CLOTHESTIME INC, DEF 14A, 1996-05-14

CLOTHESTIME INC
DEF 14A, 1996-05-14
WOMEN'S CLOTHING STORES

Previous: GLOBAL CASINOS INC, NT 10-Q, 1996-05-14

Next: IDS LIFE FLEXIBLE PAYMENT MARKET VALUE ANNUITY, 10-Q, 1996-05-14

<PAGE> 1

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant /X/

Filed by a Party other than the Registrant / /

Check the appropriate box:

<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>

THE CLOTHESTIME, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.

/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

---------------------------------------------------------------------
(5) Total fee paid:

---------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

---------------------------------------------------------------------
(3) Filing Party:

---------------------------------------------------------------------
(4) Date Filed:

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

<PAGE> 2

CLOTHESTIME

5325 E. HUNTER AVENUE
ANAHEIM, CALIFORNIA 92807

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

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

You are invited to attend the Annual Meeting of Stockholders of The
Clothestime, Inc. (the "Company") to be held at 10:00 A.M., California time, on
Friday, June 14, 1996, at the Company's principal executive offices, located at
5325 E. Hunter Avenue, Anaheim, California 92807 for the following purposes:

1. To elect two Class II directors to the Board of Directors to hold
office for a term of three years and until their respective successors are
elected and qualified.

2. To consider and act upon a proposal to ratify the selection of KPMG
Peat Marwick LLP, independent certified public accountants, as the
Company's auditors for the fiscal year ending January 25, 1997.

3. To transact such other business as may properly come before the
meeting or any adjournment thereof.

The Board of Directors nominates Norman Abramson and Herman D. Epstein as
the nominees for election to the Board of Directors as Class II directors.

The Board of Directors has fixed the close of business on April 24, 1996,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting.

EACH STOCKHOLDER IS CORDIALLY INVITED TO BE PRESENT AND TO VOTE AT THIS
ANNUAL MEETING IN PERSON. STOCKHOLDERS ARE REQUESTED TO SIGN, DATE
AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID AND ADDRESSED
ENVELOPE, WHETHER OR NOT THEY EXPECT TO ATTEND. IN THE EVENT A STOCKHOLDER WHO
HAS RETURNED A SIGNED PROXY ELECTS TO ATTEND THE ANNUAL MEETING AND VOTE IN
PERSON, THE STOCKHOLDER WILL BE ENTITLED TO VOTE.

By Order of the Board of Directors,

[SIG]
David A. Sejpal
Secretary

Anaheim, California
May 14, 1996
<PAGE> 3

CLOTHESTIME

5325 E. HUNTER AVENUE
ANAHEIM, CALIFORNIA 92807

PROXY STATEMENT

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

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of The Clothestime, Inc. (the "Company") to be
voted at the Annual Meeting of Stockholders of the Company to be held on Friday,
June 14, 1996, at the Company's principal executive offices, located at 5325 E.
Hunter Avenue, Anaheim, California 92807, at 10:00 A.M., California time, and at
any adjournments thereof (the "Annual Meeting"), for the purposes set forth in
the accompanying Notice of Annual Meeting of Stockholders and described herein.
The approximate date on which this Proxy Statement and the enclosed form of
proxy are first being sent or given to stockholders is May 14, 1996.

VOTING RIGHTS AND SOLICITATION OF PROXIES

The Board of Directors of the Company (the "Board of Directors" or the
"Board") has fixed the close of business on April 24, 1996, as the record date
for the determination of stockholders entitled to receive notice of, and to vote
at, the Annual Meeting (the "Record Date"). The only outstanding class of stock
of the Company is its common stock, par value $.001 per share ("Common Stock"),
and, at the Record Date, 14,198,241 shares were outstanding and 565,000 shares
were held as Treasury Shares. Each share of Common Stock, excluding Treasury
Shares, entitles the record holder on the Record Date to one vote on all
matters. With respect to the election of directors only (Proposal 1),
stockholders may vote in favor of all nominees or withhold their votes as to all
nominees or withhold their votes as to specific nominees.

The Bylaws of the Company set forth certain procedures relating to the
nomination of directors (the "Nomination Bylaw"), and no person shall be
eligible for election as a director unless nominated in accordance with the
provisions of the Nomination Bylaw.

Nominations of persons for election to the Board of Directors may be made
by (i) the Board of Directors or a committee appointed by the Board of Directors
or (ii) any stockholder who is a stockholder of record at the time of giving the
notice provided for in the Nomination Bylaw, who shall be entitled to vote for
the election of directors at the meeting and who complies with the notice
procedures set forth in the Nomination Bylaw.

Nominations by stockholders shall be made pursuant to timely notice in
proper written form to the Secretary of the Company. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Company (i) in the case of an annual meeting,
not less than 60 days nor more than 90 days prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which
public announcement is first made of the date of the meeting, and (ii) in the
case of a special meeting at which directors are to be elected, not later than
the close of business on the 10th day following the day on which public
announcement is first made of the date of the meeting. To be in proper written
form, such stockholder's notice shall set forth or include (i) the name and
address, as they appear on the Company's books, of the stockholder giving the
notice and of the beneficial owner, if any, on whose behalf the nomination is
made; (ii) a representation that the stockholder giving the notice is a holder
of record of stock of the Company entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (iii) the class and number of shares of stock of the
Company owned beneficially and of record by the stockholder giving the notice
and by the beneficial owner, if any, on whose behalf the nomination is made;
(iv) a description of all arrangements or understandings between or among any of
(A) the stockholder giving the notice, (B) the beneficial owner on whose behalf
the notice is given, (C) each nominee, and (D) any other person or persons
(naming such
<PAGE> 4

person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder giving the notice; (v) such other information regarding
each nominee proposed by the stockholder giving the notice as would be required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the Board of Directors; and (vi) the signed consent of each
nominee to serve as a director of the Company if so elected. At the request of
the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Company that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. The presiding officer of the meeting for election
of directors shall, if the facts warrant, determine that a nomination was not
made in accordance with the procedures prescribed by the Nomination Bylaw, and
if he should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provision, a
stockholder also shall comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in the Nomination Bylaw.

Any stockholder giving a proxy has the power to revoke the proxy prior to
its exercise. A proxy may be revoked (i) by delivering to the Secretary of the
Company, David A. Sejpal, at or prior to the Annual Meeting, an instrument of
revocation or a duly executed proxy bearing a date or time later than the date
or time of the proxy being revoked or (ii) at the Annual Meeting if the
stockholder is present and elects to vote in person. Mere attendance at the
Annual Meeting will not serve to revoke a proxy.

All proxies received and not revoked will be voted as directed. If no
directions are specified, such proxies will be voted "FOR" (i) election of the
Board's two nominees for Class II directors and (ii) ratification of the
selection of KPMG Peat Marwick LLP, independent certified public accountants, as
the Company's auditors for the fiscal year ending January 25, 1997 ("Fiscal
1996"). As to any other business which may properly come before the Annual
Meeting, the persons named in such proxies will vote in accordance with their
best judgment, although the Company does not presently know of any other such
business.

A majority of the outstanding shares of Common Stock entitled to vote must
be represented in person or by proxy at the Annual Meeting in order to
constitute a quorum for the transaction of business. Abstentions and non-votes
will be counted for purposes of determining the existence of a quorum at the
Annual Meeting. Each of the two candidates for election as directors will be
elected by the affirmative vote of a plurality of the shares of Common Stock
present in person or by proxy, entitled to vote and actually voting at the
Annual Meeting. The affirmative vote of a majority of the shares of Common Stock
present in person or by proxy, entitled to vote and actually voting on each of
the proposals (other than the election of directors) is required for the
adoption or ratification of each proposal. Abstentions will be counted as votes
against any of the proposals as to which a stockholder abstains, but non-votes
will have no effect on the voting with respect to any proposal as to which there
is a non-vote. A non-vote may occur when a nominee holding shares of Common
Stock for a beneficial owner does not vote on a proposal because such nominee
does not have discretionary voting power and has not received instructions from
the beneficial owner.

