WET SEAL INC, 10-K, 1997-05-01

WET SEAL INC
10-K, 1997-05-01
WOMEN'S CLOTHING STORES

Previous: OPPENHEIMER QUEST GLOBAL VALUE FUND INC, 497, 1997-05-01

Next: PAMIDA HOLDINGS CORP/DE/, 10-K, 1997-05-01

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-K

(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 0-18632

THE WET SEAL, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 33-0415940
(State of Incorporation) (I.R.S. Employer Identification
No.)

64 FAIRBANKS, IRVINE, CA 92718
(Address of principal executive (Zip Code)
offices)
</TABLE>

(714) 583-9029
(Registrant's telephone number, including area code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

CLASS A COMMON STOCK
(Title of Class)

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section229.405 of this chapter) is not contained herein,
and will not be contained to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to the Form 10-K. / /

The aggregate market value of voting stock held by non-affiliates as of
April 16, 1997 was $238,637,408.

The number of shares outstanding of the registrant's Class A Common Stock
and Class B Common Stock, par value $.10 per share, at April 16, 1997 was
10,628,874 and 2,912,665, respectively. There were no shares of Preferred Stock,
par value $.01 per share, outstanding at April 16, 1997.

DOCUMENTS INCORPORATED BY REFERENCE:

PART III incorporates information by reference from the Registrant's
definitive Proxy Statement for its Annual Meeting of Stockholders' to be filed
with the Commission within 120 days of February 1, 1997.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I

ITEM 1. BUSINESS

GENERAL

The Wet Seal, Inc., a Delaware corporation ("Wet Seal" or the "Company"),
founded in 1962, is a specialty retailer of moderately priced, fashionable,
casual apparel and accessory items designed for consumers with a young, active
lifestyle. On July 1, 1995, the Company acquired the business, assets and
properties of Contempo Casuals, Inc. ("Contempo Casuals"), a 237-store retail
junior women's chain. This acquisition substantially increased the size of the
Company. As of April 16, 1997, the Company operated 363 retail stores in 34
states and Puerto Rico, including 123 in California, 49 in Florida, and 25 in
Texas. Of the 363 stores, 231 operate under the "CONTEMPO CASUALS" trademark,
128 operate under the "WET SEAL" trademark, three stores operate under the
"LIMBO LOUNGE" trademark and one of the stores operates under the "NEXT"
trademark. All of the stores, with the exception of the stores located in malls
where the Company operates both a Wet Seal and a Contempo Casuals store
("duplicate locations"), offer substantially the same merchandise and utilize
the same visual merchandising strategies. At the duplicate locations, the
Company employs different visual merchandising displays as well as in-store
image posters and will on occasion differentiate a portion of the merchandise
mix. The Limbo Lounge is a new concept which the Company began testing in three
stores in fiscal 1996 and intends to test in three additional stores in fiscal
1997. The Limbo Lounge offers both junior's and young men's clothing and
accessories in a unique store environment.

PRODUCTS AND MERCHANDISING

Both Wet Seal and Contempo Casuals stores target the same fashion-conscious
junior customer. The Company merchandises both stores similarly. In duplicate
locations, the Company differentiates the locations by displaying the
merchandise differently in each of the stores, and will occasionally
differentiate the merchandise mix. The Company provides a balance of
moderately-priced, fashionable brand name and Company-developed apparel and
accessories that appeal to consumers with young, active lifestyles. The Company
believes that Company-developed apparel differentiates it from its competitors.
The Company frequently updates its product offerings, which include sportswear,
dresses, lingerie, outerwear, shoes, cosmetics and accessories, to provide a
regular flow of fresh, new fashionable merchandise. Additionally, management
carefully monitors pricing and markdowns to expedite sales of slower-moving
inventory, facilitate the introduction of new merchandise and maintain an
updated fashion image.

Generally, the Company's stores display merchandise within a current fashion
statement by color and trend groupings. Rather than displaying garments together
by type (blouses with blouses, for example), the Company combines items of
apparel and accessories which the customer might buy as an ensemble. Store
displays are designed to enable customers to create ensembles within a current
fashion statement or trend group. Management believes that the trend grouping
concept strengthens the fashion image of the merchandise offered in the stores
and enables the customer to locate combinations of blouses, skirts, pants and
accessories in a manner which enhances the Company's opportunity to make
multiple unit sales. The general layout of merchandise in the stores is planned
by the Company's management, but may be varied and adapted by each store's
management. The Company makes use of in-store image posters to help focus
customers on particular fashion themes. The Company changes the visual display
of the merchandise in its stores approximately every six weeks to reflect the
changing tastes of the Company's target customer.

In the last quarter of fiscal 1996, the Company introduced a stand alone
store concept called Limbo Lounge. The product offerings include both junior's
and young men's apparel and accessories. The Company currently operates three
Limbo Lounges and plans on opening three additional stores in fiscal 1997. Based
on the success of these initial stores, the Company may open additional stores.

2
<PAGE>
DESIGN, BUYING AND PRODUCT DEVELOPMENT

The Company's experienced design and buying teams are responsible for
identifying evolving fashion trends and then developing themes to guide the
Company's merchandising strategy. These teams monitor emerging fashion trends by
attending domestic and international fashion shows, engaging the services of
international fashion consultants, following industry publications and
conducting regular market research, including monitoring cutting-edge,
alternative stores, visiting Company stores to interact with customers and
employees and visiting competitors' stores. Additionally, the Company holds
"open to buy" days once a week to allow small vendors to meet with buyers
without appointments. Management believes that these open sessions provide
buyers with the opportunity to purchase fresh and innovative products that help
to further differentiate the Company's merchandise mix.

The Company's commitment to Company-developed apparel is an important
element in differentiating its merchandise from that of its competitors. After
selecting a fashion theme to promote, the design and buying teams work closely
with vendors to modify colors, materials and designs and create an image
consistent with the theme for the Company's product offerings. Additionally, the
Company has increased its focus on developing exclusive designs and brands to
reinforce the fashion statements of its merchandise offerings as well as to
increase the perception of Wet Seal and Contempo as destination stores for the
customer. The Company focused on the Blue Asphalt brand and Evolution brand in
particular in fiscal 1996 and given the success of these brands, plans to
continue this focus.

SOURCING AND VENDOR RELATIONSHIPS

The Company purchases its merchandise from numerous domestic vendors and an
increasing number of foreign vendors. Although in fiscal 1996 no single vendor
accounted for more than 10% of the Company's merchandise and only one vendor
accounted for more than 5%, management believes the Company is the largest
customer of many of its smaller vendors. Management believes the Company's
importance to these vendors allows it to provide significant input into their
design, manufacturing and distribution processes, and has enabled the Company to
negotiate favorable terms with such vendors. Quality control is monitored
carefully at the distribution points of its largest vendors and manufacturers,
and all merchandise is inspected upon arrival at the Company's Los Angeles,
California distribution center. The Company does not have any long term or
exclusive contracts with any particular manufacturer or supplier for either
brand name or Company-developed apparel.

ALLOCATION AND DISTRIBUTION

The Company's merchandising effort primarily focuses on maintaining a
regular flow of fresh, fashionable merchandise into its stores. Successful
execution depends in large part on the Company's integrated planning, allocation
and distribution functions. Planning and allocation are managed by a team headed
by the Company's Director of Planning and Allocation. By working closely with
District and Regional Directors and merchandise buyers, this team manages
inventory levels and coordinates the allocation of merchandise to each of the
Company's stores based on sales volume, climate and other factors that may
influence individual stores' product mix.

In July 1995, the Company consolidated its distribution function into
Contempo Casuals' Los Angeles, California distribution facility. All merchandise
is received from vendors at this facility, where items are inspected for quality
and prepared for shipping to the Company's stores. The Company ships merchandise
to stores within a 100-mile radius of the distribution center by its fleet of
Company-owned trucks. The remainder of the Company's stores are shipped
merchandise by common carrier. Consistent with the Company's goal of maintaining
the freshness of its product offerings, the Company ships new merchandise to
each store daily.

In keeping with the Company's policy of introducing new merchandise,
markdowns are taken regularly to effect a rapid sale of slow-moving inventory.
Merchandise which remains unsold is periodically

3
<PAGE>
shipped to the Company's clearance stores where further markdowns are taken as
needed in order to move the merchandise. Sales of merchandise at these stores
aggregated $4.5 million for the fiscal year ended February 1, 1997. These stores
operate under both the Wet Seal and the Contempo Casuals names.

MARKETING, ADVERTISING AND PROMOTION

The Company believes that the highly-visible locations of its stores within
regional shopping malls, broad selection of fashionable merchandise and dynamic,
entertaining in-store environments have contributed significantly to the
Company's reputation as a destination store addressing the lifestyle of fashion-
conscious young women. Consequently, the Company has historically relied more
heavily on these factors and "word-of-mouth" advertising than more traditional
forms of advertising such as print, radio and television.

The Company utilizes a variety of advertising and promotional programs that
allow the Company to gain exposure in a cost-effective manner. By introducing
frequent shopper cards in its stores, the Company has developed a marketing
database that helps to track customers. The cards, which are sold for $20 each,
entitle customers to a standard 10% discount on purchases made within a one year
period. As part of these programs, sales representatives call cardholders
personally to notify customers of special in-store promotions, such as preferred
customer sales during which cardholders receive additional incentives.
Management believes these promotions foster customer loyalty and encourage
frequent visits and multiple item purchases. The Company also sponsors special
events such as snowboarding competitions and beach festivals that focus on the
interests and active lifestyles of its target customers. Further, the Company
utilizes its Company-owned trucks as "rolling billboards" in California,
painting them to promote the Company as well as certain of its Company-developed
labels such as Blue Asphalt.

STORE OPERATIONS

The Company's stores are divided into six geographic regions. Each region is
managed by a Regional Director who reports to the Company's Vice President of
Store Operations. Each region is further divided into districts consisting of
between 10 and 16 stores and managed by a District Director. The Company
delegates substantial authority to the regional, district and store level
employees, while taking advantage of economies of scale by centralizing
functions such as finance, data processing, merchandise purchasing and
allocation, human resources and real estate at the corporate level.

The Company encourages communication between and among its Regional and
District Directors and senior management. Each of the Company's 30 District
Directors provides weekly reports to senior management concerning overall
business conditions and specific aspects of their stores' operations. These
reports are used to identify competitive trends and store level concerns in a
timely manner. Store performance is also evaluated by senior management through
the use of a "secret shopper" service that shops each store twice a month.

Stores are typically staffed with one full-time manager, one or two
full-time co-managers, one full-time customer service leader and nine to sixteen
sales associates and cashiers, most of whom are part-time. During peak seasons,
stores may increase staffing levels to accommodate the additional in-store
traffic. The Company seeks to hire store-level employees who are energetic,
fashionable and friendly and who can identify with its targeted customers. The
Company's policy is to promote store managers from within while also hiring from
outside. Highly-regarded store managers are own given opportunities to move to
higher-volume stores. The Company sets weekly sales goals for each store and
devises incentives to reward stores that meet or exceed their sales targets. In
addition, from time to time the Company runs sales contests to encourage its
store level employees to maximize sales volume.

Most of the Company's stores are, and the Company expects that most of its
new stores will be, located in regional, high-traffic shopping malls which
contain at least one "anchor" department store. The Company places great
emphasis on its location within a mall and attempts to locate stores in the
higher-

4
<PAGE>
traffic areas of a mall and to obtain the greatest amount of frontage possible.
The Company's average store size is approximately 4,200 square feet. Store hours
are determined by the mall in which the store is located.

INFORMATION AND CONTROL SYSTEMS

In fiscal 1996, the register hardware at both the Wet Seal and Contempo
Casuals stores was upgraded to a common system in order to increase efficiency.
Additionally, the Company plans to upgrade the register software in mid-fiscal
1997. As a result of these two upgrades, the Company expects to decrease
communication and maintenance costs, further improve customer service and become
more innovative in the area of in-store marketing.

While the Company believes its information systems are adequate to support
its current needs, in order to accommodate future growth the Company plans to
convert and upgrade its merchandising and other support systems in fiscal 1997
and fiscal 1998.

EXPANSION STRATEGY

The Company currently plans to open up to 30 new stores in fiscal 1997 and
plans to accelerate its growth in the following year to up to 75 stores. The
Company may, in limited instances and to the extent it deems advisable, seek to
acquire additional businesses which complement or enhance the Company's
operations. The Company currently has no commitments or understandings with
respect to such business opportunities.

The following table sets forth the number of stores in each state as of
April 16, 1997:

<TABLE>
<CAPTION>
STATE # OF STORES STATE # OF STORES
- ------------------------------------------- --------------- ------------------------------------------- ---------------
<S> <C> <C> <C>
Arizona.................................... 9 Nevada..................................... 6
California................................. 123 New Hampshire.............................. 1
Colorado................................... 7 New Jersey................................. 16
Connecticut................................ 7 New Mexico................................. 2
Delaware................................... 1 New York................................... 17
Florida.................................... 49 North Carolina............................. 2
Georgia.................................... 5 Ohio....................................... 5
Hawaii..................................... 8 Oklahoma................................... 1
Illinois................................... 16 Pennsylvania............................... 8
Indiana.................................... 1 Rhode Island............................... 1
Kentucky................................... 1 Tennessee.................................. 1
Louisiana.................................. 5 Texas...................................... 25
Maine...................................... 1 Utah....................................... 3
Maryland................................... 4 Virginia................................... 3
Massachusetts.............................. 10 Washington................................. 3
Michigan................................... 10 Wisconsin.................................. 3
Minnesota.................................. 6 Puerto Rico................................ 2
Missouri................................... 1
</TABLE>

Management does not believe there are significant geographic constraints on
the locations of future stores. The Company's strategy is to enter a particular
geographic region with a base of two or three solid stores, and then continue
expansion in such geographic regions while simultaneously entering new markets
in a similar manner, thereby increasing the recognition of the Company's name.
When deciding whether to open a new store, the Company typically targets
regional malls as well as prime street locations in select markets. In making
its selection, the Company evaluates, among other factors, market area, "anchor
stores," store location, the volume of consumer traffic, rent payments and other
costs associated with

5
<PAGE>
opening a new store. The average store size the Company intends to consider is
between 3,600 and 4,500 square feet. However, in making its decision, management
reviews all leases in order to match closely the store size to the sales
potential of the store.

The Company's ability to expand in the future will depend, in part, on
general business conditions, the demand for the Company's merchandise, the
ability to find suitable malls with acceptable sites on satisfactory terms, and
the continuance of satisfactory cash flows from existing operations.

TRADEMARKS

The Company's primary trademarks and service marks are "WET SEAL," "CONTEMPO
CASUALS", "LIMBO LOUNGE" and "NEXT," which are registered in the U.S. Trademark
Office. The Company also uses and has registered, or has a pending registration,
on a number of marks, including "ACCOMPLICE," "BLUE ASPHALT," "CEMENT," "URBAN
VIBE" and "EVOLUTION NOT REVOLUTION." In general, the registrations for these
trademarks and service marks are renewable indefinitely as long as the Company
continues to use the marks as required by applicable trademark law. The Company
is the owner of an allowed and currently pending service mark application for
the mark "SEAL PUPS." The Company is not aware of any adverse claim or other
infringement relating to its trademarks or service marks.

COMPETITION

The young women's retail apparel industry is highly competitive, with
fashion, quality, price, location, in-store environment and service being the
principal competitive factors. The Company competes with specialty apparel
retailers, department stores and certain other apparel retailers, including The
GAP, and on a regional basis, with such retailers as Charlotte Russe, Miller's
Outpost and Gadzooks. Many competitors are large national chains which have
substantially greater financial, marketing and other resources than the Company.
While the Company believes it competes effectively for favorable site locations
and lease terms, competition for prime locations within a mall is intense.

EMPLOYEES

As of February 1, 1997, the Company had 5,302 employees, consisting of 1,560
full-time employees and 3,742 part-time employees. Full-time personnel consisted
of 842 salaried and 718 hourly employees. All part-time personnel are hourly
employees. Of the total employees, 5,011 are sales personnel and 291 are
administrative and distribution center personnel. Personnel at all levels of
store operations are provided with cash incentives based upon various individual
store sales targets.

All of the Company's employees are non-union and, in management's opinion,
are paid competitively with current standards in the industry. The Company
considers its relationship with its employees to be satisfactory.

ITEM 2. PROPERTIES

The Company's corporate headquarters are located at 64 Fairbanks, Irvine,
California, consisting of 85,740 square feet of leased office and storage space
(including 37,800 square feet of storage mezzanine space). This lease expires on
June 30, 1997. The Company has negotiated a six month extension on the lease.
The Company's distribution facility is located in Los Angeles, California and
consists of 99,847 square feet (including distribution mezzanine space). This
lease expires on July 31, 2002. This lease was acquired with the acquisition of
Contempo Casuals. The Company plans to sublease this facility beginning in
fiscal 1998 and has entered into a 10- year lease commencing in October 1997 for
a new distribution and office space in close proximity to its existing office
space.

6
<PAGE>
The Company leases all of its stores. Lease terms for the Company's stores
are typically 10 years and generally do not contain renewal options. The leases
generally provide for a fixed minimum rental and a rental based on a percent of
sales once a minimum sales level has been reached. As a lease expires, the
Company generally renews such lease at current market terms. However, such
renewal is based upon an analysis of the individual store's profitability and
sales potential.

The following table sets forth information with respect to store openings
and closings since fiscal 1992:
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------------------------
<S> <C> <C> <C> <C>
1996 1995 1994 1993
----- ----- ----- -----
Stores open at beginning of year..................................... 364 133 129 125
Stores acquired during period(1)..................................... 0 237 0 0
Stores opened during period.......................................... 10 3 6 10
Stores closed during period.......................................... 10 9 2 6
--- --- --- ---
Stores open at end of period......................................... 364 364 133 129
--- --- --- ---
--- --- --- ---

<S> <C>
1992
-----
Stores open at beginning of year..................................... 112
Stores acquired during period(1)..................................... 0
Stores opened during period.......................................... 15
Stores closed during period.......................................... 2
---
Stores open at end of period......................................... 125
---
---
</TABLE>

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

(1) Contempo Casuals was acquired on July 1, 1995.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. Management
believes that, in the event of a settlement or an adverse judgment of any
pending litigation, the Company is adequately covered by insurance. As of April
16, 1997, the Company was not engaged in any legal proceedings which are
expected, individually or in the aggregate, to have a material adverse effect on
the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through solicitations of
proxies or otherwise.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Class A Common Stock ("Common Stock") is listed on The Nasdaq
National Market ("Nasdaq") under the symbol "WTSLA." As of April 16, 1997, there
were 314 shareholders of record of the Company's Class A Common Stock.
Additionally, the number of beneficial owners of the Company's Common Stock was
estimated to be in excess of 4,000. The closing price of the Common Stock on
April 16, 1997 was $22 1/2.

The following table reflects the high and low sales prices of the Company's
Common Stock as reported by Nasdaq for the last two fiscal years.

<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
-------------------- --------------------
<S> <C> <C> <C> <C>
QUARTER HIGH LOW HIGH LOW
- ------------------------------------------------------------------------- --------- --------- --------- ---------
First Quarter............................................................ $ 16 $ 7 1/16 $ 4 1/2 $ 3 1/4
Second Quarter........................................................... 27 1/4 11 1/2 6 3 5/8
Third Quarter............................................................ 41 7/8 23 7/8 6 5/8 4 3/4
Fourth Quarter........................................................... 31 13 1/4 8 5/8 5 5/8
</TABLE>

The Company has reinvested earnings in the business and has never paid any
cash dividends to holders of the Company's Common Stock. The declaration and
payment of future dividends, which are

7
<PAGE>
subject to the terms and covenants contained in the Company's bank lines of
credit, are at the sole discretion of the Board of Directors and will depend
upon the Company's profitability, financial condition, cash requirements, future
prospects and other factors deemed relevant by the Board of Directors.

