SEC Info - Wet Seal Inc - ‘424B1’ on 5/21/96

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Wet Seal Inc – ‘424B1’ on 5/21/96

As of: Tuesday, 5/21/96 · Accession #: 912057-96-10474 · File #: 333-04246

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/21/96  Wet Seal Inc                      424B1                  1:160K                                   Merrill Corp/FA

Prospectus — Rule 424(b)(1)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Prospectus                                            46    272K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Available Information Business Capitalization Common Stock Description of Capital Stock Employment Agreements Experts Fiscal 1995 Incorporation of Certain Documents By Reference Legal Matters Management Management's Discussion and Analysis of Financial Condition and Results of Operations Net income (loss) per common share Other Provisions Preferred Stock Price Range of Class A Common Stock and Dividend Policy Principal and Selling Stockholders Prospectus Summary Risk Factors Selected Financial Data Underwriting Use of Proceeds
1	1st Page - Filing Submission
3	Prospectus Summary
6	Risk Factors
8	Use of Proceeds
"	Capitalization
9	Price Range of Class A Common Stock and Dividend Policy
"	Fiscal 1995
10	Selected Financial Data
11	Management's Discussion and Analysis of Financial Condition and Results of Operations
16	Business
23	Management
25	Employment Agreements
26	Description of Capital Stock
27	Other Provisions
"	Preferred Stock
28	Principal and Selling Stockholders
30	Underwriting
31	Experts
"	Legal Matters
"	Available Information
32	Incorporation of Certain Documents By Reference
37	Common Stock
40	Net income (loss) per common share

424B1 1st Page of 46 TOC ↑Top Previous Next ↓Bottom Just 1st
3,100,000 SHARES

[LOGO]
CLASS A COMMON STOCK
($.10 PAR VALUE)

Of the 3,100,000 shares (the "Shares") of Class A Common Stock, $.10 par
value ("Class A Common Stock"), of The Wet Seal, Inc. (the "Company") being
offered hereby, 765,000 Shares are being offered by the Company and 2,335,000
Shares are being offered by certain selling stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any of the proceeds from
the sale of Shares by the Selling Stockholders. See "Principal and Selling
Stockholders."

The Company's authorized common stock consists of Class A Common Stock and
Class B Common Stock, $.10 par value ("Class B Common Stock" and, together with
the Class A Common Stock, the "Common Stock"). The Class A Common Stock is
substantially identical to the Class B Common Stock, except that holders of
Class A Common Stock are entitled to one vote per share and holders of Class B
Common Stock are entitled to two votes per share on matters submitted to a vote
of stockholders. See "Description of Capital Stock." Following consummation of
the Offering, the shares of Class B Common Stock will comprise approximately
41.5% (38.1% if the Underwriters' overallotment option is exercised in full) of
the total voting power of the Company.

The Class A Common Stock is traded on the Nasdaq National Market under the
symbol "WTSLA." On May 20, 1996, the last reported sale price of the Class A
Common Stock on the Nasdaq National Market was $21.625 per share. See "Price
Range of Class A Common Stock and Dividend Policy."

FOR INFORMATION CONCERNING CERTAIN FACTORS RELATING TO THE OFFERING, SEE
"RISK FACTORS" ON PAGE 6.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

[Download Table]

UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS (2)

Per Share............... $20.00 $1.10 $18.90 $18.90
Total (3)............... $62,000,000 $3,410,000 $14,458,500 $44,131,500

(1) See "Underwriting" for indemnification arrangements.

(2) Before deducting estimated expenses of $365,000 payable by the Company and
the Selling Stockholders in proportion to the proceeds received by each of
them hereby.

(3) Certain stockholders have granted the Underwriters a 30-day option to
purchase up to an additional 465,000 shares of Class A Common Stock at the
Price to Public less the Underwriting Discounts and Commissions shown above,
solely to cover overallotments, if any. If this option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Selling Stockholders will be $71,300,000, $3,921,500 and
$52,920,000, respectively. See "Underwriting."

The shares of Class A Common Stock offered hereby are being offered by the
several Underwriters, subject to prior sale and acceptance by the Underwriters
and subject to their right to reject any order in whole or in part. It is
expected that the Class A Common Stock will be available for delivery on or
about May 24, 1996 at the offices of Schroder Wertheim & Co. Incorporated, New
York, New York.

SCHRODER WERTHEIM & CO. MONTGOMERY SECURITIES

May 21, 1996

424B1 2nd Page of 46 TOC 1st Previous Next ↓Bottom Just 2nd
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS OF WHICH INFORMATION IS FURNISHED OR THE DATE HEREOF.

TABLE OF CONTENTS

[Download Table]

PAGE
-----

Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 8
Capitalization................................. 8
Price Range of Class A Common Stock and
Dividend Policy............................... 9
Selected Financial Data........................ 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 11

PAGE
-----

Business....................................... 16
Management..................................... 23
Description of Capital Stock................... 26
Principal and Selling Stockholders............. 28
Underwriting................................... 30
Experts........................................ 31
Legal Matters.................................. 31
Available Information.......................... 31
Incorporation of Certain Documents By
Reference..................................... 32
Index to Consolidated Financial Statements..... F-1

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

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS
AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMPANY'S CLASS A COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"). SEE "UNDERWRITING."

424B1 3rd Page of 46 TOC 1st Previous Next ↓Bottom Just 3rd
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN
THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVERALLOTMENT OPTION WILL NOT BE
EXERCISED. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY" REFERS TO THE
WET SEAL, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, CONTEMPO CASUALS, INC., AND
"CONTEMPO CASUALS" REFERS TO CONTEMPO CASUALS, INC. REFERENCES TO FISCAL YEARS
HEREIN ARE TO THE COMPANY'S 52- OR 53-WEEK FISCAL YEAR WHICH ENDS ON THE
SATURDAY CLOSEST TO JANUARY 31 OF THE FOLLOWING CALENDAR YEAR. FOR EXAMPLE,
"FISCAL 1995" REFERS TO THE COMPANY'S FISCAL YEAR ENDED FEBRUARY 3, 1996. FISCAL
1995 CONSISTED OF 53 WEEKS.

THE COMPANY

The Company is one of the largest national mall-based specialty retailers
focusing primarily on young women's apparel, and currently operates 365 retail
stores in 34 states and Puerto Rico under the "Wet Seal" and "Contempo Casuals"
names. The Company sells moderately priced, fashionable, casual apparel and
accessory items designed for women with a young, active lifestyle.

In July 1995, the Company acquired the 237-store chain of Contempo Casuals
stores, formerly the Company's major national direct competitor. The acquisition
expanded the Company's operations into regions not previously served by the
Company and reduced the percentage of total stores the Company operates in
California from more than 50% to approximately 35%. The Company believes
Contempo Casuals has a strong identity among young women and therefore the
Company will continue to operate most of such stores under the Contempo Casuals
name. At the time of acquisition, the Company substantially completed the
integration of Contempo Casuals, including the buying, merchandising, store
operations, information systems and distribution functions. As a result, the
Company achieved significant economies of scale and increased purchasing power
in the second half of fiscal 1995. The Company reported net income of $5.8
million in fiscal 1995, as compared to a net loss of $1.0 million in fiscal
1994.

Through both its Wet Seal and Contempo Casuals stores, the Company has built
a strong reputation among its target customers as a destination store for
fashionable young women's apparel and accessories. The Company offers a broad
selection of brand name and Company-developed apparel and accessories selected
and designed to appeal to the tastes of fashion-conscious young women and other
young-minded customers. The Company attempts to differentiate itself by
frequently updating its product offerings to emphasize freshness of merchandise
and by remerchandising its stores approximately every six weeks to reflect the
changing tastes of the Company's target customers. In addition, the Company
recently expanded its product offerings to include an eclectic selection of
gifts, accessories and cosmetics to more fully address its customers'
lifestyles. Based upon the success of the Company's expanded product offerings,
the Company recently introduced "The Girl's Room," a boutique-within-a-store
that features these products. The Company believes The Girl's Room broadens the
Company's appeal as a destination store for young women. The Company has added
The Girl's Room in approximately 60 stores and currently plans to add The Girl's
Room in approximately 100 additional stores during fiscal 1996.

The Company believes that its increased size and national presence position
it to benefit from the growth of the teenage population, which is projected by
the U.S. Bureau of the Census to grow at approximately twice the rate of growth
of the overall population over the next 10 years. The Company also believes that
its strong balance sheet and experienced management team will enable it to
capitalize on additional opportunities that may result from the expected
continuing changes in the competitive environment of the retailing industry.

424B1 4th Page of 46 TOC 1st Previous Next ↓Bottom Just 4th
THE OFFERING (1)

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Class A Common Stock offered:
By the Company....................... 765,000 shares
By the Selling Stockholders.......... 2,335,000 shares
Common Stock to be outstanding after
the Offering (2):
Class A Common Stock................. 9,794,566 shares (3)
Class B Common Stock................. 3,472,665 shares
Total.............................. 13,267,231 shares
Use of proceeds........................ For general corporate purposes, which may include
repayment of indebtedness. The Company will not
receive any of the proceeds from the sale of Shares
by the Selling Stockholders. See "Use of Proceeds."
Nasdaq National Market symbol (Class A
Common Stock)......................... "WTSLA"

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

(1) The offering of shares of Class A Common Stock offered hereby by the
Underwriters is referred to herein as the "Offering."

(2) The Class A Common Stock is substantially identical to the Class B Common
Stock, except that holders of Class A Common Stock are entitled to one vote
per share and holders of Class B Common Stock are entitled to two votes per
share on matters submitted to a vote of stockholders. Each share of Class B
Common Stock is convertible at the option of the holder thereof into one
share of Class A Common Stock. See "Description of Capital Stock."

(3) Excludes (i) 627,500 shares of Class A Common Stock issuable as of May 20,
1996 upon the exercise of outstanding stock options granted under the
Company's 1990 Long-Term Incentive Plan and 1994 Long-Term Incentive Plan
(the "Stock Option Plans") at a weighted average exercise price of
approximately $5.14 per share, of which options to acquire 277,500 shares
are exercisable within 60 days after the date of this Prospectus; and (ii)
an aggregate of 101,932 shares available for future grant under the Stock
Option Plans.

424B1 5th Page of 46 TOC 1st Previous Next ↓Bottom Just 5th
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER DATA)

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FISCAL YEAR
-----------------------------------------------------
1991 1992 1993 1994 1995 (1)
--------- --------- --------- --------- ---------

OPERATING RESULTS:
Sales..................................... $ 119,893 $ 149,744 $ 140,129 $ 132,997 $ 266,695
Gross margin.............................. 30,634 36,158 27,037 28,450 66,069
Net income (loss)......................... 4,229 3,564 (2,378) (1,013) 5,815
Net income (loss) per common share........ $ 0.35 $ 0.29 $ (0.19) $ (0.08) $ 0.47
Weighted average number of common shares
outstanding.............................. 12,217 12,221 12,228 12,235 12,387
OTHER DATA:
Ratio of current assets to current
liabilities.............................. 2.4 2.5 2.7 2.8 1.5
Square footage of leased space at year
end...................................... 466,178 544,820 583,462 596,685 1,530,891
Average sales per square foot of leased
space (2)................................ $ 298 $ 297 $ 247 $ 226 $ 229
Average sales per store (2)............... $1,181,000 $1,270,000 $1,092,000 $1,008,000 $ 976,000
Comparable store sales increase (decrease)
(3)...................................... (11.9)% 2.0% (14.2)% (9.2)% (4.1)%
Number of stores:
Open at beginning of year............... 93 112 125 129 133
Acquired during the year................ 0 0 0 0 237
Opened during the year.................. 21 15 10 6 3
Closed during the year.................. (2) (2) (6) (2) (9)
--------- --------- --------- --------- ---------
Open at year end...................... 112 125 129 133 364
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

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AT FEBRUARY 3, 1996
-------------------------
ACTUAL AS ADJUSTED(4)
--------- --------------

BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 57,153 $ 71,521
Working capital....................................................................... 26,051 40,419
Total assets.......................................................................... 117,564 131,932
Total debt............................................................................ 9,000 9,000
Total stockholders' equity............................................................ 57,735 72,103

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

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

(3) 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) As adjusted to reflect the issuance and sale of the 765,000 shares of Class
A Common Stock offered by the Company hereby and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."

RECENT DEVELOPMENTS

The Company reported net income of $722,000 ($0.06 per share) for the first
quarter of fiscal 1996 compared to a loss of $671,000 ($0.05 per share) for the
first quarter of fiscal 1995. During the first quarter of fiscal 1996,
comparable store sales increased 4.3% compared to a decrease of 6.7% for the
first quarter of fiscal 1995.

424B1 6th Page of 46 TOC 1st Previous Next ↓Bottom Just 6th
RISK FACTORS

POTENTIAL PURCHASERS OF THE CLASS A COMMON STOCK SHOULD CAREFULLY CONSIDER
THE FOLLOWING FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, BEFORE DECIDING TO PURCHASE SHARES OF THE CLASS A COMMON STOCK
OFFERED HEREBY.

DECLINE IN COMPARABLE STORE SALES; PRIOR LOSSES

The Company's comparable store sales declined by 14.2%, 9.2% and 4.1% during
fiscal 1993, 1994 and 1995, respectively. The Company believes these declines
were primarily attributable to an industry-wide decrease in sales of women's
apparel, due in part to a shift in consumer discretionary spending. This has
resulted in reduced profitability for many women's apparel retailers and has led
a large number of retailers, including a number of specialty retailers, to close
stores or go out of business. There can be no assurance that these and other
factors will not continue to result in declining comparable store sales, which
could adversely affect the Company's profitability.