The expenses of soliciting proxies for the Annual Meeting are to be paid by
the Company. Solicitation of proxies may be made by means of personal calls
upon, or telephonic or telegraphic communications with, stockholders or their
personal representatives by directors, officers and employees of the Company who
will not be specially compensated for such services. The Company will utilize
the services of Morrow & Co. to assist in the solicitation of proxies in
connection with this Proxy Statement and such firm will receive a fee estimated
to be $4,000 and will be reimbursed for out-of-pocket expenses. Although there
is no formal agreement to do so, the Company may reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses in forwarding this Proxy Statement to stockholders whose Common Stock
is held of record by such entities.

2
<PAGE> 5

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table contains certain information as of the Record Date
regarding all persons who, to the knowledge of the Company, were the beneficial
owners of more than 5% of the outstanding shares of Common Stock, each of the
directors of the Company, each nominee for director, each of the executive
officers named in the Summary Compensation Table set forth herein under the
caption "Compensation of Executive Officers" and all directors and executive
officers as a group. The persons named hold sole voting and investment power
with respect to the shares shown opposite their respective names, unless
otherwise indicated. The information with respect to each person specified is as
supplied or confirmed by such person or based upon statements filed with the
Securities and Exchange Commission (the "SEC").

<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP(1)(2) CLASS(1)(2)
-------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Dimensional Fund Advisors Inc.(3)....................... 756,000 5.3%
Raymond A. DeAngelo(4)(5)(6)............................ 1,078,000 7.3%
Class I Director:
George Foos(7)........................................ 53,000 *
Class II Directors/Nominees:
Norman Abramson(7).................................... 327,412 2.3%
Herman D. Epstein(8).................................. 27,499 *
Class III Directors:
John Ortega II(9)(10)................................. 2,542,933 17.3%
David A. Sejpal(7).................................... 173,200 1.2%
Jeffrey R. Dake(7)...................................... 83,200 *
Charles Castaneda(7).................................... 5,000 *
Barry Grosser(11)....................................... 0 0
Lynne Sperling(12)...................................... 0 0
All directors and executive officers as a group
(9 persons)(13)....................................... 3,212,244 20.85%
</TABLE>

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

* less than 1%.

(1) Subject to applicable community property and similar statutes.

(2) Includes (a) shares beneficially owned, whether directly or indirectly,
individually or together with associates, and (b) shares of which
beneficial ownership may be acquired within 60 days of the Record Date by
exercise of stock options ("Stock Option Shares").

(3) Dimensional Fund Advisors Inc. ("DFA"), 1299 Ocean Avenue, 11th Floor,
Santa Monica, California 90401, filed a Schedule 13G with the SEC on or
about February 7, 1996. Certain persons who are officers of DFA also serve
as officers of DFA Investment Dimensions Group Inc. (the "Fund") and The
DFA Investment Trust Company (the "Trust"), each an open-end management
investment company registered under the Investment Company Act of 1940. DFA
has sole voting power over 535,400 shares, and the officers of DFA who
serve as officers of the Fund and the Trust vote 97,200 additional shares
owned by the Fund and 123,400 additional shares owned by the Trust. DFA has
sole dispositive power over all 756,000 shares.

(4) The mailing address of such stockholder is in the care of R.A.D. &
Associates, 4721 East Copa De Oro Drive, Anaheim, California 92807.

(5) Includes 583,333 Stock Option Shares.

(6) For the period from January 6, 1995 through January 6, 1997, Mr. Raymond
DeAngelo has agreed pursuant to a Settlement and Release Agreement with the
Company to vote all shares held of record or beneficially for nominees to
the Board of Directors of the Company in the same proportion as the votes
cast for the election of the members of the Board by the holders of Common
Stock. The Company has not made any payments in connection with the
Settlement and Release Agreement since December 8,

(Footnotes continued on the following page)

3
<PAGE> 6

(Footnotes continued from the preceding page)

1995, the date on which the Company and certain of its subsidiaries filed
petitions in the United States Bankruptcy Court for the Central District of
California, Santa Ana Division, seeking reorganization under chapter 11 of
the Bankruptcy Code (defined below). Such payments constitute payments on
prepetition claims, which are prohibited by the Bankruptcy Code.
Accordingly, Mr. DeAngelo may take the position that he is not required to
perform his obligations under the Settlement and Release Agreement,
including provisions requiring him to vote all shares held of record or
beneficially in accordance with the Settlement and Release Agreement. See
"Transactions with Management and Others".

(7) All Stock Option Shares.

(8) Includes 19,999 Stock Option Shares.

(9) The mailing address of such stockholder is in care of The Clothestime,
Inc., 5325 E. Hunter Avenue, Anaheim, California 92807.

(10) Includes 543,333 Stock Option Shares.

(11) Mr. Grosser ceased to be an executive officer and an employee of the
Company on December 21, 1995.

(12) Ms. Sperling ceased to be an executive officer and an employee of the
Company on December 14, 1995.

(13) Includes 1,205,144 Stock Option Shares.

ELECTION OF DIRECTORS

PROPOSAL 1

Under the Company's Certificate of Incorporation (the "Certificate") and
Bylaws (the "Bylaws"), which provide for a "classified" Board, two persons,
Norman Abramson and Herman D. Epstein, have been nominated by the Board of
Directors for election at the Annual Meeting to serve a three year term expiring
at the annual meeting in 1999 and until their respective successors are elected
and qualified. A plurality of the votes cast at the Annual Meeting is required
for election of each nominee.

The Bylaws presently provide for five directors. Currently, there is one
Class I director (Mr. Foos), whose term expires at the 1998 annual meeting of
stockholders; two Class II directors (Messrs. Abramson and Epstein), whose term
expires at the Annual Meeting; and two Class III directors (Messrs. Ortega and
Sejpal), whose term expires at the 1997 annual meeting of stockholders.

On December 8, 1995, the Company and five of its subsidiaries (including
Clothestime Stores, Inc., the subsidiary of the Company which conducts its
retail operations ("Stores") and MRJ Industries, Inc., a distribution,
purchasing and management services subsidiary of the Company ("MRJ")) filed
petitions in the United States Bankruptcy Court for the Central District of
California, Santa Ana Division (the "Bankruptcy Court"), seeking reorganization
under chapter 11 of the Federal Bankruptcy Code (the "Bankruptcy Code"). The
Company and such subsidiaries are being operated as debtors-in-possession under
the Code. Each of the current directors of Company, including the two nominees,
were serving as directors of the Company at the time of such filings.

Each of the two nominees presently serves as a Class II director and has
served continuously as a director of the Company since the date indicated in his
biography below. In the event any nominee is unable to or declines to serve as a
director at the time of the Annual Meeting (which is not anticipated), the
persons named in the proxy will vote for the election of such person or persons
as may be designated by the present Board of Directors. UNLESS OTHERWISE
DIRECTED IN THE ACCOMPANYING PROXY, THE PERSONS NAMED THEREIN WILL VOTE FOR THE
ELECTION OF THE TWO DIRECTOR NOMINEES LISTED BELOW.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
NORMAN ABRAMSON AND HERMAN D. EPSTEIN AS CLASS II DIRECTORS.

4
<PAGE> 7

INFORMATION WITH RESPECT TO THE CLASS II DIRECTOR NOMINEES

The following table sets forth information regarding the nominees,
including age on the date of the Annual Meeting, present position with the
Company, period served as a director and other business experience during the
past five years.

<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION AND OTHER
NAME AGE SINCE INFORMATION CONCERNING NOMINEE
- ----------------------- --- -------- ------------------------------------------------------
<S> <C> <C> <C>
Norman Abramson........ 56 1986 Mr. Abramson has been the President and Chief
Operating Officer of the Company since February 1987.
In addition, Mr. Abramson serves as a director and
President, Chief Operating Officer and Secretary of
both MRJ and Stores, positions he has held since
December 1993. Mr. Abramson also served as Executive
Vice President and Chief Operating Officer of the
Company from April 1986 to February 1987 and Secretary
of the Company from March 1991 to April 1995.
Herman D. Epstein...... 68 1992 Mr. Epstein has been the Chairman of the Board of HDE
Associates, a realty investment company, since
September 1988. In addition, Mr. Epstein serves as a
consultant to Elite, Inc., a private transportation
firm, a position which he has held since October 1988.
Mr. Epstein served as Vice Chairman, Director and
Chief Merchandising Executive of Lerner Stores, Inc.
from October 1983 to November 1986 and as a consultant
with Lerner Stores, Inc. from December 1986 to January
1988. From July 1988 to December 1992, Mr. Epstein
served as a consultant to the Company.
</TABLE>

INFORMATION WITH RESPECT TO DIRECTORS WHOSE TERMS CONTINUE

The following table sets forth similar information regarding the members of
the Board of Directors who are designated either Class I or Class III Directors
and are continuing in office as Directors of the Company.