ITEM 6. SELECTED FINANCIAL DATA

The following table of certain selected data regarding the Company should be
read in conjunction with the consolidated financial statements and notes thereto
and with the "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The data for the fiscal years ended January 29, 1994 and
January 30, 1993 are derived from the Company's financial statements for such
years which are not included herein.

FIVE YEAR FINANCIAL SUMMARY

<TABLE>
<CAPTION>
1996 1995(1) 1994 1993 1992
----------- ----------- ----------- ----------- -----------
FISCAL YEAR FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30,
FISCAL YEAR ENDED 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------

<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Sales....................................... $374,942,000 $266,695,000 $132,997,000 $140,129,000 $149,744,000
Income (loss) before provision (benefit) for
income taxes.............................. 26,217,000 9,948,000 (1,366,000) (3,966,000) 5,924,000
Net income (loss)........................... $15,252,000 $ 5,815,000 $(1,013,000) $(2,378,000) $ 3,564,000

PER SHARE DATA
Net income (loss)........................... $ 1.13 $ 0.47 $ (0.08) $ (0.19) $ 0.29
Cash dividends per common share............. -- -- -- -- --
Weighted average number of common and common
equivalent shares outstanding............. 13,459,810 12,387,140 12,234,502 12,227,781 12,221,170

OTHER FINANCIAL INFORMATION
Net income (loss) as a percent of sales..... 4.1% 2.2% (0.8)% (1.7)% 2.4%
Return on average stockholders' equity...... 20.5% 10.7% (2.0)% (4.5)% 6.8%
Cash and marketable securities.............. $89,183,000 $57,153,000 $25,369,000 $18,331,000 $18,287,000
Working capital............................. $59,791,000 $26,051,000 $22,473,000 $18,874,000 $17,035,000
Ratio of current assets to current
liabilities............................... 2.1 1.5 2.8 2.7 2.5
Total assets................................ $154,752,000 $117,564,000 $67,298,000 $66,434,000 $68,665,000
Long-term debt.............................. 3,264,000 5,264,000 -- -- --
Total stockholders' equity.................. $91,120,000 $57,735,000 $50,724,000 $51,729,000 $54,085,000
Number of stores open at year end........... 364 364 133 129 125
Number of stores acquired during the year... -- 237 -- -- --
Number of stores opened during the year..... 10 3 6 10 15
Number of stores closed during the year..... 10 9 2 6 2
Square footage of leased store space at year
end....................................... 1,539,777 1,530,891 596,685 583,462 544,820
Percent of increase in leased square
footage................................... 0.6% 156.6% 2.3% 7.1% 16.9%
Avg. sales per square foot of leased
space(2).................................. $ 244 $ 229 $ 226 $ 247 $ 297
Average sales per store(2).................. $ 1,030,000 $ 976,000 $ 1,008,000 $ 1,092,000 $ 1,270,000
Comparable store sales increase
(decrease)(3)............................. 8.8% (4.1)% (9.2)% (14.2)% 2.0%
</TABLE>

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

(1) The Company's fiscal 1995 data include the results of operations of Contempo
Casuals since July 1, 1995. Fiscal 1995 consisted of 53 weeks.

(2) In fiscal 1995, the 53rd week of sales was excluded from "Sales" for
purposes of calculating "Average sales per square foot" and "Average sales
per store" in order to make fiscal 1995 comparable to prior years.

(3) In fiscal 1996, "Comparable store sales" were calculated by excluding sales
during the first week of fiscal 1995 in order to make fiscal 1995 comparable
to fiscal 1996. In fiscal 1995, "Comparable store sales" were calculated by
adding the first week of fiscal 1995 to fiscal 1994 sales in order to make
fiscal 1994 comparable to fiscal 1995. Comparable store sales are defined as
sales in stores that were open throughout the full fiscal year and
throughout the full prior fiscal year.

8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS INTRODUCTION

The Company is one of the largest national mall-based specialty retailers
focusing primarily on young women's apparel, and currently operates 363 retail
stores in 34 states and Puerto Rico under the names "Wet Seal", "Contempo
Casuals", "Limbo Lounge" and "Next". The Company sells moderately priced,
fashionable, casual apparel and accessory items designed for consumers with a
young, active lifestyle.

On July 1, 1995, the Company acquired Contempo Casuals. The purchase price
consisted of a $100,000 cash payment and the issuance of 254,676 shares of Class
A Common Stock, which had a market value of $1,178,000 as of the acquisition
date. In addition, the Company assumed approximately $27,700,000 of current
liabilities of Contempo Casuals. The transaction was accounted for under the
purchase method. The acquisition substantially increased the number of stores
the Company operates and reduced the percentage of total stores the Company
operates in California from more than 50% to approximately 35%.

The Company's return to profitability in fiscal 1995 as well as its improved
profitability in fiscal 1996 was directly related to the acquisition of Contempo
Casuals. Acquiring Contempo Casuals enabled the Company to significantly reduce
fixed expenses as a percentage of sales through the consolidation and
integration of the two companies' management teams, corporate offices and
distribution centers. This process was substantially completed at the time of
the acquisition. At the same time, the acquisition allowed the Company to reduce
the average depreciation per store due to the favorable acquisition price. As a
result of the acquisition of Contempo Casuals and the Company's strong balance
sheet, the Company believes it is well-positioned to capitalize on the growth in
the teenage population and the expected continuing changes in the competitive
environment of the retailing industry.

Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto.

RESULTS OF OPERATIONS

The following discussion and analysis of results of operations includes a
comparison of the results of operations for fiscal 1996, which contained the
full year results for both Wet Seal stores and Contempo Casuals stores, to
fiscal 1995, which contained the full year results of the Wet Seal stores and
the seven month results of the Contempo Casuals stores which were acquired on
July 1, 1995. Therefore, the results of operations for fiscal 1995 are not
directly comparable to those of fiscal 1996.

Comparable store sales are defined as sales in stores that were open
throughout the full fiscal year and throughout the full prior fiscal year. In
the last seven months of fiscal 1995, comparable store sales included sales
results of Contempo Casuals stores as compared to sales results of Contempo
Casuals stores in the corresponding period in the prior year during which time
Contempo Casuals was under different ownership.

9
<PAGE>
The following table sets forth selected income statement data of the Company
expressed as a percent of sales for the years indicated:

<TABLE>
<CAPTION>
AS A PERCENTAGE OF SALES
FISCAL YEAR ENDED
-------------------------------------------
<S> <C> <C> <C>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------- ------------- -------------
Sales........................................................................... 100.0% 100.0% 100.0%
Cost of sales (including buying, distribution and occupancy costs).............. 72.6 75.2 78.6
----- ----- -----
Gross margin.................................................................... 27.4 24.8 21.4
Selling, general and administrative expenses.................................... 21.1 21.6 23.1
Interest income, net............................................................ (0.7) (0.5) (0.7)
----- ----- -----
Net operating expenses.......................................................... 20.4 21.1 22.4
----- ----- -----
Income (loss) before provision (benefit) for income taxes....................... 7.0 3.7 (1.0)
Provision (benefit) for income taxes............................................ 2.9 1.5 (0.2)
----- ----- -----
Net income (loss)............................................................... 4.1% 2.2% (0.8)%
----- ----- -----
----- ----- -----
</TABLE>

FISCAL 1996 COMPARED TO FISCAL 1995

Sales in fiscal 1996 (52 weeks) were $374,942,000 compared to sales in
fiscal 1995 (53 weeks) of $266,695,000, an increase of $108,247,000 or 40.6%.
The dollar increase in sales in fiscal 1996 compared to fiscal 1995 was
primarily due to the acquisition of Contempo Casuals and, to a lesser extent, to
the increase in the comparable store sales in fiscal 1996 compared to fiscal
1995. The Company attributes the increase in comparable store sales of 8.8% to
the resurgence of fashion at the beginning of fiscal 1996. Further contributing
to the sales increases were the opening of 10 new stores in fiscal 1996 offset
to some extent by the closing of 10 stores as well as the fact that fiscal 1996
had one less week of sales than fiscal 1995.

Cost of sales, including buying, distribution and occupancy costs, was
$272,189,000 in fiscal 1996 compared to $200,626,000 in fiscal 1995, an increase
of $71,563,000 or 35.7%. As a percentage of sales, cost of sales decreased from
75.2% in fiscal 1995 to 72.6% in fiscal 1996, a decrease of 2.6%. The dollar
increase in cost of sales in fiscal 1996 compared to fiscal 1995 was due
primarily to the increase in the number of stores as a result of the acquisition
of Contempo Casuals. Of the 2.6% decrease in cost of sales, 1.8% related to a
decrease in occupancy and buying costs and 0.8% related to a decrease in the
cost of merchandise. The decrease in occupancy costs was associated primarily
with a decrease in depreciation resulting from the lower net book value per
store of the depreciable assets of Contempo Casuals, as compared to Wet Seal.
The decrease of 0.8% in merchandise cost was due to an increase in the initial
markup rates.

Selling, general and administrative expenses were $79,238,000 in fiscal 1996
compared to $57,531,000 in fiscal 1995, an increase of $21,707,000 or 37.7%. As
a percentage of sales, selling, general and administrative expenses decreased
from 21.6% in fiscal 1995 to 21.1% in fiscal 1996, a decrease of .5%. The dollar
increase in selling, general and administrative expenses in fiscal 1996 compared
to fiscal 1995 was primarily due to the increase in the number of stores as a
result of the acquisition of Contempo Casuals. The decrease as a percentage of
sales was related to the economies of scale the Company achieved primarily as a
result of the increase in comparable store sales in fiscal 1996.

Interest income, net, was $2,702,000 in fiscal 1996 compared to $1,410,000
in fiscal 1995, an increase of $1,292,000. This increase was due primarily to an
increase in the average cash balance invested.

Income tax expense was $10,965,000 in fiscal 1996 compared to $4,133,000 in
fiscal 1995. The effective income tax rate in fiscal 1996 was 41.8% compared to
a rate of 41.5% in fiscal 1995.

10
<PAGE>
Based on the factors noted above, net income was $15,252,000 in fiscal 1996
compared to $5,815,000 in fiscal 1995, an increase of 162%. As a percentage of
sales, net income was 4.1% in fiscal 1996 compared to 2.2% in fiscal 1995.

FISCAL 1995 COMPARED TO FISCAL 1994

Sales in fiscal 1995 (53 weeks) were $266,695,000 compared to sales in
fiscal 1994 (52 weeks) of $132,997,000, an increase of $133,698,000 or 100.5%.
The dollar increase in sales in fiscal 1995 compared to fiscal 1994 was
primarily due to the acquisition of Contempo Casuals and, to a significantly
lesser extent, to the additional week of sales in fiscal 1995. These increases
were partially offset by a 4.1% decrease in comparable store sales as well as by
the net effect of the closure of nine stores and the opening of three new stores
during 1995. The Company attributes the decline in comparable store sales to a
lack of a significant fashion trend and to a shift in consumer discretionary
spending habits, especially in the junior segment, to other non-apparel items.
The comparable store sales declines were most notable in certain regions,
particularly Southern California and parts of Florida, while certain other
regions experienced comparable store sales increases.

Cost of sales, including buying, distribution and occupancy costs, was
$200,626,000 in fiscal 1995 compared to $104,547,000 in fiscal 1994, an increase
of $96,079,000 or 91.9%. As a percentage of sales, cost of sales decreased from
78.6% in fiscal 1994 to 75.2% in fiscal 1995, a decrease of 3.4%. The dollar
increase in cost of sales in fiscal 1995 compared to fiscal 1994 was due to the
increase in the number of stores as a result of the acquisition of Contempo
Casuals. Of the 3.4% decrease in cost of sales as a percentage of sales, 2.1%
related to a decrease in occupancy costs and 0.9% related to a decrease in the
cost of merchandise. The decrease in occupancy costs was associated primarily
with a decrease in depreciation resulting from the lower net book value per
store of the depreciable assets of Contempo Casuals, as compared to Wet Seal.
The decrease of 0.9% in merchandise cost was due to an increase in the initial
markup rates. Further contributing to the decrease in cost of sales as a
percentage of sales was the fact that the acquisition of Contempo Casuals took
place on July 1, 1995, and thus fiscal 1995 results do not include the results
of operations of Contempo Casuals for the first five months of the fiscal year.
The first five months of the fiscal year historically have higher cost of sales
percentages due to relatively reduced sales levels which limit the Company's
ability to leverage the fixed components of cost of sales.

Selling, general and administrative expenses were $57,531,000 in fiscal 1995
compared to $30,698,000 in fiscal 1994, an increase of $26,833,000 or 87.4%. As
a percentage of sales, selling, general and administrative expenses decreased
from 23.1% in fiscal 1994 to 21.6% in fiscal 1995, a decrease of 1.5%. The
dollar increase in selling, general and administrative expenses in fiscal 1995
compared to fiscal 1994 was primarily due to the acquisition of Contempo
Casuals. The decrease as a percentage of sales was related to the economies of
scale the Company achieved as a result of this acquisition. These economies of
scale resulted in a 1.2% decrease in general and administrative expenses as a
percentage of sales.

Interest income, net, was $1,410,000 in fiscal 1995 compared to $882,000 in
fiscal 1994, an increase of $528,000. This increase was due primarily to an
increase in the average cash balance invested.

Income tax expense (benefit) was $4,133,000 in fiscal 1995 compared to
$(353,000) in fiscal 1994. The effective income tax rate in fiscal 1995 was
41.5% compared to a tax benefit rate of 25.8% in fiscal 1994. The tax benefit
rate in fiscal 1994 was lower than the effective tax rate in fiscal 1995 due
primarily to a valuation allowance related to the deferred tax asset which was
recorded in fiscal 1994 and was subsequently reversed in fiscal 1995.

Net income was $5,815,000 in fiscal 1995 compared to a net loss of
$1,013,000 in fiscal 1994. As a percentage of sales, net income was 2.2% in
fiscal 1995 compared to a net loss of 0.8% in fiscal 1994. The Company's return
to profitability in fiscal 1995 was directly related to the acquisition of
Contempo Casuals. With this acquisition, the Company achieved significant
economies of scale in areas such as

11
<PAGE>
buying, distribution and general and administrative costs. At the same time, the
acquisition enabled the Company to reduce its average depreciation cost per
store due, in part, to the favorable acquisition price.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at the end of fiscal 1996, 1995 and 1994 was $59,791,000,
$26,051,000 and $22,473,000, respectively. Net cash provided by operating
activities in fiscal 1996, 1995 and 1994 was $28,187,000, $25,308,000 and
$10,068,000, respectively. The increase in cash provided by operating activities
in fiscal 1996 was due primarily to the increase in net earnings. Further
contributing was the increase in accounts payable offset to some extent by the
related increase in inventory as well as the increase in deferred taxes. The
increase in accounts payable was related to the timing of inventory receipts.
The increase in inventory was planned in order to bring the inventories to an
appropriate level to support planned sales. The increase in deferred taxes was
related primarily to the difference between book and tax depreciation. The
increase in cash provided by operating activities in fiscal 1995 was due
primarily to the increase in net earnings and depreciation. Also contributing to
the increase in cash provided by operating activities was a decrease in
inventory and increases in accounts payable and income taxes payable, net of the
effect of the Contempo Casuals acquisition.

Additions to property and equipment are the Company's most significant
investment activities. In fiscal 1996, 1995 and 1994 the Company invested
$8,620,000, $2,585,000 and $3,299,000, respectively, in property and equipment
and leasehold improvements. These expenditures related primarily to new store
openings and remodelings. Primarily as a result of the Company's expanded
operations, capital expenditures for fiscal 1997 are currently estimated to be
$30,000,000.

On May 24, 1996 the Company sold 765,000 shares of Class A Common Stock as
part of a public offering pursuant to a registration statement on Form S-3. The
net proceeds to the Company from the sale of shares were $14,459,000.

The Company has entered into lines of credit with Bank of America National
Trust and Savings Association ("Bank of America") in an aggregate principal
amount of $30,000,000 (the "Revolving Credit Facilities"), and a five year
amortizing term loan with Bank of America in the amount of $10,000,000 (the
"Term Loan," and together with the "Revolving Credit Facilities," the "Credit
Facilities") ending July 1, 2000. At February 1, 1997, there were no outstanding
borrowings under the Revolving Credit Facilities, and the Company believes it
was in substantial compliance with all terms and covenants of such agreements.
The Company invests its excess funds primarily in a short-term investment grade
money market fund, investment grade commercial paper and U.S. Treasury and
Agency obligations. Management believes the Company's working capital and cash
flows from operating activities will be sufficient to meet the Company's
operating and capital requirements in the foreseeable future.

SEASONALITY AND INFLATION

The Company's business is seasonal by nature with the Christmas season
(beginning the week of Thanksgiving and ending the first Saturday after
Christmas) and the back-to-school season (beginning the last week of July and
ending the first week of September) historically accounting for the largest
percentage of sales volume. In the Company's three fiscal years ended February
1, 1997, the Christmas and back-to-school seasons together accounted for an
average of approximately 32% of the Company's annual sales, after adjusting for
sales increases related to new stores. The Company does not believe that
inflation has had a material effect on the results of operations during the past
three years. However, there can be no assurance that the Company's business will
not be affected by inflation in the future.

STATEMENT REGARDING FORWARD LOOKING DISCLOSURE

The preceding "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections contain various forward
looking statements within the meaning of

12
<PAGE>
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act, which represent the Company's
expectations or beliefs concerning future events. The Company cautions that
these statements are further qualified by important factors that could cause
actual results to differ materially from those in the forward looking
statements, including, without limitation, the retention by the Company of
suppliers for both brand name and Company-developed merchandise, the ability of
the Company to expand and to continue to increase comparable store sales and the
sufficiency of the Company's working capital and cash flows from operating
activities. In addition, these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward looking statements, including, without limitation, a decline in demand
for the merchandise offered by the Company, the ability of the Company to locate
and obtain acceptable store sites and lease terms or renew existing leases, the
ability of the Company to obtain adequate merchandise supply, the ability of the
Company to hire and train employees, the ability of the Company to gauge the
fashion tastes of its customers and provide merchandise that satisfies customer
demand, management's ability to manage the Company's expansion, the effect of
economic conditions, the effect of severe weather or natural disasters and the
effect of competitive pressures from other retailers.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128")
which is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 requires the disclosure of basic and diluted
earnings per share. For the year ended February 1, 1997, the amount reported as
net income per common and common equivalent share is not materially different
than that which would have been reported for basic and diluted earnings per
share in accordance with SFAS No. 128.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" which requires adoption of the disclosure provisions no later than
years beginning after December 15, 1995 and adoption of the recognition and
measurement provisions for nonemployee transactions no later than after December
15, 1995. The new standard defines a fair value method of accounting for stock
options and other equity instruments. Under the fair value method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period which is usually the vesting period. The
Company will continue to apply Accounting Principles Board No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25") to its stock-based compensation
awards to employees and will disclose the required pro forma effect on net
income and earnings per share in its financial statements.

In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and
long-lived assets and certain identifiable intangibles to be disposed of. The
Company adopted SFAS No. 121 in the first interim period of fiscal 1996 and such
adoption did not impact its financial position or results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Filed under Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Inapplicable.

13
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

All of the information called for by Part III (Items 10 through 13) is
incorporated by reference from the Company's definitive Proxy Statement in
connection with its Annual Meeting of Stockholders to be held June 17, 1997,
filed pursuant to Regulation 14A.