The Company incurred net losses in fiscal 1993 and 1994 of $2.4 million and
$1.0 million, respectively. These losses were due to a combination of factors,
including adverse economic conditions in the Southern California market and
declines in the Company's comparable store sales. Following the Company's
acquisition of Contempo Casuals, the Company achieved greater economies of scale
and improved margins, which resulted in the Company's return to profitability in
fiscal 1995. There can be no assurance that the Company will continue to be
profitable in future years. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

CHANGES IN FASHION TRENDS

The Company's profitability is largely dependent upon its ability to
anticipate the changing fashion tastes of its customers and to respond to those
changing tastes in a timely manner. The failure of the Company to anticipate,
identify or react appropriately to changing styles, trends or brand preferences
could lead to, among other things, lower sales, excess inventories and more
frequent markdowns, which could have a material adverse effect on the Company's
financial condition and results of operations. In addition, fashion misjudgments
could adversely affect the Company's image with its customers, which could
materially adversely affect the Company's long-term sales, profitability and
growth.

DUPLICATE STORE LOCATIONS

As a result of the acquisition of Contempo Casuals, the Company currently
operates both a Contempo Casuals store and a Wet Seal store in 64 malls, which
contain approximately 130 of the Company's stores. Such duplicate locations
compete for the same sales, which has resulted in a decrease in sales volume and
profitability at these stores. The Company has attempted to reduce the level of
competition between its duplicate stores by differentiating the merchandise mix
in such stores or by closing duplicate locations. The Company is also
considering converting duplicate stores to test new retail concepts. There can
be no assurance that the Company will be able to reduce comparable store sales
declines or improve the profitability of its duplicate stores.

COMPETITION

The young women's retail apparel industry is highly competitive. The Company
competes for sales primarily with specialty apparel retailers, department stores
and certain other apparel retailers, many of which have significantly greater
financial, marketing and other resources available to them. In addition, the
Company competes for favorable site locations and lease terms in shopping malls.
Competition may significantly increase in the future, which could adversely
affect the Company.

ECONOMIC CONDITIONS AND CONSUMER SPENDING

As with other retail businesses, the Company's business is sensitive to
consumer spending patterns and preferences. The Company's growth, sales and
profitability may be adversely affected by unfavorable local, regional or
national economic conditions. The Company is especially affected by economic
conditions in California, where approximately 35% of its stores are located.

Substantially all of the Company's stores are located in regional shopping
malls. The Company's sales are derived, in part, from the high volume of traffic
in such malls. The Company therefore benefits from the ability of mall "anchor"
tenants and other area attractions to generate consumer traffic in the vicinity
of the Company's stores and the continuing popularity of malls as shopping
destinations. Sales volume and mall traffic may be adversely affected by
economic downturns in a particular area, competition from non-mall

424B1 7th Page of 46 TOC 1st Previous Next ↓Bottom Just 7th
retailers and other malls, the closing of anchor department stores, and declines
in the desirability of the shopping environment in a particular mall, all of
which could adversely affect the Company's sales and profitability.

The Company's sales and profitability also depend upon the continued demand
by the Company's customers for fashionable, casual apparel. If the demand for
apparel and related merchandise were to decline, the Company's financial
condition and results of operations could be materially and adversely affected.
Shifts in consumer discretionary spending to other goods such as electronic
equipment, computers and music could also adversely affect the Company.

SEASONALITY

The retail apparel industry is highly seasonal. The Company generates its
highest level of sales during 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). The Company's profitability depends, to a significant degree, on the
sales generated during these peak periods. Any decrease in sales or margins
during these periods, whether as a result of then current economic conditions,
poor weather or other factors beyond the control of the Company, could have a
material adverse effect on the Company.

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant extent upon the performance
of its senior management, particularly Kathy Bronstein, Vice Chairman and Chief
Executive Officer, and Edmond Thomas, President and Chief Operating Officer.
While the Company has employment agreements with Ms. Bronstein and Mr. Thomas
that extend through January 30, 2001, there can be no assurance that the
services of either of such executives will remain available to the Company
pursuant to such employment agreements. The employment agreements of each of Ms.
Bronstein and Mr. Thomas contain non-competition covenants. The Company
maintains "key man" life insurance on the life of Ms. Bronstein in the amount of
$5 million. See "Management -- Employment Agreements."

VOTING RIGHTS OF COMMON STOCK; CONTROL BY SELLING STOCKHOLDERS

The voting rights of Class A Common Stock are limited by the Company's
Restated Certificate of Incorporation (the "Restated Certificate"). On all
matters with respect to which the Company's stockholders have a right to vote,
including for the election of directors, a holder of Class A Common Stock is
entitled to one vote per share, while a holder of Class B Common Stock is
entitled to two votes per share. Except as otherwise required by law, Class A
Common Stock and Class B Common Stock vote together as a single class.

Prior to the Offering, the holders of Class B Common Stock (including the
Selling Stockholders) represented 63.4% of the voting power of all classes of
the Company's capital stock, of which shares representing 58.2% of the voting
power were owned in the aggregate by Gross-Teitelbaum Holdings Inc., 2927977
Canada Inc. ("GTHI Sub"), Suzy Shier Inc. ("Suzy Shier") and Los Angeles Express
Fashions Inc. (collectively, the "Trust Stockholders"). Each of the Trust
Stockholders is controlled directly or indirectly by Irving Teitelbaum, Chairman
of the Board, and Stephen Gross, Secretary and a director of the Company.

Following consummation of the Offering, the holders of Class B Common Stock
will own shares representing 41.5% (38.1% if the Underwriters' overallotment
option is exercised in full) of the voting power of all classes of the Company's
capital stock, of which shares representing 35.9% (32.5% if the Underwriters'
overallotment is exercised in full) of the voting power will be owned by the
Trust Stockholders. As a result, after the Offering, the Trust Stockholders may
be able to direct the election of all the directors of the Company and determine
the outcome of any matter submitted to a vote of stockholders, including any
merger, consolidation or sale of all or substantially all of the Company's
assets, except as otherwise provided by law. The Trust Stockholders are parties
to a voting trust agreement that will terminate upon consummation of the
Offering.

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USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of Class A
Common Stock offered hereby by the Company are estimated to be $14.4 million
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company. The net proceeds will be used for general
corporate purposes, which may include repayment of certain indebtedness,
remodeling and opening of stores and upgrading of the Company's point-of-sale
system. The Company will not receive any of the proceeds from the sale of Shares
by the Selling Stockholders.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
February 3, 1996, and as adjusted to reflect the issuance and sale of the shares
of Class A Common Stock offered hereby by the Company and the application of the
estimated net proceeds therefrom.

[Enlarge/Download Table]

FEBRUARY 3, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)

Long-term debt.................................................................. $ 5,264 $ 5,264
--------- -----------
Stockholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares authorized; none issued and
outstanding.................................................................. -- --
Class A Common Stock, $.10 par value, 20,000,000 shares authorized; 5,687,066
shares issued and outstanding (8,787,066 shares as adjusted) (1)(2).......... 568 878
Class B Common Stock, $.10 par value, 10,000,000 shares authorized; 6,807,665
shares issued and outstanding (4,472,665 shares as adjusted) (2)............. 681 447
Additional paid-in capital...................................................... 38,568 52,860
Retained earnings............................................................... 17,918 17,918
--------- -----------
Total stockholders' equity.................................................... 57,735 72,103
--------- -----------
Total capitalization........................................................ $ 62,999 $ 77,367
--------- -----------
--------- -----------

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

(1) Excludes (i) 627,500 shares of Class A Common Stock issuable as of May 20,
1996 upon the exercise of outstanding stock options granted under the Stock
Option Plans at a weighted average exercise price of approximately $5.14 per
share, of which options to acquire 277,500 shares are exercisable within 60
days after the date of this Prospectus; and (ii) an aggregate of 101,932
shares available for future grant under the Stock Option Plans.

(2) As adjusted amounts exclude (i) the effect of the conversion of 1,000,000
shares of Class B Common Stock into an equal number of shares of Class A
Common Stock during fiscal 1996 and (ii) 7,500 shares of Class A Common
Stock that were issued upon the exercise of options during fiscal 1996.

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PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDEND POLICY

The Class A Common Stock trades on the Nasdaq National Market ("Nasdaq")
under the symbol "WTSLA." The closing sale price of the Class A Common Stock as
reported by Nasdaq on May 20, 1996 was $21.625.

The following table reflects, for the periods indicated, the high and low
sale prices of the Class A Common Stock as reported by Nasdaq:

[Enlarge/Download Table]

HIGH LOW
--------- ---------

Fiscal 1994
First Quarter......................................................... $ 4.500 $ 3.000
Second Quarter........................................................ 4.250 2.250
Third Quarter......................................................... 3.875 2.375
Fourth Quarter........................................................ 5.375 3.250

Fiscal 1995
First Quarter......................................................... $ 4.500 $ 3.250
Second Quarter........................................................ 6.000 3.625
Third Quarter......................................................... 6.625 4.750
Fourth Quarter........................................................ 8.625 5.625

Fiscal 1996
First Quarter......................................................... $ 16.000 $ 7.063
Second Quarter (through May 20, 1996)................................. $ 22.125 $ 11.500

As of April 26, 1996, there were 358 shareholders of record of Class A
Common Stock. The number of beneficial owners of Class A Common Stock is
estimated to be in excess of 2,000.

The Company has reinvested earnings in its business and has never paid any
cash dividends to holders of the Class A Common Stock. The declaration and
payment of future dividends 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. The Company's lines of credit and outstanding term loan currently
prohibit the Company from paying cash dividends.

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

The statement of operations data presented below for fiscal 1991, 1992,
1993, 1994 and 1995 and the balance sheet data at the end of the fiscal periods
presented have been derived from the Consolidated Financial Statements of the
Company. The following Selected Financial Data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto audited by Deloitte
& Touche LLP, independent accountants, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" incorporated by reference and
appearing elsewhere herein.

[Enlarge/Download Table]

FISCAL YEAR
-----------------------------------------------------
1991 1992 1993 1994 1995 (1)
--------- --------- --------- --------- ---------

OPERATING RESULTS:
Sales.................................. $ 119,893 $ 149,744 $ 140,129 $ 132,997 $ 266,695
Cost of sales.......................... 89,259 113,586 113,092 104,547 200,626
--------- --------- --------- --------- ---------
Gross margin........................... 30,634 36,158 27,037 28,450 66,069
Selling, general and administrative
expense............................... 24,498 30,890 31,576 30,698 57,531
Interest income, net................... (926) (656) (573) (882) (1,410)
--------- --------- --------- --------- ---------
Net operating expenses................. 23,572 30,234 31,003 29,816 56,121
--------- --------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes............ 7,062 5,924 (3,966) (1,366) 9,948
Provision (benefit) for income taxes... 2,833 2,360 (1,588) (353) 4,133
--------- --------- --------- --------- ---------
Net income (loss)...................... $ 4,229 $ 3,564 $ (2,378) $ (1,013) $ 5,815
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per common share..... $ 0.35 $ 0.29 $ (0.19) $ (0.08) $ 0.47
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common
shares outstanding.................... 12,217 12,221 12,228 12,235 12,387

OTHER DATA:
Ratio of current assets to current
liabilities........................... 2.4 2.5 2.7 2.8 1.5
Square footage of leased space at year
end................................... 466,178 544,820 583,462 596,685 1,530,891
Average sales per square foot of leased
space (2)............................. $ 298 $ 297 $ 247 $ 226 $ 229
Average sales per store (2)............ $1,181,000 $1,270,000 $1,092,000 $1,008,000 $ 976,000
Comparable store sales increase
(decrease) (3)........................ (11.9)% 2.0% (14.2)% (9.2)% (4.1)%
Number of stores:
Open at beginning of year............ 93 112 125 129 133
Acquired during the year............. 0 0 0 0 237
Opened during the year............... 21 15 10 6 3
Closed during the year............... (2) (2) (6) (2) (9)
--------- --------- --------- --------- ---------
Open at year end................... 112 125 129 133 364
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 14,885 $ 18,287 $ 18,331 $ 25,369 $ 57,153
Working capital........................ 14,433 17,035 18,874 22,473 26,051
Total assets........................... 63,359 68,665 66,434 67,298 117,564
Total debt............................. 0 0 0 0 9,000
Total stockholders' equity............. 50,470 54,085 51,729 50,724 57,735

--------------------------
(1) The Company's fiscal 1995 data include the results of operations of Contempo
Casuals since July 1, 1995.
(2) In fiscal 1995, the 53rd week of sales was excluded from "Sales" for
purposes of calculating "Average sales per square foot of leased space" and
"Average sales per store" in order to make fiscal 1995 comparable to prior
years.
(3) 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.

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

INTRODUCTION

Throughout the late 1980s and early 1990s, the Company pursued a rapid store
expansion program, growing from 36 stores at the end of 1986 to 125 stores by
the end of 1992. Beginning in 1992, the Company's business was negatively
affected by a difficult retail apparel market and by the concentration of the
Company's stores in California, which in general experienced more difficult
economic conditions than other areas of the country. These conditions have led a
large number of retailers, including a number of specialty retailers, to close
stores or go out of business. While the Company has experienced declines in
comparable store sales in each of the last three fiscal years, it has increased
its gross margin and cash flow from operations in each of these years. The
Company believes it has been able to manage its business effectively and
maintain a strong balance sheet during this difficult period as a result of the
significant experience of its management team, its careful management of
inventory and its focus on controlling operating expenses.

On July 1, 1995, the Company acquired Contempo Casuals. The purchase price
consisted of a $100,000 cash payment and the issuance of 254,676 shares of Class
A Common Stock, which had a market value of $1,178,000 as of the acquisition
date. In addition, the Company assumed approximately $27,700,000 of current
liabilities of Contempo Casuals. The transaction was accounted for under the
purchase method. The acquisition increased the number of stores the Company
operates from 133 stores at the time of the acquisition to 364 stores as of
February 3, 1996 and reduced the percentage of total stores the Company operates
in California from more than 50% to approximately 35%.

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

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

RESULTS OF OPERATIONS

The following discussion and analysis of results of operations includes a
comparison of the results of operations for fiscal 1995, which contained both
the full year results of the Wet Seal stores and the seven month results of the
Contempo Casuals stores, to fiscal 1994, which contained only the results of the
Wet Seal stores. Because the Contempo Casuals acquisition occurred on July 1,
1995, fiscal 1995 results do not include the results of operations of Contempo
Casuals for the first five months of the fiscal year, which historically have
relatively lower sales volumes and profitability compared to the remaining
months of the fiscal year. Therefore, the results of operations for fiscal 1995
are not directly comparable to those of prior years and may not be directly
comparable to the results in future years.