5
<PAGE> 8

<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION AND OTHER
NAME AGE SINCE INFORMATION CONCERNING INCUMBENT
- ----------------------- --- -------- ------------------------------------------------------
<S> <C> <C> <C>
Class III Directors -- Term Expiring at the 1997 Annual Meeting
John Ortega II......... 47 1978 Mr. Ortega, one of the founders of the Company, has
been Chairman of the Board of Directors, a director
and an executive officer position, since September
1990. In addition, Mr. Ortega serves as a director and
Chairman of the Board, a director and officer
position, of MRJ, and as a director and Chairman of
the Board and Chief Executive Officer of Stores,
positions he has held since December 1993. In January
1995, Mr. Ortega was elected Chief Executive Officer
of the Company and MRJ. Mr. Ortega was Vice Chairman
of the Board of the Company, a director and an
executive officer position, from September 1982 to
September 1990 and Vice President and Chief Financial
Officer of the Company from its inception to September
1982.
David A. Sejpal........ 38 1995 Mr. Sejpal has served as a Vice President of the
Company since June 1991 and its Chief Financial
Officer since December 1990. Mr. Sejpal also has
served as the Company's Treasurer since May 1991 and
Secretary since April 1995. In addition, Mr. Sejpal
serves as Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary of MRJ, positions he
has held since December 1993. Mr. Sejpal served as
Corporate Controller of the Company from September
1988 to December 1990 and Director of Finance from
December 1986 to September 1988.
</TABLE>

6
<PAGE> 9

INFORMATION ABOUT THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD

MEETINGS OF THE BOARD AND ITS COMMITTEES

The Board of Directors manages the business of the Company. It establishes
overall policies and standards for the Company and reviews the performance of
management. The Board has established several committees whose functions are
briefly described below. The directors are kept informed of the Company's
operations at meetings of the Board and its committees through reports and
analyses and discussions with management.

The Board of Directors meets on a regular basis and during the fiscal year
ended January 27, 1996 (the "Fiscal Year" or "Fiscal 1995") met on five
occasions.

Executive Committee. The Executive Committee has all the power and
authority of the Board of Directors with respect to the day-to-day management of
the business, as well as the authority to handle the third-party financing needs
of the Company, to open and close new stores (including entering into leasehold
commitments), to consummate certain acquisitions and to review and approve all
compensation policies, plans and arrangements for all non-officer personnel
(except to the extent of determining bonus compensation of certain non-officer
employees who are eligible to participate in the annual incentive bonus plan
which is administered by the Compensation Committee). The members of the
Executive Committee are Norman Abramson and John Ortega II (Chairman). During
the Fiscal Year, the Executive Committee met informally on a regular basis.

Audit Committee. The principal duties of the Audit Committee are to
nominate the firm of independent public accountants as auditors of the books,
records and accounts of the Company; to meet with the independent accountants to
review and approve the scope of their audit engagement and the fees related to
such work; to meet with the Company's financial management and independent
accountants to review matters relating to internal accounting controls, the
Company's accounting practices and procedures and other matters relating to the
financial condition of the Company and its subsidiaries; and to report to the
Board periodically any recommendations the Audit Committee may have with respect
to such matters. The members of the Audit Committee are Norman Abramson, Herman
D. Epstein and George Foos (Chairman). During the Fiscal Year, the Audit
Committee held one meeting.

Compensation Committee. The Compensation Committee is comprised of all
non-employee directors, each of whom has never been an officer or employee of
the Company. The members of the Compensation Committee are Herman D. Epstein
(Chairman) and George Foos. The principal functions of the Compensation
Committee are to evaluate the performance of the Company's officers, including
the members of the Executive Committee, and to approve the Company's
compensation plans and arrangements relating to such persons, including, but not
limited to, approval of loans to, or guarantying the obligations of, such
officers. The Compensation Committee also administers and makes compensation
determinations under (i) all of the Company's stock option plans and (ii) the
Company's annual incentive bonus plan. In addition, it has authority to
determine the Company's contribution under the Company's Associates Savings and
Investment Plan. The Compensation Committee met four times during the Fiscal
Year.

Corporate Expansion Committee. The principal duties of this Committee are
to represent the interests of the Company in connection with real estate-related
transactions between the Company and certain partnerships comprised of certain
current and former executive officers and directors of the Company. The members
of this Committee, each a non-employee director, are Herman D. Epstein and
George Foos (Chairman). The Corporate Expansion Committee did not meet during
the Fiscal Year; however, it did take action by Unanimous Written Consent once
during Fiscal 1995.

Each director attended at least 75% of the aggregate of (i) the total
number of meetings of the Board of Directors held during the Fiscal Year and
(ii) the total number of meetings held by all committees of the Board on which
he served during the Fiscal Year.

7
<PAGE> 10

COMPENSATION OF DIRECTORS

Directors who are also employees of the Company are not paid any fees or
remuneration, as such, for service on the Board or on any Board Committee.

Cash Compensation. In Fiscal 1995, each non-employee director received a
monthly retainer of $1,500 for the months of February to April, 1995 and $4,500
for the months of May 1995 to January 1996. The increase in the monthly retainer
related to the additional time commitment asked of the outside members of the
Board during a period of significant reengineering of the Company. Effective in
February 1996, such monthly retainer reverted to $1,500. In addition, each
non-employee director received $1,500 for each Board meeting that he attended
and $750 for each telephonic Board meeting in which he participated. Each non-
employee director also received $1,000 for each committee meeting that he
attended in person as a member, $2,000 for each committee meeting that he
attended in person and chaired and $750 for each telephonic committee meeting in
which he participated.

Non-Employee Directors Nonqualified Stock Option Plan. Each non-employee
director is eligible to receive stock options under the Company's Nonqualified
Stock Option Plan for Non-Employee Directors (the "Plan"), a non-discretionary
formula stock option plan. Each director who is a non-employee director who
holds office immediately after the Company's annual meeting of stockholders
receives an option to purchase 10,000 shares of Common Stock, subject to the
limitation that the aggregate number of shares of Common Stock for which options
may be granted to any non-employee director under the Plan shall not exceed an
amount which when added to all prior option grants (whether or not exercised)
relating to the Common Stock granted to such non-employee director during the
lifetime of his service to the Company (whether under the Plan or under another
Company employee benefit plan) equals 60,000 shares. The price per share at
which an option may be exercised is the fair market value per share on the date
the option is granted and each option granted shall vest pro rata over a
three-year period. Upon the occurrence of any event or series of events in
connection with a tender offer, merger, consolidation, sale, reorganization,
dissolution or other event or series of events which, in the opinion of the
Board of Directors, will or is likely to, if carried out, result in a change of
control of the Company or if during a period of two consecutive years,
individuals who at the beginning of such period constituted the directors of the
Company cease for any reason to constitute a majority thereof (subject to
certain exceptions set forth in the Plan), the options shall, notwithstanding
the three-year vesting period, become immediately exercisable in full.