14
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

THE WET SEAL, INC.
(REGISTRANT)

By: /s/ KATHY BRONSTEIN
-----------------------------------------
Kathy Bronstein
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER

By: /s/ EDMOND THOMAS
-----------------------------------------
Edmond Thomas
PRESIDENT AND CHIEF OPERATING OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE SIGNED
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ GEORGE H. BENTER JR.
- ------------------------------ Director April 30, 1997
George H. Benter Jr.

Vice Chairman and Chief
/s/ KATHY BRONSTEIN Executive Officer and
- ------------------------------ Director (Principal April 30, 1997
Kathy Bronstein Executive Officer)

/s/ STEPHEN GROSS
- ------------------------------ Secretary and Director April 30, 1997
Stephen Gross

Vice President of Finance
/s/ ANN CADIER KIM and Chief Financial
- ------------------------------ Officer (Principal April 30, 1997
Ann Cadier Kim Financial and Accounting
Officer)

/s/ WALTER F. LOEB
- ------------------------------ Director April 30, 1997
Walter F. Loeb
</TABLE>

15
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE SIGNED
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ WILFRED POSLUNS
- ------------------------------ Director April 30, 1997
Wilfred Posluns

/s/ GERALD RANDOLPH
- ------------------------------ Director April 30, 1997
Gerald Randolph

/s/ ALAN SIEGEL
- ------------------------------ Director April 30, 1997
Alan Siegel

/s/ IRVING TEITELBAUM
- ------------------------------ Chairman of the Board and April 30, 1997
Irving Teitelbaum Director

/s/ EDMOND THOMAS President and Chief
- ------------------------------ Operating Officer and April 30, 1997
Edmond Thomas Director
</TABLE>

16
<PAGE>
PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1. Consolidated Financial Statements--See "Index to Consolidated Financial
Statements and Financial Statement Schedules".

2. Consolidated Financial Statement Schedules--See "Index to Consolidated
Financial Statements and Financial Statement Schedules".

3. Exhibits--See "Exhibit Index".

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the last quarter of the fiscal year
ended February 1, 1997.

17
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INDEPENDENT AUDITORS' REPORT:

Report of Deloitte & Touche LLP............................................................................ 19

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated balance sheets as of February 1, 1997 and February 3, 1996.................................... 20

Consolidated statements of operations for the years ended February 1, 1997, February 3, 1996 and January
28, 1995................................................................................................. 21

Consolidated statements of stockholders' equity for the years ended February 1, 1997, February 3, 1996 and
January 28, 1995......................................................................................... 22

Consolidated statements of cash flows for the years ended February 1, 1997, February 3, 1996 and January
28, 1995................................................................................................. 23

Notes to consolidated financial statements................................................................. 24

CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:

All schedules are omitted as they are not required, or the required information is shown in the financial
statements or the notes thereto.
</TABLE>

18
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
The Wet Seal, Inc.:

We have audited the accompanying consolidated balance sheets of The Wet
Seal, Inc. and subsidiary as of February 1, 1997 and February 3, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three fiscal years in the period ended February 1, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the 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 audits 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 financial position of The Wet
Seal, Inc. and subsidiary as of February 1, 1997 and February 3, 1996 and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended February 1, 1997, in conformity with generally
accepted accounting principles.

Deloitte & Touche LLP
March 6, 1997
Costa Mesa, California

19
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1).................................................... $ 71,483,000 $ 57,153,000
Marketable securities (Note 1)........................................................ 17,700,000 --
Other receivables..................................................................... 1,577,000 523,000
Merchandise inventories............................................................... 22,589,000 16,241,000
Prepaid expenses...................................................................... -- 428,000
Deferred tax charges (Note 3)......................................................... 693,000 1,100,000
------------ ------------
Total current assets.............................................................. 114,042,000 75,445,000
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Leasehold improvements................................................................ 55,429,000 55,438,000
Furniture, fixtures and equipment..................................................... 21,742,000 21,606,000
Leasehold rights...................................................................... 3,342,000 2,009,000
Construction in progress.............................................................. 2,000 9,000
------------ ------------
80,515,000 79,062,000
Less accumulated depreciation......................................................... (47,285,000) (41,015,000)
------------ ------------
Net equipment and leasehold improvements.......................................... 33,230,000 38,047,000
------------ ------------
OTHER ASSETS:
Deferred tax charges and other assets (Note 3)........................................ 6,914,000 3,461,000
Goodwill, net of accumulated amortization of $566,000 and $521,000 as of February 1,
1997 and February 3, 1996, respectively............................................. 566,000 611,000
------------ ------------
Total other assets................................................................ 7,480,000 4,072,000
------------ ------------
$154,752,000 $117,564,000
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable...................................................................... $ 26,035,000 $ 19,491,000
Accrued liabilities (Note 11)......................................................... 24,064,000 22,813,000
Income taxes payable (Note 3)......................................................... 2,152,000 3,354,000
Current portion of long-term debt..................................................... 2,000,000 3,736,000
------------ ------------
Total current liabilities......................................................... 54,251,000 49,394,000
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt (Note 8)............................................................... 3,264,000 5,264,000
Deferred rent......................................................................... 6,117,000 5,171,000
------------ ------------
Total long-term liabilities....................................................... 9,381,000 10,435,000
------------ ------------
Total liabilities................................................................. 63,632,000 59,829,000
------------ ------------
COMMITMENTS: (Note 6)

STOCKHOLDERS' EQUITY: (Notes 4 and 5)
Preferred Stock, $.01 par value, authorized, 2,000,000 shares; none issued and
outstanding......................................................................... -- --
Common Stock, Class A, $.10 par value, authorized 20,000,000 shares; 10,628,874 and
5,687,066 shares issued and outstanding at February 1, 1997 and February 3, 1996,
respectively........................................................................ 1,063,000 568,000
Common Stock, Class B Convertible, $.10 par value, authorized 10,000,000 shares;
2,912,665 and 6,807,665 shares issued and outstanding at February 1, 1997 and
February 3, 1996, respectively...................................................... 291,000 681,000
Paid-in capital....................................................................... 56,596,000 38,568,000
Retained earnings..................................................................... 33,170,000 17,918,000
------------ ------------
Total Stockholders' Equity........................................................ 91,120,000 57,735,000
------------ ------------
$154,752,000 $117,564,000
------------ ------------
------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

20
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
SALES........................................................... $ 374,942,000 $ 266,695,000 $ 132,997,000
COST OF SALES (including buying, distribution and occupancy
costs)........................................................ 272,189,000 200,626,000 104,547,000
-------------- -------------- --------------
GROSS MARGIN.................................................... 102,753,000 66,069,000 28,450,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (Note 9)............ 79,238,000 57,531,000 30,698,000
INTEREST INCOME, NET (Note 8)................................... (2,702,000) (1,410,000) (882,000)
-------------- -------------- --------------
NET OPERATING EXPENSES.......................................... 76,536,000 56,121,000 29,816,000
-------------- -------------- --------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES....... 26,217,000 9,948,000 (1,366,000)
PROVISION (BENEFIT) FOR INCOME TAXES (Note 3)................... 10,965,000 4,133,000 (353,000)
-------------- -------------- --------------
NET INCOME (LOSS)............................................... $ 15,252,000 $ 5,815,000 $ (1,013,000)
-------------- -------------- --------------
-------------- -------------- --------------
NET INCOME (LOSS) PER COMMON SHARE.............................. $ 1.13 $ 0.47 $ (0.08)
-------------- -------------- --------------
-------------- -------------- --------------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING
(Note 1)...................................................... 13,459,810 12,387,140 12,234,502
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

See accompanying notes to consolidated financial statements.

21
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------
CLASS A CLASS B TOTAL
--------------------- ----------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES PAR VALUE SHARES PAR VALUE CAPITAL EARNINGS EQUITY
---------- --------- ---------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 30, 1994........ 4,326,831 $ 433,000 7,907,665 $ 791,000 $37,389,000 $13,116,000 $51,729,000
Stock issued pursuant to long-term
incentive plan (Note 5).......... 2,106 -- -- -- 8,000 -- 8,000
Net loss........................... -- -- -- -- -- (1,013,000) (1,013,000)
---------- --------- ---------- ----------- ---------- ---------- -------------
Balance at January 28, 1995........ 4,328,937 433,000 7,907,665 791,000 37,397,000 12,103,000 50,724,000
Stock issued pursuant to long-term
incentive plan (Note 5).......... 1,453 -- -- -- 11,000 -- 11,000
Exercise of stock options.......... 2,000 -- -- -- 7,000 -- 7,000
Conversion of Class B Common
Stock to Class A Common
Stock (Note 4)................... 1,100,000 110,000 (1,100,000) (110,000) -- -- --
Issuance of Class A Common Stock
pursuant to acquisition of
Contempo Casuals (Note 2 and Note
4)............................... 254,676 25,000 -- -- 1,153,000 -- 1,178,000
Net income......................... -- -- -- -- -- 5,815,000 5,815,000
---------- --------- ---------- ----------- ---------- ---------- -------------
Balance at February 3, 1996........ 5,687,066 568,000 6,807,665 681,000 38,568,000 17,918,000 57,735,000
Issuance of Class A Common
Stock pursuant to Public
Offering (Note 4)................ 765,000 76,000 -- -- 14,383,000 -- 14,459,000
Stock issued pursuant to long-term
incentive plan (Note 5).......... 5,308 1,000 -- -- 106,000 -- 107,000
Exercise of stock options (Note
4)............................... 276,500 28,000 -- -- 1,712,000 -- 1,740,000
Tax benefit related to exercise of
stock options (Note 5)........... -- -- -- -- 1,827,000 -- 1,827,000
Conversion of Class B Common
Stock to Class A Common
Stock (Note 4)................... 3,895,000 390,000 (3,895,000) (390,000) -- -- --
Net income......................... -- -- -- -- -- 15,252,000 15,252,000
---------- --------- ---------- ----------- ---------- ---------- -------------
Balance as of February 1, 1997..... 10,628,874 $1,063,000 2,912,665 $ 291,000 $56,596,000 $33,170,000 $91,120,000
---------- --------- ---------- ----------- ---------- ---------- -------------
---------- --------- ---------- ----------- ---------- ---------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

22
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ 15,252,000 $ 5,815,000 $ (1,013,000)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization........................................ 11,848,000 10,384,000 8,057,000
Loss on disposal of equipment and leasehold improvements............. 153,000 14,000 124,000
Stock issued pursuant to long-term incentive plan.................... 107,000 11,000 8,000
Deferred tax, net.................................................... (3,084,000) (2,155,000) (1,162,000)
Changes in operating assets and liabilities, net of effect of
acquisition:
Other receivables.................................................. (1,054,000) 41,000 172,000
Tax refund receivable.............................................. -- 59,000 1,766,000
Merchandise inventories............................................ (6,348,000) 2,436,000 93,000
Prepaid expenses................................................... 428,000 1,093,000 133,000
Other assets....................................................... 38,000 (69,000) 21,000
Accounts payable and accrued liabilities........................... 9,276,000 3,529,000 1,352,000
Income taxes payable............................................... 625,000 3,117,000 --
Deferred rent...................................................... 946,000 1,033,000 517,000
------------- ------------ ------------
Total adjustments.................................................. 12,935,000 19,493,000 11,081,000
------------- ------------ ------------
Net cash provided by operating activities............................ 28,187,000 25,308,000 10,068,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements....................... (8,620,000) (2,585,000) (3,299,000)
Investment in marketable securities...................................... (17,700,000) -- --
Cash paid for acquisition, less cash acquired............................ -- (20,000) --
Proceeds from sale of equipment and leasehold improvements............... -- 74,000 269,000
Proceeds from sale of marketable securities.............................. -- -- 4,520,000
------------- ------------ ------------
Net cash (used in) provided by investing activities...................... (26,320,000) (2,531,000) 1,490,000
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................................. -- 10,000,000 --
Principal payments on long-term debt..................................... (3,736,000) (1,000,000) --
Proceeds from issuance of stock.......................................... 16,199,000 7,000 --
------------- ------------ ------------
Net cash provided by financing activities................................ 12,463,000 9,007,000 --
------------- ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................ 14,330,000 31,784,000 11,558,000
CASH AND CASH EQUIVALENTS, beginning of year............................. 57,153,000 25,369,000 13,811,000
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of year................................... $ 71,483,000 $57,153,000 $ 25,369,000
------------- ------------ ------------
------------- ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (refunded) during the year for:
Interest............................................................... $ 538,000 $ 498,000 $ --
Income taxes, net...................................................... 13,424,000 2,829,000 (1,187,000)
SCHEDULE OF NONCASH TRANSACTIONS:
The Company acquired the assets of Contempo Casuals during the year ended
February 3, 1996. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired............................................ $ -- $29,592,000 $ --
Cash paid to seller and transaction costs................................ -- 750,000 --
Common stock issued...................................................... -- 1,178,000 --
------------
Liabilities assumed.................................................. -- $27,664,000 --
</TABLE>

In connection with the acquisition, the Company recorded a net deferred tax
liability of $433,000.

During the fifty-two weeks ended February 1, 1997, the Company reduced
certain estimated liabilities assumed in connection with the acquisition of
Contempo Casuals. As a result, a reduction in accounts payable of $1,481,000 was
recorded with a corresponding reduction in fixed assets. During the fifty-three
weeks ended February 3, 1996, the Company acquired the assets of Contempo
Casuals for common stock valued at $1,178,000.

During the fifty-two weeks ended February 1, 1997, the Company recorded an
increase to paid-in capital of $1,827,000 related to tax benefits associated
with the exercise of non-qualified stock options.

See accompanying notes to consolidated financial statements.

23
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF THE BUSINESS

The Wet Seal, Inc. and subsidiary (the Company) is a nationwide specialty
retailer of moderately priced, fashionable apparel for women. On July 1, 1995,
the Company acquired Contempo Casuals, Inc., a 237-store retail junior women's
chain. This acquisition substantially increased the Company's size. The
Company's success is largely dependent upon its ability to gauge the fashion
tastes of its customers and to provide merchandise that satisfies customer
demand. The Company's failure to anticipate, identify or to react to changes in
fashion trends could adversely affect the Company. Approximately 30% of the
voting stock of the Company is held by a group of companies directly or
indirectly controlled by two directors of the Company, one of which is the
chairman of the board.

The Company's fiscal year ends on the Saturday closest to the end of
January. In fiscal 1995, the reporting period included 53 weeks as compared to
52 weeks in each of fiscal years 1996 and 1994.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. Intercompany balances and
transactions have been eliminated.

MERCHANDISE INVENTORIES

Merchandise inventories are stated at the lower of cost (first-in,
first-out) or market. Cost is determined using the retail inventory method.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are stated at cost. Expenditures for
betterment or improvement are capitalized, while expenditures for repairs that
do not significantly increase the life of the asset are expensed as incurred.

Depreciation is provided using primarily the straight-line method over the
estimated useful lives of the assets. Furniture, fixtures and equipment and
vehicles are typically depreciated over 3 to 5 years. Leasehold improvements and
the cost of acquiring leasehold rights are depreciated over the lesser of the
term of the lease or 10 years.

INTANGIBLE ASSET

Excess of cost over net assets acquired (goodwill) is being amortized on the
straight-line method over 25 years. The goodwill was established in fiscal 1984.
The Company assesses the recoverability of goodwill at each balance sheet date
by determining whether the amortization of the balance over its remaining useful
life can be recovered through projected undiscounted future operating cash
flows.

RENTAL EXPENSE

Any defined rental escalations are averaged over the term of the related
lease in order to provide level recognition of rental expense.

24
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAX

Deferred tax charges are provided on items, principally depreciation and
rent, for which there are temporary differences in recording such items for
financial reporting purposes and for income tax purposes.

STATEMENTS OF CASH FLOWS

For purposes of the statements of cash flows, the Company considers all
highly liquid interest-earning deposits purchased with an initial maturity of
three months or less to be cash equivalents. At February 1, 1997 and February 3,
1996, cash equivalents totaled $69,611,000 and $52,141,000, respectively,
bearing interest at rates ranging from approximately 5.1% to 5.4% at February 1,
1997 and from approximately 5.3% to 6.1% at February 3, 1996.

NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per common share is computed based on the weighted average
number of common and common equivalent shares outstanding for the period.

MARKETABLE SECURITIES

Marketable securities consist of highly liquid interest bearing deposits
purchased with an initial maturity exceeding three months but less than twelve
months and with the intent of being held to maturity. Marketable securities are
carried at cost plus accrued income, which approximates market at February 1,
1997.

NEW ACCOUNTING PRONOUNCEMENTS

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Management believes the carrying amounts of cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to the short
maturity of these financial instruments. Long-

25
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
term debt bears a variable rate of interest; therefore, management believes the
carrying amount for the outstanding borrowings at February 1, 1997 and February
3, 1996 approximate fair value.

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with APB No. 25, "Accounting for Stock Issued to
Employees." (See Note 5.)

NOTE 2: ACQUISITION

On July 1, 1995, the Company acquired the business, assets and properties of
Contempo Casuals, Inc., a 237-store retail junior women's chain with stores in
34 states and Puerto Rico. The purchase price consisted of (a) the issuance of
254,676 shares of the Company's Class A Common Stock which had a value of
$1,178,000 on the date of the acquisition, and (b) $100,000 in cash. The
transaction was accounted for under the purchase method. In connection with the
acquisition, the Company assumed certain liabilities which were estimated by the
seller. The total amount of these assumed liabilities may not, in fact, be paid
as the actual payments will be based on the future claims and losses which are
actually submitted and which are related to pre-acquisition events. (See Note
11.)

NOTE 3: PROVISION (BENEFIT) FOR INCOME TAXES

SFAS No. 109 requires the recognition of deferred tax assets and liabilities
for the future consequences of events that have been recognized in the Company's
financial statements or tax returns. The measurement of deferred items is based
on enacted tax laws. In the event that the future consequences of differences
between financial reporting bases and the tax bases of the Company's assets and
liabilities result in a deferred tax asset, SFAS No. 109 requires an evaluation
of the probability of being able to realize the future benefits indicated by
such asset. A valuation allowance related to a deferred tax asset is recorded
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. During fiscal 1994, the Company had recorded a
$110,000 valuation allowance which was reversed in fiscal 1995.

26
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995

NOTE 3: PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CURRENT:
Federal............................................................ $ 10,674,000 $ 5,170,000 $ 573,000
State.............................................................. 3,375,000 1,127,000 236,000
------------- ------------- -------------
14,049,000 6,297,000 809,000
------------- ------------- -------------
DEFERRED:
Federal............................................................ (2,569,000) (1,926,000) (958,000)
State.............................................................. (515,000) (238,000) (204,000)
------------- ------------- -------------
(3,084,000) (2,164,000) (1,162,000)
------------- ------------- -------------
$ 10,965,000 $ 4,133,000 $ (353,000)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

A reconciliation of income tax provision (benefit) to the amount of the
actual provision (benefit) that would result from applying the federal statutory
rate (35%) to income (loss) before taxes is as follows:

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Provision (benefit) for income taxes at federal statutory rate............. 35.0% 35.0% (35.0)%
State income taxes, net of federal income tax benefit...................... 7.1 6.5 (3.8)
Change in valuation allowance.............................................. -- (1.1) 8.1
Other...................................................................... (0.3) 1.1 4.9
--- --- -----
Effective tax rate......................................................... 41.8% 41.5% (25.8)%
--- --- -----
--- --- -----
</TABLE>

As of February 1, 1997 and February 3, 1996, the Company's net deferred tax
asset was $7,396,000 and $4,312,000 respectively. The major components of the
Company's net deferred taxes at February 1, 1997 and February 3, 1996 are as
follows:

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
------------ ------------
<S> <C> <C>
Deferred rent..................................................... $ 2,706,000 $ 2,211,000
Acquisition related reserves...................................... 2,508,000 1,542,000
Inventory cost capitalization..................................... 653,000 476,000
AMT credit carry forward.......................................... -- 73,000
Difference between book and tax basis of fixed assets............. 1,445,000 (453,000)
State income taxes................................................ (63,000) (49,000)
Other............................................................. 147,000 512,000
------------ ------------
$ 7,396,000 $ 4,312,000
------------ ------------
------------ ------------
</TABLE>

27
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995

NOTE 4: STOCKHOLDERS' EQUITY

The 2,912,665 shares of the Company's Class B Common Stock outstanding as of
February 1, 1997 are convertible on a share-for-share basis into shares of the
Company's Class A Common Stock at the option of the holder. The Class B Common
Stock has two votes per share while the Class A Common Stock has one vote per
share.

