WET SEAL INC, 10-K, 1999-04-27

WET SEAL INC
10-K, 1999-04-27
WOMEN'S CLOTHING STORES

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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 JANUARY 30, 1999

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

COMMISSION FILE NUMBER 0-18632
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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.)

26972 BURBANK, FOOTHILL RANCH, CA 92610
(Address of principal executive (Zip Code)
offices)
</TABLE>

(949) 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:

<TABLE>
<S> <C>
CLASS A COMMON STOCK PREFERRED STOCK PURCHASE RIGHTS
(Title of Class) (Title of Class)
</TABLE>

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

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 3, 1999 was $372,834,756.

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 3, 1999 was
10,729,886 and 2,912,665, respectively. There were no shares of Preferred Stock,
par value $.01 per share, outstanding at April 3, 1999.

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 January 30, 1999.

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<PAGE>
PART I

ITEM 1. BUSINESS

GENERAL

The Wet Seal, Inc., a Delaware corporation ("Wet Seal" or the "Company"),
founded in 1962, is a nationwide specialty retailer of fashionable and
contemporary apparel and accessory items designed for consumers with a young,
active lifestyle. As of April 3, 1999, the Company operated 522 retail stores in
42 states, Washington D.C. and Puerto Rico, including 120 in California, 57 in
Florida, and 41 in Texas. Of the 522 stores, 248 operate under the "CONTEMPO
CASUALS" trademark, 190 operate under the "WET SEAL" trademark, 66 operate under
the "ARDEN B." trademark, 17 operate under the "LIMBO LOUNGE" trademark and one
of the stores operates under the "NEXT" trademark. Arden B. is the latest retail
concept introduced by the Company in November 1998, and offers a collection of
dressy and casual apparel, accessories and footwear for the young contemporary
customer. Arden B. serves to fill the void between a "junior" and a "missy"
customer. Limbo Lounge was introduced by the Company in fiscal 1996 and offers
both junior's and young men's apparel and accessories in a unique and
entertaining store environment.

On July 1, 1995, the Company acquired the business, assets and properties of
Contempo Casuals, Inc. ("Contempo Casuals"), a 237-store junior women's retail
chain. This acquisition substantially increased the size of the Company.
Effective February 2, 1997, Contempo Casuals, Inc. was merged with and into The
Wet Seal, Inc.

The Company introduced the "Wet Seal Catalog" in late January 1998. The
catalog focuses on the junior customer and features both private label and
branded apparel, shoes and accessories. The Company had six catalog mailings
throughout fiscal 1998. In fiscal 1999, the Company plans to reposition the
catalog under the "Blue Asphalt" brand name. Blue Asphalt is the number one
denim brand in both Wet Seal and Contempo Casuals stores, and has been expanded
to a full assortment of fashion apparel and accessories. The Company also plans
to introduce a related web-site under the Blue Asphalt name by mid-1999. The new
site will include an on-line shopping "magalog," as well as links to the Wet
Seal and Contempo Casuals web-sites. The Blue Asphalt magalog and web-site will
both offer Blue Asphalt merchandise and youth-targeted editorial content to
build brand awareness and increase customer base and sales.

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 (stores located in malls where the Company operates both a Wet Seal
and a Contempo Casuals store), 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.

In the fourth quarter of fiscal 1998, the Company opened the first Arden B.
store. Arden B. caters to the fashionable young contemporary woman who falls
between a "junior" and a "missy" customer. Arden B. stores offer a collection of
dressy and casual apparel, accessories and footwear, all under the "Arden B."
brand name. The Company currently operates 66 Arden B. stores nationwide and
plans to open up to 13 additional stores in fiscal 1999.

In the fourth quarter of fiscal 1996, the Company introduced a store concept
called Limbo Lounge. The product offerings include both junior's and young men's
apparel and accessories in a unique and entertaining store environment. The
Company currently operates 17 Limbo Lounge stores and plans to open up to eight
additional stores in fiscal 1999.

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With respect to each of the retail concepts, the Company frequently updates
its product offerings to provide a regular flow of fresh, new fashionable
merchandise. 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
trend which reflects a color statement and key items related to that trend.
Rather than always 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. From time to
time certain key items are merchandised together on tables or wall shelf
sections in order to emphasize those particular items. The general layout of
merchandise in the stores is planned by the Company's management. The Company
makes use of in-store image posters to help focus customers on particular
fashion themes. The Company frequently changes the visual display of the
merchandise in its stores to reflect the changing tastes of the Company's target
customer.

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 vendors to meet with buyers. 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, Contempo Casuals, Arden B. and Limbo Lounge
as destination stores for the customer. The Company focused on the Blue Asphalt,
Evolution Not Revolution and Arden B. brands in particular in fiscal 1998 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 1998 no single vendor
accounted for more than 10% of the Company's merchandise and only two vendors
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 Foothill Ranch,
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.

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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 Vice President 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.

All merchandise for retail stores is received from vendors at the Company's
Foothill Ranch, California distribution facility, where items are inspected for
quality and prepared for shipping to the Company's stores. Merchandise for the
catalog is distributed through a third party fulfillment house. 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 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 $7.9 million
for the fiscal year ended January 30, 1999. These stores operate under the Wet
Seal, Contempo Casuals and Arden B. 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 consumers. 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 Wet Seal and Contempo Casuals 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 selected 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 and Evolution Not Revolution.

STORE OPERATIONS

The Company's Wet Seal and Contempo Casuals stores are divided into seven
geographic regions. Each region is managed by a Regional Director who reports to
the Company's Senior Vice President of Store Operations. Each region is further
divided into districts consisting of between 9 to 16 stores and managed by a
District Director. The Limbo Lounge stores are located nationwide and are
currently overseen by the local Wet Seal/Contempo Casuals Regional and District
Directors. The Arden B. stores are divided into eight geographic districts
consisting of 8 to 10 stores each. Each district is managed by a

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District Director who reports to the Arden B. Director of Store Operations, who
in turn reports to the Company's Senior Vice President of Store Operations. The
Company delegates substantial authority to 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 53 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 9 to 16
customer service representatives 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 often 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-traffic areas of a mall and to obtain the greatest amount of frontage
possible. The Company's average store size is approximately 4,100 square feet.
Store hours are determined by the mall in which the store is located.

INFORMATION AND CONTROL SYSTEMS

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 to a state of the art client server based merchandising
system. This conversion began at the end of fiscal 1998 and is expected to be
completed by the third quarter of fiscal 1999. Prior to the purchase of the new
system and hardware the Company obtained assurance from the vendors that the
products purchased are in fact Year 2000 compliant.

All of the Company's stores have a point-of-sale system operating on
in-store computer hardware and internally developed software. The system
features bar-coded ticket scanning, dial-out check and credit authorization and
provides nightly polling transmittal of sales and inventory data between the
stores and the Company's corporate office. The Company has performed a thorough
review of its existing computer software systems and hardware to identify
processes which may be affected by Year 2000 problems. At this time, no
significant issues have been identified and the Company has developed a plan for
Year 2000 compliance should the conversion noted above fall behind schedule. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."

EXPANSION STRATEGY

The Company currently plans to open up to 105 new stores in fiscal 1999 and
plans to continue to grow in the following year. 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.

5
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The following table sets forth the number of stores in each state as of
April 3, 1999:

<TABLE>
<CAPTION>
# OF # OF # OF
STATE STORES STATE STORES STATE STORES
- ---------------------------- --------- ---------------------------- --------- ---------------------------- ---------
<S> <C> <C> <C> <C> <C>
Alabama..................... 1 Louisiana................... 3 Oklahoma.................... 4
Arizona..................... 10 Maine....................... 2 Oregon...................... 1
Arkansas.................... 1 Maryland.................... 14 Pennsylvania................ 15
California.................. 120 Massachusetts............... 16 Rhode Island................ 1
Colorado.................... 9 Michigan.................... 13 South Carolina.............. 3
Connecticut................. 12 Minnesota................... 9 Tennessee................... 3
Delaware.................... 1 Missouri.................... 3 Texas....................... 41
Florida..................... 57 Nebraska.................... 1 Utah........................ 6
Georgia..................... 12 Nevada...................... 7 Virginia.................... 13
Hawaii...................... 6 New Hampshire............... 3 Washington.................. 6
Illinois.................... 28 New Jersey.................. 24 Wisconsin................... 6
Iowa........................ 3 New Mexico.................. 3 West Virginia............... 2
Indiana..................... 7 New York.................... 28 Washington D.C.............. 2
Kansas...................... 3 North Carolina.............. 5 Puerto Rico................. 2
Kentucky.................... 4 Ohio........................ 12
</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,
demographics, "anchor stores," store location, the volume of consumer traffic,
rent payments and other costs associated with opening a new store. The average
store size the Company intends to consider is between 3,000 and 4,500 square
feet depending on the chain selected for the particular location. 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 or other locations 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 has pending registrations in a number of classes for the
trademark, "Arden B.," which are being opposed by Elizabeth Arden. It is the
opinion of the Company's trademark counsel that the Company should be able to
register its Arden B. marks and even if the Company is unable to register the
marks (or any one of them), the absence of such registration will not cause any
interruption in the use of Arden B. as a trademark by the Company to designate
the merchandise sold under the Arden B. name and the stores in which that
merchandise is sold. The Company also uses and has registered, or has a pending
registration, on a number of marks, including "A. AUBREY," "ACCESSORIES FOR
LIFE," "ACCOMPLICE," "BLUE ASPHALT," "CEMENT," "CLUB CONTEMPO," "EVOLUTION NOT
REVOLUTION," "FORMULA X," "MEOW GENES," "UNCIVILIZED," "URBAN LIFE" and "URBAN
VIBE." 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." Other than

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with respect to Arden B., 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
Limited and The GAP, and on a regional basis, with such retailers as Charlotte
Russe, Gadzooks and Pacific Sunwear. 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 January 30, 1999, the Company had 7,404 employees, consisting of 2,033
full-time employees and 5,371 part-time employees. Full-time personnel consisted
of 1,140 salaried and 893 hourly employees. All part-time personnel are hourly
employees. Of the total employees, 7,085 were sales personnel and 319 were
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 is located at 26972 Burbank, Foothill
Ranch, California, consisting of 283,200 square feet of leased office and
distribution facility space (including 74,500 square feet of merchandise
handling and storage mezzanine space in the distribution facility and 20,500
square feet of second floor office space). This lease expires on December 4,
2007. The Company's former distribution facility located in Los Angeles,
California was subleased beginning in fiscal 1998 for the remainder of the lease
term. The Los Angeles lease was acquired with the acquisition of Contempo
Casuals and expires on July 31, 2002.

The Company leases all of its stores. Lease terms for the Company's stores
are typically 10 years in length 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, each 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 1994:

<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Stores open at beginning of year............................ 389 364 364 133 129
Stores acquired during period(1)............................ 0 0 0 237 0
Stores opened during period................................. 86 34 10 3 6
Stores closed during period................................. 21 9 10 9 2
---- ---- ---- ---- ----
Stores open at end of period................................ 454 389 364 364 133
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>

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

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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
3, 1999, 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.

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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
Stock Market ("Nasdaq") under the symbol "WTSLA". As of April 1, 1999, there
were 296 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 4,500. The closing price of the Common Stock on
April 1, 1999 was $36.

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

<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997
--------------- ---------------
QUARTER HIGH LOW HIGH LOW
- -------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter..................................... $38 1/4 $26 7/8 $27 1/4 $18
Second Quarter.................................... 37 9/16 25 3/4 31 5/8 22 1/2
Third Quarter..................................... 31 13 5/8 27 1/4 17 3/8
Fourth Quarter.................................... 38 16 7/8 31 1/2 22 3/4
</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 subject to the terms and covenants
contained in the Company's bank line 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 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 February 3, 1996 and January
28, 1995 are derived from the Company's financial statements for such years
which are not included herein.

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FIVE YEAR FINANCIAL SUMMARY

<TABLE>
<CAPTION>
FISCAL YEAR 1998 1997 1996 1995 1994
- --------------------------- ------------- ------------- ------------- ------------- -------------
JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
FISCAL YEAR ENDED 1999 1998 1997 1996(1) 1995
- --------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Sales...................... $ 485,389,000 $ 412,463,000 $ 374,942,000 $ 266,695,000 $ 132,997,000
Income (loss) before
provision (benefit) for
income taxes............. 42,202,000 36,325,000 26,217,000 9,948,000 (1,366,000)
Net income (loss).......... $ 25,954,000 $ 21,250,000 $ 15,252,000 $ 5,815,000 $ (1,013,000)

PER SHARE DATA
Net income (loss), basic... $ 1.98 $ 1.57 $ 1.15 $ 0.47 $ (0.08)
Net income (loss),
diluted.................. $ 1.91 $ 1.53 $ 1.13 $ 0.47 $ (0.08)
Weighted average shares
outstanding, basic....... 13,085,587 13,552,502 13,219,284 12,387,140 12,234,502
Weighted average shares
outstanding, diluted..... 13,581,233 13,899,877 13,459,810 12,500,564 12,234,502

OTHER FINANCIAL INFORMATION
Net income (loss) as a
percent of sales......... 5.3% 5.2% 4.1% 2.2% (0.8)%
Return on average
stockholders' equity..... 22.3% 20.8% 20.5% 10.7% (2.0)%
Cash and marketable
securities............... $ 91,506,000 $ 95,873,000 $ 89,183,000 $ 57,153,000 $ 25,369,000
Working capital(4)......... $ 21,856,000 $ 66,452,000 $ 59,791,000 $ 26,051,000 $ 22,473,000
Ratio of current assets to
current liabilities...... 1.3 2.1 2.1 1.5 2.8
Total assets............... $ 197,490,000 $ 184,223,000 $ 154,752,000 $ 117,564,000 $ 67,298,000
Long-term debt............. 1,264,000 1,264,000 3,264,000 5,264,000 --
Total stockholders'
equity................... $ 120,278,000 $ 112,994,000 $ 91,120,000 $ 57,735,000 $ 50,724,000
Number of stores open at
year end................. 454 389 364 364 133
Number of stores acquired
during the year.......... -- -- -- 237 --
Number of stores opened
during the year.......... 86 34 10 3 6
Number of stores closed
during the year.......... 21 9 10 9 2
Square footage of leased
store space at year
end...................... 1,848,513 1,637,347 1,539,777 1,530,891 596,685
Percent of increase in
leased square footage.... 12.9% 6.3% 0.6% 156.6% 2.3%
Avg. sales per square foot
of leased space(2)....... $ 271 $ 263 $ 244 $ 229 $ 226
Average sales per
store(2)................. $ 1,132,000 $ 1,112,000 $ 1,030,000 $ 976,000 $ 1,008,000
Comparable store sales
increase (decrease)(3)... 2.1% 5.8% 8.8% (4.1)% (9.2)%
</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.

(4) The decrease in working capital in fiscal 1998 is due to the classification
of $37,973,000 of cash investments as long-term in fiscal 1998.

10
<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 522 retail
stores in 42 states, Washington D.C. and Puerto Rico under the names "Wet Seal,"
"Contempo Casuals," "Arden B.," "Limbo Lounge" and "Next." In January 1998, the
Company initiated a catalog which operates under the name "Wet Seal."

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 and resulted in negative goodwill. The acquisition substantially
increased the number of stores the Company operates. Effective February 2, 1997,
Contempo Casuals, Inc. was merged with and into The Wet Seal, Inc.

As of January 30, 1999, the Company operated 454 stores compared to 389
stores as of January 31, 1998, the end of fiscal 1997. The Company opened 86
stores during fiscal 1998 and closed 21 stores.

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

RESULTS OF OPERATIONS

Fiscal 1998 consists of the 52 week period ended January 30, 1999, Fiscal
1997 consists of the 52 week period ended January 31, 1998 and Fiscal 1996
consists of the 52 week period ended February 1, 1997. Comparable store sales
are defined as sales in stores that were open throughout the full fiscal year
and throughout the full prior fiscal year.

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
-------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales (including frequent buyer sales income and catalog
sales).................................................... 100.0% 100.0% 100.0%
Cost of sales (including buying, distribution and occupancy
costs).................................................... 69.3 71.0 72.6
----- ----- -----
Gross margin................................................ 30.7 29.0 27.4
Selling, general and administrative expenses................ 22.8 21.1 21.1
----- ----- -----
Operating income............................................ 7.9 7.9 6.3
Interest income, net........................................ 0.8 0.9 0.7
----- ----- -----
Income before provision for income taxes.................... 8.7 8.8 7.0
Provision for income taxes.................................. 3.4 3.6 2.9
----- ----- -----
Net income.................................................. 5.3% 5.2% 4.1%
----- ----- -----
----- ----- -----
</TABLE>

FISCAL 1998 COMPARED TO FISCAL 1997

Sales in fiscal 1998 were $485,389,000 compared to sales in fiscal 1997 of
$412,463,000, an increase of $72,926,000 or 17.7%. The dollar increase in sales
in fiscal 1998 compared to fiscal 1997 was primarily due to the impact of the 86
new store openings in fiscal 1998 and the full year impact in 1998 of the net 25
new store openings in fiscal 1997. These increases were somewhat offset by the
closing of 21 stores in fiscal 1998. To a lesser extent, the increase in sales
was due to an increase in comparable store sales of 2.1%.

11
<PAGE>
Cost of sales, including buying, distribution and occupancy costs, was
$336,527,000 in fiscal 1998 compared to $292,644,000 in fiscal 1997, an increase
of $43,883,000 or 15.0%. As a percentage of sales, cost of sales decreased to
69.3% in fiscal 1998, from 71.0% in fiscal 1997, a decrease of 1.7%. The dollar
increase in cost of sales in fiscal 1998 compared to fiscal 1997 was due
primarily to the increase in total sales. Of the 1.7% decrease in cost of sales
as a percentage of sales, 1.2% related to a decrease in occupancy costs, 0.6%
related to a decrease in the cost of merchandise and 0.1% related to a decrease
in buying costs, offset by a 0.2% increase in distribution costs. The decrease
in occupancy costs was associated primarily to the leverage of the catalog
operation sales on store occupancy costs. To a lesser extent the decrease in
occupancy was due to a decrease in store rental expenses as a percent of sales
as a result of the expense leverage related to the increase in comparable store
sales. The decrease of 0.6% in merchandise cost was due to an increase in the
initial markup rates related to a decrease in the cost of merchandise. The 0.1%
decrease in buying costs as a percentage of sales was due to the leverage
associated with the increase in total sales. The 0.2% increase in distribution
costs was related primarily to the catalog operation.

Selling, general and administrative expenses were $110,554,000 in fiscal
1998 compared to $86,999,000 in fiscal 1997, an increase of $23,555,000 or
27.1%. As a percentage of sales, selling, general and administrative expenses
was 22.8% in fiscal 1998 compared to 21.1% in fiscal 1997. The dollar increase
in selling, general and administrative expenses in fiscal 1998 compared to
fiscal 1997 was primarily due to the increase in total sales and to a lesser
extent the expenses related to the catalog operation. The increase as a percent
of sales was primarily due to the impact of the fixed costs associated with
catalog production. Without the impact of the catalog operation, selling,
general and administrative expenses increased 0.5%. This increase related
primarily to the increase in selling expense as a percentage of sales due to the
increases in minimum wage and to the start up costs associated with new store
openings. Also contributing to the increase as a percentage of sales was an
increase in administrative wages to support the expanded operations in fiscal
1998.

Interest income, net, was $3,894,000 in fiscal 1998 compared to $3,505,000
in fiscal 1997, an increase of $389,000. This increase was due primarily to an
increase in the average cash balance invested during the year.

Income tax provision was $16,248,000 in fiscal 1998 compared to $15,075,000
in fiscal 1997. The effective income tax rate in fiscal 1998 was 38.5% compared
to 41.5% in fiscal 1997. The decrease in the effective tax rate in fiscal 1998
compared to fiscal 1997 was due to the increase in income generated from states
with lower effective tax rates as well as the impact of changes in the corporate
cash investment strategy which resulted in higher balances invested in tax
exempt securities.

Based on the factors noted above, net income was $25,954,000 in fiscal 1998
compared to $21,250,000 in fiscal 1997, an increase of $4,704,000 or 22.1%. As a
percentage of sales, net income was 5.3% in fiscal 1998 compared to 5.2% in
fiscal 1997.

FISCAL 1997 COMPARED TO FISCAL 1996

Sales in fiscal 1997 were $412,463,000 compared to sales in fiscal 1996 of
$374,942,000, an increase of $37,521,000 or 10%. The dollar increase in sales in
fiscal 1997 compared to fiscal 1996 was primarily due to the increase in the
comparable store sales and the increase in frequent buyer sales income in fiscal
1997 compared to fiscal 1996. The Company attributes the increase in comparable
store sales of 5.8% to the continued resurgence of fashion that began in fiscal
1996. The increase in sales was also due to a slightly lesser extent to the
impact of the 34 new store openings in fiscal 1997 and the full year impact in
1997 of the 10 new store openings in fiscal 1996. These increases were somewhat
offset by the closing of nine stores in fiscal 1997.

Cost of sales, including buying, distribution and occupancy costs, was
$292,644,000 in fiscal 1997 compared to $272,189,000 in fiscal 1996, an increase
of $20,455,000 or 7.5%. As a percentage of sales, cost of sales decreased to
71.0% in fiscal 1997, from 72.6% in fiscal 1996, a decrease of 1.6%. The dollar

12
<PAGE>
increase in cost of sales in fiscal 1997 compared to fiscal 1996 was due
primarily to the increase in total sales. Of the 1.6% decrease in cost of sales
as a percentage of sales, 1.0% related to a decrease in occupancy costs, 0.4%
related to a decrease in the cost of merchandise and 0.3% related to a decrease
in distribution costs, offset by a 0.1% increase in buying costs. The decrease
in occupancy costs was due primarily to a decrease in store rental expenses as a
percent of sales as a result of the expense leverage related to the increase in
comparable store sales. The decrease of 0.4% in merchandise cost was due to an
increase in the initial markup rates related to a decrease in the cost of
merchandise. The 0.3% decrease in distribution costs was related to a decrease
in depreciation due to the impact of fully depreciated assets in the current
year and to cost efficiencies related to processing the merchandise. These
decreases were offset by a 0.1% increase in buying costs which was associated
with payroll and personnel increases during the year to support the larger
operations.