8
<PAGE> 11

COMPENSATION OF EXECUTIVE OFFICERS

The following table discloses compensation received for the three fiscal
years ended January 27, 1996 ("Fiscal 1995"), January 28, 1995 ("Fiscal 1994")
and January 29, 1994 ("Fiscal 1993"), respectively, by the Company's Chief
Executive Officer during Fiscal 1995, the four most highly-paid executive
officers, other than the Chief Executive Officer, who were serving as executive
officers at the end of Fiscal 1995 and two additional individuals who would have
been among the four most highly-paid executive officers, other than the Chief
Executive Officer, but for the fact that they were not serving as executive
officers at the end of Fiscal 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
------------------------------------ -----------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(2) (#) ($)(3)
- ------------------------------------ ---- -------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
John Ortega II...................... 1995 $470,962 $ -0- $ 59,794 -0- $ 2,160
Chairman of the Board and 1994 470,962 -0- 60,482 -0- 2,160
Chief Executive Officer 1993 470,962 241,884 7,542 250,000 124,474
Norman Abramson..................... 1995 386,826 -0- 13,992 200,000 4,639
President and Chief 1994 386,826 -0- 11,103 -0- 4,657
Operating Officer 1993 386,826 119,849 10,578 109,000 107,978
David A. Sejpal..................... 1995 250,000 50,000 5,878 -0- 1,444
Vice President -- Chief 1994 227,076 -0- 32,418 100,000 1,203
Financial Officer 1993 184,923 68,442 4,219 142,000 50,546
Lynne Sperling...................... 1995 258,101 -0- -0- 100,000 -0-
Vice President -- General 1994 -0- -0- -0- -0- -0-
Merchandise Manager(4) 1993 -0- -0- -0- -0- -0-
Barry Grosser....................... 1995 227,346 -0- -0- 20,000 -0-
Vice President -- Store 1994 240,915 -0- -0- -0- -0-
Operations(5) 1993 234,923 23,500 -0- 29,000 14,363
Jeffrey R. Dake..................... 1995 194,000 -0- 36,353 -0- 2,075
Vice President -- Real Estate 1994 194,000 -0- 34,316 -0- 319
and Construction 1993 187,822 18,509 31,285 55,000 28,643
Charles Castaneda................... 1995 138,019 10,000 34,800 10,000 -0-
Vice President -- Merchandise 1994 60,110 -0- 6,995 25,000 -0-
Planning and Control(6) 1993 -0- -0- -0- -0- -0-
</TABLE>

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

(1) Portions of annual compensation for Fiscal 1993 were deferred under the
Company's non-qualified deferred compensation plan which was terminated in
Fiscal 1994.

(2) The amounts disclosed in this column include:

(a) With respect to Mr. Ortega, the Fiscal 1995 and 1994 amounts reflect
tax gross-up payments relating to term and universal life insurance and
long term disability insurance in the amounts of $8,671 and $7,717,
respectively, and payments relating to perquisites in the amounts of
$51,123 and $52,765, respectively. The amounts attributable to
perquisites include a non-accountable automobile allowance in the
amount of $30,000 for each of Fiscal 1995 and 1994, and premiums for
supplemental executive health insurance in the amount of $14,472 for
each of Fiscal 1995 and 1994; the remaining perquisites and the related
amounts do not meet the disclosure threshold established by the SEC.
The Fiscal 1993 amount reflects tax gross-up payments relating to term
and universal life insurance and long term disability insurance;
perquisites provided to Mr. Ortega in Fiscal 1993 under various Company
programs do not meet the disclosure threshold established by the SEC.

(b) With respect to Mr. Abramson, the Fiscal 1995, 1994 and 1993 amounts
reflect tax gross-up payments relating to term and universal life
insurance and long term disability insurance. Perquisites provided to
Mr. Abramson in each of Fiscal 1995, 1994 and 1993 under various
Company programs do not meet the disclosure threshold established by
the SEC.

(Footnotes continued on the following page)

9
<PAGE> 12

(Footnotes continued from the preceding page)

(c) With respect to Mr. Sejpal, the Fiscal 1995 and 1993 amounts reflect
tax gross-up payments relating to term and universal life insurance and
long term disability insurance; perquisites provided to Mr. Sejpal in
each of Fiscal 1995 and 1993 under various Company programs do not meet
the disclosure threshold established by the SEC. The Fiscal 1994 amount
reflects tax gross-up payments relating to term and universal life
insurance and long term disability insurance in the amount of $4,475
and payments relating to perquisites in the amount of $27,943. The
amount attributable to perquisites includes a non-accountable
automobile allowance in the amount of $8,400 and premiums for
supplemental executive health insurance in the amount of $14,472; the
remaining perquisites and the related amounts do not meet the
disclosure threshold established by the SEC.

(d) Perquisites provided to Ms. Sperling in Fiscal 1995 under various
Company programs do not meet the disclosure threshold established by
the SEC. Ms. Sperling was not employed by the Company in Fiscal 1994
and 1993.

(e) Perquisites provided to Mr. Grosser in each of Fiscal 1995, 1994 and
1993 under various Company programs do not meet the disclosure
threshold established by the SEC.

(f) With respect to Mr. Dake, the Fiscal 1995 amount reflects tax gross-up
payments relating to term and universal life insurance and long-term
disability insurance in the amount of $6,288 and payments relating to
perquisites in the amount of $30,065. The amount attributable to
perquisites includes a non-accountable automobile allowance in the
amount of $8,400 and premiums for supplemental executive health
insurance in the amount of $14,472; the remaining perquisites and the
related amounts do not meet the disclosure threshold established by the
SEC. The Fiscal 1994 and 1993 amounts reflect tax gross-up payments
relating to term and universal life insurance, long term disability
insurance and the lease of an apartment for Mr. Dake in the amounts of
$7,818 and $7,583, respectively, and payments relating to perquisites
in the amounts of $26,498 and $23,702, respectively. The amounts
attributable to perquisites include a non-accountable automobile
allowance in the amount of $8,400 for each of Fiscal 1994 and 1993, and
rent payments for the lease of an apartment for Mr. Dake in the amount
of $7,740 for each of Fiscal 1994 and 1993; the remaining perquisites
and the related amounts do not meet the disclosure threshold
established by the SEC.

(g) With respect to Mr. Castaneda, the Fiscal 1995 amount reflects
perquisites, including payments for moving expenses in the amount of
$29,608; the remaining perquisites and the related amounts do not meet
the disclosure threshold established by the SEC. The Fiscal 1994 amount
reflects perquisites consisting entirely of payments for moving
expenses in the amount of $6,995. Mr. Castaneda was not employed by the
Company in Fiscal 1993.

(3) The Fiscal 1995 amounts disclosed in this column include payment by the
Company in Fiscal 1995 of premiums for term life insurance on behalf of
Messrs. Ortega, Abramson, Sejpal and Dake in the amounts of $2,160, $4,639,
$1,444 and $2,075, respectively.

(4) Ms. Sperling ceased to be Vice President-General Merchandise Manager and an
employee of the Company on December 14, 1995.

(5) Mr. Grosser ceased to be Vice President-Store Operations and an employee of
the Company on December 21, 1995.

(6) Mr. Castaneda was hired by the Company in August 1994.

10
<PAGE> 13

STOCK OPTIONS

During Fiscal 1995, no options were granted to John Ortega II, the Chief
Executive Officer of the Company. Of the other named executive officers, only
Norman Abramson, Lynne Sperling, Barry Grosser and Charles Castaneda were
granted options during the Fiscal Year. Accordingly, the following table
includes the number of options granted to Messrs. Abramson, Grosser and
Castaneda and Ms. Sperling during Fiscal 1995. Also reported are the exercise
price, expiration date and the grant date value of the options.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------- GRANT DATE
NUMBER OF % OF TOTAL VALUE
SECURITIES OPTIONS/SARS ----------
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE VALUE $(2)
- -------------------------- ------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Norman Abramson........... 200,000(3)(5) 32.44% $3.1875 09/22/2005 $544,000(8)
Lynne Sperling............ 100,000(4)(5) 16.22 2.750 03/08/2005(6) 233,000(8)
Barry Grosser............. 20,000(4)(5) 3.24 3.1875 09/22/2005(7) 54,400(8)
Charles Castaneda......... 10,000(4)(5) 1.62 3.1875 09/22/2005 27,200(8)
</TABLE>

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

(1) All options were granted at the market price on the date of grant.

(2) This value was calculated by William M. Mercer Incorporated using the
Black-Scholes option pricing model. The actual value, if any, the executive
may realize will depend on the excess of the stock price over the exercise
price on the date the option is exercised; accordingly, there is no
assurance that the value realized by the executive will be at or near the
value estimated by the Black-Scholes model. See also footnote 8 below.

(3) Nonqualified stock options which vest pro rata over a three-year period from
the date of grant.

(4) Nonqualified stock options which vest pro rata over a five-year period from
the date of grant.

(5) Upon a filing pursuant to any federal or state law in connection with any
tender offer for shares of the Company (other than a tender offer by the
Company) or upon the signing of any agreement for the merger or
consolidation of the Company with another corporation or for the sale of all
or substantially all of the assets of the Company or upon adoption of any
resolution of reorganization or dissolution of the Company by the
stockholders or upon the occurrence of any other event or series of events,
which tender offer, merger, consolidation, sale, reorganization, dissolution
or other event or series of events, in the opinion of the Board of
Directors, will, or is likely to, if carried out result in a change of
control of the Company or if during a period of two consecutive years,
individuals who at the beginning of such period constituted the directors of
the Company cease for any reason to constitute a majority thereof (subject
to certain exceptions set forth in the Plan), the options shall,
notwithstanding the installment provisions, become immediately exercisable
in full.