During the year ended February 1, 1997, major stockholders converted
3,895,000 shares of Class B Common Stock to Class A Common Stock. These shares
were sold to the public through registration statements on Form S-3. The Company
did not receive any proceeds from these transactions.

On May 24, 1996 the Company sold 765,000 shares of Class A Common Stock as a
part of a public offering pursuant to a registration statement on Form S-3. The
net proceeds to the Company from the sale of shares were $14,459,000.

During the year ended February 3, 1996, a major stockholder converted
1,100,000 shares of Class B Common Stock to Class A Common Stock. These shares
were then sold to the public through a registration statement on Form S-3. The
Company did not receive any proceeds from this transaction.

On July 1, 1995, 254,676 shares of the Company's Class A Common Stock were
issued pursuant to the acquisition of Contempo Casuals, Inc. (See Note 2)

NOTE 5: LONG-TERM INCENTIVE PLAN

Under the Company's long-term incentive plans (the "plans"), the Company may
grant stock options which are either incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options. The plans provide that the per share exercise price
of an incentive stock option may not be less than the fair market value of the
Company's Class A Common Stock on the date the option is granted. Options become
exercisable over periods of up to five years and generally expire ten years from
the date of grant or 90 days after employment or services are terminated. The
plans also provide that the Company may grant restricted stock and other
stock-based awards. An aggregate of 775,000 shares of the Company's Class A
Common Stock may be issued pursuant to the plans. An additional 700,000 shares
of the Company's Class A Common Stock may be issued pursuant to the 1996
Long-Term Incentive Plan adopted by the Company's Board of Directors on August
22, 1996 (subject to shareholder approval). As of February 1, 1997, 734,174
shares were available for future grants and 19,500 shares were exercisable.

28
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995

NOTE 5: LONG-TERM INCENTIVE PLAN (CONTINUED)
Stock option activity for each of the three years in the period ended
February 1, 1997 was as follows:

<TABLE>
<CAPTION>
NUMBER OF RANGE OF
SHARES PRICES PER SHARE
----------- -----------------
<S> <C> <C>
Outstanding at January 30, 1994................................ 80,000 $ 9.13 - $14.25
Granted...................................................... 575,000 $ 3.00 - $ 4.75
Canceled..................................................... (40,000) $ 4.13
Outstanding at January 28, 1995................................ 615,000 $ 3.00 - $14.25
Granted...................................................... 30,000 $ 5.13 - $ 8.00
Canceled..................................................... (8,000) $ 3.63 - $ 4.13
Exercised.................................................... (2,000) $ 3.63 - $ 4.13
Outstanding at February 3, 1996................................ 635,000 $ 3.00 - $14.25
Granted...................................................... 60,000 $ 17.44 - $22.00
Canceled..................................................... (6,000) $ 4.13
Exercised.................................................... (276,500 ) $ 3.00 - $14.25
-----------
Outstanding at February 1, 1997................................ 412,500 $ 3.00 - $22.00
-----------
-----------
</TABLE>

The following is a summary of the weighted average exercise prices for
activity during the year ended February 1, 1997:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- -------------
<S> <C> <C>
Outstanding at February 4, 1996.................................... 635,000 $ 5.12
Options Granted (Price=Fair Value)............................... 60,000 $ 20.86
Options Exercised................................................ (276,500) $ 6.29
Options Canceled................................................. (6,000) $ 4.13
---------- ------
Outstanding at February 1, 1997.................................... 412,500 $ 6.64

Exercisable as of February 1, 1997................................. 19,500 $ 4.40
</TABLE>

Additional information regarding options outstanding as of February 1, 1997
is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ------------------------
NUMBER NUMBER
OUTSTANDING WEIGHTED WEIGHTED EXERCISABLE WEIGHTED
AS OF AVERAGE AVERAGE AS OF AVERAGE
RANGE OF FEB. 1, REMAINING EXERCISE FEB. 1, EXERCISE
EXERCISE PRICES 1997 CONTRACTUAL LIFE PRICE 1997 PRICE
- ----------------- ----------- ------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 3.00 - $ 3.63 41,000 7.36 $ 3.49 8,000 $ 3.63
4.13 - 5.13 302,500 7.24 4.21 10,500 4.65
8.00 - 17.44 24,000 9.54 13.90 1,000 8.00
22.00 - 22.00 45,000 9.30 22.00 -- --
----------- --- ----------- ----------- -----
$ 3.00 - $22.00 412,500 7.61 $ 6.64 19,500 $ 4.40
</TABLE>

29
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995

NOTE 5: LONG-TERM INCENTIVE PLAN (CONTINUED)
A total of 276,500 non-qualified stock options were exercised during the
year ended February 1, 1997, resulting in net proceeds of $1,740,000 to the
Company. The Company recorded an increase to Paid-in capital of $1,827,000
related to tax benefits associated with the exercise of the non-qualified stock
options.

As of February 1, 1997, the Company has granted an aggregate of 49,826
shares of Class A Common Stock, net of forfeitures, to a group of its key
employees under the performance grant award plan which was instituted pursuant
to the Company's plans. Under the performance grant award plan, key employees of
the Company receive Class A Common Stock in proportion to their salary. These
bonus shares vest at the rate of 33.33% per year and non-vested shares are
subject to forfeiture if the participant terminates employment. Compensation
expense, equal to the market value of the shares as of the issue date, is being
charged to earnings over the period that the employees provide service. In each
of the years ended February 1, 1997, February 3, 1996 and January 28, 1995,
5,308, 1,453 and 2,106 shares, respectively, were fully vested and issued.

ADDITIONAL LONG-TERM INCENTIVE PLAN INFORMATION

As discussed in Note 1, the Company continues to account for its stock-based
awards using the intrinsic value method in accordance with APB No. 25,
"Accounting for Stock Issued to Employees" and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements.

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS 123) requires the disclosure of pro forma net
income and earnings per share had the Company adopted the fair value method as
of the beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and expected
time to exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, 48 months following
vesting; stock volatility, 65.95% in fiscal 1996 and 48.34% in fiscal 1995; risk
free interest rates, 6.38% in fiscal 1996 and 5.71% in fiscal 1995; and no
dividends during the expected term. The Company's calculations are based on a
multiple option valuation approach and forfeitures are recognized as they occur.
If the computed fair values of the fiscal 1995 and 1996 awards had been
amortized to expense over the vesting period of the awards, net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
FISCAL FISCAL
1996 1995
------------- ------------
<S> <C> <C> <C>
Net Income As reported $ 15,252,000 $ 5,815,000
Pro forma $ 15,192,000 $ 5,811,000

Net Income Per Common As reported $1.13 $0.47
and Equivalent Share Pro forma $1.13 $0.47
</TABLE>

30
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995

NOTE 5: LONG-TERM INCENTIVE PLAN (CONTINUED)
The impact of outstanding non-vested stock options granted prior to 1995 has
been excluded from the pro forma calculation; accordingly, the fiscal 1995 and
fiscal 1996 pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.

NOTE 6: COMMITMENTS

LEASES

The Company leases retail stores, automobiles, computers and corporate
office and warehouse facilities under operating lease agreements expiring at
various times through 2007. Substantially all of the leases require the Company
to pay maintenance, insurance, property taxes and percentage rent ranging from
4.0% to 12%, based on sales volume over certain minimum sales levels.

Minimum annual rental commitments under non-cancelable leases, including the
new corporate office and warehouse facility lease executed at the end of fiscal
1996, are as follows:

<TABLE>
<S> <C> <C>
FISCAL YEAR
ENDING: 1998.................... $42,701,000
1999.................... 39,473,000
2000.................... 35,903,000
2001.................... 32,597,000
2002.................... 27,401,000
Thereafter.............. 58,361,000
-----------
$236,436,000
-----------
-----------
</TABLE>

Rental expense, including common area maintenance, was $62,391,000,
$46,010,000 and $22,728,000, of which $345,000, $152,000 and $286,000 was paid
as percentage rent based on sales volume, for the years ended February 1, 1997,
February 3, 1996 and January 28, 1995, respectively.

EMPLOYMENT CONTRACTS

The Company has employment contracts with two officers, which provide for
minimum annual salaries, customary benefits and allowances, and incentive
bonuses if specified Company earnings levels are achieved. The agreements
provide these same officers with severance benefits which approximate three
years' salary if the agreements are terminated without cause before expiration
of their terms or if the individual's duties materially change following a
change in control of the Company.

LITIGATION

The Company is a defendant in various lawsuits arising in the ordinary
course of its business. While the ultimate liability, if any, arising from these
claims cannot be predicted with certainty, the Company is of the opinion that
their resolution will not likely have a material adverse effect on the Company's
financial statements.

LETTERS OF CREDIT

At February 1, 1997, the Company had outstanding letters of credit amounting
to approximately $6,589,000.

31
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995

NOTE 7: REVOLVING CREDIT ARRANGEMENT

Under unsecured revolving line-of-credit arrangements with a bank, the
Company may borrow up to a maximum of $30 million on a revolving basis through
July 1, 1998. The cash borrowings under the arrangements bear interest at the
bank's prime rate or, at the Company's option, LIBOR plus 1.75% for the Wet Seal
facility ($10,000,000) and for the Contempo Casuals facility ($20,000,000).

The credit arrangements impose quarterly and annual financial covenants
requiring the Company to maintain certain financial ratios and achieve certain
levels of annual income. In addition, the credit arrangements require that the
bank approve the payment of dividends and restrict the level of capital
expenditures. At February 1, 1997 and February 3, 1996, the Company was in
compliance with these covenants. The Company had no borrowings outstanding under
these credit arrangements at February 1, 1997 or February 3, 1996.

NOTE 8: LONG-TERM DEBT

In June 1995, the Company entered into an unsecured five-year, $10 million
term loan. The loan bears interest at the bank's prime rate plus .25% or, at the
Company's option, LIBOR plus 1.75% (7.1875% at fiscal year end). The estimated
annual principal payments on the loan are $2,000,000 payable in quarterly
installments of $500,000 beginning October 31, 1995.

The term loan imposes quarterly and annual financial covenants requiring the
Company to maintain certain financial ratios and achieve certain levels of
annual income. In addition, the term loan requires that the bank approve the
payment of dividends and restricts the level of capital expenditures. At
February 1, 1997 and February 3, 1996, the Company was in compliance with these
covenants.

NOTE 9: RELATED PARTY TRANSACTIONS

Certain officers of Suzy Shier, Inc. provide management services to the
Company. For these services, the officers earned in the aggregate a management
fee of $250,000 during each of the years ended February 1, 1997, February 3,
1996 and January 28, 1995, respectively.

NOTE 10: RETIREMENT PLAN

Effective June 1, 1993, the Company established a qualified defined
contribution retirement plan under the Internal Revenue Code, Section 401(k).
The Wet Seal Retirement Plan (the "Plan") is available to all employees who meet
the Plan's eligibility requirements. The Plan is funded by employee
contributions, and additional contributions may be made by the Company at its
discretion. As of February 1, 1997 the Company has not made any contributions to
the Plan.

32
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995

NOTE 11: ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
------------- -------------
<S> <C> <C>
Reserve for self insurance..................................... $ 4,057,000 $ 4,638,000
Accrued wages, bonuses and benefits............................ 4,735,000 3,610,000
Combination costs.............................................. 5,569,000 7,300,000
Gift certificate and credit memo liability..................... 2,331,000 1,828,000
Sales tax payable.............................................. 2,348,000 1,102,000
Other.......................................................... 5,024,000 4,335,000
------------- -------------
$ 24,064,000 $ 22,813,000
------------- -------------
------------- -------------
</TABLE>

In connection with the acquisition of Contempo Casuals, Inc., the Company
assumed certain accruals, including the reserve for self insurance, which were
estimated by the seller. The total amount of these assumed accruals may not, in
fact be paid as the actual payments will be based on the future claims and
losses which are actually submitted and which are related to pre-acquisition
events. The combination costs of $5,569,000 consist of the estimated costs
associated with the closing and/or combination of certain Contempo Casuals'
facilities and operations into Wet Seal's.

NOTE 12: UNAUDITED QUARTERLY FINANCIAL DATA

FISCAL YEAR ENDED FEBRUARY 1, 1997

<TABLE>
<CAPTION>
NET INCOME
QUARTER SALES GROSS MARGIN NET INCOME PER SHARE
- ---------------------------------------------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
First Quarter....................................... $ 80,575,000 $ 19,038,000 $ 722,000 $ 0.06
Second Quarter...................................... 94,356,000 24,786,000 3,315,000 0.25
Third Quarter....................................... 95,571,000 26,419,000 4,194,000 0.30
Fourth Quarter...................................... 104,440,000 32,510,000 7,021,000 0.51
-------------- -------------- -------------
For the year........................................ $ 374,942,000 $ 102,753,000 $ 15,252,000 $ 1.13
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>

FISCAL YEAR ENDED FEBRUARY 3, 1996

<TABLE>
<CAPTION>
NET INCOME
NET INCOME (LOSS) PER
QUARTER SALES GROSS MARGIN (LOSS) SHARE
- ------------------------------------------------------- -------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
First Quarter.......................................... $ 29,839,000 $ 5,642,000 $ (671,000) $ (0.05)
Second Quarter......................................... 44,883,000 8,944,000 (733,000) (0.06)
Third Quarter.......................................... 88,674,000 21,661,000 1,822,000 0.15
Fourth Quarter......................................... 103,299,000 29,822,000 5,397,000 0.43
-------------- ------------- ------------
For the Year........................................... $ 266,695,000 $ 66,069,000 $ 5,815,000 $ 0.47
-------------- ------------- ------------
-------------- ------------- ------------
</TABLE>

33
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------------
<C> <C> <S>
*3.1 -- Restated Certificate of Incorporation of the Company.

*3.2 -- Bylaws of the Company.

*4.1 -- Specimen Certificate of the Class A Stock, par value $.10 per share.

*4.2 -- Specimen Certificate of the Class B Stock, par value $.10 per share.

*10.1 -- Lease between the Company and The Irvine Company, dated March 6, 1987.

*10.3 -- First amendment to Services Agreement between the Company and Kathy Bronstein, dated December 30,
1988.

**10.3.1 -- Second amendment to Services Agreement between the Company and Kathy Bronstein, dated March 23,
1992.

***10.3.2 -- Services Agreement between the Company and Edmond Thomas, dated June 22, 1992.

****10.3.3 -- Third amendment to Services Agreement between the Company and Kathy Bronstein, dated November 17,
1994.

****10.3.4 -- First amendment to Services Agreement between the Company and Edmond Thomas, dated November 17,
1994.

****10.3.5 -- Fourth amendment to Services Agreement between the Company and Kathy Bronstein, dated January 13,
1995.

****10.3.6 -- Second amendment to Services Agreement between the Company and Edmond Thomas, dated January 13,
1995.

*****10.3.7 -- Fifth amendment to Services Agreement between the Company and Kathy Bronstein, dated January 30,
1995.

*****10.3.8 -- Sixth amendment to Services Agreement between the Company and Kathy Bronstein, dated February 2,
1996.

*****10.3.9 -- Third amendment to Services Agreement between the Company and Edmond Thomas, dated February 2,
1996.

*10.4 -- 1990 Long-Term Incentive Plan.

**10.5 -- Credit Agreement between the Company and Bank of America, dated as of April 20, 1992.

***10.5.1 -- Credit Agreement between the Company and Bank of America, dated June 23, 1993, as amended.

****10.5.2 -- Amendments No. 1 and No. 2 to Credit Agreement between the Company and Bank of America, dated
January 25, 1994 and June 1, 1994, respectively.

*****10.5.3 -- Business Loan Agreement between the Company and Bank of America, containing Term Loan and
Revolving Line of Credit, dated June 30, 1995.

*****10.5.4 -- Business Loan Agreement between the Company and Bank of America, containing Revolving Line of
Credit for Contempo Casuals, dated June 30, 1995.

**10.6 -- "Key Man" life insurance policy for Kathy Bronstein.
</TABLE>

34
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------------
<C> <C> <S>
10.6.1 -- "Key Man" life insurance policy for Edmond Thomas.

***10.7 -- 1994 Long-Term Incentive Plan.

*10.8 -- Stock Purchase and Stock Transfer Restriction Agreement among Kathy Bronstein, Suzy Shier, Inc.
and the Company dated December 30, 1988.

****10.9 -- Indemnification Agreement between the Company and various Executives and Directors, dated January
3, 1995, and schedule listing all parties thereto.

10.10 -- 1996 Long-Term Incentive Plan.

*****21.1 -- Subsidiaries of the Registrant

23.1 -- Consent of Deloitte & Touche LLP, independent auditors.

27.1 -- Financial Data Schedule
</TABLE>

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

* Denotes exhibits incorporated by reference to the Company's Registration
Statement File No. 33-34895.

** Denotes exhibits incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended January 30, 1993.

*** Denotes exhibits incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended January 29, 1994.

**** Denotes exhibits incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended January 28, 1995.

***** Denotes exhibits incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended February 3, 1996.

<PAGE>

[LOGO]

Transamerica Occidental POLICY FORM S-15
Life insurance Company Individual Life Insurance
1150 South Olive Street 1
Los Angeles, CA 90015
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
INSURED EDMOND S THOMAS 41178805 POLICY NUMBER

FACE AMOUNT $5,000,000 JUN 11 1996 DATE OF ISSUE

- ------------------------------------------------------------------------------
While this policy is in force, Transamerica Occidental Life Insurance Company
will pay the death benefit to the beneficiary if the Insured dies before the
policy anniversary nearest the Insured's age 95. All payments are subject to
the provisions of this policy.

Signed for the Company at Los Angeles, California, on the date of issue.

/s/ (illegible) /s/ (illegible)

Executive Vice President, General Counsel President -- Life Insurance Division
And Corporate Secretary

- ------------------------------------------------------------------------------
RIGHT TO EXAMINE AND RETURN POLICY WITHIN 10 DAYS -- At any time within 10
days after you receive this policy, you may return it to us or to the agent
you purchased it from. We will cancel the policy and void it from the
beginning. We will refund to you any premiums paid.

TERM INSURANCE TO THE POLICY ANNIVERSARY NEAREST AGE 95
LEVEL DEATH BENEFIT PAYABLE AT DEATH BEFORE
THE POLICY ANNIVERSARY NEAREST AGE 95

SEE SCHEDULE OF GUARANTEED AND NON-GUARANTEED
PREMIUMS IN THE POLICY DATA FOR AMOUNT OF PREMIUMS

PREMIUMS PAYABLE DURING LIFE OF INSURED TO THE
END OF THE TERM PERIOD

PREMIUMS ARE SUBJECT TO CHANGE AS STATED
IN SCHEDULES OF PREMIUMS PROVISION,
BUT WILL NOT EXCEED SPECIFIED GUARANTEED PREMIUMS

NONPARTICIPATING -- NO DIVIDENDS

PAGE 1

<PAGE>

P 0 L I C Y D A T A

JUN 11 1996 POLICY DATE

EXPIRY DATE JUN 11 2048 43 AGE OF INSURED

INSURED EDMOND S THOMAS 41178805 POLICY NUMBER

FACE AMOUNT $5,000,000 JUN 11 1996 DATE OF ISSUE

OWNER WET SEAL INC PREFERRED CLASS OF RISK
SMOKER
- ------------------------------------------------------------------------------
THE CHARGE FOR ANY ADDITIONAL BENEFITS WHICH ARE PROVIDED BY RIDER IS SHOWN
BELOW. ONLY A BRIEF DESCRIPTION IS GIVEN. THE COMPLETE PROVISIONS ARE
INCLUDED IN THE RIDER.

