tax laws or rates is
accounted for in the period of enactment.

NET LOSS PER SHARE OF COMMON STOCK

Net loss per share is determined by dividing net loss (after deducting
dividends on and accretion of preferred stock) by the weighted average number of
Common and Class B Common shares outstanding. In contemplation of the Company's
offering to sell 3,572,000 shares of Common Stock (see Note 3), the impact of
options granted in the twelve month period preceding the offering were reflected
in all years' computations of net loss applicable to Common Stock. Options to
purchase Common Stock that were granted prior to fiscal 1995 were not considered
in the computations of net loss per share applicable to Common Stock for fiscal
1995, fiscal 1994 and fiscal 1993, as their effect was antidilutive.
Additionally, all options to purchase common stock were not considered in
calculations of net loss per share applicable to common stock for the six months
ended August 3, 1996 and July 29, 1995 as their effect was antidilutive.

Unaudited supplemental earnings per share for the quarter ended August 3,
1996 include approximately 3,572,000 shares deemed to be sold by the Company in
connection with the Offerings to redeem the Existing Obligations as if such
redemptions had occurred at the beginning of the year. If such transactions had
been completed immediately prior to the commencement of that year, net income
per share for the six months ended August 3, 1996 would have been $0.37 (See
Note 3).

F-9
<PAGE>

LOEHMANN'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTHS AND AUGUST 3, 1996
AND JULY 29, 1995)

3. EQUITY AND DEBT OFFERING

On May 10, 1996, the Company sold 3,572,000 shares of Common Stock and
$100.0 million principal amount of 11 7/8% Senior Notes due 2003 (the "Senior
Notes"). The net proceeds of approximately $155 million received from such
offerings (the "Offerings") were used (i) to redeem in full $52.5 million face
amount of the Company's 10 1/2% Senior Secured Notes due 1997, at a redemption
price of 103.5% of the face amount of such notes, plus accrued and unpaid
interest, (ii) to redeem in full $77.6 million face amount of the Company's 13
3/4% Senior Subordinated Notes due 1999 at a redemption price of 101.0% of the
face amount of such notes, plus accrued and unpaid interest and (iii) to redeem
all issued and outstanding shares of the Company's Series A Preferred Stock at
its liquidation price of $0.56 per share for a total of $20.9 million
(collectively, the "Existing Obligations").

As a result of these transactions, the Company incurred approximately $4.7
million in extraordinary losses on the early extinguishment of debt and $2.0
million in losses from write-off of related deferred financing costs associated
with such indebtedness, and a $5.1 million charge to accumulated deficit from
the accelerated accretion of the Series A Preferred Stock.

4. INCOME TAXES

The Company's provision for income taxes primarily represents state and
local minimum and alternative minimum taxes. Tax expense for fiscal 1995, fiscal
1994 and fiscal 1993 was $106,000, $34,000 and $79,000, respectively. Potential
tax benefits from losses have been reduced by corresponding increases in
valuation allowances recorded against deferred tax assets.

Significant components of deferred tax liabilities and assets are as
follows:

JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities.......................................... $ (104) $ (130)
Deferred tax assets:
Excess book over tax depreciation............................... 2,506 3,097
Capitalization of inventory expenses............................ 381 469
Book rent in excess of tax...................................... 272 323
Compensation.................................................... 2,093 1,851
State income taxes.............................................. 66 28
Asset impairment reserve........................................ -- 2,349
Net operating loss carryforwards................................ 7,980 10,550
----------- -----------
Total deferred tax assets......................................... 13,298 18,667
----------- -----------
Net deferred tax assets........................................... 13,194 18,537
Less valuation allowance.......................................... (13,194) (18,537)
----------- -----------
$ -- $ --
----------- -----------
----------- -----------
</TABLE>

At February 3, 1996, the Company had net operating loss carryforwards of
approximately $27.0 million and $18.0 million for regular and alternative
minimum tax purposes, respectively.