(6) Original term was set to expire on March 8, 2005; however, Ms. Sperling
ceased to be an employee of the Company on December 14, 1995, causing early
termination of the options on March 14, 1996.

(7) Original term was set to expire on September 22, 2005; however, Mr. Grosser
ceased to be an employee of the Company on December 21, 1995, causing early
termination of the options on March 21, 1996.

(8) The estimated values under the Black-Scholes model are based on the
following assumptions: (a) a dividend yield equal to 0.0% because the
Company had no dividends at the time of grant; (b) the option will not be
exercised until the date of expiration; (c) volatility expressed as standard
deviation of the stock price calculated over 180 days prior to the date of
grant as set forth below; (d) a riskless rate of return equal to the rate
for a Treasury Bond having the same term as the option grant as set forth
below; (e) no discount for vesting restrictions on the option grant; and (f)
options for Ms. Sperling and Mr. Grosser valued based on the full term of
the options on the date of grant.

<TABLE>
<CAPTION>
EXPIRATION RISKLESS RATE
EXERCISE PRICE DATE VOLATILITY OF RETURN
-------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
$3.1875 09/22/2005 0.805 6.2%
2.750 03/08/2005 0.770 7.2
</TABLE>

11
<PAGE> 14

The following table includes the number of shares acquired by the named
executive officers upon exercise of stock options and the aggregate dollar value
realized upon such exercise during Fiscal 1995 and the number of shares covered
by both exercisable and unexercisable stock options as of January 27, 1996 for
the named executive officers. Also reported are the values for "in-the-money"
options which represent the positive spread between the exercise price of any
existing stock options and the year-end price of the Common Stock.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FY-END(#) FY-END($)(1)(2)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John Ortega II.......... -0- $ -0- 473,333 110,000 $ -0- $ -0-
Norman Abramson......... -0- -0- 291,078 236,334 -0- -0-
David A. Sejpal......... -0- -0- 156,800 165,200 -0- -0-
Lynne Sperling.......... -0- -0- -0- 100,000 -0- -0-
Barry Grosser........... -0- -0- 43,600 45,400 -0- -0-
Jeffrey R. Dake......... -0- -0- 72,200 33,000 -0- -0-
Charles Castaneda....... -0- -0- 5,000 30,000 -0- -0-
</TABLE>

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

(1) Represents the positive difference between the closing price of the Common
Stock on Friday, January 26, 1996 (the last stock trading day of the Fiscal
Year) and the exercise price of the options.

(2) Excludes the value of all unexercised options for which the fair market
value of the Common Stock on January 26, 1996 was less than the exercise
price of the options.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS

Pursuant to an employment agreement entered into on April 13, 1994 (the
"Agreement"), unless otherwise stated herein, Norman Abramson, President, Chief
Operating Officer and a director, is (i) entitled to an initial base salary of
$386,826 per year, based on a 52 week year, which is subject to review and
upward adjustment as determined annually by the Compensation Committee of the
Board of Directors; (ii) eligible to participate in any of the Company's cash
bonus plans, 401(k) Plan and such other similar plans as may be adopted by the
Company; (iii) eligible at the end of each year for payment of a discretionary
performance bonus; (iv) eligible to participate in all of the Company's long
term incentive compensation plans; (v) entitled to an automobile allowance of at
least $8,400 per year; (vi) eligible to participate in, and be covered by, all
other employee benefits generally provided to a member of the Executive
Committee of the Company, and (vii) entitled to reimbursement for all expenses
incurred in relation to the business of the Company. The initial term of the
Agreement expired May 30, 1995; however, on such date the term of the Agreement
was automatically extended for an additional period of one year, and on the 30th
day of May of each year thereafter (unless the Agreement is previously
terminated), the term of the Agreement shall be automatically extended for an
additional period of one year unless either party shall provide the other with
at least thirty days written notice prior to such May 30th of the party's intent
to terminate the Agreement. Notwithstanding the foregoing, the Agreement (i) may
be terminated by the Company at any time upon written notice for cause (i.e.,
misappropriation of the Company's assets resulting in a material loss to the
Company); (ii) shall automatically terminate upon Mr. Abramson's death; and
(iii) may be terminated by Mr. Abramson upon sixty days prior written notice. In
addition, Mr. Abramson's term of employment may be terminated without cause upon
thirty days prior written notice by the Company. In the event the Company shall
give written notice of its intent not to extend the term of the Agreement for an
additional term of one year, or otherwise gives notice of termination without
cause, Mr. Abramson shall receive his full salary for the month in which he is
terminated and thereafter shall be entitled to receive for a period of twelve
months his full base salary and the health, life, disability, insurance benefits
and other employee benefits described above ("Termination Benefits"). During
such twelve month continuation period, Mr. Abramson will provide advisory
services from time to time to the Chairman of the Board and the Chief Executive
Officer of the Company as reasonably requested by such individuals and
acceptable in timing and scope to Mr. Abramson. If Mr. Abramson accepts

12
<PAGE> 15

employment from any other party during the twelve month continuation period, the
cash salary and Termination Benefits will immediately terminate on the date on
which such new employment commences and Mr. Abramson will receive a lump sum
severance payment equal to 80% of the balance of the continued salary then
payable to him.

If either the Company elects to terminate Mr. Abramson without cause within
90 days before or one year after a Change in Control (as hereinafter defined) or
Mr. Abramson elects to resign with good reason (as defined in the Agreement)
within one year after a Change in Control, the Company shall (i) pay Mr.
Abramson an aggregate amount equal to twelve months of his base salary then in
effect and any bonus amount earned pursuant to the Company's annual incentive
bonus plan which would otherwise be paid during the twelve month period
commencing on the day of the termination or resignation in connection with the
Change in Control, and (ii) provide Mr. Abramson all Termination Benefits. In
addition, with respect to all options or awards granted to Mr. Abramson under
the Company's stock based compensation plans, upon a Change of Control, the date
of exercisability of each outstanding option and the date on which all vesting
or performance restrictions lapse on any stock award shall be immediately
accelerated. As used in the Agreement, subject to certain exceptions, the term
"Change of Control" means: (i) a merger, consolidation or reorganization of the
Company into or with another corporation or other legal person and as a result
of such merger, consolidation or reorganization less than a majority of the
combined voting power of the then outstanding securities of such corporation or
person immediately after such transaction are held directly or indirectly in the
aggregate by the holders of Voting Stock (as defined below) of the Company
immediately prior to such transaction; (ii) the Company sells all or
substantially all of its assets to any other corporation or other legal person,
less than a majority of the combined voting power of the then outstanding voting
securities of which are held directly or indirectly in the aggregate by the
holders of Voting Stock of the Company immediately prior to such sale; (iii)
there is a report filed on Schedule 13D or Schedule 14D-1, each as promulgated
pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), disclosing
that any person has become the beneficial owner of securities representing 20%
or more of the combined voting power of the then outstanding securities of the
Company entitled to vote generally in the election of directors of the Company
("Voting Stock"); (iv) the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing in,
or in response to, Form 8-K or Schedule 14A that a change in control of the
Company has or may have occurred or will or may occur in the future pursuant to
any then existing contract or transaction; or (v) if during any period of two
consecutive years, individuals who at the beginning of any such period
constitute the directors of the Company cease for any reason to constitute at
least a majority thereof unless the election, or the nomination for election by
the Company's stockholders, of each director of the Company first elected during
such period was approved by a vote of at least two-thirds of the directors of
the Company then still in office who were directors of the Company at the
beginning of any such period. The Agreement also contains certain non-compete
and protection of proprietary information provisions.