Selling, general and administrative expenses were $86,999,000 in fiscal 1997
compared to $79,238,000 in fiscal 1996, an increase of $7,761,000 or 9.8%. As a
percentage of sales, selling, general and administrative expenses remained the
same at 21.1% in fiscal 1997 as compared to fiscal 1996. The dollar increase in
selling, general and administrative expenses in fiscal 1997 compared to fiscal
1996 was primarily due to the increase in total sales and an increase in
management expenses related to bonuses and retirement plans, offset by a
decrease in office depreciation related to the impact of fully-depreciated
assets, proceeds related to an insurance reimbursement and a decrease in
non-payroll related selling expenses as a result of the economies of scale
associated with the increase in comparable store sales.

Interest income, net, was $3,505,000 in fiscal 1997 compared to $2,702,000
in fiscal 1996, an increase of $803,000. This increase was due primarily to an
increase in the average cash balance invested.

Income tax expense was $15,075,000 in fiscal 1997 compared to $10,965,000 in
fiscal 1996. The effective income tax rate in fiscal 1997 was 41.5% compared to
a rate of 41.8% in fiscal 1996.

Based on the factors noted above, net income was $21,250,000 in fiscal 1997
compared to $15,252,000 in fiscal 1996, an increase of $5,998,000 or 39.3%. As a
percentage of sales, net income was 5.2% in fiscal 1997 compared to 4.1% in
fiscal 1996.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at the end of fiscal 1998, 1997 and 1996 was $21,856,000,
$66,452,000 and $59,791,000, respectively. The decrease in working capital in
fiscal 1998 compared to fiscal 1997 was due to a net increase in long term
investments of $37,474,000 as current year cash was invested to a larger extent
in investments with maturities beyond one year. The decrease in working capital
was also due to the purchase of treasury stock for $19,675,000 in the third
quarter of fiscal 1998. Net cash provided by operating activities in fiscal
1998, 1997 and 1996 was $43,950,000, $31,948,000 and $28,187,000, respectively.
The increase in net cash provided by operating activities in fiscal 1998 was due
primarily to the increase in net earnings. Further contributing to the increase
was the increase in income taxes payable and accounts payable offset to some
extent by the increase in inventory and deferred tax, net. The increase in
income taxes payable is due to the timing of tax payments. The increase in
accounts payable was attributable to the increase in payables associated with
capital expenditures. The increase in inventory over the prior year was related
to the increase in the number of stores offset to some extent by the decrease in
catalog inventory as compared to prior year.

The increase in cash provided by operating activities in fiscal 1997 was due
primarily to the increase in net earnings. Further contributing to the increase
was the increase in accounts payable and accrued liabilities offset to some
extent by the increase in inventory. The increase in accounts payable was
attributable to the increase in payables associated with capital expenditures as
well as to the timing of inventory receipts. The increase in inventory over the
prior year was related to the increase in the number of stores as well as to the
inventory held for the new catalog operations at the end of fiscal 1997.

13
<PAGE>
Additions to property and equipment are the Company's most significant
investment activities. In fiscal 1998, 1997 and 1996 the Company invested
$26,503,000, $22,973,000 and $8,620,000, respectively, in property and equipment
and leasehold improvements. These expenditures related primarily to new store
openings and remodels. In fiscal 1997, the Company constructed a new office and
distribution facility. On December 1, 1998, the Company acquired the leases and
furniture and fixtures for 19 store locations from Mothers Work, Inc. for
$1,911,000. The majority of the locations acquired were converted to Arden B.
stores. On February 1, 1999, the Company acquired the leases and furniture and
fixtures for 80 stores from Britches of Georgetowne, Inc. The Company plans to
convert the locations to Arden B., Wet Seal, Contempo Casuals and Limbo Lounge
stores by the end of the first quarter of fiscal 1999, with the majority of the
locations planned as Arden B. Primarily as a result of the Company's expanded
operations and the real estate acquisition of 80 stores, capital expenditures
for fiscal 1999 are currently estimated to be $53,000,000.

In September 1998, the Company's Board of Directors authorized the
repurchase of up to 20% of the outstanding shares of the Company's Class A
Common Stock. As of January 30, 1999, 1,327,000 shares had been repurchased at a
cost of $19,675,000. Such repurchased shares are reflected as treasury stock in
the accompanying financial statements.

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 an unsecured revolving line of credit arrangement with Bank
of America National Trust and Savings Association ("Bank of America") in an
aggregate principal amount of $30,000,000, maturing on July 1, 1999 and a five
year amortizing term loan with Bank of America in the amount of $10,000,000. As
of January 30, 1999 the term loan has an outstanding balance of $2,264,000. On
March 31, 1999, the line of credit was extended to a maturity date of July 1,
2000. At January 30, 1999, there were no outstanding borrowings under the credit
arrangement, and the Company was in compliance with all terms and covenants of
the credit arrangement and the term loan. 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 January
30, 1999, the Christmas and back-to-school seasons together accounted for an
average of approximately 33% 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 may contain various
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended, 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,

14
<PAGE>
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. The Company disclaims any
obligation or undertaking to disseminate any updates or revisions to any forward
looking statement contained herein or to reflect any change in the expectations
of the Company after the date hereof or any change in events, conditions or
circumstances on which any statement is based.

NEW ACCOUNTING PRONOUNCEMENTS

The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("SFAS 130"), in the first quarter of fiscal
1998. SFAS 130 establishes standards for the reporting and display of
comprehensive income. Components of comprehensive income, among other items, may
include foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on marketable securities classified
as available-for-sale.

In Fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132") which is effective for fiscal years
beginning after December 15, 1997. This statement standardized the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis and eliminates certain disclosures that are no longer as useful as they
were under previous statements.

YEAR 2000 COMPLIANCE

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000.

During fiscal 1998 and continuing through fiscal 1999, the Company is in the
process of converting substantially all of its computer software systems and
hardware. Prior to the purchase of the new systems and hardware the Company
obtained or is in the process of obtaining assurance from the vendors that the
products purchased are in fact Year 2000 compliant. The Company will also
complete an independent review of such systems to further verify Year 2000
compliance. The Company has performed a thorough review of its existing computer
software systems and hardware to identify processes which may be affected by
Year 2000 problems. At this time, no significant issues have been identified and
the Company has developed an adequate plan for Year 2000 compliance should the
conversions fall behind schedule.

During fiscal 1998 and fiscal 1999, the Company is also in the process of
completing a Year 2000 review of its relationships with suppliers and financial
institutions to obtain assurance, where necessary, that these entities are Year
2000 compliant. The Company's total Year 2000 project costs include the
estimated costs and time associated with the impact of a third party's Year 2000
issue on the Company, and are based on presently available information. However,
there can be no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have a

15
<PAGE>
material adverse effect on the Company's business, results of operations, cash
flows and financial condition.

If the Company is not completely successful in mitigating internal and
external Year 2000 risks, the result could be a system failure causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, distribute merchandise, or engage in similar normal
business activities at the Company or its vendors and suppliers. The Company
believes that under a worst case scenario, it could continue the majority of its
normal business activities on a manual basis. With respect to potential Year
2000 failures of its vendors and suppliers, the Company plans to mitigate this
risk by not depending on any single vendor or supplier for products or
merchandise.

Due to the fact that the majority of the Company's computer software systems
and hardware have been purchased or developed recently and were designed to be
Year 2000 compliant, the Company does not expect to incur significant additional
costs in addressing the Year 2000 issue. The total cost of the Year 2000 project
is estimated at $300,000, and will be funded through operating cash flows. Year
2000 costs as of January 30, 1999 totaled $100,000.

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.

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 9, 1999,
filed pursuant to Regulation 14A.

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

2. Financial Statement Schedules--See "Index to 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 January 30, 1999.

16
<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.

<TABLE>
<CAPTION>
THE WET SEAL, INC. (REGISTRANT)

<S> <C> <C>
By: /s/ KATHY BRONSTEIN
-----------------------------------------
Kathy Bronstein
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER

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

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

<C> <S> <C>
/s/ GEORGE H. BENTER JR. Director April 23, 1999
- ------------------------------
George H. Benter Jr.

/s/ KATHY BRONSTEIN Vice Chairman and Chief April 23, 1999
- ------------------------------ Executive Officer and
Kathy Bronstein Director (Principal
Executive Officer)

/s/ STEPHEN GROSS Secretary and Director April 23, 1999
- ------------------------------
Stephen Gross

/s/ ANN CADIER KIM Vice President of Finance April 23, 1999
- ------------------------------ and Chief Financial
Ann Cadier Kim Officer (Principal
Financial and Accounting
Officer)

/s/ WALTER F. LOEB Director April 23, 1999
- ------------------------------
Walter F. Loeb
</TABLE>

17
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ WILFRED POSLUNS Director April 23, 1999
- ------------------------------
Wilfred Posluns

/s/ GERALD RANDOLPH Director April 23, 1999
- ------------------------------
Gerald Randolph

/s/ ALAN SIEGEL Director April 23, 1999
- ------------------------------
Alan Siegel

/s/ IRVING TEITELBAUM Chairman of the Board and April 23, 1999
- ------------------------------ Director
Irving Teitelbaum

/s/ EDMOND THOMAS President and Chief April 23, 1999
- ------------------------------ Operating Officer and
Edmond Thomas Director
</TABLE>

18
<PAGE>
THE WET SEAL, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INDEPENDENT AUDITORS' REPORT:
Report of Deloitte & Touche LLP............................................................................ 20

FINANCIAL STATEMENTS:
Balance sheets as of January 30, 1999 and January 31, 1998................................................. 21
Statements of income for the years ended January 30, 1999, January 31, 1998 and February 1, 1997........... 22
Statements of comprehensive income for the years ended January 30, 1999, January 31, 1998 and February 1,
1997..................................................................................................... 22
Statements of stockholders' equity for the years ended January 30, 1999, January 31, 1998 and February 1,
1997..................................................................................................... 23
Statements of cash flows for the years ended January 30, 1999, January 31, 1998 and February 1, 1997....... 24
Notes to financial statements.............................................................................. 25

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>

19
<PAGE>
INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheets of The Wet Seal, Inc. as of
January 30, 1999 and January 31, 1998 and the related statements of income,
comprehensive income, stockholders' equity and cash flows for each of the three
fiscal years in the period ended January 30, 1999. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Wet Seal, Inc. as of
January 30, 1999 and January 31, 1998 and the results of its operations and its
cash flows for each of the three fiscal years in the period ended January 30,
1999, in conformity with generally accepted accounting principles.

Deloitte & Touche LLP
March 12, 1999
Costa Mesa, California

20
<PAGE>
THE WET SEAL, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS

JANUARY 30, JANUARY 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1).......................... $ 31,590,000 $ 76,056,000
Short-term investments (Note 3)............................. 21,943,000 19,817,000
Other receivables........................................... 3,665,000 3,209,000
Merchandise inventories..................................... 28,002,000 26,884,000
Prepaid expenses (Note 1)................................... -- 330,000
Deferred tax charges (Note 4)............................... 1,791,000 1,137,000
------------ ------------
Total current assets...................................... 86,991,000 127,433,000
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Leasehold improvements...................................... 75,659,000 65,465,000
Furniture, fixtures and equipment........................... 37,758,000 24,965,000
Leasehold rights............................................ 3,577,000 3,692,000
Construction in progress.................................... 489,000 2,000
------------ ------------
117,483,000 94,124,000
Less accumulated depreciation............................... (57,110,000) (49,171,000)
------------ ------------
Net equipment and leasehold improvements.................. 60,373,000 44,953,000
------------ ------------
LONG-TERM INVESTMENTS (Note 3).............................. 37,973,000 499,000
OTHER ASSETS:
Deferred tax charges and other assets (Notes 4 and 13)...... 11,677,000 10,817,000
Goodwill, net of accumulated amortization of $656,000 and
$611,000 as of January 30, 1999 and January 31, 1998,
respectively.............................................. 476,000 521,000
------------ ------------
Total other assets........................................ 12,153,000 11,338,000
------------ ------------
$197,490,000 $184,223,000
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 37,515,000 $ 35,858,000
Accrued liabilities (Note 12)............................... 20,430,000 20,570,000
Income taxes payable (Note 4)............................... 6,190,000 2,553,000
Current portion of long-term debt (Note 9).................. 1,000,000 2,000,000
------------ ------------
Total current liabilities................................. 65,135,000 60,981,000
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt (Note 9)..................................... 1,264,000 1,264,000
Deferred rent............................................... 7,458,000 6,254,000
Other long-term liabilities (Note 13)....................... 3,355,000 2,730,000
------------ ------------
Total long-term liabilities............................... 12,077,000 10,248,000
------------ ------------
Total liabilities......................................... 77,212,000 71,229,000
------------ ------------
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY: (Notes 5 and 6)
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; 10,704,886 and 10,656,578 shares issued and
outstanding at January 30, 1999 and January 31, 1998,
respectively.............................................. 1,071,000 1,066,000
Common Stock, Class B Convertible, $.10 par value,
authorized 10,000,000 shares; 2,912,665 shares issued and
outstanding at January 30, 1999 and January 31, 1998...... 291,000 291,000
Paid-in capital............................................. 58,356,000 57,217,000
Retained earnings........................................... 80,374,000 54,420,000
Other comprehensive loss (Note 13).......................... (139,000) --
Treasury stock, 1,327,000 shares at cost.................... (19,675,000) --
------------ ------------
Total Stockholders' Equity................................ 120,278,000 112,994,000
------------ ------------
$197,490,000 $184,223,000
------------ ------------
------------ ------------
</TABLE>

See accompanying notes to financial statements.

21
<PAGE>
THE WET SEAL, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
SALES........................................................... $ 485,389,000 $ 412,463,000 $ 374,942,000
COST OF SALES (including buying, distribution and occupancy
costs)........................................................ 336,527,000 292,644,000 272,189,000
-------------- -------------- --------------
GROSS MARGIN.................................................... 148,862,000 119,819,000 102,753,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 10).......... 110,554,000 86,999,000 79,238,000
-------------- -------------- --------------
OPERATING INCOME................................................ 38,308,000 32,820,000 23,515,000
INTEREST INCOME, NET (Note 9)................................... 3,894,000 3,505,000 2,702,000
-------------- -------------- --------------
INCOME BEFORE PROVISION FOR INCOME TAXES........................ 42,202,000 36,325,000 26,217,000
PROVISION FOR INCOME TAXES (Note 4)............................. 16,248,000 15,075,000 10,965,000
-------------- -------------- --------------
NET INCOME...................................................... $ 25,954,000 $ 21,250,000 $ 15,252,000
-------------- -------------- --------------
-------------- -------------- --------------
NET INCOME PER SHARE, BASIC (Note 14)........................... $ 1.98 $ 1.57 $ 1.15
-------------- -------------- --------------
-------------- -------------- --------------
NET INCOME PER SHARE, DILUTED (Note 14)......................... $ 1.91 $ 1.53 $ 1.13
-------------- -------------- --------------
-------------- -------------- --------------
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC (Note 1)............. 13,085,587 13,552,502 13,219,284
-------------- -------------- --------------
-------------- -------------- --------------
WEIGHTED AVERAGE SHARES OUTSTANDING, DILUTED (Note 1)........... 13,581,233 13,899,877 13,459,810
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

See accompanying notes to financial statements.

THE WET SEAL, INC.

STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
NET INCOME.......................................................... $ 25,954,000 $ 21,250,000 $ 15,252,000
------------- ------------- -------------
OTHER COMPREHENSIVE LOSS:
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN ADJUSTMENT (Note 13).......... (139,000) -- --
------------- ------------- -------------
COMPREHENSIVE INCOME................................................ $ 25,815,000 $ 21,250,000 $ 15,252,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See accompanying notes to financial statements.

22
<PAGE>
THE WET SEAL, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------------
CLASS A CLASS B
---------------------- ---------------------
OTHER
PAID-IN RETAINED COMPREHENSIVE
SHARES PAR VALUE SHARES PAR VALUE CAPITAL EARNINGS LOSS
---------- ---------- ---------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 3, 1996................ 5,687,066 $ 568,000 6,807,665 $681,000 $38,568,000 $17,918,000 --
Issuance of Class A Common Stock pursuant
to Public Offering (Note 5).............. 765,000 76,000 -- -- 14,383,000 -- --
Stock issued pursuant to long-term
incentive plan (Note 6).................. 5,308 1,000 -- -- 106,000 -- --
Exercise of stock options (Note 6)......... 276,500 28,000 -- -- 1,712,000 -- --
Tax benefit related to exercise of stock
options (Note 6)......................... -- -- -- -- 1,827,000 -- --
Conversion of Class B Common Stock to Class
A Common Stock (Note 5).................. 3,895,000 390,000 (3,895,000) (390,000 ) -- -- --
Net income................................. -- -- -- -- -- 15,252,000 --
---------- ---------- ---------- --------- ----------- ----------- -----------
Balance at February 1, 1997................ 10,628,874 1,063,000 2,912,665 291,000 56,596,000 33,170,000 --
Stock issued pursuant to long-term
incentive plan (Note 6).................. 8,704 1,000 -- -- 265,000 -- --
Exercise of stock options (Note 6)......... 19,000 2,000 -- -- 212,000 -- --
Tax benefit related to exercise of stock
options (Note 6)......................... -- -- -- -- 144,000 -- --
Net income................................. -- -- -- -- -- 21,250,000 --
---------- ---------- ---------- --------- ----------- ----------- -----------
Balance at January 31, 1998................ 10,656,578 1,066,000 2,912,665 291,000 57,217,000 54,420,000 --
Stock issued pursuant to long-term
incentive plan (Note 6).................. 12,308 1,000 -- -- 462,000 -- --
Exercise of stock options (Note 6)......... 36,000 4,000 -- -- 269,000 -- --
Tax benefit related to exercise of stock
options (Note 6)......................... -- -- -- -- 408,000 -- --
Repurchase of common stock (Note 5)........ -- -- -- -- -- -- --
Supplemental Employee Retirement Plan
adjustment (Note 13)..................... -- -- -- -- -- -- (139,000 )
Net income................................. -- -- -- -- -- 25,954,000 --
---------- ---------- ---------- --------- ----------- ----------- -----------
Balance at January 30, 1999................ 10,704,886 $1,071,000 2,912,665 $291,000 $58,356,000 $80,374,000 $(139,000 )
---------- ---------- ---------- --------- ----------- ----------- -----------
---------- ---------- ---------- --------- ----------- ----------- -----------

TOTAL
TREASURY STOCKHOLDERS'
STOCK EQUITY
----------- -------------
<S> <C> <C>
Balance at February 3, 1996................ -- $ 57,735,000
Issuance of Class A Common Stock pursuant
to Public Offering (Note 5).............. -- 14,459,000
Stock issued pursuant to long-term
incentive plan (Note 6).................. -- 107,000
Exercise of stock options (Note 6)......... -- 1,740,000
Tax benefit related to exercise of stock
options (Note 6)......................... -- 1,827,000
Conversion of Class B Common Stock to Class
A Common Stock (Note 5).................. -- --
Net income................................. -- 15,252,000
----------- -------------
Balance at February 1, 1997................ -- 91,120,000
Stock issued pursuant to long-term
incentive plan (Note 6).................. -- 266,000
Exercise of stock options (Note 6)......... -- 214,000
Tax benefit related to exercise of stock
options (Note 6)......................... -- 144,000
Net income................................. -- 21,250,000
----------- -------------
Balance at January 31, 1998................ -- 112,994,000
Stock issued pursuant to long-term
incentive plan (Note 6).................. -- 463,000
Exercise of stock options (Note 6)......... -- 273,000
Tax benefit related to exercise of stock
options (Note 6)......................... -- 408,000
Repurchase of common stock (Note 5)........ (19,675,000) (19,675,000)
Supplemental Employee Retirement Plan
adjustment (Note 13)..................... -- (139,000)
Net income................................. -- 25,954,000
----------- -------------
Balance at January 30, 1999................ $(19,675,000) $120,278,000
----------- -------------
----------- -------------
</TABLE>

See accompanying notes to financial statements.

23
<PAGE>
THE WET SEAL, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $25,954,000 $21,250,000 $15,252,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 13,039,000 11,295,000 11,848,000
Loss on disposal of equipment and leasehold improvements............... -- -- 153,000
Stock issued pursuant to long-term incentive plan...................... 463,000 266,000 107,000
Deferred tax, net...................................................... (1,124,000) (2,189,000) (3,084,000)
Changes in operating assets and liabilities, net of effect of
acquisition:
Other receivables.................................................... (456,000) (1,632,000) (1,054,000)
Merchandise inventories.............................................. (1,118,000) (4,295,000) (6,348,000)
Prepaid expenses..................................................... 330,000 (330,000) 428,000
Other assets......................................................... (594,000) (118,000) 38,000
Accounts payable and accrued liabilities............................. 1,517,000 6,329,000 9,276,000
Income taxes payable................................................. 4,045,000 545,000 625,000
Deferred rent........................................................ 1,204,000 137,000 946,000
Other long-term liabilities.......................................... 690,000 690,000 --
----------- ----------- ------------
Net cash provided by operating activities.............................. 43,950,000 31,948,000 28,187,000
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements....................... (26,503,000) (22,973,000) (8,620,000)
Investment in marketable securities...................................... (83,018,000) (42,320,000) (17,700,000)
Proceeds from sale of marketable securities.............................. 43,418,000 39,704,000 --
Acquisition of store leases and related store assets..................... (1,911,000) -- --
----------- ----------- ------------
Net cash used in investing activities.................................... (68,014,000) (25,589,000) (26,320,000)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt..................................... (1,000,000) (2,000,000) (3,736,000)
Purchase of treasury stock............................................... (19,675,000) -- --
Proceeds from issuance of common stock................................... 273,000 214,000 16,199,000
----------- ----------- ------------
Net cash (used in) provided by financing activities...................... (20,402,000) (1,786,000) 12,463,000
----------- ----------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..................... (44,466,000) 4,573,000 14,330,000
CASH AND CASH EQUIVALENTS, beginning of year............................. 76,056,000 71,483,000 57,153,000
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of year................................... $31,590,000 $76,056,000 $71,483,000
----------- ----------- ------------
----------- ----------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................................... $ 194,000 $ 337,000 $ 538,000
Income taxes, net...................................................... 13,326,000 16,720,000 13,424,000

SCHEDULE OF NONCASH TRANSACTIONS:
</TABLE>

During the fifty-two weeks ended January 30, 1999, January 31, 1998 and
February 1, 1997, the Company recorded an increase to paid-in capital of
$408,000, $144,000 and $1,827,000, respectively, related to tax benefits
associated with the exercise of non-qualified stock options.