F-10
<PAGE>

LOEHMANN'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTHS AND AUGUST 3, 1996
AND JULY 29, 1995)

5. CHARGE FOR STORE CLOSINGS

During the second quarter of fiscal 1995, the Company implemented a plan to
close 11 underperforming stores and, as a result, recorded a $10.35 million
charge to continuing operations. These closures are intended to improve overall
chain profitability and achieve a more competitive cost structure.

The store closures were completed by the end of August 1995. Reserved
amounts remaining at February 3, 1996 relating to long-term lease commitments
are not material. Net sales and operating income (loss), including certain
specifically allocated charges, for these stores were $8.2 million and $117,000,
respectively, in fiscal 1995 and $18.6 million and $(265,000), respectively, in
fiscal 1994.

The charge for store closings consisted of the following components:

FISCAL
YEAR ENDED
FEBRUARY 3, 1996
----------------
(IN THOUSANDS)
<S> <C>
Write-off of leasehold interest, leasehold improvements and furniture,
fixtures and equipment..................................................... $ 5,500
Estimated costs associated with obligations for leased properties after
closing dates, net of settlement income.................................... 950
Additional expenses and markdowns associated with store closings........... 3,600
Costs of severance arrangements and related expenses....................... 300
----------------
Total charge for store closings............................................ $ 10,350
----------------
----------------
</TABLE>

6. CHARGE FOR IMPAIRMENT OF ASSETS

During the second quarter of fiscal 1995, the Company completed certain
market analyses as part of an overall strategic plan. As an outcome of those
analyses, the Company shortened the period of time in which it intended to
occupy certain stores and as a consequence, the undiscounted cash flows
estimated to be generated from the revised intended use was not sufficient to
recover the assets' carrying amount. Based on these indicators, the primary
intangible assets associated with these locations were determined to be impaired
as defined by Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," ("FAS No. 121").

Accordingly, the Company recorded a $4.95 million impairment loss to
continuing operations, representing the excess net book value of these assets
over their fair value. Fair value was based on appraisal value.

F-11
<PAGE>

LOEHMANN'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTHS AND AUGUST 3, 1996
AND JULY 29, 1995)

6. CHARGE FOR IMPAIRMENT OF ASSETS--(CONTINUED)
The impairment charge consisted of the following components:

FISCAL
YEAR ENDED
FEBRUARY 3, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Furniture, fixtures and equipment.......................................... $ 250
Leasehold interests........................................................ 4,450
Leasehold improvements..................................................... 250
--------
Total charge for impairment of assets...................................... $ 4,950
--------
--------
</TABLE>

7. PROPERTY, EQUIPMENT AND LEASEHOLDS, NET

Property, equipment and leaseholds are recorded at cost less accumulated
depreciation and amortization. The components of property, equipment and
leaseholds are as follows:

<TABLE>
Caption

JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Building.......................................................... $ 7,879 $ 7,879
Furniture, fixtures and equipment................................. 30,461 27,610
Leasehold interests............................................... 65,695 51,781
Leasehold improvements............................................ 18,213 20,881
----------- -----------
Total property, equipment and leaseholds.......................... 122,248 108,151

Accumulated depreciation and amortization......................... (50,339) (47,906)
----------- -----------
Property, equipment and leaseholds, net........................... $ 71,909 $ 60,245
----------- -----------
----------- -----------
</TABLE>

8. PROFIT-SHARING PLAN

The Company maintains a defined contribution profit-sharing plan. Employees
become eligible for participation in the plan after completing one year of
service, as defined by the plan provisions. Contributions are made out of the
adjusted net profits of the Company, as defined, as determined by the Board of
Directors. The Company recorded a contribution of $500,000 to the profit-sharing
plan during fiscal 1995 and fiscal 1994. No contribution was made in fiscal
1993.

9. DEBT

Senior Subordinated Notes and Senior Secured Notes

Debt at February 3, 1996 principally consisted of $77.55 million face
amount of 13 3/4% Senior Subordinated Notes due 1999 and $54.1 million face
amount of 10 1/2% Senior Secured Notes due 1997 (see Note 3).