Pursuant to an employment agreement entered into on June 28, 1991, Barry
Grosser, formerly Vice President-Store Operations, was (i) entitled to an
initial annual base salary of $210,000, (ii) eligible to participate in the
Company's bonus plan for Fiscal 1992, and (iii) entitled to an allowance not to
exceed $35,000 for relocation expenses. In addition, pursuant to such employment
agreement, Mr. Grosser received 40,000 options to purchase shares of Common
Stock. Mr. Grosser also was entitled to (i) medical, life and long term
disability insurance benefits commensurate with officers with less than five
years employment with the Company and (ii) a severance payment (except for
termination for cause), initially (at July 17, 1992) equal to three months of
prorated base salary, which increased by one month's prorated base salary (to a
maximum of six month's prorated base salary) for each year of service after July
17, 1992. On December 21, 1996, the Company terminated the employment of Mr.
Grosser. Upon termination, the Company paid Grosser postpetition wages and with
respect to certain prepetition claims (e.g., vacation pay and severance
benefits), the Company paid $4,000, the maximum amount permitted by the
Bankruptcy Code and by a previous Bankruptcy Court order. The Company is in the
process of pursuing its remedies with respect to a promissory note executed by
Grosser in favor of the Company in the outstanding amount of $34,727.45. On
February 15, 1996, the Bankruptcy Court entered an order authorizing the Company
to reject Grosser's employment contract as of January 19, 1996. Grosser has
asserted a rejection damages claim against the

13
<PAGE> 16

Company in an unspecified amount and has also asserted that he is entitled to
set off such damages to satisfy the indebtedness to the Company that is
described above.

Pursuant to a Severance Agreement dated as of October 10, 1994, David A.
Sejpal, Vice President-Chief Financial Officer, Treasurer and Secretary, is
entitled to a severance payment if terminated without cause equal to eight
months of prorated base salary. Such severance amount shall increase by one
additional month of prorated base salary (to a maximum of twelve months'
prorated base salary) for each full twelve-month period of service after October
10, 1994. Notwithstanding the foregoing, the Agreement (i) may be terminated by
the Company at any time upon written notice for cause; (ii) shall automatically
terminate upon Mr. Sejpal's death; and (iii) shall be terminated if Mr. Sejpal
elects to terminate his employment with the Company. However, if Mr. Sejpal
elects to terminate his employment with good reason (as defined in the
Agreement) within one year after a Change in Control (as defined above), the
Company shall pay an amount equal to the above severance benefit to Mr. Sejpal.
The Agreement also contains certain non-compete and protection of proprietary
information provisions.

In addition to the agreements with Messrs. Abramson, Grosser and Sejpal,
certain of the Company's plans contain termination or change of control
provisions.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

This Report of the Compensation Committee on Executive Compensation shall
not be deemed incorporated by reference by any general statement incorporating
by reference this proxy statement into any filing under the Securities Act of
1933 or under the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.

The Compensation Committee determines the compensation of all executive
officers of the Company, including John Ortega II, the Company's Chief Executive
Officer. All of the members of the Compensation Committee are non-employee
directors of the Company.

Compensation Philosophy and Overall Objectives of the Executive Compensation
Program

The fiscal year ended January 27, 1996 ("Fiscal 1995") was one of the most
difficult in the history of the Company and was one of the worst for the women's
specialty apparel industry. In Fiscal 1995, the Company and certain of its
subsidiaries filed for protection under chapter 11 of the United States
Bankruptcy Code.

In the course of such year, the Company was faced with assessing
management's performance in the context of the aforementioned depressed economic
circumstance and providing appropriate incentives to address the changing
economic environment and business circumstances which were in continuous flux
throughout the Fiscal Year.

As noted by the Compensation Committee in prior years, the Committee views
the compensation process to be evolutionary. Recognizing that this is a complex
area and that there is no perfect program that meets the needs of every company,
change should be expected from time to time as the Compensation Committee
evaluates performance in a changing economic and regulatory environment against
the backdrop of the Company's evolution as a nation-wide retail chain of women's
apparel stores.

During Fiscal 1995, the Compensation Committee was active in addressing the
compensation issues in light of the dynamic economic environment. In April 1995,
the Compensation Committee articulated its philosophy for Fiscal 1995, stating
that compensation decisions for all executive officers of the Company were based
upon three primary themes: (i) offer base compensation sufficient to attract and
retain high quality management talent; (ii) provide variable compensation
components (including short and long-term incentive awards) which are linked
with the performance of the Company and that align executive remuneration with
the interests of the stockholders; and (iii) provide a compensation package
which is competitive with or exceeds that of a peer group selected by the
Company.

In September 1995, faced with a continuing economic downturn, the probable
fact that the goals set for economic performance in connection with its 1995
incentive bonus plan would not be met by any participating employee (including
non-executive officers) and the issue of retention of key-employees, the
Compensation

14
<PAGE> 17

Committee made certain adjustments to the incentive program, recognizing that
not all classes of participating employees have the ability to directly impact
sales. Accordingly, as noted below, the Committee adopted a new incentive bonus
plan for Fiscal 1995 to better meet the needs of the Company and recognized that
individual merit bonuses, viewed on a case-by-case basis, also should be
included in the Company's compensation plans.

In general, the Company's policy is to utilize, whenever appropriate,
legally available tax deductions. However, there are circumstances where other
Company policies are considered beneficial to the long-term interest of the
Company and the stockholders, regardless of whether the implementation of those
policies results in tax deductible expenses to the Company. In Fiscal 1995,
since no executive officer of the Company was expected to earn compensation of
$1,000,000 or more (as calculated under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") and the related regulations), with the
exception noted below, the Company did not take steps to comply with the $1
million annual compensation limitation set forth in Section 162(m) of the Code
relating to compensation paid or to be paid in Fiscal 1995. In Fiscal 1994, the
Company's stockholders at the 1994 annual meeting of stockholders, among other
things, adopted and approved a proposal to amend the Company's 1991 Stock Option
Plan (the "1991 Plan") to have stock options granted pursuant to the 1991 Plan
qualify for federal tax deductibility under Section 162(m) of the Code. In the
fiscal year ending January 25, 1997 ("Fiscal 1996"), since no executive officer
of the Company is expected to earn compensation of $1,000,000 or more (as
calculated under Section 162(m) of the Code), the Company has not taken steps to
comply with the $1 million annual compensation limitation relating to
compensation paid or to be paid in Fiscal 1996.

Compensation Program Components

In Fiscal 1995, the components of the Company's executive compensation
program consisted of (i) base salary, (ii) the opportunity to earn a year-end
bonus determined under an incentive bonus program, (iii) awards under the
Company's discretionary stock option plans, (iv) individual merit bonuses,
viewed on a case-by-case basis, and (v) discretionary Company contributions
under The Clothestime, Inc. Associates Savings and Investment Plan (the "401(k)
Plan").

The Compensation Committee was provided in Fiscal 1995 with compensation
data from an outside professional compensation consultant as well as from the
Company's Executive Committee and Chief Financial Officer. In particular, for
Fiscal 1995, the outside compensation consultant provided compensation data for
certain executive officers (similarly titled to the Company's executive
officers) of nine publicly-traded companies in the women's apparel business (the
"peer group companies"). The peer group companies were selected by the Company
with the assistance of the compensation consultant. The Company attempted to
include similarly sized organizations as well as both larger and smaller
companies whose median revenues, as a group, approximated those of the Company.
The companies in the compensation peer group are identical to those included in
the comparison peer group noted in the five-year performance table referenced in
this Proxy Statement.

Base Salary. In view of the loss in Fiscal 1994, the Compensation
Committee decided not to increase the base salary of the Chief Executive Officer
in Fiscal 1995. In addition, with the exception of two key employees who were
promoted to officer positions in Fiscal 1995 and received modest increases in
base salary, no other officer of the Company received an increase in base
salary.

Incentive Bonus Plan. Recognizing that management's contribution to
stockholder returns comes from maximizing earnings and the quality of those
earnings, the Company in April 1995 adopted an incentive bonus plan similar to
the incentive plan adopted in Fiscal 1994. The Company established the incentive
tiered structure of the bonus program by applying a sliding scale percentage to
the Company's net income in excess of certain amounts. Assuming certain
threshold net income levels were met, the aggregate amount available under the
bonus program for Fiscal 1995 would have been approximately $3 million which
would have been allocated among five groups. Participants in each group were
eligible to be awarded bonuses by applying the applicable sliding scale
percentage to their base salaries (grossed-up for certain benefits). The
incentive bonus plan was designed to provide the members of the Executive
Committee (comprised of the Chief Executive Officer and the President of the
Company) with the largest bonuses if certain net income earning levels were

15
<PAGE> 18

achieved. This feature of the plan was consistent with the decision not to raise
base salaries for members of the Executive Committee in Fiscal 1993, 1994 and
1995 and to continue to focus more upon cash incentive compensation which is
linked to improvement in corporate performance and increases in stockholder
value. The Plan was designed to give the Chief Executive Officer an opportunity
to attain the highest bonus amount (namely, a bonus amount equal to 100% of his
base salary grossed-up for certain benefits) if certain pretax profit amounts
were achieved.