During the fifty-two weeks ended January 30, 1999, the Company recorded a
decrease to other comprehensive income of $139,000 and a corresponding decrease
to other long-term liabilities and other assets of $65,000 and $204,000,
respectively, related to the Supplemental Employee Retirement Plan. (See Note
13.)

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.

See accompanying notes to financial statements.

24
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF THE BUSINESS

The Wet Seal, Inc. (the "Company") is a nationwide specialty retailer of
fashionable and contemporary apparel and accessory items designed for consumers
with a young, active lifestyle. In January 1998, the Company initiated a catalog
which operates under the name "Wet Seal". On July 1, 1995, the Company acquired
Contempo Casuals, Inc., a 237-store junior women's retail 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 react to changes in fashion trends could adversely
affect its results of operations. Approximately 35% 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. Effective
February 2, 1997, Contempo Casuals, Inc. was merged with and into The Wet Seal,
Inc.

The Company's fiscal year ends on the Saturday closest to the end of
January. The reporting period includes 52 weeks in each of the fiscal years
1998, 1997 and 1996.

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 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.

LONG-LIVED ASSETS

The Company accounts for the impairment and disposition of long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"). In accordance with SFAS 121, long-lived assets to
be held are reviewed for events or changes in circumstances which indicate that
their carrying value may not be recoverable. At January 30, 1999, the Company
believes there has been no impairment of the value of such assets.

INTANGIBLE ASSET

Excess of cost over net assets acquired (goodwill) is being amortized on the
straight-line method over 25 years. 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 from the acquisition.

25
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RENTAL EXPENSE

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

STORE PRE-OPENING COSTS

Store opening and pre-opening costs are charged to expense as they are
incurred.

ADVERTISING COSTS

Costs for advertising related to retail operations consisting primarily of
in-store signage and promotions are expensed as incurred. Direct response
advertising costs consisting primarily of catalog book production and printing
costs are capitalized and amortized over the expected life of the catalog, not
to exceed 6 months. Direct response advertising costs reported as prepaid assets
are $0 and $330,000 at January 30, 1999 and January 31, 1998, respectively.
Total advertising expenses related primarily to retail operations in fiscal
1998, 1997 and 1996 were $1,993,000, $1,676,000 and $1,728,000, respectively.

INCOME TAX

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). 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.

NET INCOME PER SHARE

The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") beginning with the Company's fourth quarter of
fiscal 1997. All prior period earnings per common share data have been restated
to conform to the provisions of this statement. Net income per share, basic, is
computed based on the weighted average number of common shares outstanding for
the period. Net income per share, diluted, is computed based on the weighted
average number of common and potentially dilutive common equivalent shares
outstanding for the period. (See Note 14.)

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 January 30, 1999 and January 31,
1998, cash equivalents totaled $29,298,000 and $72,212,000, respectively,
bearing interest at rates ranging from approximately 4.7% to 5.3% at January 30,
1999 and from approximately 5.4% to 5.6% at January 31, 1998.

NEW ACCOUNTING PRONOUNCEMENTS

26
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
items, may include foreign currency translation adjustments, minimum pension
liability adjustments, and unrealized gains and losses on marketable securities
classified as available-for-sale.

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-term debt bears a variable rate of
interest; therefore, management believes the carrying amount for the outstanding
borrowings at January 30, 1999 and January 31, 1998 approximate fair value.

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees." (See Note 6.)

NOTE 2: ACQUISITION

On July 1, 1995, the Company acquired the business, assets and properties of
Contempo Casuals, Inc., a 237-store junior women's retail 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
12.)

On December 1, 1998, the Company acquired the leases and furniture and
fixtures for 19 store locations from Mothers Work, Inc. The purchase price was
recorded as leasehold improvements and furniture, fixtures and equipment in the
accompanying financial statements. The majority of the locations acquired were
converted to Arden B. stores.

27
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 3: INVESTMENTS

Short-term investments consist of highly liquid interest bearing deposits
purchased with an initial maturity exceeding three months with a remaining
maturity at January 30, 1999 less than twelve months. Long-term investments
consist of highly liquid interest bearing securities which mature beyond twelve
months from the balance sheet date. It is management's intent to hold short-term
and long-term investments to maturity. Short-term and long-term investments are
carried at amortized cost plus accrued income, which approximates market at
January 30, 1999.

Investments are comprised of the following:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DESCRIPTION MATURITY DATES COST GAINS LOSSES FAIR VALUE
- ------------------------------------- ------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
JANUARY 30, 1999
Commercial paper..................... Within one year $ 1,000,000 $ -- $ -- $ 1,000,000
Corporate bonds...................... Within one year 1,514,000 -- 4,000 1,510,000
Municipal bonds...................... Within one year 7,679,000 3,000 -- 7,682,000
Government obligations............... Within one year 11,750,000 -- 11,000 11,739,000
Corporate bonds...................... One to two years 3,087,000 -- 27,000 3,060,000
Municipal bonds...................... One to two years 34,886,000 31,000 -- 34,917,000
------------- ----------- ----------- -------------
$ 59,916,000 $ 34,000 $ 42,000 $ 59,908,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
JANUARY 31, 1998
Commercial paper..................... Within one year $ 14,905,000 $ -- $ -- $ 14,905,000
Corporate bonds...................... Within one year 1,372,000 1,000 -- 1,373,000
Municipal bonds...................... Within one year 3,540,000 -- 7,000 3,533,000
Corporate bonds...................... One to two years 499,000 1,000 -- 500,000
------------- ----------- ----------- -------------
$ 20,316,000 $ 2,000 $ 7,000 $ 20,311,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>

NOTE 4: PROVISION FOR INCOME TAXES

SFAS 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 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.

28
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 4: PROVISION FOR INCOME TAXES (CONTINUED)
The components of the income tax provision are as follows:

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
CURRENT:
Federal............................................................. $ 13,442,000 $ 12,886,000 $ 10,674,000
State............................................................... 3,930,000 4,378,000 3,375,000
------------- ------------- -------------
17,372,000 17,264,000 14,049,000
------------- ------------- -------------
DEFERRED:
Federal............................................................. (1,126,000) (1,535,000) (2,569,000)
State............................................................... 2,000 (654,000) (515,000)
------------- ------------- -------------
(1,124,000) (2,189,000) (3,084,000)
------------- ------------- -------------
$ 16,248,000 $ 15,075,000 $ 10,965,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

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

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Provision for income taxes at federal statutory rate....................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit...................... 5.6 7.2 7.1
Tax exempt interest........................................................ (1.5) (2.0) (0.5)
Other...................................................................... (0.6) 1.3 0.2
--- --- ---
Effective tax rate......................................................... 38.5% 41.5% 41.8%
--- --- ---
--- --- ---
</TABLE>

As of January 30, 1999 and January 31, 1998, the Company's net deferred tax
asset was $10,709,000 and $9,585,000 respectively. The major components of the
Company's net deferred taxes at January 30, 1999 and January 31, 1998 are as
follows:

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
------------- ------------
<S> <C> <C>
Deferred rent........................................................................ $ 2,987,000 $ 2,782,000
Acquisition related reserves......................................................... 630,000 650,000
Inventory cost capitalization........................................................ 1,080,000 808,000
Difference between book and tax basis of fixed assets................................ 4,632,000 4,643,000
State income taxes................................................................... (179,000) (136,000)
Supplemental Employee Retirement Plan................................................ 594,000 307,000
Other................................................................................ 965,000 531,000
------------- ------------
$ 10,709,000 $ 9,585,000
------------- ------------
------------- ------------
</TABLE>

29
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 5: STOCKHOLDERS' EQUITY

The 2,912,665 shares of the Company's Class B Common Stock outstanding as of
January 30, 1999 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.

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 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.

During the year ended January 30, 1999, the Company's Board of Directors
authorized the repurchase of up to 20% of the outstanding shares of the
Company's Class A Common Stock. As of January 30, 1999, 1,327,000 shares had
been repurchased at a cost of $19,675,000. Such repurchased shares are reflected
as treasury stock in the accompanying financial statements.

NOTE 6: 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 1,475,000 shares of the Company's Class A
Common Stock may be issued pursuant to the Plans. As of January 30, 1999, 19,756
shares were available for future grants.

30
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 6: LONG-TERM INCENTIVE PLAN (CONTINUED)
Stock option activity for each of the three years in the period ended
January 30, 1999 was as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Outstanding at February 3, 1996................................ 635,000 $ 5.12
Granted...................................................... 60,000 20.86
Canceled..................................................... (6,000) 4.13
Exercised.................................................... (276,500) 6.29
----------
Outstanding at February 1, 1997................................ 412,500 6.64
Granted...................................................... 595,000 20.00
Canceled..................................................... (21,000) 17.70
Exercised.................................................... (19,000) 11.24
----------
Outstanding at January 31, 1998................................ 967,500 14.53
Granted...................................................... 130,000 16.93
Canceled..................................................... (12,000) 13.57
Exercised.................................................... (36,000) 7.58
----------
Outstanding at January 30, 1999................................ 1,049,500 $ 14.42
----------
----------
</TABLE>

At January 30, 1999, January 31, 1998 and February 1, 1997 there were
283,500, 119,500 and 19,500 outstanding options exercisable at a weighted
average exercise price of $8.42, $4.65 and $4.40, respectively.

Additional information regarding options outstanding as of January 30, 1999
is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ------------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
RANGE OF AS OF REMAINING EXERCISE AS OF EXERCISE
EXERCISE PRICES JAN. 30, 1999 CONTRACTUAL LIFE PRICE JAN. 30, 1999 PRICE
- --------------- ------------- ------------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
$ 3.00 - $ 3.63 30,000 5.33 $ 3.56 19,000 $ 3.63
4.13 - 5.13 269,500 5.20 4.18 174,500 4.17
8.00 - 16.50 290,000 8.65 16.27 50,000 15.82
19.31 - 20.00 460,000 8.60 19.97 40,000 20.00
------------- -------------
$ 3.00 - $20.00 1,049,500 7.65 $14.42 283,500 $ 8.42
</TABLE>

During the years ended January 30, 1999, January 31, 1998 and February 1,
1997, the Company recognized tax benefits of $408,000, $144,000 and $1,827,000,
respectively, resulting from the exercise of certain non-qualified stock
options.

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 incentive stock options or non-qualified stock options.

31
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 6: LONG-TERM INCENTIVE PLAN (CONTINUED)
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, 49.93% in fiscal 1998, 72.23% in fiscal 1997 and
65.95% in fiscal 1996; risk free interest rates, 4.74% in fiscal 1998, 6.10% in
fiscal 1997 and 6.38% in fiscal 1996; and no dividends during the expected term.
The Company's calculations are based on a valuation approach and forfeitures are
recognized as they occur. If the computed fair values of the fiscal 1998, fiscal
1997 and fiscal 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 FISCAL
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Income.......................................... As reported $ 25,954,000 $ 21,250,000 $ 15,252,000
Pro forma $ 24,804,000 $ 20,745,000 $ 15,192,000
Net Income Per Share, Basic......................... As reported $ 1.98 $ 1.57 $ 1.15
Pro forma $ 1.90 $ 1.53 $ 1.15
Net Income Per Share, Diluted....................... As reported $ 1.91 $ 1.53 $ 1.13
Pro forma $ 1.83 $ 1.49 $ 1.13
</TABLE>

The impact of outstanding non-vested stock options granted prior to 1995 has
been excluded from the pro forma calculation; accordingly, the above pro forma
adjustments are not indicative of future period pro forma adjustments, when the
calculation will apply to all applicable stock options.

As of January 30, 1999, the Company has granted an aggregate of 72,244
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 January 30, 1999, January 31, 1998 and February 1, 1997,
12,308, 8,704 and 5,308 shares, respectively, were fully vested and issued. In
connection with the issuance of these shares, the Company recorded compensation
expense of $463,000, $267,000 and $107,000 for the years ended January 30, 1999,
January 31, 1998 and February 1, 1997, respectively.

32
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 7: COMMITMENTS

LEASES

The Company leases retail stores, automobiles, computers and corporate
office and warehouse facilities under operating lease agreements expiring at
various times through 2010. Substantially all of the leases require the Company
to pay maintenance, insurance, property taxes and percentage rent ranging from
3% to 12%, based on sales volume over certain minimum sales levels. Effective
February 1998, the Company entered into a sublease agreement for its former
warehouse facility which expires in August 2002.

Minimum annual rental commitments under non-cancelable leases, including the
corporate office and warehouse facility lease, are as follows:

<TABLE>
<CAPTION>
MINIMUM LEASE SUBLEASE NET LEASE
COMMITMENTS INCOME COMMITMENTS
--------------- ------------ --------------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDING: 2000....................................... $ 51,196,000 $ 647,000 $ 50,549,000
2001....................................... 47,962,000 647,000 47,315,000
2002....................................... 43,352,000 647,000 42,705,000
2003....................................... 36,511,000 377,000 36,134,000
2004....................................... 30,793,000 -- 30,793,000
Thereafter................................. 95,957,000 -- 95,957,000
--------------- ------------ --------------
$ 305,771,000 $ 2,318,000 $ 303,453,000
--------------- ------------ --------------
--------------- ------------ --------------
</TABLE>

Rental expense, including common area maintenance, was $72,533,000,
$64,384,000 and $62,391,000, of which $295,000, $377,000 and $345,000 was paid
as percentage rent based on sales volume, for the years ended January 30, 1999,
January 31, 1998 and February 1, 1997, 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 January 30, 1999, the Company had outstanding letters of credit amounting
to approximately $15,994,000.

33
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 8: REVOLVING CREDIT ARRANGEMENT

Under an unsecured revolving line of credit arrangement with a bank, the
Company may borrow up to a maximum of $30 million on a revolving basis through
July 1, 1999. The cash borrowings under the arrangement bear interest at the
bank's prime rate or, at the Company's option, LIBOR plus 1.75%. On March 31,
1999, the line of credit was extended to a maturity date of July 1, 2000.

The credit arrangement imposes quarterly and annual financial covenants
requiring the Company to maintain certain financial ratios and achieve certain
levels of annual income. In addition, the credit arrangement requires that the
bank approve the payment of dividends and restrict the level of capital
expenditures. At January 30, 1999 and January 31, 1998, the Company was in
compliance with these covenants. The Company had no borrowings outstanding under
the credit arrangement at January 30, 1999 or January 31, 1998.

NOTE 9: 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% (6.75% at fiscal year end) payable monthly.
Under the terms of the debt agreement, the outstanding balance of $2,264,000
will be repaid in quarterly installments of $500,000, commencing October 31,
1999, until paid. Aggregate principal payments during fiscal 1999 and fiscal
2000 are $1,000,000 and $1,264,000, respectively.

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 January
30, 1999 and January 31, 1998, the Company was in compliance with these
covenants.

NOTE 10: RELATED PARTY TRANSACTIONS

Certain officers of Suzy Shier, Inc., a shareholder, provide management
services to the Company. For these services, the officers earned in the
aggregate a management fee of $375,000 in the year ended January 31, 1999 and
$250,000 during each of the years ended January 31, 1998 and February 1, 1997.

NOTE 11: 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 January 30, 1999 the Company had accrued $112,000 as its
fiscal 1998 contribution to the Plan.

34
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 12: ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Reserve for self insurance................................. $ 2,857,000 $ 3,219,000
Accrued wages, bonuses and benefits........................ 7,272,000 5,972,000
Combination costs.......................................... -- 1,645,000
Gift certificate and credit memo liability................. 3,464,000 2,911,000
Sales tax payable.......................................... 1,651,000 1,204,000
Other...................................................... 5,186,000 5,619,000
--------------- ---------------
$ 20,430,000 $ 20,570,000
--------------- ---------------
--------------- ---------------
</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 accrual for combination costs consisted of management's estimates
for the costs of closing and/or combining certain Contempo Casuals facilities
and operations into Wet Seal's, as well as the costs of integrating management
information and security systems. As of January 31, 1998, the Company had
substantially completed the combination of facilities and the acquisition of
necessary management information systems to fully integrate Contempo Casuals'
operations into Wet Seal's. The accrued combination costs remaining at January
31, 1998 totaling $1,645,000 were fully utilized with the integration of the
Company's in-store security systems in fiscal 1998.

NOTE 13: SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN

The Company maintains a defined benefit supplemental employee retirement
plan (the "SERP") for certain of its key employees and a director. The SERP
provides for preretirement death benefits through life insurance and for
retirement benefits. The Company funded the SERP in 1998 and 1997 through
contributions to a trust fund known as a "Rabbi" trust. Assets held in the Rabbi
trust ($861,000 and $261,000 at January 30, 1999 and January 31, 1998,
respectively) are subject to claims of the Company's creditors but otherwise
must be used only for purposes of providing benefits under the SERP.

In accordance with SFAS 132, the following presents a reconciliation of the
SERP's funded status:

CHANGE IN BENEFIT OBLIGATION

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Benefit obligation at beginning of year.................... $ 2,730,000 $ 2,295,000
Service cost............................................. 293,000 274,000
Interest cost............................................ 191,000 161,000
Actuarial loss........................................... 141,000 --
Benefits paid............................................ -- --
--------------- ---------------
Benefit obligation at end of year.......................... $ 3,355,000 $ 2,730,000
--------------- ---------------
--------------- ---------------
</TABLE>

35
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 13: SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN (CONTINUED)
CHANGE IN PLAN ASSETS

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Fair value of plan assets at beginning of year............. $ -- $ --
Actual return on assets.................................. -- --
Employer contribution.................................... -- --
Benefits paid............................................ -- --
--------------- ---------------
Fair value of plan assets at end of year................... $ -- $ --
--------------- ---------------
--------------- ---------------
Funded status.............................................. $ (3,355,000) $ (2,730,000)
Unrecognized transition (asset)/obligation............... -- --
Unrecognized prior service cost.......................... 1,968,000 2,132,000
Unrecognized net loss/(gain)............................. 139,000 (2,000)
--------------- ---------------
Net amount recognized...................................... $ (1,248,000) $ (600,000)
--------------- ---------------
--------------- ---------------

Weighted average assumptions:
Discount rate............................................ 6.75% 7.00%
Expected return on plan assets........................... 0.00% 0.00%
Rate of compensation increase............................ n/a n/a
</TABLE>

AMOUNTS RECOGNIZED IN BALANCE SHEET

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Prepaid pension cost....................................... $ -- $ --
Accrued benefit liability................................ (3,355,000) (2,730,000)
Intangible asset (unrecognized prior service cost)....... 1,968,000 2,130,000
Accumulated other comprehensive income................... 139,000 --
--------------- ---------------
Net amount recognized...................................... $ (1,248,000) $ (600,000)
--------------- ---------------
--------------- ---------------
</TABLE>

COMPONENTS OF NET PERIODIC PENSION COST

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Service cost--benefits earned during the period............ $ 293,000 $ 274,000
Interest cost on projected benefit obligation............ 191,000 160,000
Expected return on plan assets........................... -- --
Amortization of unrecognized prior service cost.......... 164,000 164,000
--------------- ---------------
Net periodic pension cost.................................. $ 648,000 $ 598,000
--------------- ---------------
--------------- ---------------
</TABLE>

36
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 14: NET INCOME PER SHARE

A reconciliation of the numerators and denominators used in basic and
diluted net income per share is as follows:

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net income: Basic and diluted....................................... $ 25,954,000 $ 21,250,000 $ 15,252,000
------------- ------------- -------------
------------- ------------- -------------

Weighted average number of common shares:
Basic............................................................... 13,085,587 13,552,502 13,219,284
Effect of dilutive securities--stock options........................ 495,646 347,375 240,526
------------- ------------- -------------
Diluted............................................................. 13,581,233 13,899,877 13,459,810
------------- ------------- -------------
------------- ------------- -------------

Net income per share:
Basic............................................................... $ 1.98 $ 1.57 $ 1.15
Effect of dilutive securities--stock options........................ 0.07 0.04 0.02
------------- ------------- -------------
Diluted............................................................. $ 1.91 $ 1.53 $ 1.13
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

NOTE 15: SHAREHOLDER RIGHTS PLAN

On August 19, 1997, the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Rights Plan") designed to protect company stockholders in the
event of takeover action that would deny them the full value of their
investment. Terms of the Rights Plan provide for a dividend distribution of one
right for each share of common stock to holders of record at the close of
business on August 29, 1997. The rights become exercisable only in the event,
with certain exceptions, an acquiring party accumulates 12 percent or more of
the Company's voting stock, or if a party announces an offer to acquire 20
percent or more of the Company's voting stock. Unless earlier redeemed, the
rights will expire on August 29, 2007. Each right will entitle the holder to buy
one one-hundredth of a share of a new series of preferred stock at a price of
$73.00, subject to adjustment upon the occurrence of certain events. The Company
will be entitled to redeem the rights at $0.01 per right at any time until the
tenth day following the acquisition of a 12 percent position in its voting
stock.