F-12
<PAGE>

LOEHMANN'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTHS AND AUGUST 3, 1996
AND JULY 29, 1995)

9. DEBT--(CONTINUED)
The 10 1/2% Senior Secured Notes were sold at a discount from par of 10.08%
along with approximately 419,000 shares of common stock in October 1993. The net
proceeds were used to repay the remaining balance on an existing term loan of
$12.0 million and to repurchase $30.0 million of the 13 3/4% Senior Subordinated
Notes at 106.789% plus accrued interest. The 10 1/2% Senior Secured Notes were
carried at the discounted value and were accreted to face value over their term
using the effective interest method.

In connection with the above transactions, the Company wrote off in fiscal
1993, as an extraordinary item, approximately $1.5 million representing
previously deferred financing costs attributed to the existing term loan and a
pro rata portion of the deferred financing costs related to the repurchased 13
3/4% Senior Subordinated Notes. In addition, the Company incurred an
extraordinary loss of approximately $2.0 million on the early extinguishment of
the 13 3/4% Senior Subordinated Notes.

Based upon a quoted market price of 91, the fair value of the 13 3/4%
Senior Subordinated Notes outstanding at February 3, 1996 approximated $70.6
million. Using available market information and appropriate valuation
methodologies, the fair value of the 10 1/2% Senior Secured Notes outstanding at
February 3, 1996 approximated $54.9 million.

Revenue Bonds and Notes

At February 3, 1996, the Company has outstanding $2.8 million New York City
Revenue Bonds and Notes, principally due 2004, with interest rates ranging from
5 1/2% to 9 1/2%.

Old Credit Agreement

At February 3, 1996, the Company had a revolving credit agreement, as
amended, ("Old Credit Agreement") which provided for a credit facility totaling
$20.0 million. The facility bore interest at a base rate (equivalent to the
bank's reference rate) plus 1.5% and was secured by substantially all of the
Company's assets, including accounts receivable, inventory and fixtures and
equipment. At February 3, 1996 and January 28, 1995, no borrowings were
outstanding under the facility. Pursuant to the Old Credit Agreement, as
amended, all cash receipts from the normal course of business were required to
be deposited into a depository account (as defined) which was used to repay
borrowings, if any, under the facility. The Old Credit Agreement commitment
termination date was October 14, 1997. There was a 0.5% annual commitment fee
associated with the unused portion of the facility (see "New Credit Agreement"
below).

The principal financial covenants, which were applicable under the Old
Credit Agreement, as amended, and related Indenture pursuant to which the 10
1/2% Senior Secured Notes were issued were as follows: the Company was required
to maintain, for the twelve-month period ending on the last day of each fiscal
quarter, a "Fixed Charge Coverage Ratio" of 1.2 to 1 through February 3, 1996
and thereafter and an "Interest Coverage Ratio" of not less than 1.2 to 1
through February 3, 1996 and thereafter. At February 3, 1996, the Company
maintained a Fixed Charge Coverage Ratio of 1.37 and an Interest Coverage Ratio
of 1.86 for the preceding twelve-month period. In addition, there were
limitations on the Company's ability to incur additional borrowings. The Company
was also required to repay the facility in full once each year and maintain a
zero principal balance for at least 30 days during such period.

F-13
<PAGE>

LOEHMANN'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTHS AND AUGUST 3, 1996
AND JULY 29, 1995)

9. DEBT--(CONTINUED)
Senior Notes

As part of the Offerings, the Company sold $100.0 million aggregate face
amount of 11 7/8% Senior Notes. The Senior Notes mature on May 15, 2003, are
limited to $100.0 million aggregate face amount and are unsecured senior
obligations of the Company, senior in right of payment to any subordinated
indebtedness of the Company. The Senior Notes bear interest at a rate of 11 7/8%
from May 10, 1996 or from the most recent interest payment date to which
interest has been paid, payable semiannually on May 15 and November 15 in each
year, commencing November 15, 1996.