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

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The following table sets forth selected income statement data of the Company
expressed as a percentage of sales for the fiscal years indicated:

[Enlarge/Download Table]

AS A PERCENTAGE OF SALES
-------------------------------
FISCAL FISCAL FISCAL
1993 1994 1995
--------- --------- ---------

Sales................................................................ 100.0% 100.0% 100.0%
Cost of sales (including buying, distribution and occupancy costs)... 80.7 78.6 75.2
--------- --------- ---------
Gross margin......................................................... 19.3 21.4 24.8
Selling, general and administrative expenses......................... 22.5 23.1 21.6
Interest income, net................................................. (0.4) (0.7) (0.5)
--------- --------- ---------
Net operating expenses............................................... 22.1 22.4 21.1
--------- --------- ---------
Income (loss) before provision (benefit) for income taxes............ (2.8) (1.0) 3.7
Provision (benefit) for income taxes................................. (1.1) (0.2) 1.5
--------- --------- ---------
Net income (loss).................................................... (1.7)% (0.8)% 2.2%
--------- --------- ---------
--------- --------- ---------

FISCAL 1995 COMPARED TO FISCAL 1994

Sales in fiscal 1995 (53 weeks) were $266,695,000 compared to sales in
fiscal 1994 (52 weeks) of $132,997,000, an increase of $133,698,000 or 100.5%.
The dollar increase in sales in fiscal 1995 compared to fiscal 1994 was
primarily due to the acquisition of Contempo Casuals and, to a significantly
lesser extent, to the additional week of sales in fiscal 1995. These increases
were partially offset by a 4.1% decrease in comparable store sales as well as by
the net effect of the closure of nine stores and the opening of three new stores
during fiscal 1995. The Company attributes the decline in comparable store sales
to a lack of a significant fashion trend and to a shift in consumer
discretionary spending habits, especially in the junior segment, to non-apparel
items. The comparable store sales declines were most notable in certain regions,
particularly Southern California and parts of Florida, while certain other
regions experienced comparable store sales increases. The Company continues to
focus on improving comparable store sales results and believes it has added
incremental sales by broadening its merchandise offerings to include a larger
assortment of non-apparel merchandise such as gifts, accessories and cosmetics.
Additionally, the Company has implemented a frequent shopper program for each of
Wet Seal and Contempo Casuals aimed at increasing customer loyalty and has added
two top level buying positions to help the Company better anticipate and
interpret junior fashion trends on a national and regional basis.

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

Selling, general and administrative expenses were $57,531,000 in fiscal 1995
compared to $30,698,000 in fiscal 1994, an increase of $26,833,000 or 87.4%. As
a percentage of sales, selling, general and administrative expenses decreased
from 23.1% in fiscal 1994 to 21.6% in fiscal 1995, a decrease of 1.5%. The
dollar increase in selling, general and administrative expenses in fiscal 1995
compared to fiscal 1994 was primarily

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due to the acquisition of Contempo Casuals. The decrease as a percentage of
sales was related to the economies of scale the Company achieved as a result of
this acquisition. These economies of scale resulted in a 1.2% decrease in
general and administrative expenses as a percentage of sales.

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

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

Net income was $5,815,000 in fiscal 1995 compared to a net loss of
$1,013,000 in fiscal 1994. As a percentage of sales, net income was 2.2% in
fiscal 1995 compared to a net loss of 0.8% in fiscal 1994. The Company's return
to profitability in fiscal 1995 was directly related to the acquisition of
Contempo Casuals. With this acquisition, the Company achieved significant
economies of scale in areas such as buying, distribution and general and
administrative costs. At the same time, the acquisition enabled the Company to
reduce its average depreciation cost per store due, in part, to the favorable
acquisition price.

FISCAL 1994 COMPARED TO FISCAL 1993

Sales in fiscal 1994 were $132,997,000 compared to sales in fiscal 1993 of
$140,129,000, a decrease of $7,132,000 or 5.1%. The decrease in sales in fiscal
1994 compared to fiscal 1993 was primarily due to a 9.2% decrease in comparable
store sales and, to a lesser extent, to the closure of two stores during fiscal
1994 and six stores in fiscal 1993, partially offset by the opening of six new
stores during fiscal 1994. The Company attributes this decrease in comparable
store sales to a great extent to the shift in the spending habits of the junior
market to non-apparel items. The decrease in comparable store sales was most
evident in the first three quarters of fiscal 1994. In the fourth quarter of
fiscal 1994 comparable store sales were relatively unchanged.

Cost of sales, including buying, distribution and occupancy costs, was
$104,547,000 in fiscal 1994 compared to $113,092,000 in fiscal 1993, a decrease
of $8,545,000 or 7.6%. As a percentage of sales, cost of sales decreased from
80.7% in fiscal 1993 to 78.6% in fiscal 1994, a decrease of 2.1%. The decrease
as a percentage of sales was due to a decrease of approximately 4% in the cost
of merchandise as a percentage of sales as a result of a decrease in markdowns
as a percentage of sales as well as to higher initial markup rates in fiscal
1994 compared to fiscal 1993. These decreases in cost of sales as a percentage
of sales were partially offset by an increase of approximately 2% in occupancy
costs as a percentage of sales due to the fact that the Company's ability to
leverage these fixed expenses was significantly impaired by the decline in sales
in fiscal 1994.

Selling, general and administrative expenses were $30,698,000 in fiscal 1994
compared to $31,576,000 in fiscal 1993, a decrease of $878,000 or 2.8%. As a
percentage of sales, selling, general and administrative expenses increased from
22.5% in fiscal 1993 to 23.1% in fiscal 1994. The increase as a percentage of
sales in fiscal 1994 as compared to fiscal 1993 was due to the decrease in
comparable store sales, which significantly impaired the Company's ability to
leverage the fixed components of these expenses. This was most evident in store
payroll expense and office expense. Additionally, advertising expense increased
as a percentage of sales due to the Company's increased activity related to
in-store marketing and signage.

Interest income, net, was $882,000 in fiscal 1994 compared to $573,000 in
fiscal 1993, an increase of $309,000. This increase was due to a general
increase in market interest rates as well as, to a lesser extent, an increase in
the average cash balances invested.

Income tax benefit was $353,000 in fiscal 1994 compared to $1,588,000 in
fiscal 1993. The effective tax benefit rate in fiscal 1994 was 25.8% compared to
an effective tax benefit rate of 40.0% in fiscal 1993. The effective tax benefit
rate in fiscal 1994 was lower than the effective tax benefit rate in fiscal 1993
due primarily to a valuation allowance which was recorded in fiscal 1994 related
to the deferred tax asset.

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Net loss was $1,013,000 in fiscal 1994 compared to a net loss of $2,378,000
in fiscal 1993. As a percentage of sales, net loss was 0.8% in fiscal 1994
compared to 1.7% in fiscal 1993. The improvement in the net loss in fiscal 1994
compared to fiscal 1993, despite the decline in comparable store sales, was
primarily related to the decrease in cost of sales associated with a reduction
in markdowns as a percentage of sales.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at the end of fiscal 1995, 1994 and 1993 was $26,051,000,
$22,473,000 and $18,874,000, respectively. Net cash provided by operating
activities in fiscal 1995, 1994 and 1993 was $25,308,000, $10,068,000 and
$3,920,000, respectively. The increase in cash provided by operating activities
in fiscal 1995 was due primarily to the increase in net earnings and
depreciation. Also contributing to the increase in cash provided by operating
activities was a decrease in inventory and increases in accounts payable and
income taxes payable, net of the effect of the Contempo Casuals acquisition. The
increase in cash provided by operating activities in fiscal 1994 was due
primarily to a decrease in the tax refund receivable and an increase in accounts
payable and accruals due to the timing of goods received.

Additions to property and equipment are the Company's most significant
investment activities. In fiscal 1995, 1994 and 1993 the Company invested
$2,585,000, $3,299,000 and $3,908,000, respectively, in property and equipment
and leasehold improvements. These expenditures related primarily to new store
openings and remodelings. Primarily as a result of the Company's expanded
operations, capital expenditures for fiscal 1996 are currently estimated to be
$11,000,000.

The Company has entered into lines of credit with Bank of America National
Trust and Savings Association ("Bank of America") in an aggregate principal
amount of $30,000,000 (the "Revolving Credit Facilities"), and a five year
amortizing term loan with Bank of America in the amount of $10,000,000 (the
"Term Loan," and together with the "Revolving Credit Facilities," the "Credit
Facilities"). Although the Revolving Credit Facilities expire on July 1, 1996,
the Company intends to renew such facilities on substantially the same terms.
The Company used the proceeds of the Term Loan to capitalize Contempo Casuals as
required in connection with the Contempo Casuals acquisition. As of the date of
this Prospectus, there were no borrowings under the Revolving Credit Facilities,
and the Company believes it was in substantial compliance with all terms and
covenants of such agreements. The Company invests its excess funds primarily in
a short-term investment grade money market fund, investment grade commercial
paper and U.S. Treasury and Agency obligations. Management believes the
Company's working capital and cash flows from operating activities, together
with the net proceeds to be received by the Company from the Offering, will be
sufficient to meet the Company's operating and capital requirements in the
foreseeable future.

SEASONALITY AND INFLATION

The Company's business is seasonal by nature with the Christmas season
(beginning the week of Thanksgiving and ending the first Saturday after
Christmas) and the back-to-school season (beginning the last week of July and
ending the first week of September) historically accounting for the largest
percentage of sales volume. In the Company's three fiscal years ended February
3, 1996, the Christmas and back-to-school seasons accounted for an average of
approximately 32% of the Company's annual sales, after adjusting for sales
increases related to new stores. The Company does not believe that inflation has
had a material effect on the results of operations during the past three years.
However, there can be no assurance that the Company's business will not be
affected by inflation in the future.

STATEMENT REGARDING FORWARD LOOKING DISCLOSURE

Certain sections of this Prospectus, including "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
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 Exchange Act, which represent the Company's expectations or beliefs
concerning future events. The Company cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements, including, without
limitation, the retention by the Company of suppliers for both brand name and
Company-developed merchandise, the ability of the Company to expand and to
reduce declines in comparable store sales and the sufficiency of the

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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.

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BUSINESS

OVERVIEW

According to the United States Census Bureau, the teenage population in the
United States reached approximately 25 million in 1995 and is expected to grow
to approximately 30 million by 2005, representing a projected growth rate close
to twice the rate of the overall population. Management believes that teenagers
represent both a growing part of the United States population and an increasing
source of purchasing power.

Beginning in 1992, a difficult retail apparel environment led a large number
of retailers, including a number of specialty retailers, to close stores or go
out of business. While the Company has experienced declines in comparable store
sales in each of the last three fiscal years, it has increased its gross margin
and cash flow from operations in each of these years. The Company believes it
has been able to manage its business effectively and maintain a strong balance
sheet during this difficult period as a result of the significant experience of
its management team, its careful management of inventory and its focus on
controlling operating expenses. The Company believes that as a result of its
size, national presence and strong balance sheet, it is well-positioned to take
advantage of the growing teenage market, as well as opportunities which may
arise from the expected continuing changes in the competitive environment of the
retailing industry.

BUSINESS STRATEGY

The Company's goal is to solidify its position as one of the largest
national mall-based specialty retailers focusing primarily on young women's
apparel. Principal elements of the Company's strategy to accomplish this goal
are as follows:

DESTINATION STORE FOR THE JUNIOR CUSTOMER. The Company has built a strong
reputation among its target customers as a destination store for fashionable
junior apparel and accessories. The Company offers a broad selection of brand
name and Company-developed apparel and accessories selected and designed to
appeal to the tastes of fashion conscious young women and other young-minded
customers. The Company recently has broadened its product offerings by including
an eclectic selection of gifts, accessories and cosmetics to more fully address
its customers' lifestyles.

INNOVATIVE IN-STORE ENVIRONMENT. To create a compelling shopping experience
and capitalize on its stores' high-traffic locations within enclosed shopping
malls, the Company focuses on developing dynamic and entertaining in-store
shopping environments that appeal to its target customers. The Company's stores
incorporate multi-media elements, such as video walls and sound systems,
interactive media, such as photo booths, and special events, such as in-store
celebrity appearances. These elements are complemented by striking
point-of-purchase graphics, specialized lighting and stylized mannequins,
creating a lively and energetic shopping environment. In addition, as leases are
renewed, the Company often remodels its stores to freshen and further enhance
the in-store atmosphere. Management believes that its innovative in-store
environments draw additional customers to the Company's stores and increase the
amount of time shoppers spend in the stores.

FASHIONABLE PRODUCT OFFERINGS AND COORDINATED MERCHANDISING. The Company
attempts to differentiate itself from other specialty retailers targeting the
same market by emphasizing the freshness of its

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merchandise. The Company maintains a balance of brand-name and Company-developed
apparel to address the demands of its customers. The Company believes that
Company-developed apparel, which consists of exclusive Company designs and
modified and relabelled vendor-developed designs, further differentiates it from
its competitors. Throughout the Company's stores, new products are introduced
frequently and displayed in fashionable ensembles that enhance the visual appeal
of the stores while assisting customers in the coordination of outfits. The
Company's vendor alliances enable it to respond quickly to developing trends.
Management believes that its frequent new product introductions and coordinated
merchandising, in combination with its proactive approach to customer service,
encourage customers to purchase multiple items.

DEVELOPING RELATIONSHIPS WITH CUSTOMERS. The Company is committed to
building strong relationships with its customers and continues to develop
programs to promote and strengthen these relationships. The Company's strategy
for developing these relationships includes (i) offering a fresh,
fashion-current selection of apparel and accessories that changes approximately
every six weeks; (ii) implementing frequent shopper programs that enhance
customer loyalty and encourage additional purchases by offering standard 10%
discounts on purchases, as well as periodic additional incentives; and (iii)
providing a level of friendly, attentive customer service with a staff that
understands and identifies with the target customer. The Company also reaches
out to its customers by sponsoring special events that appeal directly to their
interests and active lifestyles, such as movie tie-ins, in-line skating and
snowboarding competitions and in-school events.