NOTE 16: UNAUDITED QUARTERLY FINANCIAL DATA

FISCAL YEAR ENDED JANUARY 30, 1999

<TABLE>
<CAPTION>
NET INCOME NET INCOME
PER SHARE, PER SHARE,
QUARTER SALES GROSS MARGIN NET INCOME BASIC DILUTED
- --------------------------------------- -------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
First Quarter.......................... $ 104,845,000 $ 29,973,000 $ 3,488,000 $ 0.26 $ 0.25
Second Quarter......................... 113,036,000 32,888,000 4,879,000 0.36 0.35
Third Quarter.......................... 121,622,000 36,501,000 5,418,000 0.42 0.41
Fourth Quarter......................... 145,886,000 49,500,000 12,169,000 0.99 0.95
-------------- -------------- -------------
For the Year........................... $ 485,389,000 $ 148,862,000 $ 25,954,000 $ 1.98 $ 1.91
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>

37
<PAGE>
THE WET SEAL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997

NOTE 16: UNAUDITED QUARTERLY FINANCIAL DATA (CONTINUED)
FISCAL YEAR ENDED JANUARY 31, 1998

<TABLE>
<CAPTION>
NET INCOME NET INCOME
PER SHARE, PER SHARE,
QUARTER SALES GROSS MARGIN NET INCOME BASIC DILUTED
- --------------------------------------- -------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
First Quarter.......................... $ 95,563,000 $ 25,441,000 $ 3,515,000 $ 0.26 $ 0.25
Second Quarter......................... 94,254,000 25,337,000 3,417,000 0.25 0.25
Third Quarter.......................... 104,435,000 30,432,000 5,479,000 0.40 0.39
Fourth Quarter......................... 118,211,000 38,609,000 8,839,000 0.65 0.63
-------------- -------------- -------------
For the year........................... $ 412,463,000 $ 119,819,000 $ 21,250,000 $ 1.57 $ 1.53
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>

Net Income per share is computed independently for each of the quarters
presented and therefore may not sum to the totals for the year.

NOTE 17: SUBSEQUENT EVENT

On February 1, 1999, the Company acquired the leases and furniture and
fixtures for 80 stores from Britches of Georgetowne, Inc. The Company plans to
convert the locations to Arden B., Wet Seal, Contempo Casuals and Limbo Lounge
stores by the end of the first quarter of fiscal 1999, with the majority of the
locations planned as Arden B.

38
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------------
<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.
*******4.3 -- Shareholder Rights Plan.
********10.1 -- Lease between the Company and Foothill-Parkstone I, LLC, dated November 21, 1996.
*10.3 -- Services Agreement, dated December 30, 1988, and First amendment to Services Agreement, dated
June 1, 1990, between the Company and Kathy Bronstein.
**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.
10.3.9.1 -- Fourth amendment to Services Agreement between the Company and Edmond Thomas, dated January 1,
1995.
*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.
10.5.5 -- Amendment No. 1 to Business Loan Agreement between the Company and Bank of America, containing
Term Loan and Revolving Line of Credit, dated May 7, 1998.
10.5.6 -- Amendment No. 2 to Business Loan Agreement between the Company and Bank of America, containing
Term Loan and Revolving Line of Credit, dated June 12, 1998.
10.5.7 -- Amendment No. 3 to Business Loan Agreement between the Company and Bank of America, containing
Term Loan and Revolving Line of Credit, dated November 6, 1998.
10.5.8 -- Amendment No. 4 to Business Loan Agreement between the Company and Bank of America, containing
Term Loan and Revolving Line of Credit, dated March 31, 1999.
******10.6.1 -- Key Man life insurance policy for Edmond Thomas.
10.6.2 -- Key Man life insurance policy for Kathy Bronstein.
***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.
********10.11 -- Supplemental Employee Retirement Plan.
*****21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Deloitte & Touche LLP, independent auditors.
27.1 -- Financial Data Schedule--Fiscal year end 1998
</TABLE>

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

<TABLE>
<C> <S>
* 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.
****** Denotes exhibits incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal
year ended February 1, 1997.
******* Denotes exhibits incorporated by reference to the Company's Current Report on Form 8-K filed on August
25, 1997.
******** Denotes exhibits incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1998.
</TABLE>

<PAGE>

Exhibit 10.3.9.1

FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT

This Fourth Amendment to Employment Agreement (the "Amendment") is made
and entered into this 1st day of January, 1995, by and between The Wet Seal,
Inc., a Delaware corporation ("Wet Seal"), and Edmond S. Thomas ("Thomas"),
with respect to the following facts:

The parties entered into a Employment Agreement as of June 22, 1992, as
amended (the "Employment Agreement"). The parties desire to amend certain terms
of the Employment Agreement.

The parties therefore agree as follows:

1. Any terms defined by the Employment Agreement as amended shall have
the same meanings assigned thereby for purposes of this Agreement.

2. Paragraph 4.1.3 of the Employment Agreement is amended in its
entirety to read as follows:

4.1.3 For each fiscal year starting after January 28, 1995, a paid
vacation during each year of the Term commencing June 22, 1995,
for a duration as may be agreed upon by Employee and the Board of
Directors from time to time, it being agreed that such duration
will be for a period of not less than four (4) weeks during each
year of the Term; further, up to three (3) weeks of vacation
amount not used by the end of each year of the Term shall be paid
in cash to Employee within thirty (30) days of the end of that
Term based on his Adjusted Base Salary for that Term then ended;
and, provided further that to the extent that all of such vacation
amount for a Term is not utilized by Employee in the year accrued,
or paid by Employer under this paragraph, then the portion not so
utilized or paid shall not be carried over to any subsequent year,
or in the event a carry over is required by law, the amount of
vacation time which could accrue in the subsequent year shall be
reduced by the amount carried over. The provisions of this
paragraph shall apply with respect to Employee's vacation for the
Term ending June 21, 1995, provided, however, that all amounts
herein shall be adjusted proportionately based on the ratio that
the number of days remaining in that Term on and after January 29,
1995, bears to the total number of days in that Term.

3. For purposes of determining the Adjusted Base Salary and the
Allowance, the term "pre-tax profit of Wet Seal" is amended to include in the
calculation of the net

<PAGE>

income of Wet Seal from all sources the net income from all sources of
subsidiaries of Wet Seal which are consolidated for financial reporting
purposes.

4. Except as amended herein, the Employment Agreement, as amended is
hereby confirmed and republished in full and acknowledged by the parties to
be in full force and effect.

The parties hereto have executed this Amendment as of the day and year
first above written.

"Wet Seal"

THE WET SEAL, INC.
a Delaware corporation

By: /s/Irving Teitelbaum
---------------------
Irving Teitelbaum
Its: Chairman of the Board

"Thomas"

/s/Edmond S. Thomas
------------------------
EDMOND S. THOMAS

<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO] BANK OF AMERICA AMENDMENT TO DOCUMENTS
- -------------------------------------------------------------------------------

AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT

This Amendment No. 1 (the "Amendment") dated as of May 7, 1998, is
between Bank of America National Trust and Savings Association (the "Bank")
and The Wet Seal, Inc. (the "Borrower").

RECITALS

A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of March 9, 1998 (the "Agreement").

B. The Bank and the Borrower desire to amend the Agreement.

AGREEMENT

1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.

2. AMENDMENTS. The Agreement is hereby amended as follows:

2.1 In Subparagraph 1.5(iv) of the Agreement, the amount "TWENTY
MILLION DOLLARS ($20,000,000)" is substituted for the amount
"EIGHT MILLION DOLLARS ($8,000,000)."

2.2 Paragraph 1.5(g) of the Agreement is amended to read in its
entirety as follows:

"(g) to pay the Bank a non-refundable fee equal to one of the
following percentages of the outstanding undrawn amount of
each standby letter of credit, as applicable: 1.50% per
annum if the face amount of the letter of credit is less
than One Million Dollars ($1,000,000); 1.25% per annum if
the face amount of the letter of credit is equal to or
greater than One Million Dollars ($1,000,000) but less than
Ten Million Dollars ($10,000,000); and 0.875% per annum if
the face amount of the letter of credit is equal to or
greater than Ten Million Dollars (10,000,000). Each fee will
be payable annually in advance, calculated on the basis of
the face amount outstanding on the day the fee is
calculated, provided, that in no event shall the fee payable
with respect to any standby letter of credit be less than
$400 per annum. If there is a default under this Agreement,
at the Bank's option, the amount of the fee shall be
increased by 2.00% per annum over the fee that would
otherwise be applicable, effective starting on the day the
Bank provides notice of the increase to the Borrower."

3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.

This Amendment is executed as of the date stated at the beginning of
this Amendment.

BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION THE WET SEAL, INC.

X /s/ Julie R. Weis X /s/ Ann Cadier Kim
---------------------------------- ----------------------------
BY: JULIE R. WEIS, VICE PRESIDENT BY: ANN CADIER KIM
VP OF FINANCE

X /s/ Edmond Thomas
----------------------------
BY: EDMOND THOMAS
PRESIDENT & COO
- -------------------------------------------------------------------------------

-1-

<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO] BANK OF AMERICA AMENDMENT TO DOCUMENTS
- -------------------------------------------------------------------------------

AMENDMENT NO. 2 TO BUSINESS LOAN AGREEMENT

This Amendment No. 2 (the "Amendment") dated as of June 12, 1998, is
between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank")
and THE WET SEAL, INC. (the "Borrower").

RECITALS

A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of March 9, 1998, as previously amended (the "Agreement").

B. The Bank and the Borrower desire to further amend the Agreement.

AGREEMENT

1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.

2. AMENDMENTS. The Agreement is hereby amended as follows:

2.1 Paragraph 1.1(a) of the Agreement is amended to read in its
entirety as follows:

"(a) During the availability period described below, the Bank
will provide a line of credit ("Facility No. 1") to the
Borrower. The amount of the line of credit (the "Facility
No. 1 Commitment") is equal to the amount indicated for each
period set forth below:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
From the date hereof through $40,000,000
March 31, 1999

From April 1, 1999 and thereafter $30,000,000"
</TABLE>

3. CONDITIONS. This Amendment will be effective when the Bank receives
the following items, in form and content acceptable to the Bank:

3.1 A guaranty signed by WSCC Buying Group, Inc. in the amount of
Forty Five Million Dollars ($45,000,000).

3.2 A Corporate Resolution to Obtain Credit executed by the
Borrower in the amount of Forty Five Million Dollars
($45,000,000).

3.3 A Form U-1 Purpose Statement executed by the Borrower.

3.4 A Corporate Resolution Authorizing Execution of Guaranty
executed by WSCC Buying Group, Inc. in the amount of Forty
Five Million Dollars ($45,000,000).

4. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.

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

-1-

<PAGE>

This Amendment is executed as of the date stated at the beginning of
this Amendment.

BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION THE WET SEAL, INC.

X /s/ Julie R. Weis X /s/ Ann Cadier Kim
--------------------------------- ----------------------------------
BY: JULIE R. WEIS, VICE PRESIDENT BY: ANN CADIER KIM
TITLE: VICE PRESIDENT OF FINANCE
& CFO

X /s/ Ed Thomas
----------------------------------
BY: ED THOMAS
TITLE: PRESIDENT AND CHIEF
OPERATIONS Officer

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

-2-

<PAGE>

AMENDMENT NO. 3 TO BUSINESS LOAN AGREEMENT AND WAIVER

This Amendment No. 3 (the "Amendment") dated as of November 6, 1998, is
between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank")
and THE WET SEAL, INC. (the "Borrower").

RECITALS

A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of March 9, 1998, as previously amended (the "Agreement").

B. The Bank and the Borrower desire to further amend the Agreement.

C. The Borrower requests that the Bank waive the provisions of
Paragraph 9.8 of the Agreement to permit the Borrower to repurchase up to 20%
of its shares (the "Stock Repurchase").

AGREEMENT

1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.

2. AMENDMENTS. The Agreement is hereby amended as follows:

2.1 Paragraph 2.3(b) of the Agreement is amended to read in its
entirety as follows:

"(b) Subject to the provisions of Paragraph 12.12, the Borrower
will repay principal in successive quarterly installments of
Five Hundred Thousand Dollars ($500,000) on the last day of
each January, April, July and October of each year
commencing October 31, 1999. On October 31, 2000, the
Borrower will repay the remaining principal balance plus any
interest then due."

2.2 Article 4 of the Agreement is amended to read in its entirety as
follows:

"4. COLLATERAL

4.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank
under this Agreement will be secured by personal property the
Borrower now owns or will own in the future as listed below. The
collateral is further defined in security agreement(s) executed
by the Borrower. In addition, all personal property collateral
securing this Agreement shall also secure all other present and
future obligations of the Borrower to the Bank (excluding any
consumer credit covered by the federal Truth in Lending law,
unless the Borrower has otherwise agreed in writing). All
personal property collateral securing any other present or future
obligations of the Borrower to the Bank shall also secure this
Agreement.

Stock and other securities as follows: 50 shares of the capital
stock of WSCC. Regulation U of the Board of Governors of the
Federal Reserve System places certain restrictions on loans
secured by margin stock (as defined in the Regulation). The Bank
and the Borrower shall comply with Regulation U. If any of the
collateral is margin stock, the Borrower shall provide to the
Bank a Form U-1 Purpose Statement, confirming that none of the
proceeds of the loan will be used to buy or carry any margin
stock. If the Borrower has any other loan made for the purpose of
buying or carrying margin stock (purpose loan), then the
collateral securing this loan shall not secure the purpose loan,
and the collateral securing the purpose loan shall not secure
this loan.

- -------------------------------------------------------------------------------
-1-

<PAGE>
For regulatory reasons, the Bank will not accept as collateral
ineligible Securities while they are being underwritten by
NationsBanc Montgomery Securities LLC, or for thirty days
thereafter. NationsBanc Montgomery Securities LLC is a wholly-
owned subsidiary of BankAmerica Corporation, and is a registered
broker-dealer which is permitted to underwrite and deal in
certain Ineligible Securities. "Ineligible Securities" means
securities which may not be underwritten or dealt in by member
banks of the Federal Reserve System under Section 16 of the
Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended."

2.3 A new Paragraph 7.7 is added to the Agreement, which reads in its
entirety as follows:

"7.7 EVIDENCE OF PRIORITY. Evidence that security interests and
liens in favor of the Bank are valid, enforceable, and prior to
all others' rights and interests, except those the Bank consents
to in writing."

2.4 A new Paragraph 11.14 is added to the Agreement, which reads in
its entirety as follows:

"11.14 LIEN PRIORITY. The Bank fails to have an enforceable first
lien (except for any prior liens to which the Bank has consented
in writing) on or security interest in any property given as
security for this Agreement (or any guaranty)."

3. WAIVER. The Borrower desires to repurchase 20% of its shares
effective September 1, 1998. The Stock Repurchase is prohibited by Paragraph
9.8 of the Agreement. The Bank hereby waives the breached covenant for the
sole and express purpose of permitting the Borrower to enter into the Stock
Repurchase as disclosed by the Borrower to the Bank. The waiver only applies
to the breached covenant and does not apply to any other breach that may now
exist or may occur after the date of this waiver with respect to the breached
covenant or any other term, condition, or covenant of the Agreement.

4. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.

This Amendment is executed as of the date stated at the beginning of
this Amendment.

BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION THE WET SEAL, INC.

X /s/ Julie R. Weis X /s/ Ann Cadier Kim
---------------------------------- ------------------------------
BY: JULIE R. WEIS, VICE PRESIDENT BY: ANN CADIER KIM
VP OF FINANCE

X /s/ Edmond Thomas
----------------------------
BY: EDMOND THOMAS
PRESIDENT & COO

- -------------------------------------------------------------------------------
-2-

<PAGE>

AMENDMENT NO. 4 TO BUSINESS LOAN AGREEMENT

This Amendment No. 4 (the "Amendment") dated as of March 31, 1999, is
between Bank of America National Trust and Savings Association (the "Bank")
and The Wet Seal, Inc. (the "Borrower").

RECITALS

A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of March 9, 1998, as previously amended (the "Agreement").

B. The Bank and the Borrower desire to further amend the Agreement.

AGREEMENT

1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.

2. AMENDMENTS. The Agreement is hereby amended as follows:

2.1 In Paragraph 1.2 of the Agreement, the date "July 1, 2000" is
substituted for the date "July 1, 1999".

2.2 The first paragraph of Paragraph 4.1 of the Agreement is amended
to read in its entirety as follows:

"4.1 PERSONAL PROPERTY SUPPORTING GUARANTY. The obligations of
the guarantor, WSCC, to the Bank will be secured by personal
property the guarantor now owns or will own in the future as
listed below. The collateral is further defined in security
agreement(s) executed by the guarantor."

2.3 Paragraph 9.7 of the Agreement is amended to read in its entirety
as follows:

"9.7 CAPITAL EXPENDITURES. Not to make Capital Expenditures
to acquire fixed or capital assets (on a consolidated
basis) in an aggregate amount in excess of Forty
Million Dollars ($40,000,000) for the fiscal year
ending on or about January 31, 1999, Fifty-Five Million
Dollars ($55,000,000) commencing on the fiscal year
ending on or about January 31, 2000, and Forty Million
Dollars ($40,000,000) on the fiscal year ending on or
about January 31, 2001 and annually thereafter."

3. REPRESENTATIONS AND WARRANTIES. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a) there
is no event which is, or with notice or lapse of time or both would be, a
default under the Agreement except those events, if any, that have been
disclosed in writing to the Bank or waived in writing by the Bank, (b) the
representations and warranties in the Agreement are true as of the date of
this Amendment as if made on the date of this Amendment, (c) this Amendment
is within the Borrower's powers, has been duly authorized, and does not
conflict with any of the Borrower's organizational papers, and (d) this
Amendment does not conflict with any law, agreement, or obligation by which
the Borrower is bound.

4. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.

This Amendment is executed as of the date stated at the beginning of this
Amendment.

BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION THE WET SEAL, INC.

X /s/ Julie R. Weis X /s/ Ann Cadier Kim
------------------------------- ----------------------------
BY: JULIE R. WEIS, VICE PRESIDENT BY: ANN CADIER KIM, VP FINANCE

X /s/ Edmond Thomas
--------------------------
BY: EDMOND THOMAS
PRESIDENT AND COO

- -------------------------------------------------------------------------------
-1-

<PAGE>

[LOGO]
Transamerica Occidental POLICY FORM TRUL+-CVC
Life Insurance Company Individual Life Insurance
1150 South Olive Street
Los Angeles, CA 90015
3
- -------------------------------------------------------------------------------
INSURED KATHLEEN BRONSTEIN 60041022 POLICY NUMBER

FACE
AMOUNT $3,000,000 MAR 17 1990 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 115, or will pay the net cash
value, if any, to the Owner on the policy anniversary nearest the Insured's
age 115 if the Insured is living on that date. 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 and CEO
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 the agent through whom
you bought it. We will cancel the policy and void it from the beginning. We will
refund to you any premiums paid.

Life Insurance
Minimum Premium Requirement
Shown in the Policy Data
Flexible Premiums Payable Thereafter
During Life Of Insured Prior to Age 100
Subject to the Limitations Described
in the Premiums Provision

Death Benefit Payable at Death of
Insured Prior to Age 115
Net Cash Value, if Any, Payable at
Policy Anniversary Nearest Age 115

Nonparticipating - No Annual Dividends

THIS POLICY CONTAINS A PREMIUM
QUALIFICATION CREDIT PROVISION. TO
RECEIVE THIS CREDIT, YOU MUST PAY
SPECIFIC PREMIUMS ON OR BEFORE THEIR
DUE DATE.
SEE DETAILS ON PAGE 13

PAGE 1

<PAGE>

This policy is a legal contract between you, the Owner of this policy, and
Transamerica Occidental Life Insurance Company.

READ YOUR POLICY CAREFULLY

POLICY SUMMARY

We will pay the death benefit to the Beneficiary if the Insured dies while the
policy is in force before the policy anniversary nearest age 115.

You must pay at least the minimum premium per year during the required
premium period shown in the Policy Data or your policy will lapse or be
changed to Paid-Up Life Insurance or Extended Term Insuranc. If you request
an increase in the face amount of this policy, you must also pay at least the
minimum premium per year for the increased portion for that portion's
required premium period following the date of the increase, or your policy
will lapse or be changed to Paid-Up Life Insurance or Extended Term
Insurance. After that, you may vary the amount of premiums and how often you
pay them, within certain limits, as described in the Premiums provision.
Generally, you may pay premiums as long as the Insured is living, up to the
policy anniversary nearest age 100. If the Insured is living at the policy
anniversary nearest age 115, we will pay the net cash value, if any, to you.

Additional benefits, if any, are provided by rider.

This is only a brief description. The insurance is fully described in the
various provisions of the policy.