RIDER NUMBER SCHEDULE OF ADDITIONAL BENEFITS ANNUAL PREMIUM
- ------------ ------------------------------- --------------
NONE NO CHARGE

- ------------------------------------------------------------------------------
TOTAL FIRST YEAR PREMIUMS (SEE FOLLOWING PAGES FOR PREMIUMS FOR LATER YEARS):

ANNUAL SEMI-ANNUAL QUARTERLY MONTHLY
$19,425.00 $10,101.00 $5,150.25 $1,791.45

- ------------------------------------------------------------------------------
CONTINUED ON THE FOLLOWING PAGE PAGE 2

<PAGE>

P 0 L I C Y D A T A ( C 0 N T I N U E D)

SCHEDULE OF NON-GUARANTEED PREMIUMS
- ANNUAL PREMIUMS -

POLICY POLICY
POLICY YEAR EXCLUDING POLICY YEAR EXCLUDING
BEGINNING RIDERS BEGINNING RIDERS

JUN 11 1997 $19,425.00 JUN 11 2023 $277,475.00
JUN 11 1998 19,425.00 JUN 11 2024 315,725.00
JUN 11 1999 19,425.00 JUN 11 2025 367,775.00
JUN 11 2000 19,425.00 JUN 11 2026 430,275.00
JUN 11 2001 19,425.00 JUN 11 2027 500,625.00
JUN 11 2002 19,425.00 JUN 11 2028 573,375.00
JUN 11 2003 19,425.00 JUN 11 2029 619,025.00
JUN 11 2004 19,425.00 JUN 11 2030 669,125.00
JUN 11 2005 19,425.00 JUN 11 2031 722,675.00
JUN 11 2006 19,425.00 JUN 11 2032 784,275.00
JUN 11 2007 19,425.00 JUN 11 2033 848,025.00
JUN 11 2008 19,425.00 JUN 11 2034 907,525.00
JUN 11 2009 19,425.00 JUN 11 2035 982,375.00
JUN 11 2010 19,425.00 JUN 11 2036 1,170,375.00
JUN 11 2011 98,575.00 JUN 11 2037 1,266,775.00
JUN 11 2012 106,575.00 JUN 11 2038 1,347,025.00
JUN 11 2013 115,475.00 JUN 11 2039 1,570,475.00
JUN 11 2014 124,475.00 JUN 11 2040 1,634,825.00
JUN 11 2015 134,525.00 JUN 11 2041 1,696,725.00
JUN 11 2016 145,925.00 JUN 11 2042 1,761,925.00
JUN 11 2017 158,175.00 JUN 11 2043 1,928,925.00
JUN 11 2018 171,925.00 JUN 11 2044 2,123,225.00
JUN 11 2019 187,575.00 JUN 11 2045 2,210,275.00
JUN 11 2020 205,425.00 JUN 11 2046 2,332,375.00
JUN 11 2021 225,825.00 JUN 11 2047 2,456,775.00
JUN 11 2022 249,525.00

- ------------------------------------------------------------------------------
CONTINUED ON THE FOLLOWING PAGE PAGE 2A

<PAGE>

P 0 L I C Y D A T A ( C 0 N T I N U E D)

SCHEDULE OF GUARANTEED PREMIUMS
- ANNUAL PREMIUMS -

POLICY POLICY
POLICY YEAR EXCLUDING POLICY YEAR EXCLUDING
BEGINNING RIDERS BEGINNING RIDERS

JUN 11 1997 $19,425.00 JUN 11 2023 $763,575.00
JUN 11 1998 19,425.00 JUN 11 2024 832,575.00
JUN 11 1999 19,425.00 JUN 11 2025 918,075.00
JUN 11 2000 19,425.00 JUN 11 2026 1,022,325.00
JUN 11 2001 19,425.00 JUN 11 2027 1,143,975.00
JUN 11 2002 19,425.00 JUN 11 2028 1,279,275.00
JUN 11 2003 19,425.00 JUN 11 2029 1,425,225.00
JUN 11 2004 19,425.00 JUN 11 2030 1,578,625.00
JUN 11 2005 19,425.00 JUN 11 2031 1,738,625.00
JUN 11 2006 19,425.00 JUN 11 2032 1,910,175.00
JUN 11 2007 19,425.00 JUN 11 2033 2,100,475.00
JUN 11 2008 19,425.00 JUN 11 2034 2,315,625.00
JUN 11 2009 19,425.00 JUN 11 2035 2,561,475.00
JUN 11 2010 19,425.00 JUN 11 2036 2,840,625.00
JUN 11 2011 271,175.00 JUN 11 2037 3,168,575.00
JUN 11 2012 294,275.00 JUN 11 2038 3,496,875.00
JUN 11 2013 319,925.00 JUN 11 2039 3,870,025.00
JUN 11 2014 348,775.00 JUN 11 2040 4,230,325.00
JUN 11 2015 381,275.00 JUN 11 2041 4,637,825.00
JUN 11 2016 418,425.00 JUN 11 2042 4,710,725.00
JUN 11 2017 459,875.00 JUN 11 2043 4,783,625.00
JUN 11 2018 506,475.00 JUN 11 2044 4,856,525.00
JUN 11 2019 552,725.00 JUN 11 2045 4,929,425.00
JUN 11 2020 601,275.00 JUN 11 2046 4,929,475.00
JUN 11 2021 651,325.00 JUN 11 2047 4,929,525.00
JUN 11 2022 704,675.00

END OF POLICY DATA PAGE 2B

<PAGE>

DEFINITIONS In this policy:

WE, OUR or US means Transamerica Occidental Life Insurance Company.

YOU and YOUR means the owner of this policy.

AGE means the Insured's age on the nearest birthday.

The BENEFICIARY is the person to whom we will pay the death benefit if the
Insured dies while this policy is in force.

HOME OFFICE means Transamerica Occidental Life Insurance Company, Box 2101, Los
Angeles, California 90051-0101.

ADMINISTRATIVE OFFICE means Transamerica Occidental Life Insurance Company, Box
419521, Kansas City, Missouri 64141-652l.

LAPSE means termination of the policy at the end of the grace period due to non-
payment of premiums.

REINSTATE means to restore coverage after the policy has lapsed.

A RIDER is an attachment to the policy that provides an additional benefit

WRITTEN REQUEST means a signed request in a form satisfactory to us that is
received at our Administrative Office.

We will send any NOTICE under the provisions of this policy to your last known
address and to any assignee of record.

We will use the POLICY DATE shown in the Policy Data to determine the premium
due dates, policy anniversaries and policy years.

OWNERSHIP

OWNER OF THE POLICY -- Only you, the Owner, are entitled to the rights
granted under this policy while the Insured is living. If you are an
individual and you die before the Insured, your rights will pass to the
executor or administrator of your estate, unless stated otherwise in this
policy. If the Owner is a partnership, the rights belong to the partnership
as it exists when a right is exercised.

ASSIGNMENT OF THE POLICY -- We are not responsible for the adequacy of any
assignment. However, if you file the assignment with us and we record it at
our Administrative Office, your rights and those of any revocable beneficiary
will be subject to it.

THE BENEFICIARY

WHO RECEIVES THE DEATH BENEFIT -- When the Insured dies, we will pay the
death benefit to the beneficiary. The beneficiary is as designated in the
application, unless changed as shown under "How to Change a Beneficiary" below.
If the beneficiary is a partnership, we will pay the death benefit to the
partnership as it exists when the Insured dies.

PROTECTION OF THE DEATH BENEFIT -- To the extent permitted by law, no death
benefit will be subject to the claims of the beneficiary's creditors or to
any legal process against the beneficiary.

PAGE 3

<PAGE>

SCHEDULES OF PREMIUMS -- The policy includes two schedules of annual premiums.

The guaranteed annual premium for each policy year is shown in the Policy
Data under Schedule of Guaranteed Premiums. For any policy year, we will not
charge an annual premium greater than the guaranteed annual premium shown in
that Schedule for that year.

We may charge a lower premium than the guaranteed annual premium for a policy
year exclusive of any riders, by sending a notice to your last known address.
Such annual premiums are not guaranteed. The current scale of annual premiums
is shown in the Schedule of Non-Guaranteed Premiums for this policy. A
reduced annual premium will be effective for one year beginning on the policy
anniversary immediately following the date we send the notice. Any reduction
in the annual premium will apply to all policies having the same plan, issue
year and premium schedule as this policy.

The semi-annual, quarterly and monthly premiums for each policy year will be
determined on the same basis used to determine the initial semi-annual,
quarterly and monthly premiums.

GRACE PERIOD -- A grace period is a period of 31 days after the premium due
date for each premium due after the first. We will 1st you know, by sending a
notice to your last known address, that the grace period has begun and that
you must pay a premium large enough to keep the policy in force before the 31
days are up. If you do not pay enough premium, your policy will lapse.

During the grace period, we will not charge interest on the premium due. If
the insured dies during the grace period and before you pay the premium, we
will subtract from the death benefit the cost of coverage to the date the
Insured died.

PREMIUM ADJUSTMENT AT DEATH -- Any portion of a paid premium which applies to
a period beyond the date of the Insured's death will be added to the proceeds
payable under this policy. Premiums waived under any disability rider
attached to the policy will not be included in this adjustment.

REINSTATEMENT -- If this policy lapses, it may be reinstated. To reinstate the
policy, you must meet the following conditions:

1. You must request reinstatement in writing within five years after the date
of lapse and before the expiry date.

2. The Insured must still be insurable by our standards.

3. The following amounts must be paid:

a. One twelfth of the annual premium at the time of lapse; and
b. The premium due at the time of reinstatement

The effective date of any reinstatement will be the date of your request. If a
person other than the Insured is covered by any attached rider, that person's
coverage will be reinstated under the terms of this provision.

PAGE 5

<PAGE>

When we receive a satisfactory written request, we will pay the death benefit
according to one of these options:

OPTION A: INSTALLMENTS FOR A GUARANTEED PERIOD -- We will pay equal
installments for a guaranteed period of from one to thirty years. Each
installment will consist of part benefit and part interest We will pay the
installments monthly, quarterly, semi-annually or annually, as requested.
See Table A on next page.

OPTION B: INSTALLMENTS FOR LIFE WITH A GUARANTEED PERIOD -- We will pay equal
monthly installments as long as the payee is living, but we will not make
payments for less than the guaranteed period the payee chooses. The
guaranteed period may be either 10 years or 20 years. We will pay the
installments monthly. See Table B on next page.

OPTION C: BENEFIT DEPOSITED WITH INTEREST -- We will hold the benefit on
deposit. It will earn interest at the annual interest rate we are paying as
of the date of death. We will not pay less than 2 1/2% annual interest. We
will pay the earned interest monthly, quarterly, semi-annually or annually,
as requested. The payee may withdraw part or all of the benefit and earned
interest at any time.

OPTION D: INSTALLMENTS OF A SELECTED AMOUNT -- We will pay installments of a
selected amount until we have paid the entire benefit and accumulated
interest.

OPTION E: ANNUITY -- We will use the benefit as a single premium to buy an
annuity. The annuity may be payable to one or two payees. It may be payable
for life with or without a guaranteed period, as requested. The annuity
payment will not be less than what our current annuity contracts are then
paying.

The payee may arrange any other method of settlement as long as we agree to
it. The payee must be an individual receiving payment in his or her own
right. There must be at least $10,000 available for any option and the amount
of each installment to each payee must be at least $100. If the benefit
amount is not enough to meet these requirements, we will pay the benefit in a
lump sum.

We will pay the first installment under any option on the date of death. Any
unpaid balance we hold under Options A, B, or D will earn interest at the
rate we are paying at the time of settlement. We will not pay less than 3%
annual interest. Any benefit we hold will be combined with our general assets.

If the payee does not live to receive all guaranteed payments under Options
A, B, D or E or any amount deposited under Option C, plus any accumulated
interest, we will pay the remaining benefit as scheduled to the payee's
estate. The payee may name and change a successor payee for any amount we
would otherwise pay the payee's estate.

PAGE 7

<PAGE>

PREMIUM DEPOSIT AGREEMENT
ENDORSEMENT

Transamerica Occidental Life Insurance Company has issued this endorsement as
a part of the policy to which it is attached.

DEPOSITS - We will accept deposits for the purpose of paying future premiums
on the policy, subject to the provisions of this endorsement. The
accumulation of such deposits or any remainder is called "the deposit fund"
in this endorsement. Each deposit must be made to us in exchange for an
official receipt signed by our President or Secretary. Deposits may be
combined with our general assets.

LIMIT ON DEPOSITS - Each deposit must be at least $5. The amount of the
deposit fund may not exceed the sum of the future premiums for the policy nor
the sum of 10 annual premiums. Any deposits which are not acceptable under
this provision will be refunded to the owner of the policy.

AUTOMATIC PREMIUM PAYMENT - Any premium for the policy which remains unpaid
at the end of the grace period will be paid automatically from the deposit
fund. if the deposit fund is insufficient to pay such premium, the next
smaller premium publicwill be paid automatically from the deposit fund. If
the deposit fund is insufficient to pay a premium under this provision, the
deposit fund will be refunded to the owner of the policy, and the premium for
the policy will remain unpaid, subject to the provisions of the policy.
Premiums will be paid from the deposit fund before payment is made under any
provision for automatic premium loan under the policy.

INTEREST - Interest will be allowed daily from the date of deposit. The
interest rate will be that rate determined by us for premium deposit funds.
Interest will be compounded annually on the policy anniversary.

SETTLEMENT - Upon death of the Insured, the deposit fund will be paid in one
sum to the owner of the policy, except if the Insured is the owner, the
deposit fund will be paid in one sum to the beneficiary of the policy. If the
policy is surrendered or is continued under a non-forfeiture option, or if a
premium for the policy is waived under any rider providing a waiver of
premium benefit, the deposit fund will be paid in one sum to the owner of the
policy.

WITHDRAWAL - Upon written request to us, the owner of the policy may make
withdrawals from the deposit fund. Each withdrawal must be at least $50
except for full withdrawal of the deposit fund. We may defer payment of
withdrawals in cash for a period of not more than 90 days or any shorter
period required by law.

ASSIGNMENT -- No assignment of the rights under this endorsement may be made
except in an assignment of the policy. Any assignment of the policy will
include the rights under this endorsement unless specifically excluded in
such assignment.

Signed for the Company at Los Angeles, California, on the date of issue of
the policy unless a different date is shown here.

[Signature] [Signature]

EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL PRESIDENT
AND CORPORATE SECRETARY

<PAGE>

CONVERSION OPTION ENDORSEMENT

Transamerica Occidental Life Insurance Company has issued this endorsement as
a part of the policy to which it is attached.

This policy may be converted at any time through the tenth policy
anniversary, subject to all conditions stated herein. This policy may not be
converted after the policy anniversary nearest the Insured's age 65. The
conversion may be made to a plan of whole life, endowment or flexible
premium, universal life insurance which we make available at the time the
conversion is requested. The new policy must provide a level face amount and
have provisions allowing it to remain in force to the Insured's age 100.
Evidence of insurability will not be required for the new policy for the
same, or lower, face amount at the time the request for conversion is made.
At least one plan of insurance will be available.

The conversion is also subject to the following conditions:

1. Written request must be made to us within 60 days before the proposed
date of conversion.

2. Unless you request otherwise, the policy date of the new policy will be
the date we receive your application for conversion accompanied by the
first premium.

3. The face amount of the new policy may be for an amount up to the face
amount of this policy at the time the request for conversion is made, but
not less than our published minimum for the plan selected.

4. Premiums for the original policy must be paid to the date of conversion.
The premium for the new policy will be at our published rate for the plan
selected at the time of conversion. We will use the Insured's age on the
date of conversion to determine this rate. The new policy will be issued
at the class of risk of this policy, if available. If not, the new policy
will be issued at the class of risk for which the Insured would have
qualified based on the application for the original policy.

5. Until the new policy becomes effective, the original policy will
continue in force subject to its provisions. The original policy will
automatically terminate at the exact time the new policy becomes effective.
In no event will we provide insurance under both the original policy and a
new policy at the same time.

Signed for the Company at Los Angeles, California on the date of issue of this
policy.

[Signature] [Signature]

Executive Vice President, General Counsel President -- Life Insurance Division
And Corporate Secretary

<PAGE>

CONDITIONAL EXCHANGE OPTION

Transamerica Occidental Life Insurance Company has issued this option as part
of the policy to which it is attached.

This policy may be exchanged for a new policy on the life of the Insured. The
exchange can only be made on the fifteenth policy anniversary, but not beyond
age 65. The selected policy anniversary will be the date of the exchange.

The exchange is subject to the following conditions:

1. Written request must be made to us within 60 days before or after
the proposed date of exchange.

2. Premiums for this policy must be paid to the date of exchange.

3. The exchange is subject to evidence of insurability of the Insured
satisfactory to us. Upon receipt of a request to exchange this policy, we
will inform the owner of the evidence of insurability required.

The evidence of insurability which we require will be paid for by us with
an initial request for exchange of this policy, whether the request is
approved or denied. If the initial request is denied, we will also pay
for the evidence of insurability which we require for a later request,
but only if such request is approved.

4. The policy date of the new policy will be the date of exchange.

5. The new policy will be the same plan of insurance as this policy. If the
same plan is no longer available, we will offer the most similar plan
available at that time. At least one plan of insurance will be made
available.

6. The face amount of the new policy cannot exceed the face amount of this
policy.

7. Premiums for the new policy will be based on the Insured's age nearest
birthday to the date of exchange.

8. If an exchange is made after age 50 of the Insured, the new policy will
not include a Conditional Exchange Option.

9. If an exchange is made after age 65 of the Insured, the new policy will
not include a Conversion Option.

10. The contestability provision will start anew in the new policy, but only
to the extent that the face amount of the new policy will exceed the amount
that could have been provided under this policy if the premiums paid for
the new policy had been applied to premium payments due on this policy.
As a result, a lower death benefit may be payable.

11. Any rider attached to this policy may be continued in the new policy at
the premiums shown in the policy data of this policy, subject to the
provisions of the rider. Any provision in the rider providing for
automatic termination of the rider solely because of the termination
of this policy shall not prevail.

12. The new policy will not become effective unless and until the full first
premium is paid to us, and the new policy is delivered to the owner during
the lifetime and continued insurability (as stated in the request for
exchange) of the Insured.

13. Until the new policy becomes effective, this policy will continue in
force subject to its provisions. This policy will automatically terminate
when the new policy becomes effective. In no event will we provide
insurance under both this policy and a new policy at the same time.

Signed for the Company at Los Angeles, California, on the date of issue of this
policy.

/s/ illegible /s/ illegible

Executive Vice President, General Counsel President -- Life Insurance Division
And Corporate Secretary

<PAGE>

ACCELERATED DEATH BENEFIT OPTION ENDORSEMENT

Transamerica Occidental Life Insurance Company has issued this endorsement as
a part of policy number 41178805 ("the policy").