DISCIPLINED MANAGEMENT OF OPERATIONS. The Company believes that its
continuing success in the dynamic young women's apparel retail environment is
due in part to its management of working capital and its limited leverage.
Management strictly controls trade payables and inventory by monitoring pricing
and markdowns in order to expedite sales of slow-moving inventory. The Company
believes these factors have contributed to its continuing ability to stock its
stores with fashion-current merchandise and manage its business effectively
through industry cycles.

INVESTMENT IN SYSTEMS. The Company is committed to continued investment in
merchandising and financial information systems and using current technology to
help execute its merchandising strategy, support growth and improve customer
service. The Company is in the process of selecting a new point-of-sale system
for its stores and expects to begin installing this system during fiscal 1996
and complete the project by the middle of fiscal 1997. The Company expects that
the introduction of the new point-of-sale system will reduce the cost of
communication and maintenance, improve customer service and allow the Company to
become more innovative in the area of in-store marketing.

GROWTH STRATEGY

The Company strives to increase its earnings by growing sales, increasing
comparable store sales and improving the profitability of its stores. Principal
elements of the Company's growth strategy include the following:

ENHANCING PERFORMANCE OF EXISTING STORES. The Company strives to increase
comparable store sales and improve the profitability of its stores by
remerchandising its stores, introducing new product categories and implementing
new marketing programs. For example, the Company has introduced frequent shopper
cards in its stores and sponsors special events designed to enhance customer
loyalty and encourage additional purchases. Additionally, the Company recently
introduced "The Girl's Room," a boutique-within-a-store that offers an eclectic
variety of lifestyle products such as gifts, accessories and cosmetics, featured
in a new and innovative style. The Company has added The Girl's Room in
approximately 60 stores and currently plans to add The Girl's Room in
approximately 100 additional stores in fiscal 1996. Management believes that The
Girl's Room broadens the Company's appeal as a destination store for young
women.

DEVELOPING NEW CONCEPTS. The Company intends to continue developing and
testing new concepts to increase revenues and improve profitability. Based on
the early success of The Girl's Room, the Company is developing a stand-alone
concept that would offer a greater variety of lifestyle merchandise, as well as
unisex apparel for young women and men. The Company intends to test this concept
in three locations in 1996. The Company believes this concept will broaden its
customer base and generate additional sales the Company may not otherwise
achieve.

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OPENING NEW STORES. As a result of the Contempo Casuals acquisition, the
Company almost tripled its store base and greatly expanded its geographic
presence. While the Company intends to focus primarily on remerchandising and
remodeling existing stores, including introducing The Girl's Room in additional
stores, the Company may open additional stores in new markets, as well as
existing markets where the Company believes there is potential for sales growth.
Management plans to open up to 10 new stores in fiscal 1996 and up to 20 new
stores in fiscal 1997. In April 1996, the Company agreed to enter into leases
for four new stores in the New York metropolitan area, including one in Herald
Square in New York City. The Company commenced operations at three of these
stores in May 1996 and management expects to commence operations at the fourth
store during the second half of fiscal 1996. There can be no assurance as to the
number of additional new stores the Company will open in fiscal 1996 and 1997.

PURSUING STRATEGIC ACQUISITIONS. As opportunities arise, management
evaluates strategic acquisitions of retail chains or stores that would
complement its existing business. The Company is particularly interested in
other retailers (i) with attractive leases in prime locations or (ii) which have
a strong franchise in specialty retailing of casual apparel for young men and
women. The Company believes the successful acquisition and integration of the
operations of Contempo Casuals has demonstrated management's ability to assess
potential acquisition opportunities and smoothly integrate acquired chains or
stores.

DEVELOPING INTERNATIONAL PARTNERSHIPS. The Company has been approached by
certain international specialty apparel retailers regarding possible master
licensing agreements under which the Company would license its brand names in
exchange for royalty payments. The Company believes that such arrangements may
provide it with additional growth opportunities without requiring the commitment
of substantial capital or management resources. There can be no assurance that
the Company will enter into any such arrangements.

STORE LOCATIONS

The Company operates 365 stores in 34 states and Puerto Rico. The following
map sets forth the number of stores the Company operates in each state:

[MAP]

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PRODUCTS AND MERCHANDISING

Both Wet Seal and Contempo Casuals stores target the same fashion-conscious
junior customer. The Company merchandises both stores similarly, except in cases
where both stores are located in the same mall. In these instances, the Company
differentiates up to 50% of the merchandise mix in the stores. The Company
offers a balance of moderately-priced, fashionable brand name and
Company-developed apparel and accessories that appeal to women with young,
active lifestyles. The Company believes that Company-developed apparel further
differentiates it from its competitors. The Company frequently updates its
product offerings, which include sportswear, dresses, lingerie, outerwear,
shoes, cosmetics and accessories, to provide a regular flow of fresh, new
fashionable merchandise. The Company also remerchandises its stores
approximately every six weeks to reflect the changing tastes of the Company's
target customers. Additionally, management carefully monitors pricing and
markdowns to expedite sales of slow-moving inventory, facilitate the
introduction of new merchandise and maintain an updated fashion image.

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

Based upon the success of the Company's accessory offerings, and consistent
with its strategy of differentiating its merchandise mix from that of its
competitors, the Company recently introduced "The Girl's Room," a
boutique-within-a-store that offers an expanded assortment of gifts, accessories
and cosmetics selected to appeal to the tastes and sensibilities of its
customers. By giving customers another reason to visit the Company's stores,
management believes The Girl's Room has broadened the Company's appeal as a
destination store for young women. Currently in approximately 60 stores, the
Company intends to introduce The Girl's Room in approximately 100 additional
stores during fiscal 1996.

DESIGN, BUYING AND PRODUCT DEVELOPMENT

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

The Company's commitment to Company-developed apparel is an important
element in differentiating its merchandise from that of its competitors. After
selecting a fashion theme to promote, the design and buying teams work closely
with vendors to modify colors, materials and designs and create an image
consistent with the theme for the Company's product offerings. Additionally, the
Company has increased its focus on developing exclusive designs to reinforce the
fashion statements of its merchandise offerings.

SOURCING AND VENDOR RELATIONSHIPS

The Company purchases its merchandise from numerous domestic vendors and an
increasing number of foreign vendors. Although in fiscal 1995 no single vendor
accounted for more than 10% of the Company's merchandise, 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

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terms with such vendors. Quality control is monitored carefully at the
distribution points of its largest vendors and manufacturers, and all
merchandise is inspected upon arrival at the Company's Los Angeles, California
distribution center. The Company does not have any long term or exclusive
contracts with any particular manufacturer or supplier for either brand name or
Company-developed apparel.

ALLOCATION AND DISTRIBUTION

The Company's merchandising effort primarily focuses on maintaining a
regular flow of fresh, fashionable merchandise into its stores. Successful
execution depends in large part on the Company's integrated planning and
allocation team. 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' merchandise mix.

In July 1995, the Company consolidated its distribution function into
Contempo Casuals' Los Angeles, California distribution facility. All merchandise
is received from vendors at this facility, where items are inspected for quality
and prepared for shipping to the Company's stores. The Company ships merchandise
to stores within a 100-mile radius of the distribution center by its
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 on a daily basis.

MARKETING, ADVERTISING AND PROMOTION

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

The Company utilizes a variety of advertising and promotional programs that
allow it to gain exposure in a cost-effective manner. By introducing frequent
shopper cards in its stores, the Company has developed a marketing database that
helps to track customers. The cards, which are sold for $20 each, entitle
customers to a standard 10% discount on purchases made within a one year period.
As part of these programs, sales representatives call cardholders personally to
notify them 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 recently began sponsoring special
events such as in-line skating and snowboarding competitions that focus on the
interests and active lifestyles of its target customers. Further, the Company
recently began utilizing its Company-owned trucks as "rolling billboards" in
California, painting them to promote The Girl's Room as well as certain of its
Company-developed labels.

The Company designs its promotions to focus on and identify with its target
customers. The Company's destination store reputation among young women has been
recognized by other companies that market to the same demographic group. For
example, the Company recently participated in a promotional tie-in with the
movie "Clueless" by featuring posters in its stores and offering certain
movie-related items. The Company is planning similar promotions in the near
future.

STORE OPERATIONS

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

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

Stores are typically staffed with one full-time manager, one or two
full-time co-managers, one full-time customer service leader and nine to sixteen
sales associates and cashiers, most of whom are part-time. During peak seasons,
stores may increase staffing levels to accommodate the additional in-store
traffic. The Company seeks to hire store-level employees who are energetic,
fashionable and friendly and who can identify with its targeted customers. The
Company's policy is to promote store managers from within while also hiring from
outside. Highly-regarded store managers are 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 4,200 square feet.
Store hours are determined by the mall in which the store is located.

INFORMATION AND CONTROL SYSTEMS

The Company's information systems hardware, and various software
applications, were upgraded prior to the acquisition of Contempo Casuals in
order to accommodate the increased data processing needs resulting from the
acquisition. The Company believes its information systems are adequate to
support its current needs and currently is considering its information systems
requirements to support longer-term growth.

Although the Wet Seal and Contempo Casuals stores currently operate on two
different point-of-sale systems, the Company installed necessary interfaces to
allow for the integration of the point-of-sale data with the main system. The
Company is in the process of selecting a new point-of-sale system for both the
Wet Seal and Contempo Casuals stores and expects to begin installing this system
in the stores during fiscal 1996 and complete the project by the middle of
fiscal 1997. The Company expects that the introduction of a new point-of-sale
system will enable it to decrease communication and maintenance costs, improve
customer service and become more innovative in the area of in-store marketing.

TRADEMARKS

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

COMPETITION

The young women's retail apparel industry is highly competitive, with
fashion, quality, price, location, in-store environment and service being the
principal competitive factors. The Company competes with specialty apparel
retailers, department stores and certain other apparel retailers, including The
GAP, and on a regional basis, with such retailers as Charlotte Russe, Miller's
Outpost and Gadzooks. Many competitors

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are large national chains which have substantially greater financial, marketing
and other resources than the Company. While the Company believes it competes
effectively for favorable site locations and lease terms, competition for prime
locations within a mall is intense.

EMPLOYEES

As of February 3, 1996, the Company had 4,630 employees, consisting of 1,525
full-time employees and 3,105 part-time employees. Full-time personnel consisted
of 877 salaried and 648 hourly employees. All part-time personnel are hourly
employees. Of the total employees, 4,343 are sales personnel and 287 are
administrative and distribution center personnel. Personnel at all levels of
store operations are provided with cash incentives based upon various individual
store sales targets.

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

PROPERTIES

The Company's corporate headquarters are located at 64 Fairbanks, Irvine,
California, consisting of 85,740 square feet of leased office and storage space
(including 37,800 square feet of storage mezzanine space). This lease expires on
June 30, 1997. The Company has two consecutive five-year renewal options which
are subject to rent increases up to the fair market rental at the time of
renewal. The Company's distribution facility is located in Los Angeles,
California and consists of 99,847 square feet (including distribution mezzanine
space). This lease expires on July 31, 2002. This lease was acquired with the
acquisition of Contempo Casuals. The Company plans to sublease this facility and
lease new distribution space so that the office and distribution facilities are
in closer proximity to one another.

The Company leases all of its stores. Lease terms for the Company's stores
are typically 10 to 12 years and generally do not contain renewal options. The
leases generally provide for a fixed minimum rental and a rental based on a
percent of sales once a minimum sales level has been reached. As a lease
expires, the Company generally renews such lease at current market terms.
However, such renewal is based upon an analysis of the individual store's
profitability and sales potential.

Although the Company operates all of the Contempo Casuals stores, landlords
for 37 leases for such stores have not consented to the store lease assignments
effected in connection with the Contempo Casuals acquisition. The Company
believes that the absence of such consents will not have a material adverse
effect on the Company's financial condition or results of operations.

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. The Company
is not engaged in any legal proceedings which are expected, individually or in
the aggregate, to have a material adverse effect on the Company.

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MANAGEMENT

The following table sets forth information regarding the executive officers
and directors of the Company:

[Enlarge/Download Table]

NAME AGE POSITION
---------------------------- --- -------------------------------------------------------

Irving Teitelbaum (1) 57 Chairman of the Board and Director

Kathy Bronstein 44 Vice Chairman and Chief Executive Officer and Director

Edmond S. Thomas 42 President and Chief Operating Officer and Director

Stephen Gross (1) 50 Secretary and Director

Barbara Bachman 46 Vice President of Store Operations

Cecilia Gasgonia 35 Vice President of Merchandise Planning and Distribution

Sharon Hughes 36 Vice President of Merchandising

Ann Cadier Kim 38 Vice President of Finance and Chief Financial Officer

Ron Shaban 51 Vice President of Management Information Systems

Jean Heller Wollam 38 Vice President of Merchandising

George H. Benter, Jr. 54 Director

Walter F. Loeb 71 Director

Wilfred Posluns 64 Director

Gerald Randolph 77 Director

Alan Siegel 61 Director

------------------------
(1) Mr. Teitelbaum and Mr. Gross are brothers-in-law.

IRVING TEITELBAUM has been Chairman of the Board and a director of the
Company since June 1984. Mr. Teitelbaum is the co-founding President (in 1967)
and current Chairman and Chief Executive Officer of Suzy Shier Limited, a
Canadian public company listed on the Toronto and Montreal Stock Exchanges,
retailing women's apparel and lingerie in over 400 stores in Canada and the
United Kingdom. Mr. Teitelbaum also serves as President of First Canada
Management Corp., a management consulting firm.

KATHY BRONSTEIN was appointed the Company's Vice Chairman of the Board in
March 1994. Since March 1992, she has also served as the Company's Chief
Executive Officer. From March 1992 to March 1994 she was the Company's
President. From January 1985 through March 1992, Ms. Bronstein was Executive
Vice President and General Merchandise Manager and a director of the Company.
Ms. Bronstein's primary responsibilities include formulating and directing the
Company's expansion and overall marketing and merchandising strategies.