GUIDE TO POLICY PROVISIONS

PAGE
----
<S> <C>
Accumulation Values......................................................14
Application Copy ..................................................after 30
Beneficiary's Rights......................................................7
Cash Value...............................................................16
Change of Beneficiary.....................................................7
Death Benefit.............................................................7
Definitions...............................................................5
Guaranteed Values........................................................14
Grace Period.............................................................12
Misstatement of Age or Sex ..............................................28
Nonforfeiture Options....................................................20
Option to Change the Face Amount.........................................19
Ownership and Beneficiary Provision.......................................7
Payment of Cash Value and Loans..........................................27
Payment of Death Benefit..................................................7
Policy Data ......................................................... 2,3,4
Policy Loans............................................................ 16
Policy Statements and Illustrations .....................................27
Premium Qualification Credit.............................................13
Premiums.................................................................11
Reinstatement ...........................................................13
Riders.............................................................after 30
Table of Guaranteed Maximum Monthly Deduction Rates.......................3
Table of Policy Values....................................................4
Table of Surrender Penalties.............................................4A
</TABLE>

PAGE 1A

<PAGE>

P 0 L I C Y D A T A

<TABLE>

<S> <C> <C>
CLASS A LOAN
INTEREST RATE 5.21% IN ADVANCE MAR 17, 1999 POLICY DATE

CLASS B LOAN 6.00% REINSTATEMENT
INTEREST RATE 7.40% IN ADVANCE INTEREST RATE

POLICY NUMBER 000060041022 47 AGE OF INSURED

INSURED KATHLEEN BRONSTEIN

FACE AMOUNT $3,000,000 MAR 17, 1990 DATE OF ISSUE

DEATH BENEFIT
OPTION OPTION 1 PREFERRED NONSMOKER CLASS OF RISK

OWNER WET SEAL INC
</TABLE>

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

MINIMUM INITIAL PREMIUM: $1,318
PLANNED PERIODIC PREMIUMS: $7,909 ANNUAL

REQUIRED PREMIUM PERIOD: 10 YEARS

REQUIRED PREMIUM PER YEAR FOR THE BASE POLICY: $7,909

REQUIRED PREMIUM PER YEAR FOR THE BASE POLICY AND ALL ADDITIONAL
RIDERS: $7,909

PREMIUM QUALIFICATION CREDIT PERIOD: 10 YEARS
PREMIUM QUALIFICATION CREDIT PERCENTAGE: 2%

GUARANTEED MAXIMUM MONTHLY POLICY FEE: POLICY YEARS 1-10: $6.00
POLICY YEARS 11 AND LATER: $10.00

GUARANTEED MAXIMUM MONTHLY EXPENSE CHARGE PER THOUSAND:
YEARS 1-5: $0.05
YEARS 6-10: $0.05
YEARS 11 & LATER: $0.06

GUARANTEED MINIMUM INTEREST RATE: 4.00%

NONFORFEITURE INTEREST RATE: 4.0%
SELECT MONTHLY PREMIUM: $1,987.50
SELECT PERIOD: 50 YEARS

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

NOTE: THIS POLICY MAY TERMINATE PRIOR TO THE INSURED'S AGE 115 IF:
(1) THE CASH VALUE MINUS ANY LOAN(S) IS LESS THAN THE MONTHLY
DEDUCTION DUE, OR
(2) THE REQUIRED PREMIUMS PER YEAR FOR THE BASE POLICY AND ANY
RIDERS AND LAYERS IN THEIR REQUIRED PREMIUM PERIOD ARE NOT
PAID.

PAGE 2

<PAGE>

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

TABLE OF GUARANTEED MAXIMUM MONTHLY DEDUCTION RATES PER $1,000
FOR BASE POLICY*

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

<S> <C> <C> <C> <C> <C>
1 0.0441 34 5.4266 67 0.0000
2 0.0608 35 6.0633 68 0.0000
3 0.0766 36 6.7991
4 0.0891 37 7.6466
5 0.1075 38 8.5858
6 0.1216 39 9.6150
7 0.1400 40 10.7150
8 0.1600 41 11.8925
9 0.1808 42 13.1341
10 0.2025 43 14.4591
11 0.5875 44 15.8658
12 0.6241 45 17.3816
13 0.6633 46 19.0500
14 0.7091 47 20.9500
15 0.7633 48 23.2758
16 0.8316 49 26.4433
17 0.9175 50 31.3116
18 1.0191 51 39.5808
19 1.1291 52 54.6541
20 1.2475 53 83.3333
21 1.3675 54 0.0000
22 1.4883 55 0.0000
23 1.6175 56 0.0000
24 1.7666 57 0.0000
25 1.9450 58 0.0000
26 2.1658 59 0.0000
27 2.4350 60 0.0000
28 2.7516 61 0.0000
29 3.1100 62 0.0000
30 3.5033 63 0.0000
31 3.9258 64 0.0000
32 4.3775 65 0.0000
33 4.8708 66 0.0000
</TABLE>
- -------------------------------------------------------------------------------

* TO FIND THE AMOUNT OF MONTHLY DEDUCTION DURING EACH POLICY YEAR, SEE THE
GUARANTEED VALUES SECTION. A MONTHLY POLICY FEE OF $6.00 WILL BE ADDED INTO
EACH MONTHLY DEDUCTION FOR THE FIRST TEN POLICY YEARS. IN SUBSEQUENT YEARS, THE
MONTHLY POLICY FEE WILL NOT EXCEED $10.00. A MONTHLY EXPENSE CHARGE PER THOUSAND
WILL ALSO BE ADDED TO EACH MONTHLY DEDUCTION. THE GUARANTEED MAXIMUM MONTHLY
EXPENSE CHARGE PER THOUSAND IS SHOWN ON POLICY DATA PAGE 2.

THE RATES SHOWN ABOVE FOR THE FIRST 10 POLICY YEARS ARE CURRENT RATES THAT ARE
GUARANTEED FOR THE FIRST 10 POLICY YEARS. THE RATES FOR YEARS 11 AND AFTER ARE
THE GUARANTEED MAXIMUM RATES.

PAGE 3

<PAGE>

TABLE OF POLICY VALUES AND BENEFITS

ILLUSTRATIVE PREMIUMS (1)
GUARANTEED BASIS (2)

PLANNED CASH
END OF POLICY ANNUALIZED DEATH ACCUMULATION VALUE
YEAR PREMIUM BENEFIT VALUE (3) (4)

<S> <C> <C> <C> <C>
1 $7,909 $3,000,000 $3,963 $0
2 $7,909 $3,000,000 $7,640 $0
3 $7,909 $3,000,000 $10,888 $0
4 $7,909 $3,000,000 $13,811 $0
5 $7,909 $3,000,000 $16,183 $0
6 $7,909 $3,000,000 $18,137 $0
7 $7,909 $3,000,000 $19,502 $0
8 $7,909 $3,000,000 $20,194 $3,394
9 $7,909 $3,000,000 $20,154 $11,754
10 $7,909 $3,000,000 $19,321 $19,321
11 $7,909 $3,000,000 $4,032 $4,032
12
13
14
15
16
17
18
19
20

AGE 60
AGE 65
</TABLE>
- -------------------------------------------------------------------------------
(1) THE ACCUMULATION AND CASH VALUES RESULT FROM THE INTEREST RATES,
MONTHLY DEDUCTIONS, PREMIUM QUALIFICATION CREDITS AND THE TIMELY
PAYMENT OF THE PLANNED ANNUALIZED PREMIUMS. PARTIAL SURRENDERS,
SURRENDER-PENALTY-FREE WITHDRAWALS OR LOANS MAY CHANGE THESE
RESULTS.

(2) RESULTS CALCULATED ON A GUARANTEED BASIS REFLECT GUARANTEED
MAXIMUM MONTHLY DEDUCTIONS AND THE GUARANTEED MINIMUM INTEREST
RATE OF 4.00%.

(3) ACCUMULATION VALUES ILLUSTRATED ON A GUARANTEED BASIS REFLECT
ACCUMULATED NET PREMIUMS AND PREMIUM QUALIFICATION CREDIT AMOUNTS
PLUS INTEREST AT THE GUARANTEED MINIMUM INTEREST RATE OF 4.00%
LESS GUARANTEED MAXIMUM MONTHLY DEDUCTIONS WHICH INCLUDE THE
POLICY FEE, THE GUARANTEED MAXIMUM MONTHLY EXPENSE CHARGE
PER THOUSAND AND THE COST OF ANY RIDERS. WHILE A POLICY LOAN(S)
EXISTS, THE INTEREST RATE APPLICABLE TO THE CASH VALUE SECURING
THE LOAN(S) MAY DIFFER FROM THE INTEREST RATE APPLICABLE TO THE
CASH VALUE NOT SECURING THE LOAN(S)

THE REDUCED PAID-UP VALUES (MAXIMUM NET SINGLE PREMIUMS AND FACE AMOUNTS
PER THOUSAND) ARE SHOWN IN THE POLICY AFTER THE NONFORFEITURE OPTIONS
PROVISION.

PAGE 4

<PAGE>

(4) THE DIFFERENCE BETWEEN THE ACCUMULATION VALUE AND THE CASH VALUE
IS THE SURRENDER PENALTY.

PREMIUMS ARE SUBJECT TO REFUND UNDER CONDITIONS DESCRIBED IN THE POLICY.

CURRENT MONTHLY DEDUCTION RATES ARE NOT GUARANTEED AFTER POLICY YEAR 10, NOR ARE
THEY ESTIMATES FOR THE FUTURE.

TABLE OF SURRENDER PENALTIES PER $1,000
OF BASE POLICY FACE AMOUNT
<TABLE>
<CAPTION>
POLICY SURRENDER PENALTY
YEAR FACTOR
<S> <C>
1 28.00
2 25.20
3 22.40
4 19.60
5 16.80
6 14.00
7 11.20
8 8.40
9 5.60
10 2.80
11+ 0.00
</TABLE>

TO CALCULATE THE FULL SURRENDER PENALTY FOR THE BASE POLICY, FIND THE FACTOR FOR
THE CURRENT POLICY YEAR. MULTIPLY THIS FACTOR BY THE NUMBER OF THOUSANDS OF
FACE AMOUNT OF THE BASE POLICY.

END OF POLICY DATA
<PAGE>

DEFINITIONS In this policy:

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

YOU and YOUR means the Owner of this policy.

ACCUMULATION VALUE is the policy's total value as described
in the Accumulation Values provision.

ADMINISTRATIVE OFFICE means Transamerica Occidental Life
Insurance Company, Box 419521, Kansas City, Missouri
64141-6521.

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

The BASE POLICY is this policy excluding any face increase
layers and any riders.

The BENEFICIARY is the person to whom we will pay the death
benefit if the Insured dies.

CASH VALUE means the accumulation value less any surrender
penalty.

A GROSS PREMIUM is 100% of any premium you pay.

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

LAPSE means termination of the policy at the end of the
Grace Period due to insufficient premium or unloaned
accumulation value. if there is remaining net cash value at
the end of the Grace Period, it will be applied to the
Nonforfeiture Options.

A LAYER is the coverage provided by an increase in the face
amount of this policy.

A LAYER DATE is the effective date of a layer of coverage.

A LAYER REQUIRED PREMIUM PER YEAR is the minimum amount of
premium you must pay each year for a layer's Required Premium
Period.

The MATURITY DATE is the policy anniversary nearest age 115.

The MAXIMUM LOAN VALUE is the largest amount you may borrow
under the loan provisions.

A MONTHLY DEDUCTION is an amount we withdraw from the
accumulation value of the policy (or of each layer,
respectively) at the beginning of each policy month.

The NET CASH VALUE is the cash value less any existing loans.

A NET PREMIUM is 93.0% of any gross premium you pay; we take
7.0% of any gross premium as an administrative charge. All
net premium payments will become part of the accumulation
value.

The POLICY FEE is part of the monthly deduction. We may
change the policy fee at any time after the first policy
year. The guaranteed maximum policy fees are shown in the
Policy Data.

A POLICY LOAN is indebtedness to us for a loan secured by
this policy.

REINSTATE means to restore coverage after the policy has
lapsed or been changed to Paid-Up Life Insurance or Extended
Term Insurance, subject to the requirements in the
Reinstatement provision.

PAGE 5
<PAGE>

The REQUIRED PREMIUM PER YEAR FOR THE BASE POLICY is the
minimum amount of premium you must pay each year for the
Required Premium Period.

The REQUIRED PREMIUM PERIOD is the total number of
consecutive years that any required premium must be paid.
This period is shown in the Policy Data For the base policy,
this period begins on the Policy Date. For a layer, this
period begins on the Layer Date.

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 use the LAYER DATE to determine the layer
anniversaries and layer years.

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 monthly dates, policy anniversaries and policy
years.

PAGE 6

<PAGE>

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 for disposition 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 -- If the Insured dies while
this policy is in force, 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 existed
when the Insured died.

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.

IF THE BENEFICIARY DIES -- If any Beneficiary dies before
the Insured, that Beneficiary's interest in the death
benefit will end. If any Beneficiary dies at the same time as
the Insured, or within 30 days after the Insured, that
Beneficiary's interest in the death benefit will end if no
benefits have been paid to that Beneficiary. If the interest
of all designated beneficiaries has ended when the Insured
dies, we will pay the death benefit to you. If you are not
living at that time, we will pay the death benefit to the
executor or administrator of your estate.

HOW TO CHANGE A BENEFICIARY -- You may change the designated
Beneficiary while the Insured is living by sending a
satisfactory written notice to us. The change will not be
effective until we record it at our Administrative Office.
Even if the Insured is not living when we record the change,
the change will take effect as of the date it was signed.
However, any benefits we pay before we record the change will
not be subject to the change.

A Beneficiary designated irrevocably may not be changed
without the written consent of that Beneficiary.

PAYMENT OF THE PROOF OF DEATH -- We will pay any benefit payable because of
DEATH BENEFIT death when we receive due proof of the Insured's death while
this policy was in force. The proof must be sent to us at our
Administrative Office. We will send appropriate forms to the
Beneficiary upon request Any of our agents will help the
Beneficiary fill out the forms without charge.

DEATH BENEFIT -- The amount of the death benefit may be
affected by other policy provisions, such as Policy Loans,
Misstatement of Age or Sex, or Partial Surrenders.

PAGE 7
<PAGE>

DEATH BENEFIT OPTION -- The death benefit before policy
anniversary nearest age 100 will be based on whether you have
chosen Option 1, Option 2 or Option 3 as shown in the Policy
Data. If you do not choose an option in the application,
Option 1 will automatically take effect. Prior to the policy
anniversary nearest age 100, the death benefit is defined as
follows:

Option 1: The death benefit will be the greater of:
(a) the sum of:
(i) the total face amount of the base policy;
plus,
(ii) the total face amount of any layers; or,
(b) the death benefit factor multiplied by the total
accumulation values of the base policy and any
layers in effect on the date of the Insured's
death.

Option 2: The death benefit will be the greater of:
(a) the sum of:
(i) the total face amount of the base policy;
plus,
(ii) the total face amount of any layers; plus,
(iii) the total accumulation values of the base
policy and any layers in effect on the date
of the Insured's death; or
(b) the death benefit factor multiplied by the total
accumulation values of the base policy and any
layers in effect on the date of the Insured's
death.

Option 3: The death benefit will be the greater of:
(a) the sum of:
(i) the total face amount of the base policy;
plus,
(ii) the total face amount of any layers; plus,
(iii) the total amount of all gross premium
payments for the base policy and any layers,
minus any withdrawals, surrenders, partial
withdrawals, partial surrenders, surrender
penalty free withdrawals, and premium refunds
as of the date of death of the Insured; or,
(b) the death benefit factor multiplied by the total
accumulation values of the base policy and any
layers in effect on the date of the Insured's
death.

Beginning with the policy anniversary nearest age 100, the
death benefit will be: the death benefit factor multiplied by
the total accumulation values of the base policy and any
layers in effect as of the date of the current policy month.

(See Accumulation Values provision for details.)

We will reduce the death benefit by any existing policy loans
and by the portion of any grace period payment necessary to
provide insurance to the date of the Insured's death.

This policy is intended to qualify under Section 7702 of the
Internal Revenue Code as a life insurance contract for
federal tax purposes. The death benefit under this policy is
intended to qualify for the federal income tax exclusion. The
provisions of this policy (including any rider or
endorsement) will be interpreted to ensure tax qualification,
regardless of any language to the contrary.

At no time will the amount of the death benefit under the
policy ever be less than the amount needed to ensure tax
qualification. To the extent that the death benefit is
increased, appropriate adjustments will be made in any
monthly deductions or supplemental benefits as of that time,
retroactively or otherwise, that are consistent with such an
increase. Such adjustments may be made by right of setoff
against any death benefits payable.

PAGE 8
<PAGE>

DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
Attained Age Policy Years Attained Age Policy Years
1-10 1-10

Male Female Male Female
---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
45 3.33 3.76 75 1.70 1.79
46 3.23 3.65 76 1.68 1.76
47 3.14 3.54 77 1.66 1.73
48 3.05 3.44 78 1.64 1.71
49 2.96 3.34 79 1.62 1.68

50 2.88 3.24 80 1.60 1.66
51 2.80 3.15 81 1.54 1.60
52 2.73 3.06 82 1.49 1.54
53 2.66 2.97 83 1.44 1.49
54 2.59 2.88 84 1.40 1.44

55 2.52 2.80 85 1.37 1.40
56 2.45 2.73 86 1.36 1.39
57 2.40 2.66 87 1.35 1.37
58 2.34 2.59 88 1.33 1.35
59 2.28 2.52 89 1.32 1.34

60 2.23 2.45 90 1.27 1.29
61 2.19 2.39 91 1.23 1.24
62 2.14 2.33 92 1.19 1.20
63 2.09 2.28 93 1.15 1.16
64 2.05 2.22 94 1.11 1.12

65 2.01 2.17 95 1.10 1.10
66 1.97 2.13 96 1.09 1.09
67 1.93 2.08 97 1.07 1.07
68 1.90 2.04 98 1.06 1.06
69 1.86 2.00

70 1.83 1.96
71 1.80 1.92
72 1.78 1.88
73 1.75 1.85
74 1.73 1.81

PAGE 9

<PAGE>

DEATH BENEFIT FACTORS

<CAPTION>
Attained Age Policy Years Attained Age Policy Years
11+ 11+

Male Female Male Female
---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
55 2.29 2.59 80 1.29 1.35
56 2.23 2.51 81 1.27 1.33
57 2.16 2.44 82 1.26 1.30
58 2.10 2.37 83 1.24 1.28
59 2.04 2.30 84 1.23 1.26

60 1.99 2.23 85 1.21 1.24
61 1.93 2.17 86 1.20 1.23
62 1.88 2.10 87 1.19 1.21
63 1.83 2.04 88 1.18 1.19
64 1.79 1.99 89 1.17 1.18

65 1.74 1.93 90 1.16 1.17
66 1.70 1.88 91 1.15 1.15
67 1.66 1.83 92 1.14 1.14
68 1.62 1.78 93 1.12 1.13
69 1.58 1.74 94 1.11 1.12

70 1.55 1.69 95 1.10 1.10
71 1.52 1.65 96 1.09 1.09
72 1.48 1.61 97 1.07 1.07
73 1.45 1.57 98 1.06 1.06
74 1.43 1.53 99-115 1.04 1.04

75 1.40 1.50
76 1.38 1.47
77 1.35 1.43
78 1.33 1.41
79 1.31 1.38
</TABLE>

PAGE 10

<PAGE>

PREMIUMS We will accept any amount you send us as a premium payment
while this policy is in force, subject to the Premium
Limitation provision and these conditions:

1. The minimum initial premium shown in the Policy Data is
payable on or before the Policy Date. Subsequent
premiums may be sent to our Administrative Office or
you may pay them to an agent we authorize. We will give
you a receipt if you ask for one. Premiums received on
or before the Policy Date will only begin to earn
interest as of the Policy Date.

2. You must pay the Required Premium Per Year for the Base
Policy for the Required Premium Period shown in the
Policy Data. These premiums may be paid cumulatively in
advance. At the end of each year in the Required
Premium Period, we will calculate the cumulative total
of all gross premiums paid for the base policy, less
any partial surrenders and surrender penalty free
withdrawals. We will divide this total by the number of
years since the Policy Date. This amount must equal or
exceed the Required Premium Per Year for the Base
Policy for each year in the Required Premium Period, or
your policy will enter the grace period.

If you request an increase in the face amount of this
policy, then you must also pay the Layer Required
Premium Per Year for that layer's Required Premium
Period; the layer's Required Premium Period begins on
the layer effective date. These premiums may be paid
cumulatively in advance. At the end of each layer year
in the layer's Required Premium Period, we will
calculate the cumulative total of all gross premiums
paid for that layer, less any partial surrenders and
surrender penalty free withdrawals taken from that
layer. We will divide this total by the number of years
since the layer date. This amount must equal or exceed
the Layer Required Premium Per Year for that layer's
Required Premium Period. If this amount does not equal
or exceed the Layer Required Premium Per Year, we will:
(i) determine the cumulative total of all gross
premiums paid for the base policy and any other layers,
less any partial surrenders and surrender penalty free
withdrawals; and, (ii) compare that total to the
corresponding required premiums. If there is not enough
extra premium to make up the difference, then your
policy will enter the grace period.

3. You may pay premiums at any time prior to policy
anniversary nearest age 100. Each premium must be at
least $25 and may not exceed the limits described in
the Premium Limitation provision below.

If you stop paying premiums after the Required Premium
Period, your coverage will continue until the net cash
value is insufficient to pay the monthly deduction due.
At that time, your policy will enter the grace period.
(See Grace Period provision.)

Beginning with the policy anniversary nearest age 100,
billing will cease and no further premium payments will be
accepted.

PREMIUM LIMITATION -- We reserve the right to refund any
unscheduled premium during a particular policy year if the
total premium paid:

(a) increases the difference between the death benefit and
the accumulation value; and,

(b) is more than $20 per thousand of face amount and more
than three times the total of the monthly deductions
for the last year.

We also reserve the right to refund any unscheduled premiums
that exceed $25,000 in any 12-month period.

PAGE 11
<PAGE>

We will not refund any amount if doing so would cause your
policy to enter the grace period before the next
anniversary.

As of the end of any policy year, if the premiums paid
exceed the amount allowable if this policy is to continue to
qualify as a life insurance contract under Section 7702 of
the Internal Revenue Code, as such Section in effect at the
time this policy is issued, and the regulations thereunder,
we will remove the excess amount of premiums paid from the
policy, with interest, as of the end of that policy year. We
will refund to you this excess amount (including interest)
within 60 days after the end of that policy year.

Such an excess amount could occur, for example, as a result
of a partial surrender or other change in the benefits or
terms of the policy, since the premium amount allowable for
the policy may be reduced.

The amount refundable will not exceed the net cash value of
the policy. If the entire net cash value is refunded, we
will treat the transaction as a full surrender of your
policy.

CONTINUATION OF INSURANCE -- If you stop paying premiums, we
automatically continue your policy at the same face amount
and with any additional benefits provided by rider, subject
to the grace period and any minimum premium requirements
that may be in effect. Refer to the Premiums provision and
the Monthly Deduction provision for further explanation.