Another feature of the Fiscal 1995 incentive bonus plan, retained from the
Fiscal 1994 incentive bonus plan, provided that those officers (other than
members of the Executive Committee) and senior managers who are evaluated by,
and meet all of their goals under, the Company's Management-By-Objective Program
(the "MBO Program") can double their bonuses. The MBO Program has been
implemented by the Executive Committee and complements the performance goals in
the incentive bonus plan. The Executive Committee assigns well-defined
individual objectives, depending on the respective position, to 25 executive
officers and senior managers whose performance is then reviewed by the Executive
Committee after fiscal year end. The members of the Executive Committee do not
participate in the MBO Program.

In September 1995, the Compensation Committee re-evaluated whether the then
current incentive plan was providing the contemplated incentive for the majority
of participating employees of the Company in light of the fact that the
continued negative economic environment made it a relative certainty that no
participating employee would have the potential of receiving a bonus under the
plan. The Compensation Committee noted the following three important factors:
(i) the turn-around status of the Company, (ii) the desire to incentivize
employees for the fourth quarter and (iii) recognition of the fact that many
employees of the Company who should be incentivized during the turnaround period
are in positions which do not directly impact sales.

Accordingly, the Company, upon the recommendation of the Compensation
Committee, terminated its existing Fiscal 1995 incentive bonus program and
adopted a new incentive plan entitled the "Fiscal 1995 MBO and Gross Margin
Incentive Bonus Program" (the "1995 Incentive MBO Bonus Plan") which was
primarily focused on the attainment of high scores in the Company's
above-referenced MBO Program. Under the 1995 Incentive MBO Bonus Plan, those MBO
participants, other than certain designated buyers and merchants, who attained a
score of 85% or more in their MBO reviews would receive a bonus equal to 10% of
their base salary. With respect to certain specially designated buyers and
merchants (those whose performance of their job function can most directly
impact sales), they would be entitled to receive (i) a bonus equal to 10% of
their base salary if certain financial milestones were met during the fourth
quarter of Fiscal 1995 and (ii) an additional bonus equal to 5% of their base
salary if they attained a score of 85% or more in their MBO review. Assuming
that all participants in the 1995 Incentive MBO Bonus Plan met all their
respective goals, the total liability to the Company would have been
approximately $544,000, an amount significantly below the approximately $3
million available under the prior Fiscal 1995 incentive bonus plan. In adopting
the 1995 Incentive MBO Bonus Plan, the Compensation Committee recognized that
the criteria for granting any bonus to the Chief Executive Officer and the
President should be directly related to maximizing earnings and stockholders
returns; accordingly, those two executive officers were not eligible to
participate in the 1995 Incentive MBO Bonus Plan and were not considered for any
other bonus amount. No participant in either the Fiscal 1995 incentive bonus
plan or the 1995 Incentive MBO Bonus Plan qualified for a bonus thereunder.

Stock Options. In Fiscal 1995, the Committee awarded stock options to
several of the Company's officers; however, no stock options were awarded to the
Chief Executive Officer. Other than awards of stock options to officers which
were related to an initial compensation package or as the result of a promotion
to the position of officer, the Committee awarded options to only two officers.
In both of such cases, the Committee cited the fact that the aggregate average
annualized value of long-term incentives for those two officers was below the
mean of the peer group. In granting options, the Committee recognized that this
portion of executive compensation generates value only if and when the
stockholders similarly benefit. See the table under this caption "Compensation
of Executive Officers -- Stock Options -- Option/SAR Grants in Last Fiscal Year"
herein.

Discretionary Bonus. In Fiscal 1995, the Vice President-Chief Financial
Officer was awarded a discretionary bonus. The Committee, in awarding such
bonus, cited his significant efforts throughout the Fiscal Year in cutting costs
which enabled the Company to incur less of a loss and his additional and

16
<PAGE> 19

substantial efforts in working with the Company's lenders and factors during a
year in which a significant amount of additional time and effort were required.
In addition, in connection with his promotion, the Committee awarded a bonus to
the Vice President - Merchandise Planning and Control. See "Compensation of
Executive Officers -- Summary Compensation Table."

401(k) Plan. In addition to the executive officers, all employees of the
Company who are at least 21 years of age and who have completed one continuous
year of service are eligible to participate in the 401(k) Plan, a plan which is
intended to qualify under Sections 401(a) and 401(k) of the Code. In Fiscal
1995, the Chief Executive Officer did not participate in the 401(k) Plan;
however, certain other executive officers did participate in such Plan. For
Fiscal 1995, the Board approved a Company matching contribution for all
participants of up to 2% of the employee's salary. The 401(k) Plan is solely
designed to be a retirement program. Accordingly, the level of the Company's
contribution was related to the Company's financial ability to make a
contribution and the competitive compensation packages offered to employees at
comparable companies.

THE CLOTHESTIME, INC.
COMPENSATION COMMITTEE

Herman D. Epstein (Chairman)
George Foos

17
<PAGE> 20

PERFORMANCE GRAPH

The following graph compares the cumulative total stockholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return on (i) the Dow Jones Equity Market Index; and (ii) an index of nine
(9) peer companies selected by the Company. The peer group was selected by the
Company with the assistance of an outside compensation consultant. The search
was limited to publicly-traded companies in the women's apparel business. This
peer group index is subject to occasional change as the Company or its
competitors change their focus, merge or are acquired, undergo significant
changes, or as new competitors emerge.

The comparisons in this table are required by the SEC and, therefore, are
not intended to forecast or be indicative of possible future performance of the
Company's Common Stock.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*

MEASUREMENT PERIOD CTME STOCK D.J. EQUITY PEER GROUP
(FISCAL YEAR COVERED) PRICE MARKET INDEX INDEX **
--------------------- ---------- ------------ ----------
<S> <C> <C> <C>
FY 1990 100 100 100
FY 1991 578 130 177
FY 1992 648 142 253
FY 1993 381 159 160
FY 1994 190 160 123
FY 1995 51 218 81
</TABLE>

* The graph assumes that the value of the investment in the Company's Common
Stock and in each index was $100 at January 26, 1991 ("FY 1990") and that all
dividends were reinvested. The returns of each component issuer in the peer
group has been weighted according to the respective issuer's stock market
capitalization at the beginning of each period for which a return is
indicated.

** Ann Taylor Stores Corporation; Cache Inc.; Cato Corporation; Charming Shoppes
Inc.; Dress Barn Inc.; Gantos, Inc.; Merry-Go-Round Enterprises, Inc.; Ross
Stores, Inc.; and Stein Mart, Inc.

18
<PAGE> 21

TRANSACTIONS WITH MANAGEMENT AND OTHERS

In March 1988, the Company entered into a lease (the "Lease") with a
partnership (the "Partnership") comprised of Raymond A. DeAngelo, August
DeAngelo, John Ortega II and Michael P. DeAngelo (Mr. Raymond A. DeAngelo being
a principal stockholder of the Company, Mr. August DeAngelo being the father of
Raymond and Michael DeAngelo, brothers, and Mr. Ortega being a principal
stockholder, a director and an executive officer of the Company), respecting
three parcels of real property which include the five-acre tract on which the
Company's headquarters and distribution/warehouse facility (the "Headquarters
Building") is located and two unimproved parcels (one of which is adjacent to
the aforementioned five-acre parcel). The office and distribution center
consists of approximately 27,000 square feet of two-story office space and
approximately 82,400 square feet of warehouse space. The Lease term commenced on
December 1, 1988 and will expire on November 30, 1998. Rent for the first year
was 52 cents per square foot per month (an initial annual rent of $682,956) plus
insurance, taxes, maintenance and other incidental costs. In subsequent years,
the monthly rental adjusts with the Consumer Price Index ("CPI"); however, the
minimum monthly rent must in no event be less than 104% or more than 108% of the
minimum rent in effect immediately preceding the adjustment. Pursuant to the
Lease, the Company paid the Partnership during Fiscal 1995 rent of $895,126.44.
Subject to the approval of the Bankruptcy Court, the Company can reject
executory contracts, including leases, under the relevant provisions of the
Bankruptcy Code. Subject to the Company's right to reject the Lease, the Company
is currently attempting to reduce its occupancy costs, including minimum monthly
rent, under the Lease through negotiations with the Partnership.