EDMOND S. THOMAS was appointed the Company's President in March 1994. Since
June 1992, he has also served as the Company's Chief Operating Officer. His
responsibilities include overseeing store operations, real estate, finance,
management information systems, store construction and the central distribution
center. Mr. Thomas became a director of the Company in August 1992. Prior to
joining the Company, from May 1991 through June 1992, Mr. Thomas was President
and Chief Operating Officer and a director of Domain, Inc., a Boston-based
upscale home furnishings retailer. From November 1988 to

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May 1991, Mr. Thomas was President and Chief Financial Officer of Foxmoor
Specialty Stores Corporation, a retail women's apparel chain ("Foxmoor"). From
May 1985 to November 1988, Mr. Thomas held various positions with Foxmoor,
including Corporate Controller and Executive Vice President, during which time
his responsibilities included finance, management information systems,
distribution, real estate, store operations and store construction.

STEPHEN GROSS has been the Secretary and a director of the Company since
June 1984. Mr. Gross co-founded Suzy Shier Limited. Since 1967, he has been a
director and an officer of Suzy Shier Limited, having served as President,
Assistant Secretary and Treasurer since 1976. He has also been the General
Merchandise Manager of Suzy Shier Limited since 1974. Mr. Gross also serves as
President of Irwel Management Services Inc., a management consulting firm
established in 1975.

BARBARA BACHMAN has been the Company's Vice President of Store Operations
since December 1994. From 1982 to 1994, Ms. Bachman served as Vice President of
Store Operations with Contempo Casuals. She previously held various other
positions with Contempo Casuals, including Regional Director of Stores from 1979
to 1982, District Manager from 1977 to 1979, and Store Manager from 1976 to
1977.

CECILIA GASGONIA has been the Director of Merchandise Planning since joining
the Company in February 1994. She was appointed Vice President of Merchandise
Planning and Distribution in June 1995. From 1987 to January 1994, Ms. Gasgonia
was Director of Merchandise Planning with Clothestime, a junior retail chain.

SHARON HUGHES has been employed by the Company since May 1990. Since March
1994, she has served as the Vice President of Merchandising. From May 1990 to
March 1994 she served as a Merchandise Manager. From 1983 to April 1990, Ms.
Hughes was employed by Saturday's, a chain of clothing stores, in various
capacities, the most recent of which was General Merchandise Manager.

ANN CADIER KIM has been employed by the Company since January 1986. In March
1994, she was appointed Vice President of Finance. Since December 1993 she has
served as the Company's Chief Financial Officer. From January 1986 to November
1993, Ms. Cadier Kim was the Company's Controller. From September 1982 to August
1985, she was employed by Touche Ross & Co. as an audit senior. Ms. Cadier Kim
is a certified public accountant.

RON SHABAN has been employed by the Company since September 1993 as Director
of Management Information Systems. In June 1995, he was appointed Vice President
of Management Information Systems. From September 1991 to September 1993, Mr.
Shaban was Director of Management Information Systems with Rag Shops, Inc. From
February 1988 to September 1991, he was Director of Management Information
Systems with G&G Shops, Inc., a division of Petrie Stores.

JEAN HELLER WOLLAM has been the Company's Vice President of Merchandising
since March 1992. From March 1988 to March 1992, Ms. Wollam held various other
positions with the Company, including Associate General Merchandising Manager
responsible directly for all private label merchandising from January 1991 to
March 1992, Divisional Merchandise Manager responsible for all sportswear from
November 1989 to December 1990, and Tops Buyer from March 1988 to November 1989.
From September 1987 to February 1988, Ms. Wollam was a Merchandise Manager with
MGA/Guess Stores and from January 1985 to August 1987, she was a buyer with
Contempo Casuals.

GEORGE H. BENTER, JR. has been a director of the Company since 1990. Since
May 1992, Mr. Benter has been President, Chief Operating Officer and a director
of City National Bank. From 1965 until April 1992, Mr. Benter worked in various
capacities with Security Pacific Corporation, culminating in the position of
Vice Chairman. Prior to that time he held various positions with Security
Pacific National Bank. He is also a director of Whittaker Corporation.

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WALTER F. LOEB has been a director of the Company since May 1993. He is
President of Loeb Associates Inc., a New York-based retail consultancy company
that has served a variety of domestic and international companies since its
founding in February 1990. Mr. Loeb is also the publisher of "Loeb Retail
Letter," a monthly analysis of the retail industry. He currently is a director
of Color Tile, Inc., Federal Realty Investment Trust, Gymboree Corporation and
InterTan, Inc.

WILFRED POSLUNS has been a director of the Company since 1990. He is
Managing Director of Cedarpoint Investments, Inc., a Toronto-based venture
capital company. Mr. Posluns was the Chairman of the Board of Directors and
Chief Executive Officer of Dylex Limited from July 1988 to August 1995 and
President from 1976 through 1990. He was a member of the Board of Directors of
Dylex Limited from 1966 to August 1995. On January 11, 1995, Dylex Limited filed
for court protection under the Companies Creditors Arrangement Act and emerged
from protection under such Act in 1995. Mr. Posluns is a director of The John
Forsyth Co. Inc. and of Israel Discount Bank of Canada. From 1973 until March
1992, Mr. Posluns was the Chairman of the Board of Strathearn House Group
Limited, a company of which, pursuant to a voting trust agreement, he had joint
control of 48% of the voting shares. In February 1992, a receiver was appointed
for Strathearn House Group Limited and voluntary proceedings in reorganization
were initiated under Canadian laws.

GERALD RANDOLPH has been a director of the Company since July 1989. Mr.
Randolph is a chartered accountant in Canada. He has been engaged in an outside
professional capacity by Suzy Shier Limited from its inception in 1967, having
served as its independent auditor, until July 1989 when he was appointed Chief
Financial Officer and a director of Suzy Shier Limited.

ALAN SIEGEL has been a director of the Company since 1990. He has been a
partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. since
August 1995. From 1987 to July 1995 he was a partner in the law firm of Baker &
McKenzie. He is also a director of Thor Industries, Inc. and Ermenegildo Zegna
Corporation.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Kathy Bronstein,
Vice Chairman and Chief Executive Officer, and Edmond S. Thomas, President and
Chief Operating Officer. Each agreement has a current term which extends to
January 30, 2001. The agreement automatically extends for an additional year on
the first day of each fiscal year for up to five years. These automatic
extensions may be terminated by either party at any time upon prior written
notice. Ms. Bronstein and Mr. Thomas have agreed not to compete with the Company
during the term of their employment and for a period of two years thereafter.
The Company has obtained a "key man" life insurance policy on Ms. Bronstein in
the amount of $5 million.

In the event that following a "Change of Control" (as defined in the
employment agreements) and either a termination of their employment other than
"for cause" or a substantial reduction in the scope of their duties, the Company
would be obligated to make payments to Ms. Bronstein and Mr. Thomas in an amount
equal to three times their respective annual salaries, including bonuses, plus
an amount equal to any federal excise tax obligations arising from such payments
and any income tax obligations arising from reimbursement of any such excise
taxes.

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DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of (i) 20,000,000
shares of Class A Common Stock, (ii) 10,000,000 shares of Class B Common Stock
and (iii) 2,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock").

VOTING RIGHTS
The voting powers, preferences and relative rights of Class A Common Stock
and Class B Common Stock are identical in all respects, except that the holders
of Class A Common Stock are entitled to one vote per share and holders of Class
B Common Stock are entitled to two votes per share and Class B Common Stock has
certain restrictions on ownership and transfer described under "-- Other
Provisions". Except as described below, holders of Class A Common Stock and
Class B Common Stock vote together on all matters presented to the stockholders
for their vote or approval, including the election of directors. The
stockholders are not entitled to vote cumulatively for the election of
directors.

Under the Company's Restated Certificate and the General Corporation Law of
the State of Delaware (the "Delaware Law"), the holders of Class A Common Stock
and Class B Common Stock are entitled to vote as separate classes on any
amendment to the Restated Certificate that would increase or decrease the par
value of the shares of either class, or alter or change the powers, preferences
or special rights of the shares of either class so as to affect such class
adversely.

DIVIDENDS
Each share of Class A Common Stock and Class B Common Stock is entitled to
receive dividends if, as and when declared by the Board of Directors of the
Company. Class A Common Stock and Class B Common Stock share equally, on a
share-for-share basis, in any dividends declared by the Board of Directors.
Under the Delaware Law, the Company may declare and pay dividends out of
surplus, or if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared or the preceding year. No dividends may be
declared, however, if the capital of the Company had been diminished by
depreciation, losses or otherwise to an amount less than the aggregate amount of
capital represented by any issued and outstanding stock having a preference on
distribution.

CONVERSION RIGHTS
Class A Common Stock has no conversion rights. Each share of Class B Common
Stock, however, is convertible at any time at the option of the holder into one
share of Class A Common Stock.

The Company's Restated Certificate provides that any holder of shares of
Class B Common Stock desiring to transfer such shares to a person other than a
Permitted Transferee (as defined below) must present such shares to the Company
for mandatory conversion into an equal number of shares of Class A Common Stock
upon such transfer. Thereafter, such shares of Class A Common Stock may be
freely transferred to persons other than Permitted Transferees, subject to
applicable securities laws.

RESTRICTIONS ON OWNERSHIP AND TRANSFER OF CLASS B COMMON STOCK
The Company's Restated Certificate provides that Class B Common Stock is
subject to certain restrictions on its ownership and transfer which do not apply
to Class A Common Stock.

Shares of Class B Common Stock may not be transferred by sale, gift, bequest
or otherwise to any person other than a Permitted Transferee (as defined below)
without first being converted to Class A Common Stock.

If at any time a holder of shares of Class B Common Stock is a corporation,
trust, partnership, limited partnership or similar entity (hereinafter referred
to as a "Class B Stockholder Entity") then, except as provided in each of the
following two paragraphs, no ownership interest in such Class B Stockholder
Entity may be issued or transferred if following such issuance or transfer such
Class B Stockholder Entity is not directly or indirectly wholly owned by one or
more Permitted Transferees. If any transfer is made contrary to this limitation,
then Class B Common Stock held by such Class B Stockholder Entity shall
automatically be converted into Class A Common Stock.

If any person other than a Permitted Transferee makes an offer to acquire or
acquires a 100% ownership interest in a Class B Stockholder Entity, whether by
merger, consolidation, purchase of assets or stock or otherwise, then either (i)
such person must make an Equal Terms Offer (as defined in the Restated

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Certificate) to all holders of Class A Common Stock on or prior to the
consummation of such acquisition or (ii) all shares of Class B Common Stock held
by such Class B Stockholder Entity shall automatically be converted into shares
of Class A Common Stock upon the consummation of such acquisition; PROVIDED,
HOWEVER, that after five Class B Stockholder Entities have been acquired
pursuant to this paragraph by persons other than Permitted Transferees, any
further acquisition of any Class B Stockholder Entity by a person other than a
Permitted Transferee shall result in the automatic conversion of all shares of
Class B Common Stock held by such Class B Stockholder Entity into Class A Common
Stock.

Notwithstanding the foregoing, the restrictions on transfers and changes in
beneficial ownership of Class B Common Stock contained in the previous two
paragraphs do not apply to any changes in the beneficial ownership and/or
control of Suzy Shier. However, this exception does not apply at any time
following any transfer of assets (other than shares of capital stock of the
Company) from Suzy Shier by sale, conveyance, exchange, dividend, distribution
or otherwise, other than transfers of assets in the ordinary course of business
consistent with past practice, following which Suzy Shier no longer operates the
majority of the Canadian business operations of Suzy Shier operated prior to
such transfer.

"Permitted Transferee" means (i) an original holder of Class B Common Stock
(an "Original Holder"), (ii) an immediate family member of an Original Holder
that is a natural person, or (iii) a corporation, trust, partnership, limited
partnership, association or similar entity which is directly or indirectly
wholly-owned by an Original Holder or his family members.

OTHER PROVISIONS
Holders of Class A Common Stock and Class B Common Stock have no preemptive
rights to subscribe to any additional securities which the Company may issue and
there are no redemption or sinking fund provisions applicable to either class.
All outstanding shares are, and all shares to be outstanding upon completion of
the Offering will be, validly issued, fully-paid and non-assessable. In the
event of the liquidation, dissolution or winding up of the Company, holders of
the shares of Class A Common Stock and Class B Common Stock are entitled to
share equally, on a share-for-share basis, in the assets of the Company
available for distribution to stockholders after satisfaction of any preferred
stock liquidation preference.

PREFERRED STOCK
The Company currently has no shares of Preferred Stock outstanding.
Preferred Stock may be issued from time to time in one or more series and the
Board of Directors, without further approval of the stockholders, is authorized
to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, sinking funds and any
other rights, preferences, privileges and restrictions applicable to each such
series of Preferred Stock. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more difficult
for a third party to gain control of the Company.

DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Section 203 of the Delaware Law prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock.

The Company has included in its Restated Certificate provisions to (i)
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty to the extent permitted by the Delaware
Law and (ii) indemnify its directors and officers to the fullest extent
permitted by Section 145 of the Delaware Law, including circumstances in which
indemnification is otherwise discretionary. The Company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.

424B1 28th Page of 46 TOC 1st Previous Next ↓Bottom Just 28th
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth, as of May 3, 1996: (i) the beneficial
ownership of the outstanding shares of Common Stock held by (A) the Selling
Stockholders, (B) all other persons known to the Company to own beneficially 5%
or more of the outstanding shares of Common Stock and (C) Kathy Bronstein, the
Vice Chairman and Chief Executive Officer, and Edmond S. Thomas, the President
and Chief Operating Officer; (ii) the number of shares being sold by the Selling
Stockholders in the Offering (assuming all shares of Class B Common Stock
offered by the Selling Stockholders are converted into Class A Common Stock and
sold); and (iii) the percentage of total voting power represented by Common
Stock held by each such stockholder before and after the Offering. Pursuant to
the rules of the Commission, in calculating percentage ownership, each person is
deemed to beneficially own his shares subject to options exercisable within 60
days after the date of this Prospectus, but options owned by others (even if
exercisable within 60 days) are deemed not to be outstanding shares.