GRACE PERIOD -- During the Required Premium Period, a grace
period is a period of 60 days beginning on: (a) a policy
anniversary on which the cumulative Required Premium Per
Year for the Base Policy has not been paid (see first
paragraph under number 2 of the Premiums provision); or, (b)
a monthly policy date when the accumulation value minus any
existing loan is less than the monthly deduction due. After
the Required Premium Period and prior to the policy
anniversary nearest age 100, a grace period is a period of
60 days beginning on a monthly policy date when the net cash
value is less than the monthly deduction due.

If you request an increase in the face amount of this
policy, then during the layer's Required Premium Period, a
grace period is a period of 60 days beginning on: (a} a
layer anniversary on which the cumulative Layer Required
Premium Per Year has not been paid (see second paragraph
under number 2 of the Premiums provision); or, (b) a monthly
policy date when the accumulation value minus any existing
loan is less than the monthly deduction due. After the
layer's Required Premium Period and prior to the policy
anniversary nearest age 100, a grace period is a period of
60 days beginning on a monthly policy date when the net cash
value is less than the monthly deduction due for that layer
and for all other layers and the base policy.

After policy anniversary nearest age 100, a grace period is
a period of 60 days beginning on a policy anniversary on
which the loan interest due has not been paid in cash and
the accumulation value minus any existing loan is less than
the loan interest due.

If your policy enters the grace period, we will let you know
by sending a notice to your last known address. The notice
will tell you the amount you must pay. The amount must be
large enough to keep the base policy and any layers in
force. You must pay this amount before the grace period
ends. If you do not pay enough, your policy will lapse at
the end of the 60 days. If there is any net cash value
remaining at the end of the grace period, we will apply it
to the Nonforfeiture Options. (See Nonforfeiture Options
provision.)

PAGE 12
<PAGE>

During the grace period, we will not charge interest on the
amount due. If the Insured dies during the grace period and
before you pay the amount, we will subtract from the death
benefit the amount required to provide insurance to the date
the Insured died.

PREMIUM QUALIFICATION CREDIT -- At the end of each policy
year for the Required Premium Period, we will calculate the
total of gross premiums paid for the base policy. (See first
paragraph under number 2 of the Premiums provision.) From
this total, we will subtract any partial surrenders and
surrender penalty free withdrawals. If this result equals or
exceeds the Required Premium Per Year for the Base Policy
for each year of the Required Premium Period, we will
deposit a premium qualification credit to your policy's
accumulation value at the beginning of the next policy year.

If you request an increase in the face amount of this
policy, then at the end of each layer year for the layer's
Required Premium Period, we will also calculate the total of
gross premiums paid for that layer. (See second paragraph
under number 2 of the Premiums provision.) From this total,
we will subtract any partial surrenders and surrender
penalty free withdrawals taken from that layer. If this
result equals or exceeds the Layer Required Premium Per Year
for each year of the layer's Required Premium Period, we
will deposit a premium qualification credit to that layer's
accumulation value at the beginning of the next layer year.

We must receive enough premium as described above by the end
of each policy year or layer year in the premium
qualification period, or you will not receive a premium
qualification credit for that policy year or layer year.

The amount of the credit will be a specific percentage of
the Required Premium Per Year for the Base Policy and the
Layer Required Premium Per Year. The Premium Qualification
Credit Percentage and the Premium Qualification Credit
Period are shown in the Policy Data

REINSTATEMENT -- If this policy lapses or is changed to
Paid-Up Life Insurance or Extended Term Insurance, it may be
reinstated provided it was not surrendered. To reinstate the
policy, you must meet the following conditions:

l. You must request reinstatement in writing within three
years after the date of lapse or change to Paid-Up
Life Insurance or Extended Term Insurance, and before
the Maturity Date.

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

3. If any loans existed when the policy lapsed or was
changed to Paid-Up Life Insurance or Extended Term
Insurance, you must repay or reinstate them, with
interest. Interest will be compounded annually from the
date of lapse or change to Paid-Up Life Insurance or
Extended Term Insurance. Interest will be at the loan
reinstatement interest rate of 5.50% (5.21 in advance)
for a Class A loan and 8.00% (7.40 in advance) for a
Class B loan.

4. The reinstated policy will be subject to the minimum
premium requirement during the Required Premium Period.
(See first paragraph under number 2 of the Premiums
provision.) Any increase in the face amount of the base
policy will also be subject to the minimum premium
requirement during the layer's Required Premium Period.
(See second paragraph under number 2 of the Premiums
provision.) This means that the Required Premium Period
will be calculated from the original Policy Date or
original layer date; it will not start anew.

PAGE 13

<PAGE>

If the policy lapsed or was changed to Paid-Up Life
Insurance or Extended Term Insurance during any
Required Premium Period and is reinstated in a
different policy year, you must pay a premium large
enough to meet the minimum premium requirement at the
time of reinstatement, with interest. Interest will be
compounded annually at the reinstatement interest rate
of 6%. If the policy lapsed or was changed to Paid-Up
Life Insurance or Extended Term Insurance after any
Required Premium Period, or if it lapsed or was changed
to Paid-Up Life Insurance or Extended Term Insurance
during one year of any Required Premium Period and is
reinstated in the same policy year, you must pay a
premium large enough to cover two monthly deductions
due when the policy lapsed or was changed to Paid-Up
Life Insurance or Extended Term Insurance, and three
monthly deductions due when the policy is reinstated.

5. If you reinstate the policy during any Required Premium
Period, you must repay any excess net cash value given
to you at the time of change to Paid-Up Life Insurance,
with interest. Interest will be compounded annually at
the reinstatement interest rate of 6%.

6. If the policy is reinstated within the first 10 policy
or layer years, any applicable surrender penalties in
effect for the reinstated policy will be calculated
from the original Policy Date or original layer date.

The effective date of a 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 reinstatement terms of that rider.

The accumulation value of the reinstated policy will be: the
net cash value of any Paid-Up Life Insurance or Extended
Term Insurance on the date of reinstatement; plus the
surrender penalty assessed at the time of lapse or change to
Paid-Up Life Insurance or Extended Term Insurance; plus any
excess net cash value we paid you at the time of change to
Paid-Up Life Insurance; plus any loan repaid or reinstated;
plus 93% of any premium you pay at reinstatement; minus any
monthly deductions due at the time of lapse or change to
Paid-Up Insurance or Extended Term Insurance.

GUARANTEED VALUES ACCUMULATION VALUES -- The accumulation value of the policy
(or any layer) on the Policy Date (or layer date) is equal
to all net premiums paid for the policy (or layer). The
accumulation value of the policy (or any layer) on any
monthly policy date after the Policy Date (or the layer
date) is equal to:

1. its accumulation value on the last monthly policy
date, plus interest on that amount;

plus 2. any premium qualification credit amount deposited
to it on the last monthly policy date, plus
interest on that amount;

plus 3. all net premiums paid into it less any refunds
since the last monthly policy date, plus interest
from the date each premium is received in the
Administrative Office to the monthly policy date;

minus 4. the monthly deduction charged against it on the
last monthly policy date, plus interest on that
amount;

minus 5. any partial surrenders and surrender penalty free
withdrawals charged against it, including pro rata
surrender penalties, since the last monthly policy
date, plus interest on that amount from each
partial surrender date and/or surrender penalty
free withdrawal date to the monthly policy date.

PAGE 14

<PAGE>

The accumulation value of the policy (or any layer) on any
specified date that falls between any two monthly policy
dates is equal to:

1. the accumulation value on the last monthly
policy date, plus accrued interest from the
last monthly policy date to the specified
date;

plus 2. any premium qualification credit amount deposited
to it on the last monthly policy date, plus
accrued interest on that amount;

plus 3. all net premiums paid into it less any refunds
since the last monthly policy date, plus accrued
interest from the date each premium is received in
the Administrative Office to the specified date;

minus 4. the monthly deduction charged against it on the
last monthly policy date, plus accrued interest on
that amount;

minus 5. any partial surrenders and surrender penalty free
withdrawals charged against it, including pro rata
surrender penalties, since the last monthly policy
date, plus accrued interest on that amount from
each partial surrender date and/or surrender
penalty free withdrawal date to the specified
date.

A Table of Policy Values is included in this policy. It is
based on the information you gave us when the policy was
issued. The values shown may change as the declared interest
rates, your premium payments, and other factors change from
the illustrated data. Every year, we will send you a
statement of actual policy values.

GUARANTEED INTEREST RATES -- Except for premium received
before the Policy Date, the net premium accrues interest
from the date we receive it in the Administrative Office.
Interest is credited monthly on each monthly policy date.

Premiums received on or before the Policy Date will only
begin to earn interest as of the Policy Date. The guaranteed
minimum interest rate for all policy years is shown in the
Policy Data.

Prior to the policy anniversary nearest age 100, we may
declare an interest rate higher than the guaranteed minimum
at any time. We will never declare an interest rate that is
lower than the guaranteed minimum interest rate. We may
change this rate at any time without notice.

Beginning at policy anniversary nearest age 100, the policy
accumulation value will accrue interest at the guaranteed
minimum interest rate.

For Class A loans, the interest rate for any portion of the
accumulation value equal to the amount of any existing
policy loan will be the effective annual loan interest rate.

For Class B loans, the interest rate for any portion of the
accumulation value equal to the amount of any existing
policy loan will be the effective annual loan interest rate
less 2.5%.

MONTHLY DEDUCTION RATES -- We will determine the monthly
deduction rate for each policy month at the beginning of
that policy month. The monthly deduction rate for the base
policy will depend on: the face amount of the policy; the
Insured's sex; the Insured's smoker or nonsmoker status; the
Insured's class of risk as of the Policy Date; the number of
years that the policy has been in force; and the Insured's
issue age.

PAGE 15
<PAGE>

A table of guaranteed maximum monthly deduction rates for
the base policy is shown in the Policy Data. We may use rates
lower than these guaranteed maximum monthly deduction rates.
We will never use higher rates.

If you request an increase in the face amount of this
policy, we will determine the monthly deduction rate for
that layer at the beginning of each policy month. The
monthly deduction rate for each layer will depend on: the
face amount of the policy; the Insured's sex; the Insured's
smoker or nonsmoker status; the Insured's class of risk as
of the layer date; the number of years that the layer has
been in force; and the Insured's layer issue age.

A table of guaranteed maximum monthly deduction rates for
that layer will be shown in supplemental Policy Data pages
that will be issued on the layer date. We may use rates
lower than these guaranteed maximum monthly deduction rates.
We will never use higher rates.

Any change in the monthly deduction rates will be
prospective and will be subject to our expectations as to
future cost factors. Such cost factors may include, but are
not limited to: mortality; expenses; interest; persistency;
and any applicable federal, state and local taxes.

GUARANTEED MAXIMUM Monthly EXPENSE CHARGE PER THOUSAND -- The
guaranteed maximum monthly expense charge per thousand is
shown in the Policy Data. We may use an expense charge which
is lower than this guaranteed maximum monthly expense charge
per thousand. We will never use higher expense charges.

MONTHLY DEDUCTION -- At the beginning of each policy month,
we will take the monthly deduction for that policy month
from the accumulation value of the policy (or of each layer,
respectively). The monthly deduction is equal to:

(a) the monthly deduction rate, times .001, times the
difference between the death benefit and the
accumulation value of the policy (or of each
layer, respectively) at the beginning of the
policy month;

plus (b) the monthly deduction for any riders;

plus (c) the policy fee;

plus (d) the monthly expense charge per thousand times
.001, times the face amount of the policy (or of
each layer, respectively).

If a layer does not have enough accumulation value to pay a
monthly deduction that is due, the monthly deduction for
that layer will be taken from the accumulation value of the
base policy.

CASH VALUE You may borrow the cash value, or take part of it or all of
it as a partial or full surrender of the policy. All of
these transactions are described in this section. We
guarantee that the cash value always equals or exceeds the
amount required by the law in effect at the time of issue in
the jurisdiction in which the application for this policy
was signed. Policy loans, partial surrenders and surrender
penalty free withdrawals will be divided proportionately
among the accumulation value of the base policy and its
layer(s).

POLICY LOANS -- If you request a policy loan prior to the
tenth policy anniversary, we will handle it as a Class B
loan. After the tenth policy anniversary, we will handle one
loan request per year as a Class A loan, subject to the
limitation shown in number 3 under the Class A Policy Loans
provision. After the tenth policy anniversary, we will treat
any loan request after the first request in any policy year
as a Class B loan.

PAGE 16
<PAGE>

CLASS A POLICY LOAN -- After the tenth policy anniversary,
we will make Class A loans subject to the following
conditions:

1. Such a loan will only be allowed one time during a
policy year.

2. The maximum amount allowed as a Class A loan in any one
policy year will be the lesser of 10% of the
accumulation value as of the request date or the
maximum loan amount, as described in number 3 below.

3. The maximum loan amount is the accumulation value as of
the date of the loan request, minus:

a. any existing policy loan(s); and,

b. interest on the amount of the loan to the end of
the policy year; and,

c. the full surrender penalty or two monthly
deductions, whichever is greater.

4. You must pay interest on the total loan balance each
year in advance. The interest is due on the policy
anniversary. The annual effective loan interest rate is
5.50% (5.21% in advance). If you do not pay the
interest when it is due, we will add the amount of
interest to the loan. We will charge interest on this
amount at the same interest rate being charged on the
loan.

5. You must assign the policy to us to the extent of the
outstanding loan. If the Insured dies, we will deduct
the outstanding loan from the death benefit before we
pay the death benefit to the Beneficiary.

6. The loan will be secured by that portion of the
accumulation value equal to the amount of the loan.

CLASS B POLICY LOAN -- We will make Class B loans subject to
the following conditions:

1. The maximum amount allowed as a Class B loan is the
accumulation value as of the date of the loan request,
minus:

a. any existing policy loan(s); and,

b. interest on the amount of the loan to the end of
the policy year; and,

c. the full surrender penalty or two monthly
deductions, whichever is greater.

2. You must pay interest on the total loan balance each
year in advance. The interest is due on the policy
anniversary. The loan interest rate is 8.00% (7.40% in
advance). If you do not pay the interest when it is
due, we will add the amount of interest to the loan. We
will charge interest on this amount at the same
interest rate being charged on the loan.

3. You must assign the policy to us to the extent of the
outstanding loan. If the Insured dies, we will deduct
the outstanding loan from the death benefit before we
pay the death benefit to the Beneficiary.

4. The loan will be secured by that portion of the
accumulation value equal to the amount of the loan.

LOAN REPAYMENT -- You may repay any part of any outstanding
loan at any time while the Insured is living and before the
Maturity Date.

PAGE 17
<PAGE>

If you wish to make a loan repayment, you must tell us that
the payment you send us is for that purpose. Unless your
payment is clearly marked as a loan repayment, we will
assume it is a premium payment unless it is received after
the policy anniversary nearest age 100. When we receive a
loan repayment, we will apply it to the portion of the
accumulation value that secures the loan. If a payment would
cause the policy to fail to qualify as a life insurance
contract under Section 7702 of the Internal Revenue Code as
such Section is in effect at that time, and the regulations
thereunder, the portion of the payment that cannot be
accepted as premium will be applied against any outstanding
policy loans before a refund is made.

Loan repayments will first be applied to any outstanding
Class B loans. Then, they will be applied to any outstanding
Class A loans. Within the Class A and Class B loan
categories, the repayments will be applied first to the
loans with the most recent loan dates.

Your policy will not automatically lapse or be changed to
Paid-Up Life Insurance or Extended Term Insurance if you do
not repay a loan. However, the net cash value must be large
enough to cover the monthly deduction due and any loan
interest due not paid in cash. (See Grace Period provision
for details.)

If the policy loan interest due is not paid in cash by you,
a new loan of the same class (A or B) will be created to
cover the interest The new loan will have the same interest
rate as the loan to which it is added (Class A or B). Any
loan interest paid in cash by you will apply first to Class
B loans, and then to Class A loans.

PARTIAL SURRENDER -- At any time following the tenth day
after you have received this policy, you may surrender a
portion of this policy's net cash value by sending us a
written request, subject to the limitations described below.

During the first 10 policy or layer years, a pro rata
surrender penalty will be assessed on any surrender amount
you request that exceeds the amount eligible for Surrender
Penalty Free Withdrawal as described on the next page.
Minimum pro rata surrender penalty is $25. Surrender
Penalties are shown in the Policy Data

We deduct from the policy's accumulation value: (a) the
surrender amount you request; plus (b) the pro rata
surrender penalty on the surrender amount that exceeds the
amount eligible for surrender without penalty. If you chose
Death Benefit Option 1, we will also deduct from the
policy's face amount (a) the surrender amount you request
that exceeds the amount eligible for surrender without
penalty; plus (b) the pro rata surrender penalty on the
surrender amount that exceeds the amount eligible for
surrender without penalty. If the new face amount would be
less than our published minimum for this plan, then the
partial surrender will not be allowed.

In any policy year, the maximum amount that you may request
and receive by partial surrender is:

1) the accumulation value;

minus 2) any existing policy loans;

minus 3) the sum of 3 monthly deductions;

minus 4) the greater of $25 or the full surrender penalty.

If you ask for an amount larger than the maximum described
above, we will treat it as a request for full surrender of
the policy.

PAGE 18
<PAGE>

During any required premium payment period, the sum of all
surrender penalty free withdrawals and partial surrenders
may not exceed the sum of all gross premiums paid, less the
sum of all required premiums since the Policy Date. (See
number 2 of the Premiums provision.)

SURRENDER PENALTY FREE WITHDRAWAL -- At any time after the
first policy year, you may make a withdrawal without
incurring a pro rata surrender penalty. Such a withdrawal is
subject to the limits outlined below. The minimum amount of
a surrender penalty free withdrawal is $100.

When you request a partial surrender in the second or later
policy year, we will calculate the amount eligible for
withdrawal without penalty. This amount will be the lesser
of:

(a) 10% of the policy's accumulation value as of
the last monthly policy date, minus the sum
of all surrender penalty free withdrawals
since the last policy anniversary; or,

(b) the maximum amount available as a partial
surrender described on page 18.

During any required premium payment period, the sum of all
surrender penalty free withdrawals and partial surrenders
may not exceed the sum of all gross premiums paid less the
sum of all required premiums since the Policy Date. (See
number 2 of the Premiums provision.)

Whenever you request a partial surrender after the first
policy year, we will process the amount that is eligible as
a surrender penalty free withdrawal. The remainder of any
amount you request will be processed as a partial surrender.

We will deduct the full partial surrender amount you request
from the policy's accumulation value. We will not deduct
that portion of your request that we treat as a surrender
penalty free withdrawal from the policy's face amount.

OPTION TO CHANGE DECREASING THE FACE AMOUNT -- You may request a decrease in
THE FACE AMOUNT the face amount of this policy if all the following
conditions are met:

1. You must make a written request to us.
2. At the request date, this policy must be in force and
the Insured must be living.
3. The amount of the reduction in face amount must be at
least $25,000.
4. The new face amount may not be less than our published
minimum face amount for this plan.
5. The decrease of the face amount of this policy may
cause a change in the monthly deduction rates to be
charged.
6. A surrender penalty will result from the decrease in
the face amount if the decrease is made during the 10
year surrender penalty period of the base policy or any
layer.
7. If you request an increase in the face amount of this
policy, and then at a later time you request a decrease
in the face amount of this policy, we will apply the
decrease in the following order. We will first apply
the decrease to the newest layer. We will then
successively apply the decrease in reverse order to any
previous increases; we will begin with the next most
recent layer. If the amount of the decrease is greater
than the total of all previous increases, we will then
apply the remaining decrease to a portion of the
original face amount of this policy.

PAGE 19
<PAGE>

We will issue new Policy Data pages showing the new face
amount. After the decrease, the monthly deduction rates and
any future surrender penalties will be based on the new
total face amount of this policy.

If the face amount of this policy is decreased during any
Required Premium Period, we will recalculate the required
premium per year for the remainder of the Required Premium
Period based on the new face amount.

INCREASING THE FACE AMOUNT -- You may request an increase in
the face amount of this policy. The following conditions
will apply:

1. You must make a written request to us.
2. At the request date, this policy must be in force and
the Insured must be living.
3. At the request date, the Insured must not be older than
age 80.
4. The amount of the increase in face amount must be at
least $25,000.
5. You must submit satisfactory evidence that the Insured
is still insurable by our standards.
6. The amount of the increase will be contestable and
subject to the suicide limitation for two years after
the effective date of the increase.
7. The death benefit option for the layer must be the same
as the base policy.
8. If the base policy has a Waiver Provision attached, the
layer must also.

The new coverage will be issued as a separate layer on this
policy. It will have a Layer Required Premium Per Year,
beginning on the layer date. It will also have its own
surrender penalty period for 10 years, beginning on the
layer date. The monthly deductions and values for that layer
will be based on: the face amount of the layer; the
Insured's sex; the Insured's smoker or nonsmoker status; the
Insured's class of risk as of the layer date; and the
Insured's layer issue age.

We will issue new Policy Data pages showing the new face
amount. After the increase, the monthly deduction rates for
the increase layer will be based on the new total face
amount of this policy. Any future surrender penalties for
that layer will be based on the face amount of that layer.

NONFORFEITURE If you do not pay the minimum cumulative required premiums
OPTIONS during the required premium period as described under number
2 in the Premiums provisions, your policy will enter the
grace period. After the required premium period if you stop
paying premiums your coverage will continue until the cash
value minus any loan is insufficient to pay the monthly
deduction due. At that time, your policy will enter the
grace period (see Grace Period provision).

At the end of the grace period, if there is any remaining
net cash value, we will apply the net cash value to one of
the Nonforfeiture Options described in this section. The
Nonforfeiture Options will be effective no later than 60
days after the date on which the premium was due. You may
choose Option 1, Paid - Up Life Insurance, or Option 2,
Extended Term Insurance, or Option 3, Full Surrender, any
time within the 60 day grace period. If you do not choose an
option in writing, Option 1, Paid-Up Life Insurance, will
automatically take effect.