On January 6, 1995, Raymond A. DeAngelo resigned as an officer, director
and employee of the Company and each subsidiary of the Company, and pursuant to
a Consulting Agreement dated as of the same date agreed to serve as a Consultant
to the Company and MRJ until January 6, 1997. As a Consultant, Mr. DeAngelo
agreed to provide a monthly written report discussing, among other things,
trends with respect to retail stores which are competitive with the Company; in
addition, Mr. DeAngelo agreed to render such other services as the Company or
MRJ assigned from time to time, which services were to be consistent with those
rendered by Mr. DeAngelo in his position prior to termination of employment. In
consideration for the performance of such consulting services, the Company
agreed to pay Mr. DeAngelo $1,000,000 payable in twenty-four equal monthly
installments. On February 9, 1996, the Company filed a motion seeking Bankruptcy
Court authority to reject the Consulting Agreement with Mr. DeAngelo pursuant to
section 365 of the Bankruptcy Code. On March 22, 1996, the Bankruptcy Court
entered an order granting the relief requested in such motion and authorizing
the Company to reject the Consulting Agreement effective as of February 29,
1996. To the Company's knowledge, Mr. DeAngelo has not yet asserted a claim for
damages resulting from the rejection of the Agreement.

Pursuant to a Settlement and Release Agreement dated as of January 6, 1995
(the "Settlement Agreement"), in consideration for the mutual release by the
Company and Raymond A. DeAngelo of all claims and demands either party had or
may have had based on acts or events occurring on or before the date of the
Settlement Agreement, Raymond A. DeAngelo received $250,000 in cash. The Company
also agreed to (i) pay premiums on a $1,000,000 life insurance policy for a
two-year period; (ii) pay premiums on a long-term disability policy for a
two-year period; (iii) accelerate the vesting of 180,000 options to purchase
shares of the Company's common stock previously granted to Mr. DeAngelo; (iv)
extend the post-termination exercise period to five years following termination
with respect to 250,000 options to purchase shares of the Company's common stock
previously granted to Mr. DeAngelo; (v) reimburse Mr. DeAngelo for premiums paid
by him if he elects to participate in any of the Company's group health
insurance plans pursuant to COBRA for a period of eighteen months; (vi) pay Mr.
DeAngelo $3,000 per year for a two-year period for the purchase of additional
health insurance benefits; and (vii) pay Mr. DeAngelo up to $5,000 for legal
expenses incurred in connection with the Agreement. The Agreement also contains
certain provisions relating to the voting of Mr. DeAngelo's shares of common
stock of the Company and certain provisions relating to confidential
information. The Company has not made any payments in connection with the
Settlement Agreement since December 8, 1995, the date on which the Company and
certain of its subsidiaries filed petitions in the Bankruptcy Court seeking
reorganization under chapter 11 of the Bankruptcy Code. Such payments constitute
payments on prepetition claims, which are prohibited by the Bankruptcy Code.

19
<PAGE> 22

Accordingly, Mr. DeAngelo may take the position that he is not required to
perform his obligations under the Settlement Agreement.

In the opinion of management, the terms of the above-described agreements
are fair and reasonable and as favorable to the Company as those which could
have been obtained from unrelated third parties at the time of their execution.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten-percent stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.

To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended January 27, 1996, its
officers, directors and greater than ten percent beneficial owners complied with
all Section 16(a) filing requirements.

RELATIONSHIP OF THE COMPANY WITH INDEPENDENT PUBLIC ACCOUNTANTS

PROPOSAL 2

The Board of Directors has appointed an Audit Committee, whose members and
functions are described above under the caption "Information About the Board of
Directors and Committees of the Board." Upon the recommendation of the Audit
Committee, the Board of Directors selected the firm of KPMG Peat Marwick LLP
("Peat Marwick"), independent certified public accountants, as auditors for
Fiscal 1995 and have selected such firm to act as auditors for Fiscal 1996. Peat
Marwick served as the Company's independent accountants for Fiscal 1995, and
during the course of Fiscal 1995 also were engaged by the Company to provide
certain consulting services. Representatives of the firm are expected to be
present at the Annual Meeting and will have the opportunity to make a statement
if they desire to do so and are expected to be available to respond to
appropriate questions.

The stockholders are requested to ratify the appointment of Peat Marwick,
independent certified public accountants, as the auditors for the Company for
Fiscal 1996.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION
OF PEAT MARWICK AS AUDITORS FOR FISCAL 1996.

STOCKHOLDER PROPOSALS

Stockholders of the Company who intend to submit proposals to the Company's
stockholders at the annual meeting of stockholders to be held in 1997 must
submit such proposals to the Company no later than January 14, 1997, in order
for them to be included in the Company's proxy materials for such meeting.
Stockholder proposals should be directed to the attention of the Secretary of
the Company at the address of the Company set forth on the first page of this
Proxy Statement.

20
<PAGE> 23

ANNUAL REPORT

A COPY OF THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR, INCLUDING THE
FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 13A-1 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, MAY BE OBTAINED WITHOUT CHARGE BY
WRITING TO THE COMPANY AT THE ADDRESS OF THE COMPANY SET FORTH ON THE FIRST PAGE
OF THIS PROXY STATEMENT, ATTENTION: MR. DAVID A. SEJPAL, VICE PRESIDENT -- CHIEF
FINANCIAL OFFICER. COPIES OF EXHIBITS TO THE COMPANY'S ANNUAL REPORT ON FORM
10-K ARE AVAILABLE, BUT A REASONABLE FEE WILL BE CHARGED TO A STOCKHOLDER
REQUESTING EXHIBITS.

By Order of the Board of Directors,

[SIG]
David A. Sejpal
Secretary
Anaheim, California
Dated: May 14, 1996

21
<PAGE> 24
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
THE CLOTHESTIME, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.

The undersigned stockholder(s) of The Clothestime, Inc. (the "Company") hereby
appoints Mr. John Ortega II, Mr. David A. Sejpal, or either of them, proxies,
each with full power of substitution, for and in the name of the undersigned at
the Annual Meeting of Stockholders of the Company to be held on June 14, 1996,
and at any and all adjournments, to vote all shares of the capital stock of
said Company held of record by the undersigned on April 24, 1996, as if the
undersigned were present and voting the shares.

THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IN
THE ABSENCE OF ANY DIRECTION, THE SHARES WILL BE VOTED FOR PROPOSAL 2, FOR THE
NOMINEES NAMED IN PROPOSAL 1 ON THE REVERSE SIDE AND TO VOTE IN ACCORDANCE WITH
THEIR DISCRETION ON SUCH OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.

(Continued and to be Voted, Signed and Dated on Reverse Side)

<PAGE> 25
THE CLOTHESTIME, INC.

PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.

EACH PROPOSAL HAS BEEN PROPOSED BY THE COMPANY.

1. ELECTION OF DIRECTORS

Nominees for election to the Board of Directors as Class II

Directors: Norman Abramson
Herman D. Epstein

FOR
all nominees WITHHOLD
listed (except as AUTHORITY
indicated to the to vote for all
contrary nominees listed
/ / / /

(INSTRUCTIONS: To withhold authority to vote for any nominee, write the
nominee's name on the space provided below.)

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

2. Proposal to ratify the selection of the accounting firm of KPMG Peat Marwick
LLP, independent certified public accountants, as the Company's auditors for
the fiscal year ending January 25, 1997.

FOR AGAINST ABSTAIN
/ / / / / /

3. The proxies are authorized to vote in their discretion upon such other
business as may properly come before the meeting.

I PLAN TO ATTEND THE MEETING. / /

Dated: , 1996
------------------------

------------------------------------
(Signature)

------------------------------------
(Signature, if held jointly)

(Please date this Proxy and sign exactly,
as your name appears hereon. When signing
as attorney, executor, administrator,
trustee or guardian, please give your
full title. If there is more than one
trustee, all should sign. All joint
owners should sign.)