NOTICE: Benefits advanced under this option may be taxable. As with all tax
matters, the Owner should consult a personal tax advisor to assess the impact
of this benefit on the Owner and the policy.

While the policy is in force, we will pay an Accelerated Death Benefit to
you, upon your request, subject to all the provisions and limitations of this
endorsement.

DEFINITIONS

In this endorsement:

ACCELERATED DEATH BENEFIT is the amount we pay under this option.

ADMINISTRATIVE FEE is the $250.00 that will be charged at the time each
Accelerated Death Benefit is paid.

EFFECTIVE DATE is the date we approve your written request to exercise this
option.

IMMEDIATE FAMILY MEMBERS are members of either the Insured's or Owner's
family who may be described as follows: spouse (includes common law spouse},
children, stepchildren, parents, grandparents, grandchildren, brothers and
sisters and their spouses (includes common law spouse).

INSURED means only the Insured covered under the policy and not any other
individuals covered for additional riders or benefits.

PHYSICIAN is an individual, other than the Insured, the Owner, or Immediate
Family Member, who is a doctor of medicine or osteopathy, licensed in the
jurisdiction in which the advice is given or diagnosis is made and who is
acting within the scope of that license.

POLICY BASIC DEATH BENEFIT means the face amount payable by the policy, any
Paid-Up Additions and any level term rider on the life of the insured. It
does not include any death benefit provided by any other riders or benefits
attached to the policy.

Terminal Illness is a medical condition, resulting from bodily injury or
disease, or both, and:

-- which has been diagnosed by a Physician after the issue date of the
policy; and:

-- for which the diagnosed is supported by clinical, radiological,
laboratory or other evidence of the medical condition which is
satisfactory to us; and,

-- which is not curable by any means available to the medical profession;
and,

-- which a Physician certifies is expected to result in death within
12 months of diagnosis and the certification is within 30 days of the
Accelerated Death Benefit request.

"YOU" and "YOUR" mean the Owner.

LIMITATIONS

1. The availability of this option is subject to all the terms of the policy,
including contestability and suicide.

2. No benefit will be paid if Terminal Illness results from intentionally self-
inflicted injury(ies) at any time.

3. At each request to exercise this option, there must be at least 2 years
remaining from the Effective Date to the expiry or maturity date of each
portion of the Policy Basic Death Benefit.

4. The Owner may not exercise option:

a) if required by law to use the Accelerated Death Benefit to meet the
claims of creditors, whether in bankruptcy or otherwise, or

b) if required by a government agency to use the Accelerated Death Benefit
in order to apply for, obtain, or otherwise keep a government benefit
or entitlement,

c) until there is only one surviving Joint Insured under a Joint and Last
Survivor policy; alternatively, if the policy is a Joint Life policy
that pays an amount upon the death of the first to die of the Joint
Insureds, this option is available if any of the Joint Insureds are
diagnosed with a Terminal Illness.

PAGE 1

<PAGE>

TIME OF PAYMENT OF CLAIMS

After we receive satisfactory written Proof of Terminal illness, we will pay
the Accelerated Death Benefit due.

PAYMENT OF CLAIMS

If approved, the Accelerated Death Benefit will be paid in a lump sum to the
Owner. If the Insured dies before payment is made, we will pay the entire
death benefit of the policy to the Beneficiary in accordance with the policy
provisions.

LEGAL ACTIONS

No legal action may be brought to recover the payment requested under this
option within 60 days after written Proof of Terminal Illness has been given
to us. No such action may be brought after 3 years from the time written
proof of the Insured's Terminal Illness has been given to us.

LIVING BENEFIT RIDER

If the policy contains a Living Benefit Rider and there is a simultaneous
request to exercise the Living Benefit and the Accelerated Death Benefit
Option, the Living Benefit request will be processed first; the Accelerated
Death Benefit Option request will be processed second and will be based on
the adjusted policy values resulting after payment of the Living Benefit.

TAX QUALIFICATION

Any amount payable under this option is intended to qualify for federal
income tax exclusion (to the maximum extent possible). To that end, the
provisions of this endorsement and the policy to which it is attached are to
be interpreted to ensure or maintain such tax qualification, notwithstanding
any other provisions to the contrary. The Company reserves the right to amend
this endorsement and the policy to which it is attached to reflect any
clarifications that may be needed or are appropriate to maintain such
qualification, or to conform this endorsement and the policy to which it is
attached to any applicable changes in the tax qualification requirements. You
will be sent a copy of any such amendment.

/s/ illegible /s/ illegible

EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL PRESIDENT - LIFE INSURANCE DIVISION
AND CORPORATE SECRETARY

PAGE 3

<PAGE>

Transamerica Center
[LOGO] 1150 South Olive Application Part I
Los Angeles, CA 90015 Individual Life Insurance
- --------------------------------------------------------------------------------

/ / Transamerica Occidental / / Transamerica Assurance (CHECK ONE)
Life Insurance Company Company

SECTION A.

1. NAME OF PROPOSED INSURED:

Edmond S. Thomas
---------------------------------------------------------------------------
First Middle Last

2. AGE: (NEAREST BIRTHDAY) 6-24-53 (43)
---------------------------------------------------

3. SEX: /X/ Male / / Female

4. DATE OF BIRTH: Month 6 Day 24 Year 53
---------- ------ ----

5. PLACE OF BIRTH: Boston, MA
------------------------------------------------------------

6. SOCIAL SECURITY #: ###-##-####
---------------------------------------------------------

7. RESIDENCE ADDRESS: 8 Skylark Way Coto de Casa, CA 92079
---------------------------------------------------------

8. TELEPHONE NUMBER: Home: (714) 858-3214
---------------------------------------------------
Business: (714) 699-3900
-----------------------------------------------

9. EMPLOYER: Name: WET Seal, Inc.
-----------------------------------------------------------
Address: 64 Fairbanks Irvine, CA
--------------------------------------------------------

10. OCCUPATION: Title: Pres. & CEO
--------------------------------------------------------
Industry/Duties: Clothing
----------------------------------------------

11. NAME OF PLAN APPLIED FOR: TS-15
--------------------------------------------------
/ / Preferred Nonsmoker -- Kind Code:
------------
/ / Nonsmoker -- Kind Code:
------------
/X/ Preferred Smoker -- Kind Code: 6030
------------
/ / Smoker -- Kind Code:
------------

12. AMOUNT APPLIED FOR: $5,000,000
--------------------------------------------------------

13. RATING CLASS OF RISK APPLIED FOR:
Standard Rating Risk Class Unless Otherwise Indicated
/ / Substandard Rating Risk Class of
---------------------------------------

14. RIDERS:
/ / Waiver of Premium
/ / Accident Indemnity $
-----------------------------------------------------
/ / Living Benefit Rider--Complete Application Supplement
/ / Guaranteed Survivor Option: Option Amount $
Complete Section B ------------------------------
/ / Family Rider: Units Complete Section B/C.
------------------------------
/ / Children's Rider: Units Complete Section C.
---------------------------
/ / Other (INCLUDE DETAILS):
-----------------------------------------------

15. OWNER (IF OTHER THAN PROPOSED INSURED):
/X/ Corporation
/ / Partnership
/ / Trust
/ / Other
/ / For a Juvenile, also complete Section D.
Full Name: WET SEAL, INC.
-----------------------------------------------------------------
Date of Birth: Month Day Year
---------- ------ ----
Soc. Sec. Tax or Employer ID No.: 33-0415940
------------------------------------------
Address: 64 Fairbanks Irvine, CA
-------------------------------------------------------------------

16: BENEFICIARY: State full name and relationship to Proposed Insured. If more
than one, then equally to the survivors unless otherwise stated. For trust
designation, provide complete date of trust.

WET SEAL, INC. -- EMPLOYER
---------------------------------------------------------------------------

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

---------------------------------------------------------------------------
Address: 64 Fairbanks Irvine, CA
-------------------------------------------------------------------

---------------------------------------------------------------------------
If other than Immediate family member, provide insurable interest in
Remarks.

17. DIVIDEND OPTION FOR PARTICIPATING PLANS:
/ / Cash
/ / Premium Reduction
/ / Paid Up Additions
/ / Accummulations
/ / One Year Term for Full Amount Dividend will Purchase
/ / One Year Term Equal To Cash Value As Of Next Anniversary
With Remainder In
------------------------------------------------------

18. MODE OF PREMIUM:
/X/ Annual
/ / Semi-Annual
/ / Quarterly
/ / Monthly

19. FLEXIBLE PREMIUM PLANS INFORMATION:
Required Premium Per Year (RAP) $
--------------------------------------------
Planned Periodic Premium $
---------------------------------------------------
+ Initial Lump Sum $
---------------------------------------------------------
= Total Initial Payment $
----------------------------------------------------

20. BILLING TYPE -- Direct Collection Unless Otherwise Noted:
/ / Pre-Authorized Check (Q & M ONLY)
/ / Government Allotment (M ONLY)
/ / Salary Deduction No.
---------------------------------------------------

21. AUTOMATIC PREMIUM LOAN:
/ / Effective
/ / Not Effective

22. SPECIAL INFORMATION FOR PREMIUM NOTICES:
Name:
----------------------------------------------------------------------
Billing Address:
-----------------------------------------------------------

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

23. COMBINED BILLING:
/ / Yes -- GIVE DETAILS IN REMARKS
/ / No

APPLICATION (NB)

Page

<PAGE>

24. REPLACEMENT OF INSURANCE COVERAGE:
/ / Yes /X/ No Will insurance, including annuities, in any company
be discontinued or changed if the insurance applied
for is issued?

25. OTHER INSURANCE NOW IN FORCE:
Total Life Insurance All Companies: $825,000
----------------------------------------
Company Amount Issue Yr. Bus. Per. Replace
500K 1991 PER / / Yes /X/ No
----------------------------------------------------------
Prudential 250 1992 PER / / Yes /X/ No
----------------------------------------------------------
MASS 25K 1980 PER / / Yes /X/ No
----------------------------------------------------------
MASS 50K PER / / Yes /X/ No
----------------------------------------------------------
Accidental Death Insurance: $ --
-------------------------------

26. PENDING INSURANCE:
/ / Yes /X/ No Is any application for life insurance on Proposed
Insured pending in any other company? Explain "Yes" in
Remarks, including name of company, amount applied for
and total amount to be placed.

27. PRIOR INSURANCE:
/ / Yes /X/ No Has any other company declined to issue, reinstate or
renew, rated, modified, postponed or cancelled, any life
insurance on Proposed Insured?

28. SMOKING HABITS:
Has Proposed Insured used tobacco at any time?
Date Last Used
/X/ Yes /X/ No Cigarettes Current
-----------------
/ / Yes /X/ No Cigar
-----------------
/ / Yes /X/ No Pipe
-----------------
/ / Yes /X/ No Chewing Tobacco
-----------------
/ / Yes /X/ No Other
-----------------

29. DRIVING RECORD:
What is Proposed Insured's driver's license
No.: B-4122679 State: CA
----------------------------------------------------- -----------
Has Proposed Insured been convicted of or pleaded guilty to:
/ / Yes /X/ No A. Two or more moving violations and accidents within
the past 3 years?
/ / Yes /X/ No B. Driving under the influence of alcohol and/or other
drugs or reckless driving within the past 5 years?

30. AVIATION:
/ / Yes /X/ No Does Proposed Insured intend to fly other than as a
passenger or flown other than as passenger during the
past two years? "Yes", complete Aviation Questionnaire.

31. FOREIGN TRAVEL:
/X/ Yes / / No Does Proposed Insured intend to travel outside the
U.S. or Canada within the next two years, except for
purely vacation travel?
Give destination, length of stay, number of trips per
year and purpose in Remarks.

32. RECREATIONAL ACTIVITIES (Avocation and Sports):
Within the last year has Proposed Insured participated in:
/ / Yes /X/ No A. Aeronautics (INCLUDING HANG-GLIDING, ULTRA LIGHT,
SOARING, SKY DIVING, BALLOONING, ETC.)?
/ / Yes /X/ No B. Powered racing or competitive vehicles (INCLUDING
MOTORCYCLES, AUTOMOBILES AND MOTOR BOATS, ETC.)?
/ / Yes /X/ No C. Recreational vehicles over open terrain, trails,
sand, snow or ice (INCLUDING SNOWMOBILES, DIRT BIKES
AND DUNE BUGGIES, ETC.)?
/ / Yes /X/ No D. Skin or scuba diving, mountain climbing, rodeos,
competitive skiing? If "Yes", complete Avocation and
Sports Questionnaire.

REMARKS:
31). Europe & Caribbean for Bus & Pleasure
3x a yr 1-2 wk stay

SECTION B. ADDITIONAL PROPOSED INSURED

33. NAME OF ADDITIONAL PROPOSED INSURED:

---------------------------------------------------------------------------
First Middle

---------------------------------------------------------------------------
Last Title

34. AGE: (NEAREST BIRTHDAY)
---------------------------------------------------

35. SEX: / / Male / / Female

36. DATE OF BIRTH: Month Day Year
----------------------------- --------- -----

37. PLACE OF BIRTH:
------------------------------------------------------------

38. SOCIAL SECURITY #:
---------------------------------------------------------

39. OCCUPATION: Title:
--------------------------------------------------------
Industry:
-----------------------------------------------------
Duties:
-------------------------------------------------------

40. POLICY APPLIED FOR IN SECTION A., QUESTION 11:
/ / TransMax Survivor Life
/ / Other
------------------------------------------------------------------

41. RIDER APPLIED FOR IN SECTION A., QUESTION 14:
/ / Guaranteed Survivor Option: Option Amount $
-----------------------------
/ / Family Rider: Number of Units
-----------------------------------------
/ / Other
------------------------------------------------------------------

42. SMOKING HABITS:
Has additional Proposed Insured used tobacco at any time?
Date Last Used
/ / Yes / / No Cigarettes
-----------------
/ / Yes / / No Cigar
-----------------
/ / Yes / / No Pipe
-----------------
/ / Yes / / No Chewing Tobacco
-----------------
/ / Yes / / No Other

(continued on page )

<PAGE>

Part I Application -- Continued
- --------------------------------------------------------------------------------

It is represented that the statements and answers given in this application
are true, complete, and correctly recorded to the best of my (our) knowledge
and belief. It is agreed that: (1) This application shall consist of Part 1
and Part 2 and shall be the basis for any policy issued on this application;
(2) Except as otherwise provided in the conditional receipt, if issued with
the same number as Part 1 of this application, any policy issued on this
application shall not take effect until after all of the following conditions
have been met: (a) The full first premium is paid, (b) The Owner has
personally received the policy during the lifetime of and while cash Proposed
Insured is in good health, and (c) All of the statements and answers given in
this Application to the best of my (our) belief must be true and complete as
of the date of Owner's personal receipt of the policy and that the policy
will not take effect if the facts have changed; (3) No waiver or modification
shall be binding upon the Company unless in writing and signed by the
President or a Vice President and the Secretary or an Assistant Secretary;
(4) The Company may indicate changes in the space for Home Office Changes in
the Application for administrative purposes only. Any other changes in this
application shall be subject to written consent by the Owner.

PLEASE MAKE CHECKS PAYABLE TO THE COMPANY. DO NOT MAKE CHECKS PAYABLE TO THE
AGENT OR LEAVE THE PAYEE SPACE BLANK.

Amount paid with this Application $ 0
----------------------------------------------
Signed at IRVINE, CA on 4-28- , 1996
-------------------------------------------- --------------- --

X [ILLEGIBLE]
- --------------------------------- ----------------------------------------
WITNESS TO ALL SIGNATURES SIGNATURE OF PROPOSED INSURED
(LICENSED RESIDENT AGENT, AS (OR PARENT OR GUARDIAN OF PROPOSED
REQUIRED) INSURED IS A MINOR)

Countersigned (IF YOUR STATE X
REQUIRES) ----------------------------------------
SIGNATURE OF ADDITIONAL ADULT PROPOSED
INSURED, IF ANY

[ILLEGIBLE] X [ILLEGIBLE]
- -------------------------------- ----------------------------------------
LICENSED RESIDENT AGENT OWNER, IF OTHER THAN PROPOSED INSURED,
MUST SIGN ABOVE

If Owner is a corporation, an
authorized officer, other than the
Proposed Insured must sign as owner,
give Corporate title and full name of
corporation below.

No. 062197 X
----------------------------------------

AUTHORIZATION TO OBTAIN INFORMATION

/ / TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY )
) ("THE COMPANY")
/ / TRANSAMERICA ASSURANCE COMPANY )

I (we) authorize any physician, medical practitioner, hospital, clinic, other
medical or medically related facility, insuring or reinsuring company, the
Medical Information Bureau, Inc., consumer reporting agency, or employer
having information available as to testing, diagnosis, treatment and
prognosis with respect to any physical or mental condition (for example:
coronary disease; cancer; HIV related test results or disorders; metabolic,
pulmonary, or neurological disorders) and/or treatment of me (us) or my (our)
minor children and any other non-medical information of me (us) or my (our)
minor children to give the Company or its legal representative, any and all
such information.

I (we) understand the information obtained by use of the Autorization will be
used by the Company to determine eligibility for insurance and eligibility
for benefits under an existing policy. Any information obtained will not be
released by the Company to any person or organization except to reinsuring
companies, the Medical Information Bureau, Inc., or other persons or
organizations performing business or legal services in connection with my
(our) application, claim or as may be otherwise lawfully required or as I
(we) may authorize.

I (we) know that I (we) may request to receive a copy of this Authorization.

I (we) agree that a photographic copy of this Authorization shall be as valid
as the original.

I (we) agree this Authorization shall be valid for two and one half years
from the date shown below. (For Minnesota applications this shall be valid for
26 months from the date shown below: for Rhode Island applications this shall
be valid for 24 months from the policy issue date.)

I (we) acknowledge receipt of the Notice of Disclosure of Information.

I (we) understand that if an investigative consumer report is ordered in
connection with this application, I (we) may elect to be interviewed in
connection with the preparation of the report and, upon request, I (we) will
be provided with a copy of the report.

/ / Yes / / No I (we) elect to be interviewed if an investigative
consumer report is prepared.

Signed this 28th day of April , 1996.
----------------------- -------------------------------- --

X [ILLEGIBLE] X
- ---------------------------------- ----------------------------------------
SIGNATURE OF PROPOSED INSURED SIGNATURE OF ADDITIONAL PROPOSED
(OR PARENT OR GUARDIAN IF INSURED, IF TO BE COVERED
PROPOSED INSURED IS A MINOR)

X X
- ---------------------------------- ----------------------------------------
NAME OF MINOR CHILD, IF TO NAME OF MINOR CHILD, IF TO
BE COVERED BE COVERED

Page

<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
/ / Transamerica Occidental Life ) Transamerica Center Application Part 2
[LOGO] Insurance Company ) Check 1150 South Olive Medical Health History
) one Los Angeles, CA 90015
/ / Transamerica Assurance Company )
</TABLE>

- -------------------------------------------------------------------------------
1. PROPOSED INSURED: Print Full Name 2. DATE OF BIRTH

Edmond S. Thomas Month 6 Day 24 Year 53
- ------------------------------------------- ------- ------ ---

- -------------------------------------------------------------------------------
3. FAMILY RECORD: Show age and present health, or if deceased, show age at
death and cause of death.