If you choose Option 3, Full Surrender, the surrender value
within 60 days from the date the premium was due will not be
less than the surrender value as of the date the premium was
due, less any loans, partial surrenders (including pro rata
surrender penalties) and surrender penalty free withdrawals
made after the date the premium was due.

PAGE 20

<PAGE>

OPTION 1. PAID-UP LIFE INSURANCE -- Subject to the
conditions of this option, this policy may be continued as
single premium Paid-Up Life Insurance.

The following conditions will apply:

(a) If the policy has net reached the end of the grace
period as described above and you wish to continue it
as Paid-Up Life Insurance, the policy must be in force
on the date you request the change.

(b) When you exercise this option, this policy will be
continued as Paid-Up Life Insurance.

(c) The amount of Paid-Up Life Insurance is calculated by
using the net cash value divided by the net single
premium, times $1,000, for the Insured's sex, the
Insured's smoker or nonsmoker status, and the Insured's
attained age. The net single premiums are shown in the
tables on pages 23 and 24.

If the difference between the amount of Paid-Up Life
Insurance and the net single premium (net cash value
of the original policy) for the Paid-Up Life
Insurance is greater than the difference under this
policy between the death benefit and the accumulation
value on the date this option is exercised, then the
amount of the Paid-Up Life Insurance elected under
this option will be reduced accordingly. Any excess
net cash value remaining after the purchase of
Paid-Up Life Insurance will be refunded to you.

(d) The effective date of the Paid-Up Life Insurance will
be the date the premium was due before entering the
grace period.

(e) The net single premiums used for the single premium
Paid-Up Life Insurance will be those in effect as of
the date this option was exercised. However, they will
not exceed the rates which are shown in the Tables of
Maximum Net Single Premiums for Paid-Up Life Insurance
per $1,000 on pages 23 and 24.

(f) There is a Table of Paid-Up Life Insurance per $1,000
of Net Cash Value following the Table of Maximum Net
Single Premiums for Paid-Up Life Insurance per $1,000.

(g) The Paid-Up Life Insurance will have cash values. The
cash value of the Paid-Up Life Insurance is equal to
the net single premium for the face amount of the
Paid-Up Life Insurance based on the Insured's sex, the
Insured's smoker or nonsmoker status, and the Insured's
attained age, less any loans made after the effective
date of the Paid-Up Life Insurance.

(h) When you exercise this option, all riders will
terminate.

PAGE 21

<PAGE>

OPTION 2. EXTENDED TERM INSURANCE -- Unless the class of
risk shown on the Policy Data for the base policy and all
subsequent layers is "Rated," you may continue this policy
as non-participating extended term insurance. These
conditions will apply:

(a) The policy must be in force when you request the
change.

(b) You will surrender all rights under this policy except
the right to reinstate, in exchange for the extended
term policy.

(c) We will calculate the face amount of the extended term
policy in this way: this policy's face amount
(including the face amount of all layers) less any
loans as of the date of your request equals the
extended term face amount.

(d) We will calculate the length of the coverage period of
the extended term policy by applying the net cash value
of this policy as a net single premium for the extended
term coverage.

(e) We will issue and date the extended term policy as of
the date you surrender this policy.

(f) When you exercise this option, all riders will
terminate.

OPTION 3. FULL SURRENDER -- You may surrender this policy
and all layers for the net cash value.

There is a Table of Surrender Penalties shown in the Policy
Data. We will use the factors in the table to determine the
surrender penalty we will apply. To calculate the full
surrender penalty for the base policy, find the factor for
the current policy year. Multiply this factor by the number
of thousands of face amount of the base policy. This is the
full surrender penalty for the base policy. There is no
surrender penalty for the base policy after 10 policy years.

If you request an increase in the face amount of this
policy, the new layer will have its own separate 10 year
surrender penalty period. To calculate the full surrender
penalty for that layer, find the factor for the current
layer year. Multiply this factor by the number of thousands
of face amount of that layer. This is the full surrender
penalty for that layer. There is no surrender penalty for
that layer after 10 layer years.

If you request a full surrender within 30 days of a policy
anniversary, the surrender value will not be less than the
surrender value on that anniversary, including any premium
qualification credit, less any loans, partial surrenders
(including pro rata surrender penalties), and surrender
penalty free withdrawals made after the last policy
anniversary.

PAGE 22

<PAGE>

TABLE OF MAXIMUM NET SINGLE PREMIUMS FOR
PAID-UP LIFE INSURANCE PER $1,000
- ---------------------------------------------------------------------------------------------------------------
Insured's Insured's Insured's Insured's
Attained Attained Attained Attained
Age Male Female Age Male Female Age Male Female Age Male Female
- ---------------------------------------------------------------------------------------------------------------
NONSMOKER
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 79.53 68.09 25 184.09 145.75 50 374.41 332.00 75 716.38 669.87
1 78.86 68.12 26 169.39 150.66 51 386.37 342.52 76 729.10 684.91
2 81.03 70.03 27 174.94 155.74 52 398.61 353.31 77 741.45 699.68
3 83.36 72.08 28 180.74 161.01 53 411.10 364.36 78 753.44 714.20
4 85.80 74.23 29 186.80 166.48 54 423.84 375.65 79 765.15 728.51

5 88.37 76.49 30 193.11 172.14 55 436.80 387.20 80 776.61 742.60
6 91.08 78.85 31 199.68 178.01 56 449.97 399.00 81 787.80 756.45
7 93.95 81.34 32 206.51 184.10 57 463.34 411.08 82 798.67 769.97
8 96.99 83.93 33 213.59 190.40 58 476.91 423.46 83 809.14 783.07
9 100.18 86.65 34 220.92 196.93 59 490 68 436.18 84 819.12 795.64

10 103 52 89.49 35 228.52 203.68 60 504 62 449.24 85 828.55 807.65
11 107.01 92.45 36 236.37 210.66 61 518.73 462.64 86 837.44 819.08
12 110.61 95.52 37 244.49 217.87 62 532.96 476.35 87 845.84 829.99
13 114.28 98.69 38 252.86 225.29 63 547.30 490.31 88 853.83 840.41
14 117.98 101.97 39 261.50 232.93 64 561.70 504.47 89 861.56 850.46

15 121.69 105.33 40 270.40 240.78 65 576.10 518.77 90 869.16 860.23
16 125.43 108.80 41 279.56 248.85 66 590.49 533.19 91 876.80 869.86
17 129.20 112 37 42 288.99 257.13 67 604 87 547.75 92 884.67 879.53
18 133.03 118.05 43 298.69 265.62 68 619.21 562.48 93 893.02 889.43
19 136.97 119.86 44 308.66 274.35 69 633.54 577.43 94 902.18 899.83

20 141.03 123.79 45 318.92 283.31 70 647.83 592.62 95 912.35 910.95
21 145.23 127.86 46 329.45 292.53 71 662.04 608.02 96 923.66 922.94
22 149.62 132.09 47 340.26 302.01 72 675.91 623.55 97 935.99 935.69
23 154.22 136.48 48 351.35 311.74 73 689.74 639.12 98 948.88 948.81
24 159.04 141.04 49 362.74 321.73 74 703.26 654.59 99 961.53 961.53
</TABLE>

PAGE 23

<PAGE>

<TABLE>
<CAPTION>
TABLE OF MAXIMUM NET SINGLE PREMIUMS
FOR PAID-UP LIFE INSURANCE PER $1,000
- ---------------------------------------------------------------------------------------------------------
Insured's Insured's Insured's Insured's
Attained Attained Attained Attained
Age Male Female Age Male Female Age Male Female Age Male Female
- ---------------------------------------------------------------------------------------------------------
SMOKER
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 95.14 75.97 25 201.50 165.79 50 441.26 366.62 75 752.28 689.34
1 95.17 76.34 26 207.86 171.35 51 453.69 377.22 76 762.47 703.06
2 98.01 78.59 27 214.55 177.10 52 466.26 388.02 77 772.22 716.46
3 101.04 80.99 28 221.52 183.06 53 478.96 399.02 78 781.59 729.58
4 104.20 83.51 29 228.81 189.23 54 491.75 410.19 79 790.69 742.49

5 107.52 86.15 30 236.39 195.61 55 504.58 421.54 80 799.57 755.19
6 111.02 88.90 31 244.26 202.20 56 517.46 433.07 81 808.23 767.69
7 114.70 91.79 32 252.41 209.01 57 530.37 444.81 82 816.65 779.91
8 118.59 94.81 33 260.85 216.05 58 543.32 456.81 83 824.75 791.77
9 122.66 97.98 34 269.57 223.34 59 556.32 469.11 84 832.43 803.20

10 126.92 101.27 35 278.56 230.84 60 569.38 481.73 85 839.68 814.00
11 131.37 104.72 36 287.83 238.60 61 582.47 494.68 86 846.54 824.36
12 135.96 108.29 37 297.37 246.57 62 595.55 507.89 87 853.11 834.15
13 140.66 111.98 38 307.16 254.73 63 608.58 521.32 88 859.56 843.65
14 145.44 115.80 39 317.19 283.09 64 621.48 534.83 89 865.86 852.77

15 150.29 119.73 40 327.46 271.62 65 634.21 548.40 90 872.18 861.87
16 154.90 123.69 41 337.95 280.33 66 646.76 561.98 91 878.73 870.92
17 159.53 127.78 42 348.64 289.17 67 659.15 575.64 92 885.77 880.10
18 164.19 131.99 43 359.54 298.18 68 671.38 589.40 93 893.61 889.64
19 168.97 138.32 44 370.64 307.37 69 683.50 603.37 94 902.39 899.83

20 173.86 140.81 45 381.94 316.74 70 695.52 617.56 95 912.35 910.95
21 178.92 145.45 46 393.41 326.30 71 707.40 631.97 96 923.66 922.94
22 184.17 150.28 47 405.08 336.07 72 719.10 646.49 97 935.99 935.69
23 189.68 155.25 48 416.95 346.04 73 730.53 660.97 98 948.88 948.81
24 195.45 160.43 49 429.01 356.23 74 741.60 675.29 99 961.53 961.53
</TABLE>

PAGE 24

<PAGE>

<TABLE>
<CAPTION>
TABLE OF PAID-UP LIFE INSURANCE
PER $1,000 OF NET CASH VALUE
- --------------------------------------------------------------------------------------------------------------------------
Insured's Insured's Insured's Insured's
Attained Attained Attained Attained
Age Male Female Age Male Female Age Male Female Age Male Female
- --------------------------------------------------------------------------------------------------------------------------
NONSMOKER
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 12,573.87 14,686.44 25 6,094.22 6,861.06 50 2,670.87 3,012.05 75 1,395.91 1,492.83
1 12,680.70 14,679.98 26 5,903.54 6,637.46 51 2,588.19 2,919.54 76 1,371.55 1,460.05
2 12,341.11 14,279.59 27 5,716.25 6,420.96 52 2,508.72 2,830.38 77 1,348.71 1,429.22
3 11,996.16 13,873.47 28 5,532.81 6,210.79 53 2,432.50 2,744.54 78 1,327.25 1,400.17
4 11,655.01 13,471.64 29 5,353.32 6,006.73 54 2,359.38 2,662.05 79 1,306.93 1,372.66

5 11,316.06 13,073.60 30 5,178.40 5,809.23 55 2,289.38 2,582.64 80 1,287.65 1,346.62
6 10,979.36 12,682.31 31 5,008.01 5,617.66 56 2,222.37 2,506.27 81 1,269.36 1,321.96
7 10,643.96 12,294.07 32 4,842.38 5,431.83 57 2,158.24 2,432.62 82 1,252.08 1,298.75
8 10,310.34 11,914.69 33 4,681.87 5,252.10 58 2,096.83 2,361.50 83 1,235.88 1,277.03
9 9,982.03 11,540.68 34 4,526.53 5,077.95 59 2,037.99 2,292.63 84 1,220.82 1,256.85

10 9,659.97 11,174.43 35 4,375.98 4,909.66 60 1,981.69 2,225.98 85 1,206.93 1,238.16
11 9,344.92 10,816.66 36 4,230.66 4,746.99 61 1,927.79 2,161.51 86 1,194.12 1,220.88
12 9,040.77 10,469.01 37 4,090.15 4,589.89 62 1,876.31 2,0S9.30 87 1,182.26 1,204.83
13 8,750.44 10,132.74 38 3,954.76 4,438.72 63 1,827.15 2,039.53 88 1,171.19 1,189.90
14 8,476.01 9,806.81 39 3,824.09 4,293.14 64 1,780.31 1,982.28 89 1,160.69 1,175.83

15 8,217.60 9,493.97 40 3,698.22 4,153.17 65 1,735.81 1,927.84 90 1,150.54 1,162.48
16 7,972.57 9,191.18 41 3,577.05 4,018.49 66 1,693.51 1,875.66 91 1,140.51 1,149.61
17 7,739.94 8,899.17 42 3,460.33 3,889.08 67 1,653.25 1,825.65 92 1,130.36 1,136.97
18 7,517.10 8,616.98 43 3,347.95 3,764.78 68 1,614.96 1,777.84 93 1,119.80 1,124.32
19 7,300.87 8,343.07 44 3,239.81 3,644.98 89 1,578.43 1,731.81 94 1,108.43 1,111.32

20 7,090.69 8,078.20 45 3,135.58 3,529.70 70 1,543.61 1,687.42 95 1,096.07 1,097.76
21 6,885.63 7,821.05 46 3,035.36 3,418.45 71 1,510.48 1,644.68 96 1,082.65 1,083.49
22 6,683.60 7,570.60 47 2,938.93 3,311.15 72 1,479.49 1,603.72 97 1,068.39 1,068.73
23 6,484.24 7,327.08 48 2,846.16 3,207.80 73 1,449.82 1,564.65 98 1,053.87 1,053.95
24 6,287.73 7,090.19 49 2,756.80 3,108.20 74 1,421.95 1,527.67 99 1,040.01 1,040.01
</TABLE>

PAGE 25

<PAGE>

<TABLE>
<CAPTION>
TABLE OF PAID-UP LIFE INSURANCE
PER $1,000 OF NET CASH VALUE
- --------------------------------------------------------------------------------------------------------------------------
Insured's Insured's Insured's Insured's
Attained Attained Attained Attained
Age Male Female Age Male Female Age Male Female Age Male Female
- --------------------------------------------------------------------------------------------------------------------------
SMOKER
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 10,510.83 13,163.09 25 4,962.78 6,031.73 50 2,266.24 2,727.62 75 1,329.29 1,450.66
1 10,507.51 13,099.29 26 4,810.93 5,836.01 51 2,204.15 2,650.97 76 1,311.53 1,422.35
2 10,203.04 12,724.27 27 4,660.92 5,646.53 52 2,144.73 2,577.19 77 1,294.97 1,395.75
3 9,897.07 12,347.20 28 4,514.27 5,462.69 53 2,087.86 2,506.14 78 1,279.44 1,370.65
4 9,596.93 11,974.61 29 4,370.44 5,284.57 54 2,033.55 2,437.89 79 1,264.72 1,346.87

5 9,300.60 11,607.66 30 4,230.30 5,112.21 55 1,981.85 2,372.25 80 1,250.67 1,324.17
6 9,007.39 11,248.59 31 4,094.00 4,945.60 56 1,932.52 2,309.10 81 1,237.27 1,302.61
7 8,718.40 10,894.43 32 3,961.81 4,784.46 57 1,885.48 2,248.15 82 1,224.51 1,282.20
8 8,432.41 10,547.41 33 3,833.62 4,628.56 58 1,840.54 2.189.09 83 1,212.49 1,262.99
9 8,152.62 10,206.16 34 3,709.61 4,477.48 59 1,797.53 2,131.70 84 1,201.30 1,245.02

10 7,878.98 9,874.59 35 3,589.89 4,332.00 60 1,756.30 2.075.85 85 1,190.93 1,228.50
11 7,612.09 9,549.27 36 3,474.27 4,191.11 61 1,716.83 2.021.51 86 1,181.28 1,213.06
12 7,355.10 9,234.46 37 3,362.81 4,055.64 62 1,679.12 1,968.93 87 1,172.18 1,198.83
13 7,109.34 8,930.17 38 3,255.63 3,925.73 63 1,643.17 1,918.21 88 1,163.39 1,185.33
14 6,875.69 8,635.58 39 3,152.68 3,800.98 64 1,609.06 1.869.75 89 1,154.92 1,172.65

15 6,653.80 8,352.13 40 3,053.81 3,681.61 65 1,578.76 1,823.49 90 1,146.55 1,160.2X
16 6,455.78 8,084.73 41 2,959.02 3,567.22 66 1,546.17 1,779.42 91 1,138.01 1,148.21
17 6,268.41 7,825.95 42 2,868.29 3,458.17 67 1,517.11 1,737.20 92 1,128.96 1,136.23
18 6,090.50 7,576.33 43 2,781.33 3,353.68 68 1,489.47 1,696.64 93 1,119.06 1,124.05
19 5,918.21 7,335.68 44 2,698.04 3,253.41 69 1,463.06 1.657.36 94 1,108.17 1,111.32

20 5,751.75 7,101.77 45 2,618.21 3,157.16 70 1,437.77 1,619.28 95 1,096.07 1,097.76
21 5,589.09 6.87S.21 46 2,541.88 3,064.66 71 1,413.63 1,582.35 96 1,082.65 1,083.49
22 5,429.77 6,655.13 47 2,468.65 2,975.57 72 1,390.63 1,546.81 97 1,068.39 1,068.73
23 5,272.04 6,441.22 48 2,398.37 2,889.84 73 1,368.87 1,512.93 98 1,053.87 1,053.95
24 5,116.40 6.233.25 49 2,330.95 2,807.18 74 1,348.44 1,480.85 99 1,040.01 1,040.01
</TABLE>

PAGE 26

<PAGE>

PAYMENT OF CASH We may delay paying you the partial or full surrender values
VALUE AND LOANS of this policy for up to 6 months after we receive your
written request for the surrender. We may delay making a
loan to you for up to 6 months after we receive your written
request for the loan. We will not delay any loan made to pay
premiums due us on any policy.

POLICY STATEMENTS We will send you a statement at least once a year without
AND ILLUSTRATIONS charge showing: the face amount; accumulation value; cash
value; loans; partial surrenders; surrender penalty free
withdrawals; premium qualification credits; premiums paid;
and charges as of the statement date. Upon written request
at any time, we will send you an illustration of your
policy's benefits and values. There will be no charge for
the first such illustration in each policy year. We reserve
the right to charge a $25.00 administrative fee for any
illustration after the first in any policy year.

BASIS OF The guaranteed cash values of the policy are not less than
COMPUTATION the minimum values required by the jurisdiction in which the
application for this policy was signed. The guaranteed cash
values are equal to the accumulation value based on the
guaranteed monthly deductions and the guaranteed minimum
interest rate shown in the Policy Data, less any surrender
penalty.

Cash values will always meet or exceed minimum values on the
statutory nonforfeiture basis. The basis for the extended
term values is the Commissioners 1980 Extended Term
Mortality Tables for males and females, age nearest
birthday. The basis for all other values is the
Commissioners 1980 Standard Ordinary Smoker or Nonsmoker
Ultimate Mortality Tables for males or females, age nearest
birthday. Deaths are assumed to occur at the end of the
policy year.

As required, we have filed the method we used to compute
minimum cash values and nonforfeiture benefits with the
supervisory official of the jurisdiction in which the
application for this policy was signed.

GENERAL PROVISIONS INCONTESTABILITY OF THE POLICY -- This policy will be
incontestable after it has been in force during the
Insured's lifetime for two years from the date of issue.
This provision does not apply to any rider providing
benefits specifically for disability or death by accident.

If you request an increase in the face amount of this
policy, this incontestability provision will start anew with
respect to the increase, beginning on the layer date. The
new incontestability period will be applicable only to the
face amount of that layer.

AMOUNT WE PAY IS LIMITED IN THE EVENT OF SUICIDE -- If the
Insured dies by suicide, while sane or insane, within two
years from the date of issue, we will be liable only for the
amount of premiums paid, less any partial surrenders,
surrender penalty free withdrawals, loans and loan interest
due.

PAGE 27

<PAGE>

If you request an increase in the face amount of this
policy, this suicide provision will start anew with respect
to the increase, beginning on the layer date. The new
suicide period will be applicable only to the face amount of
that layer.

MISSTATEMENT OF AGE OR SEX IN THE APPLICATION -- If there is
a misstatement of the Insured's age or sex in the
application, we will adjust the excess of the death benefit
over the accumulation value to that which would be purchased
by the most recent monthly deduction at the correct age or
sex. There will be no adjustment beyond age 100.

THE POLICY IS OUR CONTRACT WITH YOU -- We have issued this
policy in consideration of the application and your initial
premium payment. A copy of the application is attached and is
part of this policy. The policy, including the application
and any endorsements and riders, forms our contract with
you. All statements made by or for the Insured will be
considered representations and not warranties. We will not
use any statement made by or for the Insured to deny a claim
unless the statement is in the application and the
application is attached to this policy when we issue or
deliver it.

WHO CAN MAKE CHANGES IN THE POLICY -- Only our President or
a Vice President together with our Secretary have the
authority to make any change in this policy. Any change must
be in writing.

TERMINATION OF INSURANCE -- This policy will terminate at
the earliest of:

1. the date we receive your written request to surrender
or terminate;

2. the Maturity Date; or

3. the date of lapse.

NO DIVIDENDS ARE PAYABLE -- This is nonparticipating
insurance. It does not participate in our profits or
surplus. We do not distribute past surplus or recover past
losses by changing the monthly deduction rates.

SETTLEMENT When the Insured dies while the policy is in force, we will
PROVISIONS pay the death benefit in a lump sum unless you or the
Beneficiary choose a settlement option. You may choose a
settlement option while the Insured is living. The
Beneficiary may choose a settlement option after the Insured
has died. The Beneficiary's right to choose will be subject
to any settlement agreement in effect at the Insured's
death.