[Enlarge/Download Table]

PRIOR TO THE OFFERING AFTER THE OFFERING
--------------------------------------- -----------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES OF SHARES OF SHARES SHARES OF SHARES OF
CLASS A CLASS B % OF TOTAL OF CLASS A CLASS A CLASS B
COMMON COMMON VOTING COMMON STOCK COMMON COMMON
STOCK OWNED STOCK OWNED POWER BEING OFFERED STOCK OWNED STOCK OWNED(1)
------------ ------------ ----------- ------------- ------------ ---------------

2927977 Canada Inc. (GTHI Sub) -- 1,962,346 21.4% 789,273 -- 1,173,073
(2)................................
Suzy Shier Inc. (2)................. -- 1,500,000 16.4 1,167,500 -- 332,500
Los Angeles Express Fashions, Inc. (2)... -- 1,500,000 16.4 -- -- 1,500,000
Gross-Teitelbaum Holdings Inc. -- 378,227 4.1 378,227 -- --
(2)................................
Kathy Bronstein (3)................. 130,000 467,092 5.8 -- 130,000 467,092
Edmond S. Thomas (4)................ 121,830 -- * -- 121,830 --
Merrill Lynch & Co., Inc. (5)....... 916,700 -- 5.0 -- 916,700 --
Craig Drill Capital, L.P. (6)....... 1,563,800 -- 8.5 -- 1,563,800 --
Charles M. Royce (7)................ 427,870 -- 2.3 -- 427,870 --
Pioneering Management Corp. (8)..... 399,700 -- 2.2 -- 399,700 --

% OF TOTAL
VOTING
POWER
-----------

2927977 Canada Inc. (GTHI Sub) 14.0%
(2)................................
Suzy Shier Inc. (2)................. 4.0
Los Angeles Express Fashions, Inc. ( 17.9
Gross-Teitelbaum Holdings Inc. 0.0
(2)................................
Kathy Bronstein (3)................. 6.3
Edmond S. Thomas (4)................ *
Merrill Lynch & Co., Inc. (5)....... 5.5
Craig Drill Capital, L.P. (6)....... 9.3
Charles M. Royce (7)................ 2.6
Pioneering Management Corp. (8)..... 2.4

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

(1) If the Underwriters' overallotment option is exercised in full, GTHI Sub,
Suzy Shier, and Gross-Teitelbaum Holdings Inc. will beneficially own
1,015,573 shares, 175,000 shares and 0 shares of Class B Common Stock,
respectively.

(2) The address of each such Trust Stockholder is 1604 St. Regis Blvd., Dorval,
Quebec, Canada H9P 1H6. The Trust Stockholders are directly or indirectly
controlled by Irving Teitelbaum, Chairman of the Board, and Stephen Gross,
Secretary and a director of the Company. Upon consummation of the Offering,
shares representing approximately 35.9% (32.5% if the Underwriters'
overallotment option is exercised in full) of the total voting power will be
owned by the Trust Stockholders. The Trust Stockholders are parties to a
voting trust agreement which will terminate upon consummation of the
Offering.

(3) Ms. Bronstein has sole voting and dispositive power with respect to all of
the stated holdings of Class A and Class B Common Stock. The number of
shares of Class A Common Stock includes options to purchase 120,000 shares
of Class A Common Stock, all of which are currently exercisable. Ms.
Bronstein also holds options to purchase an additional 120,000 shares of
Class A Common Stock which become exercisable over the next three years. If
the Underwriters exercise their overallotment option in full, Ms. Bronstein
will sell 80,000 shares of Class A Common Stock.

(4) Mr. Thomas has sole voting and dispositive power with respect to all of the
stated holdings of Class A Common Stock. The number of shares of Class A
Common Stock includes options to purchase 120,000 shares of Class A Common
Stock, all of which are currently exercisable. Mr. Thomas also holds options
to purchase an additional 120,000 shares of Class A Common Stock which
become exercisable over the next three years. If the Underwriters exercise
their overallotment option in full, Mr. Thomas will sell 70,000 shares of
Class A Common Stock.

424B1 29th Page of 46 TOC 1st Previous Next ↓Bottom Just 29th
(5) The stockholder's address is c/o Merrill Lynch Group, Inc., World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281. As reported
in a Schedule 13G dated April 10, 1996, Merrill Lynch & Co., Inc., a
Delaware corporation ("ML&Co"), in its capacity as parent holding company of
Merrill Lynch Group, Inc., a Delaware corporation ("ML Group"), which is the
parent holding company of Princeton Services, Inc., a Delaware corporation
("PSI"), may be deemed the beneficial owner of an aggregate of 916,700
shares of Class A Common Stock of the Company. PSI is the general partner of
Merrill Lynch Asset Management, L.P. (d/b/a) Merrill Lynch Asset Management,
a Delaware limited partnership ("MLAM") and Fund Asset Management, L.P.
(d/b/a) Fund Asset Management, a Delaware limited partnership ("FAM"). MLAM
and FAM are registered investment advisers which may be deemed the
beneficial owners of 266,800 shares of Class A Common Stock and 649,900
shares of the Class A Common Stock, respectively. These numbers consist of
the shares held for two discretionary account clients of MLAM and FAM:
Merrill Lynch Global Allocation Fund, Inc. and Merrill Lynch Special Value
Fund, Inc. (the "Funds"), respectively. ML&Co, ML Group, PSI, FAM, MLAM and
the Funds expressly disclaim that they are, in fact, the beneficial owners
of any securities of the Company.

(6) The stockholder's address is Park Avenue Plaza, New York, New York 10055. As
reported in a Schedule 13D dated February 12, 1996, Craig Drill Capital,
L.P. has sole voting and dispositive power with respect to 1,563,800 shares
of the Class A Common Stock of the Company. Mr. Craig A. Drill is sole
general partner of Craig Drill Capital, L.P.

(7) The stockholder's address is 1414 Avenue of the Americas, New York, New York
10019. As reported in a Schedule 13G dated February 13, 1996, all of the
securities are beneficially owned by Charles M. Royce. Mr. Royce may be
deemed to be a controlling person of Quest Advisory Corp. ("Quest") and
Quest Management Company ("QMC"), and as such may be deemed to own
beneficially the shares of Class A Common Stock beneficially owned by Quest
and QMC. Quest has sole voting and dispositive authority with respect to
358,670 shares. QMC has sole voting and dispositive authority with respect
to 69,200 shares. Mr. Royce does not own any shares of Class A Common Stock
outside of Quest and QMC, and expressly disclaims that he is, in fact, the
beneficial owner of the shares held by Quest and QMC.

(8) The stockholder's address is 60 State Street, Boston, Massachusetts 02109.
As reported in a Schedule 13G dated January 26, 1996, Pioneering Management
Corp. has sole voting power with respect to 399,700 shares of the Class A
Common Stock of the Company and has shared dispositive power with respect to
399,700 shares of the Class A Common Stock.

424B1 30th Page of 46 TOC 1st Previous Next ↓Bottom Just 30th
UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement,
the Underwriters named below have severally agreed to purchase from the Company
and the Selling Stockholders the aggregate number of shares of Class A Common
Stock set forth opposite their respective names:

[Enlarge/Download Table]

NUMBER OF
UNDERWRITER SHARES
----------------------------------------------------------------------- -----------------

Schroder Wertheim & Co. Incorporated................................... 730,000
Montgomery Securities.................................................. 730,000
Bear, Stearns & Co. Inc................................................ 95,000
Alex. Brown & Sons Incorporated........................................ 95,000
Dillon, Read & Co. Inc................................................. 95,000
Donaldson, Lufkin & Jenrette Securities Corporation.................... 95,000
Goldman, Sachs & Co.................................................... 95,000
Lehman Brothers Inc.................................................... 95,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated..................... 95,000
Morgan Stanley & Co. Incorporated...................................... 95,000
Oppenheimer & Co., Inc................................................. 95,000
Robertson, Stephens & Company LLC...................................... 95,000
Salomon Brothers Inc................................................... 95,000
Smith Barney Inc....................................................... 95,000
Advest, Inc............................................................ 50,000
William Blair & Company, L.L.C......................................... 50,000
Dabney/Resnick Inc..................................................... 50,000
Dain Bosworth Incorporated............................................. 50,000
Ladenburg, Thalmann & Co. Inc.......................................... 50,000
McDonald & Company Securities, Inc..................................... 50,000
Piper Jaffray Inc...................................................... 50,000
Principal Financial Securities, Inc.................................... 50,000
The Robinson-Humphrey Company, Inc..................................... 50,000
The Seidler Companies Incorporated..................................... 50,000
-----------------
Total.............................................................. 3,100,000
-----------------
-----------------

The Underwriting Agreement provides that the several Underwriters are
obligated to purchase all 3,100,000 shares of Class A Common Stock offered
hereby (other than the shares covered by the overallotment option), if any are
purchased. Schroder Wertheim & Co. Incorporated and Montgomery Securities, as
representatives of the several Underwriters (the "Representatives"), have
advised the Company and the Selling Stockholders that the Underwriters propose
to offer the shares to the public at the public offering price set forth on the
cover page of this Prospectus; that the Underwriters propose to allow a
concession not in excess of $0.65 per share to certain dealers, including the
Underwriters; that the Underwriters and such dealers may allow a discount of not
in excess of $0.10 per share to other dealers; and that the public offering
price and the concession and discount to dealers may be changed by the
Representatives after the commencement of the Offering.

Certain stockholders have granted to the Underwriters an option, expiring at
the close of business on the 30th day after the date of the Underwriting
Agreement, to purchase up to an additional 465,000 shares of Class A Common
Stock, at the public offering price less underwriting discounts and commissions,
all as set forth on the cover page of this Prospectus. The Underwriters may
exercise the option, in whole or in part, only to cover overallotments, if any,
in the sale of shares of Class A Common Stock in the Offering. To the extent
that the Underwriters exercise this option, each Underwriter will be committed,
subject to certain conditions, to purchase a number of the additional shares
proportionate to such Underwriter's initial commitment.

424B1 31st Page of 46 TOC 1st Previous Next ↓Bottom Just 31st
The Company, certain stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

The Company and its directors, officers, certain 5% stockholders and certain
other stockholders have agreed not to sell or otherwise dispose of any shares of
Class A Common Stock or Class B Common Stock for a period of (i) 180 days with
respect to the Company and the Trust Stockholders; or (ii) 120 days with respect
to directors and officers of the Company who are not affiliated with the Trust
Stockholders, in each case after the date of this Prospectus, without the prior
written consent of the Representatives.

In connection with the Offering, certain Underwriters and selling group
members who are qualifying registered market makers on the Nasdaq National
Market may engage in passive market making transactions in the Class A Common
Stock on the Nasdaq National Market in accordance with Rule 10b-6A under the
Exchange Act during the two business day period before commencement of offers of
sales of shares of the Class A Common Stock offered hereby. Passive market
making transactions must comply with certain volume and price limitations and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security, and if all
independent bids are lowered below the passive market maker's bid, then such bid
must be lowered when certain purchase limits are exceeded.

EXPERTS

The financial statements included and incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
February 3, 1996 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which report is also included and
incorporated herein by reference, and have been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
auditing and accounting.

LEGAL MATTERS

The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P., New
York, New York. Alan Siegel, a director of the Company, is a member of the firm
of Akin, Gump, Strauss, Hauer & Feld, L.L.P. and is the holder of options to
purchase 10,000 shares of Class A Common Stock. Certain legal matters will be
passed upon for the Underwriters by Willkie Farr & Gallagher.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information concerning the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional offices at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Commission at prescribed rates from the Public Reference
Section of the Commission at its principal office at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549.

The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act, with respect to the Shares
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby made
to the Registration Statement and exhibits filed as a part thereof and otherwise
incorporated therein and which may be inspected and copied in the manner and at
the sources described above. Statements contained in this Prospectus as to the
contents of any document referred to are not necessarily complete, and in each
instance reference is made to such exhibit for a more complete description, and
each such statement is qualified in its entirety by such reference.

424B1 32nd Page of 46 TOC 1st Previous Next ↓Bottom Just 32nd
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents which have been filed by the Company with the
Commission are incorporated by reference into this Prospectus:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 1996;

2. The description of the Class A Common Stock contained in the Company's
Registration Statement on Form S-1 under the Securities Act filed with the
Commission on July 30, 1990 (File No. 33-34895); and

3. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
such documents.

Any statement contained herein or in any document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Prospectus, except as so modified or superseded. The Company will
provide without charge to each person to whom a copy of this Prospectus is
delivered, upon written or oral request of such person, a copy of any or all of
the information that has been incorporated by reference in this Prospectus
(excluding exhibits to such information which are not specifically incorporated
by reference into such information). Requests for such documents should be
directed to the Company at its principal executive offices, 64 Fairbanks,
Irvine, California 92718, Attention: Corporate Secretary, telephone (714)
583-9029.