During the second quarter of 1996, the Company purchased $5.0 million face
amount of the 11 7/8% senior notes on the open market incurring an extraordinary
loss of approximately $365,000 in connection with this purchase.

REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- -----------
<S> <C>
2000............................................................................ 105.938%
2001............................................................................ 102.969%
2002 and thereafter............................................................. 100.000%

</TABLE>

in each case, together with accrued and unpaid interests, if any, to the
redemption date (subject to the rights of holders of record on relevant record
dates to receive interest due on an interest payment date). The Senior Notes are
not entitled to the benefit of any sinking fund.

The Senior Notes Indenture contains certain covenants that, among other
things, limit the ability of the Company or any of its subsidiaries to incur
additional indebtedness, transfer or sell assets, pay dividends or make certain
other restricted payments, incur liens, enter into certain transactions with
affiliates or consummate certain mergers, consolidations or sales of all or
substantially all of its assets. In addition, subject to certain conditions, the
Company is obligated to make offers to repurchase the Senior Notes with the net
proceeds of certain asset sales. These covenants are subject to certain
exceptions and qualifications.

New Credit Agreement

Effective June 12, 1996, the Company amended and restated its credit
agreement with Bank-America Business Credit, Inc. (the "Bank") to provide the
Company with a new credit facility (the "New Credit Agreement"). The New Credit
Agreement provides for a $35.0 million revolving line of credit with interest
payable at the Company's option, on amounts drawn under the facility at either
the Bank's prime rate plus 0.75%, or LIBOR plus 2.2% at the Company's option.

The Company also is required to pay a per annum fee equal to 0.375% on the
undrawn portion of the Bank's commitments in respect of the New Credit
Agreement.

The New Credit Agreement is subject to certain borrowing base limitations,
subjects the Company to certain covenants, imposes limitations upon investments,
dividends and other restricted payments and capital expenditures. The New Credit
Agreement is occurred by substantially all of the Company's

F-14
<PAGE>

LOEHMANN'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTHS AND AUGUST 3, 1996
AND JULY 29, 1995)

9. DEBT--(CONTINUED)
assets, including accounts receivable, inventory, fixtures and equipment and is
not subject to scheduled annual repayments, except upon maturity. The New Credit
Agreement has a term of four years.

At August 3, 1996, outstanding borrowings under the New Credit Agreement
were approximately $2.8 million.

10. COMMITMENTS AND CONTINGENCIES

The Company is the lessee under various long-term operating leases for
store locations and equipment rentals for up to 29 years, including renewal
options. The leases typically provide for three five-year renewals that are
automatic unless the Company elects to terminate the lease. Rent expense related
to these leases amounted to $8.1 million, $7.4 million and $7.5 million for the
fiscal years ended February 3, 1996, January 28, 1995 and January 29, 1994,
respectively. Future minimum payments under noncancelable operating leases
consisted of the following at February 3, 1996:

(IN
THOUSANDS)
-------------
<S> <C>
1996.......................................................................... $ 10,066
1997.......................................................................... 11,639
1998.......................................................................... 11,337
1999.......................................................................... 10,605
2000.......................................................................... 9,733
Thereafter.................................................................... 110,946
-------------
Total......................................................................... $ 164,326
-------------
-------------
</TABLE>

11. STOCK OPTION PLAN

On September 30, 1988, the Company adopted the Loehmann's Holdings, Inc.
1988 Stock Option Plan, as amended on April 2, 1992, pursuant to which a
committee appointed by the Board of Directors is authorized to grant options to
purchase up to 1,077,000 shares of Common Stock to key employees and directors.
The following information pertains to the Company's stock option plan:

FISCAL YEAR ENDED
-------------------------------------
JANUARY 29, JANUARY 28, FEBRUARY 3,
1994 1995 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Outstanding options, beginning of year................................... 895,000 857,000 604,000
Granted.................................................................. 77,000 45,000 264,000
Canceled................................................................. (5,000) (18,000) (120,000)
Exercised................................................................ (110,000) (280,000) (19,000)
----------- ----------- -----------
Outstanding options, end of year......................................... 857,000 604,000 729,000
----------- ----------- -----------
----------- ----------- -----------
Options exercisable, end of year......................................... 400,000 354,000 432,000
----------- ----------- -----------
----------- ----------- -----------
Options available for future grant....................................... 77,000 50,000 42,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

F-15
<PAGE>

LOEHMANN'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTHS AND AUGUST 3, 1996
AND JULY 29, 1995)

11. STOCK OPTION PLAN--(CONTINUED)
Stock options are granted to officers and key employees based upon a price
determined by the Board of Directors of the Company. Compensation expense is
recorded in the period that options are earned.