You may also choose one of these options as a method of
receiving the surrender or maturity proceeds, if any are
available under this policy.

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

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

PAGE 28

<PAGE>

OPTION B: INSTALMENTS FOR LIFE WITH A GUARANTEED PERIOD -- We
will pay equal monthly instalments 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
instalments monthly. See Table 8 on the last 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,
surrender or maturity. 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: INSTALMENTS OF A SELECTED AMOUNT -- We will pay
instalments 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
instalment 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 instalment under any option on the
date of death, maturity or surrender, whichever applies. 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 29

<PAGE>

TABLE A
INSTALMENTS FOR EACH $1,000 PAYABLE UNDER OPTION A
- ----------------------------------------------------------------------------------------------------------------------------
Multiply the Monthly Instalment by 11.83895 for Annual, by 5.96322 for Semi-Annual, or by 2.99263 for Quarterly Instalments
- ----------------------------------------------------------------------------------------------------------------------------
Guaranteed Monthly Guaranteed Monthly Guaranteed Monthly
Period (Yrs.) Instalment Period (Yrs.) Instalment Period (Yrs.) Instalment
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $84.47 11 $8.88 21 $5.32
2 42.86 12 8.24 22 5.15
3 28.99 13 7.71 23 4.99
4 22.06 14 7.26 24 4.84
5 17.91 15 6.87 25 4.71

6 15.14 16 6.53 26 4.59
7 13.16 17 6.23 27 4.48
8 11.68 18 5.96 28 4.37
9 10.53 19 5.73 29 4.27
10 9.61 20 5.51 30 4.18
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

TABLE B
MONTHLY INSTALMENT FOR EACH $1,000 PAYABLE UNDER OPTION B
- ----------------------------------------------------------------------------------------------------------------------------
MALE PAYEE
- ----------------------------------------------------------------------------------------------------------------------------
Guaranteed Period Guaranteed Period Guaranteed Period Guaranteed Period Guaranteed Period
Age 10 Yrs. 20 Yrs. Age 10 Yrs. 20 Yrs. Age 10 Yrs. 20 Yrs. Age 10 Yrs. 20 Yrs. Age 10 Yrs. 20 Yrs.
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11 $2.90 $2.89 26 $3.20 $3.19 41 $3.77 $3.71 56 $4.92 $4.59 71 $7.27 $5.42
12 2.91 2.91 27 3.22 3.21 42 3.82 3.76 57 5.03 4.66 72 7.48 5.45
13 2.93 2.92 28 3.25 3.24 43 3.88 3.81 58 5.15 4.73 73 7.68 5.46
14 2.94 2.S4 29 3.28 3.27 44 3.94 3.86 59 5.27 4.80 74 7.88 5.48
15 2.96 2.96 30 3.31 3.30 45 4.00 3.91 60 5.40 4.87 75 8.08 5.49

16 2.98 2.97 31 3.34 3.33 46 4.07 3.97 61 5.53 4.94 76 8.27 5.50
17 3.00 2.99 32 3.38 3.36 47 4.14 4.02 62 5.68 5.00 77 8.46 5.50
18 3.01 3.01 33 3.41 3.39 48 4.21 4.08 63 5.83 5.07 78 8.63 5.51
19 3.03 3.03 34 3.45 3.43 49 4.28 4.14 64 5.98 5.13 79 8.79 5.51
20 3.05 3.05 35 3.49 3.46 50 4.36 4.20 65 6.15 5.18 80 8.94 5.51

21 3.08 3.07 36 3.53 3.50 51 4.44 4.26 66 6.32 5.24 81 9.07 5.51
22 3.10 3.09 37 3.57 3.54 52 4.53 4.32 67 6.50 5.28 82 9.18 5.51
23 3.12 3.11 38 3.62 3.58 53 4.62 4.39 68 6.68 5.33 83 9.28 5.51
24 3.14 3.14 39 3.67 3.62 54 4.71 4.46 69 6.88 5.36 84 9.36 5.51
25 3.17 3.16 40 3.72 3.67 55 4.81 4.52 70 7.07 5.40 85 9.42 5.51
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FEMALE PAYEE
- ----------------------------------------------------------------------------------------------------------------------------
Guaranteed Period Guaranteed Period Guaranteed Period Guaranteed Period Guaranteed Period
Age 10 Yrs. 20 Yrs. Age 10 Yrs. 20 Yrs. Age 10 Yrs. 20 Yrs. Age 10 Yrs. 20 Yrs. Age 10 Yrs. 20 Yrs.
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11 $2.83 $2.83 26 $3.08 $3.07 41 $3.54 $3.52 56 $4.51 $4,35 71 $6.73 x.xx
12 2.84 2.84 27 3.10 3.10 42 3.59 3.56 57 4.61 4.42 72 6.94 x.xx
13 2.86 2.85 28 3.12 3.12 43 3.63 3.60 58 4.71 4.50 73 7.16 x.xx
14 2.87 2.87 29 3.15 3.14 44 3.68 3.65 59 4.82 4.57 74 7.38 x.xx
15 2.88 2.88 30 3.17 3.17 45 3.73 3.69 60 4.94 4.65 75 7.60 5.47

16 2.90 2.90 31 3.20 3.19 46 3.78 3.74 61 5.06 4.72 76 7.82 5.48
17 2.91 2.91 32 3.23 3.22 47 3.84 3.79 62 5.19 4.80 77 8.04 5.49
18 2.93 2.93 33 3.26 3.25 48 3.90 3.85 63 5.33 4.88 78 8.25 5.50
19 2.95 2.94 34 3.29 3.28 49 3.96 3.90 64 5.47 4.95 79 8.45 5.51
20 2.96 2.96 35 3.32 3.31 50 4.03 3.96 65 5.63 5.02 80 8.64 5.51

21 2.98 2.98 36 3.35 3.34 51 4.10 4.02 66 5.79 5.09 81 8.82 5.51
22 3.00 2.99 37 3.39 3.37 52 4.17 4.08 67 5.96 5.15 82 8.97 5.51
23 3.02 3.01 38 3.42 3.41 52 4.25 4.14 68 6.14 5.21 83 9.11 5.51
24 3.04 3.03 39 3.46 3.44 54 4.33 4.21 69 6.33 5.27 84 9.23 5.51
25 3.06 3.05 40 3.50 3.48 55 4.42 4.28 70 6.53 5.32 85 9.32 5.51
- ----------------------------------------------------------------------------------------------------------------------------
Ages younger than 11 are the same as shown for age 11, and ages older than 85 are the same as shown for age 85.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

PAGE 30

<PAGE>

TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY

EXTRA SURRENDER PENALTY FREE WITHDRAWAL ENDORSEMENT

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

Wherever the term "Surrender Penalty Free Withdrawal" appears in the policy
to which this endorsement is attached, it is also meant to include the term
"Extra Surrender Penalty Free Withdrawal". There is only one exception; that
is in the section of the policy titled "Surrender Penalty Free Withdrawal",
"(a)". That calculation of the eligible amount for surrender without penalty
will NOT include "Extra Surrender Penalty Free Withdrawals".

DEFINITIONS

In this endorsement

Extra Withdrawal means Extra Surrender Penalty Free Withdrawal.

We means Transamerica Occidental Life Insurance Company.

Withdrawal means Surrender Penalty Free Withdrawal.

You means the Owner.

This Extra Withdrawal may be taken in addition to the Withdrawal in the
policy to which this endorsement is attached. If requested at the same time,
the Extra Withdrawal will be processed first. Then, the Withdrawal will be
processed based on the remaining accumulation value.

At any time after the first policy year, you may make an Extra Withdrawal
without a partial surrender penalty; the limits are outlined below.

Your Extra Withdrawals may only be taken if we receive written proof that the
insured requires medical care for one of these conditions: heart attack;
stroke; cancer (malignant tumor); renal failure; or major organ transplant.
This proof will consist of a doctor's certification acceptable to us. We may
request additional medical information from the doctor submitting the
certification or any doctor we deem qualified. While a request is pending, we
reserve the right to obtain a second medical opinion; we also reserve the
right to have the Insured examined at our expense.

The minimum amount of an Extra Withdrawal is $100.

When you request an Extra Withdrawal, we will calculate the maximum amount
eligible for surrender without a Company imposed penalty, as follows:

1) 10% of the policy's current accumulation value as of the request date;

less 2) the sum of all Extra Withdrawals since the last policy anniversary.

The total amount available from all Withdrawals, Extra Withdrawals and partial
surrenders shall not exceed:

1) the current accumulation value as of the request date;

less 2) any existing policy loans;

less 3) the sum of three monthly deductions;

less 4) the greater of $25 or the full surrender penalty.

PAGE 1

<PAGE>

During any required premium period, the total amount available from all
Withdrawals, Extra Withdrawals and partial surrenders also may not exceed:

1) the sum of all gross premiums paid;

less 2) the sum of all required premiums since the policy date.

(See # 2 of the Premiums provision in the policy.)

We will process an Extra Withdrawal for the eligible amount The remainder, if
any, of the amount you request will be processed first as a Withdrawal;
any excess over that amount will be processed as a partial surrender.

We will deduct the amount withdrawn from the policy's accumulation value.

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

/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
Executive Vice President, General Counsel President and CEO
And Corporate Secretary

PAGE 2

<PAGE>

TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
ENDORSEMENT TO MODIFY GRACE PERIOD

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

While this policy is in force and subject to the terms of this endorsement,
certain death benefits of this policy including any layers, Supplemental
Adjustable Life Insurance Riders, Full Death Benefit Rider, and the benefits of
any Waiver Provision will continue.

DEFINITIONS

In this endorsement:

GRACE PERIOD is the 60-day period starting on a monthly policy date or policy
anniversary, as described in the policy.

NET DEPOSITS mean the total premiums paid, less the sum of any premium refunds,
partial surrenders, and surrender penalty free withdrawals since the policy
date. In calculating the Net Deposits, premium paid in a policy year prior to
the policy year in which it is due will reflect a time value of money at 4
percent per annum.

SELECT MONTHLY PREMIUM is the amount payable each month during the Select
Period to maintain this endorsement. This amount is shown in the Policy Data.
This amount may be paid cumulatively in advance.

SELECT PERIOD is the period this endorsement is in effect. This period is shown
in the Policy Data.

WE means Transamerica Occidental Life Insurance Company.

YOU means the Owner.

HOW IT WORKS

If the Accumulation Value is insufficient to allow the policy to remain in
force, it will not enter a grace period and certain death benefits will continue
to be available during the Select Period provided that at all times during the
Select Period:

(i) there is no outstanding loan; and

(ii) Net Deposits equal or exceed cumulative Select Monthly Premiums due
since the Policy Date; and

(iii) the Death Benefit Option in effect is Option 1 and has always been
Option 1.

During the period of such continuation, the death benefit will consist of the
death benefits under the Base Policy, including any layers, Supplemental
Adjustable Life Insurance Riders and Full Death Benefit Rider. The benefits of
any Waiver Provision will be continued until the end of the Select Period
subject to the same conditions. Any riders other than those specified above will
be terminated when the death benefit continuation period begins. Any conversion
privileges contained within such other riders must be exercised at that time or
forfeited.

If any of the three conditions listed above are not met, the policy and all
riders shall enter the 60-day Grace Period as specified in the policy and the
policy may lapse. During the Select Period while the Base Policy is in force,
this endorsement can be placed back in force after it terminates, by payment of
premiums to meet the Net Deposits requirement in (ii) above, provided that all
other requirements above are met as well.

We will continue to deduct the monthly deductions from the Accumulation Value as
they come due; interest will accrue on the Accumulation Value while the policy
remains in force under the terms of this endorsement.

WAIVER PROVISION

If the policy contains a Waiver Provision benefit and a disability claim is
approved while this endorsement is effective, the Select Monthly Premium will be
waived. The Select Monthly Premium will be waived for the same length of time
that the policy is on waiver. The Select Period will not be extended.

PAGE 1

<PAGE>

POLICY CHANGES

If a requested increase or decrease in the face amount of the policy is
processed during the Select Period, the Select Monthly Premium will be adjusted
from that point forward. The Select Period will not be adjusted.

AUTOMATIC TERMINATION

This endorsement will automatically terminate upon the first of the following to
occur:

1. the cumulative Net Deposits to date are less than cumulative Select Monthly
Premiums due since the Policy Date; or,
2. the Select Period has ended; or,
3. the Death Benefit Option on the policy has been changed from Option 1 to
another option; or,
4. the policy terminates for any reason.

Signed for Transamerica Occidental Life Insurance Company at Los Angeles,
California, and effective on the date of issue of the policy to which this
endorsement is attached.

/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
Executive Vice President, General Counsel President and CEO
And Corporate Secretary

PAGE 2

<PAGE>

AUTOMATIC PREMIUM LOAN ENDORSEMENT
(FOR POLICIES CONTAINING A REQUIRED ANNUAL PREMIUM)

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

When the Automatic Premium Loan provision is made effective by the owner in the
application at the time of issue, any portion of the required annual premium
which remains unpaid at the end of a grace period will be paid by automatic
premium loan. These rules will apply:

(1) We will process an automatic premium loan if there is enough net cash
value to pay both the required annual premium due and interest due on
the automatic premium loan. If there is not enough net cash value to
pay both the required annual premium due AND the interest on the
automatic premium loan, we will not make an automatic premium loan.
The policy will then lapse subject to the nonforfeiture provision.

(2) The Automatic Premium Loan will also be subject to all sections of
this policy that pertain to policy loans.

(3) If the Automatic Premium Loan provision is made ineffective by the
owner in the application at the time of issue, this provision may be
requested by the owner. The request must be in the form of a written
notice filed at our Home Office. This provision may also be cancelled
by written notice by the owner filed in our Home Office.

The Automatic Premium Loan Provision will terminate at the end of the required
annual premium period.

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

/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
Executive Vice President, General Counsel President and CEO
And Corporate Secretary

<PAGE>

ACCELERATED DEATH BENEFIT OPTION ENDORSEMENT

Transamerica Occidental Life Insurance Company has issued this endorsement as a
part of policy number 60041022 ("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 death benefit provided by the policy,
any policy layer, any Supplemental Adjustable Life Insurance Rider 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.

POLICY CHARGES means any monthly deductions, any surrender charges or
surrender penalties, or any other charges specified in 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 diagnosis 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 this 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, or
c) until there is only one surviving Joint Insured if the policy is a
Joint and Last Survivor Policy.

5. This option is not available if the maximum Accelerated Death Benefit has
been paid.

6. The face amount of the policy on which this option is exercised must be at
least $50,000 at the time of the first written request.

PAGE 1

<PAGE>

AMOUNT OF THE ACCELERATED DEATH BENEFIT

1. The Owner can request an Accelerated Death Benefit payment in any amount
subject to the following minimum and maximum. The minimum Accelerated Death
Benefit allowed will be $10,000. The maximum Accelerated Death Benefit
allowed for all policies combined covering the Insured issued by the
Company will be the lesser of $250,000 or 75% of the combined Policy Basic
Death Benefit for those policies as of the first Accelerated Death Benefit
payment. If the first Accelerated Death Benefit payment is less than the
maximum, then no more than the remaining balance of the maximum can be paid
out later as an Accelerated Death Benefit.

2. If there is an outstanding loan on the policy, the Accelerated Death
Benefit payment may be reduced to repay a prorata portion of the policy
loan.

3. At the time we pay the Accelerated Death Benefit, if the policy is in the
grace period, we will deduct any unpaid premium in accordance with the
grace period provision in the policy.

4. The $250.00 Administrative Fee will be deducted from each Accelerated Death
Benefit payment.

PREMIUM

Premium billing and premium payment requirements will continue, subject to the
adjustments described below.

EFFECT OF THE ACCELERATED DEATH BENEFIT PAYMENT ON THE POLICY

After an Accelerated Death Benefit is paid, the policy and any riders and
benefits will remain in force subject to the following adjustments:

1. The Policy Basic Death Benefit after payment of an Accelerated Death
Benefit will equal the amount of the Policy Basic Death Benefit before the
payment of the Accelerated Death Benefit minus the result of multiplying
(a) by (b), where:

(a) is the Accelerated Death Benefit; and

(b) is 1 (one) plus an interest rate that is the greater of,

(i) the federal interest rate under Internal Revenue Code (IRC)
section 846(c)(2), or
(ii) the policy loan effective interest rate.

2. The Policy Basic Death Benefit, and, if applicable, the policy's face
amount, accumulation value, cash value, policy loan, and required premium
will be adjusted as of the Effective Date. The adjustments to the Policy
Basic Death Benefit will be made in the following order: (1) level term
rider(s) on the Insured, if any, beginning with the most recent rider; (2)
policy layer(s), if any, beginning with the most recent layer; and, (3)
remaining portions of the Policy Basic Death Benefit New Policy Charges
and premiums will be based on the rates in effect for the policy's
resulting face amount.

3. We will provide new policy data pages showing the reduced coverage amount
resulting from the Accelerated Death Benefit payment.

EXERCISING THE OPTION

We must receive a written request to exercise this option at the Home Office
or our designated Administrative Office within 30 days after the
certification of diagnosis of the Terminal Illness, or as soon as reasonably
possible. The request should include the name of the Insured, the policy
number and, must be signed and dated by the Owner. If the policy has an
irrevocable beneficiary, that person(s) must also sign the request. If the
policy is assigned, we must receive a completed and signed release of
assignment. If the policy was issued in a community property state, we may
require your spouse to sign the request

PROOF OF TERMINAL ILLNESS

We must receive written proof of the Insured's Terminal Illness before we make
an Accelerated Death Benefit payment. This proof will consist of a Physician's
certification acceptable to us. We may request additional medical information
from the Physician submitting the certification or any Physician we consider
qualified.

PHYSICAL EXAMINATION

While a claim is pending, we reserve the right to obtain a second medical
opinion and to have the Insured examined at our expense.

TIME OF PAYMENT OF CLAIMS

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

PAGE 2

<PAGE>

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.

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

/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
Executive Vice President, General Counsel President and CEO
And Corporate Secretary

PAGE 3

<PAGE>

TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY

DEATH BENEFIT FACTORS ENDORSEMENT

Transamerica Occidental Life Insurance Company has issued this endorsement as
part of the policy to which it is attached. You do not pay any premium for this
endorsement.

The Death Benefit Factors Tables, as they appear in the policy to which this
endorsement is attached, are amended as follows:

DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
Insured's Policy Years Insured's Policy Years
Attained 1 - 10 Attained 11+
Age MALE FEMALE Age MALE FEMALE
<S> <C> <C> <C> <C> <C>
16 8.49 9.71 26 5.91 6.64
17 8.22 9.41 27 5.72 6.43
18 7.98 9.10 28 5.54 6.22
19 7.75 8.81 29 5.36 6.01
20 7.52 8.53 30 5.18 5.81
21 7.30 8.25 31 5.01 5.62
22 7.08 7.99 32 4.85 5.44
23 6.85 7.72 33 4.69 5.26
24 6.63 7.47 34 4.53 5.08
25 6.41 7.22 35 4.38 4.91
26 6.20 6.98 36 4.24 4.75
27 6.00 6.75 37 4.10 4.59
28 5.80 6.52 38 3.96 4.44
29 5.61 6.31 39 3.83 4.30
30 5.43 6.10 40 3.70 4.16
31 5.25 5.90 41 3.58 4.02
32 5.08 5.70 42 3.47 3.89
33 4.91 5.52 43 3.35 3.77
34 4.75 5.34 44 3.24 3.65
35 4.59 5.17 45 3.14 3.53
36 4.44 5.00 46 3.04 3.42
37 4.30 4.84 47 2.94 3.32
38 4.16 4.68 48 2.85 3.21
39 4.03 4.54 49 2.76 3.11
40 3.90 4.39 50 2.68 3.02
41 3.78 4.25 51 2.59 2.92
42 3.66 4.12 52 2.51 2.84
43 3.55 3.99 53 2.44 2.75
44 3.44 3.87 54 2.36 2.67
</TABLE>

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 and CEO
And Corporate Secretary

<PAGE>

Transamerica Occidental
Life Insurance Company
1150 South Olive Street
Los Angeles, CA 90015

Policy Form TRUL+-CVC
Individual Life Insurance

Life Insurance
Minimum Premium Requirement
Shown in the Policy Data
Flexible Premiums Payable Thereafter
During Life of Insured Prior to Age 100
Subject to the Limitations Described
in the Premiums Provision

Death Benefit Payable at Death of
Insured Before Age 115
Net Cash Value Payable at
Policy Anniversary Nearest Age 115

Nonparticipating - No Annual Dividends

<PAGE>
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statements No.
33-37556, No. 33-93896 and No. 333-31813 of The Wet Seal, Inc. on Form S-8 of
our report dated March 12, 1999, appearing in the Annual Report on Form 10-K of
The Wet Seal, Inc. for the year ended January 30, 1999.

Deloitte & Touche LLP
Costa Mesa, California
April 26, 1999

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

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 31,590,000
<SECURITIES> 59,916,000
<RECEIVABLES> 3,665,000
<ALLOWANCES> 0
<INVENTORY> 28,002,000
<CURRENT-ASSETS> 86,991,000
<PP&E> 117,483,000
<DEPRECIATION> 57,110,000
<TOTAL-ASSETS> 197,490,000
<CURRENT-LIABILITIES> 65,135,000
<BONDS> 0
0
0
<COMMON> 1,362,000
<OTHER-SE> 118,916,000
<TOTAL-LIABILITY-AND-EQUITY> 197,490,000
<SALES> 485,389,000
<TOTAL-REVENUES> 485,389,000
<CGS> 336,527,000
<TOTAL-COSTS> 110,554,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,894,000)
<INCOME-PRETAX> 42,202,000
<INCOME-TAX> 16,248,000
<INCOME-CONTINUING> 25,954,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,954,000
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.91

</TABLE>