424B1 33rd Page of 46 TOC 1st Previous Next ↓Bottom Just 33rd
THE WET SEAL, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

[Enlarge/Download Table]

PAGE
-----

INDEPENDENT AUDITORS' REPORT:
Report of Deloitte & Touche LLP.......................................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated balance sheets as of February 3, 1996 and January 28, 1995.................................. F-3
Consolidated statements of operations for the years ended February 3, 1996, January 28, 1995 and January
29, 1994................................................................................................ F-4
Consolidated statements of stockholders' equity for the years ended February 3, 1996, January 28, 1995
and January 29, 1994.................................................................................... F-5
Consolidated statements of cash flows for the years ended February 3, 1996, January 28, 1995 and January
29, 1994................................................................................................ F-6
Notes to consolidated financial statements............................................................... F-7

F-1

424B1 34th Page of 46 TOC 1st Previous Next ↓Bottom Just 34th
INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of The Wet
Seal, Inc. and subsidiary as of February 3, 1996 and January 28, 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended February 3, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Wet
Seal, Inc. and subsidiary as of February 3, 1996 and January 28, 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended February 3, 1996, in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP
March 11, 1996
Costa Mesa, California

F-2

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THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS

[Enlarge/Download Table]

FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------

CURRENT ASSETS:
Cash and cash equivalents (Note 1)..................................................... $57,153,000 2$5,369,000
Other receivables...................................................................... 523,000 368,000
Tax refund receivable (Note 3)......................................................... -- 59,000
Merchandise inventories................................................................ 16,241,000 8,194,000
Prepaid expenses....................................................................... 428,000 599,000
Deferred tax charges (Note 3).......................................................... 1,100,000 320,000
----------- -----------
Total current assets............................................................... 75,445,000 34,909,000
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Leasehold improvements................................................................. 55,438,000 42,892,000
Furniture, fixtures and equipment...................................................... 21,606,000 19,794,000
Leasehold rights....................................................................... 2,009,000 2,030,000
Construction in progress............................................................... 9,000 316,000
79,062,000 65,032,000
Less accumulated depreciation.......................................................... (41,015,000) (35,719,000)
----------- -----------
Net equipment and leasehold improvements........................................... 38,047,000 29,313,000
----------- -----------
OTHER ASSETS:
Deferred tax charges and other assets (Note 3)......................................... 3,461,000 2,419,000
Goodwill, net of accumulated amortization of $521,000 and $475,000 as of February 3,
1996 and January 28, 1995, respectively............................................... 611,000 657,000
----------- -----------
Total other assets................................................................. 4,072,000 3,076,000
----------- -----------
$117,564,000 6$7,298,000
----------- -----------
----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable....................................................................... $19,491,000 $8,641,000
Accrued liabilities (Note 11).......................................................... 22,813,000 3,558,000
Income taxes payable (Note 3).......................................................... 3,354,000 237,000
Current portion of long-term debt...................................................... 3,736,000 --
----------- -----------
Total current liabilities.......................................................... 49,394,000 12,436,000
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt (Note 8)................................................................ 5,264,000 --
Deferred rent.......................................................................... 5,171,000 4,138,000
----------- -----------
Total long-term liabilities........................................................ 10,435,000 4,138,000
----------- -----------
Total liabilities.................................................................. 59,829,000 16,574,000
----------- -----------
COMMITMENTS: (NOTE 6)
STOCKHOLDERS' EQUITY: (NOTES 4 AND 5)
Preferred Stock, $.01 par value, authorized, 2,000,000 shares; none issued and
outstanding........................................................................... -- --
Common Stock, Class A, $.10 par value, authorized 20,000,000 shares; 5,687,066 and
4,328,937 shares issued and outstanding at February 3, 1996 and January 28, 1995,
respectively.......................................................................... 568,000 433,000
Common Stock, Class B Convertible, $.10 par value, authorized 10,000,000 shares;
6,807,665 and 7,907,665 shares issued and outstanding at February 3, 1996 and January
28, 1995, respectively................................................................ 681,000 791,000
Paid-in capital........................................................................ 38,568,000 37,397,000
Retained earnings...................................................................... 17,918,000 12,103,000
----------- -----------
Total stockholders' equity......................................................... 57,735,000 50,724,000
----------- -----------
$117,564,000 6$7,298,000
----------- -----------
----------- -----------

See accompanying notes to consolidated financial statements.

F-3

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THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

[Enlarge/Download Table]

FISCAL YEAR ENDED
-------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------

SALES.............................................. $266,695,000 $132,997,000 $140,129,000
COST OF SALES (including buying, distribution and
occupancy costs).................................. 200,626,000 104,547,000 113,092,000
----------- ----------- -----------
GROSS MARGIN....................................... 66,069,000 28,450,000 27,037,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (Note
9)................................................ 57,531,000 30,698,000 31,576,000
INTEREST INCOME, NET (Note 8)...................... (1,410,000) (882,000) (573,000)
----------- ----------- -----------
NET OPERATING EXPENSES............................. 56,121,000 29,816,000 31,003,000
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME
TAXES............................................. 9,948,000 (1,366,000) (3,966,000)
PROVISION (BENEFIT) FOR INCOME TAXES (Note 3)...... 4,133,000 (353,000) (1,588,000)
----------- ----------- -----------
NET INCOME (LOSS).................................. $ 5,815,000 $(1,013,000) $(2,378,000)
----------- ----------- -----------
----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE................. $ 0.47 $ (0.08) $ (0.19)
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note
1)................................................ 12,387,140 12,234,502 12,227,781
----------- ----------- -----------
----------- ----------- -----------

See accompanying notes to consolidated financial statements.

F-4

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THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

[Enlarge/Download Table]

COMMON STOCK
----------------------------------------------
CLASS A CLASS B TOTAL
---------------------- ---------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES PAR VALUE SHARES PAR VALUE CAPITAL EARNINGS EQUITY
--------- ----------- --------- ----------- ---------- ---------- ------------

Balance at January 31, 1993............... 4,320,098 $ 432,000 7,907,665 $ 791,000 $37,368,000 $15,494,000 $54,085,000
Stock issued pursuant to long-term
incentive plan (Note 5).................. 6,733 1,000 -- -- 21,000 -- 22,000
Net loss.................................. -- -- -- -- -- (2,378,000) (2,378,000)
--------- ----------- --------- ----------- ---------- ---------- ------------
Balance at January 29, 1994............... 4,326,831 433,000 7,907,665 791,000 37,389,000 13,116,000 51,729,000
Stock issued pursuant to long-term
incentive plan (Note 5).................. 2,106 -- -- -- 8,000 -- 8,000
Net loss.................................. -- -- -- -- -- (1,013,000) ( 1,013,000)
--------- ----------- --------- ----------- ---------- ---------- ------------
Balance at January 28, 1995............... 4,328,937 433,000 7,907,665 791,000 37,397,000 12,103,000 50,724,000
Stock issued pursuant to long-term
incentive plan (Note 5).................. 1,453 -- -- -- 11,000 -- 11,000
Exercise of stock options................. 2,000 -- -- -- 7,000 -- 7,000
Conversion of Class B Common Stock to
Class A Common Stock (Note 4)............ 1,100,000 110,000 (1,100,000) (110,000) -- -- --
Issuance of Class A Common Stock pursuant
to acquisition of Contempo Casuals (Note
2)....................................... 254,676 25,000 -- -- 1,153,000 -- 1,178,000
Net income................................ -- -- -- -- -- 5,815,000 5,815,000
--------- ----------- --------- ----------- ---------- ---------- ------------
Balance as of February 3, 1996............ 5,687,066 $ 568,000 6,807,665 $ 681,000 $38,568,000 $17,918,000 $57,735,000
--------- ----------- --------- ----------- ---------- ---------- ------------
--------- ----------- --------- ----------- ---------- ---------- ------------

See accompanying notes to consolidated financial statements.

F-5

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THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

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FISCAL YEAR ENDED
-------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $5,815,000 ($1,013,000) ($2,378,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 10,384,000 8,057,000 8,142,000
Loss on disposal of equipment and leasehold
improvements............................................. 14,000 124,000 316,000
Stock issued pursuant to long-term incentive plan......... 11,000 8,000 22,000
Deferred tax, net......................................... (2,155,000) (1,162,000) (716,000)
Changes in operating assets and liabilities, net of effect
of acquisition:
Other receivables....................................... 41,000 172,000 (191,000)
Tax refund receivable................................... 59,000 1,766,000 (1,754,000)
Merchandise inventories................................. 2,436,000 93,000 185,000
Prepaid expenses........................................ 1,093,000 133,000 30,000
Other assets............................................ (69,000) 21,000 (18,000)
Accounts payable and accrued liabilities................ 3,529,000 1,352,000 (375,000)
Income taxes payable.................................... 3,117,000 -- --
Deferred rent........................................... 1,033,000 517,000 657,000
----------- ----------- -----------
Total adjustments......................................... 19,493,000 11,081,000 6,298,000
----------- ----------- -----------
Net cash provided by operating activities................... 25,308,000 10,068,000 3,920,000

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements.......... (2,585,000) (3,299,000) (3,908,000)
Cash paid for acquisition, less cash acquired............... (20,000) -- --
Proceeds from sale of equipment and leasehold
improvements............................................... 74,000 269,000 32,000
Proceeds from sale of marketable securities................. -- 4,520,000 1,729,000
----------- ----------- -----------
Net cash (used in) provided by investing activities......... (2,531,000) 1,490,000 (2,147,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................................ 10,000,000 -- --
Principal payments on long-term debt........................ (1,000,000) -- --
Proceeds from issuance of stock............................. 7,000 -- --
----------- ----------- -----------
Net cash provided by financing activities................... 9,007,000 -- --
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 31,784,000 11,558,000 1,773,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 25,369,000 13,811,000 12,038,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... 5$7,153,000 2$5,369,000 1$3,811,000
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (refunded) during the year for:
Interest.................................................. $ 498,000 $ -- $ --
Income taxes, net......................................... 2,829,000 (1,187,000) 966,000

SCHEDULE OF NONCASH TRANSACTIONS:
The Company acquired the assets of Contempo Casuals during
the year ended February 3, 1996. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired............................... 2$9,592,000 $ -- $ --
Cash paid to seller and transaction costs................... 750,000 -- --
Common stock issued......................................... 1,178,000 -- --
-----------
Liabilities assumed..................................... 2$7,664,000 -- --
----------- ----------- -----------
----------- ----------- -----------

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

See accompanying notes to consolidated financial statements.

F-6

424B1 39th Page of 46 TOC 1st Previous Next ↓Bottom Just 39th
THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS

The Wet Seal, Inc. and subsidiary (the Company) is a nationwide specialty
retailer of moderately priced, fashionable apparel for women. On July 1, 1995,
the Company acquired Contempo Casuals, Inc., a 237-store retail junior women's
chain. This acquisition substantially increased the Company's size, taking it
from 133 stores to 364 stores as of February 3, 1996. The Company's success is
largely dependent upon its ability to gauge the fashion tastes of its customers
and to provide merchandise that satisfies customer demand. The Company's failure
to anticipate, identify or to react to changes in fashion trends could adversely
affect the Company. The voting stock of the Company is majority held by a group
of companies controlled through a voting trust formed by Suzy Shier Inc., a
publicly-traded Canadian retailer.

The Company's fiscal year ends on the Saturday closest to the end of
January. In fiscal 1995, the reporting period included 53 weeks as compared to
52 weeks in each of fiscal years 1994 and 1993.

PRINCIPLES OF CONSOLIDATION

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

MERCHANDISE INVENTORIES

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

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

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

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

INTANGIBLE ASSET

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

RENTAL EXPENSE

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

INCOME TAX

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

STATEMENTS OF CASH FLOWS

For purposes of the statements of cash flows, the Company considers all
highly liquid interest-earning deposits purchased with an initial maturity of
three months or less to be cash equivalents. At February 3,

F-7

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THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1996 and January 28, 1995, cash equivalents totaled $52,141,000 and $25,218,000,
respectively, bearing interest at rates ranging from approximately 5.3% to 6.1%
at February 3, 1996 and from approximately 5.7% to 6.0% at January 28, 1995.

NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per common share is computed based on the weighted average
number of shares outstanding for the period. The effect of Common Stock
equivalents was not significant.

NEW ACCOUNTING PRONOUNCEMENTS

In fiscal 1996, the Company will be required to adopt Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." The primary impact of this standard will relate to additional
disclosure related to the Company's stock option plan. The Company has
determined that it will not change to the fair value method and will continue to
use Accounting Principles Board Opinion No. 25 for measurement and recognition
of employee stock-based transactions. (See Note 5.) In addition, in fiscal 1996
the Company will be required to adopt SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The Company anticipates that SFAS No. 121 will not have a material impact on the
Company's financial statements.

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 approximates fair value due to the
short maturity of these financial instruments. Long-term debt bears interest at
a rate indexed to the prime rate; therefore, management believes the carrying
amount for the outstanding borrowings at February 3, 1996 approximates fair
value.

NOTE 2 -- ACQUISITION
On July 1, 1995, the Company acquired the business, assets and properties of
Contempo Casuals, Inc., a 237-store retail junior women's chain with stores in
34 states and Puerto Rico. The purchase price consisted of (a) the issuance of
254,676 shares of the Company's Class A Common Stock which had a value of
$1,178,000 on the date of the acquisition, and (b) $100,000 in cash. The
transaction was accounted for under the purchase method. In connection with the
acquisition, the Company assumed certain liabilities which were estimated by the
seller. The total amount of these assumed liabilities may not, in fact, be paid
as the actual payments will be based on the future claims and losses which are
actually submitted and which are related to pre-acquisition events. (See Note
11.)

On a pro forma basis, if Wet Seal and Contempo had been combined as of the
beginning of fiscal 1995, sales, net profit after tax, and earnings per share
would have been $343,170,000, $2,857,000 and $.23, respectively. On a pro forma
basis, if Wet Seal and Contempo had been combined as of the beginning of fiscal
1994, sales, net loss after tax, and loss per share would have been
$375,238,000, $(31,758,000) and $(2.54), respectively. The fiscal 1994 pro forma
net loss after tax includes a $23,138,000 restructuring charge related primarily
to the closing of certain stores. The unaudited pro forma financial information
presented

F-8

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THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994

NOTE 2 -- ACQUISITION (CONTINUED)
above is not necessarily indicative of either the results of operations that
would have occurred had the acquisition been at the beginning of the periods
presented or future results of operations of the consolidated companies.

NOTE 3 -- PROVISION (BENEFIT) FOR INCOME TAXES
SFAS No. 109 requires the recognition of deferred tax assets and liabilities
for the future consequences of events that have been recognized in the Company's
financial statements or tax returns. The measurement of deferred items is based
on enacted tax laws. In the event that the future consequences of differences
between financial reporting bases and the tax bases of the Company's assets and
liabilities result in a deferred tax asset, SFAS No. 109 requires an evaluation
of the probability of being able to realize the future benefits indicated by
such asset. A valuation allowance related to a deferred tax asset is recorded
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. During fiscal 1994, the Company had recorded a
$110,000 valuation allowance which was reversed in fiscal 1995.