<TABLE>
<CAPTION>
Present Health or
Age Present Health Cause of Death Brothers & Sisters Ages Cause of Death
<S> <C> <C> <C> <C> <C> <C>
Father 65 -- Stroke, Heart attack No. living 1 46 Good
Mother 76 Good -- No. deceased 0 -- --
</TABLE>

<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
4. NAME AND ADDRESS OF YOUR FAMILY PHYSICIAN:

Dr. Goodman -- Newport Beach, CA
- -------------------------------------------------------------------------------
5. WHAT MEDICATIONS ARE YOU PRESENTLY TAKING?
Give details of all "Yes" answers
None including all dates, diagnoses,
- ------------------------------------------------------------------------------- operations, outcome and the names and
6. WITHIN THE PAST FIVE YEARS HAVE YOU: Yes No addresses of all attending physicians,
a. Consulted, been examined or been treated by any physician clinics and hospitals.
or practitioner?............................................... / / /X/
b. Had an X ray, electrocardiogram or any laboratory test or 6b) Check-ups 19
study?......................................................... /X/ / / Normal Results --
c. Had observation or treatment at a clinic, hospital or Personal Physician
sanitarium?.................................................... / / /X/ ---------------------
d. Had or been advised to have a surgical operation?.............. / / /X/ 9a) Father had ty;
e. Had dizziness, shortness of breath, pain or pressure in the Diabetes.
chest?......................................................... / / /X/ ---------------------
f. Had any injury requiring treatment?............................ / / /X/ Smokes about 30
- ------------------------------------------------------------------------------- cigarettes daily.
7. TO THE BEST OF YOUR KNOWLEDGE, HAVE YOU EVER BEEN TOLD YOU HAD: Yes No ---------------------
a. Epilepsy, fainting spells, nervous or mental condition,
neuritis, paralysis, or any disease or abnormality of the brain
or nervous system?............................................. / / /X/
b. Heart attack, murmur, palpitation, or high blood pressure,
anemia, varicose veins, or any disease or abnormality of the
heart, blood or blood vessels?................................. / / /X/
c. Tuberculosis, asthma, pleurisy, or any disease or abnormality
of the lungs, bronchial tubes, throat or respiratory system?... / / /X/
d. Ulcer, indigestion, colitis, gallstone, hernia or any disease
or abnormality of the stomach, intestines, rectum, gall
bladder or liver?.............................................. / / /X/
e. Urinary sugar, albumin or stone, syphilis, menstrual disorder,
or disease or abnormality of the breasts, kidneys, prostate,
urinary or genital systems?.................................... / / /X/
f. Diabetes, gout, or any disease or abnormality of the thyroid
or other glands?............................................... / / /X/
g. Arthritis, rheumatic fever, back trouble, or any disease or
abnormality of the joints, muscles or bones?................... / / /X/
h. Any disease or abnormality of the eyes, ears or skin?.......... / / /X/
i. Cancer or tumor?............................................... / / /X/
j. Any physical deformity or defect?.............................. / / /X/
k. An immune deficiency disorder, AIDS, or the AIDS related
complex (ARC)?................................................. / / /X/
- -------------------------------------------------------------------------------
8. WITHIN THE PAST TEN YEARS, HAVE YOU USED: Yes No
a. Amphetamines, barbituates or sedatives except as prescribed by
a physician?.................................................. / / /X/
b. Cocaine, heroin, morphine, LSD, marijuana, PCP, or any other
hallucinogenic or narcotic drug?.............................. / / /X/
- -------------------------------------------------------------------------------
9. a. Have any of your close relatives ever had cancer, diabetes, Yes No
or a nervous or mental abnormality?........................... /X/ / /
b. Has your weight changed more than 15 pounds in the past year?. / / /X/
c. Have you ever received treatment or joined an organization
for alcoholism or drug addiction?............................. / / /X/
d. Has any application for insurance on your life ever been
declined, withdrawn, postponed, rated or modified in any way?. / / /X/
e. Are you now pregnant?.................................... n/a / / / /
- -------------------------------------------------------------------------------
The statements and answers given above are true, complete and correctly
recorded, to the best of my knowledge and belief. To the extent allowed by
law, I waive my rights to prevent disclosure of any knowledge or information
about the above questions. This waiver applies to any physician, hospital
official or employee, or other person who has attended or examined me, or who
has been consulted by me. I authorize such person to make such disclosures.
Such person may also testify to their knowledge. This authorization is made
on behalf of myself and any person who shall have or claim any interest in
any contract of insurance issued on this application.
</TABLE>

Signed at Coto De Caza, CA on April 27th 1996
------------------------------------------ ------------------, --

Witness [ILLEGIBLE] [ILLEGIBLE]
---------------------------- ----------------------------------------
SIGNATURE OF MEDICAL SIGNATURE OF PROPOSED INSURED
EXAMINER

MPM 1-284 CA/WI

<PAGE>

Transamerica Occidental POLICY FORM S-15
Life Insurance Company Individual Life Insurance
1150 South Olive Street 1
Los Angeles, CA 90015

TERM INSURANCE TO THE POLICY ANNIVERSARY NEAREST AGE 95
LEVEL DEATH BENEFIT PAYABLE AT DEATH BEFORE
THE POLICY ANNIVERSARY NEAREST AGE 95

SEE SCHEDULE OF GUARANTEED AND NON-GUARANTEED
PREMIUMS IN THE POLICY DATA FOR AMOUNT OF PREMIUMS

PREMIUMS PAYABLE DURING LIFE OF INSURED TO THE
END OF THE TERM PERIOD

PREMIUMS ARE SUBJECT TO CHANGE AS STATED
IN SCHEDULES OF PREMIUMS PROVISION,
BUT WILL NOT EXCEED SPECIFIED GUARANTEED PREMIUMS

NONPARTICIPATING - NO DIVIDENDS

<PAGE>

THE WET SEAL, INC.
1996 LONG-TERM INCENTIVE PLAN

1. PURPOSE. The purpose of The Wet Seal, Inc. 1996 Long-Term Incentive
Plan (the "Plan") is to strengthen The Wet Seal, Inc., a Delaware corporation
("Corporation"), by providing to employees, officers, directors, consultants and
independent contractors of the Corporation or any of its subsidiaries (including
dealers, distributors, and other business entities or persons providing services
on behalf of the Corporation or any of its subsidiaries) added incentive for
high levels of performance and unusual efforts to increase the earnings and
long-term growth of the Corporation. The Plan seeks to accomplish this purpose
by enabling specified persons to purchase or acquire shares of the Class A
Common Stock of the Corporation, stock appreciation rights or other equity based
rights thereby increasing their proprietary interest in the Corporation's
success and encouraging them to remain in the employ or service of the
Corporation. The Plan allows the issuance of stock options, stock appreciation
rights, restricted or nonrestricted awards of shares, performance grants,
certain limited rights issued in tandem with options, or any combination of the
foregoing.

2. CERTAIN DEFINITIONS. As used in this Plan, the following words and
phrases shall have the respective meanings set forth below, unless the context
clearly indicates a contrary meaning:

2.1 "BOARD OF DIRECTORS": The Board of Directors of the
Corporation.

2.2 "CAUSE": Cause shall include termination for malfeasance or
gross misfeasance in the performance of duties or conviction of illegal
activity in connection therewith or any conduct detrimental to the
interests of the Corporation. The determination of the Option Committee
with respect to whether a termination for cause has occurred shall be
final and conclusive.

2.3 "CHANGE IN CONTROL": An event consisting of any person or group
both (a) becoming the beneficial owner directly or indirectly of 20% or
more of the outstanding Shares after the effective date of the Plan and
(b) of whose beneficial share ownership exceeds the numbers of shares
owned beneficially by all directors and officers of the Corporation
(excluding shares owned beneficially by any director or officer who is
the person or a member of the group). The existence of a "group" and the
"beneficial ownership" of Shares shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934 ("Exchange Act") and
the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.

2.4 "CODE": The Internal Revenue Code of 1986, as amended.

2.5 "DISABILITY": The inability to engage in any substantial
gainful activity by reasons of any medically determined physical or
mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less
than twelve months, subject to such other limitations and conditions
imposed by Code Section 22(e)(3).

2.6 "FAIR MARKET VALUE PER SHARE": The fair market value per share
of the Shares as determined by the Option Committee in good faith. The
Option Committee is authorized to make its determination as to the fair
market value per share of the Shares on the following basis: (i) if the
Shares are traded only otherwise than on a securities exchange and are
not quoted on the National Association of Securities Dealers, Inc.'s
Automated Quotation System ("NASDAQ"), but are quoted on the Over The
Counter Electronic Bulletin Board operated by NASDAQ, the greater of (a)
the average of the mean between the average daily bid and average daily
asked prices of the Shares during the thirty (30) day period preceding
the date of grant of an Option, as quoted on the Over The Counter
Electronic Bulletin Board operated by NASDAQ, or (b) the mean between the
average daily bid and average daily asked prices of the Shares on the

1
<PAGE>
date of grant, as published on such bulletin board; (ii) if the Shares
are traded only otherwise than on a securities exchange and are quoted on
NASDAQ, the greater of (a) the average of the closing transaction price
of the Shares during the thirty (30) day period preceding the date of
grant of an Option, as reported by the Wall Street Journal and (b) the
closing transaction price of the Shares on the date of grant of an
Option, as reported by the Wall Street Journal; (iii) if the Shares are
admitted to trading on a securities exchange, the greater of (a) the
average of the daily closing prices of the Shares during the ten (10)
trading days preceding the date of grant of an Option, as quoted in the
Wall Street Journal, or (b) the daily closing price of the Shares on the
date of grant of an Option, as quoted in the Wall Street Journal; or (iv)
if the Shares are traded only otherwise than as described in (i), (ii) or
(iii) above, or if the Shares are not publicly traded, the value
determined by the Option Committee in good faith based upon the fair
market value as determined by completely independent and well qualified
experts.

2.7 "INCENTIVE STOCK OPTION": An Option intended to qualify for
treatment as an incentive stock option under Code Sections 421 and 422,
and designated as an Incentive Stock Option.

2.8 "LIMITED RIGHT": A limited right granted pursuant to Section 8
of the Plan.

2.9 "NONQUALIFIED OPTION": An Option not qualifying as an
Incentive Stock Option.

2.10 "OPTION": A stock option granted under the Plan.

2.11 "OPTION AGREEMENT": The document setting forth the terms and
conditions of each Option.

2.12 "OPTION COMMITTEE": The committee selected and designated by
the Board of Directors as the "Option Committee" consisting of not less
than three (3) members of the Board of Directors all of whom are "outside
directors" within the meaning of Code Section 162(m) and the applicable
regulations and "non-employee directors" within the meaning of Rule
16b-3(b)(3) promulgated under the Exchange Act.

2.13 "OPTIONEE": The holder of an Option.

2.14 "PERFORMANCE GRANT": A performance grant granted pursuant to
Section 9 of the Plan.

2.15 "RETIREMENT": Retirement as defined by the Option Committee.

2.16 "SAR": A stock appreciation right granted pursuant to Section
7 of the Plan.

2.17 "SHARES": The shares of Class A Common Stock of the
Corporation.

2.18 "SUBSIDIARY": Any corporation within the meaning of Code
Section 424(f), or similar successor section.

3. ADMINISTRATION OF PLAN.

3.1 IN GENERAL. This Plan shall be administered by the Option
Committee. Any action of the Option Committee with respect to
administration of the Plan shall be taken pursuant to (i) a majority vote
at a meeting of the Option Committee (to be documented by minutes), or
(ii) the unanimous written consent of its members.

3.2 AUTHORITY. With the exception of any grants to members of the
Option Committee, which shall be made and administered exclusively by the
Board of Directors pursuant to the express terms of this Plan, subject to
the express provisions of this Plan, the Option Committee shall have the
authority to: (i) construe and interpret the Plan, decide all questions
and settle all controversies and disputes which may arise in connection
with the Plan and to define the terms used therein; (ii) prescribe, amend
and rescind rules and regulations relating to administration of

2
<PAGE>
the Plan; (iii) determine the purchase price of the Shares covered by
each Option, SAR, Limited Right, Performance Grant or other grant
hereunder and the method of payment of such price, individuals to whom,
and the time or times at which, an Option, SAR, Limited Right,
Performance Grant or other grant hereunder shall be granted and
exercisable and the number of Shares covered by each Option, SAR, Limited
Right, Performance Grant or other grant hereunder; (iv) determine the
terms and provisions of the respective Option Agreements (which need not
be identical) or any other written agreement evidencing any rights under
the Plan; (v) determine the duration and purposes of leaves of absence
which may be granted to participants without constituting a termination
of their employment for purposes of the Plan; and (vi) make all other
determinations necessary or advisable to the administration of the Plan.
Determinations of the Option Committee on matters referred to in this
Section 3.2 shall be conclusive and binding on all parties howsoever
concerned. With respect to Incentive Stock Options, the Option Committee
shall administer the Plan in compliance with the provisions of Code
Section 422 as the same may hereafter be amended from time to time. No
member of the Option Committee shall be liable for any action or
determination made in good faith with respect to the Plan, any Option,
SAR, Limited Right, Performance Grant, or any other right granted
hereunder.

4. ELIGIBILITY AND PARTICIPATION.

4.1 IN GENERAL. Only officers, employees and directors who are also
employees of the Corporation or any Subsidiary shall be eligible to
receive grants of Incentive Stock Options. Officers, employees and
directors of the Corporation or any Subsidiary, as well as consultants,
independent contractors or other service providers of the Corporation or
any Subsidiary shall be eligible to receive grants of Nonqualified
Options, SARs, Limited Rights, Performance Grants, or any other rights.
Within the foregoing limits, the Option Committee, from time to time,
shall determine and designate persons to whom Options, SARs, Limited
Rights, Performance Grants or any other rights may be granted. All such
designations shall be made in the absolute discretion of the Option
Committee and shall not require the approval of the shareholders, except
as expressly set forth herein. In determining (i) the number of Shares to
be covered by each of the Options, SARs, Limited Rights, Performance
Grant or any other grants, (ii) the purchase price for such Shares and
the method of payment of the purchase price (subject to the other
sections hereof), (iii) the individuals of the eligible class to whom
Options, SARs, Limited Rights, Performance Grants or any other rights
shall be granted, (iv) the terms and provisions of the respective Option
Agreements or other written agreements, and (v) the times at which such
Options, SARs, Limited Rights, Performance Grants or any other rights
shall be granted, the Option Committee shall take into account such
factors as it shall deem relevant in connection with accomplishing the
purpose of the Plan as set forth in Section 1. An individual who has been
granted an Option, SAR, Limited Right, Performance Grant or any other
rights may be granted additional Options, SARs, Limited Rights,
Performance Grants or any other rights if the Option Committee shall so
determine.

4.2 CERTAIN LIMITATIONS. The Option Committee may, in its sole
discretion, grant an Optionee Options such that the sum of (i) the
aggregate fair market value (determined at the time the Incentive Stock
Options are granted) of the Shares subject to all Options granted under
the Plan which are exercisable for the first time by such Optionee during
the same calendar year, plus (ii) the aggregate fair market value
(determined at the time the Options are granted) of all Shares subject to
all other incentive stock options granted to such Optionee after December
31, 1986 by the Corporation, its parent and Subsidiaries which are
exercisable for the first time during such calendar year, exceeds One
Hundred Thousand Dollars ($100,000). To the extent that the sum of (i)
and (ii) of this Section 4.2 does not exceed $100,000, the Optionee shall
be entitled to be granted Incentive Stock Options, and the Option
Committee shall specify whether, and to the extent, the Optionee is
granted Incentive Stock Options or Nonqualified Options. No

3
<PAGE>
Incentive Stock Options shall be granted to the extent that the sum of
(i) and (ii) of this Section 4.2 exceeds $100,000, and all Options
granted in excess shall be Nonqualified Options. The Option Committee
should be aware that Incentive Stock Options granted in excess of such
$100,000 limit will not qualify as Incentive Stock Options under the
Code, but instead will be Nonqualified Stock Options. Therefore, in
denominating Options as Incentive Stock Options the Option Committee
should carefully consider all options granted after December 31, 1986,
which were intended to be Incentive Stock Options under the Code in an
attempt to ensure that Incentive Stock Options are actually Incentive
Stock Options under the Code. The Option Agreements for Incentive Stock
Options shall contain a provision which informs the Optionee of the
$100,000 limit and that the Options may in fact not be Incentive Stock
Options under the Code to the extent that the $100,000 limit has been
exceeded.

5. AVAILABLE SHARES AND ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.

5.1 SHARES. Subject to adjustment as provided in Section 5.2 below,
the total number of Shares to be subject to Options, SARs, Limited
Rights, Performance Grants or other rights granted pursuant to this Plan
shall not exceed seven hundred thousand (700,000) Shares. No employee
shall be entitled to receive rights to more than seven hundred thousand
(700,000) Shares under this Plan. Shares subject to the Plan may be
either authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Corporation; the Option Committee shall be
empowered to take any appropriate action required to make Shares
available for Options granted under this Plan. If any Options, SARs,
Limited Rights, Performance Grants or other rights are surrendered before
exercise or lapse without exercise in full or for any other reason cease
to be exercisable, the Shares reserved therefore shall continue to be
available under the Plan.

5.2 ADJUSTMENTS. As used herein, the term "Adjustment Event" means
an event pursuant to which the outstanding Shares of the Corporation are
increased, decreased or changed into, or exchanged for a different number
or kind of shares or securities, without receipt of consideration by the
Corporation, through reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split, stock dividend, stock
consolidation or otherwise. Upon the occurrence of an Adjustment Event,
(i) appropriate and proportionate adjustments shall be made to the number
and kind of shares and exercise price for the shares subject to the
Options, SARs, Limited Rights, Performance Grants or other rights which
may thereafter be granted under the Plan, (ii) appropriate and
proportionate adjustments shall be made to the number and kind of and
exercise price for the Shares subject to the then outstanding Options,
SARs, Limited Rights, Performance Grants or other rights granted under
this Plan, and (iii) appropriate amendments to the Option Agreements, or
other agreements shall be executed by the Corporation and the Optionees
or parties if the Option Committee determines that such an amendment is
necessary or desirable to reflect such adjustments. If determined by the
Option Committee to be appropriate, in the event of an Adjustment Event
which involves the substitution of securities of a corporation other than
the Corporation, the Option Committee shall make arrangements for the
assumptions by such other corporation of any Options, SARs, Limited
Rights, Performance Grants, stock grants or other rights then or
thereafter outstanding under the Plan. Notwithstanding the foregoing,
such adjustment in outstanding Options, SARs, Limited Rights, Performance
Grants, stock grants or other rights shall be made without change in the
total exercise price applicable to the unexercised portion of the
Options, SARs, Limited Rights, Performance Grants, stock grants or other
rights, but with an appropriate adjustment to the number of shares, kind
of shares and exercise price for each share subject to the Options, SARs,
Limited Rights, Performance Grants, stock grants or other rights. The
determination by the Option Committee as to what adjustments, amendments
or arrangements shall be made pursuant to this Section 5.2, and the

4
<PAGE>
extent thereof, shall be final and conclusive. No fractional Shares shall
be issued under the Plan on account of any such adjustment or
arrangement.

6. TERMS AND CONDITIONS OF OPTIONS.

6.1 INTENDED TREATMENT AS INCENTIVE STOCK OPTIONS. Incentive Stock
Options granted pursuant to this Plan are intended to be "incentive stock
options" to which Code Sections 421 and 422 apply, and the Plan shall be
construed and administered to implement that intent. If all or any part
of an Incentive Stock Option shall not be an "incentive stock option"
subject to Sections 421 or 422 of the Code, such Option shall
nevertheless be valid and carried into effect. All Options granted under
this Plan shall be subject to the terms and conditions set forth in this
Section 6.1 (except as provided in Section 5.2) and to such other terms
and conditions as the Option Committee shall determine to be appropriate
to accomplish the purpose of the Plan as set forth in Section 1.