The 729,000 options outstanding at February 3, 1996, vest equally over a
range of two to five years from the date of grant provided the individuals
remain in the employ of the Company. Options are exercisable at a price ranging
from $1.07 to $8.95. Options must be exercised within five years from the date
they are earned.

In addition to the aforementioned plan, 134,000 options were granted to a
key executive in fiscal 1995 pursuant to an individual plan. Such options have
an exercise price of $5.01 and vest equally over a three year period.

In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, which provides an
alternative to APB Opinion No. 25, Accounting for Stock Issued to Employees, in
accounting for stock-based compensation issued to employees. The Statement
allows for a fair value based method of accounting for employee stock options
and similar equity instruments. The Company has determined it will continue to
report stock-based compensation for all options that are earned under APB
Opinion No. 25. The Company expects that the adoption of FAS No. 123 would
result in increased compensation expense in future periods.

12. SERIES A PREFERRED STOCK AND CLASS B COMMON STOCK

The Series A Preferred Stock of Holdings was redeemable by Holdings at any
time at $.56 per share plus accrued and unpaid dividends. Holdings was required
to redeem 50% of the outstanding shares of Series A Preferred Stock on August 1,
1999 and the remainder of the outstanding shares of Series A Preferred Stock on
August 1, 2000, at a mandatory redemption price equal to the liquidation
preference per share of $.56 plus all accrued and unpaid cash dividends thereon.
Holders of the Series A Preferred Stock were entitled to receive a 5% semiannual
dividends payable in shares of preferred stock, through and including February
1, 1997, unless the Company's credit agreements permitted the payment of cash
dividends, and were payable in cash subsequent to the date, subject to
restrictions in the Company's credit agreements. The Company's indenture
pursuant to which the Senior Notes were issued prohibits and restricts the
payment of cash dividends. Fifteen stock dividends with respect to the Series A
Preferred Stock were declared and recorded during the period August 1, 1989 to
February 3, 1996, aggregating 19,412,939 shares. The accretion on the Preferred
Stock has been calculated using the effective interest method (see Note 3).

Each share of Class B Common Stock will be convertible into one share of
Common Stock, subject to adjustment at any time. Subject to restrictions
contained in the Company's various credit agreements, the Company will be
required to offer to repurchase the Class B Common Stock at its independently
appraised value. The Company's various credit agreements prohibit or restricted
any such repurchase.

13. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following summarizes the Company's results of operations for each
quarter of fiscal 1995 and 1994. The net income (loss) per share applicable to
Common Stock computation for each quarter is based on the weighted average
number of shares of Common and Class B Common shares outstanding. Accordingly,
the sum of the quarterly per share amounts may not equal the total per share
amount for

F-16
<PAGE>

LOEHMANN'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTHS AND AUGUST 3, 1996
AND JULY 29, 1995)

13. QUARTERLY FINANCIAL DATA (UNAUDITED)--(CONTINUED)
the respective years. In contemplation of the Company's offering to sell
3,572,000 shares of Common Stock (See Note 3), the impact of options granted in
the twelve month period preceding the offering are reflected in all quarterly
computations of net income (loss) applicable to common stock presented. The
Company's outstanding stock options granted prior to fiscal 1995 were not
included in the quarterly computations of net income (loss) applicable to Common
Stock as the market value of its Common Stock was estimated to be less than the
exercise price of all options granted or their effects were antidilutive.