The components of the income tax provision (benefit) are as follows:

[Enlarge/Download Table]

FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
------------- ------------- -------------

CURRENT:
Federal.......................................... $ 5,170,000 $ 573,000 $ (911,000)
State............................................ 1,127,000 236,000 39,000
------------- ------------- -------------
6,297,000 809,000 (872,000)
------------- ------------- -------------
DEFERRED:
Federal.......................................... (1,926,000) (958,000) (375,000)
State............................................ (238,000) (204,000) (341,000)
------------- ------------- -------------
(2,164,000) (1,162,000) (716,000)
------------- ------------- -------------
$ 4,133,000 $ (353,000) $ (1,588,000)
------------- ------------- -------------
------------- ------------- -------------

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

[Enlarge/Download Table]

FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------

Provision (benefit) for income taxes at federal
statutory rate........................................ 35.0% (35.0)% (35.0)%
State income taxes, net of federal income tax
benefit............................................... 6.5 (3.8) (4.9)
Change in valuation allowance.......................... (1.1) 8.1 --
Other.................................................. 1.1 4.9 (0.1)
----------- ----------- -----------
Effective tax rate..................................... 41.5% (25.8)% (40.0)%
----------- ----------- -----------
----------- ----------- -----------

F-9

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THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994

NOTE 3 -- PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
As of February 3, 1996 and January 28, 1995, the Company's net deferred tax
asset was $4,312,000 and $2,560,000, respectively. The major components of the
Company's net deferred taxes at February 3, 1996 and January 28, 1995 are as
follows:

[Enlarge/Download Table]

FEBRUARY 3, JANUARY 28,
1996 1995
------------ ------------

Deferred rent..................................................... $ 2,211,000 $ 1,777,000
Facility closure reserve.......................................... 1,542,000 --
Inventory cost capitalization..................................... 476,000 231,000
AMT credit carry forward.......................................... 73,000 249,000
Valuation allowance............................................... -- (110,000)
NOL carry forward................................................. -- 110,000
Difference between book and tax basis of fixed assets............. (453,000) 381,000
State income taxes................................................ (49,000) (175,000)
Other............................................................. 512,000 97,000
------------ ------------
$ 4,312,000 $ 2,560,000
------------ ------------
------------ ------------

NOTE 4 -- STOCKHOLDERS' EQUITY
The 6,807,665 shares of the Company's Class B Common Stock outstanding as of
February 3, 1996 are convertible on a share-for-share basis into shares of the
Company's Class A Common Stock at the option of the holder. The Class B Common
Stock has two votes per share while the Class A Common Stock has one vote per
share.

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

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

NOTE 5 -- LONG-TERM INCENTIVE PLAN
Under the Company's long-term incentive plans (the "plans"), the Company may
grant stock options which are either incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options. The plans provide that the per share exercise price
of an incentive stock option may not be less than the fair market value of the
Company's Class A Common Stock on the date the option is granted. Options become
exercisable over periods of up to five years and generally expire ten years from
the date of grant or 90 days after employment or services are terminated. The
plans also provide that the Company may grant restricted stock and other
stock-based awards. An aggregate of 775,000 shares of the Company's Class A
Common Stock may be issued pursuant to the plans. As of February 3, 1996,
101,932 shares were available for future grants and 185,000 shares were
exercisable.

F-10

424B1 43rd Page of 46 TOC 1st Previous Next ↓Bottom Just 43rd
THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994

NOTE 5 -- LONG-TERM INCENTIVE PLAN (CONTINUED)
Stock option activity for each of the three years in the period ended
February 3, 1996 was as follows:

[Enlarge/Download Table]

NUMBER OF RANGE OF
SHARES PRICES PER SHARE
----------- ----------------

Outstanding January 31, 1993.............................................. 80,000 $9.13 - $14.25
Granted................................................................. -- --
----------- ----------------
Outstanding January 29, 1994.............................................. 80,000 $9.13 - $14.25
Granted................................................................. 575,000 $3.00 - $ 4.75
Canceled................................................................ (40,000) $ 4.13
----------- ----------------
Outstanding January 28, 1995.............................................. 615,000 $3.00 - $14.25
Granted................................................................. 30,000 $5.13 - $ 8.00
Canceled................................................................ (8,000) $3.63 - $ 4.13
Exercised............................................................... (2,000) $3.63 - $ 4.13
----------- ----------------
Outstanding February 3, 1996.............................................. 635,000 $3.00 - $14.25
----------- ----------------
----------- ----------------

As of February 3, 1996, the Company has granted an aggregate of 36,068
shares of Class A Common Stock, net of forfeitures, to a group of its key
employees under the performance grant award plan which was instituted pursuant
to the Company's plans. Under the performance grant award plan, key employees of
the Company receive Class A Common Stock in proportion to their salary. These
bonus shares vest at the rate of 33.33% per year and non-vested shares are
subject to forfeiture if the participant terminates employment. Compensation
expense, equal to the market value of the shares as of the issue date, is being
charged to earnings over the period that the employees provide service. In each
of the years ended February 3, 1996, January 28, 1995 and January 29, 1994,
1,453, 2,106 and 6,733 shares, respectively, were fully vested and issued.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation," which requires adoption of the disclosure provisions no later
than years beginning after December 15, 1995 and adoption of the recognition and
measurement provisions for non-employee transactions no later than after
December 15, 1995. The new standard defines a fair value method of accounting
for stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period which is usually the vesting
period.

Pursuant to the new accounting standard, companies may adopt the fair value
method of accounting for employee stock-based transactions. Companies are also
permitted to continue to account for such transactions under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but
would be required to disclose in a note to the financial statements pro forma
net income and, if presented, earnings per share as if the company had applied
the new method of accounting. The Company has concluded that it will continue to
account for stock options under Accounting Principles Board Opinion No. 25. The
Company will be required to adopt this new accounting standard in fiscal 1996.

NOTE 6 -- COMMITMENTS
LEASES

The Company leases retail stores, automobiles, computers and a corporate
office and warehouse facilities under operating lease agreements expiring at
various times through 2006. Substantially all of the leases require the Company
to pay maintenance, insurance, property taxes and percentage rent ranging from
4.5% to 10%, based on sales volume over certain minimum sales levels.

F-11

424B1 44th Page of 46 TOC 1st Previous Next ↓Bottom Just 44th
THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994

NOTE 6 -- COMMITMENTS (CONTINUED)
Minimum annual rental commitments under non-cancelable leases are as
follows:

[Download Table]

FISCAL YEAR
ENDING: 1997....................................... $40,704,000
1998....................................... 36,270,000
1999....................................... 32,463,000
2000....................................... 29,393,000
2001....................................... 26,328,000
Thereafter................................. 49,548,000
-----------
$214,706,000
-----------
-----------

Rental expense, including common area maintenance, was $46,010,000,
$22,728,000 and $21,595,000, of which $152,000, $286,000 and $464,000 was paid
as percentage rent based on sales volume, for the years ended February 3, 1996,
January 28, 1995 and January 29, 1994, 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 and bonus if the agreements are terminated without cause before
expiration of their terms or if the individual's duties materially change
following a change in control of the Company.

LITIGATION

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

LETTERS OF CREDIT

At February 3, 1996, the Company had outstanding letters of credit amounting
to approximately $1,610,000.

NOTE 7 -- REVOLVING CREDIT ARRANGEMENT
Under unsecured revolving line-of-credit arrangements with a bank, the
Company may borrow up to a maximum of $30 million in loans on a revolving basis
through July 1, 1996. The cash borrowings under the arrangements bear interest
at the bank's prime rate or, at the Company's option, LIBOR plus 1.75% for the
Wet Seal facility ($10,000,000) and plus 2.00% for the Contempo Casuals facility
($20,000,000). The Company had no borrowings outstanding under these credit
agreements at February 3, 1996 or January 28, 1995.

NOTE 8 -- LONG-TERM DEBT
In June 1995, the Company entered into an unsecured five-year, $10 million
term loan. The loan bears interest at the bank's prime rate plus .25% or, at the
Company's option, LIBOR plus 2.25% (7.625% at fiscal year end). The estimated
annual principal payments on the loan, not including the mandatory prepayments,
are $2,000,000 payable in quarterly installments of $500,000 beginning October
31, 1995.

The credit agreement 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 agreement requires that the
bank approve the payment of dividends and restricts the level of capital
expenditures. At February 3, 1996, the Company was in compliance with these
covenants.

F-12

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THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994

NOTE 8 -- LONG-TERM DEBT (CONTINUED)
The loan also provides for a mandatory prepayment each fiscal year which is
to be paid by May 31st of the following fiscal year. This prepayment is based on
cash flows. For the year ended February 3, 1996, the prepayment amount was
$1,736,000.

NOTE 9 -- RELATED PARTY TRANSACTIONS
Certain officers of Suzy Shier Inc. provide management services to the
Company. For these services, the officers earned in the aggregate a management
fee of $250,000 during each of the years ended February 3, 1996, January 28,
1995 and January 29, 1994, respectively.

The Company obtains its comprehensive general liability and property
insurance through Dylex, Inc., the former majority stockholder of the Company.
The Company paid Dylex, Inc. $1,012,000, $350,000 and $352,000 for this
insurance for the years ended February 3, 1996, January 28, 1995 and January 29,
1994, respectively.

NOTE 10 -- RETIREMENT PLAN
Effective June 1, 1993, the Company established a qualified defined
contribution retirement plan under the Code, Section 401(k). The Wet Seal
Retirement Plan (the "Plan") is available to all employees who meet the Plan's
eligibility requirements. The Plan is funded by employee contributions, and
additional contributions may be made by the Company at its discretion. As of
February 3, 1996 the Company has not made any contributions to the Plan.

NOTE 11 -- ACCRUED LIABILITIES
Accrued liabilities consist of the following:

[Enlarge/Download Table]

FEBRUARY 3, JANUARY 28,
1996 1995
------------- ------------

Reserve for self insurance....................................... $ 4,638,000 $ --
Accrued wages, bonuses and benefits.............................. 3,610,000 757,000
Combination costs................................................ 3,500,000 --
Gift certificate and credit memo liability....................... 1,828,000 631,000
Sales tax payable................................................ 1,102,000 1,197,000
Other............................................................ 8,135,000 973,000
------------- ------------
$ 22,813,000 $ 3,558,000
------------- ------------
------------- ------------

In connection with the acquisition of Contempo Casuals, Inc., the Company
assumed certain accruals, including the reserve for self insurance, which were
estimated by the seller. The total amount of these assumed accruals may not, in
fact be paid as the actual payments will be based on the future claims and
losses which are actually submitted and which are related to pre-acquisition
events. The combination costs of $3,500,000 consist of the estimated costs
associated with the closing and\or combination of certain Contempo Casuals
facilities and operations into the Wet Seal's facilities. These costs primarily
consist of the difference between the Contempo distribution facility lease
obligation and the anticipated sublease income to be received over the remaining
term of this lease, and the estimated costs in connection with anticipated store
closings.

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THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994

NOTE 12 -- UNAUDITED QUARTERLY FINANCIAL DATA

FISCAL YEAR ENDED FEBRUARY 3, 1996

[Enlarge/Download Table]

NET INCOME
NET INCOME (LOSS) PER
QUARTER SALES GROSS MARGIN (LOSS) SHARE
------------------------------------------------------- -------------- ------------- ------------ -----------

First Quarter.......................................... $ 29,839,000 $ 5,642,000 $ (671,000) $ (0.05)
Second Quarter......................................... 44,883,000 8,944,000 (733,000) (0.06)
Third Quarter.......................................... 88,674,000 21,661,000 1,822,000 0.15
Fourth Quarter......................................... 103,299,000 29,822,000 5,397,000 0.43
-------------- ------------- ------------ -----------
For the Year........................................... $ 266,695,000 $ 66,069,000 $ 5,815,000 $ 0.47
-------------- ------------- ------------ -----------
-------------- ------------- ------------ -----------

FISCAL YEAR ENDED JANUARY 28, 1995

[Enlarge/Download Table]

NET INCOME
NET INCOME (LOSS) PER
QUARTER SALES GROSS MARGIN (LOSS) SHARE
------------------------------------------------------ -------------- ------------- ------------- -----------

First Quarter......................................... $ 30,202,000 $ 5,943,000 $ (662,000) $ (0.05)
Second Quarter........................................ 31,057,000 5,457,000 (1,215,000) (0.10)
Third Quarter......................................... 35,366,000 8,034,000 216,000 0.02
Fourth Quarter........................................ 36,372,000 9,016,000 648,000 0.05
-------------- ------------- ------------- -----------
For the Year.......................................... $ 132,997,000 $ 28,450,000 $ (1,013,000) $ (0.08)
-------------- ------------- ------------- -----------
-------------- ------------- ------------- -----------

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘424B1’ Filing	Date	First	Last	Other Filings

	7/31/02	22
	1/30/01	7	25
	6/30/97	22
	7/1/96	14	44
	5/24/96	1		8-K
Filed on:	5/21/96	1
	5/20/96	1	9	S-3/A
	5/3/96	28
	4/26/96	9
	4/10/96	29		SC 13G/A
	3/11/96	34
	2/13/96	29
	2/12/96	29
	2/3/96	3	46
	1/26/96	29
	12/15/95	43
	10/31/95	44
	7/1/95	5	42
	1/28/95	33	46
	1/11/95	25
	1/29/94	33	46
	6/1/93	45
	1/31/93	37	43
				List all Filings

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Filing Submission 0000912057-96-010474 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Wet Seal Inc – ‘424B1’ on 5/21/96

As of: Tuesday, 5/21/96 · Accession #: 912057-96-10474 · File #: 333-04246

Prospectus — Rule 424(b)(1)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Prospectus — Rule 424(b)(1)
Filing Table of Contents