6.2 AMOUNT AND PAYMENT OF EXERCISE PRICE.

6.2.1 EXERCISE PRICE. The exercise price per Share for each
Share which the Optionee is entitled to purchase under a Nonqualified
Option shall be determined by the Option Committee but shall not be
less than one hundred percent (100%) of the Fair Market Value Per
Share on the date of the grant of the Nonqualified Option. The
exercise price per Share for each Share which the Optionee is
entitled to purchase under an Incentive Stock Option shall be
determined by the Option Committee but shall not be less than one
hundred percent (100%) of the Fair Market Value Per Share on the date
of the grant of the Incentive Stock Option; provided, however, that
the exercise price shall not be less than one hundred ten percent
(110%) of the Fair Market Value Per Share on the date of the grant of
the Incentive Stock Option in the case of an individual then owning
(within the meaning of Code Section 424(d)) more than ten percent
(10%) of the total combined voting power of all classes of stock of
the Corporation or of its parent or Subsidiaries.

6.2.2 PAYMENT OF EXERCISE PRICE. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Option Committee and
may consist of promissory notes, other Shares or such other
consideration and method of payment for the Shares as may be
permitted under applicable federal and state laws.

6.3 EXERCISE OF OPTIONS.

6.3.1 Each Option granted under the Plan shall be exercisable at
such times and under such conditions as may be determined by the
Option Committee at the time of the grant of the Option and as shall
be permissible under the terms of the Plan; provided, however, in no
event shall an Option be exercisable after the expiration of ten (10)
years from the date it is granted, and in the case of an Optionee
owning (within the meaning of Code Section 424(d)), at the time an
Incentive Stock Option is granted, more than ten percent (10%) of the
total combined voting power of all classes of stock of the
Corporation or of its parent or Subsidiaries, such Incentive Stock
Option shall not be exercisable later than five (5) years after the
date of grant.

6.3.2 An Optionee may purchase less than the total number of
Shares for which the Option is exercisable, provided that a partial
exercise of an Option may not be for less than one hundred (100)
Shares and shall not include any fractional shares.

6.4 EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. The
effect of termination of an Optionee's employment or other relationship
with the Corporation on such Optionee's rights to acquire Shares shall be
as follows:

5
<PAGE>
6.4.1 TERMINATION FOR OTHER THAN DISABILITY, CAUSE, RETIREMENT,
OR DEATH. If an Optionee ceases to be employed by, or ceases to have
a relationship with, the Corporation for any reason other than for
Disability, Cause, Retirement, or death, such Optionee's Options
shall expire not later than three (3) months thereafter. During such
three (3) month period and prior to the expiration of the Option by
its terms, the Optionee may exercise any Option granted to him, but
only to the extent such Options were exercisable on the date of
termination of his employment or relationship and except as so
exercised, such Options shall expire at the end of such three (3)
month period unless such Options by their terms expire before such
date. The decision as to whether a termination for a reason other
than Disability, Cause, Retirement or death has occurred shall be
made by the Option Committee, whose decision shall be final and
conclusive, except that employment shall not be considered terminated
in the case of sick leave or other bona fide leave of absence
approved by the Corporation.

6.4.2 TERMINATION FOR DISABILITY OR DEATH. If an Optionee
ceases to be employed by, or ceases to have a relationship with, the
Corporation by reason of Disability or death, such Optionee's Options
shall become fully vested and exercisable and shall expire not later
than one (1) year thereafter. During such one (1) year period and
prior to the expiration of the Option by its terms, the Optionee, or
his executor or administrator or the person or persons to whom the
Option is transferred by will or the applicable laws of descent and
distribution, may exercise any Option granted to him or her, and
except as so exercised, such Options shall expire at the end of such
one (1) year period unless such Options by their terms expire before
such date. The decision as to whether a termination by reason of
Disability has occurred shall be made by the Option Committee, whose
decision shall be final and conclusive.

6.4.3 RETIREMENT OF AN OPTIONEE. If the Optionee ceases to be
employed by, or ceases to have a relationship with, the Corporation
by reason of Retirement, such Optionee's Options shall become fully
vested and exercisable and shall expire not later than two (2) years
thereafter. During such two (2) year period and prior to the
expiration of the Options by their terms, such Options may be
exercised by Optionee. The decision as to
whether a termination by reason of Retirement has occurred shall be
made by the Option Committee, whose decision shall be final and
conclusive.

6.4.4 TERMINATION FOR CAUSE. If an Optionee's employment by, or
relationship with, the Corporation is terminated for Cause, such
Optionee's Option shall expire immediately; provided, however, the
Option Committee may, in its sole discretion, within thirty (30) days
of such termination, waive the expiration of the Option by giving
written notice of such waiver to the Optionee at such Optionee's last
known address. In the event of such waiver, the Optionee may exercise
the Option only to such extent, for such time, and upon such terms
and conditions as if such Optionee had ceased to be employed by, or
ceased to have a relationship with, the Corporation upon the date of
such termination for a reason other than Disability, Cause,
Retirement or death.

6.5 WITHHOLDING OF TAXES. As a condition to the exercise, in whole
or in part, of any Options the Option Committee may in its sole
discretion require the Optionee to pay, in addition to the purchase price
of the Shares covered by the Option an amount equal to any federal, state
or local taxes that may be required to be withheld in connection with the
exercise of such Option. Alternatively, the Corporation may issue or
transfer the Shares pursuant to exercise of the Option net of the number
of Shares sufficient to satisfy the withholding tax requirements. For
withholding tax purposes, the Shares shall be valued on the date the
withholding obligation is incurred.

6
<PAGE>
6.6 NO RIGHTS TO CONTINUED EMPLOYMENT OR RELATIONSHIP. Nothing
contained in the Plan or in any Option Agreement shall obligate the
Corporation to employ or have another relationship with any Optionee for
any period or interfere in any way with the right of the Corporation to
reduce such Optionee's compensation or to terminate the employment of or
relationship with any Optionee at any time.

6.7 TIME OF GRANTING OPTIONS. The time an Option is granted,
sometimes referred to herein as the date of grant, shall be the day the
Corporation executes the Option Agreement; provided, however, that if
appropriate resolutions of the Option Committee indicate that an Option
is to be granted as of and on some prior or future date, the time such
Option is granted shall be such prior or future date.

6.8 PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall be entitled to
the privileges of stock ownership as to any Shares not actually issued
and delivered to such Optionee. No Shares shall be purchased upon the
exercise of any Option unless and until, in the opinion of the
Corporation's counsel, any then applicable requirements of any laws or
governmental or regulatory agencies having jurisdiction and of any
exchanges upon which the stock of the Corporation may be listed shall
have been fully complied with.

6.9 SECURITIES LAWS COMPLIANCE. The Corporation will diligently
endeavor to comply with all applicable securities laws before any Options
are granted under the Plan and before any Shares are issued pursuant to
Options. Without limiting the generality of the foregoing, the
Corporation may require from the Optionee such investment representation
or such agreement, if any, as counsel for the Corporation may consider
necessary or advisable in order to comply with the Securities Act of 1933
as then in effect, and may require that the Optionee agree that any sale
of the Shares will be made only in such manner as is permitted by the
Option Committee. The Option Committee in its discretion may cause the
Options and Shares underlying the Options to be registered under the
Securities Act of 1933, as amended, by the filing of a Form S-8
Registration Statement covering the Options and Shares underlying such
Options. Optionee shall take any action reasonably requested by the
Corporation in connection with registration or qualification of the
Shares under federal or state securities laws.

6.10 OPTION AGREEMENT. Each Incentive Stock Option and Nonqualified
Option granted under this Plan shall be evidenced by the appropriate
written Stock Option Agreement ("Option Agreement") executed by the
Corporation and the Optionee containing each of the provisions and
agreements specifically required to be contained therein pursuant to this
Section 6, and such other terms and conditions as are deemed desirable by
the Option Committee and are not inconsistent with the purpose of the
Plan as set forth in Section 1.

7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS ("SARS").

7.1 Subject to the other applicable provisions of the Plan, the Option
Committee shall have the authority to grant SARs to any Optionee, either at
the time of grant of an Option or thereafter by amendment to an Option. The
exercise of an Option shall result in an immediate cancellation of its
corresponding SAR, and the exercise of an SAR shall cause an immediate
cancellation of its corresponding Option. SARs shall be subject to such
other terms and conditions as the Option Committee may specify. An SAR shall
expire at the same time as the related Option expires and shall be
transferable only when, and under the same conditions as, the related Option
is transferable.

An SAR shall be exercisable only when, to the extent and on the
condition that the related Option is exercisable. No SAR may be exercised
unless the Fair Market Value Per Share of Common Stock of the Corporation on
the date of exercise exceeds the exercise price of the related Option.

Upon the exercise of an SAR, the Optionee shall be entitled to receive
an amount equal to the difference between the Fair Market Value Per Share on
the date of exercise and the exercise price of

7
<PAGE>
the Option to which the SAR corresponds. The Option Committee shall decide
whether such payment shall be in cash, in shares or in a combination
thereof.

All SARs will be exercised automatically to the extent the related
Option is then exercisable at the end of the last business day prior to the
expiration date of the related Option at the end of its stated term or
following the death, Disability or Retirement of the participant or the
termination of the participant's employment by the Company for any reason
other than Cause, so long as the Fair Market Value Per Share of the
Company's Common Stock on that date exceeds the exercise price of the
related Option.

8. TERMS AND CONDITIONS OF LIMITED RIGHTS

Subject to the other applicable provisions of the Plan, the Option
Committee shall have authority to grant Limited Rights with respect to all
or some of the Shares covered by an Option at the time the Option is granted
or by amendment to an Option previously granted.

A Limited Right shall be exercisable only during the sixty (60) day
period which begins on the date of a Change in Control or, if stated in the
Limited Right grant, upon the occurrence of an event described in Section
5.2.

Any Limited Right not exercised as provided herein shall terminate
unless otherwise determined by the Option Committee. The termination of a
Limited Right shall not affect the related Option.

Upon exercise of a Limited Right, the holder shall be entitled to
receive from the Corporation, for each Limited Right being exercised, in
cash, an amount equal to the difference between the Fair Market Value Per
Share on the exercise and grant dates.

If a holder of Limited Rights ceases to be employed by the Corporation
for any reason, his or her unexercised Limited Rights shall expire at the
time the related Option expires or is exercised. Upon exercise of a Limited
Right the related Option shall cease to be exercisable. Upon exercise or
termination of an Option, any related Limited Rights shall terminate. A
Limited Right granted in relation to an Incentive Stock Option shall comply
with the requirements of Section 422 of the Code and the applicable
regulations.

9. TERMS AND CONDITIONS OF PERFORMANCE GRANTS

Subject to the other applicable provisions of the Plan, Performance
Grants may be awarded to participants at any time and from time to time as
determined by the Option Committee. The Option Committee shall have complete
discretion in determining the size and composition of Performance Grants
issued to a participant and the appropriate period over which performance is
to be measured ("performance cycle"). Performance Grants may include (i)
specific dollar-value target grants, (ii) performance units, the value of
each such unit being determined by the Option Committee at the time of
issuance, and/or (iii) performance shares, the value of each such share
being equal to the Fair Market Value Per Share.

The value of each Performance Grant may be fixed or it may be permitted
to fluctuate based on a performance factor (e.g., net earnings) selected by
the Option Committee. The Option Committee shall establish performance
goals, that, depending on the extent to which they are met, will determine
the ultimate value of the Performance Grant or the portion of such
Performance Grant earned by participants, or both.

The Option Committee shall establish performance goals and objectives
for each performance cycle on the basis of such criteria and objectives as
the Option Committee may select from time to time. During any performance
cycle, the Option Committee shall have the authority to adjust the
performance goals and objectives for such cycle for such reasons as it deems
equitable.

8
<PAGE>
The Option Committee shall determine the portion of each Performance
Grant that is earned by a participant on the basis of the Corporation's
performance over the performance cycle in relation to the performance goals
for such cycle. The earned portion of a Performance Grant may be paid out in
restricted or nonrestricted shares, cash or a combination of both as the
Option Committee may determine.

A participant must be an employee of the Corporation at the end of the
performance cycle in order to be entitled to payment of a Performance Grant
issued in respect of such cycle; provided, however, that as otherwise
determined by the Option Committee, if a participant ceases to be an
employee of the Corporation upon the occurrence of his or her death,
Retirement, or Disability prior to the end of the performance cycle, the
participant shall earn a proportionate portion of the Performance Grant
based upon the elapsed portion of the performance cycle and the
Corporation's performance over that portion of such cycle.

The Option Committee shall have the discretion to determine the minimum
portion (if any) of the Performance Grant that a participant may earn in the
event of a Change in Control prior to the end of the performance cycle. The
Option Committee shall give due consideration to the participant's
established target award, the elapsed portion of the performance cycle, the
Corporation's performance over that portion of the cycle, and such other
factors deemed relevant by the Option Committee.

In the event of a Change in Control a participant shall earn no less
than the portion of the Performance Grant that the participant would have
earned if the performance cycle(s) had terminated as of the date of the
Change in Control.

10. TERMS AND CONDITIONS OF RESTRICTED AND NONRESTRICTED SHARE AWARDS.

Subject to the other applicable provisions of the Plan, the Option
Committee may at any time and from time to time award Shares to such
participants and in such amounts as it determines. Each award of Shares
shall specify the applicable restrictions, if any, on such Shares, the
duration of such restrictions, and the time or times at which such
restrictions shall lapse with respect to all or a specified number of Shares
that are part of the award. Notwithstanding the foregoing, the Option
Committee may reduce or shorten the duration of any restriction applicable
to any Shares awarded to any participant under the Plan.

Restricted Shares may be issued at the time of award subject to
forfeiture if the restrictions do not lapse or upon lapse of the
restrictions. If Shares are issued at the time of the award, the participant
will be required to deposit the certificates with the Corporation during the
period of any restriction thereon and to execute a blank stock power
therefor. Except as otherwise provided by the Option Committee, during such
period of restriction the participant shall have all of the rights of a
holder of Shares (including but not limited to dividends), and to vote. If
Shares are issued upon lapse of restrictions, the Option Committee may
provide that the participant will be entitled to receive any amounts per
share pursuant to any dividend or distribution paid by the Corporation on
its Shares to stockholders of record after the award and prior to the
issuance of the Shares.

Except as otherwise provided by the Option Committee, on termination of
a grantee's employment due to death, Disability, Retirement or a Change in
Control during any period of restriction, all restrictions on Shares awarded
to such grantee shall lapse. On termination of a grantee's employment for
any other reason, all restricted Shares subject to awards made to such
grantee shall be forfeited to the Company.

11. PLAN AMENDMENT AND TERMINATION.

11.1 AUTHORITY OF OPTION COMMITTEE. The Option Committee may at any
time discontinue granting Options, Shares, SARs, Limited Rights,
Performance Grants, or other rights under the Plan or otherwise suspend,
amend or terminate the Plan and may, with the consent of an

9
<PAGE>
Optionee or grantee, make such modification of the terms and conditions
of such Option or grant as it shall deem advisable. An amendment or
modification made pursuant to the provisions of this Section 11.1 shall
be deemed adopted as of the date of the action of the Option Committee
effecting such amendment or modification and shall be effective
immediately, unless otherwise provided therein, subject to approval
thereof (i) within twelve (12) months before or after the effective date
by shareholders of the Corporation holding not less than a majority vote
of the voting power of the Corporation voting in person or by proxy at a
duly held shareholders meeting when required to maintain or satisfy the
requirements of Code Section 422 with respect to Incentive Stock Options,
or Code Section 162(m) with respect to performance-based compensation,
(ii) by any appropriate governmental agency, or (iii) when required by a
securities exchange or automated quotation system. No Option may be
granted during any suspension or after termination of the Plan.

11.2 TEN (10) YEAR MAXIMUM TERM. Unless previously terminated by
the Option Committee, this Plan shall terminate on August 22, 2006, and
no Options, SARs, Limited Rights, Performance Grants, or other rights
shall be granted under the Plan thereafter.

11.3 EFFECT ON OUTSTANDING RIGHTS. Amendment, suspension or
termination of the Plan shall not, without the consent of the Optionee,
alter or impair any rights or obligations under any Option or other
rights theretofore granted.

12. EFFECTIVE DATE OF PLAN. This Plan shall be effective as of August 22,
1996, the date the Plan was adopted by the Board of Directors. The Option
Committee shall be authorized and empowered to make grants pursuant to this Plan
prior to such approval of this Plan by the Corporation's shareholders; provided,
however, that such grants shall be made subject to, and conditioned upon, such
shareholder approval and if the Plan is not approved by the holders of a
majority of the Shares present in person or by proxy and entitled to vote at the
Corporation's 1996 Annual Meeting of Shareholders, the Plan and all grants made
hereunder shall be void.

13. MISCELLANEOUS PROVISIONS.

13. NONTRANSFERABILITY OF RIGHTS. All Options, SARs, Limited
Rights, Performance Grants, and other rights granted under the Plan shall
be nontransferable, either voluntarily or by operation of law, otherwise
than by will or the laws of descent and distribution, and shall be
exercisable during the grantee's lifetime only by such grantee.

13.2 LIMITATION ON BENEFITS. No Option, SAR or Limited Right may be
exercised, no share award will vest and no Performance Grant will be paid
to the extent such exercise, vesting or payment will create an "excess
parachute payment" as defined in Section 280G of the Code.

13.3 EXCULPATION AND INDEMNIFICATION. The Corporation shall
indemnify and hold harmless the Option Committee from and against any and
all liabilities, costs and expenses incurred by such persons as a result
of any act, or omission to act, in connection with the performance of
such persons' duties, responsibilities and obligations under the Plan,
other than such liabilities, costs and expenses as may result from the
gross negligence, bad faith, willful conduct and/or criminal acts of such
persons.

13.4 GOVERNING LAW. The Plan shall be governed and construed in
accordance with the laws of the State of California and the Code.

13.5 COMPLIANCE WITH APPLICABLE LAWS. The inability of the
Corporation to obtain from any regulatory body having jurisdiction the
authority deemed by the Corporation's counsel to be necessary to the
lawful issuance and sale of any Shares upon the exercise of an Option
shall relieve the Corporation of any liability in respect of the
non-issuance or sale of such Shares as to which such requisite authority
shall not have been obtained.

10
<PAGE>
13.6 NON-UNIFORM DETERMINATIONS. The Option Committee's
determinations under the Plan (including without limitation
determinations of the persons to receive awards, the form, amount and
timing of such awards, the terms and provisions of such awards and the
agreements evidencing same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards
under the Plan, whether or not such persons are similarly situated.

<PAGE>
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statements No.
33-37556 and No. 33-93896 of The Wet Seal, Inc. on Form S-3 and Registration
Statement No. 333-13399 of The Wet Seal, Inc. on Form S-3 of our report dated
March 6, 1997 appearing in and incorporated by reference in the Annual Report on
Form 10-K of The Wet Seal, Inc. for the year ended February 1, 1997.

April 25, 1997

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE WET
SEAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED
STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 71,483,000
<SECURITIES> 17,700,000
<RECEIVABLES> 1,577,000
<ALLOWANCES> 0
<INVENTORY> 22,589,000
<CURRENT-ASSETS> 114,042,000
<PP&E> 80,515,000
<DEPRECIATION> 47,285,000
<TOTAL-ASSETS> 154,752,000
<CURRENT-LIABILITIES> 54,251,000
<BONDS> 0
0
0
<COMMON> 1,354,000
<OTHER-SE> 89,766,000
<TOTAL-LIABILITY-AND-EQUITY> 154,752,000
<SALES> 374,942,000
<TOTAL-REVENUES> 374,942,000
<CGS> 272,189,000
<TOTAL-COSTS> 79,238,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,702,000)
<INCOME-PRETAX> 26,217,000
<INCOME-TAX> 10,965,000
<INCOME-CONTINUING> 15,252,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,252,000
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13

</TABLE>