Results of operations during the second and fourth quarters are
traditionally impacted by end of season clearance events. In addition, fourth
quarter operations are impacted by employee performance bonuses which were
earned as of February 3, 1996.

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED FEBRUARY 3, 1996
Net sales........................................................ $ 97,506 $ 89,426 $ 99,362 $ 99,796
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
Gross profit..................................................... $ 30,823 $ 26,882 $ 32,694 $ 29,802
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
Store closings and impairment of assets.......................... -- 15,300 -- --
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
Operating income (loss).......................................... $ 5,818 $ (11,934) $ 7,364 $ 2,048
Interest expense, net............................................ 4,422 4,533 4,460 4,738
--------- ---------- ----------- ---------
Income (loss) before income taxes................................ 1,396 (16,467) 2,904 (2,690)
Provision (benefit) for income taxes............................. 59 49 7 (9)
--------- ---------- ----------- ---------
Net income (loss)................................................ 1,337 (16,516) 2,897 (2,681)
Stock dividends on and accretion of preferred stock.............. 506 416 416 718
--------- ---------- ----------- ---------
Net income (loss) applicable to common stock..................... $ 831 $ (16,932) $ 2,481 $ (3,399)
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
Net income (loss) income per share applicable to common stock.... $ 0.16 $ (3.23) $ 0.47 $ (0.65)
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
FISCAL YEAR ENDED JANUARY 28, 1995
Net sales........................................................ $ 96,170 $ 90,798 $ 105,762 $ 99,876
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
Gross profit..................................................... $ 28,248 $ 26,419 $ 32,322 $ 27,219
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
Operating income................................................. $ 5,448 $ 3,334 $ 6,776 $ 1,055
Interest expense, net............................................ 4,612 4,454 4,528 4,491
--------- ---------- ----------- ---------
Income (loss) before income taxes................................ 836 (1,120) 2,248 (3,436)
Provision (benefit) for income taxes............................. 26 19 10 (21)
--------- ---------- ----------- ---------
Net income (loss)................................................ 810 (1,139) 2,238 (3,415)
Stock dividends on and accretion of preferred stock.............. 406 462 465 469
--------- ---------- ----------- ---------
Net income (loss) applicable to common stock..................... $ 404 $ (1,601) $ 1,773 $ (3,884)
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
Net (loss) income per share applicable to common stock........... $ 0.08 $ (0.32) $ 0.36 $ (0.74)
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
</TABLE>

F-17
<PAGE>

- ----------------------------------------
----------------------------------------
- ----------------------------------------
----------------------------------------

NO DEALER, REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR BY THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.

----------------------------
TABLE OF CONTENTS
----------------------------

PAGE
-----------
PROSPECTUS SUMMARY............................... 3
RISK FACTORS..................................... 7
THE COMPANY...................................... 11
USE OF PROCEEDS.................................. 12
PRICE RANGE OF COMMON STOCK...................... 12
DIVIDEND POLICY.................................. 12
CAPITALIZATION................................... 13
SELECTED CONSOLIDATED FINANCIAL AND OPERATING
DATA............................................ 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...................................... 17
BUSINESS......................................... 26
MANAGEMENT....................................... 37
PRINCIPAL AND SELLING STOCKHOLDERS............... 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS... 47
DESCRIPTION OF CAPITAL STOCK..................... 48
DESCRIPTION OF CERTAIN INDEBTEDNESS.............. 52
SHARES ELIGIBLE FOR FUTURE SALE.................. 53
UNDERWRITING..................................... 54
LEGAL MATTERS.................................... 55
EXPERTS.......................................... 55
ADDITIONAL INFORMATION........................... 55
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS...................................... 56
INDEX TO FINANCIAL STATEMENTS.................... F-1

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2,054,000 SHARES

[LOGO]
LOEHMANN'S

COMMON STOCK

---------------------

P R O S P E C T U S

---------------------

MONTGOMERY SECURITIES

SALOMON BROTHERS INC

ROBERTSON, STEPHENS & COMPANY

OCTOBER 15, 1996

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